<PAGE>
As filed with the Securities and Exchange Commission on May 14, 1999.
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
the Securities Act of 1933
---------------
MUZAK LLC
(Exact name of registrant as specified in its charter)
Delaware 7389 04-3433729
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
---------------
2901 Third Avenue, Suite 400
Seattle, WA 98121
Telephone: (206) 633-3000
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
---------------
William A. Boyd
2901 Third Avenue, Suite 400
Seattle, WA 98121
Telephone: (206) 633-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
Laurie T. Gunther
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telephone: (312) 861-2000
---------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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(d)
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of each Class of to be Offering Price Offering Registration
Securities to be Registered Registered Per Unit(1) Price(1) Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series B 9 7/8% Senior Subordinated Notes
due 2009.................................. $115,000,000 100% $115,000,000 $31,970.00
- ------------------------------------------------------------------------------------------------------
Guarantees of Series B 9 7/8% Senior
Subordinated Notes due 2009 (2)........... -- -- -- (3)
- ------------------------------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) The guarantors are affiliates of the registrants and have guaranteed the
Series B notes being registered.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guarantees of the Series B notes being registered.
---------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
---------------
MUZAK FINANCE CORP.
Delaware 7389 (applied for)
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
---------------
MUZAK CAPITAL CORPORATION
Delaware 7389 91-1722302
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
---------------
MLP ENVIRONMENTAL MUSIC, LLC
Washington 7389 91-1936098
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
---------------
BUSINESS SOUND, INC.
Ohio 7389 34-1659525
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
---------------
MUZAK HOLDINGS LLC
Delaware 7389 04-3433730
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
---------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this Prospectus is not complete and may be +
+changed. We may not sell these notes until the registration statement filed +
+with the Securities and Exchange Commission and any applicable State +
+securities commission becomes effective. This Prospectus is not an offer to +
+sell these notes, and it is not seeking an offer to buy these notes in any +
+State where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Exchange Offer for
$115,000,000
9 7/8% Senior Subordinated Notes due 2009
of Muzak LLC and
Muzak Finance Corp. Terms of the Exchange Offer
. We are offering to . The terms of the notes
exchange the notes that to be issued are
we sold in a private identical to the
offering for new outstanding notes,
registered exchange except for the transfer
notes. restrictions and
registration rights
relating to the
outstanding notes.
. The exchange offer
expires 5:00 p.m., New
York City time, ,
1999, unless extended.
. This exchange offer is
subject to customary
conditions, which we may
waive.
. You may withdraw your
tender of notes any time
before the expiration of
the exchange offer.
. Our parent company and
our present and future
domestic restricted
subsidiaries will
guarantee the notes with
unconditional guarantees
that will effectively
rank junior in right of
payment to their senior
debt.
. We will exchange all
outstanding notes that
you validly tender and
do not validly withdraw.
. We believe that the
exchange of notes will
not be a taxable
exchange for U.S.
federal income tax
purposes.
. There is no existing
market for the exchange
notes and we do not
intend to apply for
their listing on any
securities exchange.
. We will not receive any
proceeds from the
exchange offer.
We are not making an offer to exchange notes in any jurisdiction where the
offer is not permitted.
You should carefully consider the risks described beginning on page 11 before
tendering your notes.
Neither the Securities and Exchange Commission nor any State securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Subject to Completion, dated , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 11
The Merger and the Acquisition Transactions.............................. 20
The Exchange Offer....................................................... 22
Use of Proceeds.......................................................... 29
Capitalization........................................................... 30
Unaudited Pro Forma Financial Data....................................... 31
Selected Historical Financial and Other Data............................. 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Business................................................................. 48
Management............................................................... 60
Certain Relationships and Related Transactions........................... 65
Security Ownership of Certain Beneficial Owners and Management........... 68
LLC Agreements........................................................... 70
Description of the Senior Credit Facility................................ 71
Description of the Notes................................................. 73
Exchange Offer; Registration Rights...................................... 115
Certain United States Federal Income Tax Considerations.................. 117
Plan of Distribution..................................................... 122
Legal Matters............................................................ 122
Experts.................................................................. 122
Additional Information................................................... 123
Index to Consolidated Financial Statements............................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about the exchange offer.
It likely does not contain all the information that is important to you. For a
more complete understanding of the exchange offer, we encourage you to read
this entire document and the documents we have referred you to.
The Company
Overview
Muzak is the world's leading provider of business music programming.
Together with our independent affiliates, we have nationwide coverage to serve
our clients. We offer three products. Our core product is Audio ArchitectureSM,
and we offer two complementary products, Audio Marketing and Video Imaging.
Audio Architecture is business music programming designed to enhance a
client's brand image. Our staff of in-house audio architects analyzes a variety
of music to develop and maintain 60 core music programs in 10 genres ranging
from current top-of-the-charts hits to jazz, classic rock, urban, country,
Latin, classical music and others. Our Audio Marketing product provides
telephone on-hold and in-store messages for more than 17,000 client locations.
We have also introduced Video Imaging, which we believe is the most widely used
in-store video product in the U.S.
We complete our clients' business music experience by designing and
installing sound and intercom systems, telephone on-hold and in-store messaging
and video systems at their locations and providing after-sale services and
enhancements to those systems, which we sell or lease to our customers.
Our Clients
We provide music to numerous types of businesses including specialty
retailers, restaurants, department stores, supermarkets, drug stores, financial
institutions, hotels, golf clubs, health and fitness centers, business offices,
manufacturing facilities, medical centers and HMOs, among others. Approximately
70% of our client base is comprised of local clients and the remaining 30% is
comprised of national and regional chains. Our national clients include The
Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass Hut, Burger King,
Taco Bell, Nordstrom, Citibank, Travelers and Prudential, among many others.
Our regional clients include A&P, Kroger, Rite Aid, Kaiser Permanente,
PetsMart, Dillards and Wells Fargo, among many others.
Operating Strengths
We believe the following attributes have helped us become the world's
leading provider of business music programming:
. market leadership;
. nationwide installation and service presence;
. large and diverse client base;
. attractive economics;
. long-term contracts with recurring revenue and a low churn rate;
. the demand-based nature of capital expenditures;
. unique product offerings; and
. an experienced management team.
Business Strategy
Our strategy is to increase monthly recurring revenue and cash flow by
concentrating on our Audio Architecture, Audio Marketing and Video Imaging
products. Our business strategy focuses on:
. concentrating on our core competency of assisting clients in enhancing their
brand images through planned programs of music and video;
. increasing United States market penetration;
. capitalizing on changes in our sales and marketing strategy; and
. pursuing acquisitions.
1
<PAGE>
The Merger and Other Acquisitions
ABRY Broadcast Partners III, L.P. formed Audio Communications Network, LLC
in 1998 to acquire Muzak independent affiliate territories. Before the merger
with Muzak Limited Partnership, Audio Communications Network, LLC acquired:
. eight independent affiliate territories from Audio Communications Network,
Inc. in 1998;
. Business Sound, Inc., the Muzak independent affiliate for the New Orleans,
Louisiana and Mobile, Alabama areas on January 15, 1999; and
. Electro Systems Corporation, the Muzak independent affiliate located in
Panama City, Florida on February 24, 1999.
In 1998, Muzak Limited Partnership acquired certain assets and liabilities
of Music Technologies, Inc., which was a national provider of business music.
On March 18, 1999, concurrently with our initial offering, Muzak Limited
Partnership merged with and into Audio Communications Network, LLC which
changed its name to Muzak LLC in the merger.
On the same day, we acquired the assets of Capstar Broadcasting
Corporation's Muzak independent affiliate territories located in Atlanta,
Albany and Macon, Georgia and Ft. Myers, Florida in exchange for voting
membership units of our parent company and cash.
On May 3, 1999, we acquired the Muzak independent affiliate territory
located in Omaha, Nebraska from Capstar.
Sponsors
As of May 3, 1999, as a result of investments made in connection with the
merger and other acquisitions and investments made by management after the
merger, the approximate beneficial ownership of our parent company's voting
membership units was as follows:
. two private equity funds of ABRY Partners, Inc., ABRY Broadcast Partners III,
L.P. and ABRY Broadcast Partners II, L.P., owned 73.2%;
. Capstar Broadcasting owned 22.9%; and
. our management owned 3.2%.
The Initial Offering
On March 18, 1999, we issued $115,000,000 aggregate principal amount of 9
7/8% Senior Subordinated Note due 2009 to CIBC Oppenheimer Corp. and Goldman,
Sachs & Co. in a private offering. These initial purchasers sold the notes to
institutional investors in transactions exempt from the registration
requirements of the Securities Act of 1933. The notes are guaranteed by Muzak
Capital Corporation, MLP Environmental Music, LLC and Business Sound, Inc.
which are subsidiaries of Muzak and by our parent company.
When we issued the existing notes, we entered into a Registration Rights
Agreement in which we agreed to file a registration statement by June 1, 1999
and to use our reasonable best efforts to have the registration statement
declared effective by August 15, 1999.
The Exchange Offer
We are offering to exchange $115,000,000 principal amount of 9 7/8% senior
subordinated notes which have been registered under the Securities Act of 1933
for the existing notes which we issued in March 1999.
The exchange notes are substantially identical to the existing notes, except
that some of the transfer restrictions and registration rights relating to the
existing notes do not apply to the exchange notes. You may tender your existing
notes by following the procedures described in this prospectus under the
heading "The Exchange Offer."
Expiration Date
The exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless we extend it.
Withdrawal Rights
You may withdraw your tender of your notes at any time before 5:00 p.m., New
York City time, on the expiration date of the exchange offer.
2
<PAGE>
Conditions of the Exchange Offer
The exchange offer is subject to customary conditions, which we may waive.
Please read "the Exchange Offer--Conditions" section of this prospectus for
more information regarding conditions of the exchange offer.
Procedures for Tendering Your Notes
If you are a holder of existing notes and wish to accept the exchange offer,
you must either:
. complete, sign and date the accompanying Letter of Transmittal, or a
facsimile of that letter and deliver the documentation, together with your
existing notes, to the exchange agent at the address shown under "The
Exchange Offer--Exchange Agent;" or
. arrange for The Depository Trust Company to transmit the required information
to the exchange agent for this exchange offer in connection with a book-entry
transfer.
By tendering your notes in this manner, you will be representing, among
other things, that:
. you are acquiring the exchange notes in the exchange offer in the ordinary
course of your business;
. you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate in the
distribution of the exchange notes issued to you in the exchange offer; and
. you are not an "affiliate" of our company.
Tax Considerations
We do not believe that your exchange of existing notes for exchange notes in
the exchange offer will result in any gain or loss to you for federal income
tax purposes. See the "Certain United States Federal Income Tax Consequences"
section of this prospectus.
Consequences of Failure to Exchange
Existing notes that are not tendered, or that are tendered but not accepted,
will continue to be subject to the existing transfer restrictions on those
notes after the exchange offer. We will have no further obligation to register
the existing notes. If you do not participate in the exchange offer, the
liquidity of your notes could be adversely affected.
Procedures for Beneficial Owners
If you are the beneficial owner of existing notes registered in the name of
a broker, dealer or other nominee and you wish to tender your notes, you should
contact the person in whose name your notes are registered and promptly
instruct the person to tender on your behalf.
Guaranteed Delivery Procedures
If you wish to tender your existing notes and time will not permit your
required documents to reach the exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be completed on time, you may tender
your notes according to the guaranteed delivery procedures. See "The Exchange
Offer--Guaranteed Delivery Procedures."
Acceptance of Initial Notes; Delivery of Exchange Notes
Subject to certain conditions, we will accept existing notes which are
properly tendered in the exchange offer and not withdrawn, before 5:00 p.m.,
New York City time, on the expiration date of the exchange offer. The exchange
notes will be delivered as promptly as practicable following the expiration
date.
Exchange Agent
State Street Bank and Trust Company is the exchange agent for the exchange
offer.
Summary of the Exchange Notes
Securities Offered
$115,000,000 principal amount of 9 7/8% senior subordinated notes due 2009.
The terms of the exchange notes and the existing notes are identical in all
material respects, except that certain transfer restrictions and registration
rights relating to the existing notes do not apply to the exchange notes. In
3
<PAGE>
addition, the interest rate on the existing notes will increase if we do not
meet certain deadlines in connection with the exchange offer. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" section of this prospectus for
a discussion of the payment of increased interest.
Maturity Date
March 15, 2009.
Interest Rate
9.875% per year.
Interest Payment Dates
Each March 15 and September 15, beginning September 15, 1999.
Security and Ranking
The exchange notes will not be secured by any collateral.
The exchange notes will rank junior in right of payment to all of our senior
debt and will rank equal to our other senior subordinated debt. Therefore, if
we default, your right to payment under the exchange notes will be junior to
the rights of holders of our senior debt to collect money we owe them at the
time.
We estimate that, as of December 31, 1998, on a pro forma basis, we would
have had approximately $260.4 million of debt, of which approximately $145.4
million would have been senior debt.
Guarantees
Our parent company and our present and future domestic restricted
subsidiaries will guarantee the exchange notes with unconditional guarantees of
payment that will effectively rank junior in right of payment to their senior
debt, but will rank equal in right of payment to their other senior
subordinated debt.
Optional Redemption
Except in the case of certain equity offerings by us, we cannot choose to
redeem the exchange notes prior to March 15, 2004.
At any time from and after that date (which may be more than once), we can
choose to redeem some or all of the exchange notes at certain specified prices,
plus accrued interest.
Optional Redemption after Equity Offerings
At any time, which may be more than once, before March 15, 2002, we can
choose to buy back up to 35% of the outstanding exchange notes with money that
we raise in one or more equity offerings, as long as:
. we pay 109.875% of the face amount of the exchange notes bought, plus
interest;
. we buy the exchange notes back within 60 days of completing the equity
offering; and
. at least 65% of the exchange notes originally issued remain outstanding
afterwards.
Change of Control Offer
If we experience a change in control, we must give holders of the exchange
notes the opportunity to sell us their exchange notes at 101% of their face
amount, plus accrued interest.
We might not be able to pay you the required price for exchange notes you
present to us at the time of a change of control, because:
. we might not have enough funds at that time; or
. the terms of our senior debt may prevent us from paying.
Asset Sale Proceeds
We may have to use the cash proceeds from selling assets to offer to buy
back exchange notes at their face amount, plus accrued interest.
Indenture Provisions
The indenture governing the exchange notes will limit what we (and most or
all of our subsidiaries) may do. The provisions of the indenture will limit our
ability to:
. incur more debt;
. pay dividends and make distributions;
. issue stock of subsidiaries;
4
<PAGE>
. make certain investments;
. repurchase stock;
. create liens;
. enter into transactions with affiliates;
. enter into sale-leaseback transactions;
. merge or consolidate; and
. transfer and sell assets.
These covenants are subject to a number of important exceptions.
For more complete information about the exchange notes, see the "Description
of the Notes" section of this prospectus.
Use of Proceeds
We will not receive any cash proceeds from the issuance of the exchange
notes.
Forward Looking Statements
Some of the information contained in this prospectus, including information
with respect to our plans and strategy for our business and its financing, are
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors."
Principal Executive Office
Our headquarters are located at 2901 Third Avenue, Suite 400, Seattle,
Washington 98121. Our telephone number is 206-633-3000.
5
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The tables on pages 8 and 9 have been prepared by Audio Communications
Network, LLC and are based on the historical financial statements of Audio
Communications Network, LLC, Audio Communications Network, Inc., Muzak Limited
Partnership, the independent affiliate territories located in Atlanta, Albany
and Macon, Georgia and Ft. Myers, Florida contributed by Capstar Broadcasting,
Business Sound, Music Technologies, the independent affiliate located in Omaha
contributed by Capstar Broadcasting and Electro Systems and the assumptions and
adjustments described in the accompanying notes.
The summary unaudited pro forma financial data (a) give effect to the merger
and completed acquisitions as if they had occurred on January 1, 1998, (b) do
not purport to represent what Muzak's results of operations or financial
position actually would have been if the merger and completed acquisitions had
occurred as of the date indicated or what such results of operations or
financial position will be for future periods and (c) do not give effect to
certain non-recurring charges or cost savings expected to result from the
merger and completed acquisitions, although they are included in "Other
financial data" on the following page.
Management believes that the summary unaudited pro forma financial data is a
meaningful presentation because Audio Communications Network, LLC had only a
partial year of operations as of December 31, 1998, and because its ability to
satisfy debt and other obligations is dependent upon cash flow from the merger
and completed acquisitions. The following information is qualified by reference
to and should be read in conjunction with "Capitalization," "Unaudited Pro
Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the "Selected Historical Financial and
Other Data" and the audited financial statements and the notes thereto included
elsewhere in this prospectus.
Prior to March 18, 1999, the Capstar Broadcasting Muzak affiliates,
excluding the Omaha affiliate, operated as part of Capstar Broadcasting and the
Muzak affiliate in Omaha operated as part of Triathlon Broadcasting Company.
The tables following this page set forth selected historical carve-out
financial data for the Capstar Broadcasting Muzak affiliates and the Muzak
affiliate in Omaha. The historical carve-out financial data presented on the
following pages reflect periods during which neither the Capstar Broadcasting
Muzak affiliates nor the Muzak affiliate in Omaha operated as an independent
company and, accordingly, certain allocations were made in preparing such
carve-out financial data. Therefore, such carve-out financial data may not
reflect the results of operations or the financial condition which would have
resulted if the Capstar Broadcasting Muzak affiliates or the Muzak affiliate in
Omaha had operated as a separate independent company during such periods, and
are not necessarily indicative of the future results of operations or financial
position of the Capstar Broadcasting Muzak affiliates or the Muzak affiliate in
Omaha.
Prior to December 31, 1998, the assets and liabilities acquired from Music
Technologies operated as part of Music Technologies. The historical carve-out
financial data presented on the following pages reflect periods during which
these assets and liabilities did not operate as an independent company and,
accordingly, certain allocations were made in preparing such carve-out
financial data. Therefore, such carve-out financial data may not reflect the
results of operations or the financial condition which would have resulted if
these assets and liabilities had operated as a separate independent company and
are not necessarily indicative of the future results of operations or financial
position of these assets and liabilities.
As you review the information contained in the tables on pages 8 and 9, you
should note the following:
. Selling, general and administrative expenses. These expenses for Muzak
Limited Partnership include non-cash compensation expense incurred in
conjunction with stock options granted by Muzak Limited Partnership of
approximately $2,217,000 for the three months ended December 31, 1998 and
$750,000 for the year ended December 31, 1998.
. Interest expense. Our interest expense includes amortization of deferred
financing costs related to the merger and other completed acquisitions equal
to $1.2 million for the three months ended December 31, 1998 and $0.3 million
for the year ended December 31, 1998.
6
<PAGE>
. Pro forma EBITDA. Represents net income before interest, income taxes,
depreciation and amortization, gain on sale of assets, other income/(expense)
and certain non-cash expenses. Pro forma EBITDA is not intended to be a
performance measure that should be regarded as an alternative to, or more
meaningful than, either operating income or net income as an indicator of
operating performance or cash flow as a measure of liquidity, as determined
in accordance with generally accepted accounting principles, known as GAAP.
However, management believes that pro forma EBITDA is a meaningful measure of
performance and that it is commonly used in similar industries to analyze and
compare companies on the basis of operating performance, leverage and
liquidity.
. Adjusted pro forma EBITDA. Adjusted pro forma EBITDA represents pro forma
EBITDA adjusted for non-recurring or eliminated costs and expenses. See "Pro
Forma Operating Results--Management's Discussion and Analysis" for detail on
the adjustments. Represents pro forma EBITDA adjusted for non-recurring or
eliminated costs and expenses. Adjusted pro forma EBITDA is not intended to
be a performance measure that should be regarded as an alternative to, or
more meaningful than, either operating income or net income as an indicator
of operating performance or cash flow as a measure of liquidity, as
determined in accordance with GAAP. However, management believes that
Adjusted pro forma EBITDA is a meaningful measure of performance but
understands that it is not necessarily comparable to similarly titled amounts
of other companies.
. Adjusted pro forma EBITDA margin. Represents Adjusted pro forma EBITDA as a
percentage of revenues.
. Ratio of total debt to Adjusted pro forma EBITDA. Represents total pro forma
debt outstanding (excluding $2.4 million of debt described in note 7 below)
(as of December 31, 1998) divided by an amount equal to Adjusted pro forma
EBITDA (for the three months ended December 31, 1998) multiplied by four and
reflects the calculation under the terms of the indenture governing the
exchange notes in determining the Company's ability to incur additional debt.
. Total debt. Excludes $2.4 million of debt of Electro Systems that is non-
recourse to the Company. Electro Systems will be an unrestricted subsidiary
under the indenture governing the exchange notes.
7
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA AS OF
AND FOR THE YEAR AND THREE MONTHS ENDED DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Unaudited Pro Forma
--------------------------
For the year For the three
ended months ended
December 31, December 31,
1998 1998
------------ -------------
<S> <C> <C>
Statement of operations data
Revenues............................................ $138,584 $ 36,334
Cost of sales....................................... 58,078 14,726
-------- --------
Gross profit...................................... 80,506 21,608
Selling, general and administrative................. 48,289 13,242
Depreciation and amortization....................... 34,732 8,683
-------- --------
Operating (loss) income............................. (2,515) (317)
Interest expense, net............................... (25,444) (6,361)
Other income (expense), net......................... 48 (73)
-------- --------
Net loss............................................ $(27,911) $ (6,751)
======== ========
Other financial data
Pro forma EBITDA.................................... $ 34,434 $ 9,116
Adjusted pro forma EBITDA........................... 40,086 10,385
Adjusted pro forma EBITDA margin.................... 28.9% 28.6%
Ratio of total debt to Adjusted pro forma EBITDA.... 6.2x
Balance sheet data (end of period)
Total assets........................................ $400,826
Total debt.......................................... 258,050
Member's interest................................... 105,376
</TABLE>
see notes on the following page
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
FOR THE YEAR AND THREE MONTHS ENDED DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
October 7, January 1,
1998 1998
through through Year ended
December 31, October 6, December 31,
1998 1998 Year ended December 31, 1998 1998
------------ ----------- ------------------------------------- ------------
Old Old Capstar Other Pro Forma Unaudited
ACN (1) ACN (1) Muzak Affiliates Acquisitions (2) Adjustments (3) Pro Forma
------------ ----------- -------- ---------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 5,914 $18,917 $ 99,748 $9,845 $7,669 $ (3,509) $138,584
Cost of sales........... 2,556 8,206 42,509 3,970 4,384 (3,547) 58,078
------- ------- -------- ------ ------ -------- --------
Gross profit........... 3,358 10,711 57,239 5,875 3,285 38 80,506
Selling, general and
administrative......... 1,794 7,245 36,536 3,349 2,711 (3,346) 48,289
Depreciation and
amortization........... 1,683 4,372 21,563 1,931 713 4,470 34,732
------- ------- -------- ------ ------ -------- --------
Operating (loss)
income................. (119) (906) (860) 595 (139) (1,086) (2,515)
Interest expense, net... (1,033) (2,520) (10,992) (30) (397) (10,472) (25,444)
Other income (expense),
net.................... 5 (2) (137) 1 17 164 48
------- ------- -------- ------ ------ -------- --------
Net (loss) income....... $(1,147) $(3,428) $(11,989) $ 566 $ (519) $(11,394) $(27,911)
======= ======= ======== ====== ====== ======== ========
----------------------------------------------------------------------------------------------------------------
<CAPTION>
Period from Period from
October 7, October 1,
1998 1998 Three months
through through ended
December 31, October 6, December 31,
1998 1998 Three months ended December 31, 1998 1998
------------ ----------- ------------------------------------- ------------
Old Old Capstar Other Pro Forma Unaudited
ACN (1) ACN (1) Muzak Affiliates Acquisitions (2) Adjustments (3) Pro Forma
------------ ----------- -------- ---------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 5,914 $ 325 $ 27,082 $2,528 $1,773 $ (1,288) $ 36,334
Cost of sales........... 2,556 88 11,119 1,057 918 (1,012) 14,726
------- ------- -------- ------ ------ -------- --------
Gross profit........... 3,358 237 15,963 1,471 855 (276) 21,608
Selling, general and
administrative......... 1,794 120 11,153 911 714 (1,450) 13,242
Depreciation and
amortization........... 1,683 94 6,484 477 156 (211) 8,683
------- ------- -------- ------ ------ -------- --------
Operating (loss)
income................. (119) 23 (1,674) 83 (15) 1,385 (317)
Interest expense, net... (1,033) (54) (3,050) (8) (85) (2,131) (6,361)
Other income (expense),
net.................... 5 -- (241) (2) 4 161 (73)
------- ------- -------- ------ ------ -------- --------
Net (loss) income....... $(1,147) $ (31) $ (4,965) $ 73 $ (96) $ (585) $ (6,751)
======= ======= ======== ====== ====== ======== ========
</TABLE>
see notes on the following page
9
<PAGE>
NOTES TO THE SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
FOR THE YEAR AND THREE MONTHS ENDED DECEMBER 31, 1998
(1) Audio Communications Network, LLC acquired the Old ACN Assets on October
7, 1998. Prior to the acquisition, Audio Communications Network, LLC had
no operations.
(2) Includes the unaudited historical results of operations of Business Sound,
the assets and liabilities of Music Technologies, the Muzak affiliate in
Omaha and Electro Systems.
(3) The pro forma adjustments represent those adjustments necessary to present
the operating results of Audio Communications Network, LLC as if the
merger and the completed acquisitions occurred on January 1, 1998. These
adjustments include the following:
. reflecting the unaudited historical results of operations for the
acquisitions consummated by Muzak Limited Partnership during the year
ended December 31, 1998, as if these acquisitions occurred on January 1,
1998,
. eliminating the unaudited historical results of operations for the year
ended December 31, 1998 of EAIC Corp., a formerly wholly owned
subsidiary of Muzak Limited Partnership. The spin-off of EAIC Corp. was
completed prior to the consummation of the merger,
. conforming the accounting policy for sales commissions of Muzak Limited
Partnership with that of Audio Communications Network, LLC,
. eliminating intercompany revenues and cost of sales (primarily for
royalty fees and equipment sales) for transactions between (i) Muzak
Limited Partnership and (ii) Audio Communications Network, LLC and the
entities acquired by Audio Communications Network, LLC,
. eliminating certain costs not assumed in the acquisition from Music
Technologies and seller transaction costs related to the sales of Audio
Communications Network, Inc., and Muzak Limited Partnership,
. adjusting depreciation and amortization expense due to the excess of
fair value over historical cost generated from the merger and the
completed acquisitions, and
. increasing interest expense as a result of debt incurred in connection
with the merger and the completed acquisitions.
10
<PAGE>
RISK FACTORS
You should carefully consider the following factors when you evaluate
tendering your notes in the exchange offer.
Holders of existing notes who fail to exchange their notes may be unable to
resell their notes.
We did not register the existing notes under the federal or any state
securities laws, nor do we intend to register them following the exchange
offer. As a result, the exchange notes may only be transferred in limited
circumstances under the securities laws. If the holders of existing notes do
not exchange their notes in the exchange offer, they lose their right to have
their notes registered under the federal securities laws, subject to certain
limitations. As a result, a holder of existing notes after the exchange offer
may be unable to sell their notes.
Your notes will not be accepted for exchange if you fair to follow the exchange
offer procedures.
The exchange notes will be issued to you in exchange for your notes only
after timely receipt by the exchange agent of:
. your notes; and
. a properly completed and executed Letter of Transmittal and all other
required documentation; or
. a book-entry delivery by transmittal of an agent's message through
The Depository Trust Company.
If you want to tender your notes in exchange for exchange notes, you should
allow sufficient time to ensure timely delivery.
None of the exchange agent nor any of the issuers or any of their affiliates
are under any duty to give you notification of defects or irregularities with
respect to tenders of existing notes for exchange. Existing notes that are not
tendered or are tendered but not accepted will, following the exchange offer,
continue to be subject to their existing transfer restrictions. In addition, if
you tender your notes in the exchange offer to participate in a distribution of
the exchange notes, you will be required to comply with the registration and
prospectus delivery requirements of the federal securities laws in connection
with any resale transaction. For additional information, please refer to "The
Exchange Offer" and "Plan of Distribution" sections of this prospectus.
Our substantial debt could make us unable to make payments on the notes and
could adversely affect our financial health.
We have now and, after the offering, will continue to have a significant
amount of debt. The following chart shows certain important credit statistics
and is presented assuming we had completed the merger and other acquisitions as
of December 31, 1998 and applied the proceeds as intended:
<TABLE>
<CAPTION>
At December 31, 1998
Pro Forma
--------------------
(in millions)
<S> <C>
Total debt................................................. $260.4
Member's interest.......................................... 105.4
Debt to equity ratio....................................... 2.5x
</TABLE>
Our substantial debt could have important consequences to you. For example,
it could:
. make it more difficult for us to satisfy our obligations with respect
to the exchange notes;
. limit our ability to fund future working capital, capital
expenditures, acquisitions and other general corporate purposes;
11
<PAGE>
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability
of our cash flow to fund working capital, capital expenditures,
acquisitions and other general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors
that have less debt;
. increase our vulnerability to general adverse economic and industry
conditions; and
. limit, along with the financial and other restrictive covenants in
our debt, among other things, our ability to borrow additional funds.
Failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.
A portion of our debt, including debt to be incurred under our credit
facility, bears interest at variable rates. An increase in the interest rates
on our debt will reduce the funds available to repay the exchange notes and our
other debt and for operations and future business opportunities and will
intensify the consequences of our leveraged capital structure.
See "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Pro Forma Liquidity and Capital
Resources," "Description of the Notes -- Change of Control Offer" and
"Description of the Senior Credit Facility."
Our ability to incur additional debt in the future could increase the risks
facing the holders of exchange notes.
We may be able to incur substantial additional debt in the future. The terms
of the indenture do not fully prohibit us or our subsidiaries from doing so.
Our credit facility would permit additional borrowing of approximately $31.6
million after completion of the offering and all of those borrowings would be
senior to the exchange notes. In addition, prior to December 31, 2000, we may
request lenders to commit to additional loans of up to $50 million under a
second revolving credit facility. The indenture also permits us to incur
certain additional debt which may be senior and which may be secured debt. The
addition of further debt to our current debt levels could intensify the
leverage related risks that we now face. See "Capitalization," "Selected
Historical Financial and Other Data," "Description of the Notes --Change of
Control Offer" and "Description of the Senior Credit Facility."
We may not have sufficient earnings to make payments on your notes in the
future.
Our ability to make payments on and to refinance our debt, including the
exchange notes, and to fund planned capital expenditures will depend on our
ability to generate cash in the future. This, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
Based on our current level of operations and anticipated operating
improvements, we believe our cash flow from operations, available cash and
available borrowings under our credit facility will be adequate to meet our
future liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated operating improvements
will be realized on schedule or that future borrowings will be available to us
under our credit facility in an amount sufficient to enable us to pay our debt,
including the exchange notes, or to fund our other liquidity needs. If our
future cash flow from operations and other capital resources are insufficient
to pay our obligations as they mature or to fund our liquidity needs, we may be
forced to reduce or delay our business activities and capital expenditures,
sell assets, obtain additional equity capital or restructure or refinance all
or a portion of our debt, including the exchange notes on or before maturity.
We cannot assure you that we can accomplish any of these alternatives on a
timely basis or on satisfactory terms, if at all. In addition, the terms of
certain existing indebtedness such as the exchange notes and our credit
facility and other future indebtedness may limit our ability to pursue any of
these alternatives.
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<PAGE>
Our net losses from operations and working capital deficit may continue.
Muzak Limited Partnership had net losses attributable to general and limited
partners of approximately $11.7 million, $13.8 million and $12.6 million for
the years ended December 31, 1996, 1997 and 1998, respectively. Audio
Communications Network, Inc. had net losses of approximately $0.5 million and
$1.4 million for the years ended December 31, 1996 and 1997, respectively, and
had net losses from operations of approximately $3.4 million for the period of
January 1, 1998 through October 6, 1998. Audio Communications Network, LLC had
net losses of $1.1 million for the period of October 7, 1998 through December
31, 1998. During these periods, Muzak Limited Partnership and Audio
Communications Network, Inc. were highly leveraged. Muzak Limited Partnership's
losses resulted primarily from interest payments on acquisition financing,
accelerated amortization of income-producing contracts acquired through
acquisitions, other related acquisition and financing costs and depreciation
and amortization. In addition to the reasons stated above, Muzak Limited
Partnership expects that it will continue to incur net losses in the future, in
part because of non-cash compensation charges relating to the vesting of
employee stock options in connection with merger and other acquisitions and
fees and expenses incurred in connection with merger and other acquisitions.
Audio Communications Network, Inc.'s losses resulted primarily from interest
payments on acquisition financing and depreciation and amortization. We cannot
assure you that we will generate net profits from operations. Muzak Limited
Partnership had a working capital deficit of $7.1 million at December 31, 1998.
Audio Communications Network, Inc. had a working capital deficit of $1.7
million as of October 6, 1998. Audio Communications Network, LLC had a working
capital deficit of $41.7 million as of December 31, 1998 (which includes the
ABRY Subordinated Note of $40.8 million plus interest, which was repaid upon
the consummation of the merger). We cannot assure you that we will have
positive working capital in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --General."
You may lose part of your investment because the notes are subordinated to
other debt.
The exchange notes, the subsidiary guarantees and our parent company's
guarantee will each rank junior in right of payment to all of the existing debt
(other than trade payables) of Muzak, the subsidiary guarantors and our parent
company and all of their future borrowings (other than trade payables), except
any future debt that provides that it ranks equal with or subordinated in right
of payment to the Notes, the subsidiary guarantees and our parent company's
guarantee. As a result, upon any distribution to creditors in a bankruptcy,
liquidation or reorganization or similar proceeding, the holders of senior debt
of Muzak or any of the guarantors will be entitled to be paid in full before we
make any payment on the exchange notes. We cannot assure you that sufficient
assets will remain to make any payments on the exchange notes. In addition,
certain events of default under senior debt would prohibit us and the
guarantors from making any payments on the exchange notes. Assuming we had
completed all of our completed acquisitions on December 31, 1998, we would have
had approximately $145.4 million of debt that was senior to the exchange notes
and the subsidiary guarantees, and approximately $31.6 million of additional
borrowing available to us under our credit facility, and our parent company
would have had approximately $40.0 million of debt that was senior to its
guarantee of the exchange notes. In addition, prior to December 31, 2000, we
may request lenders to commit to additional loans of up to $50 million under a
second revolving credit facility. We may also incur additional senior debt in
the future, consistent with the terms of the indenture and our other debt
agreements.
The terms of our debt impose operational and financial restrictions on our
company.
Our credit facility and the indenture will contain various provisions that
limit our management's discretion by restricting our ability to:
.incur additional debt;
.pay dividends and make other distributions;
.make investments and other restricted payments;
.enter into sale and leaseback transactions;
13
<PAGE>
.incur liens;
.engage in mergers, acquisitions and asset sales;
.enter into transactions with affiliates;
.make capital expenditures;
.amend or otherwise alter debt and other material agreements; and
.alter the business we conduct.
The credit facility also requires us to meet certain financial ratios. If we
do not comply with the restrictions in our credit facility, the indenture, or
any other financing agreement, a default may occur. This default may allow our
creditors to accelerate the related debt as well as any other debt to which a
cross- acceleration or cross-default provision applies. In addition, the
lenders may be able to terminate any commitments they had made to provide us
with further funds. See "Description of the Senior Credit Facility."
Your investment in the notes is not guaranteed by all of our subsidiaries.
The indenture does not require our future foreign subsidiaries and certain
domestic subsidiaries which we may designate to guarantee the exchange notes.
In the event of a bankruptcy, liquidation or reorganization of any of these
future non-guarantor subsidiaries, holders of their debt and their trade
payables will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us.
Our ability to purchase your notes on a change of control may be limited.
If we undergo a change of control, as defined later in this prospectus under
the heading "Description of the Notes -- Change of Control Offer", we may need
to refinance large amounts of our debt, including the exchange notes and our
credit facility. If a change of control occurs, we must offer to buy back your
exchange notes for a price equal to 101% of the principal amount, plus interest
that has accrued but has not been paid as of the repurchase date. We cannot
assure you that we will have sufficient funds available to make the required
repurchases of the exchange notes in that event, or that we will have
sufficient funds to pay our other debts. In addition, our credit facility will
prohibit us from repurchasing the exchange notes after a change of control
until we have repaid in full our debt under the credit facility. If we fail to
repurchase the exchange notes upon a change of control, we will be in default
under both the exchange notes and our credit facility. Any future debt that we
incur may also contain restrictions on repurchases in the event of a change of
control or similar event. These repurchase requirements may delay or make it
harder for others to obtain control of the Company. See "Description of the
Notes -- Change of Control Offer" and "Description of the Senior Credit
Facility."
We are dependent on satellite delivery capabilities of third parties.
We transmit our 60 core music programs via direct broadcast satellite to
clients from transponders located primarily on satellites from two companies.
There are a limited number of satellites with orbital positions suitable for
direct broadcast satellite transmission of our 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. We lease transponder capacity primarily from
Microspace Communications Corporation and EchoStar Satellite Corporation. See
"Business--Distribution Systems--Microspace and EchoStar Agreements."
Prior to May 1998, we transmitted music to many clients from transponders
located on PanAmSat's Galaxy IV satellite. On May 19, 1998, all services on
Galaxy IV were permanently lost when the satellite ceased communicating to
uplink stations throughout the United States. As a result of the Galaxy IV
failure, on May 20, 1998, we began transmitting from transponders located on
the Galaxy IIIR satellite, which required repointing of satellite dishes at
approximately 100,000 client locations. We estimate that our costs for
satellite dish repointing were approximately $2.1 million. We cannot assure you
that any such event will not occur in
14
<PAGE>
the future, or that the satellites we use will remain in operation through
their projected useful lives. If such an event were to occur or if our current
transponder lessors were unable to provide us with transponder services, we
would have to seek alternative transponder or satellite facilities. However,
alternative facilities may not be available on a timely or cost-effective
basis, may be available only on a satellite that is not positioned as favorably
as our current satellites or may require a change in the frequency currently
used to transmit and receive our signal. If we are required to enter into new
transponder lease agreements, we cannot assure you that we will be able to do
so on terms as favorable as those in our current agreements. If we were
required to use alternate satellite facilities, we would incur additional
expenditures. Our ability to serve our client base could degrade. Either of
these events could have a material adverse effect on our financial condition
and results of operations. In July 1998, we purchased insurance that provides
up to $5.0 million of coverage for increased costs and lost revenue in the
event of satellite failure. Such coverage does not cover year 2000 related
satellite failures. See the risk factor relating to the Year 2000 issue and
"Business -- Distribution Systems."
We may be unable to complete acquisitions or integrate acquired businesses.
As part of our long-term strategy, we will seek to acquire providers of
music, audio marketing and video services to businesses at attractive prices.
We cannot assure you that we will have sufficient capital resources to continue
to pursue acquisitions. We cannot assure you that we will successfully
identify, complete or integrate additional acquisitions, or that the acquired
businesses will perform as expected or contribute significant revenues or
profits to us. We may face increased competition for acquisition opportunities,
which may inhibit our ability to consummate suitable acquisitions on terms
favorable to us.
Our results of operations may be adversely affected by the terms of our license
agreement with EAIC Corp.
In connection with our sale of certain digitized music samples to EAIC
Corp., a Delaware corporation, we entered into a license agreement with EAIC in
July, 1998. Under the terms of this license agreement, for a period of 20
years, we cannot own, manage, operate or control any business that provides:
(a) music or certain other data to music retailers or on the Internet to
generate sales of music; (b) music for use on customers' web sites; or (c)
music for the production of individually customized CDs, DVDs or any similar
digital based media by consumers. We cannot assure you that these restrictions
will not have a material adverse effect on our financial condition and results
of operations.
We may be subject to claims relating to assets that we transferred to EAIC.
In 1996, we began providing digitized music samples and images used by
retailers to sell music. We sold our library of these digitized music samples
and images to EAIC in 1998. Certain aspects of copyright law with respect to
use of such materials are not yet settled, industry customs dealing with such
materials have not fully emerged and it is unclear what, if any, consents or
rights companies must secure with music licensors, including the American
Society of Composers, Authors and Publishers, known as ASCAP, and Broadcast
Music, Inc., known as BMI, music publishers and music record companies, to
create and use such materials on the Internet or otherwise. We cannot assure
you that we will not be subject to claims by music licensors or others alleging
breach of contract or copyright infringement with respect to the use of such
materials.
We may not be able to achieve all our anticipated benefits from our amended
affiliate agreement.
We recently introduced an amendment to our agreement with our independent
affiliates. The amendment provides us and our independent affiliates with more
attractive financial terms for each new national client, better coordination
for the installation and service of national account locations and among other
things, the inclusion of the Audio Marketing and Video Imaging products in the
product exclusivity provisions. See "Business -- Nationwide Affiliate
Network -- Independent Affiliate Agreement Terms." The amendment must be
executed by each independent affiliate in order to be effective with respect to
such independent affiliate. If all of our independent affiliates do not execute
the amendment, we will not be able to fully realize the benefits of the
amendment.
15
<PAGE>
The controlling equityholder of our company may have interests that conflict
with your interests.
The ABRY Funds, as beneficial owners, control 73.2% of the membership
interests of Muzak Holdings, and Holdings is the sole member of Muzak. The ABRY
Funds can therefore direct Muzak Holdings' policies and those of Muzak, and can
select a majority of our managers and directors. The interests of the ABRY
Funds and their affiliates and the members of our management may conflict with
the interests of the noteholders.
The ABRY Funds and their affiliates make controlling investments in media
businesses and businesses that support or enhance media properties. The ABRY
Funds, their affiliates and members of management, may at any time own
controlling or non-controlling interests in media and related businesses other
than through Muzak, some of which may compete with Muzak. The ABRY Funds and
their affiliates other than Muzak and members of Muzak's management may
identify, pursue and consummate acquisitions of media businesses that would be
complementary to the business of Muzak. If this were to occur, such acquisition
opportunities would not be available to Muzak.
Certain changes in the ABRY Funds' beneficial ownership interest in us would
constitute a change of control under the indenture and a "change in control"
under our credit facility and under our other agreements and obligations. Any
change of control could result in an event of default or otherwise require us
to make an immediate payment under such agreements and obligations.
You should not expect the co-issuer of the exchange notes to participate in
making payments on the notes.
Muzak Finance Corp. is a wholly-owned subsidiary of Muzak that was
incorporated for the sole purpose of serving as a co-issuer of the exchange
notes in order to accommodate the issuance of the exchange notes by Muzak.
Muzak Finance will not have any operations or assets of any kind and will not
have any revenues (other than as may be incidental to its activities as co-
issuer of the exchange notes). You should not expect Muzak Finance to
participate in servicing the interest or principal obligations of additional
interest, if any, on the exchange notes. See "Description of the Notes."
We may be unable to successfully compete in our industry or keep pace with
technological change.
We compete with many local, regional, national and international providers
of business music and business services. Some of our competitors may have
substantially greater financial, technical, personnel and other resources than
we do. There are numerous methods by which our existing and future competitors
can deliver programming, including various forms of direct broadcast satellite
services, wireless cable, fiber optic cable, digital compression over existing
telephone lines, advanced television broadcast channels, Digital Audio Radio
Service and the Internet.
We cannot assure you that we will be able to (a) compete successfully with
our existing or potential new competitors, (b) maintain or increase our current
market share, (c) use, or compete effectively with competitors that adopt, new
delivery methods and technologies, or (d) keep pace with discoveries or
improvements in the communications, media and entertainment industries. We also
cannot assure you that the technology we currently rely upon will not become
obsolete. See "Business -- Competition."
Our business depends on music rights licensed from third parties.
We 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 ASCAP, BMI and the Society of European
Stage Authors and Composers, known as SESAC.
The industry-wide agreement between business music providers and BMI expired
in December 1993. Since then, we have been operating under an interim agreement
pursuant to which we have continued to pay royalties at the 1993 rates and
business music providers and BMI have been negotiating the terms of a new
agreement. If agreement is not reached, BMI may seek to have rates determined
through a rate court
16
<PAGE>
proceeding. The industry-wide agreement between business music providers and
ASCAP expires in May, 1999. We cannot predict what the terms of the new BMI or
ASCAP agreements with business music providers will be or when agreements will
be reached, although BMI has indicated that it is seeking royalty rate
increases and a retroactive royalty rate increase. In 1998, Old Muzak paid
approximately $3.5 million in royalties to ASCAP, $1.3 million in royalties to
BMI and $13,000 in royalties to SESAC. Increases in the fees we must pay under
these agreements could adversely affect our operating margin, and, therefore,
our results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Music
Licenses."
Our business results could be adversely affected if we lose key personnel.
Our success depends in large part upon the abilities and continued service
of our senior management personnel. The loss of certain members of senior
management could seriously affect our business prospects. We do not maintain
key man life insurance on any of our senior management personnel. See
"Management."
Changes in the regulation of the transmission of our products could adversely
affect our business.
We are subject to governmental regulation by the United States and by the
governments of other countries in which we provide services. Our business
prospects could be adversely affected by the adoption of new laws, policies or
regulations that change the present regulatory environment. We currently
provide music services in a few areas in the United States through 928 to 960
megahertz radio frequencies licensed by the FCC. Additionally, the FCC licenses
the radio frequencies used by satellites on which we transmit our direct
broadcast satellite services in the United States. If the FCC or any other
person revokes or refuses to extend authorizations for any of these satellites,
we would be required to seek alternate satellite facilities. Laws, regulations
and policies, or changes therein, in other countries could adversely affect our
existing services or restrict the growth of our business in these countries.
The notes could be voided or subordinated to our other debt if the issuance of
the notes constituted a fraudulent conveyance.
If a bankruptcy case or lawsuit is initiated by unpaid creditors of either
Issuer, the debt represented by the exchange notes and the subsidiary
guarantees may be reviewed under the federal bankruptcy laws and comparable
provisions of state fraudulent transfer laws. Under these laws, the debt could
be voided, or claims in respect of the exchange notes and the subsidiary
guarantees could be subordinated to all other debts of either Issuer or the
guarantors if, among other things, the court found that, at the time we
incurred the debt represented by the exchange notes and the subsidiary
guarantors executed the guarantees, we or any guarantor:
. received less than reasonably equivalent value or fair consideration
for the incurrence of such debt; and
. were insolvent or rendered insolvent by reason of such incurrence; or
. were engaged in a business or transaction for which the remaining
assets constituted unreasonably small capital; or
. intended to incur, or believed that we (or a guarantor) would incur,
debts beyond such entity's ability to pay such debts as they matured;
or
. intended to hinder, delay or defraud creditors.
The measure of insolvency for purposes of fraudulent transfer laws varies
depending on the law applied. Generally, however, a debtor would be considered
insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets; or
17
<PAGE>
. the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
. it could not pay its debts as they become due.
We believe that we will receive fair value for the exchange notes and that
the subsidiary guarantors will receive fair value for their guarantees. On the
basis of historical financial information, recent operating history and other
factors, we believe that after giving effect to the offering and the other
transactions that we completed in connection with the merger, neither Muzak nor
any subsidiary guarantor will be insolvent, will have unreasonably small
capital for the business in which such entity is engaged, or will have incurred
debts beyond such entity's ability to pay such debts as they mature. We can
give no assurance, however, what standard a court would apply in reviewing the
transactions or that a court would agree with our conclusions in this regard.
We may be adversely affected if our year 2000 efforts are not successful.
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.
We use and rely on computer technology in many facets of our operations,
including our satellite broadcast systems. If we or our significant customers
or suppliers are not successful in making necessary modifications and
conversions on a timely basis, the year 2000 issue could have a material
adverse effect on our operations. In particular, if the year 2000 issue causes
failure of one or more of the satellites or uplink and transmission systems on
which we rely for transmission of our programming, we would be unable to
provide service to our customers via satellite or local broadcast technology
until we obtained service on another satellite or resolved the ground system
problem. Depending on the magnitude of satellite failure, we cannot assure you
that we would be able to obtain service on another satellite, or of the costs
of such substitute service. In addition, depending on the substitutes
available, we could be required to redirect our clients' satellite dishes, or
possibly replace satellite dish and receiving equipment. Such an event could
have a material adverse effect on our financial position and results of
operations. Our business interruption insurance does not cover year 2000-
related satellite failures.
We also rely on information technology systems for our accounting, billing,
shipping systems, and in software used to create our Audio Architecture, Audio
Marketing, and Video Imaging products. We are in the process of replacing our
primary computer system at our headquarters, and expect the replacement to be
completed in March 1999. Following completion of the system at our
headquarters, we will begin replacing the software at our owned affiliates. We
estimate that our year 2000 compliance program will cost approximately $1.5
million, of which approximately $1.0 million had been spent as of December 31,
1998. We cannot assure you that our actual costs will not be substantially
higher, however.
We have no control over the year 2000 compliance of our independent
affiliates or our clients. If our information technology systems, or those of
our owned or independent affiliates or clients have not been made year 2000
compliant in a timely manner, we may not be able to generate, collect or
process client bills, or to track our own expenses, both of which could have a
material adverse effect on our financial position and results of operations.
Year 2000 issues could affect our ability to obtain supplies and produce and
distribute our products. We cannot assure you that such problems would not have
a material adverse effect on our financial position or results of operations.
There is currently no prior market for the exchange notes and one may not
develop.
While the existing notes are presently eligible for trading in the Private
Offerings, Resales and Trading Through Automated Linkages, known as PORTAL,
market of the National Association of Securities Dealers by qualified
institutional buyers, there is no existing market for the exchange notes. We
have been informed by the
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initial purchasers of the existing notes that they intend to make a market,
after the exchange offer is completed, in the exchange notes. However, the
initial purchasers have no obligation to make a market and may cease their
market-making at any time.
We have applied to have the exchange notes designated as eligible for
trading in the PORTAL Market. However, we do not intend to apply for listing of
the existing notes or the exchange notes on any securities exchange or for
quotation through the Nasdaq National Market.
The liquidity of any market for the exchange notes and the market price
quoted for the exchange notes will depend on the number of holders of the
exchange notes, our performance, the market for similar securities, the
interest of securities dealers in making a market in the exchange notes and
other factors. A liquid trading market may not develop for the exchange notes.
Our actual results from operations may differ from those contained in forward-
looking statements.
We make forward-looking statements throughout this prospectus. Whenever you
read a statement that is not simply a statement of historical fact, such as
when we describe what we "believe," "expect," or "anticipate" will occur, and
other similar statements, you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described, or that they will happen at all. You should read this prospectus
completely and with the understanding that actual future results may be
materially different from what we expect. We will not update these forward-
looking statements, even though our situation will change in the future.
Whether our actual results will conform with our expectations and predictions
is subject to a number of risks, including those addressed in this section of
this prospectus.
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THE MERGER AND THE ACQUISITION TRANSACTIONS
Old ACN Acquisition. Audio Communications Network, LLC, which we refer to as
ACN, entered into an Asset Purchase Agreement to acquire the Muzak affiliates
in the Baltimore, Charlotte, Hillsborough, Kansas City, St. Louis,
Jacksonville, Phoenix and Fresno areas (the "Old ACN Assets") from Audio
Communications Network, Inc., which we refer to as Old ACN. On October 7, 1998,
ACN acquired the Old ACN Assets and assumed certain liabilities relating to the
Old ACN Assets from DMA Holdings Statutory Trust. The purchase price for the
Old ACN Acquisition was approximately $66.8 million, including fees, expenses
and certain other adjustments.
On the day prior to the Old ACN Acquisition, DMA Holdings, Inc., a wholly
owned subsidiary of DMA Holdings Statutory Trust, acquired all of the issued
and outstanding stock of Old ACN pursuant to an agreement dated as of June 5,
1998, as amended, whereby Diverse Media Acquisition, Inc., a wholly owned
subsidiary of DMA Holdings, Inc., merged with Old ACN with Old ACN surviving.
DMA Holdings, Inc. received all of the outstanding shares of Old ACN, and the
former holders of Old ACN shares received cash for their shares. The agreement
included representations and warranties with respect to the condition of the
Old ACN Assets, covenants as to the conduct of business prior to the closing
and various closing conditions.
The Asset Purchase Agreement was entered into pursuant to ACN, as the
assignee of ABRY Partners, Inc. ("ABRY"), exercising its option to purchase the
Old ACN Assets under the terms of a letter agreement dated June 5, 1998 between
ABRY and DMA Holdings, Inc. The Asset Purchase Agreement included
representations and warranties with respect to conditions of the Old ACN
Assets, covenants as to the conduct of business prior to the closing and
various closing conditions.
The Merger Transactions. On March 18, 1999, Muzak Limited Partnership, which
we refer to as Old Muzak, merged with and into ACN (the "Merger"). At the time
of the Merger, ACN changed its name to Muzak LLC. As of May 3, 1999, beneficial
ownership of the voting membership units of Muzak Holdings LLC ("Holdings") was
as follows: the ABRY Funds owned approximately 73.2%; Capstar owned
approximately 22.9% and our management owned approximately 3.2%.
In connection with the Merger and ther purchase of the Omaha affiliate, we:
. entered into a new senior secured credit facility (the "Senior Credit
Facility") that provides for $135.0 million of term loans and a $35.0
million revolving credit facility (the "Revolving Credit Facility")
of which $3.4 million was drawn at closing;
. issued the Notes;
. received an equity investment of approximately $74.9 million from
Holdings, of which approximately $17.9 million reflects cash
contributed by ABRY Broadcast Partners III, L.P. ("ABRY III") and
ABRY Broadcast Partners II, L.P. ("ABRY II" and, together with ABRY
III, the "ABRY Funds"), $2.0 million reflects cash contributed by
management, $40.0 million reflects cash contributed from the proceeds
of the Senior Discount Note Offering and $15.0 million reflects the
contribution of the assets acquired, net of consideration to be paid
in cash, pursuant to the acquisition of Capstar Broadcasting's Muzak
affiliates;
. paid cash consideration in the acquisition of Capstar Broadcasting's
Muzak affiliates of approximately $5.5 million;
. paid approximately $127.5 million in cash merger consideration and
issued non-voting equity interests to the partners of Old Muzak;
. completed a tender offer and consent solicitation for the outstanding
10% Senior Notes due 2003 of Old Muzak;
. repaid the majority of other existing debt of Old Muzak;
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. repaid the majority of existing debt of ACN; and
. paid our fees and expenses in connection with the foregoing
transactions.
The Business Sound Acquisition. On January 15, 1999, ACN acquired all of the
outstanding stock of Business Sound, Inc. for approximately $4.1 million (the
"Business Sound Acquisition"). The Business Sound Acquisition was financed with
approximately $4.1 million of cash contributed by ABRY III. Business Sound is
the Muzak affiliate for the New Orleans, Louisiana and Mobile, Alabama areas.
During 1998, Business Sound had revenues of approximately $2.3 million.
The MTI Acquisition. On December 31, 1998, Old Muzak acquired certain assets
and liabilities of Music Technologies, Inc. ("MTI") for approximately $10.0
million (the "MTI Business"). MTI was a national provider of business music.
The MTI Acquisition was financed by borrowings under Old Muzak's credit
facilities. During 1998, the MTI Business produced revenues of approximately
$2.8 million.
The Electro Systems Acquisition. On February 24, 1999, ACN acquired Electro
Systems, the Muzak independent affiliate located in Panama City, Florida for
approximately $0.6 million (plus the assumption of certain debt, which is non-
recourse to the Company). During 1998, Electro Systems would have contributed
approximately $0.1 million to our EBITDA.
The Capstar Broadcasting Acquisitions. On March 18, 1999, Holdings acquired
Capstar Broadcasting's Muzak affiliate territories in Atlanta, Albany and
Macon, Georgia and Ft. Myers, Florida and on May 3, 1999 acquired the Muzak
affiliate territory located in Omaha, Nebraska from Capstar Broadcasting.
Capstar Broadcasting received $20.5 million, comprised of voting membership
units of Holdings valued at $15.0 million and cash consideration of
approximately $5.5 million. During 1998, the Capstar Broadcasting affiliates
had combined revenues of $11.2 million.
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THE EXCHANGE OFFER
This is a summary of material provisions of the Registration Rights
Agreement entered into by and among Muzak and Muzak Finance (the "Issuers"),
the guarantors named therein and the initial purchasers as of March 18, 1999.
It does not purport to be complete and reference is made to the provisions of
the Registration Rights Agreement which has been filed as an exhibit to the
registration statement.
General
In connection with the issuance of the existing notes pursuant to a Purchase
Agreement dated as of March 12, 1999 by and among the Issuers, the guarantors
named therein and the initial purchasers, the initial purchasers and their
respective assignees became entitled to the benefits of the Registration Rights
Agreement.
The Registration Rights Agreement requires us to file the registration
statement of which this prospectus is a part for a registered exchange offer
relating to an issue of exchange notes identical in all material respects to
the existing notes but containing no restrictive legend. Under the Registration
Rights Agreement, the Issuers are required to:
. file the registration statement not later than 75 days following the
date of original issuance of the existing notes (the "Issue Date");
. use their reasonable best efforts to cause the registration statement
to become effective no later than 150 days after the Issue Date;
. use their reasonable best efforts to keep the exchange offer
effective for not less than 30 business days (or longer if required
by applicable law) after the date that notice of the exchange offer
is first mailed to holders of the existing notes; and
. use their reasonable best efforts to consummate the exchange offer on
or prior to the 60th day following the date on which the exchange
offer registration statement is initially declared effective.
The exchange offer being made hereby, if commenced and consummated with the
time periods described above, will satisfy those requirements under the
Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept any and all existing notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 1999, or such later date and time as to which the exchange offer has been
extended. We will issue $1,000 principal amount of exchange notes in exchange
for each $1,000 principal amount of outstanding existing notes accepted in the
exchange offer. Holders may tender some or all of their existing notes pursuant
to the exchange offer. However, existing notes may be tendered only in integral
multiples of $1,000.
The form and terms of the exchange notes are substantially the same as the
form and terms of the existing notes except that:
. the exchange notes bear an exchange note designation and a different
CUSIP number from the existing notes;
. the exchange notes have been registered under the federal securities
laws and hence will not bear legends restricting the transfer thereof
as the existing notes do; and
. the holders of the exchange notes will generally not be entitled to
rights under the Registration Rights Agreement, which rights
generally will be satisfied when the exchange offer is consummated.
The exchange notes will evidence the same debt as the tendered existing
notes and will be entitled to the benefits of the indenture under which the
existing notes were issued. As of the date of this prospectus, $115,000,000
aggregate principal amount of existing notes were outstanding.
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Holders of existing notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware, the Delaware Limited Liability
Company Act or the indentures relating to such notes in connection with the
exchange offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Securities Exchange Act of 1934, and the rules
and regulations of the SEC thereunder.
We shall be deemed to have accepted validly tendered existing notes when, as
and if we have given oral or written notice thereof, such notice if given
orally, to be confirmed in writing, to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the
exchange notes from our company.
If any tendered existing notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted existing notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration date.
Holders who tender existing notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of existing
notes pursuant to the exchange offer. We will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
exchange offer. For additional information, please refer to the "--Fees and
Expenses" section of this prospectus.
Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on , 1999, unless we
extend the exchange offer, in which case the expiration date will be the latest
date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice, such notice if given orally, to be
confirmed in writing, and will issue a press release or other public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right:
. to delay accepting any existing notes, to extend the exchange offer
or to terminate the exchange offer if any of the conditions set forth
below under "conditions" shall not have been satisfied, by giving
oral or written notice, such notice if given orally, to be confirmed
in writing, of such delay, extension or termination to the exchange
agent, or
. to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
Interest on the exchange notes
The exchange notes will bear interest from their date of issuance. Holders
of existing notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the exchange
notes. Such interest will be paid with the first interest payment on the
exchange notes on September 15, 1999 to persons who are registered holders of
the exchange notes on September 1, 1999. Interest on the existing notes
accepted for exchange will cease to accrue upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each March 15 and
September 15, commencing on September 15, 1999.
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Procedures for Tendering
Only a registered holder of existing notes may tender such notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the existing notes and any other required documents, or cause The Depository
Trust Company to transmit an agent's message as described below in connection
with a book-entry transfer, to the exchange agent prior to the expiration date.
To be tendered effectively, the existing notes, the Letter of Transmittal or
agent's message and other required documents must be completed and received by
the exchange agent at the address set forth below under "--Exchange Agent"
prior to the expiration date. Delivery of the existing notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the exchange agent
prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the existing notes that such participant
has received and agrees:
. to participate in the Automated Tender Option Program ("ATOP");
. to be bound by the terms of the Letter of Transmittal; and
. that we may enforce such agreement against such participant.
By executing the Letter of Transmittal or agent's message, each holder will
make to us the representations set forth above in the fourth paragraph under
the heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by us will constitute
agreement between such holder and the company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal or
agent's message.
The method of delivery of existing notes and the Letter of Transmittal or
agent's message and all other required documents to the exchange agent is at
the election and sole risk of the holder. As an alternative to delivery by
mail, holders may wish to consider overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. No Letter of Transmittal or existing notes
should be sent to any of the Issuers or any of their affiliates. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect the above transactions for such holders.
Any beneficial owner whose existing notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. For additional
information, please refer to the "Instructions to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" included with
the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution (as defined below) unless
the existing notes tendered pursuant thereto are tendered by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal,
or for the account of an eligible institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "eligible institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any existing notes listed therein, such notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such notes with the
signature thereon guaranteed by an eligible institution.
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If the Letter of Transmittal or any existing notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence to our satisfaction
of their authority to so act must be submitted with the Letter of Transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the existing
notes at the book-entry transfer facility, The Depository Trust Company (the
"book-entry transfer facility"), for the purpose of facilitating the exchange
offer, and subject to the establishment thereof, any financial institution that
is a participant in the book-entry transfer facility's system may make book-
entry delivery of existing notes by causing such book-entry transfer facility
to transfer such existing notes into the exchange agent's account with respect
to the existing notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of the existing notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, unless an agent's message is transmitted to and
received by the exchange agent in compliance with ATOP on or prior to the
expiration date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures, the
tender of such notes will not be valid. Delivery of documents to the book-entry
transfer facility does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered existing notes and withdrawal of tendered
existing notes will be determined by the Issuers, in their sole discretion,
which determination will be final and binding. The Issuers reserve the absolute
right to reject any and all existing notes not properly tendered or any
existing notes our acceptance of which would, in the opinion of the Issuers'
counsel, be unlawful. The Issuers also reserve the right to waive any defects,
irregularities or conditions of tender as to particular existing notes. The
Issuers may not waive any condition to the exchange offer unless such condition
is legally waiveable. In the event such a waiver by the Issuers gives rise to
the legal requirement to do so, the Issuers will hold the exchange offer open
for at least five business days thereafter. The Issuers' interpretation of the
terms and conditions of the exchange offer, including the instructions in the
Letter of Transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of existing notes must
be cured within such time as the Issuers shall determine. Although the Issuers
intend to notify holders of defects or irregularities with respect to tenders
of existing notes, neither the Issuers, the exchange agent nor any other person
shall incur any liability for failure to give such notification. Tender of
existing notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any existing notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their existing notes and whose existing notes are
not immediately available, who cannot deliver their existing notes, the Letter
of Transmittal or any other required documents to the exchange agent, or who
cannot complete the procedures for book-entry transfer, prior to the expiration
date, may effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives by
facsimile transmission, mail or hand delivery from such eligible
institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder, the certificate
number(s) of such existing notes and the principal amount of existing notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
expiration date, the Letter of Transmittal, or facsimile thereof, or, in
the case of a book-entry transfer, an agent's message, together with the
certificate(s) representing the existing notes, or a confirmation of book-
entry transfer of such
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notes into the exchange agent's account at the Book-Entry Transfer
Facility, and any other documents required by the Letter of Transmittal
will be deposited by the eligible institution with the exchange agent; and
(c) the certificate(s) representing all tendered existing notes in
proper form for transfer, or a confirmation of a book-entry transfer of
such existing notes into the exchange agent's account at the book-entry
transfer facility, together with a Letter of Transmittal, of facsimile
thereof, properly completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry transfer, an agent's message,
are received by the exchange agent within three New York Stock Exchange
trading days after the expiration date of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of existing notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date of the exchange offer.
To withdraw a tender of existing notes in the exchange offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the exchange agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer. Any such notice
of withdrawal must:
. specify the name of the person having deposited notes to be withdrawn
(the "Depositor");
. identify the notes to be withdrawn, including the certificate
number(s) and principal amount of such notes, or, in the case of
existing notes transferred by book-entry transfer, the name and
number of the account at the book-entry transfer facility to be
credited;
. be signed by the holder in the same manner as the original signature
on the Letter of Transmittal by which such notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to
the existing notes register the transfer of such notes into the name
of the person withdrawing the tender; and
. specify the name in which any such existing notes are to be
registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us and shall be final and
binding on all parties. Any existing notes so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer and no exchange
notes will be issued with respect thereto unless the existing notes so
withdrawn are validly retendered. Any existing notes which have been tendered
but which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn existing
notes may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, the Issuers shall not
be required to accept for exchange, or exchange notes for, any existing notes,
and may terminate or amend the exchange offer as provided herein before the
acceptance of such existing notes, if:
. any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer which, in the Issuers' sole judgment, might materially impair
the Issuers' ability to proceed with the exchange offer, or any
material adverse development has occurred in any existing action or
proceeding with respect to the Issuers or any of their subsidiaries;
or
. any law, statute, rule, regulation or interpretation by the staff of
the SEC is proposed, adopted or enacted, which, in the Issuers' sole
judgment, might materially impair the Issuers' ability to proceed
with the exchange offer or materially impair the contemplated
benefits of the exchange offer; or
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. any governmental approval has not been obtained, which approval the
Issuers shall, in their sole discretion, deem necessary for the
consummation of the exchange offer as contemplated hereby.
If the Issuers determine, in their sole discretion, that any of the
conditions are not satisfied, the Issuers may:
. refuse to accept any existing notes and return all tendered existing
notes to the tendering holders;
. extend the exchange offer and retain all existing notes tendered
prior to the expiration of the exchange offer, subject, however, to
the rights of holders to withdraw such existing notes as described in
"--Withdrawal of Tenders" above;
. waive such unsatisfied conditions with respect to the exchange offer
and accept all properly tendered existing notes which have not been
withdrawn.
Exchange Agent
State Street Bank and Trust Company has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
By Registered or Certified Mail By Hand:
or Overnight Courier: [ ]
[ ]
By Facsimile:
(For Eligible Institutions Only):
( ) -
Confirm by Telephone:
( ) -
[ ]
Delivery to an address other than set forth above will not constitute a
valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail, however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
exchange offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the exchange offer. The Issuers, however, will pay
the exchange agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Issuers will pay the cash expenses to be incurred in connection with the
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
existing notes, which is face value, as reflected in the Issuers' accounting
records on the date of exchange. Accordingly, the Issuers will recognize no
gain or loss for accounting purposes. The expenses of the exchange offer will
be expensed over the term of the exchange notes.
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Consequences of Failure to Exchange
The existing notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such existing
notes may be resold only:
. to the Issuers, upon redemption thereof or otherwise;
. so long as the existing notes are eligible for resale pursuant to
Rule 144A under the Securities Act, to a person inside the United
States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A;
. in accordance with Rule 144 under the Securities Act;
. outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act;
. pursuant to another exemption from the registration requirements of
the Securities Act, and based upon an opinion of counsel reasonably
acceptable to the Issuers; or
. pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws
of any state of the United States.
Resale of the exchange notes
With respect to resales of exchange notes, based on interpretations by the
staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder or other person who receives exchange notes, whether or
not such person is the holder, other than a person that is an "affiliate" of
the Issuers within the meaning of Rule 405 under the Securities Act, in
exchange for existing notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
exchange notes, will be allowed to resell the exchange notes to the public
without further registration under the Securities Act and without delivering to
the purchasers of the exchange notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires exchange notes in the exchange offer for the purpose of distributing
or participating in a distribution of the exchange notes, such holder cannot
rely on the position of the staff of the SEC enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that receives
exchange notes for its own account in exchange for existing notes, where such
existing notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such exchange notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder who participates in the exchange offer will be required
to represent to the Issuers in the Letter of Transmittal that:
. any exchange notes received by it will be acquired in the ordinary
course of its business;
. at the time of the consummation of the exchange offer such holder
will have no arrangement or understanding with any person to
participate in the distribution of the exchange notes;
. such holder is not an "affiliate" of any Issuer within the meaning of
the Securities Act; and
. any additional representation that in the written opinion of counsel
to the Issuers are necessary under then-existing interpretations of
the SEC in order for the exchange registration statement to be
declared effective.
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<PAGE>
USE OF PROCEEDS
We used the gross proceeds of approximately $331.7 million from the existing
note offering, the Senior Credit Facility and the equity investment made in
connection with the Merger together with cash on hand:
. to pay approximately $125.5 million in cash merger consideration;
. to repurchase the outstanding 10% senior notes due 2003 of Old Muzak
for approximately $99.7 million and to pay a tender premium for these
notes of approximately $10.7 million;
. to repay approximately $20.5 million of other existing debt of Old
Muzak;
. to repay approximately $42.5 million to ABRY III on a subordinated
note made in connection with the Old ACN Acquisition and the accrued
interest thereon (the "ABRY Subordinated Note");
. to pay cash consideration in the acquisitions of Capstar
Broadcasting's Muzak affiliates of approximately $5.4 million; and
. to pay fees and expenses associated with the merger and related
transactions of approximately $11.5 million.
For information on the interest rates and maturities of the existing debt of
Old Muzak and the existing debt of ACN that was repaid, please see note 7 of
the notes to the audited financial statements of Old Muzak.
We will not receive any cash proceeds from the issuance of the exchange
notes in the exchange offer. In consideration for issuing these notes as
contemplated in this prospectus, we will receive existing notes in like
principal amount, the terms of which are the same in all material respects to
the exchange notes. The existing notes surrendered in exchange for the exchange
notes will be retired and canceled and not reissued. Accordingly, the issuance
of the exchange notes will not result in any increase or decrease in our debt.
29
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the actual
capitalization of ACN and the pro forma capitalization of Muzak, after giving
effect to the Merger and the completed acquisitions (the "Transactions"). You
should read the information contained in the following table in conjunction
with "Use of Proceeds," "Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements of Old Muzak and ACN and their related notes.
<TABLE>
<CAPTION>
December 31,
1998
----------------
Unaudited
Actual Pro Forma
------ ---------
(in millions)
<S> <C> <C>
Revolving credit facility.................................... $ -- $ 3.4
Senior term loans............................................ -- 135.0
Notes offered hereby......................................... -- 115.0
Other debt................................................... 42.7 7.0(a)
----- ------
Total debt................................................. 42.7 260.4(b)
Member's interest............................................ 26.3 105.4(c)
----- ------
Total capitalization....................................... $69.0 $365.8
===== ======
</TABLE>
- --------
(a) Other debt includes the following: (i) non-compete agreement of $2.2
million, (ii) $2.4 million of debt of Electro Systems that is non-recourse
to Muzak, (iii) capital lease obligations of $1.4 million, (iv) related
party note payable of $0.9 million in connection with an employment
agreement, and (v) other mortgage obligations of $0.1 million.
(b) Total debt that is recourse to Muzak equals $258.0 million and excludes
$2.4 million of debt of Electro Systems (an unrestricted subsidiary under
the terms of the indenture governing the exchange notes) that is non-
recourse to Muzak.
(c) Unaudited pro forma member's interest includes the following contributions
made to Holdings and contributed as equity into Muzak and the net loss of
approximately $1.0 million generated by ACN for the period from October 7,
1998 through December 31, 1998:
(i) the ABRY Funds' contributions of $47.9 million, consisting of $25.3
million of aggregate cash contributions made in connection with the
acquisition of ACN, $17.9 million made in connection with the
Merger, $4.1 million made in connection with the Business Sound
Acquisition, and $0.6 million made in connection with the Electro
Systems Acquisition,
(ii) the issuance of membership interests valued at $15.0 million made
in connection with the acquisitions of the Capstar Broadcasting
Muzak affiliates.
(iii) a contribution of approximately $40.0 million made from the
proceeds of the Senior Discount Note Offering and
(iv) management contributions of $3.5 million, consisting of $1.5
million contributed in connection with the capitalization of ACN
and $2.0 million contributed in connection with the Merger.
30
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following tables on pages 38 and 40 have been prepared by ACN and are
based on the historical financial statements of ACN, Old ACN, Old Muzak, the
Capstar Broadcasting Muzak affiliates, Business Sound, MTI and Electro Systems
and the assumptions and adjustments described in the accompanying notes.
The unaudited pro forma statements of operations and unaudited pro forma
financial data (a) give effect to the Transactions as though they had occurred
on January 1, 1998, (b) do not purport to represent what ACN's results of
operations or financial position actually would have been if the Transactions
had occurred as of the date indicated or what such results of operations or
financial position will be for future periods and (c) do not give effect to
certain non-recurring charges or cost savings expected to result from the
Transactions.
The following unaudited pro forma balance sheet was prepared as if the
Transactions had occurred on December 31, 1998. The unaudited pro forma balance
sheet reflects the preliminary allocations of purchase price to tangible and
intangible assets and liabilities. The final allocation of purchase price, and
the resulting depreciation and amortization expense in the accompanying
unaudited pro forma statement of operations, may differ from the preliminary
estimates due to the final allocation being based on (a) actual closing date
amounts of assets and liabilities and (b) actual appraised values of property
and equipment and any identifiable intangible assets.
The unaudited pro forma financial data should be read in conjunction with
the financial statements of ACN, Old ACN and Old Muzak and the respective
accompanying notes thereto included elsewhere in this prospectus.
Management believes that the unaudited pro forma financial data is a
meaningful presentation because ACN had only a partial year of operations as of
December 31, 1998, and because its ability to satisfy debt and other
obligations is dependent upon cash flow from the Transactions. The following
information is qualified by reference to and should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the "Selected Historical Financial and Other
Data" for ACN, Old ACN and Old Muzak and the ACN, Old ACN and Old Muzak audited
financial statements and the respective notes thereto included elsewhere in
this prospectus.
Prior to March 18, 1999, the Capstar Broadcasting Muzak affiliates operated
as part of Capstar Broadcasting (other than the Omaha Affiliate, which operated
as part of Triathlon Broadcasting Company). The tables following this page set
forth selected historical carve-out financial data for the Capstar Broadcasting
Muzak affiliates. The historical carve-out financial data presented on the
following pages reflect periods during which the Capstar Broadcasting Muzak
affiliates did not operate as an independent company and, accordingly, certain
allocations were made in preparing such carve-out financial data. Therefore,
such carve-out financial data may not reflect the results of operations or the
financial condition which would have resulted if the Capstar Broadcasting Muzak
affiliates had operated as a separate independent company during such periods,
and are not necessarily indicative of the future results of operations or
financial position of the Capstar Broadcasting Muzak affiliates.
Prior to December 31, 1998, the MTI Business operated as part of MTI. The
historical carve-out financial data presented on the following pages reflect
periods during which the MTI Business did not operate as an independent company
and, accordingly, certain allocations were made in preparing such carve-out
financial data. Therefore, such carve-out financial data may not reflect the
results of operations or the financial condition which would have resulted if
the MTI Business had operated as a separate independent company, and are not
necessarily indicative of the future results of operations or financial
position of the MTI Business.
31
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
October 7, January 1,
1998 1998
through through
December 31, October 6, Year ended
1998 1998 Year ended December 31, 1998 December 31, 1998
------------ ----------- ------------------------------------- -----------------
Georgia
and
Florida
Old Old Capstar Other Pro Forma Unaudited
ACN (1) ACN (1) Muzak Affiliates Acquisitions (2) Adjustments (3) Pro Forma
------------ ----------- -------- ---------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 5,914 $18,917 $ 99,748 $9,845 $7,669 $ (3,509)(a,b,d) $138,584
Cost of sales........... 2,556 8,206 42,509 3,970 4,384 (3,547)(a,b,d) 58,078
------- ------- -------- ------ ------ -------- --------
Gross profit........... 3,358 10,711 57,239 5,875 3,285 38 80,506
Selling, general and
administrative......... 1,794 7,245 36,536 3,349 2,711 (3,346)(a,b,c,e) 48,289
Depreciation and
amortization........... 1,683 4,372 21,563 1,931 713 4,470 (f) 34,732
------- ------- -------- ------ ------ -------- --------
Operating (loss)
income................. (119) (906) (860) 595 (139) (1,086) (2,515)
Interest expense, net... (1,033) (2,520) (10,992) (30) (397) (10,472)(g) (25,444)
Other income (expense),
net.................... 5 (2) (137) 1 17 164 (b) 48
------- ------- -------- ------ ------ -------- --------
Net (loss) income....... $(1,147) $(3,428) $(11,989) $ 566 $ (519) $(11,394) $(27,911)
======= ======= ======== ====== ====== ======== ========
</TABLE>
see notes on the following page
32
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(1) ACN acquired the Old ACN Assets on October 7, 1998. Prior to the
acquisition, ACN had no operations.
(2) Includes the unaudited historical results of operations of Business Sound,
the MTI Business, the Omaha Capstar Broadcasting Muzak affiliate and
Electro Systems.
(3) The pro forma adjustments represent those adjustments necessary to present
the operating results of ACN as if the Transactions occurred on January 1,
1998. These adjustments include the following:
(a) adjustments to increase revenues and cost of sales by approximately
$1,159,000 and $141,000, respectively, and eliminate approximately
$304,000 of selling, general and administrative expenses not
transferred to Old Muzak, to reflect the acquisitions consummated by
Old Muzak during the year as if they occurred on January 1, 1998,
(b) eliminating revenues, cost of sales, selling, general and
administrative expenses and other expense, net of approximately
$1,678,000, $725,000, $1,679,000 and $164,000 respectively, for EAIC, a
formerly wholly owned subsidiary of Old Muzak. The spin-off of EAIC was
completed in March 1999, prior to the consummation of the Merger,
(c) increasing selling, general and administrative expenses by
approximately $2,180,000 in order to conform the accounting policy for
sales commissions of Old Muzak with that of ACN,
(d) eliminating intercompany revenues and cost of sales of approximately
$2,990,000 and $2,963,000, respectively, (primarily for royalty fees
and equipment sales) for transactions between (i) Old Muzak and (ii)
ACN and the entities acquired by ACN,
(e) decreasing selling, general and administrative expenses by
approximately (i) $2,192,000 in order to account for certain costs not
assumed pursuant to the MTI Acquisition and (ii) $1,351,000 in order to
account for seller transaction costs related to the sales of Old ACN
and Old Muzak,
(f) increasing depreciation and amortization expense due to the excess of
fair value over historical cost generated from the Transactions
(dollars in thousands), and
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Pro forma depreciation and amortization.................. $34,732
Historical depreciation and amortization................. 30,262
-------
Pro forma adjustment..................................... $ 4,470
=======
</TABLE>
(g) increasing interest expense due to the debt incurred in conjunction
with the Transactions (dollars in thousands).
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C> <C>
Historical interest expense, net....................................... $ 14,972
--------
Senior Credit Facility (assuming a weighted average rate of 8.9%) (1).. $ 12,292
Notes.................................................................. 11,356
Other debt............................................................. 646
Amortization of deferred financing fees................................ 1,150
--------
Pro forma interest expense, net........................................ 25,444
--------
Pro forma interest adjustment.......................................... $ 10,472
========
</TABLE>
--------
(1) If the assumed interest rate on the Senior Credit Facility
increases by 0.125%, total pro forma interest expense would
increase by $173,000.
33
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Georgia
and
Florida
Old Capstar Other Pro Forma Unaudited
ACN Muzak Affiliates Acquisitions Adjustments Pro Forma
------- -------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $ 1,293 $ 2,971 $ 1,358 $ 499 $ 313,324 (a) $ --
(4,241)(b)
(315,204)(c)
Accounts receivable,
net................... 1,764 21,130 2,469 609 -- 25,972
Inventory ............. 1,323 5,790 664 281 -- 8,058
Prepaids and other
current assets........ 125 3,640 90 20 -- 3,875
------- -------- ------- ------ --------- --------
Total current assets.. 4,505 33,531 4,581 1,409 (6,121) 37,905
Property and equipment,
net.................... 17,499 46,070 6,815 872 47,604 (b) 118,860
Deferred financing
costs.................. -- -- -- -- 11,500 (c) 11,500
Intangible assets, net.. 49,039 42,527 13,725 1,377 111,078 (b) 228,457
10,711 (c)
Other assets............ 1,884 1,003 834 383 -- 4,104
------- -------- ------- ------ --------- --------
Total assets.......... $72,927 $123,131 $25,955 $4,041 $ 174,772 $400,826
======= ======== ======= ====== ========= ========
Current liabilities:
Revolving credit
facility.............. $ -- $ 12,041 $ -- $ -- $ 3,429 (a) $ 3,429
(12,041)(c)
Current portion of
long-term debt........ 42,217 3,582 -- -- (1,829)(b) 1,570
(42,400)(c)
Accounts payable and
accrued expenses...... 3,964 19,521 616 637 -- 24,738
Advance billings....... -- 5,492 -- -- -- 5,492
------- -------- ------- ------ --------- --------
Total current
liabilities.......... 46,181 40,636 616 637 (52,841) 35,229
Senior credit facility.. -- -- -- -- 135,000 (a) 135,000
Senior subordinated
notes.................. -- -- -- -- 115,000 (a) 115,000
Other long-term debt.... 486 102,790 -- 2,623 138,104 (b) 5,451
(238,552)(c)
Other liabilities....... -- 4,770 -- -- -- 4,770
Redeemable preferred
interests.............. -- 10,524 -- -- (10,524)(b) --
------- -------- ------- ------ --------- --------
Total liabilities..... 46,667 158,720 616 3,260 86,187 295,450
Equity/(deficit)........ 26,260 (35,589) 25,339 781 59,895 (a) 105,376
28,690 (d)
------- -------- ------- ------ --------- --------
Total liabilities and
equity............... $72,927 $123,131 $25,955 $4,041 $ 174,772 $400,826
======= ======== ======= ====== ========= ========
</TABLE>
see notes on the following page
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
(a) To record the sources of cash in the aggregate of $313,324,000
generated from the net proceeds from (i) the Revolving Credit Facility
of $3,429,000, (ii) the term loans under the Senior Credit Facility of
$135,000,000, (iii) the issuance of the Notes of $115,000,000 and (iv)
cash contributed from Holdings of $59,895,000 including $39,996,000
from the issuance of the Senior Discount Notes, $17,899,000 from a new
equity contribution from the ABRY Funds and a new equity contribution
from Old Muzak management of $2,000,000.
(b) To reflect the financial impact of the Transactions on the balance
sheet of the Company as of December 31, 1998: (dollars in thousands)
<TABLE>
<CAPTION>
Georgia
and
Florida
Old Capstar Business Electro
Muzak Affiliates Sound Systems Total
-------- ---------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Purchase Price:
Cash paid at closing... $245,119 $ 5,474 $4,100 $ 550 $255,243
Debt assumed at
closing............... -- -- -- 2,400(1) 2,400
Issuance of members'
interest in Holdings.. -- 15,010 -- -- 15,010
-------- ------- ------ ------ --------
Fair value of the
Transactions........... $245,119 $20,484 $4,100 $2,950 $272,653
======== ======= ====== ====== ========
Allocation of Purchase
Price:
Historical book value
of the net assets
acquired ............ $ 77,116 $25,963 $2,190 $ 590 $105,859
Cash not acquired..... (2,971) (1,358) -- 88 (4,241)
Redeemable preferred
interests............ 10,524 -- -- -- 10,524
Debt not assumed...... 1,829 -- -- -- 1,829
-------- ------- ------ ------ --------
Historical cost basis
of net assets
acquired.............. 86,498 24,605 2,190 678 113,971
Identified value of
property and equipment
in excess of
historical cost....... 47,586 (1,236) 572 682 47,604
Identified value of
intangible assets in
excess of historical
cost.................. 111,035 (2,885) 1,338 1,590 111,078
-------- ------- ------ ------ --------
$245,119 $20,484 $4,100 $2,950 $272,653
======== ======= ====== ====== ========
</TABLE>
(1) Debt assumed of $2,400,000 in connection with the Electro Systems
Acquisition, which is non-recourse to the Company.
(c) To reflect the uses of cash in the aggregate of $315,204,000 consisting
of (i) the cash consideration paid in conjunction with the Merger and
the acquisition of the Capstar Broadcasting Muzak affiliates of
$250,593,000, of which $12,041,000 was used to pay the existing
revolving credit facility at Old Muzak, (ii) the payment of existing
ACN indebtedness, plus accrued interest, of $42,400,000, (iii) fees and
expenses of $11,500,000 incurred in conjunction with the Transactions
and (iv) tender premium on Old Muzak's notes of $10,711,000.
(d) The pro forma adjustment of $28,690,000 to equity/(deficit) represents
(i) the issuance of Members' interest in Holdings of $15,010,000 in
connection with the acquisition of the Capstar Broadcasting Muzak
affiliates (ii) the elimination of historical deficit, net for the
acquired entities of $9,469,000 and (iii) additional cash contributions
by the ABRY Funds of $4,211,000 consisting of $3,661,000 and $550,000
for the Business Sound Acquisition and the Electro Systems Acquisition,
respectively.
35
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
ACN and Old ACN
The selected historical financial and other data of Old ACN set forth below
as of and for each of the two years ended December 31, 1997 have been derived
from the consolidated financial statements of Old ACN which have been audited
by Deloitte & Touche LLP, independent auditors. The selected historical
financial and other data of Old ACN as of October 6, 1998 and for the period
from January 1, 1998 through October 6, 1998 have been derived from the
consolidated financial statements of Old ACN which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The selected historical
financial and other data of ACN as of December 31, 1998 and for the period from
October 7, 1998 through December 31, 1998 have been derived from the financial
statements of ACN which have been audited by PricewaterhouseCoopers LLP,
independent accountants. Certain financial information and the auditor's
reports thereon are included elsewhere in this offering memorandum. The audited
consolidated financial statements of Old ACN as of December 31, 1996 and 1997
and for each of the two years ended December 31, 1997 and as of October 6, 1998
and for the period from January 1, 1998 through October 6, 1998 are included
elsewhere in this prospectus. The audited financial statements of ACN as of
December 31, 1998 and for the period from October 7, 1998 through December 31,
1998 are included elsewhere in this prospectus..
On May 30, 1997, Old ACN completed a business combination with SunCom
Communications L.L.C., a Delaware limited liability company . Under the terms
of the business combination, Old ACN, through a wholly owned subsidiary,
acquired the assets and business of SunCom, in exchange for 2.1 million shares
of Old ACN's common stock. The business combination was accounted for as a
reverse acquisition under GAAP. As a result, SunCom was considered to be the
acquiring legal entity and Old ACN the acquired entity for accounting purposes,
even though Old ACN was the surviving legal entity. As a result of this reverse
acquisition accounting treatment, (i) the historical consolidated financial
statements of Old ACN for the periods prior to the date of the business
combination are no longer the historical consolidated financial statements of
Old ACN, and therefore, are no longer presented or relevant; (ii) the
historical consolidated financial statements of Old ACN prior to the date of
the business combination are those of SunCom; (iii) all references to the
consolidated financial statements of Old ACN apply to the historical
consolidated financial statements of SunCom prior to the business combination
and to the consolidated financial statements of Old ACN subsequent to the
business combination.
<TABLE>
<CAPTION>
Year Ended Period from Period from
December 31, January 1, 1998 October 7, 1998
---------------- through through
1996 1997 October 6, 1998 December 31, 1998
------- ------- --------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Statement of operations
data
Revenues.................. $10,122 $17,552 $18,917 $ 5,914
Cost of revenues.......... 3,412 7,169 8,206 2,556
------- ------- ------- -------
Gross profit............ 6,710 10,383 10,711 3,358
Selling, general and
administrative........... 2,984 5,113 7,245 1,794
Depreciation and
amortization............. 2,356 4,057 4,372 1,683
------- ------- ------- -------
Operating income (loss)... 1,370 1,213 (906) (119)
Interest expense, net..... (1,915) (2,649) (2,520) (1,033)
Other income (expense),
net...................... -- 33 (2) 5
------- ------- ------- -------
Net loss.................. $ (545) $(1,403) $(3,428) $(1,147)
======= ======= ======= =======
Other financial data
EBITDA (1)................ $ 3,726 $ 5,270 $ 3,466 $ 1,564
EBITDA margin (2)......... 36.8% 30.0% 18.3% 26.4%
Capital expenditures...... $ 1,344 $ 296 $ 3,538 $ 1,308
Ratio of earnings to fixed
charges (3).............. -- -- -- --
Balance sheet data (end of
period)
Cash and cash
equivalents.............. $ 133 $ 680 $ 390 $ 1,293
Total assets.............. 23,104 45,306 43,854 72,927
Long-term obligations,
including current
portion.................. 18,666 32,952 34,658 42,703
Net equity................ 2,548 8,178 4,758 26,260
</TABLE>
see notes to the Selected Historical Financial and Other Data
36
<PAGE>
Old Muzak
The selected historical financial and other data of Old Muzak set forth
below as of and for each of the five years in the period ended December 31,
1998 have been derived from the consolidated financial statements of Old Muzak
which have been audited by Deloitte & Touche LLP, independent auditors. The
following information is qualified by reference to and should be read in
conjunction with the "Summary of Unaudited Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the audited financial statements and related notes thereto of
Old Muzak included elsewhere in this prospectus. The audited financial
statements of Old Muzak as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998 are included elsewhere
herein. The audited consolidated financial statements of Old Muzak as of
December 31, 1994, 1995 and 1996 and for each of the two years in the period
ended December 31, 1995 are not included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
-------- ------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of operations data
Revenues..................... $ 83,416 $86,881 $ 86,811 $ 91,204 $ 99,748
Cost of revenues............. 37,098 38,360 37,026 40,709 42,509
-------- ------- -------- -------- --------
Gross profit............... 46,318 48,521 49,785 50,495 57,239
Selling, general and
administrative.............. 28,699 28,496 31,659 33,464 36,536
Depreciation and
amortization................ 17,833 18,291 20,219 20,668 21,563
-------- ------- -------- -------- --------
Operating (loss) income...... (214) 1,734 (2,093) (3,637) (860)
Interest expense, net........ (6,887) (7,354) (7,674) (9,758) (10,992)
Other expense, net........... (82) (94) (434) (40) (137)
-------- ------- -------- -------- --------
Net loss before extraordinary
item........................ (7,183) (5,714) (10,201) (13,435) (11,989)
Extraordinary loss on write-
off of deferred financing
and debt discount........... -- -- (3,713) -- --
Extraordinary gain on
retirement of redeemable
preferred partnership
interests................... -- -- 3,091 -- --
-------- ------- -------- -------- --------
Net loss..................... (7,183) (5,714) (10,823) (13,435) (11,989)
Redeemable preferred return.. (933) (1,029) (916) (400) (619)
-------- ------- -------- -------- --------
Net loss attributable to
general and limited
partners.................... $ (8,116) $(6,743) $(11,739) $(13,835) $(12,608)
======== ======= ======== ======== ========
Other financial data
EBITDA (1)................... $ 17,619 $20,025 $ 18,186 $ 17,233 $ 22,920
EBITDA margin (2)............ 21.1% 23.0% 20.9% 18.9% 23.0%
Capital expenditures......... $ 13,804 $12,757 $ 16,337 $ 19,572 $ 21,426
Ratio earnings to fixed
charges (3)................. -- -- -- -- --
Balance sheet data (end of
period)
Cash and cash equivalents.... $ 1,445 $ 1,115 $ 25,686 $ 8,524 $ 2,971
Total assets................. 103,092 96,439 119,042 104,395 123,131
Long-term obligations,
including current portion... 56,833 53,005 101,102 101,044 118,413
Partners' capital (deficit).. 7,943 1,373 (10,078) (26,095) (35,589)
</TABLE>
see notes on the following page
37
<PAGE>
NOTES TO THE SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(1) Represents net income before interest, income taxes, depreciation and
amortization, gain on sale of assets, other income and non-cash expenses.
Old Muzak's EBITDA excludes non-cash compensation of approximately $60,000,
$202,000, $2,217,000 for the three years ended December 31, 1998.
Management believes that EBITDA is a meaningful measure of performance and
it is commonly used in similar industries to analyze and compare companies
on the basis of operating performance, leverage and liquidity. However,
EBITDA is not intended to be a performance measure that should be regarded
as an alternative to, or more meaningful than, either operating income or
net income as an indicator of operating performance or cash flows as a
measure of liquidity, as determined in accordance with GAAP. EBITDA, as
computed by management, is not necessarily comparable to similarly titled
amounts of other companies. See financial statements, including Statements
of Cash Flows.
(2) Represents EBITDA as a percentage of revenues.
(3) The ratio of earnings to fixed charges represents the number of times fixed
charges were covered by net income adjusted for provision (benefit) for
income taxes and extraordinary gains (losses) and fixed charges. Fixed
charges consist of interest expense, net and a portion of operating leases
rental expense deemed to be representative of the interest factor. Old
Muzak's earnings were inadequate to cover fixed charges by approximately
$8,100,000, $6,700,000, $11,700,000, $13,800,000 and $12,600,000 for each
of the five years ended December 31, 1998, respectively. Old ACN's earnings
were inadequate to cover fixed charges by approximately $545,000,
$1,403,000, and $3,428,000 for each of the two years ended December 31,
1997 and for the period from January 1, 1999 through October 6, 1998,
respectively. ACN's earnings were inadequate to cover fixed charges by
$1,147,000 for the period from October 7, 1998 through December 31, 1998.
On a pro forma basis, Muzak's earnings would have been inadequate to cover
fixed charges by approximately $27,911,000 for the year ended December 31,
1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Financial and Other Data" and the related notes thereto and the
financial statements of each of ACN, Old ACN and Old Muzak and the related
notes thereto appearing elsewhere in this prospectus. This prospectus contains
certain forward-looking statements that involve risks and uncertainties. Future
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
General
ACN was formed in 1998 to acquire and operate Muzak independent franchises.
On October 7, 1998, ACN acquired the Old ACN Assets. As a result of this
transaction, ACN acquired the eight independent affiliate territories in the
Baltimore, Kansas City, St. Louis, Jacksonville, Phoenix, Charlotte,
Hillsborough and Fresno areas. On March 18, 1999, Old Muzak merged with and
into ACN. At the time of the Merger, ACN changed its name to Muzak LLC.
Additionally, ACN and Old Muzak each have entered into a number of other
acquisition transactions. On January 15, 1999, ACN acquired all of the
outstanding stock of Business Sound. Business Sound is the Muzak affiliate for
the New Orleans, Louisiana and Mobile, Alabama areas. On December 31, 1998, Old
Muzak acquired certain assets and liabilities of MTI, a national provider of
business music. On February 24, 1999, ACN acquired all of the outstanding stock
of Electro Systems, the Muzak independent affiliate located in Panama City,
Florida. On March 18, 1999, Holdings acquired the Georgia and Florida Capstar
Broadcasting Muzak affiliates and on May 3, 1999 acquired the Omaha Capstar
Broadcasting Muzak affiliate.
In connection with these Transactions Muzak plans to implement certain
structural and operating changes to the businesses it has and may acquire
consistent with its acquisition strategy. Our strategy recognizes the operating
leverage inherent to our business. Through acquisitions, we expect to realize
cost savings by eliminating duplicative sales and marketing, programming,
distribution, technical and other general administrative expenses. See "Pro
Forma Operating Results."
Business Overview
Muzak is the world's leading provider of business music programming.
Together with our independent affiliates, we serve an installed base of
approximately 250,000 business locations, and we believe that we have a market
share of approximately 55% of the estimated number of U.S. business locations
currently subscribing to business music programming. Together with our
independent affiliates, we have nationwide coverage. Our owned affiliates
operate in 8 of the 10 largest DMAs and 17 of the largest 25 DMAs. On a pro
forma basis, we generated revenues of $36.3 million and Adjusted EBITDA of
$10.4 million for the quarter ended December 31, 1998 and revenues of $138.6
million and Adjusted EBITDA of $40.1 million for the year ended December 31,
1998.
We offer three products. Our core product is Audio Architecture, and we
offer two complementary products, Audio Marketing and Video Imaging. We believe
that our clients use our products because they recognize them as a key element
in establishing a desired business environment, in promoting their corporate
identities and in strengthening their brand images. We assist our clients in
selecting programming that is appropriate for their business and consistent
with the experiences they are trying to create for their customers. We believe
our products are highly cost effective, providing an important business tool to
our clients at a low monthly cost.
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<PAGE>
We provide music to numerous types of businesses including specialty
retailers, restaurants, department stores, supermarkets, drug stores, financial
institutions, hotels, golf clubs, health and fitness centers, business offices,
manufacturing facilities, medical centers and HMOs, among others. Approximately
70% of our client base is comprised of local clients and the remaining 30% is
comprised of national and regional chains. Our national clients include The
Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass Hut, Burger King,
Taco Bell, Nordstrom, Citibank, Travelers and Prudential, among many others.
Our regional clients include A&P, Kroger, Rite Aid, Kaiser Permanente,
PetsMart, Dillards and Wells Fargo, among many others.
Revenues and Expenses
We derive the majority of our revenues from the sale of our business music
products. Our core product is Audio Architecture and our two complementary
products are Audio Marketing and Video Imaging. These revenues are generated
from our clients, who pay us monthly subscription fees under noncancelable five
year contracts. For example, our typical Audio Architecture client generates a
monthly net subscription fee of approximately $45 per client location, which
typically includes the provision of music receiving equipment for use at the
client's location. We believe that approximately 52% of revenues from the sale
of our products are generated by our 45 owned affiliate territories. The
remaining 48% are generated by our 123 independent affiliate territories.
We also derive revenues from the sale and lease of audio system-related
products, principally sound systems and intercoms, to business music clients
and other clients. In addition, we sell electronic equipment, such as
proprietary tape playback equipment and other audio and video equipment to our
independent affiliates to support their sale of our 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.
The cost of revenues for business services consists primarily of broadcast
delivery, programming and licensing associated with providing music and other
business programming to a client or an independent affiliate. The cost of
revenues for equipment represents the purchase cost plus handling, shipping and
warranty expenses. The 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 client locations. Installation costs associated with
new client locations are capitalized and charged to depreciation expense over
the estimated life of our clients' contract.
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. Sales commissions are capitalized and charged
as selling, general and administrative expense over the typical contract term
of five years. If a client contract is terminated early, the unamortized sales
commission is typically recovered from the salesperson.
Muzak was organized as a limited liability company as a wholly-owned
subsidiary of Holdings. For federal (and some state) income tax purposes, the
separate existence of Muzak is ignored, and the results of its operations are
included in the operations of Holdings.
Holdings was organized as a limited liability company. Holdings is taxed as a
partnership for federal (and some state) income tax purposes. As such, Holdings
does not pay federal (and where applicable, state) income taxes on income from
its operations (including the operations of Muzak). Rather, any such income is
reported as the taxable income of the owners of Holdings, in amounts allocated
to them as required by the limited liability company agreement of Holdings.
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<PAGE>
Pro Forma Operating Results
As more fully described within the notes to the summary unaudited pro forma
financial data, as a result of the Transactions, certain pro forma adjustments
were recorded in order to present the operating results as if the Transactions
occurred on January 1, 1998. Such adjustments primarily consist of: (a)
including the estimated historical results of operations for the various
acquisitions consummated by Old Muzak during the year ended December 31, 1998
as if such acquisitions occurred on January 1, 1998, (b) conforming the
accounting policy for sales commissions of Old Muzak with that of ACN (c)
eliminating intercompany revenues and cost of sales, (d) eliminating certain
costs not assumed in connection with the MTI Acquisition, and (e) eliminating
seller transaction costs related to the sales of Old ACN and Old Muzak. These
pro forma adjustments resulted in a $1.3 million and $5.7 million increase to
EBITDA for the three months and year ended December 31, 1998, respectively.
Management intends to implement certain structural and operating changes to
the acquired entities. The following adjustments eliminate the impact of
certain non-recurring charges and reflect the estimated impact of management's
operational and organizational changes to its existing business and to the
businesses it has and expects to acquire.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 December 31, 1998
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Pro forma EBITDA:................... $34,434 $ 9,116
------- -------
Adjustments:
Galaxy IV non-recurring costs (i)... 2,113 76
Old Muzak non-recurring expenses
(ii)............................... 1,454 784
ACN restructuring (iii)............. 660 --
Business Sound duplicative expenses
(iv)............................... 228 110
MTI duplicative expenses (v)........ 346 86
Cost savings adjustments (vi)....... 851 213
------- -------
Total adjustments............... 5,652 1,269
------- -------
Adjusted pro forma EBITDA: $40,086 $10,385
======= =======
</TABLE>
--------
(i) Represents the non-recurring charges of $1,548,000 at Old Muzak and
$565,000 at ACN for the year ended December 31, 1998 and $76,000 at
Old Muzak for the three months ended December 31, 1998 due to costs
associated with reporting satellite dishes at client locations as a
result of the failure in May 1998 of the Galaxy IV satellite.
(ii) Represents one-time and non-recurring expenses incurred by Old
Muzak, including: (a) payments made to an outside marketing and
design firm associated with the repositioning of our brand,
including the design of a new logo and marketing materials and the
creation of our CD ROM sales tool; (b) payments made to outside
consultants related to the design and construction of our web site;
(c) costs associated with temporarily servicing client locations
acquired from a former competitor through a third party music
service while converting these acquired locations to the Muzak
service; and (d) certain legal expenses and the elimination of the
general partner's management fee.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 December 31, 1998
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Costs of brand repositioning........ $ 418 $105
Web site design and construction.... 101 91
Expenses of converting acquired
client locations................... 408 287
Non-recurring legal expenses and Old
Muzak general partner's fees....... 527 301
------ ----
$1,454 $784
====== ====
</TABLE>
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<PAGE>
(iii) Represents the restructuring actions, completed in connection with
the Old ACN Acquisition, including (a) the termination of seven
employees; (b) the restructuring of compensation for certain
corporate employees and (c) the closure of redundant offices.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 December 31, 1998
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Employee terminations and
restructuring of compensation..... $385 $--
Closing of redundant offices....... 275 --
---- ----
$660 $--
==== ====
</TABLE>
(iv) Represents the elimination of the expense associated with certain
executive functions at Business Sound that are now being performed
by the management of ACN.
(v) Represents the elimination of duplicative general corporate expenses
as a result of the MTI Acquisition, including rent, legal and
accounting expenses.
(vi) Represents the elimination of duplicative sales and marketing,
finance, administrative and technical support costs to be realized
from the Merger.
After giving effect to the foregoing considerations, the Company believes
that it would have realized Adjusted pro forma EBITDA of $10.4 million and
$40.1 million for the three months and year ended December 31, 1998,
respectively.
Old Muzak -- Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Total revenues increased 9.4% from $91.2 million in 1997 to $99.7
million in 1998 principally as a result of an 11.1% increase in music and other
business services revenues and a 6.1% increase in equipment sales and related
services. Music and other business services revenues increased due to
(i) increase in the number of broadcast music subscribers, sales growth and the
acquisition of competitors' business music contracts, together with (ii) an
increase in the royalties paid by independent affiliates resulting from growth
in the broadcast music subscribers in the independent affiliate network. Music
and other business services revenues with the exception of on-premise video and
in-store advertising increased at more rapid rates than broadcast music
revenues due to the increased marketing of, and increasing customer demand for,
audio marketing products and services. Royalties and other fees from
independent affiliates and international distributors (included in broadcast
music revenues) accounted for $8.9 million or 8.9% of Old Muzak's revenues in
1998, compared with $8.8 million or 9.6% of Old Muzak's revenues in 1997. The
continued decrease in the surcharges assessed to affiliates for satellite
transmission costs was offset by increased growth in royalties related to new
subscriber billing. Equipment and installation revenues increased 4.7% and
8.7%, respectively due to the expansion of national accounts.
Gross Profit. Total gross profit increased 13.4% from $50.5 million in 1997
to $57.2 million in 1998. As a percentage of total revenues, gross profit
increased from 55.4% in 1997 to 57.4% in 1998. The improvement in gross profit
percentage in 1998 was due to growth of higher margin business services, such
as broadcast music, audio marketing and on-premise music and video services.
The improvement in gross profit was partially offset by approximately $1.5
million of one-time charges related to the Galaxy IV satellite failure. On May
19, 1998, services on the Galaxy IV satellite were permanently lost when the
satellite ceased communicating to uplink stations throughout the United States.
Also impacting gross profit was $0.4 million of non-recurring costs related to
the conversion of competitor locations acquired during 1998. Had we not
incurred these expenses our gross profit margin would have been 59.3% for 1998,
an increase of 17.2% over 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.2% from $33.3 million in 1997 to $34.3
million in 1998. As a percentage of total revenues, selling, general and
administrative expenses decreased from 36.5% in 1997 to 34.4% in 1998. Selling
and marketing expenses
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<PAGE>
increased 3.0% from $13.8 million in 1997 to $14.2 million in 1998, principally
due to an increase in commissions paid as a result of increased levels of sales
of our business products. In 1998, selling and marketing expenses included non-
recurring expenses of $0.5 million associated with our cost of repositioning
our brand, the design and construction of our web site and one-time printing
expenses. Had we not incurred such expenses, our selling and marketing expenses
would have decreased 0.8% to $13.6 million in 1998. General and administrative
costs increased 3.3% from $19.5 million in 1997 to $20.1 million in 1998,
primarily due to transaction costs related to the Merger. Had we not incurred
these expenses, our general and administrative costs would have only increased
0.6% to $19.6 million. If we had not incurred the non-recurring selling and
marketing expenses and the non-recurring general and administrative costs, our
1998 selling, general and administrative expenses as a percentage of total
revenues would have been 33.4%.
Non-Cash Incentive Compensation. Non-cash incentive compensation increased
from $0.2 million in 1997 to $2.2 million in 1998. This increase is primarily
due to the meeting of performance criteria for options issued combined with
management's estimate of the increase in value of Old Muzak.
Depreciation Expense. Depreciation expense decreased 8.6% from $10.7 million
in 1997 to $9.7 million in 1998, principally as a result of a reduction of
depreciation expense for assets that were fully depreciated in 1997 related to
the acquisition of Old Muzak in September 1992.
Amortization Expense. Amortization expense increased 18.1% from $10.0
million in 1997 to $11.8 million in 1998. The increase in amortization expense
was due to an increase in intangibles related to the increased investment in
the expanded customer base and acquisitions of competitors' business music
contracts in 1997 and 1998.
Interest Expense. Total interest expense increased 4.4% from $10.8 million
in 1997 to $11.2 million in 1998. The increase in interest expense in 1998
compared to 1997 is related to the increase in the average outstanding debt
during the year. Old Muzak's total interest-bearing debt increased from $101.0
million to $118.4 million at December 31, 1997 and 1998, respectively.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased 5.1% from $86.8 million in 1996 to $91.2
million in 1997 principally as a result of an 8.7% increase in music and other
business services revenues offset by a 1.2% decrease in equipment and related
services revenues. Music and other business services revenues increased due to
an increase in the number of broadcast music subscribers and an increase in the
royalties paid by independent affiliates resulting from an increase in the
broadcast music subscribers in the affiliate network. Music and other business
services revenues (with the exception of on-premises tape sales) increased at
more rapid rates than broadcast music revenues due to the increased marketing
of, and increasing customer demand for, on-premise music video and audio
marketing services, among others. On-premise tape revenues declined due to Old
Muzak's conversion of such customers to broadcast services, primarily direct
broadcast satellite ("DBS") transmission. Royalties and other fees from
franchisees and international distributors (included in broadcast music
revenues) accounted for $8.8 million or 9.6% of Old Muzak's revenues in 1997,
compared with $8.2 million or 9.5% of Old Muzak's revenues in 1996. This
increase is principally due to a reduction in the surcharges assessed to
franchisees for satellite transmission costs. Equipment revenues decreased 3.9%
as Old Muzak continued to exit the low margin business of reselling equipment
to its affiliates and reduced its participation in lower margin competitively
bid equipment sales. Installation, service and repair revenues increased 4.6%
from the level generated in 1996 due to more installations and large equipment
orders during 1997.
Gross Profit. Total gross profit increased 1.4% from $49.8 million in 1996
to $50.5 million in 1997. As a percentage of total revenues, gross profit
decreased from 57.3% in 1996 to 55.4% in 1997. Declines in gross profit as a
percentage of sales reflect a dilution of the margin percentage due to the
continued development of
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<PAGE>
the Internet music sampling business and the EchoStar residential revenues, net
of EchoStar satellite costs, both of which contributed a negative gross profit
for the year. Additionally, 1997 was impacted by approximately $0.5 million in
one-time charges related to inventory writedowns.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 5.3% from $31.6 million in 1996 to $33.3
million in 1997. As a percentage of total revenues, selling, general and
administrative expenses increased from 36.4% in 1996 to 36.5% in 1997. Selling
and marketing expenses increased 19.7% from $11.5 million in 1996 to $13.8
million in 1997, principally due to an increase in sales volumes for business
service products. General and administrative costs decreased 3.1% from $20.1
million in 1996 to $19.5 million in 1997, primarily due to costs associated
with the unconsummated initial public offering in 1996. General and
administrative costs also include $0.8 million in non-recurring severance
charges in 1997 related to certain executive officers.
Non-Cash Incentive Compensation. Non-cash incentive compensation increased
from $0.1 million in 1996 to $0.2 million in 1997. This increase is primarily
due to the increase in options issued combined with management's estimate of
the increase in value of Old Muzak.
Depreciation Expense. Depreciation expense increased 0.3% from $10.6 million
in 1996 to $10.7 million in 1997, principally as a result of an increased
investment in equipment installed at customers' premises due to an expanded
customer base and related to new investments in the EchoStar system and the
Internet music sampling business.
Amortization Expense. Amortization expense increased 4.4% from $9.6 million
in 1996 to $10.0 million in 1997. The increase in amortization expense was due
to an increase in intangibles related to the increased investment in the
expanded customer base.
Interest Expense. Total interest expense increased 32.8% from $8.1 million
in 1996 to $10.8 million in 1997. The increase in interest expense in 1997
compared to 1996 resulted from a full year of interest expense on the $100
million of senior notes issued by Old Muzak in October 1996. Old Muzak's total
interest-bearing debt remained constant at $101.0 million at December 31, 1996
and 1997.
Extraordinary Items. Extraordinary items reflected non-recurring non-cash
charges from the write-off of $3.7 million of deferred financing fees, debt
discount and organizational costs and a non-recurring gain of $3.1 million from
the retirement of a redeemable preferred limited partnership interest during
1996.
ACN--Results of Operations
Period From October 7, 1998 Through December 31, 1998
Revenues totaled $5.9 million for the period ended December 31, 1998,
comprised primarily of business music revenues. For the same period, cost of
sales totaled $2.6 million, resulting in a gross profit margin of 56.8%. Total
selling, general and administrative expenses for the period totaled $1.8
million, comprised principally of salary, benefits and overhead expenses.
Old ACN--Results of Operations
Period From January 1, 1998 Through October 6, 1998 Compared to the Nine Month
Period Ended September 30, 1997
Revenues. Total revenues increased 60.2% from $11.8 million in 1997 to $18.9
million in 1998, primarily as a result of the impact of the reverse acquisition
which occurred in May 1997, as well as growth in business music revenues and
equipment sales and related services.
Gross Profit. Total gross profit increased 35.0% from $8.0 million in 1997
to $10.7 million in 1998. Old ACN's gross margin in 1998 was 56.7%. Such gross
margin is not comparable to the prior period as a result of
44
<PAGE>
the reverse acquisition in 1997. The 1998 gross margin was negatively impacted
by approximately 3.0% or $0.6 million resulting from one-time charges related
to the Galaxy IV satellite failure.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 84.6% from $3.9 million in 1997 to $7.2
million in 1998. Such increase was primarily the result of (i) the impact of
the reverse acquisition in 1997, (ii) the growth in business music revenues and
equipment sales and related services and (iii) approximately $0.8 million being
incurred in 1998 pertaining to transaction costs related to the sale of Old ACN
in October 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased 73.4% from $10.1 million in 1996 to $17.6
million in 1997, primarily as a result of the impact of the reverse acquisition
in 1997 and growth in business music revenues and equipment sales and related
services.
Gross Profit. Total gross profit increased 54.7% from $6.7 million in 1996
to $10.4 million in 1997. Such gross profit, as well as gross margin for the
periods, is not comparable as a result of the reverse acquisition in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 71.3% from $3.0 million in 1996 to $5.1
million in 1997. Such increase was primarily the result of, (i) the impact of
the reverse acquisition in 1997 and (ii) the growth in business music revenues
and equipment sales and related services.
Pro Forma Liquidity and Capital Resources
Our business generally requires capital for the installation of equipment
for new business music clients. We estimate that in 1998, demand-based capital
expenditures represented approximately 80% of our total capital expenditures.
Pro forma for the Transactions, capital expenditures for the year ended
December 31, 1998 were approximately $25.2 million. Capital expenditures for
1999 are not expected to change significantly from the 1998 level. In addition,
we have pursued and will continue to pursue a business strategy that includes
selective acquisitions. We have historically funded our operations and
acquisitions with proceeds from equity contributions, bank borrowings and cash
flow from operations. We intend to use amounts available under the Senior
Credit Facility, future debt and equity financings and internally generated
funds to finance our working capital requirements, capital expenditures and
future acquisitions.
Our financing consisted of the Senior Credit Facility, the existing notes,
and the new equity investment. The net proceeds of which were used principally:
. to pay the merger consideration of $127.5 million to the partners of Old
Muzak;
. to repay approximately $100.0 million of borrowings by Old Muzak under
its 10% Senior Notes due 2003 together with accrued interest,
. to repay approximately $17.6 million of other borrowings by Old Muzak
together with accrued interest,
. to repay approximately $42.4 million of borrowings by ACN under the ABRY
Subordinated Note, together with accrued interest,
. to pay approximately $10.7 million as a tender premium in connection
with the tender offer and consent solicitation for the senior notes of
Old Muzak, and
. to pay our fees and expenses in connection with the foregoing.
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<PAGE>
As of December 31, 1998, on a pro forma basis, after giving effect to the
Transactions, we had $260.4 million of indebtedness outstanding which includes:
. $115.0 million under the existing notes,
. $138.4 million under the Senior Credit Facility, excluding $31.6 million
of availability under the Revolving Credit Facility, and
. $7.0 million of other debt.
In October 1998, ACN borrowed $40.8 million from ABRY III under the ABRY
Subordinated Note. Amounts outstanding under the ABRY Subordinated Note earn
interest at the rate of 9.0% per annum. Interest and principal under the ABRY
Subordinated Note are payable within one year from the date of the related
borrowing. We repaid the ABRY Subordinated Note with the proceeds from the
offering.
The Senior Credit Facility provides for a $35.0 million Revolving Credit
Facility, a $30.0 million term loan facility ("Term Loan A") which matures on
December 31, 2005 and a $105.0 million term loan facility ("Term Loan B") which
matures on December 31, 2006. Subject to compliance with the terms of the
Senior Credit Facility, borrowings under the Revolving Credit Facility will be
available for working capital purposes, capital expenditures and pending and
future acquisitions. Prior to December 31, 2000, we may request lenders to
commit to additional loans of up to $50 million under a second revolving credit
facility.
The Revolving Credit Facility terminates, and all amounts outstanding
thereunder are payable, on December 31, 2005. Advances under Term Loan A and
the Revolving Credit Facility subject to the base rate (as defined in the
Senior Credit Facility) bear interest, payable in quarterly installments at the
base rate plus a margin ranging from 1.00% to 2.00%, and advances under Term
Loan A and the Revolving Credit Facility subject to LIBOR bear interest,
payable in installments at periods no greater than six months, at LIBOR plus a
margin, ranging from 2.00% to 3.00%. Advances under Term Loan B subject to the
base rate bear interest at the base rate plus 2.50% and advances under Term
Loan B subject to the LIBOR rate bear interest at the LIBOR rate plus 3.50%.
Borrowings under the Senior Credit Facility are guaranteed by Holdings and the
Company's present and future direct and indirect domestic subsidiaries. The
Senior Credit Facility is secured by substantially all of our assets in which a
security interest may be granted. For additional information concerning the
Senior Credit Facility, including the timing of scheduled payments, see
"Description of the Senior Credit Facility."
The Senior Credit Facility and the indenture contain financial and other
covenants that restrict, among other things, our ability and the ability of
certain of our affiliates to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets. Such limitations, together
with our highly leveraged nature, could limit our corporate and operating
activities in the future, including the implementation of our growth strategy.
We believe that cash generated from operations and borrowings expected to be
available under the Senior Credit Facility will be sufficient to meet our debt
service, capital expenditure and working capital requirements for the
foreseeable future. We will require additional financing if our plans
materially change in an adverse manner or prove to be materially inaccurate, or
if we engage in any significant acquisitions. We cannot assure you that such
financing, if permitted under the terms of the Senior Credit Facility and the
indenture, will be available on terms acceptable to us or at all.
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<PAGE>
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.
We use and rely on computer technology in many facets of our operations,
including our satellite broadcast systems. If we or our significant customers
or suppliers are not successful in making necessary modifications and
conversions on a timely basis, the year 2000 issue could have a material
adverse effect on our operations. We cannot quantify the impact at this time,
however. We believe our competitors face similar risks.
We are in the process of replacing our primary computer system at our
headquarters, and expect the replacement to be completed in March 1999.
Following completion of the system at our headquarters, we will begin
replacing the software at our owned affiliates. The new software is also
available to our independent affiliates. We expect that our remediation
efforts for our critical computer systems will be completed by the end of the
third quarter of 1999. We are conducting ongoing reassessments to confirm that
all critical risks have been identified and will be addressed.
Costs related to the year 2000 issue are funded through operating cash
flows. We estimate that our year 2000 compliance program will cost
approximately $1.5 million, of which approximately $1.0 million had been
expended as of December 31, 1998.
While we believe all necessary work will be completed in a timely fashion,
we cannot assure you that all systems will be compliant by the year 2000, or
that the systems of other companies and government agencies on which we rely
will be compliant.
Since 1997, we have been communicating with outside vendors to determine
their state of readiness with regard to the year 2000 issue. Based on our
assessment to date, we have not received any indication from a third party
indicating that it expects to experience year 2000 non-compliance of a nature
which would have a material impact on us. However, the risk remains that
outside vendors or other third parties may not have accurately determined
their state of readiness, in which case such parties' lack of year 2000
compliance may have a material adverse effect on our results of operations. We
continue to monitor the year 2000 compliance of third parties with which we do
business.
We believe the most likely worst-case scenarios that we might confront with
respect to the year 2000 issues have to do with the possible failure of third
party systems over which we have no control, such as, but not limited to,
satellite, power and telephone services. We are currently developing a
specific year 2000 contingency plan.
Inflation and Changing Prices
We do not believe that inflation and other changing prices have had a
significant impact on our operations.
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BUSINESS
General
Muzak is the world's leading provider of business music programming.
Together with our independent affiliates, we serve an installed base of
approximately 250,000 business locations, and we believe that we have a market
share of approximately 55% of the estimated number of U.S. business locations
currently subscribing to business music programming. Together with our
independent affiliates, we have nationwide coverage. Our owned affiliates
operate in 8 of the 10 largest DMAs and 17 of the largest 25 DMAs. On a pro
forma basis, we generated revenues of $36.3 million and Adjusted EBITDA of
$10.4 million for the quarter ended December 31, 1998 and revenues of $138.6
million and Adjusted EBITDA of $40.1 million for the year ended December 31,
1998.
We offer three products. Our core product is Audio Architecture, and we
offer two complementary products, Audio Marketing and Video Imaging. We believe
that our clients use our products because they recognize them as a key element
in establishing a desired business environment, in promoting their corporate
identities and in strengthening their brand images. We assist our clients in
selecting programming that is appropriate for their business and consistent
with the experiences they are trying to create for their customers. We believe
our products are highly cost effective, providing an important business tool to
our clients at a low monthly cost.
Audio Architecture is business music programming designed to enhance a
client's brand image. Our staff of in-house audio architects analyzes a variety
of music to develop and maintain 60 core music programs in 10 genres ranging
from current top-of-the-charts hits to jazz, classic rock, urban, country,
Latin, classical music and others. Our audio architects change our music
programs on a daily basis, incorporating the continuous release of contemporary
artists' new music recordings and drawing from our current library of
approximately 1,250,000 recordings. In addition, we offer individual music
programs to clients who seek further customization beyond that offered by our
core music programs. As a complement to Audio Architecture, we have recently
focused on developing our Audio Marketing product that provides telephone on-
hold and in-store messages for more than 17,000 client locations. We have also
introduced Video Imaging, which we believe is the most widely used in-store
video product in the U.S. and is viewed in approximately 9,000 client
locations. Our programs are delivered to our clients through DBS, telephone
lines, local broadcast technology, audio and video tapes and compact discs.
We complete our clients' business music experience by designing and
installing sound and intercom systems, telephone on-hold and in-store messaging
and video systems at their locations and providing after-sale services and
enhancements to those systems, which we sell or lease to our customers. We
provide our products and services domestically through our integrated,
nationwide network of owned and independent affiliates. We believe our
nationwide network is the largest in the industry and provides us with a key
competitive advantage in effectively marketing and servicing clients ranging
from local accounts with single or multiple locations to national accounts with
significant geographic presences. We believe that approximately 52% of revenues
from the sale of our products are generated by our 45 owned affiliate
territories. The remaining 48% are generated by our 123 independent affiliate
territories.
We provide music to numerous types of businesses including specialty
retailers, restaurants, department stores, supermarkets, drug stores, financial
institutions, hotels, golf clubs, health and fitness centers, business offices,
manufacturing facilities, medical centers and HMOs, among others. Approximately
70% of our client base is comprised of local clients and the remaining 30% is
comprised of national and regional chains. Our national clients include The
Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass Hut, Burger King,
Taco Bell, Nordstrom, Citibank, Travelers and Prudential, among many others.
Our regional clients include A&P, Kroger, Rite Aid, Kaiser Permanente,
PetsMart, Dillards and Wells Fargo, among many others.
Our clients typically enter into a noncancelable five-year contract that
renews automatically for at least one additional five-year term unless
specifically terminated at the initial contract expiration date. Our average
length of service per client is approximately 12 years. For a typical local
business music client generated by an
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owned affiliate, we receive approximately $45 of net revenue per month per
location. We typically make an initial one-time installation investment per
location (including sales commissions) averaging approximately $1,000. This
allows us to recover our capital costs within 22 months for a typical local
client. We generate an over 50% annual return on investment per music client
location, based on a twelve-year client relationship. In contrast, for music
clients generated by our independent affiliates, we receive a net monthly fee
of approximately $5 for each client location in exchange for our music
programming. We incur no capital outlay for a new client location generated by
an independent affiliate.
Operating Strengths
We believe the following attributes have helped us become the world's
leading provider of business music programming:
Market Leadership for 65 Years. We believe that Muzak is the most widely
recognized brand name in the industry. Together with our independent
affiliates, we have an estimated 55% share of the U.S. business music market.
We believe that we have been the leader in the business music programming
industry since its inception by the founders of Old Muzak 65 years ago.
Nationwide Presence. Our nationwide network is the largest in the industry
and would be costly and difficult to replicate. As a result, we believe this
nationwide network is a key competitive advantage. Our nationwide network
enables us to provide same-day sales, installation and service to clients
throughout the country and to service multiple widespread locations
efficiently. This network is comprised of 168 territories, of which 45 are
served by our 33 owned affiliate offices and the remaining 123 are served by
our 75 independent affiliates. The independent affiliate component of our
network is highly stable, as a significant majority of our independent
affiliates has been associated with us for over 20 years.
Large and Diverse Client Base. Our music products appeal to a variety of
clients, including specialty retailers, restaurants, department stores,
supermarkets, drug stores, financial institutions, hotels, golf clubs, health
and fitness centers, business offices, manufacturing facilities, medical
centers and HMOs, among others. Together with our independent affiliates, we
currently serve approximately 250,000 client locations. Our national clients
include The Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass Hut,
Burger King, Taco Bell, Nordstrom, Citibank, Travelers and Prudential, among
many others. Our regional clients include A&P, Kroger, Rite Aid, Kaiser
Permanente, PetsMart, Dillards and Wells Fargo, among many others. We also have
numerous local clients with single or multiple locations. During 1998, none of
our clients represented more than 2% of our revenues and our top ten clients
represented in the aggregate less than 10% of our revenues.
Attractive Economics to Clients and the Company. We believe our products and
services are highly cost effective for our clients, providing them with an
important business tool at a low monthly cost. We also believe that our
business provides us with attractive economics. Our costs for incremental sales
are low because the nature of our business enables us to leverage our corporate
infrastructure (including programming, sales and marketing and general
administrative costs), our established music library, and our nationwide
network and music delivery system. As a result, our financial results are
favorably impacted by growth through incremental client locations. Our annual
return on investment is over 50% per client location, based on a twelve-year
client relationship. In addition, we receive a monthly fee for each client
location generated by our independent affiliates, for which we have no direct
incremental costs.
Long Term Contracts; Recurring Revenue Base; Low Churn. Our client contracts
generally have a non-cancelable term of five years that renews automatically
for at least one additional five-year term unless specifically terminated at
the initial contract expiration date. Our long term contracts provide us with
steady recurring monthly revenues per client location. In the majority of
cases, we also have the right to match any increase in our operating costs with
a corresponding price increase of up to 10% each year. During 1998, our monthly
churn rate averaged approximately 0.7% and our annual churn rate was
approximately 8%. We have an average length of service per client of
approximately 12 years. Based on our experience, economic
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downturns have not significantly affected our monthly recurring revenues or our
historical churn rate, which we believe is primarily because we deliver
products to a geographically diverse client base in a range of industries at a
low monthly cost.
Demand-Based Capital Expenditures. The substantial majority of our capital
expenditures are comprised of the initial investment for each new client
location. We incur those costs only after receiving a signed contract from a
client. Our typical initial investment per music client location (including
sales commission) averages approximately $1,000, and our after-sale service
costs are low. In the event of a contract termination, we can typically recover
and reuse the installed equipment. We estimate that in 1998, demand-based
capital expenditures represented approximately 80% of our total capital
expenditures.
Unique Product Offerings. Our staff of trained audio architects use their
intuition, innovation and skill and our proprietary software package to
continually change the content of our music programs for our clients. Our audio
architects create programs using music from our extensive music library, which
currently contains approximately 1,250,000 recordings and is continually
updated with new releases. In addition, we have the ability to create
integrated audio and video services through our Audio Marketing and Video
Imaging products.
Experienced Management. Our senior management team has extensive experience
in the business music programming industry. The Company is led by Mr. William
Boyd, its Chief Executive Officer, who has over 30 years of experience in the
industry. Prior to re-joining Old Muzak in 1996, Mr. Boyd owned one of the
largest independent affiliates and also served as President of our independent
affiliate organization. We believe that Mr. Boyd has brought a consistent
vision for sustained growth and profitability to the Company, has renewed focus
on our Audio Architecture, Audio Marketing and Video Imaging core products and
has strengthened our relationships with our independent affiliates. In
addition, Mr. Boyd has selected a dedicated and energetic senior management
team, that together with Mr. Boyd, has an average of approximately 13 years of
experience in the business music programming industry.
Business Strategy
Our strategy is to increase monthly recurring revenue and cash flow by
concentrating on our Audio Architecture, Audio Marketing and Video Imaging
products. Our strategy recognizes the operating leverage inherent to our
business. In addition to internal growth, we also believe that opportunities
exist to create synergies and enhance value through the selective acquisition
of in-market competitors and of our independent affiliates.
Concentrate on Core Competency. In late 1997, we discontinued our in-store
marketing program and spun-off our other non-core operations, allowing us,
under the strategic direction of our new management, to focus on our core
competency of assisting our clients in enhancing their brand images and the
experiences of their customers through planned programs of music and video. In
this pursuit, we have focused on our core Audio Architecture, Audio Marketing
and Video Imaging products. This focus has increased the opportunities for
sales growth and profitability for each of these products. In the short time
since implementing these changes, we have increased our monthly recurring
revenue by approximately 13% from December 1997 to December 1998 and increased
EBITDA by 33% from the fiscal year ended December 31, 1997 to December 31,
1998.
Increase United States Market Penetration. We have identified the potential
market for our products to include approximately six million U.S. businesses
that are operating in an industry currently served by us. We believe that less
than 10% of our identified market currently enhance their brand images through
business music. As the leading provider of business music services, we believe
we are well positioned to capitalize on the substantial growth opportunities
available within this significantly under-penetrated market. We also believe
that our ability to offer an integrated set of audio and video products through
Audio Architecture, Audio Marketing and Video Imaging will allow us to increase
penetration of our services to new clients and cross-sell new services to our
existing clients.
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Capitalize on Changes in Sales and Marketing Strategy. We have recently
restructured our sales and marketing strategy. We expect the following changes
to increase sales of and cash flows from our products by our owned and
independent affiliates:
. We recently began amending our agreements with our independent
affiliates. The amendment provides us and our independent affiliates
with more attractive financial terms for each new national client and
provides for better coordination of the installation and service of
national account locations. The amendment also extends the prohibition
of sales of competing products from Audio Architecture to include Audio
Marketing and Video Imaging. In addition, the amended agreements give us
the ability to set sales goals and incentive plans for these new
products, similar to goals and plans previously established for Audio
Architecture.
. We have set more aggressive selling targets for our account executives
and increased the number of our national account executives. In
addition, we plan to hire product managers, each exclusively focused on
assisting the owned and independent affiliates in selling our newer
products, Audio Marketing and Video Imaging.
. In July 1998, we provided laptop computers to the account executives of
our owned affiliates to assist in the demonstration of product benefits
to potential clients. These computers include an interactive CD-ROM and
customized software which enhances the sales efforts of account
executives. Previously, account executives had no way to demonstrate our
music products other than from written brochures.
. We continue to strengthen our brand image and awareness of our products
through an updated Internet web site (www.muzak.com), new marketing
materials that focus on the Muzak brand and the recent establishment of
a charitable program, Muzak Heart and Soul Foundation, that promotes
music education.
Pursue Acquisitions. The business music industry remains highly fragmented,
with numerous independent operators. For example, we have 75 individuals or
entities that operate in our 123 independent affiliate territories. Since
September 1997, Old Muzak has acquired two affiliate territories and has
acquired client accounts of thirteen of its competitors' affiliates as well as
one national competitor, MTI. In 1998, ABRY III formed ACN to acquire and
operate Muzak independent affiliates. ACN acquired the Old ACN Assets, which
included eight independent affiliate territories. ACN subsequently acquired two
additional affiliate territories in January 1999, one additional affiliate
territory in February 1999, four affiliate territories from Capstar
Broadcasting in March 1999 and one additional affiliate territory from Capstar
Broadcasting in May 1999. Through acquisitions, we expect to realize cost
savings by eliminating duplicative programming, distribution, sales and
marketing, technical and other general administrative expenses. We will
continue to seek attractive opportunities to acquire music contract portfolios
in the future and will review the acquisition of our own independent affiliates
if they become available. Future acquisition targets may also include providers
of complementary marketing on-hold and on-premises video products.
Products
We offer three products, Audio Architecture, Audio Marketing, and Video
Imaging, to assist our clients in strengthening their brand images and in
enhancing the experiences of their customers. We believe our clients use our
products because they recognize that our products can provide a key element in
establishing a desired business environment, in promoting their corporate
identity and in strengthening their brand image.
Audio Architecture
Audio Architecture is business music programming designed to strengthen a
client's brand image. Our in-house staff of 19 audio architects analyzes a
variety of music to develop and maintain 60 core music programs in 10 genres
that appeal to a wide range of tastes. Our programs include current top-of-the-
charts hits to jazz, classic rock, urban, country, Latin, classical music and
others. Our audio architects update our music programs on a daily basis,
incorporating the continuous release of new music recordings and drawing from
our library of
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approximately 1,250,000 recordings, which we believe is the largest of its
kind. In designing our music programs, our audio architects use a proprietary
computer software package that allows them to efficiently access our extensive
library, avoid repeated songs and manage tempo and music variety to provide
clients with high quality, seamlessly arranged programs.
We assist our clients in selecting music programming that is appropriate for
their business and consistent with the experiences they are trying to create
for their customers. We accomplish this goal in two ways. First, we can suggest
one or more of our 60 core music programs. For example, in 1997, Barnes &
Noble, one of the nation's largest retail bookstore chains, engaged Muzak to
recommend music programming to evoke the appropriate blend of relaxation and
education and create a uniform atmosphere in all of their stores. Second, we
can create custom music programs for our clients that wish to convey a unique
and specific brand image, a process we call Audio Imaging. Our Audio Imaging
clients include Crate & Barrel, DKNY, Esprit, Fossil, Liz Claiborne, Lindt
Chocolate, Spencer Gifts, Sunglass Hut and Watch Station.
Clients who subscribe to our 60 program core music service may utilize our
DayParting and WeekParting services. These services allow us to vary the
programs that are delivered to our clients during different hours of the day
and days of the week in response to our clients' changing customer patterns.
All of our clients have access to our extensive in-house programming and
editing capabilities and the technological strengths we have developed in
engineering, equipment, and delivery systems.
Some of our popular programs include:
FM-1(R) -- A mainstream mix of Hot FM SM -- A mix of melodic upbeat
familiar adult contemporary adult oriented pop vocals and
favorites. instrumentals.
Country Currents(R) -- Current EuroStyle SM -- An ultra-hip mix of
country hits by established and cutting edge sounds from Europe.
emerging artists.
Contemporary Jazz Flavors SM -- A
Urban Beat SM -- A youth-oriented smooth mix of contemporary
mix of contemporary urban music with instrumentals and adult pop vocals
a focus on funky beats and tough by popular artists.
jams.
Contemporary Christian -- Today's
KidTunes SM -- A mix of educational popular Christian music.
and entertaining music for kids.
Hitline(R) -- A youth-oriented mix
Latin Styles SM -- The smooth side of up-tempo styles that reflect the
of contemporary Spanish language diversity of today's pop music
music. culture.
In addition, we offer approximately 600 different tape and compact disc
based programs of music. We develop these tapes to meet the specialized
business needs of our clients with more focused customer demographics. Some of
the formats offered are Italian-American, reggae, hard rock, German and
Chinese. We distribute these music programs to clients in the form of long-
playing audio tapes or compact discs that our clients play using specially-
designed equipment that we installed.
Audio Marketing
Our Audio Marketing staff creates customized music and messages that allow
our clients' telephone systems to deliver targeted music and messaging during
their customers' time on hold. Several studies have substantiated the value of
on-hold marketing. A study performed by Telemarketing Magazine found that 85%
of calling customers prefer hearing about a company's products to silence or
music and 20% of those who hear such messages purchase the item or service
advertised. The cost implications of this data for a telephone-oriented
business can be very significant. Because on-hold music and messaging reduce
the need for telephone operators, it is appealing to both cost-conscious larger
businesses and to smaller businesses that are, by their nature, more sensitive
to the incremental fixed costs associated with telephone operators. In addition
to cost savings, on-hold messaging provides a revenue enhancing opportunity.
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We have the in-house capability to write, voice, edit, produce and duplicate
messages. Our fully integrated sound studios and editing and tape duplication
facilities provide us with flexibility in responding to clients' needs. Our
telephone and satellite delivery technologies allow us to expeditiously change
our clients' music and message mixes and styles. We also offer our clients a
tape-based product which operates from equipment at the client's location.
As of December 31, 1998, more than 17,000 locations subscribed to our Audio
Marketing product. As in our sales of business music, we generally require our
clients in this area to commit to a five year contract. Clients using Audio
Marketing to effectively convey messages to their customers include Citibank,
GTE, Kinko's, Kaiser Permanente, Coldwell Banker, Harrah's Casino, Esprit,
Texaco, Shell, BPAmoco and Budget Car Rental. We believe that our Audio
Marketing product creates an opportunity to attract new clients in new market
segments and to increase penetration of our existing client base. Our existing
client base includes many smaller businesses, and we believe that our existing
client base is sufficiently sophisticated to appreciate the added value of
business music and messaging to their on-hold customers.
Video Imaging
We believe we are the largest producer and distributor of in-store video
programs in the world. Video Imaging is unique, demographically-tailored video
programming designed to enhance the brand personality of our clients by
entertaining, informing and captivating their customers. We have a library of
over 30,000 video programs. These video programs use both original artist music
videos and other non-music video content such as sports, entertainment, fashion
and comedy. We produce our video programs through our in-house production
facilities and distribute them on high-grade VHS videotape to our clients on a
monthly rotation. We produce these programs for a variety of retail
environments, such as department stores, specialty shops, athletic footwear
stores, children's apparel stores, restaurants, sporting goods stores, toy and
hobby stores, drug stores and appliance stores. Clients currently using Video
Imaging include Macy's, McDonald's, Bloomingdale's, Lord & Taylor, Oshman's
Sporting Goods, Burger King, Camelot Music, Rooms to Go, Rent-A-Center, KFC,
Game Works, Best Way and Donna Karan Jeans Shop. As of December 31, 1998, we
had approximately 9,000 client locations subscribing to our Video Imaging
product.
Our 22 in-store video programs are available in the following genres:
. Total Music Programs. Segued music video programs in two-hour or four-
hour lengths that represent a style and tempo of music applicable to
particular business environments.
. Variety Programs. A series of video programs hosted by an off-camera
voice talent that incorporate music videos and entertainment features
targeting specific audiences.
. Children's Programs. Children's programs incorporate select music
videos, sing-alongs, educational features and cartoons that are selected
specifically to entertain and educate children.
. Sports Programs. Sports documentaries, sports trivia, classic sports
features, high energy music videos, and extreme sports features.
. VeeJay Programs. One-hour long programs produced exclusively for
nightclubs and entertainment facilities with video jockeys or "veejays."
Equipment Sales and Related Services
In connection with the sale of our Audio Architecture, Audio Marketing and
Video Imaging products, we sell and lease various audio and video system-
related products, principally sound systems. We believe that style and
placement of sound and video systems can further enhance the experience we
create through Audio Architecture and Video Imaging. As part of a typical music
programming contract, we provide music receiving or playback equipment to our
client. Our business music clients generally purchase or lease audio equipment
from us that supplements the music receiving or playback equipment.
We also sell, install and maintain non-music related equipment, such as
intercom, paging and drive-thru systems. We provide these services for our
business music and other clients. Maintenance of program-receiving
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equipment that we provide to business music clients is typically included as
part of the overall music service. Installation and maintenance of audio or
other equipment not directly related to reception of our business music service
is provided on a contractual or time-and-materials basis. In addition, we sell
electronic equipment such as proprietary tape playback equipment to our
independent affiliates to support their business music services business. All
of the equipment is manufactured by third parties, although some items bear the
Muzak(R) brand name.
Nationwide Affiliate Network
We believe our integrated nationwide network is the largest and most
comprehensive in the business music industry and enables us to pursue sales on
a nationwide basis to local, regional and national accounts. It also allows us
to provide same-day installation and service to our clients throughout the
country and to service multiple geographically disperse locations efficiently.
Our nationwide network divides the country into 168 affiliate territories, of
which 45 are served by our 33 owned affiliate offices and the remaining 123 are
served by our 75 independent affiliates. Our owned affiliates generally operate
in the larger and the more populated territories. For example, 17 of our owned
affiliate territories are located in the top 25 DMAs. We believe that
approximately 52% of revenues from the sale of our products are generated by
our owned affiliates, with the remaining 48% generated by our independent
affiliates.
Independent Affiliate Agreement Terms
Our business relationships with our independent affiliates are governed by
independent affiliate agreements that have renewable ten-year terms. Under
these agreements, the independent affiliate is granted an exclusive license to
offer and sell our Audio Architecture, Audio Marketing, Video Imaging products,
as well as other products such as Dayparting and Weekparting. The independent
affiliate is also permitted to use our registered marks within a defined
territory which allows us to promote a uniform Muzak brand image nationally.
The agreements also contain terms relating to distribution of services via our
DBS distribution system.
Pursuant to the agreements, each independent affiliate pays us a monthly fee
based on the number of businesses within its territory and a monthly
broadcasting royalty equal to approximately 10% of its billings. Typically,
this combined fee and royalty payment represents approximately $5 per month per
client location. However, this monthly royalty is subject to certain
adjustments, as we charge the independent affiliate additional amounts for on-
premise tape services and other services. We share revenues from the sale of
other broadcast business services with our independent affiliates.
In order to increase our national and regional sales in January 1999, we
began amending our independent affiliate and national sales agreements in a
number of respects. As part of these amendments we are:
. restructuring commission and other provisions to increase national and
regional sales and make these sales more profitable for our independent
affiliates and for us, and to coordinate sales, installation and service
of national and regional client locations;
. extending our product exclusivity requirements to include our Audio
Marketing and Video Imaging products in order to preclude independent
affiliates from selling products which compete with Audio Marketing and
Video Imaging;
. introducing an incentive plan to encourage independent affiliates to
increase their sales of our products and exceed an agreed-upon budget by
offering credits against future royalties to be paid to us;
. reducing the requirements for approval of future amendments to the
independent affiliate agreement from 100% to 75% of the independent
affiliates, thereby allowing us the opportunity to further amend the
agreements and introduce new programs and products more efficiently; and
. agreeing to remit amounts owed to each independent affiliate under bills
we collect for it within 60 days of our receipt of its customers'
payments in exchange for the right to withhold from those amounts any
past due fees and royalties owed by the affiliate, with clients' bad
debts charged back to the affiliate.
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Sales and Marketing
We employ a direct sales process in marketing our products, which is focused
on securing new client contracts and renewing existing contracts. Our client
agreements typically have a noncancelable term of five years and renew
automatically for at least one additional five-year term unless specifically
terminated at the initial contract expiration date. Repeat clients comprise the
core of our account base. We believe that our high renewal rate of existing
client contracts reflects the importance of our products to our clients'
business operations.
Local salesforce
We build and maintain our local client base through a team of over 200 local
sales account executives. Local account executives typically focus on clients
that have fewer than 50 locations. For clients with more locations a regional
or national specialist is available to assist the local account executive in
securing the sale. Our local account executives are almost exclusively
compensated on commission. Each year, local account executives are given sales
goals and their progress is monitored by their General Manager. Local account
executives are provided the opportunity to attend our week-long sales training
program in Seattle and completion of this program is mandatory for local
account executives employed by our owned affiliates. Each affiliate, whether
owned or independent, is responsible for installing, servicing and billing the
local client base within its territory.
National and Regional Salesforce
We build and maintain our existing client base of national and regional
accounts primarily through our national and regional sales group headquartered
in Chicago. Our National Sales Director has a sales force of five national
account executives. The Regional Sales Director has a sales force of five
account executives each responsible for coverage of a particular region of the
United States. Both national and regional account executives are given sales
goals each year and their progress is then monitored and reviewed by their
respective Sales Director. The majority of billing for national and regional
accounts is centrally performed in our Seattle headquarters.
Continuing Training and Sales Tools
In addition to our training program for new account executives, we use
continuing education programs and update our sales tools to improve the
effectiveness of our account executives. Our newly hired training staff is
developing educational programs designed to strengthen account executives'
knowledge of our Audio Marketing and Video Imaging products. In July 1998 we
provided account executives associated with our owned affiliates with laptop
computers equipped with an interactive CD-ROM based sales tool. This software
enables us to give multimedia sales presentations that vividly demonstrate how
our products can help potential clients enhance their brand images. These
presentations also enable us to simulate the use of our products at a potential
client's business location. The CD-ROM program is also available to account
executives associated with our independent affiliates.
Recent Changes in Sales Approach
During 1998, our new senior management team designed and implemented a
number of changes in our approach to marketing and selling our Audio Marketing
and Video Imaging products. The majority of changes fall into three categories:
(a) changes in organizational structure, (b) improved sales training and
support, and (c) changes to our independent affiliate agreement.
During 1998, we reorganized our staffing in order to operate more
efficiently, to assign responsibility for our Audio Marketing and Video Imaging
products and to ensure adequate support for the future growth of such products.
Accordingly, we:
. eliminated certain positions that did not contribute to the
profitability of Audio Marketing;
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. appointed Vice Presidents of Audio Marketing and Video Imaging who
are responsible for the day-to-day operation of our Audio Marketing
and Video Imaging divisions and their profitability; and
. created industry product positions to focus exclusively on markets
with significant future growth potential.
In order to improve our sales training and support for our Audio Marketing
and Video Imaging products, we hired a training coordinator responsible for
educating our newly hired account executives and our existing owned and
independent affiliate account executives. Our training coordinator created a
training program and sales kit for our account executives. These guides provide
account executives with the information they need to approach prospective
clients, including direct mail pieces, information on product pricing and
equipment and answers to questions most frequently asked by potential clients.
We also equipped our salespeople with demonstration CDs that illustrate our
Audio Marketing and Video Imaging products.
We also have begun amending our independent affiliate agreements with
changes that promote the sale of our Audio Marketing and Video Imaging products
throughout our nationwide network. Prior to these changes, our independent
affiliates did not actively market our Audio Marketing or Video Imaging
products. We extended our product exclusivity requirements in the amended
independent affiliate agreement to include our Audio Marketing and Video
Imaging products thus prohibiting independent affiliates from selling products
competing with Muzak's Audio Marketing and Video Imaging products.
Branding and Corporate Promotion
In addition to providing greater support for our account executives, we are
continuing to strengthen our brand image and awareness of our products through
an updated Internet web site (www.muzak.com), new marketing materials that
focus on the Muzak brand and the recent establishment of a charitable program,
the Muzak Heart and Soul Foundation, that promotes music education.
Distribution Systems
We believe that our ability to distribute our products through DBS
transmission, telephone lines, local broadcast transmission, audio and video
tapes and compact discs enables us to effectively serve our clients that have
either single or multiple locations as well as those having varied music or
service needs. At December 31, 1998, we served our music client locations
through the following means: approximately 65% through DBS transmission or
telephone lines, approximately 25% through local broadcast technology, and
approximately 10% through on-premises tapes or compact discs. From time to
time, we also evaluate new delivery systems.
Microspace and EchoStar Agreements
We transmit our 60 core music programs via DBS to clients primarily from
transponders leased from Microspace and EchoStar. Microspace provides us with
facilities for uplink transmission of our medium-powered DBS signals to the
transponders. Microspace, in turn, leases its transponder capacity on
satellites operated by third parties, including the Galaxy IIIR satellite
operated by PanAmSat through which a majority of our DBS client locations are
served. The term of our principal transponder lease with Microspace for the
Galaxy IIIR satellite is projected to end in 2004. Microspace can terminate its
agreements with us immediately upon termination of its underlying agreement
with PanAmSat. We regularly review the availability of alternate transponders.
As part of our arrangements with EchoStar, we furnish 60 music channels to
commercial subscribers and 30 music channels to residential subscribers over
EchoStar's satellite system. Pursuant to our agreements with EchoStar, EchoStar
pays us a programming fee for each of its residential subscribers and pays our
affiliates a
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commission for sales made by EchoStar or its agents to commercial subscribers
in an affiliate's territory. We pay EchoStar a fee for uplink transmission of
music channels to our clients and we rent space at EchoStar's Cheyenne, Wyoming
uplink facility. We also pay EchoStar a royalty and combined access fees on
music programs sold by us which are distributed by EchoStar to commercial
subscribers. EchoStar has the right to cancel its distribution of the 30 music
programs to residential subscribers at any time upon 60 days notice. Upon such
cancellation, EchoStar must pay us the depreciated book value of our capital
investment in equipment to support the residential music channels and continue
to provide 2.4 megahertz of transponder capacity for our use in serving
commercial subscribers. In such event, we would only be able to provide
30 music programs and would need to lease other transponder space in order to
continue providing the other 30 music programs. We would also lose the
programming fee and commission revenue generated by EchoStar's residential
subscribers, which was approximately $1.4 million during 1998. The term of our
agreements with EchoStar is projected to end in 2010.
EchoStar has agreed that it will not provide transponder space to, enter
into or maintain distributor agreements or relationships with, or enter into
any agreements for the programming or delivery of any audio services via DBS
frequencies with, a specified group of our competitors. We have agreed that we
will not secure transponder space for, enter into or maintain distributor
agreements or relationships with, or enter into any agreement for the
programming or delivery of any of our services with any competitor of EchoStar
via DBS frequencies or with specified competitors of EchoStar via specified
frequencies.
Local Broadcast Transmission
We also use local broadcast transmission to distribute business music in
localized metropolitan areas where the concentration of client locations is
sufficiently large to justify the cost. Local area FM broadcasting is primarily
made via commercial FM radio station subcarriers and requires the use of a
separate subcarrier and an on-premises client 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 our most popular program formats.
Competition
We compete with many local, regional, national and international providers
of business music and business services. We compete on the basis of service,
the quality and variety of our music programs, versatility and flexibility, the
availability of our non-music services and, to a lesser extent, price. Even
though we are seldom the lowest-priced provider of business music in any
territory, we believe that we can compete effectively on all these bases due to
the widespread recognition of the Muzak(R) name, our nationwide network, the
quality and variety of our music programming, the talent of our audio
architects and our multiple delivery systems.
Some of our competitors may have substantially greater financial, technical,
personnel and other resources than we do. There are numerous methods by which
our existing and future competitors can deliver programming, including various
forms of DBS services, wireless cable, fiber optic cable, digital compression
over existing telephone lines, advanced television broadcast channels, DARS and
the Internet. We cannot assure you that we will be able to (a) compete
successfully with our existing or potential new competitors, (b) maintain or
increase our current market share, (c) use, or compete effectively with
competitors that adopt, new delivery methods and technologies, or (d) keep pace
with discoveries or improvements in the communications, media and entertainment
industries such that our existing technologies or delivery systems that we
currently rely upon will not become obsolete.
Music Licenses
We 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 ASCAP, BMI and SESAC.
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The industry-wide agreement between business music providers and BMI expired
in December 1993. Since then, we have been operating under an interim agreement
pursuant to which we have continued to pay royalties at the 1993 rates and
business music providers and BMI have been negotiating the terms of a new
agreement. If an agreement is not reached, BMI may seek to have rates
determined through a rate court proceeding. The industry-wide agreement between
business music providers and ASCAP expires in May, 1999. We cannot predict what
the terms of the new BMI or ASCAP agreements with business music providers will
be or when agreements will be reached, although BMI has indicated that it is
seeking royalty rate increases and a retroactive royalty rate increase. In
1998, Old Muzak paid approximately $3.5 million in royalties to ASCAP, $1.3
million in royalties to BMI and $13,000 in royalties to SESAC. Increases in the
fees we must pay under these agreements could adversely affect our operating
margin, and, therefore, our results of operations.
The Digital Performance Right in Sound Recordings Act of 1995 (the "DPRA")
amended U.S. copyright law to create a limited performance right in sound
recordings publicly performed by means of digital audio transmission ("digital
performance right"). Our digital transmission of music to businesses are
considered public performances for the purposes of U.S. copyright law but may
qualify for an exemption from copyright liability for digital performance
rights, and any obligation to pay a royalty therefor, under the DPRA. The DPRA
exempts digital transmissions to business establishments for use in the
ordinary course of business from copyright liability, provided those
transmissions satisfy certain limitations on the number of selections from one
phonorecord or by the same featured artist, as set forth in the DPRA. We
believe our music services to businesses satisfy the conditions necessary to
qualify for the exemption. To the extent we provide digital audio services to
residential clients or consumers by means of digital transmissions, the DPRA
would require the payment of additional royalties.
The Fairness in Music Licensing Act enacted in 1998 revised the U.S.
copyright law to expand an exemption that enables certain small businesses to
transmit background music by means of radio and television. Those exemptions
are subject to limitations on the size of area of the business location in
which such transmissions are received, limitations on the number of speakers or
television sets and the restriction that the business does not charge
admission. As a result of the Fairness in Music Licensing Act, more small
businesses can transmit background music at their business locations without
paying licensing fees which may reduce the potential number of clients for our
products. However, we do not believe that small businesses could replicate our
products and services because of our extensive music library, unique product
offerings and the talents of our audio architects.
Government Regulation
We are subject to the governmental regulation by the United States and the
governments of other countries in which we provide services. Our business
prospects could be adversely affected by the adoption of new laws, policies or
regulations that change the present regulatory environment. We currently
provide music services in a few areas in the United States through 928 to 960
megahertz radio frequencies licensed by the FCC. Additionally, the FCC licenses
the radio frequencies used by satellites on which we transmit our DBS services
in the United States. If the FCC or any other person revokes or refuses to
extend any of these licenses, we would be required to seek alternative
transmission facilities. Laws, regulations and policy, or changes therein, in
other countries could also adversely affect our existing services or restrict
the growth of our business in these countries.
Properties
Our headquarters are located in Seattle, Washington and consist of
approximately 80,000 square feet. We also have 51 local sales offices in
various locations, a national sales office in Chicago, office and satellite
uplink facilities at Raleigh, North Carolina and Cheyenne, Wyoming and five
warehouses in various locations. We consider our facilities to be adequate to
meet our current and reasonably foreseeable needs.
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Muzak's executive offices are located at 2901 Third Avenue, Suite 400,
Seattle, Washington 98121, and its telephone number is (206) 633-3000.
Employees
As of December 31, 1998, on a pro forma basis, we had 1,041 full-time and
part-time employees, of whom 275 held sales and marketing positions, 215 held
administrative positions and 551 held technical and service positions. A total
of 100 of our technical and service personnel are covered by twelve union
contracts, eleven of which are with the International Brotherhood of Electrical
Workers and one of which is with the Communications Workers of America. One of
the International Brotherhood of Electrical Workers contracts that covers 11
employees expired on December 31, 1998 and we are in the process of negotiating
a replacement agreement. The other contracts expire on dates ranging from
October 31, 1999 to April 30, 2001. All of the International Brotherhood of
Electrical Workers 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. We believe that our relationships with our
employees and the unions are good.
Divestitures
In March of 1998, as part of new management's focus on our core products, a
non-core operation which provided music sampling on the Internet was spun-off
into a wholly-owned subsidiary of Old Muzak, EAIC. In July 1998, the voting
equity interests in EAIC were sold to a related party investor, with Old Muzak
retaining an equity interest in the form of non-voting equity. Prior to the
consummation of the Merger, Old Muzak will divest itself of its remaining
ownership interests in EAIC through a distribution to Music Holdings Corp.
Legal Proceedings
We are subject to various proceedings arising in the ordinary course of
business. On March 5, 1999, one of our former employees initiated a suit
against us in the United States District Court for the Northern District of
Illinois alleging certain violations of the Americans with Disabilities Act.
While we are still in the process of evaluating this claim, we anticipate that
neither this claim nor any other proceeding to which we are a party,
individually or in the aggregate, will have a material adverse effect on our
financial condition, results of operations or liquidity.
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MANAGEMENT
Executive Officers and Directors
Muzak is a wholly owned subsidiary of Holdings. Holdings is a limited
liability company whose affairs are governed by a Board of Directors (the
"Board"). The following table sets forth certain information about the
directors ("Directors") of Holdings and the executive officers of Muzak as of
March 31, 1999 and their ages as of March 31, 1999. Each of the Directors
identified below is currently a Director of Holdings and has served as Director
of Holdings since March 1999. The election of the Directors is subject to the
terms of the Members Agreement and the Securityholders Agreement (each, as
defined). See "Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
Name Age Position and Offices
---- --- --------------------
<S> <C> <C>
William A. Boyd.......... 57 Director, President and Chief Executive Officer
Charles A. Saldarini..... 55 Chief Operating Officer
Brad D. Bodenman......... 35 Chief Financial Officer and Treasurer
Steven M. Tracy.......... 48 Senior Vice President, Owned Operations
Robert L. Cauley......... 45 Vice President, Audio Marketing
Richard Chaffee.......... 54 Vice President, Operations
D. Alvin Collis.......... 46 Vice President, Audio Architecture
Jack D. Craig............ 63 Vice President, Affiliate Sales and Development
Dino J. DeRose........... 38 Vice President, National Sales
Kenneth F. Kahn.......... 37 Vice President, Marketing
Bruce McKagan............ 48 Vice President, Video Imaging
Peni Garber.............. 36 Director, Vice President and Secretary
David W. Unger........... 42 Director and Vice President
Royce G. Yudkoff......... 43 Director and Vice President
Steven Hicks............. 48 Chairman of the Board
D. Geoff Armstrong....... 41 Director
Andrew Banks............. 44 Director
</TABLE>
The following sets forth biographical information with respect to the
Directors of Holdings and executive officers of Muzak.
William A. Boyd is a director, has been the Chief Executive Officer of Muzak
since March 1999 and was the Chief Executive Officer of Old Muzak from 1997 to
March 1999, Chairman of the Board of Music Holdings Corp., the general partner
of the managing general partner of Old Muzak, from 1997 to March 1999 and was a
director of Music Holdings Corp. from 1996 to March 1999. From 1995 to 1996,
Mr. Boyd was a private investor. From 1982 to 1995, Mr. Boyd was owner and
president of SunCom Communications, the largest independent affiliate of the
Company. Mr. Boyd was President of the independent affiliate organization from
1994 to 1995 and from 1986 to 1987. Mr. Boyd was also President of Old Muzak's
Owned Affiliate division in 1987. Prior to owning an independent affiliate, Mr.
Boyd held various positions with Old Muzak. Mr. Boyd is the father of Robert T.
Boyd.
Charles A. Saldarini has been Chief Operating Officer of Muzak since March
1999 and was Chief Operating Officer of Old Muzak from 1997 to March 1999.
Prior to joining Old Muzak, Mr. Saldarini was employed from 1976 to 1997 by
First Union National Bank where he rose to the rank of Senior Vice President.
From 1971 to 1976, Mr. Saldarini held commercial/corporate lender positions
with Irving Trust Company.
Brad D. Bodenman has been Chief Financial Officer and Treasurer of Muzak
since March 1999 and was the Chief Financial Officer of Old Muzak from 1998 to
March 1999. Mr. Bodenman served as Old Muzak's Vice President, Finance and
Administration from 1997 to 1998, as its controller from 1996 to 1997, as its
Director of Finance from 1994 to 1996, as an Accounting Manager from 1991 to
1994, and Accounting Supervisor from 1990 to 1991 and as Senior Accountant from
1989 to 1990. Prior to joining Old Muzak, he served as a senior accountant at
Price Waterhouse.
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Steven M. Tracy has served as Senior Vice President, Owned Operations of
Muzak since March 1999 and was the Senior Vice President, Owned Operations of
Old Muzak from 1998 to March 1999. From 1997 to 1998, Mr. Tracy was Old Muzak's
Vice President, Owned Operations, Western Region. Prior to 1997, Mr. Tracy
served as a Regional Director from 1994 to 1997, General Manager from 1988 to
1994 and Vice President/General Manager for Old Muzak from 1986 to 1988.
Robert L. Cauley has served as Vice President, Audio Marketing of Muzak
since March 1999. From 1998 to March 1999, Mr. Cauley was Old Muzak's Manager
of Audio Marketing. From 1996 to 1998, Mr. Cauley served as Operations Manager
of Audio Marketing. Mr. Cauley was Lead Coordinator-Eastern Region for Audio
Marketing from 1994 through 1996. Mr. Cauley joined Old Muzak's Audio Marketing
as an Account Coordinator in 1993. Prior to joining Old Muzak he was Media
Relations Officer for Escambia County Florida from 1987 through 1991. Mr.
Cauley was Operations Manager for EJM Broadcasting in New Orleans from 1984 to
1987. From 1979 through 1984, he was Program Director for Seaway Broadcasting.
Richard Chaffee has been Muzak's Vice President, Operations since March 1999
and was Old Muzak's Vice President, Operations from 1997 to March 1999.
Previously, Mr. Chaffee had been Vice President, Owned Affiliate Operations of
Old Muzak since 1987. Since joining Old Muzak in 1968, Mr. Chaffee has served
in both local sales offices and independent affiliate operations in New York,
Boston, Chicago, Minneapolis and Charlotte, primarily as Chief Engineer and
Operations Manager.
D. Alvin Collis has been Muzak's Vice President, Audio Architecture since
March 1999 and was Old Muzak's Vice President, Audio Architecture from 1997 to
March 1999. From 1994 to 1997, Mr. Collis served as Old Muzak's Director of
Programming. Prior to that time, he served as an audio architect at Old Muzak
from 1988 to 1994 and as an audio architect at Yesco from 1984 to 1988. From
1980 to 1983, Mr. Collis was a partner at MoDaMu (Modern Dance Music) Records.
Prior to 1980, Mr. Collis was a record producer/engineer for various record
companies.
Jack D. Craig has been Muzak's Vice President, Affiliate Sales and
Development since March 1999 and was Vice President, Affiliate Sales and
Development of Old Muzak from 1988 to March 1999. 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.
Dino J. DeRose has been Muzak's Vice President, National Sales since March
1999 and was Old Muzak's Vice President, National Sales from 1997 to March
1999. Prior to 1997, Mr. DeRose served as Director of National Sales from 1994
to 1997, as General Manager of Old Muzak's InStore Marketing Group from 1992 to
1994 and as a National Account Executive from 1988 to 1992. From 1985 to 1988,
he served as National Retail Sales Manager with SelfVision and was Regional
Sales Manager at Steidel Wine from 1982 to 1985.
Kenneth F. Kahn has been Muzak's Vice President, Marketing since March 1999
and was Old Muzak's Vice President, Marketing from 1997 to March 1999. From
1996 to 1997, Mr. Kahn served as Sales Manager for Old Muzak's New York office.
From 1995 to 1996, Mr. Kahn served as Director of Sales and Marketing at
Emphasis Music. From 1992 to 1994, he served as Vice President, Sales and
Marketing at Astroland Amusement Park. From 1989 to 1992, he was Partner and
Vice President of Phase One Distribution. From 1982 to 1989, he was Partner and
Vice President at Ezra Kahn & Associates.
Bruce McKagan has been Muzak's Vice President, Video Imaging since March
1999 and was Old Muzak's Vice President, Video Imaging from 1998 to March 1999.
From 1995 to 1998, Mr. McKagan served as Old Muzak's Director, Video Imaging.
Prior to joining Old Muzak, Mr. McKagan was Vice President of Sales, Marketing
and Programming for Sight and Sound Entertainment from 1990 to 1995. Mr.
McKagan was Vice President of Entertainment at Restaurant Enterprises Group,
Inc. from 1987 to 1990 and Director of Entertainment for Black Angus
Restaurants from 1981 to 1987.
Peni Garber is a principal and Secretary of ABRY. She joined ABRY in 1990
from Price Waterhouse, where she served as Senior Accountant in the Audit
Division from 1985 to 1990. Ms. Garber is presently a director (or the
equivalent) of Nexstar Broadcasting Group LLC, Network Music Holdings LLC,
Quorum Broadcast Holdings Inc. and Pinnacle Towers Inc. Ms. Garber graduated
summa cum laude from Bryant College.
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David W. Unger has served as Vice President of Muzak since March 1999 and
was Executive Vice President of ACN from May 30, 1997 to March 1999. Since
1995, Mr. Unger has invested in, operated and sold communications businesses.
Prior to 1995, Mr. Unger worked for Communications Equity Associates,
Teleprompter Corp., TKR Cable Co. and as an investment banker. Mr. Unger is a
director of Avalon Cable LLC and Mercom, Inc., operators of cable television
systems. ABRY is the principal investor in Avalon Cable and Mercom.
Royce Yudkoff is the President and Managing Partner of ABRY. Prior to
joining ABRY, Mr. Yudkoff was affiliated with Bain & Company, an international
management consulting firm. At Bain, where he was a partner from 1985 through
1988, he shared significant responsibility for the firm's media practice. Mr.
Yudkoff is presently a director (or the equivalent) of various companies
including Quorum Broadcast Holdings Inc., Nexstar Broadcasting Group LLC,
Metrocall, Inc. and Pinnacle Towers Inc. Mr. Yudkoff graduated as a Baker
Scholar from the Harvard Business School and is an honors graduate of Dartmouth
College.
Steven Hicks has served as President, Chief Executive Officer and a director
of Capstar Broadcasting since June 1997, and as Chairman of the Board of
Capstar Broadcasting from June to September 1997. Previously, Mr. Hicks acted
as Chairman of the Board and Chief Executive Officer of Gulfstar
Communications, Inc. from January 1987 to July 1997 and as President and Chief
Executive Officer of SFX from November 1993 to May 1996.
D. Geoff Armstrong has served as Chief Operating Officer of Capstar
Broadcasting since 1998, and as Executive Vice President and Director of SFX
Entertainment since 1996. From 1996 to 1998, Mr. Armstrong was Executive Vice
President and Chief Operating Officer of SFX Broadcasting, Inc. From 1989 to
1996, Mr. Armstrong served as Executive Vice President, Chief Financial Officer
and Director of SFX Broadcasting. Mr. Armstrong served as Chief Financial
Officer of Sterling Communications from 1986 to 1988 and as Chief Executive
Officer from 1988 to 1989.
Andrew Banks is Chairman of ABRY Holdings, Inc. Previously, Mr. Banks was
affiliated with Bain & Company, an international management consulting firm. At
Bain, where he was a partner from 1986 until 1988, he shared significant
responsibility for the firm's media practice. Mr. Banks is presently a director
(or the equivalent) of DirecTel International, LLC and Pinnacle Towers, Inc.
Mr. Banks is a graduate of the Harvard Law School, a Rhodes Scholar holding a
Master's degree from Oxford University and a graduate of the University of
Florida.
Voting and Terms of Office
Pursuant to the Amended and Restated Limited Liability Company Agreement of
Holdings, each Director is designated as either a "Class A Director" or a
"Class B Director." Each Class A Director is entitled to three votes and each
Class B Director is entitled to one vote. Any decisions to be made by the Board
requires the approval of a majority of the votes of the Board. Following the
Merger Transactions, the authorized numbers of each class of Directors will be
three Class A Directors (Messrs. Banks and Yudkoff and Ms. Garber) and four
Class B Directors (Messrs. Hicks, Armstrong, W. Boyd and Unger). The number of
Directors may be increased or decreased by the Board. Directors hold office
until their respective successors are elected and qualified or until their
earlier death, resignation or removal.
Compensation of Directors
Directors who are not employees of Muzak do not receive any compensation for
serving on the Board. All Directors receive reimbursement of reasonable out-of-
pocket expenses incurred in connection with meetings of the Board.
Management Employment Agreements
Concurrently with the consummation of the Merger Transactions, we entered
into an employment agreement with Mr. W. Boyd and amended Mr. Unger's
employment agreement with ACN. After the Meger, we entered into employment
agreements with the other executive officers, the terms of which are the same
in all material respects. The terms of these agreements are described below.
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William A. Boyd. Pursuant to the employment agreement dated as of March 18,
1999 by and among Mr. Boyd, Muzak and Holdings. Muzak agreed to employ Mr. Boyd
as President and Chief Executive Officer until his resignation, death,
disability or termination of employment. Under the employment agreement, Mr.
Boyd is:
. required to devote substantially all of his business time to Muzak,
. entitled to a minimum base salary of $300,000, with annual increases by
the consumer price index of the preceding year,
. eligible for a bonus, as determined by the Board, up to $150,000 with
annual increases by the consumer price index of the preceding year,
. prohibited from competing with Muzak during the term of his employment
period and for a period of twelve months thereafter, and
. prohibited from disclosing any confidential information gained during
his employment period.
If Muzak terminates Mr. Boyd's employment without "cause," Mr. Boyd will be
entitled to receive his base salary for a period of one year thereafter.
David W. Unger. Pursuant to an employment agreement dated as of October 6,
1998, as amended as of March 18, 1999, between Mr. Unger and ACN, ACN agreed to
employ Mr. Unger as Vice President until his earlier resignation, death,
disability or termination of employment. Under the agreement Mr. Unger is:
. required to devote approximately thirty-three percent of his business
time to ACN,
. entitled to receive a minimum base salary of $75,000,
. eligible to receive a bonus, as determined by the Board,
. prohibited from competing with ACN during the term of his employment
period and for six months thereafter, and
. prohibited from disclosing any confidential information gained during his
employment period.
If ACN terminates Mr. Unger's employment without "cause," Mr. Unger is
entitled to receive his base salary then in effect and benefits for a period of
six months thereafter subject to compliance with all other applicable
provisions of the Employment Agreement.
Other Executive Officers. Each of the other executive officers of Muzak and
Muzak are parties to an employment agreement the terms of which are the same in
all material respects. Each agreement may be terminated at any time by either
party. Under the agreement, the executive is:
. entitled to compensation in accordance with Muzak's employee
compensation plan, which may be amended by Muzak at any time,
. prohibited from competing with Muzak during the term of employment and
for 18 months thereafter, and
. prohibited from disclosing any confidential information gained during
the executive's employment period.
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Executive Compensation
The following table sets forth information concerning the compensation of
Muzak's Chief Executive Officer, the predecessor's former Chief Executive
Officers and each of Muzak's four and the predecessor's other most highly
compensated executive officers, at December 31, 1998 (collectively the "Muzak
Named Executive Officers") for services in all capacities rendered to Muzak and
its subsidiaries in 1998. ACN is the predecessor entity to Muzak as a result of
the Merger on March 18, 1999 of Muzak Limited Partnership with and into ACN.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options/SARs Compensation (1)
- ------------------ ---- -------- ------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
William A. Boyd......... 1998 $300,017 -- $42,000(2) -- $ 2,625
Chief Executive Officer
Charles A. Saldarini.... 1998 $250,014 -- $36,000(3) -- $ 2,552
President and Chief
Operating Officer
Steven M. Tracy......... 1998 $135,008 -- $ 6,000(4) -- $ 4,707
Senior Vice President,
Owned Operations
Dino J. DeRose.......... 1998 $150,217 -- -- -- $ 4,302
Vice President,
National Sales
Kenneth F. Kahn......... 1998 $115,008 $29,000 $ 6,000(4) -- $ 5,250
Vice President,
Marketing
Joseph Koff............. 1998 $116,287 -- -- -- --
Former Chief Executive
Officer and President
of ACN
Mitchell Kleinhandler... 1998 $187,500 -- -- -- --
Former Chief Executive
Officer of ACN
David Unger............. 1998 $93,750 -- -- -- $68,000(5)
Vice President of ACN
and Muzak
</TABLE>
- --------
(1) Consists of contributions by Old Muzak to a defined contribution 401(k)
plan.
(2) Consists of a housing allowance of $36,000 and a car allowance of $6,000.
(3) Consists of a housing allowance of $30,000 and a car allowance of $6,000.
(4) Reflects a car allowance.
(5)Amounts payable in connection with the sale of Old ACN.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investor Securities Purchase Agreement
David W. Unger, ABRY III and Holdings are parties to an Investor Securities
Purchase Agreement dated as of October 6, 1998, pursuant to which Holdings sold
to certain investors, and such investors purchased from Holdings, certain Class
A Units of Holdings for $1,000 per Unit, in cash. The investors are entitled to
indemnification in certain circumstances to the extent that Holdings is
determined to have breached certain representations, warranties or agreements
contained in the Investor Securities Purchase Agreement.
Management Securities Repurchase Agreements
Mr. Unger has entered into a Management Securities Repurchase Agreement with
Holdings, pursuant to which Holdings sold to Mr. Unger and Unger purchased from
Holdings certain Incentive Units. The Incentive Units purchased by Unger are
subject to vesting over a five-year period. In addition, the Management
Securities Repurchase Agreement provides that the Incentive Units purchased
thereunder will (i) subject to certain limitations, automatically vest in full
upon a Sale (as defined in the Management Securities Repurchase Agreement) of
Holdings and (ii) cease to vest upon the date on which Mr. Unger ceases to be
employed by Holdings or any of its subsidiaries. The Management Securities
Repurchase Agreement further provides that Holdings or MEM Holdings, LLC may
repurchase the Mr. Unger's unvested units at the initial purchase price at any
time within 18 months of termination of his employment. On November 30, 1998,
ABRY III transferred all of its membership units as well as, among other
things, all of its rights and obligations under the original Members Agreement
to MEM Holdings.
Members Agreement
Holdings, MEM Holdings, Joseph Koff, Mr. Unger and Music Holdings Corp.
("MHC") are parties to an Amended and Restated Members Agreement dated as of
March 18, 1999. Pursuant to the Members Agreement, MEM Holdings, Mr. Koff, Mr.
Unger and MHC have agreed to vote their equity interests in Holdings to elect
Mr. Unger to the Board. The Members Agreement also contains (i) certain "co-
sale" rights exercisable in the event of certain sales by ABRY III, (ii)
certain "drag along" sale rights exercisable by the Board of Holdings and
holders of a majority of the then Class A Units, in the event of an Approved
Company Sale (as defined in the Members Agreement), (iii) certain preemptive
rights and (iv) certain restrictions on transfers of membership interests by
Mr. Koff, Mr. Unger, MHC and its permitted transferees. The voting, co-sale,
drag along and transfer restrictions will terminate upon the consummation of
the first to occur of (a) a Qualified Public Offering (as defined in the
Members Agreement) or (b) an Approved Company Sale.
Securityholders Agreement
Holdings, MEM Holdings and Capstar Broadcasting are parties to a
Securityholders Agreement dated as of March 18, 1999. Pursuant to the
Securityholders Agreement, MEM Holdings and Capstar Broadcasting have agreed to
vote their equity interests in Holdings to establish the composition of the
Board and elect Steven Hicks as the Chairman. The Securityholders Agreement
also contains (i) certain "co-sale" rights exercisable in the event of certain
sales by MEM Holdings or Capstar Broadcasting, respectively, (ii) certain "drag
along" sale rights exercisable by the Board of Holdings and holders of a
majority of the then Class A Units, in the event of an Approved Company Sale
(as defined in the Securityholders Agreement), (iii) certain preemptive rights,
and (iv) any transfer by MEM Holdings is subject to a right of first offer by
Capstar Broadcasting, and vice versa. The voting restrictions will terminate
upon an Approved Company Sale. The drag-along and the transfer restrictions
will terminate upon the consummation of the first to occur of (a) a Qualified
Public Offering (as defined in the Securityholders Agreement) or (b) an
Approved Company Sale. The co-sale rights will terminate upon the consummation
of the first to occur of (a) an initial public offering by Holdings or (b) an
Approved Company Sale.
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<PAGE>
Registration Agreement
Holdings, MEM Holdings, Mr. Koff, Mr. Unger, MHC and Capstar are
Broadcasting parties to an Amended and Restated Registration Agreement.
Pursuant to the Registration Agreement, the holders of a majority of the ABRY
Registrable Securities (as defined in the Registration Agreement) may request
registration (a "Demand Registration") under the Securities Act of all or any
portion of the ABRY Registrable Securities (i) on Form S-1 or any similar long-
form registration, (ii) on Form S-2 or S-3 or any similar short-form
registration, if available, and (iii) on any applicable form pursuant to Rule
415 under the Securities Act. The holders of a majority of Capstar Registrable
Securities (as defined in the Registration Agreement), subject to certain terms
and conditions, may request a Demand Registration under the Securities Act of
all or any portion of the Capstar Registrable Securities (i) on Form S-1 or any
similar long-form registration and (ii) on Form S-2 or S-3 or any similar
short-from registration. In addition, all holders of Registrable Securities (as
defined in the Registration Agreement) will have unlimited "piggyback"
registration rights, which, subject to certain terms and conditions, entitle
them to include their registrable equity securities in any registration of
securities by Holdings (other than in certain registrations).
Holdings is responsible for all expenses incident to its performance under
the Registration Agreement, including without limitation all registration and
filing fees, fees and expenses of compliance with securities or blue sky laws,
printing expenses, fees of counsel for Holdings and the holders of registrable
securities and all independent certified public accountants and underwriters.
ABRY Management and Consulting Services Agreement
Pursuant to a Management Agreement between ABRY and Muzak dated as of
October 6, 1998, ABRY is entitled to a management fee when, and if, it provides
certain advisory and management consulting services to the Company and based on
the amount invested by ABRY and its affiliates in ACN. Muzak anticipates that
any such management fee, if incurred, would be $300,000 per annum payable
quarterly in arrears plus reimbursable expenses, adjusted as follows. The
Management Agreement provides that beginning in 1999, any applicable management
fee should be multiplied by 1.05 raised to the power obtained by subtracting
1998 from the number of the calendar year. Either ABRY or Muzak (with the
approval of the Board) may terminate the Management Agreement by prior written
notice to the other.
ABRY Subordinated Note
In connection with the Old ACN Acquisition, ACN borrowed approximately $40.8
million from ABRY III under the ABRY Subordinated Note. During 1998, no
interest payments were made on the ABRY Subordinated Note and interest accrued
at 9% per annum. The approximately $42.4 million outstanding under the ABRY
Subordinated Note (which includes the accrued interest) was paid in full and
the commitments thereunder terminated concurrently with the closing of the
Merger Transactions. See "Use of Proceeds."
Intercompany Loans
In connection with the Old ACN Acquisition, ACN borrowed $17.6 million from
Holdings. On October 9, 1998, ACN borrowed $850,000 from Holdings to provide
working capital and for acquisitions. On November 25, 1998, ACN borrowed an
additional $210,000 from Holdings for acquisitions. Each of these loans bore
interest at market rates and did not require scheduled cash payments.
On December 4, 1998, Holdings converted these loans of $18.7 million plus
accrued interest of approximately $0.1 million into membership units of ACN.
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Certain Family Relationships
William Boyd, Muzak's Chief Executive Officer, is the father of Robert Boyd,
the Company's Vice President, Eastern Region. Robert Boyd earned over $60,000
during 1998.
Richard Chaffee, Muzak's Vice President, Operations, is the husband of Susan
Chetwin, the Company's Vice President, Strategic Planning and Development and
is the brother of Donald Chaffee, the Company's Western Regional Operations
Manager. Both Ms. Chetwin and Donald Chaffee earned over $60,000 during 1998.
Old Muzak Option Plans
The Old Muzak Named Executive Officers held options that became fully
exercisable upon a change in control of Old Muzak. Upon the consummation of the
Merger such executives received cash payments of merger consideration with
respect to such options, estimated to be as follows: Mr. W. Boyd--$3,245,000;
Mr. Saldarini--$1,585,000, Mr. Tracy--$101,250, Mr. DeRose--$35,750 and Mr.
Kahn--$27,000.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Holdings owns all of the membership units of Muzak. The following table sets
forth certain information regarding the beneficial ownership of the Class A
Units of Holdings, which are the only outstanding membership interests in
Holdings with voting rights, as of May 3, 1999, by:
. holders having beneficial ownership of more than 5% of the voting equity
interests of Holdings,
. each director of Holdings,
. each Muzak Named Executive Officer and each ACN Named Executive Officer
of Holdings, and
. all directors and executive officers as a group.
For descriptions of certain voting and other arrangements among such
holders, see "Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
Beneficial
Ownership(a)
-----------------
Beneficial Owner Number Percentage
- ---------------- ------ ----------
<S> <C> <C>
ABRY Broadcast Partners III, L.P. ........................... 40,948 58.8%
18 Newbury Street
Boston, MA 02116
Capstar Broadcasting Corporation............................. 15,921 22.9%
600 Congress, Suite 1400
Austin, Texas 28701
ABRY Broadcast Partners II, L.P. ............................ 10,000 14.4%
18 Newbury Street
Boston, MA 02116
William A. Boyd.............................................. 1,155 1.7%
Charles A. Saldarini......................................... -- --
Steven M. Tracy.............................................. -- --
Joseph Koff.................................................. 534 *
Dino J. DeRose............................................... -- --
Kenneth F. Kahn.............................................. -- --
Steven Hicks................................................. -- --
Geoff Armstrong.............................................. -- --
Andrew Banks................................................. -- --
Peni Garber.................................................. -- --
David W. Unger............................................... 1,067 1.5%
Royce G. Yudkoff (b)......................................... 50,948 73.2%
Mitchell Kleinhandler........................................ -- --
All Directors and executive officers as a
group (18 persons).......................................... 69,625 100%
</TABLE>
- --------
*Less than 1%
(a) "Beneficial ownership" generally means any person who, directly or
indirectly, has or shares voting or investment power with respect to a
security or has the right to acquire such power within 60 days. Unless
otherwise indicated, we believe that each holder has sole voting and
investment power with regard to the equity interests listed as beneficially
owned.
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<PAGE>
(b) Mr. Yudkoff is the sole owner of the equity interests of ABRY Holdings III,
Inc., the general partner of ABRY Equity Investors, L.P., the general
partner of ABRY III. Mr. Yudkoff is also the sole owner of ABRY Holdings,
Inc., the general partner of ABRY Capital, L.P., which is the general
partner of ABRY II. As a result, Mr. Yudkoff may be deemed to beneficially
own the shares owned by ABRY III and ABRY II. The address of Mr. Yudkoff is
the address of ABRY.
Holdings Equity Structure
Muzak is a wholly-owned subsidiary of Holdings. Holdings has authorized two
classes of equity units: class A units and class B units, which we refer to
collectively as Units. Each class of the Units represents a fractional part of
the membership interests of Muzak and has the rights and obligations specified
in Holdings' Amended and Restated Limited Liability Company Agreement. To date,
certain of Holdings' class A units and class B units have been issued and are
outstanding.
Voting Units
Each class A unit is entitled to voting rights equal to the percentage such
Unit represents of the aggregate number of outstanding class A units (the
"Voting Units"). A preferred return (the "ACN Holdings Preferred Return")
accrues annually on the original issue price (the "Capital Value") of each
Voting Unit at a rate of 15% per annum. Holdings cannot pay distributions
(other than Tax Distributions) in respect of other classes of securities
(including distributions made in connection with a liquidation) until the
Capital Value and accrued Holdings Preferred Return in respect of each Voting
Unit is paid to each holder thereof (such distributions being the "Priority
Distributions"). In addition to the Priority Distributions, each holder of
Voting Units is also entitled to participate in distributions payable to the
residual common equity interests of Holdings (the "Last Priority
Distributions").
Non-Voting Units
The class B units (the "Non-Voting Units") are non-voting equity interests
in Holdings. The class B-1 units, class B-2 units and class B-3 units (the
"Incentive Units") were issued to Mr. Unger subject to the terms and conditions
set forth in his Management Securities Repurchase Agreement. The class B-4
units were issued to Music Holdings Corp. concurrently with the closing of the
Merger under the terms and conditions set forth in the Merger Agreement. On
March 25, 1999, Holdings issued a total of 7,501 Incentive Units to all of the
executive officers of Muzak except Richard Chaffee and Jack D. Craig, and to
other employees of Muzak. Each holder of the class B units is entitled to
participate in Last Priority Distributions, if any, provided that Priority
Distributions on all Voting Units shall have been paid in full.
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<PAGE>
LLC AGREEMENTS
Muzak and Holdings are each limited liability companies organized under the
Delaware Limited Liability Company Act, and each are governed by a limited
liability company agreement that governs the relative rights and duties of the
members.
Muzak LLC
The Amended and Restated Limited Liability Company Agreement of Muzak
provides that the business and affairs of Muzak are to be managed by or under
the direction of a Board. The Directors are to be elected by the members,
although the Board may fill a vacancy. Directors hold office until their
successors are elected and qualified or until their earlier resignation or
removal. The number of Directors may be increased or decreased by the
Directors. Each Director is entitled to one vote. The ownership interests of
Holdings in Muzak consist of 100 membership units.
This agreement, and therefore Muzak's existence, will continue in effect
until the earlier to occur of:
. the sale or other disposition by Muzak of all or substantially all of
the assets it then owns;
. the written consent of the Members holding greater than a majority of
the outstanding Common Units; or
. the entry of a decree of judicial dissolution under the Delaware Limited
Liability Company Act.
Holdings LLC
The Limited Liability Company Agreement of Holdings was amended and restated
concurrently with the closing of the Merger. Pursuant to this agreement, the
business and affairs of Holdings are managed by or under the direction of a
Board. The Directors are elected by the Members. Each Director is designated as
either a "Class A Director" or a "Class B Director." Directors hold office
until their successors are elected and qualified or until their earlier
resignation or removal. The number of Directors may be increased or decreased
by the Board. Each Class A Director is entitled to three votes and each Class B
Director is entitled to one vote. Any decisions to be made by the Board
requires the approval of a majority of votes of the Board. ABRY III, as the
beneficial owner, owns the majority of the voting membership units of Holdings,
and as such controls the policies and operations of Holdings and of Muzak
through Holdings.
This agreement, and therefore Holdings' existence, will continue in effect
until the earlier to occur of:
. the sale or other disposition by Holdings of all or substantially all of
the assets it then owns;
. a vote to dissolve Holdings by members that own units representing at
least a majority of the voting interests; or
. the entry of a decree of judicial dissolution under the Delaware Limited
Liability Company Act.
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<PAGE>
DESCRIPTION OF THE SENIOR CREDIT FACILITY
General. As part of the Merger Transactions, we entered into a senior credit
facility (the "Senior Credit Facility") with Goldman Sachs Credit Partners L.P.
("GSCP") as a lender and as Syndication Agent, Canadian Imperial Bank of
Commerce ("CIBOC") as a lender and as Administrative Agent, and certain other
financial institutions (the "Lenders").
The Senior Credit Facility provides for two term loans to Muzak for $30.0
million and $105.0 million ("Term Loan A" and "Term Loan B," respectively, and
collectively, the "Term Loans") and revolving loans to Muzak for up to $35.0
million (the "Revolving Loan" and, together with the Term Loans, the "Loans").
Subject to certain restrictions, the Senior Credit Facility may be used to
finance the acquisition of Merger Transactions (including the repayment of up
to $42.4 million of loans made by ABRY III) and the Electro Systems, and for
working capital and general corporate purposes of Muzak and its subsidiaries,
including transaction fees and expenses. Prior to December 31, 2000, Muzak may
request lenders to commit to additional loans of up to $50 million under a
second revolving credit facility, subject to certain conditions. The
obligations of the Lenders to provide the initial advances under the Senior
Credit Facility will be subject to the satisfaction of certain conditions.
Repayment. The Revolving Loan must be repaid on or before December 31, 2005.
Prior to that time, the Revolving Loan may be borrowed, repaid and reborrowed,
without premium or penalty subject to the satisfaction of certain conditions on
the date of any such borrowing. The Term Loans are required to be amortized in
equal semi-annual installments on June 30 and December 31 of each year,
beginning on June 30, 2000, as set forth below:
<TABLE>
<CAPTION>
Term Loan A Term Loan B
Year Amortization Amortization
---- ------------ ------------
<S> <C> <C>
2000 7.5% 1.0%
2001 12.5% 1.0%
2002 17.5% 1.0%
2003 20.0% 1.0%
2004 20.0% 15.0%
2005 22.5% 25.0%
2006 N/A 56.0%
------ ------
Totals: 100.0% 100.0%
</TABLE>
Prepayments of Term Loan B other than scheduled payments will be subject to
prepayment penalties of 2% of the amount of the repayment, within the first
year, or 1% of the amount of the repayment during the second year. In addition,
the Senior Credit Facility provides for mandatory repayments with corresponding
permanent reductions on Revolving Loan commitments of any outstanding
borrowings, subject to certain exceptions) out of any proceeds received from a
sale of assets, net cash proceeds of permitted debt issuances, net cash
proceeds from insurance recovery and condemnation events and, beginning
December 31, 2000 the Senior Credit Facility requires certain annual excess
cash repayments.
Security; Guaranty. The obligations of the Company under the Senior Credit
Facility are guaranteed by Holdings and will be guaranteed by each of Muzak's
future direct and indirect domestic subsidiaries. The obligations of Muzak
under the Senior Credit Facility and each of the guarantors under its guarantee
is or will be secured by first priority security interests in all material
intellectual property of Muzak and the guarantors, all other property and
assets (other than non-material real property) of Muzak and the guarantors, and
a pledge of all of the membership units, or stock, as applicable, of Muzak and
each guarantor.
Interest. At Muzak's option, the interest rates per annum applicable to the
loans under the Senior Credit Facility will be a fluctuating rate of interest
measured by reference to one or a combination, at Muzak's election, of the
following rates plus the applicable borrowing margin:
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<PAGE>
. the greater of (a) CIBOC's announced prime commercial lending rate or
(b) the federal funds rate plus 0.5% (the "Base Rate"); or
. LIBOR, adjusted for reserves.
The applicable borrowing margin for Base Rate borrowings under Term Loan A
and the Revolving Loan ranges from 1.0% if the Company's Total Leverage Ratio
is less than 3.75:1 to 2.0% if the Company's Total Leverage Ratio is greater
than or equal to 5.25:1. The applicable borrowing margin for LIBOR loans under
Term Loan A and the Revolving Loan ranges from 2.0% if the Company's Total
Leverage Ratio is less than 3.75:1 to 3.0% if the Company's Total Leverage
Ratio is greater than or equal to 5.25:1. The applicable margin for borrowings
under Term Loan B is 2.50% for all Base Rate borrowings and 3.50% for all
LIBOR borrowings.
Fees. Muzak has agreed to pay certain fees in connection with the Senior
Credit Facility, including: (i) arrangement fees; (ii) agency fees; and (iii)
commitment fees. Commitment fees range from 0.375% if the Company's Leverage
Ratio is less than or equal to 4:1 to 0.625% if Muzak's Leverage Ratio is
greater than or equal to 5:1.
Covenants. The Senior Credit Facility contains negative covenants which,
among other things, restrict the ability of Holdings, Muzak and its
subsidiaries (subject to certain exceptions) to incur indebtedness, incur
liens, issue guarantees, transact with affiliates, declare or pay dividends or
redeem or repurchase capital stock, make loans and investments, repay other
debt, engage in other lines of business, engage in mergers, acquisitions, sale
and leaseback transactions and asset sales, acquire assets, stock, or debt
securities of any person, have additional subsidiaries, amend certain material
agreements, including the Indenture and make capital expenditures. The Senior
Credit Facility also requires Muzak and its restricted subsidiaries to satisfy
certain customary affirmative covenants, including financial reporting, notice
provisions, books and records, inspection of property, maintenance of property
and insurance, maintenance of corporate rights, maintain interest rate
protection, payment of taxes, contributions from Holdings to Muzak, cash
management systems, pledges of additional collateral, security and guarantees,
use of proceeds, to make certain representations and warranties, including
Year 2000 preparedness and to make certain customary indemnifications to the
Lenders and the agents under the Senior Credit Facility.
The Senior Credit Facility further requires Muzak to maintain compliance
with four financial covenants:
. Total Leverage Ratio: restricts the amount of total debt less amounts
outstanding under certain letters of credit as a ratio of annualized
operating cash flow for the most recent fiscal quarter, adjusted for
acquisitions, dispositions, exchanges and franchise terminations;
. Senior Leverage Ratio: restricts the amount of senior debt as a ratio
of annualized operating cash flow for the most recent fiscal quarter,
adjusted for acquisitions, dispositions, exchanges and franchise
terminations;
. Interest Coverage Ratio: establishes minimum amounts of operating cash
flow as a ratio of consolidated interest expense; and
. Fixed Charge Coverage Ratio: establishes minimum amounts of operating
cash flow as a ratio of fixed charges.
Events of Default. The Senior Credit Facility contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, certain events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-default to certain other indebtedness,
and a change in control of Holdings or Muzak.
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<PAGE>
DESCRIPTION OF THE NOTES
The Issuers have issued the existing notes and will issue the exchange notes
(collectively, the "Notes") under an Indenture, dated as of March 18, 1999 by
and among themselves, the Guarantors and State Street Bank and Trust Company,
as trustee. The terms of the Notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939, as amended (the "TIA") as in effect on the date of the Indenture. The
Notes are subject to all such terms, and holders of the Notes are referred to
the indenture and the TIA for a statement of them. The following is a summary
of the material terms and provisions of the Notes. This summary does not
purport to be a complete description of the Notes and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the
Notes and the indenture (including the definitions contained therein). A copy
of the form of indenture may be obtained from the Issuers by any holder or
prospective investor upon request. Definitions relating to certain capitalized
terms are set forth under "--Certain Definitions." Capitalized terms that are
used but not otherwise defined herein have the meanings ascribed to them in the
Indenture and such definitions are incorporated herein by reference.
General
The Notes are limited in aggregate principal amount to $150 million of which
$115 million in aggregate principal amount was issued in the initial offering.
Additional Notes in an aggregate principal amount of up to $35 million may be
issued from time to time, subject to the limitations set forth under "--Certain
Covenants--Limitation on Additional Indebtedness" below. The Notes are general
unsecured joint and several obligations of the Issuers, subordinated in right
of payment to Senior Indebtedness of each Issuer and senior in right of payment
to any current or future subordinated indebtedness of each Issuer.
The Guarantors, together with each other Restricted Subsidiary of Muzak,
other than Capital Corp., which guarantees payment of the Notes pursuant to the
covenant described under "--Certain Covenants--Limitation on Creation of
Subsidiaries." will jointly and severally guarantee the Notes, on a senior
unsecured subordinated basis, as to payment of principal, premium, if any, and
interest.
Maturity, Interest and Principal
The Notes will mature on March 15, 2009. The Notes will bear interest at a
rate of 9.875% per annum from the Issue Date until maturity. Interest is
payable semi-annually in arrears on each March 15 and September 15 commencing
September 15, 1999, to holders of record of the Notes at the close of business
on the immediately preceding March 1 and September 1, respectively. The
interest rate on the Notes is subject to increase, and such Additional Interest
will be payable on the payment dates set forth above, in certain circumstances,
if the Notes (or other securities substantially similar to the Notes) are not
registered with the Commission within the prescribed time periods. See
"Exchange Offer; Registration Rights."
Optional Redemption
The Issuers may redeem the Notes at their option in whole at any time or in
part from time to time on or after March 15, 2004 at the following redemption
prices (expressed as percentages of the principal amount thereof), together, in
each case, with accrued and unpaid interest, if any, to the redemption date, if
redeemed during the twelve-month period beginning on March 15 of each year
listed below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................................................... 104.938%
2005........................................................... 103.292%
2006........................................................... 101.646%
2007 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, the Issuers may redeem in the aggregate up to
35% of the original principal amount of Notes at any time and from time to time
prior to March 15, 2002 at a redemption price
73
<PAGE>
equal to 109.875% of the aggregate principal amount so redeemed, plus accrued
and unpaid interest, if any, to the redemption date out of the net cash
proceeds of one or more Equity Offerings; provided that
(1) at least 65% of the principal amount of Notes originally issued
remains outstanding immediately after the occurrence of any such redemption
and
(2) any such redemption occurs within 60 days following the closing of
any such Equity Offering.
In the event of a redemption of fewer than all of the Notes, the trustee
shall select the Notes to be redeemed in compliance with the requirements of
the principal national securities exchange, if any, on which such Notes are
listed, or if such Notes are not then listed on a national securities
exchange, on a pro rata basis, by lot or in such other manner as the Trustee
shall deem fair and equitable. The Notes will be redeemable in whole or in
part upon not less than 30 nor more than 60 days' prior written notice, mailed
by first class mail to a holder's last address as it shall appear on the
register maintained by the Registrar of the Notes. On and after any redemption
date, interest will cease to accrue on the Notes or portions thereof called
for redemption.
Subordination
The payment of all Obligations on the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the
prior indefeasible payment and satisfaction in full in cash of all existing
and future Senior Indebtedness of each Issuer. As of December 31, 1998, after
giving pro forma effect to the Transactions, the principal amount of
outstanding Senior Indebtedness of the Issuers, on a consolidated basis, would
have been $145.4 million.
In the event of any
(1) bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to any Issuer or to its assets, whether voluntary or
involuntary;
(2) liquidation or dissolution or other winding-up of any Issuer,
whether voluntary or involuntary;
(3) assignment by any Issuer for the benefit of its creditors; or
(4) marshalling of assets or liabilities of any Issuer
(all of the foregoing events described in clauses (1) through (4) referred to
herein individually as a "Bankruptcy Proceeding" and collectively as
"Bankruptcy Proceedings"), the holders of Senior Indebtedness of such Issuer
will be entitled to receive indefeasible payment and satisfaction in full in
cash of all amounts due on or in respect of all Senior Indebtedness (including
interest after the commencement of any such proceedings at the rate specified
in the applicable Senior Indebtedness, whether or not an allowed claim) of
such Issuer before the holders of the Notes are entitled to receive or retain
any payment or distribution of any kind (other than a payment or distribution
from the trust described under "--Defeasance and Covenant Defeasance") on
account of the Notes or any Obligations under the Notes, the Registration
Rights Agreement or the Indenture. By reason of such subordination, in the
event of any such Bankruptcy Proceeding, creditors of an Issuer who are
holders of Senior Indebtedness may recover more, ratably, than other creditors
of such Issuer, including holders of the Notes.
Upon the occurrence of a Payment Default on Senior Indebtedness, no payment
or distribution (other than a payment or distribution from the trust described
under "--Defeasance and Covenant Defeasance") of any kind or character
(including, without limitation, cash, property and any payment or distribution
which may be payable or deliverable by reason of the payment of any other
indebtedness of any Issuer being subordinated to the payment of the Notes by
such Issuer) may be made by or on behalf of such Issuer or any Restricted
Subsidiary of such Issuer, including, without limitation, by way of set-off or
otherwise, for or on account of the Notes or any Obligations under the Notes,
the Registration Rights Agreement or the Indenture, or for or on account of
the purchase, redemption or other acquisition of any Notes or any Obligations
under the Notes, the Registration Rights Agreement or the Indenture, and
neither the Trustee nor any holder or owner of any Notes shall take or receive
from such Issuer or any Restricted Subsidiary of such Issuer, directly or
indirectly in any
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<PAGE>
manner, payment in respect of all or any portion of Notes or any Obligations
under the Notes, the Registration Rights Agreement or the Indenture commencing
on the date of receipt by the Trustee of written notice from the representative
of the holders of Senior Indebtedness (the "Representative") of the occurrence
of such Payment Default, and in any such event, such prohibition shall continue
until such Payment Default is cured, waived in writing or otherwise ceases to
exist. At such time as the prohibition set forth in the preceding sentence
shall no longer be in effect, subject to the provisions of the following
paragraph, such Issuer shall resume making any and all required payments in
respect of the Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution (other than a payment or distribution
made from the trust described under "--Defeasance and Covenant Defeasance") of
any kind or character (including, without limitation, cash, property and any
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of any Issuers being subordinated to the
payment of the Notes by such Issuer) may be made by such Issuer or any
Restricted Subsidiary of such Issuer, including, without limitation, by way of
set-off or otherwise, for or on account of the Notes or any Obligations under
the Notes, the Registration Rights Agreement or the Indenture, or for or on
account of the purchase, redemption or other acquisition of any Notes or any
Obligations under the Notes, the Registration Rights Agreement or the
Indenture, and neither the Trustee nor any holder or owner of any Notes shall
take or receive from such Issuer or any Restricted Subsidiary of such Issuer,
directly or indirectly in any manner, payment in respect of all or any portion
of the Notes or any Obligations under the Notes, the Registration Rights
Agreement or the Indenture for a period (a "Payment Blockage Period")
commencing on the date of receipt by the Trustee of written notice from the
Representative of such Non-Payment Event of Default unless and until (subject
to any blockage of payments that may then be in effect under the preceding
paragraph) the earliest of
(1) more than 179 days shall have elapsed since receipt of such written
notice by the Trustee,
(2) such Non-Payment Event of Default shall have been cured or waived in
writing or otherwise shall have ceased to exist or such Designated Senior
Indebtedness shall have been indefeasibly paid in full or
(3) such Payment Blockage Period shall have been terminated by written
notice to such Issuer or the Trustee from such Representative,
after which, in the case of clause (1), (2) or (3), such Issuer shall resume
making any and all required payments in respect of the Notes, including any
missed payments. Notwithstanding any other provision of the Indenture, in no
event shall a Payment Blockage Period commenced in accordance with the
provisions of the Indenture described in this paragraph extend beyond 179 days
from the date of the receipt by the Trustee of the notice referred to above
(the "Initial Blockage Period"). Any number of additional Payment Blockage
Periods may be commenced during the Initial Blockage Period; provided, however,
that no such additional Payment Blockage Period shall extend beyond the Initial
Blockage Period. After the expiration of the Initial Blockage Period, no
Payment Blockage Period may be commenced until at least 180 consecutive days
have elapsed from the last day of the Initial Blockage Period. Notwithstanding
any other provision of the Indenture, no Non-Payment Event of Default with
respect to Designated Senior Indebtedness which existed or was continuing on
the date of the commencement of any Payment Blockage Period initiated by the
Representative shall be, or be made, the basis for the commencement of a second
Payment Blockage Period initiated by the Representative, whether or not within
the Initial Blockage Period, unless such Non-Payment Event of Default shall
have been cured or waived for a period of not less than 90 consecutive days.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of such Issuer of any
kind, whether in cash, property or securities, including, without limitation,
by way of set-off or otherwise, in respect of the Notes or any Obligations
under the Notes, the Registration Rights Agreement or the Indenture, before all
Senior Indebtedness of such Issuer is indefeasibly paid and satisfied in full
in cash, then such payment or distribution (other than a payment or
distribution from the trust described under "--Defeasance and Covenant
Defeasance") will be held by the recipient in trust for
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the benefit of holders of Senior Indebtedness and will be immediately paid over
or delivered to the holders of Senior Indebtedness or their representative or
representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior indefeasible payment in full of
all Senior Indebtedness of the respective Guarantor and will be subject to the
rights of holders of Designated Senior Indebtedness of such Guarantor to
initiate blockage periods, upon terms substantially comparable to the
subordination of the Notes to all Senior Indebtedness of the Issuers.
If the Issuers or any Guarantor fail to make any payment on the Notes or any
Guarantee, as the case may be, when due or within any applicable grace period,
whether or not on account of payment blockage provisions, such failure would
constitute an Event of Default under the Indenture and would enable the holders
of the Notes to accelerate the maturity thereof. See "--Events of Default."
A holder of Notes by its acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on its behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee its
attorney-in-fact for such purpose.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
Muzak will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, incur (as defined) any Indebtedness (including Acquired
Indebtedness); provided that if no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the incurrence of
such Indebtedness, the Issuers and any of the Guarantors may incur Indebtedness
(including Acquired Indebtedness) if after giving effect to the incurrence of
such Indebtedness and the receipt and application of the proceeds thereof,
Muzak's Consolidated Leverage Ratio is less than 6.5 to 1 if such Indebtedness
is incurred on or before March 15, 2001 and 6.0 to 1 if such Indebtedness is
incurred thereafter.
Notwithstanding the foregoing, Muzak and its Restricted Subsidiaries may
incur Permitted Indebtedness. For purposes of determining compliance with this
covenant, in the event that an item of proposed Indebtedness meets the criteria
of more than one of the categories of Permitted Indebtedness as of the date of
incurrence thereof or is entitled to be incurred pursuant to the first
paragraph of this covenant as of the date of incurrence thereof, Muzak shall,
in its sole discretion, classify or reclassify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant and the payment of dividends on Disqualified Capital
Stock in the form of additional shares of the same class of Disqualified
Capital Stock will not be deemed an issuance of Disqualified Capital Stock.
Limitation on Other Senior Subordinated Indebtedness
Muzak will not, and will not permit any of the Guarantors to, directly or
indirectly, incur, contingently or otherwise, any Indebtedness (other than the
Notes and the Guarantees, as the case may be) that is both (i) subordinated in
right of payment to any Senior Indebtedness of Muzak or any of the Guarantors,
as the case may be, and (ii) senior in right of payment to the Notes and the
respective Guarantee of any such Guarantor, as the case may be. For purposes of
this covenant, Indebtedness is deemed to be senior in
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right of payment to the Notes or the Guarantees, as the case may be, if it is
not explicitly subordinated in right of payment to Senior Indebtedness at least
to the same extent as the Notes and the Guarantees, as the case may be, are
subordinated to such Senior Indebtedness.
Limitation on Restricted Payments
Muzak will not make, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make, any Restricted Payment, unless:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(2) immediately after giving pro forma effect to such Restricted
Payment, Muzak could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under "--Limitation on Additional Indebtedness"
above; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of
(a) 100% of Muzak's Cumulative EBITDA (or, in the event that such
Cumulative EBITDA shall be a deficit, minus 100% of such deficit) minus
1.4 times Muzak's Cumulative Consolidated Interest Expense,
(b) 100% of the aggregate net cash proceeds received by Muzak from
the issue or sale after the Issue Date of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued to
any Subsidiary of the Company) of the Company or any Indebtedness or
other securities of Muzak convertible into or exercisable or
exchangeable for Capital Stock (other than Disqualified Capital Stock)
of Muzak which have been so converted, exercised or exchanged, as the
case may be,
(c) without duplication of any amounts included in clause (3)(b)
above, 100% of the aggregate net proceeds (including the fair market
value of property other than cash) received by Muzak from any equity
contribution from a holder of Muzak's Capital Stock, excluding, in the
case of clauses (3)(b) and (c), (i) any net proceeds from an Equity
Offering to the extent used to redeem the Notes and (ii) any net
proceeds directly or indirectly received in connection with the Pending
Capstar Acquisition, and
(d) without duplication, the sum of
(i) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent to
the Issue Date whether through interest payments, principal
payments, dividends or other distributions;
(ii) the net proceeds received by Muzak or any of its Restricted
Subsidiaries from the disposition, retirement or redemption of all
or any portion of such Investments (other than to a Subsidiary of
Muzak); and
(iii) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the net assets of
such Subsidiary;
provided, however, that the sum of clauses (i), (ii) and (iii) above shall not
exceed the aggregate amount of all such Investments made subsequent to the
Issue Date.
For purposes of determining under clause (3) above the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit
(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the indenture,
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(2) the repurchase, redemption, defeasance or other acquisition or
retirement of any shares of Capital Stock of Muzak or of Indebtedness that
is subordinated to the Notes by conversion into, or by or in exchange for,
shares of Capital Stock of Muzak (other than Disqualified Capital Stock),
or out of the net cash proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of other shares of Capital Stock of
Muzak (other than Disqualified Capital Stock),
(3) the redemption, repurchase, defeasance, retirement or other
acquisition of Indebtedness of Muzak that is subordinated to the Notes in
exchange for, by conversion into, or out of the net cash proceeds of a
substantially concurrent sale or incurrence of, Indebtedness of Muzak
(other than any Indebtedness owed to a Subsidiary) that is Refinancing
Indebtedness,
(4) the retirement of any shares of Disqualified Capital Stock of Muzak
by conversion into, or by exchange for, shares of Disqualified Capital
Stock of Muzak, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares
of Disqualified Capital Stock of Muzak,
(5) the payment of any dividend or distribution to the extent necessary
to permit direct or indirect beneficial owners of shares of Capital Stock
of Muzak to pay federal, state or local income tax liabilities arising from
income of the Company and attributable to them solely as a result of Muzak
(and any intermediate entity through which the holder owns such shares)
being a limited liability company, partnership or similar entity for
federal income tax purposes (collectively "Permitted Tax Distributions"),
(6) the repurchase, redemption or other acquisition or retirement for
value of any Capital Stock of Muzak or the payment of a dividend to
Holdings to effect the repurchase, redemption or other acquisition or
retirement for value of Holdings' Capital Stock that is held by any current
or former members of the management of Muzak (or any of its Restricted
Subsidiaries) pursuant to any management equity subscription or purchase
agreement, members agreement, securityholders agreement or stock option
agreement or similar agreement, in an aggregate amount not to exceed $2
million in any fiscal year (which amount shall be increased by the amount
of any proceeds to Muzak from (x) without duplication of any amounts
included in clauses 3(b) and (c) of the first paragraph above, sales of
Capital Stock (other than Disqualified Capital Stock) of the Company or
Holdings (which net proceeds have been contributed by Muzak) to management
or other employees subsequent to the Issue Date and (y) any "key-man" life
insurance policies which are used to make such redemptions or repurchases);
provided, that the cancellation of Indebtedness owing to Muzak from
management or other employees of Muzak or any of its Restricted
Subsidiaries in connection with a repurchase of Capital Stock of the
Company will not be deemed to constitute a Restricted Payment under the
Indenture,
(7) the making of distributions, loans or advances in an amount not to
exceed $1 million in any calendar year sufficient to permit Holdings to pay
the ordinary operating expenses of Holdings (including, without limitation,
directors' fees, indemnification obligations, professional fees and
expenses) relating to Holdings' ownership of Capital Stock of Muzak,
(8) payments or distributions to Holdings on and after September 15,
2004 in an amount sufficient to permit Holdings to make cash interest
payments when due to holders of Holdings' Senior Discount Notes in
accordance with the terms of the Senior Discount Notes as in effect on the
Issue Date or such earlier time as Holdings shall become obligated to pay
additional interest thereon pursuant to the registration rights agreement
related thereto as in effect on the Issue Date,
(9) any payments or distributions or other transactions to be made in
connection with the Merger Transactions, the Electro Systems Acquisition or
the Pending Capstar Acquisition, including the repayment of loans made by
ABRY III (including, in each case, fees and expenses incurred in connection
therewith),
(10) Investments received in connection with an Asset Sale that complies
with the covenant described under "--Limitation on Certain Asset Sales"
below,
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(11) payments or distributions to dissenting stockholders pursuant to
transactions permitted under the terms of the indenture,
(12) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof,
(13) payments to enable the Company or Holdings to make payments to
holders of their Capital Stock in lieu of issuance of fractional shares of
their Capital Stock,
(14) payment of principal and interest on funds on the ABRY Subordinated
Debt in accordance with the terms thereof,
(15) any dividend or distribution made so long as concurrently therewith
a capital contribution in an equal amount is made to the Company, and
(16) other Restricted Payments in an aggregate amount not to exceed $5
million.
In calculating the aggregate amount of Restricted Payments made subsequent
to the Issue Date for purposes of clause (3) of the first paragraph above,
amounts expended pursuant to clauses (1), (2), (8) and (15) of the immediately
preceding paragraph shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Issuers shall
deliver to the trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described above were computed, which calculations may
be based upon the Issuers' latest available financial statements, and (other
than with respect to any Restricted Payment permitted under clauses (5), (6)
and (7)) that no Default or Event of Default has occurred and is continuing
and no Default or Event of Default will occur immediately after giving effect
to any such Restricted Payments.
Limitation on Investments
Muzak will not, and will not permit any of its Restricted Subsidiaries to,
make any Investment other than
(1) a Permitted Investment or
(2) an Investment that is made after the Issue Date as a Restricted
Payment in compliance with the "Limitation on Restricted Payments"
covenant.
Limitation on Liens
Muzak will not, and will not permit any of its Restricted Subsidiaries to,
create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind (other than Permitted Liens) upon any property or asset of
Muzak or any of its Restricted Subsidiaries or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary of Muzak which owns property or
assets, now owned or hereafter acquired, unless
(1) if such Lien secures Indebtedness which is subordinated to the
Notes, any such Lien shall be subordinated to any Lien granted to the
holders of the Notes to the same extent as such Indebtedness is
subordinated to the Notes and
(2) in all other cases, the Notes are equally and ratably secured.
Limitation on Transactions with Affiliates
Muzak will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with any
Affiliate (each an "Affiliate
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Transaction") or extend, renew, waive or otherwise modify the terms of any
Affiliate Transaction entered into prior to the Issue Date unless
(1) such Affiliate Transaction is between or among Muzak and its
Restricted Subsidiaries; or
(2) the terms of such Affiliate Transaction are at least as favorable as
the terms which could be obtained by Muzak or such Restricted Subsidiary,
as the case may be, in a comparable transaction made on an arm's-length
basis between unaffiliated parties.
In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $2.5 million which is not permitted
under clause (1) above, Muzak must obtain a resolution of the Board of
Directors of Muzak certifying that such Affiliate Transaction complies with
clause (2) above. In any Affiliate Transaction (or any series of related
Affiliate Transactions which are similar or part of a common plan) involving an
amount or having a fair market value in excess of $10 million which is not
permitted under clause (1) above, Muzak must obtain a favorable written opinion
as to the fairness of such transaction or transactions, as the case may be,
from an Independent Financial Advisor.
The foregoing provisions will not apply to
(1) any Restricted Payment that is not prohibited by the provisions
described under "--Limitation on Restricted Payments" above,
(2) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, Directors, employees or consultants of Muzak or any
Restricted Subsidiary of Muzak as determined in good faith by Muzak's Board
of Directors or senior management,
(3) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
holders in any material respect than the original agreement as in effect on
the Issue Date,
(4) transactions effected as part of a Qualified Securitization
Transaction,
(5) any employment agreement entered into by Muzak or any of its
Restricted Subsidiaries in the ordinary course of business, and advances to
employees for moving, entertainment and travel expenses, drawing accounts
and similar expenditures in the ordinary course of business,
(6) the existence of, or the performance by Muzak or any of its
Restricted Subsidiaries of its obligations under the terms of, any
securityholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by Muzak or
any of its Restricted Subsidiaries of obligations under, any future
amendment to any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause
(6) to the extent that the terms of any such amendment or new agreement are
not otherwise disadvantageous to the Holders of the Notes in any material
respect,
(7) transactions permitted by, and complying with, the provisions
described under "--Merger, Consolidation and Sale of Assets" below,
(8) payments of principal and interest on the ABRY Subordinated Debt in
accordance with the terms thereof,
(9) transactions with customers, clients, suppliers, joint venture
partners or purchasers or sellers of goods or services, in each case in the
ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of the
Indenture which are fair to Muzak or its Restricted Subsidiaries, in the
reasonable determination of the Board of Directors of
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Muzak or the senior management thereof, or are on terms at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party,
(10) all transactions associated with the Merger Transactions and the
Pending Capstar Acquisition, including the repayment of loans made by ABRY
III,
(11) transactions pursuant to the ABRY Management Agreement or pursuant
to the terms of any amendment thereto or restatement thereof which terms
are not more disadvantageous to the holders in any material respect than
the terms of such agreement as in effect on the Issue Date as determined in
good faith by the Board of Directors of Muzak and evidenced by a board
resolution, and
(12) with regard to the requirement to obtain the opinion of an
Independent Financial Advisor only, the issuance of Capital Stock of Muzak;
provided that said issuance has been approved by the Board of Directors of
Muzak and the board resolution described in the immediately preceding
paragraph has been delivered to the Trustee.
Limitation on Creation of Subsidiaries
Muzak will not create or acquire, and will not permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than
(1) a Restricted Subsidiary existing as of the Issue Date,
(2) a Restricted Subsidiary that is acquired or created after the Issue
Date, provided, however, that each Restricted Subsidiary (other than any
Foreign Restricted Subsidiary or Capital Corp.) acquired or
created pursuant to this clause (2) shall have executed a Guarantee,
satisfactory in form and substance to the Trustee (and with such
documentation relating thereto as the Trustee shall require, including,
without limitation a supplement or amendment to the Indenture and opinions
of counsel as to the enforceability of such Guarantee), pursuant to which
such Restricted Subsidiary will become a Guarantor, or
(3) an Unrestricted Subsidiary.
As of the Issue Date, Muzak will have no Restricted Subsidiaries, other
than the Guarantors and Capital Corp. See "Description of the Notes--General."
Limitation on Certain Asset Sales
Muzak will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless
(1) Muzak or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal
to the fair market value of the assets sold or otherwise disposed of (as
determined in good faith by the Board of Directors of Muzak, and evidenced
by a board resolution);
(2) not less than 75% of the consideration received by Muzak or such
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents or a controlling interest in a Person whose assets are useful
to Muzak, or any combination thereof, except to the extent to which Muzak
is undertaking a Permitted Asset Swap; provided that the amount of
(a) any liabilities (as shown on Muzak's or such Restricted
Subsidiary's most recent balance sheet), of Muzak or any of its
Restricted Subsidiaries (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes) that are
assumed by the transferee of any such assets shall be deemed to be cash
for purposes of this clause (2); and
(b) any securities, notes or other obligations received by Muzak or
any such Restricted Subsidiary from such transferee that are promptly
converted by Muzak or such Restricted Subsidiary into cash (to the
extent of the cash received), shall be deemed to be cash for purposes of
this clause (2); and
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(3) the Asset Sale Proceeds received by Muzak or such Restricted
Subsidiary are applied
(a) first, to the extent Muzak or any such Restricted Subsidiary, as
the case may be, elects, or is required, to prepay, repay or purchase
indebtedness under any then existing Senior
Indebtedness of Muzak or any such Restricted Subsidiary within 360 days
following the receipt of the Asset Sale Proceeds from any Asset Sale;
provided that any such repayment shall result in a permanent reduction
of the commitments thereunder in an amount equal to the principal
amount so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds
after application as described above, to the extent Muzak elects, to an
investment in assets (including Capital Stock or other securities
purchased in connection with the acquisition of Capital Stock or
property of another Person) used or useful in businesses reasonably
related, ancillary or complementary to the business of Muzak or any
such Restricted Subsidiary as conducted on the Issue Date; provided
that such investment occurs within 360 days following receipt of such
Asset Sale Proceeds; and
(c) third, if on such 360th day with respect to any Asset Sale, the
Available Asset Sale Proceeds exceed $10 million, Muzak shall apply an
amount equal to the Available Asset Sale Proceeds to an offer to
repurchase the Notes and all other pari passu Indebtedness of Muzak
containing provisions substantially similar to those set forth in the
Indenture regarding offers to purchase or redeem with Asset Sale
Proceeds, in each case, at a purchase price in cash equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any,
to the purchase date (an "Excess Proceeds Offer").
If an Excess Proceeds Offer is not fully subscribed, Muzak may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes
and such pari passu Indebtedness.
Pending the final application of any Asset Sale Proceeds, Muzak or such
Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Asset Sale Proceeds in Cash
Equivalents.
If Muzak is, or may be, required to make an Excess Proceeds Offer, Holdings
may be required to make a similar offer to purchase the Senior Discount Notes
(and any pari passu Indebtedness) from the holders thereof. In such event,
Muzak and Holdings may make concurrent similar offers to purchase the Notes
(and any pari passu Indebtedness) and the Senior Discount Notes (and any pari
passu Indebtedness containing similar provisions), respectively. If such
concurrent offers are made, the Asset Sale Proceeds will first be used to
redeem any Notes (and any pari passu Indebtedness of the Company) tendered
pursuant to such offer by Muzak. To the extent that any Asset Sale Proceeds
remain after such offer by Muzak and to the extent permitted by the indenture
including, without limitation, pursuant to "--Limitation on Restricted
Payments" above, such remaining Asset Sale Proceeds will be used to redeem
Indebtedness of Holdings including the Senior Discount Notes.
If Muzak is required to make an Excess Proceeds Offer, Muzak shall mail,
within 45 days following the date specified in clause (3)(c) above, a notice to
the holders stating, among other things:
(1) that such holders have the right to require Muzak to apply the
Available Asset Sale Proceeds to repurchase such Notes at a purchase price
in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date;
(2) the purchase date, which shall be no earlier than 45 days and not
later than 60 days from the date such notice is mailed;
(3) the instructions that each holder must follow in order to have such
Notes purchased; and
(4) the calculations used in determining the amount of Available Asset
Sale Proceeds to be applied to the purchase of such Notes.
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In the event of the transfer of substantially all of the property and
assets of Muzak and its Restricted Subsidiaries as an entirety to a Person in
a transaction permitted under "--Merger, Consolidation or Sale of Assets"
below but which transaction does not constitute a Change of Control, the
successor Person shall be deemed to have sold the properties and assets of
Muzak and its Restricted Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect
to such deemed sale as if it were an Asset Sale.
Muzak will comply with the requirements of Rule 14e-1 under the Exchange
act and other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to an Excess Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of
the indenture, Muzak shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the indenture by virtue thereof.
Limitation on Preferred Stock of Restricted Subsidiaries
Muzak will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (except Preferred Stock issued to Muzak or a Restricted
Subsidiary of Muzak) or permit any Person (other than Muzak or a Restricted
Subsidiary of Muzak) to hold any such Preferred Stock unless such Restricted
Subsidiary would be entitled to incur or assume Indebtedness under "--
Limitation on Additional Indebtedness" above (other than Permitted
Indebtedness) in the aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock to be issued.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
Muzak will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of Muzak to
(1) (a) pay dividends or make any other distributions to Muzak or any
Restricted Subsidiary of Muzak
(i) on its Capital Stock or
(ii) with respect to any other interest or participation in, or
measured by, its profits or
(b) repay any Indebtedness or any other obligation owed to Muzak or
any Restricted Subsidiary of Muzak,
(2) make loans or advances or capital contributions to Muzak or any of
its Restricted Subsidiaries or
(3) transfer any of its properties or assets to Muzak or any of its
Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
(1) encumbrances or restrictions existing on the Issue Date to the
extent and in the manner such encumbrances and restrictions are in effect
on the Issue Date,
(2)(a) the indenture, the Notes and the Guarantees and the Exchange
Notes and the Guarantees thereof and (b) the Senior Credit Facility,
(3) applicable law or applicable rules, regulations or orders,
(4) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person
(including any Subsidiary of the Person), so acquired,
(5) customary non-assignment provisions in leases or other agreements
entered in the ordinary course of business,
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(6) Refinancing Indebtedness; provided that such restrictions are not
materially more restrictive, when taken as a whole, than those contained in
the agreements governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded,
(7) customary restrictions in security agreements or mortgages securing
Indebtedness of Muzak or a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements and mortgages,
(8) customary restrictions pursuant to an agreement that has been
entered into for the sale or disposition of Capital Stock or assets
permitted under the Indenture,
(9) restrictions on the transfer of assets subject to any Lien permitted
under the Indenture imposed by the holder of such Lien,
(10) any agreement or instrument governing Capital Stock of any Person
that is acquired; provided that no such restriction is created in
contemplation of the acquisition of such Capital Stock,
(11) Indebtedness or other contractual requirements of a Securitization
Entity in connection with a Qualified Securitization Transaction; provided
that such restrictions apply only to such Securitization Entity,
(12) Purchase Money Indebtedness incurred to acquire property in the
ordinary course of business which Indebtedness imposes restrictions
regarding transfer of the property acquired,
(13) the terms of any Indebtedness permitted by the Indenture to be
incurred by any Guarantor,
(14) any agreement or instrument governing Indebtedness (whether or not
outstanding) of Foreign Restricted Subsidiaries of Muzak incurred in
reliance on clauses (8) and (16) of the definition of Permitted
Indebtedness, or
(15) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Limitation on Conduct of Business
Muzak and its Restricted Subsidiaries will not engage in any businesses
which are not reasonably similar, ancillary, complementary or related to the
businesses in which Muzak and its Restricted Subsidiaries are engaged in on the
Issue Date except to such extent as would not be material to Muzak and its
Restricted Subsidiaries, taken as a whole.
Limitation on Sale and Lease-Back Transactions
Muzak will not, and will not permit any of its Restricted Subsidiaries to,
enter into any Sale and Lease-Back Transaction unless
(1) the consideration received in such Sale and Lease-Back Transaction
is at least equal to the fair market value of the property sold, as
determined in good faith by the Board of Directors of Muzak and evidenced
by a board resolution,
(2) Muzak could incur the Attributable Indebtedness in respect of such
Sale and Lease-Back Transaction in compliance with "--Limitation on
Additional Indebtedness" above and
(3) the transfer of assets in such Sale and Lease-Back Transaction is
permitted by, and Muzak or such Restricted Subsidiary applies the proceeds
of such transaction in compliance with "--Limitation on Certain Asset
Sales" above.
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Payments for Consent
Muzak will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
Change of Control Offer
Upon the occurrence of a Change of Control, the Issuers shall be obligated
to make an offer to purchase (the "Change of Control Offer") each holder's
outstanding Notes at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the Change of Control Payment Date (as defined) in accordance with
the procedures set forth below.
Within 20 days of the occurrence of a Change of Control, the Issuers shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and
to each holder of the Notes, at the address appearing in the register
maintained by the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful,
(1) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
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(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so tendered, and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Issuers.
The Paying Agent shall promptly mail to each holder of Notes so accepted
payment in an amount equal to the purchase price for such Notes, and the
Issuers shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered; provided that each such new Note
shall be issued in an original principal amount in denominations of $1,000 and
integral multiples thereof.
The Indenture requires that if the Senior Credit Facility is in effect, or
any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to
holders described in the second preceding paragraph, but in any event within 60
days following any Change of Control, the Issuers covenant to
(1) repay in full all obligations and terminate all commitments under or
in respect of the Senior Credit Facility and all other Senior Indebtedness
the terms of which require repayment upon a Change of Control or offer to
repay in full all obligations and terminate all commitments under or in
respect of the Senior Credit Facility and all such Senior Indebtedness and
repay the Indebtedness owed to each such lender who has accepted such
offer, or
(2) obtain the requisite consents under the Senior Credit Facility and
all such other Senior Indebtedness to permit the repurchase of the Notes as
described above.
The Issuers must first comply with the covenant described in the preceding
sentence before they shall be required to purchase Notes in the event of a
Change of Control; provided that the Issuers' failure to comply with the
covenant described in the preceding sentence constitutes an Event of Default
described in clause (3) under "--Events of Default" below if not cured within
30 days after the notice required by such clause. As a result of the foregoing,
a holder of the Notes may not be able to compel the Issuers to purchase the
Notes unless the Issuers are able at the time to refinance all of the
obligations under or in respect of the Senior Credit Facility and all such
other Senior Indebtedness or obtain requisite consents under the Senior Credit
Facility and all such other Senior Indebtedness.
If a Change of Control Offer is made, there can be no assurance that the
Issuers will have available funds sufficient to pay the Change of Control
Purchase Price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Issuers are required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Issuers
expect that they would seek third party financing to the extent they do not
have available funds to meet their purchase obligations. However, there can be
no assurance that the Issuers would be able to obtain such financing.
Neither the Board of Directors of any Issuer nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant
liens on their respective properties, to make Restricted Payments and to make
Asset Sales may also make more difficult or discourage a takeover of Muzak,
whether favored or opposed by the management of Muzak. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of
the Notes, and there can be no assurance that the Issuers or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of Muzak or any of its Subsidiaries by the management of
Muzak. While such restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the Indenture
may not afford the holders of
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Notes protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the indenture, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Merger, Consolidation or Sale of Assets
Muzak will not consolidate with, merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of Muzak (as an entirety or substantially as an entirety in one
transaction or a series of related transactions), to any Person unless:
(1) the Company shall be the continuing Person, or the Person (if other
than Muzak) formed by such consolidation or into which Muzak is merged or
to which the properties and assets of Muzak are sold, assigned,
transferred, leased, conveyed or otherwise disposed of shall be a
corporation, partnership, trust or a limited liability company organized
and existing under the laws of the United States or any State thereof or
the District of Columbia and shall expressly assume, by a supplemental
indenture, executed and delivered to the trustee, in form satisfactory to
the trustee, all of the obligations of Muzak under the Indenture, the Notes
and the Guarantees, and the obligations thereunder shall remain in full
force and effect; provided that if at any time Muzak or such successor
Person is a limited liability company, partnership or trust there shall be
a co-issuer of the Notes that is a Restricted Subsidiary of Muzak and that
is a corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction on a pro forma
basis Muzak or such Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under""--Certain
Covenants--Limitation on Additional Indebtedness" above; provided that
Muzak may merge into any Guarantor without complying with this clause (3).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, Muzak shall deliver, or cause to be delivered,
to the trustee, in form and substance reasonably satisfactory to the trustee,
an Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Muzak the Capital Stock of which constitutes all or
substantially all of the properties and assets of Muzak, shall be deemed to be
the transfer of all or substantially all of the properties and assets of Muzak.
Notwithstanding the foregoing, Muzak may merge or consolidate with or
transfer substantially all of its assets to an Affiliate that has no
significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of Muzak or the form of organization
of Muzak so long as the amount of Indebtedness of Muzak and its Restricted
Subsidiaries is not increased thereby and that the successor assumes all
obligations of Muzak under the indenture, the Notes and the Registration Rights
Agreement. Nothing in this covenant shall be deemed to prevent the consummation
of the Merger Transactions.
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Guarantees
The Guarantors will guarantee the Notes on a senior subordinated basis. All
payments pursuant to the Guarantees by the Guarantors are subordinated in right
of payment to the prior indefeasible payment in full of all Senior Indebtedness
of each respective Guarantor, to the same extent and in the same manner that
all payments pursuant to the Notes or any Obligations under the Notes, the
Registration Rights Agreement or the Indenture are subordinated in right of
payment to the prior payment in full of all Senior Indebtedness of each Issuer.
The obligations of each Guarantor are limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior
Indebtedness) and after giving effect to any collections from or payments made
by or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution obligations
under the Indenture, result in the obligations of such Guarantor under the
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all of its assets or Capital Stock is sold, in each case in a
transaction in compliance with "--Certain Covenants--Limitation on Certain
Asset Sales" above, or the Guarantor merges with or into or consolidates with,
or transfers all or substantially all of its assets in compliance with the
terms of the Indenture, and such Guarantor has delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent herein provided for relating to such transaction have been
complied with.
Events of Default
The following events are defined in the Indenture as "Events of Default":
(1) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon redemption or otherwise (whether or not
such payment shall be prohibited by the subordination provisions of the
Indenture);
(2) default for 30 days in payment of any interest on the Notes;
(3) default by any Issuer or any Restricted Subsidiary in the observance
or performance of any other covenant in the Notes or the Indenture for 30
days after written notice from the Trustee or the holders of not less than
25% in aggregate principal amount of the Notes then outstanding (except in
the case of a default with respect to the "Change of Control" or "Merger,
Consolidation or Sale of Assets" covenant which shall constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(4) failure to pay at final maturity (after giving effect to any
applicable grace period) any Indebtedness of Muzak or any Restricted
Subsidiary thereof (other than a Securitization Entity), or the
acceleration of any such Indebtedness, which acceleration shall not be
rescinded or annulled within 20 days after written notice as provided in
the Indenture, if the aggregate amount of such Indebtedness, together with
the amount of any other such Indebtedness in default for failure to pay or
which has been accelerated, aggregates $5 million or more at any time;
(5) any final judgment or judgments which can no longer be appealed for
the payment of money in excess of $5 million (excluding amounts covered by
insurance for which coverage is not being challenged or denied unless Muzak
is contesting such challenge or denial in good faith) shall be rendered
against Muzak or any Restricted Subsidiary thereof, and shall not be
discharged for any period of 60 consecutive days during which a stay of
enforcement shall not be in effect;
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(6) certain events involving bankruptcy, insolvency or reorganization of
any Issuer or any Significant Subsidiary thereof; and
(7) any Guarantee of a Significant Subsidiary ceases to be in full force
and effect or any Guarantee of a Significant Subsidiary is declared to be
null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any of the Guarantors denies its
liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the indenture).
The indenture provides that the trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the trustee considers it to be in the best
interest of the holders of the Notes to do so.
The indenture provides that if an Event of Default (other than an Event of
Default of the type described in clause (6) above) shall have occurred and be
continuing, then the trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may declare to be immediately
due and payable the entire principal amount of all the Notes then outstanding
plus accrued interest to the date of acceleration and (1) the same shall become
immediately due and payable or (2) if there are any amounts outstanding under
the Senior Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration
under the Senior Credit Facility or five business days after receipt by the
Issuers and the representative under the Senior Credit Facility of a notice of
acceleration; provided, however, that after such acceleration but before a
judgment or decree based on acceleration is obtained by the trustee, the
holders of a majority in aggregate principal amount of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if
(1) all Events of Default, other than nonpayment of principal, premium,
if any, or interest that has become due solely because of the acceleration,
have been cured or waived as provided in the indenture,
(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid,
(3) the Issuers have paid the trustee its reasonable compensation and
reimbursed the trustee for its expenses, disbursements and advances and
(4) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the above Events of Default, the trustee
shall have received an Officers' Certificate and an opinion of counsel that
such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default of the type described in clause
(6) of the first paragraph above shall occur, the principal, premium and
interest amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the trustee or
the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the indenture or the Notes and to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations provided for in the indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request and offered reasonable
indemnity to the trustee to institute such proceeding as trustee, and unless
the trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have
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failed to institute such proceeding within 60 days. Notwithstanding the
foregoing, such limitations do not apply to a suit instituted on such Note on
or after the respective due dates expressed in such Note.
Defeasance and Covenant Defeasance
The indenture provides that the Issuers may elect either
(1) to defease and be discharged from any and all of their and any
Guarantor's obligations with respect to the Notes (except for the
obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an
office or agency in respect of the Notes and to hold monies for payment in
trust) ("defeasance") or
(2) to be released from their obligations with respect to the Notes
under certain covenants contained in the indenture ("covenant defeasance")
upon the deposit with the trustee (or other qualifying trustee), in trust for
such purpose, of money and/or non-callable U.S. government obligations which
through the payment of principal and interest in accordance with
their terms will provide money, in an amount sufficient to pay the principal
of, premium, if any, and interest on the Notes, on the scheduled due dates
therefor or on a selected date of redemption in accordance with the terms of
the indenture. Such a trust may only be established if, among other things,
(1) the Issuers have delivered to the trustee an opinion of counsel (as
specified in the indenture)
(a) to the effect that neither the trust nor the trustee will be
required to register as an investment company under the Investment
Company Act of 1940, as amended, and
(b) describing either a private ruling concerning the Notes or a
published ruling of the Internal Revenue Service, to the effect that
holders of the Notes or persons in their positions will not recognize
income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount and in the same manner and at the same
times, as would have been the case if such deposit, defeasance and
discharge had not occurred;
(2) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from
bankruptcy, insolvency or reorganization events are concerned, at any time
in the period ending on the 91st day after the date of deposit;
(3) such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a Default under the indenture or any other
material agreement or instrument to which any Issuer or any of its
Subsidiaries is a party or by which any Issuer or any of its Subsidiaries
is bound;
(4) the Issuers shall have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with the
intent of preferring the holders of the Notes over any other creditors of
the Issuers or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Issuers or others;
(5) the Issuers shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the defeasance or the covenant
defeasance have been complied with;
(6) the Issuers shall have delivered to the trustee an opinion of
counsel to the effect that
(a) the trust funds will not be subject to any rights of holders of
Senior Indebtedness, including, without limitation, those arising under
the Indenture, and
(b) assuming no intervening bankruptcy shall occur and that no
Holder is an insider of the Issuers, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
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applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and
(7) certain other customary conditions precedent are satisfied.
Modification of Indenture
From time to time, the Issuers, the Guarantors and the trustee may, without
the consent of holders of the Notes, amend or supplement the Indenture for
certain specified purposes, including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not, in the opinion of the
trustee, materially and adversely affect the rights of any holder. The
indenture contains provisions permitting the Issuers, the Guarantors and the
trustee, with the consent of holders of at least a majority in principal amount
of the outstanding Notes, to modify or supplement the indenture, except that no
such modification shall, without the consent of each holder affected thereby,
(1) reduce the amount of Notes whose holders must consent to an
amendment, supplement, or waiver to the indenture,
(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Note,
(3) reduce the principal of or premium on or change the stated maturity
of any Note or change the date on which any Notes may be subject to
redemption or repurchase or reduce the redemption or repurchase price
therefor,
(4) make any Note payable in money other than that stated in the Note or
change the place of payment from New York, New York,
(5) waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any Note,
(6) make any change in provisions of the indenture protecting the right
of each holder of Notes to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount of Notes
to waive Defaults or Events of Default,
(7) amend, change or modify in any material respect the obligation of
Muzak to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate an Excess Proceeds Offer with
respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto,
(8) modify or change any provision of the indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the holders of Notes or
(9) release any Guarantor from any of its obligations under its
Guarantee or the indenture otherwise than in accordance with the terms of
the indenture.
Reports to Holders
For fiscal periods ending after the Issue Date, so long as the Issuers are
subject to the periodic reporting requirements of the Exchange Act, they will
continue to furnish the information required thereby to the Commission and to
the holders of the Notes. The indenture provides that even if the Issuers are
entitled under the Exchange Act not to furnish such information to the
Commission or to the holders of the Notes, they will nonetheless continue to
furnish such information to the Commission and holders of the Notes.
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The Trustee
The trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The indenture provides that, except during the continuance
of an Event of Default, the trustee will perform only such duties as are
specifically set forth in the indenture. During the existence of an Event of
Default, the trustee will exercise such rights and powers vested in it under
the indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
Transfer and Exchange
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.
The Notes will be issued in a transaction exempt from registration under the
Securities Act and will be subject to the restrictions on transfer described in
"Notice to Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"ABRY" means ABRY Partners, Inc., a Delaware corporation.
"ABRY Management Agreement" means the Management Agreement dated as of
October 6, 1998, and as amended prior to the Issue Date, between ABRY and
Muzak.
"ABRY Subordinated Debt" means Indebtedness of Muzak in principal amount not
to exceed $30 million in the aggregate at any time outstanding (a) that is owed
to ABRY III, ABRY, MEM Holdings, Inc. or any other investment fund controlled
by ABRY, (b) as to which the payment of principal of (and premium, if any) and
interest and other payment obligations in respect of such Indebtedness shall be
subordinate to the prior payment in full of Muzak's Obligations under the Notes
such that no payments of principal (or premium, if any) or interest on or
otherwise due in respect of such Indebtedness may be permitted for so long as
any Default or Event of Default shall have occurred and be continuing, (c) that
shall automatically convert into common equity of Holdings within 18 months of
the date of issuance thereof, unless refinanced, and (d) the terms of which
have been determined to be fair and reasonable to Muzak as determined in good
faith by the Board of Directors of Muzak and evidenced by a board resolution
delivered to the trustee.
"ABRY II" means ABRY Broadcast Partners II, L.P., a Delaware limited
partnership.
"ABRY III" means ABRY Broadcast Partners III, L.P., a Delaware limited
partnership.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with any other Person or which is
assumed in connection with the acquisition of assets from such Person and, in
each case, whether or not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such merger, consolidation or acquisition.
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"Acquisition EBITDA" means, with respect to any Asset Acquisition, (i)
EBITDA attributable to the assets to be acquired in such Asset Acquisition for
the same fiscal quarter utilized in determining "Consolidated Leverage Ratio"
plus (ii) the projected, quantifiable cost reductions expected to be realized
and non-recurring costs and expenses, in each case, in connection with such
Asset Acquisition and as a result of, in the case of cost reductions, an
established program of cost reductions adopted in good faith by the Board of
Directors of Muzak. For purposes of the foregoing, cost reductions and non-
recurring costs and expenses, in each case, shall be calculated on a pro forma
basis as if such cost reductions and non-recurring costs and expenses, in each
case, had been implemented at the beginning of such fiscal quarter. Prior to
the consummation of any transaction requiring the inclusion of Acquisition
EBITDA in the calculation of Consolidated Leverage Ratio, Muzak shall deliver
to the trustee an Officers' Certificate indicating the cost reductions and non-
recurring costs and expenses, in each case, taken into account in determining
Acquisition EBITDA and the assumptions underlying such cost reductions and non-
recurring costs and expenses.
"Adjusted Net Assets" of any Person at any date shall mean the lesser of
(1) the amount by which the fair salable value of the assets of such
Person at such date exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all
other fixed and contingent liabilities), but excluding liabilities under
the Guarantee of such Person at such date, and
(2) the amount by which the fair salable value of the assets of such
Person at such date exceeds the amount that will be required to pay the
probable liability of such Person on its debts (after giving effect to all
other fixed and contingent liabilities and after giving effect to any
collection from any Subsidiary of such Person in respect of the obligations
of such Person under the Guarantee of such Person), excluding Indebtedness
in respect of the Guarantee of such Person, as they become absolute and
matured.
"Affiliate" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that, for purposes of the covenant described under "--
Certain Covenants--Limitation on Transactions with Affiliates" beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control. Notwithstanding the foregoing, no
Person (other than the Company or any Subsidiary of Muzak) in whom a
Securitization Entity makes an Investment in connection with a Qualified
Securitization Transaction shall be deemed to be an Affiliate of Muzak or any
of its Subsidiaries solely by reason of such Investment.
"Asset Acquisition" means
(1) an Investment by Muzak or any Restricted Subsidiary of Muzak in any
other Person pursuant to which such Person shall become a Restricted
Subsidiary of Muzak or any Restricted Subsidiary of Muzak, or shall be
merged with or into Muzak or any Restricted Subsidiary of Muzak or
(2) the acquisition by Muzak or any Restricted Subsidiary of Muzak of
the assets of any Person (other than a Restricted Subsidiary of Muzak)
which constitute all or substantially all of the assets of such Person or
comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and Lease-
Back Transaction), other than in the ordinary course of business or to Muzak or
any of its Restricted Subsidiaries, in any single transaction or series of
related transactions of
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(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of Muzak or
(2) any other property or assets of Muzak or of any Restricted
Subsidiary thereof;
provided that Asset Sales shall not include
(1) a transaction or series of related transactions for which Muzak or
its Restricted Subsidiaries receive aggregate consideration of less than $1
million,
(2) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of Muzak as permitted under "--Merger,
Consolidation or Sale of Assets" above or any disposition that constitutes
a Change of Control,
(3) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof,
(4) the factoring of accounts receivable arising in the ordinary course
of business pursuant to customary arrangements,
(5) the licensing of intellectual property,
(6) disposals or replacements of obsolete equipment in the ordinary
course of business,
(7) sales of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
Qualified Securitization Transaction to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof as determined in accordance with GAAP,
(8) transfers of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
Qualified Securitization Transaction (or a fractional undivided interest
therein) by a Securitization Entity in a Qualified Securitization
Transaction (for the purposes of this clause (8), Purchase Money Notes
shall be deemed to be cash), and
(9) any transfer of assets acquired by Muzak or any of its Restricted
Subsidiaries to an independent affiliate of Muzak or any of its Restricted
Subsidiaries in accordance with the terms of the License Agreements as such
agreements are in effect on the Issue Date and as the same may be amended
or restated in a manner which is not more disadvantageous to the Holders in
any material respect than the terms of such agreements as in effect on the
Issue Date.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(1) cash and Cash Equivalents received by Muzak or any Restricted
Subsidiary of Muzak from such Asset Sale (including cash and Cash
Equivalent received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after
(a) provision for all income or other taxes measured by or resulting
from such Asset Sale (after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions
and any tax sharing arrangements),
(b) payment of all brokerage commissions, underwriting and other
fees and expenses related to such Asset Sale,
(c) provision for minority interest holders in any Restricted
Subsidiary of Muzak as a result of such Asset Sale,
(d) repayment of Indebtedness that is secured by the assets subject
to such Asset Sale or otherwise required to be repaid in connection
with such Asset Sale and
(e) deduction of appropriate amounts to be provided by Muzak or a
Restricted Subsidiary of Muzak as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold
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or disposed of in such Asset Sale and retained by Muzak or a Restricted
Subsidiary after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities and liabilities
related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such
Asset Sale, and
(2) promissory notes and other noncash consideration received by Muzak
or any Restricted Subsidiary of Muzak from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or noncash
consideration into cash or Cash Equivalents.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of
(1) the fair value of the property subject to such arrangement and
(2) the present value of the notes (discounted at the rate of interest
implied in such transaction, determined in accordance with GAAP) of the
total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied
in accordance with clauses (3)(a) or (3)(b), and which have not yet been the
basis for an Excess Proceeds Offer in accordance with clause (3)(c) of the
first paragraph of "--Certain Covenants--Limitation on Certain Asset Sales."
"Bank Indebtedness" means (i) the Indebtedness outstanding or arising under
the Senior Credit Facility, (ii) all obligations incurred by or owing to the
holders of such Indebtedness or any agent or representative thereof outstanding
or arising under the Senior Credit Facility (including, but not limited to, all
premium, interest (including, but not limited to, interest accruing pursuant to
the terms of the Senior Credit Facility on or after the filing of any petition
in any bankruptcy, reorganization or similar proceeding relating to Muzak or
any Restricted Subsidiary, whether or not a claim for such is allowed in such
proceeding), all fees and expenses of counsel, reimbursement obligations,
indemnities and all other charges, fees, expenses, claims, and other amounts),
and (iii) all interest rate agreement and hedging obligations arising in
connection therewith with any party to the Senior Credit Facility or any of
their affiliates.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person (or, if such Person is a limited liability company,
the board of managers of such company) or similar governing body or any duly
authorized committee thereof.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Equivalents" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency or
instrumentality thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof;
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(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by (i) any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000 or (ii) Brown Brothers Harriman;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
A "Change of Control" of the Company will be deemed to have occurred at such
time as
(1) any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), other than a Permitted Holder, becomes the
beneficial owner (as defined in Rule under Rule 13d-3 or any successor rule
or regulation promulgated under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) of more than 35% of the
total voting power of Muzak's Capital Stock, and the Permitted Holders
beneficially do not own, in the aggregate, a greater percentage of the
total voting power of the Capital Stock of Muzak than such other Person or
Group and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of Muzak,
(2) there shall be consummated any consolidation or merger of Muzak in
which Muzak is not the continuing or surviving Person or pursuant to which
the Common Stock of the Company would be converted into cash, securities or
other property, other than a merger or consolidation of the Company in
which the holders of the Capital Stock of Muzak outstanding immediately
prior to the consolidation or merger hold, directly or indirectly, at least
a majority of the Capital Stock of the surviving corporation immediately
after such consolidation or merger,
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Muzak
(together with any new Directors whose election by such Board of Directors
or whose nomination for election by the equityholders of the Company has
been approved by 66 2/3% of the Directors then still in office who either
were Directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute
a majority of the Board of Directors of Muzak or
(4) the approval by the holders of Capital Stock of Muzak of any plan or
proposal for the liquidation or dissolution of Muzak (whether or not
otherwise in compliance with the provisions of the Indenture).
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to
(1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or otherwise participate
in the selection of the governing body, partners, managers or others that
will control the management and policies of such Person.
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"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Restricted Subsidiaries on a
consolidated basis including, but not limited to,
(1) Redeemable Dividends, whether paid or accrued, on Preferred Stock,
(2) imputed interest included in Capitalized Lease Obligations,
(3) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(4) the net costs associated with Hedging Obligations,
(5) amortization of other financing fees and expenses,
(6) the interest portion of any deferred payment obligation,
(7) amortization of discount or premium, if any, and
(8) all other non-cash interest expense (other than interest amortized
to cost of sales)
plus, without duplication,
(1) all net capitalized interest for such period,
(2) all interest incurred or paid under any guarantee of Indebtedness
(including a guarantee of principal, interest or any combination thereof)
of any Person, and
(3) the amount of all dividends or distributions paid on Disqualified
Capital Stock (other than dividends paid or payable in shares of Capital
Stock of Muzak that does not constitute Disqualified Capital Stock).
"Consolidated Leverage Ratio" means, with respect to any Person, the ratio
of
(1) the sum of the aggregate outstanding amount of Indebtedness of such
Person and its Restricted Subsidiaries and Preferred Stock of any such
Restricted Subsidiary issued in accordance with "-- Certain Covenants --
Limitation on Preferred Stock of Restricted Subsidiaries" as of the date
of calculation (the "Transaction Date") on a consolidated basis determined
in accordance with GAAP to
(2) the product of (a) such Person's EBITDA for the full fiscal quarter
(the "One Quarter Period") ending on or prior to the date of determination
for which financial statements are available and (b) four.
For purposes of this definition, clauses (1) and (2) above shall be calculated
after giving effect on a pro forma basis to:
(a) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries or the issuance or redemption or other
repayment of Preferred Stock of any such Restricted Subsidiary (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness and, in
the case of any Restricted Subsidiary, the issuance or redemption or other
repayment of Preferred Stock (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the One Quarter Period or at any time
subsequent to the last day of the One Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment or issuance or
redemption or other repayment, as the case may be (and the application of
the proceeds thereof), occurred on the first day of the One Quarter Period;
and
(b) any Asset Sales or Asset Acquisitions occurring during the One
Quarter Period or at any time subsequent to the last day of the One Quarter
Period and on or prior to the Transaction Date, as if such
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Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any Acquired Indebtedness) occurred on the first day of the
One Quarter Period as follows:
(x) with respect to Asset Sales, the EBITDA attributable to the
assets which are the subject of Asset Sales that occurred shall be
excluded; and
(y) with respect to Asset Acquisitions, the Acquisition EBITDA
attributable to the assets which are the subject of the applicable
Asset Acquisition shall be included.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding paragraph shall give
effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary or such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that
(1) the Net Income of any Person other than a Restricted Subsidiary of
the referent Person shall be included only to the extent of the amount of
dividends or distributions paid to the referent Person or a Restricted
Subsidiary of such referent Person,
(2) the Net Income of any Restricted Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions shall be excluded to the
extent of such restriction or limitation,
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(4) any net gain or loss (in the case of any net loss, only to the
extent that such determination of Consolidated Net Income is being made in
connection with the determination of amounts available for Restricted
Payments pursuant to the provisions described under "--Certain Covenants--
Limitation on Restricted Payments" above) resulting from an Asset Sale by
the Person in question or any of its Restricted Subsidiaries other than in
the ordinary course of business shall be excluded,
(5) extraordinary gains and losses shall be excluded,
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued) shall be excluded and
(7) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets shall be excluded.
"Control Investment Affiliate" means, as to any Person, any other Person
which (a) is an Affiliate of such Person and (b) is organized by such Person
primarily for the purpose of making equity or debt investments in one or more
companies.
"Cumulative Consolidated Interest Expense" means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense from
April 1, 1999 to the end of such Person's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
"Cumulative EBITDA" means, with respect to any Person, as of any date of
determination, EBITDA from April 1, 1999 to the end of such Person's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
"Designated Senior Indebtedness," as to Muzak or any Guarantor, as the case
may be, means
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(1) any Bank Indebtedness and
(2) any other Senior Indebtedness which at the time of determination
exceeds $25 million in aggregate principal amount (or accreted value in the
case of Indebtedness issued at a discount) outstanding or available under a
committed facility, which is specifically designated in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by
such Person and as to which the Trustee has been given written notice of
such designation.
"Director" means, with respect to any Person, a member of the Board of
Directors of such Person (or, if such Person is a limited liability company, a
member of the board of managers of such Person).
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes. Without limitation of the foregoing,
Disqualified Capital Stock shall be deemed to include any Preferred Stock of a
Person or a Restricted Subsidiary of such Person, with respect to either of
which, under the terms of such Preferred Stock, by agreement or otherwise, such
Person or Restricted Subsidiary is obligated to pay current dividends or
distributions in cash during the period prior to the maturity date of the
Notes; provided, however, that Preferred Stock of a Person or any Restricted
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer or asset sale offer to be made for such Preferred Stock
in the event of a change of control of such Person or Restricted Subsidiary or
the sale of any assets of such Person or Restricted Subsidiary which provisions
have substantially the same effect as the provisions described under "--Change
of Control Offer" and "--Certain Covenants--Limitation on Certain Asset Sales,"
respectively, above, shall not be deemed to be Disqualified Capital Stock
solely by virtue of such provisions.
"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (a) hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period (but excluding any
non-cash item to the extent it represents the amortization of a prepaid
cash expense that was paid in any prior period) on a consolidated
basis, plus
(f) any other non-cash items reducing Consolidated Net Income for
such period except for any non-cash items that represent accruals of,
or reserves for, cash disbursements to be made in any future accounting
period, minus
(2) all non-cash items increasing Consolidated Net Income (other than
any non-cash items representing deferred revenue to the extent that such
revenue was not included in Consolidated Net Income in any prior period)
for such period, all for such Person and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP;
provided, however, that, for purposes of calculating EBITDA during any fiscal
quarter, cash income from a particular Investment (other than a Restricted
Subsidiary) of such Person shall be included only
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(1) if cash income has been received by such Person with respect to such
Investment during each of the previous four fiscal quarters, or
(2) if the cash income derived from such Investment is attributable to
Cash Equivalents.
"Electro Systems Acquisition" means the acquisition of Electro Systems
Corporation pursuant to a Stock Purchase Agreement dated as of February 18,
1999 between the Company and Carolina Georgia Sound, Inc.
"Equity Offering" means any public or private sale of Common Stock (other
than Disqualified Capital Stock) of the Company or Holdings pursuant to which
Muzak or Holdings, as the case may be, receives net proceeds of at least $20
million; provided, however, that in the case of an Equity Offering by Holdings,
Holdings shall have contributed to the capital of Muzak the portion of the Net
Proceeds necessary to redeem the Notes pursuant to the second paragraph of "--
Optional Redemption" above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of Muzak acting reasonably
and in good faith and shall be evidenced by a resolution of the Board of
Directors of Muzak delivered to the Trustee.
"Finance Corp." means Muzak Finance Corp., a Delaware corporation, or any
successor corporation that is a co-issuer of the Notes.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of Muzak
that is not organized under the laws of the United States or any State thereof
or the District of Columbia.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Guarantor" means each of Holdings and each Restricted Subsidiary of Muzak
which is required to guarantee the Notes pursuant to the terms of the
Indenture.
"Hedging Obligations" means, with respect to any Person, the net payment
obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (b) other
agreements or arrangements entered into in order to protect such Person against
fluctuations in commodity prices, interest rates or currency exchange rates.
"Holdings" means Muzak Holdings LLC, a Delaware limited liability company.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence," "incurred," "incurrable," and "incurring"
shall have meanings correlative to the foregoing); provided that a change in
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the
ordinary course of business) if and to the extent any of the
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foregoing indebtedness would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, and shall also include, to the extent
not otherwise included
(1) any Capitalized Lease Obligations of such Person,
(2) obligations secured by a lien to which the property or assets owned
or held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed,
(3) guarantees of items of other Persons which would be included within
this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor),
(4) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction,
(5) Disqualified Capital Stock of such Person or any Restricted
Subsidiary thereof, and
(6) hedging obligations of any such Person (if and to the extent such
hedging obligations would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that
(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the principal amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP,
(2) Indebtedness shall not include any liability for federal, state,
local or other taxes,
(3) the amount of Indebtedness of a Person which is without recourse to
any property or assets of such Person except to the extent of any Lien on
property or assets of such Person which secures such Indebtedness shall be
the lesser of the principal amount of such Indebtedness and the fair market
value of the property or assets subject to the Lien, and
(4) the amount of Indebtedness represented by Disqualified Capital Stock
shall be the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.
The "maximum fixed repurchase price" of any Disqualified Capital Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock as if such Disqualified Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such
fair market value shall be determined reasonably and in good faith by the Board
of Directors of the issuer of such Disqualified Capital Stock.
Notwithstanding any other provision of the foregoing definition, any trade
payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business shall not be deemed to be
"Indebtedness" of the Company or any of its Restricted Subsidiaries for
purposes of this definition. Furthermore, guarantees of (or obligations with
respect to letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Independent Financial Advisor" means an investment banking firm of national
reputation in the United States
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in Muzak
and
(2) which, in the judgment of the Board of Directors of Muzak, is
otherwise independent and qualified to perform the task for which it is to
be engaged.
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"Investments" means, with respect of any Person, directly or indirectly, any
advance, account receivable (other than advances and accounts receivable
arising in the ordinary course of business of such Person), loan or capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others or otherwise), the
purchase of any Capital Stock, bonds, notes, debentures, partnership or joint
venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude
(1) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices of such Person and
(2) the repurchase of securities of any Person by such Person.
If the Company or any Restricted Subsidiary of Muzak sells or otherwise
disposes of any Capital Stock of any direct or indirect Restricted Subsidiary
of Muzak such that such Restricted Subsidiary would no longer constitute a
Subsidiary, Muzak shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Capital Stock of
such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date the Notes are first issued by the Issuers and
authenticated by the trustee under the indenture.
"License Agreements" means the License Agreements between Muzak and its
independent affiliates.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same
economic effect as any of the foregoing).
"Merger Transactions" means those transactions referred to collectively in
this offering memorandum as "Merger Transactions."
"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Obligations" means all obligations for principal, premium, interest,
penalties, charges, fees, fees and expenses of counsel, indemnities,
reimbursement obligations, damages, claims and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the indenture.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of or premium, if any, or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Pending Capstar Acquisition" means the acquisition by Holdings of certain
Muzak franchises from Capstar Broadcasting Corporation pursuant to a
Contribution Agreement between Holdings and Capstar Broadcasting Corporation,
dated February 19, 1999, and the subsequent transfer of such assets to Muzak in
exchange for equity interests in Muzak .
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"Permitted Asset Swap" means, with respect to any Person, the substantially
concurrent exchange of assets of such Person for assets of another Person which
are useful to the business of such aforementioned Person.
"Permitted Holders" means each of ABRY III, ABRY II and each Control
Investment Affiliate of ABRY III or ABRY II.
"Permitted Indebtedness" means:
(1) Indebtedness of Muzak or any Restricted Subsidiary arising under or
in connection with the Senior Credit Facility in an aggregate principal
amount not to exceed $200 million outstanding at any time less (i) any
mandatory prepayment actually made thereunder (to the extent, in the case
of payments of revolving credit borrowings, that the corresponding
commitments have been permanently reduced) or scheduled payments actually
made thereunder and (ii) the aggregate amount of Indebtedness of
Securitization Entities in Qualified Securitization Transactions (other
than Qualified Securitization Transactions involving equipment and related
assets);
(2) Indebtedness under the Notes and the Guarantees outstanding on the
Issue Date and Indebtedness under the Exchange Notes and the Guarantees
thereof in an aggregate principal amount not to exceed $115 million;
(3) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(4) Indebtedness of Muzak to any Guarantor or to any Wholly Owned
Subsidiary that is not a Guarantor and Indebtedness of any Restricted
Subsidiary to the Company or to any Guarantor or to any Wholly Owned
Subsidiary that is not a Guarantor;
(5) Purchase Money Indebtedness that does not in the aggregate exceed 5%
of Muzak's consolidated total assets;
(6) the incurrence by Muzak or any Restricted Subsidiary of Hedging
Obligations that are incurred in the ordinary course of business of Muzak
or such Restricted Subsidiary and not for speculative purposes; provided
that, in the case of any Hedging Obligation that relates to (i) interest
rate risk, the notional principal amount of such Hedging Obligation does
not exceed the principal amount of the Indebtedness to which such Hedging
Obligation related and (ii) currency risk, such Hedging Obligation does not
increase the Indebtedness of Muzak and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;
(7) Refinancing Indebtedness;
(8) Indebtedness of Foreign Restricted Subsidiaries of Muzak in an
aggregate principal amount not to exceed $10 million at any one time
outstanding; provided the aggregate amount then outstanding under this
clause (8) when added to the aggregate amount then outstanding under clause
(1) above shall not exceed the aggregate amount permitted under clause (1)
above;
(9) guarantees by Muzak and its Restricted Subsidiaries of each other's
Indebtedness; provided that such Indebtedness is permitted to be incurred
under the Indenture;
(10) Indebtedness incurred by Muzak or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(11) Indebtedness arising from agreements of Muzak or a Restricted
Subsidiary of Muzak providing for indemnification, adjustment of purchase
price, earn out or other similar obligations, in each case, incurred or
assumed in connection with the acquisition or disposition of any business,
assets or a Restricted Subsidiary of Muzak, other than guarantees of
Indebtedness incurred by any Person acquiring
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all or any portion of such business, assets or Restricted Subsidiary for
the purpose of financing such acquisition; provided that, in the case of a
disposition, the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received
by Muzak and its Restricted Subsidiaries in connection with such
disposition;
(12) obligations in respect of performance and surety bonds and
completion guarantees provided by Muzak or any Restricted Subsidiary of
Muzak in the ordinary course of business;
(13) the ABRY Subordinated Debt;
(14) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to Muzak or any
Subsidiary of Muzak (except for Standard Securitization Undertakings);
(15) Indebtedness of Muzak issued to current or former members of
management of Muzak or any of its Restricted Subsidiaries to finance the
repurchase, redemption or other acquisition of Capital Stock of Holdings
pursuant to clause (6) of the second paragraph under "--Certain Covenants--
Limitation on Restricted Payments" above; and
(16) additional Indebtedness of Muzak and its Restricted Subsidiaries
not to exceed $5 million in aggregate principal amount at any one time
outstanding.
"Permitted Investments" means
(1) Investments by Muzak, or by a Restricted Subsidiary thereof, in
Muzak, a Guarantor or a Wholly Owned Subsidiary that is not a Guarantor;
(2) Investments by Muzak, or by a Restricted Subsidiary thereof, in a
Person, if as a result of such Investment
(a) such Person becomes a Guarantor or a Wholly Owned Subsidiary that
is not a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Muzak, a Guarantor or a Wholly Owned Subsidiary that is
not a Guarantor;
(3) Investments in cash and Cash Equivalents;
(4) reasonable and customary loans and advances made to employees in the
ordinary course of business;
(5) an Investment that is made by Muzak or a Restricted Subsidiary
thereof in the form of any Capital Stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to Muzak or such Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under "--Certain Covenants--Limitation on Certain Asset Sales"
above;
(6) Hedging Obligations entered into in the ordinary course of Muzak's
or its Restricted Subsidiaries' business and not for speculative purposes;
(7) any acquisition of assets to be used in the business of Muzak or any
of its Restricted Subsidiaries solely in exchange for the issuance of
Capital Stock (other than Disqualified Capital Stock) of Muzak;
(8) additional Investments not to exceed $5 million at any one time
outstanding;
(9) Investments existing on the Issue Date;
(10) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(11) guarantees by Muzak or any Restricted Subsidiary of Indebtedness
otherwise permitted to be incurred by Restricted Subsidiaries of Muzak
under the indenture; and
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(12) any Investment by Muzak or a Restricted Subsidiary of Muzak in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest.
"Permitted Liens" means
(1) Liens on property or assets of, or any shares of Capital Stock of or
secured indebtedness of, any Person existing at the time such Person
becomes a Restricted Subsidiary of Muzak or at the time such Person is
merged into Muzak or any of its Restricted Subsidiaries; provided that such
Liens are not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary of Muzak or merging into Muzak or
any of its Restricted Subsidiaries,
(2) Liens securing Indebtedness under the Senior Credit Facility and
Liens securing other Senior Indebtedness of Muzak or any Guarantor;
provided in each case, such Indebtedness is incurred in compliance with "--
Certain Covenants--Limitation on Additional Indebtedness" above,
(3) Liens securing Refinancing Indebtedness; provided that any such Lien
does not extend to or cover any Property, Capital Stock or Indebtedness
other than the Property, shares or debt securing the Indebtedness so
refunded, refinanced or extended,
(4) Liens in favor of Muzak or any of its Restricted Subsidiaries,
(5) Liens securing industrial revenue bonds,
(6) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under the indenture; provided that
(a) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of the purchase price, or the cost of
installation, construction or improvement, of the Property to which
such Purchase Money Indebtedness relates, and
(b) such Lien does not extend to or cover any Property other than
such item of Property and any improvements on such Property,
(7) statutory liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor,
(8) Liens for taxes, assessments or governmental charges that are being
contested in good faith by appropriate proceedings,
(9) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances or title defects or leases or subleases granted to
others in respect of real property not interfering in any material respect
with the ordinary conduct of the business of Muzak or any of its Restricted
Subsidiaries,
(10) other Liens securing obligations incurred in the ordinary course of
business which obligations do not exceed $5 million in the aggregate at any
one time outstanding,
(11) Liens existing on the Issue Date and Liens securing the Notes and
the Guarantees and the Exchange Notes and the Guarantees thereof,
(12) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including landlord Liens on leased properties and
any Lien securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith, or to
secure the performance of tenders, statutory
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obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations,
(13) attachment or judgment Liens not giving rise to an Event of
Default,
(14) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment, or storage of such inventory or other goods,
(15) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof,
(16) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Muzak or
any of its Restricted Subsidiaries, including rights of offset and set-off,
(17) Liens securing Hedging Obligations with respect to Indebtedness
that is otherwise permitted under the Indenture,
(18) Liens securing Indebtedness of Foreign Restricted Subsidiaries of
Muzak incurred in reliance on clause (8) of the definition of Permitted
Indebtedness,
(19) Liens on assets transferred to a Securitization Entity or on assets
of a Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction,
(20) Liens arising from filing Uniform Commercial Code financing
statements regarding leases,
(21) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods,
(22) deposits made in the ordinary course of business to secure
liability to insurance carriers,
(23) any interest or title of a lessor or a sublessor under an operating
lease,
(24) Liens under licensing agreements for use of intellectual property
entered into in the ordinary course of business,
(25) Liens imposed by law incurred by Muzak or any of its Restricted
Subsidiaries in the ordinary course of business, and
(26) any extensions, substitutions, replacements or renewals of the
foregoing.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Purchase Money Indebtedness" means Indebtedness and Capitalized Lease
Obligations of any Person incurred in the normal course of business of such
Person for the purpose of financing all or any part of the purchase price, or
the cost of installation, construction or improvement of, any Property.
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"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from Muzak or any
Subsidiary of Muzak in connection with a Qualified Securitization Transaction
to a Securitization Entity, which note shall be repaid from cash available to
the Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables or newly
acquired equipment.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which Muzak or any or its Subsidiaries may sell, convey or
otherwise transfer to (a) a Securitization Entity (in the case of a transfer by
Muzak or any of its Subsidiaries) and (b) any other Person (in the case of a
transfer by a Securitization Entity), or may grant a security interest in, any
accounts receivable or equipment (whether now existing or arising or acquired
in the future) of Muzak or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable and equipment, all contracts and contract rights and all guarantees
or other obligations in respect of such accounts receivable and equipment,
proceeds of such accounts receivable and equipment and other assets (including
contract rights) which are customarily transferred or in respect of which
security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable and equipment.
"Redeemable Dividend" means, for any dividend or distribution with regard to
Preferred Stock, the quotient of the dividend or distribution divided by the
difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer
of such Preferred Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
modifies, replaces, defers, supplements or extends any Indebtedness outstanding
on the Issue Date or other Indebtedness permitted to be incurred by Muzak or
its Restricted Subsidiaries pursuant to the terms of the indenture (other than
pursuant to clauses (1), (4), (6) and (8) through (16) of the definition of
Permitted Indebtedness), but only to the extent that
(1) the Refinancing Indebtedness is subordinated to the Notes to at
least the same extent as the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended, if at all,
(2) the Refinancing Indebtedness is scheduled to mature either
(a) no earlier than the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended, or
(b) after the maturity date of the Notes,
(3) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended that is scheduled to
mature on or prior to the maturity date of the Notes, and
(4) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of
(a) the aggregate principal amount of the Indebtedness being
refunded, refinanced, modified, replaced, deferred, supplemented or
extended,
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(b) the amount of accrued and unpaid interest, if any, and premiums
owed, if any, not in excess of preexisting prepayment provisions on
such Indebtedness being refunded, refinanced, modified, replaced,
deferred, supplemented or extended and
(c) the amount of customary fees, expenses and costs related to the
incurrence of such Refinancing Indebtedness.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other distribution
or payment on Capital Stock of Muzak or any Restricted Subsidiary of Muzak
or any payment made to the direct or indirect holders (in their capacities
as such) of Capital Stock of Muzak or any Restricted Subsidiary of Muzak
(other than (a) dividends or distributions payable solely in Capital Stock
(other than Disqualified Capital Stock), and (b) in the case of Restricted
Subsidiaries of Muzak, dividends or distributions payable to Muzak or to a
Restricted Subsidiary of Muzak and to the other holders of Capital Stock of
each such Restricted Subsidiary, in each case on a pro rata basis),
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than Capital Stock owned by Muzak or a Wholly Owned
Subsidiary of Muzak, excluding Disqualified Capital Stock),
(3) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value of any
Indebtedness which is subordinated in right of payment to the Notes prior
to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment (other than subordinated Indebtedness acquired in anticipation of
satisfying a scheduled sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of
acquisition) other than the ABRY Subordinated Debt,
(4) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment,
(5) any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary (valued at the fair market value of the net assets of such
Restricted Subsidiary) and
(6) forgiveness of any Indebtedness of an Affiliate of Muzak (other than
a Restricted Subsidiary) to Muzak or a Restricted Subsidiary of Muzak.
"Restricted Subsidiary" means a Subsidiary of Muzak other than an
Unrestricted Subsidiary. The Board of Directors of Muzak may designate any
Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such action (and
treating any Indebtedness of such Unrestricted Subsidiary or Person as having
been incurred at the time of such action),
(1) Muzak could have incurred at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to "--Certain Covenants--
Limitation on Additional Indebtedness" above, and
(2) no Default or Event of Default shall have occurred and be continuing
or result therefrom.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by Muzak or any Restricted Subsidiary of Muzak of any
real or tangible personal property, which property has been or is to be sold or
transferred by Muzak or such Restricted Subsidiary to such Person in
contemplation of such leasing.
"Securitization Entity" means a Wholly Owned Subsidiary of Muzak (or another
Person in which the Company or any Subsidiary of Muzak makes an Investment and
to which Muzak or any Subsidiary of Muzak transfers accounts receivable or
equipment and related assets) which engages in no activities other than in
connection with the financing of accounts receivable or equipment and which is
designated by the Board of Directors of Muzak (as provided below) as a
Securitization Entity: (a) no portion of the Indebtedness or any
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other obligation (contingent or otherwise) of which (i) is guaranteed by the
Company or any Subsidiary of Muzak (excluding guarantees of obligations (other
than the principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (ii) is recourse to or obligates Muzak or any
Subsidiary of Muzak in any way other than pursuant to Standard Securitization
Undertakings or (iii) subjects any property or asset of Muzak or any Subsidiary
of Muzak, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither Muzak nor any Subsidiary of Muzak has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to Muzak or such Subsidiary than those that might be obtained
at the time from Persons that are not Affiliates of Muzak, other than fees
payable in the ordinary course of business in connection with servicing
receivables of such entity, and (c) to which neither Muzak nor any Subsidiary
of Muzak has any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of Muzak shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the resolution of
the Board of Directors of Muzak giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing conditions.
"Senior Credit Facility" means one or more credit agreements, loan
agreements or similar agreements providing for working capital advances, term
loans, letter of credit facilities or similar advances, loans, or facilities to
the Company or any of its Subsidiaries, including the Credit and Guaranty
Agreement to be dated as of March 18, 1999, among Muzak, Holdings, Muzak's
subsidiaries, the lenders party thereto in their capacities as lenders
thereunder, Goldman Sachs Credit Partners L.P., as Syndication Agent, Canadian
Imperial Bank of Commerce, as Administrative Agent, and Goldman Sachs Credit
Partners L.P. and CIBC Oppenheimer Corp., as Co-Lead Arrangers, initially
providing for term loan and revolving credit facilities including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit facilities and/or related documents may be
further amended, restated, supplemented, renewed, refinanced, replaced,
restructured or otherwise modified from time to time whether or not with the
same agents, trustee, representative lenders or group of lenders or holders,
and irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Senior Credit Facility"
shall include agreements in respect of interest rate agreements and hedging
obligations with lenders party to any Senior Credit Facility and their
affiliates and shall also include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any Senior
Credit Facility and any and all refundings, refinancings (in whole or in part)
and replacements of any Senior Credit Facility, whether by the same or any
other agents, trustee, representative lenders or lenders or group of lenders,
including one or more agreements (i) extending the maturity of, or increasing
the amount of, any Indebtedness incurred thereunder or contemplated thereby, or
(ii) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of Muzak and its Restricted
Subsidiaries and their respective successors and assigns,
"Senior Discount Notes" means $75.0 million aggregate principal amount at
maturity of 13% Senior Discount Notes due 2010 of Holdings and Muzak Holdings
Finance Corp., a Delaware corporation, as co-issuers, in accordance with the
terms of such security as in effect on the Issue Date.
"Senior Indebtedness" means (1) all Bank Indebtedness and (2) all principal
of and premium, if any, and interest (including, but not limited to, interest
accruing on or after the filing of any petition in any bankruptcy,
reorganization or similar proceeding relating to Muzak or any Restricted
Subsidiary, whether or not a claim for such is allowed in such proceeding) on,
and any and all other fees, fees and expenses of counsel, expense reimbursement
obligations, indemnities and other amounts due pursuant to the terms of all
agreements, indentures, documents and instruments providing for, creating,
securing or evidencing or otherwise entered into in connection with
(a) all obligations of Muzak or any Guarantor with respect to any
Hedging Obligations,
(b) all obligations of Muzak or any Guarantor to reimburse any bank or
other person in respect of amounts paid under letters of credit,
acceptances or other similar instruments,
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(c) all other Indebtedness of Muzak or any Guarantor which does not
provide that it is to rank pari passu with or subordinate to the Notes or
the Guarantee of such Guarantor, as the case may be, and
(d) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior
Indebtedness described above,
in each case, whether outstanding on the Issue Date or created thereafter.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include
(1) Indebtedness of Muzak or any Guarantor to any of its Subsidiaries,
or to any Affiliate of Muzak or such Guarantor or any of such Affiliate's
Subsidiaries,
(2) Indebtedness represented by the Notes and the Guarantees,
(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Senior Indebtedness,
(4) any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business,
(5) Indebtedness incurred in violation of the Indenture,
(6) Indebtedness represented by Disqualified Capital Stock and
(7) any Indebtedness to or guaranteed on behalf of, any shareholders,
Director, officer or employee of Muzak or any Guarantor or any Subsidiary
of Muzak or such Guarantor.
"Significant Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act, as such Rule is in effect on the Issue Date.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of
Muzak which are reasonably customary in an accounts receivable or equipment
transaction.
"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of
its Subsidiaries; or
(2) in the case of a partnership, limited liability company, joint
venture, association or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or
cause the direction of the management and policies of such entity by
contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement purposes.
Notwithstanding the foregoing a charitable trust or foundation organized
pursuant to section 501(c)(3) of the Internal Revenue Code of 1986, as amended,
shall not be a "Subsidiary."
"Unrestricted Subsidiary" means
(1) any Subsidiary of an Unrestricted Subsidiary and
(2) any Subsidiary of Muzak which is classified after the Issue Date as
an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of Muzak;
provided that a Subsidiary may be so classified as an Unrestricted Subsidiary
only if
(a) such classification is in compliance with the "Limitation on
Restricted Payments" covenant,
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(b) immediately after giving effect to such classification, Muzak could
have incurred at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to "--Certain Covenants--Limitation on
Additional Indebtedness" above,
(c) no Default or Event of Default shall have occurred and be continuing
or result therefrom, and
(d) neither Muzak nor any Restricted Subsidiary shall at any time
(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness),
(ii) be directly or indirectly liable for any Indebtedness of such
Subsidiary or
(iii) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time
or both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness (other
than Indebtedness assumed by such Subsidiary in connection with the
Electro Systems Acquisition) that is Indebtedness of such Subsidiary
(including any corresponding right to take enforcement action against
such Subsidiary),
except in the case of clause (i) or (ii) to the extent
(i) that Muzak or such Restricted Subsidiary could otherwise provide
such a guarantee or incur such Indebtedness (other than as Permitted
Indebtedness) pursuant to "--Certain Covenants--Limitation on Additional
Indebtedness" above and
(ii) the provision of such guarantee and the incurrence of such
Indebtedness otherwise would be permitted under "--Certain Covenants--
Limitation on Restricted Payments" above.
The Trustee shall be given prompt notice by Muzak of each resolution adopted by
the Board of Directors of Muzak under this provision, together with a copy of
each such resolution adopted. Electro Systems shall be an Unrestricted
Subsidiary as of the Issue Date.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by Muzak.
Book-Entry, Delivery and Form
The exchange notes initially will be represented by one or more global notes
in registered, global form without interest coupons (collectively, the "Global
Note"). The Global Note will be deposited upon issuance with the Trustee as
custodian for the Depositary, in New York, New York, and registered in the name
of the Depositary or its nominee, in each case for credit to an account of a
direct or indirect participant as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee. Beneficial interest in the Global Note may not be
exchanged for exchange notes in certificated form except in the limited
circumstances described below. Except in the limited circumstances described
below, owners of beneficial interests in the Global Note will not be entitled
to receive physical delivery of Certificated Notes (as defined below).
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The exchange notes may be presented for registration of transfer and
exchange at the offices of the Exchange Agent.
The Depositary has advised the Issuers that the Depositary is a limited-
purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of Participants.
The Participants include securities brokers and dealers (including the Initial
Purchaser), banks, trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Participants or Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of the Depositary are recorded on the
records of the Participants and Indirect Participants.
The Depositary has also advised the Issuers that pursuant to procedures
established by it:
. upon deposit of the Global Note, the Depositary will credit the accounts
of Participants designated by the exchanging holders with portions of the
principal amount of Global Note and
. ownership of such interests in the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to Participants) or by
Participants and the Indirect Participants (with respect to other owners
of beneficial interests in the Global Note).
Except as described below, owners of interests in the Global Note will not
have exchange notes registered in their names, will not receive physical
delivery of exchange notes in certificated form and will not be considered the
registered owners or "Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and premium, if any, and Liquidated
Damages, if any, and interest on a Global Note registered in the name of the
Depositary or its nominee will be payable by the Trustee to the Depositary or
its nominee in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Issuers and the Trustee will treat the persons
in whose names the exchange notes, including the Global Note, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Issuers, the Trustee
nor any agent of the Issuers or the Trustee has or will have any responsibility
or liability for:
. any aspect of the Depositary's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Note, or for maintaining,
supervising or reviewing any of the Depositary's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Note or
. any other matter relating to the actions and practices of the Depositary
or any of its Participants or Indirect Participants.
The Depositary has advised the Issuers that its current practice upon
receipt of any payment in respect of securities such as the exchange notes
(including principal and interest) is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of the Depositary unless the
Depositary has reason to believe it will not receive payment on such payment
date. Payments by Participants and the Indirect Participants to the beneficial
owners of exchange notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of the Depositary, the
Trustee or the Issuers. Neither the Issuers nor the Trustee will be liable for
any delay by the Depositary or its Participants in identifying the beneficial
owners of the exchange notes, and the Issuers and the Trustee may conclusively
rely on and will be protected in relying on instructions from the Depositary or
its nominee for all purposes.
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Interests in the Global Note are expected to be eligible to trade in the
Depositary's Same-Day Funds Settlement System and secondary market trading
activity in such interests will, therefore, settle in immediately available
funds, subject in all cases to the rules and procedures of the Depositary and
its Participants. See
"--Same Day Settlement and Payment."
The Depositary has advised the Issuers that it will take any action
permitted to be taken by a Holder of exchange notes only at the direction of
one or more Participants to whose account the Depositary has credited the
interests in the Global Note and only in respect of such portion of the
aggregate principal amount of the exchange notes as to which such Participant
or Participants has or have given direction. However, if there is an Event of
Default under the exchange notes, the Depositary reserves the right to exchange
Global Note for legended exchange notes in certificated form, and to distribute
such exchange notes to its Participants.
The information in this section concerning the Depositary and its book entry
systems has been obtained from sources that the Issuers believe to be reliable,
but the Issuers take no responsibility for the accuracy thereof.
Although the Depositary has agreed to the foregoing procedures to facilitate
transfers of interests in the Global Note among Participants in the Depositary,
it is under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. None of the Issuers, the
Initial Purchaser or the Trustee or any of their respective agents will have
any responsibility for the performance by the Depositary or its respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive exchange notes in registered
certificated form ("Certificated Notes") if:
. the Depositary (A) notifies the Issuers that it is unwilling or unable to
continue as depositary for the Global Note and the Issuers thereupon fail
to appoint a successor depositary or (B) has ceased to be a clearing
agency registered under the Securities Exchange Act,
. the Issuers, at their option, notify the Trustee in writing that they
elect to cause issuance of the Certificated Notes or
. there shall have occurred and be continuing a Default or Event of Default
with respect to the exchange notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
exchange notes and the Issuers and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note Holder or
the Depositary for all purposes.
Exchange of Certificated Notes for Book-Entry Notes
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such Notes. See "Notice to Investors."
Same Day Settlement and Payment
The indenture requires that payments in respect of the exchange notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated
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Notes, the Issuers will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The exchange notes represented by the Global Note are expected to be
eligible to trade in the PORTAL market and to trade in the Depositary's Same-
Day Funds Settlement System, and any permitted secondary market trading
activity in such exchange notes will, therefore, be required by the Depositary
to be settled in immediately available funds. The Issuers expect that secondary
trading in the certificated Notes will also be settled in immediately available
funds.
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EXCHANGE OFFER; REGISTRATION RIGHTS
The Issuers have entered into the Exchange Offer Registration Rights
Agreement pursuant to which they have agreed, for the benefit of the holders
of the existing notes, that they will, at their cost,
(1) within 75 days after the Issue Date, file a registration statement
with the Commission with respect to a registered offer to exchange the
existing notes for the exchange notes, which will have terms substantially
identical in all material respects to the existing notes (except that the
exchange notes will not contain terms with respect to transfer
restrictions) and will be guaranteed by the Guarantors on terms
substantially identical in all material respects to the Guarantees,
(2) within 150 days after the Issue Date, use their best efforts to
cause the exchange offer registration statement to be declared effective
under the Securities Act. Upon the exchange offer registration statement
being declared effective, the Issuers will offer the exchange notes in
exchange for surrender of the existing notes, and
(3) keep the exchange offer open for not less than 30 days (or longer if
required by applicable law) after the date notice of the exchange offer is
mailed to the holders of the existing notes. For each existing note
surrendered to the Issuers pursuant to the exchange offer, the holder of
such note will receive an exchange note having a principal amount equal to
that of the surrendered note.
Under existing Commission interpretations, the exchange notes would in
general be freely transferable after the exchange offer without further
registration under the Securities Act; provided that, in the case of broker-
dealers, a prospectus meeting the requirements of the Securities Act be
delivered as required. The Issuers have agreed for a period of 180 days after
consummation of the exchange offer to make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any such exchange notes acquired as described below. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions
under the Securities Act, and will be bound by the provisions of the Exchange
Offer Registration Rights Agreement (including certain indemnification rights
and obligations).
Each holder of existing notes that wishes to exchange such notes for
exchange notes in the exchange offer will be required to make certain
representations including representations that
(1) any exchange notes to be received by it will be acquired in the
ordinary course of its business,
(2) it has no arrangement with any person to participate in the
distribution of the exchange notes, and
(3) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Issuers or any of the Guarantors, or if it is an affiliate, it
will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the exchange notes. If the holder is a broker-dealer that will receive
exchange notes for its own account in exchange for existing notes that were
acquired as a result of market-making activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Issuers to effect such an exchange offer, or if for any
other reason the exchange offer is not consummated within 185 days of the
Issue Date or, under certain circumstances, if the initial purchasers shall so
request, the Issuers will, at their own expense,
(1) as promptly as practicable, file a shelf registration statement
covering resales of the existing notes.
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(2) use their respective best efforts to cause the shelf registration
statement to be declared effective under the Securities Act, and
(3) use their respective best efforts to keep effective the shelf
registration statement until the earlier of the disposition of the existing
notes covered by the shelf registration statement or two years after the
Issue Date.
The Issuers will, in the event of the shelf registration statement, provide
to each holder of the existing notes copies of the prospectus which is a part
of the shelf registration statement, notify each such holder when the shelf
registration statement for the existing notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
existing notes. A holder of the existing notes that sells such existing notes
pursuant to the Shelf Registration Statement generally would be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Exchange Offer Registration Rights Agreement
which are applicable to such a holder (including certain indemnification rights
and obligations).
Although the Issuers intend to file one of the registration statements
described above there can be no assurance that such registration statement will
be filed or, if filed, that it will become effective. If the Issuers fail to
comply with the above provisions or if such registration statement fails to
become effective, then, as liquidated damages, additional interest shall become
payable in respect of the existing notes as follows:
(1) If (a) the exchange offer registration statement or shelf
registration statement is not filed within 75 days after the Issue Date or
(b) notwithstanding that the Issuers have consummated or will consummate an
exchange offer, the Issuers are required to file a shelf registration
statement and such shelf registration statement is not filed on or prior to
the date required by the Exchange Offer Registration Rights Agreement;
(2) If (a) an exchange offer registration statement or shelf
registration statement is not declared effective within 150 days after the
Issue Date or (b) notwithstanding that the Issuers have consummated or will
consummate an exchange offer, the Issuers are required to file a shelf
registration statement and such shelf registration statement is not
declared effective by the Commission on or prior to the 75 day following
the date such shelf registration statement was filed; or
(3) If either (a) the Issuers have not exchanged the exchange notes for
all existing notes validly tendered in accordance with the terms of the
exchange offer on or prior to 35 days after the date on which the exchange
offer registration statement was declared effective or (b) the exchange
offer registration statement ceases to be effective at any time prior to
the time that the exchange offer is consummated or (c) if applicable, the
shelf registration statement ceases to be effective at any time prior to
the second anniversary of the Issue Date;
(each such event referred to in clauses (1) through (3) above is a
"Registration Default"), the sole remedy available to holders of the existing
notes will be the immediate assessment of additional interest ("Additional
Interest") as follows: the per annum interest rate on the existing notes will
increase by 50 basis points, and the per annum interest rate will increase by
an additional 25 basis points for each subsequent 90-day period during which
the Registration Default remains uncured, up to a maximum additional interest
rate of 200 basis points per annum in excess of the interest rate on the cover
of this offering memorandum. All Additional Interest will be payable to holders
of the existing notes in cash on each interest payment date, commencing with
the first such date occurring after any such Additional Interest commences to
accrue, until such Registration Default is cured. After the date on which such
Registration Default is cured, the interest rate on the existing notes will
revert to the interest rate originally borne by the existing notes (as shown on
the cover of this offering memorandum).
The summary herein of certain provisions of the Exchange Offer Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Exchange
Offer Registration Rights Agreement, a copy of which will be available upon
request to any Issuer.
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CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain U.S. Federal income tax
considerations of the exchange of existing notes for exchange notes pursuant
to the exchange offer and the ownership and disposition of exchange notes.
This summary does not purport to be a complete analysis of all the potential
federal income tax effects relating to the purchase, ownership and disposition
of the exchange notes. There can be no assurance that the U.S. Internal
Revenue Service (the "IRS") will take a similar view of such consequences.
Further, the discussion does not address all aspects of taxation that may be
relevant to particular purchasers in light of their individual circumstances
(including the effect of any foreign, state or local laws) or to certain types
of purchasers subject to special treatment under U.S. Federal income tax laws
(including dealers in securities, insurance companies, financial institutions,
persons that hold exchange notes that are a hedge or that are hedged against
currency risks or that are part of a straddle or conversion transaction,
persons whose functional currency is not the U.S. dollar and tax-exempt
entities). The discussion below assumes that the exchange notes are held as
capital assets.
The discussion of the U.S. Federal income tax consequences below is based
on currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), judicial decisions, and administrative interpretations.
Because individual circumstances may differ, each prospective purchaser or
owner of the exchange notes is strongly urged to consult its own tax advisor
with respect to its particular tax situation and the particular tax effects of
any state, local, non-U.S. or other tax laws and possible changes in the tax
laws. As used herein, the term "U.S. Holder" means a beneficial owner of an
exchange note who or which is for U.S. Federal income tax purposes either:
(a) a citizen or resident of the U.S.;
(b) a corporation, partnership or other entity created or organized in or
under the laws of the U.S. or of any political subdivision thereof;
(c) an estate the income of which is subject to U.S. Federal income
taxation regardless of its source; or
(d) a trust if a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust.
The term "U.S. Holder" also includes certain former citizens of the U.S.
whose income and gain on the exchange notes will be subject to U.S. taxation.
As used herein, the term "Non-U.S. Holder" means a beneficial owner of an
exchange note that is not a U.S. holder.
Payments of Interest
Interest paid on an exchange note generally will be taxable to a U.S.
Holder as ordinary income at the time it accrues or is received, in accordance
with the U.S. Holder's method of accounting for federal income tax purposes.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of exchange notes, information with respect
to interest during the calendar year.
Under certain circumstances, Muzak may be entitled to redeem all or a
portion of the exchange notes. In addition, under certain circumstances, each
holder of exchange notes will have the right to require Muzak to repurchase
all or any part of such holder's exchange notes. Treasury Regulations contain
special rules for determining the yield to maturity and maturity on a debt
instrument in the event the debt instrument provides for a contingency that
could result in the acceleration or deferral of one or more payments. Muzak
does not believe that these rules are likely to apply to either Muzak's right
to redeem the exchange notes or to the holders' rights to require Muzak to
repurchase the exchange notes. Therefore, Muzak does not intend to treat such
redemption and repurchase provisions of the exchange notes as affecting the
computation of the yield to maturity or maturity date of the exchange notes.
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Market Discount and Premium
If a U.S. Holder that acquires an exchange note has a tax basis in the
exchange note that is less than its "stated redemption price at maturity," the
amount of the difference is treated as "market discount" for U.S. federal
income tax purposes, unless such difference is less than a statutory de minimis
amount. Under the market discount rules of the Code, a U.S. Holder must treat
any principal payment on, or any amount received on the sale, exchange,
retirement or other disposition of, an exchange note as ordinary income to the
extent of any market discount that has not previously been included in income
and is treated as having accrued on the exchange note by the time of such
payment or disposition. Market discount accrues on a straight-line basis over
the remaining term of an exchange note, unless the holder makes an irrevocable
election with the IRS to accrue market discount on the basis of a constant
interest rate. If a U.S. Holder makes a gift of such an exchange note, accrued
market discount, if any, is recognized as if the U.S. Holder had sold the
exchange note for its fair market value. A U.S. Holder may not be allowed to
deduct immediately all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or to carry such Note. A U.S. Holder may
elect to include market discount in income currently as it accrues (either on a
straight-line basis or, if the Holder so elects, on a constant yield basis), in
which case the interest deferral rule described in the preceding sentence will
not apply. Such an election will apply to all bonds acquired by the U.S. Holder
on or after the first day of the first taxable year to which such election
applies and may be revoked only with the consent of the IRS.
If a U.S. Holder purchases an exchange note for an amount greater than the
sum of all amounts payable on the exchange note after the purchase date, other
than stated interest, the holder is considered to have purchased the exchange
note with "amortizable bond premium" equal to such excess, and may elect to
amortize such premium using a constant yield method over the remaining term of
the exchange note. The amount amortized in any year is treated as a reduction
of the U.S. Holder's interest income from the exchange note in such year. A
U.S. Holder that elects to amortize bond premium must reduce its tax basis in
the exchange note by the amount of the premium amortized each year. An election
to amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by the U.S. Holder and may be revoked only with the consent
of the IRS.
Exchange of existing notes
The exchange of existing notes for exchange notes with terms identical to
those of the existing notes and the filing of a registration statement with
respect to the resale of the existing notes will not be a taxable event to
holders of the existing notes. Consequently, as a result of such an exchange or
such a filing, no gain or loss will be recognized by a holder, the holding
period of the exchange note will include the holding period of the existing
note and the basis of the exchange note will be the same as the basis of the
existing note immediately before the exchange. The Issuers are obligated to pay
liquidated damages to the holders of the existing notes under certain
circumstances described under the "The Exchange Offer--Purpose and Effect of
the Exchange Offer" above. Any such payments should be treated for tax purposes
as interest, taxable to holders as such payments are received or accrued in
accordance with the holder's method of accounting for federal income tax
purposes.
In any event, persons considering the exchange of existing notes for
exchange notes should consult their own tax advisors concerning the United
States federal income tax consequences in light of their particular situations
as well as any consequences arising under the laws of any other taxing
jurisdiction.
Sale, Exchange or Retirement of Notes
Upon the sale, exchange or retirement of an exchange note, a U.S. Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such holder's adjusted tax
basis in the exchange note. A U.S. Holder's adjusted tax basis in an exchange
note generally is equal to the cost of the exchange note to such holder,
increased by the amount of any market discount previously included in income by
the holder with respect to such exchange note and reduced by any amortized bond
premium and any principal payment on an exchange note received by such holder.
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Subject to the discussion of market discount above, gain or loss realized on
the sale, exchange or retirement of an exchange note by a U.S. Holder will be
capital gain or loss, and will be long-term capital gain or loss if at the time
of the sale, exchange or retirement, the U.S. Holder has held the Note for more
than one year. For a U.S. Holder who is an individual, net capital gain is
taxed at a maximum rate of 20% if the U.S. Holder's holding period is more than
12 months. The distinction between capital gain or loss and ordinary income or
loss is also relevant for purposes of, among other things, limitations on the
deductibility of capital losses.
Tax Consequences to Non-U.S. Holders
Under present U.S. federal income tax law, and subject to the discussion
below concerning backup withholding:
(1) payments of principal or interest on the exchange notes by Muzak or any
paying agent to a beneficial owner of an exchange note that is a Non-U.S.
Holder will not be subject to U.S. federal withholding tax, provided that, in
the case of interest:
(a) such Non-U.S. Holder does not own, actually or constructively, 10%
or more of Muzak;
(b) such Non-U.S. Holder is not, for U.S. federal income tax purposes, a
controlled foreign corporation related, directly or indirectly, to Muzak
through stock ownership;
(c) such Non-U.S. Holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code; and
(d) the certification requirements under Section 871(h) or Section
881(c) of the Code and Treasury Regulations thereunder (summarized below)
are met; and
(2) a Non-U.S. Holder of an exchange note will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other disposition
of such exchange note, unless:
(a) such holder is an individual who is present in the U.S. for 183 days
or more in the taxable year of sale, exchange or other disposition, and
certain other conditions are met;
(b) such gain is effectively connected with the conduct by such Non-U.S.
Holder of a trade or business in the U.S., and if certain tax treaties
apply, is attributable to a U.S. permanent establishment maintained by the
Non-U.S. Holder; or
(c) the Non-U.S. Holder is subject to tax pursuant to the Code
provisions applicable to certain U.S. expatriates.
Sections 871(h) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that, to obtain the exemption from withholding
tax described above, either (a) the beneficial owner of an exchange note must
certify, under penalties of perjury, to Muzak or paying agent, as the case may
be, that such owner is a Non-U.S. Holder and must provide such owner's name and
address, and U.S. taxpayer identification number ("TIN"), if any, or (b) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"Financial Institution") that holds the exchange note on behalf of the
beneficial owner thereof must certify, under penalties of perjury, to Muzak or
paying agent, as the case may be, that such certificate has been received from
the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and must furnish the payor with a copy thereof. A certificate
described in this paragraph is effective only with respect to payments of
interest made to the certifying Non-U.S. Holder after delivery of the
certificate in the calendar year of its delivery and the two immediately
succeeding calendar years. Under currently effective U.S. Treasury Regulations,
such requirement
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will be fulfilled if the beneficial owner of an exchange note certifies on IRS
Form W-8, under penalties of perjury, that it is a Non-U.S. Holder and provides
its name and address, and any Financial Institution holding the Note on behalf
of the beneficial owner files a statement with the withholding agent to the
effect that it has received such a statement from the beneficial owner (and
furnishes the withholding agent with a copy thereof).
If a Non-U.S. Holder of an exchange note is engaged in a trade or business
in the U.S., and if interest on the exchange note, or gain realized on the
sale, exchange or other disposition of the exchange note, is effectively
connected with the conduct of such trade or business and, if certain tax
treaties apply, is attributable to a U.S. permanent establishment maintained by
the Non-U.S. Holder, the Non-U.S. Holder, although exempt from U.S. withholding
tax, will generally be subject to regular U.S. income tax on such interest or
gain in the same manner as if it were a U.S. Holder. In lieu of the certificate
described in the preceding paragraph, such a holder must provide Muzak a
properly executed IRS Form 4224 to claim an exemption from withholding tax. In
addition, if such Non-U.S. Holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments. For purposes of the branch
profits tax, interest on and any gain recognized on the sale, exchange or other
disposition of an exchange note is included in the earnings and profits of the
Non-U.S. Holder if such interest or gain is effectively connected with the
conduct by the Non-U.S. Holder of a trade or business in the U.S.
Treasury Regulations released on October 6, 1997 (the "New Regulations") and
effective for payments made after December 31, 2000, will provide alternative
methods for satisfying the reporting and certification requirements described
herein. The New Regulations also will require, in the case of exchange notes
held by a foreign partnership, that (x) the certification be provided by the
partners rather than by the foreign partnership and (y) the partnership provide
certain information, including a U.S. taxpayer identification number. A look-
through rule will apply in the case of tiered partnerships.
Backup Withholding
Under current U.S. federal income tax law, a 31% backup withholding tax
requirement applies to certain payments of interest on and the proceeds of a
sale, exchange or redemption of, the exchange notes.
Backup withholding generally does not apply with respect to payments made to
certain exempt recipients, such as corporations or certain tax-exempt entities.
In the case of a non-corporate U.S. Holder, backup withholding applies only if:
(a) such holder fails to furnish the holder's TIN, which, for an
individual, is his or her Social Security number;
(b) furnishes an incorrect TIN;
(c) the Issuer is notified by the IRS that the holder has failed to
properly report payments of interest and dividends; or
(d) under certain circumstances, the holder fails to certify, under
penalties of perjury, that the holder has furnished a correct TIN and has
not been notified by the IRS that the holder is subject to backup
withholding for failure to report interest and dividend payments.
In the case of a Non-U.S. Holder, under currently effective Treasury
Regulations, backup withholding will not apply to payments made by Muzak or any
paying agent thereof on a Note if the holder has provided the required
certification under penalties of perjury that it is not a U.S. Holder or has
otherwise established an exemption, provided in each case that Muzak or such
paying agent, as the case may be, does not have actual knowledge that the payee
is a U.S. Holder.
Under currently effective Treasury Regulations, if payments on an exchange
note are made to or through a foreign office of a custodian, nominee or other
agent acting on behalf of a beneficial owner of an exchange note, such
custodian nominee or other agent will not be required to apply backup
withholding to such payments
120
<PAGE>
made to such beneficial owner. However, under the New Regulations, backup
withholding may apply to payments made after December 31, 2000 if such
custodian, nominee or other agent has actual knowledge that the payee is a U.S.
Holder.
Under currently effective Treasury Regulations, payments on the sale,
exchange or other disposition of a Note made to or through a foreign office of
a broker generally will not be subject to backup withholding. However, under
the New Regulations, backup withholding may apply to payments made after
December 31, 2000 if the broker has actual knowledge that the payee is a U.S.
Holder. In the case of proceeds from a sale of a Note by a Non-U.S. Holder paid
to or through the foreign office of a U.S. broker or a foreign office of a
foreign broker that is (a) a controlled foreign corporation for U.S. tax
purposes or (b) a person 50% or more of whose gross income for the three-year
period ending with the close of the taxable year preceding the year of payment
(or for the part of that period that the broker has been in existence) is
effectively connected with the conduct of a trade or business within the U.S.,
information reporting is required unless the broker has documentary evidence in
its files that the payee is not a U.S. person and certain other conditions are
met, or the payee otherwise establishes an exemption. Payments to or through
the U.S. office of a broker are subject to backup withholding and information
reporting unless the holder certifies, under penalties of perjury, that it is
not a U.S. Holder and that certain other conditions are met or otherwise
establishes an exemption.
Holders of exchange notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against the holder's U.S. federal
income tax liability and may entitle the holder to a refund if the required
information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH PROSPECTIVE HOLDER OF A NOTE SHOULD CONSULT ITS OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL, OR NON-U.S. INCOME TAX LAWS AND ANY RECENT OR
PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS AND THE EFFECT OF THE NEW
REGULATIONS WITH RESPECT TO PAYMENTS MADE AFTER DECEMBER 31, 2000.
121
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with the resale of exchange
notes received in exchange for existing notes where such existing notes were
acquired as a result of market-making activities or other trading activities.
The Issuers have agreed that for a period of 180 days from the consummation of
the exchange offer, they will make this prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any
such resale. In addition, until 90 days after the commencement of the exchange
offer, all dealer effecting transactions in the exchange notes may be required
to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the exchange
notes by Participating Broker- Dealers. Exchange notes received by
Participating Broker-Dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the exchange notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such exchange notes. Any Participating
Broker-Dealer that resells the exchange notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date, the Issuers will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
Kirkland & Ellis, Chicago, Illinois will pass upon the validity of the
exchange notes offered hereby and certain other legal matters on behalf of the
Issuers.
EXPERTS
The financial statements of Audio Communications Network, LLC as of December
31, 1998 and for the period from October 7, 1998 through December 31, 1998
included in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated statements of operations, changes in stockholders' equity
and cash flows of Audio Communications Network, Inc. for the period from
January 1, 1998 through October 6, 1998 included in this prospectus, have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Audio Communications Network, Inc.
as of December 31, 1996 and 1997 and for each of the two years ended December
31, 1997 included in this prospectus, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
122
<PAGE>
The consolidated financial statements of Muzak Limited Partnership as of
December 31, 1997 and 1998 and for each of the three years ended December
31,1998 included in this prospectus, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-4 (the
"Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules
and regulations promulgated thereunder, covering the exchange offer
contemplated hereby. This prospectus does not contain all the information set
forth in the Registration Statement. For further information with respect to
our company and the exchange offer, reference is made to the Registration
Statement. Statements made in this prospectus as to the contents of any
contract, agreement, or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
We are not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act. Upon the
effectiveness of the Registration Statement, we will become subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act, and in accordance therewith, will be required to file periodic
reports and other information with the SEC. We have agreed that, whether or not
we are required to do so by the rules and regulations of the SEC, for so long
as any of the exchange notes remain outstanding, we will furnish to the holders
of the exchange notes, on a combined consolidated basis:
. quarterly and annual financial statements substantially equivalent to
financial statements that would have been included in a filing with the
SEC on Forms 10-Q and 10-K if we were required to file such financial
information, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes our
financial condition and results of operations and, with respect to the
annual information only, reports thereon by our independent public
accountants, and
. all information that would be required to be filed with the SEC on Form
8-K if we were required to file such reports.
In addition, for so long as any of the exchange notes remain outstanding, we
have agreed to furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered by Rule 144A(d)(4) under the Securities Act.
The Registration Statement may be inspected at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the SEC located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may
be obtained from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a web site
at http://www.sec.gov that contains reports and other information regarding
registrants, like Avalon, that file electronically with the SEC.
123
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audio Communications Network, LLC
Report of Independent Accountants....................................... F-2
Balance Sheet as of December 31, 1998................................... F-4
Statement of Operations for the period from October 7, 1998
through December 31, 1998.............................................. F-5
Statement of Changes in Members' Interest for the period from October 7,
1998
through December 31, 1998.............................................. F-6
Statement of Cash Flows for the period from October 7, 1998
through December 31, 1998.............................................. F-7
Notes to the Financial Statements....................................... F-8
Audio Communications Network, Inc.
Report of Independent Accountants....................................... F-3
Consolidated Statement of Operations for the period from January 1, 1998
through October 6, 1998................................................ F-5
Consolidated Statement of Changes in Stockholders' Equity for the period
from January 1, 1998 through October 6, 1998........................... F-6
Consolidated Statement of Cash Flows for the period from January 1, 1998
through October 6, 1998................................................ F-7
Notes to the Financial Statements....................................... F-8
Audio Communications Network, Inc.
Report of Independent Certified Public Accountants...................... F-13
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-14
Consolidated Statement of Operations for the two years ended December
31, 1996 and 1997...................................................... F-16
Consolidated Statement of Stockholders' Equity for the two years ended
December 31, 1996 and 1997............................................. F-17
Consolidated Statement of Cash Flows for the two years ended December
31, 1996 and 1997...................................................... F-18
Notes to the Consolidated Financial Statements.......................... F-20
Muzak Limited Partnership
Independent Auditors' Report............................................ F-27
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-28
Consolidated Statement of Operations for the three years ended December
31, 1996, 1997 and 1998................................................ F-29
Consolidated Statements of Partners' Deficit for the three years ended
December 31, 1996, 1997 and 1998....................................... F-30
Consolidated Statements of Cash Flows for the three years ended December
31, 1996, 1997 and 1998................................................ F-32
Notes to the Consolidated Financial Statements.......................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Audio Communications Network, LLC
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in member's interest and of cash flows present fairly, in
all material respects, the financial position of Audio Communications Network,
LLC (the "Company") at December 31, 1998, and the results of its operations and
its cash flows for the period from October 7, 1998 to December 31, 1998, in
conformity with generally accepted accounting principles. 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. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 19, 1999
Charlotte, North Carolina
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Audio Communications Network, LLC
In our opinion, the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Audio Communications Network,
Inc. ("ACN" or "Predecessor Company") present fairly, in all material respects,
the results of their operations and their cash flows for the period from
January 1, 1998 to October 6, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
ACN's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 19, 1999
Charlotte, North Carolina
F-3
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
Audio
Communications
Network, LLC
December 31,
1998
--------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 1,293
Accounts receivable, net of allowance for doubtful accounts of
$450......................................................... 1,764
Inventories................................................... 1,323
Prepaid expenses and other assets............................. 125
-------
Total current assets........................................ 4,505
Property and equipment, net..................................... 17,499
Intangible assets, net.......................................... 49,039
Deposits and other assets....................................... 1,884
-------
Total assets................................................ $72,927
=======
Liabilities and Member's Interest
Current liabilities:
Current portion of notes payable to related parties........... $42,183
Current portion of obligations under capital lease............ 34
Accounts payable.............................................. 2,439
Accrued expenses.............................................. 1,525
-------
Total current liabilities................................... 46,181
Notes payable to related parties, net of current portion........ 460
Obligations under capital lease, net of current portion......... 26
-------
Total liabilities........................................... 46,667
Commitment and contingencies (Note 9)...........................
Member's interest:
Member's capital.............................................. 27,407
Accumulated deficit........................................... (1,147)
-------
Total member's interest..................................... 26,260
-------
Total liabilities and member's interest..................... $72,927
=======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Audio Communications Audio Communications
Network, Inc. for the Network, LLC for the
period from period from
January 1, 1998 October 7, 1998
through through
October 6, 1998 December 31, 1998
--------------------- --------------------
<S> <C> <C>
Revenues............................................................................ $18,917 $ 5,914
Costs and expenses:
Cost of sales..................................................................... 8,206 2,556
Selling, general and administrative expenses...................................... 7,245 1,794
Depreciation and amortization expense............................................. 4,372 1,683
------- -------
Total cost and expenses......................................................... 19,823 6,033
------- -------
Loss from operations................................................................ (906) (119)
Other income (expense)
Interest expense.................................................................. (2,520) (1,033)
Other, net........................................................................ 6 5
------- -------
Loss before income taxes............................................................ (3,420) (1,147)
Provision for income taxes.......................................................... (8) --
------- -------
Net loss............................................................................ (3,428) $(1,147)
- --------------------------------------------------
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND MEMBER'S INTEREST
(dollars in thousands)
AUDIO COMMUNICATIONS NETWORK, INC:
<TABLE>
<CAPTION>
Contributed
Capital Total
Common in Excess Accumulated Stockholders'
Stock of Par Deficit Equity
------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997...... $1,126 $9,851 $(2,799) $ 8,178
Stock options exercised........... 1 6 -- 7
Net loss.......................... -- -- (3,428) (3,428)
------ ------ ------- -------
Balance at October 6, 1998........ $1,127 $9,857 $(6,227) $ 4,757
====== ====== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
AUDIO COMMUNICATIONS NETWORK, LLC:
<TABLE>
<CAPTION>
Total
Member's Accumulated Member's
Capital Deficit Interest
-------- ----------- --------
<S> <C> <C> <C>
Balance at October 7, 1998 (prior to initial
contribution by Parent)........................ $ -- $ -- $ --
Contribution by Parent.......................... 8,602 -- 8,602
Conversion of notes payable due to Parent....... 18,805 -- 18,805
Net loss........................................ -- (1,147) (1,147)
------- ------- -------
Balance at December 31, 1998.................... $27,407 $(1,147) $26,260
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Audio Communications Audio Communications
Network, Inc. for the Network, LLC for the
period from period from
January 1, 1998 October 7, 1998
through through
October 6, 1998 December 31, 1998
--------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $(3,428) $(1,147)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................... 4,372 1,683
Amortization of discount on notes payable to a related party.................... 58 20
Interest contributed to equity.................................................. -- 145
Deferred commissions............................................................ (524) (209)
Loss on disposal of fixed assets................................................ 26 13
(Increase) decrease in operating assets and liabilities net of effects of
acquisitions:
Accounts receivable........................................................... 241 95
Inventories................................................................... 303 (524)
Prepaid expenses and other.................................................... 54 (52)
Accounts payable.............................................................. 379 546
Accrued liabilities........................................................... 112 597
------- -------
Net cash provided by operating activities................................... 1,593 1,167
Cash flows from investing activities:
Capital expenditures.............................................................. (3,538) (1,308)
Acquisitions net of cash.......................................................... -- (67,028)
------- -------
Net cash used in investing activities....................................... (3,538) (68,336)
Cash flows from financing activities:
Proceeds from related party notes payable......................................... -- 59,478
Proceeds from long-term debt...................................................... 2,200 --
Proceeds from contributions by Parent............................................. -- 8,602
Principal payments under capital lease obligations................................ (52) (8)
Repayment of long-term debt....................................................... (500) --
Proceeds from sale of stock....................................................... 7 --
------- -------
Net cash provided by financing activities................................... 1,655 68,072
Net Increase (decrease) in cash and cash equivalents................................ (290) 903
Cash and cash equivalents, beginning of period...................................... 680 390
------- -------
Cash and cash equivalents, end of period............................................ $ 390 $ 1,293
======= =======
- --------
Supplemental disclosures:
Cash paid for interest ........................................................... $ 2,900 $ 2
--------------------------------------------------
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
NOTES TO THE FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Business
Audio Communications Network, LLC (the "Company") was formed in September
1998, pursuant to the laws of Delaware, as a wholly owned subsidiary of ACN
Holdings, LLC (the "Parent"). The Company owns and operates Muzak Limited
Partnership ("Muzak") franchises, which provide background music programming
and ancillary services to customers, located in Baltimore, Maryland; Kansas
City and St. Louis, Missouri; Jacksonville, Florida; Fresno, California;
Phoenix, Arizona; Charlotte and Hillsborough, North Carolina; as its single
line of business. The Company began its operations on October 7, 1998, with
the acquisition of certain assets and liabilities of Audio Communications
Network, Inc ("ACN" or "Predecessor Company") (Note 3).
2. Summary of Significant Accounting Policies
Principles of Consolidation
All intercompany balances and transactions are eliminated in the ACN
consolidated financial statements.
Cash and Cash Equivalents
Cash equivalents include demand and interest-bearing deposits due from
banks with original maturities of 90 days or less. Cash and cash equivalents
also includes a contribution from the Parent of $202, which use is restricted
for the January 15, 1999 acquisition of Business Sound, Inc. (Note 10).
Inventories
Inventories consist primarily of electronic equipment and are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
Property and Equipment
Property is recorded at cost. Depreciation is computed on the straight-line
method over the estimated useful lives of the assets, ranging from three to
twenty years. Sound and music equipment installed at customer premises under
contracts to provide music programming services is transferred from inventory
to property and equipment at cost plus an allocation of installation costs and
is amortized over 8 years.
Intangible Assets
Goodwill, the excess of the purchase price over the fair value of net
assets of businesses acquired, is amortized over twenty years using the
straight-line method. Other intangible assets acquired, principally subscriber
contract rights, are amortized using the straight-line method over periods
ranging from 8 to 14 years. Management evaluates the recoverability of
intangibles by comparing recorded values to the undiscounted future cash flows
that can be generated by such assets. Impairment losses are recognized if
recorded values exceed undiscounted future cash flows, by reducing them to
estimated fair value. No impairment losses were recognized by the Company or
ACN for the periods presented.
Income Taxes
As a Limited Liability Company ("LLC"), federal and state income taxes are
the responsibility of the Company's member. Accordingly, the financial
statements of the Company includes no provision for income taxes.
F-8
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from music services are recognized on a straight-line basis over
the term of the customer contracts in the period services are provided.
Revenues for equipment sales and installation are recognized upon delivery or
installation. Contracts are typically for a five-year period with renewal
options for an additional five years.
Concentrations of Credit Risk
The Company maintains its cash in bank accounts that at times may exceed
federally insured limits. The Company performs ongoing credit evaluations of
its customers and generally requires no collateral from the customers. Credit
losses are provided for in the financial statements and consistently have been
within management's expectations. Management believes that the Company's credit
risk is somewhat lessened due to the fact that its customers operate in a wide
range of industries and are geographically disbursed.
3. Acquisition of ACN
On October 7, 1998, the Company acquired certain assets and liabilities of
ACN for $66,818. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the consideration paid was allocated based on the
estimated fair market value of the net assets acquired as determined by an
independent appraisal. The excess of the consideration paid over the estimated
fair market value of the net assets acquired approximated $17,000 and is being
amortized using the straight-line method over 20 years.
In order to complete the acquisition of ACN, the Company received a $8,400
capital contribution from the Parent, and issued notes payable to a related
party and the Parent for $40,817 (see note 6) and $17,600, respectively.
On December 4, 1998, the Parent converted the $17,600 note payable along
with additional notes issued during the period of October 7, 1998 through
December 31, 1998 which approximated $1,060, plus accrued interest of $145,
into membership interest.
As a result of the transaction and application of purchase accounting,
financial information for the period from October 7, 1998 through December 31,
1998 represents that of the Company, which is presented on a different basis
than that of the Predecessor Company for the period from January 1, 1998
through October 6, 1998, and therefore is not comparable.
The following presents the unaudited pro forma results of the Company for
the twelve month period ended December 31, 1998, as if the acquisition of ACN,
by the Company, occurred on January 1, 1998. These unaudited pro forma results
are not necessarily indicative of the results that will occur in the future.
<TABLE>
<S> <C>
Revenue............................. $24,831
=======
Loss from operations................ $(2,197)
=======
Net loss............................ $(6,622)
=======
</TABLE>
F-9
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
4. Property and Equipment
At December 31, 1998, property and equipment consist of the following:
<TABLE>
<S> <C>
Leasehold improvements............... $ 132
Equipment............................ 17,770
Furniture and fixtures............... 397
-------
18,299
Less: accumulated depreciation....... (800)
-------
$17,499
=======
</TABLE>
Depreciation expense approximated $800 for the period from and October 7,
1998 through December 31, 1998.
Depreciation expense approximated $1,865 for the period from January 1,
1998 through October 6, 1998.
5. Intangible Assets
At December 31, 1998, intangible assets consist of the following:
<TABLE>
<S> <C>
Subscriber contracts................. $32,930
Goodwill............................. 16,971
Other................................ 21
-------
49,922
Less: accumulated amortization....... (883)
-------
$49,039
=======
</TABLE>
Amortization expense approximated $883 for the period from October 7, 1998
through December 31, 1998.
Amortization expense approximated $2,507 for the period from January 1,
1998 through October 6, 1998.
6. Notes Payable to Related Parties
At December 31, 1998, notes payable to related parties included the
following;
<TABLE>
<S> <C>
Promissory note payable to a related party due October 6, 1999;
including unpaid interest of $866, which compounds quarterly at
variable interest rate (approximately 9% at December 31, 1998)
and is payable at maturity....................................... $41,683
Note payable to a related party; two annual payments of $500 due
January 1999 and 2000, respectively, net of unamortized discount
(at 10%) of $40 at December 31, 1998............................. 960
-------
42,643
Less: current portion of notes payable to related parties...... (42,183)
-------
$ 460
=======
</TABLE>
F-10
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
7. Income Taxes
The income tax provision for ACN for the period from January 1, 1998 through
October 6, 1998 consists of deferred state taxes of $8. ACN's effective tax
rate differs from the statutory federal income tax rate as a result of
nondeductible expenses and an increase in the valuation allowance for deferred
tax assets.
8. Employee Benefit Plans
ACN had a noncontributory defined contribution pension plan covering
substantially all of ACN employees who met certain age and length of service
qualifications. ACN's policy was to fund pension cost with annuity contracts.
During 1998, ACN decided to terminate the plan. Vested benefits will be
contributed to the successor plan sponsored by the Company.
The Company has a profit-sharing plan continued from the Predecessor Company
which covers all employees of the Company who have at least one-half year of
service. Contributions to the plan by employees may be at least 1% but not more
than 15% of annual salary, subject to certain restrictions. Contributions by
the Company to the plan are discretionary. Employees are always 100% vested in
employee contributions; no vesting in employer contributions occurs prior to
the first two years of service and 100% vesting occurs after the third year of
service. Plan expense for the period from October 7, 1998 to December 31, 1998
and the period from January 1, 1998 to October 6, 1998 was $55 and $23,
respectively.
9. Commitments and Contingencies
Certain equipment and office and warehouse facilities are held under non-
cancelable operating leases. The Company has also entered into various
agreements with broadcasting companies in order to transmit music service to
its customers through the broadcasting companies' subchannels. Rent expense
under the operating leases and broadcasting agreements was approximately $94
during the period from October 7, 1998 through December 31, 1998. The following
is a summary of future payments on equipment under non-cancelable operating
leases together with the present value of net minimum payments of equipment
under capital leases at December 31, 1998:
<TABLE>
<CAPTION>
Lease Obligations
Operating Capital
--------- -------
<S> <C> <C>
1999................................................... $ 416 $ 39
2000................................................... 409 22
2001................................................... 323 6
2002................................................... 216 --
2003................................................... 138 --
Thereafter............................................. 39 --
------ ----
Total minimum lease payments......................... $1,541 67
======
Less: portion related to interest.................... (7)
----
Present value of net minimum lease payments.......... 60
Less: current portion of capital lease obligations... (34)
----
Long-term portion of capital lease obligations....... $ 26
====
</TABLE>
Rent expense for the period form January 1, 1998 to October 6, 1998 was
approximately $225.
F-11
<PAGE>
AUDIO COMMUNICATIONS NETWORK, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
From time to time the Company is involved with claims that arise out of the
normal course of business. In the opinion of management, the ultimate liability
with respect to these claims will not have a material adverse effect on the
financial statements of the Company.
10. Muzak Finance Corp.
Muzak Finance Corp. ("Finance Corp.") was formed in February, 1999, pursuant
to the laws of Delaware, as a wholly owned subsidiary of the Company. Finance
Corp. had no 1998 activities.
11. Subsequent Events (unaudited)
On January 15, 1999, the Company acquired all of the outstanding stock of
Business Sound, Inc. ("Business Sound") for approximately $4,100. The Business
Sound acquisition was financed with approximately $4,100 of cash contributed by
the Parent. Business Sound is the Muzak affiliate for the New Orleans,
Louisiana and Mobile, Alabama areas.
On February 24, 1999, the Company acquired all of the outstanding stock of
Electro Systems Corporation ("Electro Systems") the Muzak independent affiliate
located in Panama City, Florida for cash of approximately $550, plus the
assumption of $2,400 of existing indebtedness.
On March 18, 1999, the Company merged with and into Muzak (the "merger").
Under the terms of the agreement, total consideration was approximately
$245,000. At the time of the merger, the Company changed its name to Muzak LLC.
On March 18, 1999, the Company acquired Capstar Broadcasting Corporation's
("Capstar") Muzak affiliates comprised of territories which are located in
Atlanta, Albany and Macon, Georgia; Ft. Myers, Florida; and on May 3, 1999
acquired the Muzak affiliate territory located in Omaha, Nebraska (the "Capstar
Acquisition"). The purchase price for the Capstar Acquisition was approximately
$20,484, comprised of voting membership units of the Parent and a cash payment
of approximately $5,474 which is subject to adjustment.
In connection with the Merger, the Company entered into a new senior credit
facility ("Senior Credit Facility"), which provides for two term loans (the
"Term Loans") for $30,000 and $105,000 and revolving loans (the "Revolving
Loan") for up to $35,000 of which $3,400 was drawn at closing. The Term Loans
are required to be paid in semi-annual installments on June 30 and December 31
of each year beginning on June 30, 2000. The Revolving Loan must be repaid on
or before December 31, 2005. The obligations of the Company under the Senior
Credit Facility are guaranteed by each of the Company's future direct and
indirect domestic subsidiaries. Interest accrues at the Company's election at a
rate based on either (a) the Base Rate (as described in the Senior Credit
Facilities Agreement) or b) Libor (as defined in the Senior Credit Facilities
Agreement) plus in either case, the applicable margin. The applicable borrowing
margin under Term Loans and Revolving Loans range from 1% to 3.5%. Commitment
fees range from .375% to .0625%.
On March 18, 1999, the Company coissued of a $115,000,000, principal amount,
Senior Subordinated Notes ("Subordinated Notes") offering executed by its
wholly owned subsidiary Muzak, LLC. Interest on the Subordinated Notes is
expected to accrue at a rate of 9.875%, per annum. Interest is expected to be
payable semi-annually, in arrears, on each March 15 and September 15 of each
year, commencing on September 15, 1999. The Subordinated Notes will mature on
March 15, 2009.
F-12
<PAGE>
The following table summarizes the unaudited pro forma results of operations
for the year ended December 31, 1998, as if the acquisitions and financings
described above and the acquisition of ACN as disclosed in Note 3 occurred on
January 1, 1998:
<TABLE>
<CAPTION>
December
31, 1998
-----------
(Unaudited)
<S> <C>
Revenue....................................................... $138,584
Loss from operations.......................................... $ (2,515)
Net loss...................................................... $(33,273)
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Audio Communications Network, Inc.:
We have audited the accompanying consolidated balance sheets of Audio
Communications Network, Inc. and its subsidiaries (the "Company") as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in
the period ended December 31, 1997. 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 consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
March 31, 1998
Orlando, Florida
F-13
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)................. $ 132,565 $ 680,195
Accounts receivable--trade (less allowance for
doubtful accounts
of $105,797 in 1996 and $484,227 in 1997)......... 839,442 2,159,163
Inventories (Note 1)............................... 443,969 1,150,133
Prepaid expenses and other current assets.......... 124,372 196,891
----------- -----------
Total current assets............................. 1,540,348 4,186,382
----------- -----------
PROPERTY--At cost: (Notes 1 and 4)
Leasehold improvements............................. 55,572 79,459
Equipment.......................................... 6,651,052 14,797,638
Furniture and fixtures............................. 122,647 523,598
----------- -----------
Total............................................ 6,829,271 15,400,695
Less accumulated depreciation...................... (920,839) (2,271,197)
----------- -----------
Property--net.................................... 5,908,432 13,129,498
----------- -----------
OTHER ASSETS:
Subscriber contract rights and other intangible
assets (net of accumulated amortization of
approximately $2,678,000 in 1996 and $5,095,000 in
1997) (Note 1).................................... 14,921,299 19,984,882
Goodwill (net of accumulated amortization of
approximately $49,000 in 1996 and $377,000 in
1997) (Note 1).................................... 653,666 7,974,059
Deposits and other................................. 80,349 30,819
----------- -----------
Total other assets............................... 15,655,314 27,989,760
----------- -----------
TOTAL.......................................... $23,104,094 $45,305,640
=========== ===========
</TABLE>
F-14
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4)......... $ 1,468,420 $ 556,830
Accounts payable................................... 1,530,200 1,739,800
Royalties payable.................................. -- 660,264
Accrued liabilities (Note 3)....................... 359,429 1,775,590
----------- -----------
Total current liabilities........................ 3,358,049 4,732,484
----------- -----------
LONG-TERM DEBT (Note 4).............................. 17,197,865 32,395,375
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Note 5):
Preferred stock, $.001 par value, authorized -0- in
1996, 1,000,000 shares in 1997; issued and
outstanding, -0- shares in 1996 and 1997............ -- --
Common stock, $.25 par value, authorized, -0- in
1996; 12,000,000 shares in 1997, issued and
outstanding, -0- shares in 1996 and 4,502,135 shares
in 1997............................................. -- 1,125,534
Contributed capital in excess of par value........... -- 9,850,850
Investment........................................... 3,750,000 --
Contributed capital--preferred warrants.............. 193,646 --
Accumulated deficit.................................. (1,395,466) (2,798,603)
----------- -----------
Total stockholders' equity....................... 2,548,180 8,177,781
----------- -----------
TOTAL.......................................... $23,104,094 $45,305,640
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
REVENUES............................................ $10,122,175 $17,552,024
----------- -----------
COSTS AND EXPENSES:
Cost of sales..................................... 3,412,161 7,168,978
Selling, general and administrative expenses...... 2,984,414 5,113,403
Depreciation and amortization..................... 2,356,185 4,057,052
----------- -----------
Total........................................... 8,752,760 16,339,433
----------- -----------
INCOME BEFORE OTHER INCOME (EXPENSE) AND INCOME
TAXES.............................................. 1,369,415 1,212,591
OTHER INCOME (EXPENSE):
Interest income................................... 10,794 20,221
Interest expense (Note 4)......................... (1,925,552) (2,669,160)
Other............................................. -- 59,561
----------- -----------
Other--net...................................... (1,914,758) (2,589,378)
----------- -----------
LOSS BEFORE INCOME TAXES............................ (545,343) (1,376,787)
PROVISION FOR INCOME TAXES (Notes 1 and 6).......... -- 26,350
----------- -----------
NET LOSS............................................ $ (545,343) $(1,403,137)
=========== ===========
LOSS PER COMMON SHARE (Note 1)...................... $ (.13) $ (.32)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Contributed Contributed
Capital- Capital Total
Preferred Common in Excess Accumulated Stockholders'
Investment Warrants Stock of Par Deficit Equity
----------- ----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... $ 3,750,000 $193,646 $ -- $ -- $ (850,123) $ 3,093,523
Net loss............... -- -- -- -- (545,343) (545,343)
----------- -------- ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31,
1996................... 3,750,000 193,646 -- -- (1,395,466) 2,548,180
Merger-related
activity.............. (3,750,000) (193,646) 1,102,300 9,682,920 -- 6,841,574
Stock issued to
directors and
employees in lieu of
cash compensation..... -- -- 9,978 110,778 -- 120,756
Stock purchased by
employees under stock
purchase plan......... -- -- 756 10,042 -- 10,798
Stock options
exercised............. -- -- 12,500 47,110 -- 59,610
Net loss............... -- -- -- -- (1,403,137) (1,403,137)
----------- -------- ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31,
1997................... $ -- $ -- $1,125,534 $9,850,850 $(2,798,603) $ 8,177,781
=========== ======== ========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-17
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $ (545,343) $(1,403,137)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization..................... 2,407,341 4,259,207
Interest accrued to amortize discount on
subordinated debt................................ 21,270 --
Stock issued to directors and employees in lieu of
cash compensation................................ -- 120,756
Deferred commissions.............................. (474,780) (712,373)
Loss on disposal of fixed assets.................. -- 45,400
(Increase) decrease in operating assets and
increase (decrease) in operating liabilities--net
of business acquired:
Accounts receivable............................. (184,720) (1,054,796)
Inventories..................................... (1,065,402) (3,389,917)
Prepaid expenses and other...................... 169,616 (41,037)
Accounts payable................................ 585,394 (998,670)
Royalties payable............................... (83,257) 660,264
Accrued liabilities............................. 24,150 575,695
Other--net...................................... (75,625) 34,895
---------- -----------
Net cash (used in) provided by operating
activities................................... 778,644 (1,903,713)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of certain assets and liabilities of
Chambers, Inc.
and SunCom Group, Inc.............................. (810,842) --
Capital expenditures--net........................... (1,344,264) (296,169)
Proceeds from the sale of intangible assets......... -- 185,908
Cash acquired in the acquisition.................... -- 876,068
Purchase of subscriber rights and other
intangibles........................................ -- (295,180)
---------- -----------
Net cash provided by (used in) investing
activities................................... (2,155,106) 470,627
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................ 750,000 25,534,420
Principal payments under capital lease obligations.. (37,479) (113,764)
Debt issuance costs................................. (3,750) --
Repayment of long-term debt......................... -- (23,510,348)
Proceeds from sale of stock......................... -- 70,408
---------- -----------
Net cash provided by financing activities..... 708,771 1,980,716
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.. (667,691) 547,630
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.......... 800,256 132,565
---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR................ $ 132,565 $ 680,195
========== ===========
</TABLE>
F-18
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES--Cash paid during the year
for:
Interest............................................ $2,064,190 $ 2,175,692
========== ============
Income taxes........................................ $ -- $ --
========== ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Inventory leased to customers and reclassified to
property during the year........................... $ 969,000 $ 3,187,000
========== ============
Capital expenditures financed through increase in
debt............................................... $ -- $ 38,000
========== ============
Acquisition:
Fair value of assets acquired..................... $ -- $ 21,081,000
Intangible assets................................. $ -- $ 7,305,000
Liabilities assumed............................... $ -- $(11,935,000)
Notes issued...................................... $ -- $ (1,304,000)
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--
On May 30, 1997, Suncom Communications LLC ("SCL") sold its net assets to
Audio Communications Network, Inc. ("ACN") (the "Merger"). In connection with
the Merger, ACN issued to SCL an aggregate of 2,100,000 shares of ACN's common
stock, and 597,986 shares were purchased from ACN's chairman by SCL. Upon
completion of the Merger, SCL held securities having an aggregate of
approximately 60% of outstanding voting power of ACN. As noted below, the
Merger was accounted for as a reverse acquisition with SCL being the acquiring
company.
REVERSE PURCHASE METHOD OF ACCOUNTING--As described above, SCL owned an
aggregate of approximately 60% of the outstanding voting power of ACN
immediately following the Merger. Accordingly, the Merger has been accounted
for as a reverse purchase under generally accepted accounting principles as a
result of which SCL is considered to be the acquiring entity and ACN the
acquired entity for accounting purposes, even though ACN is the surviving legal
entity. As a result of this reverse purchase accounting treatment, (i) the
historical financial statements of the Company for periods prior to the date of
the Merger are no longer the historical financial statements of ACN, and
therefore, are no longer presented; (ii) the historical financial statements of
the Company for periods prior to the date of the Merger are those of SCL; (iii)
all references to the financial statements of the "Company" apply to the
historical financial statements of SCL prior to the Merger and to the
consolidated financial statements of ACN subsequent to the Merger; and (iv) any
reference to ACN applies solely to Audio Communications Network, Inc. and its
financial statements prior to the Merger.
DESCRIPTION OF BUSINESS--The Company owns and operates MUZAK (R) franchises,
which provide background music programming and ancillary services to customers,
in seven major metropolitan areas, as its single line of business.
All intercompany balances and transactions are eliminated in these
consolidated financial statements.
SIGNIFICANT ACCOUNTING POLICIES--
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION--Revenues for equipment sales and installations are
recognized at the point of sale. Revenues from music services are recognized on
a straight-line basis over the term of the customer contracts. Contracts are
typically for a five-year period with renewal options for an additional five
years.
FINANCIAL INSTRUMENTS--Management believes the book value of financial
instruments (cash and cash equivalents, accounts receivable, accounts payable,
royalties payable, accrued liabilities, and long-term debt) approximates fair
value.
INVENTORIES--Inventories, which consist of equipment held for sale or lease
and supplies, are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.
F-20
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996 and 1997
PROPERTY--Property is recorded at cost. Depreciation is provided on the
straight-line method over estimated useful lives of 3 to 10 years.
GOODWILL AND INTANGIBLE ASSETS--Goodwill, the excess of the purchase price
over the fair value of net assets of businesses acquired, is amortized over 20
years using the straight-line method. Other intangible assets acquired,
principally subscriber contract rights, are amortized using the straight-line
method over various periods from three to ten years. Management evaluates the
recoverability of goodwill and other intangible assets quarterly and annually
based on current operating trends in relation to the recorded intangible
values.
INCOME TAXES--Prior to the Merger, the Company was a limited liability
company, and, as such, for federal and state income tax purposes, income and
losses of the Company passed through to the members of the Company for
inclusion in their income tax returns. In connection with the Merger, the
Company became a taxable entity and accounts for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 ("FAS 109"),
Accounting for Income Taxes. A significant provision of FAS 109 is the use of
the liability method of computing deferred income taxes. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. Under FAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Additionally, under FAS 109, the Company
recognizes, subject to a valuation allowance regarding asset realization, the
future tax benefits of expenses which have been recognized in the consolidated
financial statements.
LOSS PER COMMON SHARE--Loss per common share is computed by dividing net
loss by the weighted average number of shares of common stock outstanding
during the year. Common stock equivalents for purposes of diluted loss per
share include shares issuable on the exercise of employee stock options under
the incentive stock option plan adopted in May 1984 and amended in February
1991. The weighted average number of common shares outstanding were 4,352,134
for 1996 (assuming retroactive treatment of the reverse acquisition) and
4,447,251 for 1997. Diluted loss per common share has been excluded since the
effect of including the options would be antidilutive.
CASH EQUIVALENTS--Cash equivalents include demand and interest-bearing
deposits due from banks with original maturities of 90 days or less.
CONCENTRATIONS OF CREDIT RISK--The Company performs ongoing credit
evaluations of its customers and generally requires no collateral from the
customers. Management feels that the Company's credit risk is somewhat lessened
due to the fact that its customers operate in a wide range of industries.
There are no single customers that individually had billings greater than 5%
of net operating revenues for the years ended December 31, 1996 and 1997.
MANAGEMENT AGREEMENT--Prior to the Merger, the Company had a management
agreement in which the Company paid certain members of management a monthly fee
of 1.75%--3.5% of gross operating revenues. The amount of the fee depended on
the results of operations as compared to projected cumulative results. In
addition to these fees, certain expenses incurred by management were reimbursed
by the Company. Such reimbursements were not to exceed .5% of the Company's
gross operating revenues for the period. The management agreement was
terminated in connection with the Merger.
F-21
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996 and 1997
Total management fees included in selling, general and administrative
expense during the years ended December 31, 1996 and 1997 were approximately
$440,000 and $202,000.
RECLASSIFICATIONS--Certain amounts shown in 1996 have been reclassified to
conform to the 1997 presentation.
2. THE MERGER
A summary of the Merger is as follows:
THE MERGER--As described in Note 1 herein, the Merger was accounted for
as a reverse acquisition, utilizing the purchase method of accounting, in
which SCL acquired control of ACN for accounting purposes.
The total purchase price of the Merger was $7,647,874, which represents
the number of shares of ACN's common stock outstanding immediately prior to
the Merger valued at the market price of such shares as of the date of the
signing of the merger agreement. This amount was allocated to the assets of
ACN acquired and liabilities assumed, based on their estimated fair value
as of May 30, 1997. At May 30, 1997, assets acquired and liabilities
assumed were deemed to have fair values substantially equal to their
historic book values, except for certain intangible assets.
PRO FORMA RESULTS OF OPERATIONS--The following represents the summary
unaudited pro forma results of operations as if the Merger had occurred at the
beginning of 1996 and 1997. The pro forma results are not necessarily
indicative of the results that will occur in the future.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1997
----------- ------------
<S> <C> <C>
Revenues............................................ $21,173,000 $ 21,725,000
Net loss............................................ $ (365,000) $(2,425,000)
Loss per share...................................... $ (.08) $ (.55)
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1996 and 1997:
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Accrued interest.................................... $ -- $ 506,300
Unearned revenue.................................... 271,042 696,051
Amount due to SCL................................... -- 500,000
Other............................................... 88,387 73,239
----------- ------------
$ 359,429 $ 1,775,590
=========== ============
</TABLE>
F-22
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997 and 1996
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Credit agreement, interest rate varies........... $ -- $26,700,000
Term loan, interest rate varies; repaid in 1997.. 14,000,000 --
Subordinated promissory note to a limited partner
of SCL; interest payable quarterly at a per
annum rate of 12.27% through July 1, 2004;
principal payments of $250,000 payable quarterly
commencing January 1, 2000 and due July 1, 2004;
principal may be subject to mandatory
prepayments under certain conditions............ 4,584,136 4,750,000
Note payable to director; noninterest bearing,
payments of $500,000 due annually commencing
January 1998, net of discount (at 10%) of
$118,202 at December 31, 1997................... -- 1,381,798
Other long-term debt............................. 82,149 120,407
----------- -----------
Total............................................ 18,666,285 32,952,205
Less current portion............................. 1,468,420 556,830
----------- -----------
Long-term portion................................ $17,197,865 $32,395,375
=========== ===========
Long-term debt matures as follows:
<CAPTION>
Year
----
<S> <C> <C>
1998............................................. $ 566,830
1999............................................. 527,754
2000............................................. 1,410,553
2001............................................. 1,006,539
2002............................................. 1,000,529
Thereafter....................................... 28,450,000
-----------
Total.......................................... $32,952,205
===========
</TABLE>
CREDIT AGREEMENT--In connection with the Merger, the Company entered into a
new Credit Agreement with PNC Bank, National Association, individually and as
Agent, SunTrust Bank, Central Florida, N.A., and Lehman Commercial Paper Inc.
on May 30, 1997. Pursuant to the Credit Agreement, the Company has the ability
to borrow monies on a revolving basis until May 2004. Initially, the Company
can borrow up to $32,000,000 and the maximum available decreases at quarterly
intervals. Loans bear interest based on either the rate of interest announced
by the Agent periodically as its prime rate or the London interbank offered
rates quoted periodically by the British Bankers' Association, as selected by
the Company at the time of each borrowing. Interest is payable quarterly in
arrears on the last business day of March, June, September, and December. The
Company must make annual payments of principal equal to 75% of "excess cash
flow" for 1997 and 50% thereafter in addition to mandatory payments upon
certain sales of assets or stock. No principal payments were required in 1997.
For purposes of the debt maturity schedule above, the expected maturity date is
assumed to be 2004.
F-23
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996 and 1997
The Company's obligations under the Credit Agreement are secured by a lien
on substantially all of its assets, including its stock in all of its
subsidiaries, and is further secured by a guaranty by all of its subsidiaries
which guaranty is, in turn, secured by a lien on substantially all of the
assets of all such subsidiaries.
The Credit Agreement sets forth a variety of affirmative, negative, and
financial covenants which the Company has agreed to, including, without
limitation (a) prohibitions against dividends, the incurrence of additional
debt or liens, the disposition or acquisition of assets, the issuance of
additional stock, and a material change in business, (b) requirements that the
Company not exceed certain levels of capital expenditures and that the Company
meet certain fixed charge coverage, maximum leverage, and minimum interest
coverage ratios, and (c) requirements that the Company provide the lenders with
certain financial statements and other information on an ongoing basis, all as
more fully set forth in the Credit Agreement.
TERM LOAN--Of the aggregate principal balance due at December 31, 1996,
interest on $7,000,000 was payable at a rate equal to the sum of the weekly
average yield on U.S. Treasury securities adjusted to a constant maturity
mutually agreed-upon between the financial institution and the Company, subject
to certain restrictions, plus 3.5%. The interest rate was 9.35% at December 31,
1996.
Interest on $7,000,000 of the aggregate principal balance due at December
31, 1996, was payable at a rate equal to the sum of the London interbank
Eurodollar market rate, subject to certain adjustments, plus 4.0%. The interest
rate was 9.38% at December 31, 1996. All portions of the loan were repaid with
proceeds from the Credit Agreement.
5. STOCKHOLDERS' EQUITY
The Company has two stock-based compensation plans, which are described
below. The Company applied APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for the plans. Had
compensation cost for the Company's two stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, the Company's 1997 net loss
and loss per common share would have changed to the pro forma amounts indicated
below:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(1,403,000)
Pro forma................................................. $(1,526,000)
Loss per common share assuming no dilution:
As reported............................................... $ (.32)
Pro forma................................................. $ (.34)
</TABLE>
The Company has an incentive stock option plan (the "Plan") with 200,000
shares of common stock authorized to be granted thereunder. The Plan provides
for the options to be granted to key employees, requires expiration within ten
years of date of grant, allows the options to be exercised two years from the
date of the grant, and requires the option price to be at least the fair market
value, as determined by the Board of Directors, of the common stock on the date
of grant. All options granted under the plan have been for five-year terms. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend yield, expected volatility of 154%, risk-free interest
rate of 6.15%, and expected lives of five years.
F-24
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996 and 1997
Stock option activity for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
------- ----------------
<S> <C> <C>
ACN outstanding at May 30, 1997............... 111,000 $1.26
Granted..................................... 48,500 $3.38
Exercised................................... (50,000) $1.19
-----
Outstanding at December 31, 1997
(51,000 exercisable at December 31, 1997)... 109,500 $2.26
=====
</TABLE>
The Company also has an employee stock purchase and bonus plan with up to
500,000 shares of common stock authorized to be issued thereunder. This plan
provides for the purchase of up to 200,000 shares of common stock at fair
value by eligible participants, as defined under the plan (up to 10,000 shares
per participant), and for the remainder of the shares to be awarded as bonuses
to key employees. During the years ended December 31, 1997, 3,022 shares were
purchased by participants under this plan.
6. INCOME TAXES
The components of the provision for income taxes for the year ended
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Current:
Federal......................................... $ --
State........................................... 26,350
-------
$26,350
=======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<S> <C>
Computed statutory amount.................................... $ (477,000)
Increases (decreases):
State income taxes, net of benefit of federal taxes........ 17,000
Nondeductible expenses..................................... 253,000
Increase in valuation allowance............................ 294,000
Other--net................................................. (60,650)
----------
$ 26,350
==========
</TABLE>
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<S> <C>
Noncurrent liabilities--depreciation......................... $ 462,000
----------
Noncurrent assets:
Net operating loss carryforwards........................... 1,093,000
Other...................................................... 171,000
----------
Total noncurrent assets.................................. 1,264,000
----------
Net deferred tax asset--before valuation allowance......... 802,000
Valuation allowance for deferred tax asset................. (802,000)
----------
Net deferred tax asset..................................... $ --
==========
</TABLE>
F-25
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996 and 1997
It is more likely than not that realization of the net deferred tax asset
through future taxable income within the carryforward periods will not occur.
Accordingly, the net deferred tax asset has been fully reserved with a
valuation allowance at December 31, 1997.
At December 31, 1997, the Company has net operating loss carryforwards for
federal tax purposes approximating $3,215,000. Such loss carryforwards will
expire in 2002 through 2012.
7. EMPLOYEE BENEFIT PLANS
Effective January 1, 1996, the Company instituted a profit-sharing plan
which covers all employees of the Company who have at least one-half year of
service. Contributions to the plan by employees may be at least 1% but not more
than 15% of annual salary, subject to certain restrictions. Contributions by
the Company to the plan are discretionary. Employees are always 100% vested in
employee contributions; no vesting in employer contributions occurs prior to
the first two years of service and 100% vesting occurs after the third year of
service. Contribution expense for the years ended December 31, 1996 and 1997,
was $24,507 and $-0-, respectively.
ACN has a noncontributory defined contribution pension plan covering
substantially all ACN employees who have met certain age and length of service
qualifications. The Company's policy is to fund pension cost with annuity
contracts. Pension expense amounted to approximately $32,000 for 1997.
8. COMMITMENTS AND CONTINGENCIES
Certain equipment and office and warehouse facilities are held under
noncancelable operating leases. The Company has also entered into various
agreements with broadcasting companies in order to transmit music service to
its customers through the broadcasting companies' subchannels. Expense under
the operating leases and broadcasting agreements was approximately $420,000 and
$733,000 during the years ended 1996 and 1997, respectively.
Future minimum payments under the leases and broadcasting agreements are as
follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998........................................ $ 512,427
1999........................................ 475,798
2000........................................ 421,672
2001........................................ 197,676
2002........................................ 148,778
Thereafter.................................. 170,411
----------
Total minimum lease payments................ $1,926,762
==========
</TABLE>
The Company has entered into employment agreements with its Chairman,
President, and Chief Financial Officer. The agreements provide for the
employees to receive a stated minimum annual salary. The agreements, which
contain renewal provisions, expire from May 1998 through May 2000.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
General and Limited Partners
Muzak Limited Partnership
We have audited the accompanying consolidated balance sheets of Muzak
Limited Partnership and subsidiaries (the Partnership) as of December 31, 1997
and 1998, and the related consolidated statements of operations, partners'
deficit, and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Partnership'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 consolidated financial statements present fairly, in
all material respects, the financial position of Muzak Limited Partnership and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 5, 1999
(May 14, 1999, as to Note 14)
Seattle, Washington
F- 27
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................................ $ 8,524 $ 2,971
Accounts receivable, net of allowance for doubtful ac-
counts of $501, and $1,004.............................. 16,790 21,130
Inventories.............................................. 3,850 5,790
Prepaid expenses......................................... 1,400 1,650
Other receivables........................................ 688 1,455
Other.................................................... 428 535
-------- --------
Total current assets 31,680 33,531
Property and equipment, net................................ 39,659 46,070
Deferred costs and intangible assets, net.................. 31,694 42,527
Other...................................................... 1,362 1,003
-------- --------
Total...................................................... $104,395 $123,131
======== ========
Liabilities and partners' deficit
Current liabilities:
Credit facility.......................................... $ -- $ 12,041
Accounts payable......................................... 8,435 13,118
Advance billings......................................... 5,216 5,492
Accrued interest......................................... 2,500 2,608
Accrued expenses......................................... 2,556 3,795
Current portion of long-term obligations................. 469 3,582
-------- --------
Total current liabilities.............................. 19,176 40,636
Long-term obligations, net of current portion.............. 100,575 102,790
Unearned installation income............................... 4,249 4,770
Commitments and contingencies (note 9) -- --
Redeemable preferred interests............................. 6,490 10,524
Partners' deficit:
Limited partners' deficit (preference in liquidation of
$8,841 and $9,591)...................................... (3,597) (4,433)
General partners' deficit................................ (22,498) (31,156)
-------- --------
Total partners' deficit................................ (26,095) (35,589)
-------- --------
Total.................................................. $104,395 $123,131
======== ========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
Years Ended December 31, 1996, 1997, and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Music and other business services............. $ 54,585 $ 59,351 $ 65,956
Equipment and related services................ 32,226 31,853 33,792
-------- -------- --------
Total revenues.............................. 86,811 91,204 99,748
Cost of revenues:
Music and other business services............. 15,263 18,502 19,820
Equipment and related services................ 21,763 22,207 22,689
-------- -------- --------
Total cost of revenues...................... 37,026 40,709 42,509
-------- -------- --------
Gross profit................................ 49,785 50,495 57,239
Selling, general and administrative expenses.... 31,599 33,262 34,319
Noncash incentive compensation.................. 60 202 2,217
Depreciation.................................... 10,625 10,652 9,734
Amortization.................................... 9,594 10,016 11,829
-------- -------- --------
Operating loss.............................. (2,093) (3,637) (860)
Interest expense................................ (8,112) (10,775) (11,248)
Interest income................................. 438 1,017 256
Equity in losses of joint venture............... (225) (755) (45)
Other, net...................................... (209) 715 (92)
-------- -------- --------
Net loss before extraordinary items......... (10,201) (13,435) (11,989)
Extraordinary loss on write-off of deferred fi-
nancing
fees and debt discount......................... (3,713) -- --
Extraordinary gain on retirement of redeemable
preferred partnership interests................ 3,091 -- --
-------- -------- --------
Net loss........................................ (10,823) (13,435) (11,989)
Redeemable preferred return..................... (916) (400) (619)
-------- -------- --------
Net loss attributable to general and limited
partners....................................... $(11,739) $(13,835) $(12,608)
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-29
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT (in thousands)
Years Ended December 31, 1996, 1997, and 1998
(Continued on page F-31)
<TABLE>
<CAPTION>
General partners' interest Class A Class B
-------------------------- Limited Class A Limited
Number partners' put/call partners'
of units Amount interests options interests
-------------- -------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... 9,101 $ (4,264) $(1,021) $ 137 $ (776)
Net loss ............. -- (6,973) (1,288) (1,172) (1,390)
Payment of foreign
income taxes......... -- (54) (11) (9) (10)
Preferred return on
redeemable preferred
partnership
interests............ -- (591) (109) (99) (117)
Preferred return on
preferred limited
partners' interests.. -- (407) (75) (69) (81)
Principal payments on
subscriptions
receivable........... -- -- -- -- --
Capital contribution
from noncash
incentive
compensation......... -- -- -- -- --
Contribution by
partner.............. -- -- -- -- 105
----------- -------------- ------- ------- -------
Balance, December 31,
1996................... 9,101 (12,289) (2,504) (1,212) (2,269)
Net loss.............. -- (8,730) (1,593) (1,527) (1,585)
Payment of foreign
income taxes......... -- (50) (10) (8) (8)
Preferred return on
redeemable preferred
partnership
interests............ -- (257) (49) (48) (46)
Preferred return on
preferred limited
partners' interests.. -- (367) (72) (88) (85)
Principal payments on
subscriptions
receivable........... -- -- -- -- --
Capital contribution
from noncash
incentive
compensation......... -- -- -- -- --
Contribution by
partner.............. -- -- -- -- 2,072
Withdrawal by
partner.............. (7) (805) -- -- (2,032)
----------- -------------- ------- ------- -------
Balance, December 31,
1997................... 9,094 (22,498) (4,228) (2,883) (3,953)
Net loss.............. -- (7,730) (1,620) (1,300) (1,339)
Payment of foreign
income taxes......... -- (40) (10) (6) (6)
Preferred return on
redeemable preferred
partnership
interests............ -- (298) (60) (48) (48)
Preferred return on
interest in EAIC
Corp. ............... -- (107) (24) (17) (17)
Preferred return on
preferred limited
partners' interests.. -- (483) (101) (83) (83)
Principal payments on
subscriptions
receivable........... -- -- -- -- --
Capital contribution
from noncash
incentive
compensation......... -- -- -- -- --
Contribution by
partner.............. -- -- 895 -- 244
Withdrawal by
partner.............. -- -- -- -- (215)
----------- -------------- ------- ------- -------
Balance, December 31,
1998................... 9,094 $(31,156) $(5,148) $(4,337) $(5,417)
=========== ============== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT (in thousands)
Years Ended December 31, 1996, 1997, and 1998
(Continued from page F-30)
<TABLE>
<CAPTION>
Class B Total limited
limited Preferred partners' interests Total partners' interests
partners' limited Class B ---------------------- ---------------------------
subscriptions partners' partnership Number Number
receivable interests unit options of units Amount of units Amount
- ------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (374) $7,671 $ -- 8,989 $ 5,637 18,090 $ 1,373
-- -- -- -- (3,850) -- (10,823)
-- -- -- -- (30) -- (84)
-- -- -- -- (325) -- (916)
-- 632 -- -- 407 -- --
207 -- -- -- 207 -- 207
-- -- 60 -- 60 -- 60
-- -- -- 60 105 60 105
- ------- ------ ------ --------- ---------- ----------- -------------
(167) 8,303 60 9,049 2,211 18,150 (10,078)
-- -- -- -- (4,705) -- (13,435)
-- -- -- -- (26) -- (76)
-- -- -- -- (143) -- (400)
-- 612 -- -- 367 -- --
132 -- -- -- 132 -- 132
-- -- 202 -- 202 -- 202
(1,601) -- -- 889 471 889 471
-- (74) -- (1,250) (2,106) (1,257) (2,911)
- ------- ------ ------ --------- ---------- ----------- -------------
(1,636) 8,841 262 8,688 (3,597) 17,782 (26,095)
-- -- -- -- (4,259) -- (11,989)
-- -- -- -- (22) -- (62)
-- -- -- -- (156) -- (454)
-- -- -- -- (58) -- (165)
-- 750 -- -- 483 -- --
35 -- -- -- 35 -- 35
-- -- 2,217 -- 2,217 -- 2,217
-- -- -- 375 1,139 375 1,139
-- -- -- (100) (215) (100) (215)
- ------- ------ ------ --------- ---------- ----------- -------------
$
(1,601) $9,591 $2,479 8,963 $ (4,433) 18,057 $ (35,589)
======= ====== ====== ========= ========== =========== =============
</TABLE>
F-31
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1996, 1997, and 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss........................................ $(10,823) $(13,435) $(11,989)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for doubtful accounts............... 472 620 503
Depreciation.................................. 10,625 10,652 9,734
Amortization, net of deferred financing
costs........................................ 9,594 10,016 11,829
Deferred financing cost amortization.......... 1,042 653 633
Equity in losses of joint venture............. 225 755 45
Noncash incentive compensation................ 60 202 2,217
Extraordinary loss on write-off of deferred
financing fees and debt discount............. 3,713 -- --
Extraordinary gain on retirement of redeemable
preferred partnership interests.............. (3,091) -- --
Gain on sale of territory..................... -- (757) --
Loss on write-off of equity offering costs.... 1,353 -- --
Loss on write-off of inventories.............. -- 530 --
Cash provided (used) by changes in operating
assets and liabilities, net of
effects of acquisitions:
Accounts receivable......................... (555) (2,498) (4,664)
Inventories................................. (461) (658) (1,784)
Prepaid expenses and other current assets... 130 (558) (357)
Other receivables........................... (137) (694) 688
Accounts payable............................ 1,863 (246) 4,683
Accrued interest............................ 834 -- 108
Accrued expenses............................ 1,188 214 1,239
Advance billings............................ 155 528 276
Unearned installation income................ 850 613 521
Other, net.................................. 517 697 364
-------- -------- --------
Net cash provided by operating activities.. 17,554 6,634 14,046
Investing activities:
Additions to property and equipment............. (10,913) (12,639) (12,850)
Additions to deferred costs and intangible as-
sets........................................... (5,424) (6,933) (8,576)
Acquisitions of businesses and ventures......... -- (2,836) (14,180)
Disposition of businesses and ventures.......... -- 1,588 1,081
Other, net...................................... (291) 6 --
-------- -------- --------
Net cash used by investing activities...... (16,628) (20,814) (34,525)
Financing activities:
Borrowings from credit facility................. -- -- 19,591
Payments on credit facility..................... (9,300) -- (7,550)
Proceeds from issuance of senior notes.......... 100,000 -- --
Proceeds from long-term obligations............. -- -- 248
Principal payments on long-term obligations..... (53,612) (92) (26)
Payment of financing fees....................... (5,802) -- --
Principal payments under capital leases......... (414) (505) (754)
Retirement of redeemable preferred partnership
interests...................................... (7,456) -- --
Contributions by partners....................... 312 603 279
Withdrawals by partners......................... -- (2,911) (215)
Proceeds from sale of subsidiary stock.......... -- -- 3,415
Other, net...................................... (83) (77) (62)
-------- -------- --------
Net cash provided (used) by financing ac-
tivities.................................. 23,645 (2,982) 14,926
-------- -------- --------
Net increase (decrease) in cash and cash equiva-
lents........................................... 24,571 (17,162) (5,553)
Cash and cash equivalents:
Beginning of year............................... 1,115 25,686 8,524
-------- -------- --------
End of year..................................... $ 25,686 $ 8,524 $ 2,971
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-32
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1997 and 1998
NOTE 1: THE PARTNERSHIP AND ITS BUSINESS
Muzak Limited Partnership and subsidiaries (the Partnership) provides
business music services and produces, markets and sells video and audio
marketing services through a network of domestic and international independent
affiliates and owned operations. The independent affiliates are charged a fee
based on their revenues, in addition to other fees, in exchange for broadcast
music, marketing, technical and administrative support. The Partnership and its
franchisees also sell, install and maintain electronic equipment related to the
Partnership's business.
The Partnership's music services are primarily sold for use in public areas,
such as retail and restaurant establishments, and work areas, such as business
offices and manufacturing facilities. Services are distributed through direct
broadcast satellite transmission, local broadcast transmission and pre-recorded
tapes played on the customers' premises.
The Partnership 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.
Principles of consolidation: The accompanying consolidated financial
statements of the Partnership include the accounts of the Partnership, its
wholly owned subsidiaries, Muzak Capital Corporation and Enso Audio Imaging
Corporation (EAIC Corp.) (Note 10). In addition, the Partnership transferred
net assets of $869,797 consisting of purchased music to a newly formed, wholly
owned subsidiary, MLP Environmental Music, LLC on December 30, 1998. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Public offering: In August 1996, the general and limited partners filed a
registration statement for the underwritten public offering of 10% senior notes
(the Offering). The Offering closed on October 2, 1996. A portion of the net
proceeds from the Offering was used to repay certain bank debt and other
indebtedness and to repurchase the Partnership's Class C redeemable preferred
partnership interest. The remainder of the net proceeds were used for certain
strategic investments and other general corporate purposes.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents: The Partnership considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Cash and cash equivalents at December 31, 1997, included
commercial paper investments of approximately $4,900,000. There were no
commercial paper investments at December 31, 1998. The balance of cash and cash
equivalents at December 31, 1997 and 1998, is held at various institutions
throughout the United States.
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 and are recorded
at cost. Major improvements 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 40 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.
F-33
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Deferred costs and intangible assets: Income-producing contracts, acquired
through acquisition, are being charged to amortization expense using an
accelerated method over their expected benefit period of eight years. Deferred
financing costs are charged to interest expense using 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 the period of their expected
benefit, ranging from five to ten years.
Impairment of long-lived assets: 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 impairment in the future, the
Partnership 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 related
services are provided. Fees from independent affiliates are recognized as music
revenues in the month that the independent affiliate generates its revenues.
Equipment sales and related services revenues are recorded in the period that
the installation is completed.
Advance billings: The Partnership 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 Partnership 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
Partnership 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 are
required.
Partnership unit options: The Partnership accounts for its partnership unit
options in accordance with Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees, and provide pro forma
net income, and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and beyond as if the fair value-based method defined
in SFAS No. 123 had been applied. The Partnership has elected to continue to
apply the provisions of APB No. 25, which recognizes compensation expense based
on the intrinsic value of the equity instrument when awarded, and provide the
pro forma disclosure provisions of SFAS No. 123.
Fair value of financial instruments: The carrying amounts of cash and cash
equivalents and the revolving credit facility approximate fair value because of
the short maturity of these instruments. The fair value of the senior notes at
December 31, 1997 and 1998, approximates $105,000,000 and $104,000,000,
respectively. The carrying amount of the notes receivable and long-term
obligations other than the senior notes approximates the fair value, as the
rates are either comparable to or based on the current prime rate.
European joint venture: During 1998 the Partnership sold its interest in a
joint venture providing business music services in Europe (Muzak Europe) in
exchange for a note receivable of approximately
F-34
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
$800,000, which is due in full April 2005, and a royalty based on recurring
billings beginning April 2000. No gain or loss was recorded on this
transaction. The joint venture was accounted for using the equity method, as
the Partnership owned 50% of that venture but did not have a controlling
interest. Equity in losses of joint venture in the Partnership's consolidated
statements of operations includes the Partnership's share of net losses. As of
December 31, 1997, the joint venture had total assets of $7,307,000 and total
liabilities of $5,509,000. As of December 31, 1997, the carrying value on the
Partnership's books was $1,100,000 and was included in other long-term assets.
The Partnership used the foreign country's local currency as the functional
currency for its overseas operations. The translation gains and losses
resulting from the remeasurement of the foreign operations' financial
statements are insignificant.
Comprehensive loss: The Partnership has adopted SFAS No. 130, Reporting
Comprehensive Income, which requires comprehensive income and its components to
be reported in the financial statements in the period in which they are
recognized. The Partnership has no other significant components of
comprehensive income.
New accounting pronouncements: SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, was issued in June 1998 and is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. This
standard requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Partnership is still in the process of
evaluating the impact of this standard on their financial statements and
anticipates adopting the standard in the year ending December 31, 2000.
In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-1 (SOP 98-1), Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, which requires that
certain software costs be capitalized and amortized over the period of use. The
SOP is effective for financial statements for the fiscal years beginning after
December 15, 1998. The Partnership will adopt SOP 98-1 for the year ending
December 31, 1999. This statement is not expected to have a material effect on
the financial statements.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued SOP 98-5, Reporting on the Costs of Start-up Activities, which requires
costs of start-up activities and organization costs to be expensed as incurred.
This SOP is effective for financial statements for fiscal years beginning after
December 15, 1998. The Partnership will adopt SOP 98-5 for the year ending
December 31, 1999. This statement is not expected to have a material effect on
the financial statements; however, organization costs of approximately $272,000
will be written off.
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.
Reclassifications: Certain amounts from the 1996 and 1997 financial
statements were reclassified in order to be consistent with the 1998
presentation.
F-35
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
NOTE 3: Business Acquisitions and Sales
In 1997, the Partnership sold its Spokane territory subscriber accounts and
granted the Spokane franchise to an existing independent affiliate of the
Partnership for $1,400,000. This transaction resulted in a gain of $800,000 to
the Partnership, which is included in other income in the consolidated
statement of operations, for the year ended December 31, 1997.
In 1997, the Partnership acquired substantially all of the assets of four
business music providers for approximately $4,100,000. The acquisitions were
financed with cash remaining from the Offering.
In 1998, the Partnership acquired, through separate transactions,
substantially all of the net assets of twelve business music providers for a
total purchase price of approximately $20,200,000, of which approximately
$6,500,000 was paid for in cash, approximately $12,800,000 in debt incurred,
and approximately $895,000 in exchange for equity instruments at a unit price
of $3.25. Of the total purchase price, the portion related to certain assets of
Music Technologies Incorporated (MTI) was approximately $10,000,000.
As part of the acquisition of MTI, the Partnership entered into an agreement
in principle with an independent affiliate to sell a portion of the income-
producing contracts obtained in the MTI acquisition. This asset of $1,455,000
has been recorded as other receivables as of December 31, 1998. In addition,
during 1998, the Partnership sold, through separate transactions, income
producing contracts to several independent affiliates for approximately
$1,081,000 in cash. No gain or loss was recognized on these sales.
For financial statement purposes, the acquisitions were accounted for as
purchases with the purchase prices allocated to the individual assets based on
the fair market values at the date of acquisition. Results of operations from
the acquired businesses are also included in the consolidated statement of
operations from the date of each respective acquisition.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisitions made during 1998 had occurred as of the
beginning of 1997 and 1998, (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Pro forma amounts for the years ended December 31:
Total revenues.................................... $ 97,790 $103,808
======== ========
Net loss from continuing operations............... $(12,133) $(11,381)
======== ========
</TABLE>
The pro forma results above do not purport to be indicative of results that
would have occurred had the acquisitions been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
F-36
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Equipment provided to subscribers..................... $ 57,393 $ 67,548
Machinery and equipment............................... 13,129 16,802
Vehicles.............................................. 3,337 4,034
Furniture and fixtures................................ 2,546 2,710
Land and buildings.................................... 858 858
Leasehold improvements................................ 865 992
-------- --------
Total property and equipment........................ 78,128 92,944
Less accumulated depreciation and amortization........ (38,469) (46,874)
-------- --------
$ 39,659 $ 46,070
======== ========
</TABLE>
NOTE 5: DEFERRED COSTS AND INTANGIBLE ASSETS
Deferred costs and intangible assets at December 31 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Income producing contracts........................... $ 42,152 $54,161
Deferred subscriber acquisition costs................ 14,593 17,863
Master recording rights and deferred production
costs............................................... 12,125 15,669
Organization costs................................... 4,501 4,635
Deferred financing costs............................. 4,341 4,391
Noncompete agreements................................ 860 3,814
Goodwill............................................. 467 1,018
Trademarks........................................... 344 787
-------- -------
Total deferred costs and intangible assets......... 79,383 102,338
Less accumulated amortization........................ (47,689) (59,811)
-------- -------
$ 31,694 $42,527
======== =======
</TABLE>
NOTE 6: CREDIT FACILITY
In March 1998, the Partnership obtained a credit facility for working
capital purposes with an initial availability of $3,000,000, increasing to
$5,000,000 upon the attainment of certain cash flow related targets. In July
1998, the Partnership met the cash flow targets required to increase the
available cash to $5,000,000. The credit facility was secured by inventories
and accounts receivable of the Partnership. The outstanding balance on the
credit facility was paid in full and the facility was cancelled on December 31,
1998.
A new revolving credit facility was obtained by the Partnership in December
1998. The amount available under the facility is $20,000,000. Amounts
outstanding under the facility bear a variable rate of interest, to be paid
quarterly, based on the lender's prime rate plus 1.25%. The terms of the credit
facility require the Partnership to maintain certain performance standards and
covenants include a limit on the Partnership's capital spending and
acquisitions of other businesses, as well as the Partnership's ability to incur
additional debt and make distributions to partners. The credit facility is
secured by accounts receivable, inventories, and other assets, including
proceeds of certain insurance policies.
F-37
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
As of December 31, 1998, the Partnership had approximately $12,000,000
outstanding under this credit facility. The interest rate at December 31, 1998,
was 9%. To provide collateral for a portion of the advances under the credit
facility, certain limited partners set forth a letter of credit in the amount
of $4,211,000. The Partnership has pledged to reimburse the limited partners
for related costs and fees. For the year ended December 31, 1998, no amounts
were reimbursed by the Partnership.
In September 1998, the Partnership's wholly owned subsidiary, EAIC Corp.,
obtained a credit facility. The amount available under this facility is
$750,000 and is to be used for equipment purchases. Amounts outstanding under
the facility bear a variable rate of interest to be paid at a rate equal to the
lender's prime rate plus 1% per annum. The unpaid principal balance shall be
repaid in 24 equal monthly installments of principal, plus interest, commencing
on October 1, 1999. As of December 31, 1998, EAIC Corp. had approximately
$276,000 outstanding under this credit facility. The interest rate at December
31, 1998, was 8.75%.
Total cash paid for interest on the credit facilities was approximately
$366,000 for the year ended December 31, 1998. There were no credit facilities
in 1996 or 1997.
NOTE 7: LONG-TERM OBLIGATIONS
Long-term obligations at December 31 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
--------- --------
<S> <C> <C>
Senior notes......................................... $ 100,000 $100,000
Notes payable........................................ -- 2,550
Capital lease obligations............................ 969 1,338
Other................................................ 75 2,484
--------- --------
Total long-term obligations........................ 101,044 106,372
Less current portion................................. (469) (3,582)
--------- --------
$ 100,575 $102,790
========= ========
</TABLE>
Senior notes: The senior notes were issued as part of the Offering discussed
in Note 1. These unsecured notes bear interest at 10% and are due on October 1,
2003. The notes require the maintenance of certain covenants including
restricting the Partnership's ability to incur additional debt, as well as
limiting the Partnership's ability to make certain investments and
distributions to partners. The Partnership has the option to redeem up to 35%
of the senior notes during the first three years after the Offering with the
proceeds from an equity offering, at a redemption price of 109% of the
principal amount thereof, plus accrued and unpaid interest. The entire balance
of the senior notes is redeemable at the option of the Partnership, in whole or
in part, beginning October 1, 2000. The redemption price is 105% of par value
through October 1, 2001, 102.5% through October 1, 2002, and 100% thereafter,
through maturity.
Notes payable: As part of the acquisition of MTI discussed in Note 3, the
Partnership entered into a note payable of approximately $2,550,000. The note
bears an interest rate of 14% per annum, with principal and interest payments
of $500,000 due monthly through March 31, 1999, and the balance due April 30,
1999. The Partnership has the option to extend the due date for additional
fees. The Partnership also agreed to make a deferred purchase price payment,
interest free, which is subject to adjustment. Due to the contingent nature of
this consideration and significant uncertainties related to the ultimate amount
to be paid, the Partnership has not recorded any obligation as of December 31,
1998.
F-38
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Capital leases: Assets acquired under capital leases were $579,000, $635,000
and $1,123,000 for the years ended December 31, 1996, 1997, and 1998,
respectively. Total assets recorded under capital leases were $3,337,000 and
$4,316,000 with accumulated amortization of $1,944,000 and $1,938,000 as of
December 31, 1997 and 1998, respectively.
Other long-term obligations: Pursuant to an acquisition, the Partnership
paid $510,000 in exchange for a non-compete agreement and agreed to pay seven
additional annual installments of $510,000. The Partnership has recorded this
liability of $2,187,000, using a discount rate of 14%.
Interest rates and payments: The senior notes require semi-annual interest
payments of 10%. The capital lease obligations require monthly payments of
interest at a weighted average interest rate of approximately 8%. Total cash
paid for interest on the long-term obligations was approximately $5,954,000,
$10,087,000, and $10,136,000 for the years ended December 31, 1996, 1997, and
1998, respectively.
Financing and other costs paid to related parties: During 1996, the credit
agreement with Union Bank of Switzerland (Agent Bank) and the subordinated note
were paid with part of the proceeds from the Offering discussed in Note 1. The
Agent Bank was an affiliate of a Class A limited partner. In addition, the
subordinated noteholder held the put/call units. During the year ended December
31, 1996, the Partnership incurred interest expense related to these credit
facilities of $5,489,000. The Partnership paid board fees and expenses to the
general partner and other related parties of $162,500, $287,700, and $102,000
in 1996, 1997, and 1998, respectively. In addition, $277,000 of board fees is
accrued as of December 31, 1998.
Future maturities: Total future maturities of long-term obligations,
including capital leases, for the five years following December 31, 1998, are
approximately $3,582,000 in 1999, $718,000 in 2000, $601,000 in 2001, $534,000
in 2002, $100,344,000 in 2003, and $593,000 thereafter.
NOTE 8: BENEFIT PLANS
Defined contribution plan: The Partnership maintains a defined contribution
savings and retirement plan (Benefit Plan) that covers substantially all of the
Partnership's employees. Under the savings portion of the Benefit Plan,
eligible employees may contribute from 1% to 14% of their compensation per
year, subject to certain tax law restrictions. The Partnership has the option
to make a matching contribution of up to a maximum of 100% of the first 3% and
50% of the next 3%, up to 6% of the total base salary contributed by the
employee each year. Participants are immediately vested in their contributions
as well as the Partnership's contributions under the savings portion of the
Benefit Plan. For the savings portion of the Benefit Plan, the Partnership
recorded contribution expense of $408,000, $694,000, and $609,000 for the years
ended December 31, 1996, 1997, and 1998, respectively.
Contributions under the retirement portion of the Benefit Plan are
determined annually by the Partnership at its discretion for up to 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. No contribution
amounts were recorded for the years ended December 31, 1996, 1997, and 1998.
Multi-employer defined contribution plans: The Partnership participates in
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 $136,000, $138,000
and $146,000 for the years ended December 31, 1996, 1997, and 1998,
respectively. These amounts were determined by union contract and the
Partnership does not administer or control the funds.
F-39
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
NOTE 9: COMMITMENTS AND CONTINGENCIES
Leases: The Partnership leases certain facilities and equipment under both
operating and capital leases. In addition, the Partnership has entered into
agreements to obtain satellite channel capacity and subsidiary communication
authorization rights for the transmission of programs to the Partnership's
customers. Total rental expense under operating leases and rights agreements
was approximately $7,751,000, $8,401,000 and $8,712,000 for the years ended
December 31, 1996, 1997, and 1998, respectively.
Future annual minimum lease payments under noncancellable operating leases
as of December 31, 1998, are $7,451,000 in 1999, $7,080,000 in 2000, $3,019,000
in 2001, $1,963,000 in 2002, $1,459,000 in 2003 and $1,631,000 thereafter.
Music licenses: In the ordinary course of the Partnership's business, the
Partnership has agreements with various organizations for the rights to re-
record and play music in public spaces. The expenses incurred under these
agreements were approximately $3,578,000, $4,831,000 and $4,991,000 for the
years ended December 31, 1996, 1997, and 1998, respectively.
The Partnership's agreement with Business Music, Inc. (BMI) expired on
December 31, 1993. The Partnership has entered into an interim fee structure
with BMI and is in negotiations with BMI to establish an ongoing rate
structure. The interim arrangement with BMI provides for continued payments at
1993 levels. BMI has indicated that they are seeking royalty rate increases and
has asserted that this sought-after increase will be retroactive to January 1,
1994. If an agreement is not reached, BMI may seek to have the rates determined
through a court proceeding. The ultimate outcome of the negotiations is not
estimable as of December 31, 1998, and accordingly, no provision has been
recorded in the financial statements.
Taxes: During 1993, an assessment was made against the predecessor
partnership (Seller) resulting from an audit performed by the Washington State
Department of Revenue for sales and use, and business and occupation taxes paid
for during the period from 1988 through September 1992. Under successor
liability statutes in the State of Washington, the Partnership 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 Partnership for any liabilities in connection with such
assessment. The Partnership's management does not believe that the assessment
will have an adverse effect on the Partnership's financial condition or results
of operations.
Employment agreements: The Partnership has entered into employment
agreements with several executive officers. Under two of these agreements, the
officers will receive a bonus based upon the sales price of the Partnership
(Note 14).
Legal proceedings: The Partnership is subject to various legal proceedings
that arise in the ordinary course of business. In the opinion of management,
the outcome of these matters is not expected to have any material effect on the
consolidated financial position or results of operations of the Partnership.
NOTE 10: ENSO AUDIO IMAGING CORPORATION
On March 16, 1998, the Partnership established Enso Audio Imaging
Corporation (EAIC Corp.), to provide Internet music samples to businesses. On
July 10, 1998, EAIC Corp. consummated a recapitalization and capital financing
agreement. Pursuant to the agreement, shares held by the Partnership were
converted to 10,000,000 shares of Class B nonvoting common stock. Additionally,
73,500 shares of Series A voting
F-40
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
convertible mandatorily redeemable preferred stock of EAIC Corp. were issued
to a related party investor for a total consideration of $3,415,000, net of
costs. After January 5, 1999, but prior to April 15, 1999, 26,250 shares of
Series B preferred stock could be purchased by the related party investor for
$2,500,000. In the event that certain performance criteria is met by EAIC
Corp., the related party investor is required to purchase these shares of
Series B preferred stock. EAIC Corp. has not met this criteria as of December
31, 1998.
The preferred stock has voting rights, certain liquidation features, and
accrues dividends annually at a rate of 7%. The Series A preferred stock has a
mandatory redemption requirement at the option of the holder, such that, at
any time after June 30, 2005, the holder may redeem his interest at the
greater of his original investment plus 10%, or at the fair value of the
common stock as if the preferred stock interest were converted. The cumulative
return per share as of December 31, 1998 was $2.24. The Series A preferred
stock is convertible at the option of the holder into shares of Class A voting
common stock as determined by dividing its preferential amount, which is the
original purchase price of $48 divided by an internal rate of return, by the
conversion price. The original conversion price of approximately $48 per share
will be adjusted subsequently for any additional issuances of common stock at
consideration per share less than the Class A conversion price.
An affiliate of the Partnership was issued 10,000 shares of super voting
Class C common stock which has voting rights equal to 1,000 votes per share
and is convertible to an equal number of Class A voting common stock at the
option of the holder. Further, both the Series A preferred stock and the Class
C common stock are automatically convertible to Class A voting common stock
under certain circumstances.
On August 31, 1998, the Board of Directors of EAIC Corp. authorized a 100-
to-one common stock split. All applicable share data has been retroactively
adjusted for this stock split.
NOTE 11: REDEEMABLE PREFERRED INTERESTS
The redeemable preferred interests is comprised of the following at
December 31:
<TABLE>
<CAPTION>
EAIC--Series A
Class C Class C-1 Preferred Stock Total
----------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996.. $10,030,000 $5,692,000 $ -- $15,722,000
Preferred return........ 518,000 398,000 -- 916,000
Repurchase of Class C
interests.............. (10,548,000) -- -- (10,548,000)
----------- ---------- ---------- -----------
BALANCE, December 31,
1996..................... -- 6,090,000 -- 6,090,000
Preferred return........ -- 400,000 -- 400,000
----------- ---------- ---------- -----------
BALANCE, December 31,
1997..................... -- 6,490,000 -- 6,490,000
Interest in EAIC........ -- -- 3,415,000 3,415,000
Preferred return........ -- 454,000 165,000 619,000
----------- ---------- ---------- -----------
BALANCE, December 31,
1998..................... $ -- $6,944,000 $3,580,000 $10,524,000
=========== ========== ========== ===========
</TABLE>
The Class C non-voting limited partner interests were repurchased by the
Partnership in October 1996.
The Class C-1 non-voting preferred partner interest does not participate in
the Partnership's profits or losses. 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 limited partner
will forfeit any accrued portion of the return. If it has not previously
become a
F-41
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
participating partner, the Class C-1 limited partner is entitled to a
preference in liquidation equal to its contribution plus accumulated return.
The cumulative return per unit as of December 31, 1997 and 1998, was $1.05 and
$1.37, respectively. At December 31, 1997 and 1998, the total number of units
outstanding, on an if-converted basis, was 1,420,368.
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
Partnership is required to redeem such units for an amount equal to the Class
C-1 contribution plus accumulated return.
NOTE 12: PARTNERS' DEFICIT
Partners' deficit is comprised of two general partners; Class A limited
partners, Class B limited partners, and preferred limited partners' interests;
Class A put/call units; Class B limited partner subscriptions receivable; and
Class B partnership unit options.
Class A put/call units: In connection with obtaining a fixed-rate
subordinated note payable, the Partnership issued an option to purchase
1,529,898 units of Class A limited partnership interests to a lender for an
aggregate exercise price of $10. These units are currently exercisable.
Subscriptions receivable: Officers and key employees of the Partnership have
acquired limited partnership interests, a portion of which was financed with
subscription notes. As of December 31, 1997 and 1998, the Class B limited
partners' capital accounts were reduced by subscription notes receivable.
Interest income on the subscriptions receivable totalled $27,000, $22,000, and
$94,000 for the years ended December 31, 1996, 1997, and 1998, and interest
receivable on subscription notes receivable was $16,000 and $107,000, as of
December 31, 1997 and 1998, respectively.
Preferred limited partners' interests: The preferred limited partners'
interests do not participate in the Partnership'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 Partnership. At December 31, 1997 and 1998,
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 Partnership may, at its option, redeem the units 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.
Cumulative per unit return as of December 31, 1997 and 1998, was $0.48 and
$0.68, respectively, and total aggregate return was $1,814,000 and $2,665,000,
respectively.
Other limited partners' interests: During 1997, the Partnership repurchased
1,250,000 Class B limited partnership units from eight members of former
management at a unit price of $2.33 for a total repurchase amount of
approximately $2,900,000. Seventeen new and existing members of management
purchased 889,000 units at a per unit price of $2.33 for a total purchase price
of approximately $2,100,000. The purchases were primarily financed by the
Partnership through subscription notes from the new management members and bear
F-42
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
an interest rate of 7% per annum. This repurchase of partnership units in
exchange for subscription notes receivable is considered a noncash transaction
for purposes of the consolidated statements of cash flows.
Also during 1997, options to purchase 1,440,000 partnership units at prices
ranging from $1.00 to $1.75 per unit were forfeited by the separated management
members. Furthermore, 26,500 options to purchase partnership units at $1.00 per
unit were granted to two former senior manager executives.
In July 1998, the Partnership repurchased 100,000 Class B limited
partnership units at a unit price of $2.15 for a total repurchase amount of
$215,000 from a former member of management. The Partnership resold the units
at a unit price of $2.33 to current members of management.
Partnership unit options: Certain limited partners and key employees of the
Partnership have the ability, under certain conditions, to exercise options to
purchase units of Class B limited partnership interests (Class B Interests).
Through October 1, 1996, the Partnership was authorized to grant 1,869,545
units of Class B Interests, as established in the 1996 option plan (1996 Option
Plan), which vested at a rate of 20% per year, based on specific performance
standards. The options did not vest prior to October 1, 1996, as these
performance standards were not met.
Effective October 2, 1996, the Partnership amended the 1996 Option Plan
(Amended and Restated Management Option Plan) to decrease the number of options
the Partnership was authorized to grant to 1,840,000, and change the required
performance standards, along with other changes. The options now vest according
to the following schedule: 5% of the options vest on the first anniversary of
the Partnership's Offering; 5% of the options vest on the second anniversary of
the Partnership's Offering; the remaining 90% vests ratably at each calendar
year end over a five-year period beginning January 1, 1997, and become
exercisable if certain performance standards are met. These options expire on
October 1, 2003.
No compensation expense has been recorded for the options, which vest based
on the anniversary of the Offering, as management's estimate of the market
value was less than the exercise price at the date of the grant. Additionally
no compensation expense has been recognized for the remaining performance-based
options, as management, at this time, has deemed the probability of meeting the
performance standards to be remote.
Effective October 19, 1998, the Partnership granted 450,000 options, under a
new 1998 option plan, to members of management to purchase Class B limited
partnership units for $4.50 per unit. The options vest ratably over five years.
These options expire October 19, 2008. Exercisability of these options is not
based on performance standards. No compensation expense has been recorded for
these options, as management's estimate of the market value was approximately
equal to the exercise price at the date of the grant.
Other options granted: On December 19, 1996, the Board of Directors granted
a member of the Board of Directors options to purchase 30,000 Class B limited
partnership units for $3.00 per unit. These options vest ratably over a five-
year period and expire in September 2003. No material compensation expense has
been recorded for these options, as management's estimate of the market value
was less than the exercise price at the date of the grant.
Effective May 10, 1997, and June 1, 1997, the Board of Directors granted two
senior officers of the Partnership a total of 1,500,000 options to purchase
Class B limited partnership units for $2.33 per unit. These options vest in
equal amounts over a three-year period commencing from the grant date.
Exercisability of 60%
F-43
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
of these options is subject to certain performance standards being met. At
December 31, 1998, it is probable the performance standards will be met. The
Partnership has recognized approximately $202,000 and $1,993,000 in
compensation expense for the years ended December 31, 1997 and 1998,
respectively.
In July 1997, the Board of Directors granted a member of the Board of
Directors options to purchase 150,000 Class B limited partnership units for
$2.33 per unit. These options vest ratably over a three-year period and expire
in July 2002. Exercisability of 60% of these options is subject to certain
performance standards being met. At December 31, 1998, it is probable the
performance standards will be met. The Partnership has recognized $-0- and
approximately $224,000 in compensation expense for the years ended December 31,
1997 and 1998, respectively.
<TABLE>
<CAPTION>
Weighted
Range of average
Number of exercise exercise
options price price
---------- ----------- --------
<S> <C> <C> <C>
Outstanding, January 1, 1996.................. 1,834,545 $1.00--1.75 $1.12
Options granted (weighted average fair value
of $1.91).................................. 40,000 3.00 3.00
Options forfeited........................... (75,000) 1.00 1.00
---------- ----------- -----
Outstanding, December 31, 1996................ 1,799,545 1.00--3.00 1.16
Options granted (weighted average fair value
of $.37)................................... 1,706,500 1.00--3.00 2.32
Options forfeited........................... (1,440,000) 1.00--1.75 1.15
---------- ----------- -----
Outstanding, December 31, 1997................ 2,066,045 1.00--3.00 2.09
Options granted (weighted average fair value
of $1.45).................................. 450,000 4.50 4.50
Options forfeited........................... (15,000) 1.00 1.00
---------- ----------- -----
Outstanding, December 31, 1998................ 2,501,045 1.00--4.50 $2.56
========== =========== =====
</TABLE>
Additional information regarding options outstanding as of December 31, 1998,
is as follows:
<TABLE>
<CAPTION>
Weighted
average Weighted Weighted
contractual average average
Exercise Number life exercise Number exercise
prices outstanding (years) price exercisable price
----------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 331,045 0.8 $1.00 33,105 $1.00
2.33 1,650,000 5.4 2.33 220,000 2.33
3.00 70,000 5.0 3.00 4,000 3.00
4.50 450,000 9.8 4.50 -- 4.50
----------- --------- --- ----- ------- -----
$1.00--4.50 2,501,045 5.6 $2.56 257,105 $2.17
=========== ========= === ===== ======= =====
</TABLE>
Fair value stock-based compensation: The Partnership has calculated the pro
forma net loss under SFAS No. 123 using a multiple option valuation approach
and certain weighted-average assumptions deemed reasonable by management. These
assumptions include a risk-free interest rate ranging from 4.5% to 4.6%, an
expected life of two to five years, a partnership unit volatility of 0.0% and
no partnership distributions over the expected life. Had compensation expense
for the stock option plans been recognized under SFAS No. 123, the
Partnership's net loss would have been adjusted to the pro forma amount for the
years ended December 31 as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Net loss as reported................................ $(13,435) $(11,989)
======== ========
Pro forma net loss under SFAS No. 123............... $(13,599) $(12,225)
======== ========
</TABLE>
F-44
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Put options: A general partner and certain of the Class A limited partners
can require the Partnership 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 Partnership or would be in
contravention of any then-existing agreement to which the Partnership is a
party. These partners have not elected to exercise their redemption rights as
of December 31, 1998.
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.
NOTE 13: ENTERPRISE-WIDE INFORMATION
Management organizes its business around its independent and owned
affiliates. These operating segments have been aggregated as each segment has
similar economic characteristics and the nature of the segments, its production
processes, customers and distribution methods are similar. Information related
to the Partnership's products and services revenue is summarized for the years
ended December 31, as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
Broadcast music...................................... $42,242 $43,761 $47,916
On-premise music..................................... 4,368 4,035 4,157
Other broadcast services............................. 1,530 1,546 1,746
Audio marketing...................................... 2,480 3,248 4,418
On-premise video..................................... 2,108 4,126 2,973
In-store advertising................................. 717 949 745
Internet music server................................ 22 359 1,678
Other................................................ 1,118 1,327 2,323
------- ------- -------
Total music and other business services............ 54,585 59,351 65,956
Equipment............................................ 21,873 21,026 22,021
Installation, service, and repair.................... 10,353 10,827 11,771
------- ------- -------
Total equipment and related services............... 32,226 31,853 33,792
------- ------- -------
Total revenue.......................................... $86,811 $91,204 $99,748
======= ======= =======
</TABLE>
NOTE 14: SUBSEQUENT EVENTS
On January 29, 1999, the Partnership entered into a definite merger
agreement to be acquired by Audio Communications Network Holdings, LLC (ACN).
Under the terms of the agreement which was effective March 18, 1999, the
Partnership merged into a subsidiary of ACN for total consideration of
approximately $245,000,000. The current partners retained a minor ownership
interest in the merged entity. The accounts of EAIC Corp. were not part of the
merger.
Upon change of control of the Partnership, all outstanding options to
purchase partnership units became immediately vested and exercisable unless the
performance criteria was not achievable. The accelerated vesting of certain
options resulted in a significant charge as performance criteria for these
options became achievable.
F- 45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$115,000,000
M
muzak
Muzak LLC
Muzak Finance Corp.
9 7/8% Senior Subordinated Notes due 2009
-----------------------
PROSPECTUS
-----------------------
CIBC Oppenheimer
Goldman, Sachs & Co.
Subject to completion, , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Muzak LLC. Muzak LLC is a limited liability company organized under the laws
of the State of Delaware. Section 18-108 of the Delaware Limited Liability
Company Act (the "Act") provides that, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement, a limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever.
Section 7.5 of Muzak LLC's Limited Liability Company Agreement provides,
among other things, that directors and officers of Muzak LLC shall be not be
liable, responsible or accountable for damages or otherwise to Muzak LLC or to
its members. Section 7.5 also provides that each director and each officer of
Muzak LLC shall be indemnified and held harmless by Muzak LLC, including
advancement of reasonable attorney's fees and other expenses, but only to the
extent that Muzak LLC's assets are sufficient therefor, from and against all
claims, liabilities, and expenses arising out of any management of Muzak LLC
affairs (but excluding those caused by the gross negligence or willful
misconduct of such director or officer), to the fullest extent allowed by law.
Section 7.5 of Muzak LLC's Limited Liability Company Agreement also provides
that, the rights of indemnification will be in addition to any rights to which
such directors or officers may otherwise be entitled by contract or as a matter
of law and shall extend to his heirs, personal representatives and assigns.
All of Muzak LLC's directors and officers and the directors and officers of
the subsidiaries of Muzak LLC are covered by insurance policies obtained by
Muzak LLC against certain liabilities for actions taken in such capacities,
including liabilities under the Securities Act of 1933.
Muzak Finance Corp. Muzak Finance Corp. is incorporated under the laws of
the State of Delaware. Section 145 of the General Corporation Law of the State
of Delaware, inter alia ("Section 145") provides that a Delaware corporation
may indemnify any persons who were, are or are threatened to be made, parties
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such person is or
was an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses,
such as attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
or she reasonably believed to be or not opposed to the corporation's best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was illegal. A Delaware
corporation may indemnify any persons who are, were or are threatened to be
made, party to any threatened, pending or completed action or suit by or in the
right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses,
including attorneys' fees, actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director has
actually and reasonably incurred.
Article Eight of Muzak Finance Corp.'s Certificate of Incorporation
("Article Eight") provides that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of
II-1
<PAGE>
the fact that he (or a person of whom he is the legal representative), is or
was a director or officer of Muzak Holdings Finance Corp. or is or was serving
at the request of Muzak Holdings Finance Corp. as a director, officer,
employee, fiduciary, or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee, fiduciary or agent or in
any other capacity while serving as a director, officer, employee, fiduciary or
agent, shall be indemnified and held harmless by Muzak Holdings Finance Corp.
to the fullest extent which it is empowered to do so by the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted Muzak Holdings Finance Corp. to provide prior to such amendment). The
indemnity may include all expense, liability and loss, including attorneys'
fees actually and reasonably incurred by such person in connection with such
proceeding, and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as
otherwise provided in Article Eight, Muzak Holdings Finance Corp. shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the Board of Directors of Muzak Holdings Finance Corp. Article Eight also
provides that Muzak Holdings Finance Corp. may, by action of the Board of
Directors, provide indemnification its employees and agents with the same scope
and effect as the foregoing indemnification of directors and officers.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who 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 or
enterprise, against any liability asserted against him and incurred by him or
her in any such capacity, arising out of his or her status as such, whether or
not the corporation would otherwise have the power to indemnify him or her
under Section 145.
Article Eight further provides that Muzak Finance Corp. may purchase and
maintain insurance on its own behalf and on behalf of any person who is or was
a director, officer, employee, fiduciary or agent of Muzak Finance Corp. or was
serving at the request of Muzak Finance Corp. as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by
him or her in any such capacity, whether or not Muzak Finance Corp. would have
the power to indemnify such person against such liability under Article Eight.
Muzak Capital Corporation. Muzak Capital Corporation is incorporated under
the laws of the State of Delaware. Section 145 of the General Corporation Law
of the State of Delaware, inter alia, provides that a Delaware corporation may
indemnify any persons who were, are or are threatened to be made, parties to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses, such as
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he or she
reasonably believed to be or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his or her conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are threatened to be made, party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses, including
attorneys' fees, actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is
II-2
<PAGE>
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him or her against the expenses which
such officer or director has actually and reasonably incurred.
Article V of Muzak Capital Corporation's Certificate of Incorporation
("Article V") provides, among other things, that no director of Muzak Capital
Corporation shall be personally liable to Muzak Capital Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Muzak Capital Corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the General Corporation Law of the
State of Delaware; or (iv) for any transaction from which the director derived
an improper personal benefit. Article V also provides that Muzak Capital
Corporation shall have the power to indemnify any person who is or was or is a
party or is threatened to be made a party to, or testifies in, any
administrative or investigative in nature, by reason of the fact that such
person is or was a director, officer, employee or agent of the Muzak Capital
Corporation, or is or was serving at the request of Muzak Capital Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the full extent permitted by law, and Muzak
Capital Corporation may adopt Bylaws or enter into agreements with any such
person for the purpose of providing for such indemnification.
Article VI of the By-laws of Muzak Capital Corporation ("Article VI")
provides, among other things, that each person who was or is made a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was a director or
officer of the corporation or is or that he or she, being at the time a
director or officer of Muzak Capital Corporation, is or was serving at the
request of Muzak Capital Corporation as a director, officer, member, employee,
fiduciary, or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee
benefit plan, shall be indemnified and held harmless by Muzak Capital
Corporation to the fullest extent which it is empowered to do so unless
prohibited from doing so by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended but, in the case of
any such amendment, only to the extent that such amendment permits Muzak
Capital Corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment, against all
expense, liability and loss, including attorneys' and other professionals' fees
and expenses, claims, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement, actually and reasonably incurred by such person in
connection therewith. Such indemnification shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that, Muzak Capital
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by such person only if such proceeding
was authorized by the board of directors of Muzak Capital Corporation.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who 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 or
enterprise, against any liability asserted against him and incurred by him or
her in any such capacity, arising out of his or her status as such, whether or
not the corporation would otherwise have the power to indemnify him or her
under Section 145.
Article VI further provides that Muzak Capital Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer or
employee of Muzak Capital Corporation or is or was serving at the request of
Muzak Capital Corporation as a director, officer, member, employee, fiduciary
or agent of another against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of such person's
status as such, whether or not Muzak Capital Corporation would have the power
or the obligation to indemnify such person against such liability under Article
VI.
II-3
<PAGE>
MLP Environmental Music, LLC. MLP Environmental Music, LLC is a limited
liability company organized under the laws of the State of Washington. Section
25.15.040 of the Limited Liability Company Act of the State of Washington
provides, among other things, that the limited liability company agreement may
contain provisions not inconsistent with law that eliminate or limit the
personal liability of a member or manager to the limited liability company or
its members for monetary damages for conduct as a member or manager, provided
that such provisions shall not eliminate or limit the liability of a member or
manager for acts or omissions that involve intentional misconduct or a knowing
violation of law by a member or manager, for conduct of the member or manager,
violating section 25.15.235 of the Limited Liability Act of the State of
Washington, or for any transaction from which the member or manager will
personally receive a benefit in money, property, or services to which the
member or manager is not legally entitled. Section 25.15.040 of the Washington
Limited Liability Company Act also provides that the limited liability company
agreement may contain provisions not inconsistent with law that indemnify any
member or manager from and against any judgments, settlements, penalties,
fines, or expenses incurred in a proceeding to which an individual is a party
because he or she is, or was, a member or a manager, provided that no such
indemnity shall indemnify a member or a manager from or on account of acts or
omissions of the member or manager finally adjudged to be intentional
misconduct or a knowing violation of law by the member or manager, conduct of
the member or manager adjudged to be in violation of section 25.15.235 of the
Limited Liability Act of the State of Washington, or any transaction with
respect to which it was finally adjudged that such member or manager received a
benefit in money, property, or services to which such member or manager was not
legally entitled.
Section 5.3 of MLP Environmental Music, LLC's Amended and Restated Limited
Liability Company Agreement provides that neither the manager nor any affiliate
of the manager of MLP Environmental Music, LLC shall be liable, responsible or
accountable in damages or otherwise to MLP Environmental Music, LLC or the
members for any act or omission by any such person performed in good faith
pursuant to the authority granted to such person by the Amended and Restated
Limited Liability Company Agreement of MLP Environmental Music, LLC or in
accordance with its provisions, and in a manner reasonably believed by such
person to be within the scope of the authority granted to such person and in
the best interest of MLP Environmental Music, LLC; provided, that such act or
omission did not involve intentional misconduct or a knowing violation of law,
conduct violating section 25.15.235 of the Limited Liability Act of the State
of Washington, or any transaction from which the person will, without the
approval of members collectively holding a majority interest, receive a benefit
in money, property, or services to which such person is not legally entitled.
Section 5.3 also provides that MLP Environmental Music, LLC shall indemnify,
defend and hold harmless the manager, any affiliate, and each director,
officer, partner, employee or agent thereof, against any liability, loss,
damage, cost or expense incurred by them on behalf of MLP Environmental Music,
LLC or in furtherance of MLP Environmental Music, LLC's interests without
relieving any such person of liability for intentional misconduct or a knowing
violation of law, conduct violating section 25.15.235 of the Limited Liability
Act of the State of Washington, or any transaction from which the person will,
without the approval of members collectively holding a majority interest,
receive a benefit in money, property, or services to which such person is not
legally entitled.
Section 5.3 of MLP Environmental Music, LLC's Amended and Restated Limited
Liability Company Agreement also provides that any indemnification required to
be made by MLP Environmental Music, LLC shall be made promptly following the
fixing of the liability, loss, damage, cost or expense incurred or suffered by
a final judgment of any court, settlement, contract or otherwise. In addition,
MLP Environmental Music, LLC shall advance funds to a person claiming
indemnification under this section 5.3 for legal expenses and other costs
incurred as a result of legal action brought against such person only if (i)
the legal action relates to the performance of duties or services by the person
on behalf of MLP Environmental Music, LLC, (ii) the legal action is initiated
by a party other than a member and (iii) such person undertakes to repay the
advanced funds to MLP Environmental if it is determined that such person is not
entitled to indemnification pursuant to the terms of MLP Environmental Music,
LLC's Amended and Restated Limited Liability Company Agreement.
Business Sound, Inc. Business Sound, Inc. is a corporation organized under
the laws of the State of Ohio. Section 1701.13(E) of the General Corporation
Law of Ohio provides, among other things, that a corporation
II-4
<PAGE>
may indemnify or agree to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
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, trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise. The
indemnity may include expenses, including attorney's fees, judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
Section 1701.13(E) of the General Corporation Law of Ohio also provides that
an Ohio corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, 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, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit or for
profit, a limited liability company, or a partnership, joint venture, trust, or
other enterprise. The indemnity may include expenses, including attorney's
fees, actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any of
the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to
the corporation unless, and only to the extent that, the court of common
pleas or the court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code of Ohio.
Article V of the Code of Regulations of Business Sound, Inc. provides, among
other things, that Business Sound, Inc. shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative, including all appeals (other than an action, suit or
proceeding by or in the right of the Corporation) by reason of the fact that he
is or was a Director, officer or employee of Business Sound, Inc., or is or was
serving at the request of the Business Sound, Inc. as a Director, trustee,
officer or employee of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees), judgments,
decrees, fines, penalties and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of Business Sound, Inc. and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interest of Business Sound, Inc. and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Article V of the Code of Regulations of Business Sound, Inc. further
provides, among other things, that Business Sound, Inc. shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit, including all appeals, by or
in the right of Business Sound, Inc. to procure a judgment in its favor by
reason of the fact that he is or was a Director, officer or employee of
II-5
<PAGE>
Business Sound, Inc., or is or was serving at the request of Business Sound,
Inc. as a Director, trustee, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys, fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of Business Sound, Inc., except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been finally adjudged to be liable for negligence or misconduct in
the performance of his duty to Business Sound, Inc. unless and only to the
extent that the Court of Common Pleas 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 the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the Court of
Common Pleas or such other Court shall deem proper.
Section 1701.13 (E) of the General Corporation Law of Ohio authorizes a
corporation to purchase and maintain insurance or furnish similar protection,
including, but not limited to, trust funds, letters of credit, or self-
insurance, on behalf of or for any person who 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, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
this section. Insurance may be purchased from or maintained with a person in
which the corporation has a financial interest.
Article V of the Code of Regulations of Business Sound, Inc. provides that
Business Sound, Inc. may purchase and maintain insurance on behalf of any
person who is or was a Director, officer or employee of Business Sound, Inc.,
or is or was serving at the request of Business Sound, Inc. as a Director,
trustee, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not Business Sound, Inc. would have the power to indemnify him
against such liability under the provisions of Article V of the Code of
Regulations of Business Sound, Inc. or of the Ohio General Corporation Law.
Muzak Holdings LLC. Muzak Holdings LLC is a limited liability company
organized under the laws of the State of Delaware. Section 18-108 of the
Delaware Limited Liability Company Act (the "Act") provides that, subject to
such standards and restrictions, if any, as are set forth in its limited
liability company agreement, a limited liability company may, and shall have
the power to, indemnify and hold harmless any member or manager or other person
from and against any and all claims and demands whatsoever.
Section 3.6 of Muzak Holdings LLC's Amended and Restated Limited Liability
Company Agreement provides, among other things, that directors and officers of
Muzak Holdings LLC shall be not be liable, responsible or accountable for
damages or otherwise to Muzak Holdings LLC, or to its members. Section 3.6 of
Muzak Holdings LLC's Amended and Restated Limited Liability Company Agreement
also provides that each director and each officer of Muzak Holdings LLC shall
be indemnified and held harmless by Muzak Holdings LLC, including advancement
of reasonable attorney's fees and other expenses, but only to the extent that
Muzak Holdings LLC's assets are sufficient therefor, from and against all
claims, liabilities, and expenses arising out of any management of Muzak
Holdings LLC affairs (but excluding those caused by the gross negligence or
willful misconduct of such director or officer), to the fullest extent allowed
by law.
Section 3.6 of Muzak Holdings LLC's Amended and Restated Limited Liability
Company Agreement also provides that, the rights of indemnification will be in
addition to any rights to which such directors or officers may otherwise be
entitled by contract or as a matter of law and shall extend to his heirs,
personal representatives and assigns.
II-6
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- --------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of January 29, 1999 among ACN
Holdings, LLC, Audio Communications Network, LLC, Muzak Limited
Partnership, MLP Acquisition L.P. and Muzak Holdings Corp.
2.2 First Amendment to the Agreement and Plan of Merger dated as of March 17,
1999 by and among Muzak Holdings LLC (f/k/a ACN Holdings, LLC), Audio
Communications Network, LLC, Muzak Limited Partnership, MLP Acquisition,
L.P. and Muzak Holdings Corp.
3.1 Certificate of Formation of ACN Operating, LLC.
3.2 Certificate of Amendment of the Certificate of Formation of ACN Operating,
LLC.
3.3 Certificate of Merger Merging Muzak Limited Partnership into Audio
Communications Network, LLC.
3.4 Certificate of Incorporation of Muzak Finance Corp.
3.5 Certificate of Incorporation of Muzak, Inc.
3.6 First Amendment to Certificate of Incorporation of Muzak, Inc.
3.7 Certificate of Formation of MLP Environmental Music, LLC.
3.8 Articles of Incorporation of Music Acquisition, Inc.
3.9 Certificate of Amendment by Shareholders of Music Acquisition, Inc. to the
Articles of Incorporation of Music Acquisition, Inc.
3.10 Certificate of Amendment by Shareholders to the Articles of Incorporation
of Ohio Sound and Music, Inc.
3.11 Certificate of Amendment by Shareholders to the Articles of Incorporation
of Ohio Sound and Music, Inc.
3.12 Certificate of Formation of ACN Holdings, LLC.
3.13 Certificate of Amendment to the Certificate of Formation of ACN Holdings,
LLC.
3.14 Amended and Restated Limited Liability Company Agreement of Muzak LLC,
dated as of March 18, 1999.
3.15 By-laws of Muzak Finance Corp.
3.16 By-laws of Muzak, Inc.
3.17 Amended and Restated Limited Liability Agreement of MLP Environmental
Music, LLC, dated as of March 18, 1999.
3.18 Code of Regulations of Business Sound, Inc.
3.19 Amended and Restated Limited Liability Company Agreement of Muzak Holdings
LLC, dated as of March 18, 1999.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- --------------------------------------------------------------------------
<C> <S>
4.1 Indenture, dated as of March 18, 1999 by and among Muzak LLC and Muzak
Finance Corp., as Issuers, Muzak Capital Corporation, MLP Environmental
Music, LLC, Business Sound, Inc. and ACN Holdings LLC, as Guarantors and
State Street Bank and Trust Company, as Trustee.
4.2 Form of 9 7/8% Senior Subordinated Notes due 2009 (included in Exhibit 4.1
above as Exhibit A).
4.3 Registration Rights Agreement, dated as of March 18, 1999 by and among
Muzak LLC and Muzak Finance Corp., the Guarantors named therein and CIBC
Oppenheimer Corp. and Goldman, Sachs & Co., as Initial Purchasers.
4.4 Purchase Agreement, dated March 12, 1999 by and among Audio Communications
Network, LLC and Muzak Finance Corp., the Guarantors named therein and
CIBC Oppenheimer Corp. and Goldman, Sachs & Co., as Initial Purchasers.
*5.1 Opinion of Kirkland & Ellis.
10.1 Credit and Guaranty Agreement, dated as of March 18, 1999 among Audio
Communications Network, LLC, as Borrower, Muzak Holdings LLC and certain
subsidiaries of Audio Communications Network, LLC, as Guarantors, various
lenders, Goldman Sachs Credit Partners L.P., as Syndication Agent,
Canadian Imperial Bank of Commerce, as Administrative Agent and Goldman
Sachs Credit Partners L.P. and CIBC Oppenheimer Corp. as Co-Lead
Arrangers.
10.2 Pledge and Security Agreement, dated as of March 18, 1999, among Audio
Communications Network, LLC, Muzak Holdings LLC, and certain present and
future domestic subsidiaries of Audio Communications Network, LLC, as
Guarantors, and Canadian Imperial Bank of Commerce, as agent for the
benefit of Lenders and Lender Counterparties and Indemnitees.
10.3 Indenture relating to the Senior Discount Notes, dated as of March 18,
1999, by and among, Muzak Holdings LLC and Muzak Holdings Finance Corp.,
as Issuers, and State Street Bank and Trust Company, as Trustee.(1)
10.4 Amended and Restated Members Agreement, dated as of March 18, 1999, by and
among Muzak Holdings LLC (f/k/a ACN Holdings, LLC), MEM Holdings LLC,
David Unger, Joseph Koff, William Boyd and Music Holdings Corp.
10.5 Management and Consulting Services Agreement dated as of October 6, 1998
by and between ABRY Partners, Inc. and ACN Operating, LLC.
*10.6 Form of Employment Agreement by and between Muzak LLC and each of the
executive officers of Muzak other than William A. Boyd and David Unger.
10.7 Executive Employment Agreement, dated as of March 18, 1999, among Muzak
Holdings LLC, Muzak LLC and William A. Boyd.
10.8 Executive Employment Agreement dated as of October 6, 1998, by and among
ACN Operating, LLC, Audio Communications Network, LLC and David Unger.
10.9 First Amendment to the Executive Employment Agreement dated as of March
18, 1999 to the certain Executive Employment Agreement dated as of October
6, 1998, by and between Audio Communications Network, LLC f/k/a ACN
Operating, LLC and David Unger.
*12.1 Statement regarding computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of Muzak LLC, Muzak Finance Corp., Muzak Capital Corporation,
MLP Environmental Music, LLC, Business Sound, Inc. and Muzak Holdings,
LLC.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- --------------------------------------------------------------------------
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
*23.4 Consent of Kirkland & Ellis (included in Exhibit 5.1 above).
24.1 Power of Attorney (included in signature page to the Registration
Statement).
*25.1 Statement of Eligibility of Trustee on Form T-1 with respect to the New
Notes.
*25.2 Statement of Eligibility of Trustee on Form T-1 with respect to the
guarantees of the New Notes.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
* To be filed by Amendment.
(1) Filed as an Exhibit to the Registration Statement on Form S-4 (File No.
333- ) filed by Muzak Holdings LLC on May , 1999.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
Item 22. Undertakings.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-9
<PAGE>
(4) 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 registrants pursuant to
the provisions described under Item 20 or otherwise, the registrants have
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
registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants 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
registrants will, unless in the opinion of their counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(5) The undersigned registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(6) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<TABLE>
<S> <C>
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Muzak LLC has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in City of Seattle, State
of Washington, on the day of May, 1999.
Muzak LLC
/s/ William A. Boyd
By: _________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ William A. Boyd President and Chief Executive Officer
___________________________________________ (Principal Executive Officer)
William A. Boyd
/s/ Brad D. Bodenman Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Brad D. Bodenman Accounting Officer)
/s/ Royce Yudkoff Director
___________________________________________
</TABLE> Royce Yudkoff
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Muzak Finance Corp. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in City of Seattle,
State of Washington, on the day of May, 1999.
Muzak Finance Corp.
/s/ William A. Boyd
By: _________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ William A. Boyd President and Chief Executive Officer
___________________________________________ (Principal Executive Officer)
William A. Boyd
/s/ Brad D. Bodenman Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Brad D. Bodenman Accounting Officer)
/s/ Royce Yudkoff Director
___________________________________________
Royce Yudkoff
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Muzak Capital Corp. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in City of Seattle,
State of Washington, on the day of May, 1999.
Muzak Capital Corporation
/s/ William A. Boyd
By: _________________________________
Name: William A. Boyd
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ William A. Boyd President and Chief Executive Officer
___________________________________________ (Principal Executive Officer)
William A. Boyd
/s/ Brad D. Bodenman Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Brad D. Bodenman Accounting Officer)
/s/ Royce Yudkoff Director
___________________________________________
Royce Yudkoff
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, MLP
Environmental Music, LLC has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in City of
Seattle, State of Washington, on the day of May, 1999.
MLP Environmental Music, LLC
/s/ William A. Boyd
By: _________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ William A. Boyd President and Chief Executive Officer
___________________________________________ (Principal Executive Officer)
William A. Boyd
/s/ Brad D. Bodenman Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Brad D. Bodenman Accounting Officer)
/s/ Royce Yudkoff Manager
___________________________________________
Royce Yudkoff
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Business Sound, Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in City of
Seattle, State of Washington, on the day of May, 1999.
Business Sound, Inc.
/s/ William A. Boyd
By: _________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ William A. Boyd President and Chief Executive Officer
___________________________________________ (Principal Executive Officer)
William A. Boyd
/s/ Brad D. Bodenman Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Brad D. Bodenman Accounting Officer)
/s/ Royce Yudkoff Director
___________________________________________
Royce Yudkoff
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Muzak Holdings LLC has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in City of Seattle,
State of Washington, on the 14th day of May, 1999.
Muzak Holdings LLC
/s/ William A. Boyd
By: _________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 14th day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ William A. Boyd Director, President and Chief Executive
___________________________________________ Officer (Principal Executive Officer)
William A. Boyd
/s/ Brad D. Bodenman Chief Financial Officer (Principal
___________________________________________ Financial Officer and Principal
Brad D. Bodenman Accounting Officer)
/s/ Peni Garber Director
___________________________________________
Peni Garber
/s/ David W. Unger Director
___________________________________________
David W. Unger
/s/ Royce Yudkoff Director
___________________________________________
Royce Yudkoff
___________________________________________ Chairman of the Board
Steven Hicks
</TABLE>
II-16
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
___________________________________________ Director
D. Geoff Armstrong
/s/ Andrew Banks Director
___________________________________________
Andrew Banks
</TABLE>
II-17
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 29, 1999,
AMONG
ACN HOLDINGS, LLC,
AUDIO COMMUNICATIONS NETWORK, LLC,
MUZAK LIMITED PARTNERSHIP,
MLP ACQUISITION L.P.,
AND
MUSIC HOLDINGS CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
THE MERGER................................ 1
SECTION 1.1. The Merger............................................... 1
SECTION 1.2. Closing.................................................. 2
SECTION 1.3. Effective Time........................................... 2
SECTION 1.4. Effects of the Merger.................................... 2
SECTION 1.5. Members, Directors and Officers of
Surviving Entity......................................... 2
SECTION 1.6. Certificate of Formation; Sub LLC Agreement.............. 3
ARTICLE II
CONVERSION OF INTERESTS AND
PAYMENT OF MERGER CONSIDERATION..................... 4
SECTION 2.1. Conversion of Interests.................................. 4
SECTION 2.2. Employee Stock Options................................... 4
SECTION 2.3. Merger Consideration and Exchange Procedures............. 5
SECTION 2.4. Payment of Escrow Amount................................. 11
SECTION 2.5. Senior Notes and Indenture; Foothill
Facility................................................. 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MLP.................. 13
SECTION 3.1. Organization, Authority and Qualification................ 13
SECTION 3.2. No Conflict.............................................. 14
SECTION 3.3. Consents and Approvals................................... 14
SECTION 3.4. Capitalization........................................... 15
SECTION 3.5. Partnership Agreement.................................... 15
SECTION 3.6. SEC Documents............................................ 15
SECTION 3.7. Financial Statements..................................... 16
SECTION 3.8. Absence of Certain Changes or Events..................... 16
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SECTION 3.9. Absence of Litigation.................................... 18
SECTION 3.10. Compliance with Laws..................................... 19
SECTION 3.11. Governmental Licenses and Permits........................ 19
SECTION 3.12. Intellectual Property.................................... 19
SECTION 3.13. Employee Benefits Matters................................ 20
SECTION 3.14. Taxes.................................................... 22
SECTION 3.15. Real Property............................................ 24
SECTION 3.16. Environmental Matters.................................... 25
SECTION 3.17. Material Contracts....................................... 26
SECTION 3.18. Voting Requirements...................................... 28
SECTION 3.19. No Undisclosed Liabilities............................... 28
SECTION 3.20. Tangible Personal Property............................... 28
SECTION 3.21. Powers of Attorney....................................... 28
SECTION 3.22. Transactions with Affiliates............................. 28
SECTION 3.23. Insurance................................................ 29
SECTION 3.24. Labor Matters............................................ 29
SECTION 3.25. Brokers.................................................. 29
SECTION 3.26. EXCLUSIVITY OF REPRESENTATIONS........................... 29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB........... 30
SECTION 4.1. Incorporation and Authority.............................. 30
SECTION 4.2. No Conflict.............................................. 31
SECTION 4.3. Consents and Approvals................................... 31
SECTION 4.4. Capitalization........................................... 32
SECTION 4.5. Financial Statements..................................... 32
SECTION 4.6. Absence of Certain Changes or Events..................... 32
SECTION 4.7. Voting Requirements...................................... 33
SECTION 4.8. Absence of Litigation.................................... 33
SECTION 4.9. Taxes.................................................... 33
SECTION 4.10. Material Contracts....................................... 34
SECTION 4.11. Financial Ability........................................ 35
SECTION 4.12. Brokers.................................................. 35
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ARTICLE V
CERTAIN COVENANTS............................ 35
SECTION 5.1. Conduct of Business Prior to the Closing................. 35
SECTION 5.2. Other Actions............................................ 38
SECTION 5.3. Notification of Certain Events........................... 38
ARTICLE VI
ADDITIONAL AGREEMENTS.......................... 39
SECTION 6.1. Access to Information; Confidentiality................... 39
SECTION 6.2. Best Efforts............................................. 40
SECTION 6.3. Benefit Plans and Employment Agreements.................. 41
SECTION 6.4. Public Announcements..................................... 42
SECTION 6.5. Acquisition Proposals.................................... 42
SECTION 6.6. Consents, Approvals and Filings.......................... 42
SECTION 6.7. Allocation of Merger Consideration and
Tax Matters.............................................. 43
SECTION 6.8. Interim Financial Statements............................. 44
SECTION 6.9. Fourth Quarter Financial Statements...................... 44
SECTION 6.10. Accountants' Management Letters.......................... 45
SECTION 6.11. Solvency Certificate..................................... 45
SECTION 6.12. Amended Parent LLC Documents............................. 46
ARTICLE VII
CONDITIONS PRECEDENT........................... 46
SECTION 7.1. Conditions to Each Party's Obligation
to Effect the Merger..................................... 46
SECTION 7.2. Conditions to Obligations of Parent and Sub.............. 46
SECTION 7.3. Conditions to Obligations of MLP and
the GP Entities.......................................... 48
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ARTICLE VIII
CLOSING DELIVERIES............................ 49
SECTION 8.1. Documents to Be Delivered by MLP......................... 49
SECTION 8.2. Documents and Funds to Be Delivered
by Parent and Sub........................................ 50
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER.................... 50
SECTION 9.1. Proceedings at Closing................................... 50
SECTION 9.2. Termination.............................................. 51
SECTION 9.3. Effect of Termination.................................... 52
SECTION 9.4 Limitation of Damages.................................... 52
SECTION 9.5. Amendment................................................ 52
SECTION 9.6. Extension; Waiver........................................ 53
ARTICLE X
INDEMNIFICATION............................. 53
SECTION 10.1. Right to Indemnification................................. 53
SECTION 10.2. Limitations on Indemnification........................... 55
SECTION 10.3. Indemnification Procedures............................... 56
SECTION 10.4. Tax Treatment of Indemnity Payments...................... 58
SECTION 10.5. Exclusive Remedy; Limitation of Liability................ 58
ARTICLE XI
REPRESENTATIVE OF PARTNERS OF MLP.................... 59
SECTION 11.1. Authorization of Representative.......................... 59
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ARTICLE XII
GENERAL PROVISIONS............................ 63
SECTION 12.1. Survival of Representations and Warranties.............. 63
SECTION 12.2. Survival and Conditions of Certain
Indemnification Obligations of MHC...................... 63
SECTION 12.3. Fees and Expenses....................................... 64
SECTION 12.4. Definitions............................................. 64
SECTION 12.5. Notices................................................. 74
SECTION 12.6. Interpretation.......................................... 75
SECTION 12.7. Counterparts............................................ 76
SECTION 12.8. Entire Agreement; Third-Party Beneficiaries............. 76
SECTION 12.9. Governing Law........................................... 76
SECTION 12.10. Assignment.............................................. 76
SECTION 12.11. Obligations of Parent and Sub........................... 76
SECTION 12.12. ENFORCEMENT............................................. 76
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AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of January 29, 1999 (this
"Agreement"), among ACN Holdings, LLC, a Delaware limited liability company
("Parent"), Audio Communications Network, LLC, a Delaware limited liability
company and a direct, wholly-owned Subsidiary of Parent ("Sub"), Muzak Limited
Partnership, a Delaware limited partnership ("MLP"), MLP Acquisition, L.P., a
Delaware limited partnership and the managing general partner of MLP ("MLP
Acquisition"), and Music Holdings Corp., a Delaware corporation and the general
partner of MLP Acquisition ("MHC," and together with MLP Acquisition, the "GP
Entities").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, each of Parent and MHC has approved this Agreement, pursuant
to which MLP shall be merged with and into Sub (the "Merger") and Sub shall, as
of immediately thereafter, remain a direct, wholly-owned Subsidiary of Parent;
and
WHEREAS, Parent, Sub, MLP and each of the GP Entities desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various terms and conditions to the Merger;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the
----------
conditions set forth in this Agreement and Plan of Merger, and in accordance
with the Delaware RULPA, the Delaware LLCA, the DGCL and the Third Amended and
Restated Agreement of Limited Partnership of Muzak Limited Partnership, dated as
of November 4, 1992 (as amended from time to time in accordance with the terms
thereof, the "Partnership Agreement"), MLP shall be merged with and into Sub at
and as of the Effective Time (as hereinafter defined). At the Effective Time,
the
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separate existence of MLP shall cease, and Sub shall continue as the surviving
entity (the "Surviving Entity"). The name of the Surviving Entity shall be
"Muzak LLC", or such other name as may be determined by Parent (the "New Name").
SECTION 1.2. Closing. Unless and until this Agreement shall have
-------
been terminated and the transactions contemplated hereby shall have been
abandoned pursuant to Section 9.2 hereof and subject to the satisfaction or
waiver of the conditions set forth in Article VII hereof, the closing of the
Merger (the "Closing") shall take place at 9:00 a.m., New York time, on the
second business day following the date on which the last of the conditions to be
fulfilled or waived set forth in Article VII hereof shall be fulfilled or waived
in accordance with this Agreement (the "Closing Date"), at the offices of
Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022-4675, unless
another date, time or place is agreed to in writing by the parties hereto.
SECTION 1.3. Effective Time. Subject to the provisions of this
--------------
Agreement, the parties hereto shall file with the Delaware Secretary of State on
the date of the Closing (or on such other date as Parent and MLP may agree) a
certificate of merger (the "Certificate of Merger") or other appropriate
documents, executed in accordance with the relevant provisions of the Delaware
RULPA, the Delaware LLCA and the DGCL, and make all other filings or recordings
required under the Delaware RULPA, the Delaware LLCA and the DGCL in connection
with the Merger. The Merger shall become effective upon the filing of the
Certificate of Merger with the Delaware Secretary of State (the "Effective
Time").
SECTION 1.4. Effects of the Merger. The Merger shall have the
---------------------
effects set forth in Section 17-211 of the Delaware RULPA and Section 18-209 of
the Delaware LLCA. Without limiting the generality of the foregoing, subject
thereto and except as provided in Section 1.6(c)(ii), Section 6.7(d) and Section
12.3 hereof, at the Effective Time, all the properties, rights, privileges,
powers and franchises of MLP and Sub shall vest in the Surviving Entity, and all
debts, liabilities and duties of MLP and Sub shall be and become the debts,
liabilities and duties of the Surviving Entity.
SECTION 1.5. Members, Directors and Officers of Surviving Entity.
---------------------------------------------------
2
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(a) Parent, the sole member of Sub immediately prior to the
Effective Time, shall be the sole member of the Surviving Entity as of
immediately after the Effective Time.
(b) The directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Entity from and after the Effective Time
until their successors have been duly appointed and qualified, or until their
earlier death, resignation or removal in accordance with the terms and
conditions of the Sub LLC Agreement (as hereinafter defined).
(c) The officers of Sub immediately prior to the Effective Time
shall be the officers of the Surviving Entity from and after the Effective Time
until their successors have been duly appointed and qualified, or until their
earlier death, resignation or removal in accordance with the terms and
conditions of the Sub LLC Agreement.
SECTION 1.6. Certificate of Formation; Sub LLC Agreement.
-------------------------------------------
(a) At the Effective Time, Sub's Certificate of Formation (the
"Certificate of Formation") shall be the Certificate of Formation of the
Surviving Entity until thereafter changed or amended as provided therein or by
applicable Law, except that, as of the Effective Time, such Certificate of
Formation shall be amended to provide for the New Name.
(b) At the Effective Time, Sub's Limited Liability Company
Agreement in effect immediately prior to the Effective Time (the "Sub LLC
Agreement") shall be the limited liability company agreement of the Surviving
Entity until thereafter changed or amended as provided therein or by applicable
Law, except that, as of the Effective Time, such Sub LLC Agreement shall be
amended to provide for the New Name.
(c) At the Effective Time and all times thereafter (i) MLP's
Certificate of Limited Partnership shall be of no further force or effect and
(ii) except as expressly set forth in this Agreement, the Surviving Entity shall
have no obligations or liabilities to the holders of Units (as hereinafter
defined) or any of the partners of MLP under the Partnership Agreement.
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ARTICLE II
CONVERSION OF INTERESTS AND PAYMENT OF MERGER CONSIDERATION
SECTION 2.1. Conversion of Interests. As of the Effective Time, by
-----------------------
virtue of the Merger and without any action on the part of any holder of units
or any other right representing partnership interests (each, a "Unit" and
together, the "Units") in MLP or any holder of membership interests or any other
right representing membership interests in the Sub:
(a) Membership Interests in Sub. Each membership interest in Sub
---------------------------
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
automatically converted into a similar membership interest in the Surviving
Entity.
(b) Conversion of the Units. Each Unit outstanding immediately
-----------------------
prior to the Effective Time shall be converted into the right to receive a
portion of the Merger Consideration (as defined in Section 2.3(a) below) as
provided herein.
(c) Cancellation and Retirement of Units. As of the Effective
------------------------------------
Time, all Units outstanding immediately prior to the Effective Time shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of any such Units shall cease to have any rights
with respect thereto, except as provided in Section 2.3(c) below.
(d) Management Rollover. Notwithstanding any provision to the
-------------------
contrary herein, the parties hereto agree that, if requested by Parent and
agreed to by the applicable employees, so long as MLP, the GP Entities and the
holders of Units shall not be adversely affected thereby, the parties hereto
shall amend this Agreement prior to Closing to permit Units and/or Options (as
herein defined) owned by certain employees of MLP to be exchanged for membership
interests in Parent (in which event the aggregate Merger Consideration will be
adjusted accordingly).
SECTION 2.2. Employee Stock Options. Prior to the Closing, MLP
----------------------
shall take such action in order that, at the Effective Time, the options (the
"Options") granted under (i) MLP's 1998 Option Plan, (ii) MLP's Amended and
Restated Management Option Plan and (iii) any other option plan, agreement or
4
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arrangement of MLP (collectively, as such plans, agreements or arrangements may
have been amended, supplemented or modified from time to time, the "Option
Plans") that would otherwise be unexercised as of immediately prior to the
Effective Time, shall be extinguished prior to or at the Effective Time in
exchange for a portion of the Merger Consideration ("Extinguished Options") or,
to the extent such Options are exercisable as of or at any time after the
Effective Time, converted into the right to receive, for any Option that is not
so extinguished ("Unextinguished Options"), upon payment to the Surviving Entity
of the exercise price with respect to such Unextinguished Option, solely the
same cash consideration (assuming all of the Escrow Amount, including pursuant
to Section 6.9(b), as well as any cash reserve to be held by MHC or its
Affiliate pursuant to Section 2.3(a), is distributed to the holders of the Units
as of the Effective Time) and the number of LLC Units as would have been payable
in the Merger had such Unextinguished Option been exercised immediately prior to
the Effective Time, net of any required withholding Tax (such consideration with
respect to any Unextinguished Option, the "Unextinguished Option
Consideration"). All Option Plans shall terminate as of the Effective Time and,
prior to the Closing, MLP shall take all action necessary to ensure that,
following the Effective Time, no participant in any Option Plan shall have any
right thereunder to acquire any interests of Parent, MLP, the Surviving Entity
or any Subsidiary thereof, except, in the case of any Unextinguished Options, as
provided in the immediately preceding sentence. MLP shall take all necessary
actions to report and pay over any withholding Taxes associated with the
exercise of or payment of any consideration in respect of the Extinguished
Options. The Surviving Entity shall pay upon the proper exercise of any
Unextinguished Options, the applicable Unextinguished Option Consideration as
provided hereinabove and shall take all necessary actions to report and pay over
any withholding Taxes associated with such exercise. There shall be deducted
from the number of LLC Units deposited with the Paying Agent pursuant to Section
2.3, the number of LLC Units (the "Reserve Number") that would have been
issuable in respect of the Units represented by Unextinguished Options, if any,
had such Unextinguished Options been exercised immediately prior to the
Effective Time. Parent and MLP shall agree, prior to the Closing, on the amount
of any Reserve Number.
5
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SECTION 2.3. Merger Consideration and Exchange Procedures.
--------------------------------------------
(a) Merger Consideration. The parties hereto hereby designate
--------------------
U.S. Bank Trust National Association to act as the paying agent (the "Paying
Agent") with respect to the payment of the Merger Consideration (as hereinafter
defined) to the holders of Units pursuant to the terms and conditions set forth
herein. At or prior to the Effective Time, (i) Sub shall deposit, or shall cause
to be deposited, into an account, for the benefit of the holders of Units prior
to the Effective Time, that is designated by the Paying Agent (the "Account")
(A) cash, in immediately available funds, in the amount of (1) the Adjusted
Equity Value (as hereinafter defined), plus (2) the Additional Consideration (as
----
defined in Section 2.3(b) hereof), minus (3) the Escrow Amount (as hereinafter
-----
defined), and (B) the number of Class B-4 Units of Parent, representing a
percentage equal to the Specified Percentage (as defined below) of the number of
fully-diluted Common Units (as such term is defined in the Amended Parent LLC
Agreement) of Parent as of immediately after the Closing (the "LLC Units"), less
the Reserve Number (as defined in Section 2.2 hereof) (such cash and LLC Units,
collectively, the "Payment Fund" and, together with the Escrow Funds, the
"Merger Consideration"), and (ii) prior to the Effective Time, MLP shall deposit
into the Account or transfer to MHC (A) all of the outstanding stock of EAIC
Corp. and net Value Holdings, Inc. held by MLP (the "Distributed Shares"), and
(B) all receivables held by MLP of principal and interest in respect of
borrowings by certain management investors in the amounts set forth in Section
2.3(a) of the Disclosure Schedule (the "Management Receivables"). The Paying
Agent, as instructed by MHC, shall cause to be distributed from the Account (I)
the Distributed Shares and (II) the Payment Fund to pay the fees and expenses
incurred by MLP and the GP Entities in connection with the Merger and pay to the
holders of the Units (provided that amounts payable to any holder of Units who
is a debtor pursuant to any of the Management Receivables shall be offset by an
amount equal to the amount owed by such holder pursuant to the applicable
Management Receivable(s)), in accordance with the terms and conditions of the
Partnership Agreement (except in the case of the Distributed Shares, the LLC
Units and, at the election of MLP, a cash reserve in an amount not to exceed
$100,000, which will be issued or transferred to MHC or its Affiliate and will
be held by MHC or such Affiliate for the benefit of the holders of Units in the
relative percentages determined in accordance with the terms and conditions of
the Partnership Agreement). In addition, the Escrow Funds will be maintained by
the Paying Agent in accordance with the terms and conditions of the Post-Closing
Escrow Agreement (as such term is defined in Section 2.4 hereof) and shall be
distributed to the holders of Units as directed by MHC, in accordance with the
terms and conditions of the Partnership Agreement and the Post-Closing Escrow
Agreement upon the later to occur of (x) the expiration of the survival period
of the representations and warranties hereunder set forth in Section
6
<PAGE>
12.1 hereof and (y) so long as the applicable Parent Indemnified Parties shall
be proceeding expeditiously and in good faith to resolve any bona fide Claims
pending as of the expiration of the survival period referred to in clause (x),
with respect to a portion of the Escrow Funds up to an amount reasonably
sufficient to satisfy such Claims, until the resolution of such Claims (as such
term is defined in Section 10.3 hereof) made prior to the termination of the
survival period in Section 12.1 hereof, less the amount of any Expenses, Losses,
or other amounts paid to any Parent Indemnified Parties (as hereinafter defined)
pursuant to any indemnification obligations of MHC pursuant to Section 10.1(a)
hereof. Notwithstanding the foregoing, any portion of the Escrow Funds which
remains undistributed on the date that is six (6) months after the date such
Escrow Funds would otherwise be distributable to any holder of Units pursuant to
the immediately preceding sentence and the terms and conditions of the Post-
Closing Escrow Agreement shall be delivered to the Surviving Entity upon demand,
and any holder of Units who theretofore has not complied with this Article II
shall have recourse with respect to any portion of the Escrow Funds payable to
such holder upon surrender of certificate(s) representing such holder's Units
only to the Surviving Entity and only as a general creditor thereof for payment
of any claim.
For purposes of this Section 2.3(a), the "Specified Percentage" shall
equal 4%; provided, that if, during the period beginning on October 6, 1998 and
--------
ending as of the Closing, the amount of consideration (such amoung, the "Parent
------
Equity Amount") Parent receives in exchange for its issuance of Common Units (on
- -------------
a fully diluted basis) is less than $65,000,000, then the Specified Percentage
shall equal the percentage obtained as follows: (x) 2,708,333 divided by (y)
----------
(I) the Parent Equity Amount plus (II) 2,708,333.
----
(b) Additional Consideration. The "Additional Consideration" to
------------------------
be paid as part of the Merger Consideration pursuant to Section 2.3(a) hereof,
shall be an amount equal to (A) $3,875,000, plus (B) $10,025,861, which the
----
parties hereto agree represents the purchase price for the assets of MTI, as set
forth on Section 2.3(b) of the Disclosure Schedule (the "MTI Purchase Price")
and (C) $372,930, which the parties hereto agree represents the out-of-pocket
costs and expenses to unaffiliated third parties, including reasonable
attorney's fees and all financing costs (exclusive of interest), incurred in
connection with such acquisition, as set forth on Section 2.3(b) of the
Disclosure Schedule (the "MTI Expenses"). MLP shall cause all of the MTI
Purchase Price and the MTI Expenses to be paid on or prior to the Closing Date
(and in the event any of the MTI Purchase Price or the MTI Expenses shall be
paid on the Closing Date, such payment shall be made from the Payment Fund).
7
<PAGE>
(c) Exchange Procedures. As soon as practicable after the
-------------------
Effective Time, (i) MHC shall mail to each holder of record of Units as of
immediately prior to the Effective Date a notice (which notice shall include
reasonable details concerning the transaction) that the Merger has been
consummated and (ii) each general partner and each limited partner of MLP shall,
in consideration for the surrender to the Paying Agent of any and all
outstanding certificates which prior to the Effective Time represented Units and
acceptance thereof by the Paying Agent, be entitled to payment of the Merger
Consideration attributable to such Units in accordance with the terms and
conditions of the Partnership Agreement and subject to the provisions of Section
2.3(a). The Paying Agent shall accept such certificates upon compliance with
such reasonable terms and conditions as the Paying Agent may impose to effect an
orderly exchange thereof in accordance with its normal exchange practices and in
accordance with the terms and conditions of the Partnership Agreement. After the
Effective Time, there shall be no further transfer on the records of MLP or its
transfer agent of certificates representing any Units. There shall be accepted
in lieu of the delivery of any certificate representing Units for all purposes
of this Agreement, an affidavit of loss and indemnity acceptable to the Paying
Agent made by the holder or record of such Units on the books and records of
MLP.
(d) No Further Ownership Rights in MLP Units. The Merger
----------------------------------------
Consideration paid in consideration for the surrender of certificates
representing Units in accordance with the terms of this Article II shall be
deemed to have been paid in full satisfaction of all then remaining rights
pertaining to the Units theretofore represented by such certificates.
(e) Termination of Payment Fund. Any portion of the Payment Fund
---------------------------
which remains undistributed on the date that is six (6) months after the
Effective Time, excluding the LLC Units issued to MHC or its Affiliate, shall be
delivered to the Surviving Entity upon demand, and any holder of any Units who
theretofore has not complied with this Article II shall have recourse with
respect to any such portion of the Payment Fund payable to such holder upon
surrender of certificate(s) representing such holder's Units only to the
Surviving Entity and only as a general creditor thereof for payment of any
claim.
(f) Definitions. For purposes of this Agreement, the terms set
-----------
forth below have the following meanings:
(i) "Adjusted Equity Value" means (A) the Equity Value,
minus (B) any Fourth Quarter Adjustment Amount.
-----
8
<PAGE>
(ii) "Enterprise Value" means $235,400,000.
(iii) "Equity Value" means (A) the Enterprise Value, minus
-----
(B) Funded Indebtedness as of immediately prior to the Closing, minus
-----
(C) the MLP Expenses, minus (D) the Option Charges, plus (E) the Cash
----- ----
and Cash Equivalents.
(iv) "Fourth Quarter Adjustment Amount" means an amount in
cash equal to (A) the Fourth Quarter Adjustment Percentage, multiplied
----------
by (B) the Enterprise Value.
(v) "Fourth Quarter Adjustment Percentage" means the
percentage calculated by dividing (A) the Adjusted EBITDA Difference
(as defined below), by (B) $7,691,000; provided, however, that if the
-------- -------
EBITDA Difference (as defined below) as calculated pursuant to this
subsection (v) is less than $153,820 or is a negative number, then
the Fourth Quarter Adjustment Percentage shall be zero. The "EBITDA
Difference" shall equal the result of subtracting (1) the amount of
consolidated earnings before interest, taxes, depreciation and
amortization of MLP and its Subsidiaries for the three months ended
December 31, 1998, computed based on GAAP consistent with MLP's and
its Subsidiaries' consolidated income statement for the three month
period ended September 30, 1998 as filed with the SEC (which excludes
any income or expenses generated by EAIC Corp. and netValue Holdings,
Inc.) (as adjusted for the add-back items set forth in Section
2.3(f)(v) of the Disclosure Schedule in an amount for each such item
not to exceed the maximum amount, if any, specified therein, in each
case solely to the extent deducted in determining such consolidated
earnings before interest, taxes, depreciation and amortization) and
excluding income and expenses relating to any business acquired by MLP
or any of its Subsidiaries on or after October 1, 1998, including the
acquisition by MLP of the assets of MTI, the assets of Central Music
Company, Inc. (such assets, "CMCI") and the assets of Barnstead
Business Music, Inc. (such assets, "BBMI"); provided that,
--------
notwithstanding the foregoing, up to $30,000 of net earnings before
interest, taxes, depreciation and amortization of MLP and its
Subsidiaries which is generated by CMCI and BBMI during the three
month period ended December 31, 1998 may be included for purposes of
this clause (1) (but only to the extent such earnings are generated by
CMCI or BBMI, as the case may be, during
9
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the period when MLP actually owned CMCI or BBMI, as the case may be),
from (2) $7,691,000. The "Adjusted EBITDA Difference" shall equal the
amount by which the EBITDA Difference exceeds $153,820.
(vi) "Funded Indebtedness" means, without duplication, the
outstanding principal of and accrued, unpaid interest on and other
payment obligations arising under (A) the Senior Notes (other than any
and all fees, costs and expenses related to, or incurred in connection
with, the tender for, redemption, amendment or other modification of
the Senior Notes and the Indenture), (B) the Loan and Security
Agreement dated as of December 30, 1998, between MLP and Foothill
Capital Corporation and all agreements and documents related thereto
(the "Foothill Facility"), with the exception of $100,000 of the
prepayment fee thereunder, which shall be borne by the Surviving
Entity and shall not constitute "Funded Indebtedness" hereunder and
(C) any other obligations of MLP or any of its Subsidiaries consisting
of indebtedness for borrowed money, installment payment and deferred
purchase price obligations (other than as reflected in footnote 1 to
Section 2.3(b) of the Disclosure Schedule), obligations evidenced by
any note, bond, debenture or other debt security and capital lease
obligations, including without limitation the obligations set forth on
Section 2.3(f)(vi) of the Disclosure Schedule, in each case to the
extent outstanding as of immediately prior to the Closing.
(vii) "MLP Expenses" means, as of the Closing, the sum of
the following: (A) all out of pocket fees and expenses (including all
legal, accounting and investment banking fees and expenses) that at
such time have been incurred and not paid by MLP or any of its
Subsidiaries, including any such fees and expenses incurred on behalf
of the holders of Units or the GP Entities, in connection with the
auction of MLP, the negotiation, execution and delivery of this
Agreement or any other actual or proposed agreement providing for the
sale of MLP and/or the consummation of the transactions contemplated
hereby or thereby, except (x) the MTI Expenses and (y) to the extent
incurred at the request of Parent or Sub, any and all fees, costs and
expenses payable in connection with any tender offer (and any related
consent solicitation) for the redemption of the outstanding Senior
Notes (a "Senior Note Tender Offer"), or any other redemption,
amendment or other modification of the Senior Notes and the Indenture
(including, without limitation,
10
<PAGE>
entering into a supplemental indenture relating thereto as provided
under the terms of the Indenture), and (B) any one time bonus payments
and change-in-control payments (excluding any severance payments due
to employees whose employment by MLP or any of its Subsidiaries ceases
on or after the Effective Time) that at such time have been incurred
and not paid and that were incurred by MLP or any of its Subsidiaries
directly in connection with or as a result of the execution of this
Agreement or the consummation of the transactions contemplated hereby,
together with the amount of any compensation-related Taxes arising
directly as a consequence of the payment obligations referred to in
this clause (B); provided, however, that MLP Expenses shall not
-------- -------
include any such amounts paid from the Payment Fund or included in the
Option Charges.
(viii) "Option Charges" means the sum of (A) the aggregate
amount incurred and not paid by MLP or any of its Subsidiaries as of
the Effective Time in connection with any Extinguished Options, plus
(B) with respect to Unextinguished Options which are "in the money" as
of the Effective Time, the excess of the cash consideration (assuming
all of the Escrow Amount, including, pursuant to Section 6.9(b), as
well as the cash reserve to be held by MHC or its Affiliate pursuant
to Section 2.3(a), is distributed to the holders of the Units as of
the Effective Time) which all holders of such Unextinguished Options
as of the Effective Time would have been entitled to receive in the
Merger had such Unextinguished Options been exercised immediately
prior to the Effective Time over the exercise price of all such
----
Unextinguished Options (provided that with respect to any particular
Unextinguished Option, such exercise price shall be no more than the
cash consideration described in clause (B) attributable to such
Unextinguished Option); provided, however, that Option Charges shall
-------- -------
not include any amount of the Merger Consideration which is
distributed or is distributable to former holders of Extinguished
Options in accordance with Section 2.3(a) hereof.
(ix) "Cash and Cash Equivalents" means the sum of all cash and
cash equivalents of MLP or any of its Subsidiaries as of immediately
prior to the Closing.
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SECTION 2.4. Payment of Escrow Amount. On the date hereof, and as a
------------------------
condition to execution of this Agreement by MLP and MHC, Sub, MLP and MHC have
entered into an escrow agreement substantially in the form of Exhibit A-1
-----------
attached hereto (the "Pre-Closing Escrow Agreement"), with the Paying Agent,
whereby Sub has caused to be deposited a letter of credit (the "Letter of
Credit") in the face amount of $9,000,000 (the "Escrow Deposit"). In the event
the Closing occurs in accordance with Section 1.2 hereof, the Letter of Credit
shall be returned to Sub in exchange for a cash deposit of $9,000,000 (such
cash, as well as any cash placed in escrow pursuant to Section 6.9(b), the
"Escrow Funds" and such amount, the "Escrow Amount"), which shall be retained
pursuant to the terms and conditions of an escrow agreement substantially in
the form of Exhibit A-2 hereto (the "Post-Closing Escrow Agreement" and,
-----------
collectively with the Pre-Closing Agreement, the "Escrow Agreement") as security
for the payment by MHC of its indemnification obligations pursuant to the
provisions of Section 10.1 hereof. Pursuant and subject to the terms and
conditions of the Pre-Closing Escrow Agreement, (i) in the event of a
termination of this Agreement pursuant to Section 9.2(e) hereof, MHC may direct
the Paying Agent to draw upon the Letter of Credit and disburse to MLP the funds
paid in connection which such drawing and (ii) in the event of a termination of
this Agreement in any manner provided by Section 9.2 other than Section 9.2(e),
Sub may direct the Paying Agent to return the Letter of Credit to Sub, and Sub
shall thereafter have the Letter of Credit terminated. Following the Closing
pursuant and subject to the terms and conditions of the Post-Closing Escrow
Agreement and in accordance with the provisions of Section 2.3(a) and Article X
of this Agreement, in the event of any Losses, Expenses or other amounts
becoming due and payable by MHC on behalf of holders of Units pursuant to the
indemnification provisions of Section 10.1 hereof, MHC and the Parent shall
direct the Paying Agent to disburse to Parent funds in the amount of any such
Losses, Expenses or other amounts from the Escrow Funds. Earnings from the
investment of the Escrow Funds under the Post-Closing Escrow Agreement shall be
paid in accordance with the Post-Closing Escrow Agreement. Notwithstanding
anything to the contrary set forth in this Agreement (except as provided in
Section 12.2(a) hereof), after the Closing, the Escrow Funds shall be the sole
and exclusive remedy available to the Parent Indemnified Parties for any Losses,
Expenses or other amounts arising under the indemnification obligations set
forth herein or otherwise in respect of the transactions contemplated hereby.
SECTION 2.5. Senior Notes and Indenture; Foothill Facility. Each of
---------------------------------------------
the Parent and Sub hereby acknowledges and agrees (x) that, after the Closing,
the holders of the Senior Notes issued pursuant to the Indenture will have a
right to require the Surviving Entity to redeem the Senior Notes pursuant to
certain terms and
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conditions set forth in the Indenture, and (y) that pursuant to the Merger
contemplated hereunder and the terms and conditions of this Agreement, the
Surviving Entity shall assume and be responsible for any obligations under the
Indenture remaining after the Effective Time in accordance with the provisions
of the Indenture. In addition, Parent and Sub hereby acknowledge and agree that
as of the Closing Date, they will take all necessary actions to cause the
repayment of all amounts due under the Foothill Facility (and the replacement or
cash collateralization of all outstanding letters of credit issued for account
of MLP under the Foothill Facility, excluding in any case the letter of credit
furnished by Centre Capital Investors L.P. as credit support thereunder).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MLP
MLP represents and warrants to the Parent and Sub as follows:
SECTION 3.1. Organization, Authority and Qualification. Each of MLP
-----------------------------------------
and MLP Acquisition is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
necessary partnership power and authority to enter into this Agreement and each
other agreement, document, or instrument or certificate to be executed by MLP or
MLP Acquisition, in connection with the consummation of the transactions
contemplated by this Agreement (together with this Agreement, such agreements,
documents, instruments and certificates to be executed by MHC in connection with
the consummation of the transactions contemplated by this Agreement being, the
"MLP Documents"), to carry out its respective obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
MHC is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all necessary corporate power and
authority to enter into this Agreement and each of the MLP Documents to which it
is a party, to carry out its respective obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other MLP Documents by MLP and each of
the GP Entities, the performance by MLP and each of the GP Entities of its
respective obligations hereunder and the consummation by MLP and each of the GP
Entities of the transactions contemplated hereby and thereby have been duly
authorized by all requisite partnership or corporate action, as the case may be,
on the part of MLP, its partners and each of the GP Entities, respectively.
This Agreement has been, and each of the other MLP Documents at the Closing will
be, duly executed
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and delivered by MLP and each of the GP Entities, respectively, and (assuming
due authorization, execution and delivery hereof and thereof by each of the
parties hereto and thereto other than MLP and the GP Entities) this Agreement
constitutes, and each of the other MLP Documents when so executed and delivered
will constitute, the legal, valid and binding obligations of MLP and each of the
GP Entities, respectively, enforceable against each of them in accordance with
their respective terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally and subject, as to enforceability, to the
effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). MLP and each
of its Subsidiaries is duly qualified to do business, and is in good standing,
in each jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
except for where the failure to be so qualified would not have a Material
Adverse Effect. Muzak Capital Corporation ("Capital Corp.") is a wholly-owned
Subsidiary of MLP and is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. MLP Environmental Music,
LLC is a wholly owned Subsidiary of MLP and is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Washington. Except as set forth in Section 3.1 of the Disclosure Schedule, (i)
MLP has no Subsidiaries and no shares of capital stock or other equity
securities of, or loans to (other than extensions of credit in the ordinary
course of business) any other Person and (ii) Capital Corp. owns no material
assets and has no material liabilities (other than as co-issuer of the Senior
Notes). None of the assets of netValue Holdings Inc. or (except for the shared
T1 line subject to the Administrative Services Agreement between MLP and EAIC
Corp.) EAIC Corp. are used in the business of MLP.
SECTION 3.2. No Conflict. Except as set forth in Section 3.2 of the
-----------
Disclosure Schedule, assuming all consents, approvals, authorizations and other
actions described in Section 3.3 or under the agreements set forth in Section
3.3 of the Disclosure Schedule shall have been obtained, the execution, delivery
and performance of this Agreement and the other MLP Documents by MLP do not and
will not (i) violate or conflict with the Certificate of Limited Partnership or
the Partnership Agreement, (ii) conflict with or violate any material Law or
Governmental Order applicable to MLP or (iii) result in any breach of, or
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, or give to any Person any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Lien (except Permitted Liens) on any Units or on any assets of
MLP pursuant to, any note, bond, mortgage, indenture,
14
<PAGE>
contract, agreement, lease, license, permit, franchise or other material
instrument to which MLP or its Subsidiaries is a party or by which any of such
Units or the assets are bound or affected, except (1) for Liens created by or
through Parent or Sub or any of its Affiliates and (2) as would not reasonably
be expected to (A) have, individually or in the aggregate, a Material Adverse
Effect or (B) materially impair the ability of MLP to consummate the
transactions as contemplated by this Agreement.
SECTION 3.3. Consents and Approvals. The execution and delivery of
----------------------
this Agreement and the other MLP Documents by MLP do not, and the performance of
this Agreement and the other MLP Documents by MLP will not, require any consent,
approval or authorization of, or declaration or filing with, or notification to,
any Governmental Entity in connection with the execution and delivery of this
Agreement or any of the other MLP Documents by MLP or the consummation by MLP of
the transactions contemplated hereby and thereby, except for (i) the filing of
premerger notification and report forms under the HSR Act with respect to the
Merger, (ii) the filing with the SEC of such reports under the Exchange Act, as
may be required in connection with this Agreement or the other MLP Documents and
the transactions contemplated hereby and thereby, (iii) the filing of the
Certificate of Merger with the Delaware Secretary of State and the appropriate
notification documentation with the relevant authorities of other states in
which MLP is qualified to do business, (iv) such other consents, approvals,
authorizations, filings or notices as are set forth in Section 3.3 of the
Disclosure Schedule, (v) any applicable filings under state anti-takeover laws
and (vi) any other filings, authorizations, consents or approvals the failure to
make or obtain which, in the aggregate, would not reasonably be expected to have
a Material Adverse Effect. No general or limited partner of MLP has or will
have any appraisal or dissenters rights pursuant to Section 17-212 of the
Delaware RULPA, the Partnership Agreement or otherwise as a result of the
execution and delivery of this Agreement by MLP or any of the GP Entities or the
consummation of the Merger.
SECTION 3.4. Capitalization. The capitalization of MLP immediately
--------------
prior to the Effective Time is as set forth in Section 3.4 of the Disclosure
Schedule. Except as set forth in Section 3.4 of the Disclosure Schedule and
except for the Options, there is no existing option, warrant, call, right,
commitment or other agreement to which MLP is a party requiring, and there is no
partnership interest of MLP outstanding which upon conversion or exchange would
require, the issuance or transfer of any additional interests or other
securities of MLP or other securities convertible into, exchangeable for or
evidencing the right to subscribe for or purchase, a partnership interest in
MLP.
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SECTION 3.5. Partnership Agreement. MLP has delivered to Parent a
---------------------
true and correct copy of the Partnership Agreement.
SECTION 3.6. SEC Documents. (i) MLP has filed with the SEC all
-------------
reports, schedules, forms, statements and other documents required to be filed
by MLP under the Exchange Act since October 2, 1996 (such reports, schedules,
forms, statements and other documents are hereinafter referred to as the "SEC
Documents"); and (ii) as of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to such SEC
Documents.
SECTION 3.7. Financial Statements.
--------------------
(a) Except as set forth in Section 3.7 of the Disclosure
Schedule, the audited consolidated balance sheets of MLP as at December 31,
1997, December 31, 1996 and December 31, 1995 and the related audited statements
of income, partners' interests and cash flows of MLP for the years then ended,
together with the notes related thereto, included in the SEC Documents have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and present
fairly in all material respects the consolidated financial position of MLP as at
the dates thereof and the consolidated results of its operations and cash flows
for the periods then ended.
(b) Except as set forth in Section 3.7 of the Disclosure
Schedule, the unaudited condensed consolidated balance sheet of MLP as at
September 30, 1998 (the "Balance Sheet") and the related unaudited condensed
consolidated statements of income and cash flows of MLP for the nine months then
ended, together with the notes thereto included in the SEC Documents, have been
prepared in accordance with GAAP for interim financial information applied on a
consistent basis during such interim period (except as may be indicated in the
notes thereto) and, subject to normal year-end audit adjustments (which, in the
aggregate, will not be material), in all material respects present fairly the
consolidated financial position of MLP as at the date thereof and the
consolidated results of its operations and cash flows for the period then ended.
September 30, 1998 is referred to herein as the "Balance Sheet Date."
SECTION 3.8. Absence of Certain Changes or Events. For the period
------------------------------------
commencing on October 1, 1998 and ending on the date hereof, except as disclosed
in Section 3.8 of the Disclosure Schedule or as contemplated by this Agreement,
MLP and each of its Subsidiaries has conducted its business in the ordinary
16
<PAGE>
course consistent with past practice, there has not occurred any event which
would reasonably be expected to have a Material Adverse Effect and neither MLP
nor any of its Subsidiaries has done any of the following during the period
commencing on October 1, 1998 and ending as of the date hereof:
(i) issued any notes, bonds or other debt securities or any
Units or other equity securities or any securities convertible, exchangeable or
exercisable into any Units or other equity securities except upon the exercise
or extinguishment of Options;
(ii) except for indebtedness under the Foothill Facility,
incurred any indebtedness for borrowed money, individually or in the aggregate,
in excess of $100,000, except such indebtedness incurred in the ordinary course
of business consistent with past practice;
(iii) granted any Lien on any material asset (whether tangible
or intangible) other than Permitted Liens or Liens securing Funded Indebtedness;
(iv) established or materially increased any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, option
(including the granting of options or performance awards) or other employee
benefit plan, or otherwise materially increased the compensation payable to or
to become payable to any key employee, except in the ordinary course of business
consistent with past practice or as may be required by law or applicable
employment agreement or collective bargaining agreement;
(v) entered into any employment or severance agreement with any
employee, other than any employment agreement entered into in the ordinary
course of business providing for compensation of not more than $50,000 per annum
and not providing any material severance benefits or other payment or benefit
after the termination of employment thereunder except as required by Law;
(vi) (A) declared, set aside or pay any distributions (whether
in cash, equity securities, partnership interests or other property) in respect
of its partnership interests or equity securities; (B) redeemed, purchased or
otherwise acquired any of its partnership interests or equity securities or any
other securities or obligations convertible into or exercisable or exchangeable
for partnership interests or equity securities; or (C) sold, assigned,
transferred, leased or otherwise disposed of any assets other than the sale of
inventory in the ordinary course of business and the sale or other
17
<PAGE>
disposition or replacement of used or obsolete equipment in the ordinary course
of business;
(vii) (A) acquired (by merger, consolidation, acquisition of
stock or assets or otherwise) any corporation, partnership or other business
organization or division thereof or material assets outside the ordinary course
of business, or (B) assumed, granted, guaranteed or endorsed, or otherwise as an
accommodation become responsible for, the obligations of any Person (other than
MLP and its Subsidiaries), or made any loans, advances (other than advances of
expenses to employees in the ordinary course of business) or distributions of
cash (other than by any Subsidiary of MLP to MLP);
(viii) except as required by law or changes required by GAAP,
materially changed any method of accounting used by MLP or its Subsidiaries;
(ix) amended the Certificate of Limited Partnership,
Partnership Agreement, or other constitutive documents of MLP or any of its
Subsidiaries in any respect materially adverse to MLP, Parent or Sub;
(x) except in the ordinary course of business consistent with
past practice, amended any Material Contract (as hereinafter defined), or any
material portion of any existing contract or agreement of MLP or any of its
Subsidiaries, in any respect materially adverse to MLP, Parent or Sub;
(xi) except in the ordinary course of business consistent with
past practice, taken any action with the intention of causing a material
slowdown in sales or reduction in capital expenditures, including under the 1998
capital expenditure plan set forth in Section 5.1(b)(x) of the Disclosure
Schedule;
(xii) except (A) for the furnishing of credit support
arrangements in connection with the Foothill Facility and (B) as contemplated in
this Agreement, entered into any transaction with an Affiliate or partner of
MLP;
(xiii) amended any Tax Return or settled any material controversy
with respect to Taxes;
(xiv) suffered any damage, destruction or casualty loss
exceeding in the aggregate $100,000, except for any damage or losses covered by
insurance;
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(xv) sold, assigned, licensed or transferred any material
Intellectual Property; or
(xvi) entered into any settlement or other agreement with BMI or
any material agreement with EAIC Corp. (including any amendment to any existing
agreement).
SECTION 3.9. Absence of Litigation. Except as set forth in Section
---------------------
3.9 of the Disclosure Schedule, there are no actions, suits or proceedings, to
which MLP or any of its Subsidiaries is a party before any court or
administrative agency of any federal, state or local jurisdiction, or any
arbitrator or other widely-recognized dispute-resolving entity pending, or, to
the knowledge of MLP, threatened in writing against MLP or any of its
Subsidiaries, that (i) would materially impair the ability of MLP to consummate
the Merger as contemplated by this Agreement or (ii) could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 3.10. Compliance with Laws. Neither MLP nor any of its
--------------------
Subsidiaries is in violation of any Law applicable to its business, or by which
it is bound, and neither MLP or any of its Subsidiaries has received notice of
any such violation, except for violations the existence of which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 3.11. Governmental Licenses and Permits. Except as set forth
---------------------------------
in Section 3.11 of the Disclosure Schedule, MLP holds all governmental
qualifications, registrations, filings, privileges, franchises, licenses,
permits, approvals or authorizations material to, or necessary for, the
operation of its business as currently operated by it, except for such failures
as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
SECTION 3.12. Intellectual Property. (a) Section 3.12 (a) of the
---------------------
Disclosure Schedule lists as of the date hereof (i) all United States and
foreign patents, trademarks and service marks and applications and registrations
therefor, material copyrights and registrations and applications therefor owned
or licensed by MLP and each of its Subsidiaries which are material to, or
necessary for, the conduct of the business of MLP and each of its Subsidiaries;
(ii) all licenses granted to or by MLP or any of its Subsidiaries pursuant to
written agreements pertaining to Intellectual Property which are material to, or
necessary for, the conduct of the business of MLP and each of its Subsidiaries;
(iii) all material computer software owned and/or used in the business
19
<PAGE>
of MLP and its Subsidiaries (excluding in any event mass-marketed software with
individual license fees of less than $1,000); (iv) all written collaboration,
development and settlement agreements pertaining to Intellectual Property which
are material to, or necessary for, the conduct of the business of MLP and each
of its Subsidiaries; and (iv) all suits, actions, proceedings (including,
without limitation, infringement, misappropriation, interference, opposition,
revocation, cancellation and conflict proceedings) and written claims presently
pending or, to the knowledge of MLP, threatened, and all final orders,
injunctions, judgments, writs, edicts, awards and decrees presently outstanding,
pertaining to any Intellectual Property that is either (A) described in Section
3.12(a) to the Disclosure Schedule, or (B) owned by any third Person and
asserted against MLP or any of its Subsidiaries.
(b) Except as set forth in Section 3.12(b) of the Disclosure
Schedule: (i) MLP and each of its Subsidiaries owns and possesses all right,
title and interest in and to, or has a valid and enforceable license to use,
free and clear of all Liens (except Permitted Liens), all of the Intellectual
Property described in Section 3.12(a) of the Disclosure Schedule that is
necessary for the operation of the business of MLP and each of its Subsidiaries
as currently conducted; (ii) to MLP's knowledge, all of the Intellectual
Property described in Section 3.12(a) of the Disclosure Schedule is valid and
enforceable and is not subject to any challenge by any third party, pending or
to MLP's knowledge overtly threatened, except as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect; (iii)
to MLP's knowledge, MLP and each of its Subsidiaries have not infringed or
misappropriated, and the operation of the business of MLP and each of its
Subsidiaries as currently conducted does not infringe or misappropriate any
Intellectual Property rights of any Person, and there have been no claims made
and neither MLP nor its Subsidiaries has received any written notice concerning
its infringement or misappropriation of any Intellectual Property rights of any
third Person, in any case that could reasonably be expected to have a Material
Adverse Effect; (iv) to MLP's knowledge, no third Person has infringed or
misappropriated any of the Intellectual Property described in Section 3.12(a) of
the Disclosure Schedule and neither MLP nor its Subsidiaries has received any
notice concerning any infringement, misappropriation or conflict by any third
Person with the Intellectual Property required to be described in Section
3.12(a) of the Disclosure Schedule, in any case that could reasonably be
expected to have a Material Adverse Effect; and (v) with respect to all material
agreements entered into by MLP or any of its Subsidiaries pertaining to
Intellectual Property, MLP and its Subsidiaries and, to the knowledge of MLP,
each of the other parties thereto have performed, in all material respects, all
obligations under each such agreement which are required to be performed by such
party, there is no default thereunder, and, to the knowledge of
20
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MLP, each such agreement is enforceable against MLP and its Subsidiaries and, to
the knowledge of MLP, each party thereto in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), in each case except as could not reasonably be
expected to have a Material Adverse Effect.
SECTION 3.13. Employee Benefits Matters. Section 3.13 of the
-------------------------
Disclosure Schedule lists all the employee benefit plans (as that phrase is
defined in Section 3(3) of ERISA) and any other material benefit or compensation
plan, program or arrangement maintained or contributed to by MLP or any of its
Subsidiaries or with respect to which MLP or any of its Subsidiaries has any
liability to since January 1, 1998 for the benefit of any current or former
employee, officer or general partner of MLP or any of its Subsidiaries (the
"Benefit Plans"). Except as set forth in Section 3.13 of the Disclosure Schedule
or as would not, individually, or in the aggregate, reasonably be expected to
have a Material Adverse Effect:
(i) none of the Benefit Plans is a "multiemployer plan" within
the meaning of Section 3(37) of ERISA or is subject to Title IV of
ERISA;
(ii) none of the Benefit Plans (other than a multiemployer plan)
promises or provides retiree medical or life insurance benefits
coverage to any Person other than as required under Section 4980B of
the Code;
(iii) none of the Benefit Plans (other than a multiemployer plan)
provides for payment of a benefit, the increase of a benefit amount,
the payment of a contingent benefit, or the acceleration of the
payment or vesting of a benefit by reason of the execution of this
Agreement or the other MLP Documents or the consummation of the
transactions contemplated hereby or thereby;
(iv) each Benefit Plan (other than a multiemployer plan)
intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter from the IRS that it is so qualified
and nothing has occurred since the date of such letter that could
reasonably be expected to affect the qualified status of such Benefit
Plan;
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(v) each Benefit Plan (other than a multiemployer plan) has
been maintained in form and operation in all material respects in
accordance with its terms and the requirements of applicable Law;
(vi) MLP has not incurred any liability that remains
unsatisfied under, arising out of or by operation of Title IV of ERISA
in connection with the termination of, or withdrawal from, any benefit
plan (as that phrase is defined in Section 3(3) of ERISA) or other
retirement plan or arrangement that MLP or any of its Subsidiaries or
any other entity that, together with MLP or any of its Subsidiaries,
is treated as a single employer under Section 414 of the Code,
maintains, contributes to or has an obligation to contribute to, or to
which any of them within six (6) years prior to the date of this
Agreement contributed or had an obligation to contribute;
(vii) all contributions, premiums or payments under or with
respect to a Benefit Plan which are due on or before the Closing Date
have been timely paid as of such date;
(viii) there are no actions, suits or claims (other than routine
claims for benefits) pending or threatened involving any Benefit Plan
or the assets thereof; and
(ix) no liability exists with respect to any multiemployer plan
(as such term is defined under Section 3(37) of ERISA) which has
arisen as a result of the failure of MLP or any of its Subsidiaries to
make required contributions to any multiemployer plan.
SECTION 3.14. Taxes.
-----
(a) MLP and each of its Subsidiaries has timely filed, or will
timely file, all material Tax Returns required to be filed by it with respect to
Taxes for any period ending on or before the Closing. All such Tax Returns were
(or will be) true and correct in all material respects. All Taxes shown to be
payable on such Tax Returns have been (or will be) paid.
(b) Except as set forth in Section 3.14(b) of the Disclosure
Schedule, all material deficiencies asserted or material assessments made as a
result of any examinations by the Internal Revenue Service or any other taxing
authority of the
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<PAGE>
material Tax Returns required to be filed by MLP or any of its Subsidiaries have
been fully paid, and there are no other pending audits, or to the knowledge of
MLP, pending investigations by any taxing authority, nor has MLP or any of its
Subsidiaries received any notice from any taxing authority that it intends to
conduct such an audit or investigation.
(c) Except as set forth in Section 3.14(c) of the Disclosure
Schedule, neither MLP nor any of its Subsidiaries is a party to any material tax
sharing or similar agreement or arrangement or any material tax indemnification
or similar arrangement.
(d) Except as set forth in Section 3.14(d) of the Disclosure
Schedule, to MLP's knowledge, no claim has ever been made by an authority in a
jurisdiction where MLP or any of its Subsidiaries does not currently file Tax
Returns that the entity so not filing is or may be subject to taxation by or a
filing requirement in that jurisdiction.
(e) None of the assets of MLP and its Subsidiaries are subject
to any Liens for Taxes, other than Permitted Liens.
(f) Except as set forth in Section 3.14(f) of the Disclosure
Schedule, neither MLP nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(g) MLP is (and, during its entire existence, has been) properly
classified as a partnership for federal income tax purposes. All Tax Returns
have been filed consistent with such classification.
(h) No Subsidiary of MLP (i) has filed a consent under Section
341(f) of the Code concerning collapsible corporations or (ii) has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code.
(i) None of MLP nor any of its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Section 280G of the Code.
23
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(j) Neither MLP nor any of its Subsidiaries will be required to
make an adjustment to taxable income under Section 481 of the Code (or any
similar provision of state, local, or foreign law) for any period ending on or
after the Closing Date by reason of a voluntary change in accounting method
initiated by it and neither the Internal Revenue Service nor any other
governmental authority has initiated or proposed any such change in accounting
method.
(k) No Subsidiary of MLP (i) is a "controlled foreign
corporation" within the meaning of Section 957 of the Code or (ii) has been a
member of an affiliated group filing a consolidated federal income Tax Return.
(l) Neither MLP nor any of its Subsidiaries owns an interest in
an entity either treated as a partnership or whose separate existence is ignored
for federal income tax purposes.
SECTION 3.15. Real Property.
-------------
(a) Section 3.15(a) of the Disclosure Schedule lists by street
address (i) all real estate leased, subleased or otherwise occupied pursuant to
a written agreement (the "Leases") by MLP or any of its Subsidiaries (each, a
"Leased Property" and collectively, the "Leased Properties") or (ii) owned in
fee by MLP or any of its Subsidiaries (each, an "Owned Property" and
collectively, the "Owned Properties," and collectively with the Leased
Properties, the "Real Property"). Each of the Leased Properties is leased to MLP
or one of its Subsidiaries pursuant to a written lease, copies of which have
been made available to Parent prior to the date hereof. With respect to each
Lease: (A) MLP or the applicable Subsidiary has a good and valid leasehold
interest in and to the applicable Leased Property, subject to no Liens, except
for Permitted Liens; (B) each Lease is in full force and effect and is
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity), and none of
MLP or any of its Subsidiaries has assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in such Lease, except for Permitted
Liens; and (iii) MLP has received no notice of any material default or, to the
knowledge of MLP, any condition exists which, with the giving of notice, the
passage of time or both, would reasonably be expected to result in a material
default under any Lease, except, in case of clauses (i), (ii) and (iii) above,
as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. There are no outstanding options or rights of first
refusal to
24
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purchase the Owned Property or any portion thereof or interest therein. MLP or
one of its Subsidiaries has good and insurable title in and to the Owned
Property, free and clear of all Liens other than Permitted Liens.
(b) The Real Property constitutes all of the real property
owned, leased, or otherwise utilized in connection with the business of MLP and
its Subsidiaries. Except as set forth in Section 3.15(b) of the Disclosure
Schedule, other than MLP and its Subsidiaries, there are no parties in
possession or parties having any current or future right to occupy any of the
Real Property, except under or pursuant to Permitted Liens or as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. To MLP's knowledge, there exists no violation of any material
covenant, condition, restriction, easement, agreement or order affecting any
portion of the Real Property that would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. All facilities located
on the Real Property are supplied with adequate utilities and other services
necessary for the current operation of such facilities. There is no pending or,
to the knowledge of MLP, any threatened condemnation proceeding, or material
lawsuit or administrative action affecting any portion of the Real Property that
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
SECTION 3.16. Environmental Matters.
---------------------
(a) Except as disclosed in Section 3.16 of the Disclosure
Schedule, MLP and each of its Subsidiaries is in compliance with all
Environmental Laws and has obtained and is in compliance with all governmental
permits, licenses, orders, consents and approvals required under such
Environmental Laws and necessary for MLP to conduct its business as currently
conducted, except for such non-compliance as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Since January 1, 1996, neither MLP nor its Subsidiaries have
received any written notice from a Governmental Entity alleging that MLP is in
violation in any material respect of any Environmental Law, or any permit issued
pursuant to any Environmental Law.
(c) To the knowledge of MLP, MLP and its Subsidiaries have no
contingent liability in connection with any Release of any Hazardous Materials
into the environment.
25
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(d) No investigations or judicial or administrative proceedings
are pending with any Governmental Entity or, to the knowledge of MLP, overtly
threatened (including with respect to the business, operations or current or
previously owned, operated or leased real property of MLP and its Subsidiaries)
which would, individually or in the aggregate, reasonably be expected to result
in the imposition of any material liability under any Environmental Law.
(e) Except as set forth in Section 3.16(e) of the Disclosure
Schedule, there is not located at any Owned Property to the knowledge of MLP,
any (i) underground storage tank, (ii) friable asbestos-containing material or
(iii) equipment containing polychlorinated biphenyls.
SECTION 3.17. Material Contracts.
------------------
(a) Except as expressly provided in this Section 3.17(a),
Section 3.17 of the Disclosure Schedule lists each of the following contracts
and agreements of MLP and its Subsidiaries (such contracts being "Material
Contracts") as of the date hereof:
(i) all contracts and agreements for the purchase or lease
of inventory, other materials or real or personal property for the
furnishing of services under the terms of which: (A) MLP or any of its
Subsidiaries (I) has paid or is likely to pay consideration of more
than $100,000 in the aggregate during any twelve-month period which
includes the date hereof and the Closing Date, or (II) is likely to
pay or otherwise give consideration of more than $100,000 in the
aggregate over the remaining term of such contract and (B) cannot be
cancelled by MLP or any of its Subsidiaries without penalty or further
payment or without more than ninety (90) days' notice;
(ii) all contracts and agreements for the sale or lease of
inventory or other personal or real property or for the furnishing of
services of MLP or any of its Subsidiaries which: (A)(I) are likely to
involve consideration of more than $100,000 in the aggregate during
the twelve-month period immediately preceding the date hereof, or (II)
are likely to involve consideration of more than $100,000 in the
aggregate over the remaining term of the contract and (B) cannot be
cancelled by MLP or any of its Subsidiaries without penalty or further
payment or without more than ninety (90) days' notice (provided that
such contracts
26
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and agreements for the furnishing of services of MLP or any of its
subsidiaries which have been entered into in the ordinary course of
business, consistent with past practice need not be disclosed on
Section 3.17 of the Disclosure Schedule but shall be deemed "Material
Contracts" for all purposes of this Agreement);
(iii) all contracts and agreements relating to
indebtedness for borrowed money of MLP or any of its Subsidiaries in
excess of $100,000;
(iv) all contracts and agreements that limit or purport
to limit the ability of MLP or any of its Subsidiaries (insofar as it
relates to any business) to compete in any line of business or with
any Person or in any geographic area or during any period of time
after the date hereof;
(v) all contracts and agreements relating to the
acquisition by MLP or any of its Subsidiaries of any operating
business, the capital stock or all or substantially all of the assets
of any Person since January 1, 1998;
(vi) all contracts and agreements with any director,
officer or employee of MLP or any of its Subsidiaries (including any
involving employment or severance) in excess of $100,000 or with any
union or other employee representative;
(vii) all contracts and agreements containing any
guarantee granted by MLP or any of its Subsidiaries in excess of
$100,000;
(viii) all joint venture agreements; and
(ix) any other contract or agreement involving the
receipt or expenditure of more than $500,000 in the aggregate or
$200,000 annually.
(b) Each Material Contract is binding on MLP and, to MLP's
knowledge, on the other party thereto, and, to MLP's knowledge, is in full force
and effect and is enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether
27
<PAGE>
enforcement is sought in a proceeding at law or in equity) and except as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Neither MLP nor any of its Subsidiaries is in default under any
Material Contract, and no event has occurred that with the passage of time or
the giving of notice or both would constitute a default by MLP or the applicable
Subsidiary, as the case may be, under any provision thereof, and to MLP's
knowledge, each party other than MLP or its Subsidiaries party to any of the
Material Contracts has complied with the material provisions of the Material
Contracts, is not in material default under any of the terms thereof, and no
event has occurred that with the passage of time or the giving of notice or both
would constitute a default by any such other party under any provision thereof,
in any case that this could reasonably be expected to have a Material Adverse
Effect. Neither MLP nor any of its Subsidiaries has (i) received any written
notice of termination with respect to any of the Material Contracts, (ii)
assigned any of its material rights or material obligations under any of the
Material Contracts or (iii) waived any of its material rights in writing under
any of the Material Contracts. True and complete copies of all written Material
Contracts (along with any amendments thereto) have been made available to Parent
prior to the date hereof.
SECTION 3.18. Voting Requirements. No vote or approval of any holder
-------------------
of any class of partnership interest of MLP is necessary to approve this
Agreement, the other MLP Documents, the Merger or the consummation of the
transactions contemplated hereby or thereby, except as shall have been obtained
prior to the date hereof.
SECTION 3.19. No Undisclosed Liabilities. Except as set forth in
--------------------------
Section 3.19 of the Disclosure Schedule, none of MLP or any of its Subsidiaries
has any indebtedness, obligations or liabilities of any kind (whether accrued,
absolute or contingent) that would be required to be reflected in or described
in the footnotes to a balance sheet of MLP prepared in accordance with GAAP
which was not either (i) reflected in or described in the footnotes to the
September 30, 1998 consolidated balance sheet of MLP, (ii) incurred in the
ordinary course of business consistent with past practice since September 30,
1998, or (iii) otherwise disclosed in this Agreement or any Sections of the
Disclosure Schedule.
SECTION 3.20. Tangible Personal Property. MLP or its Subsidiaries
--------------------------
has good title to, or holds by valid and existing lease or license, free and
clear of all Liens other than Permitted Liens, all items of tangible personal
property reflected on the Balance Sheet or currently used the business of MLP
and its Subsidiaries (except in each case such tangible personal property sold
or disposed of
28
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subsequent to the date thereof in the ordinary course of business consistent
with past practice).
SECTION 3.21. Powers of Attorney. Neither MLP nor any of its
------------------
Subsidiaries has granted any power of attorney to any Person.
SECTION 3.22. Transactions with Affiliates. Except as set forth on
----------------------------
Section 3.22 of the Disclosure Schedule, (a) neither MLP nor any of its
Subsidiaries is a party to any Material Contract with any of its Affiliates, and
(b) no Affiliate of MLP or any of its Subsidiaries (other than MLP and its
Subsidiaries) owns any material asset, property, or right, tangible or
intangible, that is used in MLP's or any of its Subsidiaries' business as
currently conducted.
SECTION 3.23. Insurance. Section 3.23 of the Disclosure Schedule
---------
sets forth a list of all policies of fire, liability, product liability,
worker's compensation and other forms of liability and casualty insurance,
including self-insurance programs, currently in effect with respect to MLP and
its Subsidiaries and their respective businesses and assets involving coverage
amounts in excess of $100,000 in any given year. To MLP's knowledge, neither
MLP nor any of its Subsidiaries is in default with respect to its material
obligations under any such insurance policy.
SECTION 3.24. Labor Matters. Except as set forth in Section 3.24(a)
-------------
of the Disclosure Schedule, neither MLP or any of its Subsidiaries is a party of
any labor union or collective bargaining agreement. Except as set forth in
3.24(b) of the Disclosure Schedule, neither MLP nor any of its Subsidiaries is a
party to any pending, or to MLP's knowledge, threatened, labor action,
arbitration, lawsuit or administrative proceeding relating to labor matters
involving the employees of MLP or any of its Subsidiaries (excluding routine
workers' compensation claims), which, if adversely determined would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. With respect to MLP and its Subsidiaries, any notice to any
employee representative pursuant to the WARN Act or any currently effective
collective bargaining agreement has been given, and all employer bargaining
obligations have been, or prior to the Effective Time will be, satisfied except
where the failure to give such notice or satisfy such obligations could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.25. Brokers. Except for fees and commissions which will be
-------
paid by MHC to Donaldson, Lufkin & Jenrette Securities Corporation, no
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<PAGE>
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement or the other MLP Documents based upon arrangements made by or on
behalf of MLP or any partner thereof.
SECTION 3.26. EXCLUSIVITY OF REPRESENTATIONS. THE REPRESENTATIONS
------------------------------
AND WARRANTIES MADE BY MLP IN THIS AGREEMENT ARE IN LIEU OF AND ARE EXCLUSIVE OF
ALL OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTIES. MLP HEREBY DISCLAIMS ANY SUCH OTHER OR IMPLIED
REPRESENTATIONS OR WARRANTIES, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE
PARENT OR THE SUB OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION (INCLUDING ANY
FINANCIAL PROJECTIONS OR OTHER SUPPLEMENTAL DATA).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB
Parent and Sub, jointly and severally, represent and warrant to MLP as
follows:
SECTION 4.1. Incorporation and Authority. Each of Parent and Sub is
---------------------------
a limited liability company, duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary limited
liability company power and authority to own, lease and operate its properties
and to carry on its business as currently conducted, and to enter into this
Agreement and each other agreement, document, instrument or certificate to be
executed by Parent or Sub in connection with the consummation of the
transactions contemplated by this Agreement (together with this Agreement, such
agreements, documents, instruments and certificates being, the "Purchaser
Documents"), to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the other Purchaser Documents by each of Parent
and Sub, the performance by each of Parent and Sub of its obligations hereunder
and thereunder and the consummation by each of Parent and Sub of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite limited
30
<PAGE>
liability company action on the part of Parent, its members and Sub. This
Agreement has been, and each of the other Purchaser Documents at Closing will
be, duly executed and delivered by each of Parent and Sub, and (assuming due
authorization, execution and delivery by each of the parties hereto and thereto
other than Parent and Sub) this Agreement constitutes, and each of the other
Purchaser Documents when so executed and delivered will constitute, legal, valid
and binding obligations of Parent and Sub enforceable against Parent and Sub in
accordance with their respective terms, subject to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Each of Parent and Sub is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
operated or leased or the nature of its activities makes such qualification
necessary, except for where the failure to be so qualified would not have a
Material Adverse Effect with respect to Parent or Sub. Parent owns beneficially
and of record all of the outstanding membership interests in Sub. As of the date
hereof, (i) Parent has no material assets and has no material liabilities (other
than its ownership of membership interests in Sub and capital stock of ACN
Holdings, Inc., a Delaware corporation) and (ii) Sub has no Subsidiaries or
shares of capital stock or other equity securities of any Person (other than
Sub's ownership of capital stock of Business Sound, Inc., an Ohio corporation).
SECTION 4.2. No Conflict. The execution, delivery and performance
-----------
of this Agreement and the other Purchaser Documents by Parent and Sub do not and
will not (a) violate or conflict with the certificate of formation, limited
liability company agreement, members agreement or other constitutive documents
of Parent or Sub, (b) conflict with or violate any Law or Governmental Order
applicable to Parent or Sub or (c) conflict with, violate, result in any breach
of, or constitute a default (or event which with the giving of notice or lapse
of time, or both, would become a default) under, or give to any Person any right
of termination, amendment, acceleration or cancellation of, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other material instrument to which Parent or Sub is a party, except as would not
reasonably be expected to (A) have a Material Adverse Effect with respect to
Parent or Sub, or (B) materially impair the ability of Parent and Sub to
consummate the Merger and the other transactions contemplated by this Agreement
and the other Purchaser Documents in accordance with the terms hereof and
thereof.
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SECTION 4.3. Consents and Approvals. The execution and delivery of
----------------------
this Agreement and the other Purchaser Documents by Parent and Sub do not, and
the performance of this Agreement and the other Purchaser Documents by Parent
and Sub will not, require any consent, approval or authorization of, or
declaration or filing with, or notice to, any Governmental Entity in connection
with the execution and delivery of this Agreement or any of the other Purchaser
Documents by Parent or Sub or the consummation by Parent or Sub, as the case may
be, of any of the transactions contemplated by this Agreement or any of the
other Purchaser Documents, except for (i) the filing of premerger notification
and report forms under the HSR Act with respect to the Merger, (ii) the filing
with the SEC of such reports under the Exchange Act as may be required in
connection with this Agreement or any of the other Purchaser Documents and the
transactions contemplated hereby and thereby, (iii) the filing of the
Certificate of Merger with the Delaware Secretary of State, and appropriate
notification documentation with the relevant authorities of other states in
which MLP or Sub is qualified to do business, (iv) such other consents,
approvals, authorizations, filings or notices as are set forth in Section 3.3 of
the Disclosure Schedule, (v) any applicable filings under state anti-takeover
laws, and (vi) any other filings, authorizations, consents or approvals, the
failure to make or obtain which, in the aggregate, would not reasonably be
expected to (A) a Material Adverse Effect with respect to Parent or Sub, or (B)
materially impair the ability of Parent and Sub to consummate the Merger and the
other transactions contemplated by this Agreement and any of the other Purchaser
Documents.
SECTION 4.4. Capitalization. The capitalization of Parent
--------------
immediately after the Effective Time shall be as set forth on Schedule B of the
Amended Parent LLC Agreement. Except as expressly provided in this Agreement
and except for the ACN LLC Documents (as herein defined), as of the date hereof,
there is no existing option, warrant, call, right, commitment or other agreement
to which Parent or Sub is a party requiring, and there is no membership interest
or other equity security of Parent outstanding which upon conversion or exchange
would require, the issuance by Parent or Sub of any additional membership
interests or other equity securities of Parent or Sub or other securities
convertible into, exchangeable for or evidencing the right to subscribe for or
purchase, a membership interest or other equity security of Parent or Sub.
SECTION 4.5. Financial Statements. The parties acknowledge that the
--------------------
balance sheets at October 6, 1998 and November 30, 1998 of Sub have not been
completed, and, therefore, have not been furnished to MLP and the GP Entities.
Parent has furnished to MLP and the GP Entities an unaudited statement of
operations
32
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of Sub for the period from October 6, 1998 through November 30, 1998. Management
of Sub believes that this statement has been prepared, in all material respects,
in accordance with GAAP, except for (a) year-end audit adjustments, (b) for
potential effects of conforming accounting policies as a result of the
consummation of the transactions contemplated by this Agreement, (c) that such
statement excludes any charges related to depreciation and amortization of
tangible and intangible assets and (d) that such statement excludes interest
expense for borrowed money.
SECTION 4.6. Absence of Certain Changes or Events. Parent and Sub
------------------------------------
were organized for the purpose of acquiring the assets formerly of Audio
Communications Network, Inc. and its Subsidiaries pursuant to the terms and
conditions of the Asset Purchase Agreement dated as of October 6, 1998 (the "ACN
Purchase Agreement") between Sub and DMA Holdings Statutory Trust (the "ACN
Seller"), and prior to the consummation of such acquisition neither Parent nor
Sub were engaged in any other business or operating activities. Since October
6, 1998, to Parent's and Sub's knowledge as of the date hereof, there has not
occurred any event that could reasonably be expected to have a Material Adverse
Effect with respect to Parent or Sub. Since October 6, 1998, neither Parent nor
Sub has done any of the following:
(i) (1) declared, set aside or paid any distributions (whether in cash,
equity securities or other property) in respect of its membership
interests or other equity securities; or (2) except from current or
former employees of Parent or Sub, redeemed, purchased or otherwise
acquired any of its membership interests or other equity securities;
or
(ii) except as set forth on Schedule 4.6 or as contemplated by this
Agreement, entered into any material transaction with ABRY Broadcast
Partners III, L.P., its partners or employees or any of their
respective Affiliates (other than David Unger, Joseph Koff, Parent or
any of Parent's Subsidiaries).
SECTION 4.7. Voting Requirements. No vote of the holders of the
-------------------
membership interests or other equity securities of any class or series of Parent
is necessary to approve this Agreement, any of the other Purchaser Documents,
the Merger or to consummate the other transactions contemplated hereby or
thereby, except as shall have been obtained prior to the date hereof.
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SECTION 4.8. Absence of Litigation. No action is pending or, to the
---------------------
best knowledge of Parent and Sub, threatened before any Governmental Entity
which (i) seeks to delay or prevent the consummation of the Merger and the other
transactions contemplated hereby or (ii) (A) which would materially impair the
ability of Parent and Sub to consummate the Merger and the other transactions
contemplated by this Agreement or any of the other Purchaser Documents in
accordance with the terms hereof or thereof or (B) could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect with respect
to Parent or Sub.
SECTION 4.9. Taxes.
-----
(a) Each of Parent and Sub has timely filed, or will timely
file, all material Tax Returns required to be filed by it with respect to Taxes
for any period ending on or before the Closing. All such material Tax Returns
were (or will be) true and correct in all material respects. All Taxes shown to
be payable on such material Tax Returns have been (or will be) paid.
(b) Except as set forth on Schedule 4.9(b), as of the date
hereof, there are no pending audits or, to the knowledge of Parent and Sub
pending investigations by any taxing authority, nor has Parent or Sub received
any notice from any taxing authority that it intends to conduct such an audit or
investigation, in each case, which could reasonably be expected to have a
Material Adverse Effect with respect to Parent or Sub.
(c) Neither Parent nor Sub is a party to any material tax
sharing or similar agreement or arrangement.
(d) Parent is (and, during its entire existence, has been)
properly classified as a partnership for federal income tax purposes and Sub is
(and during its entire existence, has been) properly either classified as a
partnership or disregarded as a separate entity, in each case, for federal
income tax purposes. No federal Tax Return has been filed in any manner that is
inconsistent with such classification.
SECTION 4.10. Material Contracts.
------------------
(a) Except for the agreements listed on Schedule 4.10, this
Agreement and as contemplated by this Agreement (collectively, the "ACN LLC
34
<PAGE>
Documents"), as of the date hereof, there are no agreements or understandings
with respect to the voting, sale or transfer of any membership interests or
other equity securities of Parent or Sub to which Parent, Sub or, to the
knowledge of Parent or Sub, any member of Parent is a party.
(b) As of the date hereof, neither Parent nor Sub have received
notice of, nor to the knowledge of Parent or Sub as of the date hereof, has
there occurred, any material breach of any representation or warranty made by
the ACN Seller in or any default by the ACN Seller under the ACN Purchase
Agreement which breach or default could reasonably be expected to have a
Material Adverse Effect with respect to Parent or Sub. As of the date hereof,
there are no material claims or disputes pending between the ACN Seller and its
Affiliates, on the one hand, and Parent and Sub and their respective Affiliates,
on the other, with respect to the transactions consummated pursuant to the ACN
Purchase Agreement.
(c) True and complete copies of the ACN LLC Documents and the ACN
Purchase Agreement have been provided to the GP Entities, and, as of the date
hereof, neither Parent nor Sub have entered into or agreed to any amendment or
modification of or material waiver of rights under the ACN Purchase Agreement
or, except as expressly provided herein, the Parent LLC Documents.
SECTION 4.11. Financial Ability. Sub has received, and has delivered
-----------------
to MLP prior to the date hereof, a true, correct and complete copy of the
commitment letter from Goldman Sachs Credit Partners L.P., Canadian Imperial
Bank of Commerce and CIBC Oppenheimer Corp. (the "Senior Lenders") dated January
28, 1999 (the "Senior Debt Commitment Letter"), pursuant to which the Senior
Lenders have committed to provide to Sub up to $245,000,000 in financing for the
Merger, subject to the terms and conditions contained therein. At the Closing,
Sub shall have cash available sufficient to enable it to pay the remainder of
the cash portion of the Merger Consideration and to repay the Funded
Indebtedness as of the Closing in accordance with the terms and conditions set
forth in this Agreement. During the period beginning on October 6, 1998 and
ending as of immediately prior to the Closing, Parent shall have received at
least $45,000,000 in aggregate capital contributions in exchange for the
issuance of its Class A Units.
SECTION 4.12. Brokers. Except for fees and commissions which will be
-------
paid by Parent or Sub, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions
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<PAGE>
contemplated by this Agreement and any of the other Purchaser Documents based
upon arrangements made by or on behalf of Parent or Sub.
ARTICLE V
CERTAIN COVENANTS
SECTION 5.1. Conduct of Business Prior to the Closing. (a) Unless
----------------------------------------
Parent otherwise agrees in writing and except as otherwise expressly set forth
herein, between the date of this Agreement and the Effective Time, MLP shall,
and shall cause its Subsidiaries to, (i) carry on their respective businesses in
the ordinary course consistent with past practice, and (ii) use commercially
reasonable efforts to keep available the services of its key officers and
employees (except for retirements in the ordinary course) and preserve the good
will of those engaged in material business relationships with it; provided,
--------
however, that nothing herein shall require MLP to increase the compensation of,
- -------
or provide any other retention incentive to, any officer or employee beyond that
provided as of the date of this Agreement.
(b) Except as expressly provided in this Agreement between the
date of this Agreement and the Effective Time, MLP will not and will not permit
any of its Subsidiaries to, do any of the following without the prior written
consent of Parent (which consent shall not be unreasonably withheld):
(i) grant any Lien on any material asset (whether tangible
or intangible) other than Permitted Liens or Liens securing Funded
Indebtedness;
(ii) establish or materially increase any bonus,
insurance, severance, deferred compensation, pension, retirement,
profit sharing, option (including the granting of options or
performance awards) or other employee benefit plan, or otherwise
materially increase the compensation payable to or to become payable
to any key employee, except in the ordinary course of business
consistent with past practice or as may be required by law or
applicable employment agreement or collective bargaining agreement;
(iii) enter into any employment or severance agreement with
any employee or any collective bargaining agreement other than any
36
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employment agreement entered into in the ordinary course of business
providing for compensation of not more than $50,000 per annum and not
providing any material severance benefits or other payment or benefit
after the termination of employment thereunder except as required by
Law;
(iv)(1) declare, set aside or pay any distributions (whether
in cash, equity securities, partnership interests or other property)
in respect of its partnership interests or equity securities; (2)
redeem, purchase or otherwise acquire any of its partnership interests
or equity securities or any other securities or obligations
convertible into or exercisable or exchangeable for any partnership
interests or equity securities; (3) issue, sell or encumber any of its
partnership interests or equity securities or any securities or
obligations convertible into or exercisable or exchangeable for any
such partnership interests or equity securities; or (4) sell, assign,
transfer, lease or otherwise dispose of any assets other than the sale
of inventory in the ordinary course of business, except (A) in
connection with the sale or other disposition or replacement of used
or obsolete equipment in the ordinary course of business, (B) the
distribution of the Distributed Shares to the Paying Agent pursuant to
Section 2.3(a) hereof, (C) the distribution of the Management
Receivables to the Paying Agent pursuant to Section 2.3(a) hereof, or
(D) the issuance of Units upon the exercise or extinguishment of
outstanding Options;
(v) (A) acquire (by merger, consolidation, acquisition of
stock or assets or otherwise) any corporation, partnership or other
business organization or division thereof or material assets outside
the ordinary course of business, or (B) except for borrowings under
the Foothill Facility, incur any indebtedness for borrowed money or
issue any debt securities or assume, grant, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations
of any Person (other than MLP or any of its Subsidiaries), or make any
loans, advances (other than advances of expenses to employees in the
ordinary course of business) or distributions of cash (other than by
any Subsidiary of MLP to MLP;
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(vi) except as required by law or changes required by
GAAP, materially change any method of accounting used by MLP or its
Subsidiaries;
(vii) amend the Certificate of Limited Partnership,
Partnership Agreement, or other constitutive documents of MLP or any
of its Subsidiaries in any respect materially adverse to MLP, Parent
or Sub;
(viii) except in the ordinary course of business
consistent with past practice enter into or amend any Material
Contract (or any contract or agreement which would be deemed a
Material Contract if such contract or agreement had been entered into
as of the date hereof), or waive any material portion of any existing
contract or agreement of MLP or any of its Subsidiaries in any respect
materially adverse to MLP, Parent or Sub;
(ix) enter into any settlement or other agreement with BMI
or any material agreement with EAIC Corp. (including any amendment to
any existing agreement);
(x) except in the ordinary course of business consistent
with past practice, take any action with the intention of causing a
material slowdown in sales or reduction in capital expenditures,
including under the 1998 capital expenditure plan set forth in Section
5.1(b)(x) of the Disclosure Schedule;
(xi) except (A) for the furnishing of credit support
arrangements in connection with the Foothill Facility and (B) as
contemplated in this Agreement, enter into any transaction with an
Affiliate or partner of MLP;
(xii) amend any Tax Return or settle any material
controversy with respect to Taxes;
(xiii) sell, assign, license or transfer any material
Intellectual Property; or
38
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(xiv) implement any plant closing or layoff of employees
that would require the provision of notification of workers pursuant
to the WARN Act prior to the Effective Time.
SECTION 5.2. Other Actions. MLP and Parent shall not, and shall not
-------------
permit any of their respective Subsidiaries to, take any action that would, or
that could reasonably be expected to, result in (i) any of the representations
and warranties of such party set forth in this Agreement becoming untrue in any
material respect or (ii) any of the conditions of the Merger set forth in
Article VII not being satisfied.
SECTION 5.3. Notification of Certain Events. Each of the parties
------------------------------
hereto shall use its commercially reasonable best efforts to notify the other
parties hereto in writing of the occurrence of any event, change or condition
that results in the breach of a representation or warranty of such party under
this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1. Access to Information; Confidentiality; Assistance with
-------------------------------------------------------
Financing.
- ---------
(a) Upon reasonable prior notice, MLP shall afford to Parent and
Sub and to the officers, counsel, financial advisors and other representatives
of Parent and Sub reasonable access during normal business hours during the
period prior to the Effective Time to all of its properties, books, contracts,
commitments, personnel and records and, during such period, MLP shall furnish as
promptly as practicable to Parent and Sub such information concerning its
business, properties, financial condition, operations and personnel as Parent
and Sub may from time to time reasonably request. Parent and Sub will hold, and
will cause its respective directors, officers, partners, employees, accountants,
counsel, financial advisors and other representatives and affiliates to hold,
any information obtained from MLP in confidence in accordance with the
provisions of that certain confidentiality agreement dated July 21, 1998,
between Parent and MLP (the "Confidentiality Agreement"). Notwithstanding the
preceding sentence, MLP acknowledges that (i) Parent and/or Sub may cause an
offering memorandum or similar document to be prepared and used in connection
with the consummation of Parent's and Sub's financing of the transactions
39
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contemplated hereby and (ii) Parent and/or Sub may commence, or may request MLP
to commence (subject to agreement on reasonable expense reimbursement and
indemnification arrangements), a Senior Note Tender Offer (the closing of which
shall be conditioned on the consummation of the Merger); and MLP agrees to use
commercially reasonably efforts to furnish Parent and Sub with access to, and to
permit the use of, all information necessary, and to cause the cooperation of,
all personnel necessary for Parent and Sub to consummate such financing and any
such Senior Note Tender Offer; provided, however, that (A) no information
-------- -------
obtained from MLP or its agents subject to the Confidentiality Agreement
(excluding any information currently on file with the SEC or information the
disclosure of which would customarily be contained in the SEC filings of a
public issuer and could not reasonably be expected to have a Material Adverse
Effect with respect to MLP) shall be included without MLP's prior consent (which
consent shall not be unreasonably withheld) in any offering memorandum, offer to
purchase or similar disclosure document utilized in connection with such
financing or Senior Note Tender Offer, and (B) MLP shall be provided a
reasonable opportunity to review any such information proposed to be included in
any such disclosure documents or any material revisions or supplements thereto
or modifications thereof. In addition, MLP (w) shall permit Parent, Sub and/or
ACN Holdings, Inc. to use the name Muzak LLC and/or Muzak Finance Corp. (or any
similar derivation thereof other than the actual name of MLP or any of its
Subsidiaries) in connection with the Surviving Entity's, Parent's and Sub's
financing of the transactions contemplated hereby, provided the applicable
disclosure documents contain reasonable disclosures to distinguish MLP and its
Affiliates from the Person(s) seeking the financing, (x) shall request its
accountants to consent to the inclusion of their report or reports in, and to
issue a comfort letter in connection with, any offering memoranda or filings
required by such financing, (y) shall permit Parent and Sub to negotiate
employment and equity participation arrangements with MLP's and its
Subsidiaries' management, provided that Parent and Sub shall disclose to MHC in
writing upon its request at any time prior to the Closing the terms of all
employment, equity participation and other compensatory arrangements with such
management and (z) shall permit Parent and Sub to use MLP's management for
presentations in connection with Parent's and Sub's financing of the
transactions contemplated hereby. Parent and Sub acknowledge that any pro forma
adjustments to the financial statements of MLP included in any disclosure
document utilized in connection with any financing or Senior Note Tender Offer
are the sole responsibility of Parent and Sub, and Parent and Sub agree to bear
all fees and expenses of Deloitte & Touche in reviewing and giving comfort on
the financial statements and information concerning MLP included in any such
disclosure document.
40
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(b) If required by Parent's and Sub's financing sources, with
respect to any parcel of Owned Property, MLP shall use its commercially
reasonable efforts to deliver to Parent and Sub, at Parent and Sub's sole cost
and expense, title insurance and/or survey or surveys for such parcel of Owned
Property, in each case, in form and substance reasonably acceptable to Parent.
If required by a Parent's and Sub's financing sources, with respect to each
parcel of Leased Property, MLP shall use its commercially reasonable efforts to
deliver to Parent and Sub a nondisturbance agreement, a consent and waiver
and/or an estoppel letter executed by the landlord, lessor, landlord and/or
licensor of such Leased Property, in each case, in form and substance reasonably
acceptable to Parent; provided, that all reasonable out-of-pocket expenses
--------
(including attorney's fees) in connection with the delivery of such agreements,
consents, waivers and estoppel letters shall be paid by Parent and Sub.
SECTION 6.2. Best Efforts.
------------
(a) Upon the terms and subject to the conditions and other
agreements set forth in this Agreement, each of the parties hereto agrees to use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including the satisfaction of the
respective conditions set forth in Article VII. The parties acknowledge and
agree, for greater clarity, that the failure of the representations and
warranties of MLP to be true and correct on and as of the Closing Date in
accordance with Section 7.2(b) hereof shall not of itself constitute a breach of
this Agreement by MLP or any GP Entity; in such event the officer's certificate
delivered by MHC pursuant to Section 7.2(b) shall set forth any such failures,
and Parent and Sub shall have the right to determine whether or not to waive the
satisfaction of such condition.
(b) Parent and Sub shall not attempt, directly or indirectly, to
induce or encourage, the exercise by the Senior Lenders of any right not to fund
such credit facilities under the terms of the Senior Debt Commitment Letter. In
the event the Senior Lenders fail to fund such credit facilities, Parent and Sub
shall request the Senior Lenders to communicate directly to MLP the
circumstances and bases therefor.
(c) Prior to the Closing, MLP shall use reasonable best efforts
to obtain such third party consents to the Merger under MLP's customer
41
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contracts described in Section 6.2(c) of the Disclosure Schedule as may
reasonably be requested by Parent and Sub.
SECTION 6.3. Benefit Plans and Employment Agreements.
---------------------------------------
Parent shall cause the Surviving Entity and its Subsidiaries to
continue to employ, on terms comparable to those currently provided by MLP and
its Subsidiaries, all employees of MLP and its Subsidiaries as of the Effective
Time ("Continuing Employees"), including any employees on disability or other
approved leave of absence; provided, however, nothing in this Agreement shall
limit the Surviving Entity's or any of its Subsidiaries' right to terminate any
employee after the Effective Time. With respect to those employee benefit plans,
arrangements or policies of Parent or any of its Subsidiaries made available to
Continuing Employees after the Effective Time (other than Option Plans), each
such plan, arrangement or policy shall be offered to such Continuing Employees
(and, if applicable, their dependents) with recognition for service under
corresponding Benefit Plans prior to the Effective Time for purposes of
eligibility, vesting, any waiting period, pre-existing conditions or
insurability (other than any waiting period, pre-existing conditions of lack of
insurability that constituted a restriction or limitation with respect the
benefits available to a Continuing Employee immediately prior to the Effective
Time) and shall credit the Continuing Employees with any co-payments or
deductibles satisfied in the current plan year.
After Closing, Parent and the Surviving Entity shall indemnify,
defend and hold harmless MHC and its present and former directors, officers,
employees, Affiliates, successors, assigns, agents and representatives and each
other GP Indemnified Party from and against any and all Losses and related
Expenses based upon, attributable or resulting from any claims or demands by
Continuing Employees or their family members arising out of or in connection
with the employment of the Continuing Employees on and after the Effective Time,
including any claims relating to any severance arrangements and any Employee
Benefit Plans which are "welfare" plans (within the meaning of Section 3(1) of
ERISA). Notwithstanding the foregoing sentence, nothing in this Section 6.3
shall limit the indemnification of the Parent Indemnified Parties pursuant to
Section 10.1(a)
SECTION 6.4. Public Announcements. Parent and Sub, on the one hand,
--------------------
and MLP and each GP Entity, on the other hand, will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statements with respect to the
transactions
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contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by applicable law, court process or by obligations
pursuant to any listing agreement with any national securities exchange.
SECTION 6.5. Acquisition Proposals. None of MLP, any holders of
---------------------
Units (on behalf of MLP) or any GP Entity shall, nor shall any of MLP, the
holders of Units (on behalf of MLP) or any GP Entity authorize or permit any
officer or employee thereof, or any investment banker, attorney or other advisor
or representative of MLP or any GP Entity to, directly or indirectly, (i)
solicit, initiate or encourage the submission of any Acquisition Proposal or
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal. In the event MLP receives any
Acquisition Proposal in writing after the date hereof, MLP shall promptly notify
Parent thereof.
SECTION 6.6. Consents, Approvals and Filings. (a) MLP and Parent
-------------------------------
will make and cause their respective Subsidiaries, as soon as practicable, to
make all necessary filings, including, without limitation, those required under
the HSR Act, the Securities Act of 1933, as amended, and the Exchange Act in
order to facilitate the prompt consummation of the Merger and the other
transactions contemplated by this Agreement in accordance with the terms hereof.
In addition, each of MLP and Parent will use its commercially reasonable best
efforts, and will cooperate fully with each other, (i) to comply as promptly as
practicable with all governmental requirements applicable to the Merger and the
other transactions contemplated by this Agreement and (ii) to obtain as promptly
as practicable all necessary permits, orders or other consents of Governmental
Entities and consents of all third parties necessary for the consummation of the
Merger and the other transactions contemplated by this Agreement. Each of MLP
and Parent shall use its commercially reasonable best efforts to provide such
information and communications to Governmental Entities as such Governmental
Entities may reasonably request.
(b) Each of the parties shall provide to the other party copies
of all applications in advance of filing or submission of such applications to
any Governmental Entity in connection with this Agreement.
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(c) At the Closing, the GP Entities agree, subject to obtaining
the necessary regulatory approvals, to cause the FCC licenses listed in Section
3.3 of the Disclosure Schedule, which are held by MLP Communications Company, to
be transferred to the Surviving Entity or its designee.
SECTION 6.7. Allocation of Merger Consideration and Tax Matters.
--------------------------------------------------
(a) Parent and MLP agree that the Merger Consideration (together
with the amount of all liabilities of MLP as of the Closing) shall be allocated
among the assets of MLP in accordance with Section 1060 of the Code and the
Treasury Regulations promulgated thereunder.
(b) The allocation prescribed by subsection (a) shall be made by
MHC within ninety (90) days following the Closing, and shall be subject to the
approval of Parent, which shall not be unreasonably withheld, in each case in
accordance with Section 6.7 of the Disclosure Schedule. Subject to the
requirement of applicable Tax law, Parent, the Surviving Entity, MLP and the GP
Entities agree to be bound by such allocations and to cause all Tax Returns and
reports filed by them to be prepared consistently with such allocations and
neither Parent nor the GP Entities shall take a position contrary thereto.
(c) Parent, the Surviving Entity, MLP and the GP Entities agree
to treat the Merger, for all federal, state and local income tax purposes, as
(i) a transfer by MLP of all of its assets (subject to its liabilities) to the
Surviving Entity in exchange for the Payment Fund (exclusive of the LLC Units)
and the Escrow Funds followed by (ii) the liquidation of MLP.
(d) For the avoidance of doubt and notwithstanding any other
provision of this Agreement, the Delaware RULPA or the Delaware LLCA, as of and
following the Effective Date, the Surviving Entity shall have no obligations
under the tax distribution provisions of the Partnership Agreement either with
respect to income reported as earned by MLP prior to, on or after the Effective
Date or due to a subsequent adjustment of that reported income due to a Tax
examination, audit or other proceeding.
(e) The Surviving Entity shall promptly forward any notices
received by it with respect to Taxes or taxable income of MLP to MHC and any
44
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controversy with respect to the Taxes or taxable income of MLP shall be handled
exclusively by MHC.
SECTION 6.8. Interim Financial Statements. As soon as available,
----------------------------
but in any event not later than thirty (30) days after the end of each monthly
fiscal period beginning after the date hereof and ending on the last monthly
fiscal period preceding the Effective Date, MLP shall deliver to Parent the
unaudited consolidated balance sheet of MLP as at the end of each such period
and the related unaudited consolidated statements of income and cash flows of
MLP for such period. Except as expressly stated therein, all such financial
statements shall be prepared in accordance with GAAP applied on a basis
consistent with the financial statements referenced in Section 3.7(b) hereof.
SECTION 6.9. Fourth Quarter Financial Statements.
-----------------------------------
(a) As soon as reasonably practicable after the end of the last
quarterly fiscal period of MLP for fiscal year 1998 but in any event no later
than February 15, 1999, MLP shall deliver to Parent the unaudited consolidated
balance sheet of MLP as of December 31, 1998 and the related unaudited
consolidated statements of income and cash flows of MLP for such period (the
"Fourth Quarter Financial Statements") as well as a detailed calculation of the
Fourth Quarter Adjustment Percentage based on such Fourth Quarter Financial
Statements (the "Fourth Quarter Adjustment Percentage Statement"). The Fourth
Quarter Financial Statements shall be prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the financial
statements referenced in Section 3.7(b) hereof. MLP shall use commercially
reasonable efforts to cause the audit of the 1998 financial statements of MLP to
be completed no later than February 15, 1999 or as soon as practicable
thereafter, provided, that the failure to cause such audit to be completed on or
prior to February 15, 1999 shall not constitute a breach or default by MLP
hereunder. Whether or not the transactions hereby shall be consummated, Parent
shall reimburse MLP for, or pay, the incremental costs and Expenses associated
with expediting the completion of the audit in accordance with the preceding
sentence.
(b) At least five business days prior to the Closing, MLP shall
prepare and furnish to Parent MLP's proposed computation of the Adjusted Equity
Value (which shall be based on the Fourth Quarter Adjustment Percentage
Statement, as it may be adjusted by MLP and Parent in writing after the date
such statement has been delivered to Parent) together with a statement of the
basis of such computation setting forth in reasonable detail the component items
specified in Section 2.3(f) hereof.
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Parent shall promptly review such computation, and Parent and MLP shall use
reasonable best efforts in good faith to reach agreement on the amount of the
Adjusted Equity Value prior to the Closing and shall in good faith provide
reasonable access to the other to the information necessary to do so. In the
event such parties are unable so to agree, subject to the condition of Parent
and Sub contained in Section 7.2(h) being satisfied or waived in writing by
Parent and Sub, the disputed amount up to $10,000,000 shall be paid into escrow
with the Paying Agent at the Closing under the Post-Closing Escrow Agreement
pending resolution of such dispute in accordance with the arbitration provisions
of the Post-Closing Escrow Agreement. In no event shall the resolution of any
such dispute following the Closing require the payment of any amounts by MHC on
behalf of the holders of the Units in excess of the amount paid into escrow
pursuant to this Section 6.9(b) together with any earnings, costs and expenses
payable under the provisions of the Post-Closing Escrow Agreement.
SECTION 6.10. Accountants' Management Letters. Promptly after
-------------------------------
receipt by MLP, MLP shall deliver to Parent copies of all accountants'
management letters and all management and board responses to such letters.
SECTION 6.11. Solvency Certificate. At the Closing, Parent and the
--------------------
Surviving Entity shall furnish to the GP entities a solvency certificate (the
"Solvency Certificate"), substantially in the form attached hereto as Exhibit C
that the Surviving Entity, giving effect to the transactions contemplated
hereunder at the Closing is "Solvent". For purposes of this Section 6.11,
"Solvent" means that the Surviving Entity hereunder (a) will own assets, the
fair saleable value of which are (i) greater than the total amount of
liabilities (including contingent liabilities) of the Surviving Entity and (ii)
greater than the amount that will be required to pay the probable liabilities of
the Surviving Entity's then existing debts as they become absolute and matured,
considering all financing alternatives and potential asset sales reasonably
available to the Surviving Entity; (b) will have capital that is not
unreasonably small in relation to its business as presently conducted or for any
contemplated or undertaken transaction; and (c) does not believe that the
Surviving Entity will incur debts beyond its ability to pay such debts as they
become reasonably due and payable.
SECTION 6.12. Amended Parent LLC Documents. At the Closing, Parent
----------------------------
shall cause there to be executed and delivered to MHC (by each party thereto
other than MHC) and MHC shall execute and deliver to Parent the Amended Parent
LLC Agreement, Amended Parent Members Agreement and Amended Parent Registration
Rights Agreement.
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ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1. Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Merger. The respective obligation of each party hereto to effect the Merger is
- ------
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) HSR Act, etc. The waiting period (and any extension thereof)
------------
applicable to the Merger under the HSR Act shall have expired or early
termination shall have been granted.
(b) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by, any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the party
-------- -------
invoking this condition shall use its reasonable best efforts to have any such
order or injunction vacated.
SECTION 7.2. Conditions to Obligations of Parent and Sub. The
-------------------------------------------
obligations of Parent and Sub to effect the Merger and the other transactions
contemplated under this Agreement are further subject to the following
conditions:
(a) Governmental and Regulatory Consents. All filings required
------------------------------------
to be made prior to the Effective Time by MLP with, and all consents, approvals,
permits and authorizations required to be obtained prior to the Effective Time
from, Governmental Entities, including, without limitation, those set forth in
Section 3.3 of the Disclosure Schedule, in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by MLP, Parent and Sub shall have been made or obtained (as the case may
be) and shall be final and non-appealable.
(b) Representations and Warranties. The representations and
------------------------------
warranties of MLP set forth in Article III shall be true and correct, in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date, except to the extent such representations and
warranties are made as of a specified date, in which case the same shall
continue on the Closing Date to be true and correct as of the specified date,
and except to the extent the failure of such representations and warranties
(without giving effect to any materiality standard
47
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contained in such representations and warranties) to be true and correct could
not reasonably be expected to have a Material Adverse Effect, and Parent shall
have received a certificate of an officer of MHC signed on behalf of MLP to such
effect.
(c) Performance of Obligations of MLP and the GP Entities. MLP
-----------------------------------------------------
and each of the GP Entities shall have performed and complied in all material
respects with all obligations required to be performed or complied with by such
parties under this Agreement on or prior to the Closing Date, and Parent shall
have received a certificate of an officer of MHC to such effect.
(d) Senior Lenders MAC Out. The Senior Lenders shall not have
----------------------
failed to close on or terminated the Senior Debt Commitment Letter (but only if
a material adverse change in the financial markets or in the market for debt
financing, in either case affecting Parent's and Sub's financing of the
transactions contemplated hereby, has occurred since the date of execution of
this Agreement).
(e) Fourth Quarter Financial Statements. MLP shall have
-----------------------------------
delivered to Parent the Fourth Quarter Financial Statements and the Fourth
Quarter Adjustment Percentage Statement, and a period of not more than sixty
(60) days shall have elapsed from the date of such delivery to the Closing Date,
provided that Parent and Sub shall use reasonable best efforts to have the
Closing occur by no later than forty-five (45) days after delivery of the Fourth
Quarter Financial Statements and the Fourth Quarter Adjustment Percentage
Statement.
(f) Debt Pay-off. MLP shall have obtained (i) pay-off letters as
------------
of immediately prior to the Effective Time for all then outstanding Funded
Indebtedness other than the Senior Notes, (ii) the release (or undertaking upon
payment at Closing to release) of all Liens on any of the assets of MLP or any
of its Subsidiaries except for Permitted Liens and (iii) the release of any
guarantees by MLP or any of its Subsidiaries of indebtedness of any other Person
(other than MLP and its Subsidiaries) for borrowed money (including any
guarantees) listed in Section 3.17 of the Disclosure Schedule.
(g) ACN Documents. MHC, in its capacity as the legal holder of
-------------
the LLC Units, shall have executed and delivered to Parent the Amended Parent
LLC Agreement, the Amended Parent Members Agreement and the Amended Parent
Registration Rights Agreement.
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(h) (A) MLP's proposed calculation of the Adjusted Equity Value
as furnished to Parent pursuant to Section 6.9(b) minus (B) the actual Adjusted
-----
Equity Value, shall not exceed $10,000,000.
SECTION 7.3. Conditions to Obligations of MLP and the GP Entities.
----------------------------------------------------
The obligation of MLP and each of the GP Entities to effect the Merger and the
other transactions contemplated under this Agreement is further subject to the
following conditions:
(a) Governmental and Regulatory Consents. All filings required
------------------------------------
to be made prior to the Effective Time with, and all consents, approvals,
permits and authorizations required to be obtained prior to the Effective Time
from, Governmental Entities, including, without limitation, those set forth in
Section 3.3 of the Disclosure Schedule, in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by MLP, Parent and Sub shall have been made or obtained (as the case may
be) and shall be final and non-appealable except as could not reasonably be
expected to result in any material liability of MHC and its directors, officers,
employees, Affiliates and agents or materially impair the ability of Parent and
Sub to consummate the Merger and the other transactions contemplated by this
Agreement and any of the other Purchaser Documents in accordance with the terms
hereof and thereof.
(b) Representations and Warranties. The representations and
------------------------------
warranties of Parent and Sub set forth in Article IV shall be true and correct,
in each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent such
representations and warranties are made as of a specified date, in which case
the same shall continue on the Closing Date to be true and correct in all
material respects as of the specified date, and except to the extent the failure
of such representations and warranties (without giving effect to any materiality
standard contained in such representations and warranties) to be true and
correct could not reasonably be expected to have a Material Adverse Effect with
respect to Parent and Sub, and MLP shall have received a certificate of an
officer of Parent and Sub to such effect.
(c) Performance of Obligations of Parent and Sub. Each of Parent
--------------------------------------------
and Sub shall have performed and complied in all material respects with all
obligations required to be performed or complied with by each of them under this
Agreement on or prior to the Closing Date, and MLP and the GP Entities shall
have received a certificate of an officer of Parent and Sub to such effect.
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ARTICLE VIII
CLOSING DELIVERIES
SECTION 8.1. Documents to Be Delivered by MLP. At the Closing, MLP
--------------------------------
shall deliver, or cause to be delivered, to Parent the following:
(a) to the extent reasonably available to MLP and the GP
Entities, copies of certificates (or in the absence thereof signed affidavits of
loss) representing the Units, duly endorsed in blank in proper form for
transmittal;
(b) the opinion of Weil, Gotshal & Manges LLP, counsel to MLP, in
form and substance reasonably satisfactory to Parent;
(c) long-form certificate of good standing with respect to MLP
and Capital Corp. issued by the Delaware Secretary of State;
(d) the original minute books and Unit transfer ledger of MLP;
(e) the certificates signed by a duly authorized officer of MHC
referred to in Sections 7.2(b) and 7.2(c) hereof;
(f) copies of the pay-off letters referred to in Section 7.2(g)
hereof;
(g) evidence reasonably satisfactory to the Parent of the release
of the Liens and guarantees referred to in Section 7.2(g) hereof;
(h) executed assignments of the FCC Licenses referred to in
Section 3.3 of the Disclosure Schedule to the Surviving Entity, in form and
substance reasonably satisfactory to Parent; and
(i) such other documents as Parent may reasonably request.
SECTION 8.2. Documents and Funds to Be Delivered by Parent and Sub.
-----------------------------------------------------
At the Closing, Parent shall deliver, or cause to be delivered to MLP or MHC (or
where stated, the Paying Agent) , the following:
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(a) the Payment Fund and the Escrow Funds to the Paying Agent in
accordance with Article II and Section 6.9(b) hereof;
(b) the certificates signed by a duly authorized officer of each
of Parent and Sub referred to in Sections 7.3(b) and 7.3(c) hereof;
(c) the Solvency Certificate executed by a duly authorized
officer of Parent and Surviving Entity;
(d) the opinion of Kirkland & Ellis, counsel to the Parent, in
form and substance reasonably satisfactory to MLP; and
(e) such other documents as MLP may reasonably request.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Proceedings at Closing. All proceedings to be taken
----------------------
and all documents to be executed and delivered by Parent or Sub in connection
with the consummation of the transactions contemplated hereby shall be
reasonably satisfactory in form and substance to MLP. All proceedings to be
taken and all documents to be executed and delivered by MLP and the GP Entities
in connection with the consummation of the transactions contemplated hereby
shall be reasonably satisfactory in form and substance to Parent. All
proceedings to be taken and all documents to be executed and delivered by all
parties at the Closing shall be deemed to have been taken, executed and
delivered simultaneously, and no proceedings shall be deemed taken nor any
documents executed or delivered until all have been taken, executed and
delivered.
SECTION 9.2. Termination. This Agreement may be terminated and
-----------
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Parent and MLP; or
(b) by MLP if the Merger shall not have been consummated on or
before the later of (i) April 30, 1999, and (ii) the date 65 days after the date
MLP shall have delivered to Parent the Fourth
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Quarter Financial Statements and the Fourth Quarter Adjustment Percentage
Statement, unless the failure to consummate the Merger is the result of a breach
by MLP or any GP Entity of its respective obligations under this Agreement; or
(c) by Parent if the Merger shall not have been consummated on
or before April 30, 1999, unless the failure to consummate the Merger is the
result of a breach by Parent or Sub of its respective obligations under this
Agreement; or
(d) by either Parent or MLP, if any Government Entity shall have
issued a final non-appealable order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger; or
(e) by MLP if at any time all of the conditions set forth in
Sections 7.1 and 7.2 hereof shall have been satisfied in full or waived (or the
failure of each such unsatisfied condition to be satisfied is the result of a
breach by Parent or Sub of its respective obligations hereunder), MLP and the GP
Entities have tendered Closing and thereafter the Closing of the Merger shall
not have occurred in accordance with Section 1.2 hereof; or
(f) by MLP if (i) the Fourth Quarter Adjustment Amount
calculated in accordance with the terms and conditions set forth in Section
2.3(f)(iii) hereof exceeds $769,100 and (ii) Sub fails to agree (by delivery of
written notice to MLP) to deem the Fourth Quarter Adjustment Amount as equal to
$769,100 for purposes of this Agreement within ten business days after Sub
receives notice from MLP that MLP desires to terminate this Agreement pursuant
to this Section 9.2(f); provided, however, that MLP shall pay the reasonable
-------- -------
out-of-pocket fees (including commitment fees) and expenses (including
accountants', lenders', investment bankers' and attorney's fees) of Parent and
Sub in connection with their due diligence review of MLP and its Subsidiaries,
the negotiation of this Agreement and their preparation for Closing (including
arranging for the financing of the Merger), up to a maximum aggregate amount of
$500,000.
SECTION 9.3. Effect of Termination. In the event of termination of
---------------------
this Agreement by either MLP or Parent as provided in Section 9.2, this
Agreement shall forthwith become void and have no further force and effect,
without any liability or obligation on the part of Parent, Sub or MLP, other
than the representations and warranties of the parties set forth in Sections
3.25 and 4.12, and the provisions of Sections 6.1, 6.4, 9.2, 9.4 and 12.3,
Article X hereof (with respect to Section 10.1(b)(iv)) and this Section 9.3.
Notwithstanding the foregoing, nothing contained in
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this Section 9.3 shall relieve any party from any liability resulting from any
breach of its representations, warranties, covenants or agreements set forth in
this Agreement prior to such termination; provided, however, that in the event
-------- -------
this Agreement shall be terminated pursuant to Section 9.2(e) hereof, MLP's and
the GP Entities' sole and exclusive remedy (including at law and in equity) in
respect of any breach of any of Parent's or Sub's representations, warranties,
covenants or agreements, shall be to receive a payment pursuant to the terms and
conditions of the Pre-Closing Escrow Agreement in an amount equal to the face
amount of the Letter of Credit (the "Liquidated Damages Amount"); and Parent and
Sub agree that MLP shall be entitled to receive upon such termination, as
liquidated damages and not as a penalty, the full Liquidated Damages Amount and
MLP's receipt of the Liquidated Damages Amount in such event shall constitute
payment of liquidated damages hereunder and not a penalty.
SECTION 9.4 Limitation of Damages. In the event the Closing shall
---------------------
not occur, in no event shall Parent and Sub, on the one hand, or MLP and the
GP Entities, on the other hand, be liable for more than $9,000,000 under this
Agreement or as a consequence of any breach hereof (except, in the case of
Parent and Sub, pursuant to Section 10.1(b)(iv) hereof).
SECTION 9.5. Amendment. Subject to the applicable provisions of the
---------
Delaware RULPA, the Delaware LLCA and the DGCL, at any time prior to the
Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 9.6. Extension; Waiver. At any time prior to the Effective
-----------------
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) waive
compliance with any of the agreements or conditions of the other parties
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of any such rights.
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ARTICLE X
INDEMNIFICATION
SECTION 10.1. Right to Indemnification.
------------------------
(a) Subject to Section 10.2 hereof, after the Closing, MHC (on
behalf of the holders of Units) hereby agrees to indemnify and hold Parent, Sub
and their respective directors, officers, employees, Affiliates (including,
after the Closing Date, the Surviving Entity and its Subsidiaries) agents,
successors and assigns (such Persons, the "Parent Indemnified Parties") harmless
from and against:
(i) subject to Section 12.1 hereof, any and all Losses
based upon, attributable to or resulting from the failure of any
representation or warranty of MLP set forth in Article III hereof to
be true and correct (x) as of the date hereof and (y) as of the
Closing Date as though made on and as of the Closing Date, except (A)
to the extent such representations and warranties are made as of a
specified date or (B) as set forth in the certificate delivered
pursuant to Section 7.2(b);
(ii) any and all Losses based upon, attributable to or
resulting from the breach of any covenant or other agreement on the
part of MLP or any GP Entity under this Agreement;
(iii) subject to Section 12.2 hereof, any and all Losses
based upon, attributable to or resulting from any audit or assessment
against the predecessor to MLP or the Surviving Entity by the
Washington State Department of Revenue or any other agency of the
State of Washington concerning any sales, use, business, occupation or
similar taxes with respect to the period from January 1, 1987 through
September 30, 1992;
(iv) subject to Section 12.2 hereof, any and all Losses
based upon, attributable to or resulting from (A) any claims by any
holder of an Unextinguished Option for any amounts other than the
applicable Unextinguished Option Consideration with respect to such
Unextinguished Option (including any claim by any holder of an
Unextinguished Option for any of the Distributed Shares) or (B) the
claims of James Gary Henderson set forth in the complaint dated
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November 4, 1998, civil action no. 398CV2141 and any other claims of
Mr. Henderson related thereto;
(v) subject to Section 12.2 hereof, fifty (50%) percent
of the licensing fees actually paid after the Effective Time by the
Surviving Entity to BMI in respect of the period beginning on January
1, 1994 and terminating on the Closing Date hereof (such period, the
"Interim Period"), pursuant to any final judgment obtained by or
against, or definitive settlement, contract or other agreement by the
Surviving Entity with, BMI; provided that the monthly royalties to be
paid to BMI by the Surviving Entity for the period beginning on the
effective date of such final judgment or definitive settlement,
contract or other agreement is no less than the prospective monthly
royalty payments which would have been payable by MLP under the
proposed settlement described in Section 10.1(a)(v) of the Disclosure
Schedule; and
(vi) any and all Expenses incident to the matters referred
to in clauses (i), (ii), (iii) and (iv) of this Section 10.1(a).
(b) Subject to Section 10.2 hereof, after the Closing Parent and
the Surviving Entity and, in the case of Section 10.1(b)(iv) below, before the
Closing Parent and Sub hereby agree, jointly and severally, to indemnify and
hold the GP Entities and their respective partners and any of their respective
Affiliates, directors, officers, employees, agents, successors and assigns
(collectively the "GP Indemnified Parties") harmless from and against:
(i) subject to Section 12.1 hereof, any and all Losses
based upon, attributable to or resulting from the failure of any
representation or warranty of the Parent or Sub set forth in Article
IV hereof to be true and correct (x) as of the date made and (y) as of
the Closing Date as though made on and as of the Closing Date except
(A) to the extent such representations and warranties are made as of a
specified date or (B) as set forth in the certificate delivered
pursuant to Section 7.3(b);
(ii) any and all Losses based upon, attributable to or
resulting from the breach of any covenant or other agreement on the
part of Parent or Sub under this Agreement;
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(iii) any and all Losses based upon, attributable to or
resulting from the tender for, redemption, amendment or other
modification of the Senior Notes and the Indenture;
(iv) any and all Losses (except in any GP Indemnified
Party's capacity as a direct or indirect holder or owner of any LLC
Units) based upon, attributable to or resulting from (A) the use of
(1) any financial statements or other information pertaining to MLP,
(2) any pro forma adjustments to such financial statements or (3) any
other information appearing in an offering document prepared by Parent
or Sub or their respective Affiliates, in each case, in connection
with any debt or equity financings by Parent or Sub or their
respective Affiliates (including, at and after the Closing, the
Surviving Entity), whether commenced or completed prior to, at or
after the Closing or (B) the participation of MLP's management in
financing presentations or the execution by such individuals of
"management representation letters" to independent auditors in
connection therewith, except to the extent that, in the case of either
(A) or (B), MHC (on behalf of the holders of Units) would be obligated
to indemnify the Parent Indemnified Parties with respect to the
subject matter of such claims pursuant to Section
10.1(a) of this Agreement (without regard to the limits contained in
Section 10.2 of this Agreement); and
(v) any and all Expenses incident to the foregoing.
SECTION 10.2. Limitations on Indemnification.
------------------------------
(a) Notwithstanding Section 10.1 hereof, the Parent Indemnified
Parties shall not be entitled to any indemnification pursuant to Section
10.1(a)(i) hereof unless and except to the extent that the aggregate amount of
Losses and Expenses to the Parent Indemnified Parties pursuant to Sections
10.1(a)(i) and (iv)(B) and, to the extent incident to any matter referred to in
Section 10.1(a)(i) or (iv)(B), Section 10.1(a)(vi), exceeds $1,000,000 (the
"Basket") and, in such event, the indemnifying party shall only be required to
pay the amount of such Losses and Expenses in excess of $750,000.
(b) The amount of any Losses and Expenses for which
indemnification is provided under Section 10.1(a) or Section 10.1(b) hereof
shall be net
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of any amounts recovered or recoverable by the indemnified party under insurance
policies with respect to such Losses and Expenses.
(c) Notwithstanding anything to the contrary contained herein,
Losses and Expenses indemnifiable pursuant to Section 10.1 hereof shall not
include any damages attributable to an indemnified party's failure to mitigate
damages after the indemnified party became aware of the events or omissions
which caused such damages (it being understood that the concept of mitigation of
damages shall be applied with regard to what is commercially reasonable under
the circumstances).
(d) Notwithstanding anything to the contrary contained herein,
in no event shall the Parent Indemnified Parties be entitled to recover any
Losses, Expenses or other amounts pursuant to the provisions of this Article X
in excess of $9,000,000 in the aggregate. Any amounts paid into escrow pursuant
to Section 6.9(b) hereof shall be available solely to settle any dispute
relating to the determination of Adjusted Equity Value and shall not be
available for satisfaction of any indemnification claims hereunder and any
amount distributed from the Escrow Funds to Parent or the Surviving Entity in
connection with such dispute shall not reduce or otherwise count against or
toward the $9,000,000 limitation contained in the immediately preceding
sentence.
SECTION 10.3. Indemnification Procedures.
--------------------------
(a) A party seeking indemnification pursuant to this Article X
(an "Indemnified Party") on the basis of a claim asserted by a third party shall
give prompt notice to the party from whom such indemnification is sought (the
"Indemnifying Party") of the assertion of such claim, or the commencement of any
action, suit or proceeding brought by a third party, in respect of which
indemnity may be sought hereunder and will give the Indemnifying Party such
information with respect thereto as the Indemnifying Party may reasonably
request, but failure to give such notice shall not relieve the Indemnifying
Party of any liability hereunder (except to the extent that the Indemnifying
Party has suffered actual prejudice thereby). The Indemnifying Party shall have
the right (but not the obligation), exercisable by written notice to the
Indemnified Party within fifteen (15) days of receipt of notice from the
Indemnified Party of the commencement of or assertion of any claim or action,
suit or proceeding by a third party (other than a party hereto or an Affiliate
of any party hereto) in respect of which indemnity may be sought hereunder (a
"Claim"), to assume the defense and control the settlement of such Claim which
involves (and continues to involve) solely monetary damages; provided, however,
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that MHC hereby irrevocably
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agrees (i) not to assume any defense or control any settlement of any Claim
which involves BMI and (ii) that Parent and Surviving Entity shall together have
the exclusive right to defend and settle any Claim which involves BMI, provided
that Parent and Sub shall bear all expenses and professional fees incident
thereto.
(b) Within ten (10) days after the Indemnifying Party has given
written notice to the Indemnified Party of its intended exercise of its right to
defend and control the right to settle a Claim, the Indemnifying Party shall be
entitled to assume and conduct such defense, with counsel selected by the
Indemnifying Party and reasonably acceptable to the Indemnified Party. Unless
the Indemnifying Party has assumed the defense of and the right to control the
settlement of a Claim pursuant to the terms of this Section 10.3, the
Indemnified Party shall defend and control the settlement of such Claim with
counsel selected by it and reasonably acceptable to the Indemnifying Party.
(c) The Indemnifying Party or the Indemnified Party, as the case
may be, shall have the right to participate in (but not control), at its own
expense, the defense of any Claim which the other is defending as provided in
this Agreement.
(d) The Indemnifying Party, if it shall have assumed the defense
of any Claim as provided in this Agreement, shall not consent to any compromise
or settlement of, or the entry of any judgment arising from, any such Claim
without the prior written consent of the Indemnified Party (which consent shall
not be unreasonably withheld or delayed), if such compromise, settlement or
judgment which commits the Indemnified Party to take, or to forbear to take, any
action or which does not provide for a complete release by such third party of
the Indemnified Party. The Indemnified Party shall have the sole and exclusive
right to settle any Claim, on such terms and conditions as it deems reasonably
appropriate, solely to the extent such Claim involves equitable or other non-
monetary relief.
(e) Whether or not the Indemnifying Party chooses to defend or
prosecute any Claim, all the parties hereto shall cooperate in the defense or
prosecution thereof and shall furnish such records, information and testimony,
and attend such conferences, discovery proceedings, hearings, trials and
appeals, as may be reasonably requested in connection therewith.
(f) The failure of the Indemnified Party to give reasonably
prompt notice of any Claim shall not release, waive or otherwise affect the
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Indemnifying Party's obligations with respect thereto except to the extent that
the Indemnifying Party can demonstrate actual loss and prejudice as a result of
such failure.
SECTION 10.4. Tax Treatment of Indemnity Payments. The parties
-----------------------------------
hereto agree to treat any indemnity payment made pursuant to this Article X as
an adjustment to the Merger Consideration for tax purposes, unless otherwise
required by applicable Law.
SECTION 10.5. Exclusive Remedy; Limitation of Liability.
-----------------------------------------
(a) Notwithstanding anything to the contrary contained in this
Agreement or in any of the other MLP Documents, after the Closing, a Parent
Indemnified Party's exclusive remedy against an Indemnifying Party for any
breach of the representations, warranties, covenants and agreements herein or
otherwise in respect of the transactions contemplated hereby shall be a claim
for indemnification made pursuant to and subject to the terms and conditions of
this Article X and Sections 6.3 and 12.2 hereof.
(b) None of the officers, directors, or agents of MLP or any of
the GP Entities, respectively, are making any representation or warranty, and
none of them shall have any personal liability to any Parent Indemnified Party,
under this Agreement or any certificate delivered in connection herewith.
(c) None of the officers, directors, or agents of Parent or Sub,
respectively, are making any representation or warranty, and none of them shall
have any personal liability to any GP Indemnified Party, under this Agreement or
any certificate delivered in connection herewith.
ARTICLE XI
REPRESENTATIVE OF PARTNERS OF MLP
SECTION 11.1. Authorization of Representative.
-------------------------------
(a) MHC is hereby appointed, authorized and empowered to act as
a representative (the "Representative"), for the benefit of the holders of
Units, in connection with and to facilitate the consummation of the transactions
contemplated hereby, as the exclusive agent and attorney-in-fact to act on
behalf of each partner of
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MLP with respect to any and all Claims relating to any partner of MLP and any
and all Claims by the Parent Indemnified Parties arising under this Agreement
and in connection with the performance of the various actions required or
permitted to be performed on behalf of the holders of Units under the Escrow
Agreement and ACN LLC Documents, for the purposes and with the powers and
authority hereinafter set forth in this Section 11.1 and in the Escrow
Agreement, which shall include the power and authority:
(i) to execute and deliver the Escrow Agreement and ACN
LLC Documents (with such modifications or changes therein as to which
the Representative, in its sole discretion, shall have consented) and
to agree to such amendments or modifications thereto as the
Representative, in its sole discretion, determines to be desirable;
(ii) to execute and deliver such waivers and consents in
connection with this Agreement and the Escrow Agreement and ACN LLC
Documents and the consummation of the transactions contemplated hereby
and thereby as the Representative, in its sole discretion, may deem
necessary or desirable;
(iii) to collect and receive all moneys and other proceeds
and property payable to the holders of Units pursuant to the terms of
this Agreement, the Escrow Agreement and ACN LLC Documents, including,
without limitation, the Payment Fund, the Escrow Deposit, the Escrow
Funds and any portion of or earnings accrued on the Escrow Funds which
are distributable to holders of Units, subject to the Escrow
Agreement, and, subject to any applicable withholding and retention
laws, to disburse and pay the same to each of the holders of Units to
the extent of, and in accordance with, the respective interests of the
holders of Units in the Merger Consideration (the "Percentage
Interests");
(iv) as Representative, to enforce and protect the rights
and interests of the holders of Units (including the Representative,
in its capacity as a partner) and to enforce and protect the rights
and interests of the Representative arising out of or under or in any
manner relating to this Agreement, the Escrow Agreement and the ACN
LLC Documents, and each other agreement, document, instrument or
certificate referred to herein or therein or the transactions provided
for herein or therein (including, without limitation, in connection
with any and all claims for
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indemnification brought under Article X hereof), and to take any and
all actions which the Representative believes are necessary or
appropriate under the Escrow Agreement, this Agreement and the ACN LLC
Documents for and on behalf of the holders of Units, including,
without limitation, asserting Claims against Parent, defending all
Claims by the Parent Indemnified Parties, consenting to, compromising
or settling all such Claims, conducting negotiations with Parent and
its representatives regarding such Claims, and, in connection
therewith, to (A) assert any claim or institute any action, proceeding
or investigation; (B) investigate, defend, contest or litigate any
claim, action, proceeding or investigation initiated by Parent, the
Surviving Entity or any other Person, or by any federal, state or
local Governmental Entity against the Representative and/or any of the
holders of Units and/or the Escrow Funds, and receive process on
behalf of any or all holders of Units in any such claim, action,
proceeding or investigation and compromise or settle on such terms as
the Representative shall determine to be appropriate, and give
receipts, releases and discharges with respect to, any such claim,
action, proceeding or investigation; (C) file any proofs of debt,
claims and petitions as the Representative may deem advisable or
necessary; (D) settle or compromise any claims asserted under the
Escrow Agreement or the ACN LLC Documents; and (E) file and prosecute
appeals from any decision, judgment or award rendered in any such
action, proceeding or investigation, it being understood that the
Representative shall not have any obligation to take any such actions,
and shall not have any liability for any failure to take any such
actions;
(v) to refrain from enforcing any right of the holders of
Units or any of them and/or the Representative arising out of or under
or in any manner relating to this Agreement, the Escrow Agreement or
any other agreement, instrument or document in connection with the
foregoing; provided, however, that no such failure to act on the part
-------- -------
of the Representative, except as otherwise provided in this Agreement
or in the Escrow Agreement, shall be deemed a waiver of any such right
or interest by the Representative or by the holders of Units unless
such waiver is in writing signed by the waiving party or by the
Representative; and
(vi) to make, execute, acknowledge and deliver all such
other agreement, guarantees, orders, receipts, endorsements, notices,
requests,
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instructions, certificates, stock powers, letters and other writings,
and, in general, to do any and all things and to take any and all
action that the Representative, in its sole and absolute discretion,
may consider necessary or proper or convenient in connection with or
to carry out the transactions contemplated by this Agreement, the
Escrow Agreement, and all other agreements, documents or instruments
referred to herein or therein or executed in connection herewith and
therewith.
(b) The Representative shall not be entitled to any fee,
commission or other compensation for the performance of its services hereunder,
but shall be entitled to the payment of all its expenses incurred as the
Representative. In connection with this Agreement, the Escrow Agreement and any
instrument, agreement or document relating hereto or thereto, and in exercising
or failing to exercise all or any of the powers conferred upon the
Representative hereunder (i) the Representative shall incur no responsibility
whatsoever to any holders of Units by reason of any error in judgment or other
act or omission performed or omitted hereunder or in connection with the Escrow
Agreement or any such other agreement, instrument or document, excepting only
responsibility for any act or failure to act which represents willful
misconduct, and (ii) the Representative shall be entitled to rely on the advice
of counsel, public accountants or other independent experts experienced in the
matter at issue, and any error in judgment or other act or omission of the
Representative pursuant to such advice shall in no event subject the
Representative to liability to any holders of Units. Each partner of MLP shall
indemnify, pro rata based upon each partner's percentage interest in the Merger
Consideration ("Percentage Interest"), the Representative against all losses,
-------------------
damages, liabilities, claims, obligations, costs and expenses, including
reasonable attorneys', accountants' and other experts' fees and the amount of
any judgment against them, of any nature whatsoever (including, but not limited
to, any and all expense whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened or any
claims whatsoever), arising out of or in connection with any claim,
investigation, challenge, action or proceeding or in connection with any appeal
thereof, relating to the acts or omissions of the Representative hereunder, or
under the Escrow Agreement or otherwise. The foregoing indemnification shall
not be deemed exclusive of any other right to which the Representative may be
entitled apart from the provisions hereof. The foregoing indemnification shall
not apply in the event of any action or proceeding which finally adjudicates the
liability of the Representative hereunder for its gross negligence or willful
misconduct. In the event of any indemnification hereunder, upon written notice
from Representative to the holders of Units as to the existence of a deficiency
toward the payment of any such indemnification amount, each partner of
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MLP shall promptly deliver to the Representative full payment of his or her
ratable share of the amount of such deficiency, in accordance with such
partner's Percentage Interest.
(c) All of the indemnities, immunities and powers granted to the
Representative under this Agreement shall survive the Effective Date and/or any
termination of this Agreement and/or the Escrow Agreement.
(d) Notwithstanding anything herein to the contrary, each holder
of Units acknowledges that none of Parent, Sub, nor MLP shall have any
responsibility or obligation whatsoever to any holder of Units or to any other
party with respect to or arising out of any actions taken or any inaction by the
Representative and nothing contained herein shall limit or affect in any manner
whatsoever the responsibilities or obligations of the Representative to,
howsoever arising, or release the Representative from any liabilities with
respect to, Parent, Sub, or MLP.
(e) Parent shall have the right to rely upon all actions taken
or omitted to be taken by the Representative pursuant to this Agreement, all of
which actions or omissions shall be legally binding upon the holders of Units.
(f) The grant of authority provided for herein (i) is coupled
with an interest and shall be irrevocable and survive the death, incompetency,
bankruptcy or liquidation of any partner of MLP; and (ii) shall survive the
delivery of an assignment by a partner of MLP of the whole or any fraction of
his or her interest hereunder, including his or her Percentage Interest.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. Survival of Representations and Warranties. The
------------------------------------------
parties hereto hereby agree that the representations and warranties contained in
this Agreement shall survive the execution and delivery of this Agreement until
April 30, 2000. No claim or action shall be asserted with respect to such
representations and warranties pursuant to Article X hereof unless by April 30,
2000, written notice of such claim is given the indemnifying party or such
action is commenced. Notwithstanding the foregoing, except as set forth in
Section 12.2 hereof, this Section 12.1 shall not
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limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 12.2. Survival and Conditions of Certain Indemnification
--------------------------------------------------
Obligations of MHC.
- ------------------
(a) The parties hereto hereby acknowledge and agree that,
following the expiration of the survival period of the representations and
warranties hereunder set forth in Section 12.1, Parent shall be entitled to set
off the amount of any Losses, Expenses or other amounts payable pursuant to
Sections 10.1(a)(iii), (iv) and (v) (along with any amounts due to any Parent
Indemnified Party pursuant to Section 10(a)(vi) incident to the matters referred
to in Sections 10(a)(iii) and (iv)) against any distributions to or any other
amounts payable to the holders of the LLC Units and the Parent Indemnified
Parties shall have no other rights to payment of such Losses, Expenses or other
amounts.
(b) Notwithstanding the foregoing, no claim for indemnification
by the Parent Indemnified Parties pursuant to Sections 10.1(a)(iii), (iv), (v)
or (vi) hereof shall be asserted against MHC in the manner described in Section
12.2(a) following the occurrence of a Change of Control or an initial
underwritten public offering of the common equity securities of Parent or the
Surviving Entity (or any successor to the assets and business of such
entitites), respectively.
(c) Any Claims for indemnification by the Parent Indemnified
Parties pursuant to Section 10.1(a)(v) hereof shall be limited to $1,000,000 in
the aggregate.
SECTION 12.3. Fees and Expenses. Whether or not the Merger shall be
-----------------
consummated, each party hereto shall pay its own fees and expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby; provided that, after the
-------- ----
Merger, the Surviving Entity shall not be liable for, and MHC, as agent for the
holders of Units, shall be responsible for and shall pay, all such fees and
expenses incurred by MLP, any of its Subsidiaries or any GP Entity except to the
extent such items were either satisfied on or prior to the Closing or included
in the calculation of MLP Expenses at the Closing. No later than five (5) days
prior to Closing, MLP shall provide to Parent and Sub their best estimate of MLP
Expenses and such parties shall agree, prior to Closing, to an estimated amount
of MLP Expenses.
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<PAGE>
SECTION 12.4. Definitions. For purposes of this Agreement:
-----------
"ACN LLC Documents" shall have the meaning set forth in Section
4.10.
"ACN Purchase Agreement" shall have the meaning set forth in
Section 4.6.
"ACN Seller" shall have the meaning set forth in Section 4.6.
"Account" shall have the meaning set forth in Section 2.3.
"Acquisition Proposal" means any proposal with respect to a
merger, consolidation, share exchange or similar transaction involving MLP or
any of its Subsidiaries or any purchase of all or a material portion of the
assets of MLP or any of its Subsidiaries or any partnership unit or equity
interest in MLP, other than the transactions contemplated in this Agreement.
"Additional Consideration" shall have the meaning set forth in
Section 2.3.
"Adjusted EBITDA Difference" shall have the meaning set forth in
Section 2.3.
"Adjusted Equity Value" shall have the meaning set forth in
Section 2.3
"Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Agreement" shall have the meaning set forth in the Recitals.
"Amended Parent LLC Agreement" means the Amended and Restated
Limited Liability Company Agreement of ACN Holdings, LLC, substantially in the
form of Exhibit B-1 attached hereto.
-----------
"BBMI" shall have the meaning set forth in Section 2.3.
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<PAGE>
"Amended Parent Members Agreement" means the Amended and Restated
Members Agreement of ACN Holdings, LLC, substantially in the form of Exhibit B-2
-----------
attached hereto.
"Amended Parent Registration Rights Agreement" means the Amended
and Restated Registration Rights Agreement, substantially in the form of Exhibit
-------
B-3 attached hereto.
- ---
"BMI" means Broadcast Music, Inc. or any of its affiliates.
"Balance Sheet" and "Balance Sheet Date" shall have the meanings
set forth in Section 3.7.
"Basket" shall have the meaning set forth in Section 10.2.
"Benefit Plan" shall have the meaning set forth in Section 3.13.
"CMCI" shall have the meaning set forth in Section 2.3.
"Capital Corp." shall have the meaning set forth in Section 3.1.
"Cash and Cash Equivalents" shall have the meaning set forth in
Section 2.3.
"Certificate of Formation" shall have the meaning set forth in
Section 1.6.
"Certificate of Limited Partnership" shall have the meaning set
forth in Section 1.6.
"Certificate of Merger" shall have the meaning set forth in
Section 1.3.
"Change of Control" means (i) assets constituting all or
substantially all of the assets of a Person are sold, in one or more related
transactions, to any other "person" or "group" (as such term is defined in the
Exchange Act) or (ii) an event or series of events (whether a stock purchase,
merger, consolidation or other business combination or otherwise) by which any
person or group is or becomes the "beneficial owner" (as defined in the Exchange
Act) directly or indirectly of more than
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fifty (50%) percent of the combined voting power of the then outstanding
securities of a Person, excluding in the case of each of clauses (i) and (ii)
above any reincorporation, reorganization or recapitalization transaction in
which the securityholders of such Person immediately prior to the effective date
of such transaction continue to possess at least fifty (50%) percent of the
outstanding voting securities of the successor or surviving entity in
substantially the same relative proportions (exclusive of any shares owned as a
result of ownership of an entity other than such Person).
"Claim" shall have the meaning set forth in Section 10.3.
"Class B-4 Units" means the Class B-4 Units of Parent.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 1.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentially Agreement" shall have the meaning set forth in
Section 6.1.
"Continuing Employees" shall have the meaning set forth in
Section 6.3.
"DGCL" means the Delaware General Corporations Law.
"Delaware LLCA" means the Delaware Limited Liability Company Act
of 1992, as amended.
"Delaware RULPA" means the Delaware Revised Uniform Limited
Partnership Act of 1983, as amended.
"Delaware Secretary of State" means the Secretary of State of the
State of Delaware.
"Distributed Shares" shall have the meaning set forth in Section
2.3.
"EBITDA Difference" shall have the meaning set forth in Section
2.3.
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"Effective Time" shall have the meaning set forth in Section 1.3.
"Enterprise Value" shall have the meaning set forth in Section
2.3.
"Environmental Law" means any Law relating to noise, odor,
Hazardous Material or the protection of public health or safety, workplace
health or safety or pollution or protection of the environment.
"Equity Value" shall have the meaning set forth in Section 2.3.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Amount", "Escrow Agreement", "Escrow Deposit" and "Escrow
Funds" shall have the meanings set forth in Section 2.4.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expenses" means any and all expenses, claims, judgements, costs,
or penalties, including reasonable attorneys' and other professionals' fees and
disbursements.
"Extinguished Options" shall have the meaning set forth in
Section 2.2.
"Foothill Facility" shall have the meaning set forth in Section
2.3.
"Fourth Quarter Adjusted Percentage Statement" shall have the
meaning set forth in Section 6.9.
"Fourth Quarter Financial Statements" shall have the meaning set
forth in Section 6.9.
"Fourth Quarter Adjustment Amount" and "Fourth Quarter Adjustment
Percentage" shall have the meaning set forth in Section 2.3
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<PAGE>
"Funded Indebtedness" shall have the meaning set forth in Section
2.3.
"GP Entities" shall have the meaning set forth in the Recitals.
"GP Indemnified Parties" shall have the meaning set forth in
Section 10.2.
"GAAP" means United States generally accepted accounting
principles in effect as of the date hereof.
"Governmental Entity" means any United States federal, state or
local governmental, regulatory or administrative authority, agency or commission
or any court, tribunal, or judicial or arbitral body.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Entity.
"Hazardous Material" means any substance, material or waste which
is regulated by the United States, or any state or local governmental authority
including, without limitation, petroleum and its by-products, asbestos, and any
material or substance which is defined as a "hazardous waste," "hazardous
substance," "hazardous material," "restricted hazardous waste," "industrial
waste," "solid waste," "contaminant," "pollutant," "toxic waste" or "toxic
substance" under any provision of Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended.
"Indemnified Party" and "Indemnifying Party" shall have the
meanings set forth in Section 10.3.
"Indenture" means that certain indenture, dated as of October 2,
1996, among MLP, Capital Corp. and First Trust National Association, as Trustee.
"Intellectual Property" means (i) all patents, patent
applications and patent disclosures; all inventions (whether or not patentable
and whether or not reduced to practice); (ii) all trademarks, service marks,
trade names, logos, slogans,
69
<PAGE>
corporate names and Internet domain names, and all the goodwill associated with
each of the foregoing; (iii) all mask works; (iv) all registered and
unregistered statutory and common law copyrights, including, without limitation,
all proprietary musical compositions and sound recordings; (v) all
registrations, applications and renewals for any of the foregoing; and (vi) all
trade secrets, confidential information, ideas, formulae, compositions, know-
how, manufacturing and production processes and techniques, research
information, drawings, specifications, designs, plans, improvements, proposals,
technical and computer data, documentation and software, financial business and
marketing plans, customer and supplier lists and related information and
marketing materials.
"Interim Period" shall have the meaning set forth in Section
10.1.
"LLC Units" shall have the meaning set forth in Section 2.3.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law, or
any decree, judicial decision or other agency requirement having the full force
and effect of law, or any common law.
"Leases", "Leased Property" and "Leased Properties" shall have
the meanings set forth in Section 3.15.
"Lien" means any mortgage, deed or trust, pledge, hypothecation,
security interest, encumbrance, claim, lien or charge of any kind.
"Liquidated Damages Amount" shall have the meaning set forth in
Section 9.3.
"Losses" means any and all losses, liabilities, obligations or
damages.
"Management Receivables" shall have the meaning set forth in
Section 2.3.
"Material Adverse Effect" means, with respect to any Person, any
material adverse effect on the assets, properties, business, prospects,
financial condition or results of operations of such Person and its
Subsidiaries, taken as a whole, except for changes relating to or resulting from
changes that affect to the same extent
70
<PAGE>
all participants in the business music industry, and except, in the case of any
Material Adverse Effect with respect to MLP, for changes (i) directly resulting
from the public announcement of the transactions contemplated by this Agreement,
or (ii) relating to or resulting from actions taken by Parent or Sub or any of
their Affiliates following the date of this Agreement. Unless otherwise
specifically provided herein, reference to "Material Adverse Effect" shall mean
"Material Adverse Effect with respect to MLP.
"Material Contracts" shall have the meaning set forth in Section
3.17.
"Merger" shall have the meaning set forth in the Recitals.
"Merger Consideration" shall have the meaning set forth in
Section 2.3.
"MHC" shall have the meaning set forth in the Recitals.
"MLP" shall have the meaning set forth in the Recitals.
"MLP Acquisition" shall have the meaning set forth in the
Recitals.
"MLP Documents" shall have the meaning set forth in Section 3.1.
"MLP Expenses" shall have the meaning set forth in Section 2.3.
"MTI" means Music Technologies, Inc.
"MTI Purchase Agreement" means the Asset Purchase Agreement,
dated October 28, 1998, between MTI and MLP, together with the Amendment to the
Asset Purchase Agreement, dated November 27, 1998, the Second Amendment to Asset
Purchase Agreement dated December 23, 1998 and the Third Amendment to Asset
Purchase Agreement dated December 30, 1998.
"MTI Expenses" and "MTI Purchase Price" shall have the meanings
set forth in Section 2.3.
"New Name" shall have the meaning set forth in Section 1.1.
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<PAGE>
"Option" or "Option Plan" shall have the meanings set forth in
Section 2.2.
"Option Charges" shall have the meaning set forth in Section 2.3.
"Owned Property" or "Owned Properties" shall have the meanings
set forth in Section 3.15.
"Parent" shall have the meaning set forth in the Recitals.
"Parent Indemnified Parties" shall have the meaning set forth in
Section 10.1.
"Partnership Agreement" shall have the meaning set forth in
Section 1.1.
"Paying Agent" shall have the meaning set forth in Section 2.3.
"Payment Fund" shall have the meaning set forth in Section 2.3.
"Percentage Interests" shall have the meaning set forth in
Section 11.1.
"Permitted Liens" means, with respect to any Person, (A) Liens
for taxes, assessments or other governmental charges with reserve or levies that
are not yet due or payable or that are being contested in good faith by such
Person in an appropriate proceeding, (B) statutory Liens of landlords and Liens
of carriers, warehousemen, mechanics, materialmen, repairmen and other Liens
imposed by law and on a basis consistent with past practice for amounts not yet
due, (C) Liens incurred or deposits made in the ordinary course of business and
on a basis consistent with past practice in connection with workers'
compensation, unemployment insurance or other types of social security and (D)
nonconsensual Liens incurred in the ordinary course of business and on a basis
consistent with past practice securing obligations or liabilities which are not
material individually or in the aggregate to the conduct of the business of such
Person.
"Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
72
<PAGE>
"Pre-Closing Escrow Agreement" and "Post-Closing Escrow
Agreement" shall have the meaning set forth in Section 2.4.
"Purchaser Documents" shall have the meaning set forth in Section
4.1.
"Real Property" shall have the meaning set forth in Section 3.15.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal or leaching into the indoor
or outdoor environment, or into or out of any property.
"Representative" shall have the meaning set forth in Section
11.1.
"Reserve Number" shall have the meaning set forth in Section 2.2.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 3.6.
"Senior Debt Commitment Letter" shall have the meaning set forth
in Section 4.11.
"Senior Lenders" shall have the meaning set forth in Section
4.11.
"Senior Notes" means the $100,000,000 aggregate principal amount
of ten percent (10%) Senior Notes due 2003, pursuant to the Indenture.
"Senior Note Tender Offer" shall have the meaning set forth in
Section 2.3.
"Solvency Certificate" shall have the meaning set forth in
Section 6.11.
"Sub" shall have the meaning set forth in the Recitals.
73
<PAGE>
"Sub LLC Agreement" shall have the meaning set forth in Section
1.6.
"Subsidiary" of any Person means any Person of which such first
Person owns, directly or indirectly, fifty percent (50%) or more of the equity
securities the holders of which are generally entitled to vote for the election
of the board of directors or similar governing body of such Person.
"Surviving Entity" shall have the meaning set forth in Section
1.1.
"Tax" means all federal, state, local and foreign taxes, duties,
levies or similar charges of any kind, including but not limited to those
measured or referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or foreign.
"Tax Return" means any return, report, claim for refund,
estimate, information return or statement or other similar document relating to
or required to be filed with any governmental authority with respect to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
"Treasury Regulations" means the Income Tax Regulations,
including Temporary Regulations, promulgated under the Code, as the same may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Unextinguished Options" and "Unextinguished Option
Consideration" shall have the meanings set forth in Section 2.2.
"Units" or "Units" shall have the meanings set forth in Section
2.1.
"WARN Act" means the Worker Adjustment and Retraining
Notification Act of 1988, as amended, and any similar state or local Law.
74
<PAGE>
SECTION 12.5. Notices. All notices, requests, claims, demands and
-------
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
ACN Holdings, LLC.
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Tel: (617) 859-2959
Fax: (617) 859-8797
Attention: Royce Yudkoff
Peni Garber
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Tel: (212) 446-4800
Fax: (212) 446-4900
Attention: John L. Kuehn
(b) if to MLP, to:
Muzak Limited Partnership
2901 Third Ave., Suite 400
Seattle, Washington 98121
Tel: (206) 633-6000
Fax: (206) 728-1401
Attention: William A. Boyd
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<PAGE>
with copies to:
Centre Partners Management LLC
30 Rockefeller Plaza
Suite 5050
New York, New York 10020
Tel: (212) 332-5800
Fax: (212) 332-5801
Attention: Bruce G. Pollack
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Tel: (212) 310-8000
Fax: (212) 310-8007
Attention: Norman D. Chirite
SECTION 12.6. Interpretation. When a reference is made in this
--------------
Agreement to a Section or Schedule, such reference shall be to a Section of, or
a Schedule to, this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 12.7. Counterparts. This Agreement may be executed in one or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 12.8. Entire Agreement; Third-Party Beneficiaries. This
-------------------------------------------
Agreement and the Confidentiality Agreement referred to in Section 6.1
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement. This Agreement is not intended to confer upon
any Person, other than the parties hereto, the Parent Indemnified Parties and
the GP Indemnified Parties, any rights or remedies.
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<PAGE>
SECTION 12.9. Governing Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 12.10. Assignment. Neither this Agreement nor any of the
----------
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment that is
not consented to shall be null and void; provided however, that notwithstanding
-------- -------
the foregoing, Parent and Sub may assign their respective rights and obligations
hereunder to any of their respective Affiliates, and Parent, Sub and the
Surviving Entity may assign their respective rights and obligations hereunder as
collateral security to any Person providing financing to Parent, Sub or
Surviving Entity without obtaining the prior written consent of any other party
hereto; provided, further, however, any such assignment permitted pursuant to
-------- ------- -------
the terms of this Section 12.10 shall not release Parent and Sub from any
obligation or liability hereunder (including any right or obligation under
Article X hereof). Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 12.11. Obligations of Parent and Sub. The obligations of
-----------------------------
Parent and Sub hereunder are jointly and severally guaranteed by the other.
SECTION 12.12. ENFORCEMENT. THE PARTIES AGREE THAT IRREPARABLE DAMAGE
-----------
WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT
PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT
IS ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR
INJUNCTIONS TO PREVENT BREACHES OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY
THE TERMS AND PROVISIONS OF THIS AGREEMENT IN ANY COURT OF THE UNITED STATES
LOCATED IN THE STATE OF DELAWARE, THIS BEING IN ADDITION TO ANY OTHER REMEDY TO
WHICH THEY ARE ENTITLED AT LAW OR IN EQUITY. IN ADDITION, EACH OF THE PARTIES
HERETO (A) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF ANY FEDERAL
COURT LOCATED IN THE STATE OF DELAWARE IN THE EVENT ANY DISPUTE ARISES OUT OF
THIS AGREEMENT OR ANY OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT, (B)
AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL
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<PAGE>
JURISDICTION OR VENUE BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT
AND (C) AGREES THAT IT WILL NOT BRING ANY ACTION RELATING TO THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A
FEDERAL COURT SITTING IN THE STATE OF DELAWARE.
78
<PAGE>
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
IN WITNESS WHEREOF, Parent, Sub, MLP and GP Entities have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
ACN HOLDINGS, LLC
/s/ Peni Garber
By:___________________________
Name: Peni Garber
Title: Executive Vice President
AUDIO COMMUNICATIONS NETWORK, LLC
/s/ Peni Garber
By:___________________________
Name: Peni Garber
Title: Executive Vice President
79
<PAGE>
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
MUZAK LIMITED PARTNERSHIP
By: MUZAK ACQUISITION, L.P.
Managing General Partner
By: MUSIC HOLDINGS CORP.,
its General Partner
/s/ William A. Boyd
By:_______________________________
Name: William A. Boyd
Title: Vice President and Assistant Secretary
MLP ACQUISITION, L.P.
By: MUSIC HOLDINGS CORP.,
its General Partner
/s/ William A. Boyd
By:_______________________________
Name: William A. Boyd
Title: Vice President and Assistant Secretary
MUSIC HOLDINGS CORP.
/s/ William A. Boyd
By:_______________________________
Name: William A. Boyd
Title: Vice President and Assistant Secretary
80
<PAGE>
EXHIBIT 2.2
EXECUTION COPY
FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER
This First Amendment (this "Amendment"), dated as of March 17, 1999 to
---------
the certain Agreement and Plan of Merger (the "Merger Agreement") dated as of
----------------
January 29, 1999 by and among Muzak Holdings LLC (f/k/a ACN Holdings, LLC)
("Parent"), Audio Communications Network, LLC ("Sub"), Muzak Limited Partnership
------ ---
("MLP"), MLP Acquisition, L.P. ("MLP Acquisition") and Music Holdings Corp.
--- ---------------
("MHC," and together with MLP Acquisition, the "GP Entities").
--- -----------
WHEREAS, Parent, Sub, MLP and the GP Entities (collectively, the "Parties")
-------
desire to amend the Merger Agreement on the terms and conditions set forth
herein.
NOW THEREFORE, in consideration of the mutual agreements set forth herein,
the Parties agree as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
-----------------
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Additional Consideration. Section 2.1(b) of the Merger Agreement is
------------------------
hereby amended in its entirety to read as follows:
"(b) Conversion of the Units. Each Unit outstanding immediately prior
-----------------------
to the Effective Time shall be converted into the right to receive a
portion of the Merger Consideration (as defined in Section 2.3(a) below) as
provided herein, except that, notwithstanding anything contained herein to
the contrary, any Units owned by Sub as of immediately prior to the
Effective Time shall be extinguished and Sub shall have no right to receive
any portion of the Merger Consideration with respect to its ownership of
such Units."
3. Merger Consideration. The last sentence of Section 2.3(a) of the
--------------------
Merger Agreement is hereby amended in its entirety to read as follows:
"For purposes of this Section 2.3(a), the "Specified Percentage" shall
equal 3.964326%."
<PAGE>
4. Enterprise Value. Section 2.3(f)(ii) of the Merger Agreement is
----------------
hereby amended in its entirety to read as follows:
"(ii) "Enterprise Value means $234,245,115."
5. Tax Matters. Section 6.7(c) of the Merger Agreement is hereby amended
-----------
in its entirety to read as follows:
"(c) Parent, the Surviving Entity, MLP and the GP Entities agree to
treat the Merger, for all federal, state and local income tax purposes, as
(i) a transfer by MLP of all of its assets (subject to its liabilities) to
the Surviving Entity in exchange for the Payment Fund (exclusive of the LLC
Units) and the Escrow Funds followed by (ii) the liquidation of MLP;
provided that with respect to any Units owned by Sub as of immediately
--------
prior to the Effective Time, the Surviving Entity will be treated as
acquiring a proportionate interest in the assets of MLP (subject to the
liabilities of MLP) in liquidation of the partnership interest in MLP held
by Sub, pursuant to Code Sections 731(b) and 732(b)."
6. Sound of Music Payment Obligation. In connection with the calculation
---------------------------------
of Funded Indebtedness, the parties hereto have included $3,570,000 for MLP's
obligation to make payments to Richard T. Cushing, Richard H. Cushing and Todd
Cushing (collectively, the "Cushings") pursuant to that certain Non-Competition
--------
Agreement, executed in 1998, among MLP and the Cushings (such obligation, the
"Sound of Music Payment Obligation"). If within 90 days after the date hereof,
---------------------------------
MHC delivers to Parent a written agreement, executed by each of the Cushings,
pursuant to which the Cushings agree that in exchange for the payment to the
Cushings of an amount less than $3,570,000 (such amount, the "Sound of Music
--------------
Pay-off Amount") the Sound of Music Payment Obligation shall be terminated and
- --------------
satisfied in full, then the Surviving Entity shall deliver to MHC, on behalf of
the holders of Units as of immediately prior to the Effective Time, a cash
payment in an amount equal to $3,570,000 minus the Sound of Music Pay-off
-----
Amount. Parent hereby represents and warrants to MHC that any such payment to
MHC is not prohibited by any credit agreement or indenture which Parent or
Surviving Entity are or will be a party.
7. Governing Law. This Amendment shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under the applicable principles of conflicts of laws
thereof.
8. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
9. Agreement. In all other respects the Merger Agreement is ratified
---------
and shall, as so changed by these amendments, continue in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
MUZAK HOLDINGS LLC
By:/s/ Peni Garber
---------------
Name: Peni Garber
Title: Executive Vice President
AUDIO COMMUNICATIONS NETWORK, LLC
By:/s/ Peni Garber
---------------
Name: Peni Garber
Title: Executive Vice President
3
<PAGE>
[SIGNATURE PAGE TO FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER]
MUZAK LIMITED PARTNERSHIP
By: MUZAK ACQUISITION, L.P.
Managing General Partner
By: MUSIC HOLDINGS CORP.
its General Partner
By: /s/ William A. Boyd
---------------------
Name: William A. Boyd
Title: Vice President and Assistant Secretary
MLP ACQUISITION, L.P.
By: MUSIC HOLDINGS CORP.
its General Partner
By: /s/ William A. Boyd
---------------------
Name: William A. Boyd
Title: Vice President and Assistant Secretary
MUSIC HOLDINGS CORP.
By: /s/ William A. Boyd
---------------------
Name: William A. Boyd
Title: Vice President and Assistant Secretary
4
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
ACN OPERATING, LLC
This Certificate of Formation of ACN Operating, LLC (the "LLC") has
been duly executed and is being filed by the undersigned, as an authorized
person, to form a limited liability company under the Delaware Limited Liability
Act (6 Del. C. (S) 18-101, et. seq.).
------- --------
FIRST. The name of the limited liability company formed hereby is ACN
Operating, LLC.
SECOND. The address of the registered office of the LLC in the State
of Delaware is c/o Corporation Service Company, 1301 Centre Road, Wilmington,
New Castle County, Delaware 19805.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware is Corporation Service Company, 1301
Centre Road, Wilmington, New Castle County, Delaware 19805.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
of Formation as of this 28th day of August, 1998.
/s/ Royce Yudkoff
------------------------
Royce Yudkoff
Authorized Person
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF FORMATION
OF
ACN OPERATING, LLC
UNDER SECTION 18-202 OF THE DELAWARE LIMITED LIABILIY COMPANY ACT
-----------------------------------------------------------------
Pursuant to Sections 18-202 of the Delaware Limited Liability Company
Act of the State of Delaware, the undersigned, being the Secretary of ACN
Operating, LLC, a Delaware limited liability company (the "Company") does hereby
certify the following:
FIRST: The name of the Company is ACN Operating, LLC.
SECOND: The original Certificate of Formation of the Company was
filed with the Secretary of State of Delaware on August 28, 1998.
THIRD: The Certificate of Formation of the Company is hereby
amended to effect a change in Article First thereof, relating to the name of the
Company, accordingly Article First of the Certificate of Formation shall be
amended to read in its entirety as follows:
"FIRST. The name of the limited liability company is Audio
Communications Network, LLC".
IN WITNESS WHEREOF, the undersigned affirms as true the foregoing
under penalties of perjury, and has executed this Certificate this 9th day of
October, 1998.
ACN OPERATATING, LLC
By: /s/ Peni Garber
---------------------
Name: Peni Garber
Title: Secretary
<PAGE>
EXHIBIT 3.3
-----------
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/18/1999
991104760 - 2939187
CERTIFICATE OF MERGER
MERGING
MUZAK LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP
INTO
AUDIO COMMUNICATIONS NETWORK, LLC
A DELAWARE LIMITED LIABILITY COMPANY
The undersigned limited liability company organized and existing under and
by virtue of the Delaware Limited Liability Company Act,
DOES HEREBY CERTIFY:
FIRST: That the name and state of formation and organization of each of
-----
the domestic limited liability companies or other business entities which are to
merge (the "Constituent Entities") are as follows:
Name State of Formation or Organization
------------------------------ ----------------------------------
Muzak Limited Partnership Delaware
Audio Communications Network, LLC Delaware
SECOND: That an Agreement and Plan of Merger has been approved, adopted,
------
certified, executed and acknowledged by each of the Constituent Entities in
accordance with the requirements of Section 18-209 of the Delaware Limited
Liability Company Act and Section 17-211 of the Delaware Revised Uniform Limited
Partnership Act.
THIRD: That the name of the surviving limited liability company of the
-----
merger is Audio Communications Network, LLC and shall continue its existence as
said limited liability company under the new name of "Muzak LLC," upon the
effective date and time of said merger pursuant to the provisions of the
Delaware Limited Liability Company Act.
FOURTH: The effective date and time of the merger shall be the time of the
------
filing of this Certificate of Merger with the Secretary of State of the State of
Delaware.
FIFTH: That the executed Agreement and Plan of Merger is on file at the
-----
principal place of business of the surviving domestic limited liability company,
the address of which is Muzak LLC, 2901 Third Avenue, Suite 400, Seattle,
Washington 98121.
<PAGE>
SIXTH: That a copy of the Agreement and Plan of Merger will be furnished by
-----
the surviving domestic limited liability company, on request and without cost,
to any partner, member or other person holding an interest in either of the
Constituent Entities.
IN WITNESS WHEREOF, this Certificate of Merger is hereby executed as of the
18th day of March, 1999.
AUDIO COMMUNICATIONS NETWORK, LLC
By: /s/ Robert MacInnis
-------------------------------------------
Name: Robert MacInnis
Title: Vice President
-2-
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF INCORPORATION
OF
MUZAK FINANCE CORP.
ARTICLE ONE
-----------
The name of the corporation is Muzak Finance Corp., (hereinafter
called the "Corporation").
ARTICLE TWO
-----------
The address of the Corporation's registered office in the state of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Service Company.
ARTICLE THREE
-------------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE FOUR
------------
The total number of shares which the Corporation shall have the
authority to issue is One Thousand (1,000) shares, all of which shall be shares
of Common Stock, with a par value of $0.01 (One Cent) per share.
ARTICLE FIVE
------------
The name and mailing address of the incorporator is as follows:
Name Address
---- -------
Laura-Jayne Urso Kirkland & Ellis
153 East 53rd Street, 39th Fl.
New York, NY 10022
ARTICLE SIX
-----------
The directors shall have the power to adopt, amend or repeal By-Laws,
except as may be otherwise be provided in the By-Laws.
<PAGE>
ARTICLE SEVEN
-------------
The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
ARTICLE EIGHT
-------------
Section 1. Nature of Indemnity. Each person who was or is made a
--------- -------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he (or a person of whom
he is the legal representative), is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in Section 2 of this Article Eight, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article Eight shall
be a contract right and, subject to Sections 2 and 5 of this Article Eight,
shall include the right to payment by the Corporation of the expenses incurred
in defending any such proceeding in advance of its final disposition. The
Corporation may, by action of the Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers.
--------- -------------------------------------------------------
Any indemnification of a director or officer of the Corporation under Section 1
of this Article Eight or advance of expenses under Section 5 of this Article
Eight shall be made promptly, and in any event within 30 days, upon the written
request of the director or officer. If a determination by the Corporation that
the director or officer is entitled to indemnification pursuant to this Article
Eight is required, and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advancing
2
<PAGE>
of expenses, in whole or in part, or if payment in full pursuant to such request
is not made within 30 days, the right to indemnification or advances as granted
by this Article Eight shall be enforceable by the director or officer in any
court of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the Corporation. Neither the failure of the
Corporation (including the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Article Eight. The rights to
--------- -------------------------------
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article Eight shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation 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 against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the Corporation would have the power
to indemnify such person against such liability under this Article Eight.
Section 5. Expenses. Expenses incurred by any person described in
--------- --------
Section 1 of this Article Eight in defending a proceeding shall be paid by the
Corporation in advance of such proceeding's final disposition unless otherwise
determined by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation. Such expenses incurred by other employees
3
<PAGE>
and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
--------- --------------------
foregoing provisions of this Article Eight and who are or were employees or
agents of the Corporation, or who are or were serving at the request of the
Corporation as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified to the extent authorized
at any time or from time to time by the Board of Directors.
Section 7. Contract Rights. The provisions of this Article Eight
--------- ---------------
shall be deemed to be a contract right between the Corporation and each director
or officer who serves in any such capacity at any time while this Article Eight
and the relevant provisions of the General Corporation Law of the State of
Delaware or other applicable law are in effect, and any repeal or modification
of this Article Eight or any such law shall not affect any rights or obligations
then existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article
--------- -----------------------
Eight, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
Eight with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.
ARTICLE NINE
------------
The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.
4
<PAGE>
I, the undersigned, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation in pursuance of the General Corporation
Law of the State of Delaware, do make and file this Certificate, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this _______ day of February 1999.
/s/ Laura-Jayne Urso
_____________________________
Laura-Jayne Urso
Sole Incorporator
5
<PAGE>
EXHIBIT 3.5
-----------
CERTIFICATE OF INCORPORATION
OF
MUZAK, INC.
___________
THE UNDERSIGNED, being a natural person, for the purpose of organizing
a corporation under the General Corporation law of the State of Delaware, hereby
certifies that:
ARTICLE I
NAME
The name of the corporation is "Muzak, Inc." (the "Corporation").
ARTICLE II
OFFICE AND REGISTERED AGENT, INCORPORATOR
2.1. Office and Registered Agent. The address of the registered
---------------------------
office of the Corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware,
19801. The name of its registered agent at such address is The Corporation Trust
Company.
2.2. Incorporator. The name and mailing address of the incorporator
------------
are David A. Jacobs, c/o Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York,
New York 10153.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in, carry on and conduct
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware, as from time to time amended
(the "DGCL").
ARTICLE IV
CAPITAL STOCK
4.1. Authorized Capital Stock. The total number of shares of stock
------------------------
that the Corporation shall have authority to issue is forty-million (40,000,000)
shares, thirty-million (30,000,000) of which shares shall be Common Stock having
a par value of $0.01 per share and ten-million (10,000,000) of which shares
shall be Preferred Stock having a par value of $0.01 per share. Except as
otherwise provided by law, the shares of stock of the Corporation, regardless of
<PAGE>
class, may be issued by the Corporation from time to time in such amounts, for
such considerations and for such corporate purposes as the Board of Directors
may from time to time determine.
Shares of Preferred Stock may be issued from time to time in one or
more series of any number of shares as may be determined from time to time by
the Board of Directors, provided that the aggregate number of shares issued and
not cancelled of any and all such series shall not exceed the total number of
shares of Preferred Stock authorized by this Certification of Incorporation.
Each series of Preferred Stock shall be distinctly designated. Except in
respect of the particulars fixed for series by the Board of Directors, provided
that the aggregate number of shares issued and not cancelled of any and all such
series shall not exceed the total number of shares of Preferred Stock authorized
by this Certificate of Incorporation. Each series of Preferred Stock shall be
distinctly designed. Except in respect of the particulars fixed for series by
the Board of Directors as permitted hereby, all shares shall be alike in every
particular, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative. The
voting powers, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each such series and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and the Board of
Directors is hereby expressly granted authority to fix, in the resolution or
resolutions providing for the issue of a particular series of Preferred Stock,
the voting powers, if any, of each such series and the preferences and relative,
participating, optional and other special rights of each such series and the
qualifications, limitations and restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding; and the Board of
Directors is hereby expressly granted authority to fix, in the resolution or
resolutions providing for the issue of a particular series of Preferred Stock,
the voting powers, if any, of each such special series and the designations,
preferences and relative, participating, optional and other special rights of
each such series and the qualifications, limitation and restrictions thereof to
the full extent now or hereafter permitted by this Certificate of Incorporation
and the laws of the State of Delaware.
ARTICLE V
LIABILITY OF DIRECTORS
5.1 Limitation on Liability. (a) No director of the Corporation
-----------------------
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit. If the DGCL is amended after the filing of this
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
-2-
<PAGE>
(b) The Corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to, or testifies in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature, by reason of the fact that
such person 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, employee
benefit plan, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted by law, and the Corporation may adopt Bylaws or enter
into agreements with any such person for the purpose of providing for such
indemnification.
5.2. Amendments. Any repeal or modification of Section 5.1 hereof by
----------
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE VI
STOCKHOLDERS
6.1 Action by Stockholders. Any action required or permitted to be
----------------------
taken by the holders of the issued and outstanding stock of the Corporation may
be effected at an annual or special meeting of stockholders duly called and held
in accordance with law and this Certificate of Incorporation and the Bylaws, or
without a meeting, by written consent, setting forth the action so taken, signed
by the holders of outstanding shares entitled to vote thereon having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a stockholders' meeting at which all shares entitled to vote
thereon were present.
6.2 Special Meetings of Stockholders. Except as otherwise required
--------------------------------
by law, special meetings of stockholders may be called by the Chief Executive
Officer, the Board of Directors pursuant to a resolution adopted by the
affirmative vote of a majority of the entire Board, or the stockholders by a
majority vote of the voting power of all shares of capital stock then entitled
to vote generally in the election of directors, voting as a single class. The
use of the phrase "entire Board" herein refers to the total number of directors
which the Corporation would have if there were no vacancies.
ARTICLE VII
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal
the Bylaws by the affirmative vote of at least a majority of the members then in
office. The stockholders may adopt, amend or repeal the Bylaws upon the
affirmative vote of a majority of the voting power of all shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors, voting as a single class (notwithstanding the fact that approval by a
lesser percentage may be permitted by the DGCL).
-3-
<PAGE>
ARTICLE VIII
AMENDMENT OF
CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation in any manner permitted by law and all rights and powers conferred
upon stockholders, directors and officers herein am granted subject to this
reservation. In addition to any vote otherwise required by law, any such
amendment, alteration, change or repeal shall require approval of either (a) the
Board of Directors by the affirmative vote of a majority of the members then in
office or (b) the holders of a majority of the voting power of all the shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
of Incorporation on this 8th day of May, 1996.
MUZAK, INC.
/s/ David A. Jacobs
----------------------------------------------
David A. Jacobs
Sole Incorporator
-5-
<PAGE>
EXHIBIT 3.6
-----------
FIRST AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
MUZAK, INC.
This First Amendment to Certificate of Incorporation of Muzak, Inc., a
Delaware corporation (the "Corporation"), has been duly prepared and executed
for filing in the State of Delaware in accordance with the provisions of Section
242 of the Delaware General Corporation Law.
1. Article I of the Certificate of Incorporation is hereby amended
to read in its entirety as follows:
"ARTICLE I
NAME
The name of the corporation is "Muzak Capital Corporation" (the
"Corporation")."
IN WITNESS WHEREOF, the undersigned has executed this amendment as of
the 27 day of August, 1996.
By: /s/ John R. Jester
-----------------------------------
Name: John R. Jester
Title President
<PAGE>
EXHIBIT 3.7
-----------
CERTIFICATE OF FORMATION
OF
MLP ENVIRONMENTAL MUSIC, LLC
THIS CERTIFICATE OF FORMATION of MLP ENVIRONMENTAL MUSIC, L.L.C., a Washington
limited liability company, dated December 23, 1998, is filed, pursuant to
Chapter 25.15 of the Revised Code of Washington, by the undersigned for the
purpose of forming a limited liability company.
1. Name. The name of the limited liability company is MLP Environmental
----
Music, LLC.
2. Name and Address of Registered Agent. The name of the initial
------------------------------------
registered agent for service of process on the limited liability company is
Louisa Barash and the address of the initial registered office is 701 Fifth
Avenue, Suite 6100, Seattle, WA 98104.
3. Principal Place of Business. The address of the principal place of
---------------------------
business of the limited liability company is 2901 Third Avenue, Seattle, WA
98121.
4. Date of Dissolution. The limited liability company agreement specifies
-------------------
that the company shall have perpetual existence.
5. Management. The management of the limited liability company is vested
----------
in its sole member.
6. Name and Address of Authorized Person. The name and address of the
-------------------------------------
person executing this certificate is Charles A. Saldarini, 2901 3RD AVE.,
SEATTLE WA 98121.
7. Effective Date. This Certificate shall be effective upon filing.
--------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
date first above written.
AUTHORIZED PERSON:
/s/ Charles A. Saldarini
------------------------
Charles A. Saldarini
<PAGE>
EXHIBIT 3.8
ARTICLES OF INCORPORATION
OF
MUSIC ACQUISITION, INC.
The undersigned, desiring to form a corporation for profit under the
General Corporation Law of Ohio, does hereby certify:
FIRST: The name of said corporation shall be Music Acquisition,
Inc.
SECOND: The place in the State of Ohio where its principal office is
to be located is Cleveland, in Cuyahoga County.
THIRD: The purpose for which it is formed is:
To engage in any lawful acts or activities for which
corporations may be formed under Sections 1701.01 to
1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The maximum number of shares which the corporation is
authorized to have outstanding is Seven Hundred Fifty (750)
shares, all of which shall be common shares without par
value.
FIFTH: No holder of shares of the corporation shall have any
preemptive right to subscribe for or to purchase any shares
of the corporation of any class, whether such shares or such
class be now or hereafter authorized.
SIXTH: The corporation, through its Board of Directors, shall have
the right and power to repurchase any of its outstanding
shares at such price and upon such terms as may be agreed
upon between the corporation and the selling shareholder or
shareholders.
SEVENTH: Notwithstanding any provision of the General Corporation Law
of Ohio now or hereafter in force, requiring for any purpose
the vote or consent of the holders of shares entitling them
to vote two-thirds of the voting power of the corporation or
of any class or classes of shares thereof, such action,
unless otherwise expressly required by statute, may be taken
by the vote or consent of the holders of shares entitling
them to exercise a majority of the voting power of the
corporation or of such class of shares thereof.
<PAGE>
EIGHTH: The amount of capital with which the corporation will begin
business will be not less than Five Hundred Dollars ($500).
IN WITNESS WHEREOF, I have hereunto subscribed my name this 22nd day
of May, 1990.
/s/ Neil McGinness
----------------------------
NEIL McGINNESS, Incorporator
<PAGE>
Exhibit 3.9
CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS OF
MUSIC ACQUISITION, INC.
- --------------------------------------------------------------------------------
(Name of Corporation)
( ) Chairman of the Board
Carl J. Tippit , who is (x) President (check one)
- ----------------------------------------- ( ) Vice President
and Neil McGinness , who is (x) Secretary (check one)
------------------------------- ( ) Assistant Secretary
of the above named Ohio corporation for profit with its principal location at
Cleveland, Ohio do hereby certify that: (check the appropriate box and complete
the appropriate statements)
[X] at a meeting of the Shareholders called and held on the 30/th/ day of
May, 1991, at which meeting all of the shareholders were present and
all voted in favor of the name amendment,
[ ] in a writing signed by all of the Shareholders pursuant to Section
1701.54 of the Revised Code,
the following resolution was adopted:
Resolved: that the First Article of the Articles of Incorporation of this
- --------
Corporation be amended to read as follows:
"The name of this Corporation is "Ohio Sound & Music, Inc."
IN WITNESS WHEREOF, the above named officers acting for and on behalf of
the corporation, have hereunto subscribed their names this 30/th/ day of May,
1991.
By: /s/ Carl J. Tippit
-----------------------------------
President
By: /s/ Neil McGinness
-----------------------------------
Secretary
<PAGE>
Exhibit 3.10
CERTIFICATE OF AMENDMENT
by Shareholders to the Articles of Incorporation of
OHIO SOUND AND MUSIC, INC.
- --------------------------------------------------------------------------------
(Name of Corporation)
Carl J. Tippit , who is:
- --------------------------------------------
[_] Chairman of the Board [X] President [_] Vice President (check one)
and
Neil McGinness , who is: [X] Secretary [_] Assistant Secretary
- ------------------------------
(Check one)
of the above named Ohio corporation organized for profit does hereby certify
that: (check the appropriate box and complete the appropriate statements)
[_] a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on ________________, 19___ at which meeting a
quorum of the shareholders was present in person or by proxy, and by the
affirmative vote of the holders of shares entitled them to exercise _____%
of the voting power of the corporation.
[X] in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for that purpose, the following resolution to
amend the articles was adopted:
Resolved: That the Fourth Article of the Articles of Incorporation of
this Corporation be amended to read as follows: "The maximum
number of shares which the Corporation is authorized to have
outstanding is Five Hundred Thousand (500,000) shares, all
of which shall be common shares, without par value.
IN WITNESS WHEREOF, the above named officers, acting for and on the behalf
of the corporation, have hereunto subscribed their names this 23/rd/ day of
February, 1996.
By /s/ Carl J. Tippit
----------------------------------------
President
By /s/ Neil McGinness
----------------------------------------
Secretary
NOTE: Ohio law does not permit one officer to sign in two capacities, Two
separate signatures are required, even if this necessitates the election of a
second officer before the filing can be made.
<PAGE>
Exhibit 3.11
CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF
Ohio Sound & Music, Inc.
- --------------------------------------------------------------------------------
(Name of Corporation)
Carl J. Tippit , who is:
- ----------------------------------------------
[_] Chairman of the Board [X] President [_] Vice President (Please check one.)
and Neil McGinness , who is:
-------------------------------------------
[X] Secretary [_] Assistant Secretary (Please check one.)
of the above named Ohio corporation organized for profit does hereby certify
that: (Please check the appropriate box and complete the appropriate
statements.)
[X] a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on August 19, 1997 at which meeting a quorum of the
shareholders was present in person or by proxy, and by the affirmative vote
of the holders of shares entitled them to exercise 100% of the voting power
of the corporation.
[_] in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for that purpose, the following resolution to
amend the articles was adopted:
See Attached
IN WITNESS WHEREOF, the above named officers, acting for and on the behalf
of the corporation, have hereunto subscribed their names this 10/th/ day of
September, 1997.
By /s/ Carl J. Tippit By /s/ Neil McGinness
------------------------------------- --------------------------------
(Chairman, President, Vice President) (Secretary, Assistant Secretary)
NOTE: OHIO LAW DOES NOT PERMIT ONE OFFICER TO SIGN IN TWO CAPACITIES, TWO
SEPARATE SIGNATURES ARE REQUIRED, EVEN IF THIS NECESSITATES THE ELECTION OF A
SECOND OFFICER BEFORE THE FILING CAN BE MADE.
<PAGE>
ARTICLE I
---------
The name of the Corporation shall be BUSINESS SOUND, INC.
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Limited Liability Company
Agreement has been duly executed on the day and year first above written.
MUZAK HOLDINGS LLC
By: /s/ Royce Yudkoff
--------------------------------
Name: Royce Yudkoff
Title: Vice President
<PAGE>
EXHIBIT 3.12
CERTIFICATE OF FORMATION
OF
ACN HOLDINGS, LLC
This Certificate of Formation of ACN Holdings, LLC (the "LLC") has
been duly executed and is being filed by the undersigned, as an authorized
person, to form a limited liability company under the Delaware Limited Liability
Act (6 Del. C. (S) 18-101, et. seq.).
------- --------
FIRST. The name of the limited liability company formed hereby is ACN
Holdings, LLC.
SECOND. The address of the registered office of the LLC in the State
of Delaware is c/o Corporation Service Company, 1301 Centre Road, Wilmington,
New Castle County, Delaware 19805.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware is Corporation Service Company, 1301
Centre Road, Wilmington, New Castle County, Delaware 19805.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
of Formation as of this 28th day of August, 1998.
/s/ Royce Yudkoff
-----------------
Royce Yudkoff
Authorized Person
<PAGE>
EXHIBIT 3.13
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF FORMATION
OF
ACN HOLDINGS, LLC
It is hereby certified that:
1. The name of the limited liability company (hereinafter called the
"limited liability company") is ACN Holdings, LLC
2. The certificate of formation of the limited liability company is
hereby amended by striking out Article First thereof and by substituting in lieu
of said Article First the following:
"First: The name of the limited liability company is Muzak Holdings
LLC"
IN WITNESS WHEREOF, the undersigned has duly executed this Amendment
to the Certificate of Formation as of this 15th day of March 1999.
ACN Holdings, LLC
By: /s/ Peni Garber
---------------------------
Name: Peni Garber
Title: Secretary
<PAGE>
EXHIBIT 3.14
EXECUTION COPY
================================================================================
______________________________________
MUZAK LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
______________________________________
DATED AS OF MARCH 18, 1999
================================================================================
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
GENERAL................................................................ -1-
1.1 Definitions...................................................... -1-
1.2 Construction..................................................... -5-
ARTICLE 2
ORGANIZATION........................................................... -5-
2.1 Formation........................................................ -5-
2.2 Name............................................................. -6-
2.3 Registered Office and Registered Agent........................... -6-
2.4 Term............................................................. -6-
2.5 Purposes and Powers.............................................. -6-
ARTICLE 3
UNITS; MEMBERSHIP...................................................... -6-
3.1 Units Generally; Membership Interests............................ -6-
3.2 Authorization and Issuance of Units.............................. -6-
3.3 Unit Certificates................................................ -7-
3.4 Issuance of Units................................................ -7-
3.5 New Members from the Issuance of Units........................... -7-
ARTICLE 4
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS............................. -8-
4.1 Capital Contributions............................................ -8-
4.2 Capital Accounts................................................. -8-
4.3 Negative Capital Accounts........................................ -9-
4.4 No Withdrawal.................................................... -10-
4.5 Loans From Members............................................... -10-
4.6 Status of Capital Contributions.................................. -10-
ARTICLE 5
ALLOCATIONS OF PROFITS AND LOSSES...................................... -10-
5.1 Allocation of Profits and Losses................................. -10-
5.2 Regulatory and Special Allocations............................... -10-
5.3 Curative Allocations............................................. -11-
5.4 Tax Allocations.................................................. -12-
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
ARTICLE 6
DISTRIBUTIONS......................................................... -12-
6.1 Generally....................................................... -12-
6.2 Distributions................................................... -13-
ARTICLE 7
MANAGEMENT OF THE COMPANY............................................. -13-
7.1 Board of Directors.............................................. -13-
7.2 Officers........................................................ -15-
7.3 Fiduciary Duties................................................ -16-
7.4 Performance of Duties; Liability of Directors and Officers...... -16-
7.5 Indemnification................................................. -17-
ARTICLE 8
MEMBERS; VOTING RIGHTS................................................ -17-
8.1 Meetings of Members............................................. -17-
8.2 Voting Rights................................................... -18-
8.3 Registered Members.............................................. -18-
8.4 Limitation of Liability......................................... -19-
8.5 Withdraw; Resignation........................................... -19-
8.6 Authority....................................................... -19-
ARTICLE 9
TAXES................................................................. -19-
9.1 Tax Status...................................................... -19-
ARTICLE 10
TRANSFER OF UNITS..................................................... -19-
10.1 Restrictions.................................................... -19-
10.2 General Restrictions on Transfer................................ -19-
10.3 Procedure for Transfers......................................... -20-
10.4 Legend.......................................................... -20-
10.5 Limitations..................................................... -21-
10.6 Pledge of Units................................................. -21-
ARTICLE 11
DISSOLUTION AND LIQUIDATION........................................... -22-
11.1 Dissolution..................................................... -22-
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
11.2 Liquidation..................................................... -22-
ARTICLE 12
GENERAL/MISCELLANEOUS PROVISIONS...................................... -24-
12.1 Notices......................................................... -24-
12.2 Governing Law................................................... -24-
12.3 Entire Agreement................................................ -24-
12.4 Effect of Waiver or Consent..................................... -24-
12.5 Amendment or Modification....................................... -24-
12.6 Binding Effect.................................................. -24-
12.7 Counterparts.................................................... -25-
12.8 Severability.................................................... -25-
12.9 Headings........................................................ -25-
12.10 Parties in Interest............................................. -25-
12.11 Further Assurances.............................................. -25-
12.12 Specific Performance; Remedies.................................. -25-
</TABLE>
(iii)
<PAGE>
MUZAK LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
-----------------------------------
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of Muzak LLC,
the successor entity to the merger of Muzak Limited Partnership with and into
Audio Communications Network, LLC (the "Company"), is made as of March 18, 1999,
-------
by and among each of the Persons executing this Agreement and listed on the
Member Schedule (as herein defined).
WHEREAS, as of immediately prior to the date hereto, the Company's limited
liability company agreement is that certain Amended and Restated Limited
Liability Company Agreement of Audio Communications Network, LLC, dated as of
December 1, 1998 (the "Original Agreement"); and
------------------
WHEREAS, Muzak Holdings LLC (f/n/a ACN Holdings, LLC) ("Muzak Holdings"),
--------------
being the sole Member of the Company as of the date hereof, desires to amend and
restate the Original Agreement in its entirety as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and other good and valuable consideration, the Members hereby agree
as follows:
ARTICLE 1
GENERAL
1.1 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the following meanings:
"Adjusted Capital Account Deficit" means, with respect to any Member,
--------------------------------
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Taxable Year, after giving effect to the following adjustments:
(i) Crediting to such Capital Account any amount which such Member is
obligated to restore or is deemed to be obligated to restore pursuant to
Treasury Regulation Sections 1.704-1(b)(2)(ii)(c), 1.704-2 (g)(1), and
1.704-2(i); and
(ii) Debiting to such Capital Account the items described in Treasury
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Agreement" means this Amended and Restated Limited Liability Company
---------
Agreement, as originally executed and as may be amended, modified, supplemented
or restated from time to time.
<PAGE>
"Bankruptcy" means, with respect to a Member, (i) that such Member has
----------
(A) made an assignment for the benefit of creditors; (B) filed a voluntary
petition in bankruptcy; (C) been adjudged bankrupt or insolvent, or had entered
against such Member an order of relief in any bankruptcy or insolvency
proceeding; (D) filed a petition or an answer seeking for such Member any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation or filed an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against such Member in any proceeding of such nature; or (E)
sought, consented to, or acquiesced in the appointment of a trustee, receiver or
liquidator of such Member or of all or any substantial part of such Member's
properties; (ii) 120 days have elapsed after the commencement of any proceeding
against such Member seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation and such proceeding has not been dismissed; or (iii) 90 days have
elapsed since the appointment without such Member's consent or acquiescence of a
trustee, receiver or liquidator of such Member or of all or any substantial part
of such Member's properties and such appointment has not been vacated or stayed
or the appointment is not vacated within 90 days after the expiration of such
stay.
"Book Value" means, with respect to any Company property, the
----------
Company's adjusted basis for federal income tax purposes, adjusted from time to
time to reflect the adjustments required or permitted by Treasury Regulation
Section 1.704-1(b)(2)(iv)(d)--(g); provided that the Book Value of each asset of
the Company shall be adjusted as of the date of this Agreement pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(f) in a manner determined by the
Board so that the aggregate Book Value of the Company's assets (net of the
Company's liabilities) as of such date is equal to the aggregate initial Capital
Account balances of the Members (immediately after the Member's Capital
Contribution is made).
"Capital Account" means the capital account maintained for a Member
---------------
pursuant to Section 4.2.
"Capital Contribution" means the cash and/or agreed fair market value
--------------------
of any asset or property of any nature contributed by a Member to the Company
pursuant to the provisions of this Agreement.
"Certificate" means the Certificate of Formation, as such Certificate
-----------
of Formation may be amended, supplemented or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Common Unit" means a Unit having the rights and obligations specified
-----------
with respect to "Common Units" in this Agreement.
"Company Minimum Gain" has the meaning set forth for "partnership
--------------------
minimum gain" in Treasury Regulation Section 1.704-2(d).
-2-
<PAGE>
"Delaware Act" means the Delaware Limited Liability Company Act, as
------------
the same may be amended from time to time.
"Liquidating Distribution" means any distribution pursuant to Section
------------------------
11.2 hereof.
"Majority of the Board" means, at any time, a combination of any of
---------------------
the then Directors constituting more than fifty percent (50%) of the number of
Directors who are then elected and qualified.
"Majority in Voting Interest" means, at any time, a Member or Members
---------------------------
which own a majority of the Voting Units outstanding at such time.
"Member Minimum Gain" with respect to each Member Nonrecourse Debt,
-------------------
means the amount of Company Minimum Gain (as determined according to Treasury
Regulation Section 1.704-2(d)(1)) that would result if such Member Nonrecourse
Debt were treated as a nonrecourse liability, determined in accordance with
Treasury Regulation Section 1.704-2(i)(3).
"Member Nonrecourse Debt" has the meaning set forth in Treasury
-----------------------
Regulation Section 1.704-2(b)(4), substituting the term "Company" for the term
"partnership" and the term "Member" for the term "partner" as the context
requires.
"Member Nonrecourse Deduction" has the meaning set forth in Treasury
----------------------------
Regulation Section 1.704-2(i), substituting the term "Member" for the term
"partner" as the context requires.
"Members" means each Person identified on the Member Schedule as of
-------
the date hereof who has executed this Agreement or a counterpart hereof and each
Person who may hereafter be admitted as a Member in accordance with the terms of
this Agreement. The Members shall constitute the "members" (as that term is
defined in the Delaware Act) of the Company.
"Membership Interest" means the interest acquired by a Member in the
-------------------
Company, including such Member's right (based on the type and class of Unit or
Units held by such Member), if any, (a) to a distributive share of Profits,
Losses, and other items of income, gain, loss, deduction and credits of the
Company, (b) to a distributive share of the assets of the Company, (c) to vote
on, consent to or otherwise participate in any decision of the Members, and (d)
to any and all other benefits to which such Member may be entitled as provided
in this Agreement or the Delaware Act.
"Nonrecourse Deductions" has the meaning set forth in Treasury
----------------------
Regulation Section 1.704-2(b) (substituting the term "Company" for the term
"partnership" as the context requires).
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
-3-
<PAGE>
"Public Offering" means an underwritten public offering and sale of
---------------
Common Units pursuant to an effective registration statement under the
Securities Act; provided that a Public Offering shall not include an offering
made in connection with a business acquisition or combination pursuant to a
registration statement on Form S-4 or any similar form, or an employee benefit
plan pursuant to a registration statement on Form S-8 or any similar form.
"Public Sale" means any sale of Registered Securities to the public
-----------
pursuant to an offering registered under the Securities Act or, after the
consummation of an initial Public Offering, to the public pursuant to the
provisions of Rule 144 (or any similar rule or rules then in effect) under the
Securities Act.
"Restricted Securities" means (a) all Units issued by the Company and
---------------------
(b) any securities issued with respect to, or in exchange for, the Units
referred to in clause (a) above in connection with a conversion, combination of
units or shares, recapitalization, merger, consolidation or other
reorganization, including in connection with the consummation of any
reorganization plan. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have been Transferred pursuant
to a Public Sale.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a partnership, limited liability
company, association or other business entity if such Person or Persons shall be
allocated a majority of partnership, limited liability company, association or
other business entity gains or losses or shall be or control the managing
director, manager or a general partner of such partnership, limited liability
company, association or other business entity.
"Taxable Year" means the Company's taxable year ending on or about
------------
December 31 (or part thereof in the case of the Company's first and last taxable
year), or such other year as is (i) required by Section 706 of the Code or (ii)
determined by the Board (if no year is so required by Section 706 of the Code).
"Transfer" means any direct or indirect sale, transfer, conveyance,
--------
assignment, hypothecation, gift, delivery or other disposition (other than a
pledge).
"Treasury Regulations" shall mean that except where the context
--------------------
indicates otherwise, the final, temporary, proposed, or proposed and temporary
regulations of the Department of the Treasury under the Code as such regulations
may be lawfully changed from time to time.
-4-
<PAGE>
"Unit" means a unit representing a fractional part of the Membership
----
Interests of all of the Unitholders and shall include all types and classes of
Units; provided that any type or class of Unit shall have the designations,
preferences and/or special rights set forth in this Agreement and the Membership
Interests represented by such type or class of Unit shall be determined in
accordance with such designations, preferences and/or special rights.
"Unitholder" means with respect to any Unit, the record holder thereof
----------
as evidenced on the Member Schedule.
"Voting Units" means the Common Units.
------------
1.2 Construction. Whenever the context requires, the gender of all words
------------
used in this Agreement includes the masculine, feminine and neuter and the
singular number includes the plural number and vice versa. All references to
Articles and Sections refer to articles and sections of this Agreement, and all
references to Schedules are to Schedules attached hereto, each of which is made
a part hereof for all purposes.
ARTICLE 2
ORGANIZATION
2.1 Formation.
---------
(a) The Company was formed upon the filing of the Certificate of
Formation of the Company (the "Certificate of Formation") with the Secretary of
------------------------
State of the State of Delaware on August 28, 1998, pursuant to the Delaware Act.
This Agreement shall constitute the "limited liability company agreement" (as
that term is used in the Delaware Act) of the Company. The rights, powers,
duties, obligations and liabilities of the Members shall be determined pursuant
to the Delaware Act and this Agreement. To the extent that the rights, powers,
duties, obligations and liabilities of any Member are different by reason of any
provision of this Agreement than they would be in the absence of such provision,
this Agreement shall, to the extent permitted by the Delaware Act, control.
(b) Any officer of the Company as an "authorized person" within the
meaning of the Delaware Act, shall, at any time he or she becomes aware that any
statement in the Certificate was false when made, that any matter described
therein has changed making the Certificate false in any material respect, or
that the applicable Members have approved an amendment to the Certificate in
accordance with the terms hereof, promptly execute, deliver and file any and all
amendments thereto and restatements thereof in accordance with the Delaware Act.
(c) At the time the Company has more than one Member, the Company
shall be treated as a partnership for federal, foreign, state and local income
tax purposes, and each Member and the Company shall file all tax returns and
shall otherwise take all tax and financial reporting positions in a manner
consistent with such treatment. The Company shall not be deemed a partnership
or joint venture for any other purpose.
-5-
<PAGE>
2.2 Name. The name of the Company is "Muzak LLC" or such other name or
----
names as the Board may from time to time designate; provided, that the name
shall always contain the words "Limited Liability Company", "LLC" or "L.L.C."
2.3 Registered Office and Registered Agent. The Company's registered
--------------------------------------
office shall be at Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware, 19805, and the name of its initial registered agent at such address
shall be Corporation Service Company.
2.4 Term. The term of existence of the Company shall be perpetual from
----
the date the Certificate of Formation was filed with the Secretary of State of
Delaware, unless the Company is dissolved in accordance with the provisions of
this Agreement.
2.5 Purposes and Powers. The purposes and character of the business of
-------------------
the Company shall be to transact any or all lawful business for which limited
liability companies may be organized under the Delaware Act. The Company shall
have any and all powers which are necessary or desirable to carry out the
purposes and business of the Company, including the ability to incur and
guaranty indebtedness, to the extent the same may be legally exercised by
limited liability companies under the Delaware Act. The Company shall carry out
the foregoing activities pursuant to the arrangements set forth in this
Agreement. Notwithstanding anything herein to the contrary, nothing set forth
herein shall be construed as authorizing the Company to possess any purpose or
power, or to do any act or thing, forbidden by law to a limited liability
company organized under the laws of the State of Delaware.
ARTICLE 3
UNITS; MEMBERSHIP
3.1 Units Generally; Membership Interests. The Membership Interests of
-------------------------------------
the Members shall be represented by issued and outstanding Units, which may be
divided into one or more types or classes, with each type or class having the
rights and privileges, including voting rights, if any, set forth in this
Agreement. The Secretary of the Company shall maintain a schedule of all
Members from time to time, their respective mailing addresses and the Units held
by them (as the same may be amended, modified or supplemented from time to time,
the "Member Schedule"), a copy of which as of the date hereof is attached hereto
---------------
as Schedule A. The Members shall have no interest in the Company other than the
----------
interests conferred by this Agreement and represented by the Units, which shall
be deemed to be personal property giving only the rights conferred by this
Agreement. Ownership of a Unit (or fraction thereof) shall not entitle a
Unitholder to call for a partition or division of any property of the Company or
for any accounting.
3.2 Authorization and Issuance of Units.
-----------------------------------
(a) Common Units. The Company hereby authorizes the issuance of
------------
Common Units, 100 of which shall be issued on the date hereof as set forth on
the Members Schedule (as in effect on the date hereof).
-6-
<PAGE>
(b) Additional Units. Except as expressly provided by this Agreement,
----------------
the Company shall not authorize, issue or sell, or cause to be authorized,
issued or sold, any Units.
3.3 Unit Certificates.
-----------------
(a) The Units are securities governed by Article 8 of the Uniform
Commercial Code (the "UCC"), shall be represented by certificates and are
---
"certificated securities" as defined in Article 8 of the UCC. Each such
certificate shall be signed by an officer of the Company, certifying the number
of Units owned by the holder of such Units and stating the type and class of
such Units. All certificates for each type and class of Units shall be
consecutively numbered or otherwise identi fied. The name of the Person to
whom the Units represented thereby are issued, with the number, type and class
of Units and date of issue, shall be entered on the books of the Company and,
until such Units are transferred on the books of the Company (including the
Member Schedule), such Person shall be deemed to be the owner of such Units for
all purposes. Units shall only be transferred on the books of the Company
(including the Member Schedule) by the holder of record thereof or by such
holder's attorney duly authorized in writing, upon surrender to the Company of
the certificate(s) for such Units endorsed by the appropriate Person(s), with
such evidence of the authenticity of such endorsement, transfer, authorization,
and other matters as the Company may reasonably require, and accompanied by all
necessary transfer stamps. In that event, provided all other conditions to
transfer have been met, it shall be the duty of the Company to issue a new
certificate to the Person entitled thereto, cancel the old certificate(s), and
record the transaction on its books (including the Member Schedule).
(b) Any officer of the Company may direct a new certificate(s) to be
issued in place of any certificate(s) previously issued by the Company alleged
to have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen, or destroyed.
When authorizing such issue of a new certificate(s), such officer may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate(s), or his or her legal
representative, to give the Company a bond sufficient to indemnify the Company
against any claim that may be made against the Company on account of the loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
3.4 Issuance of Units. The Company (with the approval of the Board) shall
-----------------
have the right to issue any authorized but unissued Units; provided, that the
Company shall not issue any Units to any Person unless such Person has executed
and delivered to the Secretary of the Company the documents described in Section
3.5 hereof.
3.5 New Members from the Issuance of Units. In order for a Person to be
--------------------------------------
admitted as a Member of the Company pursuant to the issuance of Units to such
Person such Person shall have executed and delivered to the Secretary of the
Company a written undertaking to be bound by the terms and conditions of this
Agreement substantially in the form of Exhibit A hereto. Upon the amendment of
---------
the Member Schedule by the Secretary of the Company and the satisfaction of any
other applicable conditions, including the receipt by the Company of payment for
the issuance of the applicable Units, such Person shall be admitted as a Member
and deemed listed as such on the books and records of the Company and thereupon
shall be issued his or its Units.
-7-
<PAGE>
ARTICLE 4
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
4.1 Capital Contributions.
---------------------
(a) Muzak Holdings, the sole Member of the Company as of the date
hereof, is deemed to have made all of the Capital Contributions made to the
Company on or prior to the date hereof and is deemed to own the number, type and
class of Units in the amounts set forth opposite such Member's name on the
Member Schedule as in effect on the date hereof.
(b) At any time the Members may make additional Capital Contributions
to the Company provided that any such additional Capital Contributions are made
by all Members pro rata based upon the number of the then issued and outstanding
Common Units. Except as expressly provided herein, no Member, in its capacity
as a Member, shall have the right to receive any other cash or any property of
the Company.
4.2 Capital Accounts.
----------------
(a) Maintenance Rules. The Company shall maintain for each Member a
-----------------
separate capital account (a "Capital Account") in accordance with this Section
---------------
4.2(a), which shall control the division of assets upon liquidation of the
Company to the extent provided in Section 11.2(b)(iii). Each Capital Account
shall be maintained in accordance with the following provisions:
(i) Such Capital Account shall be increased by the cash amount
or Book Value of any property contributed by such Member to the
Company pursuant to this Agreement, such Member's allocable share of
Profits and any items in the nature of income or gains which are
specially allocated to such Member pursuant to Section 5.2 or Section
5.3, and the amount of any liabilities of the Company assumed by such
Member or which are secured by any property distributed to such
Member.
(ii) Such Capital Account shall be decreased by the cash amount
or Book Value of any property distributed to such Member pursuant to
this Agreement, such Member's allocable share of Losses and any items
of in the nature of deductions or losses which are specially allocated
to such Member pursuant to Section 5.2 or Section 5.3, and the amount
of any liabilities of such Member assumed by the Company or which are
secured by any property contributed by such Member to the Company.
(iii) If all or any portion of a Unit is transferred in
accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it
relates to the transferred Unit (or portion thereof).
-8-
<PAGE>
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Section 1.704-
1(b) of the Treasury Regulations and shall be interpreted and applied in a
manner consistent with such Treasury Regulations. If the Board determines that
it is prudent to modify the manner in which the Capital Accounts, or any
increases or decreases to the Capital Accounts, are computed in order to comply
with such Treasury Regulations, the Board may authorize such modifications.
(b) Definition of Profits and Losses. "Profits" and "Losses" mean,
-------------------------------- ------- ------
for each Taxable Year or other period, an amount equal to the Company's taxable
income or loss for such Taxable Year or other period, determined in accordance
with Code Section 703(a) (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(i) The computation of all items of income, gain, loss and
deduction shall include tax-exempt income and those items described in
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), without regard to
the fact that such items are not includable in gross income or are not
deductible for federal income tax purposes.
(ii) If the Book Value of any Company property is adjusted
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f),
the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such property.
(iii) Items of income, gain, loss or deduction attributable to
the disposition of Company property having a Book Value that differs
from its adjusted basis for tax purposes shall be computed by
reference to the Book Value of such property.
(iv) Items of depreciation, amortization and other cost
recovery deductions with respect to Company property having a Book
Value that differs from its adjusted basis for tax purposes shall be
computed by reference to the property's Book Value in accordance with
Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
(v) To the extent an adjustment to the adjusted tax basis of
any Company property pursuant to Code Sections 732(d), 734(b) or
743(b) is required, pursuant to Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall
be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis).
4.3 Negative Capital Accounts. If any Member has a deficit balance in its
-------------------------
Capital Account, such Member shall have no obligation to restore such negative
balance or to make any Capital Contributions to the Company by reason thereof,
and such negative balance shall not be considered an asset of the Company or of
any Member.
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4.4 No Withdrawal. No Member shall be entitled to withdraw any part of
-------------
its Capital Contribution or Capital Account or to receive any distribution from
the Company, except as expressly provided herein.
4.5 Loans From Members. Loans by Members to the Company shall not be
------------------
considered Capital Contributions.
4.6 Status of Capital Contributions.
-------------------------------
(a) No Member shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account, except as otherwise
specifically provided in this Agreement.
(b) Except as otherwise provided herein and by applicable state law,
no Member shall be required to lend any funds to the Company or to make any
additional Capital Contributions to the Company. No Member shall have any
personal liability for the repayment of any Capital Contribution of any other
Member.
ARTICLE 5
ALLOCATIONS OF PROFITS AND LOSSES
5.1 Allocation of Profits and Losses.
--------------------------------
(a) Allocation of Profits. After giving effect to the allocations set
---------------------
forth in Section 5.2 and Section 5.3, Profits for any Taxable Year (or other
period) shall be allocated to the Members pro rata (based upon the number of
Common Units) in accordance with their ownership of Common Units.
(b) Allocation of Losses. After giving effect to the allocations set
--------------------
forth in Section 5.2 and Section 5.3, Losses for any Taxable Year (or other
period) shall be allocated to the Members pro rata (based upon the number of
Common Units) in accordance with their ownership of Common Units.
5.2 Regulatory and Special Allocations. Notwithstanding the provisions of
----------------------------------
Section 5.1:
(a) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or 743(b) is required to be taken
into account in determining Capital Accounts, the amount of such adjustment to
the Capital Accounts shall be treated, as provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), as an item of Profits (if the adjustment increases
the basis of the asset) or Losses (if the adjustment decreases such basis) and
such Profits or Losses shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Treasury Regulations.
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(b) If there is a net decrease in Company Minimum Gain (determined
according to Treasury Regulation Section 1.704-2(d)(1)) during any Taxable Year,
each Member shall be specially allocated Profits for such Taxable Year (and, if
necessary, subsequent Taxable Years) in an amount equal to such Member's share
of the net decrease in Company Minimum Gain, determined in accordance with
Treasury Regulation Section 1.704-2(g). The items to be so allocated shall be
determined in accordance with Treasury Regulation Sections 1.704-2(f)(6) and
1.704-2(j)(2). This paragraph is intended to comply with the minimum gain
chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
(c) Member Nonrecourse Deductions shall be allocated in the manner
required by Treasury Regulation Section 1.704-2(i). Except as otherwise
provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net
decrease in Member Minimum Gain during any Taxable Year, each Member that has a
share of such Member Minimum Gain shall be specially allocated Profits for such
Taxable Year (and, if necessary, subsequent Taxable Years) in an amount equal to
that Member's share of the net decrease in Member Minimum Gain. Items to be
allocated pursuant to this paragraph shall be determined in accordance with
Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2). This paragraph is
intended to comply with the minimum gain chargeback requirements in Treasury
Regulation Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(d) In the event any Member unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), Profits shall be specially allocated to such
Member in an amount and manner sufficient to eliminate the Adjusted Capital
Account Deficit created by such adjustments, allocations or distributions as
quickly as possible. This paragraph is intended to comply with the qualified
income offset requirement in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
(e) The allocations set forth in paragraphs (a), (b), (c) and (d)
above (the "Regulatory Allocations") are intended to comply with certain
----------------------
requirements of the Treasury Regulations under Code Section 704.
Notwithstanding any other provisions of this Article 4 (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating Profits and Losses among Members so that, to the extent possible,
the net amount of such allocations of Profits and Losses and other items and the
Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to such Member if the Regulatory Allocations had not
occurred.
5.3 Curative Allocations. If the Board determines, after consultation
--------------------
with counsel experienced in income tax matters, that the allocation of any item
of Company income, gain, loss, deduction or credit is not specified in this
Article 5 (an "unallocated item"), or that the allocation of any item of Company
income, gain, loss, deduction or credit hereunder is clearly inconsistent with
the Members' economic interests in the Company (determined by reference to the
general principles of Treasury Regulation Section 1.704-1(b) and the factors set
forth in Treasury Regulation Section 1.704-1(b)(3)(ii)) (a "misallocated item"),
then the Board may allocate such unallocated items, or reallocate such
misallocated items, to reflect such economic interests; provided that no such
allocation will be made without the prior consent of each Member that would be
affected thereby
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(which consent no such Member may unreasonably withhold) and provided further
that no such allocation shall have any material effect on the amounts
distributable to any Member, including the amounts to be distributed upon the
complete liquidation of the Company.
5.4 Tax Allocations.
---------------
(a) All income, gains, losses, deductions and credits of the Company
shall be allocated, for federal, state and local income tax purposes, among the
Members in accordance with the allocation of such income, gains, losses,
deductions and credits among the Members for computing their Capital Accounts,
except that if any such allocation for tax purposes is not permitted by the Code
or other applicable law, the Company's subsequent income, gains, losses,
deductions and credits shall be allocated among the Members for tax purposes, to
the extent permitted by the Code and other applicable law, so as to reflect as
nearly as possible the allocation set forth herein in computing their Capital
Accounts.
(b) Items of Company taxable income, gain, loss and deduction with
respect to any property contributed to the capital of the Company shall be
allocated among the Members in accordance with Code Section 704(c) and the
traditional method of Treasury Regulation Section 1.704-3(b) so as to take
account of any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its Book Value.
(c) If the Book Value of any Company property is adjusted pursuant to
Section 4.2, subsequent allocations of items of taxable income, gain, loss and
deduction with respect to such property shall take account of any variation
between the adjusted basis of such property for federal income tax purposes and
its Book Value in the same manner as under Code Section 704(c).
(d) Allocations of tax credit, tax credit recapture, and any items
related thereto shall be allocated to the Members according to their interests
in such items as determined by the Board taking into account the principles of
Treasury Regulation Section 1.704-1(b)(4)(ii).
(e) Allocations pursuant to this Section 5.4 are solely for purposes
of federal, state and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Profits,
Losses, distributions or other items pursuant to any provisions of this
Agreement.
ARTICLE 6
DISTRIBUTIONS
6.1 Generally.
---------
(a) Subject to Section 6.2, the Board shall have sole discretion
regarding the amounts and timing of distributions to Members, in each case
subject to the retention and establishment of reserves of, or payment to third
parties of, such funds as it deems necessary with
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respect to the reasonable business needs of the Company which shall include the
payment or the making of provision for the payment when due of the Company's
obligations, including the payment of any management or administrative fees and
expenses or any other obligations.
(b) Notwithstanding any provision to the contrary contained in this
Agreement, the Company shall not make any distribution to Members if such
distribution would violate Section 18-607 of the Delaware Act or other
applicable law or if such distribution would violate any of the Company's debt
financing agreements.
6.2 Distributions. Except as provided in Section 11.2(b), distributions to
-------------
be made by the Company on any date shall be made to the Members (with such
distribution to the Members to be divided among such Members pro rata in
accordance with their Common Units).
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 Board of Directors.
------------------
(a) Establishment. There is hereby established a committee (the
-------------
"Board") comprised of natural persons (the "Directors") having the authority and
----- ---------
duties set forth in this Agreement. Each Director shall be entitled to one
vote. Any decisions to be made by the Board shall require the approval of a
majority of the votes of the then Directors. Except as provided in the
immediately preceding sentence, no Director acting alone, or with any other
Director or Directors, shall have the power to act for or on behalf of, or to
bind the Company. Each Director shall be a "manager" (as that term is defined
in the Delaware Act) of the Company, but, notwithstanding the foregoing, no
Director shall have any rights or powers beyond the rights and powers granted to
such Director in this Agreement. Directors need not be residents of the State
of Delaware.
(b) Powers. The business and affairs of the Company shall be managed
------
by or under the direction of the Board.
(c) Number of Directors; Term of Office. The authorized number of
-----------------------------------
Directors shall, as of the date hereof, continue to be one Director and,
hereafter, the authorized number of Directors may be increased or decreased by
the Board. The Directors shall, except as hereinafter otherwise provided for
filling vacancies, be elected by vote of the Members and shall hold office until
their respective successors are elected and qualified or until their earlier
resignation or removal.
(i) Holders of a majority of the outstanding Voting Units may
remove, with or without cause, any Director and fill the vacancy.
Vacancies caused by any such removal by the Members and not filled by the
Members at the meeting at which such removal shall have been made or
pursuant to the applicable written consent of the Members, may be filled by
a majority of the votes of the Directors then in office, although less than
a quorum, and any Director so elected to fill any such vacancy
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<PAGE>
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.
(ii) A Director may resign at any time by giving written notice
to that effect to the Board. Any such resignation shall take effect at the
time of the receipt of that notice or any later effective time specified in
that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any
vacancy caused by any such resignation or by the death of any Director or
any vacancy for any other reason (including due to the authorization by the
Members of a newly created Directorship) and not filled by the Members may
be filled by the affirmative vote of a majority of the Directors then in
office, although less than a quorum, and any Director so elected to fill
any such vacancy shall hold office until his successor is elected and
qualified or until his earlier resignation or removal.
(d) Meetings of the Board. The Board shall meet at such time and at
---------------------
such place (either within or without the State of Delaware) as the Board may
designate. Special meetings of the Board shall be held on the call of any
Director upon at least four (4) days (if the meeting is to be held in person) or
two (2) days (if the meeting is to be held by telephone communications) oral or
written notice to the Directors, or upon such shorter notice as may be approved
by all of the Directors. Any Director may waive such notice as to himself. A
record shall be maintained by the Secretary of the Company of each meeting of
the Board.
(i) Conduct of Meetings. Any meeting of the Directors may be
-------------------
held in person or telephonically.
(ii) Quorum. A Majority of the Board shall constitute a quorum
------
of the Board for purposes of conducting business. If a quorum shall not be
present at any meeting of the Board, then the Directors present at the
meeting may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. A
Director may vote or be present at a meeting either in person or by proxy.
(iii) Attendance and Waiver of Notice. Attendance of a Director
-------------------------------
at any meeting shall constitute a waiver of notice of such meeting, except
where a Director attends a meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board need be
specified in the notice or waiver of notice of such meeting.
(iv) Actions Without a Meeting. Notwithstanding any provision
-------------------------
contained in this Agreement, any action of the Board may be taken by
written consent without a meeting. Any such action taken by the Board
without a meeting shall be effective only if the written consent or
consents are in writing, set forth the action so taken,
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<PAGE>
and are signed by a Majority of the Board, or such greater number of
the Directors that would be necessary to take such action at a meeting
of the Board.
(e) Compensation of the Directors. Directors, as such, shall not
-----------------------------
receive any stated salary for their services, but shall receive such
compensation for their services as may be from time to time agreed upon by a
Majority in Voting Interest. In addition, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board, provided that nothing contained in this Agreement shall be
construed to preclude any Director from serving the Company or any of its
Subsidiaries in any other capacity and receiving compensation for such service.
(f) Appointment of Director. Royce Yudkoff is hereby designated as
-----------------------
the Director of the Company until his successor has been duly appointed and
qualified, or until his earlier death, resignation or removal in accordance with
the terms and conditions of this Agreement.
7.2 Officers.
--------
(a) Appointment of Officers. The Board shall appoint individuals as
-----------------------
officers ("officers") of the Company, which shall include (i) a Chief Executive
--------
Officer, (ii) a Treasurer, (iii) a Secretary and (iv) such other officers (such
as a President or any number of Vice Presidents) as the Board deems advisable.
No officer need be a Member or a Director. An individual can be appointed to
more than one office. Each officer of the Company shall be a "manager" (as that
term is used in the Delaware Act) of the Company, but, notwithstanding the
foregoing, no officer of the Company shall have any rights or powers beyond the
rights and powers granted to such officer in this Agreement. The officers of
the Company as of the date hereof are listed on the attached Schedule A.
----------
(b) Duties of Officers Generally. Under the direction of and, at all
----------------------------
times, subject to the authority of the Board, the officers shall have full and
complete discretion to manage and control the day-to-day business, operations
and affairs of the Company in the ordinary course of its business, to make all
decisions affecting the day-to-day business, operations and affairs of the
Company in the ordinary course of its business and to take all such actions as
he or she deems necessary or appropriate to accomplish the foregoing. In
addition, the officers shall have such other powers and duties as may be
prescribed by the Board or this Agreement. The Chief Executive Officer shall
have the power and authority to delegate to any agents or employees of the
Company rights and powers of officers of the Company to manage and control the
day-to-day business, operations and affairs of the Company in the ordinary
course of its business, as the Chief Executive Officer may deem appropriate from
time to time.
(c) Authority of Officers. Subject to Section 7.2(b), any officer of
---------------------
the Company shall have the right, power and authority to transact business in
the name of the Company or to act for or on behalf of or to bind the Company.
With respect to all matters within the ordinary course of business of the
Company, third parties dealing with the Company may rely conclusively upon any
certificate of any officer to the effect that such officer is acting on behalf
of the Company.
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<PAGE>
(d) Removal, Resignation and Filling of Vacancy of Officers. The
-------------------------------------------------------
Board may remove any officer, for any reason or for no reason, at any time. Any
officer may resign at any time by giving written notice to the Board, and such
resignation shall take effect at the date of the receipt of that notice or any
later time specified in that notice; provided, that unless otherwise specified
in that notice, the acceptance of the resignation shall not be necessary to make
it effective. Any such resignation shall be without prejudice to the rights, if
any, of the Company or such officer under this Agreement. A vacancy in any
office because of death, resignation, removal or otherwise shall be filled in
the manner prescribed in this Agreement for regular appointments to that office.
(e) Compensation of Officers. The officers shall be entitled to
------------------------
receive compensation from the Company as determined by the Board.
(f) Chief Executive Officer. Under the direction of and, at all
-----------------------
times, subject to the authority of the Board, the Chief Executive Officer shall
have general supervision over the day-to-day business, operations and affairs of
the Company. The Chief Executive Officer shall have such other powers and
perform such other duties as may from time to time be prescribed by the Board.
(g) Treasurer. The Treasurer shall keep and maintain, or cause to be
---------
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Company, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, capital and Units.
The Treasurer shall have the custody of the funds and securities of the Company,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Company. The Treasurer shall have such other powers and
perform such other duties as may from time to time be prescribed by the Board.
(h) Secretary. The Secretary shall (i) keep the minutes of the
---------
meetings of the Members and the Board in one or more books provided for that
purpose; (ii) see that all notices are duly given in accordance with the
provisions of this Agreement and as required by law; (iii) be custodian of the
company records; (iv) keep a register of the addresses of each Member which
shall be furnished to the Secretary by such Member; (v) have general charge of
the Members Schedule; and (vi) in general perform all duties incident to the
office of a secretary of a company. The Secretary shall have such other powers
and perform such other duties as may from time to time be prescribed by the
Board.
7.3 Fiduciary Duties. The Directors, in the performance of their duties
----------------
as such, shall owe to the Members duties of loyalty and due care of the type
owed by the directors of a corporation to the stockholders of such corporation
under the laws of the State of Delaware. The officers, in the performance of
their duties as such, shall owe to the Members duties of loyalty and due care of
the type owed by the officers of a corporation to the stockholders of such
corporation under the laws of the State of Delaware.
7.4 Performance of Duties; Liability of Directors and Officers. In
----------------------------------------------------------
performing his or her duties, each of the Directors and the officers shall be
entitled to rely in good faith on the provisions of this Agreement and on
information, opinions, reports, or statements (including financial statements
and information, opinions, reports or statements as to the value or amount of
the assets,
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<PAGE>
liabilities, profits or losses of the Company or any facts pertinent to the
existence and amount of assets from which distributions to Members might
properly be paid), of the following other Persons or groups: (a) one or more
officers or employees of the Company; (b) any attorney, independent accountant,
or other Person employed or engaged by the Company; or (c) any other Person who
has been selected with reasonable care by or on behalf of the Company, in each
case as to matters which such relying Person reasonably believes to be within
such other Person's professional or expert competence. The preceding sentence
shall in no way limit any Person's right to rely on information to the extent
provided in Section 18-406 of the Delaware Act. No individual who is a Director
or an officer of the Company, or any combination of the foregoing, shall be
personally liable under any judgment of a court, or in any other manner, for any
debt, obligation, or liability of the Company, whether that liability or
obligation arises in contract, tort, or otherwise, solely by reason of being an
Director or an officer of the Company or any combination of the foregoing.
7.5 Indemnification. Notwithstanding Section 7.3, the Directors and
---------------
officers shall not be liable, responsible or accountable for damages or
otherwise to the Company, or to the Members, and, to the fullest extent allowed
by law, each Director and each officer shall be indemnified and held harmless by
the Company, including advancement of reasonable attorneys' fees and other
expenses, but only to the extent that the Company's assets are sufficient
therefor, from and against all claims, liabilities, and expenses arising out of
any management of Company affairs; provided that (a) such Director's or
officer's course of conduct was pursued in good faith and believed by him to be
in the best interests of the Company and (b) such course of conduct did not
constitute gross negligence or willful misconduct on the part of such Director
or officer and otherwise was in accordance with the terms of this Agreement.
The rights of indemnification provided in this Section 7.5 are intended to
provide indemnification of the Directors and the officers to the fullest extent
permitted by Delaware General Corporation Law regarding a corporation's
indemnification of its directors and officers and will be in addition to any
rights to which the Directors or officer may otherwise be entitled by contract
or as a matter of law and shall extend to his heirs, personal representatives
and assigns. The absence of any express provision for indemnification herein
shall not limit any right of indemnification existing independently of this
Section 7.5. Each Director's and each officer's right to indemnification
pursuant to this Section 7.5 may be conditioned upon the delivery by such
Director or such officer of a written undertaking to repay such amount if such
individual is determined pursuant to this Section 7.5 or adjudicated to be
ineligible for indemnification, which undertaking shall be an unlimited general
obligation.
ARTICLE 8
MEMBERS; VOTING RIGHTS
8.1 Meetings of Members.
-------------------
(a) Generally. Meetings of the Members may be called by the Board or
---------
by a Member or Members holding not less than 50% of the then outstanding Voting
Units. All meetings of the Members shall be held telephonically or at the
principal office of the Company or at such other place within or without the
State of Delaware as may be determined by the Board or
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<PAGE>
Member(s) calling the meeting and set forth in the respective notice or waivers
of notice of such meeting. A record shall be maintained by the Secretary of the
Company of each meeting of the Members.
(b) Notice of Meetings of Members. Written or printed notice stating
-----------------------------
the place, day and hour of the meeting shall be delivered not fewer than 2 days
before the date of the meeting, either personally or by any written method by
which it is reasonable to expect that the Members would receive such notice not
later than the business day prior to the date of the meeting, to each holder of
Voting Units (with a copy to the Secretary of the Company), by or at the
direction of the Member(s) calling the meeting or the Board, as the case may be.
Such notice may, but need not, specify the purpose or purposes of such meeting
and may, but need not, limit the business to be conducted at such meeting to
such purpose(s).
(c) Quorum. Except as otherwise provided herein or by applicable law,
------
at any time, a majority of the then outstanding Voting Units, represented in
person or by proxy, shall constitute a quorum of Members for purposes of
conducting business. Once a quorum is present at the meeting of the Members,
the subsequent withdrawal from the meeting of any Member prior to adjournment or
the refusal of any Member to vote shall not affect the presence of a quorum at
the meeting. If, however, such quorum shall not be present at any meeting of
the Members, the Members entitled to vote at such meeting shall have the power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting, until Members which own a majority of the then outstanding
Voting Units shall be present or represented. Except as otherwise required by
applicable law, resolutions of the Members at any meeting of Members shall be
adopted by the affirmative vote of a majority of the Voting Units represented
and entitled to vote at such meeting at which a quorum is present.
(d) Actions Without a Meeting. Unless otherwise prohibited by law,
-------------------------
any action to be taken at a meeting of the Members may be taken without a
meeting if a consent or consents in writing, setting forth the action so taken,
shall be signed by a Member or Members holding not less than a majority of the
then outstanding Voting Units and such consent or consents are delivered to the
Secretary of the Company. A record shall be maintained by the Secretary of the
Company of each such action taken by written consent of a Member or Members.
8.2 Voting Rights. Except as specifically provided herein or otherwise
-------------
required by applicable law, each Member shall be entitled to one vote per Voting
Unit held by such Member. A Member which owns Voting Units may vote or be
present at a meeting either in person or by proxy. There will be no cumulative
voting in the election or removal of Directors.
8.3 Registered Members. The Company shall be entitled to treat the owner
------------------
of record of any Units as the owner in fact of such Unit for all purposes, and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such Unit on the part of any other person, whether or not it shall
have express or other notice of such claim or interest, except as expressly
provided by this Agreement or the laws of the State of Delaware.
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8.4 Limitation of Liability. Except as otherwise provided in the Delaware
-----------------------
Act or in this Agreement, no Member will be obligated personally for any debt,
obligation or liability of the Company or of any other Member by reason of being
a Member, whether arising in contract, tort or otherwise. Except as otherwise
provided in the Delaware Act, by law or expressly in this Agreement, no Member
will have any fiduciary or other duty to another Member with respect to the
business and affairs of the Company. No Member will have any responsibility to
restore any negative balance in his or her Capital Account or to contribute to
or in respect of the liabilities or obligations of the Company or return
distributions made by the Company except as required by the Delaware Act or
other applicable law.
8.5 Withdraw; Resignation. A Member shall not cease to be a Member as a
---------------------
result of the Bankruptcy of such Member. So long as a Member continues to own
or hold any Units, such Member shall not have the ability to resign as a Member
prior to the dissolution and winding up of the Company and any such resignation
or attempted resignation by a Member prior to the dissolution or winding up of
the Company shall be null and void. As soon as any Person who is a Member
ceases to own or hold any Units, such Person shall no longer be a Member.
8.6 Authority. No Member, in its capacity as a Member, shall have the
---------
power to act for or on behalf of, or to bind the Company.
ARTICLE 9
TAXES
9.1 Tax Status. The Members intend that at the time, if any, that the
----------
Company has more than one Member, the Company be treated as a partnership for
federal, foreign, state and local income tax purposes and the Company and each
Member shall file all tax returns on the basis consistent therewith.
ARTICLE 10
TRANSFER OF UNITS
10.1 Restrictions. Each Member acknowledges and agrees that such Member
------------
shall not Transfer any Unit(s) except in accordance with the provisions of this
Article 10. Any attempted Transfer in violation of the preceding sentence shall
be deemed null and void for all purposes, and the Company will not record any
such Transfer on its books or treat any purported transferee as the owner of
such Unit(s) for any purpose.
10.2 General Restrictions on Transfer.
--------------------------------
(a) Notwithstanding anything to the contrary in this Agreement, no
transferee of any Unit(s) received pursuant to a Transfer (but excluding
transferees that were Members
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<PAGE>
immediately prior to such a Transfer, who shall automatically become a Member
with respect to any additional Units they so acquire) shall become a Member in
respect of or be deemed to have any ownership rights in the Unit(s) so
Transferred unless a Person is admitted as a Member as set forth in Section
10.3(a).
(b) Following a Transfer of any Unit(s) that is permitted under this
Article 10, the transferee of such Unit(s) shall succeed to the Capital Account
associated with such Unit(s) and shall receive allocations and distributions
under Articles 4, 5, 6 and 11 in respect of such Unit(s).
(c) Any Member who Transfers all of his or its Units (i) shall cease
to be a Member upon such Transfer, and (ii) shall no longer possess or have the
power to exercise any rights or powers of a Member of the Company.
10.3 Procedure for Transfers. Subject in all events to the general
-----------------------
restrictions on Transfers contained in Sections 10.1 and 10.2, a Member may
Transfer all or any part of his or its Units in accordance with this Section
10.3.
(a) No Transfer of Unit(s) may be completed until the prospective
transferee is admitted as a Member of the Company by executing and delivering to
the Secretary of the Company a written undertaken to be bound by the terms and
conditions of this Agreement substantially in the form of Exhibit A hereto.
---------
Upon the amendment of the Member Schedule by the Secretary of the Company and
the satisfaction of any other applicable conditions, such prospective transferee
shall be admitted as a Member and deemed listed as such on the books and records
of the Company and thereupon the Company shall reissue the applicable Units in
the name of such prospective transferee.
(b) Unless waived by the Company, no Member may Transfer any
Restricted Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company (which
counsel will be reasonably acceptable to the Company) that registration under
the Securities Act is not required in connection with such Transfer. If such
opinion of counsel reasonably acceptable in form and substance to the Company
further states that no subsequent Transfer of such Restricted Securities will
require registration under the Securities Act, the Company will promptly upon
such Transfer deliver new certificates for such securities which do not bear the
Securities Act legend set forth in Section 10.4(b).
10.4 Legend.
------
(a) The certificates representing the Units will bear the following
legend:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN
A LIMITED LIABILITY COMPANY AGREEMENT AMONG THE ISSUER
AND ITS MEMBERS. A COPY OF SUCH LIMITED LIABILITY COMPANY
AGREEMENT WILL BE
-20-
<PAGE>
FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
(b) Each certificate or instrument evidencing Restricted Securities
and each certificate or instrument issued in exchange for or upon the Transfer
of any Restricted Securities (if such securities remain Restricted Securities
after such Transfer) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION
FROM REGISTRATION THEREUNDER."
Upon the request of any holder of Restricted Securities, the Company shall
remove the Securities Act legend set forth above from the certificates for such
Restricted Securities; provided, that such Restricted Securities are eligible
--------
for sale pursuant to Rule 144(k) (or any similar rule or rules then in effect)
under the Securities Act.
10.5 Limitations.
-----------
(a) Notwithstanding anything to the contrary in this Agreement, no
Unit may be Transferred if such Transfer would result in the Company having more
than 100 "beneficial owners" as defined and determined by the Investment Company
Act of 1940, as amended from time to time.
(b) In order to permit the Company to qualify for the benefit of a
"safe harbor" under Code Section 7704, notwithstanding anything to the contrary
in this Agreement, no Transfer of any Unit shall be permitted or recognized by
the Company (within the meaning of Treasury Regulation Section 1.7704-1(d)) if
and to the extent that such Transfer would cause the Company to have more than
100 partners (within the meaning of Treasury Regulation Section 1.7704-1(h),
including the look-through rule in Treasury Regulation Section 1.7704-1(h)(3)).
10.6 Pledge of Units.
---------------
(a) Notwithstanding anything contained herein to the contrary, any
Member shall have the ability to pledge any Unit(s) owned by such Member and
such pledge shall not be a "Transfer" of such Unit(s) for purposes of this
Agreement.
(b) Upon the Transfer of Units owned by Muzak Holdings pursuant to
Section 7.2 of the Pledge and Security Agreement, dated as of the date hereof
(the "Pledge Agreement"), between the Company, Muzak Holdings, certain
----------------
subsidiaries of the Company, and Canadian Imperial Bank of Commerce (the
"Administrative Agent"), as such Pledge Agreement may be amended and restated
- ---------------------
from time to time, and without need for any further action or notice under this
Agreement, the transferee of such Units shall be admitted as a Member of the
Company and shall
-21-
<PAGE>
acquire all right, title and interest in such Units, including all rights under
this Agreement, and Muzak Holding shall be withdrawn as a Member hereunder and
shall have no further right, title or interest in such Units or under this
Agreement.
ARTICLE 11
DISSOLUTION AND LIQUIDATION
11.1 Dissolution. The Company shall be dissolved and its affairs
-----------
wound up only upon the happening of any of the following events:
(a) the sale or other disposition by the Company of all or
substantially all of the assets it then owns;
(b) the written consent of Members holding greater than a
majority of the outstanding Common Units; or
(c) the entry of a decree of judicial dissolution under (S) 18-
802 of the Delaware Act.
Dissolution of the Company shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Company shall not terminate until
the winding up of the Company has been completed, the assets of the Company have
been distributed as provided in Section 11.2 and the Certificate shall have been
cancelled.
11.2 Liquidation.
-----------
(a) Upon dissolution of the Company, a liquidator or liquidating
committee appointed by the Board shall be the liquidator (the "Liquidator").
----------
The Liquidator shall be entitled to receive such compensation for its services
as may be approved by the Board. The Liquidator shall agree not to resign at
any time without 30 days prior written notice. Except as expressly provided in
this Article 11, the Liquidator appointed in the manner provided herein shall
have and may exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the officers of the Company
under the terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of such powers) to the
extent necessary or desirable in the good faith judgment of the Liquidator to
carry out the duties and functions of the Liquidator hereunder for and during
such period of time as shall be reasonably required in the good faith judgment
of the Liquidator to complete the winding up and liquidation of the Company as
provided for herein.
(b) The Liquidator shall liquidate the assets of the Company, and
apply and distribute the proceeds of such liquidation, in the following order of
priority, unless otherwise required by mandatory provisions of applicable law:
-22-
<PAGE>
(i) the payment to the creditors of the Company, including
Members, in order of priority provided by law;
(ii) to establish or add to such reserves as the Liquidator
may deem necessary or appropriate; and
(iii) to the Members (with such distribution to the Members to
be divided among such Members pro rata in accordance with their Common
Units).
The reserves established pursuant to subparagraph (ii) shall be paid over by the
Liquidator to a bank or other financial institution, to be held in escrow for
the purpose of paying any contingent or unforeseen liabilities or obligations
and, at the expiration of such period as the Liquidator deems advisable, such
reserves shall be distributed to the Members in the priorities set forth in this
Section 11.2(b).
(c) The Members shall not be responsible for restoring any negative
balance in their Capital Accounts upon termination or dissolution of the
Company.
(d) In any termination or dissolution of the Company, the Company may
distribute the assets of the Company to Members in cash, ratably in kind or any
combination thereof. Each distribution in kind of property pursuant to Section
11.2(b)(iii) shall be distributed based upon the fair market value of such
property. If a Liquidating Distribution is made both in cash and in kind, such
Liquidating Distribution shall be made so that, to the fullest extent
practicable, the percentage of cash and any other assets distributed with
respect to each type of Unit is identical.
(e) Distributions upon liquidation of the Company (or any Member's
interest in the Company) and related adjustments shall be made by the end of the
Taxable Year of the liquidation (or, if later, within ninety (90) days after the
date of such liquidation) or as otherwise permitted by Treasury Regulation
Section 1.704-1(b)(2)(ii)(b), including requirements (2) and (3) thereof.
(f) Upon completion of the distribution of the assets of the Company
as provided in Section 11.2(b) hereof, the Company shall be terminated and the
Liquidator shall cause the cancellation of the Certificate in the State of
Delaware and of all qualifications and registrations of the Company as a foreign
limited liability company in jurisdictions other than the State of Delaware and
shall take such other actions as may be necessary to terminate the Company.
(g) Each Member hereby waives any rights to partition of the assets
of the Company.
-23-
<PAGE>
ARTICLE 12
GENERAL/MISCELLANEOUS PROVISIONS
12.1 Notices. Except as expressly set forth to the contrary in this
-------
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be given either by
depositing that writing in the United States mail, addressed to the recipient,
postage paid, and registered or certified with return receipt requested or by
delivering that writing to the recipient in person, by courier, or by facsimile
transmission; and a notice, request, or consent given under this Agreement is
effective on receipt by the Person who receives it. All notices, requests and
consents to be sent to a Member must be sent to or made at the address (or
facsimile number) given for that Member on the Member Schedule or such other
address (or facsimile number) as that Member may specify by notice to the
Secretary of the Company. Any notice, request or consent to the Company must be
given to the Secretary of the Company at the Company's chief executive offices.
Whenever any notice is required to be given by law or this Agreement, a written
waiver thereof, signed by the Person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
12.2 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER
-------------
SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND
ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
12.3 Entire Agreement. This Agreement constitute the entire agreement of
----------------
the parties thereto relating to the Company and supersede all prior contracts or
agreements with respect to the Company, whether oral or written. This Agreement
amends and restates the Original Agreement in its entirety.
12.4 Effect of Waiver or Consent. A waiver or consent, express or implied,
---------------------------
to or of any breach or default by any Person in the performance by that Person
of its obligations hereunder or with respect to the Company is not a consent or
waiver to or of any other breach or default in the performance by that Person of
the same or any other obligations of that Person hereunder or with respect to
the Company. Failure on the part of a Person to complain of any act of any
Person or to declare any Person in default hereunder or with respect to the
Company, irrespective of how long that failure continues, does not constitute a
waiver by that Person of its rights with respect to that default until the
applicable statute-of-limitations period has run.
12.5 Amendment or Modification. This Agreement and the Certificate may be
-------------------------
amended or modified from time to time, only by the prior approval of the holders
of no less than a majority of the then outstanding Common Units.
12.6 Binding Effect. Subject to the restrictions on Transfers set forth in
--------------
this Agreement, this Agreement is binding on and shall inure to the benefit of
the Members and their respective heirs, legal representatives, successors and
permitted assigns.
-24-
<PAGE>
12.7 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement.
12.8 Severability. Each provision of this Agreement shall be considered
------------
severable and if for any reason any provision or provisions herein (a) are
determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid or (b) would cause any Member to be bound by the
obligations of the Company under the laws of any state or locale as the same may
now or hereafter exist, such provision or provisions shall be deemed void and of
no effect.
12.9 Headings. All section headings or captions contained in this
--------
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
12.10 Parties in Interest. Nothing herein shall be construed to be to the
-------------------
benefit of or enforceable by any third party including, but not limited to, any
creditor of the Company.
12.11 Further Assurances. The Members will execute and deliver such
------------------
further instruments and do such further acts and things as may be required to
carry out the intent and purposes of this Agreement.
12.13 Specific Performance; Remedies. The Company and the Members shall be
------------------------------
entitled to enforce their rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement (including
costs of enforcement) and to exercise any and all other rights existing in their
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
the Company or any Member may in its or his sole discretion apply to any court
of law or equity of competent jurisdiction for specific performance or
injunctive relief (without posting a bond or other security) in order to enforce
or prevent any violation or threatened violation of the provisions of this
Agreement. No remedy conferred upon or reserved to the Company or any Member by
this Agreement is intended to be exclusive of any other remedy. Each and every
such remedy shall be cumulative and shall be in addition to any other remedy
given to the Company or any Member hereunder or now or hereafter existing at law
or in equity or by statute.
* * * * *
-25-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Limited Liability Company
Agreement has been duly executed on the day and year first above written.
MUZAK HOLDINGS LLC
By:________________________________
Name: Royce Yudkoff
Title: Vice President
<PAGE>
SCHEDULE A
----------
Muzak LLC
(as of March 18, 1999)
Common
Name of Member Units
- ------------------------- -------
Muzak Holdings LLC 100
----
Totals 100
====
Addresses of Members
--------------------
1. Muzak Holdings LLC
2901 Third Avenue, Suite 400
Seattle, Washington 98121
Attention: President
<PAGE>
EXHIBIT A
---------
FORM OF JOINDER TO
LIMITED LIABILITY COMPANY AGREEMENT
-----------------------------------
THIS JOINDER to the Amended and Restated Limited Liability Company
Agreement of Muzak LLC, a Delaware limited liability company (the "Company"),
-------
dated as of March 18, 1999, as amended or restated from time to time, by and
among and the Members of the Company (the "Agreement"), is made and entered into
---------
as of _________ by and between the Company and ________________ ("Holder").
------
Capitalized terms used herein but not otherwise defined shall have the meanings
set forth in the Agreement.
WHEREAS, on the date hereof, Holder has acquired ____________ Common
Units from _____________ and the Agreement and the Company require Holder, as a
holder of such Common Units, to become a party to the Agreement, and Holder
agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Joinder hereby agree as
follows:
1. Agreement to be Bound. Holder hereby agrees that upon execution of
---------------------
this Joinder, it shall become a party to the Agreement and shall be fully bound
by, and subject to, all of the covenants, terms and conditions of the Agreement
as though an original party thereto and shall be deemed, and is hereby admitted
as, a Member for all purposes thereof.
2. Member Schedule. For purposes of the Member Schedule, the address of
---------------
the Holder is as follows:
[NAME]
[ADDRESS]
3. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER
-------------
SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND
ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
4. DESCRIPTIVE HEADINGS. The descriptive headings of this Joinder are
--------------------
inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as
of the date first above written.
MUZAK LLC
By: _________________________
Name:
Title:
[HOLDER]
By: _________________________
Name:
Title:
<PAGE>
SCHEDULE A
----------
OFFICERS OF MUZAK LLC
(AS OF MARCH 18, 1999)
William A. Boyd President and Chief Executive Officer
Charles A. Saldarini Chief Operating Officer
Brad D. Bodenman Chief Financial Officer and Treasurer
Steven M. Tracy Senior Vice President
Joseph Koff Vice President
Robert T. Boyd Vice President
Richard Chaffee Vice President
D. Alvin Collis Vice President
Jack D. Craig Vice President
Dino J. DeRose Vice President
Kenneth F. Kahn Vice President
Bruce McKagen Vice President
Peni Garber Vice President and Secretary
David Unger Vice President
Robert McInnis Vice President
Royce Yudkoff Vice President
<PAGE>
EXHIBIT 3.15
BYLAWS
OF
MUZAK FINANCE CORP.
A DELAWARE CORPORATION
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the corporation in
--------- -----------------
the State of Delaware shall be located at 1013 Centre Road, Wilmington Delaware
19805, in the County of New Castle. The name of the corporation's registered
agent at such address shall be Corporation Service Company. The registered
office and/or registered agent of the corporation may be changed from time to
time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
--------- -------------
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
--------- --------------------------
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting may be determined by resolution of the
board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be
--------- ----------------
called for any purpose (including, without limitation, the filling of board
vacancies and newly created directorships), and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by two or more members of the board of directors, the
president or the holders of shares entitled to cast not less than a majority of
the votes at the meeting or the holders of fifty percent (50%) of the
outstanding shares of any series or class of the corporation's capital stock.
1
<PAGE>
Section 3. Place of Meetings. The board of directors may designate any
--------- -----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting is otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
--------- ------
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose(s), of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. All such notices
shall be delivered, either personally or by mail, by or at the direction of the
board of directors, the president or the secretary, and if mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock
--------- -----------------
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. Except as otherwise provided by applicable law or by
--------- ------
the corporation's certificate of incorporation, a majority of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If less than a majority
of the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time in accordance with
Section 7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
--------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are
2
<PAGE>
announced at the meeting, at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
--------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the corporation's certificate of incorporation a different
vote is required, in which case such express provision shall govern and control
the decision of such question. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class, unless the
question is one upon which by express provisions of an applicable law or of the
corporation's certificate of incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question..
Section 9. Voting Rights. Except as otherwise provided by the General
--------- -------------
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto, every stockholder shall at every
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
---------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person(s) to act for him, her or it by
proxy. Every proxy must be signed by the stockholder granting the proxy or by
his, her or its attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A
duly executed proxy shall be irrevocable if it states that it is irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock itself
or an interest in the corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in the
---------- -------------------------
corporation's certificate of incorporation, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent(s) in writing, setting forth the action so taken and bearing the dates
of signature of the stockholders who signed the consent(s),
3
<PAGE>
shall be signed by the holders of outstanding shares of stock having not less
than a majority of the shares entitled to vote, or, if greater, not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the corporation by delivery to its
registered office in the state of Delaware, or the corporation's principal place
of business, or an officer or agent of the corporation having custody of the
book(s) in which proceedings of meetings of the stockholders are recorded.
Delivery made to the corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested, provided, however, that
no consent(s) delivered by certified or registered mail shall be deemed
delivered until such consent(s) are actually received at the registered office.
All consents properly delivered in accordance with this section shall be deemed
to be recorded when so delivered. No written consent shall be effective to take
the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered to the corporation as required by this section,
written consents signed by the holders of a sufficient number of shares to take
such corporate action are so recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing. Any action
taken pursuant to such written consent(s) of the stockholders shall have the
same force and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation
--------- --------------
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
--------- -----------------------------------
which shall constitute the board shall be one (1), which number may be increase
or decreased from time to time by resolution of the board. The directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote in the election of
directors. The directors shall be elected in this manner at the annual meeting
of the stockholders, except as provided in Section 4 of this Article III. Each
director elected shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as
hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
--------- -----------------------
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors;
provided however, whenever the holders of any class or series are entitled to
- -------- -------
elect one or more directors by the provisions of the corporation's certificate
of incorporation, the provisions of this section shall apply,
4
<PAGE>
in respect to the removal without cause or a director or directors so elected,
to the vote of the holders of the outstanding shares of that class or series and
not to the vote of the outstanding shares as a whole; provided further, in the
-------- -------
event any of the stockholders of the corporation have entered into an agreement
which provides for the manner in which the directors of the corporation are to
be elected, and such stockholders have so caused the election of such directors,
a director(s) may be removed from the board of directors only in accordance with
such agreement (as the same may be amended from time to time, the "Stockholders
Agreement"), for so long as (i) such agreement has been filed with the
corporation and (ii) has not been terminated. Any director may resign at any
time upon written notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the certificate of
--------- ---------
incorporation of the corporation or any amendments thereto, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority vote of the holders of the corporation's
outstanding stock entitled to vote thereon. Each director so chosen shall hold
office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected
--------- ---------------
board of directors shall be held without other notice than this bylaw
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
--------- -------------------------
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at
the request of the president or vice president on at least 24 hours notice to
each director, either personally, by telephone, by mail, or by telegraph; in
like manner and on like notice the president must call a special meeting on the
written request of at least a majority of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the
--------- -------------------------------------
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
--------- ----------
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these bylaws shall have and may
exercise the powers of the board of
5
<PAGE>
directors in the management and affairs of the corporation except as otherwise
limited by law. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Such committee(s) shall have such
name(s) as may be determined from time to time by resolution adopted by the
board of directors. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
--------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member(s) thereof present at any meeting and not disqualified
from voting, whether or not such member(s) constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in place
of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors
---------- ------------------------
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
---------- ------------------------------------------
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
---------- -------------------------
corporation's certificate of incorporation, any action required or permitted to
be taken at any meeting of the board of directors, or of any committee thereof,
may be taken without a
6
<PAGE>
meeting if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing(s) are filed with the minutes of proceedings
of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by
--------- ------
the board of directors and shall consist of a chairman, if any is elected, a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person,
except that no person may simultaneously hold the office of president and
secretary. In its discretion, the board of directors may choose not to fill any
office for any period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation
--------- ---------------------------
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The president shall appoint other officers to serve for such terms as
he or she deems desirable. Vacancies may be filled or new offices created and
filled at any meeting of the board of directors. Each officer shall hold office
until a successor is duly elected and qualified or until his or her earlier
death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
--------- -------
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
--------- ---------
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by
--------- ------------
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. The President. The president shall be the chief executive
--------- -------------
officer of the corporation. In the absence of the Chairman of the Board or if a
Chairman of the Board shall have not been elected, the president (i) shall
preside at all meetings of the stockholders and board of directors at which he
or she is present; (ii) subject to the powers
7
<PAGE>
of the board of directors, shall have general charge of the business, affairs
and property of the corporation, and control over its officers, agents and
employees; and (iii) shall see that all orders and resolutions of the board of
directors are carried into effect. The president shall have such other powers
and perform such other duties as may be prescribed by the board of directors or
as may be provided in these bylaws.
Section 7. Vice-presidents. The vice-president, if any, or if there shall
--------- ---------------
be more than one, the vice-presidents in the order determined by the board of
directors shall, in the absence or disability of the president, act with all of
the powers and be subject to all the restrictions of the president. The vice-
presidents shall also perform such other duties and have such other powers as
the board of directors, the president or these bylaws may, from time to time,
prescribe.
Section 8. The Secretary and Assistant Secretaries. The secretary shall
--------- ---------------------------------------
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book(s) to be kept for that purpose. Under the president's
supervision, the secretary (i) shall give, or cause to be given, all notices
required to be given by these bylaws or by law; (ii) shall have such powers and
perform such duties as the board of directors, the president or these bylaws
may, from time to time, prescribe; and (iii) shall have custody of the corporate
seal of the corporation. The secretary, or an assistant secretary, shall have
authority to affix the corporate seal to any instrument requiring it and when so
affixed, it may be attested by his or her signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his or her signature. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors, the president, or secretary
may, from time to time, prescribe.
Section 9. The Treasurer and Assistant Treasurers. The treasurer (i)
--------- --------------------------------------
shall have the custody of the corporate funds and securities; (ii) shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the corporation; (iii) shall deposit all monies and other valuable effects in
the name and to the credit of the corporation as may be ordered by the board of
directors; (iv) shall cause the funds of the corporation to be disbursed when
such disbursements have been duly authorized, taking proper vouchers for such
disbursements; (v) shall render to the president and the board of directors, at
its regular meeting or when the board of directors so requires, an account of
the corporation; and (vi) shall have such powers and perform such duties as the
board of directors, the president or these bylaws may, from time to time,
prescribe. If required by the board of directors, the treasurer shall give the
corporation a bond (which shall be rendered every
8
<PAGE>
six years) in such sums and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of the office of treasurer and for the restoration to the corporation, in
case of death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in the possession
or under the control of the treasurer belonging to the corporation. The
assistant treasurer, or if there shall be more than one, the assistant
treasurers in the order determined by the board of directors, shall in the
absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the president or
treasurer may, from time to time, prescribe.
Section 10. Other Officers, Assistant Officers and Agents. Officers,
---------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 11. Absence or Disability of Officers. In the case of the absence
---------- ---------------------------------
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the corporation shall be
--------- ----
entitled to have a certificate, signed by, or in the name of the corporation by
(i) the chairman of the board, the president or a vice-president and (ii) the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by such holder in the corporation. If such a certificate is
countersigned (1) by a transfer agent or an assistant transfer agent other than
the corporation or its employee or (2) by a registrar, other than the
corporation or its employee, the signature of any such chairman of the board,
president, vice-president, secretary, or assistant secretary may be facsimiles.
In case any officer(s) who have signed, or whose facsimile signature(s) have
been used on, any such certificate(s) shall cease to be such officer(s) of the
corporation whether because of death, resignation or otherwise before such
certificate(s) have been delivered by the corporation, such certificate(s) may
nevertheless be issued and delivered as though the person or persons who signed
such certificate(s) or whose facsimile signature(s) have been used thereon had
not ceased to be such officer(s) of the corporation. All certificates for
shares shall be consecutively numbered or otherwise identified. The name of the
person to whom the
9
<PAGE>
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the books of the corporation. Shares of stock of the
corporation shall only be transferred on the books of the corporation by the
holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the corporation of the certificate(s) for such shares
endorsed by the appropriate person(s), with such evidence of the authenticity of
such endorsement, transfer, authorization, and other matters as the corporation
may reasonably require, and accompanied by all necessary stock transfer stamps.
In that event, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate(s), and
record the transaction on its books. The board of directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
--------- -----------------
certificate(s) to be issued in place of any certificate(s) previously issued by
the corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen, or destroyed. When authorizing such issue of a new
certificate(s), the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate(s), or his or her legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against the corporation on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
--------- ---------------------------------------------
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board
of directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be the close of business on the
day immediately preceding the day on which notice is given, or if notice is
waived, at the close of business on the day immediately preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
--------- --------------------------------------------------
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date
10
<PAGE>
shall not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the board of directors. If no record date has been fixed by the board of
directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the board
of directors is required by statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by statute, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
--------- ---------------------------------------
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights of the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
--------- -----------------------
corporation of the certificate(s) for a share(s) of stock with a request to
record the transfer of such share(s), the corporation may treat the registered
owner as the person entitled to receive dividends, to vote, to receive
notifications, and otherwise to exercise all the rights and powers of an owner.
The corporation shall not be bound to recognize any equitable or other claim to
or interest in such share(s) on the part of any other person, whether or not it
shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
--------- -----------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the
11
<PAGE>
payment of any installment or call when such payment is due, the corporation may
proceed to collect the amount due in the same manner as any debt due the
corporation.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum(s) as the
directors from time to time, in their absolute discretion, think proper as a
reserve(s) to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the corporation, or any other purpose and the
directors may modify or abolish any such reserve in the manner in which it was
created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
--------- ------------------------
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer(s), agent(s) of the corporation, and in such manner, as shall be
determined by resolution of the board of directors or a duly authorized
committee thereof.
Section 3. Contracts. The board of directors may authorize any
--------- ---------
officer(s), or any agent(s), of the corporation to enter into any contract or to
execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
--------- -----
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
12
<PAGE>
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
--------- -----------
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
--------- --------------
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
--------- --------------------------------------
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
--------- -------------------------------
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in the State of Delaware or at its principal place of
business.
Section 9. Section Headings. Section headings in these bylaws are for
--------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
---------- -----------------------
these bylaws is or becomes inconsistent with any provision of the corporation's
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, such provision of these bylaws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
13
<PAGE>
ARTICLE VII
-----------
AMENDMENTS
----------
These bylaws may be amended, altered, or repealed and new bylaws adopted at
any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the bylaws has been conferred upon the
board of directors shall not divest the stockholders of the same powers.
14
<PAGE>
EXHIBIT 3.16
------------
BYLAWS
OF
MUZAK, INC.
(a Delaware corporation)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of Muzak, Inc.
-----------------
(the "Corporation") in the State of Delaware shall be at Corporation Trust
Center, 1209 Orange Street, City of Wilmington, County of New Castle, State of
Delaware, 19801, and its registered agent at such address shall be The
Corporation Trust Company, or such other office or agent as the Board of
Directors of the Corporation (the "Board") shall from time to time select.
SECTION 2. Other Offices. The Corporation may also have an office or
-------------
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meeting. All meetings of the stockholders of the
----------------
Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board.
SECTION 2. Annual Meetings. The annual meeting of the stockholders
---------------
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held each year at such date and
time, within or without the State of Delaware, as the Board shall determine.
SECTION 3. Special Meetings. Except as otherwise required by law or
----------------
the Certificate of Incorporation of the Corporation (the "Certificate"), special
meetings of the stockholders for any purpose or purposes may be called by the
Chairman of the Board, by a majority of the entire Board, or the stockholders by
a majority vote of the voting power of all shares of capital stock then entitled
to vote generally in the election of directors.
-1-
<PAGE>
SECTION 4. Notice of Meetings. Except as otherwise provided by law,
------------------
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy without protesting, prior to
or at the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall sign a written waiver of notice thereof, whether
before or after such meeting. Notice of adjournment of a meeting of stockholders
need not be given if the time and place to which it is adjourned are announced
at such meeting, unless the adjournment is for more than 30 days or, after
adjournment, a new record date is fixed for the adjourned meeting.
SECTION 5. Quorum. Except as otherwise provided by law or by the
------
Certificate, the holders of a majority of the votes entitled to be cast by the
stockholders entitled to vote generally, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders; provided, however, that in the case of any vote to be taken by
classes, the holders of a majority of the votes entitled to be cast by the
stockholders of a particular class shall constitute a quorum for the transaction
of business by such class. When a quorum is once present it is not broken by the
subsequent withdrawal of any stockholder.
SECTION 6. Adjournments. The chairman of the meeting or the holders
------------
of a majority of the votes entitled to be cast by the stockholders who are
present in person or by proxy may adjourn the meeting from time to time whether
or not a quorum is present. In the event that a quorum does not exist with
respect to any vote to be taken by a particular class, the chairman of the
meeting or the holders of a majority of the votes entitled to be cast by the
stockholders of such class who are present in person or by proxy may adjourn the
meeting with respect to the vote(s) to be taken by such class. At such adjourned
meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called.
SECTION 7. Order of Business. At each meeting of the stockholders,
-----------------
the Chairman of the Board or, in the absence of the Chairman of the Board, such
person as shall be selected by the Board shall act as chairman of the meeting.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the Corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof, and the opening
and closing of the voting polls.
SECTION 8. List of Stockholders. It shall be the duty of the
--------------------
Secretary or other officer who has charge of the stock ledger to prepare and
make, at least 10 days before each meeting
-2-
<PAGE>
of the stockholders, a complete list of the stockholders entitled to vote
thereat, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in such stockholder's name. Such
list shall be produced and kept available at the times and places required by
law.
SECTION 9. Voting. (a) Except as otherwise provided by law or by the
------
Certificate, each stockholder of record of any class or series of capital stock
of the Corporation shall be entitled at each meeting of stockholders to such
number of votes for each share of such stock as may be fixed in the Certificate
or in the resolution or resolutions adopted by the Board providing for the
issuance of such stock, registered in such stockholder's name on the books of
the Corporation:
(i) on the date fixed pursuant to Section 6 of Article VII of
these Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting; or
(ii) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice of
such meeting is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is
held.
(b) Each stockholder entitled to vote at any meeting of stockholders
may authorize not in excess of three persons to act for such stockholder by
proxy. Any such proxy shall be delivered to the secretary of such meeting at or
prior to the time designated for holding such meeting. No such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period.
(c) At each meeting of the stockholders, all corporate actions to be
taken by vote of the stockholders (except as otherwise required by law and
except as otherwise provided in the Certificate or these Bylaws) shall be
authorized by a majority of the votes cast affirmatively or negatively by the
stockholders, and where a separate vote by class is required, a majority of the
votes cast affirmatively or negatively by the stockholders of such class shall
be the act of such class.
(d) Unless required by law or determined by the chairman of the
meeting to be advisable, the vote on any matter, including the election of
directors, need not be by written ballot. In the case of a vote by written
ballot, each ballot shall be signed by the stockholder voting, or by such
stockholder's proxy.
(e) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Certificate, be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
record of the issued and outstanding capital stock of the Corporation having a
majority of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted, and
the writing or writings are filed with the permanent records of the Corporation.
Prompt notice of the taking of corporate action without
-3-
<PAGE>
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 10. Inspectors. The chairman of the meeting may appoint one
----------
or more inspectors to act at any meeting of stockholders. If appointed, such
inspectors shall perform such duties as shall be required by law and as shall be
specified by the chairman of the meeting. Inspectors need not be stockholders.
No director or nominee for the office of director shall be appointed such
inspector.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
--------------
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do an such lawful acts and
things as are not by law or by the Certificate directed or required to be
exercised or done by the stockholders.
SECTION 2. Number, Qualification and Election. (a) Except as
----------------------------------
otherwise fixed by or pursuant to the provisions of Article IV of the
Certificate relating to the rights of the holders of any class or series of
stock having preference over the common stock of the Corporation as to dividends
or upon liquidation, the number of directors of the Corporation shall be
determined from time to time by the Board by the affirmative vote of directors
constituting at least a majority of the entire Board. The use of the phrase
"entire Board" herein refers to the total number of directors which the
Corporation would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of the
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
stockholders and until his or her successor shall be elected and qualified,
subject, however, to his or her prior death, resignation, retirement or removal
from office.
(c) Each director shall be at least 18 years of age. Directors need
not be stockholders of the Corporation.
(d) In any election of directors held at a meeting of stockholders,
the persons receiving a plurality of the votes cast by the stockholders entitled
to vote thereon at such meeting who are present or represented by proxy, up to
the number of directors to be elected in such election, shall be deemed elected.
SECTION 3. Quorum and Manner of Acting. Except as otherwise provided
---------------------------
by law, the Certificate or these Bylaws, a majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting of the Board,
and, except as so provided, the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the
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<PAGE>
Board. The chairman of the meeting or a majority of the directors present may
adjourn the meeting to another time and place whether or not a quorum is
present. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called.
SECTION 4. Place of Meeting. The Board may hold its meetings at such
----------------
place or places within or without the State of Delaware as the Board may from
time to time determine or as shall be specified or fixed in the respective
notice or waivers of notice thereof.
SECTION 5. Regular Meetings. Regular meetings of the Board shall be
----------------
held at such times and places as the Chairman of the Board or the Board shall
from time to time by resolution determine. If any day fixed for a regular
meeting shall be a legal holiday under the laws of the place where the meeting
is to be held, the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day.
SECTION 6. Special Meetings. Special meetings of the Board shall be
----------------
held whenever called by the Chairman of the Board or by a majority of the
directors then in office.
SECTION 7. Notice of Meetings. Notice of regular meetings of the
------------------
Board or of any adjourned meeting thereof need not be given. Notice of each
special meeting of the Board shall be given by overnight delivery service or
mailed to each director, in either case addressed to such director at such
director's residence or usual place of business, at least two days before the
day on which the meeting is to be held or shall be sent to such director at such
place by telegraph or telecopy or be given personally or by telephone, not later
than the day before the meeting is to be held, but notice need not be given to
any director who shall, either before or after the meeting, submit a signed
waiver of such notice or who shall attend such meeting other than for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. Every such notice shall state the time and place but need not state
the purpose of the meeting.
SECTION 8. Organization. At all meetings of the Board, the Chairman,
------------
if any, or if none or in the Chairman's absence or inability to act the
President, or in the President's absence or inability to act any Vice-President
who is a member of the Board of Directors, or in such Vice-President's absence
or inability to act a chairman chosen by the directors, shall preside. The
Secretary of the Corporation shall act as secretary at all meetings of the Board
when present, and, in the Secretary's absence, the presiding officer may appoint
any person to act as secretary.
SECTION 9. Rules and Regulations. The Board may adopt such rules and
---------------------
regulations not inconsistent with the provisions of law, the Certificate or
these Bylaws for the conduct of its meetings and management of the affairs of
the Corporation as the Board may deem proper.
SECTION 10. Participation in Meeting by Means of Communication
--------------------------------------------------
Equipment. Any one or more members of the Board or any committee thereof may
- ----------
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications
-5-
<PAGE>
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
SECTION 11. Action without Meeting. Any action required or permitted
----------------------
to be taken at any meeting of the Board or any committee thereof may be taken
without a meeting if all of the members of the Board or of any such committee
consent thereto in writing and the writing or writings are filed with the
minutes or proceedings of the Board or of such committee.
SECTION 12. Resignations. Any director of the Corporation may at any
------------
time resign by giving written notice to the Board, the Chairman of the Board,
the President or the Secretary. Such resignation shall take effect at the time
specified therein or, if the time be not specified therein, upon receipt
thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 13. Removal of Directors. Any director (including all
--------------------
members of the Board) may be removed from office at any time, with or without
cause, by the holders of a majority of the shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class.
SECTION 14. Vacancies. Except as otherwise required by law and
---------
subject to the rights of the holders of any class or series of stock having a
preference over the common stock of the Corporation as to dividends or upon
liquidation, any vacancy in the Board for any reason and any newly created
directorship resulting by reason of any increase in the number of directors may
be filled by the Board by resolution adopted by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum (or by a sole remaining director) or by the stockholders upon the
affirmative vote of a majority of the shares of capital stock of the Corporation
then entitled to vote generally in the election of directors, voting together as
a single class. Any director so appointed shall hold office until the next
meeting of stockholders at which directors of the class for which such director
has been chosen are to be elected and until his or her successor is elected and
qualified.
SECTION 15. Compensation. Each director, in consideration of such
------------
person serving as a director, shall be entitled to receive from the Corporation
such amount per annum and such fees for attendance at meetings of the Board or
of committees of the Board, or both, as the Board shall from time to time
determine. In addition, each director shall be entitled to receive from the
Corporation reimbursement for the reasonable expenses incurred by such person in
connection with the performance of such person's duties as a director. Nothing
contained in this Section 15 of this Article III shall preclude any director
from serving the Corporation or any of its subsidiaries in any other capacity
and receiving proper compensation therefor.
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ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Establishment of Committees of the Board of Directors;
------------------------------------------------------
Election of Members of Committees of the Board of Directors; Functions of
- -------------------------------------------------------------------------
Committees of the Board of Directors. The Board may, in accordance with and
- ------------------------------------
subject to the Delaware General Corporation Law ("DGCL"), from time to time
establish committees of the Board to exercise such powers and authorities of the
Board, and to perform such other functions, as the Board may from time to time
determine.
SECTION 2. Procedure; Meetings, Quorum. Regular meetings of
---------------------------
committees of the Board, of which no notice shall be necessary, may be held at
such times and places as shall be fixed by resolution adopted by a majority of
the members thereof. Special meetings of any committee of the Board shall be
called at the request of a majority of the members thereof. Notice of each
special meeting of any committee of the Board shall be given by overnight
delivery service or mailed to each member, in either case addressed to such
member at such member's residence or normal place of business, at least two days
before the day on which the meeting is to be held or shall be sent to such
members at such place by telegraph or telecopy or be given personally or by
telephone, not later than the day before the meeting is to be held, but notice
need not be given to any member who shall, either before or after the meeting,
submit a signed waiver of such notice or who shall attend such meeting other
than for the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting was not lawfully called or
convened. Any special meeting of any committee of the Board shall be a legal
meeting without any notice thereof having been given, if all the members thereof
shall be present thereat. Notice of any adjourned meeting of any committee of
the Board need not be given. Any committee of the Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate or
these Bylaws for the conduct of its meetings as such committee of the Board may
deem proper. A majority of the members of any committee of the Board shall
constitute a quorum for the transaction of business at any meeting, and the vote
of a majority of the members thereof present at any meeting at which a quorum is
present shall be the act of such committee. Each committee of the Board shall
keep written minutes of its proceedings and shall report on such proceedings to
the Board.
SECTION 3. Action by Written Consent. Any action required or
-------------------------
permitted to be taken at any meeting of any committee of the Board may be taken
without a meeting if all the members of the committee consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the committee.
SECTION 4. Term; Termination. In the event any person shall cease to
-----------------
be a director of the Corporation, such person shall simultaneously therewith
cease to be a member of any committee appointed by the Board.
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<PAGE>
ARTICLE V
OFFICERS
SECTION 1. Number; Term of Office. The Board shall elect the
----------------------
officers of the Corporation, which shall include a President and a Secretary,
and may include, by election or appointment, one of more Vice-Presidents (any
one or more of whom may be given an additional designation of rank, such as
"Executive Vice-President" or "Senior Vice-President," or function), a Treasurer
and such Assistant Secretaries, such Assistant Treasurers and such other
officers as the Board may from time to time deem proper. Each officer shall have
such powers and duties as may be prescribed by these Bylaws and as may be
assigned by the Board or the President. Any two or more offices may be held by
the same person except the offices of President and Secretary; provided,
however, that no officer shall execute, acknowledge or verify any instrument in
more than one capacity if such instrument is required by law, the Certificate or
these Bylaws to be executed, acknowledged or verified by two or more officers.
The Board may from time to time authorize any officer to appoint and remove any
such other officers and agents and to prescribe their powers and duties. The
Board may require any officer or agent to give security for the faithful
performance of such person's duties.
SECTION 2. Term of Office; Removal; Remuneration. Each officer shall
-------------------------------------
hold office for such term as may be prescribed by the Board and until such
person's successor shall have been chosen and shall qualify, or until such
person's death or resignation, or until such person's removal in the manner
hereinafter provided. Any officer may be removed, either with or without cause,
by the Board.
SECTION 3. Resignation. Any officer may resign at any time by
-----------
giving notice to the Board, the President or the Secretary. Any such resignation
shall take effect at the date of receipt of such notice or at any later date
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal or any other cause may be filled for the unexpired portion
of the term by the Board.
SECTION 5. Chairman of the Board, Powers and Duties. The Chairman of
----------------------------------------
the Board, subject to the control of the Board, shall preside at all meetings of
the stockholders and the Board. Any document may be signed by the Chairman of
the Board or any other person who may be thereunto authorized by the Board or
the Chairman of the Board. The Chairman of the Board may appoint such assistant
officers as are deemed necessary.
SECTION 6. President, Chief Executive Officer: Executive Vice
--------------------------------------------------
Presidents, Senior Vice Presidents and Vice Presidents; Powers and Duties. The
- -------------------------------------------------------------------------
President shall be the chief executive officer of the Corporation and shall have
such duties as customarily pertain to that office. The President shall have
general management and supervision of the property, business and affairs of the
Corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees. The President and each Executive Vice
President, each Senior Vice President, and
-8-
<PAGE>
each Vice President shall have such powers and perform such duties as may be
assigned by the Board or the President. The Board may elect one or more persons
to be the President and/or Chief Executive Officer of a division or business
unit of the Corporation.
SECTION 7. Secretary and Assistant Secretary; Powers and Duties. The
----------------------------------------------------
Secretary shall attend all meetings of the stockholders and the Board and shall
keep the minutes for such meetings in one or more books provided for that
purpose. The Secretary shall be custodian of the corporate records, except those
required to be in the custody of the Treasurer or the Controller, shall keep the
seal of the Corporation, and shall perform all of the duties incident to the
office of Secretary, as well as such other duties as may be assigned by the
Chairman of the Board or the Board.
The Assistant Secretaries shall perform such of the Secretary's duties
as the Secretary shall from time to time direct. In case of the absence or
disability of the Secretary or a vacancy in the office, an Assistant Secretary
designated by the Chairman of the Board or by the Secretary, if the office is
not vacant, shall perform the duties of the Secretary.
SECTION 8. Chief Financial Officer; Powers and Duties. The Chief
------------------------------------------
Financial Officer shall be responsible for maintaining the financial integrity
of the Corporation, shall prepare the financial plans for the Corporation, and
shall monitor the financial performance of the Corporation and its subsidiaries,
as well as performing such other duties as may be assigned by the Chairman of
the Board or the Board.
SECTION 9. Treasurer and Assistant Treasurers; Powers and Duties.
-----------------------------------------------------
The Treasurer shall have care and custody of the funds and securities of the
Corporation, shall deposit such funds in the name and to the credit of the
Corporation with such depositories as the Treasurer shall approve, shall
disburse the funds of the Corporation for proper expenses and dividends, and as
may be ordered by the Board, taking proper vouchers for such disbursements. The
Treasurer shall perform all of the duties incident to the office of Treasurer,
as well as such other duties as may be assigned by the Board or the President.
The Assistant Treasurers shall perform such of the Treasurer's duties
as the Treasurer shall from time to time direct. In case of the absence or
disability of the Treasurer or a vacancy in the office, an Assistant Treasurer
designated by the President or by the Treasurer, if the office is not vacant,
shall perform the duties of the Treasurer.
SECTION 10. Controller and Assistant Controllers; Powers and Duties.
-------------------------------------------------------
The Controller shall be the chief accounting officer of the Corporation and
shall keep and maintain in good and lawful order all accounts required by law
and shall have sole control over, and ultimate responsibility for, the accounts
and accounting methods of the Corporation and the compliance of the Corporation
with all systems of accounts and accounting regulations prescribed by law. The
Controller shall audit, to such extent and at such times as may be required by
law or as the Controller may think necessary, all accounts and records of
corporate funds or property, by whomsoever kept, and for such purposes shall
have access to all such accounts and records. The Controller shall make and sign
all necessary and proper accounting statements and financial reports of the
Corporation, and
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<PAGE>
shall perform all of the duties incident to the office of Controller, as well as
such other duties as may be assigned by the President or the Board.
The Assistant Controllers shall perform such of the Controller's
duties as the Controller shall from time to time direct. In case of the absence
or disability of the Controller or a vacancy in the office, an Assistant
Controller designated by the President or the Controller, if the office is not
vacant, shall perform the duties of the Controller.
SECTION 11. Salaries. The salaries of all officers of the
--------
Corporation shall be fixed by the Board, or an authorized committee thereof, or
in such manner as the Board, or any authorized committee thereof, shall provide.
No officer shall be disqualified from receiving a salary by reason of also being
a director of the Corporation.
ARTICLE VI
INDEMNIFICATION
SECTION 1. Right to Indemnification. Each person who was or is made
------------------------
a party or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact (a) that he or she is or was a director or officer of the corporation, or
(b) that he or she, being at the time a director or officer of the corporation,
is or was serving at the request of the corporation as a director, officer,
member, employee, fiduciary or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (collectively, "another enterprise" or "other
enterprise"), shall be indemnified and held harmless by the corporation to the
fullest extent permitted under the DGCL as the same exists or may hereafter be
amended, against all expense, liability and loss (including, without limitation,
attorneys' and other professionals' fees and expenses, claims, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) actually and
reasonably incurred or suffered by such person in connection therewith
("Losses"). Without diminishing the scope of indemnification provided by this
Section 1, such persons shall also be entitled to the further rights set forth
below.
SECTION 2. Actions, Suits Or Proceedings Other Than Those By Or In
-------------------------------------------------------
The Right Of The Corporation. Subject to the terms and conditions of this
- ----------------------------
Article, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any Proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer or employee of the corporation, or, being at the time a
director, officer or employee of the corporation, is or was serving at the
request of the corporation as a director, officer, member, employee, fiduciary
or agent of another enterprise, against all Losses, actually and reasonably
incurred or suffered by such person in connection with such Proceeding if such
person acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the conduct
was unlawful. The termination of any Proceeding by judgment, order,
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<PAGE>
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---------------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the conduct was unlawful.
SECTION 3. Actions, Suits Or Proceedings By Or In The Right Of The
-------------------------------------------------------
Corporation. Subject to the terms and conditions of this Article, the
- -----------
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any Proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director, officer or employee of the corporation, or being at the time a
director, officer or employee of the corporation, is or was serving at the
request of the corporation as a director, officer, member, employee, fiduciary
or agent of another enterprise against all Losses actually and reasonably
incurred or suffered by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation except that no 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 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
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 4. Authorization of Indemnification. Any indemnification
--------------------------------
under this Article (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of a person is proper in the circumstances because such person
has met the applicable standard of conduct required by Section 1 or set forth in
Section 2 or 3 of this Article, as the case may be. Such determination shall be
made in a reasonably prompt manner (i) by the Board of Directors by a majority
vote of directors who were not parties to such action, suit or proceeding,
whether or not they constitute a quorum of the Board of Directors, (ii) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, (iii) by the stockholders or (iv) as the DGCL may
otherwise permit. To the extent, however, that a director, officer, employee or
agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' and other professionals' fees) actually and
reasonably incurred by such person in connection therewith, without the
necessity of authorization in the specific case.
SECTION 5. Good Faith Defined. For purposes of any determination
------------------
under Section 4 of this Article, a person shall be deemed to have acted in good
faith if the action is based on (a) the records or books of account of the
corporation or another enterprise, or on information supplied to such person by
the officers of the corporation or another enterprise in the course of their
duties or on (b) the advice of legal counsel for the corporation or another
enterprise, or on information or records given or reports made to the
corporation or another enterprise by an independent certified public accountant,
independent financial adviser, appraiser or other expert selected with
reasonable care by the corporation or the other enterprise. The provisions of
this Section 5 shall not be deemed
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<PAGE>
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct.
SECTION 6. Proceedings Initiated by Indemnified Persons.
--------------------------------------------
Notwithstanding any provisions of this Article to the contrary, the corporation
shall not indemnify any person or make advance payments in respect of Losses to
any person pursuant to this Article in connection with any Proceeding (or
portion thereof) initiated against the corporation by such person unless such
Proceeding (or portion thereof) is authorized by the Board of Directors or its
designee; provided, however, that this prohibition shall not apply to a
counterclaim, cross-claim or third-party claim brought in any Proceeding or to
any claims provided for in Section 7 of this Article.
SECTION 7. Indemnification By A Court. Notwithstanding any contrary
--------------------------
determination in the specific case under Section 4 of this Article, and
notwithstanding the absence of any determination thereunder, any director,
officer or employee may apply to any court of competent jurisdiction for
indemnification to the extent otherwise permissible under Section 1, 2 or 3 of
this Article. Notice of any application for indemnification pursuant to this
Section 7 shall be given to the corporation promptly upon the filing of such
application.
SECTION 8. Losses Payable In Advance. Losses reasonably incurred by
-------------------------
an officer or director in defending any threatened or pending Proceeding shall
be paid by the corporation in advance of the final disposition of such
Proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall, ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
this Article. Losses shall be reasonably documented by the officer or director
and required payments shall be made promptly by the corporation. Losses incurred
by other employees may be so paid upon such terms and conditions, if any, as the
Board of Directors deems appropriate.
SECTION 9. Non-exclusivity and Survival of Indemnification. The
-----------------------------------------------
indemnification and advancement of expenses provided by or granted pursuant to
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Certificate of Incorporation, any bylaw, agreement, contract, vote of
stockholders or of disinterested directors, or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise. The
provisions of this Article shall not be deemed to preclude the indemnification
of any person who is not specified in Section 1, 2 or 3 of this Article but whom
the corporation has the power or obligation to indemnify under the provisions of
the DGCL, or otherwise. The rights conferred by this Article shall continue as
to a person who has ceased to be a director, officer or employee and shall inure
to the benefit of such person and the heirs, executors, administrators and other
comparable legal representatives of such person. The rights conferred in this
Article shall be enforceable as contract rights, and shall continue to exist
after any rescission or restrictive modification hereof with respect to events
occurring prior thereto. No rights are conferred in this Article for the benefit
of any person (including, without limitation, officers, directors and employees
of subsidiaries of the corporation) in any capacity other than as explicitly set
forth herein.
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<PAGE>
SECTION 10. Meaning of certain terms in connection with Employee
----------------------------------------------------
Benefit Plans, etc. For purposes of this Article, references to "fines" shall
- -------------------
include any excise taxes assessed on a person with respect to an employee
benefit plan; references to "serving at the request of the corporation" shall
include any service as a director, officer or employee of the corporation which
imposes duties on, or involves services by, such director, officer or employee,
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who has acted in good faith and in a manner reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Article.
SECTION 11. Insurance. The corporation may, but shall not be
---------
required to, purchase and maintain insurance on behalf of any person who is or
was a director, officer or employee of the corporation, or is or was serving at
the request of the corporation as a director, officer, member, employee,
fiduciary or agent of another against any liability asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article.
SECTION 12. Severability. If any provision or provisions of this
------------
Article VI shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article VI (including, without limitation, all portions of
any paragraph of this Article VI containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article VI (including,
without limitation, all portions of any paragraph of this Article VI containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Share Ownership. (a) Holders of shares of stock of each
---------------
class of the Corporation shall be recorded on the books of the Corporation and
ownership of such stock shall be evidenced by a certificate or other form as
shall be approved by the Board. Certificates representing shares of stock of
each class shall be signed by, or in the name of, the Corporation by the
Chairman or Vice-Chairman of the Board, or the President or any Vice President
and by the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Corporation, and sealed with the seal of the
Corporation, which may be a facsimile thereof. Any or all such signatures and
the signatures of any transfer agent or registrar may be facsimiles. Although
any officer, transfer agent or registrar whose manual or facsimile signature is
affixed to such a certificate ceases to be such officer, transfer agent or
registrar before such certificate has been issued, the certificate may
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<PAGE>
nevertheless be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still such at the date of its issue.
(b) The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any officer or agent
designated by the Board.
SECTION 2. Transfer of Shares. Transfers of shares of stock of each
------------------
class of the Corporation shall be made only on the books of the Corporation by
the holder thereof, or by such holder's attorney thereunto, authorized by a
power of attorney duly executed and filed with the Secretary or a transfer agent
for such stock, if any, and on surrender of the certificate or certificates, if
any, for such shares properly endorsed or accompanied by a duly executed stock
transfer power (or by proper evidence of succession, assignment or authority to
transfer) and the payment of any taxes thereon; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful restriction on
transfer. The person in whose name shares are registered on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation; provided, however, that whenever any transfer of shares shall be
made for collateral security and not absolutely, and written notice thereof
shall be given to the Secretary or to such transfer agent, such fact shall be
stated in the entry of the transfer. No transfer of shares shall be valid as
against the Corporation, its stockholders and creditors for any purpose, until
it shall have been entered in the stock records of the Corporation by an entry
showing from and to whom transferred.
SECTION 3. Registered Stockholders and Addresses of Stockholders.
-----------------------------------------------------
(a) The Corporation shall be entitled to recognize the exclusive right of a
person registered on its records as the owner of shares of stock to receive
dividends and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to, or interest in, such share or shares of stock on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.
(b) Each stockholder shall designate to the Secretary or transfer
agent of the Corporation an address at which notices of meetings and all other
corporate notices may be delivered or mailed to such person, and, if any
stockholder shall fail to designate such address, corporate notices may be
delivered to such person by mail directed to such person at such person's post
office address, if any, as the same appears on the stock record books of the
Corporation or at such person's last known post office address.
SECTION 4. Lost, Stolen, Destroyed and Mutilated Certificates. The
--------------------------------------------------
Corporation may issue to any holder of shares of stock the certificate for which
has been lost, stolen, destroyed or mutilated a new certificate or certificates
for shares, upon the surrender of the mutilated certificate or, in the case of
loss, theft or destruction of the certificate, upon satisfactory proof of such
loss, theft or destruction. The Board, or a committee designated thereby, or the
transfer agents and registrars for the stock, may, in their discretion, require
the owner of the lost, stolen or destroyed certificate, or such person's legal
representative, to give the Corporation a bond in such sum and with such surety
or sureties as they may direct to indemnify the Corporation and said transfer
agents and registrars against any claim that may be made on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
-14-
<PAGE>
SECTION 5. Regulations. The Board may make such additional rules and
-----------
regulations as it may deem expedient concerning the issue and transfer of
certificates representing shares of stock of each class of the Corporation and
may make such rules and take such action as it may deem expedient concerning the
issue of certificates in lieu of certificates claimed to have been lost,
destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
(a) In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment or any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. A determination of stockholders entitled to
notice of or to vote at a meeting of the stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board to fix a record
date. The Board shall promptly, but in all events within 10 days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board within 10 days of the date on
which such a request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or any officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board and prior action by the
Board is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the board adopts
the resolution taking such prior action.
SECTION 7. Transfer Agents and Registrars. The Board may appoint, or
------------------------------
authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
-15-
<PAGE>
ARTICLE VIII
DIVIDENDS
Subject always to the provisions of law and the Certificate, the Board
shall have full power to determine whether any, and, if any, what part of any,
funds legally available for the payment of dividends shall be declared as
dividends and paid to stockholders; the division of the whole or any part of
such funds of the Corporation shall rest wholly within the lawful discretion of
the Board, and it shall not be required at any time, against such discretion, to
divide or pay any part of such funds among or to the stockholders as dividends
or otherwise; and before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board from time to time, in its absolute discretion, thinks proper as a reserve
or reserves to meet contingencies, or for equalizing dividends, or for a reserve
or maintaining any property of the Corporation, or for such other purpose as the
Board shall think conducive to the interest of the Corporation, and the Board
may modify or abolish any such reserve in the manner in which it was created.
ARTICLE IX
CORPORATE SEAL
The Board shall provide a corporate seal which shall have inscribed
thereon the name of the Corporation and the year of its incorporation, and shall
be in such form and contain such other words and/or figures as the Board shall
determine. The corporate seal may be used by printing, engraving,
lithographing, stamping or otherwise making, placing or affixing, or causing to
be printed, engraved, lithographed, stamped or otherwise made, placed or
affixed, upon any paper or document, by any process whatsoever, an impression,
facsimile or other reproduction of said corporate seal.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board. Unless otherwise fixed by the Board, the fiscal
year of the Corporation shall be the calendar year.
-16-
<PAGE>
ARTICLE XI
WAIVER OF NOTICE
Whenever notice is required to be given by these Bylaws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC.
SECTION 1. Bank Accounts and Drafts. In addition to such bank
------------------------
accounts as may be authorized by the Board, the Chief Financial Officer or any
person designated by the Chief Financial Officer, whether or not an employee of
the Corporation, may authorize such bank accounts to be opened or maintained in
the name and on behalf of the Corporation as he may deem necessary or
appropriate, payments from such bank accounts to be made upon and according to
the check of the Corporation in accordance with the written instructions of the
Treasurer, or other person so designated by the Treasurer.
SECTION 2. Contracts. The Board may authorize any person or persons,
---------
in the name and on behalf of the Corporation, to enter into or execute and
deliver any and all deeds, bonds, mortgages, contracts and other obligations or
instruments, and such authority may be general or confined to specific
instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
----------------------------------------------
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the rights
and powers incident to the ownership of stock by the Corporation. The Chairman,
the President or any other person authorized by proxy or power of attorney
executed and delivered by either of them on behalf of the Corporation may attend
and vote at any meeting of stockholders of any company in which the Corporation
may hold stock, and may exercise on behalf of the Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
or otherwise as specified in the proxy or power of attorney so authorizing any
such person. The Board, from time to time, may confer like powers upon any other
person.
SECTION 4. Financial Reports. The Board may appoint the primary
-----------------
financial officer or other fiscal officer and/or the Secretary or any other
officer to cause to be prepared and furnished to stockholders entitled thereto
any special financial notice and/or financial statement, as the case may be,
which may be required by any provision of law.
-17-
<PAGE>
ARTICLE XIII
AMENDMENTS
The Board shall have the power to adopt, amend or repeal these Bylaws
by the affirmative vote of at least a majority of the members then in office and
the stockholders shall have the power to adopt, amend or repeal these Bylaws
upon the affirmative vote of the holders of a majority of the voting power of
all shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting as a single class (notwithstanding the fact
that approval by a lesser percentage may be permitted by the DGCL).
-18-
<PAGE>
CONSENT TO APPOINTMENT AS REGISTERED AGENT
I, Louisa Barash, hereby consent to serve as registered agent in the State
of Washington for MLP ENVIRONMENTAL MUSIC, LLC, a Washington limited liability
company. I understand that as agent for the limited liability company, it will
be any responsibility to accept service of process on behalf of the limited
liability company; to forward license renewals and other mail to the limited
liability company; and to immediately notify the Secretary of State in the event
of my resignation or of any changes in the registered office address of the
limited liability company.
DATED as of: December 23, 1998.
/s/ Louisa Barash
----------------------------------------
Louisa Barash
Address of Registered Agent:
701 Fifth Avenue, Suite 6100
- ----------------------------
Seattle, WA 98104
- ------------------
-19-
<PAGE>
IN WITNESS WHEREOF, the undersigned, have executed this Amended and
Restated Limited Liability Company Agreement as of the date first written above.
MEM HOLDINGS, LLC
By: /s/ Royce Yudkoff
-----------------------------------
Name: Royce Yudkoff
Title: President
/s/ Joseph Koff
---------------------------------------
Joseph Koff
/s/ David Unger
---------------------------------------
David Unger
/s/ William Boyd
---------------------------------------
William Boyd
MUSIC HOLDINGS CORP.
By: /s/ William Boyd
-----------------------------------
Name: William Boyd
Title: Chief Executive Officer
CAPSTAR BROADCASTING CORPORATION
By: /s/ Kathy Archer
-----------------------------------
Name: Kathy Archer
Title: Vice President
<PAGE>
EXHIBIT 3.17
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MLP ENVIRONMENTAL MUSIC, LLC
(A WASHINGTON LIMITED LIABILITY COMPANY)
DATED AS OF
MARCH 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS......................................................... 1
2. FORMATION OF COMPANY................................................ 4
2.1. Formation..................................................... 4
---------
2.2. Name.......................................................... 4
----
2.3. Principal Place of Business................................... 4
---------------------------
2.4. Registered Office and Registered Agent........................ 4
--------------------------------------
2.5. Date of Dissolution........................................... 4
-------------------
3. BUSINESS OF COMPANY................................................. 5
4. NAMES AND ADDRESSES OF MEMBERS...................................... 5
5. MANAGERS; RIGHTS AND DUTIES......................................... 5
5.1. Management.................................................... 5
----------
5.2. Payment of Expenses........................................... 5
-------------------
5.3. Limitation on Liability, Indemnification...................... 5
----------------------------------------
5.4. Increasing or Decreasing the Number of Managers............... 6
-----------------------------------------------
5.5. Vacancies..................................................... 6
---------
6. RIGHTS AND OBLIGATIONS OF MEMBERS................................... 7
6.1. Limitation of Liability....................................... 7
-----------------------
6.3. No Approval of Sale of All Assets............................. 7
---------------------------------
6.4. Inspection of Records......................................... 7
---------------------
6.5. No Priority on Return of Capital.............................. 7
-------------------------------
6.6. Dissociation and Withdrawal of a Member....................... 7
---------------------------------------
(a) No Withdrawal Rights.................................... 7
--------------------
(b) Dissociation Events..................................... 8
-------------------
7. MEETINGS AND DECISIONS OF MEMBERS................................... 9
7.1. Meetings...................................................... 9
--------
7.2. Place of Meetings............................................. 9
-----------------
7.3. Manner of Acting.............................................. 9
----------------
8. CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS.................... 9
8.1. Members' Capital Contributions............................... 9
------------------------------
(a) Initial Capital Contributions........................... 9
-----------------------------
(b) Additional Capital Contributions........................ 9
--------------------------------
(c) Interest on Unpaid Capital Contributions................ 10
----------------------------------------
(d) Exclusive Remedies for Failure to Make
--------------------------------------
Capital Contributions................................... 10
---------------------
8.2. Capital Accounts............................................. 10
----------------
(a) Establishment and Maintenance........................... 10
-----------------------------
(b) Basic Adjustments to Capital Accounts................... 10
-------------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
(c) Compliance with Regulations............................... 11
---------------------------
9. ALLOCATIONS OF NET PROFITS AND LOSSES................................ 11
9.1. Allocation of Net Profit and Loss - In General................. 11
----------------------------------------------
(a) Allocation of Net Profit or Loss.......................... 11
--------------------------------
(b) Limitation................................................ 11
----------
9.2. Special Allocations............................................ 12
-------------------
(a) Minimum Gain Chargeback................................... 12
-----------------------
(b) Member Minimum Gain Chargeback............................ 12
------------------------------
(c) Qualified Income Offset................................... 12
-----------------------
9.3. Corrective Allocations......................................... 13
----------------------
(a) Allocations to Achieve Economic Agreement................. 13
-----------------------------------------
(b) Waiver of Application of Minimum Gain Chargeback.......... 13
------------------------------------------------
9.4. Other Allocation Rules......................................... 13
----------------------
(a) General................................................... 13
-------
(b) Allocation of Recapture Items............................. 13
-----------------------------
9.5. Determination of Net Profit or Loss............................ 14
-----------------------------------
(a) Computation of Net Profit or Loss......................... 14
---------------------------------
(b) Adjustments to Net Profit or Loss......................... 14
---------------------------------
(c) Items Specially Allocated................................. 14
-------------------------
9.6. Mandatory Tax Allocations Under Code Section 704(c)............ 14
---------------------------------------------------
10. DISTRIBUTIONS........................................................ 14
10.1. Cash Distributions............................................. 14
------------------
(a) Nonliquidating Distributions.............................. 14
----------------------------
(b) Distributions in Liquidation.............................. 15
----------------------------
10.2. Distributions in Kind.......................................... 15
---------------------
11. ACCOUNTING, BOOKS AND RECORDS........................................ 15
11.1. Accounting Principles.......................................... 15
---------------------
11.2. Interest on and Return of Capital Contributions................ 16
-----------------------------------------------
11.3. Loans to Company............................................... 16
----------------
11.4. Accounting Period.............................................. 16
-----------------
11.5. Records, Audits and Reports.................................... 16
---------------------------
11.6. Tax Matters Partner............................................ 16
-------------------
(a) Designation............................................... 16
-----------
(b) Expenses of Tax Matters Partner; Indemnification.......... 16
------------------------------------------------
11.7. Returns and Other Elections.................................... 17
---------------------------
12. TRANSFERABILITY...................................................... 17
12.1. General........................................................ 17
-------
12.2. Additional Transfer Provisions................................. 17
------------------------------
(a) Admission of New Members................................... 17
------------------------
(b) Further Requirements....................................... 18
--------------------
(c) Indemnification............................................ 18
---------------
(d) Loss of Membership Interest................................ 18
---------------------------
12.3. Pledge of Units................................................ 18
---------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
13. ADDITIONAL MEMBERS..................................................................... 19
13.1. Admission; Additional Units..................................................... 19
---------------------------
14. DISSOLUTION AND TERMINATION............................................................ 19
14.1. Dissolution..................................................................... 19
-----------
14.2. Allocation of Net Profit and Loss in Liquidation................................ 19
------------------------------------------------
14.3. Winding Up, Liquidation and Distribution of Assets.............................. 20
--------------------------------------------------
14.4. No Obligation to Restore Negative Capital Account Balance on Liquidation........ 20
------------------------------------------------------------------------
14.5. Termination..................................................................... 20
-----------
14.6. Certificate of Cancellation..................................................... 20
---------------------------
14.7. Return of Contribution Nonrecourse to Other Members............................. 21
---------------------------------------------------
15. INDEPENDENT ACTIVITIES OF MANAGERS AND MEMBERS......................................... 21
16. MISCELLANEOUS PROVISIONS............................................................... 21
16.1. Notices......................................................................... 21
-------
16.2. Governing Law................................................................... 21
-------------
16.3. Amendments...................................................................... 21
----------
16.4. Headings........................................................................ 22
--------
16.5. Waivers......................................................................... 22
-------
16.6. Rights and Remedies Cumulative.................................................. 22
------------------------------
16.7. Severability.................................................................... 22
------------
16.8. Heirs, Successors and Assigns................................................... 22
-----------------------------
16.9. Creditors....................................................................... 22
---------
16.10. Counterparts.................................................................... 22
------------
16.11. Investment Representations...................................................... 23
--------------------------
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MLP ENVIRONMENTAL MUSIC, LLC
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT is made as of
March 18, 1999, by and among MUZAK LLC, a Delaware limited liability company,
the successor entity to the merger of Muzak Limited Partnership with and into
Audio Communications, LLC and MLP ENVIRONMENTAL MUSIC, LLC, a Washington limited
liability company (the "Company").
WHEREAS, as of immediately prior to the date hereof, the Company's
liability company agreement is that certain Limited Liability Company Agreement
of MLP Environmental Music, LLC, dated as of December 24, 1998 (the "Original
Agreement"); and
WHEREAS, Muzak LLC, being the sole Member of the Company as of the date
hereof, desires to amend and restated the Original Agreement in its entirety as
set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and other good and valuable consideration, the Member hereby agrees
as follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the following
meanings (unless otherwise expressly provided herein)
"Act" means the Washington Limited Liability Company Act, Chapter 25.15 of
---
the Revised Code of Washington, as it may be amended from time to time.
"Affiliate" means, with respect to any Person, (i) any other Person
---------
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling fifty percent (50%) or more
of the outstanding voting interests of such Person, (iii) any officer, director
or general partner of such Person, or (iv) any Person who is an officer,
director, general partner, trustee or holder of fifty percent (50%) or more of
the voting interests of any Person described in clauses (i) through (iii). For
purposes of this definition, the terms "controls," "is controlled by" or "is
under common control with" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Amended and Restated Limited Liability Company
---------
Agreement, as originally executed and as may be amended, modified, supplemented
or restated from time to time.
<PAGE>
"Capital Account" shall have the meaning ascribed to that term in Section
--------------- -------
8.2.
- ---
"Capital Contribution" means the total amount of money and the fair market
--------------------
value of property (net of liabilities secured by such property that the Company
is considered to assume or take subject to under Code Section 752) contributed
to the capital of the Company by a Member pursuant to the terms of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or
----
corresponding provisions of subsequent superseding federal revenue laws.
"Company Minimum Gain" has the same meaning as the term "partnership
--------------------
minimum gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Deficit Capital Account" means with respect to any Unit Holder, the
-----------------------
deficit balance, if any, in such Unit Holder's Capital Account as of the end of
the taxable year, after giving effect to the following adjustments:
(A) credit to such Capital Account any amount that such Unit Holder
is obligated to restore to the Company under Section 1.704-1(b)(2)(ii)(c)
of the Regulations as well as any addition thereto pursuant to the next-to-
last sentences of Sections 1.704-2(g)(1) and (i)(5) of the Regulations; and
(B) debit to such Capital Account the items described in Sections
1.704-1 (b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
This definition is intended to comply with the provisions of Sections 1.704-
1(b)(2)(ii)(d) and 1.704-2 of the Regulations and will be interpreted
consistently with those provisions.
"Distributable Cash" means all cash received by the Company, less the sum
------------------
of the following to the extent paid or set aside by the Company: (i) all
principal and interest payments on indebtedness of the Company and other sums
paid or payable to lenders; (ii) all other cash expenditures; and (iii) any
reserves the Company deems necessary or desirable.
"Economic Interest" means a share of Net Profits, Net Losses and other tax
-----------------
items of the Company and distributions of the Company's assets pursuant to this
Agreement and the Act, but shell not include any right to participate in the
management or affairs of the Company, including, the right to vote on, consent
to or otherwise participate in any decision of the Members.
"Economic Interest Owner" means a Unit Holder who is not a Member.
-----------------------
"Entity" means any general partnership, limited partnership, limited
------
liability company, corporation, joint venture, trust, business trust,
cooperative or association or any other organization that is not a natural
person.
-2-
<PAGE>
"Majority Interest" means, at any time, more than fifty percent (50%) of
-----------------
the then-outstanding Units heft by Members.
"Manager" means Royce Yudkoff and any other Person who may become a
-------
substitute or additional Manager as provided in Section 5. At any time when
---------
there is more than one Manager, the affirmative vote, approval or consent of a
majority of the Managers shall be required to take any action permitted to be
taken by the Manager.
"Member" means a Unit Holder who executes a counterpart of this Agreement
------
as a Member, and each other Unit Holder who may hereafter become a Member
pursuant to the terms of this Agreement and the Act, unless in either case such
Unit Holder has ceased to be a Member pursuant to the tones of Section 6.6
-----------
hereof. To the extent a Manager is also a Member, such Manager will have all
the rights of a Member with respect to its Membership Interest and its Economic
Interest, and the term "Member" as used herein shall include a Manager to the
extent such Manager is also a Member.
"Membership Interest" means a right to participate in the management or
-------------------
affairs of the Company, including the right to vote on, consent to or otherwise
participate in any decision of the Members.
"Member Minimum Gain" has the same meaning as the term "partner nonrecourse
-------------------
debt minimum gain" in Section l.702(i) of the Regulations.
"Net Profits" and "Net Losses" shall have the meaning ascribed to those
----------- ----------
terms in Section 9.5.
-----------
"Percentage Interest" with respect to any Unit Holder, means the percentage
-------------------
determined based upon the ratio that the number of Units held by such Unit
Holder bears to the total number of outstanding Units.
"Person" means any individual or Entity, and the heirs, executors,
------
administrators, legal representatives, successors and assigns of such "Person"
where the context so permits.
"RCW" means the Revised Code of Washington, as it may be amended from time
---
to time.
"Regulations" means temporary and final Treasury regulations promulgated
-----------
under the Code and the corresponding sections of any regulations subsequently
issued that amend or supersede such regulations.
"Tax Matters Partner" shall have the meaning ascribed to that term in
-------------------
Section 11.6.
"Unit Holder" means a Person who holds Units.
-----------
-3-
<PAGE>
"Units" means all units of Economic Interest in the Company, whether now or
-----
hereafter existing. The Units are securities governed by Article 8 of the
Uniform Commercial Code (the "UCC"), shall be represented by certificated and
are "certificated securities" as defined in Article 8 of the UCC.
2. FORMATION OF COMPANY
2.1 Formation.
---------
The Company was formed on December 24, 1998, when the Certificate of
Formation which was executed and filed with the office of the Washington
Secretary of State in accordance with and pursuant to the Act became effective.
2.2 Name.
----
The name of the Company is MLP ENVIRONMENTAL MUSIC, LLC.
2.3 Principal Place of Business.
---------------------------
The principal place of business of the Company shall be 2901 Third Avenue,
Suite 400, Seattle, Washington 98121.
2.4 Registered Office and Registered Agent.
--------------------------------------
The Company's initial registered agent and the address of its initial
registered office in the State of Washington are as follows:
--------------------------------------------------------------------
Name Address
---- -------
--------------------------------------------------------------------
LOUISA BARASH Suite 6100
701 Fifth Avenue
Seattle, Washington 98104-7098
--------------------------------------------------------------------
The registered office and registered agent may be changed by the Manager from
time to time by filing an amendment to the Certificate of Formation.
2.5 Date of Dissolution.
-------------------
The Company shall have perpetual existence. No date of dissolution is
specified.
-4-
<PAGE>
3. BUSINESS OF COMPANY
The business of the Company shall be.
(A) to carry on Any lawful business or activity which may be
conducted by a limited liability company organized under the Act; and
(B) to exercise all other powers necessary to or reasonably connected
with the Company's business, including the ability to incur and guaranty
indebtedness, which may be legally exercised by a limited liability company
under the Act.
4. NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Members are set forth on the attached
Schedule 1, as amended or restated from time to time.
- ----------
5. MANAGERS; RIGHTS AND DUTIES
5.1 Management.
----------
The business and affairs of the Company shall be managed by the Manager.
Except as otherwise expressly provided in this Agreement, the Manager shall have
full and complete authority, power and discretion to manage and control the
business, affairs and properties of the Company to make all decisions regarding
those matters and to perform any and all other acts or activities customary or
incident to the management of the Company's business. Unless authorized to do
so by the Manager, no Member, employee or other agent of the Company shall have
any power or authority to bind the Company in any way, to pledge its credit or
to render it liable for any purpose.
5.2 Payment of Expenses.
-------------------
The Company shall pay all of its expenses of operation, which expenses may
be either billed directly to the Company or billed to. and paid by, the Manager
or an Affiliate of the Manager and reimbursed to the payor by the Company. The
Company shall also pay or reimburse the Manager or an affiliate of the Manager
for all expenses incurred in connection with the organization of the Company and
the sale of interests in the Company. These expenses may include, but are not
limited to, legal, accounting, financing and other professional fees and costs,
however, the legal, accounting, financing and other professional fees and costs
incurred by a Member in connection with the purchase of an interest in the
Company shall be borne solely by that Member.
5.3 Limitation on Liability, Indemnification.
----------------------------------------
Neither the Manager nor any Affiliate of the Manager shall be liable,
responsible or accountable in damages or otherwise to the Company or the Members
for any act or omission by
-5-
<PAGE>
any such Person performed in good faith pursuant to the authority granted to
such Person by this Agreement or in accordance with its provisions, and in a
manner reasonably believed by such Person to be within the scope of the
authority granted to such Person and in the best interest of the Company;
provided, that such act or omission did not involve intentional misconduct or a
- -------- ----
knowing violation of law, conduct violating RCW 25.15.235 or any transaction
from which the Person will, without the approval of Members collectively holding
a Majority Interest, receive a benefit in money, property or services to which
such Person is not legally entitled. The Company shall indemnify, defend and
hold harmless the Manager, any Affiliate, and each director, officer, partner,
employee or agent thereof, against any liability, loss, damage, cost or expense
incurred by them on behalf of the Company or in furtherance of the Company's
interests without relieving any such Person of liability for intentional
misconduct or a knowing violation of law, conduct violating RCW 25.15.235 or any
transaction from which the Person will, without the approval of Members
collectively holding a Majority Interest, receive a benefit in money, property
or services to which such Person is not legally entitled. No Member shall have
any personal liability with respect to the satisfaction of any required
indemnification of the above-mentioned Persons.
Any indemnification required to be made by the Company shall be made
promptly following the fixing of the liability, loss, damage, cost or expense
incurred or suffered by a final judgment of any court, settlement, contract or
otherwise. In addition, the Company shall advance funds to a Person claiming
indemnification under this Section 5.3 for legal expenses and other costs
-----------
incurred as a result of a legal action brought against such Person only if (i)
the legal action relates to the performance of duties or services by the Person
on behalf of the Company, (ii) the legal action is initiated by a party other
than a Member and (iii) such Person undertakes to repay the advanced funds to
the Company if it is determined that such Person is not entitled to
indemnification pursuant to the terms of this Agreement.
5.4 Increasing or Decreasing the Number of Managers.
-----------------------------------------------
The number of Managers may be increased or decreased by the affirmative
vote of Members collectively holding a Majority Interest. If an increase or
decrease in the number of managers creates any vacancy or requires the removal
of any Manager, the filling of such vacancy or the removal of such Manager shall
be governed by Section 5.5 and Section 5.6, respectively.
----------- -----------
5.5 Vacancies.
---------
Any vacancy occurring for any reason in the number of Managers shall be
filled by the affirmative vote of Members collectively holding a Majority
Interest.
5.6 Removal.
-------
Any Manager may be removed at any time, with or without cause, by the
affirmative vote of Members collectively holding a Majority Interest. The
removal of a Manager who is also a
-6-
<PAGE>
Member shall not affect the Manager's rights as a Member and shall not
constitute a withdrawal of a Member.
5.7 Right to Rely on the Manager.
----------------------------
Any Person dealing with the Company may rely (without duty of further
inquiry) upon a certificate signed by the Manager as to the identity and
authority of the Manager or other Person to act on behalf of the Company.
6. RIGHTS AND OBLIGATIONS OF MEMBERS
6.1 Limitation of Liability.
-----------------------
Each Member's liability shall be limited as set forth in this Agreement and
the Act.
6.2 Liability for Company Obligations.
---------------------------------
Except as otherwise provided by law, Members shall not be personally liable
for any debts, obligations or liabilities of the Company.
6.3 No Approval of Sale of All Assets.
---------------------------------
The affirmative vote of Members collectively holding a Majority Interest
shall not be required in order for the Company, acting through the Manager, to
sell, exchange or otherwise dispose of all, or substantially all, of the
Company's assets.
6.4 Inspection of Records.
---------------------
Upon reasonable request, each Member shall have the right to inspect and
copy at such Member's expense, during ordinary business hours, the records
required to be maintained by the Company pursuant to Section 11.5.
------------
6.5 No Priority on Return of Capital.
--------------------------------
Except as expressly provided in Sections 9, 10 and 14, no Unit Holder shall
---------------------
have priority over any other Unit Holder, either as to the return of Capital
Contributions or as to Net Profits, Net Losses or distributions. This Section
-------
6.5 shall nor apply to the repayment of loans made by a Unit Holder to the
- ---
Company.
6.6 Dissociation and Withdrawal of a Member.
---------------------------------------
(a) No Withdrawal Rights
--------------------
A Member may nor withdraw as a Member prior to dissolution and commencement
of winding up of the Company pursuant to Section 14 without the written consent
----------
of Members
-7-
<PAGE>
collectively holding a majority of Units then held by Members other than the
Member proposing to withdraw.
(b) Dissociation Events
-------------------
A Person shall cease to be a Member upon the occurrence of one or more of
the following events:
(i) The Person withdraws by voluntary act from the Company with
the written consent of Members collectively holding a majority of Units then
held by Members other than the Member proposing to withdraw, as provided in
Subsection (a) of this Section 6.6.
- -------------- -----------
(ii) The Person ceases to be a Member as provided in RCW
25.15.250(2)(b) and Section 12.4(d) following an assignment of all the Person's
Economic Interest; or
(iii) Unless Members collectively holding a majority of the Units
then held by Members other than such Person agree in writing that such Person's
status as a Member shall not be terminated:
(A) the Person (1) makes a general assignment for the
benefit of creditors; (2) files a voluntary petition in bankruptcy; (3) becomes
the subject of an order for relief in bankruptcy proceedings; (4) files a
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation; (5) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against such Person in any
proceeding of the nature described in clauses (1) through (4) above; or (6)
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Person or of all or any substantial part of such Person's
properties:
(B) one-hundred-twenty (120) days after the commencement of
any proceeding against such Person seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, the proceeding has not been dismissed, or if within
ninety (90) days after the appointment, without such Person's consent or
acquiescence, of a trustee, receiver or liquidator of such Person or of all or
say substantial part of such Person's properties, the appointment is not vacated
or stayed, or within ninety (90) days after the expiration of any stay, the
appointment is not vacated;
(C) in the case of a Person who is an individual, the entry
of an order by a court of competent jurisdiction adjudicating the Person
incapacitated to manage his or her person or estate;
(D) in the case of a Person that is a general partnership,
a limited partnership or another limited liability company, the dissolution and
commencement of winding up of such Person; or
-8-
<PAGE>
(E) in the case of a Person that is a corporation, the
filing of articles of dissolution or the equivalent for the corporation or the
administrative dissolution of the corporation.
7. MEETINGS AND DECISIONS OF MEMBERS
7.1 Meetings.
--------
Meetings of the Members, for any purpose or purposes, may be called by the
Manager or by Members collectively holding at least ten percent (10%) of the
Units held by Members.
7.2 Place of Meetings.
-----------------
The Manager or the Members calling the meeting may designate any place,
either within or outside the State of Washington, as the place of meeting for
any meeting of the Members.
7.3 Manner of Acting.
----------------
All decisions by the Members shall be made by the affirmative vote,
approval or consent of Members collectively holding a Majority Interest, except
that the affirmative vote, approval or consent of all Members shall be required
to amend this Agreement or to authorize any Member or other Person to do any act
on behalf of the Company that contravenes this Agreement. A Member may vote, or
otherwise give approval or consent in person (in writing or orally, whether
face-to-face, by telephone or through any other means of communication) or by
proxy.
8. CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 Members' Capital Contributions.
------------------------------
(a) Initial Capital Contributions
-----------------------------
Each Member shall contribute to the Company such money or other property at
such times as are set forth in the attached Schedule 1 opposite that Member's
----------
name as such Member's initial Capital Contribution.
(b) Additional Capital Contributions
--------------------------------
The Members shall be required to make additional Capital Contributions, in
proportion to their respective Percentage Interests, as, when and in amounts
Members collectively holding a Majority Interest determine from time to time to
be reasonably necessary to provide working capital, establish reserves or pay
expenses of the Company. Such additional Capital Contributions shall be made no
later than thirty (30) days after notice of the amount to be contributed by each
Member is given. NOTHING CONTAINED IN THIS SECTION 8.1(b) IS OR SHALL BE DEEMED
--------------
TO BE FOR THE BENEFIT OF ANY PERSON OTHER THAN THE MEMBERS AND THE COMPANY, AND
NO SUCH PERSON SHALL UNDER ANY
-9-
<PAGE>
CIRCUMSTANCE HAVE ANY RIGHT TO COMPEL ANY ACTIONS OR PAYMENTS BY THE MEMBERS.
(c) Interest on Unpaid Capital Contributions
----------------------------------------
Any Capital Contribution nor made when due shall bear interest from the
date due until contributed to the Company at a rate equal to the lesser of (i)
two percentage points (2.00%) per annum over the prime lending rate of interest
announced from time to time by BANK OF AMERICA NT & SA, doing business as
SEATTLE-FIRST NATIONAL BANK, or its successor during such period and (ii) the
maximum interest that may be charged by the Company on such amounts under
applicable law.
(d) Exclusive Remedies for Failure to Make Capital Contributions
------------------------------------------------------------
Any distribution a Member would otherwise be entitled to receive during any
period in which such Member is in default on any required Capital Contribution
(a "Defaulting Member") shall be applied by the Company against the Defaulting
Member's required Capital Contribution, along with interest, in such order as
the Company shall determine. If a Defaulting Member fails to make a Capital
Contribution for more than one (1) year from the date due, then the Defaulting
Member shall: (i) automatically forfeit all rights (including the right to vote
on, consent to or otherwise participate in any decision of the Members)
associated with the Defaulting Member's Membership Interest; and (ii) be deemed
to have offered for sale to the Company all of the Units and any other
associated rights then held by the Defaulting Member for a purchase price
determined by application of the appraisal process specified in Section 12.3(c)
---------------
to be the Appraised Value (as defined in Section 12.3(c)) of Defaulting Member's
---------------
Units, substituting the Defaulting Member for "the Seller," the Company for "the
other Unit Holders," and the anniversary of the due date for "the Purchase
Event." The Company shall have the right to offset the purchase price paid to
the Defaulting Member with amounts, including Capital Contributions together
with interest thereon, otherwise owed to the Company by the Defaulting Member.
THE REMEDIES PROVIDED IN THIS SECTION 8.1(d) SHALL BE THE EXCLUSIVE REMEDIES FOR
--------------
A MEMBER'S FAILURE TO MAKE A CAPITAL CONTRIBUTION WHEN DUE.
8.2 Capital Accounts.
----------------
(a) Establishment and Maintenance
-----------------------------
A separate "Capital Account" will be established and maintained for each
Unit Holder in accordance with the rules of Section 1.704-1(b)(2)(iv) of the
Regulations, which are incorporated herein by this reference.
(b) Basic Adjustments to Capital Accounts
-------------------------------------
Each Unit Holder's Capital Account will be increased by (i) the amount of
money contributed by such Unit Holder to the Company; (ii) the fair market value
of property
-10-
<PAGE>
contributed by such Unit Holder to the Company (net of liabilities secured by
such contributed property that the Company is considered to assume or take the
property subject to under Code Section 752); (iii) allocations to such Unit
Holder of Net Profits; (iv) any items in the nature of income and gain that are
specially allocated to the Unit Holder pursuant to Sections 9.2 and 9.3, and (v)
allocations to such Unit Holder of income and gain exempt from federal income
tax. Each Unit Holder's Capital Account will be decreased by (i) the amount of
money distributed to such Unit Holder by the Company; (ii) the fair market value
of property distributed to such Unit Holder by the Company (net of liabilities
secured by such distributed property that such Unit Holder is considered to
assume or take the property subject to under Code Section 752); (iii)
allocations to such Unit Holder of expenditures described in Code Section
705(a)(2)(B); (iv) any items in the nature of deduction and loss that are
specially allocated to the Unit Holder pursuant to Sections 9.2 and 9.3, and (v)
--------------------
allocations to such Unit Holder of Net Losses. In the event of a permitted sale
or exchange of a Membership Interest or an Economic Interest in the Company, the
Capital Account of the transferor shall become the Capital Account of the
transferee to the extent it relates to the transferred Membership Interest or
economic Interest.
(c) Compliance with Regulations
---------------------------
The manner in which Capital Accounts are to be maintained pursuant to this
Section 8.2 is intended to comply with the requirements of Code Section 704(b)
and the Regulations promulgated thereunder. If in the opinion of the Company's
legal counsel or accountants the manner in which Capital Accounts are to be
maintained pursuant to the preceding provisions of this Section 8.2 should be
modified in order to comply with Code Section 704(b) and the Regulations
thereunder, then notwithstanding anything to the contrary contained in the
preceding provisions of this Section 8.2, the method in which Capital Accounts
are maintained shall be so modified; provided, however, that any change in the
-------- -------
manner of maintaining Capital Accounts shall not materially alter the economic
agreement between or among the Members.
9. ALLOCATIONS OF NET PROFITS AND LOSSES
9.1. Allocation of Net Profit and Loss - In General
----------------------------------------------
(a) Allocation of Net Profit or Loss
--------------------------------
Subject to the limitation set forth in Section 9.1(b) and after giving
--------------
effect to the special allocations set forth in Sections 9.2 and 9.3, the Net
--------------------
Profit or Net Loss for any fiscal year of the Company shall be allocated among
the Unit Holders in accordance with the written agreement of all of the Members
provided for in Section 10.1(a), or, in the absence of such unanimous written
---------------
agreement, in accordance with the Unit Holders' respective Percentage Interests.
(b) Limitation
----------
The Net Loss allocated to each Unit Holder for any Company fiscal year
pursuant to Section 9.1(a) shall not exceed the maximum amount of Net Loss that
--------------
can be so allocated without causing such Unit Holder to have a Deficit Capital
Account at the end of the fiscal year.
-11-
<PAGE>
All Net Losses in excess of the limitation set forth in this Section 9.1(b)
--------------
shall be allocated to the other Unit Holders who do not have Deficit Capital
Accounts in proportion to their respective Percentage Interests.
9.2. Special Allocations
-------------------
The following special allocations shall be made for any fiscal year of the
Company in the following order:
(a) Minimum Gain Chargeback
-----------------------
If there is a net decrease in Company Minimum Gain during any Company
fiscal year, each Unit Holder shall be specially allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Unit Holder's share of the net decrease in Company Minimum Gain,
determined in accordance with Sections 1.704-2(f) and 1.7042(g)(2) of the
Regulations. The items to be so allocated, and the manner in which those items
are to be allocated among the Unit Holders, shall be determined in accordance
with Sections 1.704-2(f) and 1.704-2(i)(2) of the Regulations. This Section
-------
9.2(a) is intended to satisfy the minimum gain chargeback requirement in Section
- ------
1.704-2(f) of the Regulations and shall be interpreted and applied accordingly.
(b) Member Minimum Gain Chargeback
------------------------------
If there is a net decrease in Member Minimum Gain during any Company fiscal
year, each Unit Holder who has a share of that Member Minimum Gain, determined
in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially
allocated items of Company income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Unit Holder's share of the net
decrease in Member Minimum Gain, determined in accordance with Sections 1.704-
2(i)(4) and 1.704-2(i)(5) of the Regulations. The items to be so allocated, and
the manner in which those items are to be allocated among the Unit Holders,
shall be determined in accordance with Sections 1.704 2(h)(4) and 1.704-2(j)(2)
of the Regulations. This Section 9.2(b) is intended to satisfy the minimum gain
--------------
chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted and applied accordingly.
(c) Qualified Income Offset
-----------------------
In the event that any Unit Holder unexpectedly receives any adjustments,
allocations or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), (5)
or (6) of the Regulations, items of Company income and gain shall be specially
allocated to such Unit Holder in an amount and in a manner sufficient to
eliminate as quickly as possible, to the extent required by Section 1.704-
(1)(b)(2)(ii)(d) of the Regulations, the Deficit Capital Account of the Unit
Holder (which Deficit Capital Account shall be determined as if all other
allocations provided for in this Section 9 have been tentatively made as if this
Section 9.2(c) were not in this Agreement).
-12-
<PAGE>
9.3. Corrective Allocations
----------------------
(a) Allocations to Achieve Economic Agreement
-----------------------------------------
The allocations set forth in the last sentence of Section 9.1(b) and in
--------------
Section 9.2 are intended to comply with certain regulatory requirements under
- -----------
Code Section 704(b). The Members intend that, to the extent possible, all
allocations made pursuant to such Sections will, over the term of the Company,
be offset either with other allocations pursuant to Section 9.2 or with special
-----------
allocations of other items of Company income, gain loss, or deduction pursuant
to this Section 9.3(a). Accordingly, the Tax Matters Partner is hereby
--------------
authorized and directed to make offsetting allocations of Company income, gain,
loss or deduction under this Section 9.3(a) in whatever manner the Tax Matters
--------------
Partner determines is appropriate so that, after such offsetting special
allocations are made, the Capital Accounts of the Unit Holders are, to the
extent possible, equal to the Capital Accounts each would have if the provisions
of Section 9.2 were not contained in this Agreement and all income, gain, loss
-----------
and deduction of the Company were instead allocated pursuant to Section 9.1 (a).
---------------
(b) Waiver of Application of Minimum Gain Chargeback
------------------------------------------------
The Tax Matters Partner shall request from the Commissioner of the Internal
Revenue Service a waiver, pursuant to Section 1.704-2(f)(4) of the Regulations,
of the minimum gain chargeback requirements of Section 1.704 2(f) of the
Regulations if the application of such minimum gain chargeback requirement would
cause a permanent distortion of the economic arrangement of the Members, as
reflected in Section 9.1(a).
--------------
9.4. Other Allocation Rules
----------------------
(a) General
-------
Except as otherwise provided in this Agreement, all items of Company
income, gain, loss, deduction and any other allocations not otherwise provided
for shall be divided among the Unit Holders in the same proportions as they
share Net Profits or Net Losses, as the case may be, for the year.
(b) Allocation of Recapture Items
-----------------------------
In making any allocation among the Unit Holders of income or gain from the
sale or other disposition of a Company asset, the ordinary income portion, if
any, of such income and gain resulting from the recapture of cost recovery or
other deductions shall be allocated among those Unit Holders who were previously
allocated (or whose predecessors-in-interest were previously allocated) the cost
recovery deductions or other deductions resulting in the recapture items, in
proportion to the amount of such cost recovery deductions or other deductions
previously allocated to them.
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<PAGE>
9.5. Determination of Net Profit or Loss
-----------------------------------
(a) Computation of Net Profit or Loss
---------------------------------
The Net Profit or Net Loss of the Company, for each fiscal year or other
period, shall be an amount equal to the Company's taxable income or loss for
such period, determined in accordance with Code Section 703(a) (and, for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1), including income and gain exempt
from federal income tax, shall be included in taxable income or loss).
(b) Adjustments to Net Profit or Loss
---------------------------------
For purposes of computing taxable income or loss on the disposition of an
item of Company property or for purposes of determining the cost recovery,
depreciation, or amortization deduction with respect to any property, the
Company shall use such property's book value determined in accordance with
Section 1.704-l(b) of the Regulations.
(c) Items Specially Allocated
-------------------------
Notwithstanding any other provision of this Section 9.5, any items that are
specially allocated pursuant to Sections 9.2 or 9.3 shall not be taken into
account in computing Net Profit or Net Loss.
9.6. Mandatory Tax Allocations Under Code Section 704(c)
---------------------------------------------------
In accordance with Code Section 704(c) and Section 1.704-3 of the
Regulations, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Unit Holders so as to take account of any variation between
the initial adjusted basis of such property to the Company for federal income
tax purposes and its initial book value computed in accordance with Section
-------
9.5(b). Prior to the contribution of any property to the Company that has a
- ------
fair market value that differs from its adjusted tax basis in the hands of the
contributing Member on the date of contribution, the contributing Member and the
Manager (or, if the contributing Member is the Manager, Members collectively
holding a majority of the Units held by all non-contributing Members) shall
agree upon the allocation method to be applied with respect to that property
under Section 1.704-3 of the Regulations.
10. DISTRIBUTIONS
10.1. Cash Distributions
------------------
(a) Nonliquidating Distributions
----------------------------
Distributions of Distributable Cash, other than distributions in
liquidation pursuant to Section 10.(b), shall be made to the Unit Holders at
--------------
least annually in such proportions as all of
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<PAGE>
the Unit Holders shall agree upon in writing, or, in the absence of such
unanimous written agreement, in proportion to their Percentage Interests.
(b) Distributions in Liquidation
----------------------------
Distributions in liquidation of the Company shall be made to each Unit
Holder in the manner set forth in Section 14.3(C).
---------------
10.2. Distributions in Kind
---------------------
Non-cash assets, if any, shall be distributed in a manner that reflects how
cash proceeds from the sale of such assets for fair market value would have been
distributed (after any unrealized gain or loss attributable to such non-cash
assets has been allocated among the Unit Holders in accordance with Section 9).
---------
10.3. Withholding; Amounts Withheld Treated as Distributions
------------------------------------------------------
The Manager is authorized to withhold from distributions, or with respect
to allocations or payments, to Unit Holders and to pay over to the appropriate
federal, state or local governmental authority any amounts required to be
withheld pursuant to the Code or provisions of applicable state or local law.
All amounts withheld pursuant to the preceding sentence in connection with any
payments, distribution or allocation to any Unit Holder shall be treated as
amounts distributed to such Unit Holder pursuant to this Section 10 for all
----------
purposes of this Agreement.
10.4. Limitation Upon Distributions
-----------------------------
No distribution shall be declared and paid to the extent that, after giving
effect to the distribution, (a) the Company would not be able to pay its debts
as they become due in the usual course of business, or (b) the aggregate amount
of liabilities of the Company (other than liabilities to Unit Holders on account
of their Units) would exceed the fair value of the assets of the Company. For
purposes of the calculation described in the preceding sentence, liabilities for
which recourse of creditors is limited to specific property of the Company shall
be excluded and the fair value of property that is subject to a liability for
which recourse of creditors is limited shall be included only to the extent it
exceeds such liability. Notwithstanding any provision to the contrary contained
in this Agreement, the Company shall not make any distribution if such
distribution would violate any of the Company's debt financing agreements or any
other debt financing agreement of which the Company is a Guarantor.
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<PAGE>
11. ACCOUNTING, BOOKS AND RECORDS
11.1. Accounting Principles
---------------------
The Company's books and records shall be kept, and its income tax returns
prepared, under such permissible method of accounting, consistently applied, as
the Manager determines is in the best interest of the Company and its Members.
11.2. Interest on and Return of Capital Contributions
-----------------------------------------------
No Unit Holder shall be entitled to interest on any Capital Contribution or
to return of any Capital Contribution, except as otherwise specifically provided
for herein.
11.3. Loans to Company
----------------
Nothing in this Agreement shall prevent any Member from making secured or
unsecured loans to the Company.
11.4. Accounting Period
-----------------
The Company's accounting period shall be the calendar year.
11.5. Records, Audits and Reports
---------------------------
At the expense of the Company, the Manager shall maintain records and
accounts of all operations and expenditures of the Company as required by the
Act.
11.6. Tax Matters Partner
-------------------
(a) Designation
-----------
The Manager, or where there is more than one Manager, the Manager with the
largest Economic Interest (or where there is no single Manager with the largest
Economic Interest, the Manager whose last name would appear first in an
alphabetical listing), shall be the "Tax Matters Partner" of the Company for
purposes of Code Section 6221 et seq., the corresponding provisions of any state
or local tax law and this Agreement. If no Manager is eligible to serve as Tax
Matters Partner, then the Member with the largest Economic Interest (or, where
there is no single Member with the largest Economic Interest, the Member whose
name would appear first in an alphabetical listing), shall be the Tax Matters
Partner.
(b) Expenses of Tax Matters Partner; Indemnification
------------------------------------------------
The Company shall indemnify and reimburse the Tax Matters Partner for all
reasonable expenses, including legal and accounting fees, claims, liabilities,
losses and damages incurred in connection with any administrative or judicial
proceeding with respect to the tax liability of the
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<PAGE>
Unit Holders attributable to the Company. The payment of all such expenses shall
be made before any distributions are made to Unit Holders (and such expenses
shall be taken into consideration for purposes of determining Distributable
Cash). Neither the Tax Matters Partner nor any member shall have any obligation
to provide funds for such purpose. The provisions for exculpation and
indemnification of the Manager set forth in Section 5.3 of this Agreement shall
be fully applicable to any Member acting as Tax Matters Partner.
11.7. Returns and Other Elections
---------------------------
The Manager shall cause the preparation and timely filing of all tax and
information returns required to be filed by the Company pursuant to the Code and
all other tax and information returns deemed necessary and required in each
jurisdiction in which the Company does business. Copies of such returns, or
pertinent information therefrom, shall be furnished to the Unit Holders within a
reasonable time after the end of the Company's fiscal year. Except as expressly
provided to the contrary in this Agreement, all elections permitted to be made
by the Company under federal or state laws shall be made by the Manager in its
sole discretion.
12. TRANSFERABILITY
12.1. General
-------
Neither a Member nor an Economic Interest Owner shall have the right to:
(A) sell, assign, transfer, exchange or otherwise transfer for
consideration, (collectively, "sell" or "sale"); or
(B) "give, bequeath or otherwise transfer for no consideration,
whether or not by operation of law, except in the case of bankruptcy
(collectively "gift"),
(other than a pledge) all or any part of its Membership Interest or its Economic
Interest without the written consent of Members collectively holding a Majority
Interest. In connection with a transfer in any manner of any Units by a Unit
Holder in accordance with the provisions of this Agreement to any person who is
not a party to this Agreement, the transferring party shall obtain, as a
condition to and upon such transfer, the written consent of such transferee to
become a party to and be bound by the terms of this Agreement and the consent of
the spouse of the transferee, if married, to the terms of this Agreement. Each
Unit Holder hereby acknowledges the reasonableness of the restrictions on sale
and gift of Membership Interests and Economic Interests imposed by this
Agreement in view of the Company's purposes and the relationship of the Members
and Economic Interest Owners. Accordingly, the restrictions on sale and gift
contained herein shall be specifically enforceable. In the event that any Unit
Holder pledges or otherwise encumbers any of its Membership Interest or Economic
Interest as security for repayment of a liability, any such pledge or
hypothecation shall be made pursuant to a pledge or hypothecation agreement that
requires the pledgee or secured party to be bound by all the terms and
conditions of this Section 12. In any event, no Unit may be transferred except
----------
in compliance with Section 12.2 below and the other provisions of this
------------
Agreement.
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<PAGE>
12.2. Additional Transfer Provisions
------------------------------
(a) Admission of New Members
------------------------
Notwithstanding anything to the contrary in this Section 12, if the sale or
gift of any Units to a transferee or donee, who is not a Member immediately
prior to the sale or gift, is not approved in writing by Members collectively
holding a Majority Interest, in their sole and absolute discretion, then the
proposed transferee or donee shall have no right to participate in the
management of the business and affairs of the Company or to become a Member.
Such transferee or donee shall be merely an Economic Interest Owner.
(b) Further Requirements
--------------------
Upon the sale or the gift of any Units, and as a condition to recognizing
the substitution of a Person as a new Unit Holder, the Manager may require the
transferring Unit Holder and the proposed purchaser, donee or successor-in-
interest, as the case may be, to execute, acknowledge and deliver to the Manager
such instruments of transfer, assignment and assumption and such other
agreements and to perform all such other acts that the Manager may deem
necessary or desirable to (i) constitute such Person as a Unit Holder; (ii)
confirm that the Person desiring to become a Unit Holder has accepted, assumed
and agreed to be subject and bound by all of the terms, obligations and
conditions of this Agreement (whether such Person is to be admitted as a new
Member or will merely be an Economic Interest Owner); (iii) maintain the status
of the Company as a partnership for federal tax purposes; and (iv) assure
compliance with any applicable state and federal laws, including securities laws
and regulations.
(c) Indemnification
---------------
Each transferring Unit Holder hereby agrees to indemnify the Manager, the
Company and the other Unit Holders against any and all loss, damage or expense
(including, without limitation, tax liabilities or loss of tax benefits) arising
directly or indirectly as a result of any transfer or purported transfer in
violation of this Section 12.
(d) Loss of Membership Interest
---------------------------
Following any sale or gift of all of a Member's Economic Interest, such
Person shall no longer be a Member.
12.3. Pledge of Units
---------------
(a) Notwithstanding anything contained herein to the contrary, any
Member shall have the ability to pledge any Unit(s) owned by such Member and
such pledge shall not be a "sale" or "gift" of such Unit(s) for purposes of this
Agreement.
(b) Upon the transfer of such Unit(s) owned by Muzak LLC pursuant to
Section 7.2 of the Pledge and Security Agreement, dated as of the date hereof
(the "Pledge
-------
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<PAGE>
Agreement"), between the Company, Muzak LLC, Muzak Holdings LLC, certain other
- ---------
subsidiaries of Muzak LLC, and the Canadian Imperial Bank of Commerce (the
"Administrative Agent"), as such Pledge Agreement may be amended and restated
--------------------
from time to time, and without need for any further action or notice under this
Agreement, the transferee of such Units shall be admitted as a Member of the
Company and shall acquire all right, title and interest in such Units, including
all rights under this Agreement, and Muzak LLC shall be withdrawn as a Member
hereunder and shall have no further right, title or interest in such Units or
under this Agreement.
13. ADDITIONAL MEMBERS
13.1. Admission; Additional Units
---------------------------
Subject to this Section 13, Members collectively holding a Majority
----------
Interest may at any time and from time to time admit additional Members to the
Company on such terms and conditions as such Members may deem appropriate. In
connection with the admission of additional members, or independent of any such
action, Members collectively holding a Majority interest may at any time and
from time to time elect to require the Company to issue additional Units in the
Company and to adjust the Percentage Interest of each Unit Holder as appropriate
based upon such admission or additional issuance.
13.2. Further Restrictions on Additional Members
------------------------------------------
No additional Member shall be admitted to the Company if (i) the admission
of that Member would jeopardize the status of the Company as a partnership for
Federal income tax purposes, (ii) cause a termination of the Company pursuant to
the then-applicable provisions of the Act, (iii) violate or cause the Company to
violate any applicable Federal, state or local law. rule or regulation,
including, but not limited to, any applicable Federal or state securities law,
or (iv) require the Company co register as an investment company under the
Investment Company Act of 1940, as amended.
14. DISSOLUTION AND TERMINATION
14.1. Dissolution
-----------
The Company shall be dissolved upon the written agreement of all Members to
that effect. The occurrence of any of the events specified in Section 6.6(b) or
--------------
RCW 25.15.130, which cause the dissociation of a Member or cause a Person to
cease to be a Member of Company, shall not cause the dissolution or termination
of the Company. No consent of the remaining Members of the Company to continue
the business of the Company shall be necessary or required.
14.2. Allocation of Net Profit and Loss in Liquidation
------------------------------------------------
The allocation of Net Profit, Net Loss and other items of the Company
following the date of dissolution, including but not limited to gain or loss
upon the sale of all or substantially all of the Company's assets, shall be
determined in accordance with the provisions of Section 9 and
-19-
<PAGE>
shall be credited or charged to the Capital Accounts of the Unit Holders in the
same manner as Net Profit, Net Loss, and other items of the Company would have
been credited or charged if there were no dissolution and liquidation.
14.3. Winding Up, Liquidation and Distribution of Assets
--------------------------------------------------
Upon dissolution, the Manager shall immediately proceed to wind up the
affairs of the Company. The Manager shall sell or otherwise liquidate all of
the Company's assets as promptly as practicable (except to the extent the
Manager may determine to distribute any assets to the Unit Holders in kind) and
shall apply the proceeds of such sale and the remaining Company assets in the
following order of priority:
(A) first, in payment of creditors, including Unit Holders and
Managers who are creditors, to the extent otherwise permitted by law, in
satisfaction of liabilities of the Company, other than liabilities for
distributions to Unit Holders;
(B) second, to establish any reserves that the Manager deems
reasonably necessary for contingent or unforeseen obligations of the
Company, and
(C) third, by the end of the taxable year in which the liquidation
occurs (or, if later, within ninety (90) days after the date of such
liquidation), to the Unit Holders in proportion to the positive balances of
their respective Capital Accounts, as determined after taking into account
all Capital Account adjustments for the taxable year during which the
liquidation occurs (other than those made pursuant to this Paragraph (C)).
-------------
14.4. No Obligation to Restore Negative Capital Account Balance on
-------------------------------------------------------------
Liquidation
-----------
Notwithstanding anything to the contrary in this Agreement, upon a
liquidation within the meaning of Section 1.704-1(b)(2)(ii)(g) of the
Regulations, if any Unit Holder has a negative Capital Account balance (after
giving effect to all contributions, distributions, allocations and other Capital
Account adjustments for all taxable years, including the year during which such
liquidation occurs), such Unit Holder shall have no obligation to make any
Capital Contribution to the Company, and the negative balance of such Unit
Holder's Capital Account shall not be considered a debt owed by such Unit Holder
to the Company or to any other Person for any purpose whatsoever.
14.5. Termination
-----------
The Manager shall comply with all requirements of applicable law pertaining
to the winding up of the affairs of the Company and the final distribution of
its assets. Upon completion of the winding up, liquidation and distribution of
the assess, the Company shall be deemed terminated.
-20-
<PAGE>
14.6. Certificate of Cancellation
---------------------------
When all debts, liabilities and obligations have been paid and discharged
or adequate provisions have been made therefor and all of the remaining property
and assets have been distributed to the Unit Holders, the Manager shall file a
certificate of cancellation as required by RCW 25.15.080.
14.7. Return of Contribution Nonrecourse to Other Members
---------------------------------------------------
If the property remaining after the payment or discharge of liabilities of
the Company is insufficient to return the Capital Contributions of Members, no
Unit Holder shall have recourse against any other Unit Holder.
15. INDEPENDENT ACTIVITIES OF MANAGERS AND MEMBERS
Any Manager or Member may engage in or possess an interest in other
business ventures of every nature and description, independently or with others,
except that no Manager or Member may engage in or possess an interest in a
business which is competitive with the business of the Company. This
restriction shall include, but not be limited to, the ownership, financing,
management, employment by, lending to or otherwise participating in businesses
which are similar to the business of the Company without the prior written
consent of the Company. To the extent that a Manager or a Member engages or
participates in other business ventures permitted by the terms of this
Agreement, neither the Company nor any of the Managers or Unit Holders shall
have any right by virtue of this Agreement in and to such independent ventures
or to the income or profits therefrom.
16. MISCELLANEOUS PROVISIONS
16.1. Notices
-------
Any notice, demand or communication required or permitted under this
Agreement shall be deemed to have been duly given if delivered personally to the
party to whom directed or, if mailed by registered or certified mail, postage
and charges prepaid, addressed (a) if to a Member, to the Member's address
specified on the attached Schedule l, (b) if to the Company, to the address
----------
specified in Section 2.3, and (c) if to the Manager, to the address specified in
-----------
Section 2.3. Any such notice shall be deemed to be given when personally
- -----------
delivered or, if mailed, three (3) business days after the date of mailing.
16.2. Governing Law
-------------
This Agreement shell be construed and enforced in accordance with the
internal laws of the State of Washington without regard to the conflicts of laws
provisions thereof.
-21-
<PAGE>
16.3. Amendments
----------
This Agreement may not be amended except by the unanimous written agreement
of all of the Members and the Manager.
16.4. Headings
--------
The headings in this Agreement are inserted for convenience only and shall
not affect the interpretations of this Agreement.
16.5. Waivers
-------
No waiver of any provision of this Agreement shall be deemed or shall
constitute a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the Person making the waiver.
16.6. Rights and Remedies Cumulative
------------------------------
The rights and remedies provided by this Agreement are cumulative and the
use of any one right or remedy shall not preclude or waive the right to use any
or all other remedies. Said rights and remedies are given in addition to any
other rights the parties may have by law, statute, ordinance or otherwise.
16.7. Severability
------------
If any provision of this Agreement or the application thereof to any Person
or circumstance shall be invalid, illegal or unenforceable to any extent, the
remainder of this Agreement and the application thereof shall not be affected
and shall be enforceable to the fullest extent permitted by law.
16.8. Heirs, Successors and Assigns
-----------------------------
Each of the covenants, terms, provisions and agreements herein contained
shall be binding upon and inure to the benefit of the parties hereto and, to the
extent permitted by this Agreement, their respective heirs, legal
representatives, successors and assigns.
16.9. Creditors
---------
None of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditors of the Company.
-22-
<PAGE>
16.10. Counterparts
------------
This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
instrument.
16.11. Investment Representations
--------------------------
The Units have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or the securities law of any other jurisdiction,
including state Blue Sky laws. No Unit Holder may make any disposition of any
Units except in accordance with the Securities Act and applicable Blue Sky laws.
Prior to any proposed sale, assignment, transfer or pledge of any Units, unless
there is in effect a registration statement under the Securities Act covering
the proposed transfer, the holder thereof shall give written notice to the
Manager of such Unit Holder's intention to effect such transfer, sale,
assignments or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail and, if the Manager reasonably so requests, shall be accompanied at such
Unit Holder's expense by an opinion of legal counsel which shall be addressed to
the Company, to the effect that the proposed transfer of the Units may be
effected without registration under the Securities Act, whereupon the Unit
Holder of such Units shall be entitled to transfer such Units in accordance with
the terms of the notice delivered by the Unit Holder to the Manager. The
Manager will not require such a legal opinion in any transaction in which a Unit
Holder that is a partnership distributes Units solely to partners and former
partners thereof or affiliated partnerships for no consideration, or transfers
by gift, will or intestate succession to the spouse, siblings, lineal
descendants or ancestors of any Unit Holder, provided that each transferee
agrees in writing to be subject to the terms of this Agreement.
-23-
<PAGE>
EXECUTED by the undersigned Member and the Company effective as of the date
first above written.
MUZAK LLC, a Delaware limited liability
company
By: ________________________________
Name:
Title:
MLP ENVIRONMENTAL MUSIC,
LLC, a Washington limited liability
company
By: ________________________________
Name:
Title:
-24-
<PAGE>
SCHEDULE 1
Member Information
------------------
Initial Capital Percentage
Names and Addresses of Members Contribution Units Interest
- ----------------------------------- --------------- ----- --------
MUZAK LLC See below 1,000 100.000%
2901 Third Avenue, Suite 400
Seattle, Washington 98171
Attn: Brad Bodenman
As Member's initial capital contribution, Member shall contribute all of its
right, title and interest in and to the assets described as follows:
All intangible rights in all compositions and sound recordings in Member's music
library as of December 31, 1998.
<PAGE>
Exhibit 3.18
CODE OF REGULATIONS
-------------------
ARTICLE I
---------
SHAREHOLDERS
------------
Section 1. Annual Meeting. The annual meeting of Shareholders of the
Corporation for the election of Directors, the consideration of reports to be
laid before such meeting, and the transaction of such other business as may
properly be brought before such meeting, shall be held at the principal office
of the Corporation in the City of Cleveland, Cuyahoga County, or at such other
place either in or out of the State of Ohio as may be designated by the Board of
Directors, by the Chairman of the Board, or by the President, and specified in
the notice of such meeting, at 9:00 o'clock, a.m., or at such other time as may
be designated by the Board of Directors, by the Chairman of the Board or by the
President, and specified in the notice of the meeting, on the second Tuesday of
August, 1991, and in each year thereafter, and if a legal holiday, then on the
next succeeding business day.
Section 2. Special Meeting. Special meetings of the Shareholders of the
Corporation may be held on any business day, when called by the Chairman of the
Board, or by the President, or by a Vice-President, or by the Board of Directors
acting at a meeting, or by a majority of the Directors acting without a meeting,
or by the persons who hold twenty-five percent (25%) of all the shares
outstanding and entitled to vote. Upon request in writing, delivered either in
person or by registered mail to the President or the Secretary by any persons
entitled to call a meeting of Shareholders, such officer shall forthwith cause
to be given to the Shareholders entitled thereto notice of a meeting to be held
on a date not less than seven or more than sixty days after the receipt of such
request, as such officer may fix. If such notice is not given within twenty days
after the delivery or mailing of such request, the person calling the meeting
may fix the time of the meeting and give notice thereof in the manner provided
by law or as provided in these Regulations, or cause such notice to be given by
any designated representative. Each special meeting shall be called to convene
between nine o'clock a.m. and four o'clock p.m., and shall be held at the
principal office of the Corporation, unless the same is called by the Directors,
acting with or without a meeting, in which case such meeting may be held at any
place either in or out of the State of Ohio designated by the Board of Directors
and specified in the notice of such meeting.
Section 3. Notice of Meeting. Not less than seven or more than sixty days
before the date fixed for a meeting of Shareholders, written notice stating the
time, place, and in the case of a special meeting the purposes of such meeting,
shall be given by or at the direction of the Secretary, or Assistant Secretary,
or any other person or persons required or permitted by these Regulations to
give such notice. The notice shall be given by personal delivery or by mail to
each Shareholder entitled to notice of the meeting who is of record as of the
day next preceding the day on which notice is given or, if a record date thereof
is duly fixed, of record as of said date; if mailed, the notice shall be
addressed to the Shareholders at their respective addresses as they appear on
the records of the Corporation. Notice of the time, place and purposes of any
meeting of Shareholders may be waived in writing, either before or after the
holding of such meeting, by any Shareholders, which writing shall be filed with
or entered upon the records of the meeting. The attendance of any
<PAGE>
Shareholder at any such meeting without protesting, prior to or at the
commencement of the meeting, to the lack of proper notice shall be deemed to be
a waiver by such Shareholder of notice of such meeting.
Section 4. Quorum; Adjournment. Except as may be otherwise provided by law
or by the Articles of Incorporation, at any meeting of the Shareholders the
holders of shares entitling them to exercise a majority of the voting power of
the Corporation present in person or by proxy shall constitute a quorum for such
meeting; provided, however, that no action required by law, by the Articles, or
by these Regulations, to be authorized or taken by a designated proportion of
the share of any particular class or of each class of the Corporation may be
authorized or taken by a lesser proportion; and provided, further, that the
holders of a majority of the voting shares represented, whether or not a quorum
is present, may adjourn such meeting from time to time; if any meeting is
adjourned, notice of such adjournment need not be given if the time and place to
which such meeting is adjourned are fixed and announced at such meeting.
A meeting may be held and a Quorum may be obtained by means of a conference
call or similar communications equipment which all persons participating in the
meeting can hear each other at the same time. Such participation shall
constitute presence in person at the meeting.
Section 5. Proxies. Persons entitled to vote shares or to act with respect
to shares may vote or act in person or by proxy. The person appointed as proxy
need not be a Shareholder. Unless the writing appointing a proxy otherwise
provides, the presence at a meeting of the person having appointed a proxy shall
not operate to revoke the appointment. Notice to the Corporation, in writing or
in open meeting, of the revocation of the appointment of a proxy shall not
affect any vote or act previously taken or authorized.
Section 6. Action Without a Meeting. Any action which may be authorized or
taken at a meeting of the Shareholders may be authorized or taken without a
meeting in a writing or writings signed by all of the Shareholders entitled to
vote on such matter, which writing or writings shall be filed with or entered
upon the records of the Corporation.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 1. Number. The number of members of the Board of Directors shall be
determined by resolution of the Shareholders entitled to vote, but shall not be
less than three (3) members, unless the number of Shareholders is less than
three (3), in which latter event the number of Directors may be less than three
(3), but shall not be less than the number of Shareholders.
Section 2. Election of Directors; Vacancies. The Directors shall be elected
at each annual meeting of Shareholders, or at a special meeting called for the
purpose of electing Directors, or the Directors may be designated at any time by
the unanimous written action of the Shareholders. In the event of the occurrence
of any vacancy or vacancies in the Board of Directors, however
2
<PAGE>
caused, the remaining Directors, though less than a majority of the whole
authorized number of Directors, may, by the vote of a majority of their number,
fill any vacancy for the unexpired term.
Section 3. Term of Office; Resignations. Each Director shall hold office
until the next annual meeting of the Shareholders and until his successor is
elected, or until his earlier resignation, removal from office, or death. Any
Director may resign at any time by oral statement to that effect made at a
meeting of the Board of Directors or in a writing to that effect delivered to
the Secretary, such resignation to take effect immediately or at such other time
as the Director may specify.
Section 4. Regular Meetings. Regular meetings of the Board of Directors may
be held at such times and places in or out of the State of Ohio as may be
provided for in bylaws or resolutions adopted by the Board of Directors and upon
such notice, if any, as shall be so provided.
Section 5. Special Meetings. Special meetings of the Board of Directors may
be held at any time in or out of the State of Ohio upon call by the Chairman of
the Board or the President or a Vice President or any two Directors. Written
notice of the time and place of each such meetings shall be given to each
Director, either by personal delivery or by mail, telegram, or cablegram, at
least two days before the meeting, which notice need not specify the purposes of
the meeting.
Section 6. Quorum. A quorum of the Board of Directors shall be not less
than all of the Directors then in office. All action required to be approved by
the Board of Directors shall require unanimous approval of the Directors then in
office.
A meeting may be held and a Quorum may be obtained by means of a conference
call or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. Such
participation shall constitute presence in person at the meeting.
Section 7. Action Without a Meeting. Any action which may be authorized or
taken at a meeting of the Board of Directors, may be authorized or taken without
a meeting in a writing or writings signed by all of the Directors, which writing
or writings shall be filed with or entered upon the records of the Corporation.
ARTICLE III
------------
OFFICERS
--------
Section 1. Election and Designation of Officers. The Board of Directors
shall elect a President, a Secretary, a Treasurer, and, in its discretion, may
elect a Chairman of the Board, one or more Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
as the Board of Directors may deem necessary. The Chairman of the Board and the
President shall be Directors, but no one of the other officers need be a
Director. Any two or more of such offices may be held by the same person, but no
officer shall execute, acknowledge or verify
3
<PAGE>
any instrument in more than one capacity, if such instrument is required to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office; Vacancies. The officers of the Corporation shall
hold office until the next annual meeting of the Board of Directors and until
their successors are elected, except in case of resignation, removal from office
or death. The Board of Directors may remove any officer at any time with or
without cause by a majority vote of the Directors then in office. Any vacancy in
any office may be filled by the Board of Directors.
Section 3. Chairman of the Board. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors, shall, unless such duty has
been delegated by the Board of Directors to the President or another officer,
preside at all meetings of the Shareholders, and shall have such authority and
shall perform such other duties as may be determined by the Board of Directors.
Section 4. President. The President shall preside at all meetings of the
Shareholders and at all meetings of the Board of Directors, except for meetings
at which the Chairman of the Board, if any, presides in accordance with the
preceding section. Subject to directions of the Board of Directors, the
President shall have general executive supervision over the property, business
and affairs of the Corporation. He may execute all authorized deeds, mortgages,
bonds, contracts and other obligations in the name of the Corporation and shall
have such other authority and shall perform such other duties as may be
determined by the Board of Directors.
Section 5. Vice-Presidents. The Vice-Presidents shall, respectively, have
such authority and perform such duties as may be determined by the Board of
Directors.
Section 6. Secretary. The Secretary shall keep the minutes of meetings of
the Shareholders and of the Board of Directors. He shall keep such books as may
be required by the Board of Directors, shall give notices of Shareholders'
meeting and of Board meetings required by law or by these Regulations, or
otherwise, and shall have such authority and shall perform such other duties as
may be determined by the Board of Directors.
Section 7. Treasurer. The Treasurer shall receive and have in charge all
money, bills, notes, bonds, stocks in other corporations, and similar property
belonging to the Corporation, and shall do with the same as may be ordered by
the Board of Directors. He shall keep accurate financial accounts and hold the
same open for the inspection and examination of the Directors and shall have
such authority and shall perform such other duties as may be determined by the
Board of Directors.
Section 8. Other Officers. The Assistant Secretaries and Assistant
Treasurers, if any, and any other officers whom the Board of Directors may elect
shall, respectively, have such authority and perform such duties as may be
determined by the Board of Directors.
Section 9. Delegation of Authority and Duties. The Board of Directors is
authorized to delegate the authority and duties of any officer to any other
officer and generally to control the action of the officers and to require the
performance of duties in addition to those mentioned herein.
4
<PAGE>
ARTICLE IV
----------
COMPENSATION
------------
Section 1. Directors and Members of Committees. Directors, as such, shall
not receive any stated salary for their services, but, on resolution of the
Board, a fixed sum for expenses of attendance, if any, may be allowed for
attendance at each meeting, regular or special, provided that nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of either executive or special committees may be allowed such compensation as
the Board of Directors may determine for attending committee meetings.
Section 2. Officers and Employees. The compensation of officers and
employees of the Corporation, or the method of fixing such compensation, shall
be determined by or pursuant to authority conferred by the Board of Directors.
Such compensation may include pension, disability and death benefits, and may be
by way of fixed salary, or on the basis of earnings of the Corporation, or any
combination thereof, or otherwise, as determined or authorized from time to time
by the Board of Directors or any committee of the Board of Directors.
ARTICLE V
---------
INDEMNIFICATION
---------------
Section 1. Third Party Actions. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, including all appeals (other than an action,
suit or proceeding by or in the right of the Corporation) by reason of the fact
that he is or was a Director, officer or employee of the Corporation, or is or
was serving at the request of the Corporation as a Director, trustee, officer or
employee of another Corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, decrees,
fines, penalties and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of the Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Derivative Actions. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or
5
<PAGE>
suit, including all appeals, by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a Director,
officer or employee of the Corporation, or is or was serving at the request of
the Corporation as a Director, trustee, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys, fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
finally adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the Court of
Common Pleas 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 the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the Court of Common Pleas or such
other Court shall deem proper.
Section 3. Rights After Successful Defense. To the extent that a Director,
trustee, officer or employee has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 1. or 2., or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys, fees) actually and reasonably incurred by him in
connection therewith.
Section 4. Other Determination of Rights. Except in a situation governed by
Section 3., any indemnification under Section 1. or 2., (unless ordered by a
Court) shall be made by the Corporation only as authorized in the specific case
upon a determination. that indemnification of the Director, trustee, officer or
employee is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 1. or 2. Such determination shall be
made (a) by a majority vote of Directors acting at a meeting at which a quorum
consisting of Directors who were not parties to such action, suit or proceeding
is present, or (b) if such a quorum is not obtainable (or even if obtainable),
and a majority of disinterested Directors so directs, by independent legal
counsel (compensation by the Corporation) in a written opinion, or (c) by the
affirmative vote in person or by proxy of the holders of a majority of the
shares entitled to vote in the election of Directors, without regard to voting
power which may thereafter exist upon a default, failure or other contingency.
Section 5. Advances of Expenses. Expenses of each person indemnified
hereunder incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding (including all appeals), or threat
thereof, may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors, whether
a disinterested quorum exists or not, upon receipt of an undertaking by or on
behalf of the Director, trustee, officer or employee, to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation.
Section 6. Nonexclusiveness; Heirs. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled as a matter of law or under the Articles, these
Regulations, any agreement, vote of Shareholders, any insurance purchased by the
Corporation or otherwise, both as to action in his official capacity and
6
<PAGE>
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a Director, trustee, officer or employee and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 7. Purchase of Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer or employee
of the Corporation, or is or was serving at the request of the Corporation as a
Director, trustee, officer or employee of another Corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article or of the Ohio
General Corporation Law.
ARTICLE VI
----------
CERTIFICATES FOR SHARES
-----------------------
Section 1. Form of Certificates and Signatures. Each holder of shares shall
be entitled to one or more certificates, signed by the Chairman of the Board or
the President or a Vice-President and by the Secretary, an Assistant Secretary,
the Treasurer, or an Assistant Treasurer of the Corporation, which shall certify
the number and class of shares held by him in the Corporation, but no
certificate for shares shall be executed or delivered until such shares are
fully paid. When such a certificate is countersigned by an incorporated transfer
agent or registrar, the signature of any of said officers of the Corporation may
be facsimile, engraved, stamped or printed.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable upon the books of the Corporation by the holders thereof, in
person, or by a duly authorized attorney, upon surrender and cancellation of
certificates for a like number of shares of the same class or series, with duly
executed assignment and power of transfer endorsed thereon or attached thereto,
and with such proof of the authenticity of the signatures to such assignment and
power of transfer as to the Corporation or its agents may reasonably require.
Section 3. Lost, Stolen or Destroyed Certificates. The Corporation may
issue a new certificate for shares in place of any certificate theretofore
issued by it and alleged to have been lost, stolen or destroyed, and the Board
of Directors may, in its discretion, require the owner, or his legal
representatives, to give the Corporation a bond containing such terms as the
Board of Directors may require to protect the Corporation or any person injured
by the execution and delivery of a new certificate.
Section 4. Transfer Agent and Registrar. The Board of Directors may
appoint, or revoke the appointment of, transfer agents and registrars and may
require all certificates for shares to bear the signatures of such transfer
agents and registrars or any of them.
7
<PAGE>
ARTICLE VII
-----------
AMENDMENTS
----------
The Regulations of the Corporation may be amended, or new Regulations may
be adopted, by the Shareholders at a meeting held for such purposes, by the
affirmative vote of the holders of shares entitling them to exercise a majority
of the voting power on such proposal or without a meeting by the unanimous
written consent of the holders of shares entitling them to exercise voting power
on such proposal.
8
<PAGE>
EXHIBIT 3.19
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MUZAK HOLDINGS LLC,
A DELAWARE LIMITED LIABILITY COMPANY
DATED AS OF MARCH 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS............................................................ -2-
-----------
1.1 Definitions....................................................... -2-
-----------
1.2 Other Definitional Provisions..................................... -8-
-----------------------------
ARTICLE II
ORGANIZATION OF THE COMPANY............................................ -8-
---------------------------
2.1 Formation......................................................... -8-
---------
2.2 Name.............................................................. -9-
----
2.3 Principal Place of Business....................................... -9-
---------------------------
2.4 Registered Office and Registered Agent............................ -9-
--------------------------------------
2.5 Term.............................................................. -9-
----
2.6 Purposes and Powers............................................... -9-
-------------------
ARTICLE III
MANAGEMENT OF THE COMPANY.............................................. -10-
-------------------------
3.1 Board of Directors................................................ -10-
------------------
3.2 Committees of the Board........................................... -12-
-----------------------
3.3 Officers.......................................................... -13-
--------
3.4 Fiduciary Duties.................................................. -14-
----------------
3.5 Performance of Duties; Liability of Directors and Officers........ -14-
----------------------------------------------------------
3.6 Indemnification................................................... -15-
---------------
ARTICLE IV
MEMBERS; VOTING RIGHTS................................................. -15-
----------------------
4.1 Meetings of Members............................................... -15-
-------------------
4.2 Voting Rights..................................................... -16-
-------------
4.3 Registered Members................................................ -16-
------------------
4.4 Limitation of Liability........................................... -17-
-----------------------
4.5 Withdrawal; Resignation........................................... -17-
-----------------------
4.6 Death of a Member................................................. -17-
-----------------
4.7 Authority......................................................... -17-
---------
4.8 Outside Activities................................................ -17-
------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
UNITS; MEMBERSHIP........................................................... -17-
-----------------
5.1 Units Generally; Membership Interests.................................. -17-
-------------------------------------
5.2 Authorization and Issuance of Units.................................... -18-
-----------------------------------
5.3 Unit Certificates...................................................... -19-
-----------------
5.4 Issuance of Units...................................................... -19-
-----------------
5.5 New Members from the Issuance of Units................................. -19-
--------------------------------------
5.6 Class B-4 Units........................................................ -20-
---------------
ARTICLE VI
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS.................................. -21-
------------------------------------------
6.1 Capital Contributions.................................................. -21-
---------------------
6.2 Capital Accounts....................................................... -21-
----------------
6.3 Method of Determining Profit and Loss.................................. -21-
-------------------------------------
6.4 Negative Capital Accounts.............................................. -22-
-------------------------
6.5 No Withdrawal.......................................................... -22-
-------------
6.6 Loans From Members..................................................... -22-
------------------
6.7 Status of Capital Contributions........................................ -22-
-------------------------------
ARTICLE VII
DISTRIBUTIONS............................................................... -23-
-------------
7.1 Order of Priority Generally............................................ -23-
---------------------------
7.2 No Right to Receive Certain Distributions.............................. -24-
-----------------------------------------
7.3 Tax Distributions...................................................... -24-
-----------------
7.4 Indemnification and Reimbursement for Payments on Behalf of a Member... -24-
--------------------------------------------------------------------
7.5 Set-off against Distributions to Holders of Class B-4 Units............ -25-
-----------------------------------------------------------
7.6 Limitations on Distributions........................................... -25-
----------------------------
ARTICLE VIII
ALLOCATIONS................................................................. -26-
-----------
8.1 Regular Allocations.................................................... -26-
-------------------
8.2 Special Allocations.................................................... -28-
-------------------
8.3 Tax Allocations........................................................ -29-
---------------
8.4 Curative Allocations................................................... -29-
--------------------
ARTICLE IX
ELECTIONS AND REPORTS....................................................... -30-
---------------------
9.1 Generally.............................................................. -30-
---------
9.2 Tax Status............................................................. -30-
----------
9.3 Reports................................................................ -30-
-------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
9.4 Tax Elections........................................................ -30-
-------------
9.5 Tax Controversies.................................................... -30-
-----------------
ARTICLE X
DISSOLUTION AND LIQUIDATION................................................ -31-
---------------------------
10.1 Dissolution.......................................................... -31-
------------
10.2 Liquidation.......................................................... -31-
-----------
10.3 Voluntary Dissolution................................................ -33-
---------------------
ARTICLE XI
TRANSFER OF UNITS.......................................................... -33-
-----------------
11.1 Restrictions......................................................... -33-
------------
11.2 General Restrictions on Transfer..................................... -33-
--------------------------------
11.3 Procedures for Transfer.............................................. -34-
-----------------------
11.4 Legend............................................................... -34-
------
11.5 Limitations.......................................................... -35-
-----------
11.6 Tax Matters.......................................................... -35-
-----------
ARTICLE XII
MISCELLANEOUS PROVISIONS................................................... -36-
------------------------
12.1 Notices.............................................................. -36-
-------
12.2 Governing Law........................................................ -36-
-------------
12.3 No Action for Partition.............................................. -36-
-----------------------
12.4 Headings and Sections................................................ -36-
---------------------
12.5 Amendments........................................................... -36-
----------
12.6 Number and Gender.................................................... -37-
-----------------
12.7 Binding Effect....................................................... -37-
--------------
12.8 Counterparts......................................................... -37-
------------
12.9 Severability......................................................... -37-
------------
12.10 Remedies............................................................. -37-
--------
12.11 Business Days........................................................ -37-
-------------
12.12 Waiver of Jury Trial................................................. -37-
--------------------
12.13 No Strict Construction............................................... -38-
----------------------
12.14 Entire Agreement..................................................... -38-
----------------
12.15 Parties in Interest.................................................. -38-
-------------------
12.16 Inconsistent Provisions of the Members Agreement..................... -38-
------------------------------------------------
</TABLE>
-iii-
<PAGE>
EXHIBITS:
Exhibit A Board Resolutions with respect to Class B-5 Units
Exhibit B Certificates of Designation
Exhibit C Form of Joinder to Limited Liability Company Agreement
SCHEDULES:
Schedule A Officers of the Company as of March 18, 1999
Schedule B Members Schedule as of March 18, 1999
-iv-
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MUZAK HOLDINGS LLC
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement")
---------
dated as of March 18, 1999 of Muzak Holdings LLC (f/k/a ACN Holdings, LLC), a
Delaware limited liability company (the "Company"), among the Persons executing
-------
this Agreement and listed on the Members Schedule (as herein defined).
WHEREAS, ABRY Broadcast Partners III, L.P. ("ABRY"), David Unger ("Unger")
---- -----
and Joseph Koff ("Koff") entered into that certain Limited Liability Company
----
Agreement of the Company, dated as of October 6, 1998 (the "Original
--------
Agreement");
- ---------
WHEREAS, on November 30, 1998, ABRY transferred all of its Common Units as
well as, among other things, all of its rights and obligations under the
Original Agreement to MEM Holdings, LLC, a Delaware limited liability company
("MEM Holdings");
------------
WHEREAS, as of the date hereof, the Company issued a certain number of
Class A Units and Class B-4 Units to William Boyd ("Boyd") pursuant to the terms
----
of the Boyd Contribution Agreement;
WHEREAS, as of the date hereof, the Company has issued a certain number of
Class B-4 Units to Music Holdings Corp. ("MHC") pursuant to the terms of the
---
Muzak Merger Agreement;
WHEREAS, as of the date hereof, the Company has issued a certain number of
Class A Units to Capstar Broadcasting Corporation ("Capstar") pursuant to the
-------
terms of the Capstar Contribution Agreement;
WHEREAS, (i) MEM Holdings, Unger, Koff, Boyd, MHC and Capstar hereby
acknowledge and agree that, as of the date hereof, MHC and Capstar have become
Members of the Company, and (ii) MEM Holdings, Unger, Koff, Boyd, MHC and
Capstar, being all of the Members of the Company as of the date hereof, desire
to amend and restate the Original Agreement in its entirety as set forth below;
and
WHEREAS, as of the date hereof, (i) each of the five Managers (as such term
is defined in the Original Agreement) of the Company as of immediately prior to
the effectiveness of this Agreement (such five Managers being Royce Yudkoff,
Peni Garber, Andrew Banks, Koff and Unger) shall immediately cease to be
Managers and shall immediately be deemed to be five of the eight members of the
Board (as herein defined) (with each of Royce Yudkoff, Peni Garber and Andrew
Banks designated as Class A Directors (as herein defined) and Koff and Unger
designated as Class B Directors (as herein defined)) until their successors have
been elected and qualified, or until their earlier death, resignation or removal
in accordance with the terms and conditions of this Agreement and (ii) Boyd,
Steven Hicks and Geoffrey Armstrong are hereby elected as the other three
members of the Board (with each of Boyd, Steven Hicks and Geoffrey Armstrong
designated as Class B Directors and with Steven Hicks designated as the Chairman
(as herein defined)) until their
<PAGE>
successors have been elected and qualified, or until their earlier death,
resignation or removal in accordance with the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and other good and valuable consideration, the Members hereby agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. The following terms used in this Agreement shall have
-----------
the following meanings (unless otherwise expressly provided in this Agreement):
"Adjusted Capital Account Deficit" means, with respect to any Capital
--------------------------------
Account as of the end of any Fiscal Year or other period, the amount (if any) by
which the balance in such Capital Account is less than zero. For this purpose,
such person's Capital Account balance will be (a) reduced for any items
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6),
- - - -
and (b) increased for any amount such person is obligated to contribute to the
Company or is treated as being so obligated pursuant to Treasury Regulation
Section 1.704-1(b)(2)(ii)(c) (relating to partner liabilities to a partnership)
-
or 1.704-2(g)(1) and 1.704-2(i) (relating to minimum gain).
"Affiliate" means with respect to any Person, any other Person
---------
controlling, controlled by, or under common control with such first Person.
"Bankruptcy" means, with respect to a Member, (i) that such Member has
----------
(A) made an assignment for the benefit of creditors; (B) filed a voluntary
petition in bankruptcy; (C) been adjudged bankrupt or insolvent, or had entered
against such Member an order of relief in any bankruptcy or insolvency
proceeding; (D) filed a petition or an answer seeking for such Member any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation or filed an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against such Member in any proceeding of such nature; or (E)
sought, consented to, or acquiesced in the appointment of a trustee, receiver or
liquidator of such Member or of all or any substantial part of such Member's
properties; (ii) 120 days have elapsed after the commencement of any proceeding
against such Member seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation and such proceeding has not been dismissed; or (iii) 90 days have
elapsed since the appointment without such Member's consent or acquiescence of a
trustee, receiver or liquidator of such Member or of all or any substantial part
of such Member's properties and such appointment has not been vacated or stayed
or the appointment is not vacated within 90 days after the expiration of such
stay.
"Book Value" means, with respect to any Company property, the
----------
Company's adjusted basis for federal income tax purposes, adjusted from time to
time to reflect the adjustments required or permitted by Treasury Regulation
Section 1.704-1(b)(2)(iv)(d)-(g); provided that the Book Value of any property
- - --------
contributed to the Company shall be its Fair Market Value on the date of
contribution.
-2-
<PAGE>
"Boyd Contribution Agreement" means the Contribution Agreement dated
---------------------------
as of the date hereof, among Boyd, Audio Communications Network, LLC and the
Company.
"Capital Account" means, with respect to any Member, the account
---------------
maintained for such Member as provided in Article VI and in a manner which the
Board determines is in accordance with Treasury Regulations Section 1.704-
1(b)(2)(iv), and this Agreement.
"Capital Contribution" means any contribution to the capital of the
--------------------
Company in cash or property by a Member, whenever made.
"Capstar Contribution Agreement" means the Contribution Agreement
------------------------------
dated as of February 19, 1999, as amended, between Capstar and the Company.
"Capstar Credit and Pledge Agreement" means the Credit Agreement dated
-----------------------------------
as of May 29, 1998, as amended, among Capstar Radio Broadcasting Partners, Inc.
as the borrower, Capstar, Capstar Broadcasting Partners, Inc. and the financial
institutions party thereto, as well as any pledge agreement executed in
connection therewith.
"Capital Value" for each Class A Unit means $1,000.
-------------
"Catch-Up Amount" at any time means the largest aggregate amount of
---------------
Distributions which has theretofore been paid in respect of any single Common
Unit.
"Certificate" means the Certificate of Formation, as such Certificate
-----------
of Formation may be amended, supplemented or restated from time to time.
"Class A Unit" means a Unit having the rights and obligations
------------
specified with respect to "Class A Units" in this Agreement.
"Class B Units" means the Class B-1 Units, the Class B-2 Units, the
-------------
Class B-3 Units, the Class B-4 Units and the Class B-5 Units.
"Class B-1 Unit" means a Unit having the rights and obligations
--------------
specified with respect to "Class B-1 Units" in this Agreement.
"Class B-2 Unit" means a Unit having the rights and obligations
--------------
specified with respect to "Class B-2 Units" in this Agreement.
"Class B-3 Unit" means a Unit having the rights and obligations
--------------
specified with respect to "Class B-3 Units" in this Agreement.
"Class B-4 Unit" means a Unit having the rights and obligations
--------------
specified with respect to "Class B-4 Units" in this Agreement.
-3-
<PAGE>
"Class B-5 Unit" means a Unit having the rights and obligations
--------------
specified with respect to "Class B-5 Units" in this Agreement.
"Code" means the United States Internal Revenue Code of 1986, as
----
amended and effective as of the date of this Agreement. Such term will be deemed
to include any future amendments to such statutes and any corresponding
provisions of succeeding statutes which are mandatory. Such term will also be
deemed to include any future amendments or succeeding statutes which call for an
election by the Company as to the application of the amendment or succeeding
statutes to the Company if the Tax Matters Partner so elects, to the extent that
the Tax Matters Partner determines that any such amendments and succeeding
statutes do not materially and adversely affect the economic interests of the
Members.
"Common Member" means any Member who is a holder of Common Units, but
-------------
solely in such Member's capacity as a holder of Common Units.
"Common Units" means the Class A Units and the Class B Units.
------------
"Delaware Act" means the Delaware Limited Liability Company Act, as
------------
the same may be amended from time to time.
"Distribution" means each distribution made by the Company to a
------------
Member, whether in cash, securities of the Company or other property and whether
by liquidating distribution, redemption, repurchase or otherwise; provided that
--------
none of the following will be a Distribution: (a) any redemption or repurchase
by the Company of any Unit from any employee or former employee of the Company
or any Subsidiary of the Company (including pursuant to a Management Securities
Repurchase Agreement) which is approved by the Board, (b) any recapitalization
or exchange of securities of the Company, and (c) any subdivision (by Unit split
or otherwise) or any combination (by reverse Unit split or otherwise) of any
outstanding Units.
"Fair Market Value" of any asset as of any date means the purchase
-----------------
price which a willing buyer having all relevant knowledge would pay a willing
seller for such asset in an arm's-length transaction.
"Fiscal Year" means the Company's fiscal year, which shall be the
-----------
calendar year unless the Board determines otherwise.
"Investor Securities Purchase Agreement" means the Investor Securities
--------------------------------------
Purchase Agreement dated as of October 6, 1998 among the Company and the
investors named therein, as in effect from time to time.
"Losses" means items of loss and deduction of the Company determined
------
according to Section 6.3.
-4-
<PAGE>
"Majority of the Board" means, at any time, a combination of any of
---------------------
the then Directors constituting a majority of the votes of all of the Directors
who are then elected and qualified.
"Majority in Voting Interest" means, at any time, a Member or Members
---------------------------
which own a majority of the Voting Units outstanding at such time.
"Management Securities Repurchase Agreements" means the Management
-------------------------------------------
Securities Repurchase Agreements dated as of October 6, 1998, one by and among
the Company, Joseph Koff and ABRY, one by and among the Company, David Unger and
ABRY, and all other agreements into which the Company may enter with any
employee of or consultant to the Company or any of its Subsidiaries concerning
the acquisition by such employee or consultant of any Unit and/or the
reacquisition of any Unit by the Company, each as in effect from time to time.
"MEM Holdings" means MEM Holdings, LLC, a Delaware limited liability
------------
company.
"Member" means each Person identified on the Members Schedule as of
------
the date hereof who has executed this Agreement or a counterpart hereof and each
Person who may hereafter be admitted as a Member in accordance with the terms of
this Agreement. The Members shall constitute the "members" (as that term is
defined in the Delaware Act) of the Company.
"Members Agreement" means that certain Amended and Restated Members
-----------------
Agreement dated as of the date hereof by and among the Company and the Members
of the Company named therein, as in effect from time to time.
"Membership Interest" means the interest acquired by a Member in the
-------------------
Company, including such Member's right (based on the type and class and/or
series of Unit or Units held by such Member), as applicable, (a) to a
distributive share of Profits, Losses, and other items of income, gain, loss,
deduction and credits of the Company, (b) to a distributive share of the assets
of the Company, (c) to vote on, consent to or otherwise participate in any
decision of the Members, and (d) to any and all other benefits to which such
Member may be entitled as provided in this Agreement or the Delaware Act.
"Minimum Gain" means Company minimum gain determined pursuant to
------------
Treasury Regulation Section 1.704-2(d).
"Muzak Merger Agreement" means the Agreement and Plan of Merger, dated
----------------------
as of January 29, 1999 among the Company; Audio Communications Network, LLC;
Muzak Limited Partnership; MLP Acquisition, L.P.; and MHC, as in effect from
time to time.
"Net Loss" means the excess, if any, of the Company's items of Loss
--------
over the Company's items of Profit for the Fiscal Year or for any other
accounting period for which a calculation of Net Loss is necessary.
-5-
<PAGE>
"Net Profit" means the excess, if any, of the Company's items of
----------
Profit over the Company's items of Loss for the Fiscal Year or for any other
accounting period for which a calculation of Net Profit is necessary.
"Non-Distribution Amount" for any Class B Unit at any time means (i)
-----------------------
$1,000, if such Class B Unit is a Class B-1 Unit, (ii) $2,000, if such Class B
Unit is a Class B-2 Unit, (iii) $3,000, if such Class B Unit is a Class B-3
Unit, (iv) zero, if such Class B Unit is a Class B-4 Unit, or (v) such amount as
determined by written resolution of the Board at the time of the issuance of
such Class B Unit (which resolution shall thereafter be attached as Exhibit A
---------
hereto), if such Class B Unit is a Class B-5 Unit.
"Nonvoting Units" means any Preferred Units and the Class B Units.
---------------
"Person" means any individual, corporation, partnership, limited
------
liability company, trust, joint venture, governmental entity or other
unincorporated entity, association or group.
"Preferred Units" means a Unit having the rights and obligations
---------------
specified with respect to "Preferred Units" in this Agreement and any applicable
Certificate of Designation.
"Profits" means items of income and gain of the Company determined
-------
according to Section 6.3.
"Public Offering" means an underwritten public offering and sale of
---------------
Common Units or any securities issued with respect to, or in exchange for Common
Units pursuant to an effective registration statement under the Securities Act;
provided that a Public Offering shall not include an offering made in connection
with a business acquisition or combination pursuant to a registration statement
on Form S-4 or any similar form, or an employee benefit plan pursuant to a
registration statement on Form S-8 or any similar form.
"Public Sale" means any sale of Restricted Securities to the public
-----------
pursuant to an offering registered under the Securities Act or, after the
consummation of an initial Public Offering, to the public pursuant to the
provisions of Rule 144 (or any similar rule or rules then in effect) under the
Securities Act.
"Registration Rights Agreement" means that certain Amended and
-----------------------------
Restated Registration Agreement dated as of the date hereof by and among the
Company and the Members of the Company named therein, as in effect from time to
time.
"Related Agreements" means the Investor Securities Purchase Agreement,
------------------
the Management Securities Repurchase Agreements, the Members Agreement, the
Registration Rights Agreement, the Securityholders Agreement, the Capstar
Contribution Agreement and the Boyd Contribution Agreement.
"Restricted Securities" means (a) all Units issued by the Company and
---------------------
(b) any securities issued with respect to, or in exchange for, the Units
referred to in clause (a) above in
-6-
<PAGE>
connection with a conversion, combination of units or shares, recapitalization,
merger, consolidation or other reorganization, including in connection with the
consummation of any reorganization plan. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have been Transferred pursuant to a Public Sale.
"Securityholders Agreement" means that certain Securityholders
-------------------------
Agreement dated as of the date hereof by and among the Company and the Members
of the Company named therein, as in effect from time to time.
"Subsidiary" means, with respect to any person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such person or one or more of the other
Subsidiaries of such person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any person or one or more
Subsidiaries of such person or entity or a combination thereof. For purposes of
this Agreement, a person or persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such person or persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director, managing member,
or general partner of such limited liability company, partnership, association
or other business entity.
"Tax Matters Partner" has the meaning set forth in Code Section 6231.
-------------------
"Transfer" means any direct or indirect sale, transfer, conveyance,
--------
assignment, pledge, hypothecation, gift, delivery or other disposition; provided
that, notwithstanding anything contained herein to the contrary, the pledge by
Capstar of Class A Units owned by Capstar pursuant to the terms of the Capstar
Credit and Pledge Agreement shall not be a "Transfer" for purposes of this
Agreement, but any actual transfer of title pursuant to such pledge shall be a
"Transfer" for purposes of this Agreement.
"Treasury Regulations" means the income tax regulations promulgated
--------------------
under the Code and effective as of the date of this Agreement. Such term will be
deemed to include any future amendments to such regulations and any
corresponding provisions of succeeding regulations which are mandatory. Such
term will also be deemed to include any future amendments or succeeding
regulations which call for an election by the Company as to the application of
the amendment or succeeding regulation to the Company if the Board so elect, to
the extent that the Board determines that any such amendments and succeeding
regulations do not materially and adversely affect the economic interests of the
Members.
"Unit" means a unit representing a fractional part of the Membership
----
Interests of all of the Unitholders and shall include all types and classes
and/or series of Units; provided that any type or class or series of Unit shall
have the designations, preferences and/or special rights set forth
-7-
<PAGE>
in this Agreement and any applicable Certificate of Designation and the
Membership Interests represented by such type or class or series of Unit shall
be determined in accordance with such designations, preferences and/or special
rights.
"Unitholder" means with respect to any Unit, the record holder thereof
----------
as evidenced on the Members Schedule.
"Unpaid Yield" on any Class A Unit means, as of any date, an amount
------------
equal to the excess, if any, of (a) the aggregate Yield accrued on such Class A
Unit prior to such date, over (b) the aggregate amount of prior Distributions
made on such Class A Unit by the Company pursuant to Section 7.1(a).
"Unreturned Capital Value" means, for any Class A Unit, the amount of
------------------------
the Capital Value for such Class A Unit, reduced by all Distributions made by
the Company in respect of such Class A Unit pursuant to Section 7.1(b).
"Voting Units" means the Class A Units.
------------
"Yield" on any Class A Unit means the amount accruing in respect of
-----
such Class A Unit (commencing with respect to such Class A Unit on the later of
(x) the date the Company issues or issued such Class A Unit and (y) the date
hereof) on an annual basis, at 15% per annum, on (a) the Unreturned Capital
Value for such Class A Unit plus (b) the Unpaid Yield on such Class A Unit for
all prior annual periods (or portions thereof) ending on any December 31. In
calculating the amount of any Distribution to be made during an annual period,
the portion of the Yield on any Class A Unit for such portion of such annual
period elapsing before such Distribution is made will be taken into account.
1.2 OTHER DEFINITIONAL PROVISIONS. Capitalized terms used in this
-----------------------------
Agreement which are not defined in this Article I have the meanings contained
elsewhere in this Agreement. Defined terms used in this Agreement in the
singular shall import the plural and vice versa.
----------
ARTICLE II
ORGANIZATION OF THE COMPANY
---------------------------
2.1 FORMATION.
---------
(a) The Company was formed upon the filing of the Certificate of
Formation of the Company (the "Certificate of Formation") with the Secretary of
------------------------
State of the State of Delaware on August 28, 1998, pursuant to the Delaware Act.
This Agreement shall constitute the "limited liability company agreement" (as
that term is used in the Delaware Act) of the Company. The rights, powers,
duties, obligations and liabilities of the Members shall be determined pursuant
to the Delaware Act and this Agreement. To the extent that the rights, powers,
duties, obligations and liabilities of any Member are different by reason of any
provision of this Agreement than they would
-8-
<PAGE>
be in the absence of such provision, this Agreement shall, to the extent
permitted by the Delaware Act, control.
(b) Any officer of the Company as an "authorized person" within the
meaning of the Delaware Act, is hereby authorized, at any time that the
applicable Member(s) have approved an amendment to the Certificate in accordance
with the terms hereof, to promptly execute, deliver and file such amendment in
accordance with the Delaware Act.
(c) The Company shall, to the extent permissible, elect to be treated
as a partnership for federal, foreign, state and local income tax purposes, and
each Member and the Company shall file all tax returns and shall otherwise take
all tax and financial reporting positions in a manner consistent with such
treatment and no Member shall take any action inconsistent with such treatment.
The Company shall not be deemed a partnership or joint venture for any other
purpose.
2.2 NAME. The name of the Company is "Muzak Holdings LLC" or such other
----
name or names as the Board may from time to time designate; provided, that the
name shall always contain the words "Limited Liability Company", "LLC" or
"L.L.C."
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
---------------------------
Company shall be 2901 Third Avenue, Suite 400, Seattle, Washington 98121. The
Company may locate its place or places of business (including its principal
place of business) and registered office at any other place or places as the
Board may from time to time deem necessary or advisable.
2.4 REGISTERED OFFICE AND REGISTERED AGENT. The Company's registered
--------------------------------------
office shall be at Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware, 19805, and the name of its initial registered agent at such address
shall be Corporation Service Company.
2.5 TERM. The term of existence of the Company shall be perpetual from
----
the date the Certificate of Formation was filed with the Secretary of State of
Delaware, unless the Company is dissolved in accordance with the provisions of
this Agreement.
2.6 PURPOSES AND POWERS. The purposes and character of the business of
-------------------
the Company shall be to transact any or all lawful business for which limited
liability companies may be organized under the Delaware Act. The Company shall
have any and all powers which are necessary or desirable to carry out the
purposes and business of the Company, including the ability to incur and
guaranty indebtedness, to the extent the same may be legally exercised by
limited liability companies under the Delaware Act. The Company shall carry out
the foregoing activities pursuant to the arrangements set forth in this
Agreement. Notwithstanding anything herein to the contrary, nothing set forth
herein shall be construed as authorizing the Company to possess any purpose or
power, or to do any act or thing, forbidden by law to a limited liability
company organized under the laws of the State of Delaware.
-9-
<PAGE>
ARTICLE III
MANAGEMENT OF THE COMPANY
-------------------------
3.1 BOARD OF DIRECTORS.
------------------
(a) Establishment. There is hereby established a committee (the
-------------
"Board") comprised of natural persons (the "Directors") having the authority and
----- ---------
duties set forth in this Agreement. Each Director shall be designated as either
a "Class A Director" or a "Class B Director". Each Class A Director shall be
---------------- ----------------
entitled to three votes and each Class B Director shall be entitled to one vote.
Any decisions to be made by the Board shall require the approval of a Majority
of the Board. Except as provided in the immediately preceding sentence, no
Director acting alone, or with any other Director or Directors, shall have the
power to act for or on behalf of, or to bind the Company. Each Director shall
be a "manager" (as that term is defined in the Delaware Act) of the Company,
but, notwithstanding the foregoing, no Director shall have any rights or powers
beyond the rights and powers granted to such Director in this Agreement.
Directors need not be residents of the State of Delaware.
(b) Powers. The business and affairs of the Company shall be managed
------
by or under the direction of the Board.
(c) Number of Directors; Term of Office. The authorized number of
-----------------------------------
each class of Directors shall, as of the date hereof, be three Class A Directors
and five Class B Directors and, hereafter, the authorized number of each class
of Directors may be increased or decreased by the Board. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be elected by
vote of the Members and shall hold office until their respective successors are
elected and qualified or until their earlier death, resignation or removal. As
provided in the preamble, the three initial Class A Directors shall be Royce
Yudkoff, Peni Garber and Andrew Banks and the five initial Class B Directors
shall be Koff, Unger, Boyd, Steven Hicks and Geoffrey Armstrong and each such
person shall hold office as a Director until his or her respective successor is
elected and qualified or until his or her earlier death, resignation or removal.
(i) Subject to the terms and provisions of the Securityholders
Agreement, holders of a majority of the outstanding Voting Units may
remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by a
particular Member or Members pursuant to the Securityholders
Agreement, such Director may be removed and the vacancy filled only by
the Member or Members entitled to designate such Director as set forth
in the Securityholders Agreement. Vacancies caused by any such removal
by the Members and not filled by the Members at the meeting at which
such removal shall have been made or pursuant to the applicable
written consent of the Members, may be filled by a majority of the
votes of the Directors then in office, although less than a quorum,
and any Director so elected to fill any such vacancy shall hold office
until his successor is elected and qualified or until his earlier
death, resignation or removal; provided, that such Director can be
removed with or without cause and
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<PAGE>
replaced by the Member or Members, if any, which have the right to
designate such Director pursuant to the Securityholders Agreement.
(ii) A Director may resign at any time by giving written notice
to that effect to the Board. Any such resignation shall take effect at the
time of the receipt of that notice or any later effective time specified in
that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any
vacancy caused by any such resignation or by the death of any Director or
any vacancy for any other reason (including due to the authorization by the
Board of a newly created directorship) and not filled by the Members
(either by Members with the right to designate such Director pursuant to
the Securityholders Agreement or otherwise) may be filled by a majority of
the votes of the Directors then in office, although less than a quorum, and
any Director so elected to fill any such vacancy shall hold office until
his successor is elected and qualified or until his earlier death,
resignation or removal; provided, that such Director can be removed with or
without cause and replaced by the Member or Members, if any, which have the
right to designate such Director pursuant to the Securityholders Agreement.
(d) Meetings of the Board. The Board shall meet at such time and at
---------------------
such place (either within or without the State of Delaware) as the Board may
designate; provided, that the Board shall meet not less than two (2) times in
--------
any twelve (12) month period. Special meetings of the Board shall be held on
the call of any two (2) Directors upon at least four (4) days (if the meeting is
to be held in person) or two (2) days (if the meeting is to be held by telephone
communications) oral or written notice to the Directors, or upon such shorter
notice as may be approved by all of the Directors. Any Director may waive such
notice as to himself. A record shall be maintained by the Secretary of the
Company of each meeting of the Board.
(i) Conduct of Meetings. Any meeting of the Directors may be
-------------------
held in person or telephonically.
(ii) Quorum. A Majority of the Board shall constitute a quorum
------
of the Board for purposes of conducting business. At all times when the
Board is conducting business at a meeting of the Board, a quorum of the
Board must be present at such meeting. If a quorum shall not be present at
any meeting of the Board, then the Directors present at the meeting may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. A Director
may vote or be present at a meeting either in person or by proxy.
(iii) Attendance and Waiver of Notice. Attendance of a Director
-------------------------------
at any meeting shall constitute a waiver of notice of such meeting, except
where a Director attends a meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board need be
specified in the notice or waiver of notice of such meeting.
-11-
<PAGE>
(iv) Actions Without a Meeting. Notwithstanding any provision
-------------------------
contained in this Agreement, any action of the Board may be taken by
written consent without a meeting. Any such action taken by the Board
without a meeting shall be effective only if the written consent or
consents are in writing, set forth the action so taken, and are signed by a
Majority of the Board, or such greater number of the Directors that would
be necessary to take such action at a validly constituted meeting of the
Board.
(e) Compensation of the Directors. Directors, as such, shall not
-----------------------------
receive any stated salary for their services, but shall receive such
compensation for their services as may be from time to time agreed upon by a
Majority in Voting Interest. In addition, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board, provided that nothing contained in this Agreement shall be
construed to preclude any Director from serving the Company or any of its
Subsidiaries in any other capacity and receiving compensation for such service.
(f) Chairman of the Board. A Majority of the Board may elect any one
---------------------
of the Directors to be the Chairman of the Board (the "Chairman"); provided that
--------
the initial Chairman shall be Steven Hicks as provided in the preamble of this
Agreement. At any time, the Chairman, if any, can be removed from his or her
position as Chairman by a Majority of the Board. The Chairman, in his or her
capacity as the Chairman of the Board, shall not have any of the rights or
powers of an officer of the Company.
3.2 COMMITTEES OF THE BOARD.
-----------------------
(a) Creation. The Board may, by resolution, designate from among the
--------
Directors one or more committees (including, but not limited to, an Audit
Committee, a Nominating Committee, and a Compensation Committee), each of which
shall be comprised of one or more Directors, and may designate one or more of
the Directors as alternate members of any committee, who may, subject to any
limitations imposed by the Board, replace absent or disqualified Directors at
any meeting of that committee. Any such committee, to the extent provided in
such resolution, shall have and may exercise all of the authority of the Board,
subject to the limitations set forth in the Delaware Act or in the establishment
of the committee. Any members thereof may be removed by a Majority of the
Board. Unless the resolution designating a particular committee or this
Agreement expressly so provides, a committee of the Board shall not have the
authority to authorize or make a Distribution to the Members or to authorize the
issuance of Units.
(b) Limitation of Authority. No committee of the Board shall have the
-----------------------
authority of the Board in reference to:
(i) amending this Agreement, except that a committee may, to the
extent provided in the resolution designating that committee or in
this Agreement, exercise the authority of the Board provided in this
Agreement to establish the relative rights, obligations, preferences
and limitations of any type, class or series of Units;
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<PAGE>
(ii) approving a plan of merger of the Company;
(iii) recommending to the Members a voluntary dissolution of
the Company or a revocation thereof;
(iv) filling vacancies in the Board;
(v) fixing the compensation of any member or alternate
members of such committee; or
(vi) altering or repealing any resolution of the Board that
by its terms provides that it shall not be so amendable or repealable.
3.3 OFFICERS.
--------
(a) Appointment of Officers. The Board shall appoint individuals as
-----------------------
officers ("officers") of the Company, which shall include (i) a Chief Executive
--------
Officer, (ii) a Treasurer, (iii) a Secretary and (iv) such other officers (such
as a President or any number of Vice Presidents) as the Board deems advisable.
No officer need be a Member or a Director. An individual can be appointed to
more than one office. Each officer of the Company shall be a "manager" (as that
term is used in the Delaware Act) of the Company, but, notwithstanding the
foregoing, no officer of the Company shall have any rights or powers beyond the
rights and powers granted to such officer in this Agreement. The officers of
the Company as of the date hereof are listed on the attached Schedule A.
----------
(b) Duties of Officers Generally. Under the direction of and, at all
----------------------------
times, subject to the authority of the Board, the officers shall have full and
complete discretion to manage and control the day-to-day business, operations
and affairs of the Company in the ordinary course of its business, to make all
decisions affecting the day-to-day business, operations and affairs of the
Company in the ordinary course of its business and to take all such actions as
he or she deems necessary or appropriate to accomplish the foregoing. In
addition, the officers shall have such other powers and duties as may be
prescribed by the Board or this Agreement. The Chief Executive Officer shall
have the power and authority to delegate to any agents or employees of the
Company rights and powers of officers of the Company to manage and control the
day-to-day business, operations and affairs of the Company in the ordinary
course of its business, as the Chief Executive Officer may deem appropriate from
time to time.
(c) Authority of Officers. Subject to Section 3.3(b), any officer of
---------------------
the Company shall have the right, power and authority to transact business in
the name of the Company or to act for or on behalf of or to bind the Company.
With respect to all matters within the ordinary course of business of the
Company, third parties dealing with the Company may rely conclusively upon any
certificate of any officer to the effect that such officer is acting on behalf
of the Company.
(d) Removal, Resignation and Filling of Vacancy of Officers. The
-------------------------------------------------------
Board may remove any officer, for any reason or for no reason, at any time. Any
officer may resign at any time
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<PAGE>
by giving written notice to the Board, and such resignation shall take effect at
the date of the receipt of that notice or any later time specified in that
notice; provided, that unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any such
resignation shall be without prejudice to the rights, if any, of the Company or
such officer under this Agreement. A vacancy in any office because of death,
resignation, removal or otherwise shall be filled in the manner prescribed in
this Agreement for regular appointments to that office.
(e) Compensation of Officers. The officers shall be entitled to
------------------------
receive compensation from the Company as determined by the Board.
(f) Chief Executive Officer. Under the direction of and, at all
-----------------------
times, subject to the authority of the Board, the Chief Executive Officer shall
have general supervision over the day-to-day business, operations and affairs of
the Company. The Chief Executive Officer shall have such other powers and
perform such other duties as may from time to time be prescribed by the Board.
(g) Treasurer. The Treasurer shall keep and maintain, or cause to be
---------
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Company, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, capital and Units.
The Treasurer shall have the custody of the funds and securities of the Company,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Company. The Treasurer shall have such other powers and
perform such other duties as may from time to time be prescribed by the Board.
(h) Secretary. The Secretary shall (i) keep the minutes of the
---------
meetings of the Members and the Board in one or more books provided for that
purpose; (ii) see that all notices are duly given in accordance with the
provisions of this Agreement and as required by law; (iii) be custodian of the
company records; (iv) keep a register of the addresses of each Member which
shall be furnished to the Secretary by such Member; (v) have general charge of
the Members Schedule; and (vi) in general perform all duties incident to the
office of a secretary of a company. The Secretary shall have such other powers
and perform such other duties as may from time to time be prescribed by the
Board.
3.4 FIDUCIARY DUTIES. The Directors, in the performance of their duties
----------------
as such, shall owe to the Members duties of loyalty and due care of the type
owed by the directors of a corporation to the stockholders of such corporation
under the laws of the State of Delaware. The officers, in the performance of
their duties as such, shall owe to the Members duties of loyalty and due care of
the type owed by the officers of a corporation to the stockholders of such
corporation under the laws of the State of Delaware.
3.5 PERFORMANCE OF DUTIES; LIABILITY OF DIRECTORS AND OFFICERS. In
----------------------------------------------------------
performing his or her duties, each of the Directors and the officers shall be
entitled to rely in good faith on the provisions of this Agreement and on
information, opinions, reports, or statements (including financial statements
and information, opinions, reports or statements as to the value or amount of
the assets, liabilities, Profits or Losses of the Company or any facts pertinent
to the existence and amount of assets from which Distributions to Members might
properly be paid), of the following
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<PAGE>
other Persons or groups: (a) one or more officers or employees of the Company;
(b) any attorney, independent accountant, or other Person employed or engaged by
the Company; or (c) any other Person who has been selected with reasonable care
by or on behalf of the Company, in each case as to matters which such relying
Person reasonably believes to be within such other Person's professional or
expert competence. The preceding sentence shall in no way limit any Person's
right to rely on information to the extent provided in Section 18-406 of the
Delaware Act. No individual who is a Director or an officer of the Company, or
any combination of the foregoing, shall be personally liable under any judgment
of a court, or in any other manner, for any debt, obligation, or liability of
the Company, whether that liability or obligation arises in contract, tort, or
otherwise, solely by reason of being an Director or an officer of the Company or
any combination of the foregoing.
3.6 INDEMNIFICATION. Notwithstanding Section 3.4, the Directors and
---------------
officers shall not be liable, responsible or accountable for damages or
otherwise to the Company, or to the Members, and, to the fullest extent allowed
by law, each Director and each officer shall be indemnified and held harmless by
the Company, including advancement of reasonable attorneys' fees and other
expenses, but only to the extent that the Company's assets are sufficient
therefor, from and against all claims, liabilities, and expenses arising out of
any management of Company affairs; provided that (a) such Director's or
officer's course of conduct was pursued in good faith and believed by him to be
in the best interests of the Company and was reasonably believed by him to be
within the scope of authority conferred on such Director or officer pursuant to
this Agreement and (b) such course of conduct did not constitute gross
negligence or willful misconduct on the part of such Director or officer and
otherwise was in accordance with the terms of this Agreement. The rights of
indemnification provided in this Section 3.6 are intended to provide
indemnification of the Directors and the officers to the fullest extent
permitted by Delaware General Corporation Law regarding a corporation's
indemnification of its directors and officers and will be in addition to any
rights to which the Directors or officer may otherwise be entitled by contract
or as a matter of law and shall extend to his heirs, personal representatives
and assigns. The absence of any express provision for indemnification herein
shall not limit any right of indemnification existing independently of this
Section 3.6. Each Director's and each officer's right to indemnification
pursuant to this Section 3.6 may be conditioned upon the delivery by such
Director or such officer of a written undertaking to repay such amount if such
individual is determined pursuant to this Section 3.6 or adjudicated to be
ineligible for indemnification, which undertaking shall be an unlimited general
obligation.
ARTICLE IV
MEMBERS; VOTING RIGHTS
----------------------
4.1 MEETINGS OF MEMBERS.
-------------------
(a) Generally. Meetings of the Members may be called by the Board or
---------
by a Member or Members holding not less than 50% of the then outstanding Voting
Units. Only Members who hold Voting Units shall have the right to attend
meetings of the Members. All meetings of the Members shall be held
telephonically or at the principal office of the Company or at such other place
within or without the State of Delaware as may be determined by the Board or
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<PAGE>
Member(s) calling the meeting and set forth in the respective notice or waivers
of notice of such meeting. A record shall be maintained by the Secretary of the
Company of each meeting of the Members.
(b) Notice of Meetings of Members. Written or printed notice stating
-----------------------------
the place, day and hour of the meeting shall be delivered not fewer than 2 days
before the date of the meeting, either personally or by any written method by
which it is reasonable to expect that the Members would receive such notice not
later than the business day prior to the date of the meeting, to each holder of
Voting Units (with a copy to the Secretary of the Company), by or at the
direction of the Member(s) calling the meeting or the Board, as the case may be.
Such notice may, but need not, specify the purpose or purposes of such meeting
and may, but need not, limit the business to be conducted at such meeting to
such purpose(s).
(c) Quorum. Except as otherwise provided herein or by applicable law,
------
at any time, a majority of the then outstanding Voting Units, represented in
person or by proxy, shall constitute a quorum of Members for purposes of
conducting business. Once a quorum is present at the meeting of the Members,
the subsequent withdrawal from the meeting of any Member prior to adjournment or
the refusal of any Member to vote shall not affect the presence of a quorum at
the meeting. If, however, such quorum shall not be present at any meeting of
the Members, the Members entitled to vote at such meeting shall have the power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting, until Members which own a majority of the then outstanding
Voting Units shall be present or represented. Except as otherwise required by
applicable law, resolutions of the Members at any meeting of Members shall be
adopted by the affirmative vote of a majority of the Voting Units represented
and entitled to vote at such meeting at which a quorum is present.
(d) Actions Without a Meeting. Unless otherwise prohibited by law,
-------------------------
any action to be taken at a meeting of the Members may be taken without a
meeting if a consent or consents in writing, setting forth the action so taken,
shall be signed by a Member or Members holding not less than a majority of the
then outstanding Voting Units and such consent or consents are delivered to the
Secretary of the Company. A record shall be maintained by the Secretary of the
Company of each such action taken by written consent of a Member or Members.
4.2 VOTING RIGHTS. Except as specifically provided herein or otherwise
-------------
required by applicable law, for all purposes hereunder, including for purposes
of Article III hereof, each Member shall be entitled to (x) one vote per Voting
Unit held by such Member and (y) no votes for any Nonvoting Units held by such
Member. A Member which owns Voting Units may vote or be present at a meeting
either in person or by proxy. There will be no cumulative voting in the
election or removal of Directors.
4.3 REGISTERED MEMBERS. The Company shall be entitled to treat the owner
------------------
of record of any Units as the owner in fact of such Unit for all purposes, and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such Unit on the part of any other person, whether or not it shall
have express or other notice of such claim or interest, except as expressly
provided by this Agreement or the laws of the State of Delaware.
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<PAGE>
4.4 LIMITATION OF LIABILITY. Except as otherwise provided in the Delaware
-----------------------
Act or in this Agreement, no Member will be obligated personally for any debt,
obligation or liability of the Company or of any other Member by reason of being
a Member, whether arising in contract, tort or otherwise. Except as otherwise
provided in the Delaware Act, by law or expressly in this Agreement, no Member
will have any fiduciary or other duty to another Member with respect to the
business and affairs of the Company. No Member will have any responsibility to
restore any negative balance in his or her Capital Account or to contribute to
or in respect of the liabilities or obligations of the Company or return
Distributions made by the Company except as required by the Delaware Act or
other applicable law.
4.5 WITHDRAWAL; RESIGNATION. A Member shall not cease to be a Member as a
-----------------------
result of the Bankruptcy of such Member or as result of any other events
specified in (S) 18-304 of the Delaware Act. So long as a Member continues to
own or hold any Units, such Member shall not have the ability to resign as a
Member prior to the dissolution and winding up of the Company and any such
resignation or attempted resignation by a Member prior to the dissolution or
winding up of the Company shall be null and void. As soon as any Person who is
a Member ceases to own or hold any Units, such Person shall no longer be a
Member.
4.6 DEATH OF A MEMBER. The death of any Member shall not cause the
-----------------
dissolution of the Company. In such event the Company and its business shall be
continued by the remaining Member or Members.
4.7 AUTHORITY. No Member, in its capacity as a Member, shall have the
---------
power to act for or on behalf of, or to bind the Company.
4.8 OUTSIDE ACTIVITIES. Subject to the terms of any agreement by any
------------------
Member to the contrary, a Member may have business interests and engage in
business activities in addition to those relating to the Company, including
business interests and activities which compete with the Company; provided,
--------
however, that MEM Holdings shall not acquire, nor shall it allow any of its
- -------
Affiliates (other than the Company or any of its Subsidiaries) to acquire, any
assets which constitute a business unit or substantially all of the equity
securities of any Person, in each case, which consists primarily of Muzak
franchises or some other provider of on location background and foreground music
services to commercial entities. Neither the Company nor any other Member shall
have any rights by virtue of this Agreement in any business interests or
activities of any Member.
ARTICLE V
UNITS; MEMBERSHIP
-----------------
5.1 UNITS GENERALLY; MEMBERSHIP INTERESTS. The Membership Interests of the
-------------------------------------
Members shall be represented by issued and outstanding Units, which may be
divided into one or more types or classes, with each type or class or series
having the rights and privileges, including voting rights, if any, set forth in
this Agreement and any applicable Certificate of Designation. The Secretary of
the Company shall maintain a schedule of all Members from time to time, their
respective mailing
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<PAGE>
addresses, the Units held by them (as the same may be amended, modified or
supplemented from time to time, the "Members Schedule"), a copy of which as of
----------------
the date hereof is attached hereto as Schedule B. The Members shall have no
----------
interest in the Company other than the interests conferred by this Agreement and
any applicable Certificate of Designation and represented by the Units, which
shall be deemed to be personal property giving only the rights conferred by this
Agreement and any applicable Certificate of Designation. Ownership of a Unit (or
fraction thereof) shall not entitle a Member to call for a partition or division
of any property of the Company or for any accounting.
5.2 AUTHORIZATION AND ISSUANCE OF UNITS.
-----------------------------------
(a) Preferred Units. The Company hereby authorizes the issuance of
---------------
Preferred Units, none of which are outstanding as of the date hereof. With
respect to the Preferred Units, the Board is authorized, subject to limitations
prescribed by law, to provide for the issuance of such Preferred Units in
series, and by adopting a "Certificate of Designation" (a "Certificate of
--------------
Designation") (which Certificate of Designation shall thereafter be attached as
- -----------
Exhibit B hereto), to establish the number of Preferred Units to be included in
- ---------
each such series, and to fix the relative rights, obligations, preferences and
limitations of the Preferred Units of each such series.
(b) Class A Units. The Company hereby authorizes the issuance of
-------------
Class A Units, as of October 6, 1998; 67,239.197 of which are outstanding as of
the date hereof as set forth on the Members Schedule (as in effect on the date
hereof).
(c) Class B-1 Units. The Company hereby authorizes the issuance of
---------------
Class B-1 Units, as of October 6, 1998; 804 of which are outstanding as of the
date hereof as set forth on the Members Schedule (as in effect on the date
hereof).
(d) Class B-2 Units. The Company hereby authorizes the issuance of
---------------
Class B-2 Units, as of October 6, 1998; 806 of which are outstanding as of the
date hereof as set forth on the Members Schedule (as in effect on the date
hereof).
(e) Class B-3 Units. The Company hereby authorizes the issuance of
---------------
Class B-3 Units, as of October 6, 1998; 804 of which are outstanding as of the
date hereof as set forth on the Members Schedule (as in effect on the date
hereof).
(f) Class B-4 Units. The Company hereby authorizes the issuance of
---------------
Class B-4 Units; 2,902.217 of which are outstanding as of the date hereof as
set forth on the Members Schedule (as in effect on the date hereof).
(g) Class B-5 Units. The Company hereby authorizes the issuance of
---------------
Class B-5 Units; none of which are outstanding as of the date hereof as set
forth on the Members Schedule (as in effect on the date hereof).
(h) Additional Units. Except as expressly provided by this Agreement,
----------------
the Company shall not authorize, issue or sell, or cause to be authorized,
issued or sold, any Units.
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<PAGE>
5.3 UNIT CERTIFICATES.
-----------------
(a) All Units shall be represented by certificates. Each such
certificate shall be signed by an officer of the Company, certifying the number
of Units owned by the holder of such Units and stating the type, class and/or
series of such Units. All certificates for each type and class or series of
Units shall be consecutively numbered or otherwise identified. The name of the
Person to whom the Units represented thereby are issued, with the number, type
and class or series of Units and date of issue, shall be entered on the books of
the Company and, until such Units are transferred on the books of the Company
(including the Members Schedule), such Person shall be deemed to be the owner of
such Units for all purposes. Units shall only be Transferred on the books of
the Company (including the Members Schedule) by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
Company of the certificate(s) for such Units endorsed by the appropriate
Person(s), with such evidence of the authenticity of such endorsement, transfer,
authorization, and other matters as the Company may reasonably require, and
accompanied by all necessary transfer stamps. In that event, provided all other
conditions to Transfer have been met, it shall be the duty of the Company to
issue a new certificate to the Person entitled thereto, cancel the old
certificate(s), and record the transaction on its books (including the Members
Schedule).
(b) Any officer of the Company may direct a new certificate(s) to be
issued in place of any certificate(s) previously issued by the Company alleged
to have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen, or destroyed.
When authorizing such issue of a new certificate(s), such officer may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate(s), or his or her legal
representative, to give the Company a bond sufficient to indemnify the Company
against any claim that may be made against the Company on account of the loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
5.4 ISSUANCE OF UNITS. Subject to Section 5.6 and to the limitations
-----------------
contained in Section 11.5 hereof, the Company (with the approval of the Board)
shall have the right to issue any authorized but unissued Units; provided, that
the Company shall not issue any Units to any Person unless such Person has
executed and delivered to the Secretary of the Company the documents described
in Section 5.5 hereof. Upon the issuance of Units, the Board shall adjust the
Capital Accounts of the Members as necessary in accordance with Section 6.2.
5.5 NEW MEMBERS FROM THE ISSUANCE OF UNITS. In order for a Person to be
--------------------------------------
admitted as a Member of the Company pursuant to the issuance of Units to such
Person, such Person shall have executed and delivered to the Secretary of the
Company a written undertaking to be bound by the terms and conditions of this
Agreement substantially in the form of Exhibit C hereto. Upon the amendment of
---------
the Members Schedule by the Secretary of the Company and the satisfaction of any
other applicable conditions, including the receipt by the Company of payment for
the issuance of the applicable Units, such Person shall be admitted as a Member
and deemed listed as such on the books and records of the Company and thereupon
shall be issued his or its Units. The Board shall also adjust the Capital
Accounts of the Members as necessary in accordance with Section 6.2.
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<PAGE>
5.6 CLASS B-4 UNITS.
---------------
(a) Mandatory Issuances of Class B-4 Units. If the Company shall
--------------------------------------
declare a dividend or make a distribution on any of its outstanding Common Units
in Common Units, or (ii) subdivide or reclassify any of its outstanding Common
Units into a greater number of Common Units (other than any dividend,
distribution, subdivision or reclassification equally applicable to all Common
Units), the number of Class B-4 Units held by any Member at the time of the
effective date of or record date for such issuance, dividend, distribution,
subdivision or reclassification shall be adjusted so that it shall equal the
number of Class B-4 Units held by such Member immediately prior to such action
multiplied by a fraction, the numerator of which shall be the number of Common
Units outstanding after giving effect to such action, and the denominator of
which shall be the number of Common Units outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) Adjustment of the number of Class B-4 Units outstanding upon the
----------------------------------------------------------------
Capstar Issuance. If, after the date hereof, the Company shall issue Common
- ----------------
Units (or any securities ("Capstar Securities") convertible into or exchangeable
------------------
for Common Units) in connection with the acquisition by the Company of Atlanta,
Ft. Meyers and/or Omaha Muzak franchises (such issuance, the "Capstar
-------
Issuance"), the sum (such sum, the "Base Number") of (i) the number of Class B-4
-----------
Units held by all Members at the time of the effective date of the Capstar
Issuance (the "Capstar Issuance Date") and (ii) the Reserve Number (as such term
---------------------
is defined in the Muzak Merger Agreement) as of the Capstar Issuance Date (which
shall be the Reserve Number as of the date hereof minus the number of Class B-4
-----
Units issued by the Company to the holders of Unextinguished Options (as such
term is defined in the Muzak Merger Agreement) during the period beginning on
the date hereof and ending on the Capstar Issuance Date) shall be adjusted pro
rata (based upon number of Class B-4 Units) so that after such adjustment: (x)
the Base Number, as adjusted pursuant to this Section 5.6(b), divided by (y) (i)
----------
the number of Common Units outstanding as of the date hereof (calculated on a
fully diluted basis) plus (ii) the number of Common Units (including the maximum
----
number of Common Units issuable upon conversion of or in exchange for any
Capstar Securities) issued in connection with the Capstar Issuance minus (iii)
-----
the number of Common Units outstanding as of the date hereof (calculated on a
fully-diluted basis) which are redeemed or otherwise purchased by the Company on
the date of the Capstar Issuance is equal to four percent (4%). Promptly after
the consummation of any Capstar Issuance, the Company shall deliver written
notice to each holder of Class B-4 Units, which notice shall describe in
reasonable detail the appropriate adjustment pursuant to this Section 5.6(b).
If as a result of the provisions of this Section 5.6(b), (i) the Company is
obligated to issue additional Class B-4 Units, then the Company shall make such
issuance within five business days after the Capstar Issuance or (ii) the
Member(s) holding Class B-4 Units are obligated to return certain Class B-4
Units to the Company for cancellation, then such Member(s) shall return
appropriate certificates representing such Class B-4 Units to the Company within
five business days after the Capstar Issuance and the Company shall thereafter
cancel such certificates.
(c) Restrictions on the Issuance of Class B-4 Units. Without the
-----------------------------------------------
prior consent of holders of a majority of the number of Class B-4 Units then
outstanding, the Company shall not issue any Class B-4 Units except (i) pursuant
to the terms of the Muzak Merger Agreement, (ii)
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<PAGE>
pursuant to the terms of the Boyd Contribution Agreement, (iii) in connection
with the exercise of any Unextinguished Options (as such term is defined in the
Muzak Merger Agreement) or (iv) pursuant to Section 5.6(a) or Section 5.6(b).
(d) Qualified Public Offering. Immediately prior to the consummation
-------------------------
of any Qualified Public Offering (as such term is defined in the Members
Agreement), the Members agree to convert Class A Units and Class B-4 Units, on a
per Common Unit basis, into common equity securities of the applicable successor
corporation and that each share of such common equity securities of the
applicable successor corporation shall have equal voting, dividend and
liquidation rights. For greater certainty, the Members agree that upon the
conversion of the Company into a corporation in order to consummate a Qualified
Public Offering, each Class A Unit and each Class B-4 Unit shall be treated
equally in such conversion for all purposes and no Class A Units or Class B-4
Units shall entitle the holder thereof to any preferential rights including,
without limitation, to Distributions of Yield or Unpaid Yield.
ARTICLE VI
CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS
------------------------------------------
6.1 CAPITAL CONTRIBUTIONS.
---------------------
(a) Prior to the date hereof, each Person who is a Member as of the
date hereof has made or is deemed to have made, the Capital Contributions giving
rise to such Member's initial Capital Account and is deemed to own the number,
type and class or series of Units, in each case, in the amounts set forth
opposite such Member's name on the Members Schedule as in effect on the date
hereof.
(b) No Member shall make or be required to make any additional
contributions to the Company with respect to such Member's Units. Except as
expressly provided herein, no Member, in its capacity as a Member, shall have
the right to receive any cash or any other property of the Company.
6.2 CAPITAL ACCOUNTS. The Company will maintain a separate Capital
----------------
Account for each Member according to the rules of Treasury Regulation Section
1.704-1(b)(2)(iv). For this purpose, the Company may, upon the occurrence of
the events specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f),
-
increase or decrease the Capital Accounts in accordance with the rules of such
regulation and Treasury Regulation Section 1.704-1(b)(2)(iv)(g) to reflect a
-
revaluation of Company property.
6.3 METHOD OF DETERMINING PROFIT AND LOSS. For purposes of computing the
-------------------------------------
amount of any item of Company income, gain, loss or deduction to be allocated
pursuant to Article VIII and to be reflected in the Capital Accounts, the
determination, recognition and classification of any such item will be the same
as its determination, recognition and classification for federal income tax
purposes (including any method of depreciation, cost recovery or amortization
used for this purpose); provided that:
--------
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<PAGE>
(a) the computation of all items of income, gain, loss and deduction
will include tax-exempt income and those items described in Treasury Regulation
Section 1.704-1(b)(2)(iv)(i), without regard to the fact that such items are not
-
includable in gross income or are not deductible for federal income tax
purposes;
(b) if the Book Value of any Company property is adjusted pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(e) or (f), the amount of such
- -
adjustment will be taken into account as gain or loss from the disposition of
such property;
(c) items of income, gain, loss or deduction attributable to the
disposition of Company property having a Book Value that differs from its
adjusted basis for tax purposes will be computed by reference to the Book Value
of such property;
(d) items of depreciation, amortization and other cost recovery
deductions with respect to Company property having a Book Value that differs
from its adjusted basis for tax purposes will be computed by reference to the
property's Book Value in accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(g); and
-
(e) to the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Sections 732(d), 734(b) or 743(b) is required,
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
-
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts will be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases such basis).
6.4 NEGATIVE CAPITAL ACCOUNTS. If any Member has a deficit balance in its
-------------------------
Capital Account, such Member shall have no obligation to restore such negative
balance or to make any Capital Contributions to the Company by reason thereof,
and such negative balance shall not be considered an asset of the Company or of
any Member.
6.5 NO WITHDRAWAL. No Member will be entitled to withdraw any part of his
-------------
or its Capital Contribution or Capital Account or to receive any Distribution
from the Company, except as expressly provided in this Agreement.
6.6 LOANS FROM MEMBERS. Loans by Members to the Company shall not be
------------------
considered Capital Contributions.
6.7 STATUS OF CAPITAL CONTRIBUTIONS.
-------------------------------
(a) No Member shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account, except as otherwise
specifically provided in this Agreement.
(b) Except as otherwise provided by applicable law, no Member shall
be required to lend any funds to the Company or to make any additional Capital
Contributions to the Company.
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<PAGE>
No Member shall have any personal liability for the repayment of any Capital
Contribution of any other Member.
ARTICLE VII
DISTRIBUTIONS
-------------
7.1 ORDER OF PRIORITY GENERALLY. As and when determined by the Board, the
---------------------------
Company may make Distributions at any time or from time to time. Subject to
Sections 7.3 and 7.6, all Distributions shall be made in the following order and
priority (subject to Section 7.2 and subject to any applicable Certificates of
Designation):
(a) First, to the holders of Class A Units, in proportion to and to
-----
the extent of the Unpaid Yield on the Class A Units owned by each such holder as
of the time of such Distribution. No Distribution or any portion thereof may be
made pursuant to Sections 7.1(b) through 7.1(d) until the entire amount of the
Unpaid Yield on the Class A Units as of the time of such Distribution has been
paid in full.
(b) Second, to the holders of Class A Units, in proportion to and to
------
the extent of the Unreturned Capital Value in respect of the Class A Units owned
by each such holder as of the time of such Distribution. No Distribution or any
portion thereof may be made pursuant to Section 7.1(c) or 7.1(d) until the
entire amount of Unreturned Capital Value of the Class A Units as of the time of
such Distribution has been paid in full.
(c) Third, to the holders of Common Units upon which less than the
-----
Catch-Up Amount has been paid, until an aggregate amount equal to the Catch-Up
Amount has been paid with respect to each Common Unit. Amounts payable pursuant
to this Section 7.1(c) will be paid first in respect of those Common Units upon
which the least amount of Distributions have theretofore been paid, until
Distributions have been paid in respect of such Common Units in an amount equal
to the amount of Distributions theretofore paid on the Common Units which have
theretofore been paid the second-least amount. Distributions will then be paid
in respect of such former Common Units and such latter Common Units until
Distributions have been paid in respect of all such Common Units in an amount
equal to the amount of Distributions theretofore paid on the Common Units which
have theretofore been paid the third-least amount, and so on until the same
amount has been paid in respect of all Common Units and thereafter Distributions
shall be made pro rata among the holders of Common Units upon which less than
the Catch-Up Amount has been paid. No Distribution or any portion thereof may be
made pursuant to Section 7.1(d) until the aggregate amount of all Distributions
made in respect of each Common Unit is equal to the Catch-Up Amount.
(d) Fourth, to the holders of Common Units, pro rata according to the
------
number of Common Units owned by each such holder.
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<PAGE>
7.2 NO RIGHT TO RECEIVE CERTAIN DISTRIBUTIONS. Notwithstanding Section
-----------------------------------------
7.1:
(a) On Class B Unit. A holder of any Class B Unit will forego
---------------
Distributions which would otherwise be made in respect of such Class B Unit from
time to time pursuant to Section 7.1 (including by reason of Section 7.2(b)) in
such amount(s) as may be required so that the aggregate amount of Distributions
foregone with respect to such Class B Unit by reason of this Section 7.2(a) is
equal to the Non-Distribution Amount for such Class B Unit. The amount of any
distribution forgone by a holder of any Class B Unit shall be treated as
received by such holder solely for purposes of calculating the Catch-Up Amount
and such holder's right to receive further distributions under Section 7.1(c).
No holder of any Class B Unit will later have the right to receive any
Distribution which is foregone pursuant to this Section 7.2(a), except to the
extent that any portion of such foregone Distribution may be reallocated to such
holder in accordance with Section 7.2(b).
(b) Reallocation. All Distributions withheld in respect of any Class
------------
B Unit pursuant to Section 7.2(a) will be reallocated and paid instead to the
holders of Common Units in accordance with Sections 7.1(c) and 7.1(d) (subject
again to being foregone pursuant to Section 7.2(a)).
7.3 TAX DISTRIBUTIONS. Notwithstanding the priority of Distributions in
-----------------
Section 7.1 or the effect of the Non-Distribution amount in Section 7.2, the
Company will use reasonable efforts, consistent with any restrictions which may
be imposed by any creditor of the Company or applicable law, to make
Distributions to each Member in amounts such that, prior to April 15 of each
calendar year, each Member has received Distributions (whether pursuant to this
Section 7.3 or otherwise) in aggregate amounts which equal not less than the sum
for the immediately preceding Fiscal Year and for all prior Fiscal Years of (i)
the amount of taxable income allocated to such Member for such Fiscal Years,
reduced by the amount of taxable losses allocated to such Member for such Fiscal
Years, pursuant to Article VI and Article VIII, multiplied by (ii) the maximum
marginal tax rate applicable to individual taxpayers pursuant to the Code in
respect of income recognized during such immediately preceding Fiscal Year. The
Company will use reasonable efforts to cause such Distributions to be made in a
manner which permits such Members to use the proceeds of such Distributions to
make on a timely basis all required estimated payments of income taxes in
respect of the taxable income so allocated to them. The Distributions required
by this Section 7.3 will be made (x) without regard for the relative priorities
and amounts set forth in Section 7.1 and (y) without regard to Section 7.2.
Distributions made pursuant to this Section 7.3 shall be taken into account as
advances on Distributions made pursuant to Section 7.1, and shall (to the extent
not previously taken into account pursuant to this sentence) reduce the
Distributions to be made to any Member under Section 7.1, when and as paid by
the Company. No Member shall be liable to the Company for any amount Distributed
to it pursuant to this Section 7.3, or for any interest on such amount.
7.4 INDEMNIFICATION AND REIMBURSEMENT FOR PAYMENTS ON BEHALF OF A MEMBER.
--------------------------------------------------------------------
Except as otherwise provided in this Agreement, if the Company is required by
law (as determined by the Tax Matters Partner based on the advice of legal or
tax counsel to the Company) to make any payment on behalf of a Member in its
capacity as such (including in respect of withholding taxes,
-24-
<PAGE>
personal property taxes, and unincorporated business taxes, etc.), then such
Member (the "Indemnifying Member") will indemnify the Company in full for the
-------------------
entire amount paid, including interest, penalties and expenses associated with
such payment. At the option of the Board, the amount to be indemnified may be
charged against a Capital Account of the Indemnifying Member, and, at the option
of the Board, either:
(a) promptly upon notification of an obligation to indemnify the
Company, the Indemnifying Member will make a cash payment to the Company in an
amount equal to the full amount to be indemnified (and the amount paid will be
added to the Indemnifying Member's Capital Account but will not be deemed to be
a Capital Contribution), or
(b) the Company will reduce subsequent Distributions which would
otherwise be made to the Indemnifying Member until the Company has recovered the
amount to be indemnified (and that the amount of such reduction will be deemed
to have been distributed for all purposes, but such deemed Distribution will not
further reduce the Indemnifying Member's Capital Account).
A Member's obligation to make contributions to the Company under this Section
7.4 will survive the termination, dissolution, liquidation and winding up of the
Company, and for purposes of this Section 7.4, the Company will be treated as
continuing in existence. The Company may pursue and enforce all rights and
remedies it may have against each Member under this Section 7.4, including
instituting a lawsuit to collect such contribution with interest calculated at a
rate equal to the Company's and its Subsidiaries' effective cost of borrowed
funds.
7.5 SET-OFF AGAINST DISTRIBUTIONS TO HOLDERS OF CLASS B-4 UNITS. All
-----------------------------------------------------------
Distributions to holders of Class B-4 Units pursuant to this Article VII or any
other amounts payable to holders of Class B-4 Units pursuant to Article X hereof
are subject to set-off in accordance with and pursuant to the terms of the Muzak
Merger Agreement. This Section 7.5 shall be binding upon each and every holder
of Class B-4 Units.
7.6 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding any provision to the
----------------------------
contrary contained in this Agreement, the Company shall not make any
Distribution if such Distribution would violate Section 18-607 of the Delaware
Act or other applicable law or if such Distribution would violate any of the
Company's debt financing agreements or any other debt financing agreement of
which the Company is a guarantor, but shall instead make such Distribution as
soon as practicable after such time as the making of such Distribution would not
cause such violation.
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<PAGE>
ARTICLE VIII
ALLOCATIONS
-----------
8.1 REGULAR ALLOCATIONS.
-------------------
(a) Allocations of Net Profit. Except as provided in Section 8.2, Net
-------------------------
Profit for any Fiscal Year or any other period (as the Board may determine) will
be allocated among the Members as follows:
(i) First, to the holders of Class A Units until the aggregate
-----
amount allocated under this Section 8.1(a)(i) over the life of the
Company equals the sum (at the time of the allocation) of (A) the
Unpaid Yield on the Class A Units owned by each such holder at the
time of such allocation, (B) the amount previously distributed under
Section 7.1(a) to each such holder, and (C) the aggregate amount of
Net Loss previously allocated under Section 8.1(b)(v) to each such
holder. The allocation of Net Profit under this Section 8.1(a)(i)
shall be made pro rata to the holders of Class A Units, based upon the
sum of the amounts in (A), (B) and (C) above with respect to each such
holder;
(ii) Second, to the holders of Class A Units in an amount equal
------
to the amount of Net Loss previously allocated to the holders of Class
A Units under Section 8.1(b)(iv) and not previously reversed by a Net
Profit allocation under this Section 8.1(a)(ii). The allocation of Net
Profit under this Section 8.1(a)(ii) shall be made pro rata to the
holders of Class A Units, based upon amount of Net Loss previously
allocated to each such holder under Section 8.1(b)(iv);
(ii) Third, to the holders of Class B Units in an amount equal
-----
to the amount of Net Loss previously allocated to the holders of Class
B Units under Section 8.1(b)(iii) and not previously reversed by a Net
Profit allocation under this Section 8.1(a)(iii). The allocation of
Net Profit under this Section 8.1(a)(iii) shall be made pro rata to
the holders of Class B Units, based upon amount of Net Loss previously
allocated to each such holder under Section 8.1(b)(iii);
(iv) Fourth, to the holders of Common Units until the aggregate
------
amount allocated under this Section 8.1(a)(iv) over the life of the
Company equals the sum (at the time of the allocation) of (A) the
Catch-Up Amount for each Common Unit (assuming all amounts
distributable to holders of Class A Units pursuant to Sections 7.1(a)
and 7.1(b) hereof have been distributed to such holders of Class A
Units) (reduced by the Non-Distribution Amount for each Common Unit)
owned by each such holder at the time of such allocation, and (B) the
aggregate amount of Net Loss previously allocated under Section
8.1(b)(ii) to each such holder. The allocation of Net Profit under
this Section 8.1(a)(iv) shall be made first to the holders of Common
-----
Units who received an allocation of Net Loss under Section 8.1(b)(ii)
not previously reversed by a Net Profit allocation under this Section
8.1(a)(iv) until all such allocations of Net Loss have been reversed,
pro rata according to the amount of Net
-26-
<PAGE>
Loss allocated to them, second to the holders of Common Units who
------
received a distribution under Section 7.1(c) not previously subject to
a Net Profit allocation under this Section 8.1(a)(iv) until all such
distributions have been made subject to a Net Profit allocation, pro
rata according to the amount of distributions received by them, and
third to the holders of Common Units who are then entitled to receive
-----
a Catch-Up Amount (assuming all amounts distributable to holders of
Class A Units pursuant to Sections 7.1(a) and 7.1(b) hereof have been
distributed to such holders of Class A Units), according to the
ordering provisions of Section 7.1(c); and
(v) Fifth, to the holders of Common Units, pro rata according
-----
to the number of Common Units owned by each such holder.
(b) Allocations of Net Loss. Except as provided in Section 8.2, Net
-----------------------
Loss for any Fiscal Year or any other period (as the Board may determine) will
be allocated among the Members as follows:
(i) First, to the holders of Common Units in an amount equal to
------
the amount of Net Profit previously allocated to the holders of Common
Units under Section 8.1(a)(v) and not previously subject to a Net Loss
allocation under this Section 8.1(b)(i), pro rata to such holders
according to the amount of Net Profit allocated to them under Section
8.1(a)(v);
(ii) Second, to the holders of Class B Units in an amount equal
------
to the amount of Net Profit previously allocated to the holders of
Class B Units under Section 8.1(a)(iv) and not previously subject to a
Net Loss allocation under this Section 8.1(b)(ii), provided that the
--------
amount of Net Loss allocated under this Section 8.1(b)(ii) shall not
exceed the Catch-Up Amount for all such holders (reduced by the Non-
Distribution Amount for all such holders). The allocation of Net Loss
pursuant to this Section 8.1(b)(ii) shall be made in reverse of the
ordering provisions of Section 7.1(c);
(iii) Third, to the holders of Class B Units to the extent
-----
necessary to make the balance of their Capital Accounts allocable to
Capital Contributions made with respect to the Class B Units equal to
zero. The allocation of Net Loss pursuant to this Section 8.1(b)(iii)
shall be made pro rata to such holders according to balance of the
Capital Accounts allocable to Capital Contributions made with respect
to the Class B Units for each such holder;
(iv) Fourth, to the holders of Class A Units to the extent
------
necessary to make the balance of their Capital Accounts allocable to
Capital Contributions made with respect to the Class A Units equal to
zero. The allocation of Net Loss pursuant to this Section 8.1(b)(iv)
shall be made pro rata to such holders according to balance of the
Capital Accounts allocable to Capital Contributions made with respect
to the Class A Units for each such holder;
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<PAGE>
(v) Fifth, to the holders of Class A Units in an amount equal to
-----
the amount of Net Profit previously allocated to the holders of Class
A Units under Section 8.1(a)(i) and not previously subject to a Net
Loss allocation under this Section 8.1(b)(v); provided that the amount
--------
of Net Loss allocated under this Section 8.1(b)(v) shall not exceed
the Unpaid Yield for all such holders. The allocation of Net Loss
pursuant to this Section 8.1(b)(v) shall be made pro rata to such
holders according to the amount of Unpaid Yield for each such holder;
and
(vi) Sixth, to the holders of Common Units pro rata according to
-----
the number of Common Units owned by each such holder.
8.2 SPECIAL ALLOCATIONS.
-------------------
(a) Nonrecourse Debt. Losses attributable to a partner nonrecourse
----------------
debt (as defined in Treasury Regulation Section 1.704-2(b)(4)) will be allocated
in the manner required by Treasury Regulation Section 1.704-2(i)). If there is a
net decrease during a Fiscal Year in partner nonrecourse debt minimum gain (as
defined in Treasury Regulation Section 1.704-2(i)(3)), then Profits for such
Fiscal Year (and, if necessary, for subsequent Fiscal Years) will be allocated
to the Members in the amounts and of such character as determined according to,
and subject to the exceptions contained in, Treasury Regulation Section 1.704-
2(i)(4).
(b) Minimum Gain Chargeback. Except as otherwise provided in Section
-----------------------
8.2(a), if there is a net decrease in the Minimum Gain during any Fiscal Year,
then each Member will be allocated Profits for such Fiscal Year (and, if
necessary, for subsequent Fiscal Years) in the amounts and of such character as
determined according to, and subject to the exceptions contained in, Treasury
Regulation Section 1.704-2(f). This Section 8.2(b) is intended to be a minimum
gain chargeback provision that complies with the requirements of Treasury
Regulation Section 1.704-2(f), and will be interpreted in a manner consistent
with such intention.
(c) Qualified Income Offset. If any Member who unexpectedly receives
-----------------------
an adjustment, allocation, or distribution described in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6) has an Adjusted Capital Account
- - - -
Deficit as of the end of any Fiscal Year, computed after the application of
Sections 8.2(a) and 8.2(b) but before the application of any other provision of
Section 8.1 or Section 8.2, then Profits for such Fiscal Year will be allocated
to such Member in proportion to, and to the extent of, such Adjusted Capital
Account Deficit. This Section 8.2(c) is intended to be a qualified income
offset provision as described in Treasury Regulation Section 1.704-
1(b)(2)(ii)(d) and will be interpreted in a manner consistent with such
-
intention.
(d) Adjustment of Tax Basis. Profits and Losses described in Section
-----------------------
6.3(e) will be allocated in a manner consistent with the manner that the
adjustments to the Capital Accounts are required to be made pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(j), (k) and (m).
- - -
(e) Transaction with Member. If, and to the extent that, any Member
-----------------------
is deemed to recognize any item of income, gain, loss, deduction or credit as a
result of any transaction between
-28-
<PAGE>
such Member and the Company pursuant to any of Code Sections 1272-1274, 7872,
483 and 482 or any similar provision now or hereafter in effect, and the Tax
Matters Partner determines that any corresponding Profit or Loss of the Company
should be allocated to the Member who recognized such item in order to reflect
the Member's economic interests in the Company, then the Company may so allocate
such Profit or Loss.
8.3 TAX ALLOCATIONS.
---------------
(a) Generally. The income, gains, losses, deductions and credits of
---------
the Company wi ll be allocated, for federal, state and local income tax
purposes, among the Members in accordance with the allocation of such income,
gains, losses, deductions and credits among the Members for computing their
Capital Accounts, except that if any such allocation is not permitted by the
-----------
Code or other applicable law, the Company's subsequent income, gains, losses,
deductions and credit will be allocated among the Members so as to reflect as
nearly as possible the allocation set forth in this Agreement in computing their
Capital Accounts.
(b) Differences Between Book Value and Tax Basis. Items of Company
--------------------------------------------
taxable income, gain, loss and deduction with respect to any property
contributed to the capital of the Company will be allocated among the Members in
accordance with Code Section 704(c) so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its Book Value.
(c) Adjustments in Book Value. If the Book Value of any Company asset
-------------------------
is adjusted pursuant to Section 6.3, then subsequent allocations of items of
taxable income, gain, loss and deduction with respect to such asset will take
into account any variation between the adjusted basis of such asset for federal
income tax purposes and its Book Value in the same manner as under Code Section
704(c).
(d) Allocations of Credits and the Like. Allocations of tax credits,
-----------------------------------
tax credit recapture, and any items related thereto will be allocated to the
Members according to their interests in such items as determined by the Tax
Matters Partner taking into account the principles of Treasury Regulation
Section 1.704-1(b)(4)(ii).
(e) No Effect on Capital Accounts. Allocations pursuant to this
-----------------------------
Section 8.3 are solely for purposes of federal, state and local taxes and will
not affect, or in any way be taken into account in computing, any Member's
Capital Account or share of Profits, Losses, Distributions or other items
pursuant to any provision of this Agreement.
8.4 CURATIVE ALLOCATIONS. If the Tax Matters Partner determines, after
--------------------
consultation with counsel experienced in income tax matters, that the allocation
of any item of Company income, gain, loss, deduction or credit (an "unallocated
-----------
item") is not specified in this Agreement or that the allocation of any item of
- ----
Company income, gain, loss, deduction or credit (a "misallocated item") under
-----------------
this Agreement is in the Board's reasonable judgment inconsistent with the
Members' economic interests in the Company (determined by reference to the
general principles of Treasury Regulation Section 1.704-1(b) and the factors set
forth in Treasury Regulation
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<PAGE>
Section 1.704-1(b)(3)(ii)), then the Company may allocate such unallocated
items, or reallocate such misallocated items, to reflect such economic
interests; provided that no such allocation will have any material effect on the
--------
amounts distributable to any Member, including the amounts to be distributed
upon the complete liquidation of the Company.
ARTICLE IX
ELECTIONS AND REPORTS
---------------------
9.1 GENERALLY. The Company will keep appropriate books and records with
---------
respect to the Company's business, including all books and records necessary to
provide any information, lists and copies of documents required to be provided
pursuant to Section 9.3 or pursuant to applicable laws. The Members (subject to
reasonable confidentiality requirements that the Board may impose) shall have
such right to request and receive information concerning the Company and its
affairs as is required by the Delaware Act.
9.2 TAX STATUS. The Members intend that the Company be treated as a
----------
partnership for federal, state and local income tax purposes and the Company and
each Member shall file all tax returns on the basis consistent therewith.
9.3 REPORTS. The Company will use reasonable efforts to deliver or cause
-------
to be delivered, by March 1 (and, in any event, will deliver not later than May
31) of each year, to each person who was a Member at any time during the
previous Fiscal Year, all information necessary for the preparation of such
person's United States federal income tax returns and any state, local and
foreign income tax returns which such person is required to file as a result of
the Company being engaged in a trade or business within such state, local or
foreign jurisdiction, including a statement showing such person's share of
income, gains, losses, deductions and credits for such year for United States
federal income tax purposes (and, if applicable, state, local or foreign income
tax purposes) and the amount of any Distributions made to or for the account of
such person. Upon the written request of any such person made not later than 30
days after the end of each Fiscal Year, the Company will use reasonable efforts
to deliver or cause to be delivered any additional information necessary for the
preparation of any state, local and foreign income tax returns which must be
filed by such person.
9.4 TAX ELECTIONS. The taxable year will be the Fiscal Year, unless the
-------------
Tax Matters Partner determines otherwise in compliance with applicable laws.
The Tax Matters Partner will determine whether to make or revoke any available
election pursuant to the Code. Each Member will upon request supply the
information necessary to give proper effect to any such election.
9.5 TAX CONTROVERSIES. MEM Holdings is designated the "Tax Matters
----------------- -----------
Partner" (as defined in Code Section 6231) for the Company, and is authorized
- -------
and required to represent the Company (at the Company's expense) in connection
with all examinations of the Company's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Company funds
for professional services and costs associated therewith; provided that the Tax
--------
Matters Partner may be replaced by action of Members which own Voting Units
which represent a
-30-
<PAGE>
Majority in Voting Interest. Each Member agrees to cooperate with the Tax
Matters Partner and to do or refrain from doing any or all things reasonably
requested by the Tax Matters Partner with respect to the conduct of such
proceedings. Subject to the foregoing proviso, the Tax Matters Partner will have
sole discretion to determine whether the Company (either in its own behalf or on
behalf of the Members) will contest or continue to contest any tax deficiencies
assessed or proposed to be assessed by any taxing authority. Any deficiency for
taxes imposed on any Member (including penalties, additions to tax or interest
imposed with respect to such taxes) will be paid by such Member, and if required
to be paid (and actually paid) by the Company, will be recoverable from such
Member as provided in Section 7.4.
ARTICLE X
DISSOLUTION AND LIQUIDATION
---------------------------
10.2 DISSOLUTION. The Company shall be dissolved and its affairs wound up
-----------
only upon the happening of any of the following events:
(a) The sale or other disposition by the Company of all or
substantially all of the assets it then owns;
(b) Upon the election to dissolve the Company by action of Members
which own Voting Units which represent a Majority in Voting Interest; or
(c) The entry of a decree of judicial dissolution under (S) 18-802 of
the Delaware Act; provided, that, notwithstanding anything contained herein to
--------
the contrary, no Member shall make an application for the dissolution of the
Company pursuant to (S) 18-802 of the Delaware Act without the unanimous
approval of the Members.
Dissolution of the Company shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Company shall not terminate until
the winding up of the Company has been completed, the assets of the Company have
been distributed as provided in Section 10.2 and the Certificate shall have been
canceled.
10.2 LIQUIDATION.
-----------
(a) Liquidator. Upon dissolution of the Company, the Board will
----------
appoint a person to act as the "Liquidator," and such person shall act as the
----------
Liquidator unless and until a successor Liquidator is appointed as provided in
this Section 10.2. The Liquidator will agree not to resign at any time without
30 days' prior written notice to the Board. The Liquidator may be removed at any
time, with or without cause, by notice of removal and appointment of a successor
Liquidator approved by the Board. Any successor Liquidator will succeed to all
rights, powers and duties of the former Liquidator. The right to appoint a
successor or substitute Liquidator in the manner provided in this Section 10.2
will be recurring and continuing for so long as the functions and services of
the Liquidator are authorized to continue under the provisions of this
Agreement, and every reference in this Agreement to the Liquidator will be
deemed to refer also to any such
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<PAGE>
successor or substitute Liquidator appointed in the manner provided in this
Section 10.2. The Liquidator will receive as compensation for its services (1)
no additional compensation, if the Liquidator is an employee of the Company or
any of its Subsidiaries, or (2) if the Liquidator is not such an employee, such
compensation as the Board may approve, plus, in either case, reimbursement of
the Liquidator's out-of-pocket expenses in performing its duties.
(b) Liquidating Actions. The Liquidator will liquidate the assets of
-------------------
the Company and apply and distribute the proceeds of such liquidation, in the
following order of priority, unless otherwise required by mandatory provisions
of applicable law:
(i) First, to the payment of the Company's debts and
-----
obligations to its creditors (including Members), including sales commissions
and other expenses incident to any sale of the assets of the Company, in order
of the priority provided by law.
(ii) Second, to the establishment of and additions to such
------
reserves as the Board deems necessary or appropriate.
(iii) Third, to the Members, in accordance with Section 7.1 and
-----
any applicable Certificates of Designation, subject to Section 7.2.
The reserves established pursuant to clause (ii) above will be paid over by the
Liquidator to a bank or other financial institution, to be held in escrow for
the purpose of paying any such contingent or unforeseen liabilities or
obligations and, at the expiration of such period as the Board deems advisable,
such reserves will be distributed to the Members in accordance with Section 7.1
and any applicable Certificates of Designation, subject to Section 7.2. The
allocations and distributions provided for in this Agreement are intended to
result in the Capital Account of each Member immediately prior to the
distribution of the Company's assets pursuant to this Section 10.2(b) being
equal to the amount distributable to such Member pursuant to this Section
10.2(b). The Company is authorized to make appropriate adjustments in the
allocation of Profits and Losses as necessary to cause the amount of each
Member's Capital Account immediately prior to the distribution of the Company's
assets pursuant to this Section 10.2(b) to equal the amount distributable to
such Member pursuant to this Section 10.2(b).
(c) Distribution in Kind. Notwithstanding the provisions of Section
--------------------
10.2(b) which require the liquidation of the assets of the Company, but subject
to the order of priorities set forth in Section 10.2(b), if upon dissolution of
the Company the Board determines that an immediate sale of part or all of the
Company's assets would be impractical or could cause undue loss to the Members,
the Board may, in its sole discretion, defer the liquidation of any assets
except those necessary to satisfy Company liabilities and reserves, and may, in
its absolute discretion, distribute to the Members, in lieu of cash, as tenants
in common and in accordance with the provisions of Section 10.2(b), undivided
interests in such Company assets as the Liquidator deems not suitable for
liquidation. Any such distribution in kind will be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operating of
such properties at such time. For purposes of any
-32-
<PAGE>
such distribution, the Board will determine the Fair Market Value of any
property to be distributed in accordance with any valuation procedure which the
Board reasonably deems appropriate.
(d) Reasonable Time for Winding Up. A reasonable time will be
------------------------------
allowed for the orderly winding up of the business and affairs of the Company
and the liquidation of its assets pursuant to Section 10.2(b) in order to
minimize any losses otherwise attendant upon such winding up. Distributions upon
liquidation of the Company (or any Member's interest in the Company) and related
adjustments will be made by the end of the Fiscal Year of the liquidation (or,
if later, within 90 days after the date of such liquidation) or as otherwise
permitted by Treasury Regulation Section 1.704-1(b)(2)(ii)(b).
(e) Termination. Upon completion of the distribution of the assets
-----------
of the Company as provided in Section 10.2(b) hereof, the Company shall be
terminated and the Liquidator shall cause the cancellation of the Certificate in
the State of Delaware and of all qualifications and registrations of the Company
as a foreign limited liability company in jurisdictions other than the State of
Delaware and shall take such other actions as may be necessary to terminate the
Company.
10.3 VOLUNTARY DISSOLUTION. Notwithstanding anything to the contrary
---------------------
herein, without the prior consent of holders of a majority of the number of
Class B-4 Units then outstanding neither the Board nor the Members shall effect
a voluntary dissolution of the Company (except in connection with an Approved
Company Sale (as such term is defined in the Members Agreement)) unless the
Members holding Class B-4 Units receive their pro rata percentage (based on the
ratio of the number of Class B-4 Units held by such Members to the then number
of outstanding Common Units) share of the assets of the Company in such
dissolution or pro rata percentage interest of the equity securities issued by
any successor entity to the Company.
ARTICLE XI
TRANSFER OF UNITS
-----------------
11.1 RESTRICTIONS. Each Member acknowledges and agrees that such Member
------------
shall not Transfer any Unit(s) except in accordance with the provisions of this
Article XI and the Members Agreement. Any attempted Transfer in violation of
the preceding sentence shall be deemed null and void for all purposes, and the
Company will not record any such Transfer on its books or treat any purported
transferee as the owner of such Unit(s) for any purpose.
11.2 GENERAL RESTRICTIONS ON TRANSFER.
--------------------------------
(a) Notwithstanding anything to the contrary in this Agreement, no
transferee of any Unit(s) received pursuant to a Transfer (but excluding
transferees that were Members immediately prior to such a Transfer, who shall
automatically become a Member with respect to any additional Units they so
acquire) shall become a Member in respect of or be deemed to have any ownership
rights in the Unit(s) so Transferred unless the purported transferee is admitted
as a Member as set forth in Section 11.3(a).
-33-
<PAGE>
(b) Following a Transfer of any Unit(s) that is permitted under this
Article XI, the transferee of such Unit(s) shall succeed to the Capital Account
associated with such Unit(s) and shall receive allocations and distributions
under Articles VI, VII, VIII and X in respect of such Unit(s). Notwithstanding
the foregoing, Profits, Losses and other items will be allocated between the
transferor and the transferee according to Code Section 706.
(c) Any Member who Transfers all of his or its Units (i) shall cease
to be a Member upon such Transfer, and (ii) shall no longer possess or have the
power to exercise any rights or powers of a Member of the Company.
11.3 PROCEDURES FOR TRANSFER. Subject in all events to the general
-----------------------
restrictions on Transfers contained in Sections 11.1, 11.2 and 11.5, a Member
may Transfer all or any part of his or its Units in accordance with this Section
11.3.
(a) No Transfer of Unit(s) may be completed until the prospective
transferee is admitted as a Member of the Company by executing and delivering to
the Secretary of the Company a written undertaken to be bound by the terms and
conditions of this Agreement substantially in the form of Exhibit C hereto.
---------
Upon the amendment of the Members Schedule by the Secretary of the Company and
the satisfaction of any other applicable conditions, such prospective transferee
shall be admitted as a Member and deemed listed as such on the books and records
of the Company and thereupon the Company shall reissue the applicable Units in
the name of such prospective transferee.
(b) Unless waived by the Company, no Member may Transfer any
Restricted Securities (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company (which
counsel will be reasonably acceptable to the Company) that registration under
the Securities Act is not required in connection with such Transfer. If such
opinion of counsel reasonably acceptable in form and substance to the Company
further states that no subsequent Transfer of such Restricted Securities will
require registration under the Securities Act, the Company will promptly upon
such Transfer deliver new certificates for such securities which do not bear the
Securities Act legend set forth in Section 11.4(b).
11.4 LEGEND.
------
(a) The certificates representing the Units will bear the following
legend:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS
SPECI FIED IN A LIMITED LIABILITY COMPANY
AGREEMENT AMONG THE ISSUER AND ITS MEMBERS. A
COPY OF SUCH LIMITED LIABILITY COMPANY AGREEMENT
AS IN EFFECT FROM TIME TO TIME WILL BE FURNISHED
WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF
UPON WRITTEN REQUEST."
-34-
<PAGE>
(b) Each certificate or instrument evidencing Restricted Securities
and each certificate or instrument issued in exchange for or upon the Transfer
of any Restricted Securities (if such securities remain Restricted Securities
after such Transfer) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
AN EXEMPTION FROM REGISTRATION THEREUNDER."
Upon the request of any holder of Restricted Securities, the Company shall
remove the Securities Act legend set forth above from the certificates for such
Restricted Securities; provided, that such Restricted Securities are eligible
--------
for sale pursuant to Rule 144(k) (or any similar rule or rules then in effect)
under the Securities Act.
11.5 LIMITATIONS.
-----------
(a) Notwithstanding anything to the contrary in this Agreement, no
Unit may be Transferred or issued by the Company if such Transfer or issuance
would result in the Company having more than 100 "beneficial owners" as defined
and determined by the Investment Company Act of 1940, as amended from time to
time.
(b) In order to permit the Company to qualify for the benefit of a
"safe harbor" under Code Section 7704, notwithstanding anything to the contrary
in this Agreement, no Transfer of any Unit shall be permitted or recognized by
the Company (within the meaning of Treasury Regulation Section 1.7704-1(d)) and
the Company shall not issue any Units if and to the extent that such Transfer or
issuance would cause the Company to have more than 100 partners (within the
meaning of Treasury Regulation Section 1.7704-1(h), including the look-through
rule in Treasury Regulation Section 1.7704-1(h)(3)).
(c) Notwithstanding anything to the contrary in this Agreement, no
Unit may be Transferred and the Company may not issue any Unit unless (i) such
Transfer or issuance, as the case may be, shall not affect the Company's
existence or qualification as a limited liability company under the Delaware
Act, (ii) such Transfer or issuance, as the case may be, shall not cause the
Company to be classified as other than a partnership for United States federal
income tax purposes, (iii) such Transfer or issuance, as the case may be, shall
not result in a termination of the Company under Code Section 708, unless the
Board determines that any such termination will not have a material adverse
impact on the Members and (iv) such Transfer or issuance, as the case may be,
shall not cause the application of the tax-exempt use property rules of Code
Sections 168(g)(l)(B) and 168(h) to the Company or its Members.
11.6 TAX MATTERS. On the Transfer of any Common Unit, if the transferor
-----------
owns more than 5% of the then outstanding Common Units immediately prior to such
Transfer, then, at the request
-35-
<PAGE>
of such transferor at the time of such Transfer, the Board will cause the
Company to elect, pursuant to Section 754 of the Code, to adjust the tax basis
of the Company's properties as provided by Sections 734 and 743 of the Code.
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
12.1 NOTICES.
-------
(a) All notices, requests, demands and other communications under or
in connection with this Agreement shall be given to or made upon (i) any Member,
at such Member's address set forth on the Members Schedule, and (ii) the
Company, at Muzak Holdings LLC, c/o Muzak LLC, 2901 Third Avenue, Suite 400,
Seattle, Washington 98121, Attention: President, with copies to MEM Holdings,
LLC, c/o ABRY Partners, Inc., 18 Newbury Street, Boston, MA 02116, Attention:
Royce Yudkoff, and Kirkland & Ellis, 153 East 53rd Street, New York, NY 10022,
Attention: John Kuehn, Esq. (or in any case to such other address as the
addressee may from time to time designate in writing to the sender).
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Agreement shall be in writing,
and shall be deemed effectively given upon personal delivery or delivery by
courier to the party to be notified or three (3) business days after deposit
with the United States Post Office, by registered or certified mail, return
receipt requested, postage prepaid and addressed as provided in Section 12.1(a).
12.2 GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE APPLICATION,
-------------
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, AND SPECIFICALLY THE
DELAWARE ACT, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
RULES OR PROVISIONS (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF DELAWARE.
12.3 NO ACTION FOR PARTITION. No Member shall have any right to maintain
-----------------------
any action for partition with respect to the property of the Company.
12.4 HEADINGS AND SECTIONS. The headings in this Agreement are inserted
---------------------
for convenience only and are in no way intended to describe, interpret, define,
or limit the scope, extent or intent of this Agreement or any provision of this
Agreement. Unless the context requires otherwise, all references in this
Agreement to Sections, Articles, Exhibits or Schedules shall be deemed to mean
and refer to Sections, Articles, Exhibits or Schedules of or to this Agreement.
12.5 AMENDMENTS. Except as otherwise expressly set forth in this
- ---------
Agreement, the Certificate and this Agreement may be amended, supplemented or
restated only upon the written consent of Members which own Voting Units which
represent a Majority in Voting Interest;
-36-
<PAGE>
provided that no such amendment or waiver shall (x) amend, modify or change the
- --------
provisions of Sections 4.8, 5.6 or 10.3 or this Section 12.5 or otherwise
adversely affect the rights, preferences and privileges of the Class B-4 Units
under this Agreement in any material respect without the consent of the
Member(s) holding a majority of the then outstanding Class B-4 Units or (y)
materially and adversely affect the rights hereunder of any Common Member when
compared with its effect on any other Common Member without the prior written
approval of such first Common Member. For purposes of this Section 12.5, any
merger or consolidation that would have the effect of amending this Agreement
pursuant to Section 18-209(f) of the Delaware Act shall be deemed to be an
amendment of this Agreement subject to the provisions of this Section 12.5.
12.6 NUMBER AND GENDER. Where the context so indicates, the masculine
-----------------
shall include the feminine, the neuter shall include the masculine and feminine,
and the singular shall include the plural.
12.7 BINDING EFFECT. Except as otherwise provided to the contrary in this
--------------
Agreement, this Agreement shall be binding upon and inure to the benefit of the
Members, their distributees, heirs, legal representatives, executors,
administrators, successors and permitted assigns.
12.8 COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon the Member who executed the same, but all of such counterparts
shall constitute the same agreement.
12.9 SEVERABILITY. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
12.10 REMEDIES. Each of the parties to this Agreement shall be entitled to
--------
enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The Members agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
12.11 BUSINESS DAYS. If any time period for giving notice or taking action
-------------
under this Agreement expires on a day which is a Saturday, Sunday or holiday in
the state in which the Company's chief executive office is located, the time
period shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.
12.12 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES,
--------------------
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR
-37-
<PAGE>
ARISING OUT OF THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT THEREOF.
12.13 NO STRICT CONSTRUCTION. The parties to this Agreement have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties to this
Agreement, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
12.14 ENTIRE AGREEMENT. Except as otherwise expressly set forth in this
----------------
Agreement, this Agreement and the other agreements referred to in this Agreement
(including, without limitation, the Related Agreements) embody the complete
agreement and understanding among the parties to this Agreement with respect to
the subject matter of this Agreement and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter of this Agreement in any
way. This Agreement amends and restates the Original Agreement in its entirety.
12.15 PARTIES IN INTEREST. Nothing herein shall be construed to be to the
-------------------
benefit of or enforceable by any third party including, but not limited to, any
creditor of the Company.
12.16 INCONSISTENT PROVISIONS OF THE MEMBERS AGREEMENT. In the event that,
------------------------------------------------
at any time, any provision of this Agreement is inconsistent with the
requirements of any provision of the Members Agreement, the terms of the Members
Agreement shall supersede and prevail over the provisions of this Agreement, and
the Members shall take such action as may be necessary to amend any such
provision in this Agreement to conform with such requirements of the Members
Agreement.
* * * *
-38-
<PAGE>
IN WITNESS WHEREOF, the undersigned, have executed this Amended and
Restated Limited Liability Company Agreement as of the date first written above.
MEM HOLDINGS, LLC
By: ___________________________________
Name: Royce Yudkoff
Title: President
_______________________________________
Joseph Koff
_______________________________________
David Unger
_______________________________________
William Boyd
MUSIC HOLDINGS CORP.
By: __________________________________
Name:
Title:
CAPSTAR BROADCASTING CORPORATION
By: ___________________________________
Name:
Title:
<PAGE>
EXHIBIT A
---------
BOARD RESOLUTIONS WITH RESPECT TO CLASS B-5 UNITS
(AS OF MARCH 18, 1999)
NONE.
<PAGE>
EXHIBIT B
---------
CERTIFICATES OF DESIGNATIONS
(AS OF MARCH 18, 1999)
NONE.
<PAGE>
EXHIBIT C
---------
FORM OF JOINDER TO
LIMITED LIABILITY COMPANY AGREEMENT
-----------------------------------
THIS JOINDER to the Amended and Restated Limited Liability Company
Agreement of Muzak Holdings LLC, a Delaware limited liability company (the
"Company"), dated as of March 18, 1999, as amended or restated from time to
- --------
time, by and among and the Members of the Company (the "Agreement"), is made and
---------
entered into as of _________ by and between the Company and ________________
("Holder"). Capitalized terms used herein but not otherwise defined shall have
- --------
the meanings set forth in the Agreement.
WHEREAS, on the date hereof, Holder has acquired ______ [PREFERRED
UNITS/CLASS A UNITS/CLASS B-[1/2/3/4/5] UNITS] from _____________ and the
Agreement and the Company require Holder, as a holder of such [PREFERRED
UNITS/CLASS A UNITS/CLASS B-[1/2/3/4/5] UNITS], to become a party to the
Agreement, and Holder agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1. Agreement to be Bound. Holder hereby (i) acknowledges that it has
---------------------
received and reviewed a complete copy of the Agreement and (ii) agrees that upon
execution of this Joinder, it shall become a party to the Agreement and shall be
fully bound by, and subject to, all of the covenants, terms and conditions of
the Agreement as though an original party thereto and shall be deemed, and is
hereby admitted as, a Member for all purposes thereof and entitled to all the
rights incidental thereto.
2. Members Schedule. For purposes of the Members Schedule, the address
----------------
of the Holder is as follows:
[NAME]
[ADDRESS]
[FACSIMILE NUMBER]
3. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES
-------------
HEREUNDER SHALL BE INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
4. Descriptive Headings. The descriptive headings of this Joinder are
--------------------
inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of
the date first above written.
MUZAK HOLDINGS LLC
By: ___________________________________
Name:
Title:
[HOLDER]
By: ___________________________________
Name:
Title:
<PAGE>
SCHEDULE A
----------
OFFICERS OF MUZAK HOLDINGS LLC
(AS OF MARCH 18, 1999)
William A. Boyd President and Chief Executive Officer
Royce Yudkoff Vice President
Peni Garber Vice President and Secretary
Robert McInnis Vice President
Charles A. Saldarini Chief Operating Officer
Brad D. Bodenman Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT 4.1
================================================================================
MUZAK LLC
and
MUZAK FINANCE CORP.,
--------------------
as Issuers,
The GUARANTORS named herein
_______________________
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
INDENTURE
================================================================================
Dated as of March 18, 1999
Up to $150,000,000 aggregate principal amount of
9 7/8% Senior Subordinated Notes due 2009
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C>
310(a)(1)................................................. 7.10
(a)(2)................................................. 7.10
(a)(3)................................................. N.A.
(a)(4)................................................. N.A.
(b).................................................... 7.08; 7.10; 12.02
(b)(1)................................................. 7.10
(b)(9)................................................. 7.10
(c).................................................... N.A.
311(a).................................................... 7.11
(b).................................................... 7.11
(c).................................................... N.A.
312(a).................................................... 2.05
(b).................................................... 10.03
(c).................................................... 10.03
313(a).................................................... 7.06
(b)(1)................................................. 7.06
(b)(2)................................................. 7.06
(c).................................................... 12.02
(d).................................................... 7.06
314(a).................................................... 4.02; 4.04; 12.02
(b).................................................... N.A.
(c)(1)................................................. 12.04; 12.05
(c)(2)................................................. 12.04; 12.05
(c)(3)................................................. N.A.
(d).................................................... N.A.
(e).................................................... 10.05
(f).................................................... N.A.
315(a).................................................... 7.01; 7.02
(b).................................................... 7.05; 10.02
(c).................................................... 7.01
(d).................................................... 6.05; 7.01; 7.02
(e).................................................... 6.11
316(a) (last sentence).................................... 12.06
(a)(1)(A).............................................. 6.05
(a)(1)(B).............................................. 6.04
(a)(2)................................................. 8.02
(b).................................................... 6.07
(c).................................................... 8.04
317(a)(1)................................................. 6.08
(a)(2)................................................. 6.09
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(b).................................................... 7.12
318(a).................................................... 12.01
</TABLE>
N.A. means Not Applicable
____________________
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.......................................... 1
Section 1.01. Other Definitions.................................... 48
Section 1.02. Incorporation by Reference of Trust Indenture Act.... 49
Section 1.03. Rules of Construction................................ 49
ARTICLE 2
THE NOTES
Section 2.01. Dating; Incorporation of Form in Indenture........... 50
Section 2.02. Execution and Authentication......................... 51
Section 2.03. Registrar and Paying Agent........................... 52
Section 2.04. Paying Agent to Hold Money in Trust.................. 53
Section 2.05. Noteholder Lists..................................... 54
Section 2.06. Transfer and Exchange................................ 54
Section 2.07. Replacement Notes.................................... 55
Section 2.08. Outstanding Notes.................................... 55
Section 2.09. Temporary Notes...................................... 56
Section 2.10. Cancellation......................................... 56
Section 2.11. Defaulted Interest................................... 57
Section 2.12. Deposit of Moneys.................................... 57
Section 2.13. CUSIP Number......................................... 57
Section 2.14. Book-Entry Provisions for Global Notes............... 58
Section 2.15. Registration of Transfers and Exchanges.............. 60
Section 2.16. Joint and Several Liability.......................... 66
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ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee................................... 67
Section 3.02. Selection by Trustee of Notes to Be Redeemed......... 67
Section 3.03. Notice of Redemption................................. 67
Section 3.04. Effect of Notice of Redemption....................... 69
Section 3.05. Deposit of Redemption Price.......................... 69
Section 3.06. Notes Redeemed in Part............................... 69
Section 3.07. Optional Redemption.................................. 70
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes..................................... 71
Section 4.02. Provision of Financial Statements and Other
Information..................................... 71
Section 4.03. Waiver of Stay, Extension or Usury Laws.............. 72
Section 4.04. Compliance Certificate; Notice of Default; Tax
Information..................................... 72
Section 4.05. Taxes................................................ 74
Section 4.06. Limitation on Additional Indebtedness................ 74
Section 4.07. Limitation on Restricted Payments.................... 75
Section 4.08. Limitation on Other Senior Subordinated Indebtedness. 80
Section 4.09. Limitation on Certain Asset Sales.................... 81
Section 4.10. Limitation on Transactions with Affiliates........... 86
Section 4.11. Limitations on Liens................................. 89
Section 4.12. Limitations on Investments........................... 89
Section 4.13. Limitation on Sale and Lease-Back Transactions....... 89
Section 4.14. Payments for Consent................................. 90
Section 4.15. Corporate Existence.................................. 90
Section 4.16. Change of Control.................................... 91
Section 4.17. Maintenance of Office or Agency...................... 94
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Section 4.18. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries............... 94
Section 4.19. Limitation on Conduct of Business.................... 97
Section 4.20. Compliance with Laws................................. 97
Section 4.21. Limitation on Preferred Stock of Restricted
Subsidiaries.................................... 97
Section 4.22. Limitation on Creation of Subsidiaries............... 98
Section 4.23. Maintenance of Properties and Insurance.............. 98
ARTICLE 5
SUCCESSOR CORPORATION
Section 5.01. Limitation on Consolidation Merger and Sale of
Assets.......................................... 99
Section 5.02. Successor Person Substituted......................... 101
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.................................... 102
Section 6.02. Acceleration......................................... 104
Section 6.03. Other Remedies....................................... 105
Section 6.04. Waiver of Past Defaults and Events of Default........ 106
Section 6.05. Control by Majority.................................. 106
Section 6.06. Limitation on Suits.................................. 107
Section 6.07. Rights of Holders to Receive Payment................. 107
Section 6.08. Collection Suit by Trustee........................... 108
Section 6.09. Trustee May File Proofs of Claim..................... 108
Section 6.10. Priorities........................................... 109
Section 6.11. Undertaking for Costs................................ 109
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ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.................................... 110
Section 7.02. Rights of Trustee.................................... 112
Section 7.03. Individual Rights of Trustee......................... 113
Section 7.04. Trustee's Disclaimer................................. 113
Section 7.05. Notice of Defaults................................... 114
Section 7.06. Reports by Trustee to Holders........................ 114
Section 7.07. Compensation and Indemnity........................... 115
Section 7.08. Replacement of Trustee............................... 116
Section 7.09. Successor Trustee by Consolidation, Merger or
Conversion...................................... 117
Section 7.10. Eligibility; Disqualification........................ 117
Section 7.11. Preferential Collection of Claims Against Issuers.... 118
Section 7.12. Paying Agents........................................ 118
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. Without Consent of Holders........................... 119
Section 8.02. With Consent of Holders.............................. 120
Section 8.03. Compliance with Trust Indenture Act.................. 122
Section 8.04. Revocation and Effect of Consents.................... 122
Section 8.05. Notation on or Exchange of Notes..................... 123
Section 8.06. Trustee to Sign Amendments, etc...................... 123
ARTICLE 9
CHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Satisfaction and Discharge of Indenture.............. 123
Section 9.02. Legal Defeasance..................................... 124
Section 9.03. Covenant Defeasance.................................. 125
Section 9.04. Conditions to Defeasance or Covenant Defeasance...... 126
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Section 9.05. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous
Provisions...................................... 129
Section 9.06. Reinstatement........................................ 130
Section 9.07. Moneys Held by Paying Agent.......................... 130
Section 9.08. Moneys Held by Trustee............................... 131
ARTICLE 10
GUARANTEES
Section 10.01. Guarantees........................................... 131
Section 10.02. Limitation on Liability.............................. 134
Section 10.03. Successors and Assigns............................... 135
Section 10.04. No Waiver............................................ 135
Section 10.05. Modification......................................... 135
Section 10.06. Release of Guarantor................................. 136
Section 10.07. Execution of Supplemental Indenture for Future
Guarantors....................................... 136
Section 10.08. Execution and Delivery of Guarantees................. 137
Section 10.09. Guarantee Obligations Subordinated to Guarantor
Senior Indebtedness.............................. 137
Section 10.10. Payment Over of Proceeds upon Dissolution, etc.,
of a Guarantor................................... 138
Section 10.11. Suspension of Guaranteed Obligations When
Guarantor Senior Indebtedness in Default......... 140
Section 10.12. Subrogation to Rights of Holders of Guarantor
Senior Indebtedness.............................. 143
Section 10.13. Guarantee Subordination Provisions Solely to
Define Relative Rights........................... 144
Section 10.14. Application of Certain Article 11 Provisions......... 145
ARTICLE 11
SUBORDINATION OF NOTES
Section 11.01. Notes Subordinate to Senior Indebtedness............. 145
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Section 11.02. Payment Over of Proceeds upon Dissolution, etc....... 146
Section 11.03. Suspension of Payment When Senior Indebtedness in
Default......................................... 148
Section 11.04. Trustee's Relation to Senior Indebtedness............ 151
Section 11.05. Subrogation of Rights of Holders of Senior
Indebtedness.................................... 152
Section 11.06. Provisions Solely to Define Relative Rights.......... 152
Section 11.07. Trustee to Effectuate Subordination.................. 153
Section 11.08. No Waiver of Subordination Provisions................ 154
Section 11.09. Notice to Trustee.................................... 155
Section 11.10. Reliance on Judicial Order or Certificate of
Liquidating Agent............................... 156
Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights................ 157
Section 11.12. Article Applicable to Paying Agents.................. 157
Section 11.13. No Suspension of Remedies............................ 157
Section 11.14. Acceleration of Payment of Notes..................... 158
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls......................... 158
Section 12.02. Notices.............................................. 159
Section 12.03. Communications by Holders with Other Holders......... 160
Section 12.04. Certificate and Opinion as to Conditions Precedent... 160
Section 12.05. Statements Required in Certificate and Opinion....... 161
Section 12.06. When Treasury Notes Disregarded...................... 161
Section 12.07. Rules by Trustee and Agents.......................... 162
Section 12.08. Business Days; Legal Holidays........................ 162
Section 12.09. Governing Law........................................ 162
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Section 12.10. No Adverse Interpretation of Other Agreements........ 162
Section 12.11. No Recourse Against Others........................... 163
Section 12.12. Successors........................................... 163
Section 12.13. Multiple Counterparts................................ 163
Section 12.14. Table of Contents, Headings, etc..................... 163
Section 12.15. Separability......................................... 163
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EXHIBITS
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Exhibit A. Form of Note......................................... A-1
Exhibit B. Form of Legend for Global Notes...................... B-1
Exhibit C. Form of Certificate to Be Delivered in Connection
with Transfers to Non-QIB Accredited Investors....... C-1
Exhibit D. Form of Certificate to Be Delivered in Connection
with Transfers Pursuant to Regulation S.............. D-1
Exhibit E. Form of Guarantee.................................... E-1
Exhibit F. Form of Supplemental Indenture....................... F-1
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<PAGE>
INDENTURE, dated as of March 18, 1999, among MUZAK LLC, a Delaware
limited liability company (the "Company"), MUZAK FINANCE CORP., a Delaware
corporation ("Finance Corp." and, together with the Company, the "Issuers") each
of the Guarantors (as defined herein) and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts banking corporation, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Issuers' 9 7/8% Senior
Subordinated Notes due 2009 (the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
-----------
"ABRY" means ABRY Partners, Inc., a Delaware corporation.
"ABRY Management Agreement" means the Management Agreement dated as of
October 6, 1998, and as amended prior to the Issue Date, between ABRY and the
Company.
"ABRY Subordinated Debt" means Indebtedness of the Company in
principal amount not to exceed $30 million in the aggregate at any time
outstanding (a) that is owed to ABRY III, ABRY, MEM Holdings, Inc. or any other
investment fund controlled by ABRY, (b) as to which the payment of principal of
(and premium, if any) and interest and other payment obligations in respect of
such Indebtedness shall be subordinate to the prior payment in full of the
Company's Obligations under the Notes such that no payments of principal (or
premium, if any) or interest on or otherwise due in respect of such Indebtedness
may be permitted for so long as any Default or Event of Default shall have
occurred and be continuing, (c) that shall automatically convert into common
equity of Holdings within 18 months of the date of issuance thereof, unless
refinanced, and (d) the terms of which have been determined to be fair and rea-
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sonable to the Company as determined in good faith by the Board of Directors of
the Company and evidenced by a Board Resolution delivered to the Trustee.
"ABRY II" means ABRY Broadcast Partners II, L.P., a Delaware limited
partnership.
"ABRY III" means ABRY Broadcast Partners III, L.P., a Delaware limited
partnership.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with any other Person or which is
assumed in connection with the acquisition of assets from such Person and, in
each case, whether or not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such merger, consolidation or acquisition.
"Acquisition EBITDA" means, with respect to any Asset Acquisition, (i)
EBITDA attributable to the assets to be acquired in such Asset Acquisition for
the same fiscal quarter utilized in determining "Consolidated Leverage Ratio"
plus (ii) the projected, quantifiable cost reductions expected to be realized
and non-recurring costs and expenses, in each case, in connection with such
Asset Acquisition and as a result of, in the case of cost reductions, an
established program of cost reductions adopted in good faith by the Board of
Directors of the Company. For purposes of the foregoing, cost reductions and
non-recurring costs and expenses, in each case, shall be calculated on a pro
forma basis as if such cost reductions and non-recurring costs and expenses, in
each case, had been implemented at the beginning of such fiscal quarter. Prior
to the consummation of any transaction requiring the inclusion of Acquisition
EBITDA in the calculation of Consolidated Leverage Ratio, the Company shall
deliver to the Trustee an Officers' Certificate indicating the cost reductions
and non-recurring costs and expenses, in each case, taken into account in
determining Acquisition EBITDA and the assumptions underlying such cost
reductions and non-recurring costs and expenses.
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"Adjusted Net Assets" of any Person at any date shall mean the lesser
of
(1) the amount by which the fair salable value of the assets of such
Person at such date exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all
other fixed and contingent liabilities), but excluding liabilities under
the Guarantee of such Person at such date, and
(2) the amount by which the fair salable value of the assets of such
Person at such date exceeds the amount that will be required to pay the
probable liability of such Person on its debts (after giving effect to all
other fixed and contingent liabilities and after giving effect to any
collection from any Subsidiary of such Person in respect of the obligations
of such Person under the Guarantee of such Person), excluding Indebtedness
in respect of the Guarantee of such Person, as they become absolute and
matured.
"Affiliate" means, with respect to any specific Person, any other
Person that directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. For
the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that, for purposes of Section 4.10 of this
Indenture, beneficial ownership of at least 10% of the voting securities of a
Person, either directly or indirectly, shall be deemed to be control.
Notwithstanding the foregoing, no Person (other than the Company or any
Subsidiary of the Company) in whom a Securitization Entity makes an Investment
in connection with a Qualified Securitization Transaction shall be deemed to be
an Affiliate of the Company or any of its Subsidiaries solely by reason of such
Investment.
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"Agent" means any Registrar, Paying Agent, co-registrar or agent for
service of notices and demands.
"Asset Acquisition" means
(1) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person pursuant to which such Person shall become a
Restricted Subsidiary of the Company or any Restricted Subsidiary of the
Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company or
(2) the acquisition by the Company or any Restricted Subsidiary of
the Company of the assets of any Person (other than a Restricted Subsidiary
of the Company) which constitute all or substantially all of the assets of
such Person or comprise any division or line of business of such Person or
any other Properties or assets of such Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and Lease-
Back Transaction), other than in the ordinary course of business or to the
Company or any of its Restricted Subsidiaries, in any single transaction or
series of related transactions of
(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of the Company or
(2) any other Property or assets of the Company or of any Restricted
Subsidiary thereof;
provided that Asset Sales shall not include
- --------
(1) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of
less than $1 million,
(2) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under
Section 5.01 of this In-
<PAGE>
-5-
denture or any disposition that constitutes a Change of Control,
(3) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof,
(4) the factoring of accounts receivable arising in the ordinary
course of business pursuant to customary arrangements,
(5) the licensing of intellectual property,
(6) disposals or replacements of obsolete equipment in the ordinary
course of business,
(7) sales of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
Qualified Securitization Transaction to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof as determined in accordance with GAAP
(for the purposes of this clause (7), Purchase Money Notes shall be deemed
to be cash),
(8) transfers of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
Qualified Securitization Transaction (or a fractional undivided interest
therein) by a Securitization Entity in a Qualified Securitization
Transaction, and
(9) any transfer of assets acquired by the Company or any of its
Restricted Subsidiaries to an independent affiliate of the Company or any
of its Restricted Subsidiaries in accordance with the terms of the License
Agreements as such agreements are in effect on the Issue Date and as the
same may be amended or restated in a manner which is not more
disadvantageous to the Holders in any
<PAGE>
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material respect than the terms of such agreements as in effect on the
Issue Date.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(1) cash and Cash Equivalents received by the Company or any
Restricted Subsidiary of the Company from such Asset Sale (including cash
and Cash Equivalent received as consideration for the assumption of
liabilities incurred in connection with or in anticipation of such Asset
Sale), after
(a) provision for all income or other taxes measured by or
resulting from such Asset Sale (after taking into account any
reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrangements),
(b) payment of all brokerage commissions, underwriting and other
fees and expenses related to such Asset Sale,
(c) provision for minority interest holders in any Restricted
Subsidiary of the Company as a result of such Asset Sale,
(d) repayment of Indebtedness that is secured by the assets
subject to such Asset Sale or otherwise required to be repaid in
connection with such Asset Sale and
(e) deduction of appropriate amounts to be provided by the
Company or a Restricted Subsidiary of the Company as a reserve, in
accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the
Company or a Restricted Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or
against
<PAGE>
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any indemnification obligations associated with the assets sold or
disposed of in such Asset Sale, and
(2) promissory notes and other noncash consideration received by the
Company or any Restricted Subsidiary of the Company from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or
noncash consideration into cash or Cash Equivalents.
"Attributable Indebtedness" in respect of a Sale and Lease-Back
Transaction means, as at the time of determination, the greater of
(1) the fair value of the Property subject to such arrangement and
(2) the present value of the notes (discounted at the rate of
interest implied in such transaction, determined in accordance with GAAP)
of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale and Lease-Back
Transaction (including any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale,
the aggregate Asset Sale Proceeds from such Asset Sale that have not been
applied in accordance with clauses (3)(a) or (3)(b), and which have not yet been
the basis for an Excess Proceeds Offer in accordance with clause (3)(c) of
Section 4.09(a) under this Indenture.
"Bank Indebtedness" means (i) the Indebtedness outstanding or arising
under the Senior Credit Facility, (ii) all obligations incurred by or owing to
the holders of such Indebtedness or any agent or representative thereof
outstanding or arising under the Senior Credit Facility (including, but not
limited to, all premium, interest (including, but not limited to, interest
accruing pursuant to the terms of the Senior Credit Facility on or after the
filing of any petition in any bankruptcy, reorganization or similar proceeding
relating to the Company or any Restricted Subsidiary, whether or not a
<PAGE>
-8-
claim for such is allowed in such proceeding), all fees and expenses of counsel,
reimbursement obligations, indemnities and all other charges, fees, expenses,
claims, and other amounts), and (iii) all interest rate agreement and hedging
obligations arising in connection therewith with any party to the Senior Credit
Facility or any of their affiliates.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person (or, if such Person is a limited liability company, the
board of managers of such company) or similar governing body or any duly
authorized committee thereof.
"Board Resolution" means with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
"Capitalized Lease Obligation" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Equivalents" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency or
instrumentality thereof and
<PAGE>
-9-
backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by (i) any bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of
not less than $250,000,000 or (ii) Brown Brothers Harriman;
(5) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in clause
(4) above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
A "Change of Control" of the Company will be deemed to have occurred
at such time as
(1) any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"),
<PAGE>
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other than a Permitted Holder, becomes the beneficial owner (as defined in
Rule under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time) of more than 35% of the total voting power of the Company's Capital
Stock, and the Permitted Holders beneficially do not own, in the aggregate,
a greater percentage of the total voting power of the Capital Stock of the
Company than such other Person or Group and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company,
(2) there shall be consummated any consolidation or merger of the
Company in which the Company is not the continuing or surviving Person or
pursuant to which the Common Stock of the Company would be converted into
cash, securities or other Property, other than a merger or consolidation of
the Company in which the holders of the Capital Stock of the Company
outstanding immediately prior to the consolidation or merger hold, directly
or indirectly, at least a majority of the Capital Stock of the surviving
corporation immediately after such consolidation or merger,
(3) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new Directors whose election by such Board of
Directors or whose nomination for election by the equityholders of the
Company has been approved by 66 2/3% of the Directors then still in office
who either were Directors at the beginning of such period or whose election
or recommendation for election was previously so approved) cease to
constitute a majority of the Board of Directors of the Company or
(4) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or
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dissolution of the Company (whether or not otherwise in compliance with the
provisions of this Indenture).
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" of any Person means all Capital Stock of such Person
that is generally entitled to
(1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or
others that will control the management and policies of such Person.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces such party pursuant to Article 5 of this
Indenture and thereafter means the successor.
"Consolidated Interest Expense" means, with respect to any Person, for
any period, the aggregate amount of interest which, in conformity with GAAP,
would be set forth opposite the caption "interest expense" or any like caption
on an income statement for such Person and its Restricted Subsidiaries on a
consolidated basis including, but not limited to,
(1) Redeemable Dividends, whether paid or accrued, on Preferred
Stock,
(2) imputed interest included in Capitalized Lease Obligations,
(3) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(4) the net costs associated with Hedging Obligations,
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(5) amortization of other financing fees and expenses,
(6) the interest portion of any deferred payment obligation,
(7) amortization of discount or premium, if any, and
(8) all other non-cash interest expense (other than interest
amortized to cost of sales)
plus, without duplication,
(1) all net capitalized interest for such period,
(2) all interest incurred or paid under any guarantee of Indebtedness
(including a guarantee of principal, interest or any combination thereof)
of any Person, and
(3) the amount of all dividends or distributions paid on Disqualified
Capital Stock (other than dividends paid or payable in shares of Capital
Stock of the Company that does not constitute Disqualified Capital Stock).
"Consolidated Leverage Ratio" means, with respect to any Person, the
ratio of
(1) the sum of the aggregate outstanding amount of Indebtedness of
such Person and its Restricted Subsidiaries and Preferred Stock of any such
Restricted Subsidiary issued in accordance with Section 4.21 of this
Indenture as of the date of calculation (the "Transaction Date") on a
consolidated basis determined in accordance with GAAP to
(2) the product of (a) such Person's EBITDA for the full fiscal
quarter (the "One Quarter Period") ending on or prior to the date of
determination for which financial statements are available and (b) four.
For purposes of this definition, clauses (1) and (2) above shall be calculated
after giving effect on a pro forma basis to:
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(a) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries or the issuance or redemption or other
repayment of Preferred Stock of any such Restricted Subsidiary (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness and, in
the case of any Restricted Subsidiary, the issuance or redemption or other
repayment of Preferred Stock (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the One Quarter Period or at any time
subsequent to the last day of the One Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment or issuance or
redemption or other repayment, as the case may be (and the application of
the proceeds thereof), occurred on the first day of the One Quarter Period;
and
(b) any Asset Sales or Asset Acquisitions occurring during the One
Quarter Period or at any time subsequent to the last day of the One Quarter
Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for
any Acquired Indebtedness) occurred on the first day of the One Quarter
Period as follows:
(x) with respect to Asset Sales, the EBITDA attributable to the
assets which are the subject of Asset Sales that occurred shall be
excluded; and
(y) with respect to Asset Acquisitions, the Acquisition EBITDA
attributable to the assets which are the subject of the applicable
Asset Acquisition shall be included.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding paragraph shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted
<PAGE>
-14-
Subsidiary or such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that
-------- -------
(1) the Net Income of any Person other than a Restricted Subsidiary
of the referent Person shall be included only to the extent of the amount
of dividends or distributions paid to the referent Person or a Restricted
Subsidiary of such referent Person,
(2) the Net Income of any Restricted Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions shall be excluded to the
extent of such restriction or limitation,
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(4) any net gain or loss (in the case of any net loss, only to the
extent that such determination of Consolidated Net Income is being made in
connection with the determination of amounts available for Restricted
Payments pursuant to the provisions described under Section 4.07 of this
Indenture) resulting from an Asset Sale by the Person in question or any of
its Restricted Subsidiaries other than in the ordinary course of business
shall be excluded,
(5) extraordinary gains and losses shall be excluded,
(6) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued) shall be
excluded and
<PAGE>
-15-
(7) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets shall be excluded.
"Control Investment Affiliate" means, as to any Person, any other
Person which (a) is an Affiliate of such Person and (b) is organized by such
Person primarily for the purpose of making equity or debt investments in one or
more companies.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 225 Franklin Street, Boston, Massachusetts 02110.
"Cumulative Consolidated Interest Expense" means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense from
April 1, 1999 to the end of such Person's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
"Cumulative EBITDA" means, with respect to any Person, as of any date
of determination, EBITDA from April 1, 1999 to the end of such Person's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depository" means, with respect to the Notes issued in the form of
one or more Global Notes, The Depository Trust Company or another Person
designated as Depository by the Company, which Person must be a clearing agency
registered under the Exchange Act.
"Designated Senior Indebtedness," as to the Company or any Guarantor,
as the case may be, means
<PAGE>
-16-
(1) any Bank Indebtedness and
(2) any other Senior Indebtedness or Guarantor Senior Indebtedness,
as the case may be, which at the time of determination exceeds $25 million
in aggregate principal amount (or accreted value in the case of
Indebtedness issued at a discount) outstanding or available under a
committed facility, which is specifically designated in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by
such Person and as to which the Trustee has been given written notice of
such designation.
"Director" means, with respect to any Person, a member of the Board of
Directors of such Person (or, if such Person is a limited liability company, a
member of the board of managers of such Person).
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes. Without limitation of the foregoing,
Disqualified Capital Stock shall be deemed to include any Preferred Stock of a
Person or a Restricted Subsidiary of such Person, with respect to either of
which, under the terms of such Preferred Stock, by agreement or otherwise, such
Person or Restricted Subsidiary is obligated to pay current dividends or
distributions in cash during the period prior to the maturity date of the Notes;
provided, however, that Preferred Stock of a Person or any Restricted Subsidiary
thereof that is issued with the benefit of provisions requiring a change of
control offer or asset sale offer to be made for such Preferred Stock in the
event of a change of control of such Person or Restricted Subsidiary or the sale
of any assets of such Person or Restricted Subsidiary which provisions have
substantially the same effect as the provisions described under Sections 4.16
and 4.09 of
<PAGE>
-17-
this Indenture, respectively, shall not be deemed to be Disqualified Capital
Stock solely by virtue of such provisions.
"EBITDA" means, with respect to any Person and its Restricted
Subsidiaries, for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized
in computing net loss under clause (a) hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period (but excluding
any non-cash item to the extent it represents the amortization of a
prepaid cash expense that was paid in any prior period) on a
consolidated basis, plus
(f) any other non-cash items reducing Consolidated Net Income
for such period except for any non-cash items that represent accruals
of, or reserves for, cash disbursements to be made in any future
accounting period, minus
(2) all non-cash items increasing Consolidated Net Income (other than
any non-cash items representing deferred revenue to the extent that such revenue
was not included in Consolidated Net Income in any prior period) for such
period, all for such Person and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP;
<PAGE>
-18-
provided, however, that, for purposes of calculating EBITDA during any fiscal
- -------- -------
quarter, cash income from a particular Investment (other than a Restricted
Subsidiary) of such Person shall be included only
(1) if cash income has been received by such Person with respect to
such Investment during each of the previous four fiscal quarters, or
(2) if the cash income derived from such Investment is attributable
to Cash Equivalents.
"Electro Systems" means Electro Systems Corporation, a Florida
corporation.
"Electro Systems Acquisition" means the acquisition of Electro Systems
pursuant to a Stock Purchase Agreement dated as of February 18, 1999 between the
Company and Carolina Georgia Sound, Inc.
"Equity Offering" means any public or private sale of Common Stock
(other than Disqualified Capital Stock) of the Company or Holdings pursuant to
which the Company or Holdings, as the case may be, receives net proceeds of at
least $20 million; provided, however, that in the case of an Equity Offering by
-------- -------
Holdings, Holdings shall have contributed to the capital of the Company the
portion of the Net Proceeds necessary to redeem the Notes pursuant to Section
3.07(b) of this Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
and the rules and regulations of the Commission promulgated thereunder.
"fair market value" means, with respect to any asset or Property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be
<PAGE>
-19-
evidenced by a Board Resolution of the Company delivered to the Trustee.
"Finance Corp." means the party named as such in the first paragraph
of this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is not organized under the laws of the United States or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles consistently
applied as in effect in the United States from time to time.
"Guarantee" means any guarantee of the obligations of the Issuers
under this Indenture and the Notes by Holdings and any Restricted Subsidiary in
accordance with the provisions of this Indenture. When used as a verb,
"Guarantee" shall have a corresponding meaning.
"Guarantor" means each of Holdings and each Restricted Subsidiary of
the Company which Guarantees the Notes pursuant to the terms of this Indenture;
provided that upon the release and discharge of such Restricted Subsidiary from
- --------
its Guarantee in accordance with the terms of this Indenture, such Restricted
Subsidiary shall cease to be a Guarantor.
"Guarantor Senior Indebtedness" means (1) all Bank Indebtedness of any
Guarantor and (2) all principal of and premium, if any, and interest (including,
but not limited to, interest accruing on or after the filing of any petition in
any bankruptcy, reorganization or similar proceeding relating to any Guarantor,
whether or not a claim for such is allowed in such proceeding) on, and any and
all other fees, fees and expenses of counsel, expense reimbursement obligations,
indemnities and other amounts due pursuant to the terms of all agreements,
indentures, documents and instruments providing for,
<PAGE>
-20-
creating, securing or evidencing or otherwise entered into in connection with
(a) all obligations of any Guarantor with respect to any Hedging
Obligations,
(b) all obligations of any Guarantor to reimburse any bank or other
person in respect of amounts paid under letters of credit, acceptances or
other similar instruments,
(c) all other Indebtedness of any Guarantor which does not provide
that it is to rank pari passu with or subordinate to the Guarantee of such
---- -----
Guarantor, and
(d) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Guarantor Senior
Indebtedness described above,
in each case, whether outstanding on the Issue Date or created thereafter.
Notwithstanding anything to the contrary in the foregoing, Guarantor Senior
Indebtedness will not include
(1) Indebtedness of any Guarantor to any of its Subsidiaries, or to
any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries,
(2) Indebtedness represented by the Guarantees,
(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Guarantor Senior
Indebtedness,
(4) any trade payable arising from the purchase of goods or materials
or for services obtained in the ordinary course of business,
(5) Indebtedness incurred in violation of this Indenture,
<PAGE>
-21-
(6) Indebtedness represented by Disqualified Capital Stock and
(7) any Indebtedness to or guaranteed on behalf of, any shareholders,
Director, officer or employee of the Company or any Guarantor or any
Subsidiary of the Company or such Guarantor.
"Hedging Obligations" means, with respect to any Person, the net
payment obligations of such Person under (a) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (b) other
agreements or arrangements entered into in order to protect such Person against
fluctuations in commodity prices, interest rates or currency exchange rates.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Holdings" means Muzak Holdings LLC, a Delaware limited liability
company, until a successor replaces such party pursuant to this Indenture and
thereafter means the successor.
"incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
--------
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any
Person, any indebtedness at any time outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion
<PAGE>
-22-
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
Property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included
(1) any Capitalized Lease Obligations of such Person,
(2) obligations secured by a lien to which the Property or assets
owned or held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed,
(3) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items
would appear upon the balance sheet of the guarantor),
(4) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction,
(5) Disqualified Capital Stock of such Person or any Restricted
Subsidiary thereof, and
(6) hedging obligations of any such Person (if and to the extent such
hedging obligations would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that
--------
<PAGE>
-23-
(1) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the principal amount of such Indebtedness
less the remaining unamortized portion of the original issue discount of
such Indebtedness at such time as determined in conformity with GAAP,
(2) Indebtedness shall not include any liability for federal, state,
local or other taxes,
(3) the amount of Indebtedness of a Person which is without recourse
to any Property or assets of such Person except to the extent of any Lien
on Property or assets of such Person which secures such Indebtedness shall
be the lesser of the principal amount of such Indebtedness and the fair
market value of the Property or assets subject to the Lien, and
(4) the amount of Indebtedness represented by Disqualified Capital
Stock shall be the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any.
The "maximum fixed repurchase price" of any Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.
Notwithstanding any other provision of the foregoing definition, any
trade payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business shall not be deemed to be
"Indebtedness" of the Company or any of its Restricted Subsidiaries for purposes
of this definition. Furthermore, guarantees of (or obligations
<PAGE>
-24-
with respect to letters of credit supporting) Indebtedness otherwise included in
the determination of such amount shall not also be included.
"Indenture" means this Indenture as amended, restated or supplemented
from time to time.
"Independent Financial Advisor" means an investment banking firm of
national reputation in the United States
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the
Company and
(2) which, in the judgment of the Board of Directors of the Company,
is otherwise independent and qualified to perform the task for which it is
to be engaged.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3) or
(7) promulgated under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Investments" means, with respect of any Person, directly or
indirectly, any advance, account receivable (other than advances and accounts
receivable arising in the ordinary course of business of such Person), loan or
capital contribution to (by means of transfers of Property to others, payments
for Property or services for the account or use of others or otherwise), the
purchase of any Capital Stock, bonds, notes, debentures, partnership or joint
venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude
<PAGE>
-25-
(1) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices of such Person and
(2) the repurchase of securities of any Person by such Person.
If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Capital Stock of any direct or indirect Restricted
Subsidiary of the Company such that such Restricted Subsidiary would no longer
constitute a Subsidiary, the Company shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Capital Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means March 18, 1999.
"Issuers" means each party named as such in the first paragraph of
this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"License Agreements" means the License Agreements between the Company
and its independent affiliates.
"Lien" means, with respect to any Property or assets of any Person,
any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Maturity Date" means March 15, 2009.
<PAGE>
-26-
"Merger Transactions" means those transactions referred to
collectively in the Offering Memorandum as "Merger Transactions."
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Notes" means the securities that are issued under this Indenture, as
amended or supplemented from time to time pursuant to this Indenture and any
notes issued in exchange therefor as contemplated hereunder.
"Obligations" means all obligations for principal, premium, interest,
penalties, charges, fees, fees and expenses of counsel, indemnities,
reimbursement obligations, damages, claims and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means the offering memorandum dated March 12,
1999 pursuant to which the Notes were originally offered.
"Officer" means, with respect to any Person, the Chief Executive
Officer, the Chief Financial Officer, Treasurer or the President, of such
Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Of-
<PAGE>
-27-
ficer or any Treasurer of such Person that shall comply with applicable
provisions of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who
and which is reasonably acceptable to the Trustee complying with the
requirements of this Indenture. Such legal counsel shall be outside counsel and
not an employee of or in-house counsel to the Company.
"Payment Default" means any default, whether or not any requirement
for the giving of notice, the lapse of time or both, or any other condition to
such default becoming an event of default has occurred, in the payment of
principal of or premium, if any, or interest on or any other amount payable in
connection with Designated Senior Indebtedness.
"Pending Capstar Acquisition" means the acquisition by Holdings of
certain Muzak franchises from Capstar Broadcasting Corporation pursuant to a
Contribution Agreement between Holdings and Capstar Broadcasting Corporation,
dated February 19, 1999, and the subsequent transfer of such assets to the
Company in exchange for equity interests in the Company.
"Permitted Asset Swap" means, with respect to any Person, the
substantially concurrent exchange of assets of such Person for assets of another
Person which are useful to the business of such aforementioned Person.
"Permitted Holders" means each of ABRY III, ABRY II and each Control
Investment Affiliate of ABRY III or ABRY II.
"Permitted Indebtedness" means:
(1) Indebtedness of the Company or any Restricted Subsidiary arising
under or in connection with the Senior Credit Facility in an aggregate
principal amount not to exceed $200 million outstanding at any time less
(i) any mandatory prepayment actually made thereunder (to the extent, in
the case of payments of revolving credit borrowings, that the corresponding
commitments have been permanently reduced) or scheduled payments actually
made there-
<PAGE>
-28-
under and (ii) the aggregate amount of Indebtedness of Securitization
Entities in Qualified Securitization Transactions (other than Qualified
Securitization Transactions involving equipment and related assets);
(2) Indebtedness under the Notes and the Guarantees outstanding on
the Issue Date in an aggregate principal amount not to exceed $115 million;
(3) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(4) Indebtedness of the Company to any Guarantor or to any Wholly
Owned Subsidiary that is not a Guarantor and Indebtedness of any Restricted
Subsidiary to the Company or to any Guarantor or to any Wholly Owned
Subsidiary that is not a Guarantor;
(5) Purchase Money Indebtedness that does not in the aggregate exceed
5% of the Company's consolidated total assets;
(6) the incurrence by the Company or any Restricted Subsidiary of
Hedging Obligations that are incurred in the ordinary course of business of
the Company or such Restricted Subsidiary and not for speculative purposes;
provided that, in the case of any Hedging Obligation that relates to (i)
--------
interest rate risk, the notional principal amount of such Hedging
Obligation does not exceed the principal amount of the Indebtedness to
which such Hedging Obligation related and (ii) currency risk, such Hedging
Obligation does not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(7) Refinancing Indebtedness;
(8) Indebtedness of Foreign Restricted Subsidiaries of the Company in
an aggregate principal amount not to ex-
<PAGE>
-29-
ceed $10 million at any one time outstanding; provided the aggregate amount
--------
then outstanding under this clause (8) when added to the aggregate amount
then outstanding under clause (1) above shall not exceed the aggregate
amount permitted under clause (1) above;
(9) guarantees by the Company and its Restricted Subsidiaries of each
other's Indebtedness; provided that such Indebtedness is permitted to be
--------
incurred under this Indenture;
(10) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(11) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case, incurred or assumed in connection with the acquisition or
disposition of any business, assets or a Restricted Subsidiary of the
Company, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition; provided that, in
--------
the case of a disposition, the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition;
(12) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
<PAGE>
-30-
(13) the ABRY Subordinated Debt;
(14) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to the Company or
any Subsidiary of the Company (except for Standard Securitization
Undertakings);
(15) Indebtedness of the Company issued to current or former members
of management of the Company or any of its Restricted Subsidiaries to
finance the repurchase, redemption or other acquisition of Capital Stock of
Holdings pursuant to clause (6) of Section 4.07(b) of this Indenture; and
(16) additional Indebtedness of the Company and its Restricted
Subsidiaries not to exceed $5 million in aggregate principal amount at any
one time outstanding.
"Permitted Investments" means
(1) Investments by the Company or by a Restricted Subsidiary thereof,
in the Company, a Guarantor or a Wholly Owned Subsidiary that is not a
Guarantor;
(2) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment
(a) such Person becomes a Guarantor or a Wholly Owned Subsidiary
that is not a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company, a Guarantor or a Wholly Owned
Subsidiary that is not a Guarantor;
(3) Investments in cash and Cash Equivalents;
(4) reasonable and customary loans and advances made to employees in
the ordinary course of business;
<PAGE>
-31-
(5) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any Capital Stock, bonds, notes,
debentures, partnership or joint venture interests or other securities that
are issued by a third party to the Company or such Restricted Subsidiary
solely as partial consideration for the consummation of an Asset Sale that
is otherwise permitted under Section 4.09 of this Indenture;
(6) Hedging Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' business and not for speculative
purposes;
(7) any acquisition of assets to be used in the business of the
Company or any of its Restricted Subsidiaries solely in exchange for the
issuance of Capital Stock (other than Disqualified Capital Stock) of the
Company;
(8) additional Investments not to exceed $5 million at any one time
outstanding;
(9) Investments existing on the Issue Date;
(10) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(11) guarantees by the Company or any Restricted Subsidiary of
Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries
of the Company under this Indenture; and
(12) any Investment by the Company or a Restricted Subsidiary of the
Company in a Securitization Entity or any Investment by a Securitization
Entity in any other Person in connection with a Qualified Securitization
Transaction; provided that any Investment in a Securitization Entity is in
--------
the form of a Purchase Money Note or an equity interest.
<PAGE>
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"Permitted Liens"
(1) Liens on Property or assets of, or any shares of Capital Stock of
or secured indebtedness of, any Person existing at the time such Person
becomes a Restricted Subsidiary of the Company or at the time such Person
is merged into the Company or any of its Restricted Subsidiaries; provided
--------
that such Liens are not incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary of the Company or merging
into the Company or any of its Restricted Subsidiaries,
(2) Liens securing Indebtedness under the Senior Credit Facility and
Liens securing other Senior Indebtedness of the Company or any Guarantor;
provided in each case, such Indebtedness is incurred in compliance with
--------
Section 4.06 of this Indenture,
(3) Liens securing Refinancing Indebtedness; provided that any such
--------
Lien does not extend to or cover any Property, Capital Stock or
Indebtedness other than the Property, shares or debt securing the
Indebtedness so refunded, refinanced or extended,
(4) Liens in favor of the Company or any of its Restricted
Subsidiaries,
(5) Liens securing industrial revenue bonds,
(6) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under this Indenture; provided that
--------
(a) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of the purchase price, or the cost of
installation, construction or improvement, of the Property to which
such Purchase Money Indebtedness relates, and
(b) such Lien does not extend to or cover any Property other than
such item of Property and any improvements on such Property,
<PAGE>
-33-
(7) statutory liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor,
(8) Liens for taxes, assessments or governmental charges that are
being contested in good faith by appropriate proceedings,
(9) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances or title defects or leases or subleases granted to
others in respect of real property not interfering in any material respect
with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries,
(10) other Liens securing obligations incurred in the ordinary course
of business which obligations do not exceed $5 million in the aggregate at
any one time outstanding,
(11) Liens existing on the Issue Date and Liens securing the Notes
and the Guarantees,
(12) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including landlord Liens on leased
properties and any Lien securing letters of credit issued in the ordinary
course of business consistent with past practice in connection therewith,
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and return-
of-money bonds and other similar obligations,
(13) attachment or judgment Liens not giving rise to an Event of
Default,
<PAGE>
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(14) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other
goods,
(15) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other Property
relating to such letters of credit and products and proceeds thereof,
(16) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off,
(17) Liens securing Hedging Obligations with respect to Indebtedness
that is otherwise permitted under this Indenture,
(18) Liens securing Indebtedness of Foreign Restricted Subsidiaries
of the Company incurred in reliance on clause (8) of the definition of
Permitted Indebtedness,
(19) Liens on assets transferred to a Securitization Entity or on
assets of a Securitization Entity, in either case incurred in connection
with a Qualified Securitization Transaction,
(20) Liens arising from filing Uniform Commercial Code financing
statements regarding leases,
(21) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods,
(22) deposits made in the ordinary course of business to secure
liability to insurance carriers,
<PAGE>
-35-
(23) any interest or title of a lessor or a sublessor under an
operating lease,
(24) Liens under licensing agreements for use of intellectual
property entered into in the ordinary course of business,
(25) Liens imposed by law incurred by the Company or any of its
Restricted Subsidiaries in the ordinary course of business, and
(26) any extensions, substitutions, replacements or renewals of the
foregoing.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government (including any agency or political
subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth on Exhibit A.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means Indebtedness and Capitalized Lease
Obligations of any Person incurred in the normal course of business of such
Person for the purpose of financing all or any part of the purchase price, or
the cost of installation, construction or improvement of, any Property.
"Purchase Money Note" means a promissory note of a Securitization
Entity evidencing a line of credit, which may be
<PAGE>
-36-
irrevocable, from the Company or any Subsidiary of the Company in connection
with a Qualified Securitization Transaction to a Securitization Entity, which
note shall be repaid from cash available to the Securitization Entity, other
than amounts required to be established as reserves pursuant to agreements,
amounts paid to investors in respect of interest, principal and other amounts
owing to such investors and amounts paid in connection with the purchase of
newly generated receivables or newly acquired equipment.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A promulgated under the Securities Act.
"Qualified Securitization Transaction" means any transaction or series
of transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any or its Subsidiaries may sell,
convey or otherwise transfer to (a) a Securitization Entity (in the case of a
transfer by the Company or any of its Subsidiaries) and (b) any other Person (in
the case of a transfer by a Securitization Entity), or may grant a security
interest in, any accounts receivable or equipment (whether now existing or
arising or acquired in the future) of the Company or any of its Subsidiaries,
and any assets related thereto including, without limitation, all collateral
securing such accounts receivable and equipment, all contracts and contract
rights and all guarantees or other obligations in respect of such accounts
receivable and equipment, proceeds of such accounts receivable and equipment and
other assets (including contract rights) which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable and equipment.
"Redeemable Dividend" means, for any dividend or distribution with
regard to Preferred Stock, the quotient of the dividend or distribution divided
by the difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Preferred Stock.
<PAGE>
-37-
"Redemption Date" when used with respect to any Note to be redeemed
means the date fixed for such redemption pursuant to this Indenture.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, modifies, replaces, defers, supplements or extends any Indebtedness
outstanding on the Issue Date or other Indebtedness permitted to be incurred by
the Company or its Restricted Subsidiaries pursuant to the terms of this
Indenture (other than pursuant to clauses (1), (4), (6) and (8) through (16) of
the definition of Permitted Indebtedness), but only to the extent that
(1) the Refinancing Indebtedness is subordinated to the Notes to at
least the same extent as the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended, if at all,
(2) the Refinancing Indebtedness is scheduled to mature either
(a) no earlier than the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended, or
(b) after the maturity date of the Notes,
(3) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended that is scheduled to
mature on or prior to the maturity date of the Notes, and
(4) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of
<PAGE>
-38-
(a) the aggregate principal amount of the Indebtedness being
refunded, refinanced, modified, replaced, deferred, supplemented or
extended,
(b) the amount of accrued and unpaid interest, if any, and
premiums owed, if any, not in excess of preexisting prepayment
provisions on such Indebtedness being refunded, refinanced, modified,
replaced, deferred, supplemented or extended and
(c) the amount of customary fees, expenses and costs related to
the incurrence of such Refinancing Indebtedness.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of March 18, 1999 among the Issuers, the Guarantors and CIBC
Oppenheimer Corp. and Goldman Sachs & Co., as Initial Purchasers.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution or payment on Capital Stock of the Company or any Restricted
Subsidiary of the Company or any payment made to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any Restricted Subsidiary of the Company (other than (a) dividends or
distributions payable solely in Capital Stock (other than Disqualified
Capital Stock), and (b) in the case of Restricted Subsidiaries of the
Company, dividends or distributions payable to the Company or to a
Restricted Subsidiary of the Company and to the other holders of Capital
Stock of each such Restricted Subsidiary, in each case on a pro rata
--------
basis),
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than Capital
<PAGE>
-39-
Stock owned by the Company or a Wholly Owned Subsidiary of the Company,
excluding Disqualified Capital Stock),
(3) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for
value of any Indebtedness which is subordinated in right of payment to the
Notes prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment (other than subordinated Indebtedness acquired in
anticipation of satisfying a scheduled sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date
of acquisition) other than the ABRY Subordinated Debt,
(4) the making of any Investment or guarantee of any Investment in
any Person other than a Permitted Investment,
(5) any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary (valued at the fair market value of the net assets of such
Restricted Subsidiary) and
(6) forgiveness of any Indebtedness of an Affiliate of the Company
(other than a Restricted Subsidiary) to the Company or a Restricted
Subsidiary of the Company.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
promulgated under the Securities Act; provided that the Trustee shall be
--------
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Note is a Restricted Security.
"Restricted Subsidiary" means a Subsidiary of the Company other than
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such action (and
treating any Indebtedness of such Unrestricted Subsidiary or Person as having
been incurred at the time of such action),
<PAGE>
-40-
(1) the Company could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06
of this Indenture, and
(2) no Default or Event of Default shall have occurred and be
continuing or result therefrom.
"Rule 144A" means Rule 144A under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the Commission.
"Sale and Lease-Back Transaction" means any arrangement with any
Person providing for the leasing by the Company or any Restricted Subsidiary of
the Company of any real or tangible personal property, which Property has been
or is to be sold or transferred by the Company or such Restricted Subsidiary to
such Person in contemplation of such leasing.
"S&P" means Standard & Poor's Corporation and its successors.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable or equipment and related assets) which engages in
no activities other than in connection with the financing of accounts receivable
or equipment and which is designated by the Board of Directors of the Company
(as provided below) as a Securitization Entity: (a) no portion of the
Indebtedness or any other obligation (contingent or otherwise) of which (i) is
guaranteed by the Company or any Subsidiary of the Company (excluding guarantees
of obligations (other than the principal of, and interest on, Indebtedness)
pursuant to Standard Securitization Undertakings), (ii) is recourse to or
obligates the Company or any Subsidiary of the Company in any way other than
<PAGE>
-41-
pursuant to Standard Securitization Undertakings or (iii) subjects any Property
or asset of the Company or any Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings, (b) with which neither the
Company nor any Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing receivables of such
entity, and (c) to which neither the Company nor any Subsidiary of the Company
has any obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution of
the Company giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"Senior Credit Facility" means one or more credit agreements, loan
agreements or similar agreements providing for working capital advances, term
loans, letter of credit facilities or similar advances, loans, or facilities to
the Company or any of its Subsidiaries, including the Credit and Guaranty
Agreement dated as of March 18, 1999, among the Company, Holdings, certain of
the Company's subsidiaries, the lenders party thereto in their capacities as
lenders thereunder, Goldman Sachs Credit Partners L.P., as Syndication Agent,
Canadian Imperial Bank of Commerce, as Administrative Agent, and Goldman Sachs
Credit Partners L.P. and CIBC Oppenheimer Corp., as Co-Lead Arrangers, initially
providing for term loan and revolving credit facilities including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit facilities and/or related documents may be
further amended, restated, supplemented, renewed, refinanced, replaced,
restructured or otherwise modified from time to time whether or not with the
same agents, trustee, representative lenders or group of lenders or holders, and
ir-
<PAGE>
-42-
respective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Senior Credit Facility"
shall include agreements in respect of interest rate agreements and hedging
obligations with lenders party to any Senior Credit Facility and their
affiliates and shall also include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any Senior
Credit Facility and any and all refundings, refinancings (in whole or in part)
and replacements of any Senior Credit Facility, whether by the same or any other
agents, trustee, representative lenders or lenders or group of lenders,
including one or more agreements (i) extending the maturity of, or increasing
the amount of, any Indebtedness incurred thereunder or contemplated thereby, or
(ii) adding or deleting borrowers or guarantors thereunder, so long as borrowers
and issuers include one or more of the Company and its Restricted Subsidiaries
and their respective successors and assigns,
"Senior Discount Notes" means $75,000,000 aggregate principal amount
at maturity of 13% Senior Discount Notes due 2010 of Holdings and Muzak Holdings
Finance Corp., a Delaware corporation, as co-issuers, in accordance with the
terms of such security as in effect on the Issue Date.
"Senior Discount Notes Indenture" means the indenture pursuant to
which the Senior Discount Notes are issued, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"Senior Indebtedness" means (1) all Bank Indebtedness and (2) all
principal of and premium, if any, and interest (including, but not limited to,
interest accruing on or after the filing of any petition in any bankruptcy,
reorganization or similar proceeding relating to the Company or any Restricted
Subsidiary, whether or not a claim for such is allowed in such proceeding) on,
and any and all other fees, fees and expenses of counsel, expense reimbursement
obligations, indemnities and other amounts due pursuant to the terms of all
agreements, indentures, documents and instruments providing for, creating,
securing or evidencing or otherwise entered into in connection with
<PAGE>
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(a) all obligations of the Company with respect to any
Hedging Obligations,
(b) all obligations of the Company to reimburse any bank or other
person in respect of amounts paid under letters of credit, acceptances or
other similar instruments,
(c) all other Indebtedness of the Company or any Guarantor which does
not provide that it is to rank pari passu with or subordinate to the Notes,
---- -----
and
(d) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior
Indebtedness described above,
in each case, whether outstanding on the Issue Date or created thereafter.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include
(1) Indebtedness of the Company to any of its Subsidiaries, or to any
Affiliate of the Company or any of such Affiliate's Subsidiaries,
(2) Indebtedness represented by the Notes,
(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Senior Indebtedness,
(4) any trade payable arising from the purchase of goods or materials
or for services obtained in the ordinary course of business,
(5) Indebtedness incurred in violation of this Indenture,
(6) Indebtedness represented by Disqualified Capital Stock and
<PAGE>
-44-
(7) any Indebtedness to or guaranteed on behalf of, any shareholders,
Director, officer or employee of the Company or any Subsidiary of the
Company.
"Significant Subsidiary" means, with respect to any Person, any
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Exchange Act, as such Rule is in effect on the Issue Date.
"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in an accounts
receivable or equipment transaction.
"Subsidiary" of any specified Person means any corporation,
partnership, limited liability company, joint venture, association or other
business entity, whether now existing or hereafter organized or acquired,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of
its Subsidiaries; or
(2) in the case of a partnership, limited liability company, joint
venture, association or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or
cause the direction of the management and policies of such entity by
contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement purposes.
Notwithstanding the foregoing a charitable trust or foundation organized
pursuant to section 501(c)(3) of the Internal Revenue Code of 1986, as amended,
shall not be a "Subsidiary."
<PAGE>
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"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
(15 U.S. Code sections 77aaa-77bbbb) as in effect on the date of this Indenture
(except as provided in Section 8.03 hereof).
"Trust Officer" means any officer of the Trustee in its Corporate
Trust Department with direct responsibility for the administration of the trusts
established hereby and, also, with respect to any particular matter, any other
officer of the Trustee to whom such matter is referred because of such officer's
knowledge of, and familiarity with, the particular subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Unrestricted Subsidiary" means
(1) any Subsidiary of an Unrestricted Subsidiary and
(2) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a Board Resolution of the
Company ;
provided that a Subsidiary may be so classified as an Unrestricted Subsidiary
- --------
only if
(a) such classification is in compliance with Section 4.07 of this
Indenture,
(b) immediately after giving effect to such classification, the
Company could have incurred at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 4.06 of this
Indenture,
(c) no Default or Event of Default shall have occurred and be
continuing or result therefrom, and
(d) neither the Company nor any Restricted Subsidiary shall at any
time
<PAGE>
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(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary (including any undertaking, agreement
or instrument evidencing such Indebtedness),
(ii) be directly or indirectly liable for any Indebtedness of
such Subsidiary or
(iii) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time
or both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness (other
than Indebtedness assumed by such Subsidiary in connection with the
Electro Systems Acquisition) that is Indebtedness of such Subsidiary
(including any corresponding right to take enforcement action against
such Subsidiary),
except in the case of clause (i) or (ii) to the extent
(i) that the Company or such Restricted Subsidiary could
otherwise provide such a guarantee or incur such Indebtedness (other
than as Permitted Indebtedness) pursuant to Section 4.06 of this
Indenture and
(ii) the provision of such guarantee and the incurrence of such
Indebtedness otherwise would be permitted under Section 4.07 of this
Indenture.
The Trustee shall be given prompt notice by the Company of each Board Resolution
of the Company under this provision, together with a copy of each such Board
Resolution. Electro Systems shall be an Unrestricted Subsidiary as of the Issue
Date.
"U.S. Government Obligations" means (a) securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or
<PAGE>
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(b) obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian
with respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository receipt; provided
--------
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or a specific payment of principal or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
Section 1.01. Other Definitions.
------------------
The definitions of the following terms may be found in the sections
indicated as follows:
<PAGE>
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Term Defined in Section
---- ------------------
"Affiliate Transaction"..................................... 4.10
"Agent Members"............................................. 2.14
"Bankruptcy Law"............................................ 6.01
"Business Day".............................................. 12.08
"Certificated Notes"........................................ 2.01
"Change of Control Offer"................................... 4.16
"Change of Control Payment Date"............................ 4.16
"Change of Control Purchase Price".......................... 4.15
"Covenant Defeasance"....................................... 9.03
"Custodian"................................................. 6.01
"Event of Default".......................................... 6.01
"Excess Proceeds Offer"..................................... 4.09
"Excess Proceeds Payment Date".............................. 4.09
"Global Notes".............................................. 2.01
"Guaranteed Obligations..................................... 10.01
"Guarantor Payment Blockage Period"......................... 10.11
"Guarantor Representation".................................. 10.11
"Initial Blockage Period"................................... 11.03
"Initial Guarantee Blockage Period"......................... 10.11
"Legal Defeasance".......................................... 9.02
"Legal Holiday"............................................. 12.08
"Paying Agent".............................................. 2.03
"Payment Blockage Period"................................... 11.03
"Permitted Tax Distributions"............................... 4.07
"Registered Exchange"....................................... 2.02
"Registrar"................................................. 2.03
"Regulation S Global Notes"................................. 2.01
"Representative"............................................ 11.03
"Resale Restriction Termination Date"....................... 2.15
"U.S. Global Notes"......................................... 2.01
Section 1.02. Incorporation by Reference of
Trust Indenture Act.
-----------------------------
Whenever this Indenture refers to a provision of the TIA, the portion
of such provision required to be incorporated herein in order for this Indenture
to be qualified under the TIA is incorporated by reference in and made a part of
this In-
<PAGE>
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denture. The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes.
"indenture securityholder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the indenture securities" means the Issuers, the
Guarantors or any other obligor on the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined in the TIA by reference to another statute or defined by SEC rule have
the meanings therein assigned to them.
Section 1.03. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein, whether defined
expressly or by reference;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) words used herein implying any gender shall apply to every
gender.
<PAGE>
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ARTICLE 2
THE NOTES
Section 2.01. Dating; Incorporation of Form in Indenture.
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The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A which is incorporated in and made part of
this Indenture. The Notes may have notations, legends or endorsements required
by law, stock exchange rule or usage. The Issuers may use "CUSIP" numbers in
issuing the Notes. The Issuers shall approve the form of the Notes. Each Note
shall be dated the date of its authentication.
Unless the applicable Holder requests Notes in the form of physical
certificated Notes in registered form ("Certificated Notes"), which shall be
substantially in the form of Exhibit A, Notes offered and sold in reliance on
Rule 144A or in offshore transactions in reliance on Regulation S shall be
issued initially in the form of permanent Global Notes in registered form,
substantially in the form set forth in Exhibit A ("Global Notes"), deposited
with the Depository, duly executed by the Issuers and authenticated by the
Trustee as hereinafter provided and shall bear the legend set forth on Exhibit
B. The aggregate principal amount of any Global Note may from time to time be
increased or decreased by adjustments made on the records of the Depository, as
hereinafter provided.
Notes offered and sold to Qualified Institutional Buyers in reliance
on Rule 144A issued in the form of one or more Global Notes (the "U.S. Global
Note") shall be registered in the name of the Depository or its nominee and
deposited with the Depository, duly executed by the Issuers and authenticated by
the Trustee as hereinafter provided, for credit by the Depository to the
respective accounts of beneficial owners of the Notes represented thereby (or
such other accounts as they may direct).
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Notes offered and sold in reliance on Regulation S issued in the form
of Global Notes (the "Regulation S Global Note") shall be registered in the name
of the Depository or its nominee, duly executed by the Issuers and authenticated
by the Trustee as hereinafter provided, for credit by the Depository to the
respective accounts of the beneficial owners of the Notes represented thereby
(or such other accounts as they may direct).
The Issuers shall cause the U.S. Global Note and the Regulation S
Global Note to have separate CUSIP and ISIN numbers.
Section 2.02. Execution and Authentication.
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The Notes shall be executed on behalf of the Issuers by two Officers
of each of the Issuers or an Officer and the Secretary of each of the Issuers.
Such signature may be either manual or facsimile. The Issuers' seals may be
impressed, affixed, imprinted or reproduced on the Notes and may be in facsimile
form.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee authenticates the Note, the Note shall be valid
nevertheless.
A Note shall not be valid until the Trustee manually signs the
certificate of authentication on the Note. Such signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee or an authentication agent shall authenticate Notes for
original issue in the aggregate principal amount not to exceed $150,000,000 upon
receipt of an authentication order in the form of an Officers' Certificate;
provided that the aggregate principal amount of Notes on the Issue Date shall
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not exceed $115,000,000. The aggregate principal amount of Notes outstanding at
any time may not exceed $150,000,000 except as provided in Section 2.07 hereof.
Upon receipt of an authentication order in the form of an Officers' Certificate,
the Trustee shall authenticate an additional series of Notes
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for issuance in exchange for all Notes previously issued pursuant to an exchange
offer registered under the Securities Act (a "Registered Exchange") or pursuant
to a Private Exchange (as defined in the Registration Rights Agreement).
Exchange Notes (as defined in the Registration Rights Agreement) may have such
distinctive series designation and "CUSIP" numbers as and such changes in the
form thereof as are specified in the Officers' Certificate referred to in the
preceding sentence. Exchange Notes issued pursuant to a Registered Exchange
shall not bear the Private Placement Legend. The Notes shall be issuable only in
registered form without coupons and only in denominations of $1,000 and integral
multiples thereof.
The Trustee may appoint an authenticating agent to authenticate Notes.
Any such appointment shall be evidenced by an instrument signed by an authorized
officer of the Trustee, a copy of which shall be furnished to the Issuers. An
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same right as an
Agent to deal with the Issuers or an Affiliate of any Issuer.
Section 2.03. Registrar and Paying Agent.
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The Issuers shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar"), an office
or agency located in the Borough of Manhattan, City of New York, State of New
York where Notes may be presented for payment ("Paying Agent") and an office or
agency where notices and demands to or upon the Issuers in respect of the Notes
and this Indenture may be served. The Registrar shall keep a register of the
Notes and of their transfer and exchange. The Registrar shall provide the
Issuers a current copy of such register from time to time upon request of the
Issuers. The Issuers may have one or more co-registrars and one or more
additional paying agents. None of the Issuers nor any Affiliate of the Issuers
may act as Paying Agent. The Issuers may change any Paying Agent, Registrar or
co-registrar without notice to any Noteholder.
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The Issuers shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Issuers shall notify the Trustee of the name and address of any such Agent. If
the Issuers fail to maintain a Registrar or Paying Agent, or agent for service
of notices and demands, or fail to give the foregoing notice, the Trustee shall
act as such. The Issuers initially appoint the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
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The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, premium, if any, or interest on Notes (whether such assets have
been distributed to it by the Issuers or any other obligor on the Notes), and
shall notify the Trustee in writing of any Default in making any such payment.
The Issuers at any time may require a Paying Agent to distribute all assets held
by it to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to forthwith distribute to the Trustee
all assets so held in trust by such Paying Agent together with a complete
accounting of such sums. Upon doing so, the Paying Agent shall have no further
liability for such assets.
Section 2.05. Noteholder Lists.
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The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. If the Trustee is not the Registrar, the Issuers shall furnish to
the Trustee on or before each March 1 and September 1 in each year, and at such
other times as the Trustee may request in writing, a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
Noteholders.
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Section 2.06. Transfer and Exchange.
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When a Note is presented to the Registrar with a request to register
the transfer thereof, the Registrar shall register the transfer as requested if
the requirements of applicable law are met and, when Notes are presented to the
Registrar with a request to exchange them for an equal principal amount of Notes
of other authorized denominations, the Registrar shall make the exchange as
requested; provided that every Note presented or surrendered for registration of
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transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Issuers and the Registrar
duly executed by the Holder thereof or his attorney duly authorized in writing.
To permit transfers and exchanges, upon surrender of any Note for registration
of transfer at the office or agency maintained pursuant to Section 2.03 hereof,
the Issuers shall execute and the Trustee shall authenticate Notes at the
Registrar's request. Any exchange or transfer shall be without charge, except
that the Issuers may require payment by the Holder of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall not apply to any exchange
pursuant to Sections 2.09, 3.06 or 8.05 hereof. The Trustee shall not be
required to register transfers of Notes or to exchange Notes for a period of 15
days before selection of any Notes to be redeemed. The Trustee shall not be
required to exchange or register transfers of any Notes called or being called
for redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of the beneficial interests in such Global Note may
be effected only through a book entry system maintained by the Depository of
such Global Note (or its agent), and that ownership of a beneficial interest in
the Global Note shall be required to be reflected in a book entry.
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Section 2.07. Replacement Notes.
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If a mutilated Note is surrendered to the Trustee or if the Holder
presents evidence to the satisfaction of the Issuers and the Trustee that the
Note has been lost, destroyed or wrongfully taken, the Issuers shall issue and
the Trustee shall authenticate a replacement Note. An indemnity bond may be
required by the Issuers or the Trustee that is sufficient in the judgment of the
Issuers and the Trustee to protect the Issuers, the Trustee or any Agent from
any loss which any of them may suffer if a Note is replaced. In every case of
destruction, loss or theft, the applicant shall also furnish to the Issuers and
to the Trustee evidence to their satisfaction of the destruction, loss or the
theft of such Note and the ownership thereof. Each of the Issuers and the
Trustee may charge for its expenses in replacing a Note. Every replacement Note
is an additional obligation of the Issuers. In the event any such mutilated,
lost, destroyed or wrongfully taken Note has become due and payable, the Issuers
in their discretion may pay such Note instead of issuing a new Note in
replacement thereof. The provisions of this Section 2.07 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with respect
to replacement or payment of mutilated, lost, destroyed or wrongfully taken
Notes.
Section 2.08. Outstanding Notes.
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Notes outstanding at any time are all Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section 2.08 as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding until the Issuers and the Trustee receive proof satisfactory to each
of them that the replaced Note is held by a bona fide purchaser.
If a Paying Agent holds on a Redemption Date or Maturity Date money
sufficient to pay the principal of, premium, if any, and accrued interest on
Notes payable on that date,
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then on and after that date such Notes cease to be outstanding and interest on
them ceases to accrue.
Subject to Section 12.06, a Note does not cease to be outstanding
solely because the Issuers or any Affiliate of an Issuer hold the Note.
Section 2.09. Temporary Notes.
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Until definitive Notes are ready for delivery, the Issuers may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form, and shall carry all rights, of definitive Notes but
may have variations that the Issuers consider appropriate for temporary Notes.
Without unreasonable delay, the Issuers shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes presented to it.
Section 2.10. Cancellation.
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The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee
shall cancel and retain or, upon written request of the Issuers, may destroy or
return to the Issuers in accordance with its normal practice, all Notes
surrendered for transfer, exchange, payment or cancellation and if such Notes
are destroyed, deliver a certificate of destruction to the Issuers. Subject to
Section 2.07 hereof, the Issuers may not issue new Notes to replace Notes in
respect of which they have previously paid all principal, premium and interest
accrued thereon, or delivered to the Trustee for cancellation.
Section 2.11. Defaulted Interest.
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If the Issuers default in a payment of interest on the Notes, they
shall pay the defaulted amounts, plus any interest payable on defaulted amounts
pursuant to Section 4.01 hereof, to the persons who are Noteholders on a
subsequent special record date. The Issuers shall fix the special record
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date and payment date in a manner satisfactory to the Trustee and provide the
Trustee at least 20 days notice of the proposed amount of defaulted interest to
be paid and the special payment date. At least 15 days before the special record
date, the Issuers shall mail or cause to be mailed to each Noteholder at its
address as it appears on the Notes register maintained by the Registrar a notice
that states the special record date, the payment date (which shall be not less
than five nor more than ten days after the special record date), and the amount
to be paid. In lieu of the foregoing procedures, the Issuers may pay defaulted
interest in any other lawful manner satisfactory to the Trustee.
Section 2.12. Deposit of Moneys.
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Prior to 10:00 a.m., New York City time, on each Interest Payment
Date, Redemption Date and Maturity Date, the Issuers shall have deposited with
the Paying Agent in immediately available funds U.S. legal tender sufficient to
make payments, if any, due on such Interest Payment Date, Redemption Date or
Maturity Date, as the case may be, in a timely manner which permits the Trustee
to remit payment to the Holders on such Interest Payment Date, Redemption Date
or Maturity Date, as the case may be. The principal and interest on Global
Notes shall be payable to the Depository or its nominee, as the case may be, as
the sole registered owner and the sole holder of the Global Notes represented
thereby. The principal and interest on Notes in certificated form shall be
payable at the office of the Paying Agent.
Section 2.13. CUSIP Number.
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The Issuers in issuing the Notes may use one or more "CUSIP" numbers,
and if so, the Trustee shall use such CUSIP numbers in notices of redemption or
exchange as a convenience to Holders, provided that any such notice may state
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that no representation is made as to the correctness or accuracy of the CUSIP
numbers printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes.
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Section 2.14. Book-Entry Provisions for Global Notes.
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(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nominee of such Depository and (ii) bear legends as set
forth in Exhibit B.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository or under the Global Note, and the Depository may
be treated by the Issuers, the Trustee and any agent of the Issuers or the
Trustee as the absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the
Trustee or any agent of the Issuers or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder.
(b) Interests of beneficial owners in the Global Notes may be
transferred or exchanged for Certificated Notes in accordance with the rules and
procedures of the Depository and the provisions of Section 2.15. In addition,
Certificated Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in Global Notes if (i) the Depository (x) notifies
the Issuers that it is unwilling or unable to continue as Depository for any
Global Note or (y) has ceased to be a clearing company registered under the
Exchange Act and, in each case, a successor depositary is not appointed by the
Issuers within 90 days of such notice, (ii) the Issuers, at their option, notify
the Trustee in writing that they elect to cause the issuance of Certificated
Notes, or (iii) a Default or an Event of Default has occurred and is continuing
and the Registrar has received a written request from the Depository to issue
Certificated Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Certificated Notes are to be
issued) reflect on
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its books and records the date and a decrease in the principal amount of the
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Issuers shall execute,
and the Trustee shall upon receipt of a written order from the Issuers
authenticate and make available for delivery, one or more Certificated Notes of
like tenor and amount.
(d) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to
be surrendered to the Trustee for cancellation, and the Issuers shall execute,
and the Trustee shall, upon receipt of an authentication order from the Issuers
in the form of an Officers' Certificate, authenticate and deliver, to each
beneficial owner identified by the Depository in writing in exchange for its
beneficial interest in the Global Notes, an equal aggregate principal amount of
Certificated Notes of authorized denominations.
(e) Any Certificated Note constituting a Restricted Security delivered
in exchange for an interest in a Global Note pursuant to paragraph (b), (c) or
(d) shall, except as otherwise provided by Section 2.15, bear the Private
Placement Legend.
(f) The Holder of any Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
Section 2.15. Registration of Transfers and Exchanges.
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(a) Transfer and Exchange of Certificated Notes. When Certificated
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Notes are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Certificated Notes; or
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(ii) to exchange such Certificated Notes for an equal principal
amount of Certificated Notes of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.15 for such transactions are met; provided, however, that the
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Certificated Notes presented or surrendered for registration of transfer or
exchange:
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Certificated Notes the offer and sale of which
have not been registered under the Securities Act and are presented for
transfer or exchange prior to (x) the date which is two years after the
later of the date of original issue and the last date on which any Issuer
or any Affiliate of an Issuer was the owner of such Note, or any
predecessor thereto and (y) such later date, if any, as may be required by
any subsequent change in applicable law (the "Resale Restriction
Termination Date"), such Certificated Notes shall be accompanied, in the
sole discretion of the Issuers, by the following additional information and
documents, as applicable:
(A) if such Certificated Note is being delivered to the Registrar
or co-Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (substantially in the form of Exhibit C hereto); or
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(B) if such Certificated Note is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A, a certification to
that effect (substantially in the form of Exhibit C hereto); or
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(C) if such Certificated Note is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit C hereto) and a transferor
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certificate for Regulation S transfers substantially in the form of
Exhibit D-1 hereto; or
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(D) if such Certificated Note is being transferred to an
Institutional Accredited Investor, delivery of certification
substantially in the form of Exhibit C hereto, a certificate of the
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transferee in substantially the form of Exhibit D-2 and an Opinion of
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Counsel and/or other information reasonably satisfactory to the
Issuers to the effect that such transfer is in compliance with the
Securities Act; or
(E) if such Certificated Note is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to that
effect substantially in the form of Exhibit C hereto; or
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(F) if such Certificated Note is being transferred in reliance on
another exemption from the registration requirements of the Securities
Act, a certification to that effect (substantially in the form of
Exhibit C hereto) and an Opinion of Counsel reasonably acceptable to
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the Issuers to the effect that such transfer is in compliance with the
Securities Act.
(b) Restrictions on Transfer of a Certificated Note for a Beneficial
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Interest in a Global Note. A Certificated Note may not be exchanged for a
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beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or co-Registrar of
a Certificated Note, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or co-Registrar, together with:
(A) in the case of Certificated Notes, the offer and sale of which
have not been registered under the Securi-
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ies Act and which are presented for transfer prior to the Resale
Restriction Termination Date, certification, substantially in the form of
Exhibit C hereto, that such Certificated Note is being transferred (I) to a
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Qualified Institutional Buyer or (II) in an offshore transaction in
reliance on Regulation S (and in the case of this clause II, the Issuers
shall have received a transferor certificate for Regulation S transfers
substantially in the form of Exhibit D-1 hereto); and
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(B) written instructions from the Holder thereof directing the
Registrar or co-Registrar to make, or to direct the Depository to make, an
endorsement on the applicable Global Note to reflect an increase in the
aggregate principal amount of the Notes represented by the Global Note,
then the Registrar or co-Registrar shall cancel such Certificated Note and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount of Notes represented by the applicable Global
Note to be increased accordingly. If no Global Note representing Notes held by
Qualified Institutional Buyers or Persons acquiring Notes in offshore
transactions in reliance on Regulation S, as the case may be, is then
outstanding, the Issuers shall issue and the Trustee shall, upon receipt of an
authentication order in the form of an Officers' Certificate in accordance with
Section 2.02, authenticate such a Global Note in the appropriate principal
amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
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of Global Notes or beneficial interests therein shall be effected through the
Depository in accordance with this Indenture (including the restrictions on
transfer set forth herein) and the procedures of the Depository therefor. Upon
receipt by the Registrar or co-Registrar of written instructions, or such other
instruction as is customary for the Depository, from the Depository or its
nominee, requesting the registration of transfer of an interest in a U.S. Global
Note or Regulation S Global Note, as the case may be, to another
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type of Global Note, together with the applicable Global Notes (or, if the
applicable type of Global Note required to represent the interest as requested
to be transferred is not then outstanding, only the Global Note representing the
interest being transferred), the Registrar or Co-Registrar shall cancel such
Global Notes (or Global Note) and the Issuers shall issue and the Trustee shall,
upon receipt of an authentication order in the form of an Officers' Certificate
in accordance with Section 2.02, authenticate new Global Notes of the types so
cancelled (or the type so cancelled and applicable type required to represent
the interest as requested to be transferred) reflecting the applicable increase
and decrease of the principal amount of Notes represented by such types of
Global Notes, giving effect to such transfer. If the applicable type of Global
Note required to represent the interest as requested to be transferred is not
outstanding at the time of such request, the Issuers shall issue and the Trustee
shall, upon written instructions from the Issuers in accordance with Section
2.02, authenticate a new Global Note of such type in principal amount equal to
the principal amount of the interest requested to be transferred.
(d) Transfer of a Beneficial Interest in a Global Note for a
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Certificated Note. (i) Any Person having a beneficial interest in a Global Note
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may upon request exchange such beneficial interest for a Certificated Note.
Upon receipt by the Registrar or co-Registrar of written instructions, or such
other form of instructions as is customary for the Depository, from the
Depository or its nominee on behalf of any Person having a beneficial interest
in a Global Note and upon receipt by the Trustee of a written order or such
other form of instructions as is customary for the Depository or the Person
designated by the Depository as having such a beneficial interest containing
registration instructions and, in the case of any such transfer or exchange of a
beneficial interest in Notes the offer and sale of which have not been
registered under the Securities Act and which Notes are presented for transfer
or exchange prior to the Resale Restriction Termination Date, the following
additional information and documents:
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(A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the beneficial owner, a certification
from such Person to that effect (substantially in the form of Exhibit C
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hereto); or
(B) if such beneficial interest is being transferred to a Qualified
Institutional Buyer in accordance with Rule l44A, a certification to that
effect (substantially in the form of Exhibit C hereto); or
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(C) if such beneficial interest is being transferred in reliance on
Regulation S, delivery of a certification to that effect (substantially in
the form of Exhibit C hereto) and a transferor certificate for Regulation S
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transfers substantially in the form of Exhibit D-1 hereto; or
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(D) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of certification substantially
in the form of Exhibit C hereto, a certificate of the transferee in
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substantially the form of Exhibit D-2 and an Opinion of Counsel and/or
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other information reasonably satisfactory to the Issuers to the effect that
such transfer is in compliance with the Securities Act; or
(E) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to that
effect substantially in the form of Exhibit C hereto; or
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(F) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act,
a certification to that effect (substantially in the form of Exhibit C
---------
hereto) and an Opinion of Counsel reasonably satisfactory to the Issuers to
the effect that such transfer is in compliance with the Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the standing
instructions and procedures existing between
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the Depository and the Registrar or co-Registrar, the aggregate principal amount
of the applicable Global Note to be reduced and, following such reduction, the
Issuers will execute and, upon receipt of an authentication order in the form of
an Officers' Certificate in accordance with Section 2.02, the Trustee will
authenticate and deliver to the transferee a Certificated Note in the
appropriate principal amount.
(ii) Certificated Notes issued in exchange for a beneficial interest
in a Global Note pursuant to this Section 2.15(d) shall be registered in such
names and in such authorized denominations as the Depository, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Registrar or co-Registrar in writing. The Registrar or co-
Registrar shall deliver such Certificated Notes to the Persons in whose names
such Certificated Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
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Notwithstanding any other provisions of this Indenture, a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
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replacement of Notes not bearing the Private Placement Legend, the Registrar or
co-Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Registrar or co-Registrar shall deliver only Notes that
bear the Private Placement Legend unless, and the Trustee is hereby authorized
to deliver Notes without the Private Placement Legend if, (i) the Resale
Restriction Termination Date shall have occurred, (ii) there is delivered to the
Trustee an Opinion of Counsel reasonably satisfactory to the Issuers and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities
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Act or (iii) such Note has been sold pursuant to an effective registration
statement under the Securities Act.
(g) General. By its acceptance of any Note bearing the Private
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Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.14 or this Section 2.15.
The Issuers shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
Section 2.16. Joint and Several Liability.
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Except as otherwise expressly provided herein, the Issuers shall be
jointly and severally liable for the performance of all obligations and
covenants under this Indenture and the Notes.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee.
------------------
If the Issuers elect to redeem Notes pursuant to Section 3.07 hereof,
at least 60 days prior to the Redemption Date or during such other period as the
Trustee may agree to, the Issuers shall notify the Trustee in writing of the
Redemption Date, the principal amount of Notes to be redeemed and the redemption
price, and deliver to the Trustee an Officers' Certificate stating that such
redemption will comply with the conditions contained in Section 3.07 hereof, as
appropriate.
<PAGE>
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Section 3.02. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
In the event that less than all of the Notes are to be redeemed at any
time, selection of the Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
--------
the Trustee shall deem fair and appropriate; provided, that no Notes of $1,000
--------
principal amount or less shall be redeemed in part. The Trustee may select for
redemption portions of the principal of the Notes that have denominations larger
than $1,000. The Trustee shall promptly notify the Issuers of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed. For all purposes of
this Indenture unless the context otherwise requires, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.
Section 3.03. Notice of Redemption.
--------------------
Notice of redemption shall be mailed by first class mail at least 30
but not more than 60 calendar days before the Redemption Date to each Holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed
in part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed.
The notice shall identify the Notes to be redeemed (including the
CUSIP number(s) thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of accrued interest, if any,
to be paid;
(3) that, if any Note is being redeemed in part, the portion of the
principal amount at maturity (equal to $1,000 in principal amount or any
integral multiple
<PAGE>
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thereof) of such Note to be redeemed and that, on and after the Redemption
Date, upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion thereof will be issued;
(4) the name, address and telephone number of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent at the address specified to collect the redemption price plus
accrued interest, if any;
(6) that, unless the Issuers default in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is to
receive payment of the redemption price plus accrued interest to the
Redemption Date upon surrender of the Notes to the Paying Agent;
(7) the paragraph of Section 3.07 hereof pursuant to which the Notes
called for redemption are being redeemed; and
(8) the aggregate principal amount of Notes that are being redeemed.
Section 3.04. Effect of Notice of Redemption.
------------------------------
Once the notice of redemption described in Section 3.03 is mailed,
Notes called for redemption become due and payable on the Redemption Date and at
the redemption price, including any premium, plus accrued interest to the
Redemption Date, if any. Upon surrender to the Paying Agent, such Notes shall
be paid at the redemption price, including any premium, plus accrued interest to
the Redemption Date, if any, provided that if the Redemption Date is after a
--------
regular interest payment record date and on or prior to the Interest Payment
Date, the accrued interest shall be payable to the Holder of the redeemed Notes
registered on the relevant record date.
<PAGE>
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Section 3.05. Deposit of Redemption Price.
---------------------------
On or prior to 10:00 a.m., New York City time, on each Redemption
Date, the Issuers shall have deposited with the Paying Agent in immediately
available funds U.S. legal tender sufficient to pay the redemption price of and
accrued interest on all Notes to be redeemed on that date.
On and after any Redemption Date, if U.S. legal tender sufficient to
pay the redemption price of and accrued interest on Notes called for redemption
shall have been made available in accordance with the preceding paragraph, the
Notes called for redemption will cease to accrue interest and the only right of
the Holders of such Notes will be to receive payment of the redemption price of
and, subject to the first proviso in Section 3.04, accrued and unpaid interest
on such Notes to the Redemption Date. If any Note called for redemption shall
not be so paid, interest will continue to accrue and be paid, from the
Redemption Date until such redemption payment is made, on the unpaid principal
of the Note and any interest not paid on such unpaid principal, in each case, at
the rate and in the manner provided in the Notes.
Section 3.06. Notes Redeemed in Part.
----------------------
Upon surrender of a Note that is redeemed in part, the Trustee shall
authenticate for a Holder a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
Section 3.07. Optional Redemption.
--------------------
(a) The Issuers may redeem the Notes that are redeemable at their
option, in whole at any time or in part from time to time on or after March 15,
2004 at the redemption prices (expressed as percentages of the principal amount
thereof), set forth below plus accrued and unpaid interest, if any, to the
Redemption Date, if redeemed during the twelve-month period beginning on March
15 of each year indicated below:
<PAGE>
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Year Percentage
---- ----------
2004............................... 104.938%
2005............................... 105.292%
2006............................... 101.646%
2007 and thereafter................ 100.000%
(b) The Issuers may redeem up to 35% of the principal amount of the
Notes originally issued under this Indenture, at any time and from time to time
prior to March 15, 2002, at a redemption price equal to 109.875% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest, if
any, to the Redemption Date out of the net cash proceeds of one or more Equity
Offerings; provided, that at least 65% of the principal amount of the Notes
--------
originally issued under this Indenture remains outstanding immediately after any
such redemption (it being expressly agreed that for purposes of determining
whether this condition is satisfied, Notes owned by the Issuers or any of its
Affiliates shall be deemed not to be outstanding). In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Issuers shall
make such redemption not more than 60 days following the closing of any such
Equity Offering.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
----------------
The Issuers shall pay the principal of and interest (including all
Additional Interest (as defined in the Registration Rights Agreement) as
provided in the Registration Rights Agreement on the Notes on the dates and in
the manner provided in the Notes and this Indenture. An installment of
principal or interest shall be considered paid on the date it is due if the
Trustee or Paying Agent holds, for the benefit of the Holders, on that date U.S.
legal tender designated for and sufficient to pay such installment.
<PAGE>
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The Issuers shall pay interest on overdue principal (including post-
petition interest in a proceeding under any Bankruptcy Law), and interest on
overdue interest, to the extent lawful, at the rate specified in the Notes.
Section 4.02. Provision of Financial Statements and
Other Information.
-------------------------------------
(a) Commencing with the first fiscal quarter of the Company ending
after the Issue Date, the Issuers will file with the Commission all information,
documents and reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act and will provide the Trustee and the
Noteholders with copies of all such information, documents and reports within 15
days of filing thereof with the Commission; provided that if the Issuers are not
--------
required to file such information, documents or reports with the Commission,
they will nonetheless continue to furnish such information, documents and
reports required to be filed by issuers subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act to the Trustee and the Noteholders
within 15 days of the date on which filing with the Commission would have been
required. The Issuers shall also comply with the provisions of TIA (S) 314(a).
The Trustee shall retain such reports, information and documents at its
Corporate Trust Office and permit any Noteholder to examine such material upon
prior written request at reasonable times. Except to determine whether the
Issuers have complied with the provisions of this Section 4.02, the Trustee
shall not be required to examine or review such material or any of it and shall
not be considered to have had notice, constructive or otherwise, from anything
set forth in such material of any Default or other fact or event which might
require the Trustee to take any action or give any notice hereunder.
(b) The Issuers will, upon request, provide to any Holder or any
prospective transferee of any such Holder any information concerning the Issuers
(including financial statements) necessary in order to permit such Holder to
sell or transfer Notes in compliance with Rule 144 and Rule 144A under the
Securities Act.
<PAGE>
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Section 4.03. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Issuers covenant (to the extent that they may lawfully do so) that
they will not at any time insist upon, or plead (as a defense or otherwise) or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Issuers from paying all or any portion of the principal of, premium, if any,
and/or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that they may lawfully do so)
the Issuers hereby expressly waive all benefit or advantage of any such law, and
covenant that they will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 4.04. Compliance Certificate; Notice of Default; Tax Information.
----------------------------------------------------------
(a) The Issuers shall deliver to the Trustee, within 120 days after
the end of each fiscal year an Officers' Certificate (one of the signers of
which shall be the principal executive officer, principal financial officer or
principal accounting officer of each Issuer) stating that a review of the
activities of the Issuers and their Subsidiaries during such fiscal year has
been made under the supervision of the signing Officers with a view to
determining whether the Issuers have kept, observed, performed and fulfilled
their obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Issuers have kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and, in the case of Restricted Payments, listing all
Restricted Payments for such quarter, and are not in default in the performance
or observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all or such Defaults
or Events of Default of which he or she may have knowledge and what action each
is taking or proposes to take with respect thereto) and that to the
<PAGE>
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best of his or her knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal of or interest, if any, on
the Notes are prohibited or if such event has occurred, a description of the
event and what action the Issuers are taking or propose to take with respect
thereto.
(b) The Issuers will, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Issuers is taking or proposes to take with
respect thereto.
(c) The annual financial statements delivered pursuant to Section 4.02
shall be accompanied by a written report of the Issuers' independent accountants
(who shall be a firm of established national reputation) that in conducting
their audit of such financial statements nothing has come to their attention
that would lead them to believe that any Issuer has violated any material
provisions of Article Four, Five or Six of this Indenture insofar as they relate
to accounting matters or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(d) The Issuers shall calculate and deliver to the Trustee all
original issue discount information to be reported by the Trustee to Holders as
required by law.
Section 4.05. Taxes.
-----
The Issuers shall, and shall cause each of their Subsidiaries to, pay
prior to delinquency all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
<PAGE>
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Section 4.06. Limitation on Additional Indebtedness.
-------------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness); provided that if no Default or Event of
--------
Default shall have occurred and be continuing at the time or as a consequence of
the incurrence of such Indebtedness, the Issuers and any of the Guarantors may
incur Indebtedness (including Acquired Indebtedness) if after giving effect to
the incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, the Company's Consolidated Leverage Ratio is less than 6.5 to
1 if such Indebtedness is incurred on or before March 15, 2001 and 6.0 to 1 if
such Indebtedness is incurred thereafter.
(b) Notwithstanding the foregoing clause (a), the Company and its
Restricted Subsidiaries may incur Permitted Indebtedness. For purposes of
determining compliance with this Section 4.06, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness as of the date of incurrence thereof or is entitled to be
incurred pursuant to the first paragraph of this covenant as of the date of
incurrence thereof, the Company shall, in its sole discretion, classify or
reclassify such item of Indebtedness in any manner that complies with this
covenant. Accrual of interest, the accretion of accreted value and the payment
of interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant and the payment of
dividends on Disqualified Capital Stock in the form of additional shares of the
same class of Disqualified Capital Stock will not be deemed an issuance of
Disqualified Capital Stock.
Section 4.07. Limitation on Restricted Payments.
---------------------------------
(a) The Company will not make, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make, any Restricted
Payment, unless:
<PAGE>
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(1) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such Restricted
Payment;
(2) immediately after giving pro forma effect to such Restricted
--- -----
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.06 of this Indenture; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of
(a) 100% of the Company's Cumulative EBITDA (or, in the event
that such Cumulative EBITDA shall be a deficit, minus 100% of such
deficit) minus 1.4 times the Company's Cumulative Consolidated
Interest Expense,
(b) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale after the Issue Date of Capital Stock
(other than Disqualified Capital Stock or Capital Stock of the Company
issued to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which have been so converted, exercised
or exchanged, as the case may be,
(c) without duplication of any amounts included in clause (3)(b)
above, 100% of the aggregate net proceeds (including the fair market
value of Property other than cash) received by the Company from any
equity contribution from a holder of the Company's Capital Stock,
excluding, in the case of clauses (3)(b) and (c), (i) any net proceeds
from an Equity Offering to the extent used to redeem the Notes and
(ii) any net proceeds directly or indirectly received
<PAGE>
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in connection with the Pending Capstar Acquisition, and
(d) without duplication, the sum of
(i) the aggregate amount returned in cash on or with
respect to Investments (other than Permitted Investments) made
subsequent to the Issue Date whether through interest payments,
principal payments, dividends or other distributions;
(ii) the net proceeds received by the Company or any of
its Restricted Subsidiaries from the disposition, retirement or
redemption of all or any portion of such Investments (other than
to a Subsidiary of the Company); and
(iii) upon redesignation of an Unrestricted Subsidiary
as a Restricted Subsidiary, the fair market value of the net
assets of such Subsidiary;
provided, however, that the sum of clauses (d)(i), (ii) and (iii) above shall
- -------- -------
not exceed the aggregate amount of all such Investments made subsequent to the
Issue Date.
For purposes of determining under clause (3) above the amount expended
for Restricted Payments, cash distributed shall be valued at the face amount
thereof and Property other than cash shall be valued at its fair market value.
(b) The provisions of this Section 4.07 shall not prohibit
(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of this Indenture,
(2) the repurchase, redemption, defeasance or other acquisition or
retirement of any shares of Capital Stock
<PAGE>
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of the Company or of Indebtedness that is subordinated to the Notes by
conversion into, or by or in exchange for, shares of Capital Stock of the
Company (other than Disqualified Capital Stock), or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock),
(3) the redemption, repurchase, defeasance, retirement or other
acquisition of Indebtedness of the Company that is subordinated to the
Notes in exchange for, by conversion into, or out of the net cash proceeds
of a substantially concurrent sale or incurrence of, Indebtedness of the
Company (other than any Indebtedness owed to a Subsidiary) that is
Refinancing Indebtedness,
(4) the retirement of any shares of Disqualified Capital Stock of the
Company by conversion into, or by exchange for, shares of Disqualified
Capital Stock of the Company, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of other shares of Disqualified Capital Stock of the Company,
(5) the payment of any dividend or distribution to the extent
necessary to permit direct or indirect beneficial owners of shares of
Capital Stock of the Company to pay federal, state or local income tax
liabilities arising from income of the Company and attributable to them
solely as a result of the Company (and any intermediate entity through
which the holder owns such shares) being a limited liability company,
partnership or similar entity for federal income tax purposes (collectively
"Permitted Tax Distributions"),
(6) the repurchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or the payment of a dividend to
Holdings to effect the repurchase, redemption or other acquisition or
retirement for value of Holdings' Capital Stock that is held by any current
or former members of the management of the
<PAGE>
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Company (or any of its Restricted Subsidiaries) pursuant to any management
equity subscription or purchase agreement, members agreement,
securityholders agreement or stock option agreement or similar agreement,
in an aggregate amount not to exceed $2 million in any fiscal year (which
amount shall be increased by the amount of any proceeds to the Company from
(x) without duplication of any amounts included in clauses 3(b) and (c) of
subsection (a) above, sales of Capital Stock (other than Disqualified
Capital Stock) of the Company or Holdings (which net proceeds have been
contributed by the Company) to management or other employees subsequent to
the Issue Date and (y) any "key-man" life insurance policies which are used
to make such redemptions or repurchases); provided, that the cancellation
--------
of Indebtedness owing to the Company from management or other employees of
the Company or any of its Restricted Subsidiaries in connection with a
repurchase of Capital Stock of the Company will not be deemed to constitute
a Restricted Payment under this Indenture,
(7) the making of distributions, loans or advances in an amount not
to exceed $1 million in any calendar year sufficient to permit Holdings to
pay the ordinary operating expenses of Holdings (including, without
limitation, directors' fees, indemnification obligations, professional fees
and expenses) relating to Holdings' ownership of Capital Stock of the
Company,
(8) payments or distributions to Holdings on and after September 15,
2004 in an amount sufficient to permit Holdings to make cash interest
payments when due to holders of the Senior Discount Notes in accordance
with the terms of the Senior Discount Notes as in effect on the Issue Date
or such earlier time as Holdings shall become obligated to pay additional
interest thereon pursuant to the registration rights agreement related
thereto as in effect on the Issue Date,
(9) any payments or distributions or other transactions to be made in
connection with the Merger Transactions, the Electro Systems Acquisition or
the Pending Cap-
<PAGE>
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star Acquisition, including the repayment of loans made by ABRY III
(including, in each case, fees and expenses incurred in connection
therewith),
(10) Investments received in connection with an Asset Sale that
complies with Section 4.09 of this Indenture,
(11) payments or distributions to dissenting stockholders pursuant to
transactions permitted under the terms of this Indenture,
(12) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof,
(13) payments to enable the Company or Holdings to make payments to
holders of their Capital Stock in lieu of issuance of fractional shares of
their Capital Stock,
(14) payment of principal and interest on funds on the ABRY
Subordinated Debt in accordance with the terms thereof,
(15) any dividend or distribution made so long as concurrently
therewith a capital contribution in an equal amount is made to the Company,
and
(16) other Restricted Payments in an aggregate amount not to exceed $5
million.
In calculating the aggregate amount of Restricted Payments made
subsequent to the Issue Date for purposes of clause (3) of subsection (a) above,
amounts expended pursuant to clauses (1), (2), (8) and (15) of the immediately
preceding paragraph shall be included in such calculation.
(c) Not later than the date of making any Restricted Payment, the
Issuers shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations
<PAGE>
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may be based upon the Issuers' latest available financial statements, and (other
than with respect to any Restricted Payment permitted under clauses (5), (6) and
(7)) that no Default or Event of Default has occurred and is continuing and no
Default or Event of Default will occur immediately after giving effect to any
such Restricted Payments.
Section 4.08. Limitation on Other Senior Subordinated Indebtedness.
----------------------------------------------------
The Company will not, and will not permit any of the Guarantors to,
directly or indirectly, incur, contingently or otherwise, any Indebtedness
(other than the Notes and the Guarantees, as the case may be) that is both (i)
subordinated in right of payment to any Senior Indebtedness of the Company or
Guarantor Senior Indebtedness of any of the Guarantors, as the case may be, and
(ii) senior in right of payment to the Notes and the respective Guarantee of any
such Guarantor, as the case may be. For purposes of this covenant, Indebtedness
is deemed to be senior in right of payment to the Notes or the Guarantees, as
the case may be, if it is not explicitly subordinated in right of payment to
Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be, at
least to the same extent as the Notes and the Guarantees, as the case may be,
are subordinated to such Senior Indebtedness or Guarantor Senior Indebtedness,
as the case may be.
Section 4.09. Limitation on Certain Asset Sales.
---------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless
(1) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such sale or other disposition at
least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Board of Directors of the
Company, and evidenced by a Board Resolution);
(2) not less than 75% of the consideration received by the Company or
such Restricted Subsidiary, as the case
<PAGE>
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may be, is in the form of cash or Cash Equivalents and/or a controlling
interest in a Person whose assets are useful to the Company, or any
combination thereof, except to the extent to which the Company is
undertaking a Permitted Asset Swap; provided that the amount of
--------
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any of its
Restricted Subsidiaries (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes) that
are assumed by the transferee of any such assets shall be deemed to be
cash for purposes of this clause (2); and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that
are promptly converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this clause (2); and
(3) the Asset Sale Proceeds received by the Company or such
Restricted Subsidiary are applied
(a) first, to the extent the Company or any such Restricted
Subsidiary, as the case may be, elects, or is required, to prepay,
repay or purchase indebtedness under any then existing Senior
Indebtedness of the Company or any such Restricted Subsidiary within
360 days following the receipt of the Asset Sale Proceeds from any
Asset Sale; provided that any such repayment shall result in a
--------
permanent reduction of the commitments thereunder in an amount equal
to the principal amount so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds
after application as described above, to the extent the Company
elects, to an investment in assets (including Capital Stock or other
<PAGE>
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securities purchased in connection with the acquisition of Capital
Stock or Property of another Person) used or useful in businesses
reasonably related, ancillary or complementary to the business of the
Company or any such Restricted Subsidiary as conducted on the Issue
Date; provided that such investment occurs within 360 days following
--------
receipt of such Asset Sale Proceeds; and
(c) third, if on such 360th day with respect to any Asset Sale,
the Available Asset Sale Proceeds exceed $10 million, the Company
shall apply an amount equal to the Available Asset Sale Proceeds to an
offer to repurchase the Notes and all other pari passu Indebtedness of
---- -----
the Company containing provisions substantially similar to those set
forth in this Indenture regarding offers to purchase or redeem with
Asset Sale Proceeds, in each case, at a purchase price in cash equal
to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date (an "Excess Proceeds Offer").
If an Excess Proceeds Offer is not fully subscribed, the Company may
retain the portion of the Available Asset Sale Proceeds not required to
repurchase Notes and such pari passu Indebtedness.
---- -----
Pending the final application of any Asset Sale Proceeds, the Company
or such Restricted Subsidiary may temporarily reduce Indebtedness under a
revolving credit facility, if any, or otherwise invest such Asset Sale Proceeds
in Cash Equivalents.
(b) If the Company is required to make an Excess Proceeds Offer, the
Company shall within 45 days following the date specified in subparagraph
(a)(3)(c) above (i) cause a notice of the Excess Proceeds Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (ii) mail a notice of the Excess Proceeds Offer to the Trustee
and the Holders. Such notice shall be sent by first-class mail, postage
prepaid, to the Trustee and
<PAGE>
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to each Noteholder, at the address appearing in the register maintained by the
Registrar of the Notes, and shall state:
(i) that the Excess Proceeds Offer is being made pursuant to this
Section 4.09;
(ii) that such Holders have the right to require the Company to
apply the Available Asset Sale Proceeds to repurchase such Notes at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the purchase date which shall be no
earlier than 45 days and not later than 60 days from the date such notice
is mailed (the "Excess Proceeds Payment Date");
(iii) that any Note not tendered or accepted for payment will
continue to accrue interest;
(iv) that any Notes accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest after the Excess Proceeds
Payment Date;
(v) that Holders accepting the offer to have their Notes purchased
pursuant to an Excess Proceeds Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day preceding
the Excess Proceeds Payment Date;
(vi) that Holders will be entitled to withdraw their acceptance of
the Excess Proceeds Offer if the Paying Agent receives, not later than the
close of business on the third Business Day preceding the Excess Proceeds
Payment Date, a facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Notes
purchased;
<PAGE>
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(vii) that if the aggregate principal amount of Notes surrendered
by Holders exceeds the amount of Excess Proceeds, Company shall select the
Notes to be purchased on a pro rata basis (with such adjustments as may be
--------
deemed appropriate by the Company so that only Notes in denominations of
$1,000 or integral multiples thereof, shall be purchased);
(viii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, provided that each Note purchased and
--------
each such new Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof;
(ix) the calculations used in determining the amount of Available
Asset Sale Proceeds to be applied to the purchase of such Notes;
(x) any other procedures that a Holder must follow to accept an
Excess Proceeds Offer or effect withdrawal of such acceptance; and
(xi) the name and address of the Paying Agent.
On the Excess Proceeds Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment, on a pro rata basis to the extent necessary,
--------
Notes or portions thereof validly tendered pursuant to the Excess Proceeds
Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase
price plus accrued and unpaid interest, if any, on the Notes to be purchased or
portions thereof, (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Issuers in accordance with the
terms of this Section 4.09. The Paying Agent shall promptly mail to each Holder
so accepted payment in an amount equal to the purchase price for such Notes, and
the Issuers shall execute and issue, and the Trustee shall promptly authenticate
and make available for delivery to such Holder, a new Note equal in principal
amount to any unpurchased portion
<PAGE>
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of the Notes surrendered; provided that each such new Note shall be issued in an
original principal amount in denominations of $1,000 and integral multiples
thereof. The Issuers will publicly announce the results of the Excess Proceeds
Offer on the Excess Proceeds Payment Date.
(c) In the event of the transfer of substantially all of the Property
and assets of the Company and its Restricted Subsidiaries as an entirety to a
Person in a transaction permitted under Section 5.01 of this Indenture below but
which transaction does not constitute a Change of Control, the successor Person
shall be deemed to have sold the properties and assets of the Issuers and their
Restricted Subsidiaries not so transferred for purposes of this covenant, and
shall comply with the provisions of this Section 4.09 with respect to such
deemed sale as if it were an Asset Sale.
(d) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Excess Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section
4.09, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.09 by virtue thereof.
Section 4.10. Limitation on Transactions with Affiliates.
------------------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, Property or services) with any
Affiliate (each an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless
(1) such Affiliate Transaction is between or among the Company and
its Restricted Subsidiaries; or
<PAGE>
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(2) the terms of such Affiliate Transaction are at least as favorable
as the terms which could be obtained by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis between unaffiliated parties.
In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $2.5 million which is not permitted
under clause (1) above, the Company must obtain a Board Resolution of the
Company certifying that such Affiliate Transaction complies with clause (2)
above. In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $10 million which is not permitted under
clause (1) above, the Company must obtain a favorable written opinion as to the
fairness of such transaction or transactions, as the case may be, from an
Independent Financial Advisor.
(b) The foregoing provisions will not apply to
(1) any Restricted Payment that is not prohibited by the provisions
described under Section 4.07 of this Indenture,
(2) reasonable fees and compensation paid to, and indemnity provided
on behalf of, officers, Directors, employees or consultants of the Company
or any Restricted Subsidiary of the Company as determined in good faith by
the Company's Board of Directors or senior management,
(3) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date,
<PAGE>
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(4) transactions effected as part of a Qualified Securitization
Transaction,
(5) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business, and advances to
employees for moving, entertainment and travel expenses, drawing accounts
and similar expenditures in the ordinary course of business,
(6) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of, any
securityholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by the Company
-------- -------
or any of its Restricted Subsidiaries of obligations under, any future
amendment to any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause
(6) to the extent that the terms of any such amendment or new agreement are
not otherwise disadvantageous to the Holders in any material respect,
(7) transactions permitted by, and complying with, the provisions
described under Article 5 of this Indenture below,
(8) payments of principal and interest on the ABRY Subordinated Debt
in accordance with the terms thereof,
(9) transactions with customers, clients, suppliers, joint venture
partners or purchasers or sellers of goods or services, in each case in the
ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of
this Indenture which are fair to the Company or its Restricted
Subsidiaries, in the reasonable determination of the Board of Directors of
the Company or the senior management thereof, or are on terms at least as
favor-
<PAGE>
-88-
able as might reasonably have been obtained at such time from an
unaffiliated party,
(10) all transactions associated with the Merger Transactions and the
Pending Capstar Acquisition, including the repayment of loans made by ABRY
III,
(11) transactions pursuant to the ABRY Management Agreement or
pursuant to the terms of any amendment thereto or restatement thereof which
terms are not more disadvantageous to the Holders in any material respect
than the terms of such agreement as in effect on the Issue Date as
determined in good faith by the Board of Directors of the Company and
evidenced by a Board Resolution, and
(12) with regard to the requirement to obtain the opinion of an
Independent Financial Advisor only, the issuance of Capital Stock of the
Company; provided that said issuance has been approved by the Board of
--------
Directors of the Company and the Board Resolution described in the
immediately preceding paragraph has been delivered to the Trustee.
Section 4.11. Limitations on Liens.
--------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any Property
or asset of the Company or any of its Restricted Subsidiaries or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary of the Company which
owns Property or assets, now owned or hereafter acquired, unless
(1) if such Lien secures Indebtedness which is subordinated to the
Notes, any such Lien shall be subordinated to any Lien granted to the
Holders to the same extent as such Indebtedness is subordinated to the
Notes and
(2) in all other cases, the Notes are equally and ratably secured.
<PAGE>
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Section 4.12. Limitations on Investments
--------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Investment other than
(1) a Permitted Investment or
(2) an Investment that is made after the Issue Date as a Restricted
Payment in compliance with Section 4.07.
Section 4.13. Limitation on Sale and Lease-Back Transactions.
-------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale and Lease-Back Transaction unless
(1) the consideration received in such Sale and Lease-Back
Transaction is at least equal to the fair market value of the Property
sold, as determined in good faith by the Board of Directors of the Company
and evidenced by a Board Resolution,
(2) the Company could incur the Attributable Indebtedness in respect
of such Sale and Lease-Back Transaction in compliance with Section 4.06 and
(3) the transfer of assets in such Sale and Lease-Back Transaction is
permitted by, and the Company or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with Section 4.09.
Section 4.14. Payments for Consent.
--------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this Indenture
or the Notes unless such consideration is offered to be paid or agreed to be
paid to all Holders which so consent,
<PAGE>
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waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
Section 4.15. Corporate Existence.
-------------------
Subject to Article 5 hereof, each of the Issuers shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate or limited liability company existence, and the corporate,
partnership or limited liability company or other existence of each Subsidiary,
in accordance with the respective organizational documents (as the same may be
amended from time to time) of each Subsidiary and, within thirty days of the
Issue Date, the material rights (charter and statutory), licenses and franchises
of the Issuers and their Subsidiaries except where the failure to preserve and
keep in full force and effect any such rights, licenses and franchise shall not
have a material adverse effect on the financial condition, business, operations
or prospects of the Issuers and their Subsidiaries taken as a whole; and
provided that the Issuers shall not be required to preserve any such right,
- --------
license or franchise, or the corporate, limited liability company, partnership
or other existence of any of Subsidiaries, if the Board of Directors of the
applicable Issuer shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Issuers and their Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders.
Section 4.16. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, the Issuers shall be
obligated to make an offer to purchase (the "Change of Control Offer") each
Holder's outstanding Notes at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the Change of Control Payment Date (as defined) in
accordance with the procedures set forth below.
(b) Within 20 days of the occurrence of a Change of Control, the
Issuers shall (i) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News
<PAGE>
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Service or similar business news service in the United States and (ii) send by
first-class mail, postage prepaid, to the Trustee and to each Noteholder, at the
address appearing in the register maintained by the Registrar of the Notes, a
notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that Holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that Holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Notes
purchased;
<PAGE>
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(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered;
(8) any other procedures that a Holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the
extent lawful,
(1) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so tendered, and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Issuers.
The Paying Agent shall promptly mail to each Holder so accepted payment in an
amount equal to the purchase price for such Notes, and the Issuers shall execute
and issue, and the Trustee shall promptly authenticate and mail to such Holder,
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered; provided that each such new Note shall be issued in an original
--------
principal amount in denominations of $1,000 and integral multiples thereof.
(c) If the Senior Credit Facility is in effect, or any amounts are
owing thereunder or in respect thereof, at the time of the occurrence of a
Change of Control, prior to the mailing of the notice to Holders described in
Section 4.16(b) above, but in any event within 60 days following any Change of
Control, the Issuers covenant to
<PAGE>
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(1) repay in full all obligations and terminate all commitments under
or in respect of the Senior Credit Facility and all other Senior
Indebtedness the terms of which require repayment upon a Change of Control
or offer to repay in full all obligations and terminate all commitments
under or in respect of the Senior Credit Facility and all such Senior
Indebtedness and repay the Indebtedness owed to each such lender who has
accepted such offer, or
(2) obtain the requisite consents under the Senior Credit Facility and
all such other Senior Indebtedness to permit the repurchase of the Notes as
described above.
The Issuers must first comply with the covenant described in the preceding
sentence before they shall be required to purchase Notes in the event of a
Change of Control; provided that the Issuers' failure to comply with the
--------
covenant described in the preceding sentence constitutes an Event of Default
described in clause (3) under Section 6.01 if not cured within 30 days after the
notice required by such clause.
(d) The Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.16, the Issuers shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached their obligations under
this Section 4.16 by virtue thereof.
Section 4.17. Maintenance of Office or Agency.
-------------------------------
The Issuers shall maintain an office or agency in the Borough of
Manhattan, The City of New York where Notes may be surrendered for registration
of transfer or exchange or for presentation for payment and where notices and
demands to or upon the Issuers in respect of the Notes and this Indenture may be
served. The Issuers shall give prompt written notice to the
<PAGE>
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Trustee of the location, and any change in the location, of such office or
agency. If at any time the Issuers shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee as set forth in Section 12.02.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations. The
Issuers shall give prompt written notice to the Trustee of such designation or
rescission and of any change in the location of any such other office or agency.
The Issuers hereby initially designate the offices of State Street
Bank and Trust Company, N.A. at 61 Broadway, New York, New York 10006 as such
office of the Issuers.
Section 4.18. Limitation on Dividend and Other
Payment Restrictions Affecting
Restricted Subsidiaries.
------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to
(1) (a) pay dividends or make any other distributions to the Company
or any Restricted Subsidiary of the Company
(i) on its Capital Stock or
(ii) with respect to any other interest or participation in,
or measured by, its profits or
(b) repay any Indebtedness or any other obligation owed to the Company
or any Restricted Subsidiary of the Company,
<PAGE>
-95-
(2) make loans or advances or capital contributions to the Company or
any of its Restricted Subsidiaries or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
(1) encumbrances or restrictions existing on the Issue Date to the
extent and in the manner such encumbrances and restrictions are in effect
on the Issue Date,
(2) (a) this Indenture, the Notes and the Guarantees and (b) the
Senior Credit Facility,
(3) applicable law or applicable rules, regulations or orders,
(4) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the Properties or assets
of any Person, other than the Person, or the Property or assets of the
Person (including any Subsidiary of the Person), so acquired,
(5) customary non-assignment provisions in leases or other agreements
entered in the ordinary course of business,
(6) Refinancing Indebtedness; provided that such restrictions are not
--------
materially more restrictive, when taken as a whole, than those contained in
the agreements governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded,
(7) customary restrictions in security agreements or mortgages
securing Indebtedness of the Issuers or a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the Property subject to
such security agreements and mortgages,
<PAGE>
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(8) customary restrictions pursuant to an agreement that has been
entered into for the sale or disposition of Capital Stock or assets
permitted under this Indenture,
(9) restrictions on the transfer of assets subject to any Lien
permitted under this Indenture imposed by the holder of such Lien,
(10) any agreement or instrument governing Capital Stock of any
Person that is acquired; provided that no such restriction is created in
--------
contemplation of the acquisition of such Capital Stock,
(11) Indebtedness or other contractual requirements of a
Securitization Entity in connection with a Qualified Securitization
Transaction; provided that such restrictions apply only to such
--------
Securitization Entity,
(12) Purchase Money Indebtedness incurred to acquire Property in the
ordinary course of business which Indebtedness imposes restrictions
regarding transfer of the Property acquired,
(13) the terms of any Indebtedness permitted by this Indenture to be
incurred by any Guarantor,
(14) any agreement or instrument governing Indebtedness (whether or
not outstanding) of Foreign Restricted Subsidiaries of the Company incurred
in reliance on clauses (8) and (16) of the definition of Permitted
Indebtedness, or
(15) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Section 4.19. Limitation on Conduct of Business.
---------------------------------
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not reasonably similar, ancillary, complementary or related
to the businesses in which the Company and its Restricted Subsidiaries are
engaged in on
<PAGE>
-97-
the Issue Date except to such extent as would not be material to the Company and
its Restricted Subsidiaries, taken as a whole.
Section 4.20. Compliance with Laws.
--------------------
The Issuers shall comply, and shall cause each of their respective
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as would not in the aggregate have a
material adverse effect on the financial condition or results of operations of
the Issuers and their Subsidiaries taken as a whole.
Section 4.21. Limitation on Preferred Stock of Restricted
Subsidiaries.
--------------------------------------------
The Company will not permit any of its Restricted Subsidiaries to
issue any Preferred Stock (except Preferred Stock issued to the Company or a
Restricted Subsidiary of the Company) or permit any Person (other than the
Company or a Restricted Subsidiary of the Company) to hold any such Preferred
Stock unless such Restricted Subsidiary would be entitled to incur or assume
Indebtedness under Section 4.06 (other than Permitted Indebtedness) in the
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Section 4.22. Limitation on Creation of Subsidiaries.
--------------------------------------
The Company will not create or acquire, and will not permit any of its
Restricted Subsidiaries to create or acquire, any Subsidiary other than
(1) a Restricted Subsidiary existing as of the Issue Date,
<PAGE>
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(2) a Restricted Subsidiary that is acquired or created after the
Issue Date, provided, however, that each Restricted Subsidiary (other than
-------- -------
any Foreign Restricted Subsidiary or Finance Corp.) acquired or created
pursuant to this clause (2) shall have executed a Guarantee, satisfactory
in form and substance to the Trustee (and with such documentation relating
thereto as the Trustee shall require, including, without limitation a
supplement or amendment to this Indenture and Opinions of Counsel as to the
enforceability of such Guarantee), pursuant to which such Restricted
Subsidiary will become a Guarantor, or
(3) an Unrestricted Subsidiary.
Section 4.23. Maintenance of Properties and Insurance.
---------------------------------------
(a) Each Issuer shall cause all material properties owned by or leased
by it or any of its Subsidiaries used or useful to the conduct of such Issuer's
business or the business of any of its Subsidiaries to be maintained and kept in
normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in its judgment may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
-------- -------
nothing in this Section 4.23 shall prevent an Issuer or any of its Subsidiaries
from discontinuing the use, operation or maintenance of any of such properties,
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors of such Issuer or of the Board of Directors
of any Subsidiary of such Issuer concerned, or of an officer (or other agent
employed by such Issuer or of any of its Subsidiaries) of such Issuer or any of
its Subsidiaries having managerial responsibility for any such property,
desirable in the conduct of the business of such Issuer or any Subsidiary of
such Issuer, and if such discontinuance or disposal is not adverse in any
material respect to the Holders.
(b) The Issuers shall maintain, and shall cause their respective
Subsidiaries to maintain, insurance with re-
<PAGE>
-99-
sponsible carriers against such risks and in such amounts, and with such
deductibles, retentions, self-insured amounts and co-insurance provisions, as
are customarily carried by similar businesses of similar size, including
property and casualty loss, workers' compensation and interruption of business
insurance. The Issuers shall provide, and shall cause their respective
Subsidiaries to provide, an Officers' Certificate as to compliance with the
foregoing requirements to the Trustee prior to the anniversary or renewal date
of each such policy, together with satisfactory evidence of such insurance,
which certificate shall expressly state such expiration date for each policy
listed.
ARTICLE 5
SUCCESSOR CORPORATION
Section 5.01. Limitation on Consolidation Merger and Sale
of Assets.
-------------------------------------------
The Company will not consolidate with, merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the assets of the Company (as an entirety or substantially as an entirety in
one transaction or a series of related transactions), to any Person unless:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or to which the Properties and assets of the Company are
sold, assigned, transferred, leased, conveyed or otherwise disposed of
shall be a corporation, partnership, trust or a limited liability company
organized and existing under the laws of the United States or any State
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company under
this Indenture and the Notes,
<PAGE>
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and the obligations thereunder shall remain in full force and effect;
provided that if at any time the Company or such successor Person is a
--------
limited liability company, partnership or trust there shall be a co-issuer
of the Notes that is a Restricted Subsidiary of the Company and that is a
corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction on a pro
---
forma basis the Company or such Person could incur at least $1.00 of
-----
additional Indebtedness (other than Permitted Indebtedness) under Section
4.06; provided that the Company may merge into any Guarantor without
--------
complying with this clause (3).
In connection with any consolidation, merger or transfer of assets
contemplated by this Section 5.01, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Notwithstanding the foregoing, the Company may merge or consolidate
with or transfer substantially all of its assets
<PAGE>
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to an Affiliate that has no significant assets or liabilities and was formed
solely for the purpose of changing the jurisdiction of organization of the
Company or the form of organization of the Company so long as the amount of
Indebtedness of the Company and its Restricted Subsidiaries is not increased
thereby and that the successor assumes all obligations of the Company under this
Indenture, the Notes and the Registration Rights Agreement. Nothing in this
Section 5.01 shall be deemed to prevent the consummation of the Merger
Transactions.
Section 5.02. Successor Person Substituted.
----------------------------
Upon any consolidation, merger, conveyance or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01
above, the successor entity formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor entity had been named
as the Company herein, and thereafter the predecessor entity shall be relieved
of all obligations and covenants under this Indenture and the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
-----------------
An "Event of Default" occurs if
(a) there is a default in the payment of any principal of, or
premium, if any, on the Notes when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise, whether or not such
payment is prohibited by the provisions of Article 11 hereof;
(b) there is a default in the payment of any interest on any Note
when the same becomes due and payable and the default continues for a
period of 30 calendar days,
<PAGE>
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whether or not such payment is prohibited by the provisions of Article 11
hereof;
(c) there is a default by any Issuer or any Restricted Subsidiary in
the observance or performance of any other covenant in the Notes or this
Indenture for 30 calendar days after written notice from the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes
then outstanding (except in the case of a default with respect to Sections
4.16 or 5.01 which shall constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(d) there is a failure to pay at final maturity (after giving effect
to any applicable grace period) any Indebtedness of the Company or any
Restricted Subsidiary thereof (other than a Securitization Entity), or the
acceleration of any such Indebtedness, which acceleration shall not be
rescinded or annulled within 20 days after written notice to the Company by
the Trustee or any Holder, if the aggregate amount of such Indebtedness,
together with the amount of any other such Indebtedness in default for
failure to pay or which has been accelerated, aggregates $5 million or more
at any time;
(e) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5 million (excluding amounts covered
by insurance for which coverage is not being challenged or denied unless
the Company is contesting such challenge or denial in good faith) shall be
rendered against the Company or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive calendar days
during which a stay of enforcement shall not be in effect;
(f) any Issuer or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
<PAGE>
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(B) consents to the entry of an order for relief against it in
an involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its Property, or
(D) makes a general assignment for the benefit of its creditors,
or
(E) generally is not able to pay its debts as they become due;
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against any Issuer or any Significant
Subsidiary in an involuntary case,
(B) appoints a Custodian of any Issuer or any Significant
Subsidiary or for all or substantially all of the Property of any
Issuer or any Significant Subsidiary, or
(C) orders the liquidation of any Issuer or any Significant
Subsidiary,
and the order or decree remains unstayed and in effect for 60 days; and
(h) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or any Guarantee of a Significant Subsidiary is declared
to be null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any of the Guarantors denies its
liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of this Indenture).
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors.
<PAGE>
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The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
The Trustee may withhold notice to the Holders of any Default (except
in payment of principal or premium, if any, or interest on the Notes) if the
Trustee considers it to be in the best interest of the Holders to do so.
Section 6.02. Acceleration.
------------
If an Event of Default (other than an Event of Default of the type
described in Section 6.01(f) or (g)) shall have occurred and be continuing, then
the Trustee or the holders of not less than 25% in aggregate principal amount of
the Notes then outstanding may declare to be immediately due and payable the
entire principal amount of all the Notes then outstanding plus accrued interest
to the date of acceleration and (1) the same shall become immediately due and
payable or (2) if there are any amounts outstanding under the Senior Credit
Facility, shall become immediately due and payable upon the first to occur of an
acceleration under the Senior Credit Facility or five Business Days after
receipt by the Issuers and the representative under the Senior Credit Facility
of a notice of acceleration; provided, however, that after such acceleration but
-------- -------
before a judgment or decree based on acceleration is obtained by the Trustee,
the holders of a majority in aggregate principal amount of outstanding Notes
may, under certain circumstances, rescind and annul such acceleration if
(1) all Events of Default, other than nonpayment of principal,
premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in this Indenture,
(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid,
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(3) the Issuers have paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and
(4) in the event of the cure or waiver of an Event of Default of the
type described in Section 6.01(f) or (g) above, the Trustee shall have
received an Officers' Certificate and an Opinion of Counsel that such Event
of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default of the type described in Section
6.01(f) or (g) above shall occur, the principal, premium and interest amount
with respect to all of the Notes shall be due and payable immediately without
any declaration or other act on the part of the Trustee or the Noteholders.
Section 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, or premium, if any, and interest on the Notes or to
enforce the performance of any provision of the Notes, the obligations set forth
in the Guarantees or this Indenture and may take any necessary action requested
of it as Trustee to settle, compromise, adjust or otherwise conclude any
proceedings to which it is a party.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
<PAGE>
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Section 6.04. Waiver of Past Defaults and Events of Default.
---------------------------------------------
Subject to Sections 6.02, 6.07 and 8.02 hereof, the Holders of a
majority in principal amount of the Notes then outstanding shall have the right
to waive past Defaults under this Indenture except a Default in the payment of
------
the principal of, or interest or premium, if any, on any Note, which cannot be
waived without the consent of the Holder of such Notes or in respect of a
covenant or a provision which cannot be modified or amended without the consent
of all Holders. Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.
Section 6.05. Control by Majority.
-------------------
The Holders of a majority in principal amount of the outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee by this Indenture. The Trustee, however, may refuse to
follow any direction that conflicts with law or this Indenture or that the
Trustee determines may be unduly prejudicial to the rights of another Noteholder
not taking part in such direction, and the Trustee shall have the right to
decline to follow any such direction if the Trustee, being advised by counsel,
determines that the action so directed may not lawfully be taken or if the
Trustee in good faith shall, by a Trust Officer, determine that the proceedings
so directed may involve it in personal liability; provided that the Trustee may
--------
take any other action deemed proper by the Trustee which is not inconsistent
with such direction.
Section 6.06. Limitation on Suits.
-------------------
Subject to Section 6.07 below, no Holder has any right to institute
any proceeding with respect to this Indenture or any remedy thereunder unless:
<PAGE>
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(1) the Holders of at least 25% in aggregate principal amount of the
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(2) such Holder or Holders offer to the Trustee indemnity reasonably
satisfactory to the Trustee against any loss, liability or expense which
may be incurred in compliance with such request;
(3) the Trustee fails to institute such proceeding within 60 calendar
days after receipt of such notice and the offer of indemnity; and
(4) the Trustee has not received directions inconsistent with such
written request during such 60-day period by the Holders of a majority in
aggregate principal amount of the outstanding Notes.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of, or premium, if any, or accrued
interest of any Note held by such Holder on or after the respective due dates
expressed in such Note, or to bring suit for the enforcement of any such payment
on or after such respective dates, is absolute and unconditional and shall not
be impaired or affected without the consent of the Holder.
Section 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of principal, premium or interest
specified in Section 6.01(a), (b) or (c) hereof occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against any or all of the Issuers and the Guarantors for the whole amount of
unpaid principal and accrued interest remaining un-
<PAGE>
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paid, together with interest on overdue principal and, to the extent that
payment of such interest is lawful, interest on overdue installments of
interest, in each case at the rate then borne by the Notes, and such further
amounts as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Noteholders allowed in any judicial proceedings relative to the Issuers (or any
other obligor upon the Notes), its creditors or its Property and shall be
entitled and empowered to collect and receive any monies or other Property
payable or deliverable on any such claims and to distribute the same after
deduction of its charges and expenses to the extent that any such charges and
expenses are not paid out of the estate in any such proceedings and any
custodian in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
or reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such proceedings.
<PAGE>
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Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07 hereof;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal, premium, if any, and interest as to each, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes; and
THIRD: to the Issuers or, to the extent the Trustee collects any
amounts from any Guarantor, to such Guarantor.
The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in
principal amount of the Notes then outstanding.
<PAGE>
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ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
-----------------
(a) If an Event of Default known to the Trustee has occurred and is
continuing, the Trustee shall exercise such rights and powers vested in it by
this Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default known to the
Trustee:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture but, in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it
<PAGE>
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is proved that the Trustee was negligent in ascertaining the pertinent
facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Sections 6.02, 6.04 and 6.05 hereof.
(4) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its rights or powers if it determines in the
exercise of its reasonable discretion that repayment of such funds or
adequate indemnity satisfactory to it against such risk or liability is not
reasonably assured to it.
(d) The Trustee is not under any obligation to exercise any of its
rights or powers at the request or direction of any of the Holders unless such
Holders shall have offered to the Trustee indemnity or security satisfactory to
it in its reasonable discretion against any loss, liability, expense or fee.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by the law.
(f) The Trustee shall not be deemed to have knowledge of any Default
or fact or event which might require the Trustee to take any action or give any
notice unless one of its Trust Officers has actual knowledge thereof.
(g) The Trustee is also being appointed, and may serve
contemporaneously with its service hereunder, as Trustee under the Senior
Discount Notes Indenture and shall not be considered to be conflicted in its
duties under either the Senior Discount Notes Indenture or this Indenture by
reason of its acting as trustee under the other. After an Event of Default (as
defined in the respective Indenture) under either the Sen-
<PAGE>
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ior Discount Notes Indenture or this Indenture, and in order that it might not
be conflicted in the performance of its duties under either Indenture, the
Trustee shall resign as trustee under one of the Indentures; provided, however,
-------- -------
that until the appointment of a successor Trustee, the Trustee shall not be
considered to have violated the standard set forth in Section 7.01(a) hereof by
continuing to act as Trustee under both the Senior Discount Notes Indenture and
this Indenture if it separates the performance of its discretionary duties under
the Senior Discount Notes Indenture and this Indenture within its corporate
trust department and retains separate counsel for itself as trustee under each
of such Indentures.
(h) Whether or not therein expressly so provided, paragraphs (a),
(b), (c), (d), (e), (f) and (g) of this Section 7.01 shall govern every
provision of this Indenture that in any way relates to the Trustee.
Section 7.02. Rights of Trustee.
-----------------
Subject to Section 7.01 hereof:
(1) The Trustee may rely on any document reasonably believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting with respect to
any matters contemplated by this Indenture or the Notes it may require an
Officers' Certificate or an Opinion of Counsel, or both, which shall
conform to the provisions of Section 12.05 hereof. The Trustee shall be
protected and shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion.
(3) The Trustee may act through Agents and shall not be responsible
for the misconduct or negligence of any agent so long as the appointment of
such agent was made with due care.
<PAGE>
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(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(5) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
Section 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may make loans to, accept deposits from, perform
services for or otherwise deal with the Issuers, or any Affiliates thereof, with
the same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. The Trustee, however, shall be subject to Sections 7.10 and
7.11 hereof.
Section 7.04. Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuers' use of the proceeds from the sale of Notes or any
money paid to the Issuers pursuant to the terms of this Indenture and it shall
not be responsible for any statement in the Notes other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Noteholder notice of the Default within
30 days after it occurs. Except in the case of a Default in payment of the
principal of, or premium, if any, or interest on any Note the Trustee may
withhold the notice if and so long as the board of directors of the
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Trustee, the executive committee or any trust committee of such board and/or its
Trust Officers in good faith determine(s) that withholding the notice is in the
interests of the Noteholders.
Section 7.06. Reports by Trustee to Holders.
-----------------------------
If required by TIA Section 313(a), within 60 days after May 15 of any
year, commencing the May 15 following the date of this Indenture, the Trustee
shall mail to each Noteholder a brief report dated as of such May 15 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c) and TIA Section 313(d).
Reports pursuant to this Section 7.06 shall be transmitted by mail:
(1) to all registered Holders, as the names and addresses of such
Holders appear on the Registrar's books; and
(2) to such Holder as have, within the two years preceding such
transmission, filed their names and addresses with the Trustee for that
purpose.
A copy of each report at the time of its mailing to Noteholders shall
be filed with the Commission and each stock exchange on which the Notes are
listed. The Issuers shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
Section 7.07. Compensation and Indemnity.
--------------------------
The Issuers shall pay to the Trustee from time to time such
compensation as shall be agreed in writing between the Issuers and the Trustee
for its services hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust). The Issuers shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or
<PAGE>
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made by it in connection with its duties under this Indenture, including the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Issuers shall indemnify each of the Trustee and its officers,
directors, employees and agents and any predecessor Trustee and its officers,
directors, employees and agents for, and hold each of them harmless against, any
and all loss, damage, claim, liability or expense, including taxes (other than
taxes based on the income of the Trustee) incurred by any of them in connection
with the acceptance or performance of its duties under this Indenture including
the reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of the powers or
duties of the Trustee hereunder (including, without limitation, settlement
costs). The Trustee shall notify the Issuers in writing promptly of any claim
asserted against the Trustee or any such officer, director, employee or agent
for which any of them may seek indemnity. However, the failure by the Trustee
to so notify the Issuers shall not relieve the Issuers of their obligations
hereunder except to the extent the Issuers are prejudiced thereby. This
indemnity shall survive the termination of this Indenture, final payment of the
Notes, and resignation or removal of the Trustee.
Notwithstanding the foregoing, the Issuers need not reimburse the
Trustee or any such officer, director, employee or agent for any expense or
indemnify any of them against any loss or liability incurred by the Trustee or
any such officer, director, employee or agent through its negligence, willful
misconduct or bad faith. To secure the payment obligations of the Issuers in
this Section 7.07, the Trustee shall have a lien prior to the Notes on all money
or Property held or collected by the Trustee except such money or Property held
in trust to pay principal of and interest on particular Notes.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
<PAGE>
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For purposes of this Section 7.07, the term "Trustee" shall include
any trustee appointed pursuant to Article 9.
Section 7.08. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Issuers in writing. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by notifying the removed Trustee in writing and may appoint a
successor Trustee with the Issuers' written consent which consent shall not be
unreasonably withheld. The Issuers may remove the Trustee at its election if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its Property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers or the
holders of a majority in principal amount of the outstanding Notes may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
<PAGE>
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
7.07 hereof, transfer all property held by it as Trustee to the successor
Trustee, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Issuers' obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Consolidation, Merger or Conversion.
--------------------------------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, subject to Section 7.10 hereof, the successor corporation without
any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5) in every respect. The
Trustee shall have a combined capital and surplus of at least $100,000,000 as
set forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b), including the provision in Section
310(b)(1). The provisions of TIA Section 310 shall apply to the Issuers as
obligors of the Notes.
Section 7.11. Preferential Collection of Claims Against Issuers.
-------------------------------------------------
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311 (b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
<PAGE>
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The provisions of TIA Section 311 shall apply to the Issuers as obligors of the
Notes.
Section 7.12. Paying Agents.
-------------
The Issuers shall cause each Paying Agent other than the Trustee to
execute and deliver to it and the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 7.12:
(A) that it will hold all sums held by it as agent for the payment of
principal of, or premium, if any, or interest on, the Notes (whether such
sums have been paid to it by the Issuers or by any obligor on the Notes) in
trust for the benefit of Holders or the Trustee;
(B) that it will at any time during the continuance of any Event of
Default, upon written request from the Trustee, deliver to the Trustee all
sums so held in trust by it together with a full accounting thereof; and
(C) that it will give the Trustee written notice within three (3)
Business Days of any failure of the Issuers (or by any other obligor on the
Notes) in the payment of any installment of the principal of, premium, if
any, or interest on, the Notes when the same shall be due and payable.
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. Without Consent of Holders.
--------------------------
The Issuers and the Guarantors, when authorized by a Board Resolution,
and the Trustee may amend or supplement this Indenture or the Notes without
notice to or consent of any Noteholder:
(1) to comply with Section 5.01 hereof;
<PAGE>
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(2) to provide for uncertificated Notes in addition to or in place of
Certificated Notes;
(3) to comply with any requirements of the Commission under the TIA;
(4) to cure any ambiguity, defect or inconsistency, or to make any
other change that does not, in the opinion of the Trustee, materially and
adversely affect the rights of any Noteholder;
(5) add Guarantors with respect to the Notes; or
(6) release Guarantors when permitted by this Indenture.
The Trustee is hereby authorized to join with the Issuers and the
Guarantors in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee
shall not be obligated to enter into any such supplemental indenture which
adversely affects its own rights, duties or immunities under this Indenture.
Section 8.02. With Consent of Holders.
-----------------------
The Issuers, the Guarantors and the Trustee may modify or supplement
this Indenture or the Notes with the written consent of the Holders of not less
than a majority in principal amount of the outstanding Notes without notice to
any Noteholder. The Holders of not less than a majority in aggregate principal
amount of the outstanding Notes may waive compliance in a particular instance by
the Issuers and the Guarantors with any provision of this Indenture or the Notes
without notice to any Noteholder. Subject to Section 8.04, without the consent
of each Noteholder affected, however, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.04, may not:
<PAGE>
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(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver to this Indenture or the Notes;
(2) reduce the rate of or change the time for payment of interest
(including Additional Interest (as defined in the Registration Rights
Agreement)) on any Note;
(3) reduce the principal of, or premium on, or change the stated
maturity, of any Note or change the date on which any Notes may be subject
to redemption or repurchase or reduce the redemption or repurchase price
therefor;
(4) make any Note payable in money other than that stated in the Note
or change the place of payment from New York, New York;
(5) waive a Default in the payment of the principal of, or interest
on, or any redemption payment with respect to, any Note;
(6) make any changes in Sections 6.04 or 6.07 hereof or this sentence
of Section 8.02;
(7) amend, change or modify in any material respect, the obligation
of the Issuers to make and consummate a Change of Control Offer in the
event of a Change of Control or, make and consummate an Excess Proceeds
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto;
(8) modify or change any provision of this Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders; or
(9) release any Guarantor other than Holdings from any of its
obligations under its Guarantee or this Inden-
<PAGE>
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ture otherwise than in accordance with the terms of this Indenture.
After an amendment, supplement or waiver under this Section 8.02
becomes effective, the Issuers shall mail to the Holders a notice briefly
describing the amendment, supplement or waiver.
Upon the request of the Issuers, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
receipt by the Trustee of evidence reasonably satisfactory to the Trustee of the
consent of the Noteholders as aforesaid and upon receipt by the Trustee of the
documents described in Section 8.06 hereof, the Trustee shall join with the
Issuers and the Guarantors in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
Section 8.03. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
Section 8.04. Revocation and Effect of Consents.
---------------------------------
Until an amendment, supplement, waiver or other action becomes
effective, a consent to it by a Holder is a continuing consent conclusive and
binding upon such Holder and every subsequent Holder of the same Note or portion
thereof, and of any Note issued upon the transfer thereof or in exchange
therefor or in place thereof, even if notation of the consent is not made on any
such Note. Any such Holder or subsequent Holder, however, may revoke the
consent as to his Note or por-
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tion of a Note, if the Trustee receives the notice of revocation before the date
the amendment, supplement, waiver or other action becomes effective.
The Issuers may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement, or waiver. If a record date is fixed, then, notwithstanding the
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only such Persons, shall be entitled to
consent to such amendment, supplement, or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date unless the consent of the requisite number of Holders has
been obtained.
After an amendment, supplement, waiver or other action becomes
effective, it shall bind every Noteholder, unless it makes a change described in
any of clauses (1) through (9) of Section 8.02 hereof. In that case the
amendment, supplement, waiver or other action shall bind each Holder who has
consented to it and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note.
Section 8.05. Notation on or Exchange of Notes.
--------------------------------
If an amendment, supplement, or waiver changes the terms of a Note,
the Trustee may request the Holder to deliver it to the Trustee. In such case,
the Trustee shall place an appropriate notation on the Note about the changed
terms and return it to the Holder. Alternatively, if the Issuers or the Trustee
so determine, the Issuers in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation or issue a new Note shall not affect the validity and
effect of such amendment supplement or waiver.
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Section 8.06. Trustee to Sign Amendments, etc.
-------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article 8 if the amendment, supplement or waiver does not
materially adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may, but need not, sign it. In signing or
refusing to sign such amendment, supplement or waiver the Trustee shall be
entitled to receive and, subject to Section 7.01 hereof, shall be fully
protected in relying upon an Officers' Certificate and an Opinion of Counsel
stating that such amendment, supplement or waiver is authorized or permitted by
this Indenture. The Issuers and each Guarantor may not sign an amendment or
supplement until the Board of Directors of each of the Issuers and each such
Guarantor approves it.
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of Notes herein
expressly provided for) and the Trustee, on written demand of and at the expense
of the Issuers, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when either:
(a) all Notes theretofore authenticated and delivered (other than (A)
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.07 hereof and (B) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuers and thereafter repaid to the Issuers or
discharged from such trust) have been delivered to the Trustee for
cancellation; or
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(b) (i) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Issuers have irrevocably
deposited or caused to be deposited with the Trustee in trust for the
purpose an amount of U.S. legal tender or U.S. Government Obligations
sufficient to pay and discharge the entire Indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for the principal
of, premium, if any, and interest to the date of such deposit; (ii) the
Issuers have paid or caused to be paid all other sums payable hereunder by
the Issuers; and (iii) the Issuers have delivered to the Trustee (A)
irrevocable instructions to apply the deposited money toward payment of the
Notes at the maturity thereof, and (B) an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuers to the Trustee under Section 7.07 and, if money shall
have been deposited with the Trustee pursuant to subclause (a)(B) of this
Section 9.01, the obligations of the Trustee under Section 9.05, shall survive.
Section 9.02. Legal Defeasance.
----------------
The Issuers may at their option, by Board Resolution, be discharged
from their obligations with respect to the Notes and the Guarantors discharged
from their obligations under the Guarantees (hereinafter, "Legal Defeasance").
For this purpose, such Legal Defeasance means that the Issuers shall be deemed
to have paid and discharged the entire indebtedness represented by the Notes and
to have satisfied all of their other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the expense
of the Issuers, shall, subject to Section 9.06 hereof, execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of outstanding Notes to receive solely from the trust funds described in
Section 9.04 hereof and as more fully set forth in such Section, payments in
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respect of the principal of, premium, if any, and interest on such Notes when
such payments are due, (B) the Issuers' obligations with respect to such Notes
under Article 2 and Section 4.17 hereof, (C) the rights, powers, trusts, duties,
and immunities of the Trustee hereunder (including claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof) and (D) this Article 9.
Subject to compliance with this Article 9, the Issuers may exercise their option
under this Section 9.02 with respect to the Notes notwithstanding the prior
exercise of their option under Section 9.03 below with respect to the Notes.
Section 9.03. Covenant Defeasance.
-------------------
At the option of the Issuers, pursuant to a Board Resolution, the
Issuers and the Guarantors shall be released from their respective obligations
under Sections 4.02, 4.04 through 4.14, 4.16, and 4.18 through 4.23 hereof, and
clause (3) of the first paragraph of Section 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 9.04
hereof are satisfied (hereinafter, "Covenant Defeasance"). For this purpose,
such Covenant Defeasance means that the Issuers may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such specified Section or portion thereof, whether directly or
indirectly by reason of any reference elsewhere herein to any such specified
Section or portion thereof or by reason of any reference in any such specified
Section or portion thereof to any other provision herein or in any other
document, but the remainder of this Indenture and the Notes shall be unaffected
thereby.
Section 9.04. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of Section 9.02
or Section 9.03 hereof to the outstanding Notes:
(1) the Issuers shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trus-
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tee satisfying the requirements of Section 7.10 hereof who shall agree to
comply with the provisions of this Article 9 applicable to it) as funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders, (A) U.S. legal tender in an amount, or (B) U.S. Government
Obligations which through the scheduled payment of principal and interest
in respect thereof in accordance with their terms will provide, not later
than the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge, the
principal of, premium, if any, and accrued interest on the outstanding
Notes at the maturity date of such principal, premium, if any, or interest,
or on dates for payment and redemption of such principal, premium, if any,
and interest selected in accordance with the terms of this Indenture and of
the Notes; provided, however, that the Trustee (or other qualifying
-------- -------
trustee) shall have received an irrevocable written order from the Issuers
instructing the Trustee (or other qualifying trustee) to apply such money
or the proceeds of such U.S. Government Obligations to said payments with
respect to the Notes;
(2) no Event of Default or Default shall have occurred and no Event
of Default of the type specified in Section 6.01(g) or (h) shall have
occurred and be continuing on the date of such deposit, or shall have
occurred and be continuing at any time during the period ending on the 91st
day after the date of such deposit or, if longer, ending on the day
following the expiration of the longest preference period under any
Bankruptcy Law applicable to the Issuers in respect of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period);
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(3) such Legal Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest for purposes of the TIA with respect
to any securities of the Issuers;
(4) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute default under any other material
agreement or instrument to which the Issuers or any of their Subsidiaries
are a party or by which any Issuer or any of its Subsidiaries is bound;
(5) the Issuers shall have delivered to the Trustee an Opinion of
Counsel stating that, as a result of such Legal Defeasance or Covenant
Defeasance, neither the trust nor the Trustee will be required to register
as an investment company under the Investment Company Act of 1940, as
amended;
(6) in the case of an election under Section 9.02 above, the Issuers
shall have delivered to the Trustee an Opinion of Counsel stating that (i)
the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling to the effect that or (ii) there has been
a change in any applicable Federal income tax law with the effect that, and
such opinion shall confirm that, the Holders of the outstanding Notes or
persons in their positions will not recognize income, gain or loss for
Federal income tax purposes solely as a result of such Legal Defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner, including as a result of prepayment, and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(7) in the case of an election under Section 9.03 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel describing either
a private ruling concerning the Notes or a published ruling of the Internal
Revenue Service to the effect that the Holders of the outstanding Notes
will not recognize income, gain or loss for Federal income tax purposes as
a result of such Covenant
<PAGE>
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Defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(8) the Issuers shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance under
Section 9.02 above or the Covenant Defeasance under Section 9.03 hereof (as
the case may be) have been complied with;
(9) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by the
Issuers with the intent of preferring the holders of the Notes over any
other creditors of the Issuers or with the intent of defeating, hindering,
delaying or defrauding any creditors of the Issuers or others; and
(10) the Issuers shall have delivered to the Trustee an Opinion of
Counsel to the effect that:
(a) the funds deposited in trust will not be subject to any rights
of holders of Senior Indebtedness, including, without
limitation, those arising under this Indenture, and
(b) assuming no intervening event of the type described in Section
6.01(g) or (h) shall occur and no Holder is an "insider" (as
such term is used under applicable Bankruptcy Law) of any Issuer
after the 91st day after the date of such deposit or, if longer,
ending on the day following the expiration of the longest
preference period under any Bankruptcy Law applicable to the
Issuers in respect of such deposit, the funds deposited in trust
will not be subject to the effect of any Bankruptcy Law; and
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(11) before or after a deposit, the Issuers may make arrangements
satisfactory to the Trustee for the redemption of Notes at a future date in
accordance with Section 3.07(a) hereof.
Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
-------------------------------------
All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 9.01 or 9.04 hereof in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Notes, of all sums due and to become due
thereon in respect of principal, premium, if any, and accrued interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Issuers and the Guarantors shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 9.01 or 9.04 hereof or the
principal, premium, if any, and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of the Holders
of the outstanding Notes.
Anything in this Article 9 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon a written
request of the Issuers in the form of an Officers' Certificate any money or U.S.
Government Obligations held by it as provided in Section 9.01 or 9.04 hereof
which, in the opinion of a nationally-recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
<PAGE>
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Section 9.06. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 9.01, 9.02 or 9.03 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Issuers' and each Guarantor's obligations under this
Indenture, the Notes and the Guarantees shall be revived and reinstated as
though no deposit had occurred pursuant to this Article 9 until such time as the
Trustee or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with Section 9.01 hereof; provided, however, that if
-------- -------
the Issuers or the Guarantors have made any payment of principal of, premium, if
any, or accrued interest on any Notes because of the reinstatement of their
obligations, the Issuers and each such Guarantor shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
Section 9.07. Moneys Held by Paying Agent.
---------------------------
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Issuers, be paid to the Trustee, or if sufficient
moneys have been deposited pursuant to Section 9.01 hereof, to the Issuers (or,
if such moneys had been deposited by any Guarantor, to such Guarantor) and
thereupon such Paying Agent shall be released from all further liability with
respect to such moneys.
Section 9.08. Moneys Held by Trustee.
----------------------
Any moneys deposited with the Trustee or any Paying Agent or then held
by the Issuers or any Guarantor in trust for the payment of the principal of, or
premium, if any, or interest on any Note that are not applied but remain
unclaimed by the Holder of such Note for two years after the date upon which the
principal of, or premium, if any, or interest on such Note shall have
respectively become due and payable shall be repaid
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to the Issuers (or, if appropriate, the applicable Guarantor) upon a written
request of the Issuers in the form of an Officers' Certificate, or if such
moneys are then held by the Issuers or any Guarantor in trust, such moneys shall
be released from such trust; and the Holder of such Note entitled to receive
such payment shall thereafter, as an unsecured general creditor, look only to
the Issuers and the Guarantors for the payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money shall thereupon
cease.
ARTICLE 10
GUARANTEES
Section 10.01. Guarantees.
----------
Each Guarantor hereby unconditionally and irrevocably guarantees,
jointly and severally, to each Holder and to the Trustee on behalf of the
Holders and its successors and assigns (a) the due and punctual payment of
principal of, premium, if any, and interest on the Notes when due, whether at
maturity, by acceleration, by redemption or otherwise, and all other monetary
obligations of the Issuers under this Indenture, the Notes and the Registration
Rights Agreement and (b) the full and punctual performance within applicable
grace periods of all other obligations of the Issuers under this Indenture, the
Notes and the Registration Rights Agreement (all the foregoing being hereinafter
collectively called the "Guaranteed Obligations"). Each Guarantor further
agrees that the Guaranteed Obligations may be extended or renewed, in whole or
in part, without notice or further assent from such Guarantor and that such
Guarantor will remain bound under this Article 10 notwithstanding any extension
or renewal of any Guaranteed Obligation.
Each Guarantor waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of any
Issuer, any right to require a proceeding first against the Issuer, protest,
notice and all
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demands whatsoever. Each Guarantor waives notice of any default under the Notes
or the Guaranteed Obligations. The obligations of each Guarantor hereunder shall
not be affected by (a) the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any right or remedy against the Company or any
other Person under this Indenture, the Notes or any other agreement or
otherwise; (b) any extension or renewal of any thereof; (c) any rescission,
waiver, amendment or modification of any of the terms or provisions of this
Indenture, the Notes or any other agreement; (d) the release of any security
held by any Holder or the Trustee for the Guaranteed Obligations or any of them;
(e) the failure of any Holder or the Trustee to exercise any right or remedy
against any other guarantor of the Guaranteed Obligations; or (f) except as
provided in Section 10.06, any change in the ownership of such Guarantor.
Except as expressly set forth in Sections 10.02 and 10.06, the
obligations of each Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be subject
to any defense of setoff, counterclaim, recoupment or termination whatsoever or
by reason of the invalidity, illegality or unenforceability of the Guaranteed
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor herein shall not be discharged or impaired or
otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Notes or any
other agreement, by any waiver or modification of any thereof, by any default,
failure or delay, willful or otherwise, in the performance of the Guaranteed
Obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
such Guarantor or would otherwise operate as a discharge of such Guarantor as a
matter of law or equity.
Each Guarantor further agrees that its Guarantee herein shall continue
to be effective or be reinstated, as the
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case may be, if at any time payment, or any part thereof, of principal of,
premium, if any, or interest on any Guaranteed Obligation is rescinded or must
otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of any Issuer or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Guarantor by virtue hereof, upon the failure of any Issuer to pay the principal
of, premium, if any, or interest on any obligation under the Notes or this
Indenture when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any other
obligation under the Notes or this Indenture, each Guarantor hereby promises to
and will, upon receipt of written demand by the Trustee, forthwith pay, or cause
to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of
(i) the unpaid amount of such Guaranteed Obligations, (ii) accrued and unpaid
interest on such Guaranteed Obligations (but only to the extent not prohibited
by law) and (iii) all other monetary Guaranteed Obligations of the Issuers to
the Holders and the Trustee.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in respect of any Guaranteed Obligations guaranteed hereby until
payment in full of all Guaranteed Obligations. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the Guaranteed Obligations hereby may be
accelerated as provided in Section 6 for the purposes of such Guarantor's
Guarantee herein, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the obligations under the Notes or
this Indenture guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Section 6, such obligations
(whether or not due and payable) shall forthwith become due and payable by such
Guarantor for the purposes of this Section.
Each Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by
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the Trustee or any Holder in enforcing any rights under this Article 10.
Section 10.02. Limitation on Liability.
-----------------------
Any term or provision of this Indenture to the contrary
notwithstanding, the maximum aggregate amount of the obligations guaranteed
hereunder by any Guarantor shall not exceed the maximum amount that can be
hereby guaranteed without rendering this Indenture, as it relates to such
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
To effectuate the foregoing intention, the obligations of each Guarantor shall
be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations hereunder, result in the obligations of
such Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the Adjusted Net Assets
--- ----
of each Guarantor.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 10.03. Successors and Assigns.
----------------------
This Article 10 shall be binding upon each Guarantor and its
successors and assigns and shall enure to the benefit of the successors and
assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
conferred upon that party in this Indenture and in the Notes shall automatically
extend to and be vested in such transferee or as-
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signee, all subject to the terms and conditions of this Indenture.
Section 10.04. No Waiver.
---------
Neither a failure nor a delay on the part of either the Trustee or the
Holders in exercising any right, power or privilege under this Article 10 shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any right, power or privilege. The
rights, remedies and benefits of the Trustee and the Holders herein expressly
specified are cumulative and not exclusive of any other rights, remedies or
benefits which either may have under this Article 10 at law, in equity, by
statute or otherwise.
Section 10.05. Modification.
------------
No modification, amendment or waiver of any provision of this Article
10, nor the consent to any departure by any Guarantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Trustee, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on any
Guarantor in any case shall entitle such Guarantor to any other or further
notice or demand in the same, similar or other circumstances.
Section 10.06. Release of Guarantor.
--------------------
A Guarantor shall be released from all of its obligations under its
Guarantee if:
(i) the Guarantor has sold all or substantially all of its assets or
the Company and its Restricted Subsidiaries have sold all of the Capital
Stock of the Guarantor owned by them, in each case in a transaction in
compliance with Sections 4.09 and 5.01 hereof; or
(ii) the Guarantor merges with or into or consolidates with, or
transfers all or substantially all of its
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assets to, the Company or another Guarantor in a transaction in compliance
with Section 5.01 hereof;
and in each such case, such Guarantor has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to such transactions have been complied
with.
Section 10.07. Execution of Supplemental Indenture for Future Guarantors.
---------------------------------------------------------
Each Subsidiary which is required to become a Guarantor pursuant to
Section 4.22 shall, and the Issuers shall cause each such Subsidiary to,
promptly execute and deliver to the Trustee a supplemental indenture in the form
of Exhibit F hereto pursuant to which such Subsidiary shall become a Guarantor
---------
under this Section 10 and shall guarantee the obligations of the Company under
the Notes and this Indenture. Concurrently with the execution and delivery of
such supplemental indenture, the Company shall deliver to the Trustee an Opinion
of Counsel to the effect that such supplemental indenture has been duly
authorized, executed and delivered by such Subsidiary and that, subject to the
application of bankruptcy, insolvency, moratorium, fraudulent conveyance or
transfer and other similar laws relating to creditors' rights generally and to
the principles of equity, whether considered in a proceeding at law or in
equity, the Guarantee of such Guarantor is a legal, valid and binding obligation
of such Guarantor, enforceable against such Guarantor in accordance with its
terms.
Section 10.08. Execution and Delivery of Guarantees.
------------------------------------
To evidence the Guarantee set forth in this Article 10, each Guarantor
hereby agrees that a notation of such Guarantee substantially in the form of
Exhibit E hereto shall be placed on each Note authenticated and made available
- ---------
for delivery by the Trustee and that this Guarantee shall be executed on behalf
of each Guarantor by the manual or facsimile signature of two Officers or an
Officer and the Secretary of each Guarantor.
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Each Guarantor hereby agrees that the Guarantee set forth in Section
10.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on the Guarantee no
longer holds that office at the time the Trustee authenticates the Note on which
the Guarantee is endorsed, the Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of each Guarantor.
Section 10.09. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
------------------------------------------------------
Each Guarantor covenants and agrees, and each Holder, by its
acceptance thereof, likewise covenants and agrees, that to the extent and in the
manner hereinafter set forth in this Article 10, the Indebtedness represented by
the Guarantee and the payment of all Obligations on the Notes pursuant to the
Guarantee by such Guarantor are hereby expressly made subordinate in right of
payment as provided in this Article 10 to the prior indefeasible payment and
satisfaction in full in cash of all Obligations in respect of all Guarantor
Senior Indebtedness of such Guarantor (including post-petition interest
thereon).
This Section 10.09 and the following Sections 10.10 through 10.14 are
for the benefit of, and shall be enforceable directly by, the holders of
Guarantor Senior Indebtedness, each holder is made an obligee hereunder, and
each holder of any Guarantor Senior Indebtedness, whether now outstanding or
hereafter created, incurred, assumed or guaranteed, shall be deemed to have
acquired such Guarantor Senior Indebtedness in reliance upon the covenants and
provisions contained in this Indenture and the Notes.
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Section 10.10. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor.
---------------------------------------------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to any Guarantor or to its
creditors, as such, or to its assets, whether voluntary or involuntary, or (b)
any liquidation, dissolution or other winding-up of any Guarantor, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
or (c) any general assignment for the benefit of creditors or any other
marshaling of assets or liabilities of any Guarantor, then and in any such
event:
(1) the holders of all Guarantor Senior Indebtedness of such
Guarantor shall be entitled to receive indefeasible payment and
satisfaction in full in cash, of all amounts due on or in respect of all
such Guarantor Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Guarantor Senior Indebtedness, whether or not an allowed claim), of such
Guarantor before the Holders are entitled to receive or retain, pursuant to
the Guarantee of such Guarantor, any payment or distribution of any kind
or character (other than payment or distribution from the trust described
in Section 9.04) by such Guarantor on account of any of the Guaranteed
Obligations; and
(2) any payment or distribution of assets of such Guarantor of any
kind or character, whether in cash, Property or securities, by set-off or
otherwise, to which the Holders or the Trustee would be entitled but for
the subordination provisions of this Article 10 shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Guarantor Senior
Indebtedness of such Guarantor or their representative or representatives
or to the trustee or trustees under any indenture under which any
instruments evidencing any of such Guarantor Senior Indebtedness may have
been issued, ratably ac-
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cording to the aggregate amounts remaining unpaid on account of such
Guarantor Senior Indebtedness held or represented by each, to the extent
necessary to make indefeasible payment in full in cash of all such
Guarantor Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Guarantor Senior
Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section 10.10, the Trustee or any Holder shall have received any
payment or distribution of assets of such Guarantor of any kind or
character, whether in cash, Property or securities, including, without
limitation, by way of set-off or otherwise, in respect of any of the
Guaranteed Obligations before all Guarantor Senior Indebtedness of such
Guarantor is indefeasibly paid in full, then and in such event such payment
or distribution shall be held in trust for the benefit of and shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making
payment or distribution of assets of such Guarantor for application to the
payment of all such Guarantor Senior Indebtedness remaining unpaid, to the
extent necessary to pay all of such Guarantor Senior Indebtedness in full
in cash, Cash Equivalents or, as acceptable to the holders of such
Guarantor Senior Indebtedness, any other manner, after giving effect to any
concurrent payment or distribution to or for the holders of such Guarantor
Senior Indebtedness.
To the extent any payment of Guarantor Senior Indebtedness (whether by
or on behalf of any Issuer, as proceeds of security or enforcement of any right
of setoff or otherwise) is declared to be fraudulent or preferential, set aside
or required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then, if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person, the Guarantor Senior
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Indebtedness or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
The consolidation of a Guarantor with, or the merger of a Guarantor
with or into, another Person or the liquidation or dissolution of a Guarantor
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article 5 hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of such Guarantor for the purposes of this
Article 10 if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in such Article 5 hereof.
Section 10.11. Suspension of Guaranteed Obligations When
Guarantor Senior Indebtedness in Default.
----------------------------------------
(a) Unless Section 10.10 hereof shall be applicable, after the
occurrence of a Payment Default no payment or distribution (other than a payment
or distribution from the trust described in Section 9.04) of any kind or
character (including, without limitation, cash, Property and any payment or
distribution which may be payable or deliverable by reason of the payment of any
other Indebtedness of such Guarantor being subordinated to its Guaranteed
Obligations) may be made by or on behalf of such Guarantor (or any Subsidiary of
such Guarantor), including, without limitation, by way of set-off or otherwise,
for or on account of the Notes or its Guaranteed Obligations, and neither the
Trustee nor any Holder shall take or receive from any Guarantor (or any
Subsidiary of such Guarantor), directly or indirectly in any manner, payment in
respect of all or any portion of the Notes or its Guaranteed Obligations
commencing on the date of the receipt by the Trustee of written notice from the
representative of the holders of Guarantor Senior Indebtedness (the "Guarantor
Representative") of the occur-
<PAGE>
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rence of a Payment Default, and in any such event, such prohibition shall
continue until such Payment Default is cured, waived in writing or ceases to
exist. At such time as the prohibition set forth in the preceding sentence shall
no longer be in effect, subject to the provisions of the following paragraph
(b), such Guarantor shall resume making any and all required payments in respect
of the Guaranteed Obligations.
(b) Unless Section 10.10 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness
of any Guarantor, no payment or distribution (other than a payment or
distribution made from the trust described in Section 9.04) of any assets of
such Guarantor of any kind or character (including, without limitation, cash,
Property and any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of such Guarantor being
subordinated to its Guaranteed Obligations) shall be made by such Guarantor,
including, without limitation, by way of set-off or otherwise, for or on account
of the Notes or any of its Guaranteed Obligations or any Obligations under the
Notes, the Registration Rights Agreement or this Indenture, or for or on account
of the purchase, redemption or other acquisition of any Notes and neither the
Trustee nor any Holder shall take or receive from such Guarantor, directly or
indirectly in any manner, payment in respect of all or any portion of the
Guaranteed Obligations or any Obligations under the Notes, the Registration
Rights Agreement or this Indenture, or for or on account of the purchase,
redemption or other acquisition of any Notes for a period (the "Guarantee
Payment Blockage Period") commencing on the date of receipt by the Trustee of
written notice from the Guarantor Representative of such Non-Payment Event of
Default, unless and until (subject to any blockage of payments that may then be
in effect under the preceding paragraph (a)) the earliest to occur of the
following events: (w) more than 179 days shall have elapsed since the date of
receipt of such written notice by the Trustee, (x) such Non-Payment Event of
Default shall have been cured or waived in writing or shall have ceased to
exist, (y) such Designated Senior Indebtedness shall have been indefeasibly paid
in full in cash or (z) such Guarantee Payment Blockage
<PAGE>
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Period shall have been terminated by written notice to such Guarantor or the
Trustee from the Guarantor Representative, after which, in the case of clause
(w), (x), (y) or (z), such Guarantor shall resume making any and all required
payments in respect of the Guaranteed Obligations. Notwithstanding any other
provisions of this Indenture, in no event shall a Guarantee Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Trustee of the
notice referred to in this Section 10.11(b) or, in the event of a Non-Payment
Event of Default which formed the basis for a Payment Blockage Period under
Section 11.03(b) hereof, 179 days from the date of the receipt by the Trustee of
the notice referred to in Section 11.03(b) (the "Initial Guarantee Blockage
Period"). Any number of additional Guarantee Payment Blockage Periods may be
commenced during the Initial Guarantee Blockage Period; provided, however, that
-------- -------
no such additional Guarantee Payment Blockage Period shall extend beyond the
Initial Guarantee Blockage Period. After the expiration of the Initial Guarantee
Blockage Period, no Guarantee Payment Blockage Period may be commenced under
this Section 10.11(b) and no Payment Blockage Period may be commenced under
Section 11.03(b) hereof until at least 180 consecutive days have elapsed from
the last day of the Initial Guarantee Blockage Period. Notwithstanding any other
provisions of this Indenture, no Non-Payment Event of Default with respect to
Designated Senior Indebtedness which existed or was continuing on the date of
the commencement of any Guarantee Payment Blockage Period initiated by the
Guarantor Representative shall be, or be made, the basis for the commencement of
a second Guarantee Payment Blockage Period initiated by the Guarantor
Representative unless such Non-Payment Event of Default shall have been cured or
waived for a period of not less than 90 consecutive days. Notwithstanding the
foregoing, if the obligations of the Issuers under the Notes have been
accelerated pursuant to Article 6 of this Indenture or otherwise, the Trustee
shall be deemed to have received notice from the Guarantor Representative of a
Non-Payment Event of Default relating to such acceleration as provided for in
the first sentence of this clause (b).
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(c) In the event that, notwithstanding the foregoing, the Trustee or
any Holder receives any payment or distribution of assets of such Guarantor of
any kind, whether in cash, Property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Guaranteed
Obligations, before all Guarantor Senior Indebtedness of such Guarantor is
indefeasibly paid and satisfied in full in cash, then such payment or
distribution (other than a payment or distribution from the trust described in
Section 9.04) will be held by the recipient in trust for the benefit of holders
of Guarantor Senior Indebtedness and will be immediately paid over or delivered
to the holders of Guarantor Senior Indebtedness or their representative or
representatives to the extent necessary to make a payment in full of all
Guarantor Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Guarantor Senior Indebtedness.
Section 10.12. Subrogation to Rights of Holders of
Guarantor Senior Indebtedness.
-----------------------------------
Upon the payment in full of all amounts payable under or in respect of
all Guarantor Senior Indebtedness of a Guarantor, the Holders shall be
subrogated to the rights of the holders of such Guarantor Senior Indebtedness to
receive payments and distributions of cash, Property and securities of such
Guarantor made on such Guarantor Senior Indebtedness until all amounts due to be
paid under the Guarantee shall be paid in full. For the purposes of such
subrogation, no payments or distributions to holders of Guarantor Senior
Indebtedness of any cash, Property or securities to which Holders or the Trustee
would be entitled except for the provisions of this Article 10, and no payments
over pursuant to the provisions of this Article 10 to holders of Guarantor
Senior Indebtedness by Holders or the Trustee, shall, as among each Guarantor,
its creditors other than holders of Guarantor Senior Indebtedness and the
Holders, be deemed to be a payment or distribution by such Guarantor to or on
account of such Guarantor Senior Indebtedness.
<PAGE>
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If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 10 shall have been
applied, pursuant to the provisions of this Article 10, to the payment of all
amounts payable under Guarantor Senior Indebtedness, then and in such case, the
Holders shall be entitled to receive from the holders of such Guarantor Senior
Indebtedness at the time outstanding any payments or distributions received by
such holders of Guarantor Senior Indebtedness in excess of the amount sufficient
to pay all amounts payable under or in respect of such Guarantor Senior
Indebtedness in full in cash.
Section 10.13. Guarantee Subordination Provisions Solely
to Define Relative Rights.
-----------------------------------------
The subordination provisions of this Article 10 are and are intended
solely for the purpose of defining the relative rights of the Holders on the one
hand and the holders of Guarantor Senior Indebtedness on the other hand.
Nothing contained in this Article 10 or elsewhere in this Indenture or in the
Notes is intended to or shall (a) impair, as among each Guarantor, its creditors
other than holders of its Guarantor Senior Indebtedness and the Holders, the
obligation of such Guarantor, which is absolute and unconditional, to make
payments to the Holders in respect of the Guaranteed Obligations in accordance
with its terms; or (b) affect the relative rights against such Guarantor of the
Holders and creditors of such Guarantor other than the holders of the Guarantor
Senior Indebtedness; or (c) prevent the Trustee or any Holder from exercising
all remedies otherwise permitted by applicable law upon a Default or an Event of
Default under this Indenture, subject to the rights, if any, under this Article
10 of the holders of Guarantor Senior Indebtedness (1) in any case, proceeding,
dissolution, liquidation or other winding-up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Issuers referred
to in Section 10.10 hereof, to receive, pursuant to and in accordance with such
Section, cash, Property and securities otherwise payable or deliverable to the
Trustee or such Holder, or (2) under the conditions specified in Section 10.11
hereof, to prevent any payment prohibited by
<PAGE>
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such Section or enforce their rights pursuant to Section 10.11(c) hereof.
The failure by any Guarantor to make a payment in respect of its
obligations on its Guarantee by reason of any provision of this Article 10 shall
not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 10.14. Application of Certain Article 11
Provisions.
---------------------------------
The provisions of Sections 11.04, 11.07, 11.08, 11.09, 11.10, 11.12
and 11.13 hereof shall apply, mutatis mutandis, to each Guarantor and their
------- --------
respective holders of Guarantor Senior Indebtedness and the rights, duties and
obligations set forth therein shall govern the rights, duties and obligations of
each Guarantor, the holders of Guarantor Senior Indebtedness, the Holders and
the Trustee with respect to the Guarantee and all references therein to Article
11 hereof shall mean this Article 10.
ARTICLE 11
SUBORDINATION OF NOTES
Section 11.01. Notes Subordinate to Senior Indebtedness.
----------------------------------------
The Issuers covenants and agrees, and each Holder, by its acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Article 11, the Indebtedness represented by the
Notes and the payment of all Obligations on the Notes are hereby expressly made
subordinate in right of payment as provided in this Article 11 to the prior
indefeasible payment and satisfaction in full in cash of all Obligations in
respect of all Senior Indebtedness (including post-petition interest thereon).
The provisions of this Article 11 are for the benefit of, and shall be
enforceable directly by, the holders of Senior Indebtedness of each Issuer, each
holder is made an obligee
<PAGE>
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hereunder, and each holder of Senior Indebtedness of an Issuer whether now
outstanding or hereafter created, incurred, assumed or guaranteed shall be
deemed to have acquired Senior Indebtedness of such Issuer in reliance upon the
covenants and provisions contained in this Indenture and the Notes.
Section 11.02. Payment Over of Proceeds upon
Dissolution, etc.
-----------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Issuers or to its creditors,
as such, or to its assets, whether voluntary or involuntary or (b) any
liquidation, dissolution or other winding-up any Issuer, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (c) any
general assignment for the benefit of creditors or any other marshalling of
assets or liabilities of the Company, then and in any such event:
(1) the holders of Senior Indebtedness of such Issuer shall be
entitled to receive indefeasible payment and satisfaction in full in cash
of all amounts due on or in respect of all Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness, whether or not an allowed
claim), of such Issuer before the Holders are entitled to receive or retain
any payment or distribution of any kind or character (other than a payment
or distribution from the trust described in Section 9.04) on account of the
Notes or any Obligations on the Notes, the Registration Rights Agreement or
this Indenture; and
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, Property or securities, by set-off or
otherwise, to which the Holders or the Trustee would be entitled but for
the provisions of this Article 11 shall be paid by the liquidating trustee
or agent or other Person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
directly to
<PAGE>
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the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Senior Indebtedness may have
been issued, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, to the
extent necessary to make indefeasible payment in full in cash of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, to the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section 11.02, the Trustee or any Holder shall have received any
payment or distribution of assets of the Issuers of any kind or character,
whether in cash, Property or securities, including, without limitation, by
way of set-off or otherwise, in respect of principal of, premium, if any,
and interest on the Notes before all Senior Indebtedness is indefeasibly
paid in full, then and in such event such payment or distribution shall be
held in trust for the benefit of and shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution
of assets of the Issuers for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full in cash, Cash Equivalents or, as acceptable to the
holders of Senior Indebtedness, any other manner, after giving effect to
any concurrent payment or distribution, to or for the holders of Senior
Indebtedness.
To the extent any payment of Senior Indebtedness (whether by or on
behalf of any Issuer, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law,
<PAGE>
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then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article 5 hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the purposes of this
Article 11 if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in such Article 5 hereof.
Section 11.03. Suspension of Payment When Senior
Indebtedness in Default.
---------------------------------
(a) Unless Section 11.02 hereof shall be applicable, after the
occurrence of a Payment Default no payment or distribution (other than a payment
or distribution from the trust described in Section 9.04) of any kind or
character (including, without limitation, cash, Property and any payment or
distribution which may be payable or deliverable by reason of the payment of any
other Indebtedness of any Issuer being subordinated to the payment of the Notes
by such Issuer) may be made by or on behalf of such Issuer or any Subsidiary of
such Issuer, including, without limitation, by way of set-off or otherwise, for
or on account of the Notes or of any Obligations under the Notes, the
Registration Rights Agreement or this Indenture, or for or on account of the
purchase, redemption or other acquisition of any Notes, and neither the Trustee
nor any Holder shall take or receive from such Issuer or any Subsidiary of such
Issuer, directly or indirectly in any manner, payment in respect
<PAGE>
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of all or any portion of Notes or of any Obligations under the Notes, the
Registration Rights Agreement or this Indenture, or for or on account of the
purchase, redemption or other acquisition of any Notes commencing on the date of
receipt by the Trustee of written notice from the representative of the holders
of Designated Senior Indebtedness (the "Representative") of the occurrence of a
Payment Default, and in any such event, such prohibition shall continue until
such Payment Default is cured, waived in writing or ceases to exist. At such
time as the prohibition set forth in the preceding sentence shall no longer be
in effect, subject to the provisions of the following paragraph (b), such Issuer
shall resume making any and all required payments in respect of the Notes,
including any missed payments.
(b) Unless Section 11.02 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness,
no payment or distribution (other than a payment or distribution from the trust
described in Section 9.04) of any assets of any Issuer of any kind or character
(including, without limitation, cash, Property and any payment or distribution
which may be payable or deliverable by reason of the payment of any other
Indebtedness of any Issuer being subordinated to the payment of the Notes by
such Issuer) shall be made by any Issuer or any Restricted Subsidiary of such
Issuer, including, without limitation, by way of set-off or otherwise, for or on
account of the Notes or of any Obligations under the Notes, the Registration
Rights Agreement or this Indenture or on account of the purchase, redemption or
other acquisition of Notes, and neither the Trustee nor any Holder shall take or
receive from such Issuer or Restricted Subsidiary of such Issuer, directly or
indirectly in any manner, payment in respect of all or any portion of the Notes
or any Obligations under the Notes, the Registration Rights Agreement or the
Indenture for a period ("Payment Blockage Period") commencing on the date of
receipt by the Trustee of written notice from the Representative of such Non-
Payment Event of Default unless and until (subject to any blockage of payments
that may then be in effect under the preceding paragraph (a)) the earliest to
occur of the following events: (w) more than 179 days shall
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have elapsed since the date of receipt of such written notice by the Trustee,
(x) such Non-Payment Event of Default shall have been cured or waived in writing
or shall have ceased to exist, (y) such Designated Senior Indebtedness shall
have been indefeasibly paid in full in cash or (z) such Payment Blockage Period
shall have been terminated by written notice to the Issuers or the Trustee from
the Representative after which, in the case of clause (w), (x), (y) or (z), such
Issuers shall resume making any and all required payments in respect of the
Notes, including any missed payments. Notwithstanding any other provisions of
this Indenture, in no event shall a Payment Blockage Period extend beyond 179
days from the date of the receipt by the Trustee of the notice referred to in
this Section 11.03(b) (the "Initial Blockage Period"). Any number of additional
Payment Blockage Periods may be commenced during the Initial Blockage Period;
provided, however, that no such additional Payment Blockage Period shall extend
- -------- -------
beyond the Initial Blockage Period. After the expiration of the Initial Blockage
Period, no Payment Blockage Period may be commenced under this Section 11.03(b)
and no Guarantee Payment Blockage Period may be commenced under Section 10.11(b)
hereof until at least 180 consecutive days have elapsed from the last day of the
Initial Blockage Period. Notwithstanding any other provisions of this Indenture,
no Non-Payment Event of Default with respect to Designated Senior Indebtedness
which existed or was continuing on the date of the commencement of any Payment
Blockage Period initiated by the Representative shall be, or be made, the basis
for the commencement of a second Payment Blockage Period initiated by the
Representative unless such event of default shall have been cured or waived for
a period of not less than 90 consecutive days. Notwithstanding the foregoing, if
the obligations of the Issuers under the Notes have been accelerated pursuant to
Article 6 of this Indenture or otherwise, the Trustee shall be deemed to have
received notice from the Representative of a Non-Payment Event of Default
relating to such acceleration as provided for in the first sentence of this
clause (b).
(c) In the event that, notwithstanding the foregoing, the Trustee or
any Holder receives any payment or distribution of assets of such Issuer of any
kind, whether in
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cash, Property or securities, including, without limitation, by way of set-off
or otherwise, in respect of the Notes or any Obligations under the Notes, the
Registration Rights Agreement or the Indenture, before all Senior Indebtedness
of such Issuer is indefeasibly paid and satisfied in full in cash, then such
payment or distribution (other than a payment or distribution from the trust
described in Section 9.04) will be held by the recipient in trust for the
benefit of holders of Senior Indebtedness and will be immediately paid over or
delivered to the holders of Senior Indebtedness or their representative or
representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
Section 11.04. Trustee's Relation to Senior Indebtedness.
-----------------------------------------
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 11, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness (other than for its willful
misconduct or negligence) if it shall mistakenly pay over or deliver to Holders,
any Issuer or any other Person moneys or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article 11 or otherwise.
Nothing in this Section 11.04 shall affect the obligation of any other such
Person receiving such payment or distribution from the Trustee or any other
Agent to hold such payment for the benefit of, and to pay such payment over to,
the holders of Senior Indebtedness.
Section 11.05. Subrogation of Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
Upon the payment in full of all Senior Indebtedness, the Holders shall
be subrogated to the rights of the holders of such Senior Indebtedness to
receive payments and distributions
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of cash, Property and securities applicable to the Senior Indebtedness until the
principal of, premium, if any and interest on the Notes shall be paid in full.
For purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, Property or securities to which the Holders or
the Trustee would be entitled except for the provisions of this Article 11, and
no payments over pursuant to the provisions of this Article 11 to the holders of
Senior Indebtedness by Holders or the Trustee, shall, as among any Issuer, its
creditors other than holders of Senior Indebtedness and the Holders, be deemed
to be a payment or distribution by such Issuer to or on account of the Senior
Indebtedness.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 11 shall have been
applied, pursuant to the provisions of this Article 11, to the payment of all
amounts payable under the Senior Indebtedness of any Issuer, then and in such
case the Holders shall be entitled to receive from the holders of such Senior
Indebtedness at the time outstanding any payments or distributions received by
such holders of such Senior Indebtedness in excess of the amount sufficient to
pay all amounts payable under or in respect of such Senior Indebtedness in full
in cash.
Section 11.06. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article 11 are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article 11 or elsewhere in this Indenture or in the Notes is intended to or
shall (a) impair, as among any Issuer, its creditors other than holders of
Senior Indebtedness and the Holders, the obligation of the Issuers, which is
absolute and unconditional, to pay to the Holders the principal of, premium, if
any, and interest on the Notes as and when the same shall become due and payable
in accordance with their terms; or (b) affect the relative rights against the
Issuers of the Holders and creditors of the Issuers other than the holders of
Sen-
<PAGE>
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ior Indebtedness; or (c) prevent the Trustee or any Holder from exercising all
remedies otherwise permitted by applicable law upon a Default or an Event of
Default under this Indenture, subject to the rights, if any, under this Article
11 of the holders of Senior Indebtedness (1) in any case, proceeding,
dissolution, liquidation or other winding-up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Issuers referred
to in Section 11.02 hereof, to receive, pursuant to and in accordance with such
Section, cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder, or (2) under the conditions specified in Section 11.03,
to prevent any payment prohibited by such Section or enforce their rights
pursuant to Section 11.03(c) hereof.
The failure to make a payment on account of principal of, premium, if
any, or interest on the Notes by reason of any provision of this Article 11
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 11.07. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Note by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of any
Issuer whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
indebtedness of any Issuer owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file such a claim prior to 30 days before the expiration of the time to file
such a claim, the holders of Senior Indebtedness, or any Representative, is
hereby authorized to have the right to file such a claim for and on behalf of
the Holders, and the Trustee shall, upon written request, supply such holders
and Representative all information and copies of documents within the Trustee's
possession and relating to the
<PAGE>
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Notes or the Issuers which such holders or Representatives reasonably request in
order to file such claims.
Section 11.08. No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Issuer or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by any Issuer with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section
11.08, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article 11 or the obligations hereunder of the
Holders to the holders of Senior Indebtedness, do any one or more of the
following: (1) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Indebtedness or otherwise amend or
supplement in any manner Senior Indebtedness of any Issuer or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (2) sell, exchange, release or otherwise deal with any Property
pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any
Person liable in any manner for the collection or payment of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Issuers and any other Person; provided, however, that in no event shall any such
-------- -------
actions limit the right of the Holders to take any action to accelerate the
maturity of the Notes pursuant to Article 6 hereof or to pursue any rights or
remedies hereunder or under applicable laws if the taking of such action does
not otherwise violate the terms of this Indenture.
<PAGE>
-155-
Section 11.09. Notice to Trustee.
-----------------
(a) The Issuers shall give prompt written notice to the Trustee of any
fact known to the Issuers which would prohibit the making of any payment to or
by the Trustee at its Corporate Trust Office in respect of the Notes.
Notwithstanding the provisions of this Article 11 or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to or by the Trustee in
respect of the Notes, unless and until the Trustee shall have received written
notice thereof from the Issuers or a holder of Senior Indebtedness or from any
trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of this Section 11.09,
shall be entitled in all respects to assume that no such facts exist; provided,
--------
however, that if the Trustee shall not have received the notice provided for in
- -------
this Section 11.09 in accordance with Section 12.02 at least two Business Days
prior to the date upon which by the terms hereof any money may become payable
for any purpose under this Indenture (including, without limitation, the payment
of the principal of, premium, if any, or interest on any Note), then, anything
herein contained to the contrary notwithstanding but without limiting the rights
and remedies of the holders of Senior Indebtedness or any trustee, fiduciary or
agent therefor, the Trustee shall have full power and authority to receive such
money and to apply the same to the purpose for which such money was received and
shall not be affected by any notice in accordance with Section 12.02 to the
contrary which may be received by it within two Business Days prior to such
date; nor shall the Trustee be charged with knowledge of the curing of any such
default or the elimination of the act or condition preventing any such payment
unless and until the Trustee shall have received an Officers' Certificate to
such effect.
(b) Subject to the provisions of Section 7.01 hereof, the Trustee
shall be entitled to rely on the delivery to it of a written notice to the
Trustee and the Issuers by a Person representing itself to be a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to establish
<PAGE>
-156-
that such notice has been given by a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor); provided, however, that failure to give
-------- -------
such notice to the Issuers shall not affect in any way the ability of the
Trustee to rely on such notice. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 11, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 11, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Issuers referred to
in this Article 11, the Trustee, subject to the provisions of Section 7.01
hereof, and the Holders shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of any Issuer , the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article 11; provided that the foregoing
--------
shall apply only if such court has been fully apprised of the provisions of this
Article 11.
<PAGE>
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Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness;
----------------------------------------------------
Preservation of Trustee's Rights.
--------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 11 with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article 11 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
Section 11.12. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Issuers and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article 11 in addition to or in place of the Trustee.
Section 11.13. No Suspension of Remedies.
-------------------------
Nothing contained in this Article 11 shall limit the right of the
Trustee or the Holders to take any action to accelerate the maturity of the
Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article 11 of
the holders, from time to time, of Senior Indebtedness.
Section 11.14. Acceleration of Payment of Notes.
--------------------------------
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of Senior
Indebtedness of any Issuer or the Representative of such holders of the
acceleration (in the case of the Trustee, only to the extent of its actual
knowledge of such holders or the Representative of such holders). Such no-
<PAGE>
-158-
tice is in addition to, and not in lieu of, any notice that may be required to
be delivered under Section 6.02 prior to the effectiveness of any such
acceleration.
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 12.02. Notices.
-------
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Issuers or any Guarantor:
c/o Muzak LLC
2901 Third Avenue
Suite 400
Seattle, Washington 98121
Attention: Brad Bodenman
Tel: (206) 633-3000
Fax: (206) 633-6210
Copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Laurie Gunther, Esq.
<PAGE>
-159-
Tel: (312) 861-2000
Fax: (312) 861-2200
Copy to:
ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Peni Garber
Tel: (617) 859-2959
Fax: (617) 859-8797
If to the Trustee:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Corporate Trust Department
/Ref: Muzak 9 7/8% Senior Subordinated
Notes due 2009
Fax: (617) 664-5150
The Issuers, any Guarantor or the Trustee by written notice to the
others may designate additional or different addresses for subsequent notices or
communications. Any notice or communication to the Issuers, any Guarantor and
the Trustee, shall be deemed to have been given or made as of the date so
delivered if personally delivered; when answered back, if telexed; when receipt
is acknowledged, if telecopied; and five (5) calendar days after mailing if sent
by registered or certified mail, postage prepaid (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Noteholder shall be mailed to
him by first-class mail, postage prepaid, at his address shown on the register
kept by the Registrar.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communica-
<PAGE>
-160-
tion to a Noteholder is mailed in the manner provided above, it shall be deemed
duly given, whether or not the addressee receives it.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 12.03. Communications by Holders with Other Holders.
--------------------------------------------
Noteholders may communicate pursuant to TIA Section 312(b) with other
Noteholders with respect to their rights under this Indenture or the Notes. The
Issuers, the Guarantors, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Issuers or any Guarantor to the
Trustee to take any action under this Indenture, the Issuers or such Guarantor,
as the case may be, shall furnish to the Trustee if and to the extent reasonably
requested by the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 11.05 below) stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 11.05 below) stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
<PAGE>
-161-
Section 12.05. Statements Required in Certificate and Opinion.
----------------------------------------------
Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, it or he has
made such examination or investigation as is necessary to enable it or him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such covenant or condition has been complied with.
Section 12.06. When Treasury Notes Disregarded.
-------------------------------
In determining whether the Holders of the required aggregate principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Issuers, any Guarantor or any other obligor on the Notes or by any
Affiliate of any of them shall be disregarded, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which the Trustee actually knows are so
owned shall be so disregarded. Notes so owned which have been pledged in good
faith shall not be disregarded if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to the Notes and that the
pledgee is not an Issuer, any Guarantor or any other obligor upon the Notes or
any Affiliate of any of them.
<PAGE>
-162-
Section 12.07. Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or at meetings of
Noteholders. The Registrar and Paying Agent may make reasonable rules for their
functions.
Section 12.08. Business Days; Legal Holidays.
-----------------------------
A "Business Day" is a day that is not a Legal Holiday. A "Legal
Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on
which banking institutions are not required to be open in the State of New York.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 12.09. Governing Law.
-------------
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES.
Section 12.10. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan,
security or debt agreement of any Issuer or any Subsidiary thereof. No such
indenture, loan, security or debt agreement may be used to interpret this
Indenture.
Section 12.11. No Recourse Against Others.
--------------------------
A director, officer, employee, stockholder or incorporator, as such,
of any Issuer or any Guarantor shall not have any liability for any obligations
of any Issuer or any Guarantor under the Notes, the Guarantees or this Indenture
or for any claim based on, in respect of or by reason of such obliga-
<PAGE>
-163-
tions or their creations. Each Noteholder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
Section 12.12. Successors.
----------
All agreements of each of the Issuers and each Guarantor in this
Indenture and the Notes shall bind their respective successors. All agreements
of the Trustee, any additional trustee and any Paying Agents in this Indenture
shall bind its successor.
Section 12.13. Multiple Counterparts.
---------------------
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
Section 12.14. Table of Contents, Headings, etc.
--------------------------------
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 12.15. Separability.
------------
Each provision of this Indenture shall be considered separable and if
for any reason any provision which is not essential to the effectuation of the
basic purpose of this Indenture or the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE>
-164-
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed all as of the date and year first written above.
MUZAK LLC
By: /s/ Peni Garber
-----------------------------
Name: Peni Garber
Title:
MUZAK FINANCE CORP.
By: /s/ Peni Garber
----------------------------
Name: Peni Garber
Title:
<PAGE>
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Guarantors:
MUZAK HOLDINGS LLC, a Delaware limited liability
company
By: /s/ Peni Garber
---------------------------------
Name: Peni Garber
Title:
MUZAK CAPITAL CORPORATION, a Delaware corporation
By: /s/ Peni Garber
---------------------------------
Name: Peni Garber
Title:
MLP ENVIRONMENTAL MUSIC, LLC, a
Washington limited liability company
By: /s/ Peni Garber
---------------------------------
Name: Peni Garber
Title:
BUSINESS SOUND INC., an Ohio
corporation
By: /s/ Peni Garber
---------------------------------
Name: Peni Garber
Title:
<PAGE>
-166-
Trustee:
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: /s/ Carolina D. Altomare
-----------------------------------------
Name: Carolina D. Altomare
Title: Assistant Vice President
<PAGE>
EXHIBIT A
---------
(FACE OF NOTE)
[FORM OF NOTE]
--------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER
AGREES THAT (1) IT WILL NOT PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF
THIS NOTE AND THE LAST DATE ON WHICH ANY ISSUER, OR ANY AFFILIATE OF ANY ISSUER,
WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE), RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO ANY ISSUER OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH
TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (2) WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE PRIOR TO THE RESALE RESTRICTION TERMINATION DATE, IF THE
PROPOSED TRANSFER IS BEING MADE PURSUANT TO CLAUSE (C) OR (E) ABOVE, PRIOR TO
SUCH TRANSFER, THE HOLDER WILL BE REQUIRED TO FURNISH TO THE TRUSTEE AND THE
ISSUERS SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS ANY OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT
A-1
<PAGE>
TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
A-2
<PAGE>
CUSIP
No. $
MUZAK LLC
MUZAK FINANCE CORP.
9 7/8% Senior Subordinated Notes due 2009
Muzak LLC, a Delaware limited liability company and Muzak Finance
Corp., a Delaware corporation (collectively, the "Issuers", which term includes
any successor entities), for value received promise to pay to
________________________ or registered assigns the principal sum of
___________________ Dollars, on March 15, 2009.
Interest Payment Dates: March 15 and September 15 commencing
September 15, 1999
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-3
<PAGE>
IN WITNESS WHEREOF, the Issuers have caused this Note to be signed
manually or by facsimile by their duly authorized officers.
MUZAK LLC
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
MUZAK FINANCE CORP.
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
Certificate of Authentication:
This is one of the 9 7/8% Senior Subordinated Notes due 2009 referred to in the
within-mentioned Indenture
Dated:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ______________________________
Authorized Signatory
A-4
<PAGE>
Authorized Signatory
A-5
<PAGE>
(REVERSE SIDE)
MUZAK LLC
MUZAK FINANCE CORP.
9 7/8% Senior Subordinated Notes due 2009
1. INTEREST.
Muzak, LLC, a Delaware limited liability company (the "Company") and
Muzak Finance Corp., a Delaware corporation ("Finance Corp." and together with
the Company, the "Issuers"), promise to pay interest on the principal amount of
this Note semiannually on March 15 and September 15 of each year (each an
"Interest Payment Date"), commencing on September 15, 1999, at the rate of
9 7/8% per annum. Interest will be computed on the basis of a 360-day year of
--- -----
twelve 30-day months. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of the original issuance of the Notes.
The Issuers shall pay interest on overdue principal, and on overdue
premium, if any, and overdue interest, to the extent lawful, at the rate of
interest borne by the Notes.
2. METHOD OF PAYMENT.
The Issuers will pay interest on this Note provided for in Paragraph 1
above (except defaulted interest) to the person who is the registered Holder of
this Note at the close of business on the March 1 or September 1 preceding the
Interest Payment Date (whether or not such day is a Business Day). The Holder
must surrender this Note to a Paying Agent to collect principal payments. The
Issuers will pay principal, premium, if any, and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts; provided, however, that the Issuers may pay principal, premium,
-------- -------
if any, and interest by check payable in such money. The Issuers may mail an
interest check to the Holder's registered address.
A-5
<PAGE>
3. PAYING AGENT AND REGISTRAR.
Initially, State Street Bank and Trust Company, a Massachusetts
banking corporation (the "Trustee"), will act as Paying Agent and Registrar.
The Issuers may change any Paying Agent or Registrar without notice to the
Holders. Neither the Issuers nor any of its Subsidiaries or Affiliates may act
as Paying Agent but may act as Registrar or co-Registrar.
4. INDENTURE; RESTRICTIVE COVENANTS.
The Issuers issued this Note under an Indenture dated as of March 18,
1999 (the "Indenture") among the Issuers, the Guarantors and the Trustee. The
terms of this Note include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of the Indenture. This Note is
subject to all such terms, and the Holder of this Note is referred to the
Indenture and said Trust Indenture Act for a statement of them. All capitalized
terms in this Note, unless otherwise defined, have the meanings assigned to them
by the Indenture.
The Notes are general unsecured obligations of the Issuers limited to
$150,000,000 aggregate principal amount, $115,000,000 of which were issued on
the Issue Date. The Indenture imposes certain restrictions on, among other
things, the incurrence of indebtedness, the incurrence of liens, the making of
certain investments, mergers and sale of assets, the payments of dividends on or
the repurchase of, capital stock of the Issuers, certain other restricted
payments by the Issuers and their Subsidiaries, certain transactions with, and
investments in, their Affiliates, the creation of Subsidiaries, the issuance of
capital stock by Subsidiaries, the types of businesses which the Issuers and
their Subsidiaries may engage in, the creation of dividend and other payment
restrictions affecting Subsidiaries, certain sale-leaseback transactions and a
provision regarding change-of-control transactions.
A-6
<PAGE>
5. REDEMPTION.
(a) The Issuers may redeem the Notes that are redeemable at their
option, in whole at any time or in part from time to time on or after March 15,
2004 at the redemption prices (expressed as percentages of the principal amount
thereof), set forth below plus accrued and unpaid interest, if any, to the
Redemption Date, if redeemed during the twelve-month period beginning on March
15 of each year indicated below:
Year Percentage
---- ----------
2004......................................... 104.938%
2005......................................... 103.292%
2006......................................... 101.646%
2007 and thereafter.......................... 100.000%
(b) The Issuers may redeem up to 35% of the principal amount of the
Notes originally issued under the Indenture, at any time and from time to time
prior to March 15, 2002, at a redemption price equal to 109.875% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest, if
any, to the Redemption Date out of the net cash proceeds of one or more Equity
Offerings; provided, that at least 65% of the principal amount of the Notes
--------
originally issued under the Indenture remains outstanding immediately after any
such redemption (it being expressly agreed that for purposes of determining
whether this condition is satisfied, Notes owned by the Issuers or any of its
Affiliates shall be deemed not to be outstanding). In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Issuers shall
make such redemption not more than 60 days following the closing of any such
Equity Offering.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed via first class mail at least 30
days but not more than 60 days prior to the Redemption Date to each Holder to be
redeemed at its registered address as it shall appear on the register of the
Notes maintained by the Registrar. On and after any Redemption Date, in-
A-7
<PAGE>
terest will cease to accrue on the Notes or portions thereof called for
redemption unless the Issuers shall fail to redeem any such Note.
7. SUBORDINATION.
The Indebtedness evidenced by the Notes and the payment of principal
of, premium, if any, and interest on the Notes are, to the extent and in the
manner provided in the Indenture, subordinated and subject in right of payment
to the prior payment in full of all Senior Indebtedness as defined in the
Indenture, and this Note is issued subject to such provisions. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to
take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose.
8. OFFERS TO PURCHASE.
The Indenture requires that certain proceeds from Asset Sales be used,
subject to further limitations contained therein, to make an offer to purchase
certain amounts of Notes in accordance with the procedures set forth in the
Indenture. The Issuers are also required to make an offer to purchase Notes
upon occurrence of a Change of Control in accordance with procedures set forth
in the Indenture.
9. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement among the Issuers, the
Guarantors and CIBC Oppenheimer Corp. and Goldman, Sachs & Co., as initial
purchasers of the Notes, the Issuers and the Guarantors will be obligated to
consummate an exchange offer pursuant to which the Holder of this Note shall
have the right to exchange this Note for Notes of a separate series issued under
the Indenture (or a trust indenture substantially identical to the Indenture in
accordance with the terms of the Registration Rights Agreement) which have been
registered under the Securities Act, in like principal amount
A-8
<PAGE>
and having substantially identical terms as the Notes. The Holders shall be
entitled to receive certain additional interest payments in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
10. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 and integral multiples thereof. A Holder may register the transfer or
exchange of Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any Note
selected for redemption or register the transfer of or exchange any Note for a
period of 15 days before a selection of Notes to be redeemed or any Note after
it is called for redemption in whole or in part, except the unredeemed portion
of any Note being redeemed in part.
11. PERSONS DEEMED OWNERS.
The registered Holder of this Note may be treated as the owner of it
for all purposes.
12. UNCLAIMED MONEY.
If money for the payment of principal, premium or interest on any Note
remains unclaimed for two years, the Trustee or Paying Agent will pay the money
back to the Issuers at its request. After that, Holders entitled to money must
look to the Issuers for payment as general creditors unless an "abandoned
property" law designates another person.
13. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
modified, amended or supplemented by the Issuers, the Guarantors and the Trustee
with the consent of the Holders
A-9
<PAGE>
of at least a majority in principal amount of the Notes then outstanding and any
existing Default or compliance with any provision may be waived in a particular
instance with the consent of the Holders of a majority in principal amount of
the Notes then outstanding. Without the consent of Holders, the Issuers, and the
Trustee may amend the Indenture or the Notes or supplement the Indenture for
certain specified purposes including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any Holder.
14. SUCCESSOR ENTITY.
When a successor entity assumes all the obligations of its predecessor
under the Notes and the Indenture and immediately before and thereafter no
Default exists and certain other conditions are satisfied, the predecessor
entity will be released from those obligations.
15. DEFAULTS AND REMEDIES.
Events of Default are set forth in the Indenture. If an Event of
Default (other than an Event of Default pursuant to Section 6.01(g) or (h) of
the Indenture with respect to the Company) occurs and is continuing, the Trustee
by notice to the Company, or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding, may declare to be immediately
due and payable the entire principal amount of all the Notes then outstanding
plus accrued but unpaid interest to the date of acceleration; provided, however,
-------- -------
that after such acceleration but before judgment or decree based on such
acceleration is obtained by the Trustee, the Holders of a majority in aggregate
principal amount of the outstanding Notes may, under certain circumstances,
rescind and annul such acceleration and its consequences if all existing Events
of Default, other than the nonpayment of principal, premium or interest that has
become due solely because of the acceleration, have been cured or waived and if
the rescission would not conflict with any judgment or decree. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto. In case an Event of Default specified in Section 6.01(g) or (h) of the
A-10
<PAGE>
Indenture occurs, such principal amount, together with premium, if any, and
interest with respect to all of the Notes, shall be due and payable immediately
without any declaration or other act on the part of the Trustee or the Holders
of the Notes.
16. TRUSTEE DEALINGS WITH THE ISSUERS.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Issuers, and may otherwise deal with the Issuers, as if it were not Trustee.
17. NO RECOURSE AGAINST OTHERS.
As more fully described in the Indenture, a director, officer,
employee or stockholder, as such, of the Issuers or any Guarantor shall not have
any liability for any obligations of the Issuers or the Guarantors under the
Notes, the Guarantees or the Indenture or for any claim based on, in respect or
by reason of, such obligations or their creation. The Holder of this Note by
accepting this Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of this Note.
18. DEFEASANCE AND COVENANT DEFEASANCE.
The Indenture contains provisions for defeasance of the entire
indebtedness on this Note and for defeasance of certain covenants in the
Indenture upon compliance by the Issuers with certain conditions set forth in
the Indenture.
19. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (joint tenants with right of survivorship and not as tenants
in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Securities Identification Procedures, the Is-
A-11
<PAGE>
suers have caused CUSIP Numbers to be printed on the Notes and have directed the
Trustee to use CUSIP numbers in notices of redemption as convenience to Holders
of the Notes. No representation is made as to the accuracy of such numbers
either as printed on the Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed thereon.
21. GOVERNING LAW.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES TO THE INDENTURE HAS AGREED TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THE INDENTURE OR THIS NOTE.
THE ISSUERS WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST
AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: MUZAK
LLC, 2901 Third Avenue, Suite 400, Seattle, Washington 98121, Attention: Brad
Bodenman.
A-12
<PAGE>
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
_______________________________________________________________
_______________________________________________________________
Agent to transfer this Note on the books of the Issuers. The Agent may
substitute another to act for him.
A-13
<PAGE>
Date:____________________ Your Signature:___________________
__________________________________
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee: _________________________________
A-14
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by
the Issuers pursuant to Section 4.09 or Section 4.16 of the Indenture, check the
appropriate box:
[_] Section 4.09 [_] Section 4.16
If you want to have only part of the Note purchased by the Issuers
pursuant to Section 4.09 or Section 4.16 of the Indenture, state the amount you
elect to have purchased:
$_________________
Date: ____________
Your Signature: _____________________
(Sign exactly as your name appears on the face of this
Note)
___________________________
Signature Guaranteed
A-15
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE
ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
-----------------------------------------
Re: 9 7/8% Senior Subordinated Notes
due 2009 (the "Notes"), of
Muzak LLC and Muzak Finance Corp.
---------------------------------
This Certificate relates to $_______ principal amount of Notes held in
the form of* ___ a beneficial interest in a Global Note or* _______ Certificated
Notes by ______ (the "Transferor").
The Transferor:*
[_] has requested by written order that the Registrar deliver in exchange
for its beneficial interest in the Global Note held by the Depository a
Certificated Note or Certificated Notes in definitive, registered form of
authorized denominations and an aggregate number equal to its beneficial
interest in such Global Note (or the portion thereof indicated above); or
[_] has requested that the Registrar by written order to exchange or
register the transfer of a Certificated Note or Certificated Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Notes and the restrictions on
transfers thereof as provided in Section 2.06 of such Indenture, and that the
transfer of this Note does not require registration under the Securities Act of
1933, as amended (the "Securities Act"), because*:
[_] Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06 of the Indenture).
C-1
<PAGE>
[_] Such Note is being transferred to a Qualified Institutional Buyer (as
defined in Rule 144A under the Securities Act), in reliance on Rule 144A.
[_] Such Note is being transferred in reliance on Regulation S under the
Securities Act and a Transferor Certificate substantially in the form of Exhibit
-------
D-1 to the Indenture accompanies this Certificate.
- ---
[_] Such Note is being transferred in reliance on Rule 144 under the
Securities Act.
[_] Such Note is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Securities Act other than
Rule 144A or Rule 144 or Regulation S under the Securities Act to a person other
than an institutional "accredited investor." An opinion of counsel to the
effect that such transfer does not require registration under the Securities Act
accompanies this Certificate.
[_] Such Note is being transferred to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities
Act), who has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its investment in the Notes,
and it and any accounts for which it is acting are each able to bear the
economic risk of their investment. An opinion of counsel to the effect that
such transfer does not require registration under the Securities Act and a
Transferee Certificate substantially in the form of Exhibit D-2 to the Indenture
-----------
accompanies this Certificate.
________________________________
[INSERT NAME OF TRANSFEROR]
By: __________________________
[Authorized Signatory]
Date: ______________________
*Check applicable box.
C-2
<PAGE>
EXHIBIT D-1
-----------
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
---------------------------
Re: 9 7/8% Senior Subordinated Notes due 2009
(the "Notes") of Muzak LLC (the "Company")
and Muzak Finance Corp. (together with the
Company, the "Issuers")
------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
D-1-1
<PAGE>
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: _____________________________________
[Authorized Signatory]
D-1-2
<PAGE>
EXHIBIT D-2
-----------
Accredited Investor Transferee Certificate
------------------------------------------
Muzak LLC
Muzak Finance Corp.
State Street Bank and Trust Company
c/o State Street Bank and Trust Company
225 Franklin Street
Boston,Massachusetts 02110
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount of the 9 7/8% Senior Subordinated Notes due 2009 (the "Notes")
of Muzak LLC (the "Company") and Muzak Finance Corp. (together with the Company,
the "Issuers"), we confirm that:
1. We understand that none of the Notes has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence.
We agree on our own behalf and on behalf of any investor account for which
we are purchasing any Notes to offer, sell or otherwise transfer any such
Notes prior to the date the "Resale Restriction Termination Date") that is
two years after the later of the original issuance of this Note and the
last date on which any Issuer, or any Affiliate of any Issuer, was the
owner of this Note (or any predecessor of this Note) except (A) to any
Issuer or any subsidiary thereof, (B) inside the United States to a
Qualified Institutional Buyer in compliance with Rule 144A under the
Securities Act, (C) inside the United States to an Institutional Accredited
Investor within the meaning of subparagraph (a)(1),(2),(3) or (7) of Rule
501 under the Securities Act that, prior to such transfer, furnishes (or
has furnished on its behalf by a U.S. broker-dealer) to the Trustee a
signed letter substantially in the form of
D-2-1
<PAGE>
this letter, (D) outside the United States in an offshore transaction in
compliance with Rule 904 under the Securities Act, (E) pursuant to any
other available exemption from the registration requirements of the
Securities Act or (F) pursuant to an effective Registration Statement under
the Securities Act. Each purchaser acknowledges that the Issuers and the
Trustee reserve the right prior to any offer, sale or other transfer prior
to the Resale Restriction Termination Date of the applicable Notes pursuant
to clause (c) or (e) above to require the delivery of an opinion of
counsel, certification and/or other information satisfactory to the Issuers
and the Trustee.
2. We are an Institutional Accredited Investor purchasing such Notes
for our own account or for the account of one or more Institutional
Accredited Investors, and we are acquiring such Notes for investment
purposes and not with a view to, or for offer or sale in connection with,
any distribution in violation of the Securities Act or the securities laws
of any state of the United States and we have such knowledge and experience
in financial and business matters as to be capable of evaluating the merits
and risks of our investment in such Notes, and we and any accounts for
which we are acting are each able to bear the economic risk of our or its
investment in such Notes for an indefinite period.
3. We acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such questions
of representatives of the Issuers and receive answers thereto, as we deem
necessary.
We understand that the Trustee will not be required to accept for
registration of transfer any Notes acquired by us, except upon presentation of
evidence satisfactory to the Issuers and the Trustee that the foregoing
restrictions on transfer have been complied with. We further understand that
any Notes purchased by us will be in the form of definitive physical
certificates and that such certificates will bear a legend reflecting the
substance of this paragraph 1 of this
D-2-2
<PAGE>
letter. We further agree to provide to any person acquiring any of the Notes
from us a notice advising such person that transfers of such Notes are
restricted as stated herein and that certificates representing such Notes will
bear a legend to that effect.
We represent that the Issuers and the Trustee and others are entitled
to rely upon the truth and accuracy of our acknowledgments, representations and
agreements set forth herein, and we agree to notify you promptly in writing if
any of our acknowledgments, representations or agreements herein cease to be
accurate and complete. You are also irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
We represent to you that we have full power to make the foregoing
acknowledgments, representations and agreements on our own behalf and on behalf
of any investor account for which we are acting as fiduciary agent.
As used herein, the terms "offshore transaction," "United States" and
"U.S. person" have the respective meanings given to them in Regulation S under
the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By: ________________________________
Date:_______________________________
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name:_______________________________
Address:____________________________
D-2-3
<PAGE>
EXHIBIT E
---------
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
GUARANTEE
---------
Each Guarantor (the "Guarantor", which term includes any successor
Person under the Indenture) has unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, to the extent set forth in the
Indenture and subject to the provisions of the Indenture, (a) the due an
punctual payment of the principal of and interest on the Notes, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on overdue principal, and, to the extent permitted by law, interest, and the due
and punctual performance of all other Obligations of the Issuers to the
Noteholders or the Trustee all in accordance with the terms set forth in Article
10 of the Indenture, and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other Obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the undersigned to the Holders of Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article 10 of the Indenture and reference is hereby made to the Indenture for
the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
E-1
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be duly
executed.
GUARANTORS:
[ ]
By: _______________________________
Name:
Title:
[ ]
By: _______________________________
Name:
Title:
E-2
<PAGE>
EXHIBIT F
---------
FORM OF SUPPLEMENTAL INDENTURE
------------------------------
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
_______________, among [ ] (the "New Guarantor"), a subsidiary of Muzak, LLC (or
its successor), a Delaware limited liability company (the "Company"), Muzak
Finance Corp., a Delaware corporation ("Finance Corp.", and together with the
Company, the "Issuers"), the Guarantors (the "Existing Guarantors") under the
Indenture referred to below, and State Street Bank and Trust Company, as trustee
under the Indenture referred to below (the "Trustee").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS the Issuers have has heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of March 18, 1999, providing for the issuance of up to an
aggregate principal amount of $150,000,000 of Senior Subordinated Notes due 2009
(the "Notes");
WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers is required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers' obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and
WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree
F-1
<PAGE>
for the equal and ratable benefit of the Noteholders as follows:
1. Definitions. (a) Capitalized terms used herein without definition
-----------
shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
----------------------
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Notes on the terms and subject to the conditions set forth in Article
10 of the Indenture and to be bound by all other applicable provisions of the
Indenture. From and after the date hereof, the New Guarantor shall be a
Guarantor for all purposes under the Indenture and the Notes.
3. Ratification of Indenture; Supplemental Indentures Part of
----------------------------------------------------------
Indenture. Except as expressly amended hereby, the Indenture is in all respects
- ---------
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every Noteholder heretofore or
hereafter authenticated and delivered shall be bound hereby.
4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
-------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW.
F-2
<PAGE>
5. Trustee Makes No Representation. The Trustee makes no
-------------------------------
representation as to the validity or sufficiency of this Supplemental Indenture.
6. Counterparts. The parties may sign any number of copies of this
------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. Effect of Headings. The Section headings herein are for
------------------
convenience only and shall not affect the construction thereof.
F-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR]
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
MUZAK LLC
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
MUZAK FINANCE CORP.
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
F-4
<PAGE>
By: ________________________________
Name:
Title:
F-5
<PAGE>
EXISTING GUARANTORS:
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ________________________________
Name:
Title:
F-5
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of March 18, 1999
by and among
MUZAK LLC,
MUZAK FINANCE CORP.,
THE GUARANTORS
named herein
and
CIBC OPPENHEIMER CORP.
and
GOLDMAN, SACHS & CO.
as Initial Purchasers
__________________________
$115,000,000
9 7/8% SENIOR SUBORDINATED NOTES DUE 2009
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.................................................... 1
2. Exchange Offer................................................. 6
3. Shelf Registration............................................. 11
4. Additional Interest............................................ 14
5. Registration Procedures........................................ 16
6. Registration Expenses.......................................... 29
7. Indemnification................................................ 31
8. Rules 144 and 144A............................................. 35
9. Underwritten Registrations..................................... 36
10. Miscellaneous.................................................. 36
(a) Remedies................................................... 36
(b) No Inconsistent Agreements................................. 37
(c) Adjustments Affecting Registrable Notes.................... 37
(d) Amendments and Waivers..................................... 37
(e) Notices.................................................... 38
(f) Successors and Assigns..................................... 40
(g) Counterparts............................................... 40
(h) Headings................................................... 40
(i) Governing Law.............................................. 40
(j) Severability............................................... 41
(k) Notes Held by any Issuer or Its Affiliates................. 41
(l) Third Party Beneficiaries.................................. 41
(m) Entire Agreement........................................... 41
(n) Joint and Several Obligations.............................. 42
</TABLE>
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
---------
entered into as of March 18, 1999, by and among Muzak LLC, a Delaware limited
liability company (the "Company"), Muzak Finance Corp., a Delaware corporation
(together with the Company, the "Notes Issuers"), the Guarantors (as defined)
and CIBC Oppenheimer Corp. and Goldman, Sachs & Co. (the "Initial Purchasers").
------------------
This Agreement is entered into in connection with the Purchase
Agreement, dated March 12, 1999, by and among the Notes Issuers, the Guarantors
and the Initial Purchasers (the "Purchase Agreement") relating to the sale by
------------------
the Notes Issuers to the Initial Purchasers of $115,000,000 aggregate principal
amount of the Notes Issuers' 9 7/8% Senior Subordinated Notes due 2009 (the
"Notes") and the unconditional guarantee thereof by the Guarantors on a joint
- ------
and several basis (the "Guarantee"). In order to induce the Initial Purchasers
---------
to enter into the Purchase Agreement, the Issuers (as defined) have agreed to
provide the registration rights set forth in this Agreement for the benefit of
the holders of Registrable Notes (as defined), including, without limitation,
the Initial Purchasers. The execution and delivery of this Agreement is a
condition to the Initial Purchasers' obligation to purchase the Notes under the
Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a).
-------------------
Advice: See the last paragraph of Section 5.
------
<PAGE>
-2-
Agreement: See the first introductory paragraph to this Agreement.
---------
Applicable Period: See Section 2(b).
-----------------
Business Day: A day that is not a Saturday, a Sunday, or a day on
------------
which banking institutions in New York, New York are required to be closed.
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Commission: The Securities and Exchange Commission.
----------
Company: See the first introductory paragraph to this Agreement.
-------
Effectiveness Date: The 150th day after the Issue Date, in the case
------------------
of the Exchange Registration Statement, and the 75th day after the delivery of
the Shelf Notice, in the case of the Initial Shelf Registration.
Effectiveness Period: See Section 3(a).
--------------------
Event Date: See Section 4(b).
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission promulgated thereunder.
Exchange Notes: See Section 2(a).
--------------
Exchange Offer: See Section 2(a).
--------------
Exchange Registration Statement: See Section 2(a).
-------------------------------
Filing Date: The 75th day after the Issue Date (regardless of whether
-----------
the actual filing precedes such date).
<PAGE>
-3-
Guarantee: See the second introductory paragraph to this Agreement.
---------
Guarantors: Each of Business Sound, Inc., an Ohio Corporation, Muzak
----------
Capital Corporation, a Delaware corporation, MLP Environmental Music, LLC,
a Washington limited liability company, and Muzak Holdings LLC, a Delaware
limited liability company.
Holder: Any registered holder of Registrable Notes.
------
Indemnified Person: See Section 7(c).
------------------
Indemnifying Person: See Section 7(c).
-------------------
Indenture: The Indenture, dated as of March 18, 1999, by and among
---------
the Notes Issuers, the Guarantors and State Street Bank and Trust Company, as
trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchasers: See the first introductory paragraph to this
------------------
Agreement.
Initial Shelf Registration: See Section 3(a).
--------------------------
Inspectors: See Section 5(o).
----------
Issue Date: The date on which the original Notes were sold to the
----------
Initial Purchasers pursuant to the Purchase Agreement.
Issuers: The Notes Issuers and the Guarantors, collectively.
-------
NASD: National Association of Securities Dealers, Inc.
----
<PAGE>
-4-
Notes: See the second introductory paragraph to this Agreement.
-----
Participant: See Section 7(a).
-----------
Participating Broker-Dealer: See Section 2(b).
---------------------------
Person: Any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
Private Exchange: See Section 2(b).
----------------
Private Exchange Notes: See Section 2(b).
----------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Notes covered by such Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph to this
------------------
Agreement.
Records: See Section 5(o).
-------
Registrable Notes: Each Note upon original issuance thereof and at
-----------------
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance thereof and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at all
<PAGE>
-5-
times subsequent thereto, until, in the case of any such Note, Exchange Note or
Private Exchange Note, as the case may be, the earliest to occur of (i) a
Registration Statement (other than, with respect to any Exchange Note as to
which Section 2(c)(iv) hereof is applicable) covering such Note, Exchange Note
or Private Exchange Note, as the case may be, has been declared effective by the
Commission and such Note, Exchange Note or Private Exchange Note, as the case
may be, has been disposed of in accordance with such effective Registration
Statement, (ii) such Note, Exchange Note or Private Exchange Note, as the case
may be, is sold in compliance with Rule 144, (iii) in the case of any Note, such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes which may be resold without restriction under federal securities
laws, or (iv) such Note, Exchange Note or Private Exchange Note, as the case may
be, ceases to be outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of any of the
----------------------
Issuers, including, but not limited to, the Exchange Registration Statement,
that covers any of the Registrable Notes pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the Commission providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
---------
amended from time to time, or any similar rule
<PAGE>
-6-
(other than Rule 144) or regulation hereafter adopted by the Commission.
Rule 415: Rule 415 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the Commission promulgated thereunder.
Shelf Notice: See Section 2(c).
------------
Shelf Registration: See Section 3(b).
------------------
Subsequent Shelf Registration: See Section 3(b).
-----------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if existent, the
-------
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
--------------
(a) Each of the Issuers agrees to file with the Commission no later
than the Filing Date, an offer to exchange (the "Exchange Offer") any and all of
--------------
the Registrable Notes (other than Private Exchange Notes, if any) for a like
aggregate principal amount of debt securities of the Notes Issuers which are
identical in all material respects to the Notes (the "Exchange Notes") (and
--------------
which are entitled to the benefits of the Indenture or a trust indenture which
is identical in all material respects to the Indenture (other than such changes
to the Indenture or any such identical trust
<PAGE>
-7-
indenture as are necessary to comply with any requirements of the Commission to
effect or maintain the qualification thereof under the TIA) and which, in either
case, has been qualified under the TIA and which shall also be entitled to the
benefits of the Guarantees of the Guarantors), except that the Exchange Notes
shall have been registered pursuant to an effective Registration Statement under
the Securities Act and shall contain no restrictive legend thereon. The Exchange
Offer shall be registered under the Securities Act on the appropriate form (the
"Exchange Registration Statement") and shall comply with all applicable tender
-------------------------------
offer rules and regulations under the Exchange Act. Each of the Issuers agrees
to use its reasonable best efforts to (x) cause the Exchange Registration
Statement to be declared effective under the Securities Act on or before the
Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or
longer if required by applicable law) after the date that notice of the Exchange
Offer is first mailed to Holders; and (z) consummate the Exchange Offer on or
prior to the 60th day following the date on which the Exchange Registration
Statement is declared effective. If after such Exchange Registration Statement
is initially declared effective by the Commission, the Exchange Offer or the
issuance of the Exchange Notes thereunder is interfered with by any stop order,
injunction or other order or requirement of the Commission or any other
governmental agency or court, such Exchange Registration Statement shall be
deemed not to have become effective for purposes of this Agreement. Each Holder
who participates in the Exchange Offer will be required to represent that any
Exchange Notes received by it will be acquired in the ordinary course of its
business, that at the time of the consummation of the Exchange Offer such Holder
will have no arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes, that such Holder is not an affiliate of any
Issuer within the meaning of the Securities Act, and any additional
representations that in the written opinion of counsel to the Issuers are
necessary under then-existing interpretations of
<PAGE>
-8-
the Commission in order for the Exchange Registration Statement to be declared
effective. Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
-------
mutandis, solely with respect to Registrable Notes that are Private Exchange
- --------
Notes and Exchange Notes held by Participating Broker-Dealers, and the Issuers
shall have no further obligation to register Registrable Notes (other than
Private Exchange Notes and other than in respect of any Exchange Notes as to
which clause 2(c)(iv) hereof applies) pursuant to Section 3 of this Agreement.
(b) The Issuers shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, which shall contain a summary
statement of the positions taken or policies made by the Staff of the Commission
with respect to the potential "underwriter" status of any broker-dealer that is
the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Notes received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
- ----------------------------
publicly disseminated by the Staff of the Commission or such positions or
policies, in the reasonable judgment of the Initial Purchasers, represent the
prevailing views of the Staff of the Commission. Such "Plan of Distribution"
section shall also allow, to the extent permitted by applicable policies and
regulations of the Commission, the use of the Prospectus by all Persons subject
to the prospectus delivery requirements of the Securities Act, including, to the
extent so permitted, all Participating Broker-Dealers, and include a statement
describing the manner in which Participating Broker-Dealers may resell the
Exchange Notes.
Each of the Issuers shall use its reasonable best efforts to keep the
Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein, in
<PAGE>
-9-
order to permit such Prospectus to be lawfully delivered by all Persons subject
to the prospectus delivery requirements of the Securities Act for such period of
time, not to exceed 180 days from the date the Exchange Offer is consummated, as
such Persons must comply with such requirements in connection with offers and
sales of the Exchange Notes (the "Applicable Period").
------------------
If, upon consummation of the Exchange Offer, any Initial Purchaser
holds any Notes acquired by it and having the status of an unsold allotment in
the initial distribution, the Issuers upon the request of any Initial Purchaser
shall, simultaneously with the delivery of the Exchange Notes in the Exchange
Offer, issue and deliver to such Initial Purchaser, in exchange (the "Private
-------
Exchange") for the Notes held by such Initial Purchaser, a like principal amount
- --------
of debt securities of the Notes Issuers that are identical in all material
respects to the Exchange Notes except for the existence of restrictions on
transfer thereof under the Securities Act and securities laws of the several
states of the U.S. (the "Private Exchange Notes") (and which are issued pursuant
----------------------
to the same indenture as the Exchange Notes and which will have the Guarantees
of the Guarantors). The Private Exchange Notes shall bear the same CUSIP number
as the Exchange Notes. Interest on the Exchange Notes and Private Exchange
Notes will accrue from the last interest payment date on which interest was paid
on the Notes surrendered in exchange therefor or, if no interest has been paid
on the Notes, from the Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan,
<PAGE>
-10-
The City of New York, which may be the Trustee or an affiliate thereof;
(3) permit Holders to withdraw tendered Registrable Notes at any time
prior to the close of business, New York time, on the last Business Day on
which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Issuers shall:
(1) accept for exchange all Registrable Notes validly tendered and not
validly withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Registrable Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder tendering such Registrable Notes, Exchange Notes or Private Exchange
Notes, as the case may be, equal in principal amount to the Notes of such
Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be issued under
(i) the Indenture or (ii) an indenture identical in all material respects to the
Indenture, which in either event will provide that the Exchange Notes will not
be subject to the transfer restrictions set forth in the Indenture and that the
Exchange Notes, the Private Exchange Notes and the Notes, if any, will vote and
consent together on all matters as one class and that none of the Exchange
Notes, the Private Exchange Notes or the Notes, if any, will have the right to
vote or consent as a separate class on any matter.
<PAGE>
-11-
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Notes Issuers are not
permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 185 days of the Issue Date, (iii) any holder of Private
Exchange Notes so requests in writing to the Company or (iv) in the case of any
Holder that participates in the Exchange Offer (and tenders its Registrable
Notes prior to the expiration thereof), such Holder does not receive Exchange
Notes on the date of the exchange that may be sold without restriction under
federal securities laws (other than due solely to the status of such Holder as
an affiliate of any Issuer within the meaning of the Securities Act) and so
notifies the Company within 30 days following the consummation of the Exchange
Offer (and providing a reasonable basis for its conclusions), in the case of
each of clauses (i)-(iv), then the Issuers shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") and shall file a
------------
Shelf Registration pursuant to Section 3.
3. Shelf Registration
------------------
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Shelf Registration. The Issuers shall as promptly as reasonably
------------------
practicable file with the Commission a Registration Statement for an offering to
be made on a continuous basis pursuant to Rule 415 covering all of the
Registrable Notes (the "Initial Shelf Registration"). If the Issuers shall not
--------------------------
have yet filed the Exchange Registration Statement, each of the Issuers shall
use its reasonable best efforts to file with the Commission the Initial Shelf
Registration on or prior to the Filing Date and shall use its reasonable best
efforts to cause such Initial Shelf Registration to be declared effective under
the Securities Act on or prior to the Effectiveness Date. Otherwise, each of
the Issuers shall file with the Commission the Initial Shelf
<PAGE>
-12-
Registration within 75 days of the delivery of the Shelf Notice and shall use
its reasonable best efforts to cause such Shelf Registration to be declared
effective under the Securities Act on or prior to the Effectiveness Date. The
Initial Shelf Registration shall be on Form S-1 or another appropriate form
permitting registration of such Registrable Notes for resale by Holders in the
manner or manners designated by them (including, without limitation, one or more
underwritten offerings). The Issuers shall not permit any securities other than
the Registrable Notes to be included in any Shelf Registration. Each of the
Issuers shall use its reasonable best efforts to keep the Initial Shelf
Registration continuously effective under the Securities Act until the date
which is 24 months from the effective date of such Initial Shelf Registration
(or, if Rule 144(k) under the Securities Act is amended to permit unlimited
resales by non-affiliates within a lesser period, such lesser period) (subject
to extension pursuant to the last paragraph of Section 5 hereof) (the
"Effectiveness Period") or such shorter period ending when (i) all Registrable
- ---------------------
Notes covered by the Initial Shelf Registration have been sold in the manner set
forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent
Shelf Registration covering all of the Registrable Notes has been declared
effective under the Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration
------------------------------
or any Subsequent Shelf Registration ceases to be effective for any reason at
any time during the Effectiveness Period (other than because of the sale of all
of the securities registered thereunder), each of the Issuers shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Shelf Registration in a manner to obtain
the withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Notes (a
<PAGE>
-13-
"Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed,
-----------------------------
each of the Issuers shall use its reasonable best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Subsequent Shelf Registration continuously
effective for a period equal to the number of days in the Effectiveness Period
less the aggregate number of days during which the Initial Shelf Registration or
any Subsequent Shelf Registrations was previously continuously effective. As
used herein the term "Shelf Registration" means the Initial Shelf Registration
------------------
and any Subsequent Shelf Registration.
(c) Supplements and Amendments. Each of the Issuers shall promptly
--------------------------
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Shelf Registration or by any underwriter of
such Registrable Notes, in each case, with each Issuer's consent, which consent
shall not be unreasonably withheld or delayed.
4. Additional Interest
-------------------
(a) The Issuers and the Initial Purchasers agree that the Holders of
Registrable Notes will suffer damages if the Issuers fail to fulfill their
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
each of the Issuers agrees to pay, as liquidated damages, additional interest on
the Registrable Notes ("Additional Interest") under the circumstances and to the
-------------------
extent set forth below (each of which shall be given independent effect):
<PAGE>
-14-
(i) if (A) neither the Exchange Registration Statement nor the
Initial Shelf Registration has been filed on or prior to the Filing Date or
(B) notwithstanding that the Issuers have consummated or will consummate an
Exchange Offer, the Issuers are required to file a Shelf Registration and
such Shelf Registration is not filed on or prior to the 75th day after
delivery of the Shelf Notice, then, in the case of subclause (A),
commencing on the day after the Filing Date or, in the case of subclause
(B), commencing on the 76th day following delivery of the Shelf Notice,
Additional Interest shall accrue on the Registrable Notes over and above
the stated interest at a rate of 0.50% per annum for the first 90 days
immediately following the Filing Date or such 75th day, as the case may be,
such Additional Interest rate increasing by an additional 0.25% per annum
at the beginning of each subsequent 90-day period;
(ii) if (A) neither the Exchange Registration Statement nor the
Initial Shelf Registration is declared effective on or prior to the
Effectiveness Date applicable thereto or (B) notwithstanding that the
Issuers have consummated or will consummate an Exchange Offer, the Issuers
are required to file a Shelf Registration and such Shelf Registration is
not declared effective by the Commission on or prior to the Effectiveness
Date, then, commencing on the day after such applicable Effectiveness Date,
Additional Interest shall accrue on the Registrable Notes over and above
the stated interest at a rate of 0.50% per annum for the first 90 days
immediately following the day after the applicable Effectiveness Date, such
Additional Interest rate increasing by an additional 0.25% per annum at the
beginning of each subsequent 90-day period; and
(iii) if (A) the Issuers have not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to 35 days af-
<PAGE>
-15-
ter the date on which the Exchange Registration Statement was declared
effective, (B) the Exchange Registration Statement ceases to be effective
prior to consummation of the Exchange Offer or (C) if applicable, a Shelf
Registration has been declared effective and such Shelf Registration ceases
to be effective at any time during the Effectiveness Period, then
Additional Interest shall accrue on the Registrable Notes over and above
the stated interest at a rate of 0.50% per annum for the first 90 days
commencing on the (x) 36th day after such effective date in the case of (A)
above or (y) the day such Exchange Registration Statement or Shelf
Registration ceases to be effective in the case of (B) and (C) above, such
Additional Interest rate increasing by an additional 0.25% per annum at the
beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Registrable Notes
- -------- -------
may not exceed in the aggregate 2.0% per annum; provided further that (1) upon
-------- -------
the filing of the Exchange Registration Statement or each Shelf Registration (in
the case of (i) above), (2) upon the effectiveness of the Exchange Registration
Statement or each Shelf Registration, as the case may be (in the case of (ii)
above), or (3) upon the exchange of Exchange Notes for all Registrable Notes
validly tendered (in the case of (iii)(A) above) or upon the effectiveness of an
Exchange Registration Statement or Shelf Registration which had ceased to remain
effective (in the case of (iii)(B) and (C) above), Additional Interest on any
Registrable Notes then accruing Additional Interest as a result of such clause
(or the relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Issuers shall notify the Trustee within one business day after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Any amounts of Additional
----------
Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will
<PAGE>
-16-
be payable in cash semi-annually on each regular interest payment date specified
in the Indenture (to the Holders of Registrable Notes of record on the regular
record date therefor (as specified in the Indenture) immediately preceding such
dates), commencing with the first such regular interest payment date occurring
after any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Notes subject thereto, multiplied by a
fraction, the numerator of which is the number of days such Additional Interest
rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months), and the denominator of which is 360.
5. Registration Procedures
-----------------------
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, each Issuer shall effect such registrations to permit
the sale of such securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by each Issuer hereunder, each Issuer
shall:
(a) Prepare and file with the Commission prior to the Filing Date, the
Exchange Registration Statement or if the Exchange Registration Statement is not
filed or is unavailable, a Shelf Registration as prescribed by Section 2 or 3,
and use its reasonable best efforts to cause each such Registration Statement to
become effective and remain effective as provided herein; provided that, if (1)
--------
a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus
contained in an Exchange Registration Statement filed pursuant to Section 2 is
required to be delivered under the Securities Act by any Participating Broker-
Dealer who seeks to sell Exchange Notes during the Applicable Period and has
advised the Company that it is a Participating Broker-Dealer, before filing any
Registration Statement or Prospectus or any amendments or
<PAGE>
-17-
supplements thereto, the Issuers shall, if requested, furnish to and afford the
Holders of the Registrable Notes to be registered pursuant to such Shelf
Registration or each such Participating Broker-Dealer, as the case may be,
covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed (in each case, to the
extent practicable at least five Business Days prior to such filing). The
Issuers shall not file any such Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority in aggregate
principal amount of the Registrable Notes covered by such Registration
Statement, or any such Participating Broker-Dealer, as the case may be, their
counsel, or the managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented by
any Prospectus supplement required by applicable law, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in force) under
the Securities Act; and comply with the provisions of the Securities Act and the
Exchange Act applicable to it with respect to the disposition of all securities
covered by such Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any securities being
sold by a Participating Broker-Dealer covered by any such Prospectus. The
Issuers shall be deemed not to have used their reasonable best efforts to keep a
Registration Statement effective during the Applicable Period if they
voluntarily take any action that would result in selling Holders of the
Registrable Notes covered thereby or
<PAGE>
-18-
Participating Broker-Dealers seeking to sell Exchange Notes not being able to
sell such Registrable Notes or such Exchange Notes during that period unless
such action is required by applicable law, rule or regulation or unless the
Issuers comply with this Agreement, including, without limitation, the
provisions of paragraph 5(k) hereof and the last paragraph of Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period from whom the Issuers have received written notice that it
will be a Participating Broker-Dealer, notify the selling Holders of Registrable
Notes, and each such Participating Broker-Dealer, their counsel and the managing
underwriters, if any, promptly (but in any event within two Business Days), and
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective (including in such notice a written statement that any Holder may,
upon request, obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, documents incorporated or deemed to be incorporated by reference and
exhibits), (ii) of the issuance by the Commission of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose, (iii) if at any time when a prospectus is required
by the Securities Act to be delivered in connection with sales of the
Registrable Notes the representations and warranties of any Issuer contained in
any agreement (including any underwriting agreement contemplated by Section 5(n)
hereof) cease to be true and correct in any
<PAGE>
-19-
material respect, (iv) of the receipt by any Issuer of any notification with
respect to the suspension of the qualification or exemption from qualification
of a Registration Statement or any of the Registrable Notes or the Exchange
Notes to be sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event, the existence of any condition or
any information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in, or amendments or supplements to,
such Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the Issuers' reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-
<PAGE>
-20-
Dealer, for sale in any jurisdiction, and, if any such order is issued, to use
its reasonable best efforts to obtain the withdrawal of any such order at the
earliest possible date.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Registrable Notes being sold in connection
with an underwritten offering, (i) as promptly as practicable incorporate in a
prospectus supplement or post-effective amendment such information or revisions
to information therein relating to such underwriters or selling Holders as the
managing underwriters, if any, or such Holders or their counsel reasonably
request to be included or made therein, (ii) make all required filings of such
prospectus supplement or such post-effective amendment as soon as practicable
after the Issuers have received notification of the matters to be incorporated
in such prospectus supplement or post-effective amendment, and (iii) supplement
or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of Registrable Notes and to
each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, without charge, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange
<PAGE>
-21-
Registration Statement filed pursuant to Section 2 is required to be delivered
under the Securities Act by any Participating Broker-Dealer, deliver to each
selling Holder of Registrable Notes or each such Participating Broker-Dealer, as
the case may be, their respective counsel, and the underwriters, if any, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Issuers
hereby consent to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Notes and each
Participating Broker-Dealer, and the underwriters or agents, if any, and dealers
(if any), in connection with the offering and sale of the Registrable Notes
covered by, or the sale by Participating Broker-Dealers of the Exchange Notes
pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its reasonable best efforts to register or qualify, and
cooperate with the selling Holders of Registrable Notes and each such
Participating Broker-Dealer, the underwriters, if any, and their respective
counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Notes or Exchange Notes,
as the case may be, for offer and sale under the securities or Blue Sky laws of
such jurisdictions within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriter or underwriters, if any, reasonably
request in writing; provided that where Exchange Notes held by Participating
--------
Broker-Dealers or Registrable Notes are offered pursuant to an underwritten
offering, counsel to the underwriters shall, at the reasonable cost and expense
of
<PAGE>
-22-
the Issuers, perform the Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section 5(h); keep each
such registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes by Participating Broker-
Dealers or the Registrable Notes covered by the applicable Registration
Statement; provided that no Issuer shall be required to (A) qualify generally to
--------
do business in any jurisdiction where it is not then so qualified, (B) take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to taxation
in excess of a nominal dollar amount in any such jurisdiction where it is not
then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3, cooperate
with the selling Holders of Registrable Notes, any Participating Broker-Dealer
and the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may reasonably
request.
(j) Use its reasonable best efforts to cause the Registrable Notes
covered by the Registration Statement to be registered with or approved by such
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Notes, in which case the Issuers will cooperate in all
reasonable respects with the
<PAGE>
-23-
filing of such Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as reasonably practicable prepare and
(subject to Section 5(a) hereof) file with the Commission, at the Issuers' sole
expense, a supplement or post-effective amendment to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(l) Use its reasonable best efforts to cause the Registrable Notes
covered by a Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate principal
amount of Registrable Notes covered by such Registration Statement or the
managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with printed
certificates for the Registrable Notes in a form eligible for deposit with The
<PAGE>
-24-
Depository Trust Company and (ii) provide a CUSIP number for the Registrable
Notes.
(n) In connection with an underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as is
customary in underwritten offerings of debt securities similar to the Notes and
take all such other actions as are reasonably requested by the managing
underwriter or underwriters in order to expedite or facilitate the registration
or the disposition of such Registrable Notes and, in such connection, (i) make
such reasonable representations and warranties to the underwriters, with respect
to the business of the Issuers and their subsidiaries and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten offerings of debt securities similar to
the Notes, and confirm the same in writing if and when requested; (ii) obtain
the opinion of counsel to the Issuers and updates thereof in form and substance
reasonably satisfactory to the managing underwriter or underwriters, addressed
to the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings of debt securities similar to the Notes and
such other matters as may be reasonably requested by underwriters; (iii) obtain
"cold comfort" letters and updates thereof in form and substance reasonably
satisfactory to the managing underwriter or underwriters from the independent
certified public accountants of the Issuers (and, if necessary, any other
independent certified public accountants of any subsidiary of any Issuer or of
any business acquired by any Issuer (including Muzak Limited Partnership, a
Delaware limited partnership) for which financial statements and financial data
are, or are required to be, included in the Registration Statement), addressed
to each of the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings of
<PAGE>
-25-
debt securities similar to the Notes and such other matters as reasonably
requested by the managing underwriter or underwriters; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Notes covered by such
Registration Statement and the managing underwriter or underwriters or agents)
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, and each Participating Broker-Dealer, any
underwriter participating in any such disposition of Registrable Notes, if any,
and any attorney, accountant or other agent retained by any such selling Holder,
each Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
----------
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of each Issuer and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
-------
applicable due diligence responsibilities, and cause the officers, directors and
employees of each Issuer and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records which an Issuer determines, in good faith, to be
confidential and any Records which it notifies the Inspectors are confidential
shall
<PAGE>
-26-
not be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction or (iii) the information in
such Records has been made generally available to the public other than as a
result of a disclosure or failure to safeguard by such Inspector. Each selling
Holder of such Registrable Notes and each Participating Broker-Dealer will be
required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of any Issuer unless and
until such is made generally available to the public. Each Inspector, each
selling Holder of such Registrable Notes and each Participating Broker-Dealer
will be required to further agree that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction pursuant to clause
(ii) of the previous sentence or otherwise, give notice to the Issuers and allow
the Issuers to undertake appropriate action to obtain a protective order or
otherwise prevent disclosure of the Records deemed confidential at its expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a), as the case may be, to be qualified
under the TIA not later than the effective date of the Exchange Offer or the
first Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its reasonable best efforts to cause such
trustee to execute, all documents as may be required to effect such changes, and
all other forms and documents
<PAGE>
-27-
required to be filed with the Commission to enable such indenture to be so
qualified in a timely manner.
(q) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its
securityholders earnings statements satisfying the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder (or any similar rule promulgated
under the Securities Act) no later than 90 days after the end of any 12-month
period (i) commencing at the end of any fiscal quarter in which Registrable
Notes are sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter of the Company after the effective
date of a Registration Statement, which statements shall cover said 12-month
periods.
(r) Upon consummation of the Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Issuers, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
Holders of Registrable Notes participating in the Exchange Offer or the Private
Exchange, as the case may be, that the Exchange Notes or the Private Exchange
Notes, as the case may be, the Guarantees and the related indenture constitute
legally valid and binding obligations of the Issuers, enforceable against the
Issuers in accordance with their respective terms.
(s) If the Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Issuers (or to such
other Person as directed by the Company) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Issuers shall mark, or
caused to be marked, on such Registrable Notes that such Registrable Notes are
being canceled in exchange for the Exchange Notes or the Private Exchange Notes,
as the case may be; in no event shall such Registrable Notes be marked as paid
or otherwise satisfied.
<PAGE>
-28-
(t) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the NASD.
(u) Use its reasonable best efforts to take all other steps
reasonably necessary to effect the registration of the Registrable Notes covered
by a Registration Statement contemplated hereby.
The Issuers may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Issuers such information
regarding such seller and the distribution of such Registrable Notes as the
Issuers may, from time to time, reasonably request. The Issuers may exclude
from such registration the Registrable Notes of any seller who fails to furnish
such information within a reasonable time after receiving such request. Each
seller as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Issuers all information required to be disclosed in
order to make the information previously furnished to the Issuers by such seller
not materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon receipt of any
notice from the Issuers of the happening of any event of the kind described in
Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder will forthwith
discontinue disposition of such Registrable Notes covered by such Registration
Statement or Prospectus or Exchange Notes to be sold by such Holder or
Participating Broker-Dealer, as the case may be, and, in each case,
dissemination of such Prospectus until such Holder's or Participating Broker-
Dealer's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
------
by the Company
<PAGE>
-29-
that the use of the applicable Prospectus may be resumed, and has received
copies of any amendments or supplements thereto. In the event the Issuers shall
give any such notice, each of the Effectiveness Period and the Applicable Period
shall be extended by the number of days during such periods from and including
the date of the giving of such notice to and including the date when each seller
of Registrable Notes covered by such Registration Statement or Exchange Notes to
be sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) or (y) the Advice.
6. Registration Expenses
---------------------
All reasonable fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange Notes for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriter or
underwriters, if any, or
<PAGE>
-30-
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or by any Participating Broker-
Dealer, as the case may be, (iii) reasonable messenger, telephone and delivery
expenses incurred in connection with the Exchange Registration Statement and any
Shelf Registration, (iv) fees and disbursements of counsel for the Issuers and
fees and disbursements of special counsel for the Initial Purchasers and the
sellers of Registrable Notes, (v) fees and disbursements of all independent
certified public accountants referred to in Section 5(n)(iii) (including,
without limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) rating agency fees, (vii)
Securities Act liability insurance, if any Issuer desires such insurance, (viii)
fees and expenses of all other Persons retained by the Issuers, (ix) internal
expenses of the Issuers (including, without limitation, all salaries and
expenses of officers and employees of the Issuers performing legal or accounting
duties), (x) the expense of any annual or special audit, (xi) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, (xii) the fees and disbursements of
underwriters, if any, customarily paid by issuers or sellers of securities (but
not including any underwriting discounts or commissions or transfer taxes, if
any, attributable to the sale of the Registrable Notes which discounts,
commissions or taxes shall be paid by Holders of such Registrable Notes) and
(xiii) the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, securities sales agreements,
indentures and any other documents necessary in order to comply with this
Agreement.
7. Indemnification
---------------
(a) Each of the Issuers jointly and severally agrees to indemnify and
hold harmless each Holder of Registrable Notes and each Participating Broker-
Dealer, the officers, directors,
<PAGE>
-31-
employees and agents of each such Person, and each Person, if any, who controls
any such Person within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (each, a "Participant"), from and against any and
------------
all losses, claims, damages and liabilities (including, without limitation, the
reasonable legal fees and other reasonable expenses actually incurred in
connection with any suit, action or proceeding or any claim asserted) caused by,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus (as
amended or supplemented if the Issuers shall have furnished any amendments or
supplements thereto) or caused by, arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Issuers in writing
by or on behalf of such Participant expressly for use therein; provided,
--------
however, that the Issuers shall not be liable if such untrue statement or
- -------
omission or alleged untrue statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and the Issuers shall have furnished the Prospectus or an
amendment or supplement thereto in compliance with Section 5 of this Agreement.
(b) Each Participant will be required to agree, severally and not
jointly, to indemnify and hold harmless each Issuer, its directors and officers
and each Person who controls each Issuer within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuers to each Participant, but only with
reference to information relating to such Participant
<PAGE>
-32-
furnished to the Issuers in writing by such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto, or
any preliminary prospectus. The liability of any Participant under this
paragraph shall in no event exceed the proceeds received by such Participant
from sales of Registrable Notes or Exchange Notes giving rise to such
obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
------------------
notify the Person against whom such indemnity may be sought (the "Indemnifying
------------
Person") in writing, and the Indemnifying Person, upon request of the
- ------
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
-------- -------
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise except to the extent it has been materially
prejudiced by such failure. In any such proceeding, any Indemnified Person
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually agreed in
writing to the contrary, (ii) the Indemnifying Person has failed within a
reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is
<PAGE>
-33-
understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed promptly upon demand. Any such separate firm for the Participants
and such control Persons of Participants shall be designated in writing by
Participants who sold a majority in interest of Registrable Notes sold by all
such Participants and any such separate firm for each Issuer, its directors,
officers and such control Persons of each Issuer shall be designated in writing
by the Company. The Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there is a final non-appealable judgment for the plaintiff, the
Indemnifying Person agrees to indemnify any Indemnified Person from and against
any loss or liability by reason of such settlement or judgment. No Indemnifying
Person shall, without the prior written consent (which consent shall not be
unreasonably withheld) of the Indemnified Person, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement (A) includes an unconditional
release of such Indemnified Person, in form and substance satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of an Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
<PAGE>
-34-
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions (or alleged statements or omissions) that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers on the one hand
or by the Participants or such other Indemnified Person, as the case may be, on
the other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission and any other
equitable considerations appropriate under the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--- ----
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes,
<PAGE>
-35-
as the case may be, exceeds the amount of any damages that such Participant has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
------------------
Each of the Issuers covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder in a timely manner and, if
at any time it is not required to file such reports, it will, upon the request
of any Holder of Registrable Notes, make publicly available other information so
long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. Each of the Issuers further covenants, for so long as any
Registrable Notes remain outstanding, to make available to any Holder or
beneficial owner of Registrable Notes in connection with any sale thereof and
any prospective purchaser of such Registrable Notes from such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
9. Underwritten Registrations
--------------------------
If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
<PAGE>
-36-
Notes included in such offering and reasonably acceptable to the Issuers.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
-------------
(a) Remedies. In the event of a breach by any Issuer of any of its
--------
obligations under this Agreement, each Holder of Registrable Notes and each
Participating Broker-Dealer holding Exchange Notes, in addition to being
entitled to exercise all rights provided herein, in the Indenture or, in the
case of an Initial Purchaser, in the Purchase Agreement, or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. Each Issuer agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. None of the Issuers has entered, as
--------------------------
of the date hereof, and none of the Issuers shall enter, after the date of this
Agreement, into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the Holders of Registrable Notes in this
Agreement or otherwise conflicts with the provisions hereof. None of the
Issuers has entered and none of the Issuers shall enter into any agreement with
respect
<PAGE>
-37-
to any of its securities which will grant to any Person piggy-back rights with
respect to a Registration Statement.
(c) Adjustments Affecting Registrable Notes. None of the Issuers
---------------------------------------
shall, directly or indirectly, take any action with respect to the Registrable
Notes as a class that would adversely affect the ability of the Holders of
Registrable Notes to include such Registrable Notes in a registration undertaken
pursuant to this Agreement.
(d) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (A) the Holders of not less than a majority in aggregate principal
amount of the then outstanding Registrable Notes and (B) in circumstances that
would adversely affect Participating Broker-Dealers, the Participating Broker-
Dealers holding not less than a majority in aggregate principal amount of the
Exchange Notes held by all Participating Broker-Dealers. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders of Registrable
Notes whose securities are being tendered pursuant to the Exchange Offer or sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Registrable
Notes may be given by Holders of at least a majority in aggregate principal
amount of the Registrable Notes being tendered or being sold by such Holders
pursuant to such Registration Statement.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, next-day air courier or telecopier:
<PAGE>
-38-
1. if to a Holder of Registrable Notes or any Participating Broker-
Dealer, at the most current address of such Holder or Participating Broker-
Dealer, as the case may be, set forth on the records of the registrar under
the Indenture, with a copy in like manner to the Initial Purchasers as
follows:
CIBC OPPENHEIMER CORP.
GOLDMAN, SACHS & CO.
c/o CIBC Oppenheimer Corp.
424 Lexington Avenue
3rd Floor
New York, New York 10017
Facsimile No.: (212) 885-4998
Attention: Corporate Finance
Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: John A. Tripodoro, Esq.
2. if to the Initial Purchasers, at the address specified in Section
10(e)(1);
3. if to the Issuers, as follows:
Muzak LLC
2901 Third Avenue
Suite 900
Seattle, Washington 98121
Facsimile No.: (206) 633-6210
Attention: Brad D. Bodenman
<PAGE>
-39-
with copies to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Facsimile No.: (312) 861-2200
Attention: Laurie Gunther, Esq.
and to:
ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Facsimile No.: (617) 859-8797
Attention: Peni Garber
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier guaranteeing overnight
delivery; and when receipt is acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto and the Holders; provided, however, that this Agreement shall not inure
-------- -------
to the benefit of or be binding upon a successor or assign of a Holder unless
and to the extent such successor or assign holds Registrable Notes.
<PAGE>
-40-
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Notes Held by any Issuer or Its Affiliates. Whenever the consent
------------------------------------------
or approval of Holders of a specified percentage of Registrable Notes is
required hereunder,
<PAGE>
-41-
Registrable Notes held by any Issuer or its affiliates (as such term is defined
in Rule 405 under the Securities Act) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
(l) Third Party Beneficiaries. Holders of Registrable Notes and
-------------------------
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(m) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda among the Initial Purchasers on the
one hand and the Issuers on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
(n) Joint and Several Obligations. All of the obligations of the
-----------------------------
Issuers hereunder shall be joint and several obligations of each of them.
<PAGE>
-42-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MUZAK LLC
By: /s/ Peni Garber
--------------------------------
Name: Peni Garber
Title:
MUZAK FINANCE CORP.
By: /s/ Peni Garber
--------------------------------
Name:
Title:
MUZAK CAPITAL CORPORATION, a Delaware corporation
By: /s/ Peni Garber
--------------------------------
Name:
Title:
MLP ENVIRONMENTAL MUSIC, LLC, a Washington
limited liability company
By: /s/ Peni Garber
--------------------------------
Name:
Title:
<PAGE>
-43-
BUSINESS SOUND INC., an Ohio corporation
By: /s/ Peni Garber
------------------------------------------
Name: Peni Garber
Title:
ACN HOLDINGS LLC, a Delaware limited liability
company
By: /s/ Peni Garber
------------------------------------------
Name: Peni Garber
Title:
CIBC OPPENHEIMER CORP.
By: /s/ Kevin Magid
------------------------------------------
Name: Kevin Magid
Title: Managing Director
GOLDMAN, SACHS & CO.
By: /s/ Goldman, Sachs & Co.
-------------------------------------------
Goldman, Sachs & Co.
<PAGE>
EXHIBIT 4.4
Audio Communications Network, LLC
(to be renamed Muzak LLC)
Muzak Finance Corp.
$115,000,000
9 7/8% Senior Subordinated Notes due 2009
PURCHASE AGREEMENT
------------------
March 12, 1999
CIBC OPPENHEIMER CORP.
GOLDMAN, SACHS & CO.
c/o CIBC Oppenheimer Corp.
425 Lexington Avenue
3rd Floor
New York, New York 10017
Ladies and Gentlemen:
Audio Communications Network, LLC, a Delaware limited liability company
(the "Company"), Muzak Finance Corp., a Delaware Corporation, and a wholly-owned
subsidiary of the Company ("Finance Corp." and, together with the Company, the
"Notes Issuers"), the Company's other subsidiary listed in Exhibit A hereto and
---------
ACN Holdings LLC, a Delaware limited liability company, and the parent company
of the Company ("Holdings") (each of such subsidiary and Holdings, an "ACN
Guarantor" and, collectively, the "ACN Guarantors" and, together with the Muzak
Guarantors (as defined herein), the "Guarantors") hereby confirm their agreement
with you (the "Initial Purchasers"), as set forth below.
1. The Transactions. Subject to the terms and conditions herein
----------------
contained, the Notes Issuers propose to issue and sell to the Initial Purchasers
$115,000,000 aggregate principal amount of their 9 7/8% Senior Subordinated
Notes due 2009 (the "Notes"). The obligations of the Notes Issuers under the
Indenture (as defined herein) and the Notes will be unconditionally guaranteed
(the "Guarantees"), on a joint and several
<PAGE>
-2-
basis, by each ACN Guarantor and, at and as of the Effective Time (as defined
herein), by each Muzak Subsidiary (as defined herein) (in such capacity, the
"Muzak Guarantors"). The Notes and the Guarantees are to be issued pursuant to
the Indenture (the "Indenture"), to be dated March 18, 1999, among the Notes
Issuers, the Guarantors and State Street Bank and Trust Company, a Massachusetts
banking corporation, as trustee (the "Trustee"). The Notes and the Guarantees
are hereinafter referred to collectively as the "Securities." The Notes Issuers
and the Guarantors are herein collectively referred to as the "Issuers."
The sale of the Securities to the Initial Purchasers (the "Offering") will
be made without registration of the Securities under the Securities Act of 1933,
as amended together with the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder, the "Securities
Act"), in reliance upon the exemption therefrom provided by Section 4(2) of the
Securities Act.
At the Effective Time, the Muzak Guarantors will become parties to this
Agreement by executing a counterpart to this Agreement and delivering it to the
Initial Purchasers.
In connection with the sale of the Securities, the Company has prepared a
preliminary offering memorandum dated February 25, 1999 (the "Preliminary
Memorandum") and a final offering memorandum dated the date hereof (the "Final
Memorandum"), each setting forth or including a description of the terms of the
Securities, the terms of the Offering, the other Transactions (as defined
herein) and the transactions contemplated thereby and hereby, a description of
the Notes Issuers and Old Muzak (as defined herein) and any material
developments relating to the Company and Old Muzak occurring after the date of
the most recent financial statements included therein.
The Issuers understand that the Initial Purchasers propose to make an
offering of the Notes only on the terms and in the manner set forth in the Final
Memorandum and Section 9 hereof as soon as the Initial Purchasers deem advisable
after this Agreement has been executed and delivered, to persons in
<PAGE>
-3-
the United States whom the Initial Purchasers reasonably believe to be qualified
institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act,
as such rule may be amended from time to time ("Rule 144A"), in transactions
under Rule 144A and outside the United States to certain persons in reliance on
Regulation S under the Securities Act.
The Initial Purchasers and their direct and indirect transferees of the
Notes will be entitled to the benefits of the Registration Rights Agreement to
be dated as of March 18, 1999 among the parties hereto (the "Registration Rights
Agreement") pursuant to which the Issuers will agree, among other things, to
file (i) a registration statement (the "Registration Statement") with the
Commission registering the Notes or the Exchange Notes (as defined in the
Registration Rights Agreement) under the Securities Act or (ii) a shelf
registration statement pursuant to Rule 415 under the Securities Act relating to
the resale of the Notes by holders thereof or, if applicable, relating to the
resale of Private Exchange Notes (as defined in the Registration Rights
Agreement) by the Initial Purchasers pursuant to an exchange of the Notes for
Private Exchange Notes.
The Securities are being issued in connection with the merger of Muzak
Limited Partnership, a Delaware limited partnership ("Old Muzak"), with and into
the Company (the "Merger") pursuant to the Agreement and Plan of Merger, dated
as of January 29, 1999, among the Company, Holdings, Old Muzak, MLP Acquisition
L.P., a Delaware limited partnership and the managing general partner of Old
Muzak and Music Holdings Corp., a Delaware corporation and the general partner
of MLP Acquisition (the "Merger Agreement"). At the time of the Merger, the
Company will change its name to Muzak LLC. In connection with the Merger, the
Company will: (i) enter into a new senior secured credit facility that provides
for $135 million of term loans and a $35 million revolving credit facility (the
"New Credit Agreement"); (ii) receive a cash equity investment of approximately
$59.9 million from Holdings (the "Equity Contribution"); and (iii) complete a
tender offer and consent solicitation for the outstanding 10% Senior Notes due
2003 of Old
<PAGE>
-4-
Muzak (the "Muzak Notes") (the "Tender Offer"). The date and time of the
consummation of the Merger is referred to herein as the "Effective Time." In
addition, (i) Holdings has entered into a Contribution Agreement dated as of
February 19, 1999 with Capstar Broadcasting Corporation ("Capstar") pursuant to
which Capstar agreed to contribute to Holdings certain Muzak franchises
principally in exchange for equity interests in Holdings (the "Pending Capstar
Acquisition") and (ii) the Company has entered into a Stock Purchase Agreement
dated as of February 18, 1999 with Carolina Georgia Sound, Inc. pursuant to
which the Company acquired Electro Systems Corporation, an owner of Muzak
franchises (the "Electro Systems Acquisition").
Concurrently with the Tender Offer, the Company is soliciting consents (the
"Consent Solicitation") from holders of the Muzak Notes to amendments (the
"Proposed Amendments") to certain of the provisions in the Indenture governing
the Muzak Notes (the "Muzak Indenture") as described in the Offer to Purchase
and Consent Solicitation Statement dated February 8, 1999. After receipt of the
required consents from the holders of the Muzak Notes, Old Muzak and the trustee
under the Muzak Indenture will enter into a supplemental indenture to give
effect to the Proposed Amendments (the "Supplemental Indenture"). Unless
otherwise indicated, the use of the term Tender Offer herein shall be deemed to
include the Consent Solicitation.
The Merger Agreement and the documents entered into in connection therewith
are herein collectively referred to as the "Merger Documents." This Agreement,
the Securities, the Exchange Notes, the Private Exchange Notes, the Registration
Rights Agreement and the Indenture are herein collectively referred to as the
"Offering Documents." The Merger Documents, the Offering Documents, the New
Credit Agreement, and all the documents related to the Equity Contribution, the
Pending Capstar Acquisition, the Electro Systems Acquisition and the Tender
Offer are herein collectively referred to as the "Transaction Documents."
The Merger, the issuance of the Securities, the Equity Contribution,
the Pending Capstar Acquisition, the Electro Systems Acquisition and the Tender
Offer and the transactions
<PAGE>
-5-
contemplated by the New Credit Agreement are herein collectively referred to as
the "Transactions."
2. Representations and Warranties of the Issuers. The Issuers,
---------------------------------------------
jointly and severally, represent and warrant to and agree with the Initial
Purchasers that:
(a) The Final Memorandum, as of its date and the Closing Date (as
defined in Section 3 hereof), does not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this Section 2(a) do not apply to statements or
omissions that are made in reliance upon and in conformity with information
relating to the Initial Purchasers furnished to the Company in writing by
the Initial Purchasers expressly for use in the Final Memorandum or any
amendment or supplement thereto. The Final Memorandum and any amendment or
supplement thereto complied or will comply in all material respects with
Rule 144A(d)(4) under the Securities Act.
(b) Each of the Notes Issuers and the subsidiary set forth in Exhibit
-------
A hereto (the "Subsidiary") has been and, at and as of the Effective Time
-
will be, and to the best knowledge of the Notes Issuers, each of Old Muzak
and its subsidiaries set forth in Exhibit B hereto (the "Muzak
---------
Subsidiaries") has been and, at and as of the Effective Time, each of the
Muzak Subsidiaries will be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and has and, at
and as of the Effective Time, will have the power and authority to carry on
its business as now being conducted and as contemplated to be conducted and
to own and operate the properties and assets now owned and being operated
by it or to be owned and operated by it in each case as described in the
Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum). Each of the Notes Issuers and the
Subsidiary is
<PAGE>
-6-
and, at and as of the Effective Time will be, and to the best knowledge of
the Notes Issuers, each of Old Muzak and the Muzak Subsidiaries is, and at
and as of the Effective Time, each of the Muzak Subsidiaries will be, duly
qualified to do business as a foreign entity and is or will be in good
standing in each jurisdiction in which such qualification is necessary
under the applicable law as a result of the conduct of its business or the
ownership of its properties, except where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect
on the general affairs, management, business, condition (financial or
other), properties, prospects or results of operations of the Issuers,
taken as a whole (any such event, a "Material Adverse Effect").
(c) As of the Closing Date (after giving effect to the Transactions
and assuming that the Pending Capstar Acquisition has been consummated by
such date): the Company will have the capitalization materially in
conformance with that set forth in the Final Memorandum; and all of the
outstanding capital stock of Finance Corp. will be owned and held by the
Company.
(d) Except as described in the Final Memorandum: (i) all of the
issued and outstanding shares or capital stock of the Notes Issuers and the
Subsidiary are and, at and as of the Effective Time, will be, and to the
best knowledge of the Notes Issuers, as of the Closing Date, all of the
issued and outstanding shares of capital stock of the Muzak Subsidiaries
will be, duly authorized and validly issued and fully paid and non-
assessable and none of them have been issued in violation of any preemptive
or other right; (ii) all of the outstanding shares of capital stock of the
Subsidary is owned, directly or indirectly, by the Company; (iii) except
for options issued to management, as of the Effective Time, no options,
warrants or other rights to purchase from the Company or any Guarantor, or
agreements or other obligations of the Company or any Guarantor, to issue
or other rights to convert any obligation into, or exchange any securities
for, shares of
<PAGE>
-7-
capital stock of or ownership interests in the Company or any Guarantor,
are outstanding and no holder of securities of the Company or any Guarantor
is entitled to have such securities registered under the Registration
Statement; and (iv) as of the Effective Time, there will be no agreement,
understanding or arrangement among the Company or any Guarantor, and each
of their respective stockholders or any other person relating to the
ownership or disposition of any capital stock of the Company or any
Guarantor, or the election of directors of the Company or any Guarantor, or
the governance of the Company's or any Guarantor's affairs, and, if any,
such agreements, understandings and arrangements will not be breached or
violated as a result of the execution and delivery of, or the consummation
of the Transactions.
(e) Each of the Notes Issuers has and, at and as of the Effective
Time, each of the Notes Issuers will have the required corporate or limited
liability company power and authority to execute, deliver and perform its
obligations under the Notes, the Exchange Notes and the Private Exchange
Notes. The Notes, the Exchange Notes, the Private Exchange Notes have each
been duly and validly authorized by each of the Notes Issuers for issuance
and, when executed by the Notes Issuers and authenticated by the Trustee in
accordance with the provisions of the Indenture and, in the case of the
Notes, when delivered to and paid for by the Initial Purchasers in
accordance with the terms hereof, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Notes Issuers, entitled to the benefits of the Indenture and enforceable
against the Notes Issuers in accordance with their terms except that the
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforcement is considered
in a proceeding at law or in equity) and the discretion of the court before
which any proceeding with respect thereto may
<PAGE>
-8-
be brought (the "Enforceability Exceptions"); the Guarantees to be endorsed
on the Notes and the guarantees to be endorsed on the Exchange Notes and
the Private Exchange Notes have each been duly and validly authorized by
the ACN Guarantors and, at and as of the Effective Time, will have each
been duly and validly authorized by each of the Guarantors and, when the
Notes are executed by the Notes Issuers and authenticated by the Trustee in
accordance with the provisions of the Indenture, and delivered to and paid
for by the Initial Purchasers in accordance with the terms hereof, and when
the Guarantees have been endorsed on the Notes in accordance with the terms
of the Indenture, such Guarantees will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Guarantors, entitled to the benefits of the Indenture and enforceable
against the Guarantors in accordance with their terms except that the
enforcement thereof may be limited by the Enforceability Exceptions. The
Securities are in the form contemplated by the Indenture.
(f) Each of the Issuers has the requisite corporate or limited
liability company power and authority to execute, deliver and perform its
obligations under the Indenture. The Indenture has been duly and validly
authorized by the Notes Issuers and the ACN Guarantors and, at and as of
the Effective Time, will have been duly and validly authorized by the
Issuers, and meets the requirements for qualification under the Trust
Indenture Act of 1939, as amended (the "TIA"), and, when executed and
delivered by the Issuers (assuming the due authorization, execution and
delivery by the Trustee), will constitute a valid and legally binding
agreement of the Issuers, enforceable against the Issuers in accordance
with its terms except that the enforcement thereof may be limited by the
Enforceability Exceptions.
(g) Each of the Issuers has the requisite corporate or limited
liability company power and authority to execute, deliver and perform its
obligations under the
<PAGE>
-9-
Registration Rights Agreement. The Registration Rights Agreement has been
duly and validly authorized by the Notes Issuers and the ACN Guarantors
and, at and as of the Effective Time, will have been duly and validly
authorized by the Issuers, and when executed and delivered by the Issuers
(assuming the due authorization, execution and delivery by the Initial
Purchasers), will constitute a valid and legally binding agreement of the
Issuers, enforceable against the Issuers in accordance with its terms
except (i) that the enforcement thereof may be limited by the
Enforceability Exceptions and (ii) as any rights to indemnity or
contribution thereunder may be limited by federal and state securities laws
and public policy considerations.
(h) Each of the Issuers has the requisite corporate or limited
liability power and authority to execute, deliver and perform its
obligations under this Agreement. This Agreement has been duly and validly
authorized by the Notes Issuers and the ACN Guarantors and, at and as of
the Effective Time, will have been duly and validly authorized by the
Issuers, and when executed and delivered by each Issuer (assuming due
authorization, execution and delivery by the Initial Purchasers), will
constitute a valid and legally binding agreement of such Issuer,
enforceable against such Issuer in accordance with its terms except (i)
that the enforcement thereof may be limited by the Enforceability
Exceptions and (ii) as any rights to indemnity or contribution hereunder
may be limited by federal and state securities laws and public policy
considerations. The Securities, the Indenture and the Registration Rights
Agreement conform in all material respects to the descriptions thereof in
the Final Memorandum (or, if the Final Memorandum is not in existence, the
most recent Preliminary Memorandum).
(i) The Notes Issuers and, to the best knowledge of the Notes
Issuers, Old Muzak and each of the Muzak Subsidiaries, each have the
requisite power and authority to execute, deliver and perform each of their
respective
<PAGE>
-10-
obligations under each of the Transaction Documents other than the Offering
Documents and to enter into all other agreements, instruments and documents
executed and delivered by any of them pursuant thereto and to carry out
their respective obligations thereunder. As of the Closing Date, each of
the Transaction Documents other than the Offering Documents will have been
duly and validly authorized by the Issuers and Old Muzak (in each case to
the extent a party thereto) and, when executed and delivered by the Issuers
and Old Muzak (in each case to the extent a party thereto), will constitute
a valid and legally binding agreement of the Issuers and Old Muzak (in each
case to the extent a party thereto), enforceable against the Issuers and
Old Muzak (in each case to the extent a party thereto) in accordance with
their respective terms except that (i) the enforcement thereof may be
limited by the Enforceability Exceptions and (ii) as any rights to
indemnity or contribution hereunder may be limited by federal and state
securities laws and public policy considerations.
(j) (i) The Company has delivered to the Initial Purchasers a true
and correct copy of each of the Transaction Documents that have been
executed and delivered prior to the date of this Agreement, together with
all related agreements and all schedules and exhibits thereto, and as of
the date hereof there have been no amendments, alterations, modifications
or waivers of any of the provisions of any of such Transaction Documents
since their date of execution; and (ii) there exists as of the date hereof
(after giving effect to the transactions contemplated by each of the
Transaction Documents) no event or condition that would constitute a
default or an event of default (in each case as defined in each of the
Transaction Documents) under any of the Transaction Documents that would
result in a Material Adverse Effect or materially adversely affect the
ability of the Issuers and Old Muzak to consummate the Transactions.
<PAGE>
-11-
(k) Except as set forth in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum), no
consent, approval, authorization or order of any court or governmental
agency or body is required for the performance of any of the Transaction
Documents by the Issuers and Old Muzak, to the extent each is or will be a
party thereto, or for the consummation by the Issuers or Old Muzak, of any
of the transactions contemplated thereby, except for such consents,
approvals, authorizations or orders as have been obtained or made or as may
be required under the Securities Act and the TIA (with respect to the
transactions contemplated by the Registration Rights Agreement) or as may
be required under state securities or "Blue Sky" laws in connection with
the purchase and distribution of the Securities by the Initial Purchasers
or such that the failure to obtain would not reasonably be expected to have
a Material Adverse Effect; and none of the Notes Issuers or the Subsidiary
is and, to the best knowledge of the Notes Issuers, none of Old Muzak or
the Muzak Subsidiaries is, (i) in violation of its respective certificate
of incorporation, organizational documents, limited liability company
agreement, partnership agreement or bylaws, (ii) in violation of any
statute, judgment, decree, order, rule or regulation applicable to it or
any of its properties or assets, which violation would, individually or in
the aggregate, have a Material Adverse Effect, or (iii) in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any of the Transaction Documents or any other
contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or
instrument to which it is a party or to which it is subject, which default
would, individually or in the aggregate, have a Material Adverse Effect.
(l) The execution, delivery and performance by (i) the Notes Issuers
and the Subsidiary and (ii) to the best knowledge of the Notes Issuers, Old
Muzak and the Muzak Subsidiaries of, in each case, each of the Transac-
<PAGE>
-12-
tion Documents to which it is a party, and the consummation of the
transactions contemplated hereby and thereby and the fulfillment of the
terms hereof and thereof, will not violate, conflict with or constitute or
result in a breach of or a default under (or an event that, with notice or
lapse of time, or both, would constitute a breach of or a default under)
any of (a) the terms or provisions of any indenture, mortgage, deed of
trust, loan agreement, note, lease, license, franchise agreement, or
agreement or instrument to which any of them is a party or to which any of
their respective properties or assets are subject, which violation,
conflict, breach or default would, individually or in the aggregate, have a
Material Adverse Effect, (b) the certificate of incorporation,
organizational documents, limited liability company agreement, partnership
agreement or by-laws of any of them or (c) (assuming compliance with all
applicable Federal and state securities and "Blue Sky" laws and the
accuracy of the representations and warranties of the Initial Purchasers in
Section 9 hereof) any statute, judgment, decree, order, rule or regulation
of any court or governmental agency or other body applicable to any of them
or any of their respective properties or assets, which violation, conflict,
breach or default would, individually or in the aggregate, have a Material
Adverse Effect.
(m) The audited historical financial statements of the Company and
Audio Communications Network, Inc. ("ACN Inc.") and, to the best knowledge
of the Company, Old Muzak, included in the Final Memorandum (or, if the
Final Memorandum is not in existence, the most recent Preliminary
Memorandum) present fairly in all material respects the consolidated
financial position, results of operations and cash flows of each such
entity, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as otherwise stated therein; the
unaudited financial statements and financial information of the Capstar
Affiliate (as defined in the
<PAGE>
-13-
Final Memorandum), Business Sound Inc.(as defined in the Final Memorandum),
the MTI Business (as defined in the Final Memorandum), Electro Systems Inc.
and the Omaha Muzak affiliate to be acquired by Capstar included in the
Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) present fairly in all material respects the
financial position and results of operations of each such entity at the
dates and for the periods to which they relate, and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis except as otherwise stated therein and have been prepared
on a basis substantially consistent with that of the audited financial
statements of the Company referred to above except as otherwise stated
therein; the summary and selected financial and statistical data included
in the Final Memorandum (or, if the Final Memorandum is not in existence,
the most recent Preliminary Memorandum) present fairly in all material
respects the information shown therein and have been prepared and compiled
on a basis consistent with the audited and unaudited financial statements
included therein, except as otherwise stated therein; and each of
PricewaterhouseCoopers LLP and Deloitte & Touche LLP, which have examined
certain of such financial statements as set forth in their reports included
in the Final Memorandum (or, if the Final Memorandum is not in existence,
the most recent Preliminary Memorandum), are independent public accounting
firms within the meaning of Rule 101 of the Code of Professional Conduct of
the American Institute of Certified Public Accountants and its
interpretations and rulings.
(n) (i) The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the Final
Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) have been properly computed on the bases
described therein; and the assumptions used in the preparation of the pro
forma financial statements and other pro forma financial information
included in the Final Memorandum (or, if the Final Memorandum is not in
ex-
<PAGE>
-14-
istence, the most recent Preliminary Memorandum) are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein.
(o) Except as described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum),
there is not pending or, to the best knowledge of the Notes Issuers,
threatened any action, suit, proceeding, inquiry or investigation,
governmental or otherwise, to which any of the Notes Issuers or, to the
best knowledge of the Notes Issuers, Old Muzak or any Muzak Subsidiary, is
a party, or to which their respective properties or assets are subject,
before or brought by any court, arbitrator or governmental agency or body,
that, if determined adversely to the Notes Issuers or Old Muzak or any
Muzak Subsidiary, would, individually or in the aggregate, have a Material
Adverse Effect, or that seeks to restrain, enjoin, prevent the consummation
of or otherwise challenge the issuance or sale of the Securities to be sold
hereunder or the other Transactions.
(p) None of the Notes Issuers or the Subsidiary has, and, to the best
knowledge of the Notes Issuers, none of Old Muzak or any of the Muzak
Subsidiaries has, and, after giving effect to the Transactions and the
issuance and sale of the Securities, none of the Issuers will not have, any
liability for any prohibited transaction or funding deficiency or any
complete or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which any of them
makes or ever has made a contribution and in which any employee of any of
them is or has ever been a participant. With respect to such plans, the
Notes Issuers and the Subsidiary are, and, to the best knowledge of the
Notes Issuers, Old Muzak and the Muzak Subsidiaries are, and, after giving
effect to the Transactions and the issuance and sale of the Securities, the
Issuers will be, in
<PAGE>
-15-
compliance in all material respects with all provisions of ERISA.
(q) The Notes Issuers and the Subsidiary and, to the best knowledge
of the Notes Issuers, Old Muzak and the Muzak Subsidiaries, own or possess
adequate licenses or other rights to use all patents, trademarks, service
marks, trade names, copyrights and know-how that are necessary to conduct
their business as described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum).
None of the Notes Issuers or the Subsidiary and, to the best knowledge of
the Notes Issuers, none of Old Muzak or any of the Muzak Subsidiaries, has
received any notice of infringement of or conflict with (or knows of any
such infringement of or conflict with) asserted rights of others with
respect to any patents, trademarks, service marks, trade names, copyrights
or know-how that, if such assertion of infringement or conflict were
sustained, would, individually or in the aggregate, have a Material Adverse
Effect.
(r) Each of the Notes Issuers and the Subsidiary, and, to the best
knowledge of the Notes Issuers, each of Old Muzak and the Muzak
Subsidiaries, possesses all licenses, permits, certificates, consents,
orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts
and other tribunals presently required or necessary to own or lease, as the
case may be, and to operate its respective properties and to carry on its
respective businesses as now or proposed to be conducted as set forth in
the Final Memorandum (or, if the Final Memorandum is not in existence, the
most recent Preliminary Memorandum) ("Permits"), except where the failure
to obtain such Permits would not, individually or in the aggregate, have a
Material Adverse Effect; each of the Notes Issuers and the Subsidiary and,
to the best knowledge of the Notes Issuers, each of Old Muzak and the Muzak
<PAGE>
-16-
Subsidiaries, has fulfilled and performed all of its obligations with
respect to such Permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any
such Permit, except for nonperformance or events or revocations or
terminations that would not, individually or in the aggregate, have a
Material Adverse Effect; and none of the Notes Issuers or the Subsidiary
and, to the best knowledge of the Notes Issuers, none of Old Muzak and the
Muzak Subsidiaries, has received any notice of any proceeding relating to
revocation or modification of any such Permit, except as described in the
Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) and except where such revocation or
modification would not, individually or in the aggregate, have a Material
Adverse Effect.
(s) Subsequent to the respective dates as of which information is
given in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum) and except as described
therein or as contemplated by the Transaction Documents, (i) the Notes
Issuers, the Subsidiary and, to the best knowledge of the Notes Issuers,
Old Muzak and the Muzak Subsidiaries, have not incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions not in the ordinary course of business, (ii) the
Notes Issuers, the Subsidiary and, to the best knowledge of the Notes
Issuers, Old Muzak and the Muzak Subsidiaries have not purchased any of
their respective outstanding capital stock, membership interests,
partnership interests or the equivalent, or declared, paid or otherwise
made any dividend or distribution of any kind on any of their respective
capital stock, membership interests, partnership interest or otherwise,
(iii) there shall not have been any change in the capital stock or
long-term indebtedness of the Notes Issuers, the Subsidiary and, to the
best knowledge of the Notes Issuers, Old Muzak and the Muzak Subsidiaries
and (iv) none of the Notes Issuers, the Subsidi-
<PAGE>
-17-
ary or, to the best knowledge of the Notes Issuers, Old Muzak or any of the
Old Muzak Subsidiaries, has sustained any material loss or interference
with its business from fire, explosion, flood, earthquake or other
calamity, whether or not covered by insurance, except in each case as would
not have a Material Adverse Effect.
(t) Except as described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum),
none of the Notes Issuers or the Subsidiary and, to the best knowledge of
the Notes Issuers, Old Muzak or the Muzak Subsidiaries is in default under
any of the contracts described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum),
has received a notice or claim of any such default or has knowledge of any
breach of such contracts by the other party or parties thereto, except such
defaults or breaches as would not, individually or in the aggregate, have a
Material Adverse Effect.
(u) None of the Notes Issuers, the Subsidiary or, to the best
knowledge of the Notes Issuers, Old Muzak or the Old Muzak Subsidiaries has
taken or will take any action that would cause this Agreement or the
issuance or sale of the Securities to violate Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System, in each case as in
effect, or as the same may hereafter be in effect, on the Closing Date.
(v) Each of the Notes Issuers and the Subsidiary and, to the best
knowledge of the Notes Issuers, Old Muzak and the Muzak Subsidiaries has
good and marketable title to all real property described in the Final
Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) as being owned by it and good and marketable
title to the leasehold estate in the real property described therein as
being leased by it, free and clear of all liens, charges, encumbrances or
restrictions, except, in each case, as described in the Final Memorandum
(or, if the Final Memorandum is not in ex-
<PAGE>
-18-
istence, the most recent Preliminary Memorandum) or such as would not,
individually or in the aggregate, have a Material Adverse Effect.
(w) Each of the Notes Issuers and the Subsidiary and, to the best
knowledge of the Notes Issuers, Old Muzak and the Muzak Subsidiaries, has
filed all necessary federal, state and foreign income and franchise tax
returns, except where the failure to so file such returns would not,
individually or in the aggregate, have a Material Adverse Effect; and,
other than taxes due thereon or tax deficiencies which any Notes Issuer or
the Subsidiary or, to the best knowledge of the Notes Issuers, Old Muzak or
any Muzak Subsidiary reasonably believes that it has provided adequate
reserves, has paid all taxes due thereon and there is no tax deficiency
that has been asserted against any Notes Issuer or the Subsidiary or, to
the best knowledge of the Notes Issuers, Old Muzak and the Muzak
Subsidiaries, that would, individually or in the aggregate, have a Material
Adverse Effect.
(x) (i) Immediately after the consummation of the Transactions, the
fair value and present fair saleable value of the assets of the Issuers
will exceed the sum of their stated liabilities and identified contingent
liabilities; and (ii) the Issuers are not, nor will they be, after giving
effect to the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby,
(a) left with unreasonably small capital with which to carry on their
businesses as is proposed to be conducted, (b) unable to pay their debts
(contingent or otherwise) as they mature or (c) insolvent.
(y) Except as disclosed in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum) and
except as would not individually or in the aggregate have a Material
Adverse Effect, (A) each of the Notes Issuers and the Subsidiary and, to
the best knowledge of the Notes Issuers, Old Muzak and the Muzak
Subsidiaries, is in compliance with all ap-
<PAGE>
-19-
plicable Environmental Laws, (B) each of the Notes Issuers and the
Subsidiary and, to the best knowledge of the Notes Issuers, Old Muzak and
the Muzak Subsidiaries has made all filings and provided all notices
required under any applicable Environmental Law, and has all permits,
authorizations and approvals required under any applicable Environmental
Laws and is in compliance with their requirements, (C) there are no pending
or, to the best knowledge of the Notes Issuers, after due inquiry,
threatened Environmental Claims against any of the Notes Issuers or the
Subsidiary or, in each case, to the best knowledge of the Notes Issuers,
Old Muzak and the Muzak Subsidiaries and (D) none of the Notes Issuers or
the Subsidiary or, to the best knowledge of the Notes Issuers, Old Muzak
and the Muzak Subsidiaries has knowledge of any circumstances with respect
to any of their respective properties or operations that could reasonably
be anticipated to form the basis of an Environmental Claim against any of
them or any of their subsidiaries or any of their respective properties or
operations and the business operations relating thereto.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any federal, state, local
or municipal statute, law, rule, regulation, ordinance, code or rule and
any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment binding on
any of the Issuers or Old Muzak relating to pollution or protection of the
environment or health or safety or any chemical, material or substance that
is subject to regulation thereunder. "Environmental Claims" means any and
all administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, written notices of responsibility, information requests,
liens, written notices of noncompliance or violation, investigations or
proceedings relating in any way to any Environmental Law.
(z) None of the Notes Issuers or the Subsidiary or, to the best
knowledge of the Notes Issuers, Old Muzak and
<PAGE>
-20-
the Muzak Subsidiaries, or any of their respective Affiliates (as defined
in Rule 501(b) of Regulation D under the Securities Act) directly, or
through any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of any "security" (as defined in the
Securities Act) which is or could be integrated with the sale of the
Securities in a manner that would require the registration under the
Securities Act of the Securities or (ii) engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation
D under the Securities Act) in connection with the offering of the
Securities or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act. Assuming the accuracy of the Initial
Purchasers' representations and warranties set forth in Section 9 hereof,
the offer and sale of the Securities to the Initial Purchasers in the
manner contemplated by this Agreement and the Final Memorandum does not
require registration under the Securities Act and the Indenture does not
require qualification under the TIA.
(aa) No securities of the Notes Issuers or the Subsidiary are (i) of
the same class (within the meaning of Rule 144A under the Securities Act)
as the Securities and (ii) listed on a national securities exchange
registered under Section 6 of the Exchange Act or quoted in a U.S.
automated interdealer quotation system.
(bb) None of the Notes Issuers or the Subsidiary or, to the best
knowledge of the Notes Issuers, Old Muzak or the Muzak Subsidiaries, or, in
each case, any of their respective Affiliates or any person acting on their
behalf, has engaged in any directed selling efforts (as that term is
defined in Regulation S under the Securities Act ("Regulation S")) with
respect to the Securities; and the Notes Issuers and the Subsidiary and, to
the best knowledge of the Notes Issuers, Old Muzak and the Muzak
Subsidiaries, their respective Affiliates and any person acting on their
behalf have acted in accordance with the offering restrictions requirements
of Regulation S.
<PAGE>
-21-
(cc) None of the Notes Issuers or the Subsidiary or, to the best
knowledge of the Notes Issuers, Old Muzak and the Muzak Subsidiaries, is
required to register as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(dd) None of the Notes Issuers or the Subsidiary or, to the best
knowledge of the Notes Issuers, Old Muzak or the Muzak Subsidiaries, or any
of their respective directors, officers or controlling persons, has taken,
directly or indirectly, any action designed, or that might reasonably be
expected, to cause or result, under the Act or otherwise, in, or that has
constituted, stabilization or manipulation of the price of any security of
any Issuer to facilitate the sale or resale of the Securities (it being
understood that no representation or warranty is made as to any actions by
the Initial Purchasers).
(ee) Except as set forth in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum),
there is no strike, labor dispute, slowdown or work stoppage with the
employees of any of the Notes Issuers or the Subsidiary or, to the best
knowledge of the Notes Issuers, Old Muzak or the Muzak Subsidiaries, which
is pending or, to the best knowledge of the Notes Issuers, threatened that
would have a Material Adverse Effect.
(ff) Each of the Notes Issuers and the Subsidiary and, to the best
knowledge of the Notes Issuers, Old Muzak and the Muzak Subsidiaries,
carries insurance (including self-insurance) in such amounts and covering
such risks as in its reasonable determination is adequate for the conduct
of its business and the value of its properties.
(gg) Each of the Notes Issuers and the Subsidiary and, to the best
knowledge of the Notes Issuers, Old Muzak and the Muzak Subsidiaries, (i)
makes and keeps accurate books and records and (ii) maintains internal
accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's
<PAGE>
-22-
authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for
its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable intervals.
(hh) The statistical and market and industry-related data included in
the Final Memorandum (or, if the Final Memorandum is not in existence, the
most recent Preliminary Memorandum) are based on or derived from sources
which the Notes Issuers believe to be reliable and accurate or represent
the Notes Issuers' good faith estimates that are made on the basis of data
derived from such sources.
Any certificate signed by any officer of any Issuer and delivered to
any Initial Purchaser or to counsel for the Initial Purchasers shall be deemed a
joint and several representation and warranty by the Issuers to each Initial
Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis of
---------------------------------------------
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Notes Issuers agree to
issue and sell to the Initial Purchasers, and each of the Initial Purchasers,
acting severally and not jointly, agrees to purchase from the Notes Issuers, at
97.25% of their principal amount, the respective aggregate principal amounts of
the Securities set forth opposite their respective names on Schedule 1 hereto.
----------
One or more certificates in definitive form for the Securities that
the Initial Purchasers have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as each
Initial Purchaser requests upon notice to the Company at least 48 hours prior to
the Closing Date, shall be delivered by or on behalf of the Company, against
payment by or on behalf of the Initial Purchasers of the purchase price therefor
by wire transfer of immediately
<PAGE>
-23-
available funds to the account of the Company previously designated by it in
writing. Such delivery of and payment for the Securities shall be made at the
offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022, at
9:00 a.m., New York time, on March 18, 1999, or at such date as the Initial
Purchasers and the Company may agree upon, such time and date of delivery
against payment being herein referred to as the "Closing Date." The Company will
make such certificate or certificates for the Securities available for
inspection by the Initial Purchasers at the offices in New York, New York of
Kirkland & Ellis at least 24 hours prior to the Closing Date.
4. Offering by the Initial Purchasers. The Initial Purchasers
----------------------------------
propose to make an offering of the Securities at the price and upon the terms
set forth in the Final Memorandum as soon as practicable after this Agreement is
entered into and as in the judgment of the Initial Purchasers is advisable.
5. Certain Covenants. The Issuers, jointly and severally, covenant
-----------------
and agree with the Initial Purchasers that:
(a) None of the Issuers will amend or supplement the Final Memorandum
or any amendment or supplement thereto of which the Initial Purchasers
shall not previously have been advised and furnished a copy for a
reasonable period of time prior to the proposed amendment or supplement and
as to which the Initial Purchasers shall not have given its consent (which
consent shall not be unreasonably withheld). The Issuers will promptly,
upon the reasonable request of the Initial Purchasers or counsel to the
Initial Purchasers, make any amendments or supplements to the Final
Memorandum that may be reasonably necessary or advisable in connection with
the resale of the Securities by the Initial Purchasers.
(b) The Issuers will cooperate with the Initial Purchasers in
arranging for the qualification of the Securities for offering and sale
under the securities or "Blue Sky" laws of such jurisdictions as the
Initial Purchasers may designate and will continue such qualifications in
effect for as long as may be necessary to complete the dis-
<PAGE>
-24-
tribution of the Securities by the Initial Purchasers; provided, however,
-------- -------
that in connection therewith none of the Issuers shall be required to
qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction or to take any other action that would
subject it to general service of process or to taxation in respect of doing
business in any jurisdiction in which it is not otherwise subject.
(c) If, at any time prior to the completion of the resale by the
Initial Purchasers of the Notes or the Private Exchange Notes, any event
shall occur as a result of which it is necessary, in the opinion of counsel
for the Initial Purchasers, to amend or supplement the Final Memorandum in
order to make such Final Memorandum not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if
for any other reason it shall be necessary to amend or supplement the Final
Memorandum in order to comply with applicable laws, rules or regulations,
the Issuers shall (subject to Section 5(a)) forthwith amend or supplement
such Final Memorandum at their own expense so that, as so amended or
supplemented, such Final Memorandum will not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the
time it is delivered to a purchaser, not misleading and will comply with
all applicable laws, rules or regulations.
(d) The Issuers will, without charge, provide to each Initial
Purchaser and to counsel to the Initial Purchasers as many copies of each
of the Preliminary Memorandum and Final Memorandum or any amendment or
supplement thereto as the Initial Purchasers may reasonably request.
(e) During the period of five years from the Closing Date, the
Issuers will furnish to the Initial Purchasers (a) as soon as available, a
copy of each report and other communication (financial or otherwise) of any
Issuer mailed to the Trustee or the holders of the Securities,
<PAGE>
-25-
stockholders or any national securities exchange on which any class of
securities of any Issuer may be listed other than materials filed with the
Commission and (b) from time to time such other information concerning the
Issuers as the Initial Purchasers may reasonably request.
(f) If this Agreement shall terminate or shall be terminated after
execution because of any failure or refusal on the part of the Issuers to
comply with the terms or fulfill any of the conditions of this Agreement,
the Issuers agree to reimburse the Initial Purchasers for all reasonable
out-of-pocket expenses (including fees and expenses of counsel for the
Initial Purchasers) incurred by you in connection herewith.
(g) The Issuers will apply the net proceeds from the sale of the
Securities materially as set forth under "Use of Proceeds" in the Final
Memorandum.
(h) None of the Issuers or any of their respective Affiliates will
sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any "security" (as defined in the Securities Act) which could be
integrated with the sale of the Securities in a manner which would require
the registration under the Securities Act of the Securities.
(i) For so long as the Securities constitute "restricted" securities
within the meaning of Rule 144(a)(3) under the Securities Act, the Issuers
will not, and will not permit any of the Subsidiaries to, solicit any offer
to buy or offer to sell the Securities by means of any form of general
solicitation or general advertising (as those terms are used in Regulation
D under the Securities Act) or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act, except in
connection with the exchange offer contemplated by the Registration Rights
Agreement.
(j) For so long as any of the Securities remain outstanding and are
"restricted securities" within the mean-
<PAGE>
-26-
ing of Rule 144(a)(3) under the Securities Act and not able to be sold in
their entirety under Rule 144 under the Securities Act (or any successor
provision), the Issuers will make available, upon request, to any seller of
such Securities the information specified in Rule 144A(d)(4) under the
Securities Act, unless the Issuers are then subject to Section 13 or 15(d)
of the Exchange Act.
(k) The Issuers will use their best efforts to (i) permit the
Securities to be included for quotation on the PORTAL Market and (ii)
permit the Securities to be eligible for clearance and settlement through
The Depository Trust Company ("DTC").
(l) In connection with Securities offered and sold in an offshore
transaction (as defined in Regulation S), the Issuers will not register any
transfer of such Securities not made in accordance with the provisions of
Regulation S and will not, except in accordance with the provisions of
Regulation S, if applicable, issue any such Securities in the form of
definitive securities.
(m) The Issuers will use their best efforts to do and perform all
things required to be done and performed by them under this Agreement and
the other Offering Documents prior to or after the Closing Date and to
satisfy all conditions precedent on their part to the obligations of the
Initial Purchasers to purchase and accept delivery of the Securities.
6. Expenses. Notwithstanding any termination of this Agreement
--------
(pursuant to Section 11 or otherwise), the Issuers jointly and severally agree
to pay the following costs and expenses and all other costs and expenses
incident to the performance by the Issuers of their obligations hereunder: (i)
the negotiation, preparation, printing, typing, reproduction, execution and
delivery of this Agreement and of the other Offering Documents, any amendment or
supplement to or modification of any of the foregoing and any and all other
documents furnished pursuant hereto or thereto or in connection herewith or
therewith; (ii) the preparation, printing or reproduction of
<PAGE>
-27-
each Preliminary Memorandum, the Final Memorandum and each amendment or
supplement to any of them; (iii) the delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of each
Preliminary Memorandum, the Final Memorandum and all amendments or supplements
to any of them as may be reasonably requested for use in connection with the
offering and sale of the Securities; (iv) the preparation, printing,
authentication, issuance and delivery of certificates for the Notes and the
related Guarantees, including any stamp taxes in connection with the original
issuance and sale of the Securities and trustees' fees; (v) the reproduction and
delivery of this Agreement and the other Offering Documents, the preliminary and
supplemental "Blue Sky" memoranda and all other agreements or documents
reproduced and delivered in connection with the offering of the Securities; (vi)
the registration or qualification of the Securities for offer and sale under the
securities or Blue Sky laws of the several states (including filing fees and the
reasonable fees, expenses and disbursements of Cahill Gordon & Reindel, counsel
to the Initial Purchasers, relating to such registration and qualification not
to exceed $10,000); (vii) the transportation and other expenses incurred by or
on behalf of Company representatives in connection with presentations to and
related communications with prospective purchasers of the Securities; (viii) the
fees and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Notes Issuers; (ix) fees
and expenses of the Trustee including fees and expenses of its counsel; (x) all
expenses and listing fees incurred in connection with the application for
quotation of the Securities on the PORTAL Market; and (xi) any fees charged by
investment rating agencies for the rating of the Securities.
7. Conditions of the Initial Purchasers' Obligations. The several
-------------------------------------------------
obligations of the Initial Purchasers to purchase and pay for the Securities are
subject to the accuracy of the representations and warranties contained herein,
to the performance by the Issuers of their respective covenants and agreements
hereunder and to the following additional conditions unless waived in writing by
the Initial Purchasers:
<PAGE>
-28-
(i) The Initial Purchasers shall have received an opinion of
counsel in form and substance satisfactory to the Initial Purchasers and
Cahill Gordon & Reindel, counsel to the Initial Purchasers, dated the
Closing Date, of each of (i) Kirkland & Ellis, counsel to the Notes
Issuers, substantially in the form of Exhibit C hereto and (ii) Weil,
---------
Gotshal & Manges LLP, counsel to Old Muzak, substantially in the form of
Exhibit D hereto. In rendering such opinions, each such counsel shall have
---------
received and may rely upon such certificates and other documents and
information, including one or more opinions of local counsel reasonably
acceptable to the Initial Purchasers and Cahill Gordon & Reindel, counsel
to the Initial Purchasers, as they may reasonably request to pass upon such
matters.
(ii) The Initial Purchasers shall have received an opinion, dated
the Closing Date, of Cahill Gordon & Reindel, counsel to the Initial
Purchasers, with respect to the sufficiency of certain legal matters
relating to this Agreement and such other related matters as the Initial
Purchasers may require. In rendering such opinion, Cahill Gordon & Reindel
shall have received and may rely upon such certificates and other documents
and information as they may reasonably request to pass upon such matters.
In addition, in rendering their opinion, Cahill Gordon & Reindel may state
that their opinion is limited to matters of New York, Delaware corporate
and federal law.
(iii) The Initial Purchasers shall have received from
PricewaterhouseCoopers LLP and Deloitte & Touche LLP, independent public
accountants for the Company and Old Muzak, "comfort" letters dated the date
hereof and the Closing Date, in form and substance reasonably satisfactory
to the Initial Purchasers and Cahill Gordon & Reindel, counsel to the
Initial Purchasers.
(iv) The representations and warranties of the Issuers contained
in this Agreement shall be true and correct on and as of the Closing Date;
the Issuers shall have complied in all material respects with all
agreements and
<PAGE>
-29-
satisfied all conditions on their part to be performed or satisfied
hereunder at or prior to the Closing Date.
(v) None of the issuance and sale of the Securities pursuant to
this Agreement or any of the Transactions or any of the other transactions
contemplated by any of the other Offering Documents or the Transaction
Documents shall be enjoined (temporarily or permanently) and no restraining
order or other injunctive order shall have been issued; and there shall not
have been any legal action, order, decree or other administrative
proceeding instituted or threatened against any of the Issuers or against
the Initial Purchasers relating to the issuance of the Securities or the
Initial Purchasers' activities in connection therewith or any other
transactions contemplated by this Agreement or the Final Memorandum, the
other Offering Documents or the Transaction Documents.
(vi) Subsequent to the date of this Agreement and since the date of
the most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), there shall not
have occurred (i) any change, or any development involving a prospective
change, in or affecting the general affairs, management, business,
condition (financial or other), properties, prospects or results of
operations of the Notes Issuers, the Subsidiaries, Old Muzak and the Muzak
Subsidiaries, taken as a whole, not contemplated by the Final Memorandum
that, in the opinion of the Initial Purchasers, would materially adversely
affect the market for the Securities, or (ii) any event or development
relating to or involving any of the Notes Issuers, the Subsidiaries, Old
Muzak or the Muzak Subsidiaries, or any of their respective officers or
directors that makes any statement made in the Final Memorandum untrue or
that, in the opinion of the Notes Issuers and their counsel or the Initial
Purchasers and their counsel, requires the making of any addition to or
change in the Final Memorandum in order to state a material fact required
by any applicable law, rule
<PAGE>
-30-
or regulation to be stated therein or necessary in order to make the
statements made therein not misleading.
(vii) The Initial Purchasers shall have received certificates, dated
the Closing Date and signed by the chief executive officer and the chief
financial officer of each Issuer (in their capacities as such), to the
effect that:
a. All of the representations and warranties of such Issuer
set forth in this Agreement are true and correct as if made on and as
of the Closing Date and such Issuer has complied in all material
respects with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Date.
b. The issuance and sale of the Securities pursuant to this
Agreement or the Final Memorandum and the consummation of the
transactions contemplated by the Transaction Documents have not been
enjoined (temporarily or permanently) and no restraining order or
other injunctive order has been issued and there has not been any
legal action, order, decree or other administrative proceeding
instituted or, to such officers' knowledge, threatened against such
Issuer relating to the issuance of the Securities or the Initial
Purchasers' activities in connection therewith or in connection with
any other transactions contemplated by this Agreement or the Final
Memorandum, the other Offering Documents or the Transaction Documents.
c. Subsequent to the date of this Agreement and since the date
of the most recent financial statements in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date
hereof), there has not occurred (i) any change, or any development
involving a prospective change, in or affecting the general affairs,
management, business, condition (financial or other), properties,
prospects or results of operations of the Notes Issuers, the
<PAGE>
-31-
Subsidiaries, Old Muzak and the Muzak Subsidiaries, taken as a whole,
not contemplated by the Final Memorandum that would materially
adversely affect the market for the Securities, or (ii) any event or
development relating to or involving any of the Notes Issuers, the
Subsidiaries, Old Muzak and the Muzak Subsidiaries or any of their
respective officers or directors that makes any statement made in the
Final Memorandum untrue or that requires the making of any addition to
or change in the Final Memorandum in order to state a material fact
required by any applicable law, rule or regulation to be stated
therein or necessary in order to make the statements made therein not
misleading.
d. At the Closing Date and after giving effect to the
consummation of the transactions contemplated by the Transaction
Documents, there exists no Default or Event of Default (as defined in
the Indenture).
(viii) Each of the Transaction Documents and each other agreement
or instrument executed in connection with the Transactions shall be
reasonably satisfactory in form and substance to the Initial Purchasers and
shall have been executed and delivered by all the respective parties
thereto and shall be in full force and effect, and there shall have been no
material amendments, alterations, modifications or waivers of any provision
thereof since the date of this Agreement. On the Closing Date, the New
Credit Agreement shall provide for revolving credit and term loan
borrowings in such amounts as are sufficient to consummate the Transactions
to be consummated on the Closing Date and substantially as described in the
Final Memorandum.
(ix) The Company shall have received cash equity financing pursuant
to the Equity Contribution in such an amount as is sufficient to consummate
the Transactions to be consummated on the Closing Date, substantially as
described in the Final Memorandum.
<PAGE>
-32-
(x) The Certificate of Merger with respect to the Merger shall
have been filed with the Secretary of State of the State of Delaware and
shall have become effective.
(xi) Each of the Proposed Amendments to the Muzak Notes shall have
been approved by the requisite percentage of holders of Muzak Notes;
simultaneously with the closing of the sale of the Notes by the Notes
Issuers, the Notes Issuers shall have accepted for payment and have
instructed the depositary with respect thereto to pay to the trustee under
the Muzak Indenture the purchase price for all Muzak Notes properly
tendered pursuant to the Tender Offer. The Supplemental Indenture shall
have been executed by Old Muzak and the trustee under the Muzak Indenture
and the terms of the Muzak Indenture shall be as modified by such
Supplemental Indenture.
(xii) All proceedings taken in connection with the issuance of the
Securities and the transactions contemplated by this Agreement, the other
Offering Documents and the Transaction Documents and all documents and
papers relating thereto shall be reasonably satisfactory to the Initial
Purchasers and counsel to the Initial Purchasers. The Initial Purchasers
and counsel to the Initial Purchasers shall have received copies of such
papers and documents as they may reasonably request in connection
therewith, all in form and substance reasonably satisfactory to them.
(xiii) The Notes Issuers shall apply the proceeds necessary from
the issuance and sale of the Notes and from initial borrowings under the
New Credit Agreement and the Equity Contribution as described under "Use of
Proceeds" in the Final Memorandum.
(xiv) On the Closing Date, the Initial Purchasers shall have
received a letter, dated the Closing Date, from Houlihan Lokey Howard &
Zukin Inc. with respect to the solvency of the Issuers as of the Effective
Time in form, scope and substance reasonably satisfactory to the Initial
Purchasers.
<PAGE>
-33-
(xv) Since the date of this Agreement, there shall not have been any
announcement by any "nationally recognized statistical rating
organization," as defined for purposes of Rule 436(g) under the Securities
Act, that (A) it is downgrading its rating assigned to any debt securities
of the Company or Old Muzak, or (B) it is reviewing its rating assigned to
any debt securities of the Company or Muzak with a view to possible
downgrading, or with negative implications, or direction not determined.
(xvi) On or before the Closing Date, the Initial Purchasers shall have
received the Registration Rights Agreement executed by the Issuers and such
agreement shall be in full force and effect at all times from and after the
Closing Date.
(xvii) The Issuers shall have furnished or caused to be furnished to the
Initial Purchasers such further certificates and documents as the Initial
Purchasers shall have reasonably requested.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchasers and counsel to the Initial Purchasers. The Issuers shall
furnish to the Initial Purchasers such conformed copies of such opinions,
certificates, letters, schedules, documents and instruments in such quantities
as the Initial Purchasers shall reasonably request.
8. Indemnification and Contribution. (a) Each Issuer jointly and
--------------------------------
severally agrees to indemnify and hold harmless the Initial Purchasers, each
director, officer, employee or agent of any Initial Purchaser and each person,
if any, who controls any Initial Purchaser within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities or expenses to which such Initial Purchaser or such
director, officer, employee, agent or controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as
<PAGE>
-34-
any such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in (A) any Preliminary Memorandum or the Final Memorandum or
any amendment or supplement thereto or (B) any of the Offering Documents or
any application or other document, or any amendment or supplement thereto,
executed by any Issuer or based upon written information furnished by or on
behalf of any Issuer filed in any jurisdiction in order to qualify the
Securities under the securities or "Blue Sky" laws thereof or filed with
the Commission or any securities association or securities exchange
(collectively, the "Documents"); or
(ii) the omission or alleged omission to state, in any Preliminary
Memorandum or the Final Memorandum or any amendment or supplement thereto,
or any of the Documents, a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading,
and will reimburse, promptly after demand, the Initial Purchasers and each such
director, officer, employee, agent or controlling person for any legal or other
expenses reasonably incurred by the Initial Purchasers or such director,
officer, employee, agent or controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability, expense or action; provided, however, that
-------- -------
none of the Issuers will be liable in any such case to any Initial Purchaser or
any director, officer, employee, agent or controlling person of such Initial
Purchaser to the extent that any such loss, claim, damages, liability expense or
action arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Memorandum or
the Final Memorandum or any amendment or supplement thereto, or any Document, in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of an Initial Purchaser specifically for use therein;
and provided, further, that none of the Issuers will be liable to any Initial
-------- -------
Purchaser or any director, officer, employee, agent or any person controlling
any Initial
<PAGE>
-35-
Purchaser with respect to any such untrue statement or omission made in any
Preliminary Memorandum that is corrected in the Final Memorandum (or any
amendment or supplement thereto) to the extent that any such loss, claim,
damage, expense or liability results from the fact that the person asserting any
such loss, claim, damage, expense or liability purchased Securities from an
Initial Purchaser in reliance upon the Preliminary Memorandum but was not sent
or given a copy of the Final Memorandum (as amended or supplemented) that was
made available by the Issuers to such Initial Purchaser at or prior to the
written confirmation of the sale of the Securities to such person, unless such
failure to deliver such Final Memorandum (as amended or supplemented) was a
result of noncompliance by the Issuers with Section 5(d) of this Agreement. This
indemnity agreement will be in addition to any liability that the Issuers may
otherwise have to the indemnified parties. The Issuers further agree that the
indemnification, contribution and reimbursement commitments set forth in this
Section 8 shall apply whether or not any Initial Purchaser is a formal party to
any such lawsuits, claims or other proceedings.
(b) The Initial Purchasers severally and not jointly will indemnify
and hold harmless the Issuers, their respective directors, officers, employees
and agents and each person, if any, who controls any of the Issuers within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which any of the Issuers
or any such director, officer, employee, agent or controlling person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Memorandum or the Final Memorandum or
any amendment or supplement thereto or any Document, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
was made in reliance upon and in conformity with written information furnished
to the Company by or on be-
<PAGE>
-36-
half of an Initial Purchaser specifically for use therein; and, subject to the
limitation set forth immediately preceding this clause, will reimburse, promptly
after request, any legal or other expenses reasonably incurred by any of the
Issuers or any such director, officer, employee, agent or controlling person in
connection with investigating or defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action in
respect thereof. This indemnity agreement will be in addition to any liability
that the Initial Purchasers may otherwise have to the indemnified parties.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability that it may have to any indemnified party except to the extent that
such omission results in the forfeiture by the indemnifying party of substantial
rights and defenses. In case any such action is brought against any indemnified
party, and such indemnified party notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the named
-------- -------
parties in any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties that are different from or additional to
those available to any such indemnifying party, and a conflict of interest may
exist between an indemnified party and the indemnifying party and the
representation of both would be inappropriate, then the indemnifying parties
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to
<PAGE>
-37-
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable out-of-pocket costs of
investigation, incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, representing the indemnified parties under such
paragraph (a) or paragraph (b), as the case may be, who are parties to such
action or actions); (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying parties; or (iii) the indemnifying party shall have failed to
assume the defense or retain counsel reasonably satisfactory to the indemnified
party. After such notice from the indemnifying parties to such indemnified party
(so long as the indemnified party shall have informed the indemnifying parties
of such action in accordance with this Section 8 on a timely basis prior to the
indemnified party seeking indemnification hereunder), the indemnifying parties
will not be liable under this Section 8 for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party, unless such indemnified party waived its rights under
this Section 8, in which case the indemnified party may effect such a settlement
without such consent. No indemnifying party will, without the prior written
consent of the indemnified party (which shall not be unreasonably withheld or
delayed), settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification by an indemnified party may be sought hereunder (whether or not
<PAGE>
-38-
the indemnified party or any person who controls any indemnified party within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party and each such director, officer, employee, agent or
controlling person from all liability arising out of such claim, action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act as to any such person.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages,
expenses or liabilities (or actions in respect thereof), each indemnifying
party, in order to provide for just and equitable contribution, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect (i) the relative benefits
received by the Issuers on the one hand and the Initial Purchasers on the other
from the offering of the Securities or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the indemnifying party or parties on the
one hand and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities (or actions in respect
thereof). The relative benefits received by the Issuers on the one hand and the
Initial Purchasers on the other shall be deemed to be in the same proportion as
the total proceeds from the offering of the Securities (before deducting
expenses) received by the Issuers bear to the total discounts and commissions
received by the Initial Purchasers. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers on
<PAGE>
-39-
the one hand or the Initial Purchasers on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include any legal or other fees or expenses incurred by such party in connection
with investigating or defending any such claim. The Issuers and the Initial
Purchasers agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Issuers on the one hand and the Initial Purchasers on the other hand were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to in the
first sentence of this paragraph (d). Notwithstanding any other provision of
this paragraph (d), the Initial Purchasers shall not be obligated to make
contributions hereunder that in the aggregate exceed the total discounts and
commissions received by the Initial Purchasers under this Agreement, less the
aggregate amount of any damages that the Initial Purchasers have otherwise been
required to pay by reason of the untrue or alleged untrue statements, and no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), each director, officer, employee or agent of and each person, if
any, who controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Initial Purchaser, and each director, officer, employee and
agent of any of the Issuers and each person, if any, who controls any of the
Issuers within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Issuers.
(e) Notwithstanding anything to the contrary in this Section 8, the
indemnification and contribution provisions of
<PAGE>
-40-
the Registration Rights Agreement shall govern any claim with respect thereto.
9. Offering of Securities; Restrictions on Transfer. Each Initial
------------------------------------------------
Purchaser represents and warrants as to itself only that it is a QIB. Each
Initial Purchaser agrees with the Issuers as to itself only that (i) it has not
and will not solicit offers for, or offer or sell, the Securities by any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act; and (ii) it
has and will solicit offers for the Securities only from, and will offer the
Securities only to, (A) in the case of offers inside the United States persons
whom such Initial Purchaser reasonably believes to be QIBs or, if any such
person is buying for one or more institutional accounts for which such person is
acting as fiduciary or agent, only when such person has represented to such
Initial Purchaser that each such account is a QIB, to whom notice has been given
that such sale or delivery is being made in reliance on Rule 144A and, in each
case, in transactions under Rule 144A and (B) in the case of offers outside the
United States, to persons other than U.S. persons ("foreign purchasers," which
term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)); provided, however, that, in the case of this clause (B),
-------- -------
in purchasing such Securities such persons are deemed to have represented and
agreed as provided under the caption "Notice to Investors" contained in the
Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum).
10. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Issuers, their
respective officers and the Initial Purchasers set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Issuers, any of their re-
<PAGE>
-41-
spective officers or directors, the Initial Purchasers or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the
Securities, and shall be binding upon and shall inure to the benefit of, any
successors, assigns, heirs, personal representatives of the Issuers, the Initial
Purchasers and indemnified parties referred to in Section 8 hereof. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
-----------
discretion of the Initial Purchasers by notice to the Issuers given in the event
that the Issuers shall have failed, refused or been unable to satisfy all
conditions on its respective part to be performed or satisfied hereunder on or
prior to the Closing Date or, if at or prior to the Closing Date:
(i) any of the Issuers or Old Muzak shall have sustained any loss or
interference with respect to their respective businesses or properties from
fire, flood, hurricane, earthquake, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, which loss or interference has had or has a
Material Adverse Effect or there shall have been any material adverse
change, or any development involving a prospective material adverse change
(including without limitation a change in management or control of the
Notes Issuers or Old Muzak), in the general affairs, management, business,
condition (financial or other), properties, prospects or results of
operations of the Issuers or Old Muzak except as described in or
contemplated by the Final Memorandum (exclusive of any amendment or
supplement thereto);
(ii) trading in securities generally on the New York, American Stock
Exchange or the Nasdaq National Market shall have been suspended or minimum
or maximum prices shall have been established on any such exchange;
<PAGE>
-42-
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any material change in the financial
markets of the United States that, in the sole judgment of the Initial
Purchasers, makes it impracticable or inadvisable to proceed with the
offering or the delivery of the Securities as contemplated by the Final
Memorandum, as amended as of the date hereof; or
(v) any securities of the Notes Issuers or Old Muzak shall have
been downgraded or placed on any "watch list" for possible downgrading by
any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Initial Purchasers, shall be hand delivered, mailed by first-
class mail, couriered by next-day air courier or telecopied and confirmed in
writing to the Initial Purchasers c/o CIBC Oppenheimer Corp., 425 Lexington
Avenue, 3rd Floor, New York, New York 10017, Attention: Kevin Magid, and with a
copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005,
Attention: John A. Tripodoro, Esq. If sent to the Issuers, shall be delivered,
mailed, couriered or telecopied and confirmed in writing, to Muzak LLC, 2901
Third Avenue, Suite 400, Seattle, Washington 98121, Attention: Brad D. Bodenman
and with a copy to Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois
60601, Attention: Laurie Gunther, Esq., and a copy to ABRY Partners, Inc., 18
Newbury Street, Boston, Massachusetts 02116, Attention: Peni Garber.
<PAGE>
-43-
13. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Initial Purchasers and each of the Issuers and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained; this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Issuers contained in Section 9 of this Agreement shall
also be for the benefit of any person or persons who control the Initial
Purchasers within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Initial Purchasers contained in
Section 9 of this Agreement shall also be for the benefit of the directors of
the Issuers, their respective officers, employees and agents and any person or
persons who controls any Issuer within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act. No purchaser of Securities from the Initial
Purchasers will be deemed a successor because of such purchase.
14. No Waiver; Modifications in Writing. No failure or delay on the
-----------------------------------
part of any Issuer or the Initial Purchasers in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any Issuer or the Initial Purchasers at law or
in equity or otherwise. No waiver of or consent to any departure by any Issuer
or Initial Purchasers from any provision of this Agreement shall be effective
unless signed in writing by the party entitled to the benefit thereof, provided
--------
that notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of each of the
<PAGE>
-44-
Issuers and the Initial Purchasers. Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Issuers or the Initial
Purchasers from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on the Issuers in any case shall entitle the Issuers to any other
or further notice or demand in similar or other circumstances.
15. Joint and Several Obligations. All of the obligations of the
-----------------------------
Issuers hereunder shall be joint and several obligations of each of them.
16. Information Supplied by the Initial Purchasers. The statements
----------------------------------------------
set forth in the fifth, ninth and tenth paragraphs under the heading "Plan of
Distribution" constitute the only information furnished by the Initial
Purchasers to the Issuers for purposes of Section 2(a) hereof.
17. Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, among the parties hereto with
respect to the subject matter hereof.
18. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
--------------
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-45-
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Issuers and
the Initial Purchasers.
Very truly yours,
AUDIO COMMUNICATIONS NETWORK LLC,
a Delaware limited liability company
By: /s/ Peni Garber
-------------------------------------
Name: Peni Garber
Title:
MUZAK FINANCE CORP., a Delaware corporation
By: /s/ Peni Garber
-------------------------------------
Name: Peni Garber
Title:
MUZAK CAPITAL CORPORATION, a Delaware
corporation
By: /s/ Peni Garber
--------------------------------------
Name: Peni Garber
Title:
<PAGE>
-46-
MLP ENVIRONMENTAL MUSIC, LLC, a Washington
limited liability company
By: /s/ Peni Garber
---------------------------------------
Name: Peni Garber
Title:
BUSINESS SOUND, INC., an Ohio corporation
By: /s/ Peni Garber
---------------------------------------
Name: Peni Garber
Title:
ACN HOLDINGS LLC, a Delaware limited
liability company
By: /s/ Peni Garber
---------------------------------------
Name: Peni Garber
Title:
<PAGE>
-47-
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
CIBC OPPENHEIMER CORP.
By: /s/ Kevin Magid
-------------------------------------
Name: Kevin Magid
Title: Managing Director
GOLDMAN, SACHS & CO.
By: /s/ Goldman, Sachs & Co.
--------------------------------------
Goldman, Sachs & Co.
<PAGE>
Schedule 1
----------
<TABLE>
<CAPTION>
Principal Amount
Initial Purchaser of Securities
- ----------------- ----------------
<S> <C>
CIBC Oppenheimer Corp................................ $ 69,000,000
Goldman, Sachs & Co.................................. 46,000,000
------------
Total........................................... $115,000,000
============
</TABLE>
<PAGE>
Exhibit A
---------
Subsidiaries
- ------------
Business Sound, Inc.
<PAGE>
Exhibit B
---------
Muzak Subsidiaries
- ------------------
MLP Environmental Music,LLC
<PAGE>
Exhibit C
---------
Form of Opinion of Kirkland & Ellis
-----------------------------------
Opinion, dated the Closing Date and addressed to the Initial
Purchasers, of Kirkland & Ellis, counsel to the Notes Issuers, to the effect
that:
<PAGE>
Exhibit D
---------
Form of Opinion of Weil, Gotshal & Manges LLP
---------------------------------------------
Opinion, dated the Closing Date and addressed to the Initial
Purchasers, of Weil, Gotshal & Manges LLP, counsel to Old Muzak, to the effect
that:
(i) Old Muzak has been duly formed, is validly existing in good
standing as a limited partnership under the laws of its jurisdiction of
formation, with the requisite power and authority to own its properties and
conduct its business as now conducted as described in the Final Memorandum
and is duly qualified to do business as a foreign partnership in good
standing in all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified would not, individually or in
the aggregate, have a Material Adverse Effect.
(ii) Old Muzak has the requisite limited partnership power and
authority to execute, deliver and perform its obligations under the
Transaction Documents to which it is a party. The Transaction Documents
have been duly and validly authorized by Old Muzak to the extent a party
thereto and, when executed and delivered by the other parties thereto, will
constitute valid and legally binding agreements of Old Muzak, enforceable
against Old Muzak in accordance with their terms except that the
enforcement thereof may be limited by the Enforceability Exceptions and
except as any rights to indemnity or contribution thereunder may be limited
by federal and state securities laws and public policy considerations.
(iii) No consent, approval, authorization, license, qualification,
exemption or order of any court or governmental agency or body or third
party is required for the performance of the Transaction Document by Old
Muzak or for the consummation by Old Muzak of any of the Transactions or
any of the other transactions contemplated thereby; all such consents,
approvals, authorizations, li-
<PAGE>
-2-
censes, qualifications, exemptions and orders set forth in the Final
Memorandum which are required to be obtained by the Closing Date have been
obtained or made, as the case may be, and are in full force and effect and
not the subject of any pending or, to the best knowledge of such counsel,
threatened attack by appeal or direct proceeding or otherwise.
(iv) The execution, delivery and performance of the Transaction
Documents and the consummation of the Transactions and the other
transactions contemplated thereby and by the Final Memorandum and the
fulfillment of the terms thereof will not (a) violate, conflict with or
constitute or result in a breach of or a default under (or an event that,
with notice or lapse of time, or both, would constitute a breach of or a
default under) any of (i) the terms or provisions of any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to
which Old Muzak is a party or to which any of their respective properties
or assets are subject, (ii) the certificate of formation or limited
partnership agreement of Old Muzak or (iii) (assuming compliance with all
applicable state securities or "Blue Sky" laws) any statute, judgment,
decree, order, rule or regulation of any court or governmental agency or
other body applicable to Old Muzak or any of its properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets of Old Muzak, which violation, conflict, breach,
default or lien would, individually or in the aggregate, have a Material
Adverse Effect.
<PAGE>
EXHIBIT 10.1
CREDIT AND GUARANTY AGREEMENT
DATED AS OF MARCH 18, 1999
AMONG
AUDIO COMMUNICATIONS NETWORK, LLC,
AS BORROWER
MUZAK HOLDINGS LLC
AND
CERTAIN SUBSIDIARIES OF AUDIO COMMUNICATIONS NETWORK, LLC,
AS GUARANTORS,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS SYNDICATION AGENT,
CANADIAN IMPERIAL BANK OF COMMERCE,
AS ADMINISTRATIVE AGENT,
AND
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AND
CIBC OPPENHEIMER CORP.
AS CO-LEAD ARRANGERS
________________________________________________________
$230,000,000 SENIOR SECURED CREDIT FACILITIES
________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS AND INTERPRETATION.................................. 2
1.1. Definitions..................................................... 2
1.2. Accounting Terms................................................ 41
1.3. Interpretation, Etc............................................. 42
SECTION 2. LOANS AND LETTERS OF CREDIT..................................... 42
2.1. Term Loans...................................................... 42
2.2. Revolving Loans................................................. 43
2.2A Letters of Credit............................................... 45
2.3. Pro Rata Shares; Availability of Funds.......................... 49
2.4. Use of Proceeds................................................. 50
2.5. Evidence of Debt; Register; Lenders' Books and Records.......... 50
2.6. Interest Payments............................................... 51
2.7. Conversion/Continuation......................................... 53
2.8. Default Interest................................................ 54
2.9. Fees............................................................ 54
2.10. Scheduled Payments/Reductions................................... 55
2.11. Voluntary Prepayments/Reductions................................ 56
2.12. Mandatory Prepayments/Reductions................................ 57
2.13. Application of Prepayments/Reductions; Prepayment Fee........... 59
2.14. Allocation of Certain Payments and Proceeds..................... 61
2.15. General Provisions Regarding Payments........................... 62
2.16. Ratable Sharing................................................. 63
2.17. Making or Maintaining Eurodollar Rate Loans..................... 64
2.18. Increased Costs; Capital Adequacy............................... 65
2.19. Taxes; Withholding, Etc......................................... 67
2.20. Obligation to Mitigate.......................................... 68
2.21. Defaulting Lenders.............................................. 69
2.22. Removal or Replacement of a Lender.............................. 70
SECTION 3. CONDITIONS PRECEDENT............................................ 71
3.1. Closing Date.................................................... 71
3.2. Conditions to Each Credit Extension............................. 76
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 77
4.1. Organization; Powers; Qualification; Capitalization............. 77
4.2. Valid Issuance.................................................. 78
4.3. Authorization of Credit Documents; No Conflict.................. 79
4.4. Governmental Consents........................................... 79
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
4.5. Binding Obligation.............................................. 79
4.6. Financial Statements; Projections............................... 79
4.7. No Material Adverse Effect; No Restricted Junior Payments....... 80
4.8. Adverse Proceedings, Etc........................................ 80
4.9. Payment of Taxes................................................ 80
4.10. Title to Properties; Intellectual Property...................... 80
4.11. Collateral...................................................... 82
4.12. Environmental................................................... 83
4.13. No Defaults; Material Contracts................................. 83
4.14. Governmental Regulation......................................... 84
4.15. Margin Stock.................................................... 84
4.16. Employee Matters................................................ 84
4.17. Employee Benefit Plans.......................................... 84
4.18. Certain Fees.................................................... 85
4.19. Solvency........................................................ 85
4.20. Related Agreements.............................................. 85
4.21. Year 2000 Issues................................................ 85
4.22. Disclosure...................................................... 86
4.23. No Burdensome Restrictions...................................... 86
4.24. Holdings........................................................ 86
SECTION 5. AFFIRMATIVE COVENANTS........................................... 87
5.1. Financial Statements and Other Reports.......................... 87
5.2. Existence....................................................... 91
5.3. Payment of Taxes and Claims..................................... 91
5.4. Maintenance of Properties....................................... 91
5.5. Insurance....................................................... 91
5.6. Inspections; Lenders Meetings................................... 92
5.7. Compliance with Laws; Contractual Obligations................... 92
5.8. Environmental................................................... 92
5.9. Subsidiaries.................................................... 92
5.10. Material Real Estate Assets..................................... 93
5.11. Interest Rate Protection........................................ 93
5.12. Year 2000 Issues................................................ 93
5.13. Further Assurances.............................................. 93
5.14. Other Transactions; Related Agreements.......................... 94
SECTION 6. NEGATIVE COVENANTS.............................................. 95
6.1. Indebtedness.................................................... 95
6.2. Liens........................................................... 97
6.3. Equitable Lien; No Further Negative Pledges..................... 99
6.4. Restricted Payments; Restrictions on Subsidiary Distributions... 99
6.5. Investments..................................................... 100
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
6.6. Financial Covenants............................................. 101
6.7. Fundamental Changes; Disposition of Assets; Acquisitions........ 104
6.8. Disposal of Subsidiary Interests................................ 105
6.9. Sales and Lease-Backs........................................... 105
6.10. Sale or Discount of Receivables................................. 106
6.11. Transactions with Shareholders and Affiliates................... 106
6.12. Conduct of Business; Holdings................................... 106
6.13. Amendments or Waivers of Certain Related Agreements............. 106
6.14. Fiscal Year..................................................... 107
6.15. Corporate Separateness.......................................... 107
SECTION 7. GUARANTY........................................................ 108
7.1. Guaranty of the Obligations..................................... 108
7.2. Contribution by Guarantors...................................... 108
7.3. Payment by Guarantors........................................... 109
7.4. Liability of Guarantors Absolute................................ 109
7.5. Waivers by Guarantors........................................... 111
7.6. Guarantors' Rights of Subrogation, Contribution, Etc............ 111
7.7. Subordination of Other Obligations.............................. 112
7.8. Continuing Guaranty............................................. 112
7.9. Authority of Guarantors or Borrower............................. 113
7.10. Financial Condition of Borrower................................. 113
7.11. Bankruptcy, Etc................................................. 113
7.12. Notice of Events................................................ 114
7.13. Discharge of Guaranty Upon Sale of Guarantor.................... 114
SECTION 8. EVENTS OF DEFAULT............................................... 114
8.1. Events of Default............................................... 114
SECTION 9. AGENTS.......................................................... 117
9.1. Appointment of Agents........................................... 117
9.2. Powers and Duties............................................... 117
9.3. General Immunity................................................ 118
9.4. Agents Entitled to Act as Lender................................ 118
9.5. Lenders' Representations and Warranties......................... 119
9.6. Right to Indemnity.............................................. 119
9.7. Successor Administrative Agent.................................. 119
9.8. Collateral Documents and Guaranties............................. 120
SECTION 10. MISCELLANEOUS................................................... 121
10.1. Notices......................................................... 121
10.2. Expenses........................................................ 121
10.3. Indemnity....................................................... 122
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
10.4. Set-Off......................................................... 122
10.5. Amendments and Waivers.......................................... 123
10.6. Successors and Assigns; Participations.......................... 125
10.7. Independence of Covenants....................................... 127
10.8. Survival of Representations, Warranties and Agreements.......... 128
10.9. No Waiver; Remedies Cumulative.................................. 128
10.10. Marshalling; Payments Set Aside................................. 128
10.11. Severability.................................................... 128
10.12. Obligations Several; Independent Nature of Lenders' Rights...... 128
10.13. Headings........................................................ 129
10.14. APPLICABLE LAW.................................................. 129
--------------
10.15. CONSENT TO JURISDICTION......................................... 129
-----------------------
10.16. WAIVER OF JURY TRIAL............................................ 129
--------------------
10.17. Confidentiality................................................. 130
10.18. Usury Savings Clause............................................ 130
10.19. Counterparts; Effectiveness..................................... 131
</TABLE>
(iv)
<PAGE>
APPENDICES: A Term Loan Amounts and Revolving Commitments
B Notice Addresses
SCHEDULES: 4.1 Organization, Etc.
4.10(b) Real Estate Assets
4.10(c) Intellectual Property; Proprietary Software; License
Agreements
4.13 Material Contracts
5.10 Material Real Estate Asset Requirements
6.1 Certain Indebtedness
6.2 Certain Liens
6.5 Certain Investments
EXHIBITS: A Funding Notice
B Conversion/Continuation Notice
C Compliance Certificate
D Issuance Notice
E Assignment Agreement
F Certificate Re Non-bank Status
G-1 Closing Date Certificate
G-2 Solvency Certificate
H Counterpart Agreement
I Pledge and Security Agreement
(v)
<PAGE>
CREDIT AND GUARANTY AGREEMENT
This CREDIT AND GUARANTY AGREEMENT, dated as of March 18, 1999, is entered
into by and among AUDIO COMMUNICATIONS NETWORK, LLC, a Delaware limited
liability company ("BORROWER"), MUZAK HOLDINGS LLC, a Delaware limited liability
company ("HOLDINGS"), and CERTAIN DOMESTIC SUBSIDIARIES OF BORROWER, as
Guarantors, the Lenders party hereto from time to time, GOLDMAN SACHS CREDIT
PARTNERS L.P. ("GSCP"), as Syndication Agent (in such capacity,"SYNDICATION
AGENT"), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBOC"), as Administrative Agent
(together with its permitted successors in such capacity,"ADMINISTRATIVE
AGENT"), and GSCP and CIBC OPPENHEIMER CORP. ("CIBC"), as CO-LEAD ARRANGERS (in
such capacity, "CO-LEAD ARRANGERS").
RECITALS:
WHEREAS, capitalized terms used in these Recitals shall have the respective
meanings set forth for such terms in Section 1.1 hereof;
WHEREAS, Borrower is a Wholly-Owned Subsidiary of Holdings;
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of January
29, 1999 (the "MERGER AGREEMENT") among Borrower, Holdings, Muzak Limited
Partnership ("MLP"), MLP Acquisition, L.P. and Music Holdings Corp., MLP shall
be merged with and into Borrower, with Borrower as the surviving entity in such
merger (the "MERGER");
WHEREAS, Borrower will change its name to Muzak LLC and Holdings will
change its name to Muzak Holdings LLC at the time of the Merger;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Borrower, in an aggregate amount not to exceed $230,000,000, consisting of
$30,000,000 aggregate principal amount of Tranche A Term Loans, $105,000,000
aggregate principal amount of Tranche B Term Loans, $60,000,000 aggregate
principal amount of Tranche C Term Loans (unless the Senior Subordinated Notes
are issued on or prior to the Closing Date) and up to $35,000,000 aggregate
principal amount of Revolving Loans, the proceeds of which will be used,
together with the Equity Contribution and the proceeds of the Senior
Subordinated Notes, if issued on or prior to the Closing Date, to pay the
approximately $127,500,000 Cash consideration in connection with the Merger (the
"MERGER CONSIDERATION"), to finance the Capstar Contribution (including payment
of an approximately $5,500,000 Cash purchase price adjustment to Capstar), to
repay Existing Debt, to pay Transaction Costs and for working capital and other
general business purposes of Borrower and its Included Subsidiaries, including
acquisitions and capital expenditures permitted hereunder;
<PAGE>
WHEREAS, Borrower may issue and sell the Senior Subordinated Notes on or
prior to the Closing Date, and if the Senior Subordinated Notes are issued on or
prior to such date, the Tranche C Term Loan Commitment of each Lender will be
cancelled and the Tranche C Term Loans will not be made;
WHEREAS, after giving effect to the Transactions, Sponsors will own 73.2%
of the voting membership interests of Holdings, management will own
approximately 3.9% of the voting membership interests of Holdings, and Capstar
will own approximately 22.9% of the voting membership interests of Holdings;
WHEREAS, Borrower has agreed to secure all of its obligations hereunder by
granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on
all material intellectual property and all of its other real, personal and mixed
property (other than non-material real property), including a pledge of all of
the Capital Stock of each of its Domestic Subsidiaries that is a Guarantor and
65% of all the Capital Stock of each of its Foreign Subsidiaries; and
WHEREAS, Guarantors have agreed to guarantee the obligations of Borrower
hereunder and to secure all of their respective obligations hereunder by
granting to Administrative Agent, on behalf of Lenders, a First Priority Lien on
all material intellectual property and all of their other respective real,
personal and mixed property (other than non-material real property), including a
pledge of all of the Capital Stock of each of their respective Domestic
Subsidiaries (including Borrower but excluding Muzak Holdings Finance) and 65%
of all the Capital Stock of each of their respective Foreign Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Guarantors, Lenders, and
Agents agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS. The following terms used herein, including in the
preamble, recitals, exhibits and schedules hereto, shall have the following
meanings:
"ACKNOWLEDGMENT OF PLEDGE" as defined in the Pledge and Security Agreement.
"ACNI" means Audio Communications Network, Inc., a Florida corporation.
"ACQUISITION CASH FLOW" means for each acquired entity or assets an amount
calculated for such entity or assets on a non-consolidated basis in accordance
with the definition of "Adjusted Annualized Operating Cash Flow" and all
definitions included, directly or indirectly, in the calculation thereof,
provided that in connection with each such acquisition, Borrower shall deliver a
draft Compliance Certificate and a Compliance Certificate as set forth in the
definition of "Permitted Acquisition", each of which shall set forth in
reasonable detail the calculation of the
2
<PAGE>
foregoing amount for such entity or assets, which calculation shall be
satisfactory to Administrative Agent in all respects.
"ADDITIONAL ACQUISITIONS" means (i) the acquisition on January 15, 1999 by
Borrower of all of the outstanding stock of BSI, (ii) the acquisition on
December 31, 1998 by MLP of certain of the assets and certain of the liabilities
of MTI and (iii) the acquisition on February 25, 1999 by Borrower of all of the
outstanding stock of Electro.
"ADDITIONAL ACQUISITION RELATED DOCUMENTS" means, collectively, (i) the
Asset Purchase Agreement dated October 28, 1998 between MLP and MTI, as amended
by the Amendment dated November 27, 1998, the Second Amendment dated December
23, 1998, and the Third Amendment dated December 30, 1998, (ii) the Stock
Purchase Agreement dated December 28, 1998 among Borrower, BSI and the
Shareholders of BSI and (iii) the Stock Purchase Agreement dated February 18,
1999 among Borrower, Electro and Carolina Georgia Sound, Inc., as the same may
be further amended, restated, supplemented or otherwise modified from time to
time (a) on or prior to the Closing Date pursuant to documentation in form and
substance reasonably satisfactory to Administrative Agent and Requisite Lenders
or (b) thereafter to the extent permitted under Section 6.13.
"ADJUSTED ANNUALIZED OPERATING CASH FLOW" means, for any Fiscal Quarter,
Annualized Operating Cash Flow for such Fiscal Quarter, adjusted to give effect
on a Pro Forma Basis to all acquisitions, Asset Sales and Franchise Additions
and Terminations made by Borrower and its Included Subsidiaries during such
Fiscal Quarter.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination Date
with respect to an Interest Period for a Eurodollar Rate Loan, the rate per
annum obtained by dividing (i) (a) the rate per annum equal to the rate
determined by Administrative Agent to be the offered rate which appears on the
page of the Telerate Screen which displays an average British Bankers
Association Interest Settlement Rate (such page currently being page number 3740
or 3750, as applicable) for deposits (for delivery on the first day of such
period) with a term equivalent to such period in Dollars, determined as of
approximately 11:00 a.m. (London, England time) on such Interest Rate
Determination Date, or (b) in the event the rate referenced in the preceding
clause (a) does not appear on such page or service or if such page or service
shall cease to be available, the rate per annum equal to the rate determined by
Administrative Agent to be the offered rate on such other page or other service
which displays an average British Bankers Association Interest Settlement Rate
for deposits (for delivery on the first day of such period) with a term
equivalent to such period in Dollars, determined as of approximately 11:00 a.m.
(London, England time) on such Interest Rate Determination Date, or (c) in the
event the rates referenced in the preceding clauses (a) and (b) are not
available, the rate per annum equal to the offered quotation rate to first class
banks in the London interbank market by Administrative Agent for deposits (for
delivery on the first day of the relevant period) in Dollars of amounts in same
day funds comparable to the principal amount of the applicable Loan of
Administrative Agent, in its capacity as a Lender, for which the Eurodollar Rate
is then being determined with maturities comparable to such period as of
approximately 11:00 a.m.
3
<PAGE>
(London, England time) on such Interest Rate Determination Date, by (ii) an
amount equal to (a) one minus (b) the Applicable Reserve Requirement.
-----
"ADMINISTRATIVE AGENT" as defined in the preamble hereto.
"ADVERSE PROCEEDING" means any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration (whether or not purportedly on behalf of Holdings, Borrower or any
of their respective Subsidiaries) at law or in equity, or before or by any
Governmental Authority, domestic or foreign (including any Environmental
Claims), whether pending or, to the knowledge of Holdings, Borrower or any of
their respective Subsidiaries, threatened against or affecting Holdings,
Borrower or any of their respective Subsidiaries or any property of Holdings,
Borrower or any of their respective Subsidiaries.
"AFFECTED LENDER" as defined in Section 2.17(b).
"AFFECTED LOANS" as defined in Section 2.17(b).
"AFFILIATE", as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"AFFILIATE SALES" means Asset Sales by Borrower made in connection with and
as a result of Permitted Acquisitions consummated after the date hereof
consisting of sales of acquired accounts located in the "territory" or other
similar domain of any "Muzak" franchisee in accordance with, and to the extent
required by, the terms of such franchisee's franchise agreement.
"AGENT" means each of Syndication Agent, Administrative Agent and each Co-
Lead Arranger.
"AGGREGATE AMOUNTS DUE" as defined in Section 2.16.
"AGGREGATE PAYMENTS" as defined in Section 7.2.
"AGREEMENT" means this Credit and Guaranty Agreement dated as of March 18,
1999, as it may be amended, supplemented or otherwise modified from time to
time.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the
greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective on the effective day of such change in the
Prime Rate or the Federal
4
<PAGE>
Funds Effective Rate, respectively.
"ALTERNATE BASE RATE LOAN" means a Loan bearing interest at a rate
determined by reference to the Alternate Base Rate.
"ANNUALIZED OPERATING CASH FLOW" means, for any Fiscal Quarter,
Consolidated Operating Cash Flow for such Fiscal Quarter, multiplied by four.
"APPLICABLE MARGIN'' means (i) with respect to Tranche A Term Loans and
Revolving Loans that are Eurodollar Rate Loans (a) from the Closing Date until
six months following the Closing Date, a percentage, per annum, determined by
reference to the following table as if the Total Leverage Ratio then in effect
was greater than 5.25:1.00; and (b) thereafter, a percentage, per annum,
determined by reference to the Total Leverage Ratio in effect from time to time
as set forth below:
<TABLE>
<CAPTION>
===========================================================================
Tranche A Term Loans and Revolving Loans
---------------------------------------------------------------------------
Total Applicable Applicable
Leverage Alternate Base Rate Eurodollar Rate
Ratio Margin Margin
---------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.25:1.00 2.00% 3.00%
---------------------------------------------------------------------------
Less than 5.25:1.00 1.75% 2.75%
Greater than or equal to 4.75:1.00
---------------------------------------------------------------------------
Less than 4.75:1.00 1.50% 2.50%
Greater than or equal to 4.25:1.00
---------------------------------------------------------------------------
Less than 4.25:1.00 1.25% 2.25%
Greater than or equal to 3.75:1.00
---------------------------------------------------------------------------
Less than 3.75:1.00 1.00% 2.00%
===========================================================================
</TABLE>
(ii) with respect to Tranche B Term Loans (a) 3.50% per annum for Eurodollar
Rate Loans at any time after any High Yield Issuance and 3.75% for Eurodollar
Rate Loans at any time prior to any High Yield Issuance and (b) 2.50% per annum
for Alternate Base Rate Loans at any time after any High Yield Issuance and
2.75% for Alternate Base Rate Loans at any time prior to any High Yield Issuance
and (iii) with respect to Tranche C Team Loans (a) 3.375% per annum for
Eurodollar Rate Loans (b) and 2.375% per annum for Alternate Base Rate Loans.
After the six month anniversary of the Closing Date, the "Applicable Margin"
shall be determined by reference to the Total Leverage Ratio set forth in the
most recent Compliance Certificate delivered pursuant to Section 5.1(d);
thereafter, no change in the Applicable Margin with respect to Tranche A Term
Loans and Revolving Loans shall be effective until three Business Days after the
date on which Administrative Agent shall have received the applicable quarterly
financial statements and a Compliance Certificate pursuant
5
<PAGE>
to Section 5.1(d) calculating such new Total Leverage Ratio. At any time
Borrower has not submitted to Administrative Agent the applicable information as
and when required under Section 5.1(d), the Applicable Margin shall be
determined as if the Total Leverage Ratio were in excess of 5.25:1.00. Promptly
following receipt of the applicable information as and when required under
Section 5.1(d), Administrative Agent shall give each Lender telefacsimile or
telephonic notice (confirmed in writing) of the Applicable Margin in effect from
such date.
"APPLICABLE REVOLVING COMMITMENT FEE PERCENTAGE" means (a) from the Closing
Date until six months following the Closing Date, a percentage, per annum,
determined by reference to the following table as if the Total Leverage Ratio
then in effect was greater than 5.00 to 1.00; and (b) thereafter, a percentage,
per annum, determined by reference to the Total Leverage Ratio in effect from
time to time as set forth below:
<TABLE>
<CAPTION>
======================================================
Total Leverage Ratio Commitment Fee
------------------------------------------------------
<S> <C>
Greater than or equal to 5.00 0.625%
------------------------------------------------------
Less than 5.00 0.500%
Greater than 4.00
------------------------------------------------------
Less than or equal to 4.00 0.375%
======================================================
</TABLE>
After the six month anniversary of the Closing Date, the "Applicable Revolving
Commitment Fee Percentage" shall be determined by reference to the Total
Leverage Ratio set forth in the most recent Compliance Certificate delivered
pursuant to Section 5.1(d); thereafter, no change in the Applicable Revolving
Commitment Fee Percentage shall be effective until three Business Days after the
date on which Administrative Agent shall have received the applicable quarterly
financial statements and a Compliance Certificate pursuant to Section 5.1(d)
calculating such new Total Leverage Ratio. At any time Borrower has not
submitted to Administrative Agent the applicable information as and when
required under Section 5.1(d), the Applicable Revolving Commitment Fee
Percentage shall be determined as if the Total Leverage Ratio were in excess of
5.00:1.00. Promptly following receipt of the applicable information as and when
required under Section 5.1(d), Administrative Agent shall give each Lender
telefacsimile or telephonic notice (confirmed in writing) of the Applicable
Revolving Commitment Fee Percentage in effect from such date.
"APPLICABLE RESERVE REQUIREMENT" means, at any time, for any Eurodollar
Rate Loan the maximum rate at which reserves (including, without limitation, any
marginal, special, supplemental or emergency reserves) are required to be
maintained with respect thereto against "Eurocurrency liabilities" (as such term
is defined in Regulation D) under regulations issued from time to time by the
Board of Governors of the Federal Reserve System or other applicable banking
regulator. Without limiting the effect of the foregoing, the Applicable Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks with respect to (i) any category of
6
<PAGE>
liabilities which includes deposits by reference to which the applicable
Eurodollar Rate or any other interest rate of a Loan is to be determined, or
(ii) any category of extensions of credit or other assets which include
Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to constitute
Eurocurrency liabilities and as such shall be deemed subject to reserve
requirements without benefits of credit for proration, exceptions or offsets
that may be available from time to time to the applicable Lender. The rate of
interest on Eurodollar Rate Loans shall be adjusted automatically on and as of
the effective date of any change in the Applicable Reserve Requirement.
"ARTICLES OF MERGER" means the Certificate of Merger dated as of the date
hereof relating to the Merger, as such certificate may be amended from time to
time thereafter to the extent permitted pursuant to Section 6.13.
"ASSET SALE" means a sale, lease or sub-lease (as lessor or sublessor),
sale and leaseback, assignment, conveyance, transfer or other disposition to, or
any exchange of property with, any Person, in one transaction or a series of
transactions, of all or any part of Holdings', Borrower's or any of their
respective Subsidiaries' businesses, assets or properties of any kind
whatsoever, whether real, personal, or mixed and whether tangible or intangible,
whether now owned or hereafter acquired, including, without limitation, Capital
Stock (including, without limitation, Capital Stock of any such Subsidiaries),
other than (i) inventory sold or a license granted in the ordinary course of
business and (ii) disposals of obsolete, worn out or surplus property.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement substantially in the
form of Exhibit E (with such amendments or modifications as may be approved by
Administrative Agent).
"AUTHORIZED OFFICER" means, as applied to any Person, any individual
holding the position of chairman of the board (if an officer), chief executive
officer, president or one of its vice presidents (or the equivalent thereof),
and such Person's chief financial officer, treasurer or controller.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BENEFICIARY" means each Agent, each Lender and each Lender Counterparty
party to an Interest Rate Agreement required pursuant to Section 5.11.
"BORROWER" as defined in the preamble hereto.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close, and with respect to all notices,
determinations, fundings and payments in connection with the Adjusted Eurodollar
Rate or any Eurodollar Rate Loans, that is also a day for trading by and between
banks in Dollar deposits in the London interbank market.
7
<PAGE>
"BSI" means Business Sound, Inc., an Ohio corporation.
"CAPITAL LEASE" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity
with GAAP, is accounted for as a capital lease on the balance sheet of that
Person.
"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation),
including, without limitation, partnership interests and membership interests,
and any and all warrants, rights or options to purchase or other arrangements or
rights to acquire any of the foregoing.
"CAPSTAR" means Capstar Broadcasting Corporation, a Delaware corporation.
"CAPSTAR CONTRIBUTION" means the contribution to Borrower of the three
"Muzak" franchises owned or to be acquired by Capstar pursuant to the Capstar
Documentation.
"CAPSTAR CONTRIBUTION AGREEMENT" means a Contribution Agreement among
Administrative Agent for the benefit of Lenders, ABRY Broadcast Partners III,
L.P., Holdings and Borrower that (i) is executed and in full force and effect on
or prior to the Closing Date, (ii) provides for the unconditional obligation by
ABRY Broadcast Partners III, L.P. to make capital contributions in an amount
equal to the Capital Contribution Amount (as defined in such Contribution
Agreement) to Holdings, which will have an unconditional obligation to make
capital contributions to Borrower, and the application of such contributions by
Borrower to the Obligations, in each case in such amounts and on such terms and
conditions as shall be satisfactory to Administrative Agent, provided that such
agreement will provide that on the earlier to occur of (a) the delivery of
notice by Borrower pursuant to Section 5.14 that the Capstar Omaha Contribution
will not be consummated and (b) December 31, 1999, if the Capstar Omaha
Contribution has not been consummated, each such capital contribution shall be
made so that Borrower receives additional Equity Capital, and (iii) is otherwise
in form and substance reasonably satisfactory to Administrative Agent.
"CAPSTAR DOCUMENTATION" means the Contribution Agreement dated February 19,
1999 between Capstar and Holdings relating to the Capstar Contribution, as
amended, restated, supplemented or otherwise modified from time to time (i) on
or prior to the Closing Date pursuant to documentation in form and substance
reasonably satisfactory to Administrative Agent and Requisite Lenders or (ii)
thereafter to the extent permitted under Section 6.13.
"CAPSTAR OMAHA CONTRIBUTION" means the contribution to Borrower of the
Omaha, Nebraska "Muzak" franchise.
"CASH" means money, currency or a credit balance in any Deposit Account.
8
<PAGE>
"CASH EQUIVALENTS" means, as at any date of determination, (i) marketable
securities (a) issued or directly and unconditionally guaranteed as to interest
and principal by the United States Government or (b) issued by any agency of the
United States the obligations of which are backed by the full faith and credit
of the United States, in each case maturing within one year after such date;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after such date
and having, at the time of the acquisition thereof, a rating of at least A-1
from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender, Brown Brothers
Harriman, or any commercial bank organized under the laws of the United States
of America or any state thereof or the District of Columbia that (a) is at least
"adequately capitalized" (as defined in the regulations of its primary Federal
banking regulator) and (b) has Tier 1 capital (as defined in such regulations)
of not less than $100,000,000; and (v) shares of any money market mutual fund
that (a) has at least 95% of its assets invested continuously in the types of
investments referred to in clauses (i) and (ii) above, (b) has net assets of not
less than $500,000,000, and (c) has the highest rating obtainable from either
S&P or Moody's.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the
form of Exhibit F.
"CHANGE OF CONTROL" means, at any time, (i) Sponsors in the aggregate shall
cease to beneficially own and control at least 51% of the issued and outstanding
membership interests of Holdings entitled (without regard to the occurrence of
any contingency) to vote for the election of the Board of Directors; (ii)
Holdings shall cease to beneficially own and control all of the issued and
outstanding membership interests of Borrower; (iii) any "change of control" or
similar event under the Senior Subordinated Notes Related Documents or the
Holdings Note Related Documents shall occur; (iv) a majority of the Board of
Directors of Holdings shall not be Continuing Directors; or (v) a majority of
the voting power of the members of the Board of Directors of Borrower shall not
have been elected or nominated by Sponsors.
"CIBC" as defined in the preamble hereto.
"CIBOC" as defined in the preamble hereto.
"CLASS" means (i) with respect to Lenders, each of the following classes of
Lenders: (a) Lenders having Tranche A Term Loan Exposure, (b) Lenders having
Tranche B Term Loan Exposure, (c) Lenders having Tranche C Term Loan Exposure,
and (d) Lenders having Revolving Exposure, and (ii) with respect to Loans, each
of the following classes of Loans: (a) Tranche A Term Loans, (b) Tranche B Term
Loans, (c) Tranche C Term Loans, and (d) Revolving Loans.
"CLOSING DATE" means the date on which the Term Loans are made.
9
<PAGE>
"CLOSING DATE CERTIFICATE" means a certificate substantially in the form of
Exhibit G.
"CLOSING DATE SPONSOR DEBT" as defined in the definition of "PERMITTED
SPONSOR SUBORDINATED DEBT".
"CO-LEAD ARRANGERS" as defined in the preamble.
"COLLATERAL" means, collectively, all of the real, personal and mixed
property (including Capital Stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL ACCOUNT" as defined in the Pledge and Security Agreement.
"COLLATERAL DOCUMENTS" means the Pledge and Security Agreement, the Capstar
Contribution Agreement and all other instruments, documents and agreements
delivered by any Credit Party pursuant to this Agreement or any of the other
Credit Documents in order to grant to Administrative Agent, on behalf of
Lenders, a Lien on any real, personal or mixed property of that Credit Party as
security for the Obligations.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form of
Exhibit C.
"CONSENT SOLICITATION" means, collectively, the offer by Borrower to
repurchase up to and including 100% of the outstanding Existing Senior Notes and
the consent solicitation by Borrower from the holders of outstanding Existing
Senior Notes of consents to certain amendments to the Existing Senior Note
Indenture, in each case as described in the Consent Solicitation Materials.
"CONSENT SOLICITATION MATERIALS" means, collectively, (i) the respective
Offer to Purchase and Consent Solicitation Statements dated February 8, 1999
made by Borrower in respect of the Existing Senior Notes and (ii) all related
documents and agreements, including the Dealer Manager Agreement dated February
8, 1999 among Borrower, CIBC and Goldman, Sachs & Co., as each may be amended,
restated, supplemented or otherwise modified from time to time (i) on or prior
to the Closing Date pursuant to documentation in form and substance reasonably
satisfactory to Administrative Agent and Requisite Lenders or (ii) thereafter to
the extent permitted under Section 6.13.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate of
all expenditures of Borrower and its Included Subsidiaries during such period
determined on a consolidated basis that, in accordance with GAAP, are or should
be included in "purchase of property and equipment" or similar items reflected
in the consolidated statement of cash flows of Borrower and its Included
Subsidiaries. Consolidated Capital Expenditures shall include capitalized
expenditures (excluding expenditures related to the Capstar Omaha Contribution,
but only excluding expenditures made or incurred prior to the time of such
contribution, and including any subsequent
10
<PAGE>
expenditures made or incurred in respect of the Omaha, Nebraska "Muzak"
affiliate) related to new location growth ("NEW LOCATION EXPENDITURES").
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated
Interest Expense for such period, excluding any amount not required to be paid
in Cash until maturity of the Indebtedness on which such interest is payable.
"CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the
total assets of Borrower and its Included Subsidiaries on a consolidated basis
that may properly be classified as current assets in conformity with GAAP,
excluding Cash and Cash Equivalents.
"CONSOLIDATED CURRENT LIABILITIES" means, as at any date of determination,
the total liabilities of Borrower and its Included Subsidiaries on a
consolidated basis that may properly be classified as current liabilities in
conformity with GAAP, excluding the current portion of long term debt.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if
positive) equal to: (i) the sum, without duplication, of the amounts for such
period of (a) Consolidated Operating Cash Flow, (b) the Consolidated Working
Capital Adjustment and (c) any net Cash extraordinary gains, minus (ii) the sum,
-----
without duplication, of the amounts for such period of (a) voluntary and
scheduled repayments of Consolidated Total Debt (excluding (1) prepayments of
Loans pursuant to Section 2.12(c) and (2) repayments of Revolving Loans except
to the extent the Revolving Commitments are permanently reduced in connection
with such repayments), (b) Consolidated Capital Expenditures and Permitted
Acquisitions made during such period (net of (1) the aggregate principal amount
of all Indebtedness incurred or assumed by Borrower and its Included
Subsidiaries during such period in connection with the financing of such
expenditures and acquisitions and (2) the amount of any such expenditures or
acquisitions made with Net Asset Sale Proceeds and Net Insurance/Condemnation
Proceeds reinvested pursuant to Section 2.12) to the extent such expenditures
and acquisitions were permitted pursuant to Sections 6.6 and 6.7, (c)
Consolidated Cash Interest Expense, (d) any provision for current taxes based on
income of Borrower and its Included Subsidiaries and payable in Cash with
respect to such period, (e) any Restricted Junior Payment permitted to be made
pursuant to Section 6.4 to the extent payable in Cash with respect to such
period and (f) any net Cash extraordinary losses.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum, without
duplication, of the amounts determined for Borrower and its Included
Subsidiaries on a consolidated basis of each of the following for such period,
(i) any provision for current taxes based on income of Borrower and its Included
Subsidiaries and payable in Cash during such period, (ii) Consolidated Cash
Interest Expense, (iii) scheduled prepayments of the Loans required to be made
pursuant to Section 2.10 for such period, (iv) Consolidated Capital Expenditures
(other than New Location Expenditures), and (v) Restricted Junior Payments
(including, without limitation, Tax Distributions and Management Fees, but
excluding payments by Borrower to Holdings or to either Sponsor, as applicable,
with
11
<PAGE>
respect to Permitted Sponsor Subordinated Debt to the extent permitted
hereunder) to the extent payable in Cash with respect to such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest) of Borrower and its Included Subsidiaries on
a consolidated basis with respect to all outstanding Indebtedness of Borrower
and its Included Subsidiaries, including all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and net costs under Interest Rate Agreements, but excluding, however,
any amounts referred to in Section 2.9 payable on or before the Closing Date.
"CONSOLIDATED NET INCOME" means, for any period, (i) the net income (or
loss) of Borrower and its Included Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with GAAP,
together with the amount of dividends or other distributions actually paid to
Borrower or any Included Subsidiary by Electro during such period to the extent
Electro is not an Included Subsidiary during such period, minus (ii) (a) the
-----
income of any Person (other than an Included Subsidiary of Borrower) in which
any other Person has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Borrower or any of its
Included Subsidiaries by such Person during such period, (b) the income (or
loss) of any Person accrued prior to the date it becomes an Included Subsidiary
of Borrower or is merged into or consolidated with Borrower or any of its
Included Subsidiaries or that Person's assets are acquired by Borrower or any of
its Included Subsidiaries, (c) the income of any Included Subsidiary of Borrower
to the extent that the declaration or payment of dividends or similar
distributions by that Included Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Included Subsidiary, (d) any after-tax gains or losses attributable to
Asset Sales or returned surplus assets of any Pension Plan, (e) the income (or
loss) of any Included Subsidiary attributable to discontinued operations
(including, without limitation, operations disposed of during such period) and
(f) (to the extent not included in clauses (a) through (e) above) any net
extraordinary gains or net extraordinary losses.
"CONSOLIDATED OPERATING CASH FLOW" means, for any period, without
duplication, an amount determined for Borrower and its Included Subsidiaries on
a consolidated basis equal to (i) to the sum of the amounts for such period of
(a) Consolidated Net Income, (b) Consolidated Interest Expense, (c) any
provisions for taxes based on income, (d) total depreciation expense, (e) total
amortization of intangibles (but excluding any non-Cash item to the extent it
represents the amortization of a prepaid Cash expense that was paid in any prior
period) expense, (f) Management Fees, and (g) all other non-Cash items reducing
Consolidated Net Income for such period except for any non-Cash items that
represent accruals of, or reserves for, Cash disbursements to be made in any
future accounting period, minus (ii) all other non-Cash items increasing
-----
Consolidated Net Income (other than any non-Cash items representing deferred
revenue to the extent that such revenue was not included in Net Income in any
prior period).
12
<PAGE>
"CONSOLIDATED SENIOR DEBT" means, as at any date of determination,
Consolidated Total Debt less the aggregate outstanding principal amount of the
Senior Subordinated Notes on such date.
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, all
Indebtedness of Borrower and its Included Subsidiaries on such date on a
consolidated basis, excluding (i) any Permitted Sponsor Subordinated Debt, (ii)
Deferred Management Fees and (iii) items of Indebtedness of the type described
in clause (x) of the definition of Indebtedness, but only if as of such date of
determination, such Indebtedness would not be considered as a liability on a
balance sheet in conformity with GAAP.
"CONSOLIDATED WORKING CAPITAL" means, as at any date of determination, the
excess of Consolidated Current Assets over Consolidated Current Liabilities.
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the beginning of such period exceeds (or is
less than) Consolidated Working Capital as of the end of such period.
"CONTINGENT OBLIGATIONS" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Hedge Agreements. Contingent Obligations shall include, without
limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party or parties to an
agreement, and (c) any liability of such Person for the obligation of another
through any agreement (contingent or otherwise) (x) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or (y) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under subclauses
(x) or (y) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
"CONTINUING DIRECTORS" means individuals who at the beginning of any period
of two consecutive calendar years constituted the Board of Directors of
Holdings, together with any new
13
<PAGE>
directors whose election by such Board of Directors or whose nomination for
election was approved by a vote of at least two-thirds of the members of such
Board of Directors then still in office who either were members of such Board of
Directors at the beginning of such period or whose election or nomination for
election was previously so approved.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any provision of
any Security issued by that Person or of any indenture, mortgage, deed of trust,
contract, undertaking, agreement or other instrument to which that Person is a
party or by which it or any of its properties is bound or to which it or any of
its properties is subject.
"CONVERSION/CONTINUATION DATE" means the effective date of a continuation
or conversion, as the case may be, as set forth in the applicable
Conversion/Continuation Notice.
"CONVERSION/CONTINUATION NOTICE" means a notice substantially in the form
of Exhibit A.
"COUNTERPART AGREEMENT" means a counterpart agreement substantially in the
form of Exhibit H.
"CONTRIBUTING GUARANTORS" as defined in Section 7.2.
"CREDIT DATE" means the date of the making of a Loan.
"CREDIT DOCUMENT" means any of this Agreement, any promissory notes
delivered in connection herewith, the Collateral Documents, any documents or
certificates executed by Borrower in favor of Issuing Bank relating to Letters
of Credit, and all other documents, instruments or agreements executed and
delivered by a Credit Party for the benefit of any Agent or Lender in connection
herewith.
"CREDIT EXTENSION" means the making of a Loan or the issuing of a Letter of
Credit.
"CREDIT PARTY" means each Person (other than any Agent or any Lender or any
other representative thereof) from time to time party to a Credit Document.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement, each of which is for the purpose of hedging the
foreign currency risk associated with Borrower's and its Included Subsidiaries'
operations.
"CUTOFF DATE" as defined in Section 2.13(c).
"DEFAULT" means a condition or event that, after notice or lapse of time or
both, would constitute an Event of Default.
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"DEFAULT EXCESS'' means, with respect to any Defaulting Lender, the excess,
if any, of such Defaulting Lender's Pro Rata Share of the aggregate outstanding
principal amount of Revolving Loans of all Lenders (calculated as if all
Defaulting Lenders (other than such Defaulting Lender) had funded all of their
respective Defaulted Loans) over the aggregate outstanding principal amount of
all Revolving Loans of such Defaulting Lender.
"DEFAULT PERIOD'' means, with respect to any Defaulting Lender, the period
commencing on the date of the applicable Funding Default and ending on the
earliest of the following dates: (i) the date on which all Revolving Commitments
are cancelled or terminated and/or the Obligations are declared or become
immediately due and payable, (ii) the date on which (a) the Default Excess with
respect to such Defaulting Lender shall have been reduced to zero (whether by
the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting
Lender or by the non-pro rata application of any voluntary or mandatory
prepayments of the Revolving Loans in accordance with the terms of Section 2.11
or Section 2.12 or by a combination thereof) and (b) such Defaulting Lender
shall have delivered to Borrower and Administrative Agent a written
reaffirmation of its intention to honor its obligations hereunder with respect
to its Commitment, and (iii) the date on which Borrower, Administrative Agent
and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in
writing.
"DEFAULTING LENDER" as defined in Section 2.21.
"DEFAULTING LOAN" as defined in Section 2.21.
"DEFERRED MANAGEMENT FEES" as defined in Section 6.4(a)(viii).
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account
with a bank, savings and loan association, credit union or like organization,
other than an account evidenced by a negotiable certificate of deposit.
"DOLLARS" and the sign "$" mean the lawful money of the United States of
America.
"DOMESTIC SUBSIDIARY" means any Subsidiary organized under the laws of the
United States of America, any State thereof or the District of Columbia.
"ELECTRO" means Electro Systems Corporation, a Florida corporation.
"ELIGIBLE ASSIGNEE" means (i) any Lender, any Affiliate of any Lender and
any Related Fund (any two or more Related Funds being treated as a single
Eligible Assignee for all purposes hereof), and (ii) any commercial bank,
insurance company, investment or mutual fund or other entity that is an
"accredited investor" (as defined in Regulation D under the Securities Act) and
which extends credit or buys loans as one of its businesses; provided, no
Affiliate of Holdings or Borrower shall be an Eligible Assignee.
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"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA which is or was sponsored, maintained, contributed to by
or required to be contributed by Borrower, any of its Subsidiaries or any of
their respective ERISA Affiliates.
"EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of a date on
or about the Closing Date between Borrower and William A. Boyd, in the form
provided to Syndication Agent and Administrative Agent on the Closing Date, as
the same may be amended, restated, supplemented or otherwise modified from time
to time in accordance with Section 6.13.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice of violation,
claim, action, suit, proceeding, demand, abatement order or other order or
directive (conditional or otherwise), by any governmental authority or any other
Person, arising (i) pursuant to or in connection with any actual or alleged
violation of any Environmental Law; (ii) in connection with any Hazardous
Material or any actual or alleged Hazardous Materials Activity; or (iii) in
connection with any actual or alleged damage, injury, threat or harm to health,
safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future foreign or
domestic, federal or state (or any subdivision of either of them), statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of governmental
authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity; (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials; or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, in any manner applicable to Borrower or any of its
Subsidiaries or any Facility.
"EQUITY CAPITAL" means capital that was contributed to Borrower by Holdings
in the form of Cash or property in exchange for common membership interests in
Borrower and includes (i) the Equity Contribution and (ii) the following capital
contributions: (a) $25,300,000 contributed by Sponsor in connection with the
acquisition of the assets of Borrower, (b) $4,100,000 contributed in connection
with the acquisition of BSI, (c) $600,000 contributed in connection with the
acquisition of Electro and (d) $1,500,000 contributed by management in
connection with the acquisition of the assets of Borrower.
"EQUITY CONTRIBUTION" means equity contributions to Borrower on or about
the Closing Date by Holdings consisting of (i) Cash contributed by MEM, (ii)
Cash or MLP partnership interests contributed by management of Holdings, (iii)
the Cash proceeds from the issuance of the Holdings Notes or from the incurrence
of the Closing Date Sponsor Debt and (iv) the net value of assets contributed as
part of the Capstar Contribution.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
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"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
any member of an affiliated service group within the meaning of Section 414(m)
of the Internal Revenue Code of which that Person, any corporation described in
clause (i) above or any trade or business described in clause (ii) above is a
member. Any former ERISA Affiliate of Borrower or any of its Subsidiaries shall
continue to be considered an ERISA Affiliate of Borrower or any such Subsidiary
within the meaning of this definition with respect to the period such entity was
an ERISA Affiliate of Borrower or such Subsidiary and with respect to
liabilities arising after such period for which Borrower or such Subsidiary
could be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of Section
4043 of ERISA and the regulations issued thereunder with respect to any Pension
Plan (excluding those for which the provision for 30-day notice to the PBGC has
been waived by regulation); (ii) the failure to meet the minimum funding
standard of Section 412 of the Internal Revenue Code with respect to any Pension
Plan (whether or not waived in accordance with Section 412(d) of the Internal
Revenue Code) or the failure to make by its due date a required installment
under Section 412(m) of the Internal Revenue Code with respect to any Pension
Plan or the failure to make any required contribution to a Multiemployer Plan;
(iii) the provision by the administrator of any Pension Plan pursuant to Section
4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the withdrawal by
Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates
from any Pension Plan with two or more contributing sponsors or the termination
of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064
of ERISA; (v) the institution by the PBGC of proceedings to terminate any
Pension Plan, or the occurrence of any event or condition which might constitute
grounds under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (vi) the imposition of liability on Borrower, any
of its Subsidiaries or any of their respective ERISA Affiliates pursuant to
Section 4062(e) or 4069 of ERISA or by reason of the application of Section
4212(c) of ERISA; (vii) the withdrawal of Borrower, any of its Subsidiaries or
any of their respective ERISA Affiliates in a complete or partial withdrawal
(within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer
Plan if there is any potential liability therefor, or the receipt by Borrower,
any of its Subsidiaries or any of their respective ERISA Affiliates of notice
from any Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act
or omission which could give rise to the imposition on Borrower, any of its
Subsidiaries or any of their respective ERISA Affiliates of fines, penalties,
taxes or related charges under Chapter 43 of the Internal Revenue Code or under
Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of
any Employee Benefit Plan; (ix) the assertion of a material claim (other than
routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against Borrower, any of its
Subsidiaries or any of their respective ERISA Affiliates in connection with any
Employee Benefit Plan; (x) receipt from
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the Internal Revenue Service of notice of the failure of any Pension Plan (or
any other Employee Benefit Plan intended to be qualified under Section 401(a) of
the Internal Revenue Code) to qualify under Section 401(a) of the Internal
Revenue Code, or the failure of any trust forming part of any Pension Plan to
qualify for exemption from taxation under Section 501(a) of the Internal Revenue
Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n)
of the Internal Revenue Code or pursuant to ERISA with respect to any Pension
Plan.
"EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate determined
by reference to the Adjusted Eurodollar Rate.
"EVENT OF DEFAULT" means each of the events set forth in Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"EXISTING DEBT" means all Indebtedness (other than Indebtedness hereunder
and under the Senior Subordinated Notes, if issued on or prior to the Closing
Date, and Indebtedness identified in Schedule 6.1 annexed hereto) of Borrower
and its Subsidiaries (including, for such purpose, MLP and its Subsidiaries)
outstanding at any time on the Closing Date, including, without limitation, the
Indebtedness under the Existing Sponsor Loan and the Existing MLP Debt
Agreements.
"EXISTING INDENTURE AMENDMENTS" means the amendments, modifications and
supplements to the Existing Senior Note Indenture described in the Consent
Solicitation Materials.
"EXISTING MLP DEBT AGREEMENTS" means, collectively, (i) the Existing
Senior Notes, (ii) the Loan and Security Agreement dated as of December 30, 1998
between MLP and Foothill Capital Corporation and all agreements and documents
related thereto, as in effect on the Closing Date, and (iii) the promissory note
dated December 30, 1998 issued by MLP to MTI.
"EXISTING SENIOR NOTE INDENTURE" means the Indenture dated October 2, 1996
between MLP, MCC and U.S. Bank Trust National Association pursuant to which the
Existing Senior Notes were issued, as amended, restated, supplemented or
otherwise modified from time to time on or prior to the Closing Date to the
extent contemplated in the Consent Solicitation Materials or otherwise to the
extent permitted under Section 6.13.
"EXISTING SENIOR NOTES" means the 10% Senior Notes due 2003 issued by MLP
and MCC pursuant to the Existing Senior Note Indenture.
"EXISTING SPONSOR LOAN" means the loan made by Sponsor to Borrower as
evidenced by the Promissory Note dated October 6, 1998 by Borrower to Sponsor.
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"FACILITY" means any real property (including all buildings, fixtures or
other improvements located thereon) now, hereafter or heretofore owned, leased,
operated or used by Borrower or any of its Subsidiaries or any of their
respective predecessors or Affiliates.
"FAIR SHARE CONTRIBUTION AMOUNT" as defined in Section 7.2.
"FAIR SHARE" as defined in Section 7.2.
"FAIR SHARE SHORTFALL" as defined in Section 7.2.
"FEDERAL FUNDS EFFECTIVE RATE" means for any day, the rate per annum equal
to the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers on
such day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day; provided, (i) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (ii) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate charged to
Administrative Agent, in its capacity as a Lender, on such day on such
transactions as determined by Administrative Agent.
"FINANCIAL OFFICER CERTIFICATION" means, with respect to the financial
statements for which such certification is required, the certification of
Borrower, executed on Borrower's behalf by the chief financial officer or
treasurer of Borrower, that such financial statements fairly present, in all
material respects, the financial condition of Borrower and its Subsidiaries as
at the dates indicated and the results of their operations and their cash flows
for the periods indicated, subject to changes resulting from audit and normal
year-end adjustments.
"FINANCIAL PLAN" as defined in Section 5.1(j).
"FINANCIAL STATEMENTS" means, collectively, the Historical Financial
Statements and the Pro Forma Financial Statements.
"FIRST PRIORITY" means, with respect to any Lien purported to be created in
any Collateral pursuant to any Collateral Document, that such Lien is the only
Lien to which such Collateral is subject, other than Permitted Liens.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Borrower and its Subsidiaries ending
on December 31 of each calendar year.
"FIXED CHARGE COVERAGE RATIO" means the ratio as of the last day of any
period of (i) Consolidated Operating Cash Flow for the period then ended, to
(ii) Consolidated Fixed Charges for
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such period, in each case as set forth in the Compliance Certificate based on
the Fiscal Quarter then ended. For purposes of calculating the Fixed Charge
Coverage Ratio, each of Consolidated Operating Cash Flow and Consolidated Fixed
Charges shall be calculated on a Pro Forma Basis from the date of any
transaction for which pro forma effect is being given.
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic
Subsidiary.
"FRANCHISE ADDITION" means (i) an investment by Borrower or an Included
Subsidiary in any other Person pursuant to which such Person shall become an
Included Subsidiary, or shall be merged with or into Borrower or any Included
Subsidiary or (ii) the acquisition of Borrower or any Included Subsidiary of the
assets of any Person (other than an Included Subsidiary) which constitute all or
substantially all of the assets of such Person or comprise any division or class
of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"FRANCHISE TERMINATION" means any direct or indirect sale, issuance,
conveyance, assignment, transfer, lease or other disposition, other than in the
ordinary course of business as to Borrower or an Included Subsidiary, in any
single or series of related transactions, of a division or line of business.
"FUNDING DEFAULT" as defined in Section 2.21.
"FUNDING GUARANTORS" as defined in Section 7.2.
"FUNDING NOTICE" means a notice substantially in the form of Exhibit A.
"GAAP" means, subject to the limitations on the application thereof set
forth in Section 1.2, United States generally accepted accounting principles in
effect as of the date of determination thereof.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any Governmental
Authority.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or
other governmental department, commission, board, bureau, court, agency or
instrumentality or political subdivision thereof or any entity or officer
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a foreign
entity or government.
"GSCP" as defined in the preamble hereto.
"GUARANTEED OBLIGATIONS" as defined in Section 7.1.
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"GUARANTOR" means each of Holdings and each Domestic Subsidiary of Borrower
other than Muzak Heart and Soul Foundation, a Washington nonprofit corporation,
and Muzak Finance
"GUARANTY" means the guaranty of each Guarantor set forth in Section 7.
"HAZARDOUS MATERIALS" means any chemical, material or substance, exposure
to which is prohibited, limited or regulated by any governmental authority or
which may or could pose a hazard to the health and safety of the owners,
occupants or any Persons in the vicinity of any Facility or to the indoor or
outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or
threatened activity, event or occurrence involving any Hazardous Materials,
including the use, manufacture, possession, storage, holding, presence,
existence, location, Release, threatened Release, discharge, placement,
generation, transportation, processing, construction, treatment, abatement,
removal, remediation, disposal, disposition or handling of any Hazardous
Materials, and any corrective action or response action with respect to any of
the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency Agreement
entered into in order to satisfy the requirements of this Agreement or otherwise
in the ordinary course of Borrower's or any of its Included Subsidiaries'
businesses and not for speculative purposes.
"HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that
at any time or from time to time may be contracted for, charged, or received
under the laws applicable to any Lender which are presently in effect or, to the
extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"HIGH YIELD DEBT" means Indebtedness of (i) Borrower under the Senior
Subordinated Notes and (ii) Holdings under the Holdings Notes.
"HIGH YIELD ISSUANCE" means the issuance and sale by (i) Borrower of the
Senior Subordinated Notes and (ii) Holdings of the Holdings Notes.
"HISTORICAL FINANCIAL STATEMENTS" means as of the Closing Date, (a) with
respect to MLP, the audited financial statements of MLP and its Subsidiaries,
for the immediately preceding five fiscal years, consisting of balance sheets
and the related consolidated statements of income, partners' equity and cash
flows for such Fiscal Years, (b) with respect to Borrower, the audited financial
statements of Borrower and its Subsidiaries, for the period from October 7, 1998
through December 31, 1998, consisting of the consolidated balance sheets as of
December 31, 1998 and the related statements of income, members' equity and cash
flows for such period, together with a Financial Officer Certification, (c) with
respect to ACNI, (i) the audited financial statements of ACNI and its
Subsidiaries, for the immediately preceding two Fiscal Years, consisting of
balance sheets and the related consolidated statements of income, shareholders'
equity and cash flows for such Fiscal Years,
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and (ii) the audited financial statements of ACNI and its Subsidiaries for the
period from January 1, 1998 to October 6, 1998, consisting of a balance sheet
and the related consolidated statements of income, shareholders' equity and cash
flows for the period, and, in the case of clause (ii), certified by Borrower,
executed on Borrower's behalf by the chief financial officer of Borrower, that
they fairly present, in all material respects, the financial condition of ACNI
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to changes
resulting from audit and normal year-end adjustments, (d) with respect to BSI,
unaudited financial statements for the year ended December 31, 1997, (e) with
respect to MTI, unaudited financial statements for the years ended December 31,
1996 and 1997, (f) with respect to Capstar, an unaudited balance sheet and
income statement for the year ended December 31, 1998, and (g) with respect to
Electro, unaudited financial statements for the year ended December 31, 1998.
"HOLDINGS" as defined in the preamble hereto.
"HOLDINGS LLC AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of Holdings dated as of a date on or about the Closing Date,
as amended, restated, supplemented or otherwise modified from time to time to
the extent permitted under Section 6.13.
"HOLDINGS NOTE INDENTURE" means the Indenture dated as of the Closing Date,
by and among Holdings and Muzak Finance, as Issuers, and State Street Bank and
Trust Co., as Trustee, pursuant to which the Holdings Notes are to be issued, as
amended, restated, supplemented or otherwise modified from time to time to the
extent permitted under Section 6.13.
"HOLDINGS NOTE RELATED DOCUMENTS" means any or all of, as the context may
require, (i) the Holdings Notes, (ii) the Holdings Note Indenture, (iii) the
Purchase Agreement dated March 12, 1999, by and among Holdings and Muzak
Holdings Finance, as Issuers, and CIBC and GSCP, as Initial Purchasers, and (iv)
the Registration Rights Agreement dated as of the Closing Date, by and among
Holdings and Muzak Holdings Finance, as Issuers, and CIBC and GSCP, as Initial
Purchasers, as each may be amended, restated, supplemented or otherwise
modified from time to time to the extent permitted under Section 6.13.
"HOLDINGS NOTES" means $75 million aggregate principal amount at maturity
of 13% Senior Discount Notes due 2010 of Holdings and Muzak Holdings Finance to
be issued pursuant to the Holdings Note Indenture.
"INCLUDED SUBSIDIARY" means each Domestic Subsidiary of Borrower that is a
Guarantor other than Electro at any time that Electro has any Indebtedness;
provided that for as long as the Capstar Contribution Agreement is in full force
and effect and no contribution has been requested by Administrative Agent
pursuant thereto and until (i) Borrower has delivered notice to Administrative
Agent pursuant to Section 5.14 that the Capstar Omaha Contribution will not be
consummated or (ii) the Capstar Omaha Contribution is consummated, the Omaha,
Nebraska "Muzak" affiliate shall be treated as if it were an Included Subsidiary
for purposes of all financial
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definitions contained herein and for purposes of Section 6.6; provided further
that the notice referred to in clause (i) shall be delivered, or the Capstar
Omaha Contribution shall have been consummated, no later than December 31, 1999.
"INCREASED-COST LENDERS" as defined in Section 2.22.
"INDEBTEDNESS" as applied to any Person, means, without duplication, (i)
all indebtedness for borrowed money or with respect to deposits or advances of
any kind; (ii) that portion of obligations with respect to Capital Leases that
is properly classified as a liability on a balance sheet in conformity with
GAAP; (iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money; (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
(excluding ordinary course trade payables); (v) all obligations of such Person
upon which interest charges are customarily paid; (vi) all obligations evidenced
by notes, bonds (other than performance bonds), debentures or other similar
instruments; (vii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to any property or assets
acquired by such Person (even though the rights and remedies of the seller or
the lender under such agreement in the event of default are limited to
repossession or sale of such property or assets); (viii) all obligations,
contingent or otherwise, as an account party under any letter of credit or under
acceptance, letter of credit or similar facilities to the extent not reflected
as trade liabilities on the balance sheet of such Person in accordance with
GAAP; (ix) all obligations, contingent or otherwise, to purchase, redeem, retire
or otherwise acquire for value any Capital Stock; (x) all obligations under
Interest Rate Agreements and other Hedge Agreements, calculated as of any date
of determination as the net amounts, if any, that would be required to be paid
by such Person if such Agreements were terminated on such date; (xi) the
principal portion of all obligations of such Person under any synthetic lease,
tax retention operating lease, off-balance sheet loan or similar off-balance
sheet financing product of such Person where such transaction is considered
borrowed money indebtedness for tax purposes but is classified as an operating
lease in accordance with GAAP; (xii) payment obligations of such Person under
any facility for the sale or financing of receivables; (xiii) Contingent
Obligations; (xiv) all indebtedness secured by any Lien on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person. The Indebtedness of any Person shall include the Indebtedness
of any other entity (including any partnership in which such Person is a general
partner or any Joint Venture) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent that the terms of such Indebtedness provide that
such Person is not liable therefor.
"INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities,
obligations, losses, damages (including natural resource damages), penalties,
actions, judgments, suits, claims (including Environmental Claims), costs
(including the costs of any investigation, study, sampling, testing, abatement,
cleanup, removal, remediation or other response action necessary to remove,
remediate, clean up or abate any Hazardous Materials Activity), expenses and
disbursements of any kind or nature whatsoever (including the reasonable fees
and disbursements of counsel for Indemnitees in
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connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of (i) this Agreement or the other Credit Documents or the
transactions contemplated hereby or thereby (including Lenders' agreement to
make Credit Extensions or the use or intended use of the proceeds thereof, or
any enforcement of any of the Credit Documents (including any sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Guaranty)); (ii) the statements contained in the commitment
letter delivered by any Lender to Borrower with respect thereto; or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Borrower or any of its Subsidiaries.
"INDEMNITEE" as defined in Section 10.3.
"INSTALLMENT" as defined in Section 2.10(a).
"INSTALLMENT DATE" as defined in Section 2.10(a).
"INTELLECTUAL PROPERTY" means "Intellectual Property" as such term is
defined in the Pledge and Security Agreement.
"INTELLECTUAL PROPERTY COLLATERAL" means as all of the Intellectual
Property subject to the Lien of the Pledge and Security Agreement.
"INTEREST COVERAGE RATIO" means the ratio as of the last day of any period
of (i) Consolidated Operating Cash Flow for the period then ended, to (ii)
Consolidated Cash Interest Expense for such period, in each case as set forth in
the Compliance Certificate based on the Fiscal Quarter then ended. For purposes
of calculating the Interest Coverage Ratio, each of Consolidated Operating Cash
Flow and Consolidated Cash Interest Expense shall be calculated on a Pro Forma
Basis from the date of any transaction for which pro forma effect is being
given.
"INTEREST PAYMENT DATE" means with respect to (i) any Alternate Base Rate
Loan, each March 31, June 30, September 30 and December 31 of each year,
commencing on the first such date to occur after the Closing Date; and (ii) any
Eurodollar Rate Loan, the last day of each Interest Period applicable to such
Loan; provided, in the case of each Interest Period of longer than three months
"Interest Payment Date" shall also include each date that is three months, or an
integral multiple thereof, after the commencement of such Interest Period.
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"INTEREST PERIOD" means, in connection with a Eurodollar Rate Loan, an
interest period of one-, two-, three- or six-months, as selected by Borrower in
the applicable Notice, (i) initially, commencing on the Credit Date or
Conversion/Continuation Date thereof, as the case may be; and (ii) thereafter,
commencing on the day on which the immediately preceding Interest Period
expires; provided, (a) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day unless no further Business Day occurs in such month, in
which case such Interest Period shall expire on the immediately preceding
Business Day; (b) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clauses (c) through (f), of this definition, end on the last Business Day of a
calendar month; (c) no Interest Period with respect to any portion of any Class
of Term Loans shall extend beyond the such Class's Term Loan Maturity Date; (d)
no Interest Period with respect to any portion of the Revolving Loans shall
extend beyond the Revolving Commitment Termination Date; (e) no Interest Period
with respect to any portion of Revolving Loans shall extend beyond a date on a
which Borrower is required to make a scheduled reduction of Revolving
Commitments, unless the sum of (1) the aggregate principal amount of such
Revolving Loans that are Alternate Base Rate Loans, and (2) the aggregate
principal amount of Revolving Loans that are Eurodollar Rate Loans with Interest
Periods expiring on or before such date or reduction equals or exceeds the
amount required to be paid with respect to the Revolving Commitments on such
date; and (f) no Interest Period with respect to any portion of a Class of Term
Loans shall extend beyond a date on a which Borrower is required to make a
scheduled payment of principal of such Class of Term Loans, unless the sum of
(1) the aggregate principal amount of such Class of Term Loans that are
Alternate Base Rate Loans, and (2) the aggregate principal amount of such Class
of Term Loans that are Eurodollar Rate Loans with Interest Periods expiring on
or before such date equals or exceeds the principal amount required to be paid
on such Class of Term Loans on such date.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement, each of which is for the purpose of hedging the interest rate
exposure associated with Borrower's and its Included Subsidiaries' operations.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the date that is two Business Days prior to the first day of such
Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended
to the date hereof and from time to time hereafter, and any successor statute.
"INVESTMENT" means (i) any direct or indirect purchase or other acquisition
by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any
of the Securities of any other Person; (ii) any direct or indirect redemption,
retirement, purchase or other acquisition for value, by Holdings or any of its
Subsidiaries from any Person, of any Capital Stock of such Person; and (iii) any
direct or indirect loan, advance (other than advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or capital
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contribution by Holdings or any of its Subsidiaries to any other Person,
including all indebtedness and accounts receivable from that other Person that
are not current assets or did not arise from sales to that other Person in the
ordinary course of business. The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment.
"INVESTMENT PROPERTY" as defined in the Pledge and Security Agreement.
"INVESTOR SECURITIES PURCHASE AGREEMENT" means the Investment Securities
Purchase Agreement dated as of October 6, 1998 among Holdings, Sponsor, Joseph
Koff and David Unger, as amended, restated, supplemented or otherwise modified
from time to time (i) on or prior to the Closing Date pursuant to documentation
in form and substance reasonably satisfactory to Administrative Agent and
Requisite Lenders or (ii) thereafter to the extent permitted under Section 6.13.
"ISSUANCE NOTICE" means a notice substantially in the form of Exhibit D.
"ISSUING BANK" means CIBOC as Issuing Bank hereunder, together with its
permitted successors and assigns in such capacity.
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided, in
no event shall any corporate Subsidiary of any Person be considered to be a
Joint Venture to which such Person is a party.
"LEASEHOLD PROPERTY" means any leasehold interest of any Credit Party as
lessee under any lease of real property, other than any such leasehold interest
designated from time to time by Administrative Agent in its sole discretion as
not being required to be included in the Collateral.
"LENDER" means each financial institution listed on the signature pages
hereto as a Lender, together with each such institution's successors and
permitted assigns, and Issuing Bank.
"LENDER COUNTERPARTY" means each Lender or any Affiliate thereof
counterparty to a Hedge Agreement.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Standby Letters of Credit
issued or to be issued by Issuing Bank for the account of Borrower pursuant to
Section 2.2A.
"LETTER OF CREDIT SUBLIMIT" means the lesser of (i) $5,000,000 and (ii) the
aggregate unused amount of the Revolving Commitments then in effect.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of
(i) the maximum aggregate amount which is, or at any time thereafter may become,
available for drawing
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under all Letters of Credit then outstanding, and (ii) the aggregate amount of
all drawings under Letters of Credit honored by Issuing Bank and not theretofore
reimbursed by or on behalf of Borrower.
"LICENSE AGREEMENTS" as defined in the Pledge and Security Agreement.
"LIEN" means (i) any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest) and any option, trust or other preferential arrangement
having the practical effect of any of the foregoing and (ii) in the case of
Securities, any purchase option, call or similar right of a third party with
respect to such Securities.
"LOAN" means a Tranche A Term Loan, a Tranche B Term Loan, a Tranche C Term
Loan, and a Revolving Loan.
"MANAGEMENT AGREEMENT" means the Amended and Restated Management and
Consulting Services Agreement dated as of a date on or about the Closing Date
between ABRY Partners, Inc. and Borrower, as amended, restated, modified or
supplemented from time to time to the extent permitted under Section 6.13.
"MANAGEMENT FEES" means management fees payable by Borrower to ABRY
Partners, Inc. pursuant to the Management Agreement.
"MARGIN STOCK" as defined in Regulation U of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Borrower and its Subsidiaries on a consolidated basis, (ii) the
ability of any Credit Party to fully and timely perform the Obligations, (iii)
the legality, validity, binding effect or enforceability against a Credit Party
of a Credit Document to which it is a party, or (iv) the rights, remedies and
benefits available to, or conferred upon, any Agent and any Lender under any
Credit Document.
"MATERIAL CONTRACT" means any contract or other arrangement to which
Holdings, Borrower or any of their respective Subsidiaries is a party (other
than the Credit Documents) for which breach, nonperformance, cancellation or
failure to renew could reasonably be expected to have a Material Adverse Effect
; provided, however, that no franchise contract or arrangement or license
contract or arrangement entered into by Borrower or any of its Subsidiaries in
the ordinary course of business shall be considered a Material Contract unless
it involves aggregate annual consideration payable or receivable by Borrower or
such Subsidiary of not less than $2,500,000.
"MATERIAL REAL ESTATE ASSET'' means (i) a fee-owned Real Estate Asset
having a fair market value in excess of $500,000 as of the date of the
acquisition thereof, or (ii) all Leasehold Properties
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other than those (a) with respect to which the aggregate payments under the term
of the lease are less than $250,000 per annum, (b) that do not contain any
financial records, the original or a copy of which is not contained elsewhere,
(c) that do not have any personal property located thereon with an aggregate
value in excess of $500,000 and (d) that relates to a site the loss of which
would not otherwise have a material adverse effect on the operation of the
business of Borrower or any of its Subsidiaries.
"MAXIMUM AVAILABLE AMOUNT" as defined in Section 2.2A(h).
"MCC" means Muzak Capital Corporation, a Delaware corporation.
"MEM" means MEM Holdings, LLC, a Delaware limited liability company.
"MEMBERS AGREEMENT" means the Amended and Restated Members Agreement dated
as of a date on or about the Closing Date among Holdings, MEM, Joseph Koff and
David Unger, as amended, restated, supplemented or otherwise modified from time
to time to the extent permitted under Section 6.13.
"MERGER" as defined in the recitals hereto.
"MERGER AGREEMENT" as defined in the recitals hereto, as amended, restated,
supplemented or otherwise modified from time to time (i) on or prior to the
Closing Date pursuant to documentation in form and substance reasonably
satisfactory to Administrative Agent and Requisite Lenders or (ii) thereafter to
the extent permitted under Section 6.13.
"MERGER CONSIDERATION" as defined in the recitals hereto.
"MLP" as defined in the recitals hereto.
"MOODY'S" means Moody's Investor Services, Inc.
"MTI" means Music Technologies, Inc., a Michigan corporation.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"MUZAK FINANCE" means Muzak Finance Corp., a Delaware corporation.
"MUZAK HOLDINGS FINANCE" means Muzak Holdings Finance Corp., a Delaware
corporation.
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"MUZAK LLC AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of Borrower dated as of a date on or about the Closing Date,
as amended, restated, supplemented or otherwise modified from time to time to
the extent permitted under Section 6.13.
"NAIC" means The National Association of Insurance Commissioners, and any
successor thereto.
"NARRATIVE REPORT" means, with respect to the financial statements for
which such narrative report is required, a narrative report of management's
discussion and analysis of financial condition and results of operations of
Borrower and its Subsidiaries in the form prepared for filings under the
Exchange Act for the applicable Fiscal Quarter or Fiscal Year and for the period
from the beginning of the then current Fiscal Year or, if later, the Closing
Date, to the end of such period to which such financial statements relate.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount
equal to: (i) Cash payments (including any Cash received by way of deferred
payment pursuant to, or by monetization of, a note receivable or otherwise, but
only as and when so received) received from such Asset Sale, minus (ii) any bona
-----
fide direct costs incurred in connection with such Asset Sale, including (a)
income or gains taxes actually payable (by the seller or, to the extent such
taxes would give rise to a Tax Distribution, by any direct or indirect owner of
the seller) within two years of the date of receipt of such Cash payments as a
result of any gain recognized in connection with such Asset Sale and (b) payment
of the outstanding principal amount of, premium or penalty, if any, and interest
on any Indebtedness (other than the Loans) that is secured by a Lien on the
stock or assets in question and that is required to be repaid under the terms
thereof as a result of such Asset Sale.
"NET HIGH YIELD PROCEEDS" means, with respect to any High Yield Issuance,
an amount equal to the Cash proceeds received from such issuance, minus any bona
-----
fide direct costs incurred in connection with such issuance.
"NET INSURANCE/CONDEMNATION PROCEEDS" means an amount equal to: (i) any
Cash payments or proceeds received (a) under any casualty insurance policy in
respect of a covered loss thereunder or (b) as a result of the taking of any
assets of Borrower or any of its Subsidiaries by any Person pursuant to the
power of eminent domain, condemnation or otherwise, or pursuant to a sale of any
such assets to a purchaser with such power under threat of such a taking, minus
------
(ii) (a) any actual and reasonable documented costs incurred by Borrower or any
of its Subsidiaries in connection with the adjustment or settlement of any
claims of Borrower or such Subsidiary in respect thereof, and (b) any bona fide
direct costs incurred in connection with any sale of such assets as referred to
in clause (i)(b) of this definition, including income taxes actually payable (by
the seller or, to the extent such taxes would give rise to a Tax Distribution,
by any direct or indirect owner of the seller) within two years of the date of
receipt of such Cash payments as a result of any gain recognized in connection
therewith.
"NEW COMMITMENTS" as defined in Section 2.2(a)(ii).
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"NEW LOCATION EXPENDITURES" as defined in the definition of "CONSOLIDATED
CAPITAL EXPENDITURES".
"NEW REVOLVING LENDERS" as defined in Section 2.2(a)(ii).
"NEW TRANCHE B LENDER" as defined in Section 2.2(a)(ii).
"NEW TRANCHE B TERM LOAN" as defined in Section 2.2(a)(ii).
"NEW TRANCHE B TERM LOAN AMOUNT" as defined in Section 2.2(a)(ii).
"NON-US LENDER" as defined in Section 2.19(c).
"NOTICE" means a Funding Notice, an Issuance Notice or a
Conversion/Continuation Notice.
"OBLIGATIONS" means, with respect to any Credit Party, obligations of such
Credit Party, whether now existing or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or not
due, whether for principal, interest, fees, expenses, indemnification or
otherwise, and however arising under or in connection herewith and any other
Credit Document, including any Letter of Credit, and any Interest Rate Agreement
required pursuant to Section 5.11 with a Lender Counterparty (including payments
for early termination under such Hedge Agreements), including those arising
under successive borrowing transactions hereunder which shall either continue
the Obligations of such Credit Party from time to time or renew them after they
have been satisfied and including interest which, but for the filing of a
petition in bankruptcy with respect to such Credit Party, would have accrued on
any Obligation, whether or not a claim is allowed against such Credit Party for
such interest in the related bankruptcy proceeding.
"OBLIGEE GUARANTOR" as defined in Section 7.7.
"ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its
certificate or articles of incorporation, as amended, and its by-laws, as
amended, (ii) with respect to any limited partnership, its certificate of
limited partnership, as amended, and its partnership agreement, as amended,
(iii) with respect to any general partnership, its partnership agreement, as
amended, and (iv) with respect to any limited liability company, its certificate
of formation, as amended, and its operating agreement, as amended. In the event
any term or condition of this Agreement or any other Credit Document requires
any Organizational Document to be certified by a secretary of state or similar
governmental official, the reference to any such "Organizational Document" shall
only be to a document of a type customarily certified by such governmental
official.
"ORIGINAL ENTERPRISE VALUE" means the sum of (i) the amount of Equity
Capital, plus (ii) the amount of Indebtedness incurred hereunder, plus (iii) the
amount of aggregate proceeds from any issuance of the Senior Subordinated Notes,
plus (iv) the aggregate outstanding principal amount of other Indebtedness of
Borrower and its Included Subsidiaries.
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"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to Section 412 of the Internal Revenue Code or Section
302 of ERISA.
"PERMITTED ACQUISITION" means any acquisition by Borrower or any of its
Included Subsidiaries, whether by purchase, merger or otherwise, of all or
substantially all of the assets of, all of the Capital Stock of, or a business
line or a division of, any Person; provided:
(i) immediately prior to, and after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing or would
result therefrom;
(ii) all transactions in connection therewith shall be consummated
in accordance with all applicable laws and in conformity with all applicable
Governmental Authorizations;
(iii) in the case of the acquisition of Capital Stock, all of the
Capital Stock (except for any such Securities in the nature of directors
qualifying shares required pursuant to applicable law) acquired or otherwise
issued by such Person or any newly formed Subsidiary of Borrower in connection
with such acquisition shall be owned 100% by Borrower or any of its Wholly-Owned
Included Domestic Subsidiaries, and Borrower shall have taken, or caused to be
taken, as of the date such Person becomes a Subsidiary of Borrower, each of the
actions set forth in Section 5.9;
(iv) Borrower and its Subsidiaries shall be in compliance with
Section 6.6, both immediately before and after giving effect to such acquisition
on a Pro Forma Basis as of the most recently ended Fiscal Quarter for which a
Compliance Certificate has been delivered pursuant to Section 5.1(d);
(v) Borrower shall have delivered (a) to Administrative Agent and
Syndication Agent at least five Business Days prior to such proposed acquisition
a draft certificate in the form of a Compliance Certificate and (b) to
Administrative Agent on the date of such acquisition a certificate in the form
of a Compliance Certificate, in each case evidencing such compliance with such
Section, together with all relevant financial information for such acquired
assets, including, without limitation, the aggregate consideration for such
acquisition, the Acquisition Cash Flow for each acquired entity and the
information required pursuant to Section 6.6, if relevant; and
(vi) any Person or assets or division as acquired in accordance
herewith shall be in primarily the same business or lines of business in which
Borrower and/or its Subsidiaries are engaged as of the Closing Date.
"PERMITTED LIENS" means each of the Liens permitted pursuant to Section
6.2.
"PERMITTED SPONSOR DEBT AGREEMENT" means any loan agreement between one or
more Sponsors and Holdings or Borrower, as applicable, evidencing the Permitted
Sponsor Subordinated
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Debt, as amended, restated, supplemented or otherwise modified from time to time
thereafter to the extent permitted under Section 6.13.
"PERMITTED SPONSOR SUBORDINATED DEBT" means subordinated unsecured loans
from one or more Sponsors to Holdings or Borrower, provided (i) prior to the
payment in full in Cash of all of the Obligations no payment in respect of the
principal of or interest on such loans shall be required or made (unless
otherwise approved by Requisite Lenders), (ii) no such loan shall mature earlier
than June 30, 2007, (iii) if such loans are to Holdings, the net proceeds
thereof shall either be contributed as Equity Capital to Borrower or loaned to
Borrower on the terms described in clauses (i), (ii) and (iv) hereof (and any
such loan to Borrower from Holdings shall also constitute "Permitted Sponsor
Subordinated Debt") and (iv) in all other respects such loans shall be
subordinated to all of the Obligations on terms and conditions acceptable to
Requisite Lenders; provided, if any Permitted Sponsor Subordinated Debt is
issued on or prior to the Closing Date, it shall also be referred to as "CLOSING
DATE SPONSOR DEBT".
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments (whether federal,
state or local, domestic or foreign, and including political subdivisions
thereof) and agencies or other administrative or regulatory bodies thereof.
"PLAN OF CORRECTION" as defined in Section 4.21.
"PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement
substantially in the form of Exhibit I, as it may be amended, supplemented or
otherwise modified from time to time.
"PREFERRED STOCK" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"PRIME RATE" means the rate that CIBOC announces from time to time as its
prime lending rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. CIBOC or any other Lender may make commercial
loans or other loans at rates of interest at, above or below the Prime Rate.
"PRINCIPAL OFFICE" means, for each of Administrative Agent and Issuing
Bank, such Person's "Principal Office" as set forth on Appendix B, or such other
office as such Person may from time to time designate in writing to Borrower,
Administrative Agent and each Lender.
"PRO FORMA BASIS" means, with respect to compliance with any test or
covenant hereunder, compliance with such covenant or test after giving effect to
any proposed acquisition, disposition
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or other action which requires compliance on a pro forma basis, giving effect to
adjustments for cost reductions and non-recurring costs and using, for purposes
of determining such compliance, the historical financial statements of all
entities or assets so acquired or to be acquired and the consolidated financial
statements of Borrower and its Subsidiaries which shall be reformulated (i) as
if such acquisition, disposition or other action, and any other such action
which has been consummated during the period, and any Indebtedness or other
liabilities incurred in connection with any such actions, had been consummated
at the beginning of such period (and assuming that such Indebtedness bears
interest during any portion of the applicable measurement period prior to the
relevant action at the weighted average of the interest rates applicable to
outstanding Loans during such period), and (ii) otherwise in conformity with
such procedures as may be agreed upon between Administrative Agent and Borrower,
provided all the calculations referred to herein shall be in reasonable detail
and shall be in form and substance satisfactory to Administrative Agent in all
respects.
"PRO FORMA FINANCIAL STATEMENTS" as defined in Section 3.1(o).
"PROJECTIONS" as defined in Section 4.6.
"PROPRIETARY SOFTWARE" as defined in the Pledge and Security Agreement.
"PRO RATA SHARE" means (i) with respect to all payments, computations and
other matters relating to the Tranche A Term Loan of any Lender, the percentage
obtained by dividing (a) the Tranche A Term Loan Exposure of that Lender by (b)
the aggregate Tranche A Term Loan Exposure of all Lenders; (ii) with respect to
all payments, computations and other matters relating to the Tranche B Term Loan
of any Lender, the percentage obtained by dividing (a) the Tranche B Term Loan
Exposure of that Lender by (b) the aggregate Tranche B Term Loan Exposure of all
Lenders; (iii) with respect to all payments, computations and other matters
relating to the Tranche C Term Loan of any Lender, the percentage obtained by
dividing (a) the Tranche C Term Loan Exposure of that Lender by (b) the
aggregate Tranche C Term Loan Exposure of all Lenders; and (iv) with respect to
all payments, computations and other matters relating to the Revolving
Commitment or Revolving Loans of any Lender or any Letters of Credit issued or
participations therein purchased by any Lender, the percentage obtained by
dividing (a) the Revolving Exposure of that Lender by (b) the aggregate
Revolving Exposure of all Lenders. For all other purposes with respect to each
Lender, "Pro Rata Share" means the percentage obtained by dividing (A) an amount
equal to the Tranche A Term Loan Exposure, the Tranche B Term Loan Exposure, the
Tranche C Term Loan Exposure and the Revolving Exposure of that Lender, by (B)
an amount equal to the aggregate Tranche A Term Loan Exposure, the aggregate
Tranche B Term Loan Exposure, the aggregate Tranche C Term Loan Exposure and the
aggregate Revolving Exposure of all Lenders. The initial Pro Rata Share for
each Class of Loans of each Lender party hereto on the Closing Date is as set
forth on Appendix A.
"REAL ESTATE ASSET" means, at any time of determination, any interest
(whether leasehold, fee or otherwise) then owned by any Credit Party in any real
property.
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"REGISTER" as defined in Section 2.5(b).
"REGISTRATION AGREEMENT" means the Amended and Restated Registration dated
as of a date on or about the Closing Date among Holdings, MEM, Joseph Koff,
David Unger, Music Holdings Corp. and Capstar, as amended, restated,
supplemented or otherwise modified from time to time to the extent permitted
under Section 6.13.
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" as defined in Section 2.2A(d).
"RELATED AGREEMENTS" means, collectively, the following: the Merger
Agreement, the Articles of Merger, the Consent Solicitation Materials, the
Existing Senior Note Indenture, the Existing Indenture Amendments, the Capstar
Documentation, any Senior Subordinated Note Related Documents, any Holdings Note
Related Documents, any Permitted Sponsor Debt Agreement, the Additional
Acquisition Related Documents, any documentation related to the repayment of any
Existing Debt, the Muzak LLC Agreement, the Holdings LLC Agreement, the
Employment Agreement, the Management Agreement, the Members Agreement, the
Investor Securities Purchase Agreements, the Securityholders Agreement, the
Registration Agreement and the Securities Repurchase Agreement and all documents
related thereto.
"RELATED FUND" means, with respect to any Lender that is an investment
fund, any other investment fund that invests in commercial loans and that is
managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"RELEASE" means any release, spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of any Hazardous Material into the indoor or outdoor environment
(including the abandonment or disposal of any barrels, containers or other
closed receptacles containing any Hazardous Material), including the movement of
any Hazardous Material through the air, soil, surface water or groundwater.
"REPLACEMENT LENDER" as defined in Section 2.22.
"REQUIRED PREPAYMENT DATE" as defined in Section 2.13(c).
"REQUISITE CLASS LENDERS" means, at any time of determination, (i) for the
Class of Lenders having Tranche A Term Loan Exposure, Lenders having or holding
more than 50% of the aggregate Tranche A Term Loan Exposure of all Lenders; (ii)
for the Class of Lenders having Tranche B Term Loan Exposure, Lenders having or
holding more than 50% of the aggregate Tranche B Term Loan Exposure of all
Lenders; (iii) for the Class of Lenders having Tranche C Term Loan Exposure,
Lenders having or holding more than 50% of the aggregate Tranche C Term Loan
Exposure of all
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Lenders; and (iv) for the Class of Lenders having Revolving
Exposure, Lenders having or holding more than 50% of the aggregate Revolving
Exposure of all Lenders.
"REQUISITE LENDERS" means one or more Lenders having or holding Tranche A
Term Loan Exposure, Tranche B Term Loan Exposure, Tranche C Term Loan Exposure
and/or Revolving Exposure representing more than 50% of the sum of (i) the
aggregate Tranche A Term Loan Exposure of all Lenders, (ii) the aggregate
Tranche B Term Loan Exposure of all Lenders (iii) the aggregate Tranche C Term
Loan Exposure of all Lenders, and (iv) the aggregate Revolving Exposure of all
Lenders.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of Holdings,
Borrower or any of their respective Subsidiaries now or hereafter outstanding,
except a dividend payable solely in shares of that class of stock to the holders
of that class, (ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares of
any class of stock of Holdings, Borrower or any of their respective Subsidiaries
now or hereafter outstanding, (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Holdings, Borrower or any of their respective
Subsidiaries now or hereafter outstanding, (iv) any payment or prepayment of
principal of, premium, if any, or interest on, or redemption, purchase,
retirement, defeasance (including in-substance or legal defeasance), sinking
fund or similar payment with respect to, any Subordinated Indebtedness or the
Holdings Notes, and (v) any payment of any management, consulting, advisory or
other similar fees and/or expenses by Holdings, Borrower or any of their
respective Subsidiaries to any Person.
"REVOLVING COMMITMENT" means the commitment of a Lender to make or
otherwise fund any Credit Extension (other than any Term Loan). The amount of
each Lender's Revolving Commitment, if any, is set forth on Appendix A or in the
applicable Assignment Agreement, subject to any adjustment or reduction pursuant
to the terms and conditions hereof.
"REVOLVING COMMITMENT PERIOD" means the period from the Closing Date to but
excluding the Revolving Commitment Termination Date.
"REVOLVING COMMITMENT TERMINATION DATE" means the earliest to occur of (i)
April 30, 1999 if the Term Loans are not made on or before that date; (ii)
December 31, 2005, (iii) the date the Revolving Commitments are permanently
reduced to zero pursuant to Section 2.11(b) or 2.12, and (iv) the date of the
termination of the Revolving Commitments pursuant to Section 8.1.
"REVOLVING EXPOSURE" means, with respect to any Lender as of any date of
determination, (i) prior to the termination of the Revolving Commitments, such
Lender's Revolving Commitment; and (ii) after the termination of the Revolving
Commitments, the sum of (a) the aggregate outstanding principal amount of the
Revolving Loans of such Lender, (b) in the case of Issuing Bank, the aggregate
Letter of Credit Usage in respect of all Letters of Credit (net of any
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participations purchased by Lenders in such Letters of Credit or any
unreimbursed drawing thereunder), and (c) the aggregate amount of all
participations purchased by such Lender in any outstanding Letters of Credit or
any unreimbursed drawing under any Letter of Credit.
"REVOLVING LENDER" means each Lender with a Revolving Commitment.
"REVOLVING LOAN" means a Loan made by a Lender to Borrower pursuant to
Section 2.2(a)(i).
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill
Corporation.
"SECURITIES" means any stock, shares, partnership interests, voting trust
certificates, certificates of interest or participation in any profit-sharing
agreement or arrangement, options, warrants, bonds, debentures, notes, or other
evidences of indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as "securities" or any
certificates of interest, shares or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to subscribe to,
purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, and any successor statute.
"SECURITIES REPURCHASE AGREEMENTS" means the Securities Repurchase
Agreements, entered into as of October 6, 1998 and entered into prior to, on or
after the Closing Date, among Holdings and MEM, on the one hand, and each of
Joseph Koff, David Unger, and other management members on the other hand, as
amended, restated, supplemented or otherwise modified from time to time (i) on
or prior to the Closing Date pursuant to documentation in form and substance
reasonably satisfactory to Administrative Agent and Requisite Lenders or (ii)
thereafter to the extent permitted under Section 6.13.
"SECURITYHOLDERS AGREEMENT" means the Security holders Agreement dated as
of a date on or about the Closing Date among Holdings, MEM and Capstar, as
amended, restated, supplemented or otherwise modified from time to time to the
extent permitted under Section 6.13.
"SENIOR LEVERAGE RATIO" means the ratio as of any day of (i) Consolidated
Senior Debt as of such day to (ii) Adjusted Annualized Operating Cash Flow as
set forth in the Compliance Certificate based on the Fiscal Quarter then ended
(or, if no Fiscal Quarter is then ended, the most recently ended Fiscal Quarter)
delivered by Borrower to Administrative Agent pursuant to Section 5.1(d), plus,
without duplication, Acquisition Cash Flow for all entities and assets acquired
since such Fiscal Quarter.
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"SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of the
Closing Date, by and among Muzak Finance and Borrower, as Issuers, Holdings,
Muzak Capital Corporation, MLP Environmental Music, LLC and BSI, as Guarantors,
and State Street Bank and Trust Company, as Trustee, pursuant to which the
Senior Subordinated Notes are to be issued, as amended, restated, supplemented
or otherwise modified from time to time to the extent permitted under Section
6.13.
"SENIOR SUBORDINATED NOTE RELATED DOCUMENTS" means any or all of, as the
context may require, (i) the Senior Subordinated Notes, (ii) the Senior
Subordinated Note Indenture, (iii) the Purchase Agreement dated as of March 12,
1999, by and among Muzak Finance and Borrower, as Issuers, Muzak Holdings
Finance, Muzak Capital Corporation, MLP Environmental Music, LLC and BSI, as
Guarantors and CIBC and GSCP, as Initial Purchasers, and (iv) the Registration
Rights Agreement dated as of the Closing Date, by and among Muzak Finance and
Borrower, as Issuers, Muzak Holdings Finance, Muzak Capital Corporation, MLP
Environmental Music, LLC and BSI, as Guarantors and CIBC and GSCP, as Initial
Purchasers, as each may be amended, restated, supplemented or otherwise modified
from time to time to the extent permitted under Section 6.13.
"SENIOR SUBORDINATED NOTES" means $115 million aggregate principal amount
of the 97/8% Senior Subordinated Notes due 2009 of Borrower and Muzak Finance to
be issued pursuant to the Senior Subordinated Note Indenture.
"SOLVENCY CERTIFICATE" means a certificate substantially in the form of
Exhibit G-2.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (i) (a) the sum of such Person's debts (including contingent
liabilities) does not exceed all of its property, at a fair valuation; (b) the
present fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liabilities on such Person's
then existing debts as they become absolute and matured; (c) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (d) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (ii) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability (irrespective of whether such contingent liabilities
meet the criteria for accrual under Statement of Financial Accounting Standard
No. 5).
"SPONSORS" means ABRY Broadcast Partners II, L.P. and ABRY Broadcast
Partners III, L.P.
"STANDBY LETTER OF CREDIT" means any standby letter of credit or similar
instrument, in form and substance reasonably acceptable to the Issuing Bank,
issued for the purpose of supporting obligations of Borrower and its Included
Subsidiaries incurred or arising in the ordinary course of
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business or in connection with a consummated or proposed Permitted Acquisition;
provided that Standby Letters of Credit may not be issued for the purpose of
supporting (a) trade payables or (b) any Indebtedness other than Indebtedness
which is otherwise permitted under this Agreement.
"SUBORDINATED INDEBTEDNESS" means (i) Indebtedness of Borrower under the
Senior Subordinated Note Related Documents, (ii) Indebtedness of Holdings or
Borrower under any Permitted Sponsor Debt Agreement and (iii) any other
subordinated Indebtedness of any Credit Party of any type.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof; provided, in determining the percentage of ownership interests of any
Person controlled by another Person, no ownership interest in the nature of a
"qualifying share" of the former Person shall be deemed to be outstanding.
"SUPPLEMENTAL COLLATERAL AGENT" as defined in Section 9.8(c).
"SYNDICATION AGENT" as defined in the preamble hereto.
"SYSTEMS" means any of the hardware, firmware or software systems
associated with information processing and delivery, operations or services
(e.g., security and alarms, elevators, communications, and HVAC) operated by,
provided to or otherwise reasonably necessary to the business or operations of
Borrower and its Subsidiaries.
"TAX" means any present or future tax, levy, impost, duty, assessment,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided, "Tax on the overall net income" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction in which that
Person is organized or in which that Person's principal office (and/or, in the
case of a Lender, its applicable lending office) is located on all or part of
the net income, profits or gains (whether worldwide, or only insofar as such
income, profits or gains are considered to arise in or to relate to a particular
jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its
applicable lending office).
"TAX DISTRIBUTIONS" means distributions by Borrower and Holdings to each of
their members in respect of the tax liabilities of such members arising out of
such members' ownership interests in Borrower or Holdings, as applicable,
provided that, the amount of Tax Distributions in respect of any Fiscal Year to
which each such member shall be entitled shall be such that, in the
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aggregate for such Fiscal Year and for all prior Fiscal Years, such member has
received an amount equal to the product of (i) the amount of taxable income
allocated to such member for such Fiscal Year and for all prior Fiscal Years,
reduced by the amount of taxable losses allocated to such member for such Fiscal
Year and for all prior Fiscal Years, and (ii) the effective maximum combined
marginal federal and Massachusetts state income tax rates (after giving effect
to any federal income tax deduction for such state income taxes) applicable to
individual taxpayers resident in Massachusetts in respect of income recognized
during such Fiscal Year.
"TERM LOAN" means a Tranche A Term Loan, a Tranche B Term Loan or a Tranche
C Term Loan.
"TERM LOAN EXPOSURE" means, as of any date of determination, the sum of
each of (i) the aggregate Tranche A Term Loan Exposure of all Lenders, (ii) the
aggregate Tranche B Term Loan Exposure of all Lenders and (iii) the aggregate
Tranche C Term Loan Exposure of all Lenders.
"TERMINATED LENDER" as defined in Section 2.22.
"TOTAL LEVERAGE RATIO" means the ratio as of any day of (i) Consolidated
Total Debt as of such day to (ii) Adjusted Annualized Operating Cash Flow as set
forth in the Compliance Certificate based on the Fiscal Quarter then ended (or,
if no Fiscal Quarter is then ended, the most recently ended Fiscal Quarter)
delivered by Borrower to Administrative Agent pursuant to Section 5.1(d), plus,
without duplication, Acquisition Cash Flow for all entities and assets acquired
since such Fiscal Quarter.
"TOTAL UTILIZATION OF REVOLVING COMMITMENTS" means, as at any date of
determination, the sum of (i) the aggregate principal amount of all outstanding
Revolving Loans (other than Revolving Loans made for the purpose of reimbursing
Issuing Bank for any amount drawn under any Letter of Credit, but not yet so
applied) and (ii) the Letter of Credit Usage.
"TRADE SECRET" as defined in the Pledge and Security Agreement.
"TRANCHE A TERM LOAN" means a Tranche A Term Loan made by a Lender to
Borrower pursuant to Section 2.1(a)(i).
"TRANCHE A TERM LOAN AMOUNT" means the amount of the Tranche A Term Loan to
be made by a Lender to Borrower. The amount of each Lender's Tranche A Term
Loan Amount, if any, is set forth on Appendix A.
"TRANCHE A TERM LOAN EXPOSURE" means, with respect to any Lender, as of any
date of determination, the outstanding principal amount of the Tranche A Term
Loans of such Lender; provided, at any time prior to the making of the Tranche A
Term Loans, the Tranche A Term Loan Exposure of any Lender shall be equal to
such Lender's Tranche A Term Loan Amount.
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"TRANCHE A TERM LOAN MATURITY DATE" means the earlier of (i) December 31,
2005, and (ii) the date that all Tranche A Term Loans shall become due and
payable in full hereunder, whether by acceleration or otherwise.
"TRANCHE B TERM LOAN" means a Tranche B Term Loan made by a Lender to
Borrower pursuant to Section 2.1(a)(ii).
"TRANCHE B TERM LOAN AMOUNT" means the amount of the Tranche B Term Loan to
be made by a Lender to Borrower. The amount of each Lender's Tranche B Term
Loan Amount, if any, is set forth on Appendix A, except as otherwise provided in
Section 2.2(a)(ii).
"TRANCHE B TERM LOAN EXPOSURE" means, with respect to any Lender, as of any
date of determination, the outstanding principal amount of the Tranche B Term
Loans of such Lender; provided, at any time prior to the making of the Tranche B
Term Loans, the Tranche B Term Loan Exposure of any Lender shall be equal to
such Lender's Tranche B Term Loan Amount.
"TRANCHE B TERM LOAN MATURITY DATE" means the earlier of (i) December 31,
2006, and (ii) the date that all Tranche B Term Loans shall become due and
payable in full hereunder, whether by acceleration or otherwise.
"TRANCHE C TERM LOAN" means a Tranche C Term Loan made by a Lender to
Borrower pursuant to Section 2.1(a)(iii).
"TRANCHE C TERM LOAN AMOUNT" means the amount of the Tranche C Term Loan to
be made by a Lender to Borrower. The amount of each Lender's Tranche C Term
Loan Amount, if any, is set forth on Appendix A.
"TRANCHE C TERM LOAN COMMITMENT" means the commitment of a Lender to make a
Tranche C Term Loan. The amount of each Lender's Tranche C Term Loan
Commitment, if any, is equal to such Lender's Tranche C Term Loan Amount set
forth on Appendix A, subject to cancellation pursuant to the terms and
conditions hereof.
"TRANCHE C TERM LOAN EXPOSURE" means, with respect to any Lender, as of any
date of determination, the outstanding principal amount of the Tranche C Term
Loans of such Lender; provided, at any time prior to the making of the Tranche C
Term Loans, the Tranche C Term Loan Exposure of any Lender shall be equal to
such Lender's Tranche C Term Loan Amount.
"TRANCHE C TERM LOAN MATURITY DATE" means the earlier of (i) December 31,
2005, and (ii) the date that all Tranche C Term Loans shall become due and
payable in full hereunder, whether by acceleration or otherwise.
"TRANSACTION COSTS" means the fees, costs and expenses payable by Borrower
in connection with the Transactions.
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"TRANSACTIONS" means, collectively, (i) the consummation of the Merger,
(ii) the consummation of the Capstar Contribution, including the Capstar Omaha
Contribution, which is expected to be consummated after the Closing Date, (iii)
the consummation of the Additional Acquisitions, (iv) the repayment of the
Existing Debt, (v) the Consent Solicitation and the adoption of the Existing
Indenture Amendment, (vi) any issuance and sale of the Senior Subordinated Notes
on or prior to the Closing Date, (vii) any issuance and sale of the Holdings
Notes on or prior to the Closing Date, (viii) any incurrence of Closing Date
Sponsor Debt, (ix) the Equity Contribution, (x) the making of the Loans, and
(xi) any other transactions contemplated by the Related Agreements.
"TRANSITION DATE" as defined in Section 2.2(a)(ii).
"TREASURY REGULATIONS" means the Income Tax Regulations promulgated under
the Code.
"TYPE OF LOAN" means an Alternate Base Rate Loan or a Eurodollar Rate Loan.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"UNADJUSTED EURODOLLAR RATE COMPONENT" means that component of the interest
costs to Borrower in respect of a Eurodollar Rate Loan that is based upon the
rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar
Rate.
"WAIVABLE MANDATORY PREPAYMENT" as defined in Section 2.13(c).
"WHOLLY-OWNED DOMESTIC SUBSIDIARY" means a Domestic Subsidiary of any
Person that is a Wholly-Owned Subsidiary.
"WHOLLY-OWNED INCLUDED DOMESTIC SUBSIDIARY" means a Domestic Subsidiary of
Borrower that is a Wholly-Owned Subsidiary and an Included Subsidiary.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of any Person, all of the
Capital Stock of which (other than directors' qualifying shares) is owned by
such Person or another Wholly-Owned Subsidiary of such Person.
"YEAR 2000 COMPLIANCE" as defined in Section 4.21.
"YEAR 2000 ISSUES" means limitations in the Year 2000 Compliance of any of
the Systems or Proprietary Software.
1.2 ACCOUNTING TERMS. Except as otherwise expressly provided herein, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Borrower to Lenders
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pursuant to Section 5.1(a), 5.1(b) and 5.1(c) shall be prepared in accordance
with GAAP as in effect at the time of such preparation (and delivered together
with the reconciliation statements provided for in Section 5.1(e), if
applicable). Calculations in connection with the definitions, covenants and
other provisions hereof shall utilize GAAP as in effect as of the date of and
the accounting principles and policies in conformity with those used to prepare
the Pro Forma Financial Statements (notwithstanding any change in GAAP since the
date thereof).
1.3 INTERPRETATION, ETC. Any of the terms defined herein may, unless the
context otherwise requires, be used in the singular or the plural, depending on
the reference. References herein to any Section, Appendix, Schedule or Exhibit
shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may
be, hereof unless otherwise specifically provided. The use herein of the word
"include" or "including", when following any general statement, term or matter,
shall not be construed to limit such statement, term or matter to the specific
items or matters set forth immediately following such word or to similar items
or matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
within the broadest possible scope of such general statement, term or matter.
SECTION 2. LOANS AND LETTERS OF CREDIT
2.1 TERM LOANS. (a) Subject to the terms and conditions hereof:
(i) each Lender holding a Tranche A Term Loan Amount agrees to make,
on or before April 30, 1999, a Tranche A Term Loan to Borrower in an amount
equal to such Lender's Tranche A Term Loan Amount;
(ii) each Lender holding a Tranche B Term Loan Amount agrees to make,
on or before April 30, 1999 in the case of all Tranche B Term Loans other than
New Tranche B Term Loans, a Tranche B Term Loan to Borrower in an amount equal
to such Lender's Tranche B Term Loan Amount; and
(iii) each Lender holding a Tranche C Term Loan Amount agrees to make,
on or before April 30, 1999, a Tranche C Term Loan to Borrower in an amount
equal to such Lender's Tranche C Term Loan Amount; provided, if Borrower issues
the Senior Subordinated Notes on or prior to the Closing Date, the Tranche C
Term Loan Commitment of each Lender will be cancelled and the Tranche C Term
Loans will not be made.
Any amount borrowed under this Section 2.1(a) and subsequently repaid or prepaid
may not be reborrowed. Subject to Sections 2.11(a) and 2.12, all amounts owed
hereunder with respect to the Tranche A Term Loans, the Tranche B Term Loans and
the Tranche C Term Loans shall be paid in full no later than the Tranche A Term
Loan Maturity Date, the Tranche B Term Loan Maturity Date, and the Tranche C
Term Loan Maturity Date, respectively.
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(b) Borrower shall deliver to Administrative Agent a fully executed and
delivered Funding Notice no later than three days prior to the Closing Date.
Promptly upon receipt by Administrative Agent of such Certificate,
Administrative Agent shall notify each Lender of the proposed borrowing.
(c) Each Lender shall make its Tranche A Term Loan Amount, Tranche B Term
Loan Amount, and Tranche C Term Loan Amount, as the case may be, available to
Administrative Agent not later than 12:00 noon (New York City time) on the
Closing Date, by wire transfer of same day funds in Dollars, at Administrative
Agent's Principal Office. Promptly upon satisfaction or waiver of the
conditions precedent specified herein, Administrative Agent shall make the
proceeds of the Term Loans available to Borrower on the Closing Date by causing
an amount of same day funds in Dollars equal to the proceeds of all such Loans
received by Administrative Agent from Lenders to be credited to the account of
Borrower at Administrative Agent's Principal Office or to such other account as
may be designated in writing to Administrative Agent by Borrower.
2.2 REVOLVING LOANS.
(a) (i) During the Revolving Commitment Period, subject to the terms
and conditions hereof, each Lender holding a Revolving Commitment agrees to make
Revolving Loans to Borrower in the aggregate amount up to but not exceeding such
Lender's Revolving Commitment at such time; provided, after giving effect to the
making of any Revolving Loans in no event shall the Total Utilization of
Revolving Commitments exceed the Revolving Commitments then in effect. Amounts
borrowed pursuant to this Section 2.2(a)(i) may be repaid and reborrowed during
the Revolving Commitment Period. Each Lender's Revolving Commitment shall
expire on the Revolving Commitment Termination Date and all Revolving Loans and
all other amounts owed hereunder with respect to the Revolving Loans and the
Revolving Commitments shall be paid in full no later than such date.
(ii) On no more than three occasions prior to December 31, 2000,
Borrower may by written notice to Administrative Agent elect to increase either
the Revolving Commitments or the aggregate Tranche B Term Loan Amount
(collectively, the "NEW COMMITMENTS" or the "NEW TRANCHE B TERM LOAN AMOUNTS,"
as applicable), by an amount not in excess of $50,000,000 in the aggregate and
not less than $10,000,000 individually and integral multiples of $5,000,000 in
excess of that amount. Each such notice shall specify (A) the date (each, a
"TRANSITION DATE") on which Borrower proposes that New Commitments shall become
effective or that New Tranche B Term Loan Amounts shall be effective and that
New Tranche B Term Loans (collectively, "NEW TRANCHE B TERM LOANS") shall be
made, as applicable, which shall be not less than 10 Business Days after the
date on which such notice is delivered to Administrative Agent and (B) the
identity of each Lender or other Person (each, a "NEW REVOLVING LENDER" or a
"NEW TRANCHE B LENDER", as applicable) to whom Borrower proposes any portion of
such New Commitments shall be allocated and the amounts of such allocations or
whom Borrower proposes shall make New Tranche B Term Loans, as applicable,
provided (x) Borrower shall arrange for such New Revolving Lenders or New
Tranche B Lenders at its sole cost and expense, (y) any Lender approached by
Borrower may elect
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in its sole discretion to provide a New Commitment or a New Tranche B Term Loan,
and (z) the identity of any Person not a Lender as a New Revolving Lender or a
New Tranche B Lender, as applicable, shall be reasonably acceptable to
Administrative Agent. Such New Commitments shall become effective or such New
Tranche B Term Loans shall be made, as applicable, as of such Transition Date
provided (1) no Default or Event of Default shall exist on such Transition Date
before or after giving effect to such New Commitments; (2) both before and after
giving effect to the making of any New Tranche B Term Loan each of the
conditions set forth in Section 3.2 shall be satisfied; (3) each increase in
Revolving Commitments shall be effected pursuant to one or more assignment
agreements and each extension of New Tranche B Term Loans shall be effected
pursuant to one or more joinder agreements, in each case in form and substance
reasonably satisfactory to Administrative Agent, and executed and delivered to
Administrative Agent and recorded in the Register, each of which shall be
subject to the requirements set forth in Section 10.6(d) and 10.6(f); (4)
Borrower shall make any payments required pursuant to Section 2.17(c); and (5)
Borrower shall deliver or cause to be delivered any legal opinions or other
documents reasonably requested by Administrative Agent in connection with any
such transaction. On any Transition Date on which New Commitments are effected,
subject to the satisfaction of the foregoing terms and conditions, (a) each of
the Revolving Lenders shall assign to each of the New Revolving Lenders, and
each of the New Revolving Lenders shall purchase from each of the Revolving
Lenders, at the principal amount thereof (together with accrued interest), such
interests in the Revolving Loans outstanding on such Transition Date as shall be
necessary in order that, after giving effect to all such assignments and
purchases, such Revolving Loans will be held by Revolving Lenders and New
Revolving Lenders ratably in accordance with their Revolving Commitments after
giving effect to the addition of such New Commitments to the Revolving
Commitments, (b) each New Commitment shall be a Revolving Commitment, and (c)
each New Revolving Lender shall become a Revolving Lender. On any Transition
Date on which New Tranche B Term Loans are to be made, subject to the
satisfaction of the foregoing terms and conditions, (i) each New Tranche B
Lender shall make a New Tranche B Term Loan to Borrower in an amount equal to
its New Tranche B Term Loan Amount, (ii) each New Tranche B Term Loan shall be a
Tranche B Term Loan, and (iii) each New Tranche B Lender shall become a Lender.
The Administrative Agent shall notify the Lenders promptly upon receipt of
Borrower's notice of each Transition Date and in respect thereof the New
Commitments and the New Revolving Lenders or the New Tranche B Term Amounts and
the New Tranche B Lenders, as applicable, and, in the case of each notice to any
Revolving Lender, the respective interests in such Revolving Lender's Revolving
Loans subject to the assignments contemplated by this paragraph. Notwithstanding
anything contained herein to the contrary, in the event that New Revolving
Lenders or New Tranche B Lenders, as applicable, are willing to make loans
available to Borrower at interest rates that are lower than the interest rates
then in effect with respect to the Revolving Loans or the Tranche B Term Loans,
as applicable, then each Credit Party and each Revolving Lender or each Lender
with Tranche B Term Loan Exposure, as applicable, agrees to use its reasonable
efforts to cause an amendment to this Agreement to be entered into to give
effect to the foregoing.
(b) Revolving Loans shall be in an aggregate minimum amount of $1,000,000
and integral multiples of $100,000 in excess of that amount.
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(c) Whenever Borrower desires that Lenders make Revolving Loans, Borrower
shall deliver to Administrative Agent a fully executed and delivered Funding
Notice no later than 10:00 a.m. (New York City time) at least three Business
Days in advance of the proposed Credit Date in the case of a Eurodollar Rate
Loan, and at least one Business Day in advance of the proposed Credit Date in
the case of a Revolving Loan that is an Alternate Base Rate Loan. If either the
Senior Subordinated Notes or the Holdings Notes have been issued, then at any
time on or after any Transition Date pursuant to which the sum of the Total
Utilization of Revolving Commitments and the Term Loan Exposure, either before
or after giving effect to any proposed borrowing, equals or exceeds, or would
equal or exceed, $200,000,000, each Funding Notice shall be accompanied by a
certificate of Borrower, executed on behalf of Borrower by an Authorized
Officer, demonstrating in reasonable detail compliance with the covenants
contained in each of the Senior Subordinated Note Indenture and the Holdings
Note Indenture, as applicable, restricting the incurrence of Indebtedness (as
defined therein). Except as otherwise provided herein, a Funding Notice for a
Revolving Loan that is a Eurodollar Rate Loan shall be irrevocable on and after
the related Interest Rate Determination Date, and Borrower shall be bound to
make a borrowing in accordance therewith.
(d) Notice of receipt of each Funding Notice in respect of Revolving Loans,
together with the amount of each Lender's Pro Rata Share thereof, if any,
together with the applicable interest rate, shall be provided by Administrative
Agent to each applicable Lender by telefacsimile with reasonable promptness, but
(provided Administrative Agent shall have received such notice by 11:00 a.m.
(New York City time)), not later than 2:00 p.m. (New York City time) on the same
day as Administrative Agent's receipt of such Notice from Borrower.
(e) Each Lender shall make the amount of its Revolving Loan available to
Administrative Agent not later than 12:00 Noon (New York City time) on the
applicable Credit Date by wire transfer of same day funds in Dollars, at
Administrative Agent's Principal Office. Except as provided herein, upon
satisfaction or waiver of the conditions precedent specified herein,
Administrative Agent shall make the proceeds of such Revolving Loans available
to Borrower on the applicable Credit Date by causing an amount of same day funds
in Dollars equal to the proceeds of all such Revolving Loans received by
Administrative Agent from Lenders to be credited to the account of Borrower at
Administrative Agent's Principal Office or to such other account as may be
designated in writing to Administrative Agent by Borrower.
2.2A LETTERS OF CREDIT. (a) During the Revolving Commitment Period,
subject to the terms and conditions hereof, Borrower may request from time to
time that Issuing Bank issue Letters of Credit for the account of Borrower for
the purposes specified in the definition of Standby Letters of Credit; provided,
Borrower shall not request that Issuing Bank issue, and Issuing Bank shall not
issue:
(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Revolving Commitments would exceed the Revolving
Commitments then in effect;
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(ii) any Letter of Credit if, after giving effect to such issuance,
the Letter of Credit Usage would exceed the Letter of Credit Sublimit then in
effect;
(iii) any Standby Letter of Credit having an expiration date later
than the earlier of (A) five (5) days prior to the Revolving Commitment
Termination Date and (B) the date which is one year from the date of issuance of
such Standby Letter of Credit; subject to the foregoing, Issuing Bank may agree
that a Standby Letter of Credit will automatically be extended for one or more
successive periods not to exceed one year each unless Issuing Bank elects not to
extend for any such additional period; provided, Issuing Bank shall not extend
any such Standby Letter of Credit if it has received written notice that a
Default or an Event of Default has occurred and is continuing at the time
Issuing Bank must elect to allow such extension; and
(iv) any Letter of Credit denominated in a currency other than
Dollars.
(b) Whenever Borrower desires the issuance of a Letter of Credit, it shall
deliver to Administrative Agent an Issuance Notice no later than 12:00 Noon (New
York City time) at least three Business Days, or in each case such shorter
period as may be agreed to by Issuing Bank in any particular instance, in
advance of the proposed date of issuance. Upon satisfaction or waiver of the
conditions set forth in Section 3.2, Issuing Bank shall issue the requested
Letter of Credit in accordance with Issuing Bank's standard operating
procedures; provided, however, that no Letter of Credit shall require payment
against a conforming draft or other request for payment to be made thereunder on
the same business day (under the laws of the jurisdiction in which the office of
the Issuing Bank to which such draft or other request for payment is required to
be presented is located) that such draft or other request for payment is
presented if such presentation is made after 10:00 a.m. (in the time zone of the
Issuing Bank) on such Business Day. Upon the issuance of any Letter of Credit,
Issuing Bank shall promptly notify each other Lender of such issuance, and the
amount of such Lender's respective participation in such Letter of Credit
pursuant to Section 2.2A(e).
(c) In determining whether to honor any drawing under any Letter of Credit
by the beneficiary thereof, Issuing Bank shall be responsible only to examine
the documents delivered under such Letter of Credit with reasonable care so as
to ascertain whether they appear on their face to be in accordance with the
terms and conditions of such Letter of Credit. As between Borrower and Issuing
Bank, Borrower assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by Issuing Bank by, the respective beneficiaries of
such Letters of Credit. In furtherance and not in limitation of the foregoing,
Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any such Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) failure of the beneficiary of any
such Letter of Credit to comply fully with any conditions required in order to
draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any
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messages, by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (v) errors in interpretation of technical terms; (vi) any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of Issuing Bank, including any acts by any
Governmental Authority, and none of the above shall affect or impair, or prevent
the vesting of, any of Issuing Bank's rights or powers hereunder. Without
limiting the foregoing and in furtherance thereof, any action taken or omitted
by Issuing Bank under or in connection with the Letters of Credit or any
documents and certificates delivered thereunder, if taken or omitted in good
faith, shall not put Issuing Bank under any resulting liability to Borrower.
Notwithstanding anything to the contrary contained in this Section 2.2A(c),
Borrower shall retain any and all rights it may have against Issuing Bank for
any liability arising solely out of the gross negligence or willful misconduct
of Issuing Bank, as determined by a final, non-appealable judgment, of a court
of competent jurisdiction.
(d) In the event Issuing Bank has determined to honor a drawing under a
Letter of Credit, it shall immediately notify Borrower and Administrative Agent,
and Borrower shall reimburse Issuing Bank on or before the Business Day
immediately following the date on which such drawing is honored (the
"REIMBURSEMENT DATE") in an amount in Dollars and in same day funds equal to the
amount of such honored drawing; provided, anything contained herein to the
contrary notwithstanding, (i) unless Borrower shall have notified Administrative
Agent and Issuing Bank prior to 10:00 a.m. (New York City time) on the date such
drawing is honored that Borrower intends to reimburse Issuing Bank for the
amount of such honored drawing with funds other than the proceeds of Revolving
Loans, Borrower shall be deemed to have given a timely Funding Notice to
Administrative Agent requesting Lenders to make Revolving Loans that are
Alternate Base Rate Loans on the Reimbursement Date in an amount in Dollars
equal to the amount of such honored drawing, and (ii) subject to satisfaction or
waiver of the conditions specified in Section 3.2, Lenders shall, on the
Reimbursement Date, make Revolving Loans that are Alternate Base Rate Loans in
the amount of such honored drawing, the proceeds of which shall be applied
directly by Administrative Agent to reimburse Issuing Bank for the amount of
such honored drawing; and provided further, if for any reason proceeds of
Revolving Loans are not received by Issuing Bank on the Reimbursement Date in an
amount equal to the amount of such honored drawing, Borrower shall reimburse
Issuing Bank, on demand, in an amount in same day funds equal to the excess of
the amount of such honored drawing over the aggregate amount of such Revolving
Loans, if any, which are so received. Nothing in this Section 2.2A(d) shall be
deemed to relieve any Lender from its obligation to make Revolving Loans on the
terms and conditions set forth herein, and Borrower shall retain any and all
rights it may have against any Lender resulting from the failure of such Lender
to make such Revolving Loans under this Section 2.2A(d).
(e) Immediately upon the issuance of each Letter of Credit, each Lender
having a Revolving Commitment shall be deemed to have purchased, and hereby
agrees to irrevocably purchase, from Issuing Bank a participation in such Letter
of Credit and any drawings honored thereunder in an amount equal to such
Lender's Pro Rata Share (with respect to the Revolving
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Commitments) of the maximum amount which is or at any time may become available
to be drawn thereunder. In the event that Borrower shall fail for any reason to
reimburse Issuing Bank as provided in Section 2.2A(d), Issuing Bank shall
promptly notify each other Lender of the unreimbursed amount of such honored
drawing and of such Lender's respective participation therein based on such
Lender's Pro Rata Share of the Revolving Commitments. Each other Lender shall
make available to Issuing Bank an amount equal to its respective participation,
in Dollars and in same day funds, at the office of Issuing Bank specified in
such notice, not later than 12:00 Noon (New York City time) on the first
Business Day after the date notified by Issuing Bank. In the event that any
Lender fails to make available to Issuing Bank on such business day the amount
of such Lender's participation in such Letter of Credit as provided in this
Section 2.2A(e), Issuing Bank shall be entitled to recover such amount on demand
from such Lender together with interest thereon at the rate customarily used by
Issuing Bank for the correction of errors among banks for three Business Days
and thereafter at the Alternate Base Rate. Nothing in this Section 2.2A(e) shall
be deemed to prejudice the right of any Lender to recover from Issuing Bank any
amounts made available by such Lender to Issuing Bank pursuant to this Section
in the event that it is determined by the final, non-appealable judgment of a
court of competent jurisdiction that the payment with respect to a Letter of
Credit in respect of which payment was made by such Lender constituted gross
negligence or willful misconduct on the part of Issuing Bank.
(f) The obligation of Borrower to reimburse Issuing Bank for drawings
honored under the Letters of Credit issued by it and to repay any Revolving
Loans made by Lenders pursuant to Section 2.2A(d) and the obligations of Lenders
under Section 2.2A(e) shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms hereof under all circumstances including
any of the following circumstances: (i) any lack of validity or enforceability
of any Letter of Credit; (ii) the existence of any claim, set-off, defense or
other right which Borrower or any Lender may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for whom
any such transferee may be acting), Issuing Bank, Lender or any other Person or,
in the case of a Lender (other than Issuing Bank), against Borrower, whether in
connection herewith, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between Borrower or one of its
Subsidiaries and the beneficiary for which any Letter of Credit was procured);
(iii) any draft or other document presented under any Letter of Credit proving
to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; (iv) payment by
Issuing Bank under any Letter of Credit against presentation of a draft or other
document which does not substantially comply with the terms of such Letter of
Credit; (v) any adverse change in the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Borrower or any of its
Subsidiaries; (vi) any breach hereof or any other Credit Document by any party
thereto; (vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or (viii) the fact that an Event of Default or
a Default shall have occurred and be continuing; provided, in each case, that
payment by Issuing Bank under the applicable Letter of Credit shall not have
constituted gross negligence or willful misconduct of Issuing Bank under the
circumstances in question (as determined by a final, non-appealable judgment of
a court of competent jurisdiction).
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(g) In addition to amounts payable as provided herein, Borrower hereby
agrees to protect, indemnify, pay and save harmless Issuing Bank from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable fees, expenses and disbursements of
counsel and allocated costs of internal counsel) which Issuing Bank may incur or
be subject to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit by Issuing Bank, other than as a result of (1) the gross
negligence or willful misconduct of Issuing Bank or (2) the wrongful dishonor by
Issuing Bank of a proper demand for payment made under any Letter of Credit
issued by it, or (ii) the failure of Issuing Bank to honor a drawing under any
such Letter of Credit as a result of any acts by any Governmental Authority.
(h) Upon the occurrence and during the continuance of an Event of Default
at the request of Issuing Bank or Requisite Class Lenders having more than 50%
of the aggregate Revolving Exposure, Borrower shall deliver funds for deposit in
the Collateral Account and pay to Administrative Agent an amount equal to the
Letter of Credit Usage at such time. If for any reason the aggregate amount
delivered by Borrower for deposit in the Collateral Account as aforesaid is less
than the Letter of Credit Usage at such time, the aggregate amount so delivered
by Borrower shall be apportioned among all outstanding Letters of Credit for
purposes of this Section 2.2A(h) in accordance with the ratio of the maximum
amount available for drawing under each such Letter of Credit (as to such Letter
of Credit, the "MAXIMUM AVAILABLE AMOUNT") to the Letter of Credit Usage at such
time. Upon any drawing under any outstanding Letter of Credit in respect of
which Borrower has deposited in the Collateral Account any amounts described
above, Administrative Agent shall apply such amounts to reimburse Issuing Bank
for the amount of such drawing. In the event of cancellation or expiration of
any Letter of Credit in respect of which Borrower has deposited in the
Collateral Account any amount described above, or in the event of any reduction
in the Maximum Available Amount under such Letter of Credit, Administrative
Agent shall apply the amount then on deposit in the Collateral Account in
respect of such Letter of Credit (less, in the case of such a reduction, the
Maximum Available Amount under such Letter of Credit immediately after such
reduction) first, to the payment of any amounts payable to Administrative Agent
pursuant to Section 9, second, to the extent of any excess, to the cash
collateralization pursuant to the terms of this Agreement of any outstanding
Letters of Credit in respect of which Borrower has failed to pay all or a
portion of the amounts described above (such cash collateralization to be
apportioned among all such Letters of Credit in the manner described above), and
third, to the extent of any further excess, to the payment of any other
outstanding Obligations in such order as directed by the Lenders holding more
than 50% of the sum of outstanding Revolving Commitments and Revolving Loans.
2.3 PRO RATA SHARES; AVAILABILITY OF FUNDS. (a) All Loans shall be made
by Lenders simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Lender shall be responsible for any default
by any other Lender in such other Lender's obligation to make a Loan requested
hereunder nor shall the Revolving Commitment of any Lender be increased or
decreased as a result of a default by any other Lender in such other Lender's
obligation to make a Loan requested hereunder.
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(b) Unless Administrative Agent shall have been notified by any Lender
prior to the applicable Credit Date that such Lender does not intend to make
available to Administrative Agent the amount of such Lender's Loan requested on
such Credit Date, Administrative Agent may assume that such Lender has made such
amount available to Administrative Agent on such Credit Date and Administrative
Agent may, in its sole discretion, but shall not be obligated to, make available
to Borrower corresponding amount on such Credit Date. If such corresponding
amount is not in fact made available to Administrative Agent by such Lender,
Administrative Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon, for each day from such
Credit Date until the date such amount is paid to Administrative Agent, at the
customary rate set by Administrative Agent for the correction of errors among
banks for three Business Days and thereafter at the Alternate Base Rate. If
such Lender does not pay such corresponding amount forthwith upon Administrative
Agent's demand therefor, Administrative Agent shall promptly notify Borrower and
Borrower shall immediately pay such corresponding amount to Administrative Agent
together with interest thereon, for each day from such Credit Date until the
date such amount is paid to Administrative Agent, at the rate payable hereunder
for Alternate Base Rate Loans for such Class of Loans. Nothing in this Section
2.3(b) shall be deemed to relieve any Lender from its obligation to fulfill its
Revolving Commitments hereunder or to prejudice any rights that Borrower may
have against any Lender as a result of any default by such Lender hereunder.
2.4 USE OF PROCEEDS. The proceeds of the Term Loans and the Revolving
Loans, if any, made on the Closing Date shall be applied by Borrower together
with the Equity Contribution and the proceeds of the Senior Subordinated Notes,
if issued on or prior to the Closing Date, to pay the Merger Consideration, to
finance the Capstar Contribution (including payment of an approximately
$5,500,000 Cash purchase price adjustment to Capstar), to repay Existing Debt
and to pay Transaction Costs. The proceeds of the Revolving Loans and Letters
of Credit made after the Closing Date shall be applied by Borrower for working
capital and other general corporate purposes of Borrower and its Included
Subsidiaries, including for Permitted Acquisitions and Consolidated Capital
Expenditures to the extent permitted pursuant to Sections 6.6 and 6.7. No
portion of the proceeds of any Credit Extension shall be used by Borrower or any
of its Subsidiaries in any manner that might cause such Credit Extension or the
application of such proceeds to violate Regulation T, Regulation U or Regulation
X of the Board of Governors of the Federal Reserve System or any other
regulation thereof or to violate the Exchange Act, in each case as in effect on
the date or dates of such Credit Extension and such use of proceeds.
2.5 EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS. (a) Each
Lender shall maintain on its internal records an account or accounts evidencing
the indebtedness of Borrower to such Lender, including the amounts of the Loans
made by it and each repayment and prepayment in respect thereof. Any such
recordation shall be conclusive and binding on Borrower, absent manifest error;
provided, failure to make any such recordation, or any error in such
recordation, shall not affect any Lender's Revolving Commitments or Borrower's
Obligations in respect of any applicable Loans; and provided further, in the
event of any inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.
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<PAGE>
(b) Administrative Agent shall maintain at its Principal Office a register
for the recordation of the names and addresses of Lenders and the Revolving
Commitments and Loans of each Lender from time to time (the "REGISTER"). The
Register shall be available for inspection by Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
Administrative Agent shall record in the Register the Revolving Commitments and
the Loans, and each repayment or prepayment in respect of the principal amount
of the Loans, and any such recordation shall be conclusive and binding on
Borrower and each Lender, absent manifest error; provided, failure to make any
such recordation, or any error in such recordation, shall not affect any
Lender's Revolving Commitments or Borrower's Obligations in respect of any Loan.
Borrower hereby designates CIBOC to serve as Borrower's agent solely for
purposes of maintaining the Register as provided in this Section 2.5, and
Borrower hereby agrees that, to the extent CIBOC serves in such capacity, CIBOC
and its officers, directors, employees, agents and affiliates shall constitute
"Indemnitees".
(c) If so requested by any Lender by written notice to Borrower (with a
copy to Administrative Agent) at least two Business Days prior to the Closing
Date, or at any time thereafter, Borrower shall execute and deliver to such
Lender (and/or, if applicable and if so specified in such notice, to any Person
who is an assignee of such Lender pursuant to Section 10.6) on the Closing Date
(or, if such notice is delivered after the Closing Date, promptly after
Borrower's receipt of such notice) a promissory note or notes to evidence such
Lender's Tranche A Term Loan, Tranche B Term Loan, Tranche C Term Loan, or
Revolving Loan, as the case may be.
2.6 INTEREST PAYMENTS. (a) Except as otherwise set forth herein, each
Class of Loan shall bear interest on the unpaid principal amount thereof from
the date made through maturity or repayment (whether by acceleration or
otherwise) thereof as follows:
(i) if an Alternate Base Rate Loan, at the Alternate Base Rate
plus the Applicable Margin; or
(ii) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate
plus the Applicable Margin.
(b) The basis for determining the rate of interest with respect to any
Loan, and the Interest Period with respect to any Eurodollar Rate Loan, shall be
selected by Borrower and notified to Administrative Agent and Lenders pursuant
to the applicable Funding Notice or Conversion/Continuation Notice, as the case
may be; provided, no Eurodollar Rate Loan with an Interest Period in excess of
one month shall be available until the date that Syndication Agent notifies
Borrower and Administrative Agent that the primary syndication of the Loans and
Revolving Commitments has been completed, as determined by Syndication Agent.
If on any day a Loan is outstanding with respect to which a Funding Notice or
Conversion/Continuation Notice has not been delivered to Administrative Agent in
accordance with the terms hereof specifying the applicable basis for determining
the rate of interest, then for that day such Loan shall be an Alternate Base
Rate Loan.
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(c) In connection with Eurodollar Rate Loans there shall be no more than
10 Interest Periods outstanding at any time. In the event Borrower fails to
specify between an Alternate Base Rate Loan or a Eurodollar Rate Loan or fails
to specify the Interest Period for any Eurodollar Rate Loan in the applicable
Funding Notice or Conversion/Continuation Notice, such Loan (if outstanding as a
Eurodollar Rate Loan) will be automatically converted into an Alternate Base
Rate Loan on the last day of the then-current Interest Period for such Loan (or
if outstanding as an Alternate Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, an Alternate Base Rate Loan. As soon as
practicable after 10:00 a.m. (New York City time) on each Interest Rate
Determination Date, Administrative Agent shall determine (which determination
shall, absent manifest error, be final, conclusive and binding upon all parties)
the interest rate that shall apply to the Eurodollar Rate Loans for which an
interest rate is then being determined for the applicable Interest Period and
shall promptly give notice thereof (in writing or by telephone confirmed in
writing) to Borrower and each Lender.
(d) Interest payable pursuant to Section 2.6(a) shall be computed (i) in
the case of Alternate Base Rate Loans based on the Prime Rate, on the basis of a
365-day or 366-day year, as the case may be, and (ii in the case of Alternate
Base Rate Loans based on the Federal Funds Effective Rate or Eurodollar Rate
Loans, on the basis of a 360-day year, in each case for the actual number of
days elapsed in the period during which it accrues. In computing interest on
any Loan, the date of the making of such Loan or the first day of an Interest
Period applicable to such Loan or, with respect to an Alternate Base Rate Loan
being converted from a Eurodollar Rate Loan, the date of conversion of such
Eurodollar Rate Loan to such Alternate Base Rate Loan, as the case may be, shall
be included, and the date of payment of such Loan or the expiration date of an
Interest Period applicable to such Loan or, with respect to an Alternate Base
Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of
such Alternate Base Rate Loan to such Eurodollar Rate Loan, as the case may be,
shall be excluded; provided, if a Loan is repaid on the same day on which it is
made, one day's interest shall be paid on that Loan.
(e) Except as otherwise set forth herein, interest on each Loan shall be
payable in arrears on and to (i) each Interest Payment Date applicable to that
Loan; (ii any prepayment of that Loan, whether voluntary or mandatory, to the
extent accrued on the amount being prepaid; and (ii at maturity, including final
maturity; provided, however that with respect to any prepayment of an Alternate
Base Rate Loan, accrued interest shall instead be payable on the applicable
Interest Payment Date.
(f) Borrower agrees to pay to Issuing Bank, with respect to drawings
honored under any Letter of Credit, interest on the amount paid by Issuing Bank
in respect of each such honored drawing from the date such drawing is honored to
but excluding the date such amount is reimbursed by or on behalf of Borrower at
a rate equal to (i) for the period from the date such drawing is honored to but
excluding the applicable Reimbursement Date, the rate of interest otherwise
payable hereunder with respect to Revolving Loans that are Alternate Base Rate
Loans, and (ii) thereafter, a rate which is 2% per annum in excess of the rate
of interest otherwise payable hereunder with respect to Revolving Loans that are
Alternate Base Rate Loans.
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(g) Interest payable pursuant to Section 2.6(f) shall be computed on the
basis of a 360-day year for the actual number of days elapsed in the period
during which it accrues, and shall be payable on demand or, if no demand is
made, on the date on which the related drawing under a Letter of Credit is
reimbursed in full. Promptly upon receipt by Issuing Bank of any payment of
interest pursuant to Section 2.6(f), Issuing Bank shall distribute to each other
Lender, out of the interest received by Issuing Bank in respect of the period
from the date such drawing is honored to but excluding the date on which Issuing
Bank is reimbursed for the amount of such drawing (including any such
reimbursement out of the proceeds of any Revolving Loans), the amount that such
Lender would have been entitled to receive in respect of the letter of credit
fee that would have been payable in respect of such Letter of Credit for such
period if no drawing had been honored under such Letter of Credit. In the event
Issuing Bank shall have been reimbursed by the other Lenders for all or any
portion of such honored drawing, Issuing Bank shall distribute to each Lender
which has paid all amounts payable by it under Section 2.2A(e) with respect to
such honored drawing such Lender's Pro Rata Share of any interest received by
Issuing Bank in respect of that portion of such honored drawing so reimbursed by
the other Lenders for the period from the date on which Issuing Bank was so
reimbursed by the other Lenders to but excluding the date on which such portion
of such honored drawing is reimbursed by Borrower. Any such distribution shall
be made to a Lender at its primary address set forth below its name on Appendix
B or at such other address as such Lender may request.
2.7 CONVERSION/CONTINUATION. (a) Subject to Section 2.17 and so long as
no Default or Event of Default shall have occurred and then be continuing in the
case of any conversion to or continuance as a Eurodollar Rate Loan, Borrower
shall have the option:
(i) to convert at any time all or any part of any Term Loan or
Revolving Loan equal to $1,000,000 and integral multiples of $100,000 in excess
of that amount from one Type of Loan to another Type of Loan; provided, a
Eurodollar Rate Loan may only be converted into an Alternate Base Rate Loan on
the expiration of the Interest Period applicable to such Eurodollar Rate Loan
unless Borrower shall pay all amounts due under Section 2.17 in connection with
any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any
Eurodollar Rate Loan, to continue all or any portion of such Loan equal to
$1,000,000 and integral multiples of $100,000 in excess of that amount as a
Eurodollar Rate Loan.
(b) Borrower shall deliver a Conversion/Continuation Notice to
Administrative Agent no later than 10:00 a.m. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to an Alternate Base Rate Loan) and at least three Business Days in
advance of the proposed conversion/continuation date (in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan). Except as
otherwise provided herein, a Conversion/Continuation Notice for conversion to,
or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
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Determination Date, and Borrower shall be bound to effect a conversion or
continuation in accordance therewith.
2.8 DEFAULT INTEREST. Upon the occurrence and during the continuance of
an Event of Default of the type specified in Section 8.1(a), the principal
amount of all Loans, and, to the extent permitted by applicable law, any
interest payments on the Loans or any fees or other amounts owed hereunder not
paid when due, in each case whether at stated maturity, by notice of prepayment,
by acceleration or otherwise, shall thereafter bear interest (including post-
petition interest in any proceeding under the Bankruptcy Code or other
applicable bankruptcy laws) payable on demand at a rate that is 2% per annum in
excess of the interest rate otherwise payable hereunder with respect to the
applicable Loans (or, in the case of any such fees and other amounts, at a rate
which is 2% per annum in excess of the interest rate otherwise payable hereunder
for Alternate Base Rate Loans); provided, in the case of Eurodollar Rate Loans,
upon the expiration of the Interest Period in effect at the time any such
increase in interest rate is effective such Eurodollar Rate Loans shall
thereupon become Alternate Base Rate Loans and shall thereafter bear interest
payable upon demand at a rate which is 2% per annum in excess of the interest
rate otherwise payable hereunder for Alternate Base Rate Loans. Payment or
acceptance of the increased rates of interest provided for in this Section 2.8
is not a permitted alternative to timely payment and shall not constitute a
waiver of any Event of Default or otherwise prejudice or limit any rights or
remedies of Administrative Agent or any Lender.
2.9 FEES. (a) Borrower agrees to pay to Lenders having Revolving
Exposure the following fees:
(i) commitment fees equal to (1) the average of the daily excess of
the Revolving Commitments, minus the Total Utilization of Revolving Commitments,
times (2) the Applicable Revolving Commitment Fee Percentage; and
(ii) letter of credit fees equal to (1) the Applicable Margin for
Revolving Loans that are Eurodollar Rate Loans, times (2) the average daily
Letter of Credit Usage (determined as of the close of business on any date of
determination).
All fees referred to in this Section 2.9(a) shall be paid to Administrative
Agent at its Principal Office and upon receipt, Administrative Agent shall
promptly distribute to each Lender its Pro Rata Share thereof.
(b) Borrower agrees to pay directly to Issuing Bank, for its own account,
the following fees:
(i) a fronting fee equal to 0.250%, per annum, times the aggregate
daily amount available to be drawn under all Letters of Credit (determined as of
the close of business on any date of determination); and
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(ii) such documentary and processing charges for any issuance,
amendment, transfer or payment of a Letter of Credit that are in accordance with
Issuing Bank's standard schedule for such charges and as in effect at the time
of such issuance, amendment, transfer or payment, as the case may be.
(c) All fees referred to in Section 2.9(a) shall be calculated on the
basis of a 360-day year and the actual number of days elapsed and shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year during the Revolving Commitment Period, commencing on the first
such date to occur after the Closing Date, and on the Revolving Commitment
Termination Date.
(d) In addition to any of the foregoing fees, Borrower agrees to pay to
Agents such other fees in the amounts and at the times separately agreed upon
thereby.
2.10. SCHEDULED PAYMENTS/REDUCTIONS. (a) The principal amounts of the Term
Loans shall be repaid according to the annual percentages set forth below in
consecutive installments (each, an "Installment") on June 30 and December 31 of
each Fiscal Year (each, an "Installment Date") occurring in each of the Fiscal
Years set forth below, commencing June 30, 2000, with 50% of each annual payment
being paid on each Installment Date:
====================================================================
Year Tranche A Tranche B Tranche C
Term Loan Term Loan Term Loan
Installments Installments Installments
- --------------------------------------------------------------------
2000 7.5% 1.0% 7.5%
- --------------------------------------------------------------------
2001 12.5% 1.0% 12.5%
- --------------------------------------------------------------------
2002 17.5% 1.0% 17.5%
- --------------------------------------------------------------------
2003 20.0% 1.0% 20.0%
- --------------------------------------------------------------------
2004 20.0% 15.0% 20.0%
- --------------------------------------------------------------------
2005 22.5% 25.0% 22.5%
- --------------------------------------------------------------------
2006 N/A Remaining N/A
Aggregate
Principal
Amount
- --------------------------------------------------------------------
Totals 100.0% 100.0% 100.0%
====================================================================
Notwithstanding the foregoing, (i) such Installments shall be reduced in
connection with any voluntary or mandatory prepayments of the Tranche A Term
Loans, the Tranche B Term Loans or the Tranche C Term Loans, as the case may be,
in accordance with Section 2.13; and (ii) the Tranche A Term Loans, the Tranche
B Term Loans, and the Tranche C Term Loans, together with all other amounts owed
hereunder with respect thereto, shall be paid in full no later than the
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Tranche A Term Loan Maturity Date, the Tranche B Term Loan Maturity Date or the
Tranche C Term Loan Maturity Date, as the case may be, and the final Installment
payable by Borrower on each such Date shall be in an amount sufficient to repay
all amounts owing by Borrower hereunder with respect to the Tranche A Term
Loans, the Tranche B Term Loans or the Tranche C Term Loans, as applicable.
(b) Following any Transition Date, the aggregate Revolving Commitments
shall be reduced quarterly, commencing on March 31, 2001, by 5% of the aggregate
New Commitments on December 31, 2000.
2.11. VOLUNTARY PREPAYMENTS/REDUCTIONS.
(a) Prepayments. (i) Any time and from time to time:
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(1) with respect to Term Loans, Borrower may prepay any such
Loans on any Business Day in whole or in part, in an aggregate minimum amount of
$5,000,000 and integral multiples of $1,000,000 in excess of that amount; and
(2) with respect to Revolving Loans, Borrower may prepay any such
Loans on any Business Day in whole or in part in an aggregate minimum amount of
$2,500,000 and integral multiples of $1,000,000 in excess of that amount;
(ii) All such prepayments shall be made:
(1) upon not less than one Business Day's prior written or
telephonic notice, in the case of Alternate Base Rate Loans; and
(2) upon not less than three Business Days' prior written or
telephonic notice, in the case of Eurodollar Rate Loans;
in each case given to Administrative Agent by 12:00 noon (New York City time) on
the date required and, if given by telephone, promptly confirmed in writing to
Administrative Agent (and Administrative Agent will promptly transmit such
telephonic or original notice for Term Loans or Revolving Loans, as the case may
be, by telefacsimile or telephone to each Lender). Upon the giving of any such
notice, the principal amount of the Loans specified in such notice shall become
due and payable on the prepayment date specified therein.
(b) Reductions.
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(i) Borrower may, upon not less than three Business Days' prior
written or telephonic notice confirmed in writing to Administrative Agent (which
original written or telephonic notice Administrative Agent will promptly
transmit by telefacsimile or telephone to each applicable Lender), at any time
and from time to time terminate in whole or permanently reduce in part, without
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premium or penalty, the Revolving Commitments in an amount up to the amount by
which the Revolving Commitments exceed the Total Utilization of Revolving
Commitments at the time of such proposed termination or reduction; provided, any
such partial reduction of the Revolving Commitments shall be in an aggregate
minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of
that amount.
(ii) Borrower's notice to Administrative Agent shall designate the
date (which shall be a Business Day) of such termination or reduction and the
amount of any partial reduction, and such termination or reduction of the
Revolving Commitments shall be effective on the date specified in Borrower's
notice and shall reduce the Revolving Commitment of each Lender proportionately
to its Pro Rata Share thereof.
2.12. MANDATORY PREPAYMENTS/REDUCTIONS. (a) Asset Sales. No later than
-----------
the first Business Day following the date of receipt by Holdings, Borrower or
any of their respective Subsidiaries of any Net Asset Sale Proceeds (other than
any Net Asset Sale Proceeds received in connection with (i) an intercompany
Asset Sale permitted pursuant to Section 6.7(a) or (ii) an Affiliate Sale),
Borrower shall prepay the Loans and/or the Revolving Commitments shall be
permanently reduced as set forth in Section 2.13 in an aggregate amount equal to
such Net Asset Sale Proceeds; provided, (i) so long as no Default or Event of
Default shall have occurred and be continuing, (ii) to the extent that aggregate
Net Asset Sale Proceeds from the Closing Date through the applicable date of
determination do not exceed $5,000,000 and (iii) Borrower shall have delivered a
certificate of Borrower, executed on behalf of Borrower by an Authorized
Officer, setting forth the details with respect thereto on such first Business
Day, Borrower shall have the option, directly or through one or more of its
Included Subsidiaries (except that if such proceeds were received by any
Subsidiary other than an Included Subsidiary, such Subsidiary shall be permitted
to make such investment), to invest such Net Asset Sale Proceeds within one
hundred eighty (180) days of receipt thereof (or within two hundred seventy
(270) days of receipt thereof, if Borrower shall have entered into a written
commitment to reinvest such proceeds within such 180-day period) in long term
productive assets of the general type used in the business of Borrower and its
Included Subsidiaries (except as set forth above); provided further, pending any
such investment all such Net Asset Sale Proceeds shall be applied to prepay
outstanding Revolving Loans (without a reduction in Revolving Commitments).
(b) Insurance/Condemnation Proceeds. No later than the first Business Day
-------------------------------
following the date of receipt by Holdings, Borrower or any of their respective
Subsidiaries, or Administrative Agent as loss payee, of any Net
Insurance/Condemnation Proceeds, Borrower shall prepay the Loans and/or the
Revolving Commitments shall be permanently reduced as set forth in Section 2.13
in an aggregate amount equal to such Net Insurance/Condemnation Proceeds;
provided, (i) so long as no Default or Event of Default shall have occurred and
be continuing, (ii) to the extent that aggregate Net Insurance/Condemnation
Proceeds from the Closing Date through the applicable date of determination do
not exceed $5,000,000 and (iii) Borrower shall have delivered a certificate of
Borrower, executed on behalf of Borrower by an Authorized Officer, setting forth
the details with respect thereto on such first Business Day, Borrower shall have
the option, directly or through one
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or more of its Included Subsidiaries (except that if such proceeds were received
by any Subsidiary other than an Included Subsidiary, such Subsidiary shall be
permitted to make such investment), to invest such Net Insurance/Condemnation
Proceeds within one hundred eighty (180) days of receipt thereof in long term
productive assets of the general type used in the business of Borrower and its
Included Subsidiaries (except as set forth above), which investment may include
the repair, restoration or replacement of the applicable assets of Borrower or
its Included Subsidiaries; provided further, pending any such investment all
such Net Insurance/Condemnation Proceeds, as the case may be, shall be applied
to prepay outstanding Revolving Loans (without a reduction in Revolving
Commitments).
(c) Excess Cash Flow. In the event that the Total Leverage Ratio as of the
----------------
end of any Fiscal Year commencing with December 31, 2000 shall be greater than
or equal to 5.00:1.00, Borrower shall, no later than ninety (90) days after the
end of such Fiscal Year, prepay the Loans and/or the Revolving Commitments shall
be permanently reduced as set forth in Section 2.13 in an aggregate amount equal
to 100% of any Consolidated Excess Cash Flow for such Fiscal Year. In the event
that the Total Leverage Ratio as of the end of any Fiscal Year commencing with
December 31, 2000 shall be greater than or equal to 4.00:1.00, but less than
5.00:1.00, Borrower shall, no later than ninety (90) days after the end of such
Fiscal Year, prepay the Loans and/or the Revolving Commitments shall be
permanently reduced as set forth in Section 2.13 in an aggregate amount equal to
50% of any Consolidated Excess Cash Flow. Borrower may use Consolidated Excess
Cash Flow to the extent not required to prepay the Loans or reduce Revolving
Commitments as set forth in the preceding sentence (i) with the consent of
Requisite Lenders, to pay Deferred Management Fees to the extent permitted by
Section 6.4(a)(viii) or (ii) to make Permitted Acquisitions to the extent
permitted by Section 6.7(f).
(d) Issuance of Debt. No later than the first Business Day following
----------------
receipt by Holdings or Borrower of any Cash proceeds from (a) if any Tranche C
Term Loan is made, the first issuance of High Yield Debt after the Closing Date,
Borrower shall prepay the Loans in the aggregate amount necessary (such
aggregate amount not to exceed the Net High Yield Proceeds received in respect
of such issuance) to repay the Tranche C Term Loans in full, plus any additional
amount necessary to cause each of the Senior Leverage Ratio and the Total
Leverage Ratio to be not greater than 0.25:1.00 below the required level
therefor at such time pursuant to Section 6.6, and (b) in connection with each
other issuance of High Yield Debt (other than on or prior to the Closing Date),
Borrower shall prepay the Loans in an aggregate amount equal to 100% of the Net
High Yield Proceeds received in respect of such issuance.
(e) Revolving Loans. (i) Borrower shall from time to time prepay the
---------------
Revolving Loans to the extent necessary so that the Total Utilization of
Revolving Commitments shall not at any time exceed the Revolving Commitments
then in effect.
(ii) Borrower shall prepay Revolving Loans with 100% of Net Asset Sale
Proceeds received in connection with Affiliate Sales.
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(f) Prepayment Certificate. Concurrently with any prepayment of the Loans
----------------------
and/or reduction of the Revolving Commitments pursuant to this Section 2.12,
Borrower shall deliver to Administrative Agent a certificate of an Authorized
Officer demonstrating the calculation of the amount of such prepayment, as the
case may be. In the event that Borrower shall subsequently determine that the
actual amount that should have been applied to prepay the Loans exceeded the
amount set forth in such certificate, Borrower shall promptly make an additional
prepayment of the Loans and/or the Revolving Commitments shall be permanently
reduced in an amount equal to such excess, and Borrower shall concurrently
therewith deliver to Administrative Agent a certificate of an Authorized Officer
demonstrating the derivation of such excess.
2.13. APPLICATION OF PREPAYMENTS/REDUCTIONS; PREPAYMENT FEE. (a) Any
prepayment of any Loan pursuant to Section 2.11(a) shall be applied to repay
Term Loans or Revolving Loans as specified by Borrower in the applicable notice
of prepayment; provided, in the event Borrower fails to specify the Loans to
which any such prepayment shall be applied, such prepayment shall be applied as
follows:
first, to repay outstanding Revolving Loans to the full extent
thereof; and
second, to prepay the Tranche A Term Loans, the Tranche B Term Loans
and the Tranche C Term Loans.
All voluntary prepayments of Term Loans shall be applied to prepay the Tranche A
Term Loans, the Tranche B Term Loans and the Tranche C Term Loans on a pro rata
basis (in accordance with the respective outstanding principal amounts thereof)
and shall be further applied on a pro rata basis to each scheduled Installment
of principal of the Tranche A Term Loans, the Tranche B Term Loans and the
Tranche C Term Loans.
(b) (i) Any amount required to be paid pursuant to Sections 2.12(a)
through 2.12(c) shall be applied as follows:
first, to prepay the Tranche A Term Loans, the Tranche B Term Loans
and the Tranche C Loans on a pro rata basis (in accordance with the respective
outstanding principal amounts thereof) and shall be further applied on a pro
rata basis to each scheduled Installment of principal of the Tranche A Term
Loans, the Tranche B Term Loans and the Tranche C Loans;
second, to the extent of any remaining portion of such amount, to
prepay the Revolving Loans to the full extent thereof and to further permanently
reduce the Revolving Commitments by the amount of such prepayment;
third, to prepay outstanding reimbursement obligations with respect to
Letters of Credit and to further permanently reduce the Revolving Loan
Commitments by the amount of such payment;
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fourth, to cash collateralize Letters of Credit as provided in Section
2.2A and to further permanently reduce the Revolving Loan Commitments by the
amount of such cash collateralization; and
fifth, to the extent of any remaining portion of such amount (which
remaining portion need not be paid to the Lenders), to further permanently
reduce the Revolving Commitments to the full extent thereof.
(ii) Any amount required to be paid pursuant to Section 2.12(d) shall
be applied as follows:
first, to prepay in full the Tranche C Term Loans;
second, to the extent of any remaining portion of such amount to
prepay the Tranche A Term Loans and the Tranche B Terms Loan on a pro rata basis
(in accordance with the respective outstanding principal amounts thereof) and
shall be further applied on a pro rata basis to each scheduled Installment of
principal of the Tranche A Term Loans and Tranche B Term Loans; and
third, to the extent of any remaining portion of such amount, to
prepay the Revolving Loans to the full extent thereof.
(c) Anything contained herein to the contrary notwithstanding, so long as
any Tranche A or Tranche C Term Loans are outstanding, in the event Borrower is
required to make any mandatory prepayment (a "WAIVABLE MANDATORY PREPAYMENT") of
the Tranche B Term Loans, not less than three Business Days prior to the date
(the "REQUIRED PREPAYMENT DATE") on which Borrower is required to make such
Waivable Mandatory Prepayment, Borrower shall notify Administrative Agent of the
amount of such prepayment, and Administrative Agent will promptly thereafter
notify each Lender holding an outstanding Tranche B Term Loan of the amount of
such Lender's Pro Rata Share of such Waivable Mandatory Prepayment and such
Lender's option to refuse such amount. Each such Lender may exercise such option
by giving written notice to Borrower and Administrative Agent of its election to
do so on or before the first Business Day (the "CUTOFF DATE") prior to the
Required Prepayment Date (it being understood that any Lender which does not
notify Borrower and Administrative Agent of its election to exercise such option
on or before the Cutoff Date shall be deemed to have elected, as of the Cutoff
Date, not to exercise such option). On the Required Prepayment Date, Borrower
shall pay to Administrative Agent the amount of the Waivable Mandatory
Prepayment, which amount shall be applied (i) in an amount equal to that portion
of the Waivable Mandatory Prepayment payable to those Lenders that have elected
not to exercise such option, to prepay the Tranche B Term Loans of such Lenders
(which prepayment shall be applied as set forth in Section 2.13(b) above) and
(ii) in an amount equal to that portion of the Waivable Mandatory Prepayment
otherwise payable to those Lenders that have elected to exercise such option, in
the case of (A) any prepayment pursuant to Section 2.13(b)(i), to prepay the
Tranche A Term Loans and the Tranche C Term Loans on a pro rata basis (in
accordance with the respective outstanding principal amounts thereof) and shall
be further applied on a pro rata basis to each
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scheduled Installment of principal of the Tranche A Term Loans and the Tranche C
Term Loans and (B) any prepayment pursuant to Section 2.13(b)(ii), to prepay the
Tranche A Term Loans, which prepayment shall be applied on a pro rata basis to
each scheduled Installment of principal of the Tranche A Term Loans.
(d) Considering each Class of Loans being prepaid separately, any
prepayment thereof shall be applied first to Alternate Base Rate Loans to the
full extent thereof before application to Eurodollar Rate Loans, in each case in
a manner which minimizes the amount of any payments required to be made by
Borrower pursuant to Section 2.17(c).
(e) Each repayment of the Tranche B Term Loan, other than pursuant to
Section 2.10, shall be accompanied by a prepayment fee in an amount equal to (i)
for each payment made on or prior to the first anniversary of the Closing Date,
2.00% of the amount of such repayment, and (ii) for each payment made after the
first anniversary of the Closing Date but on or prior to the second anniversary
of the Closing Date, 1.00% of the amount of such repayment.
(f) Any amounts received by Administrative Agent pursuant to the Capstar
Contribution Agreement shall be applied to the Obligations (including the Loans)
in such order, in such amounts and at such times as Requisite Lenders may
decide.
2.14. ALLOCATION OF CERTAIN PAYMENTS AND PROCEEDS. If an Event of Default
shall have occurred and not otherwise be waived, and the maturity of the
Obligations shall have been accelerated pursuant to Section 8.1, all payments or
proceeds received by Agents hereunder in respect of any of the Obligations,
shall be applied by Agents in the following order:
first, amounts due to Administrative Agent pursuant to Section 10.2;
second, amounts due to Lenders, if any, pursuant to Sections 2.17,
2.18 or 2.19, to be applied for the ratable benefit of Lenders without
distinction or preference as among them;
third, amounts due to Lenders pursuant to Section 10.2, to be applied
for the ratable benefit of Lenders without distinction or preference as among
them;
fourth, amounts due to Agents pursuant to Section 2.9(d), to be
applied in accordance therewith;
fifth, amounts due to Lenders pursuant to Section 2.9 and payments of
interest on Loans, to be applied for the ratable benefit of Lenders, without
distinction or preference as among them;
sixth, payments of principal on Loans, and all Obligations then
payable to any Lender Counterparty pursuant to an Interest Rate Agreement
required pursuant to Section 5.11 permitted
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hereby, to be applied for the ratable benefit of Lenders and such Lender
Counterparties, without distinction or preference as among them;
seventh, amounts due to Indemnitees pursuant to Section 10.3, to be
applied for the ratable benefit thereof;
eighth, payments of all other Obligations due under any of the Credit
Documents, if any, to be applied for the ratable benefit of Lenders and Agents;
and
ninth, any surplus remaining after application as provided for herein,
to Borrower or as otherwise may be required by applicable law.
2.15. GENERAL PROVISIONS REGARDING PAYMENTS. (a) All payments by Borrower
of principal, interest, fees and other Obligations shall be made in Dollars in
same day funds, without defense, setoff or counterclaim, free of any restriction
or condition, and delivered to Administrative Agent not later than 12:00 Noon
(New York City time) on the date due at Administrative Agent's Principal Office
for the account of Lenders; funds received by Administrative Agent after that
time on such due date shall be deemed to have been paid by Borrower on the next
succeeding Business Day.
(b) All payments in respect of the principal amount of any Loan shall
include payment of accrued interest on the principal amount being repaid or
prepaid, and all such payments (and, in any event, any payments in respect of
any Loan on a date when interest is due and payable with respect to such Loan)
shall be applied to the payment of interest before application to principal;
provided, however, that with respect to any prepayment of an Alternate Base Rate
Loan, accrued interest shall instead be payable on the applicable Interest
Payment Date.
(c) Administrative Agent shall promptly distribute to each Lender at such
address as such Lender shall indicate in writing, such Lender's applicable Pro
Rata Share of all payments and prepayments of principal and interest due
hereunder, together with all other amounts due thereto, including, without
limitation, all fees payable with respect thereto, to the extent received by
Administrative Agent.
(d) Notwithstanding the foregoing provisions hereof, if any
Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any
Affected Lender makes Alternate Base Rate Loans in lieu of its Pro Rata Share of
any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(e) Subject to the provisos set forth in the definition of "INTEREST
PERIOD", whenever any payment to be made hereunder shall be stated to be due on
a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or of the Revolving Commitment
fees hereunder, as the case may be.
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(f) Borrower hereby authorizes Administrative Agent to charge Borrower's
accounts with Administrative Agent in order to cause timely payment to be made
to Administrative Agent of all principal, interest, fees and expenses due
hereunder (subject to sufficient funds being available in its accounts for that
purpose).
(g) Administrative Agent shall deem any payment by or on behalf of Borrower
hereunder that is not made in same day funds prior to 12:00 noon (New York City
time) to be a non-conforming payment. Any such payment shall not be deemed to
have been received by Administrative Agent until the later of (i) the time such
funds become available funds, and (ii) the applicable next Business Day.
Administrative Agent shall give prompt telephonic notice to Borrower and each
applicable Lender (confirmed in writing) if any payment is non-conforming. Any
non-conforming payment may constitute or become a Default or Event of Default in
accordance with the terms of Section 8.1(a). Interest shall continue to accrue
on any principal as to which a non-conforming payment is made until such funds
become available funds (but in no event less than the period from the date of
such payment to the next succeeding applicable Business Day) at the rate
determined pursuant to Section 2.8 from the date such amount was due and payable
until the date such amount is paid in full.
2.16. RATABLE SHARING. Lenders hereby agree among themselves that if any of
them shall, whether by voluntary payment (other than a voluntary prepayment of
Loans made and applied in accordance with the terms hereof), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Credit
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to such
Lender hereunder or under the other Credit Documents (collectively, the
"AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion
received by any other Lender in respect of the Aggregate Amounts Due to such
other Lender, then the Lender receiving such proportionately greater payment
shall (a) notify Administrative Agent and each other Lender of the receipt of
such payment and (b) apply a portion of such payment to purchase participations
(which it shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders so that all such recoveries of
Aggregate Amounts Due shall be shared by all Lenders in proportion to the
Aggregate Amounts Due to them; provided, if all or part of such proportionately
greater payment received by such purchasing Lender is thereafter recovered from
such Lender upon the bankruptcy or reorganization of Borrower or otherwise,
those purchases shall be rescinded and the purchase prices paid for such
participations shall be returned to such purchasing Lender ratably to the extent
of such recovery, but without interest. Borrower expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Borrower to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder.
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2.17. MAKING OR MAINTAINING EURODOLLAR RATE LOANS. (a) In the event that
Administrative Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the London interbank market adequate and fair means do
not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telefacsimile or by telephone confirmed
in writing) to Borrower and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted to, Eurodollar Rate Loans until such time as
Administrative Agent notifies Borrower and Lenders that the circumstances giving
rise to such notice no longer exist, and (ii any Funding Notice or
Conversion/Continuation Notice given by Borrower with respect to the Loans in
respect of which such determination was made shall be deemed to be rescinded by
Borrower.
(b) In the event that on any date any Lender shall have determined (which
determination shall be final and conclusive and binding upon all parties hereto
but shall be made only after consultation with Borrower and Administrative
Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans
(i) has become unlawful as a result of compliance by such Lender in good faith
with any law, treaty, governmental rule, regulation, guideline or order (or
would conflict with any such treaty, governmental rule, regulation, guideline or
order not having the force of law even though the failure to comply therewith
would not be unlawful), or (ii has become impracticable, as a result of
contingencies occurring after the date hereof which materially and adversely
affect the London interbank market or the position of such Lender in that
market, then, and in any such event, such Lender shall be an "AFFECTED LENDER"
and it shall on that day give notice (by telefacsimile or by telephone confirmed
in writing) to Borrower and Administrative Agent of such determination (which
notice Administrative Agent shall promptly transmit to each other Lender).
Thereafter (1) the obligation of the Affected Lender to make Loans as, or to
convert Loans to, Eurodollar Rate Loans shall be suspended until such notice
shall be withdrawn by the Affected Lender, (2) to the extent such determination
by the Affected Lender relates to a Eurodollar Rate Loan then being requested by
Borrower pursuant to a Funding Notice or a Conversion/Continuation Notice, the
Affected Lender shall make such Loan as (or continue such Loan as or convert
such Loan to, as the case may be) an Alternate Base Rate Loan, (3) the Affected
Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the
"AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration
of the Interest Period then in effect with respect to the Affected Loans or when
required by law, and (4) the Affected Loans shall automatically convert into
Alternate Base Rate Loans on the date of such termination. Notwithstanding the
foregoing, to the extent a determination by an Affected Lender as described
above relates to a Eurodollar Rate Loan then being requested by Borrower
pursuant to a Funding Notice or a Conversion/Continuation Notice, Borrower shall
have the option, subject to the provisions of Section 2.17(c), to rescind such
Funding Notice or Conversion/Continuation Notice as to all Lenders by giving
notice (by telefacsimile or by telephone confirmed in writing) to Administrative
Agent of such rescission on the date on which the Affected Lender gives notice
of its determination as described above (which notice of rescission
Administrative Agent shall promptly transmit to each other Lender). Except as
provided in the immediately preceding sentence, nothing in this Section 2.17(b)
shall affect the obligation of any
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Lender other than an Affected Lender to make or maintain Loans as, or to
convert Loans to, Eurodollar Rate Loans in accordance with the terms hereof.
(c) Borrower shall compensate each Lender, upon written request by such
Lender (which request shall set forth the basis for requesting such amounts),
for all reasonable losses, expenses and liabilities (including any interest paid
by such Lender to lenders of funds borrowed by it to make or carry its
Eurodollar Rate Loans and any loss, expense or liability sustained by such
Lender in connection with the liquidation or re-employment of such funds but
excluding loss of anticipated profits) which such Lender may sustain: (i) if for
any reason (other than a default by such Lender) a borrowing of any Eurodollar
Rate Loan does not occur on a date specified therefor in a Funding Notice or a
telephonic request for borrowing, or a conversion to or continuation of any
Eurodollar Rate Loan does not occur on a date specified therefor in a
Conversion/Continuation Notice or a telephonic request for conversion or
continuation; (ii if any prepayment or other principal payment or any conversion
of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an
Interest Period applicable to that Loan; (ii if any prepayment of any of its
Eurodollar Rate Loans is not made on any date specified in a notice of
prepayment given by Borrower; (iv as a consequence of any other default by
Borrower in the repayment of its Eurodollar Rate Loans when required by the
terms hereof or (v) if any assignment of any of its Eurodollar Rate Loans occurs
pursuant to Section 2.2(a)(ii) on a date prior to the last day of an Interest
Period applicable to that Loan.
(d) Any Lender may make, carry or transfer Eurodollar Rate Loans at, to,
or for the account of any of its branch offices or the office of an Affiliate of
such Lender.
(e) Calculation of all amounts payable to a Lender under this Section 2.17
and under Section 2.18 shall be made as though such Lender had actually funded
each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar
deposit bearing interest at the rate obtained pursuant to clause (i) of the
definition of Adjusted Eurodollar Rate in an amount equal to the amount of such
Eurodollar Rate Loan and having a maturity comparable to the relevant Interest
Period and through the transfer of such Eurodollar deposit from an offshore
office of such Lender to a domestic office of such Lender in the United States
of America; provided, each Lender may fund each of its Eurodollar Rate Loans in
any manner it sees fit and the foregoing assumptions shall be utilized only for
the purposes of calculating amounts payable under this Section 2.17 and under
Section 2.18.
2.18. INCREASED COSTS; CAPITAL ADEQUACY. (a) Subject to the provisions of
Section 2.19 (which shall be controlling with respect to the matters covered
thereby), in the event that any Lender shall determine (which determination
shall, absent manifest error, be final and conclusive and binding upon all
parties hereto) that any law, treaty or governmental rule, regulation or order,
or any change therein or in the interpretation, administration or application
thereof (including the introduction of any new law, treaty or governmental rule,
regulation or order), or any determination of a court or governmental authority,
in each case that becomes effective after the date hereof, or compliance by such
Lender with any guideline, request or directive issued or made after the date
hereof by any central bank or other governmental or quasi-governmental authority
(whether or not
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having the force of law): (i) subjects such Lender (or its applicable lending
office) to any additional Tax (other than any Tax on the overall net income of
such Lender) with respect to this Agreement or any of its obligations hereunder
or any payments to such Lender (or its applicable lending office) of principal,
interest, fees or any other amount payable hereunder; (ii imposes, modifies or
holds applicable any reserve (including any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC insurance or
similar requirement against assets held by, or deposits or other liabilities in
or for the account of, or advances or loans by, or other credit extended by, or
any other acquisition of funds by, any office of such Lender (other than any
such reserve or other requirements with respect to Eurodollar Rate Loans that
are reflected in the definition of Adjusted Eurodollar Rate); or (ii imposes any
other condition (other than with respect to a Tax matter) on or affecting such
Lender (or its applicable lending office) or its obligations hereunder or the
London interbank market; and the result of any of the foregoing is to increase
the cost to such Lender of agreeing to make, making or maintaining Loans
hereunder or to reduce any amount received or receivable by such Lender (or its
applicable lending office) with respect thereto; then, in any such case,
Borrower shall promptly pay to such Lender, upon receipt of the statement
referred to in the next sentence, such additional amount or amounts (in the form
of an increased rate of, or a different method of calculating, interest or
otherwise as such Lender in its sole discretion shall determine) as may be
necessary to compensate such Lender on an after-tax basis for any such increased
cost or reduction in amounts received or receivable hereunder. Such Lender shall
deliver to Borrower (with a copy to Administrative Agent) a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Lender under this Section 2.18(a), which statement shall be
conclusive and binding upon all parties hereto absent manifest error.
(b) In the event that any Lender shall have determined that the adoption,
effectiveness, phase-in or applicability after the date hereof of any law, rule
or regulation (or any provision thereof) regarding capital adequacy, or any
change therein or in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
applicable lending office) with any guideline, request or directive regarding
capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's Loans or Revolving Commitments or Letters of Credit or other
obligations hereunder with respect to the Loans or the Letters of Credit to a
level below that which such Lender or such controlling corporation could have
achieved but for such adoption, effectiveness, phase-in, applicability, change
or compliance (taking into consideration the policies of such Lender or such
controlling corporation with regard to capital adequacy), then from time to
time, within five Business Days after receipt by Borrower from such Lender of
the statement referred to in the next sentence, Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender or such
controlling corporation on an after-tax basis for such reduction. Such Lender
shall deliver to Borrower (with a copy to Administrative Agent) a written
statement, setting forth in reasonable detail the basis for calculating the
additional amounts
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owed to Lender under this Section 2.18(b), which statement shall be conclusive
and binding upon all parties hereto absent manifest error.
2.19. TAXES; WITHHOLDING, ETC. (a) All sums payable by any Credit Party
hereunder and under the other Credit Documents shall (except to the extent
required by law) be paid free and clear of, and without any deduction or
withholding on account of, any Tax (other than a Tax on the overall net income
of any Lender) imposed, levied, collected, withheld or assessed by or within the
United States of America or any political subdivision in or of the United States
of America or any other jurisdiction from or to which a payment is made by or on
behalf of any Credit Party or by any federation or organization of which the
United States of America or any such jurisdiction is a member at the time of
payment.
(b) If any Credit Party or any other Person is required by law to make any
deduction or withholding on account of any such Tax from any sum paid or payable
by any Credit Party to Administrative Agent or any Lender under any of the
Credit Documents: (i) Borrower shall notify Administrative Agent of any such
requirement or any change in any such requirement as soon as Borrower becomes
aware of it; (ii Borrower shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to pay is
imposed on any Credit Party) for its own account or (if that liability is
imposed on Administrative Agent or such Lender, as the case may be) on behalf of
and in the name of Administrative Agent or such Lender; (ii the sum payable by
such Credit Party shall be increased to the extent necessary to ensure that,
after the making of all required deductions, withholding or payments (including
those applicable to additional sums payable under this Section), Administrative
Agent or such Lender, as the case may be, receives on the due date a net sum
equal to what it would have received had no such deduction, withholding or
payment been required or made; and (iv within thirty (30) days after paying any
sum from which it is required by law to make any deduction or withholding, and
within thirty (30) days after the due date of payment of any Tax which it is
required by clause (ii) above to pay, Borrower shall deliver to Administrative
Agent evidence satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant taxing or
other authority; provided, no such additional amount shall be required to be
paid to any Lender under clause (iii) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the signature pages
hereof on the Closing Date) or after the effective date of the Assignment
Agreement pursuant to which such Lender became a Lender (in the case of each
other Lender) in any such requirement for a deduction, withholding or payment as
is mentioned therein shall result in an increase in the rate of such deduction,
withholding or payment from that in effect at the date hereof or at the date of
such Assignment Agreement, as the case may be, in respect of payments to such
Lender.
(c) Each Lender that is not a United States Person (as such term is
defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal
income tax purposes (a "NON-US LENDER") shall deliver to Administrative Agent
for transmission to Borrower, on or prior to the Closing Date (in the case of
each Lender listed on the signature pages hereof on the Closing Date) or on or
prior to the date of the Assignment Agreement pursuant to which it becomes a
Lender (in
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the case of each other Lender), and at such other times as may be necessary
in the determination of Borrower or Administrative Agent (each in the reasonable
exercise of its discretion), (i) two original copies of Internal Revenue Service
Form 1001 or 4224 (or any successor forms), properly completed and duly executed
by such Lender, and such other documentation required under the Internal Revenue
Code and reasonably requested by Borrower to establish that such Lender is not
subject to deduction or withholding of United States federal income tax with
respect to any payments to such Lender of principal, interest, fees or other
amounts payable under any of the Credit Documents, or (ii if such Lender is not
a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, a Certificate re Non-Bank Status together with two
original copies of Internal Revenue Service Form W-8 (or any successor form),
properly completed and duly executed by such Lender, and such other
documentation required under the Internal Revenue Code and reasonably requested
by Borrower to establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to any payments to
such Lender of interest payable under any of the Credit Documents. Each Lender
required to deliver any forms, certificates or other evidence with respect to
United States federal income tax withholding matters pursuant to this Section
2.19(c) hereby agrees, from time to time after the initial delivery by such
Lender of such forms, certificates or other evidence, whenever a lapse in time
or change in circumstances renders such forms, certificates or other evidence
obsolete or inaccurate in any material respect, that such Lender shall deliver
to Administrative Agent for transmission to Borrower two new original copies of
Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-Bank Status
and two original copies of Internal Revenue Service Form W-8, as the case may
be, properly completed and duly executed by such Lender, and such other
documentation required under the Internal Revenue Code and reasonably requested
by Borrower to confirm or establish that such Lender is not subject to deduction
or withholding of United States federal income tax with respect to payments to
such Lender under the Credit Documents, or notify Administrative Agent and
Borrower of its inability to deliver any such forms, certificates or other
evidence. Borrower shall not be required to pay any additional amount to any
Non-US Lender under Section 2.19(b)(iii) if such Lender shall have failed to
deliver the forms, certificates or other evidence referred to in the second
sentence of this Section 2.19(c); provided, if such Lender shall have satisfied
the requirements of the first sentence of this Section 2.19(c) on the Closing
Date or on the date of the Assignment Agreement pursuant to which it became a
Lender, as applicable, nothing in this last sentence of Section 2.19(c) shall
relieve Borrower of its obligation to pay any additional amounts pursuant to
Section 2.18(a) in the event that, as a result of any change in any applicable
law, treaty or governmental rule, regulation or order, or any change in the
interpretation, administration or application thereof, such Lender is no longer
properly entitled to deliver forms, certificates or other evidence at a
subsequent date establishing the fact that such Lender is not subject to
withholding as described herein.
2.20. OBLIGATION TO MITIGATE. Each Lender agrees that, as promptly as
practicable after the officer of such Lender responsible for administering its
Loans or Letters of Credit, as the case may be, becomes aware of the occurrence
of an event or the existence of a condition that would cause such Lender to
become an Affected Lender or that would entitle such Lender to receive payments
under Section 2.17, 2.18 or 2.19, it will, to the extent not inconsistent with
the internal policies of
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such Lender and any applicable legal or regulatory restrictions, use reasonable
efforts (a) to make, issue, fund or maintain its Credit Extensions including any
Affected Loans, through another office of such Lender, or (b) take such other
measures as such Lender may deem reasonable, if as a result thereof the
circumstances which would cause such Lender to be an Affected Lender would cease
to exist or the additional amounts which would otherwise be required to be paid
to such Lender pursuant to Section 2.17, 2.18 or 2.19 would be materially
reduced and if, as determined by such Lender in its sole discretion, the making,
issuing, funding or maintaining of such Revolving Commitments, Loans or Letters
of Credit through such other office or in accordance with such other measures,
as the case may be, would not otherwise materially adversely affect such
Revolving Commitments, Loans, Letters of Credit or the interests of such Lender;
provided, such Lender will not be obligated to utilize such other office
pursuant to this Section 2.20 unless Borrower agrees to pay all incremental
expenses incurred by such Lender as a result of utilizing such other office as
described in clause (a) above. Such Lender will deliver to Borrower a
certificate as to the amount of any such expenses payable by Borrower pursuant
to this Section 2.20 setting forth in reasonable detail the basis for requesting
such amount (with a copy to Administrative Agent), and such certificate shall be
conclusive absent manifest error.
2.21. DEFAULTING LENDERS. Anything contained herein to the contrary
notwithstanding, in the event that any Lender, at the direction or request of
any regulatory agency or authority, defaults (a "DEFAULTING LENDER") in its
obligation to fund (a "FUNDING DEFAULT") any Revolving Loan (a "DEFAULTED
LOAN"), then (a) during any Default Period with respect to such Defaulting
Lender, such Defaulting Lender shall be deemed not to be a "Lender" for purposes
of voting on any matters (including the granting of any consents or waivers)
with respect to any of the Credit Documents; (b) to the extent permitted by
applicable law, until such time as the Default Excess with respect to such
Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment
of the Revolving Loans shall, if Borrower so directs at the time of making such
voluntary prepayment, be applied to the Revolving Loans of other Lenders as if
such Defaulting Lender had no Revolving Loans outstanding and the Revolving
Exposure of such Defaulting Lender were zero, and (ii any mandatory prepayment
of the Revolving Loans shall, if Borrower so directs at the time of making such
mandatory prepayment, be applied to the Revolving Loans of other Lenders (but
not to the Revolving Loans of such Defaulting Lender) as if such Defaulting
Lender had funded all Defaulted Loans of such Defaulting Lender, it being
understood and agreed that Borrower shall be entitled to retain any portion of
any mandatory prepayment of the Revolving Loans that is not paid to such
Defaulting Lender solely as a result of the operation of the provisions of this
clause (b); (c) such Defaulting Lender's Revolving Commitment and outstanding
Revolving Loans and such Defaulting Lender's Pro Rata Share of the Letter of
Credit Usage shall be excluded for purposes of calculating the Revolving
Commitment fee payable to Lenders pursuant to Section 2.9 in respect of any day
during any Default Period with respect to such Defaulting Lender, and such
Defaulting Lender shall not be entitled to receive any Revolving Commitment fee
pursuant to Section 2.9 with respect to such Defaulting Lender's Revolving
Commitment in respect of any Default Period with respect to such Defaulting
Lender; and (d) the Total Utilization of Revolving Commitments as at any date of
determination shall be calculated as if such Defaulting Lender had funded all
Defaulted Loans of such Defaulting Lender. No Revolving Commitment of any
Lender shall be increased or otherwise
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affected by, and, except as otherwise expressly provided in this Section 2.21,
performance by Borrower of its obligations hereunder and the other Credit
Documents shall not be excused or otherwise modified as a result of, any Funding
Default or the operation of this Section 2.21. The rights and remedies against a
Defaulting Lender under this Section 2.21 are in addition to other rights and
remedies which Borrower may have against such Defaulting Lender with respect to
any Funding Default and which Administrative Agent or any Lender may have
against such Defaulting Lender with respect to any Funding Default.
2.22. REMOVAL OR REPLACEMENT OF A LENDER. Anything contained herein to the
contrary notwithstanding, in the event that: (a) any Lender (an "INCREASED-COST
LENDER") shall give notice to Borrower that such Lender is an Affected Lender or
that such Lender is entitled to receive material payments under Section 2.17,
2.18 or 2.19, the circumstances which have caused such Lender to be an Affected
Lender or which entitle such Lender to receive such payments shall remain in
effect, and such Lender shall fail to withdraw such notice within five Business
Days after Borrower's request for such withdrawal; or (b) any Lender shall
become a Defaulting Lender, the Default Period for such Defaulting Lender shall
remain in effect, and such Defaulting Lender shall fail to cure the default as a
result of which it has become a Defaulting Lender within five Business Days
after Borrower's request that it cure such default; or (c) in connection with
any proposed amendment, modification, termination, waiver or consent with
respect to any of the provisions hereof as contemplated by Section 10.5(b), the
consent of Requisite Lenders shall have been obtained but the consent of one or
more of such other Lenders (each, a "NON-CONSENTING LENDER") whose consent is
required shall not have been obtained, and the failure to obtain Non-Consenting
Lenders' consents does not result solely from the exercise of Non-Consenting
Lenders' rights (and the withholding of any required consents by Non-Consenting
Lenders) pursuant to the proviso to Section 10.5(c)(i); then, with respect to
each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the
"TERMINATED LENDER"), Borrower may, by giving written notice to Administrative
Agent and any Terminated Lender of its election to do so, elect to cause such
Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to
assign its outstanding Loans and its Revolving Commitments, if any, in full to
one or more Eligible Assignees (each, a "REPLACEMENT LENDER") in accordance with
the provisions of Section 10.6 and Terminated Lender shall pay any fees payable
thereunder in connection with such assignment; provided, (1) on the date of such
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assignment, Borrower shall pay any amounts payable to such Terminated Lender
pursuant to Section 2.17(c), 2.18 or 2.19 or otherwise as if it were a
prepayment and (2) in the event such Terminated Lender is a Non-Consenting
Lender, each Replacement Lender shall consent, at the time of such assignment,
to each matter in respect of which such Terminated Lender was a Non-Consenting
Lender; provided, (A) Borrower may not make such election with respect to any
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Non-Consenting Lender unless Borrower also makes such election with respect to
each other Terminated Lender which is a Non-Consenting Lender and (B) Borrower
may not make such election with respect to any Terminated Lender that is also an
Issuing Bank unless, prior to the effectiveness of such election, Borrower shall
have caused each outstanding Letter of Credit issued thereby to be cancelled.
Upon the prepayment of all amounts owing to any Terminated Lender and the
termination of such Terminated Lender's Revolving Commitments, if any, such
Terminated Lender shall no longer constitute a "Lender" for purposes hereof;
provided, any rights of such Terminated Lender to indemnification hereunder
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shall survive as to such Terminated Lender.
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SECTION 3. CONDITIONS PRECEDENT
3.1 CLOSING DATE. The obligation of any Lender to make a Credit Extension
on the Closing Date is subject to the satisfaction, or waiver in accordance with
Section 10.5, of the following conditions on or before the Closing Date:
(a) Credit Documents. Administrative Agent shall have received sufficient
----------------
copies of each Credit Document originally executed and delivered by each
applicable Credit Party for each Lender.
(b) Organizational Documents; Incumbency, Etc. Administrative Agent shall
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have received (i) sufficient copies of each Organizational Document originally
executed and delivered by each Credit Party, as applicable, and, to the extent
applicable, certified as of a recent date by the appropriate governmental
official, for each Lender and its counsel, each dated the Closing Date or a
recent date prior thereto; (ii) signature and incumbency certificates of the
officers of such Person executing the Credit Documents to which it is a party;
(iii) resolutions of the Board of Directors or similar governing body of each
Credit Party approving and authorizing the execution, delivery and performance
of this Agreement and the other Credit Documents and the Related Agreements to
which it is a party or by which it or its assets may be bound as of the Closing
Date, certified as of the Closing Date by its secretary or an assistant
secretary as being in full force and effect without modification or amendment;
(iv) a good standing certificate from the applicable Governmental Authority of
each Credit Party's jurisdiction of incorporation, organization or formation and
in each jurisdiction in which it is qualified as a foreign corporation or other
entity to do business, each dated a recent date prior to the Closing Date; and
(v) such other documents as Administrative Agent may reasonably request.
(c) Organizational and Capital Structure. The organizational structure and
------------------------------------
the capital structure of Holdings and its Subsidiaries, both before and after
giving effect to the Transactions, shall be as set forth on Schedule 4.1.
(d) Capitalization of Holdings. The Administrative Agent, the Syndication
--------------------------
Agent and Requisite Lenders shall be satisfied in all respects with Holdings'
capital structure.
(e) Capitalization of Borrower. On the Closing Date, Borrower shall have
--------------------------
Equity Capital equal to no less than 40% of Original Enterprise Value if the
Senior Subordinated Notes have not been issued, or 29.2% of Original Enterprise
Value if the Senior Subordinated Notes have been issued on or prior to the
Closing Date, as set forth in a certificate delivered to Administrative Agent
(with copies for each Lender) from the chief financial officer and the chief
executive officer of Borrower dated the Closing Date and with appropriate
attachments. The Administrative Agent, the Syndication Agent and Requisite
Lenders shall be satisfied in all other respects with the Borrower's capital
structure.
(f) Certain Employees. Syndication Agent and Administrative Agent shall
-----------------
have received duly executed copies of, and shall be satisfied with the form and
substance of, the Employment Agreement.
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(g) Related Agreements and Opinions. Syndication Agent and Administrative
-------------------------------
Agent shall each have received a fully executed or conformed copy of each
Related Agreement (without duplication of the Muzak LLC Agreement or the
Holdings LLC Agreement delivered pursuant to Section 3.1(b)), certified by each
Credit Party thereto, together with copies of each of the opinions of counsel
delivered to the parties under the Related Agreements, accompanied by a letter
from each such counsel authorizing Lenders to rely upon such opinion to the same
extent as though it were addressed to Lenders, except in the case of any such
legal opinion rendered by counsel to any Person other than a Credit Party to the
extent such counsel has refused to deliver such a letter on the basis that it is
inconsistent with such counsel's internal policies. Each Related Agreement,
including, without limitation, the Capstar Documentation (which documentation
shall evidence a definitive agreement among the parties thereto with respect to
the Capstar Contribution), shall be in form and substance reasonably
satisfactory to the Syndication Agent and Administrative Agent and shall be in
full force and effect and no provision thereof shall have been modified or
waived in any respect determined by Syndication Agent or Administrative Agent to
be material, in each case without the consent of Syndication Agent and
Administrative Agent.
(h) Consummation of Transactions.
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(i) Merger. All conditions to the Merger set forth in Article VII of
------
the Merger Agreement shall have been satisfied in all material respects or the
fulfillment of any such conditions shall have been waived with the consent of
Syndication Agent and Administrative Agent, and the Merger shall have become
effective in accordance with the terms of the Merger Agreement. The aggregate
consideration paid by Borrower and Holdings in connection with the Merger shall
not exceed $127,500,000. Immediately following consummation of the Merger and
after giving effect thereto, there shall be at least $10,000,000 of Revolving
Loans available to be borrowed pursuant to Section 2.2.
(ii) Consent Solicitation. Each of the Consent Solicitation and the
--------------------
purchase of all Existing Senior Notes tendered pursuant thereto, and the
Existing Indenture Amendments shall have been effected and consummated and
Administrative Agent and the Syndication Agent shall have received evidence
reasonably satisfactory to them of the foregoing.
(iii) Other Transactions. All conditions to the other Transactions
------------------
(other than the Capstar Omaha Contribution) set forth in the Related Agreements
shall have been satisfied in all material respects or the fulfillment of any
such conditions shall have been waived with the consent of Administrative Agent
and Requisite Lenders (such consent not to be unreasonably withheld).
Administrative Agent shall have received evidence reasonably satisfactory to it
that each of the Transactions shall have been consummated or will be consummated
on the Closing Date other than the Capstar Omaha Contribution.
(i) Existing Debt.
-------------
(i) On the Closing Date, and after giving effect to the Transactions,
(A) all Existing Debt shall be paid in full, (B) any commitments to lend
thereunder shall have been terminated, (C) all security interests created to
secure the obligations arising in connection therewith
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shall have been terminated or effectively assigned to Administrative Agent for
the benefit of Lenders, and (D) Borrower shall have delivered to Administrative
Agent UCC-3 termination statements or assignments (or comparable forms) and any
and all other instruments of release, satisfaction, assignment and/or
reconveyance (or evidence of the filing thereof) as may be necessary or
advisable to terminate or assign to Administrative Agent for the benefit of
Lenders all such security interests and all other security interests in the
Collateral. On or prior to the Closing Date, Syndication Agent and
Administrative Agent shall have received all pay-off or termination agreements
or other documents evidencing the repayment of all Existing Debt. The aggregate
amount of principal and premium required to repay, purchase and defease, as
applicable, all of the Existing Debt shall not exceed $175,000,000 or such
larger amount, if any, as is satisfactory to Requisite Lenders in their sole
discretion.
(ii) Syndication Agent and Administrative Agent shall have received a
certificate of Borrower executed on Borrower's behalf by an Authorized Officer
of Borrower stating that, after giving effect to the Transactions, the
Indebtedness of Credit Parties (other than Indebtedness under the Credit
Documents, any Senior Subordinated Notes and any Holdings Notes or Closing Date
Sponsor Debt) shall consist of approximately $6,100,000 in aggregate principal
amount of outstanding Indebtedness described on Schedule 6.1. The terms and
conditions of all such Indebtedness shall be in form and in substance
satisfactory to Syndication Agent, Administrative Agent and Requisite Lenders.
(j) Pro Forma Total Leverage Ratio. Borrower shall have delivered to
------------------------------
Administrative Agent (with copies for each Lender) a certificate of Borrower,
executed on behalf of Borrower by the chief financial officer and the chief
executive officer of Borrower, dated the Closing Date and with appropriate
attachments, demonstrating that after giving effect to the consummation of the
Transactions on a Pro Forma Basis, the Total Leverage Ratio shall not be greater
than 5.25:1.00 if the Senior Subordinated Notes have not been issued, or
6.25:1.00 if the Senior Subordinated Notes have been issued on or prior to the
Closing Date.
(k) Use of Proceeds by Borrower. Borrower shall have provided evidence
---------------------------
satisfactory to Syndication Agent and Administrative Agent that the proceeds
from the issuance of any Senior Subordinated Notes and from the issuance of any
Holdings Notes or from the incurrence of any Closing Date Sponsor Debt have been
irrevocably committed, prior to the application of the proceeds of the Term
Loans and any Revolving Loans made on the Closing Date, to the payment of a
portion of the financing requirements in connection with the Transactions.
(l) Transaction Costs. On or prior to the Closing Date, Borrower shall
-----------------
have delivered to Administrative Agent Borrower's reasonable best estimate of
the Transaction Costs (other than fees payable to any Agent) and such estimate
(together with all fees payable to Agents) shall not exceed $11,500,000.
(m) Governmental Authorizations and Consents. Each Credit Party shall have
----------------------------------------
obtained all Governmental Authorizations and all consents of other Persons, in
each case that are necessary or advisable in connection with the Transactions
(other than the Capstar Omaha Contribution) and each of the foregoing shall be
in full force and effect and in form and substance reasonably
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satisfactory to the Administrative Agent. All applicable waiting periods shall
have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on the Transactions or the financing thereof and no action, request for stay,
petition for review or rehearing, reconsideration, or appeal with respect to any
of the foregoing shall be pending, and the time for any applicable agency to
take action to set aside its consent on its own motion shall have expired.
(n) Personal and Mixed Property Collateral. In order to create in favor of
--------------------------------------
Administrative Agent, for the benefit of Lenders, a valid and, subject to any
filing and/or recording referred to herein, perfected First Priority security
interest in all personal and mixed property Collateral, Administrative Agent
shall have received:
(i) (A) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Administrative Agent) representing all
shares of Capital Stock pledged pursuant to the Pledge and Security Agreement,
and Acknowledgments of Pledge from each applicable issuer of Securities pledged
pursuant to the Pledge and Security Agreement and (B) all instruments and
promissory notes (which instruments shall be accompanied by instruments of
transfer or assignment duly endorsed in blank and otherwise in form and
substance satisfactory to Administrative Agent) evidencing all Indebtedness
pledged pursuant to the Pledge and Security Agreement;
(ii) (A) the results of a recent search, by a Person satisfactory to
Syndication Agent and Administrative Agent, of all effective UCC financing
statements and fixture filings and all judgment and tax lien filings which may
have been made with respect to any personal or mixed property of any Credit
Party, together with copies of all such filings disclosed by such search, and
(B) UCC termination statements duly executed by all applicable Persons for
filing in all applicable jurisdictions as may be necessary to terminate any
effective UCC financing statements or fixture filings disclosed in such search
(other than any such financing statements or fixture filings in respect of
Permitted Liens);
(iii) UCC financing statements, duly executed by each applicable
Credit Party with respect to all personal and mixed property Collateral of such
Credit Party, for filing in all jurisdictions as may be necessary or, in the
opinion of Syndication Agent and Administrative Agent, desirable to perfect the
security interests created in such Collateral pursuant to the Collateral
Documents;
(iv) all releases, cover sheets or other documents or instruments
required to be filed in order to create or perfect Liens in respect of any
Intellectual Property;
(v) an opinion of counsel (which counsel shall be reasonably
satisfactory to Syndication Agent and Administrative Agent) with respect to the
creation and perfection of the security interests in favor of Administrative
Agent in such Collateral and such other matters governed by the laws of the
states of Washington and Maryland and each other jurisdiction in which any
Credit Party or any personal or mixed property Collateral is located as
Syndication Agent and
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Administrative Agent may reasonably request, in each case in form and substance
reasonably satisfactory to Syndication Agent and Administrative Agent; and
(vi) evidence that each Credit Party shall have taken or caused to
be taken any other action, executed and delivered or caused to be executed and
delivered any other agreement, document and instrument, and made or caused to be
made any other filing and recording (other than as set forth herein) reasonably
required by Syndication Agent and Administrative Agent.
(o) Financial Statements; Projections. Lenders shall have received from
---------------------------------
Borrower (i) the Historical Financial Statements, (ii) pro forma consolidated
and consolidating balance sheets of Borrower and its Subsidiaries as at December
31, 1998, together with the related pro forma consolidated and consolidating
statements of income and cash flows, in each case prepared in accordance with
GAAP and reflecting the consummation of the Merger and the other Transactions to
occur on or prior to the Closing Date, which pro forma financial statements
shall be in form and substance satisfactory to Lenders (collectively the "PRO
FORMA FINANCIAL STATEMENTS"), and (iii) the Projections.
(p) Evidence of Insurance. Syndication Agent and Administrative Agent
---------------------
shall have received a certificate from Borrower's insurance broker or other
evidence satisfactory to it that all insurance required to be maintained
pursuant to Section 5.5 is in full force and effect and that Administrative
Agent on behalf of Lenders has been named as additional insured and/or loss
payee thereunder to the extent required under Section 5.5.
(q) Opinions of Counsel to Credit Parties. Lenders and their respective
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counsel shall have received originally executed copies of the favorable written
opinions of Kirkland & Ellis, counsel for Credit Parties, and each other counsel
to any Credit Party, as to such matters as Administrative Agent or Syndication
Agent may reasonably request and in form and substance reasonably satisfactory
to Administrative Agent and Syndication Agent and its counsel, dated as of the
Closing Date.
(r) Opinions of Counsel to Syndication Agent. Lenders shall have received
----------------------------------------
originally executed copies of one or more favorable written opinions of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent and Administrative
Agent, dated as of the Closing Date, in form and substance reasonably
satisfactory to Syndication Agent and Administrative Agent.
(s) Fees. Borrower shall have paid to Syndication Agent and Administrative
----
Agent, for distribution (as appropriate) to Syndication Agent, Administrative
Agent and Lenders, the fees payable on the Closing Date referred to in Section
2.9.
(t) Solvency. On the Closing Date, Syndication Agent, Administrative Agent
--------
and Lenders shall have received (i) a letter from Houlihan Lokey Howard & Zukin
dated the Closing Date and addressed to Syndication Agent, Administrative Agent
and Lenders, in form, scope and substance satisfactory to Syndication Agent and
Administrative Agent and (ii) a Solvency Certificate from Borrower, executed on
behalf of Borrower by the chief financial officer of Borrower, in each
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case with appropriate attachments and demonstrating that after giving effect to
the consummation of the Transactions, Borrower and its Subsidiaries are and will
be Solvent.
(u) Completion of Proceedings. All partnership, corporate and other
-------------------------
proceedings taken or to be taken in connection with the Transactions (other than
the Capstar Omaha Contribution) and all documents incidental thereto not
previously found acceptable by Administrative Agent, acting on behalf of
Lenders, or Syndication Agent and its counsel shall be satisfactory in form and
substance to Administrative Agent and Syndication Agent and such counsel, and
Administrative Agent, Syndication Agent and such counsel shall have received all
such counterpart originals or certified copies of such documents as
Administrative Agent or Syndication Agent may reasonably request.
(v) Closing Date Certificate. Holdings and Borrower shall have delivered
------------------------
to Syndication Agent and Administrative Agent an originally executed Closing
Date Certificate, together with all attachments thereto.
(w) Closing Date. Lenders shall have made the Term Loans to Borrower on
------------
or before April 30, 1999.
Each Lender, by delivering its signature page to this Agreement and funding its
Tranche A Term Loan Amount, Tranche B Term Loan Amount, Tranche C Term Loan
Amount and/or a Revolving Loan on the Closing Date, shall be deemed to have
acknowledged receipt of, and consented to and approved, each Credit Document and
each other document required to be approved by Requisite Lenders or Lenders, as
applicable.
3.2. CONDITIONS TO EACH CREDIT EXTENSION. (a) The obligation of any Lender
to make a Credit Extension on any Credit Date, including the Closing Date, is
subject to the satisfaction, or waiver in accordance with Section 10.5, of the
following conditions precedent:
(i) Administrative Agent shall have received a fully executed and
delivered Funding Notice or Issuance Notice, as the case may be. If either the
Senior Subordinated Notes or the Holdings Notes have been issued, then at any
time on or after any Transition Date pursuant to which the sum of the Total
Utilization of Revolving Commitments and the Term Loan Exposure, either before
or after giving effect to any proposed borrowing, equals or exceeds, or would
equal or exceed, $200,000,000, each Funding Notice shall be accompanied by a
certificate of Borrower, executed on behalf of Borrower by an Authorized
Officer, demonstrating in reasonable detail compliance with the covenants
contained in each of the Senior Subordinated Note Indenture and the Holdings
Note Indenture, as applicable, restricting the incurrence of Indebtedness (as
defined therein);
(ii) after making the Credit Extensions requested on such Credit
Date, the Total Utilization of Revolving Commitments shall not exceed the
Revolving Commitments then in effect;
(iii) no injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other restraining order to be
issued shall be pending or noticed with respect
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to any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, the
transactions contemplated hereby or the making any Credit Extension;
(iv) as of such Credit Date, the representations and warranties
contained herein and in the other Credit Documents shall be true, correct and
complete in all material respects on and as of that Credit Date to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall have been true, correct and
complete in all material respects on and as of such earlier date;
(v) as of such Credit Date, no event shall have occurred and be
continuing or would result from the consummation of the applicable Credit
Extension that would constitute an Event of Default or a Default; and
(vi) on or before the date of issuance of any Letter of Credit,
Administrative Agent shall have received all other information required by the
applicable Issuance Notice, and such other documents or information as Issuing
Bank may reasonably require in connection with the issuance of such Letter of
Credit.
(b) Any Notice shall be executed by an Authorized Officer in a writing
delivered to Administrative Agent. In lieu of delivering a Notice, Borrower may
give Administrative Agent telephonic notice by the required time of any proposed
borrowing, conversion/continuation or issuance of a Letter of Credit, as the
case may be; provided each such notice shall be promptly confirmed in writing by
delivery of the applicable Notice to Administrative Agent on or before the
applicable date of borrowing, continuation/conversion or issuance. Neither
Administrative Agent nor any Lender shall incur any liability to Borrower in
acting upon any telephonic notice referred to above that Administrative Agent
believes in good faith to have been given by a duly authorized officer or other
person authorized on behalf of Borrower or for otherwise acting in good faith.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make each
Credit Extension to be made hereby, each Credit Party represents and warrants to
each Lender, on the Closing Date and on each Credit Date, that the following
statements are true, correct and complete (it being understood and agreed that
the representations and warranties made on the Closing Date are deemed to be
made concurrently with the consummation of the Transactions as contemplated
hereby):
4.1. ORGANIZATION; POWERS; QUALIFICATION; CAPITALIZATION. (a) Each of
Holdings, Borrower and each of their respective Subsidiaries (i) is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization as identified in Schedule 4.1, (ii) has all
requisite power and authority to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted, to enter into the
Credit Documents to which it is a party and to carry out the transactions
contemplated thereby, and (iii) is qualified to do business and in
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good standing in every jurisdiction where its assets are located and wherever
necessary to carry out its business and operations, except in jurisdictions
where the failure to be so qualified or in good standing has not had, and could
not be reasonably expected to have, a Material Adverse Effect. Schedule 4.1
correctly sets forth the ownership interest of Holdings, Borrower and each of
their respective Subsidiaries in their respective Subsidiaries as of the Closing
Date, both before and after giving effect to the Transactions. Other than
Borrower and Muzak Holdings Finance, Holdings has no direct Subsidiaries or
Investments.
(b) The Capital Stock of each corporate Subsidiary of Borrower has been
duly authorized and validly issued and is fully paid and non-assessable. Except
as expressly provided on Schedule 4.1, as of the date hereof, there is no
existing option, warrant, call, right, commitment or other agreement to which
Holdings, Borrower or any of their respective Subsidiaries is a party requiring,
and there is no membership interest or other Capital Stock of Borrower or any of
its Subsidiaries outstanding which upon conversion or exchange would require,
the issuance by Borrower or any of its Subsidiaries of any additional membership
interests or other Capital Stock of Borrower or any of its Subsidiaries or other
Securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase, a membership interest or other Capital Stock of
Borrower or any of its Subsidiaries.
4.2. VALID ISSUANCE. (a) Holdings has the limited liability company power
and authority to issue the Holdings Notes. The Holdings Notes, when issued and
paid for, will be the legally valid and binding obligations of Holdings,
enforceable against Holdings in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability. The Obligations of Holdings hereunder are
and will be within the definition of "Permitted Indebtedness" included in such
terms. The Holdings Notes, when issued and sold, will either (i) have been
registered or qualified under applicable federal and state securities laws or
(ii) be exempt therefrom.
(b) Borrower has the limited liability company power and authority to
issue the Senior Subordinated Notes. The Senior Subordinated Notes, when issued
and paid for, will be the legally valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability. The subordination provisions of the
Senior Subordinated Notes will be enforceable against the holders thereof and
the Loans and all other monetary Obligations hereunder are and will be within
the definition of "Senior Indebtedness" included in such provisions. The Senior
Subordinated Notes, when issued and sold, will either (i) have been registered
or qualified under applicable federal and state securities laws or (ii) be
exempt therefrom.
(c) Each of Holdings and Borrower has the limited liability company power
and authority to enter into each Permitted Sponsor Subordinated Debt Agreement,
if any. Each such Agreement, when executed, will constitute the legally valid
and binding obligation of Holdings or Borrower, as applicable, enforceable
against Holdings or Borrower, as applicable, in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws
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relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability. The subordination provisions of the Permitted
Sponsor Debt Agreement will be enforceable against the holders thereof, and the
Obligations of Holdings and Borrower, as applicable, hereunder are and will be
within the definition of "Senior Indebtedness" included in such provisions.
4.3. AUTHORIZATION OF CREDIT DOCUMENTS; NO CONFLICT. The execution,
delivery and performance of the Credit Documents have been duly authorized by
all necessary action on the part of each Credit Party that is a party thereto.
The execution, delivery and performance by Credit Parties of the Credit
Documents to which they are parties and the consummation of the transactions
contemplated by the Credit Documents do not and will not (a) violate any
provision of any law or any governmental rule or regulation applicable to
Holdings, Borrower or any of their respective Subsidiaries, any of the
Organizational Documents of Holdings, Borrower or any of their respective
Subsidiaries, or any order, judgment or decree of any court or other agency of
government binding on Holdings, Borrower or any of their respective
Subsidiaries; (b) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any Contractual Obligation of
Holdings, Borrower or any of their respective Subsidiaries; (c) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Holdings, Borrower or any of their respective Subsidiaries (other than
any Liens created under any of the Credit Documents in favor of Administrative
Agent on behalf of Lenders); or (d) require any approval of members or
stockholders of Holdings, Borrower or any of their respective Subsidiaries or
any approval or consent of any Person under any Contractual Obligation, except
for such approvals or consents which will be obtained on or before the Closing
Date and disclosed in writing to Lenders and except for any such approvals or
consents the failure of which to obtain will not have a Material Adverse Effect.
4.4. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Credit Parties of the Credit Documents to which they are parties and the
consummation of the transactions contemplated by the Credit Documents do not and
will not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Governmental Authority except for filings and
recordings with respect to the Collateral to be made, or otherwise delivered to
Administrative Agent, as of the Closing Date.
4.5. BINDING OBLIGATION. Each Credit Document has been duly executed and
delivered by each Credit Party that is a party thereto and is the legally valid
and binding obligation of such Credit Party, enforceable against such Credit
Party in accordance with its respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
4.6. FINANCIAL STATEMENTS; PROJECTIONS. The Financial Statements were
prepared in conformity with GAAP and fairly present, in all material respects,
the financial position, on a consolidated basis, of the Persons described in
such financial statements as at the respective dates thereof and the results of
operations and cash flows, on a consolidated basis, of the entities described
therein for each of the periods then ended, subject, in the case of any such
unaudited financial statements, to changes resulting from audit and normal year-
end adjustments. As of the date hereof, neither Borrower nor any of its
Subsidiaries has any contingent liability or liability for taxes, long-term
lease or unusual forward or long-term commitment that is not reflected in the
Financial
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Statements or the notes thereto and which in any such case is material in
relation to the business, operations, properties, assets, condition (financial
or otherwise) or prospects of Borrower and any of its Subsidiaries taken as a
whole. On and as of the Closing Date, the Projections of Borrower and its
Subsidiaries for the period December 31, 1999 through December 31, 2006 (the
"PROJECTIONS") are based on good faith estimates and assumptions made by the
management of Borrower; provided, the Projections are not to be viewed as facts
and that actual results during the period or periods covered by the Projections
may differ from such Projections and that the differences may be material;
provided further, as of the Closing Date, management of Borrower believed that
the Projections were reasonable and attainable.
4.7. NO MATERIAL ADVERSE EFFECT; NO RESTRICTED JUNIOR PAYMENTS. Since
December 31, 1998, no event or change has occurred that has caused or evidences,
or could reasonably be expected to have, either in any case or in the aggregate,
a Material Adverse Effect, and neither Holdings, Borrower nor any of their
respective Subsidiaries has directly or indirectly declared, ordered, paid or
made, or set apart any sum or property for, any Restricted Junior Payment or
agreed to do so except as permitted pursuant to Section 6.4.
4.8. ADVERSE PROCEEDINGS, ETC. There are no Adverse Proceedings,
individually or in the aggregate, that could reasonably be expected to have a
Material Adverse Effect. Neither Holdings, Borrower nor any of their respective
Subsidiaries (a) is in violation of any applicable laws (including Environmental
Laws) that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, or (b) is subject to or in default with respect
to any final judgments, writs, injunctions, decrees, rules or regulations of any
court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
4.9. PAYMENT OF TAXES. All Tax returns and reports of Holdings, Borrower
and their respective Subsidiaries required to be filed by any of them have been
timely filed and are true, correct and complete in all material respects, and
all Taxes upon Holdings, Borrower and their respective Subsidiaries and upon
their respective properties, assets, income, businesses and franchises required
to have been paid have been timely paid except Taxes that are being actively
contested in good faith and by appropriate proceedings and for which Holdings,
Borrower or such Subsidiary, as applicable, has set aside on its books adequate
reserves.
4.10. TITLE TO PROPERTIES; INTELLECTUAL PROPERTY. (a) Borrower and its
Subsidiaries have (i) good, sufficient and legal title to (in the case of fee
interests in real property), (ii) valid leasehold interests in (in the case of
leasehold interests in real or personal property), or (iii) good title to (in
the case of all other personal property), all of their respective properties and
assets reflected in their respective Historical Financial Statements referred to
in Section 4.6 and in the most recent financial statements delivered pursuant to
Section 5.1, in each case except for assets disposed of since the date of such
financial statements in the ordinary course of business or as otherwise
permitted under Section 6.7. Except as permitted by this Agreement, all such
properties and assets are free and clear of Liens.
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(b) As of the Closing Date, Schedule 4.10(b) contains a true, accurate and
complete list of (i) all Real Estate Assets, and (ii) all leases, subleases or
assignments of leases (together with all amendments, modifications, supplements,
renewals or extensions of any thereof) affecting each Real Estate Asset of any
Credit Party, regardless of whether such Credit Party is the landlord or tenant
(whether directly or as an assignee or successor in interest) under such lease,
sublease or assignment. Except as specified in Schedule 4.10(b), each agreement
listed in clause (ii) of the immediately preceding sentence is in full force and
effect and Borrower does not have knowledge of any default that has occurred and
is continuing thereunder that could reasonably be expected to have a Material
Adverse Effect, and each such agreement constitutes the legally valid and
binding obligation of each applicable Credit Party, enforceable against such
Credit Party in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles.
(c) As of the date hereof, Schedule 4.10(c) sets forth, for all
Intellectual Property owned by each Credit Party, a complete and accurate list
of all U.S. and foreign: (1) patents and patent applications; (2) trademark and
service mark registrations (including Internet domain name registrations),
trademark and service mark applications and material unregistered trademarks and
service marks; and (3) copyright registrations, copyright applications and
material unregistered copyrights and all exclusively licensed copyrights. As of
the date hereof, no Credit Party owns or exclusively licenses (i) any material
copyrights, or (ii) either individually or in the aggregate, any material sound
recordings or musical compositions, whether unpublished or published. All sound
recordings or musical compositions used or necessary for each Credit Party's
business (other than such non-material sound recordings and musical compositions
as are owned or exclusively licensed by MLP or MLP Environmental Music, LLC) are
utilized solely pursuant to non-exclusive License Agreements with third parties,
true and complete copies of each such non-exclusive License Agreement in effect
on the Closing Date shall have been provided to Syndication Agent and
Administrative Agent. As of the date hereof, Schedule 4.10(c) lists all
contracts for material Proprietary Software which is owned, licensed, leased or
otherwise used by each Credit Party (other than for Proprietary Software
purchased or licensed for less than a total cost of $1,000), and identifies
which Proprietary Software is owned or licensed. As of the date hereof,
Schedule 4.10(c) sets forth a complete and accurate list of all License
Agreements to which any Credit Party is a party or otherwise bound, as licensee
or licensor thereunder, and which are material to the operation of any Credit
Party's business.
(d) (i) Each Credit Party owns or has the right to use all material
Intellectual Property used in or necessary to its business, free and clear of
all Liens other than Permitted Liens; (ii) except as would not, individually or
in the aggregate, have a Material Adverse Effect, any Intellectual Property
owned by any Credit Party is in full force and effect and has not been
cancelled, expired or abandoned and to the best of each Credit Party's knowledge
is valid; (iii) as of the date hereof, except as set forth on Schedule 4.10(c),
no Credit Party has received written notice from any third party regarding any
actual or potential infringement by it of any intellectual property of such
third party, and to the best of each Credit Party's knowledge, the conduct of
its business as currently conducted does not infringe on the intellectual
property of any third party; (iv) as of the date hereof, except as set forth on
Schedule 4.10(c) no Credit Party has received written notice from any third
party regarding any assertion or claim challenging the validity of any
Intellectual Property owned
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or used by such Credit Party and no Credit Party has any knowledge of any basis
for such a claim; (v) as of the date hereof, no Credit Party has licensed or
sublicensed any material rights in any Intellectual Property, or received or
been granted any such rights, other than pursuant to the License Agreements;
(vi) except as set on Schedule 4.10(c), to the best of each Credit Party's
knowledge, no third party is misappropriating, infringing, diluting or violating
any material Intellectual Property owned by any Credit Party; (vii) the License
Agreements are valid and binding obligations of the applicable Credit Party,
enforceable in accordance with their terms, and there exists no event or
condition which will result in a violation or breach of, or constitute a default
by such Credit Party or, to the knowledge of any Credit Party, the other party
thereto, under any such License Agreement; (viii) each of the Credit Parties
takes reasonable measures to protect the confidentiality of material Trade
Secrets including requiring third parties having access thereto to execute
written nondisclosure agreements and no material Trade Secret of any Credit
Party has been authorized to be disclosed to any third party or to the best of
each Credit Party's knowledge disclosed to any third party, other than pursuant
to a written nondisclosure agreement that adequately protects the Credit Party
proprietary interests in and to such material Trade Secrets; (ix) the
consummation of the Transactions will not result in the loss or impairment of
any Credit Party to own or use any of the Intellectual Property which are
material to the operation of any Credit Party's business, nor, except as set
forth on Schedule 4.10(c), will such consummation require the consent of any
third party in respect of any Intellectual Property which, individually or in
the aggregate, are material to the operation of such Grantor's business; and (x)
all Proprietary Software owned by a Credit Party set forth in Schedule 4.10(c)
was either developed (A) by employees of a Credit Party within the scope of
their employment; or (B) by independent contractors who have assigned all of
their rights to a Credit Party pursuant to written agreement.
(e) No Credit Party employs any employee, contractor or consultant who,
to any Credit Party's knowledge, is in violation of any material term of any
written employment contract, patent disclosure agreement or any other written
contract or agreement relating to the relationship of any such employee,
consultant or contractor with such Credit Party or, to such Credit Party's
knowledge, with another party that could reasonably be expected to negatively
impact upon such Credit Party's Intellectual Property.
4.11. COLLATERAL. (a) The execution and delivery of the Collateral
Documents by Credit Parties, together with the actions taken on or prior to the
date hereof pursuant to Section 3.1(n), are effective to create in favor of
Administrative Agent for the benefit of Lenders, as security for the respective
Obligations, a valid and perfected First Priority Lien on all of the Collateral,
and all filings and other actions necessary or desirable to perfect and maintain
the perfection and First Priority status of such Liens have been duly made or
taken and remain in full force and effect, other than (i) the filing of any UCC
financing statements delivered to Administrative Agent for filing (but not yet
filed), (ii) the actions required under federal law to register and record
interests in copyrights and (iii) the periodic filing of UCC continuation
statements in respect of UCC financing statements filed by or on behalf of
Administrative Agent.
(b) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
either (i) the pledge or grant by any Credit Party of the Liens purported to be
created in favor of Administrative Agent pursuant to any of the
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Collateral Documents or (ii) the exercise by Administrative Agent of any rights
or remedies in respect of any Collateral (whether specifically granted or
created pursuant to any of the Collateral Documents or created or provided for
by applicable law), except (A) for filings or recordings contemplated by Section
3.1(n), (B) as may be required, in connection with the disposition of any
Investment Property, by laws generally affecting the offering and sale of
Securities and (C) any approval of the Federal Communications Commission that
may be required with respect to certain private microwave licenses held by any
Credit Party.
(c) Except with respect to any Permitted Lien and such as may have been
filed in favor of Administrative Agent as contemplated by Section 3.1(n), no
effective UCC financing statement, fixture filing or other instrument similar in
effect covering all or any part of the Collateral is on file in any filing or
recording office.
(d) All written information supplied to Administrative Agent by or on
behalf of any Credit Party with respect to any of the Collateral (in each case
taken as a whole with respect to any particular Collateral) is accurate and
complete in all material respects.
4.12. ENVIRONMENTAL. No Credit Party nor any of its Subsidiaries nor any
of their respective Facilities or operations are subject to any outstanding
written order, consent decree or settlement agreement with any Person relating
to any Environmental Law, any Environmental Claim, or any Hazardous Materials
Activity that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect. No Credit Party nor any of its Subsidiaries has
received any letter or request for information under Section 104 of the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
(S) 9604) or any comparable state law that could reasonably be expected to have
a Material Adverse Effect. There are and, to each Credit Party's knowledge, have
been no conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim against
Borrower or any of its Subsidiaries that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. Neither Borrower
nor any of its Subsidiaries nor, to any Credit Party's knowledge, any
predecessor of Borrower or any of its Subsidiaries has filed any notice under
any Environmental Law indicating past or present treatment of Hazardous
Materials at any Facility, and none of Borrower's or any of its Subsidiaries'
operations involves the generation, transportation, treatment, storage or
disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any
state equivalent that could reasonably be expected to have a Material Adverse
Effect. Compliance with all current or reasonably foreseeable future
requirements pursuant to or under Environmental Laws could not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect.
No event or condition has occurred or is occurring with respect to Borrower or
any of its Subsidiaries relating to any Environmental Law, any Release of
Hazardous Materials, or any Hazardous Materials Activity which individually or
in the aggregate has had, or could reasonably be expected to have, a Material
Adverse Effect.
4.13. NO DEFAULTS; MATERIAL CONTRACTS. No Credit Party is in default in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, could
constitute such a default, except where the consequences, direct or indirect, of
such
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default or defaults, if any, could not reasonably be expected to have a
Material Adverse Effect. Schedule 4.13 contains a true, correct and complete
list of all the Material Contracts in effect on the Closing Date, and except as
described thereon, as of the Closing Date, all such Material Contracts are in
full force and effect and no defaults currently exist thereunder.
4.14. GOVERNMENTAL REGULATION. Neither Holdings, Borrower nor any of their
respective Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act or the Investment Company Act
of 1940 or under any other federal or state statute or regulation which may
limit its ability to incur Indebtedness or which may otherwise render all or any
portion of the Obligations unenforceable.
4.15. MARGIN STOCK. Neither Holdings, Borrower nor any of their respective
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
Margin Stock. The pledge of the Investment Property pursuant the Pledge and
Security Agreement does not violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
4.16. EMPLOYEE MATTERS. There is no strike or work stoppage in existence
or threatened involving Borrower or any of its Subsidiaries that could
reasonably be expected to have a Material Adverse Effect.
4.17. EMPLOYEE BENEFIT PLANS. Borrower, each of its Subsidiaries and each
of their respective ERISA Affiliates are in compliance with all applicable
provisions and requirements of ERISA and the Internal Revenue Code and the
regulations and published interpretations thereunder with respect to each
Employee Benefit Plan, and have performed all their obligations under each
Employee Benefit Plan, except to the extent that any non-compliance with ERISA
or any such failure to perform would not, either individually or in the
aggregate, have a Material Adverse Effect on Borrower or any of its ERISA
Affiliates. Each Employee Benefit Plan which is intended to qualify under
Section 401(a) of the Internal Revenue Code is so qualified. No material
liability to the PBGC (other than required premium payments), the Internal
Revenue Service, any Employee Benefit Plan or any trust established under Title
IV of ERISA has been, or is expected to be incurred by Borrower, any of its
Subsidiaries or any of their ERISA Affiliates. No ERISA Event has occurred or
is reasonably expected to occur. Except to the extent required under Section
4980B of the Internal Revenue Code or similar state laws, no Employee Benefit
Plan provides health or welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employee of Borrower, any of its
Subsidiaries or any of their respective ERISA Affiliates. As of the most recent
valuation date for any Pension Plan there were no material unfunded benefit
liabilities (as defined in Section 4001(a)(18) of ERISA) with respect to any
Pension Plan. The potential liability of Borrower, its Subsidiaries and their
respective ERISA Affiliates for a complete withdrawal from each Multiemployer
Plan (within the meaning of Section 4203 of ERISA), when aggregated with such
potential liability for a complete withdrawal from all Multiemployer Plans does
not exceed $2,500,000. Borrower, each of its Subsidiaries and each of their
ERISA Affiliates have complied with the requirements of Section 515 of ERISA
with respect to each Multiemployer Plan and are not in material "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan.
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4.18. CERTAIN FEES. No broker's or finder's fee or commission will be
payable with respect hereto or any of the transactions contemplated hereby.
4.19. SOLVENCY. Each Credit Party is and, upon the incurrence of any
Obligation by such Credit Party on any date on which this representation and
warranty is made, will be, Solvent.
4.20. RELATED AGREEMENTS. Holdings and Borrower have delivered to
Syndication Agent and Administrative Agent complete and correct (i) copies of
each Related Agreement and of all exhibits and schedules thereto as of the date
hereof and (ii) copies of any material amendment, restatement, supplement or
other modification to or waiver of each Related Agreement entered into after the
date hereof. Except to the extent otherwise expressly set forth herein or in
the schedules hereto, and subject to the qualifications set forth therein, each
of the representations and warranties (a) given by MLP to Holdings and Borrower
in the Merger Agreement, (b) given by Holdings and Borrower to MLP in the Merger
Agreement, (c) given by any Credit Party in any other Related Agreement, and (d)
given in any Related Agreement by any other party to any Related Agreement, in
each case is true and correct in all material respects as of the Closing Date
(or as of any earlier date to which such representation and warranty
specifically relates). Notwithstanding anything in any Related Agreement to the
contrary, the representations and warranties of each Credit Party set forth in
this Section 4.20 shall, solely for purposes hereof, survive the Closing Date
for the benefit of Lenders. All Governmental Authorizations and all other
authorizations, approvals and consents of any other Person required by the
Related Agreements or to consummate the Transactions have been obtained and are
in full force and effect. On the Closing Date, (i) all of the conditions to
effecting or consummating the Transactions set forth in the Related Agreements
been duly satisfied or, with the consent of Administrative Agent and Requisite
Lenders, waived, and (ii) each of the Transactions has been consummated in
accordance with the Related Agreements and all applicable laws.
4.21. YEAR 2000 ISSUES. Borrower and its Subsidiaries (a) have engaged in
a process of assessment of the existence of the Year 2000 Issues reasonably
appropriate to the scope and complexity of their respective Systems and
Proprietary Software; (b) are in the process of adopting and implementing a plan
of correction ("PLAN OF CORRECTION") which will result in all Proprietary
Software and Systems used by Borrower and its Subsidiaries being Year 2000
Compliant by September 30, 1999; (c) are in the process of adopting and
successfully implementing validation procedures reasonably calculated to test on
an ongoing basis the sufficiency of the Plan of Correction, its implementation,
and the correction of Year 2000 Issues in all Systems and Proprietary Software;
(d) are in the process of adopting and implementing policies and procedures
requiring regular reports to, and monitoring by, senior management of Borrower
concerning the foregoing matters; and (e) have provided Administrative Agent
true and correct copies of the written Plan of Correction and all budget and
financial information relating to the Plan of Correction and Year 2000
Compliance. The cost to Borrower and its Subsidiaries of the implementation of
the Plan of Correction will not result in a Default or a Material Adverse
Effect. As used herein, "YEAR 2000 COMPLIANT" and "YEAR 2000 COMPLIANCE" mean
for all dates and times, including, without limitation dates and times after
December 31, 1999 and in the multi-century scenario, when used on a stand-alone
system or in combination with other Proprietary Software or Systems: (i) the
application system functions and receives and processes dates and times
correctly without abnormal
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results; (ii) all date related calculations are correct (including, without
limitation, age calculations, duration calculations and scheduling
calculations); (iii) all manipulations and comparisons of date-related data
produce correct results for all valid date values within the scope of the
application; (iv) there is no century ambiguity; (v) all reports and displays
are sorted correctly; and (vi) leap years are accounted for and correctly
identified (including, without limitation, that 2000 is recognized as a leap
year). Borrower has obtained or shall use commercially reasonable efforts to
obtain written representations or assurances from each entity that (x) provides
any material data, product or service to Borrower or its Subsidiaries that is
dependent on Year 2000 Compliance, that all of such entity's related software
and systems that are used for, or on behalf of, Borrower or its Subsidiaries are
or will be Year 2000 Compliant by September 30, 1999.
4.22. DISCLOSURE. No representation or warranty of any Credit Party
contained in any Credit Document or in any other document, certificate or
written statement furnished to Lenders by or on behalf of Holdings, Borrower or
any of their respective Subsidiaries for use in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact (known to Holdings or Borrower, in the case of any
document not furnished by either of them) necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. Any projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by Borrower to be reasonable at the time
made, it being recognized by Lenders that such projections as to future events
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ from the projected results.
There are no facts known (or which should upon the reasonable exercise of
diligence be known) to Holdings or Borrower (other than matters of a general
economic nature) that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect and that have not been disclosed
herein or in such other documents, certificates and statements furnished to
Lenders for use in connection with the transactions contemplated hereby.
4.23. NO BURDENSOME RESTRICTIONS. Neither Holdings, Borrower nor any of
their respective Subsidiaries is a party to or bound by any Contractual
Obligation which could reasonably be expected to have a Material Adverse Effect.
4.24. HOLDINGS. On the Closing Date, after giving effect to the
Transactions, Holdings (i) has not incurred, directly or indirectly, any
Indebtedness or any other obligation or liability whatsoever (whether absolute,
contingent or otherwise) other than its obligations under the Related Agreements
to which it is a party, (ii) is the owner of all of the outstanding Capital
Stock of Borrower and has not created or suffered to exist any Lien upon any
property or assets owned by it, including, without limitation, the Capital Stock
of Borrower, other than the Liens created under the Collateral Documents to
which it is a party, (iii) is not engaged in any business or activity and does
not own any assets or property other than holding the Capital Stock of Borrower
and Muzak Holdings Finance and performing its obligations under the Related
Agreements to which it is a party and (iv) is not a party to, or bound by, any
document, instrument or agreement other than the Credit Documents and Related
Agreements to which it is a party.
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SECTION 5. AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees that so long as any Revolving
Commitment is in effect and until payment in full of all Obligations and
cancellation or expiration of all Letters of Credit, each Credit Party shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 5.
5.1. FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will deliver to
Administrative Agent:
(a) as soon as available and in any event within thirty (30) days after
the end of each month ending after the Closing Date (other than any Fiscal
Quarter end), the consolidated balance sheet of Borrower and its Subsidiaries as
at the end of such month and the related consolidated statements of income,
members' equity and cash flows of Borrower and its Subsidiaries for such month
and for the period from the beginning of the then current Fiscal Year to the end
of such month, setting forth in each case in comparative form the corresponding
figures for the corresponding periods of the previous Fiscal Year and the
corresponding figures from the Financial Plan for the current Fiscal Year, to
the extent prepared on a monthly basis, all in reasonable detail, together with
a Financial Officer Certification with respect thereto;
(b) as soon as available and in any event within forty-five (45) days
after the end of each of the first three Fiscal Quarters of each Fiscal Year,
the consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such Fiscal Quarter and the related consolidated statements of income, members'
equity and cash flows of Borrower and its Subsidiaries for such Fiscal Quarter
and for the period from the beginning of the then current Fiscal Year to the end
of such Fiscal Quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous Fiscal Year
and the corresponding figures from the Financial Plan for the current Fiscal
Year, all in reasonable detail, together with a Financial Officer Certification
and a Narrative Report with respect thereto;
(c) as soon as available and in any event within ninety (90) days after
the end of each Fiscal Year, (i) the consolidated balance sheet of Borrower and
its Subsidiaries as at the end of such Fiscal Year and the related consolidated
statements of income, members' equity and cash flows of Borrower and its
Subsidiaries for such Fiscal Year, setting forth in each case in comparative
form the corresponding figures for the previous Fiscal Year and the
corresponding figures from the Financial Plan for the Fiscal Year covered by
such financial statements, in reasonable detail, together with a Financial
Officer Certification and a Narrative Report with respect thereto; and (ii) a
report thereon of PricewaterhouseCoopers LLP or other independent certified
public accountants of recognized national standing selected by Borrower and in
form and substance reasonably satisfactory to Administrative Agent, together
with a written statement by such independent certified public accountants
stating whether, in connection therewith, any condition or event that
constitutes a Default or an Event of Default has come to their attention and, if
such a condition or event has come to their attention, specifying the nature and
period of existence thereof;
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(d) together with each delivery of financial statements of Borrower and
its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and
completed Compliance Certificate;
(e) if, as a result of any change in accounting principles and policies
from those used in the preparation of the Pro Forma Financial Statements, the
consolidated financial statements of Borrower and its Subsidiaries delivered
pursuant to Section 5.1(a), 5.1(b) or 5.1(c) will differ in any material respect
from the consolidated financial statements that would have been delivered
pursuant to such subdivisions had no such change in accounting principles and
policies been made, then promptly after and in no event more than sixty (60)
days after the first delivery of such financial statements after such change,
one or more statements of reconciliation for all such prior financial statements
in form and substance satisfactory to Administrative Agent;
(f) promptly upon their becoming available, copies of (i) all financial
statements, reports, notices and proxy statements sent or made available
generally by Holdings to its members acting in such capacity or by any Borrower
or any Subsidiary of Borrower to its security holders other than another
Subsidiary of Borrower, (ii) all regular and periodic reports and all
registration statements (other than on Form S-8 or a similar form) and
prospectuses, if any, filed by Holdings, Borrower or any of their respective
Subsidiaries with any securities exchange or with the Securities and Exchange
Commission or any governmental or private regulatory authority, and (iii) all
press releases and other statements made available generally by Holdings,
Borrower or any of their respective Subsidiaries to the public concerning
material developments in the business of Holdings, Borrower or any of their
respective Subsidiaries;
(g) promptly upon any officer of Borrower obtaining knowledge (i) of any
condition or event that constitutes a Default or an Event of Default or that
notice has been given to Holdings or Borrower with respect thereto; (ii) that
any Person has given any notice to Holdings, Borrower or any of their respective
Subsidiaries or taken any other action with respect to any event or condition
set forth in Section 8.1(b); or (iii) of the occurrence of any event or change
that has caused or evidences, either in any case or in the aggregate, a Material
Adverse Effect, a certificate of Borrower, executed on behalf of Borrower by its
Authorized Officers, specifying the nature and period of existence of such
condition, event or change, or specifying the notice given or action taken by
any such Person and the nature of such claimed Event of Default, Default,
default, event or condition, and what action Borrower has taken, is taking and
proposes to take with respect thereto;
(h) promptly upon any officer of Borrower obtaining knowledge of (i) the
institution of, or non-frivolous threat of, any Adverse Proceeding not
previously disclosed in writing by Borrower to Lenders, or (ii) any material
development in any Adverse Proceeding that, in the case of either (i) or (ii) if
adversely determined, could be reasonably expected to have a Material Adverse
Effect, or seeks to enjoin or otherwise prevent the consummation of, or to
recover any damages or obtain relief as a result of, the transactions
contemplated hereby, written notice thereof together with such other information
as may be reasonably available to Borrower to enable Lenders and their counsel
to evaluate such matters;
(i) (i) promptly upon becoming aware of the occurrence of or forthcoming
occurrence of any ERISA Event, a written notice specifying the nature thereof,
what action Borrower, any of
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its Subsidiaries or any of their respective ERISA Affiliates has taken, is
taking or proposes to take with respect thereto and, when known, any action
taken or threatened by the Internal Revenue Service, the Department of Labor or
the PBGC with respect thereto; and (ii) with reasonable promptness, copies of
(1) each Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by Borrower, any of its Subsidiaries or any of their respective
ERISA Affiliates with the Internal Revenue Service with respect to each Pension
Plan; (2) all notices received by Borrower, any of its Subsidiaries or any of
their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning
an ERISA Event; and (3) copies of such other documents or governmental reports
or filings relating to any Employee Benefit Plan as Administrative Agent shall
reasonably request;
(j) as soon as practicable and in any event no later than thirty (30) days
after to the beginning of each Fiscal Year, a consolidated plan and financial
forecast for such Fiscal Year and the next three succeeding Fiscal Years (a
"FINANCIAL PLAN"), including (i) a forecasted consolidated balance sheet and
forecasted consolidated statements of income and cash flows of Borrower and its
Subsidiaries for each such Fiscal Year, together with pro forma Compliance
Certificates for each such Fiscal Year and an explanation of the assumptions on
which such forecasts are based and (ii) forecasted consolidated statements of
income and cash flows of Borrower and its Subsidiaries for each month of each
such Fiscal Year, together with the assumptions on which such forecasts are
based stated in reasonable detail;
(k) as soon as practicable and in any event by the last day of each Fiscal
Year, a report in form and substance satisfactory to Administrative Agent
outlining all material insurance coverage maintained as of the date of such
report by Borrower and its Subsidiaries and all material insurance coverage
planned to be maintained by Borrower and its Subsidiaries in the immediately
succeeding Fiscal Year;
(l) together with each delivery of financial statements pursuant to
Sections 5.1(a), 5.1(b), and 5.1(c), written notice of any change in the Board
of Directors of Borrower or Holdings during the period for which such financial
statements are delivered;
(m) promptly, and in any event within ten (10) Business Days after any
Material Contract of Holdings, Borrower or any of their respective Subsidiaries
is terminated or amended in a manner that is materially adverse to Holdings,
Borrower or such Subsidiary, as the case may be;
(n) together with each delivery of financial statements pursuant to
Sections 5.1(a), 5.1(b), and 5.1(c), a written statement describing any new
Material Contract entered into during the period for which such financial
statements are delivered to Administrative Agent (to the extent such delivery is
permitted by the terms of any such Material Contract, provided, no such
prohibition on delivery shall be effective if it were bargained for by Holdings,
Borrower or its applicable Subsidiary with the intent of avoiding compliance
with this Section 5.1(n)), and an explanation of any actions being taken with
respect thereto;
(o) as soon as practicable following receipt thereof, copies of all
environmental audits and reports with respect to environmental matters at any
Facility or which relate to any
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environmental liabilities of Borrower or its Subsidiaries which, in any such
case, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect;
(p) Borrower will deliver to Administrative Agent and Lenders:
(i) as soon as practicable following receipt thereof, copies of all
environmental audits, investigations, analyses and reports of any kind or
character, whether prepared by personnel of Borrower or any of its Subsidiaries
or by independent consultants, governmental authorities or any other Persons,
with respect to significant environmental matters at any Facility or with
respect to any Environmental Claims;
(ii) promptly upon the occurrence thereof, written notice describing
in reasonable detail (1) any Release required to be reported to any federal,
state or local governmental or regulatory agency under any applicable
Environmental Laws, (2) any remedial action taken by Borrower or any other
Person in response to (A) any Hazardous Materials Activities the existence of
which has a reasonable possibility of resulting in one or more Environmental
Claims having, individually or in the aggregate, a Material Adverse Effect, or
(B) any Environmental Claims that, individually or in the aggregate, have a
reasonable possibility of resulting in a Material Adverse Effect, and (3)
Borrower's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of any Facility that could cause such Facility or
any part thereof to be subject to any material restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws;
(iii) as soon as practicable following the sending or receipt thereof
by Borrower or any of its Subsidiaries, a copy of any and all written
communications with respect to (1) any Environmental Claims that, individually
or in the aggregate, have a reasonable possibility of giving rise to a Material
Adverse Effect, (2) any Release required to be reported to any federal, state or
local governmental or regulatory agency, and (3) any request for information
from any governmental agency that suggests such agency is investigating whether
Borrower or any of its Subsidiaries may be potentially responsible for any
Hazardous Materials Activity;
(iv) prompt written notice describing in reasonable detail (1) any
proposed acquisition of stock, assets, or property by Borrower or any of its
Subsidiaries that could reasonably be expected to (A) expose Borrower or any of
its Subsidiaries to, or result in, Environmental Claims that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect or
(B) affect the ability of Borrower or any of its Subsidiaries to maintain in
full force and effect all material Governmental Authorizations required under
any Environmental Laws for their respective operations and (2) any proposed
action to be taken by Borrower or any of its Subsidiaries to modify current
operations in a manner that could reasonably be expected to subject Borrower or
any of its Subsidiaries to any additional obligations or requirements under any
Environmental Laws; and
(v) with reasonable promptness, such other documents and
information as from time to time may be reasonably requested by Administrative
Agent in relation to any matters disclosed pursuant to this Section 5.1(o); and
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(q) with reasonable promptness, such other information and data with
respect to Holdings, Borrower or any of their respective Subsidiaries as from
time to time may be reasonably requested by Administrative Agent or Requisite
Lenders.
5.2. EXISTENCE. Except as permitted under Section 6.7, each Credit Party
will, and will cause each of its Subsidiaries to, at all times preserve and keep
in full force and effect its existence and all rights, franchises, licenses and
permits material to its business; provided, no Credit Party nor any of its
Subsidiaries shall be required to preserve any such existence, right, franchise,
license or permit if such Person's Board of Directors (or similar governing
body) shall determine that the preservation thereof is no longer desirable in
the conduct of the business of such Person, and that the loss thereof is not
disadvantageous in any material respect to such Person or to Lenders.
5.3. PAYMENT OF TAXES AND CLAIMS. Each Credit Party will, and will cause
each of its Subsidiaries to, pay all Taxes imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty or fine accrues thereon, and all claims (including
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a Lien upon any of its
properties or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided, no such Tax or claim need be paid if it
is being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted, so long as (a) adequate reserves shall have been made
therefor, and (b) in the case of a charge or claim which has or may become a
Lien against any of the Collateral, such contest proceedings conclusively
operate to stay the sale of any portion of the Collateral to satisfy such Tax or
claim. Borrower will not, nor will it permit any of its Subsidiaries to, file
or consent to the filing of any consolidated, combined or similar income Tax
return with any Person (other than Holdings or any of its Subsidiaries).
5.4. MAINTENANCE OF PROPERTIES. Each Credit Party will, and will cause
each of its Subsidiaries to, maintain or cause to be maintained in good repair,
working order and condition, ordinary wear and tear excepted, all material
properties used or useful in the business of Borrower and its Subsidiaries and
from time to time will make or cause to be made all appropriate repairs,
renewals and replacements thereof.
5.5. INSURANCE. Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, such public liability insurance, third
party property damage insurance, business interruption insurance and casualty
insurance with respect to liabilities, losses or damage in respect of the
assets, properties and businesses of Borrower and its Subsidiaries as may
customarily be carried or maintained under similar circumstances by Persons of
established reputation engaged in similar businesses, in each case in such
amounts (giving effect to self-insurance), with such deductibles, covering such
risks and otherwise on such terms and conditions as shall be customary for such
Persons. Without limiting the generality of the foregoing, Borrower will
maintain or cause to be maintained replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, with such deductibles, and covering such risks as are at all times
carried or maintained under similar circumstances by Persons of established
reputation engaged in similar businesses. Each such policy of insurance shall
(i) name Administrative Agent for the benefit of Lenders as an additional
insured thereunder as its
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interests may appear and (ii) in the case of each business interruption and
casualty insurance policy, contain a loss payable clause or endorsement,
satisfactory in form and substance to Administrative Agent, that names
Administrative Agent for the benefit of Lenders as the loss payee thereunder for
any covered loss in excess of $500,000 and provides for at least thirty (30)
days prior written notice to Administrative Agent of any modification or
cancellation of such policy.
5.6. INSPECTIONS; LENDERS MEETINGS. Each Credit Party will, and will cause
each of its Subsidiaries to, permit any authorized representatives designated by
Administrative Agent or any Lender to visit and inspect any of the properties of
Borrower or of any of its Subsidiaries, to inspect, copy and take extracts from
its and their financial and accounting records, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all upon reasonable notice and at such reasonable times
during normal business hours and as often as may reasonably be requested.
Borrower will, upon the request of Administrative Agent or Requisite Lenders,
participate in a meeting of Administrative Agent and Lenders once during each
Fiscal Year to be held at Borrower's corporate offices (or at such other
location as may be agreed to by Borrower and Administrative Agent) at such time
as may be agreed to by Borrower and Administrative Agent.
5.7. COMPLIANCE WITH LAWS; CONTRACTUAL OBLIGATIONS. Each Credit Party will
comply, and shall cause each of its Subsidiaries and all other Persons, if any,
on or occupying any Facilities to comply, with the requirements of all
Contractual Obligations and all applicable laws, rules, regulations and orders
of any Governmental Authority (including all Environmental Laws), noncompliance
with which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
5.8. ENVIRONMENTAL. Each Credit Party shall promptly take, and shall cause
each of its Subsidiaries promptly to take, any and all actions necessary to (i)
cure any violation of applicable Environmental Laws by such Credit Party or its
Subsidiaries that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, and (ii) make an appropriate response to
any Environmental Claim against such Credit Party or any of its Subsidiaries and
discharge any obligations it may have to any Person thereunder where failure to
do so could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
5.9. SUBSIDIARIES. In the event that any Person becomes a Domestic
Subsidiary of Borrower, Borrower shall (i) promptly cause such Domestic
Subsidiary to become a Guarantor hereunder and a Grantor under the Pledge and
Security Agreement by executing and delivering to Administrative Agent a
Counterpart Agreement, and (ii) take all such actions and execute and deliver,
or cause to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to those described in Sections 3.1(b),
3.1(n) and 3.1(p). In the event that any Person becomes a Foreign Subsidiary
of Borrower, and the ownership interests of such Foreign Subsidiary are owned
by Borrower or by any Domestic Subsidiary thereof, Borrower shall, or shall
cause such Domestic Subsidiary to, deliver, all such documents, instruments,
agreements, and certificates similar to those described in Sections 3.1(b), and
Borrower shall take, or shall cause such Domestic Subsidiary to take, all of the
actions referred to in Section 3.1(n)(i) necessary to grant and to perfect a
First Priority Lien in favor of Administrative Agent, for the benefit of
Lenders, under the Pledge and Security Agreement in such ownership interests.
With respect to each such
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Subsidiary, Borrower shall promptly send to Administrative Agent written notice
setting forth with respect to such Person (i) the date on which such Person
became a Subsidiary of Borrower, and (ii) all of the data required to be set
forth in Schedule 4.1 with respect to all Subsidiaries of Borrower; provided,
such written notice shall be deemed to supplement Schedule 4.1 for all purposes
hereof.
5.10. MATERIAL REAL ESTATE ASSETS. In the event that any Credit Party
acquires an interest in or a Real Estate Asset owned on the date hereof becomes
a Material Real Estate Asset and such interest has not otherwise been made
subject to the Lien of the Collateral Documents in favor of Administrative
Agent, for the benefit of Lenders, then such Credit Party, contemporaneously
with acquiring such Material Real Estate Asset, shall take all such actions and
execute and deliver, or cause to be executed and delivered, all such mortgages,
documents, instruments, agreements, opinions and certificates, including,
without limitation, those described on Schedule 5.10, Administrative Agent shall
reasonably request to create in favor of Administrative Agent, for the benefit
of Lenders, a valid and, subject to any filing and/or recording referred to
herein, perfected First Priority security interest in such Real Estate Assets.
In addition to the foregoing, each Credit Party shall, at the request of
Requisite Lenders, deliver, from time to time, to Administrative Agent
appraisals as are required by law or regulation of Real Estate Assets with
respect to which Administrative Agent has been granted a Lien.
5.11. INTEREST RATE PROTECTION. At all times after the date which is
thirty (30) days after the Closing Date, Borrower shall maintain, or caused to
be maintained, in effect one or more Interest Rate Agreements for a term of not
less than three years and otherwise in form and substance reasonably
satisfactory to Administrative Agent, which Interest Rate Agreements shall
effectively limit the Unadjusted Eurodollar Rate Component of the interest costs
to Borrower with respect to an aggregate notional principal amount of not less
than 50% of Consolidated Senior Debt outstanding from time to time (based on the
assumption that such notional principal amount was a Eurodollar Rate Loan with
an Interest Period of three months) to a rate equal to not more than 7 1/4% per
annum.
5.12. YEAR 2000 ISSUES. Borrower shall periodically report to
Administrative Agent, in such form as Administrative Agent may reasonably
request, and Administrative Agent shall promptly forward each such report to
each Lender, on the progress of Borrower and its Subsidiaries in implementing
the Plan of Correction; the budget for, and actual financial performance with
respect to, implementation of the Plan of Correction; the assessment of
Borrower, and any senior manager of Borrower or any Subsidiary, of the adequacy
of the Plan of Correction or the related implementation budget; the
implementation of the Plan of Correction, the related financial performance, and
the conformity of actual performance with related implementation budgets.
5.13. FURTHER ASSURANCES. At any time or from time to time upon the
request of Administrative Agent, each Credit Party will, at its expense,
promptly execute, acknowledge and deliver such further documents and do such
other acts and things as Administrative Agent may reasonably request in order to
effect fully the purposes of the Credit Documents and to provide for payment of
the Obligations in accordance with the terms of this Agreement, any notes and
the other Credit Documents. In furtherance and not in limitation of the
foregoing, each Credit Party shall take
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such actions as Administrative Agent may reasonably request from time to time
(including, without limitation, the execution and delivery of guaranties,
security agreements, pledge agreements, mortgages, deeds of trust, landlord's
consents and estoppels, control agreements, acknowledgments of pledge, stock
powers, financing statements and other documents, the filing or recording of any
of the foregoing, title insurance with respect to any of the foregoing that
relates to any Real Estate Asset, and the delivery of stock certificates and
other collateral with respect to which perfection is obtained by possession) to
ensure that the Obligations are guarantied by the Guarantors and are secured by
substantially all of the assets of Holdings, Borrower and each of their
respective Subsidiaries and all of the outstanding Capital Stock of Borrower and
its Subsidiaries.
5.14. OTHER TRANSACTIONS; RELATED AGREEMENTS. (a) If Borrower determines
that it is in the best interest of Borrower to consummate the Capstar Omaha
Contribution, each of Holdings and Borrower shall use its respective reasonable
best efforts to cause the Capstar Omaha Contribution to be effected and
consummated pursuant to the Capstar Documentation. Borrower shall deliver
notice to Administrative Agent of any determination that the Capstar Omaha
Contribution will not be consummated promptly and in no event more than three
Business Days after any Credit Party makes or obtains knowledge of any such
determination. Each of Syndication Agent and Administrative Agent shall receive
at least ten Business Days' written notice of the closing of the Capstar Omaha
Contribution from Borrower. If the Capstar Omaha Contribution is consummated,
all conditions to the Capstar Omaha Contribution set forth in the Capstar
Documentation shall be satisfied in all material respects or the fulfillment of
any such conditions shall be waived with the consent of Administrative Agent and
Requisite Lenders (such consent not to be unreasonably withheld). In any event,
Borrower shall deliver notice that the Capstar Omaha Contribution will not be
consummated or the Capstar Omaha Contribution shall have been consummated no
later than December 31, 1999.
(b) If the Capstar Omaha Contribution is consummated, each of
Syndication Agent and Administrative Agent shall receive evidence reasonably
satisfactory to it that the Capstar Omaha Contribution shall have been
consummated and shall receive all drafts and executed copies of all agreements,
documents and information in connection therewith as it shall request,
including, without limitation, the following: a fully executed or conformed copy
of each agreement, instrument or any documents executed in connection therewith,
certified by each Credit Party thereto, together with copies of each of the
opinions of counsel delivered to the parties under such agreements, accompanied
by a letter from each such counsel authorizing Lenders to rely upon such opinion
to the same extent as though it were addressed to Lenders. Each such agreement
shall be in form and substance reasonably satisfactory in all material respects
to the Syndication Agent and Administrative Agent and shall be in full force and
effect.
(c) If the Capstar Omaha Contribution is consummated, simultaneously
with the consummation of the Capstar Omaha Contribution, the Credit Parties
shall take all of the actions set forth in this subsection. Borrower shall have
delivered to Administrative Agent UCC-3 termination statements or assignments
(or comparable forms) and any and all other instruments of release,
satisfaction, assignment and/or reconveyance (or evidence of the filing thereof)
as may be necessary or advisable to terminate or assign to Administrative Agent
for the benefit of Lenders all such security interests and all other security
interests in the Collateral. Borrower shall have delivered to
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Administration Agent all pay-off or termination agreements or other documents
evidencing the repayment of all Indebtedness to be repaid in connection with
such Transaction. Each Credit Party shall take all necessary action to create in
favor of Administrative Agent, for the benefit of Lenders, a valid and, subject
to any filing and/or recording referred to herein, perfected First Priority
security interest in all Material Real Estate Assets and all personal and mixed
property Collateral acquired in connection with each such transaction,
including, without limitation, the execution and delivery of all such mortgages,
documents, instruments, agreements, opinions and certificates and the taking of
all actions described in Sections 3.1(n) and 5.10.
(d) If the Capstar Omaha Contribution is consummated, simultaneously
with the consummation of the Capstar Omaha Contribution, each Credit Party shall
have obtained all Governmental Authorizations and all consents of other Persons,
in each case that are necessary or advisable in connection with such transaction
and each of the foregoing shall be in full force and effect and in form and
substance reasonably satisfactory to the Administrative Agent. If the Capstar
Omaha Contribution is consummated, simultaneously with the consummation of the
Capstar Omaha Contribution, all applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose adverse conditions on such
transactions or the financing thereof and no action, request for stay, petition
for review or rehearing, reconsideration, or appeal with respect to any of the
foregoing shall be pending, and the time for any applicable agency to take
action to set aside its consent on its own motion shall have expired.
(e) Administrative Agent shall receive drafts reasonably in advance of
the execution of any Securities Repurchase Agreement entered into after the
Closing Date if such agreement (i) is not substantially in the form of the
Securities Repurchase Agreements entered into as of October 6, 1998 or (ii)
provides for any affirmative obligation to repurchase management Securities.
Each such agreement shall be in form and substance reasonably satisfactory to
Administrative Agent. Administrative Agent shall receive a fully executed or
conformed copy of each such agreement and any documents executed in connection
therewith, certified by each Credit Party thereto, together with copies of any
opinion of counsel delivered to the parties thereto.
SECTION 6. NEGATIVE COVENANTS
Each Credit Party covenants and agrees that, so long as any Revolving
Commitment is in effect and until payment in full of all Obligations and
cancellation or expiration of all Letters of Credit, such Credit Party shall
perform, and shall cause each of its Subsidiaries to perform, all covenants in
this Section 6.
6.1. INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness or issue any Preferred Stock, except:
(a) the Obligations, including Indebtedness under any Hedge Agreement
with any Lender Counterparty;
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(b) Indebtedness of any Wholly-Owned Included Domestic Subsidiary of
Borrower to Borrower or to any other Wholly-Owned Included Domestic Subsidiary
of Borrower, or of Borrower to any Wholly-Owned Included Domestic Subsidiary of
Borrower, provided, (i) all such Indebtedness shall be evidenced by promissory
notes and all such notes shall be subject to a First Priority Lien pursuant to
the Pledge and Security Agreement, (ii all such Indebtedness owed by Borrower to
any of its Included Subsidiaries shall be unsecured and subordinated in right of
payment to the payment in full of the Obligations pursuant to the terms of the
applicable promissory notes or an intercompany subordination agreement that in
any such case, are reasonably satisfactory to Administrative Agent, and (ii all
such Indebtedness shall include provisions as to the waiver of any subrogation
rights until after the Obligations have been paid in full;
(c) Borrower and its Wholly-Owned Included Domestic Subsidiaries may
become and remain liable with respect to Contingent Obligations in respect of
any obligations of Borrower or any of its Wholly-Owned Included Domestic
Subsidiaries permitted under this Agreement; provided, any such Contingent
Obligations shall (i) be unsecured, and (ii) include provisions as to the waiver
of any subrogation rights until after the Obligations have been paid in full;
(d) Contingent Obligations of Borrower or any of its Subsidiaries arising
from customary agreements providing for indemnification, adjustment of purchase
price or similar obligations of any such Person in connection with the Merger
Agreement, the Capstar Documentation and Permitted Acquisitions or Asset Sales
permitted pursuant to Sections 6.6 and 6.7;
(e) Contingent Obligations under guaranties in the ordinary course of
business of the obligations of suppliers, landlords, customers, franchisees and
licensees of Borrower and its Subsidiaries in an aggregate amount at any time
not to exceed $1,000,000;
(f) Indebtedness of Holdings or Borrower in respect of any Permitted
Sponsor Subordinated Debt;
(g) Indebtedness of Holdings and Muzak Holdings Finance in respect of the
Holdings Notes, provided, (i) the Net High Yield Proceeds received in connection
therewith shall not exceed $40,000,000 and shall be contributed to Borrower as
Equity Capital and (ii) such Indebtedness shall (a) be unsecured and on terms
and conditions acceptable to Requisite Lenders, (b) mature no earlier than the
tenth anniversary of the date of issuance thereof, (c) require by its terms,
that all interest on such debt be "paid-in-kind" through March 15, 2004, (d)
contain other terms and conditions which shall be satisfactory to Requisite
Lenders, and (e) be issued on or before the first anniversary of the Closing
Date;
(h) Indebtedness of Borrower and Muzak Finance in respect of the Senior
Subordinated Notes in an aggregate principal amount of not less than
$115,000,000, provided, such Indebtedness shall (i) be unsecured and
subordinated to the Obligations of Borrower hereunder on terms and conditions
acceptable to Requisite Lenders, (ii) mature no earlier than December 31, 2007,
(iii) contain other terms and conditions which shall be satisfactory to
Requisite Lenders, and (iv) be issued on or before the first anniversary of the
Closing Date;
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(i) Contingent Obligations of Holdings and Borrower's Subsidiaries in
respect of the Senior Subordinated Notes, provided that such Contingent
Obligations shall (i) be unsecured and subordinated to the Obligations of such
Subsidiaries hereunder on terms and conditions acceptable to Requisite Lenders
and (ii) contain other terms and conditions which shall be satisfactory to
Requisite Lenders;
(j) Indebtedness of Holdings consisting of the obligation to repurchase
membership interests of former officers and directors of Holdings pursuant to
the Securities Repurchase Agreements, provided that the aggregate amount of such
Indebtedness incurred by Holdings measured on a cumulative basis from the
Closing Date shall not exceed $2,000,000;
(k) Deferred Management Fees, subject to Section 6.4;
(l) additional unsecured Indebtedness of Borrower and its Subsidiaries in
an aggregate outstanding principal amount not to exceed $5,000,000 at any time;
(m) each of Borrower and Holdings may become and remain liable with
respect to any Preferred Stock of Borrower and Holdings which by its terms does
not require any payment of Cash dividends or interest and does not mature or
provide for any repurchase or redemption thereof, in whole or in part,
contingent or otherwise, on or prior to December 31, 2007;
(n) Indebtedness described in Schedule 6.1, and until the Closing Date,
the Existing Debt; and
(o) additional secured Indebtedness of Borrower and its Subsidiaries,
including, without limitation, with respect to Capital Leases, in an aggregate
outstanding principal amount not to exceed $2,500,000 at any time;
provided, however, (i) neither Holdings nor any of its Subsidiaries shall incur
any Contingent Obligations in respect of any obligations of any Subsidiary other
than an Included Subsidiary and (ii) any Subsidiary that is not an Included
Subsidiary may only become and remain liable with respect to Indebtedness if
such Indebtedness is without recourse to any other Credit Party or their
respective assets, and in the case of Electro, does not exceed an aggregate
outstanding principal amount of $2,400,000.
6.2. LIENS. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Holdings or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the UCC of any State or under any similar recording or notice
statute, except:
(a) Liens in favor of Administrative Agent for the benefit of Lenders
granted pursuant to any Credit Document;
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(b) Liens for Taxes or claims the payment of which is not, at the time,
required thereby;
(c) statutory Liens of landlords, banks (and rights of set-off), carriers,
warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens
imposed by law (other than any such Lien imposed pursuant to Section 401(a)(29)
or 412(n) of the Internal Revenue Code or by ERISA), in each case incurred in
the ordinary course of business (i) for amounts not yet overdue or (ii for
amounts that are overdue and that (in the case of any such amounts overdue for a
period in excess of five days) are being contested in good faith by appropriate
proceedings, so long as such reserves or other appropriate provisions, if any,
as shall be required by GAAP shall have been made for any such contested
amounts;
(d) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money or other Indebtedness), so long
as no foreclosure, sale or similar proceedings have been commenced with respect
to any portion of the Collateral on account thereof;
(e) easements, rights-of-way, restrictions, encroachments, and other minor
defects or irregularities in title, in each case which do not and will not
interfere in any material respect with the ordinary conduct of the business of
Borrower or any of its Subsidiaries;
(f) any attachment or judgment Lien not constituting a Default or Event of
Default pursuant to Section 8.1, so long as such Lien could not reasonably be
expected to have a Material Adverse Effect;
(g) any interest or title of a lessor or sublessor under any Capital Lease
permitted hereunder or any operating lease entered into the ordinary course of
business and not prohibited by this Agreement;
(h) Liens incurred in connection with the purchase or shipping of goods or
assets on the related assets and proceeds thereof in favor of the seller or
shipper of such goods or assets;
(i) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the importation of
goods;
(j) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(k) licenses of Intellectual Property granted by Borrower or any of its
Subsidiaries in the ordinary course of business and not interfering in any
respect with the ordinary conduct of the business of Borrower or such
Subsidiary;
(l) Liens securing Indebtedness permitted pursuant to Section 6.1(o); and
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(m) Liens described in Schedule 6.2.
6.3. EQUITABLE LIEN; NO FURTHER NEGATIVE PLEDGES. If any Credit Party or
any of its Subsidiaries shall create or assume any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, other than
Permitted Liens, it shall make or cause to be made effective provision whereby
the Obligations will be secured by such Lien equally and ratably with any and
all other Indebtedness secured thereby as long as any such Indebtedness shall be
so secured; provided, notwithstanding the foregoing, this covenant shall not be
construed as a consent by Requisite Lenders to the creation or assumption of any
such Lien not otherwise permitted hereby. Except with respect to (a) specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to an Asset Sale, or (b) any
agreement prohibiting only the creation of Liens securing Subordinated
Indebtedness, no Credit Party nor any of its Subsidiaries shall enter into any
agreement prohibiting the creation or assumption of any Lien upon any of its
properties or assets, whether now owned or hereafter acquired.
6.4. RESTRICTED PAYMENTS; RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. (a) No
Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or
indirectly, declare, order, pay, make or set apart any sum for any Restricted
Junior Payment except as long as no Default or Event of Default has occurred and
is continuing or would result therefrom, the following shall be permitted:
(i) substantially simultaneously with a High Yield Issuance of
Borrower, Borrower may use proceeds of such High Yield Issuance to make
Restricted Junior Payments to repay any Closing Date Sponsor Debt, provided (a)
immediately after giving effect to such Restricted Junior Payment, Borrower
shall have Equity Capital equal to no less than 29.2% of Original Enterprise
Value, and (b) immediately prior thereto, Borrower shall have made all mandatory
prepayments required pursuant to Section 2.12(d) in connection with such High
Yield Issuance;
(ii) Borrower may make regularly scheduled payments of interest
in respect of the Senior Subordinated Notes in accordance with the terms of, and
only to the extent required by, and subject to the subordination provisions
contained in, the Senior Subordinated Note Indenture, as such Indenture may be
amended from time to time to the extent permitted under Section 6.13;
(iii) beginning on September 15, 2004, Borrower may make
Restricted Junior Payments to Holdings in an amount sufficient to permit
Holdings to make payments of interest on the Holdings Notes, provided (a)
Holdings applies such amounts to the payment of such interest, (b) after giving
effect to such payment, Borrower shall be in compliance with Section 6.6 on a
Pro Forma Basis as of the most recently ended Fiscal Quarter for which a
Compliance Certificate has been delivered pursuant to Section 5.1(d), and (c)
such payments may only be made with respect to interest accruing on the Holdings
Notes after March 15, 2004;
(iv) Holdings may make payments of interest on the Holdings
Notes with amounts received from Borrower as described in clause (iii) above;
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(v) for so long as either Holdings or Borrower, as
applicable, is disregarded as an entity or is classified as a partnership under
Treasury Regulations Section 301.7701 (but not a publicly traded partnership (as
defined in Section 7704 of the Code) taxed as a corporation), in each case for
U.S. income tax purposes, then Holdings or Borrower, as applicable, may make Tax
Distributions;
(vi) Borrower may make Restricted Junior Payments to pay
reasonable out-of-pocket expenses in connection with the Management Agreement;
(vii) Holdings may make Restricted Junior Payments in an
aggregate amount not in excess of $2,000,000 measured on a cumulative basis from
the Closing Date to repurchase membership interests from former officers and
directors thereof pursuant to the Securities Repurchase Agreements, provided
Borrower may make Restricted Junior Payments to fund such Restricted Junior
Payments by Holdings;
(viii) Borrower may accrue Management Fees payable in an
aggregate amount not in excess of $300,000 multiplied by 1.05 raised to the
power obtained by subtracting 1998 from the number of the calendar year in
respect of each Fiscal Year, provided (a) Borrower may not pay any such accrued
Management Fees, or any interest thereon, in respect of a Fiscal Year unless and
until Borrower shall have delivered to Administrative Agent and each Lender a
Compliance Certificate, together with consolidated audited financial statements,
each in respect of such Fiscal Year setting forth Borrower's compliance with the
terms hereof in respect of, and as at the end of, such Fiscal Year, (b) prior to
the payment in full in Cash of all of the Obligations, no payment in respect of
any such accrued Management Fees (or any interest thereon) that were not payable
as a result of clause (a) hereof or as a result of any Default or Event of
Default (collectively, "DEFERRED MANAGEMENT FEES"), shall be required or made
unless Requisite Lenders shall otherwise agree, and (c) in all other respects
Deferred Management Fees shall be subordinated to all of the Obligations on
terms and conditions acceptable to Requisite Lenders; and
(ix) any Subsidiary of Borrower may declare and pay dividends
to Borrower.
(b) Except as provided herein, no Credit Party shall, nor shall it permit
any of its Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Subsidiary of Borrower to (i) pay dividends or make any other
distributions on any of such Subsidiary's Capital Stock owned by Borrower or any
other Subsidiary of Borrower, (ii repay or prepay any Indebtedness owed by such
Subsidiary to Borrower or any other Subsidiary of Borrower, (ii make loans or
advances to Borrower or any other Subsidiary of Borrower, or (iv transfer any of
its property or assets to Borrower or any other Subsidiary of Borrower.
6.5. INVESTMENTS. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment in any
Person, including any Joint Venture, except:
(a) Cash Equivalents;
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(b) Investments owned as of the Closing Date in any Subsidiary;
(c) Investments in Borrower or in any of Borrower's Wholly-Owned Included
Domestic Subsidiaries;
(d) Investments (i) in accounts receivable arising and trade credit
granted in the ordinary course of business and in any Securities received in
satisfaction or partial satisfaction thereof from financially troubled account
debtors and (ii) deposits, prepayments and other credits to suppliers made in
the ordinary course of business consistent with the past practices of Borrower
and its Subsidiaries;
(e) intercompany loans to the extent permitted under Section 6.1(b);
(f) Consolidated Capital Expenditures permitted by Section 6.6(e);
(g) loans to employees of Borrower and its Included Subsidiaries in an
aggregate principal amount not to exceed $500,000 at any time;
(h) Investments by Borrower in Electro in an aggregate annual amount not
to exceed $250,000, provided Electro shall apply the proceeds of any such
Investment to make or incur Consolidated Capital Expenditures permitted pursuant
to Section 6.7;
(i) Investments made in connection with Permitted Acquisitions permitted
pursuant to Section 6.7; and
(j) Investments described in Schedule 6.5;
provided, however, neither Holdings nor any of its Subsidiaries shall make or
own any Investment of any kind in any Subsidiary other than an Included
Subsidiary other than as permitted by Sections 6.5(b) and 6.5(h)(i).
6.6. FINANCIAL COVENANTS.
(a) Interest Coverage Ratio. The Interest Coverage Ratio as of the last
-----------------------
day of any Fiscal Quarter (which last day occurs in any period set forth below),
beginning with September 30, 1999, for any period of four Fiscal Quarters (or
for the number of full Fiscal Quarters following the Closing Date to the date of
such determination if such Fiscal Quarter ends during the period commencing with
the Closing Date and ending on the one year anniversary thereof) shall exceed
the correlative ratio indicated below:
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==========================================================
Ratio Ratio
(If No High (If High Yield
Period Yield Issuance) Issuance)
----------------------------------------------------------
Closing Date - 12/31/99 1.75:1.00 1.60:1.00
----------------------------------------------------------
1/1/00 - 12/31/00 2.00:1.00 1.80:1.00
----------------------------------------------------------
1/1/01 - 12/31/01 2.00:1.00 2.00:1.00
----------------------------------------------------------
1/1/02 - 12/31/02 2.50:1.00 2.25:1.00
----------------------------------------------------------
1/1/03 and thereafter 2.50:1.00 2.50:1.00
==========================================================
(b) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio as of the
---------------------------
last day of any Fiscal Quarter, beginning with September 30, 1999, for any
period of four Fiscal Quarters (or for the number of full Fiscal Quarters
following the Closing Date to the date of such determination if such Fiscal
Quarter ends during the period commencing with the Closing Date and ending on
the one year anniversary thereof) shall exceed 1.35:1.00.
(c) Total Leverage Ratio. The Total Leverage Ratio at any time shall not
--------------------
exceed the correlative ratio indicated below:
==========================================================
Ratio Ratio
(If No High (If High Yield
Period Yield Issuance) Issuance)
----------------------------------------------------------
Closing Date - 12/31/99 5.50:1.00 6.50:1.00
----------------------------------------------------------
1/1/00 - 3/31/00 5.25:1.00 6.25:1.00
----------------------------------------------------------
4/1/00 - 9/30/00 5.25:1.00 6.00:1.00
----------------------------------------------------------
10/1/00 - 12/31/00 5.00:1.00 5.75:1.00
----------------------------------------------------------
1/1/01 - 12/31/01 4.50:1.00 5.00:1.00
----------------------------------------------------------
1/1/02 - 12/31/02 4.00:1.00 4.25:1.00
----------------------------------------------------------
1/1/03 and thereafter 3.50:1.00 3.75:1.00
===========================================================
(d) Senior Leverage Ratio. At any time after a High Yield Issuance, the
---------------------
Senior Leverage Ratio shall not exceed the correlative ratio indicated below:
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===============================================
Period Ratio
-----------------------------------------------
Closing Date - 12/31/99 4.25:1.00
-----------------------------------------------
1/1/00 - 12/31/00 3.75:1.00
-----------------------------------------------
1/1/01 - 12/31/01 3.25:1.00
-----------------------------------------------
1/1/02 - 12/31/02 2.75:1.00
-----------------------------------------------
1/1/02 and thereafter 2.25:1.00
===============================================
(e) Maximum Consolidated Capital Expenditures. Holdings shall not, and
-----------------------------------------
shall not permit its Subsidiaries to, make or incur Consolidated Capital
Expenditures in any Fiscal Year indicated below in an aggregate amount for
Borrower and its Included Subsidiaries and for Electro, subject to the
limitations set forth below, in excess of the corresponding amount set forth
below opposite such Fiscal Year; provided, such amount for any Fiscal Year shall
be increased as set forth below:
===========================================
Consolidated
Fiscal Year Capital Expenditures
-------------------------------------------
1999 $ 32,000,000
-------------------------------------------
2000 $ 32,000,000
-------------------------------------------
2001 $ 32,000,000
-------------------------------------------
2002 $ 35,000,000
-------------------------------------------
2003 $ 35,000,000
-------------------------------------------
2004 $ 37,000,000
-------------------------------------------
2005 $ 37,000,000
-------------------------------------------
2006 $ 37,000,000
===========================================
In connection with each Permitted Acquisition of a "Muzak" affiliate that is
permitted pursuant to Section 6.7 and consummated during any Fiscal Year, the
amount of permitted Consolidated Capital Expenditures for such Fiscal Year shall
be increased by an amount equal to the product of (A) 3.5 and (B) the total
monthly recurring revenue of such acquired "Muzak" affiliate (which, in the case
of any such acquisition consummated on or prior to the fifteenth day of any
month, shall be the total monthly recurring revenues for the second prior month,
and, in the case of any acquisition consummated after such fifteenth day, shall
be the total monthly recurring revenues for the prior month), provided such
amount for any Fiscal Year shall be prorated on an annualized basis from the
date of each such acquisition for such Fiscal Year, but the difference between
the total amount for such acquisition and the prorated amount for such
acquisition shall increase the amount of permitted
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Consolidated Capital Expenditures for subsequent Fiscal Years; provided further,
in connection with each such Permitted Acquisition, each of the draft Compliance
Certificate and the Compliance Certificate delivered by Borrower as set forth in
the definition of "Permitted Acquisition" shall set forth in reasonable detail
the calculation of the foregoing amount for such Permitted Acquisition, and such
calculation shall be satisfactory to Administrative Agent in all respects.
Except as permitted pursuant to Section 6.5(h), Borrower and its Included
Subsidiaries shall not be permitted to make or incur any Consolidated Capital
Expenditures of any kind in any Fiscal Year in respect of any Subsidiary other
than an Included Subsidiary. The aggregate annual amount of Consolidated Capital
Expenditures made or incurred by Electro in any Fiscal Year shall not exceed
$300,000.
6.7. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS. No Credit
Party shall, nor shall it permit any of its Subsidiaries to, enter into any
transaction of merger or consolidation, or liquidate, wind-up or dissolve itself
(or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease
(as lessor or sublessor), transfer or otherwise dispose of, in one transaction
or a series of transactions, all or any part of its business, assets or property
of any kind whatsoever, whether real, personal, or mixed and whether tangible or
intangible, whether now owned or hereafter acquired, or acquire by purchase or
otherwise (other than purchases or other acquisitions of inventory, materials
and equipment in the ordinary course of business) the business, property, fixed
assets or Capital Stock of, any Person or any division or line of business of
any Person, except:
(a) any Included Subsidiary of Borrower may be merged with or into
Borrower or any of Borrower's Wholly-Owned Included Domestic Subsidiaries, or be
liquidated, wound up or dissolved, or all or any part of its business, property
or assets may be conveyed, sold, leased, transferred or otherwise disposed of,
in one transaction or a series of transactions, to Borrower or to any of
Borrower's Wholly-Owned Included Domestic Subsidiaries; provided, in the case of
such a merger involving Borrower, Borrower shall be the continuing or surviving
Person, and in the case of any other such merger, Borrower or such Wholly-Owned
Included Domestic Subsidiary shall be the continuing or surviving Person;
(b) sales of assets by Borrower or any of its Subsidiaries which do not
constitute Asset Sales, provided that the consideration received for such assets
shall be in an amount at least equal to the fair market value thereof
(determined in good faith by the Board of Directors of Borrower) and no less
than 80% thereof shall be paid in Cash;
(c) leases or subleases to other Persons of assets by Borrower or any of
it Subsidiaries in the ordinary course of business;
(d) licenses to other Persons of Intellectual Property by Borrower or any
Subsidiary thereof in the ordinary course of business;
(e) Asset Sales by Borrower or any of its Subsidiaries, the proceeds of
which constitute (i) less than $1,000,000 in the aggregate in any Fiscal Year,
and (ii) less than $5,000,000 in the aggregate from the Closing Date to the date
of determination, provided that (x) the consideration received for such assets
shall be in an amount at least equal to the fair market value thereof
(determined in good faith by the Board of Directors of Borrower), (y) no less
than 80% thereof shall
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be paid in Cash, and (z) the Net Asset Sale Proceeds thereof shall be applied as
required by Section 2.12(a);
(f) Permitted Acquisitions, provided (i) if the aggregate consideration
for such acquisition is an amount that is greater than or equal to five times
the Acquisition Cash Flow of the acquired entity, then the consideration for all
such acquisitions shall constitute no more than $25,000,000 in the aggregate
from the Closing Date to the date of determination, (ii) if the aggregate
consideration for such acquisition is an amount that is less than five times the
Acquisition Cash Flow of the acquired entity, then the consideration for all
such acquisitions, together with the aggregate consideration for all
acquisitions described in clause (i), shall constitute no more than $50,000,000
in the aggregate from the Closing Date to the date of determination and (iii)
immediately following consummation of each such acquisition there shall be at
least $10,000,000 of Revolving Loans available to be borrowed pursuant to
Section 2.2;
(g) the Capstar Omaha Contribution, subject to the terms and conditions
set forth in Section 5.14 and provided immediately following consummation of
such transaction there shall be at least $10,000,000 of Revolving Loans
available to be borrowed pursuant to Section 2.2;
(h) in connection with each Permitted Acquisition by Borrower, Borrower
may sell acquired accounts located in the "territory" or other similar domain of
a "Muzak" franchisee to such franchisee in accordance with, and to the extent
required by, the terms of such franchisee's franchise agreement; and
(i) Investments made in accordance with Section 6.5.
6.8. DISPOSAL OF SUBSIDIARY INTERESTS. Except as required under the
Collateral Documents and except for any sale of 100% of the Capital Stock of any
of its Subsidiaries in compliance with the provisions of Section 6.7, no Credit
Party shall (a) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any Capital Stock of any of its Subsidiaries, except to
qualify directors if required by applicable law; or (b) permit any of its
Subsidiaries directly or indirectly to sell, assign, pledge or otherwise
encumber or dispose of any Capital Stock of any of its Subsidiaries (including
such Subsidiary), except to another Credit Party (subject to the restrictions on
such disposition otherwise imposed herein under), or to qualify directors if
required by applicable law.
6.9. SALES AND LEASE-BACKS. No Credit Party shall, nor shall it permit any
of its Subsidiaries to, directly or indirectly, become or remain liable as
lessee or as a guarantor or other surety with respect to any lease of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired, which Holdings or any of its Subsidiaries (a) has sold or transferred
or is to sell or to transfer to any other Person (other than Borrower or any of
its Subsidiaries), or (b) intends to use for substantially the same purpose as
any other property which has been or is to be sold or transferred by Holdings or
any of its Subsidiaries to any Person (other than Borrower or any of its
Subsidiaries) in connection with such lease.
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6.10. SALE OR DISCOUNT OF RECEIVABLES. No Credit Party shall, nor shall it
permit any of its Subsidiaries to, directly or indirectly, sell with recourse,
or discount or otherwise sell for less than the face value thereof, any of its
notes or accounts receivable.
6.11. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. No Credit Party
shall, nor shall it permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
holder of 5% or more of any class of Capital Stock of Holdings or any of its
Subsidiaries or with any Affiliate of Holdings or of any such holder, on terms
that are less favorable to Holdings or that Subsidiary, as the case may be, than
those that might be obtained at the time from Persons who are not such a holder
or Affiliate; provided, the foregoing restriction shall not apply, subject to
each other covenant contained herein, to (a) any transaction between Borrower
and any Wholly-Owned Included Domestic Subsidiary of Borrower or between any of
Borrower's Wholly-Owned Included Domestic Subsidiaries; (b) reasonable and
customary fees paid to members of the Board of Directors (or similar governing
body) of Borrower or Holdings and their respective Subsidiaries, (c) the payment
of Management Fees and (d) the repurchase of membership interests from former
officers and directors of Holdings pursuant to the Securities Repurchase
Agreements.
6.12. CONDUCT OF BUSINESS; HOLDINGS. (a) From and after the Closing Date,
no Credit Party shall, nor shall it permit any of its Subsidiaries to, engage in
any business other than (i) the businesses engaged in by such Credit Party on
the Closing Date as described in the Confidential Information Memorandum dated
February 1999 and similar or related businesses and (ii such other lines of
business as may be consented to by Requisite Lenders.
(b) Notwithstanding anything to the contrary contained herein, Holdings
shall not (i) incur, directly or indirectly, any Indebtedness or any other
obligation or liability whatsoever other than the Indebtedness and obligations
under the Related Agreements to which it is a party; (ii) create or suffer to
exist any Lien upon any property or assets now owned or hereafter acquired by it
other than the Liens created under the Collateral Documents to which it is a
party or permitted pursuant to Section 6.2; (iii) engage in any business or
activity or own any assets other than holding 100% of the Capital Stock of
Borrower and Muzak Holdings Finance and performing its obligations under the
Credit Documents, and to the extent not inconsistent therewith, the Related
Agreements; (iv) consolidate with or merge with or into, or convey, transfer or
lease all or substantially all its assets to, any Person; (v) sell or otherwise
dispose of any Capital Stock of any of its Subsidiaries; (vi) create or acquire
any Subsidiary or make or own any Investment in any Person other than Borrower
and Muzak Holdings Finance; or (vii) fail to hold itself out to the public as a
legal entity separate and distinct from any other Person.
6.13. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS. (a) Except
with the prior written consent of Administrative Agent, no Credit Party shall,
nor shall it permit any of its Subsidiaries to, agree to any termination of,
amendment, restatement, supplement or other modification to, or waiver of, any
of its rights under, any Related Agreement (other than the Employment Agreement)
after the Closing Date, if such termination, amendment, restatement, supplement,
modification or waiver would be materially adverse to any Credit Party or any
Agent or Lender.
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(b) No Credit Party shall, nor shall it permit any of its Subsidiaries to,
amend or otherwise change the terms of the Holdings Notes or any Subordinated
Indebtedness, or make any payment consistent with an amendment thereof or change
thereto, if the effect of such amendment or change is to increase the interest
rate on such Holdings Notes or Subordinated Indebtedness, change (to earlier
dates) any dates upon which payments of principal or interest are due thereon,
change any event of default or condition to an event of default with respect
thereto (other than to eliminate any such event of default or increase any grace
period related thereto), change the redemption, prepayment or defeasance
provisions thereof, change the subordination provisions of such Holdings Notes
or Subordinated Indebtedness (or of any guaranty thereof), or change any
collateral therefor (other than to release such collateral), or if the effect of
such amendment or change, together with all other amendments or changes made, is
to increase materially the obligations of the obligor thereunder or to confer
any additional rights on the holders of such Holdings Notes or Subordinated
Indebtedness (or a trustee or other representative on their behalf) which would
be adverse to any Credit Party or Lenders.
(c) Borrower shall not designate any Indebtedness as "DESIGNATED SENIOR
INDEBTEDNESS" (as defined in the Senior Subordinated Note Indenture) for
purposes of the Senior Subordinated Note Indenture without the prior written
consent of Requisite Lenders.
6.14. FISCAL YEAR. No Credit Party shall, nor shall it permit any of its
Subsidiaries to, change its Fiscal Year-end from December 31.
6.15. CORPORATE SEPARATENESS. Borrower and its Subsidiaries on the one
hand and Holdings on the other hand shall (a) conduct their respective business
solely in their own respective names and through their own respective authorized
officers and agents so as not to mislead others as to their identity, (b) abide
by all corporate formalities and procedures (as applicable) as required by this
Agreement, their applicable formation document or the laws of their respective
jurisdictions of formation, including, without limitation, the maintenance of
current books and records, (c) not permit any of the financial statements of
Borrower or any of its Subsidiaries or Holdings in any way to suggest that the
assets of Borrower or any of its Subsidiaries are available to pay claims of
creditors of Holdings and shall ensure that the financial statements of Borrower
and its Subsidiaries shall not be consolidated with the financial statements of
Holdings unless separate financial statements of Borrower and its Subsidiaries
are also prepared and that none of the assets of Borrower and its Subsidiaries
will be consolidated or otherwise reflected on the financial statements of
Holdings, except as permitted by the foregoing, (d) hold Borrower or any of its
Subsidiaries out as having agreed to pay or become liable for the debts or
obligations of Holdings, (e) not operate or purport to operate as an integrated,
single economic unit with respect to each other and not seek or obtain credit or
incur any obligation to any third Person (other than obligations under the
Credit Documents and the Senior Subordinated Note Related Documents) based upon
the assets of the other, (f) manage their own liabilities, obligations and
expenses separate and apart from the other and each shall provide for and pay
out of their own respective assets their own respective liabilities, obligations
and expenses, (g) maintain and continue to maintain an arm's length relationship
with the other, (h) keep correct and complete records, books of account,
financial statements, accounting records and bank accounts separate and apart
from those of the other, (i) not seek the dissolution or winding up in whole, or
in part, of the other, and (j) ensure that the funds and other assets of
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Holdings will be identifiable and will not be commingled with those of Borrower
or its Subsidiaries, and the assets and liabilities of Holdings shall and shall
continue to be readily distinguishable from the assets and liabilities of
Borrower or its Subsidiaries.
SECTION 7. GUARANTY
7.1. GUARANTY OF THE OBLIGATIONS. Subject to the provisions of Section
7.2, Guarantors jointly and severally hereby irrevocably and unconditionally
guaranty to Administrative Agent for the ratable benefit of the Beneficiaries
the due and punctual payment in full of all Obligations when the same shall
become due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. (S) 362(a)) (collectively, the "GUARANTEED OBLIGATIONS").
7.2. CONTRIBUTION BY GUARANTORS. The Guarantors desire to allocate among
themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and
equitable manner, their obligations arising under this Guaranty. Accordingly,
in the event any payment or distribution is made on any date by a Guarantor (a
"FUNDING GUARANTOR") under this Guaranty that exceeds its Fair Share as of such
date, that Funding Guarantor shall be entitled to a contribution from each of
the other Contributing Guarantors in the amount of such other Contributing
Guarantor's Fair Share Shortfall as of such date, with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments to
equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (a)
the ratio of (i) the Fair Share Contribution Amount with respect to such
Contributing Guarantor to (ii the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by (b) the
aggregate amount paid or distributed on or before such date by all Funding
Guarantors under this Guaranty in respect of the obligations guarantied. "FAIR
SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any date
of determination, the excess, if any, of the Fair Share of such Contributing
Guarantor over the Aggregate Payments of such Contributing Guarantor. "FAIR
SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of
any date of determination, the maximum aggregate amount of the obligations of
such Contributing Guarantor under this Guaranty that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state law; provided, solely for
purposes of calculating the "Fair Share Contribution Amount" with respect to any
Contributing Guarantor for purposes of this Section 7.2, any assets or
liabilities of such Contributing Guarantor arising by virtue of any rights to
subrogation, reimbursement or indemnification or any rights to or obligations of
contribution hereunder shall not be considered as assets or liabilities of such
Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (1)
the aggregate amount of all payments and distributions made on or before such
date by such Contributing Guarantor in respect of this Guaranty (including,
without limitation, in respect of this Section 7.2), minus (2) the aggregate
amount of all payments received on or before such date by such Contributing
Guarantor from the other Contributing Guarantors as contributions under this
Section 7.2. The amounts payable as contributions hereunder
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shall be determined as of the date on which the related payment or distribution
is made by the applicable Funding Guarantor. The allocation among Contributing
Guarantors of their obligations as set forth in this Section 7.2 shall not be
construed in any way to limit the liability of any Contributing Guarantor
hereunder. Each Guarantor is a third party beneficiary to the contribution
agreement set forth in this Section 7.2.
7.3. PAYMENT BY GUARANTORS. Subject to Section 7.2, Guarantors hereby
jointly and severally agree, in furtherance of the foregoing and not in
limitation of any other right which any Beneficiary may have at law or in equity
against any Guarantor by virtue hereof, that upon the failure of Borrower to pay
any of the Obligations when and as the same shall become due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)),
Guarantors will upon demand pay, or cause to be paid, in Cash, to Administrative
Agent for the ratable benefit of Beneficiaries, an amount equal to the sum of
the unpaid principal amount of all Obligations then due as aforesaid, accrued
and unpaid interest on such Obligations (including interest which, but for the
filing of a petition in bankruptcy with respect to Borrower, would have accrued
on such Obligations, whether or not a claim is allowed against Borrower for such
interest in the related bankruptcy proceeding) and all other Obligations then
owed to Beneficiaries as aforesaid.
7.4. LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Obligations. In furtherance of the foregoing and without limiting the
generality thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of
collectability. This Guaranty is a primary obligation of each Guarantor and not
merely a contract of surety;
(b) Administrative Agent may enforce this Guaranty upon the occurrence of
an Event of Default notwithstanding the existence of any dispute between
Borrower and any Beneficiary with respect to the existence of such Event of
Default;
(c) the obligations of each Guarantor hereunder are independent of the
obligations of Borrower and the obligations of any other guarantor (including
any other Guarantor) of the obligations of Borrower, and a separate action or
actions may be brought and prosecuted against such Guarantor whether or not any
action is brought against Borrower or any of such other guarantors and whether
or not Borrower is joined in any such action or actions;
(d) payment by any Guarantor of a portion, but not all, of the Obligations
shall in no way limit, affect, modify or abridge any Guarantor's liability for
any portion of the Obligations which has not been paid. Without limiting the
generality of the foregoing, if Administrative Agent is awarded a judgment in
any suit brought to enforce any Guarantor's covenant to pay a portion of the
Obligations, such judgment shall not be deemed to release such Guarantor from
its covenant to pay the portion of the Obligations that is not the subject of
such suit, and such judgment shall not, except
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to the extent satisfied by such Guarantor, limit, affect, modify or abridge any
other Guarantor's liability hereunder in respect of the Obligations;
(e) any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability hereof or
giving rise to any reduction, limitation, impairment, discharge or termination
of any Guarantor's liability hereunder, from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the time,
place, manner or terms of payment of the Obligations; (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, the Obligations or any agreement relating thereto
and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Obligations and
take and hold security for the payment hereof or the Obligations; (iv) release,
surrender, exchange, substitute, compromise, settle, rescind, waive, alter,
subordinate or modify, with or without consideration, any security for payment
of the Obligations, any other guaranties of the Obligations, or any other
obligation of any Person (including any other Guarantor) with respect to the
Obligations; (v) enforce and apply any security now or hereafter held by or for
the benefit of such Beneficiary in respect hereof or the Obligations and direct
the order or manner of sale thereof, or exercise any other right or remedy that
such Beneficiary may have against any such security, in each case as such
Beneficiary in its discretion may determine consistent herewith or the
applicable Hedge Agreement and any applicable security agreement, including
foreclosure on any such security pursuant to one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially reasonable,
and even though such action operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of any Guarantor against
Borrower or any security for the Obligations; and (vi) exercise any other rights
available to it under the Credit Documents or the Hedge Agreements; and
(f) this Guaranty and the obligations of Guarantors hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in full
of the Obligations), including the occurrence of any of the following, whether
or not any Guarantor shall have had notice or knowledge of any of them: (i) any
failure or omission to assert or enforce or agreement or election not to assert
or enforce, or the stay or enjoining, by order of court, by operation of law or
otherwise, of the exercise or enforcement of, any claim or demand or any right,
power or remedy (whether arising under the Credit Documents or the Hedge
Agreements, at law, in equity or otherwise) with respect to the Obligations or
any agreement relating thereto, or with respect to any other guaranty of or
security for the payment of the Obligations; (ii) any rescission, waiver,
amendment or modification of, or any consent to departure from, any of the terms
or provisions (including provisions relating to events of default) hereof, any
of the other Credit Documents, any of the Hedge Agreements or any agreement or
instrument executed pursuant thereto, or of any other guaranty or security for
the Obligations, in each case whether or not in accordance with the terms hereof
or such Credit Document, such Hedge Agreement or any agreement relating to such
other guaranty or security; (iii) the Obligations, or any agreement relating
thereto, at any time being found to be illegal, invalid or unenforceable in any
respect; (iv) the application of payments received from any source (other than
payments received pursuant to the other Credit Documents or any of the Hedge
Agreements or from the proceeds of any security for the Obligations, except to
the extent such security also serves as collateral for
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indebtedness other than the Obligations) to the payment of indebtedness other
than the Obligations, even though any Beneficiary might have elected to apply
such payment to any part or all of the Obligations; (v) any Beneficiary's
consent to the change, reorganization or termination of the corporate structure
or existence of Borrower or any of its Subsidiaries and to any corresponding
restructuring of the Obligations; (vi) any failure to perfect or continue
perfection of a security interest in any collateral which secures any of the
Obligations; (vii) any defenses, set-offs or counterclaims which Borrower may
allege or assert against any Beneficiary in respect of the Obligations,
including failure of consideration, breach of warranty, payment, statute of
frauds, statute of limitations, accord and satisfaction and usury; and (viii)
any other act or thing or omission, or delay to do any other act or thing, which
may or might in any manner or to any extent vary the risk of any Guarantor as an
obligor in respect of the Obligations.
7.5. WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit
of Beneficiaries: (a) any right to require any Beneficiary, as a condition of
payment or performance by such Guarantor, to (i) proceed against Borrower, any
other guarantor (including any other Guarantor) of the Obligations or any other
Person, (ii proceed against or exhaust any security held from Borrower, any such
other guarantor or any other Person, (ii proceed against or have resort to any
balance of any Deposit Account or credit on the books of any Beneficiary in
favor of Borrower or any other Person, or (iv) pursue any other remedy in the
power of any Beneficiary whatsoever; (b) any defense arising by reason of the
incapacity, lack of authority or any disability or other defense of Borrower or
any other Guarantor including any defense based on or arising out of the lack of
validity or the unenforceability of the Obligations or any agreement or
instrument relating thereto or by reason of the cessation of the liability of
Borrower or any other Guarantor from any cause other than payment in full of the
Obligations; (c) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal; (d) any defense based
upon any Beneficiary's errors or omissions in the administration of the
Obligations, except behavior which amounts to bad faith; (e) (i) any principles
or provisions of law, statutory or otherwise, which are or might be in conflict
with the terms hereof and any legal or equitable discharge of such Guarantor's
obligations hereunder, (ii the benefit of any statute of limitations affecting
such Guarantor's liability hereunder or the enforcement hereof, (ii any rights
to set-offs, recoupments and counterclaims, and (iv promptness, diligence and
any requirement that any Beneficiary protect, secure, perfect or insure any
security interest or lien or any property subject thereto; (f) notices, demands,
presentments, protests, notices of protest, notices of dishonor and notices of
any action or inaction, including acceptance hereof, notices of default
hereunder, the Hedge Agreements or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Obligations or any
agreement related thereto, notices of any extension of credit to Borrower and
notices of any of the matters referred to in Section 7.4 and any right to
consent to any thereof; and (g) any defenses or benefits that may be derived
from or afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms hereof.
7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the
Guaranteed Obligations shall have been indefeasibly paid in full and the
Revolving Commitments shall have terminated and all Letters of Credit shall have
expired or been cancelled, each Guarantor hereby waives any claim, right or
remedy, direct or indirect, that such Guarantor now has or may hereafter
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have against Borrower or any other Guarantor or any of its assets in connection
with this Guaranty or the performance by such Guarantor of its obligations
hereunder, in each case whether such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise and including without
limitation (a) any right of subrogation, reimbursement or indemnification that
such Guarantor now has or may hereafter have against Borrower with respect to
the Guaranteed Obligations, (b) any right to enforce, or to participate in, any
claim, right or remedy that any Beneficiary now has or may hereafter have
against Borrower or any other Guarantor, and (c) any benefit of, and any right
to participate in, any collateral or security now or hereafter held by any
Beneficiary. In addition, until the Guaranteed Obligations shall have been
indefeasibly paid in full and the Revolving Commitments shall have terminated
and all Letters of Credit shall have expired or been cancelled, each Guarantor
shall withhold exercise of any right of contribution such Guarantor may have
against any other guarantor (including any other Guarantor) of the Guaranteed
Obligations, including, without limitation, any such right of contribution as
contemplated by Section 7.2. Each Guarantor further agrees that, to the extent
the waiver or agreement to withhold the exercise of its rights of subrogation,
reimbursement, indemnification and contribution as set forth herein is found by
a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation, reimbursement or indemnification such Guarantor may have
against Borrower or against any collateral or security, and any rights of
contribution such Guarantor may have against any such other guarantor, shall be
junior and subordinate to any rights any Beneficiary may have against Borrower,
to all right, title and interest any Beneficiary may have in any such collateral
or security, and to any right any Beneficiary may have against such other
guarantor. If any amount shall be paid to any Guarantor on account of any such
subrogation, reimbursement, indemnification or contribution rights at any time
when all Guaranteed Obligations shall not have been finally and indefeasibly
paid in full, such amount shall be held in trust for Administrative Agent on
behalf of Beneficiaries and shall forthwith be paid over to Guaranteed Party for
the benefit of Beneficiaries to be credited and applied against the Guaranteed
Obligations, whether matured or unmatured, in accordance with the terms hereof.
7.7. SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Borrower or
any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR")
is hereby subordinated in right of payment to the Obligations, and any such
indebtedness collected or received by the Obligee Guarantor after an Event of
Default has occurred and is continuing shall be held in trust for Administrative
Agent on behalf of Beneficiaries and shall forthwith be paid over to
Administrative Agent for the benefit of Beneficiaries to be credited and applied
against the Obligations but without affecting, impairing or limiting in any
manner the liability of the Obligee Guarantor under any other provision hereof.
7.8. CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall
remain in effect until all of the Obligations shall have been finally and
indefeasibly paid in full and the Revolving Commitments shall have terminated
and all Letters of Credit shall have expired or been cancelled. Each Guarantor
hereby irrevocably waives any right to revoke this Guaranty as to future
transactions giving rise to any Obligations.
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7.9. AUTHORITY OF GUARANTORS OR BORROWER. It is not necessary for any
Beneficiary to inquire into the capacity or powers of any Guarantor or Borrower
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.
7.10. FINANCIAL CONDITION OF BORROWER. Any Credit Extension may be made to
Borrower or continued from time to time, and any Hedge Agreements may be entered
into from time to time, in each case without notice to or authorization from any
Guarantor regardless of the financial or other condition of Borrower at the time
of any such grant or continuation or at the time such Hedge Agreement is entered
into, as the case may be. No Beneficiary shall have any obligation to disclose
or discuss with any Guarantor its assessment, or any Guarantor's assessment, of
the financial condition of Borrower. Each Guarantor has adequate means to obtain
information from Borrower on a continuing basis concerning the financial
condition of Borrower and its ability to perform its obligations under the
Credit Documents and the Hedge Agreements, and each Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
Borrower and of all circumstances bearing upon the risk of nonpayment of the
Obligations. Each Guarantor hereby waives and relinquishes any duty on the part
of any Beneficiary to disclose any matter, fact or thing relating to the
business, operations or conditions of Borrower now known or hereafter known by
any Beneficiary.
7.11. BANKRUPTCY, ETC. (a) So long as any Obligations remain outstanding,
no Guarantor shall, without the prior written consent of Administrative Agent
acting pursuant to the instructions of Requisite Lenders, commence or join with
any other Person in commencing any bankruptcy, reorganization or insolvency
proceedings of or against Borrower or any other Guarantor. The obligations of
Guarantors hereunder shall not be reduced, limited, impaired, discharged,
deferred, suspended or terminated by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization, liquidation
or arrangement of Borrower or any other Guarantor or by any defense which
Borrower or such Guarantor may have by reason of the order, decree or decision
of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Obligations if said proceedings had not been commenced) shall be
included in the Obligations because it is the intention of Guarantors and
Beneficiaries that the Obligations which are guarantied by Guarantors pursuant
hereto should be determined without regard to any rule of law or order which may
relieve Borrower of any portion of such Obligations. Guarantors will permit any
trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit
of creditors or similar person to pay Administrative Agent, or allow the claim
of Administrative Agent in respect of, any such interest accruing after the date
on which such proceeding is commenced.
(c) In the event that all or any portion of the Obligations are paid by
Borrower or any other Person, the obligations of Guarantors hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from any Beneficiary as a preference,
fraudulent transfer
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or otherwise, and any such payments which are so rescinded or recovered shall
constitute Obligations for all purposes hereunder.
7.12. NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge
thereof, such Guarantor shall give Administrative Agent written notice of any
condition or event which has resulted in (i) a material adverse change in the
financial condition of any Guarantor or Borrower or (ii a breach of or
noncompliance with any term, condition or covenant contained herein, any other
Credit Document, any Hedge Agreement or any other document delivered pursuant
hereto or thereto.
7.13. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the Capital
Stock of any Guarantor or any of its successors in interest hereunder shall be
sold or otherwise disposed of (including by merger or consolidation) in
accordance with the terms and conditions hereof, the Guaranty of such Guarantor
or such successor in interest, as the case may be, hereunder shall automatically
be discharged and released without any further action by any Beneficiary or any
other Person effective as of the time of such Asset Sale; provided, as a
condition precedent to such discharge and release, Administrative Agent shall
have received evidence satisfactory to it that arrangements satisfactory to it
have been made for delivery to Administrative Agent of the applicable Net Asset
Sale Proceeds of such disposition pursuant to Section 2.12(a).
SECTION 8. EVENTS OF DEFAULT
8.1. EVENTS OF DEFAULT. If any one or more of the following conditions or
events shall occur:
(a) failure by Borrower to pay (i) when due any installment of principal
of any Loan when due, whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise; (ii) when due any amount payable to Issuing Bank in
reimbursement of any drawing under a Letter of Credit; or (iii) any interest on
any Loan or any fee or any other amount due hereunder within three (3) days
after the date due; or
(b) (i) failure of Holdings, Borrower or any of their respective
Subsidiaries to pay when due any principal of or interest on or any other amount
payable in respect of one or more items of Indebtedness (other than Indebtedness
referred to in Section 8.1(a)) in an individual principal amount of $1,250,000
or more or with an aggregate principal amount of $2,500,000 or more, in each
case beyond the end of any grace period provided therefor; or (ii) breach or
default by Holdings, Borrower or any of their respective Subsidiaries with
respect to any other term of (1) one or more items of Indebtedness in the
individual or aggregate principal amounts referred to in clause (i) above or (2)
any loan agreement, mortgage, indenture or other agreement relating to such
item(s) of Indebtedness, if the effect of such breach or default is to cause, or
to permit the holder or holders of that Indebtedness (or a trustee on behalf of
such holder or holders) to cause, that Indebtedness to become or be declared due
and payable (or redeemable) prior to its stated maturity or the stated maturity
of any underlying obligation, as the case may be (upon the giving or receiving
of notice, lapse of time, both, or otherwise); or
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(c) failure of any Credit Party to perform or comply with any term or
condition contained in Section 2.4, 5.1(d), 5.1(g), 5.2, 5.11 or Section 6
hereof; or
(d) any representation, warranty, certification or other statement made or
deemed made by any Credit Party in any Credit Document or in any statement or
certificate at any time given by any Credit Party in writing pursuant hereto or
thereto or in connection herewith or therewith shall be false in any material
respect as the date made or deemed made; or
(e) any Credit Party shall default in the performance of or compliance
with any term contained herein or any of the other Credit Documents, other than
any such term referred to in any other Section of this Section 8.1, and such
default shall not have been remedied or waived within thirty (30) days after the
earlier of (i) an officer of such Credit Party becoming aware of such default or
(ii) receipt by Borrower of notice from Administrative Agent or any Lender of
such default; or
(f) (i) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of Holdings, Borrower or any of their respective
Subsidiaries, excluding Muzak Heart and Soul Foundation, in an involuntary case
under the Bankruptcy Code or under any other applicable bankruptcy, insolvency
or similar law now or hereafter in effect, which decree or order is not stayed;
or any other similar relief shall be granted under any applicable federal or
state law; or (ii) an involuntary case shall be commenced against Holdings,
Borrower or any of their respective Subsidiaries under the Bankruptcy Code or
under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over Holdings, Borrower or any
of their respective Subsidiaries, or over all or a substantial part of its
property, shall have been entered; or there shall have occurred the involuntary
appointment of an interim receiver, trustee or other custodian of Holdings,
Borrower or any of their respective Subsidiaries for all or a substantial part
of its property; or a warrant of attachment, execution or similar process shall
have been issued against any substantial part of the property of Holdings,
Borrower or any of their respective Subsidiaries, and any such event described
in this clause (ii) shall continue for sixty (60) days unless dismissed, bonded
or discharged; or
(g) (i) Holdings, Borrower or any of their respective Subsidiaries,
excluding Muzak Heart and Soul Foundation, shall have an order for relief
entered with respect to it or shall commence a voluntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; or Holdings, Borrower or any of their
respective Subsidiaries shall make any assignment for the benefit of creditors;
or (ii) Holdings, Borrower or any of their respective Subsidiaries shall be
unable, or shall fail generally, or shall admit in writing its inability, to pay
its debts as such debts become due; or the Board of Directors (or similar
governing body) of Holdings, Borrower or any of their respective Subsidiaries
(or any committee thereof) shall adopt any resolution or otherwise authorize any
action to approve any of the actions referred to herein or in Section 8.1(f); or
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(h) any money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $500,000 or (ii) in
the aggregate at any time an amount in excess of $2,500,000 (in either case to
the extent not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) shall be entered or
filed against Holdings, Borrower or any of their respective Subsidiaries or any
of their respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of thirty (30) days (or in any event later than five days
prior to the date of any proposed sale thereunder); or
(i) any order, judgment or decree shall be entered against Holdings,
Borrower or any of their respective Subsidiaries decreeing the dissolution or
split up of Holdings, Borrower or any of their respective Subsidiaries and such
order shall remain undischarged or unstayed for a period in excess of thirty
(30) days; or
(j) there shall occur one or more ERISA Events which individually or in the
aggregate results in or might reasonably be expected to result in liability of
any Credit Party or any of their respective ERISA Affiliates in excess of
$2,500,000 during the term hereof; or there shall exist an amount of unfunded
benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually
or in the aggregate for all Pension Plans (excluding for purposes of such
computation any Pension Plans with respect to which assets exceed benefit
liabilities), which exceeds $2,500,000; or
(k) a Change of Control shall occur; or
(l) at any time after the execution and delivery thereof, (i) the Guaranty
for any reason, other than the satisfaction in full of all Obligations, shall
cease to be in full force and effect (other than in accordance with its terms)
or shall be declared to be null and void or any Guarantor shall repudiate its
obligations thereunder, (ii) any material provision of this Agreement or any
Collateral Document ceases to be in full force and effect (other than by reason
of a release of Collateral in accordance with the terms hereof or thereof or the
satisfaction in full of the Obligations in accordance with the terms hereof) or
shall be declared null and void, or Administrative Agent shall not have or shall
cease to have a valid and perfected Lien in any Collateral purported to be
covered thereby with the priority required by the relevant Collateral Document,
in each case for any reason other than the failure of Administrative Agent or
any Lender to take any action within its control, or (iii) any Credit Party
shall contest the validity or enforceability of any Credit Document in writing
or deny in writing that it has any further liability, including with respect to
future advances by Lenders, under any Credit Document to which it is a party; or
(m) the Merger shall not be consummated in accordance with this Agreement
and the applicable Related Agreements concurrently with the making of the
initial Loans, or the Merger shall be unwound, reversed or otherwise rescinded
in whole or in part for any reason; or
(n) Holdings shall (i) engage in any business other than entering into and
performing its obligations under and in accordance with the Credit Documents and
Related Agreements to which it is a party or (ii) own any assets other than 100%
of the Capital Stock of Borrower and Muzak Holdings Finance
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THEN, (1) upon the occurrence of any Event of Default described in Section
8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event
of Default, at the request of (or with the consent of) Requisite Lenders, upon
notice to Borrower by Administrative Agent, (A) the Revolving Commitments, if
any, of each Lender having such Revolving Commitments and the Obligation of
Issuing Bank to issue any Letter of Credit shall immediately terminate, and (B)
each of the following shall immediately become due and payable, in each case
without presentment, demand, protest or other requirements of any kind, all of
which are hereby expressly waived by each Credit Party: (i) the unpaid principal
amount of and accrued interest on the Loans, (ii) an amount equal to the maximum
amount that may at any time be drawn under all Letters of Credit then
outstanding (regardless of whether any beneficiary under any such Letter of
Credit shall have presented, or shall be entitled at such time to present, the
drafts or other documents or certificates required to draw under such Letters of
Credit) and (iii) all other Obligations.
SECTION 9. AGENTS
9.1 APPOINTMENT OF AGENTS. GSCP and CIBC are hereby appointed Co-Lead
Arrangers and GSCP is hereby appointed Syndication Agent hereunder, and each
Lender hereby authorizes Co-Lead Arrangers and Syndication Agent to act as its
agents in accordance with the terms hereof and the other Credit Documents.
CIBOC is hereby appointed Administrative Agent hereunder and under the other
Credit Documents and each Lender hereby authorizes Administrative Agent to act
as its agent in accordance with the terms hereof and the other Credit Documents.
Each Agent hereby agrees to act upon the express conditions contained herein and
the other Credit Documents, as applicable. The provisions of this Section 9 are
solely for the benefit of Agents and Lenders and no Credit Party shall have any
rights as a third party beneficiary of any of the provisions thereof (other than
Borrower's right to approve the appointment of a successor Administrative Agent
under Section 9.7). In performing its functions and duties hereunder, each
Agent shall act solely as an agent of Lenders and does not assume and shall not
be deemed to have assumed any obligation towards or relationship of agency or
trust with or for Holdings or any of its Subsidiaries. Syndication Agent,
without consent of or notice to any party hereto, may assign any and all of its
rights or obligations hereunder to any of its Affiliates. As of the Closing
Date, all the respective obligations of GSCP, in its capacity as Co-Lead
Arrangers and Syndication Agent, and CIBC, in its capacity as Co-Lead Arranger,
shall terminate.
9.2 POWERS AND DUTIES. Each Lender irrevocably authorizes each Agent to
take such action on such Lender's behalf and to exercise such powers, rights and
remedies hereunder and under the other Credit Documents as are specifically
delegated or granted to such Agent by the terms hereof and thereof, together
with such powers, rights and remedies as are reasonably incidental thereto. Each
Agent shall have only those duties and responsibilities that are expressly
specified herein and the other Credit Documents. Each Agent may exercise such
powers, rights and remedies and perform such duties by or through its agents or
employees. No Agent shall have, by reason hereof or any of the other Credit
Documents, a fiduciary relationship in respect of any Lender; and nothing herein
or any of the other Credit Documents, expressed or implied, is intended to or
shall be so construed as to impose upon any Agent any obligations in respect
hereof or any of the other Credit Documents except as expressly set forth herein
or therein.
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9.3 GENERAL IMMUNITY. (a) No Agent shall be responsible to any Lender for
the execution, effectiveness, genuineness, validity, enforceability,
collectability or sufficiency hereof or any other Credit Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statements or in any financial or other statements,
instruments, reports or certificates or any other documents furnished or made by
any of Agent to Lenders or by or on behalf of any Credit Party to any Agent or
any Lender in connection with the Credit Documents and the transactions
contemplated thereby or for the financial condition or business affairs of any
Credit Party or any other Person liable for the payment of any Obligations, nor
shall any Agent be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained in any of the Credit Documents or as to the use of the proceeds of the
Loans or as to the existence or possible existence of any Event of Default or
Default. Anything contained herein to the contrary notwithstanding,
Administrative Agent shall not have any liability arising from confirmations of
the amount of outstanding Loans or Letter of Credit Usage or the component
amounts thereof.
(b) No Agent nor any of its officers, partners, directors, employees or
agents shall be liable to Lenders for any action taken or omitted by any Agent
under or in connection with any of the Credit Documents except to the extent
caused by such Agent's gross negligence or willful misconduct. Each Agent shall
be entitled to refrain from any act or the taking of any action (including the
failure to take an action) in connection herewith or any of the other Credit
Documents or from the exercise of any power, discretion or authority vested in
it hereunder or thereunder unless and until such Agent shall have received
instructions in respect thereof from Requisite Lenders (or such other Lenders as
may be required to give such instructions under Section 10.5) and, upon receipt
of such instructions from Requisite Lenders (or such other Lenders, as the case
may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority, in accordance
with such instructions. Without prejudice to the generality of the foregoing,
(i) each Agent shall be entitled to rely, and shall be fully protected in
relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper Person or
Persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for Holdings and its
Subsidiaries), accountants, experts and other professional advisors selected by
it; and (ii) no Lender shall have any right of action whatsoever against any
Agent as a result of such Agent acting or (where so instructed) refraining from
acting hereunder or any of the other Credit Documents in accordance with the
instructions of Requisite Lenders (or such other Lenders as may be required to
give such instructions under Section 10.5).
9.4 AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans and the Letters of Credit, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as though it were not performing the duties and functions
delegated to it hereunder, and the term "LENDER" shall, unless the context
clearly otherwise indicates, include each Agent in its individual capacity. Any
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of banking, trust, financial advisory or other business with
Holdings or any of its Affiliates as if it were not performing the duties
specified herein, and
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may accept fees and other consideration from Borrower for services in connection
herewith and otherwise without having to account for the same to Lenders.
9.5 LENDERS' REPRESENTATIONS AND WARRANTIES. Each Lender represents and
warrants that it has made its own independent investigation of the financial
condition and affairs of Holdings, Borrower and each of their respective
Subsidiaries in connection with Credit Extensions hereunder and that it has made
and shall continue to make its own appraisal of the creditworthiness of
Holdings, Borrower and each of their respective Subsidiaries. No Agent shall
have any duty or responsibility, either initially or on a continuing basis, to
make any such investigation or any such appraisal on behalf of Lenders or to
provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before the making of the Loans or at any time
or times thereafter, and no Agent shall have any responsibility with respect to
the accuracy of or the completeness of any information provided to Lenders.
9.6 RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share,
severally agrees to indemnify each Agent, to the extent that such Agent shall
not have been reimbursed by any Credit Party, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Agent in exercising its powers, rights and remedies or performing
its duties hereunder or under the other Credit Documents or otherwise in its
capacity as such Agent in any way relating to or arising out hereof or the other
Credit Documents; provided, no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. If any indemnity furnished to any Agent for any purpose
shall, in the opinion of such Agent, be insufficient or become impaired, such
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished; provided,
in no event shall this sentence require any Lender to indemnify any Agent
against any liability, obligation, loss, damage, penalty, action, judgment,
suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share
thereof; and provided further, this sentence shall not be deemed to require any
Lender to indemnify any Agent against any liability, obligation, loss, damage,
penalty, action, judgment, suit, cost, expense or disbursement described in the
proviso in the immediately preceding sentence.
9.7 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign at
any time by giving thirty (30) days' prior written notice thereof to Lenders and
Borrower, and Administrative Agent may be removed at any time with or without
cause by an instrument or concurrent instruments in writing delivered to
Borrower and Administrative Agent and signed by Requisite Lenders. Upon any
such notice of resignation or any such removal, Requisite Lenders shall have the
right, upon five Business Days' notice to Borrower, to appoint a successor
Administrative Agent, as long as no Default or Event of Default has occurred and
is continuing, such appointment shall be subject to Borrower's approval, such
approval not to be unreasonably withheld. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, that successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Administrative Agent and the retiring or removed Administrative Agent
shall promptly (i) transfer to such successor Administrative Agent all sums,
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securities and other items of Collateral held under the Collateral Documents,
together with all records and other documents necessary or appropriate in
connection with the performance of the duties of the successor Administrative
Agent under the Credit Documents, and (ii) execute and deliver to such successor
Administrative Agent such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Administrative Agent of the security interests
created under the Collateral Documents, whereupon such retiring or removed
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring or removed Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent hereunder.
9.8 COLLATERAL DOCUMENTS AND GUARANTIES. (a) Each Lender hereby further
authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to
be the agent for and representative of Lenders with respect to the Guaranty, the
Collateral and the Collateral Documents. Subject to Section 10.5, without
further written consent or authorization from Lenders, Administrative Agent may
execute any documents or instruments necessary to (i) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted hereby or to which Requisite Lenders (or such
other Lenders as may be required to give such consent under Section 10.5) have
otherwise consented or (ii release any Guarantor from the Guaranty pursuant to
Section 7.13 or with respect to which Requisite Lenders (or such other Lenders
as may be required to give such consent under Section 10.5) have otherwise
consented.
(b) Anything contained in any of the Credit Documents to the contrary
notwithstanding, Borrower, Administrative Agent and each Lender hereby agree
that (i) no Lender shall have any right individually to realize upon any of the
Collateral or to enforce the Guaranty, it being understood and agreed that all
powers, rights and remedies hereunder may be exercised solely by Administrative
Agent for the benefit of Lenders in accordance with the terms hereof, and (ii)
in the event of a foreclosure by Administrative Agent on any of the Collateral
pursuant to a public or private sale, Administrative Agent or any Lender may be
the purchaser of any or all of such Collateral at any such sale and
Administrative Agent, as agent for and representative of Lenders (but not any
Lender or Lenders in its or their respective individual capacities unless
Requisite Lenders shall otherwise agree in writing) shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Obligations as a credit on account of the purchase price for
any collateral payable by Administrative Agent at such sale.
(c) It is the purpose hereof and the other Credit Documents that there
shall be no violation of any law of any jurisdiction denying or restricting the
right of banking corporations or associations to transact business as agent or
trustee in such jurisdiction. It is recognized that in case of litigation
hereunder or any of the other Credit Documents, and in particular in case of the
enforcement of any of the Credit Documents, or in case Administrative Agent
deems that by reason of any present or future law of any jurisdiction it may not
exercise any of the rights, powers or remedies granted herein or in any of the
other Credit Documents or take any other action which may be desirable or
necessary in connection therewith, it may be necessary that Administrative Agent
appoint an additional individual or institution as a separate trustee, co-
trustee, collateral agent or
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collateral co-agent (a "SUPPLEMENTAL COLLATERAL AGENT"). In the event that
Administrative Agent appoints a Supplemental Collateral Agent with respect to
any Collateral, (i) each and every right, power, privilege or duty expressed or
intended hereby or any of the other Credit Documents to be exercised by or
vested in or conveyed to Administrative Agent with respect to such Collateral
shall be exercisable by and vest in such Supplemental Collateral Agent to the
extent, and only to the extent, necessary to enable such Supplemental Collateral
Agent to exercise such rights, powers and privileges with respect to such
Collateral and to perform such duties with respect to such Collateral, and every
covenant and obligation contained in the Credit Documents and necessary to the
exercise or performance thereof by such Supplemental Collateral Agent shall run
to and be enforceable by either Agent or such Supplemental Collateral Agent, and
(ii) the provisions of this Section 9 and of Sections 10.2 and 10.3 that refer
to Administrative Agent shall inure to the benefit of such Supplemental
Collateral Agent and all references therein to Administrative Agent shall be
deemed to be references to Administrative Agent and/or such Supplemental
Collateral Agent, as the context may require. Should any instrument in writing
from Borrower or any other Credit Party be required by any Supplemental
Collateral Agent so appointed by Administrative Agent for more fully and
certainly vesting in and confirming to him or it such rights, powers, privileges
and duties, Borrower shall, or shall cause such Credit Party to, execute,
acknowledge and deliver any and all such instruments promptly upon request by
Administrative Agent. In case any Supplemental Collateral Agent, or a successor
thereto, shall die, become incapable of acting, resign or be removed, all the
rights, powers, privileges and duties of such Supplemental Collateral Agent, to
the extent permitted by law, shall vest in and be exercised by Administrative
Agent until the appointment of a new Supplemental Collateral Agent.
SECTION 10. MISCELLANEOUS
10.1 NOTICES. Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given to a Credit Party,
Syndication Agent, Issuing Bank or Administrative Agent shall be sent to such
Person's address as set forth on Appendix B or in the other relevant Credit
Document, and in the case of any Lender, the address as indicated on Schedule B
or otherwise indicated to Administrative Agent in writing. Each notice
hereunder shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service and signed for
against receipt thereof, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; provided, no notice to any Agent shall be effective
until received by such Agent.
10.2 EXPENSES. Whether or not the transactions contemplated hereby shall
be consummated, Borrower agrees to pay promptly (a) all the actual and
reasonable costs and expenses of each Agent and Issuing Bank in the preparation
of the Credit Documents and any consents, amendments, waivers or other
modifications thereto (including, without limitation, all due diligence costs
and expenses incurred with respect thereto); (b) all the costs of furnishing all
opinions by counsel for Borrower and the other Credit Parties (including any
opinions requested by Lenders as to any legal matters arising hereunder) and of
Borrower's and each other Credit Party's performance of and compliance with all
agreements and conditions on its part to be performed or complied with
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hereunder and the other Credit Documents including with respect to confirming
compliance with environmental, insurance and solvency requirements; (c) the
reasonable fees, expenses and disbursements of counsel and other advisors to
Agents (in each case including allocated costs of internal counsel) in
connection with the negotiation, preparation, execution and administration of
the Credit Documents and any consents, amendments, waivers or other
modifications thereto and any other documents or matters requested by any Credit
Party; (d) all the actual costs and reasonable expenses of creating and
perfecting Liens in favor of Administrative Agent on behalf of Lenders pursuant
hereto, including filing and recording fees, expenses and taxes, stamp or
documentary taxes, search fees, title insurance premiums and reasonable fees,
expenses and disbursements of counsel to each Agent and of counsel providing any
opinions that any Agent or Requisite Lenders may request in respect of the
Collateral or the Liens created pursuant the Collateral Documents; (e) all the
actual costs and reasonable fees, expenses and disbursements of any auditors,
accountants, consultants or appraisers; (f) all the actual costs and reasonable
expenses (including the reasonable fees, expenses and disbursements of any
appraisers, consultants, advisors and agents employed or retained by
Administrative Agent and its counsel) in connection with the custody or
preservation of any of the Collateral; (g) all other actual and reasonable costs
and expenses incurred by each Agent in connection with the syndication of the
Loans and Revolving Commitments and the negotiation, preparation and execution
of the Credit Documents and any consents, amendments, waivers or other
modifications thereto and the transactions contemplated thereby; and (h) after
the occurrence of a Default or an Event of Default, all costs and expenses,
including reasonable attorneys' fees (including allocated costs of internal
counsel) and costs of settlement, incurred by any Agent and Lenders in enforcing
any Obligations of or in collecting any payments due from any Credit Party
hereunder or under the other Credit Documents by reason of such Default or Event
of Default (including in connection with the sale of, collection from, or other
realization upon any of the Collateral or the enforcement of the Guaranty) or in
connection with any refinancing or restructuring of the credit arrangements
provided hereunder in the nature of a "work-out" or pursuant to any insolvency
or bankruptcy proceedings.
10.3 INDEMNITY. In addition to the payment of expenses pursuant to Section
10.2, whether or not the transactions contemplated hereby shall be consummated,
each Credit Party agrees to defend (subject to Indemnitees' selection of
counsel), indemnify, pay and hold harmless, each Agent and Lender and the
officers, partners, directors, trustees, employees, agents and Affiliates of
each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all
Indemnified Liabilities; provided, no Credit Party shall have any obligation to
any Indemnitee hereunder with respect to any Indemnified Liabilities to the
extent such Indemnified Liabilities arise solely from the gross negligence or
willful misconduct of that Indemnitee as determined by a final, non-appealable
judgment of a court of competent jurisdiction. To the extent that the
undertakings to defend, indemnify, pay and hold harmless set forth in this
Section 10.3 may be unenforceable in whole or in part because they are violative
of any law or public policy, the applicable Credit Party shall contribute the
maximum portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by
Indemnitees or any of them.
10.4 SET-OFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default each Lender is
hereby authorized by each Credit Party at any time or from time to
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time, without notice to any Credit Party or to any other Person (other than
Administrative Agent), any such notice being hereby expressly waived, to set off
and to appropriate and to apply any and all deposits (general or special,
including Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, but not including trust accounts) and any other Indebtedness at any
time held or owing by such Lender to or for the credit or the account of any
Credit Party against and on account of the obligations and liabilities of any
Credit Party to such Lender hereunder, the Letters of Credit and participations
therein and under the other Credit Documents, including all claims of any nature
or description arising out of or connected herewith, the Letters of Credit and
participations therein or with any other Credit Document, irrespective of
whether or not (a) such Lender shall have made any demand hereunder or (b) the
principal of or the interest on the Loans or any amounts in respect of the
Letters of Credit or any other amounts due hereunder shall have become due and
payable pursuant to Section 2 and although said obligations and liabilities, or
any of them, may be contingent or unmatured. Each Credit Party hereby further
grants to Administrative Agent and each Lender a security interest in all
Deposit Accounts maintained with Administrative Agent or such Lender as security
for the Obligations.
10.5 AMENDMENTS AND WAIVERS. (a) Subject to Section 10.5(b), 10.5(c) and
10.5(d), no amendment, modification, termination or waiver of any provision of
the Credit Documents, or consent to any departure by any Credit Party therefrom,
shall in any event be effective without the written concurrence of Requisite
Lenders.
(b) Without the written consent of each Lender, no amendment,
modification, termination, or consent shall be effective to:
(i) amend the pro rata sharing of payments required herein;
(ii) amend the definition of "REQUISITE LENDERS"; provided, with
the consent of Requisite Lenders, additional extensions of credit pursuant
hereto may be included in the determination of "REQUISITE LENDERS" on
substantially the same basis as the Term Loan Amounts, the Term Loans, the
Revolving Commitments and the Revolving Loans are included on the Closing Date;
(iii) amend, modify, terminate or waive any provision of this Section
10.5 or any other provision in this Agreement that by its terms expressly
requires the consent of certain Lenders;
(iv) extend the stated expiration date of any Letter of Credit
beyond the Revolving Commitment Termination Date;
(v) reduce the principal amount of any Loan or any reimbursement
obligation in respect of any Letter of Credit;
(vi) release or otherwise subordinate all or substantially all of
the Collateral or any of the Guarantors from the Guaranty except as expressly
provided in the Credit Documents;
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(vii) alter the required allocation of prepayments from Net High
Yield Debt Proceeds among the Term Loans as set forth in Section 2.13(b)(ii)
(except as otherwise set forth in Section 2.13(c)); or
(viii) amend the definition of Interest Period to permit Interest
Periods in excess of six months.
(c) Without the written consent of each Lender that would be affected
thereby, no amendment, modification, termination, or consent shall be effective
if the effect thereof would:
(i) increase any Revolving Commitment of any Lender over the amount
thereof then in effect; provided, no amendment, modification or waiver of any
condition precedent, covenant, Default or Event of Default shall constitute an
increase in any Revolving Commitment of any Lender;
(ii) reduce the principal amount of any Loan or the rate of interest
on any Loan (other than any waiver of any increase in the interest rate
applicable to any Loan pursuant to Section 2.8) or any fee payable hereunder or
reduce the amount of any payment of principal, interest or fees required to be
made hereunder;
(iii) extend, waive or excuse the scheduled final maturity of any
Loan or any note, any scheduled reduction of Revolving Commitments or any
scheduled payment of any Loan, interest on any Loan or any fee hereunder;
(iv) consent to the assignment or transfer by any Credit Party of
any of its rights and obligations under any Credit Document.
(d) No amendment, modification, termination or waiver of any provision of
the Credit Documents, or consent to any departure by any Credit Party therefrom,
shall:
(i) amend the definition of "REQUISITE CLASS LENDERS" without the
consent of Requisite Class Lenders of each Class; provided, with the consent of
the applicable Requisite Class Lenders, additional extensions of credit pursuant
hereto may be included in the determination of such "REQUISITE CLASS LENDERS" on
substantially the same basis as the Term Loan Amounts, the Term Loans, the
Revolving Commitments and the Revolving Loans are included on the Closing Date;
(ii) alter the required application of any repayments or prepayments
as between Classes pursuant to Section 2.13 without the consent of Requisite
Class Lenders of each Class which is being allocated a lesser repayment or
prepayment as a result thereof;
(iii) amend, modify, terminate or waive any provision of Section 9 as
the same applies to any Agent, or any other provision hereof as the same applies
to the rights or obligations of any Agent, in each case without the consent of
such Agent;
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(iv) amend, modify, terminate or waive any obligation of Lenders
relating to the purchase of participations in Letters of Credit as provided in
Section 2.2A(e) without the written consent of Administrative Agent and of
Issuing Bank;
(v) amend, modify, terminate or waive any provision of any
Collateral Document having the effect of securing thereunder additional
Indebtedness (other than Indebtedness comprising Obligations) by the Collateral
without the written concurrence of Lenders having or holding more than 66-2/3%
of the sum of the aggregate Tranche A Term Loan Exposure of all Lenders plus the
aggregate Tranche B Term Loan Exposure of all Lenders plus the aggregate Tranche
C Term Loan Exposure of all Lenders plus the aggregate Revolving Exposure of all
Lenders;
(vi) amend, modify, or waive any provision of Section 3.2 without
the consent of Requisite Class Lenders having more than 50% of the aggregate
Revolving Exposure; and
(vii) amend, modify or waive any provision of Section 2.12 or Section
6.4 or any definition contained in either such Section without the consent of
(A) Requisite Class Lenders having more than 50% of the sum of the aggregate
Revolving Exposure and the aggregate Tranche A Term Loan Exposure of all Lenders
and (B) Requisite Lenders.
(e) Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender. Any waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it was
given. No notice to or demand on any Credit Party in any case shall entitle any
Credit Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 10.5 shall be binding upon each Lender
at the time outstanding, each future Lender and, if signed by a Credit Party, on
such Credit Party.
10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS. (a) This Agreement shall be
binding upon the parties hereto and their respective successors and assigns and
shall inure to the benefit of the parties hereto and the successors and assigns
of Lenders. No Credit Party's rights or obligations hereunder nor any interest
therein may be assigned or delegated by any Credit Party without the prior
written consent of all Lenders.
(b) Borrower, Administrative Agent and Lenders shall deem and treat the
Persons listed as Lenders in the Register as the holders and owners of the
corresponding Revolving Commitments and Loans listed therein for all purposes
hereof, and no assignment or transfer of any such Revolving Commitment or Loan
shall be effective unless and until an Assignment Agreement effecting the
assignment or transfer thereof shall have been delivered to Administrative Agent
and recorded in the Register. Prior to such recordation, all amounts owed with
respect to the applicable Revolving Commitment or Loan shall be owed to the
Lender listed in the Register as the owner thereof, and any request, authority
or consent of any Person who, at the time of making such request or giving such
authority or consent, is listed in the Register as a Lender shall be conclusive
and binding on any subsequent holder, assignee or transferee of the
corresponding Revolving Commitments or Loans.
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(c) Each Lender shall have the right at any time to sell, assign or
transfer any Revolving Commitment, any Loan or any other Obligation:
(i) to any Person meeting the criteria of clause (i) of the
definition of the term "ELIGIBLE ASSIGNEE" upon the giving of notice to Borrower
and Administrative Agent; and
(ii) to any Person meeting the criteria of clause (ii) of the
definition of the term "Eligible Assignee" upon the consent of each of Borrower
and Administrative Agent (neither of which shall be unreasonably withheld or
delayed or shall be required at any time an Event of Default shall have occurred
and then be continuing); provided, each such assignment pursuant to this Section
10.6(c)(ii) shall be in an aggregate amount of not less than $3,000,000 (or such
lesser amount as may be agreed to by Borrower and Administrative Agent or as
shall constitute the aggregate amount of the Revolving Commitments, Loans and
other Obligations of the assigning Lender).
(d) The assigning Lender and the assignee thereof shall execute and
deliver to Administrative Agent an Assignment Agreement, together with (i) a
processing and recordation fee of $3,500, and (ii) such forms, certificates or
other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may be
required to deliver to Administrative Agent pursuant to Section 2.19(c).
(e) Upon its receipt of a duly executed and completed Assignment
Agreement, together with the processing and recordation fee referred to in
Section 10.6(d) (and any forms, certificates or other evidence required by this
Agreement in connection therewith as a condition to such assignment),
Administrative Agent shall record the information contained in such Assignment
Agreement in the Register, shall give prompt notice thereof to Borrower and
shall maintain a copy of such Assignment Agreement.
(f) Each Lender, upon execution and delivery hereof or upon executing and
delivering an Assignment Agreement, as the case may be, represents and warrants
as of the Closing Date or as of the applicable Effective Date (as defined in the
applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it
has experience and expertise in the making of or investing in commitments or
loans such as the Revolving Commitments or Loans, as the case may be; and (iii)
it will make or invest in, as the case may be, its Revolving Commitments or
Loans for its own account in the ordinary course of its business and without a
view to distribution of such Revolving Commitments or Loans within the meaning
of the Securities Act or the Exchange Act or other federal securities laws (it
being understood that, subject to the provisions of this Section 10.6, the
disposition of such Revolving Commitments, Loans or any interests therein shall
at all times remain within its exclusive control).
(g) Subject to the terms and conditions of this Section 10.6, as of the
"Effective Date" specified in such Assignment Agreement: (i) the assignee
thereunder shall have the rights and obligations of a "Lender" hereunder to the
extent such rights and obligations hereunder have been assigned to it pursuant
to such Assignment Agreement and shall thereafter be a party hereto and a
"Lender" for all purposes hereof; (ii) the assigning Lender thereunder shall, to
the extent that rights and obligations hereunder have been assigned thereby
pursuant to such Assignment Agreement,
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relinquish its rights (other than any rights which survive the termination
hereof under Section 10.8) and be released from its obligations hereunder (and,
in the case of an Assignment Agreement covering all or the remaining portion of
an assigning Lender's rights and obligations hereunder, such Lender shall cease
to be a party hereto; provided, anything contained in any of the Credit
Documents to the contrary notwithstanding, Issuing Bank shall continue to have
all rights and obligations thereof with respect to such Letters of Credit until
the cancellation or expiration of such Letters of Credit and the reimbursement
of any amounts drawn thereunder); (iii) the Revolving Commitments shall be
modified to reflect the Revolving Commitment of such assignee and any remaining
Revolving Commitment of such assigning Lender, if any; and (iv) if any such
assignment occurs after the issuance of any note hereunder, the assigning Lender
shall, upon the effectiveness of such assignment or as promptly thereafter as
practicable, surrender its applicable notes to Administrative Agent for
cancellation, and thereupon Borrower shall issue and deliver new notes, if so
requested by the assignee and/or assigning Lender, to such assignee and/or to
such assigning Lender, with appropriate insertions, to reflect the new Revolving
Commitments and/or outstanding Loans of the assignee and/or the assigning
Lender.
(h) Each Lender shall have the right at any time to sell one or more
participations to any Person in all or any part of its Revolving Commitments,
Loans or in any other Obligation. The holder of any such participation, other
than an Affiliate of the Lender granting such participation, shall not be
entitled to require such Lender to take or omit to take any action hereunder
except with respect to any amendment, modification or waiver described in
Section 10.5(b), 10.5(c) or 10.5(d) to the extent directly affecting the Loan or
Revolving Commitment relating to the participation. All amounts payable by any
Credit Party hereunder, including amounts payable to such Lender pursuant to
Section 2.17(c), 2.18 or 2.19, shall be determined as if such Lender had not
sold such participation. Each Credit Party and each Lender hereby acknowledge
and agree that, solely for purposes of Sections 2.16 and 10.4, (1) any
participation will give rise to a direct obligation of each Credit Party to the
participant and (2) the participant shall be considered to be a "Lender".
(i) In addition to any other assignment permitted pursuant to this
Section 10.6, (i) any Lender may assign and pledge all or any portion of its
Loans, the other Obligations owed to such Lender, and its notes, if any, to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any operating circular
issued by such Federal Reserve Bank, and (ii) with the consent of Borrower and
Administrative Agent any Lender which is an investment fund may pledge all or
any portion of its notes, if any, or Loans; provided, no Lender, as between
Borrower and such Lender, shall be relieved of any of its obligations hereunder
as a result of any such assignment and pledge, and provided further, in no event
shall the applicable Federal Reserve Bank or other assignee be considered to be
a "Lender" or be entitled to require the assigning Lender to take or omit to
take any action hereunder.
10.7. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or would otherwise be within the limitations of, another covenant shall not
avoid the occurrence of a Default or an Event of Default if such action is taken
or condition exists.
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10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made herein shall survive the
execution and delivery hereof and the making of any Credit Extension.
Notwithstanding anything herein or implied by law to the contrary, the
agreements of each Credit Party set forth in Sections 2.17(c), 2.18, 2.19, 10.2,
10.3 and 10.4 and the agreements of Lenders set forth in Sections 2.16 and 9.6
shall survive the payment of the Loans, the cancellation or expiration of the
Letters of Credit and the reimbursement of any amounts drawn thereunder, and the
termination hereof.
10.9. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
Administrative Agent or any Lender in the exercise of any power, right or
privilege hereunder or under any other Credit Document shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other power,
right or privilege. The rights, powers and remedies given to each Agent and
each Lender hereby are cumulative and shall be in addition to and independent of
all rights, powers and remedies existing by virtue of any statute or rule of law
or in any of the other Credit Documents or any of the Hedge Agreements. Any
forbearance or failure to exercise, and any delay in exercising, any right,
power or remedy hereunder shall not impair any such right, power or remedy or be
construed to be a waiver thereof, nor shall it preclude the further exercise of
any such right, power or remedy.
10.10. MARSHALLING; PAYMENTS SET ASIDE. Neither Administrative Agent nor
any Lender shall be under any obligation to marshal any assets in favor of any
Credit Party or any other Person or against or in payment of any or all of the
Obligations. To the extent that any Credit Party makes a payment or payments to
Administrative Agent or Lenders (or to Administrative Agent for the benefit of
Lenders), or Administrative Agent or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.
10.11. SEVERABILITY. In case any provision in or obligation hereunder or
any note issued in connection herewith shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The
obligations of Lenders hereunder are several and no Lender shall be responsible
for the obligations or Revolving Commitments of any other Lender hereunder.
Nothing contained herein or in any other Credit Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out hereof and it shall not be
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necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
10.13. HEADINGS. Section headings herein are included herein for
convenience of reference only and shall not constitute a part hereof for any
other purpose or be given any substantive effect.
10.14. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
--------------
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.
10.15. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST
-----------------------
ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT,
OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN
ACCORDANCE WITH SECTION 10.1; (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C)
ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT
PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES SUCH LENDERS
RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER
JURISDICTION.
10.16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO
--------------------
WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR
ANY DEALINGS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THIS LOAN
TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND
ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT
THIS
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WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH
HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH
PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
10.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR
ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
10.17. CONFIDENTIALITY. Each Lender shall hold all non-public information
obtained pursuant to the requirements hereof which has been identified as
confidential by Borrower in accordance with such Lender's customary procedures
for handling confidential information of this nature and in accordance with
prudent lending or investing practices, it being understood and agreed by
Borrower that in any event a Lender may make disclosures to Affiliates of such
Lender or disclosures reasonably required by any bona fide or potential
assignee, transferee or participant in connection with the contemplated
assignment, transfer or participation by such Lender of any Loans or any
participations `therein or by any direct or indirect contractual counterparties
(or the professional advisors thereto) in swap agreements (provided, such swap
counterparties and advisors are advised of and agree to be bound by the
provisions of this Section 10.17) or disclosures required or requested by any
governmental agency or representative thereof or by the NAIC or pursuant to
legal process; provided, unless specifically prohibited by applicable law or
court order, each Lender shall notify Borrower of any request by any
governmental agency or representative thereof (other than any such request in
connection with any examination of the financial condition or other routine
examination of such Lender by such governmental agency) for disclosure of any
such non-public information prior to disclosure of such information; and
provided further, in no event shall any Lender be obligated or required to
return any materials furnished by Borrower or any of its Subsidiaries.
10.18. USURY SAVINGS CLAUSE. Notwithstanding any other provision herein,
the aggregate interest rate charged with respect to any of the Obligations,
including all charges or fees in connection therewith deemed in the nature of
interest under applicable law shall not exceed the Highest Lawful Rate. If the
rate of interest (determined without regard to the preceding sentence) under
this Agreement at any time exceeds the Highest Lawful Rate, the outstanding
amount of the Loans made hereunder shall bear interest at the Highest Lawful
Rate until the total amount of interest due hereunder equals the amount of
interest which would have been due hereunder if the stated rates of interest set
forth in this Agreement had at all times been in effect. In addition, if when
the Loans made hereunder are repaid in full the total interest due hereunder
(taking into account the increase
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provided for above) is less than the total amount of interest which would have
been due hereunder if the stated rates of interest set forth in this Agreement
had at all times been in effect, then to the extent permitted by law, Borrower
shall pay to Administrative Agent an amount equal to the difference between the
amount of interest paid and the amount of interest which would have been paid if
the Highest Lawful Rate had at all times been in effect. Notwithstanding the
foregoing, it is the intention of Lenders and Borrower to conform strictly to
any applicable usury laws. Accordingly, if any Lender contracts for, charges, or
receives any consideration which constitutes interest in excess of the Highest
Lawful Rate, then any such excess shall be cancelled automatically and, if
previously paid, shall at such Lender's option be applied to the outstanding
amount of the Loans made hereunder or be refunded to Borrower.
10.19. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto and receipt by
Borrower and Administrative Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
AUDIO COMMUNICATIONS NETWORK, LLC,
as Borrower
By: /s/ Peni Garber
-----------------------
Name: Peni Garber
Title: Executive Vice President
S-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
MUZAK HOLDINGS LLC,
as a Guarantor
By: /s/ Peni Garber
-----------------------
Name: Peni Garber
Title:
S-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
MUZAK CAPITAL CORPORATION,
as a Guarantor
By: /s/ Peni Garber
-----------------------
Name: Peni Garber
Title: Vice President
S-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
MLP ENVIRONMENTAL MUSIC, LLC,
as a Guarantor
By: /s/ Peni Garber
-----------------------
Name: Peni Garber
Title: Vice President
S-4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
ELECTRO-SYSTEMS CORPORATION,
as a Guarantor
By: /s/ Peni Garber
-----------------------
Name: Peni Garber
Title: Vice President
S-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BUSINESS SOUND, INC.,
as a Guarantor
By: /s/ Peni Garber
-----------------------
Name: Peni Garber
Title: Vice President
S-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent, Co-Lead Arranger and a
Lender
By: ______________________________________
Authorized Signatory
S-7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent, Issuing Bank and a
Lender
By: /s/ Keith Labbate
-------------------------
Name: Keith Labbate
Title: Executive Director
S-8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
CIBC OPPENHEIMER CORP.,
as Co-Lead Arranger
By: /s/ Keith Labbate
-------------------------
Name: Keith Labbate
Title: Executive Director
S-9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BANKBOSTON, N.A.,
as Lender
By: /s/ Robert F. Milordi
---------------------------
Name: Robert F. Milordi
Title: Managing Director
S-10
<PAGE>
APPENDIX A
TO CREDIT AND GUARANTY AGREEMENT
TERM LOAN AMOUNTS
<TABLE>
<CAPTION>
==============================================================================================
Tranche A Pro Tranche B Pro Tranche C Pro
Term Loan Rata Term Loan Rata Term Loan Rata
Lender Amount Share Amount Share Amount Share
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Goldman Sachs Credit $10,612,500 35.375% $ 53,000,000 50.47619 --- ---
Partners L.P. %
Canadian Imperial Bank $10,612,500 35.375% $ 52,00,000 49.52381 --- ---
of Commerce %
BankBoston, N.A. $ 8,775,000 29.25% ---- --- --- ---
Total $30,000,000 100% $105,000,000 100% --- ---
==========================================================================================
</TABLE>
REVOLVING COMMITMENTS
<TABLE>
<CAPTION>
===============================================================================
Lender Revolving Commitment Pro Rata Share
<S> <C> <C>
Goldman Sachs Credit Partners L.P. $14,387,500 41.10714%
Canadian Imperial Bank of Commerce $14,387,500 41.10714%
BankBoston, N.A. $ 6,225,000 17.78572%
Total $35,000,000 100%
===============================================================================
</TABLE>
APPENDIX A-1
<PAGE>
APPENDIX B
TO CREDIT AND GUARANTY AGREEMENT
NOTICE ADDRESSES
AUDIO COMMUNICATIONS
NETWORK, LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
MUZAK HOLDINGS LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
MUZAK CAPITAL CORPORATION
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
MLP ENVIRONMENTAL MUSIC, LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
BUSINESS SOUND, INC.
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
APPENDIX B-1
<PAGE>
ELECTRO-SYSTEMS CORPORATION
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
In each case, with a copies (which will not constitute notice) to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Attention: John L. Kuehn
Telecopier: (212) 446-4900
and
Muzak LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Elizabeth Fischer
Telecopier: (212) 902-1021
with a copy of all Notices to:
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: John Makrinos
Telecopier: (212) 357-4597
APPENDIX B-2
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent, Lender and Issuing Bank
Administrative Agent's Principal Office:
425 Lexington Avenue
New York, New York 10017
Attention: Agency Services
Telecopier: (212) 856-3763
In each case, with a copy to:
425 Lexington Avenue
New York, New York 10017
Attention: Media Group, 8th Floor
Telecopier: (212) 856-3558
BANKBOSTON, N.A.,
as Lender
100 Federal Street
Boston, Massachusetts 02110
Attention: Robert F. Milordi
Telecopier: (617) 434-8092
APPENDIX B-3
<PAGE>
APPENDIX A
TO CREDIT AND GUARANTY AGREEMENT
Term Loan Amounts
<TABLE>
<CAPTION>
==========================================================================================
Tranche A Pro Tranche B Pro Tranche C Pro
Term Loan Rata Term Loan Rata Term Loan Rata
Lender Amount Share Amount Share Amount Share
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Goldman Sachs Credit $10,612,500 35.375% $ 53,000,000 50.47619 --- ---
Partners L.P. %
Canadian Imperial Bank $10,612,500 35.375% $ 52,000,000 49.52381 --- ---
of Commerce %
BankBoston, N.A. $ 8,775,000 29.25% --- --- --- ---
Total $30,000,000 100% $105,000,000 100% --- ---
==========================================================================================
</TABLE>
Revolving Commitments
<TABLE>
<CAPTION>
===========================================================================
Lender Revolving Commitment Pro Rata Share
<S> <C> <C>
Goldman Sachs Credit Partners L.P. $14,387,500 41.10714%
Canadian Imperial Bank of Commerce $14,387,500 41.10714%
BankBoston, N.A. $ 6,225,000 17.78572%
Total $35,000,000 100%
===========================================================================
</TABLE>
<PAGE>
APPENDIX B
TO CREDIT AND GUARANTY AGREEMENT
Notice Addresses
AUDIO COMMUNICATIONS
NETWORK, LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
MUZAK HOLDINGS LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
MUZAK CAPITAL CORPORATION
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
MLP ENVIRONMENTAL MUSIC, LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
BUSINESS SOUND, INC.
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
<PAGE>
ELECTRO-SYSTEMS CORPORATION
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
In each case, with a copies (which will not constitute notice) to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Attention: John L. Kuehn
Telecopier: (212) 446-4900
and
Muzak LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Chief Financial Officer
Telecopier: (617) 859-2959
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Syndication Agent
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Elizabeth Fischer
Telecopier: (212) 902-1021
with a copy of all Notices to:
Goldman Sachs Credit Partners L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: John Makrinos
Telecopier: (212) 357-4597
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent, Lender and Issuing Bank
Administrative Agent's Principal Office:
425 Lexington Avenue
New York, New York 10017
Attention: Agency Services
Telecopier: (212) 856-3763
In each case, with a copy to:
425 Lexington Avenue
New York, New York 10017
Attention: Media Group, 8th Floor
Telecopier: (212) 856-3558
BANKBOSTON, N.A.,
as Lender
100 Federal Street
Boston, Massachusetts 02110
Attention: Robert F. Milordi
Telecopier: (617) 434-8092
<PAGE>
SCHEDULE 4.1 TO
CREDIT AND GUARANTY AGREEMENT
ORGANIZATION, ETC.
<PAGE>
SCHEDULE 4.10(b) TO
CREDIT AND GUARANTY AGREEMENT
REAL ESTATE ASSETS
<PAGE>
SCHEDULE 4.10(c) TO
CREDIT AND GUARANTY AGREEMENT
INTELLECTUAL PROPERTY; PROPRIETARY SOFTWARE;
LICENSE AGREEMENTS
REGISTERED
TRADEMARKS AND APPLICATIONS
---------------------------
- ---------------------------------------------------------------------
Reg. No. / Issued /
Jurisdiction Trademark (App. No.) (Date App.)
------------ --------- ---------- -----------
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
REGISTERED
COPYRIGHTS AND APPLICATIONS
---------------------------
- ---------------------------------------------------------------------
Reg. No. / Issued /
Jurisdiction Copyright (App. No.) (Date App.)
------------ --------- ---------- -----------
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
REGISTERED
PATENTS AND APPLICATIONS
------------------------
- ---------------------------------------------------------------------
Patent No. / Issued /
------------ --------
Jurisdiction Patent (App. No.) (Date App.)
------------ ------ ------------ -----------
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
UNREGISTERED
TRADEMARKS AND SERVICE MARKS
----------------------------
UNREGISTERED
COPYRIGHTS AND EXCLUSIVELY LICENSED COPYRIGHTS
----------------------------------------------
<PAGE>
SCHEDULE 4.13 TO
CREDIT AND GUARANTY AGREEMENT
MATERIAL CONTRACTS
<PAGE>
SCHEDULE 5.10 TO
CREDIT AND GUARANTY AGREEMENT
CONDITIONS TO SATISFY AS TO
MATERIAL REAL ESTATE ASSETS
Fully executed and notarized Mortgages (as defined below), in proper form for
recording in all appropriate places in all applicable jurisdictions, encumbering
each such Material Real Estate Asset (each, a "Mortgaged Property").
1. An opinion of counsel (which counsel shall be reasonably satisfactory
to Syndication Agent and Administrative Agent) in each state in which a
Mortgaged Property is located with respect to the enforce ability of the
form(s) of Mortgages to be recorded in such state and such other matters as
Syndication Agent and Administrative Agent may reasonably request, in each
case in form and substance reasonably satisfactory to Syndication Agent and
Administrative Agent.
2. In the case of each Leasehold Property that is a Mortgaged Property,
(1) a Landlord Consent and Estoppel and (2) evidence that such Leasehold
Property is a Recorded Leasehold Interest (as defined below).
3. ALTA mortgagee title insurance policies or unconditional commitments
therefor issued by a title company with respect to each Mortgaged Property,
together with a title report issued by a title company with respect
thereto, and copies of all recorded documents listed as exceptions to title
or otherwise referred to therein, each in form and substance reasonably
satisfactory to Syndication Agent and Administrative Agent.
4. Evidence of flood insurance with respect to each Flood Hazard Property
(as defined below) that is located in a community that participates in the
National Flood Insurance Program, in each case in compliance with any
applicable regulations of the Board of Governors of the Federal Reserve
System, in form and substance reasonably satisfactory to Syndication Agent
and Administrative Agent.
5. ALTA surveys of all Mortgaged Properties which are not Leasehold
Properties, certified to Administrative Agent and dated not more than
thirty (30) days prior to the delivery of such survey.
DEFINED TERMS
-------------
"Flood Hazard Property" means a Mortgaged Property located in an area
designated by the Federal Emergency Management Agency as having special flood or
mud slide hazards.
"Landlord Consent and Estoppel" means, with respect to any Leasehold
Property, a letter, certificate or other instrument in writing from the lessor
under the related lease, satisfactory in form and substance to Administrative
Agent, pursuant to which such lessor agrees,
<PAGE>
for the benefit of Administrative Agent, (i) that without any further consent of
such lessor or any further action on the part of the Credit Party holding such
Leasehold Property, such Leasehold Property may be encumbered pursuant to a
Mortgage and may be assigned to the purchaser at a foreclosure sale or in a
transfer in lieu of such a sale (and to a subsequent third party assignee if
Administrative Agent, any Lender, or an Affiliate of either so acquires such
Leasehold Property), (ii) that such lessor shall not terminate such lease as a
result of a default by such Credit Party thereunder without first giving
Administrative Agent notice of such default and at least sixty (60) days (or, if
such default cannot reasonably be cured by Administrative Agent within such
period, such longer period as may reasonably be required) to cure such default
and (iii) to such other matters relating to such Leasehold Property as
Administrative Agent may reasonably request.
"Leasehold Property" means any leasehold interest of any Credit Party as
lessee under any lease of real property, other than any such leasehold interest
designated from time to time by Administrative Agent in its sole discretion as
not being required to be included in the Collateral.
"Mortgage" means a form of mortgage acceptable to Administrative Agent.
"Record Document" means, with respect to any Leasehold Property, (i) the
lease evidencing such Leasehold Property or a memorandum thereof, executed and
acknowledged by the owner of the affected real property, as lessor, or (ii) if
such Leasehold Property was acquired or subleased from the holder of a Recorded
Leasehold Interest, the applicable assignment or sublease document, executed and
acknowledged by such holder, in each case in form sufficient to give such
constructive notice upon recordation and otherwise in form reasonably
satisfactory to Administrative Agent.
"Recorded Leasehold Interest" means a Leasehold Property with respect to
which a Record Document has been recorded in all places necessary or desirable,
in Administrative Agent's reasonable judgment, to give constructive notice of
such Leasehold Property to third-party purchasers and encumbrancers of the
affected real property.
<PAGE>
SCHEDULE 6.1 TO
CREDIT AND GUARANTY AGREEMENT
CERTAIN INDEBTEDNESS
<PAGE>
SCHEDULE 6.2 TO
CREDIT AND GUARANTY AGREEMENT
CERTAIN LIENS
<PAGE>
SCHEDULE 6.5 TO
CREDIT AND GUARANTY AGREEMENT
CERTAIN INVESTMENTS
<PAGE>
EXHIBIT 10.2
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, dated as of March 18, 1999 (this
"AGREEMENT"), among AUDIO COMMUNICATIONS NETWORK, LLC, a Delaware limited
liability company ("COMPANY"), MUZAK HOLDINGS LLC, a Delaware limited liability
company ("HOLDINGS"), and CERTAIN PRESENT AND FUTURE DOMESTIC SUBSIDIARIES OF
COMPANY (collectively, the "SUBSIDIARY GUARANTORS"), whether as an original
signatory hereto or as an Additional Grantor (as herein defined) (Company,
Holdings and each Subsidiary Guarantor are each a "GRANTOR"), and CANADIAN
IMPERIAL BANK OF COMMERCE, as agent for the benefit of Lenders and Lender
Counterparties (as herein defined) and Indemnitees (as defined in the Credit
Agreement) (in such capacity, "ADMINISTRATIVE AGENT").
RECITALS:
WHEREAS, Company is a party to the Credit and Guaranty Agreement of even
date herewith (as it may be from time to time amended, supplemented or otherwise
modified, the "CREDIT AGREEMENT") among Company, Holdings, certain Subsidiaries
of Company, the financial institutions listed therein as Lenders, Goldman Sachs
Credit Partners L.P. ("GSCP"), as Syndication Agent, Canadian Imperial Bank of
Commerce, as Administrative Agent, and GSCP and CIBC Oppenheimer Corp., as Co-
Lead Arrangers;
WHEREAS, Company will change its name to Muzak LLC and Holdings will change
its name to Muzak Holdings LLC on the Closing Date;
WHEREAS, subject to the terms and conditions of the Credit Agreement,
Company may enter into one or more Interest Rate Agreements pursuant to Section
5.11 of the Credit Agreement (collectively, the "HEDGE AGREEMENTS") with one or
more Lenders or Affiliates thereof (in such capacity, collectively, "LENDER
COUNTERPARTIES");
WHEREAS, Holdings and each Subsidiary Guarantor in existence on the date
hereof have guaranteed the obligations of Company and the other Grantors under
the Credit Documents and the Hedge Agreements as provided in the Credit
Agreement;
WHEREAS, it is a condition precedent to the obligations of Lenders to
extend credit (including the issuance of Letters of Credit) to Company under the
Credit Agreement that the obligations of Company and the other Grantors under
the Credit Documents and the Hedge Agreements be secured for the benefit of
Lenders, Lender Counterparties and Indemnitees as provided herein;
WHEREAS, in consideration of the extensions of credit and other
accommodations of Lenders and Lender Counterparties as set forth in the Credit
Agreement and the Hedge Agreements,
<PAGE>
respectively, and to induce Lenders to enter into the Credit Agreement and to
extend credit thereunder and to induce Lender Counterparties to enter into the
Hedge Agreements, each Grantor has agreed, subject to the terms and conditions
hereof, and of each other Credit Document and each Hedge Agreement, to secure
Grantors' obligations under the Credit Documents and the Hedge Agreements as set
forth herein; and
WHEREAS, capitalized terms used herein (including the recitals hereto) not
otherwise defined herein shall have the meanings ascribed thereto in the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, each Grantor and Administrative Agent
agree as follows:
SECTION 1. GRANT OF SECURITY
Each Grantor hereby pledges, assigns and grants to Administrative Agent, as
agent for the benefit of Lenders, Lender Counterparties and Indemnitees, a
continuing first priority security interest in and lien on and right of set-off
against all of Grantor's right, title and interest in and to and under the
following, in each case whether now or hereafter existing or in which Grantor
now has or hereafter acquires an interest and wherever the same may be located
(collectively, the "COLLATERAL"):
(a) all "INVESTMENT PROPERTY", which term means:
(i) all right, title and interest of such Grantor, whether now
owned or hereafter acquired, in all shares of Capital Stock (other than
partnership interests and limited liability interests which are covered by
subsections (iii) and (iv) below) owned by such Grantor (other than the Capital
Stock of Muzak Holdings Finance Corp. and Muzak Finance Corp.), including
without limitation, all shares of Capital Stock (other than partnership
interests and limited liability interests, which are covered by subsections
(iii) and (iv) below) described on Schedule 1(a), the certificates representing
such shares, any security entitlements with respect to such shares and any
interest of such Grantor in the entries on the books of any securities
intermediary pertaining to such shares, and all dividends, Cash, warrants,
rights, instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares (all of the foregoing being referred to herein collectively as
the "PLEDGED STOCK");
(ii) all right, title and interest of such Grantor, whether now
owned or hereafter acquired, of all Indebtedness owed to such Grantor,
including, without limitation, all Indebtedness described on Schedule 1(a)
(which includes all Indebtedness owing to such Grantor evidenced by a promissory
note), issued by the obligors named therein, the instruments evidencing such
Indebtedness, any security entitlements with respect to such Indebtedness and
all interest, Cash, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such Indebtedness (all of the foregoing being referred to herein
collectively as the "PLEDGED DEBT");
2
<PAGE>
(iii) all of such Grantor's right, title and interest as a limited
and/or general partner in all partnerships, including, without limitation, the
partnerships described on Schedule 1(a) (the "PARTNERSHIPS"), whether now owned
or hereafter acquired, including, without limitation, all of such Grantor's
right, title and interest in, to and under the partnership agreements described
on Schedule 1(a) (as such agreements have heretofore been and may hereafter be
amended, restated, supplemented or otherwise modified from time to time,
collectively, the "PARTNERSHIP AGREEMENTS") to which it is a party (including,
if such Grantor is a general partner of any Partnership, the right to vote with
respect to and to manage and administer the business of such Partnership)
together with all other rights, interests, claims and other property of such
Grantor in any manner arising out of or relating to its limited and/or general
partnership interest in the Partnerships, whatever their respective kind or
character, whether they are tangible or intangible property, and wheresoever
they may exist or be located, and further including, without limitation, (1) all
of the rights of such Grantor as a limited and/or general partner: (A) (I) to
receive money due and to become due (including without limitation dividends,
distributions, interest, income from partnership properties and operations,
proceeds of sale of partnership assets and returns of capital) under or pursuant
to the Partnership Agreements, (II to receive payments upon termination of the
Partnership Agreements, and (II to receive any other payments or distributions,
whether Cash or non-Cash, in respect of such Grantor's limited and/or general
partnership interest evidenced by the Partnership Agreements; (B) in and with
respect to claims and causes of action arising out of or relating to the
Partnerships; and (C) to have access to the Partnerships' books and records and
to other information concerning or affecting the Partnerships; (2) any
"CERTIFICATE OF INTEREST" or "CERTIFICATES OF INTEREST" (or other certificates
or instruments however designated or titled) issued by the Partnerships and
evidencing such Grantor's interest as a limited and/or general partner in the
Partnerships (collectively, the "PARTNERSHIP CERTIFICATES") and (3) to the
extent not included in the foregoing, all proceeds of any and all of the
foregoing, any security entitlements with respect to such interests, and any
interest of such Grantor in the entries on the books of any securities
intermediary pertaining to such Grantor's interest as a limited and/or general
partner in the Partnership (all of the foregoing being referred to herein
collectively as the "PARTNERSHIP INTERESTS");
(iv) all of such Grantor's right, title and interest as a member of
all limited liability companies (the "LLCS"), including, without limitation,
all of such Grantor's right, title and interest in, to and under the limited
liability company interests set forth on Schedule 1(a), whether now owned or
hereafter acquired, including, without limitation, all of such Grantor's right,
title and interest in, to and under the operating agreements with respect to any
such LLC (as such agreements have heretofore been and may hereafter be amended,
restated, supplemented or otherwise modified from time to time, collectively,
each, an "LLC AGREEMENT") to which it is a party (including any right to vote
with respect to and to manage and administer the business of such LLC) together
with all other rights, interests, claims and other property of such Grantor in
any manner arising out of or relating to its interest in the LLCs, whatever
their respective kind or character, whether they are tangible or intangible
property, and wheresoever they may exist or be located, and further including,
without limitation, (1) all of the rights of such Grantor (A)(I) to receive
money due and to become due (including without limitation dividends,
distributions, interest, income from LLC properties and operations, proceeds of
sale of LLC assets and returns of capital) under or pursuant to the LLC
3
<PAGE>
Agreements, (II) to receive payments upon termination of the LLC Agreements, and
(III) to receive any other payments or distributions, whether Cash or non-Cash,
in respect of such Grantor's interest evidenced by the LLC Agreements; (B) in
and with respect to claims and causes of action arising out of or relating to
the LLCs; and (C) to have the access to the LLCs' books and records and to other
information concerning or affecting the LLCs; and (2) any "CERTIFICATE OF
INTEREST" or "CERTIFICATES OF INTEREST" (or other certificates or instruments
however designated or titled) issued by the LLCs and evidencing such Grantor's
interest in the LLCs (collectively, the "LLC CERTIFICATES") and (3) to the
extent not included in the foregoing, all proceeds of any and all of the
foregoing, any security entitlements with respect to such interests, and any
interest of such Grantor in the entries on the books of any securities
intermediary pertaining to such Grantor's interest in the LLC (all of the
foregoing being referred to herein collectively as the "LLC INTERESTS"; the
Pledged Stock, the Pledged Debt, the Partnership Interests and the LLC Interests
being herein collectively referred to as the "PLEDGED SECURITIES");
(v) all of such Grantor's right, title and interest in all
additional shares of, limited and/or general partnership interests in and
limited liability company interests in, and all securities convertible into, and
warrants, options and other rights to purchase or otherwise acquire, Capital
Stock of any issuer of the Pledged Stock, the Partnership Interests, and the LLC
Interests, from time to time acquired by such Grantor in any manner (which
shares or interests shall be deemed to be part of the Pledged Securities), the
certificates or other instruments representing such additional shares or
interests, securities, warrants, options or other rights and any interest of
such Grantor in the entries on the books of any securities intermediary
pertaining to such additional shares or interests, any security entitlements
with respect to any of the foregoing, and all dividends, distributions, Cash,
warrants, rights, instruments, payments and other property or proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing (all of the foregoing being referred to
herein as the "ADDITIONAL PLEDGED STOCK");
(vi) all additional Indebtedness from time to time owed to such
Grantor by any obligor on the Pledged Debt and the instruments evidencing such
Indebtedness (which Indebtedness shall be deemed to be part of the Pledged
Securities), any security entitlements with respect to such Indebtedness and all
interest, Cash, instruments and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such Indebtedness (all of the foregoing being referred to
collectively as the "ADDITIONAL PLEDGED DEBT");
(vii) all of such Grantor's right, title and interest in all shares
of, limited and/or general partnership interests in, and limited liability
company interests in, and all securities convertible into and warrants, options
and other rights to purchase or otherwise acquire, Capital Stock of, limited
and/or general partnership interests in, or limited liability company interests
in any Person that, after the date of this Agreement, becomes, as a result of
any occurrence, a Subsidiary of such Grantor (which shares or interests shall be
deemed to be part of the Pledged Securities), the certificates or other
instruments representing such shares, interests, securities, warrants, options
or other rights, any security entitlements with respect to any of the foregoing,
any interest of such Grantor in the entries on the books of any securities
intermediary pertaining to such shares or
4
<PAGE>
interests and all dividends, distributions, Cash, warrants, rights, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares, interests, securities, warrants, options or other rights (all of the
foregoing being referred to as the "NEW PLEDGED STOCK"); provided, in no event
shall the Pledged Stock, the Additional Pledged Stock or the New Pledged Stock
include more than 65% of the issued and outstanding shares of the Capital Stock
of any Foreign Subsidiary;
(viii) all other Indebtedness from time to time owed to such Grantor
by any Person (other than any Indebtedness owed to such Grantor resulting from
extensions of trade credit by such Grantor in the ordinary course of business)
and the instruments evidencing such Indebtedness (which Indebtedness shall be
deemed to be part of the Pledged Securities), any security entitlements with
respect to any of the foregoing, and all interest, Cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Indebtedness
(all of the foregoing being referred to herein collectively as the "NEW PLEDGED
DEBT"; the Additional Pledged Stock, the Additional Pledged Debt, the New
Pledged Stock and the New Pledged Debt being herein collectively referred to as
the "ADDITIONAL PLEDGED SECURITIES"); and
(ix) all investment property (as defined in the Uniform Commercial
Code as in effect on the date hereof in the State of New York (the "UCC")).
(b) the restricted deposit account established and maintained by
Administrative Agent pursuant to Section 5.3 (the "COLLATERAL ACCOUNT"),
together with (i) all amounts on deposit from time to time in such deposit
accounts; and (ii) all interest, Cash, instruments, securities and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the foregoing;
(c) all "INTELLECTUAL PROPERTY" which term means U.S. and foreign rights
of each Grantor, whether now owned or hereafter acquired, in all of the
following; provided, however, that the following shall not include any item of
non-U.S. intellectual property in those jurisdictions outside of the U.S. where
the granting of a security interest in such item of intellectual property is not
permissible under the laws of such jurisdiction:
(i) trademarks, service marks, trade names, Internet domain names,
designs, logos, slogans and general intangibles of like nature, together with
goodwill, registrations and applications relating to the foregoing;
(ii) patents, industrial designs, certificates of invention, and all
similar rights and all applications therefor;
(iii) copyrights (including registrations and applications therefor),
authors and composers rights and rights of attribution;
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(iv) rights in sound recordings and musical compositions, whether
published or unpublished, including but not limited to rights of copyright;
(v) computer programs, including any and all software
implementations of algorithms, models and methodologies whether in source code
or object code form;
(vi) databases and compilations, including any and all data and
collections of data;
(vii) all documentation relating to computer programs, including user
manuals and training materials, related to any of the foregoing (subsections
(v), (vi) and (vii), collectively "PROPRIETARY SOFTWARE");
(viii) confidential information, technology, know-how, inventions,
processes, formulae, algorithms, models and methodologies (such confidential
items, collectively "TRADE SECRETS");
(ix) rights of publicity and privacy, including but not limited to
the right to use names, likenesses, voices, signatures and biographical
information related to real persons;
(x) any licenses to use any of the foregoing owned by third parties
and any licenses of each Grantor to third parties with respect to any of the
foregoing (collectively "LICENSE AGREEMENTS");
(xi) extensions and renewals of the foregoing, all income, fees,
royalties and other payments at any time due or payable with respect to the
foregoing, including, without limitation, payments under all licenses at any
time entered into in connection therewith;
(xii) causes of action, the right to sue for past, present and future
infringements thereof;
(xiii) all rights corresponding thereto throughout the world; and
(xiv) any and all other proceeds and products of any of the
foregoing, including without limitation, all damages and payments or claims by
each Grantor against third parties for past or future infringement.
(d) all of such Grantor's right, title and interest in, to and under any
equipment (as defined in Article 9 of the UCC in all of its forms (including,
but not limited to, all machinery, all computers, all data processing, computer
or office equipment, all furniture, all fixtures (as defined in Article 9 of the
UCC) and all trucks, tractors, trailers and other motor vehicles), all
accessions or additions thereto, all parts thereof, whether or not at any time
of determination incorporated or installed therein or attached thereto, and all
replacements therefor, wherever located, now or hereafter existing (all of the
foregoing being referred to herein collectively as the "EQUIPMENT");
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(e) all of such Grantor's right, title and interest in, to and under any
inventory (as defined in Article 9 of the UCC), in all of its forms, including,
but not limited to, (i) all goods held by such Grantor for sale or lease or to
be furnished under contracts of service or so leased or furnished, (ii all raw
materials, work in process, finished goods, and materials used or consumed in
the manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production of such inventory or otherwise used or consumed in such Grantor's
business, (ii all goods in which such Grantor has an interest in mass or a joint
or other interest or right of any kind, (iv all goods which are returned to or
repossessed by such Grantor, and all accessions thereto and products thereof
(all of the foregoing being referred to herein collectively as the
"INVENTORY"), and (v) all negotiable and non-negotiable documents of title,
documents (as defined in Article 9 of the UCC), including, without limitation,
warehouse receipts, dock receipts and bills of lading issued by any Person
covering any Inventory;
(f) all of such Grantor's right, title and interest in, to and under any
accounts, contract rights, chattel paper, documents, instruments, general
intangibles and other rights and obligations of any kind (as accounts, chattel
paper, documents, instruments and general intangibles are each defined in the
UCC) (all of the foregoing being referred to herein collectively as the
"ACCOUNTS") and all of such Grantor's rights in, to and under all security
agreements, leases and other contracts securing or otherwise relating to any
Accounts (all of the foregoing being referred to herein collectively as the
"RELATED CONTRACTS");
(g) all of such Grantor's right, title and interest in, to and under all
agreements and contracts to which such Grantor is a party as of the date hereof,
or to which such Grantor becomes a party after the date hereof, as each such
agreement may be amended, supplemented or otherwise modified from time to time
(all of the foregoing being referred to herein collectively as the "ASSIGNED
AGREEMENTS"), including, without limitation: (i) all rights of such Grantor to
receive moneys due or to become due under or pursuant to the Assigned
Agreements, (ii all rights of such Grantor to receive proceeds of any insurance,
indemnity, warranty or guaranty with respect to the Assigned Agreements, (ii all
claims of such Grantor for damages arising out of any breach of or default under
the Assigned Agreements, and (iv all rights of such Grantor to terminate, amend,
supplement, modify or exercise rights or options under the Assigned Agreements,
to perform thereunder and to compel performance and otherwise exercise all
remedies thereunder;
(h) all permits, licenses or authorizations (including, without
limitation, licenses issued by the Federal Communications Commission (the
"FCC"), or any other successor agency of the United States Government,
permitting any transmission of telecommunications services through fixed
wireless networks) (collectively, "LICENSES"), including all rights to receive
payment or other consideration upon assignment or transfer of any Licenses, to
the extent permitted by law (including, without limitation, the Communications
Action of 1934) or applicable governmental agencies (including, without
limitation, the FCC);
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(i) to the extent not otherwise included in any other paragraph of this
Section 1, all other general intangibles, including tax refunds, rights to
payment or performance, choses in action and judgments taken on any rights or
claims included in the Collateral;
(j) all books, records, ledger cards, files, correspondence, computer
programs, computer printouts, customer lists, blue prints, manuals, tapes, disks
and related data processing software and any similar items that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(k) all Cash, money (as defined in the UCC), currency and deposit accounts
(as defined in the UCC), including, without limitation, demand, time, savings,
passbooks or similar accounts maintained with Lenders or other banks, savings
and loan associations or other financial institutions, and any other deposit or
securities accounts, together with funds, instruments or other items credited to
any such account from time to time and all interest thereon;
(l) all goodwill;
(m) all plant fixtures, business fixtures and other fixtures (as defined
in Article 9 of the UCC) and storage and office facilities, and all accessions
thereto and products thereof; and
(n) to the extent not covered by Sections 1(a) through 1(m), all other
personal property of such Grantor, all proceeds, products, rents and profits of
or from any and all of the foregoing Collateral and, to the extent not otherwise
included, all payments under insurance (whether or not Administrative Agent is
the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral. For purposes of this Agreement, the term "PROCEEDS" includes
whatever is receivable or received when Collateral or proceeds are sold,
exchanged, collected or otherwise disposed of, whether such disposition is
voluntary or involuntary.
Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and no Grantor shall be deemed to have granted a security
interest in, any of such Grantor's rights or interests in any license, contract
or agreement to which such Grantor is a party or any of its rights or interests
thereunder to the extent, but only to the extent, that such a grant would, under
the terms of such license, contract or agreement or otherwise, result in a
breach of the terms of, or constitute a default under any license, contract or
agreement to which such Grantor is a party (other than to the extent that any
such term would be rendered ineffective pursuant to Section 9-318(4) of the
Uniform Commercial Code of any relevant jurisdiction or any other applicable law
(including the Bankruptcy Code) or principles of equity); provided, immediately
upon the ineffectiveness, lapse or termination of any such provision, the
Collateral shall include, and such Grantor shall be deemed to have granted a
security interest in, all such rights and interests as if such provision had
never been in effect.
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SECTION 2. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE
(a) This Agreement secures, and the Collateral is collateral security for,
the prompt and complete payment and performance in full when due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including the payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U.S.C. (S)362(a)), of all Secured Obligations with respect to each Grantor.
"SECURED OBLIGATIONS" means:
(i) with respect to Company, all obligations and liabilities of
every nature of Company now or hereafter existing under or arising out of or in
connection with the Credit Agreement and the other Credit Documents and any
Hedge Agreements; and
(ii) with respect to each other Grantor, all obligations and
liabilities of every nature of such Grantor now or hereafter existing under or
arising out of or in connection with the Guaranty, this Agreement and any other
Credit Documents to which it is or may become a party;
in each case, together with all extensions or renewals thereof, whether for
principal, interest (including without limitation interest that, but for the
filing of a petition in bankruptcy with respect to Company, would accrue on such
obligations, whether or not a claim is allowed against Company for such interest
in the related bankruptcy proceeding), payments for early termination of Hedge
Agreements, fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Administrative Agent or any Lender, Lender Counterparty or
Indemnitee as a preference, fraudulent transfer or otherwise, all reasonable
attorneys' fees and other reasonable expenses incurred by Administrative Agent
in collecting, realizing, and foreclosing on any of the Collateral, and all
obligations of every nature of the Grantors now or hereafter existing under this
Agreement; and
(b) Anything contained herein to the contrary notwithstanding, (i) each
Grantor shall remain liable under any Partnership Agreement, LLC Agreement and
any other Assigned Agreements included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed; (ii) the exercise by
Administrative Agent of any of its rights hereunder shall not release any
Grantor from any of its duties or obligations under the Assigned Agreements
included in the Collateral; and (iii) Administrative Agent shall not have any
obligation or liability under any Partnership Agreement, LLC Agreement or any
other Assigned Agreements included in the Collateral by reason of this
Agreement, nor shall Administrative Agent be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder. Without limiting the
generality of any of the foregoing, this Agreement shall not in any way be
deemed to obligate Administrative Agent, any Lender, Lender Counterparty or
Indemnitee
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or any purchaser at a foreclosure sale under this Agreement to assume any of any
Grantor's obligations, duties, expenses or liabilities under any LLC Agreement
or Partnership Agreement (including any Grantor's obligations as a general
partner for the debts and obligations of a Partnership) or to manage the
business and affairs of any Partnership or LLC or any of such Grantor's
obligations for the debts and obligations of an LLC, or under any and all other
agreements now existing or hereafter drafted or executed (collectively, the
"GRANTOR OBLIGATIONS") unless Administrative Agent, any Lender, Lender
Counterparty or Indemnitee or any such purchaser otherwise expressly agrees in
writing to assume any or all of said Grantor Obligations. In the event of
foreclosure by Administrative Agent, each Grantor shall remain bound and
obligated to perform its Grantor Obligations arising during or otherwise related
to its ownership of the Collateral, and neither Administrative Agent nor any
Lender, Lender Counterparty or Indemnitee shall be deemed to have assumed any of
such Grantor Obligations except as provided in the preceding sentence. Without
limiting the generality of the foregoing, neither the grant of the security
interest in the Collateral in favor of Administrative Agent as provided herein
nor the exercise by Administrative Agent of any of its rights hereunder nor any
action by the Administrative Agent in connection with a foreclosure on the
Collateral shall be deemed to constitute Administrative Agent or any Lender,
Lender Counterparty or Indemnitee a partner of any Partnership or a member of
any LLC; provided, in the event Administrative Agent or any purchaser of
Collateral at a foreclosure sale elects to become a substituted general partner
of any Partnership or manager of any LLC in place of any Grantor, then
Administrative Agent or such purchaser, as the case may be, shall adopt in
writing the applicable Partnership Agreement or LLC Agreement, as the case may
be, and agree to be bound by the terms and provisions thereof.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Each Grantor hereby represents and warrants to Administrative Agent and
each Lender, which representations and warranties shall survive execution and
delivery of this Agreement, as follows:
3.1. GENERALLY. Each of the representations and warranties set forth in
Section 4 of the Credit Agreement is true and correct as if fully set forth
herein.
3.2. NO OTHER LIENS. (a) Except for the Lien granted to Administrative
Agent hereunder, such Grantor owns, licenses or leases and, as to all Collateral
whether now existing or hereafter acquired will continue to own, license or
lease each item of the Collateral pledged by it free and clear of any and all
Liens of all other Persons other than Permitted Liens, and such Grantor shall
defend the Collateral against all claims and demands of all Persons at any time
claiming the same or any interest therein adverse to Administrative Agent.
(b) No effective financing statement or other evidence of Lien covering
or purporting to cover any of the Collateral is on file in any public office
other than (i) financing statements filed or to be filed in connection with the
security interests granted to Administrative Agent hereunder, (ii) financing
statements for which proper termination statements have been delivered to
Administrative
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Agent for filing and (iii) financing statements filed in connection with
Permitted Liens. Such Grantor has not consented to any Person other than
Administrative Agent having "control" (within the meaning of Section 8-106 of
the UCC) over the Collateral Account or any other Collateral.
3.3. PERFECTED LIENS; PRIORITY. (a) The security interests in the
Collateral granted to Administrative Agent hereunder constitute valid security
interests in the Collateral.
(b) (i) Upon the filing of financing statements naming such Grantor, as
"debtor" and Administrative Agent as "secured party" and describing the
Collateral in the filing offices set forth on Schedule 3.4 hereto and (ii) to
the extent not subject to Article 9 of the UCC, (x) in the case of registered
and applied for Intellectual Property, upon the recordation of the security
interests granted hereunder in patents, trademarks and copyrights and such
registrations and applications therefor in the applicable patent, trademark, and
copyright registries (with respect to non-U.S. Intellectual Property, only to
the extent that the security interest in such Intellectual Property can be
perfected in such jurisdictions outside the U.S.), (y) with respect to
copyrights upon the registration of such copyrights and the taking of the
actions set forth in item (x) above and (z) in the case of motor vehicles, upon
the notation of the Lien created hereby upon the certificate of title for such
motor vehicle if required by applicable law, the security interests in the
Collateral granted to Administrative Agent hereunder will constitute perfected
security interests therein superior and prior to all Liens other than Permitted
Liens.
3.4. INVESTMENT PROPERTY. (a) All of the Pledged Stock, Additional Pledged
Stock and New Pledged Stock owned by such Grantor has been duly authorized and
validly issued and is fully paid and non-assessable; (b) the Pledged Stock,
Partnership Interests and LLC Interests owned by such Grantor constitute the
percentage of the issued and outstanding equity securities of each issuer
thereof set forth on Schedule 1(a), and there are no outstanding warrants,
options or other rights to purchase, or other agreements outstanding with
respect to, or property that is now or hereafter convertible into, or that
requires the issuance or sale of, any of the Pledged Stock, Partnership
Interests or LLC Interests; (c) the certificates delivered to Administrative
Agent hereunder constitute all certificates representing the Pledged Securities
and include any Partnership Certificates and LLC Certificates; (d) all of the
Pledged Debt, Additional Pledged Debt and New Pledged Debt owned by such Grantor
has been duly authorized, authenticated or issued, and delivered and is the
legal, valid and binding obligation of the issuers thereof and is not in default
and the Pledged Debt, Additional Pledged Debt and New Pledged Debt delivered to
Administrative Agent hereunder constitutes all of the issued and outstanding
Indebtedness evidenced by an instrument or promissory note owing to such
Grantor; (e) the security interest of Administrative Agent hereunder has been
registered on the books and records of any issuer of uncertificated securities
included in the Collateral; and (f) with respect to any Investment Property, no
consent of any Person, including any other limited or general partner of the
Partnerships, any other member of any LLC, or any creditor of any Grantor, is
required for either (i) the grant by any Grantor of the security interests
granted hereby, (ii the execution, delivery or performance of this Agreement by
any Grantor, or (ii the perfection of or the exercise by Administrative Agent of
its rights and remedies hereunder (except as may have been taken by or at the
direction of any Grantor).
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3.5. INTELLECTUAL PROPERTY. (a) (i) As of the date hereof, Schedule
3.5(a)(i) sets forth, for all Intellectual Property owned by each Grantor, a
complete and accurate list, of all U.S. and foreign: (A) patents and patent
applications; (B) trademark and service mark registrations (including Internet
domain name registrations), trademark and service mark applications and material
unregistered trademarks and service marks; and (C) copyright registrations,
copyright applications and material unregistered copyrights and all exclusively
licensed copyrights. As of the date hereof, none of the Grantors owns or
exclusively licenses either individually or in the aggregate (i) any material
copyrights, or (ii) any material sound recordings or musical compositions,
whether published or not published. All sound recordings or musical
compositions used or necessary for each Grantor's business (other than non-
material sound recordings and musical compositions as are owned by MLP or MLP
Environmental Music, LLC) are utilized solely pursuant to non-exclusive License
Agreements with third parties, true and complete copies of each such non-
exclusive License Agreement in effect on the Closing Date have been provided to
Administrative Agent.
(ii) As of the date hereof, Schedule 3.5(a)(ii) lists all contracts
for material Proprietary Software which is owned, licensed, leased or otherwise
used by each Grantor (other than Proprietary Software purchased or licensed for
less than a total cost of $1,000), and identifies which Proprietary Software is
owned or licensed.
(iii) As of the date hereof, Schedule 3.5(a)(iii) sets forth a
complete and accurate list of all License Agreements to which any Grantor is a
party or otherwise bound, as licensee or licensor thereunder, and which are
material to the operation of any Grantor's business.
(b) (i) Each Grantor owns or has the right to use all material
Intellectual Property used in or necessary to its business, free and clear of
all Liens other than Permitted Liens; (ii) except as would not, individually or
in the aggregate, have a Material Adverse Effect, any Intellectual Property
owned by any Grantor is in full force and effect and has not been cancelled,
expired or abandoned and to the best of each Grantor's knowledge is valid; (iii)
as of the date hereof, except as set forth on Schedule 3.5(b)(iii), no Grantor
has received written notice from any third party regarding any actual or
potential infringement by it of any intellectual property of such third party,
and to the best of each Grantor's knowledge, the conduct of its business as
currently conducted does not infringe on the intellectual property of any third
party; (iv) as of the date hereof, except as set forth on Schedule 3.5(b)(iv) no
Grantor has received written notice from any third party regarding any assertion
or claim challenging the validity of any Intellectual Property owned or used by
such Grantor and no Grantor has any knowledge of any basis for such a claim; (v)
as of the date hereof, no Grantor has licensed or sublicensed any material
rights in any Intellectual Property, or received or been granted any such
rights, other than pursuant to the License Agreements; (vi) except as set forth
on Schedule 3.5(b)(vi), to the best of each Grantor's knowledge, no third party
is misappropriating, infringing, diluting or violating any Intellectual Property
owned by any Grantor; (vii) the License Agreements are valid and binding
obligations of the applicable Grantor, enforceable in accordance with their
terms, and there exists no event or condition which will result in a violation
or breach of, or constitute a default by such Grantor or, to the knowledge of
any Grantor, the other party thereto, under any such License Agreement; (viii)
each of the Grantors takes reasonable measures to protect the confidentiality of
material Trade Secrets including requiring third parties
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having access thereto to execute written nondisclosure agreements and no
material Trade Secret of any Grantor has been authorized to be disclosed to any
third party or to the best of each Grantor's knowledge disclosed to any third
party, other than pursuant to a written nondisclosure agreement that adequately
protects the Grantor's proprietary interests in and to such material Trade
Secrets; (ix) the consummation of the Transactions will not result in the loss
or impairment of any Grantor to own or use any of the Intellectual Property
which are material to the operation of such Grantor's business, nor, except as
set forth on Schedule 3.5(b)(ix), will such consummation require the consent of
any third party in respect of any Intellectual Property which, individually or
in the aggregate, are material to the operation of such Grantor's business; and
(x) all Proprietary Software owned by any Grantor set forth in Schedule
3.5(a)(ii) was either developed (A) by employees of a Grantor within the scope
of their employment; or (B) by independent contractors who have assigned all of
their rights to a Grantor pursuant to written agreement.
(c) No Grantor employs any employee, contractor or consultant who, to any
Grantor's knowledge, is in violation of any material term of any written
employment contract, patent disclosure agreement or any other written contract
or agreement relating to the relationship of any such employee, consultant or
contractor with such Grantor or, to such Grantor's knowledge, with another party
that could reasonably be expected to negatively affect such Grantor's rights in
any material Intellectual Property.
3.6. LOCATION OF EQUIPMENT AND INVENTORY. All of the Equipment and
Inventory is, as of the date hereof, located in the jurisdictions specified in
Schedule 3.6.
3.7. OFFICE LOCATIONS. As of the date hereof the chief place of business,
the chief executive office and the offices where such Grantor keeps its records
regarding the Accounts and all originals of all chattel paper that evidence
Accounts is, and, except as otherwise indicated on Schedule 3.7, has been for
the four month period preceding the date hereof, located at the places indicated
on Schedule 3.7.
3.8. OTHER NAMES. No Grantor has in the past ten years done, and does not
now do, business under any other name (including any trade-name or fictitious
business name) except for those names set forth on Schedule 3.8.
SECTION 4. FURTHER ASSURANCES; ADDITIONAL GRANTORS
4.1. GENERALLY. Each Grantor agrees that from time to time, at the
expense of Grantors, such Grantor will promptly execute and deliver all further
agreements, instruments and documents, and take all further action, that may be
necessary or desirable, or that Administrative Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Administrative Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, each Grantor will (a) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary, or as Administrative Agent may
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reasonably request, in order to perfect and preserve the security interests
granted or purported to be granted hereby; (b) at any reasonable time, upon
request by Administrative Agent, exhibit the Collateral to and allow inspection
of the Collateral by Administrative Agent, or persons designated by
Administrative Agent; (c) use commercially reasonable efforts to obtain any
necessary consents of third parties to the assignment and perfection of a
security interest to Administrative Agent with respect to any Collateral; and
(d) at Administrative Agent's request, appear in and defend any action or
proceeding that may affect Grantor's title to or Administrative Agent's security
interest in all or any part of the Collateral. Each Grantor hereby authorizes
Administrative Agent to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the Collateral without
the signature of Grantor. Each Grantor agrees that a carbon, photographic or
other reproduction of this Agreement or of a financing statement signed by
Grantor shall be sufficient as a financing statement and may be filed as a
financing statement in any and all jurisdictions. Each Grantor will furnish to
Administrative Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Administrative Agent may reasonably request, all in
reasonable detail and in form reasonably satisfactory to Administrative Agent.
4.2. INVESTMENT PROPERTY. (a) Each Grantor agrees that it will, upon
obtaining any additional shares of stock or other securities or Indebtedness
required to be pledged hereunder as Additional Pledged Securities, promptly (and
in any event within five Business Days) deliver to Administrative Agent a Pledge
Supplement, duly executed by Grantor, in substantially the form of Exhibit A (a
"PLEDGE SUPPLEMENT"), in respect of the Additional Pledged Securities to be
pledged pursuant to this Agreement. All certificates, instruments or promissory
notes representing or evidencing the Collateral shall be delivered to and held
by or on behalf of Administrative Agent pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Administrative Agent. Each Grantor hereby authorizes
Administrative Agent to attach each Pledge Supplement to this Agreement and
agrees that all Additional Pledged Securities of Grantor listed on any Pledge
Supplement shall for all purposes hereunder be considered Collateral of Grantor;
provided, the failure of any Grantor to execute a Pledge Supplement with respect
to any Additional Pledged Securities pledged pursuant to this Agreement shall
not impair the security interest of Administrative Agent therein or otherwise
adversely affect the rights and remedies of Administrative Agent hereunder with
respect thereto.
(b) Each Grantor shall cause each Person which is an issuer of an
uncertificated security included in the Collateral to execute and deliver all
instruments and documents in order to perfect and protect any security interest
granted or purported to be granted in such uncertificated securities, to
establish "CONTROL" (as such term is defined in the UCC) by Administrative
Agent over such Collateral or to enable Administrative Agent to exercise and
enforce its rights and remedies hereunder with respect to such Collateral,
including (i) register the security interest granted hereby upon the books of
such Person in accordance with Article 8 of the UCC, and (ii deliver to
Administrative Agent an Acknowledgment of Pledge, duly executed by such the
issuer of the applicable uncertificated security, in substantially the form of
Exhibit B (an "ACKNOWLEDGMENT OF
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PLEDGE"). Each Grantor shall take all further action Administrative Agent may
reasonably request to give effect to the foregoing.
(c) Each Grantor shall notify Administrative Agent promptly upon
obtaining any security entitlement or securities account. Upon the request of
Administrative Agent, each Grantor shall enter into, and shall cause each Person
which is a securities intermediary with respect to any security entitlement or
securities account of such Grantor to enter into, a control agreement, in
substantially the form of Exhibit C (a "CONTROL AGREEMENT"), and shall take all
further action Administrative Agent may reasonably request, in order to perfect
and protect any security interest granted or purported to be granted in such
security entitlement or securities account, to establish "CONTROL" (as such term
is defined in the UCC) by Administrative Agent over such Collateral or to enable
Administrative Agent to exercise and enforce its rights and remedies hereunder
with respect to such Collateral, and shall deliver to Administrative Agent a
Control Agreement, duly executed by such Grantor and such securities
intermediary.
4.3. INTELLECTUAL PROPERTY COLLATERAL. If any Grantor shall hereafter
obtain rights to any new Intellectual Property or become entitled to the benefit
of any new Intellectual Property the provisions of this Agreement shall
automatically apply thereto. Following the filing, registration or acquisition
by Grantor of any registration or application for any Intellectual Property,
each Grantor shall promptly (but in no event more than 30 days thereafter)
notify Administrative Agent in writing of any of the foregoing and shall execute
and deliver to Administrative Agent and record in all places where the security
interests in Intellectual Property granted hereunder are recorded a Pledge
Supplement or, as reasonably requested by Administrative Agent, where otherwise
necessary to record, pursuant to which Grantor shall confirm the grant to
Administrative Agent a security interest to the extent of its interest in such
Intellectual Property. In addition to the foregoing, each Grantor hereby
authorizes Administrative Agent to modify this Agreement without obtaining
Grantor's approval of or signature to such modification by amending Schedules
3.5(a)(i), 3.5(a)(ii) and 3.5(a)(iii), as applicable, to include reference to
any right, title or interest in any existing Intellectual Property or any
Intellectual Property acquired or developed by Grantor after the execution
hereof or to delete any reference to any right, title or interest in any
Intellectual Property in which Grantor no longer has or claims any right, title
or interest.
4.4. ACCOUNTS. Each Grantor shall (a) mark conspicuously each item of
chattel paper included in the Accounts, each Related Contract and, at the
reasonable request of Administrative Agent, each of its records pertaining to
the Collateral, with a legend, in form and substance reasonably satisfactory to
Administrative Agent, indicating that such Collateral is subject to the security
interest granted hereby, and (b) deliver and pledge to Administrative Agent
hereunder all promissory notes and other instruments (excluding checks) and all
original counterparts of chattel paper constituting Collateral, duly endorsed
and accompanied by duly executed instruments of transfer or assignment, all in
form and substance reasonably satisfactory to Administrative Agent.
4.5. EQUIPMENT. Each Grantor shall (a) promptly after the acquisition by
such Grantor of any item of Equipment which is covered by a certificate of title
under a statute of any jurisdiction under the law of which indication of a
security interest on such certificate is required as a condition
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of perfection thereof, notify Administrative Agent and upon the reasonable
request of Administrative Agent, execute and file with the registrar of motor
vehicles or other appropriate authority in such jurisdiction an application or
other document requesting the notation or other indication of the security
interest created hereunder on such certificate of title, and (b) upon the
reasonable request of Administrative Agent, deliver to Administrative Agent
copies of all such applications or other documents filed during such calendar
quarter and copies of all such certificates of title issued during such calendar
quarter indicating the security interest created hereunder in the items of
Equipment covered thereby.
4.6. ADDITIONAL GRANTORS. From time to time subsequent to the date hereof,
additional Persons may, and shall if required by Section 5.9 of the Credit
Agreement, become parties hereto as additional Grantors (each, an "ADDITIONAL
GRANTOR"), by executing a Counterpart Agreement. Upon delivery of any such
Counterpart Agreement to Administrative Agent, notice of which is hereby waived
by Grantors, each Additional Grantor shall be a Grantor and shall be as fully a
party hereto as if Additional Grantor were an original signatory hereto. Each
Grantor expressly agrees that its obligations arising hereunder shall not be
affected or diminished by the addition or release of any other Grantor
hereunder, nor by any election of Administrative Agent not to cause any
Subsidiary of Company to become an Additional Grantor hereunder. This Agreement
shall be fully effective as to any Grantor that is or becomes a party hereto
regardless of whether any other Person becomes or fails to become or ceases to
be a Grantor hereunder.
SECTION 5. COVENANTS OF GRANTORS
5.1. GENERALLY. Each Grantor shall (a) except for the security interest
created by this Agreement, not create or suffer to exist any Lien upon or with
respect to any of the Collateral, except Permitted Liens; (b) not use or permit
any Collateral to be used unlawfully or in violation of any provision of this
Agreement or any applicable statute, regulation or ordinance or any policy of
insurance covering the Collateral; (c) notify Administrative Agent of any change
in Grantor's name, identity or corporate structure within 15 days after such
change; (d) give Administrative Agent 15 days' prior written notice of any
change in such Grantor's chief place of business, chief executive office or
residence or the office where such Grantor keeps its records regarding the
Accounts and all originals of all chattel paper that evidence Accounts; (e)
hereafter use commercially reasonable efforts so as not to permit the inclusion
in any contract to which it hereafter becomes a party of any provision that
could or might in any way materially impair or prevent the creation of a
security interest in, or the assignment of, such contract by such Grantor; (f)
if Administrative Agent gives value to enable Grantor to acquire rights in or
the use of any Collateral, use such value for such purposes; (g) pay promptly
when due all property and other taxes, assessments and governmental charges or
levies imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Collateral, except to the extent permitted by the Credit
Agreement; and (h) upon any officer of such Grantor obtaining knowledge thereof,
promptly notify Administrative Agent in writing of any event that may materially
and adversely affect the value of a material portion of the Collateral, the
ability of Grantor or Administrative Agent to dispose of the Collateral or any
material portion thereof, or the rights and remedies of Administrative Agent in
relation thereto, including,
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without limitation, the levy of any legal process against the Collateral or any
material portion thereof. No Grantor shall sell, transfer or assign (by
operation of law or otherwise) any Collateral except as permitted by Section 6
of the Credit Agreement (a "PERMITTED SALE"). So long as (i) no Event of Default
shall have occurred and is then continuing or would occur after giving effect to
a Permitted Sale, and (ii the Net Asset Sale Proceeds with respect to such
Permitted Sale are delivered to Administrative Agent contemporaneously with such
Permitted Sale to the extent required by the Credit Agreement or are otherwise
applied as required by the Credit Agreement, Administrative Agent shall release
the Lien hereof encumbering the Collateral that is the subject of such Permitted
Sale. Administrative Agent shall execute each and every appropriate filing
statement and/or recording document reasonably requested by any Grantor in
connection with the foregoing. Any reasonable expense or cost incurred by
Administrative Agent in connection with any such release shall be for the
account of the applicable Grantor.
5.2. INVESTMENT PROPERTY.
(a) DELIVERY. (i) All certificates, notes or instruments representing or
evidencing the Investment Property shall be delivered to and held by or on
behalf of Administrative Agent pursuant hereto and shall be in suitable form for
transfer by delivery or, as applicable, shall be accompanied by Grantor's
endorsement, where necessary, or duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Administrative
Agent. Upon the occurrence and during the continuation of an Event of Default,
Administrative Agent shall have the right, without notice to any Grantor, to
transfer to or to register in the name of Administrative Agent or any of its
nominees any or all of the Investment Property. For the better perfection of
Administrative Agent's rights in and to the Investment Property, if requested by
Administrative Agent during the continuance of an Event of Default such Grantor
shall forthwith, upon the pledge of any Investment Property hereunder, cause
such Investment Property to be registered in the name of such nominee or
nominees as Administrative Agent shall direct. In addition, Administrative
Agent shall have the right at any time during the continuance of an Event of
Default to exchange certificates or instruments representing or evidencing
Investment Property for certificates or instruments of smaller or larger
denominations.
(ii) Each Grantor hereby consents to the pledge of the Partnership
Interests by each other Grantor in each Partnership pursuant to the terms
hereof, and, subject to Section 7, to the transfer of such Partnership Interests
to Administrative Agent or its nominee and to the substitution of Administrative
Agent or its nominee as a substituted Partner of each such Partnership with all
the rights, powers and duties of a general partner or a limited partners, as the
case may be. Each Grantor hereby agrees it shall never vote for any amendment
to any Partnership/LLC Agreement which causes its interest to become a
"security" (as defined in the Article 8 of the UCC) that is not a "certificated
security" (as defined in Article 8).
(iii) Each Grantor hereby consents to the pledge of the LLC
Interests by each other Grantor in each LLC pursuant to the terms hereof, and,
subject to Section 7, to the transfer of such LLC Interests to Administrative
Agent or its nominee and to the substitution of Administrative Agent or its
nominee as a substituted member of the LLC with all the rights, powers and
duties of
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a member of the LLC in question. Each Grantor hereby agrees it shall never vote
for any amendment to any Partnership/LLC Agreement which causes its interest to
become a "security" (as defined in the Article 8 of the UCC) that is not a
"certificated security" (as defined in Article 8).
(b) COVENANTS. Each Grantor shall (i) not permit any issuer of Pledged
Securities to merge or consolidate unless all the outstanding Capital Stock of
the surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder and no Cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation; (ii
cause each issuer of Pledged Securities that is a Subsidiary of such Grantor not
to issue any stock or other securities in addition to or in substitution for the
Pledged Securities issued by such issuer, except to such Grantor; (iii) deliver
to Administrative Agent, immediately upon their issuance, any and all
instruments or promissory notes or other evidences of Additional Pledged Debt
and New Pledged Debt; (iv) promptly deliver to Administrative Agent all written
notices received by it with respect to the Investment Property; (v) deliver to
Administrative Agent, immediately upon its acquisition (directly or indirectly)
thereof, any and all certificates evidencing Additional Pledged Stock and any
and all New Pledged Stock evidenced by a certificate; provided, notwithstanding
anything contained in this clause (v) to the contrary, in no event shall the
Additional Pledged Stock or New Pledged Stock (when added to the other Pledged
Stock) include more than 65% of the issued and outstanding shares of the Capital
Stock of any Foreign Subsidiary; (vi) register the Administrative Agent as the
registered owner of all uncertificated securities constituting part of the
Additional Pledged Stock or New Pledged Stock hereunder in the books and records
of each issuer and deliver to Administrative Agent an Acknowledgment and Pledge
with respect thereto; (vii) promptly deliver to Administrative Agent notice of
the conversion of any partnership interests in a Partnership Agreement or any
membership interests in a LLC to certificated form; (viii) not (A) cancel or
terminate any of the Partnership Agreements or LLC Agreements or consent to or
accept any cancellation or termination thereof, (B) sell, assign (by operation
of law or otherwise) or otherwise dispose of any part of its Partnership
Interests or its LLC Interests, (C) amend, supplement or otherwise modify any of
the Partnership Agreements or any of the LLC Agreements (as in effect on the
date hereof or the date of execution thereof), (D) waive any default under or
breach of any of the Partnership Agreements or any of the LLC Agreements or
waive, fail to enforce, forgive or release any right, interest or entitlement of
any kind, howsoever arising, under or in respect of any of the Partnership
Agreements or any of the LLC Agreements or vary or agree to the variation in any
respect of any of the provisions of any of the Partnership Agreements or any of
the LLC Agreements or the performance of any other Person under any of the
Partnership Agreements or any of the LLC Agreements, or (E) petition, request or
take any other legal or administrative action which seeks, or may reasonably be
expected, to rescind, to terminate or to suspend any of the Partnership
Agreements or any of the LLC Agreements or to amend or modify any of the
Partnership Agreements or any of the LLC Agreements; (ix) at its expense (A)
perform and comply in all material respects with all terms and provisions of the
Partnership Agreements and the LLC Agreements required to be performed or
complied with by it, (B) maintain the Partnership Agreements and the LLC
Agreements to which it is a party in full force and effect, and (C) enforce each
of the Partnership Agreements and each of the LLC Agreements to which it is a
party in accordance with its terms; and (x) not vote to permit the Partnerships
or the LLCs to enter into any transaction of merger or consolidation, or
liquidate, wind up or dissolve itself (or suffer any
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liquidation or dissolution); provided that the foregoing clauses (viii), (ix)
and (x) shall also apply to any subsequent partnership and limited liability
company agreements to which any Grantor becomes a party.
(c) VOTING AND DISTRIBUTIONS. (i) So long as no Event of Default shall
have occurred and be continuing, each Grantor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Investment Property
or any part thereof for any purpose not inconsistent with the terms of this
Agreement or the Credit Agreement. Grantor shall be entitled to receive and
retain, and to utilize free and clear of the Lien of this Agreement, any and all
dividends and interest paid in respect of the Investment Property; provided, any
and all (A) dividends and interest paid or payable other than in Cash in respect
of, and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Investment Property, (B)
dividends and other distributions paid or payable in Cash in respect of any
Investment Property in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus, and (C) Cash paid, payable or otherwise distributed in respect
of principal or in redemption of or in exchange for any Investment Property,
shall be, and shall forthwith be delivered to Administrative Agent to hold as,
Investment Property and shall, if received by Grantor, be received in trust for
the benefit of Administrative Agent, be segregated from the other property or
funds of Grantor and be forthwith delivered to Administrative Agent as
Investment Property in the same form as so received (with all necessary
endorsements). Administrative Agent shall promptly execute and deliver (or
cause to be executed and delivered) to Grantor all such proxies, dividend
payment orders and other instruments as Grantor may from time to time reasonably
request for the purpose of enabling Grantor to exercise the voting and other
consensual rights when and to the extent which it is entitled to exercise
pursuant to clause (i) above and to receive the dividends, principal or interest
payments which it is authorized to receive and retain pursuant to the preceding
sentence.
(ii) Upon the occurrence and during the continuation of an Event of
Default, (A) upon written notice from Administrative Agent to any Grantor, all
rights of Grantor to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant hereto shall cease, and all
such rights shall thereupon become vested in Administrative Agent who shall
thereupon have the sole right to exercise such voting and other consensual
rights; (B) all rights of Grantor to receive the dividends and interest payments
which it would otherwise be authorized to receive and retain pursuant hereto
shall cease, and all such rights shall thereupon become vested in Administrative
Agent who shall thereupon have the sole right to receive and hold as Investment
Property such dividends and interest payments; (C) all payments which are
received by Grantor contrary to the provisions of clause (B) above shall be
received in trust for the benefit of Administrative Agent, shall be segregated
from other funds of Grantor and shall forthwith be paid over to Administrative
Agent as Investment Property in the same form as so received (with any necessary
endorsements); and (D) all rights of such Grantor or receive any and all
payments under or in connection with the Partnership Agreements and/or the LLC
Agreements, including but not limited to the profits, dividends, and other
distributions which it would otherwise be authorized to receive and retain
pursuant hereto, shall cease, and all such rights shall thereupon become vested
in
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Administrative Agent who shall thereupon have the sole right to receive and hold
such payments as Collateral.
(iii) IN ORDER TO PERMIT ADMINISTRATIVE AGENT TO EXERCISE THE VOTING
AND OTHER CONSENSUAL RIGHTS WHICH IT MAY BE ENTITLED TO EXERCISE PURSUANT HERETO
AND TO RECEIVE ALL DIVIDENDS AND OTHER DISTRIBUTIONS WHICH IT MAY BE ENTITLED TO
RECEIVE HEREUNDER, (A) EACH GRANTOR SHALL PROMPTLY EXECUTE AND DELIVER (OR CAUSE
TO BE EXECUTED AND DELIVERED) TO ADMINISTRATIVE AGENT ALL SUCH PROXIES, DIVIDEND
PAYMENT ORDERS AND OTHER INSTRUMENTS AS ADMINISTRATIVE AGENT MAY FROM TIME TO
TIME REASONABLY REQUEST, AND (B) WITHOUT LIMITING THE EFFECT OF CLAUSE (A)
ABOVE, EACH GRANTOR HEREBY GRANTS TO ADMINISTRATIVE AGENT AN IRREVOCABLE PROXY
TO VOTE THE PLEDGED SECURITIES AND TO EXERCISE ALL OTHER RIGHTS, POWERS,
PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF THE PLEDGED SECURITIES WOULD BE
ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS,
CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS), WHICH
PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION
(INCLUDING ANY TRANSFER OF ANY PLEDGED SECURITIES ON THE RECORD BOOKS OF THE
ISSUER THEREOF) BY ANY OTHER PERSON (INCLUDING THE ISSUER OF THE PLEDGED
SECURITIES OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE AND DURING THE
CONTINUATION OF AN EVENT OF DEFAULT, AND WHICH PROXY SHALL ONLY TERMINATE UPON
THE PAYMENT IN FULL OF THE SECURED OBLIGATIONS.
5.3. COLLATERAL ACCOUNT. Administrative Agent is hereby authorized to
establish and maintain at its office at Canadian Imperial Bank of Commerce, as a
blocked account in New York in the name of Administrative Agent and under the
sole dominion and control of Administrative Agent, a restricted deposit account
designated as "Muzak LLC Collateral Account". Amounts shall, without
limitation, be deposited in the Collateral Account pursuant to Sections 5.6 and
7 hereof and pursuant to Section 2.2A of the Credit Agreement and as set forth
in each other Collateral Document. All amounts at any time held in the
Collateral Account shall be beneficially owned by Company but shall be held in
the name of Administrative Agent hereunder, for the benefit of Lenders, Lender
Counterparties and Indemnitees, as collateral security for the Secured
Obligations upon the terms and conditions set forth herein. Company shall have
no right to withdraw, transfer or, except as expressly set forth herein,
otherwise receive any funds deposited into the Collateral Account. Anything
contained herein to the contrary notwithstanding, the Collateral Account shall
be subject to such applicable laws, and such applicable regulations of the Board
of Governors of the Federal Reserve System and of any other appropriate banking
or governmental authority, as may now or hereafter be in effect. All deposits
of funds in the Collateral Account shall be made by wire transfer (or, if
applicable, by intra-bank transfer from another account of Company) of
immediately available funds in accordance with written wire transfer
instructions provided to Company by Administrative Agent. Company shall,
promptly after initiating a transfer of funds to the Collateral Account, give
notice to Administrative Agent by telefacsimile of the date, amount and method
of delivery of such
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deposit. Cash held by Administrative Agent in the Collateral Account shall not
be invested by Administrative Agent but instead shall be maintained as a Cash
deposit in the Collateral Account pending application thereof as elsewhere
provided in this Agreement. To the extent permitted under Regulation Q of the
Board of Governors of the Federal Reserve System, any Cash held in the
Collateral Account shall bear interest at the standard rate paid by
Administrative Agent to its customers for deposits of like amounts and terms.
Subject to Administrative Agent's rights hereunder, any interest earned on
deposits of Cash in the Collateral Account shall be deposited directly in, and
held in the Collateral Account.
5.4. INTELLECTUAL PROPERTY COLLATERAL.
(a) COVENANTS. Each Grantor shall hereafter use commercially reasonable
efforts to prohibit the inclusion in any contract to which it hereafter becomes
a party of any provision that could in any way materially impair or prevent the
creation of a security interest in, or the assignment of, Grantor's rights and
interests therein or in any Intellectual Property acquired under such contracts.
Each Grantor shall also take all steps reasonably necessary to (i) protect the
secrecy of all material Trade Secrets relating to their respective business and
the products and services sold or delivered under or in connection with the
Intellectual Property; (ii) use proper statutory notice and marking practices in
connection with its use of any of the Intellectual Property to the extent
necessary for the enforcement of such Intellectual Property without loss of any
rights; (iii) use consistent standards of quality (which may be consistent with
Grantor's past practices) in the manufacture, sale and delivery of products and
services sold or delivered under or in connection with the Intellectual
Property; (iv) furnish to Administrative Agent from time to time statements and
schedules further identifying and describing any Intellectual Property and such
other reports in connection with such Collateral as Administrative Agent may
reasonably request, all in reasonable detail; and (v) diligently keep records
respecting the material Intellectual Property and at all times keep at least one
complete set of its records concerning such Collateral at its chief executive
office or principal place of business. Each Grantor shall not do any act or
omit to do any act whereby any of the Intellectual Property which is material to
the business of such Grantor would reasonably be expected to lapse, or become
abandoned, dedicated to the public, or unenforceable, or which would adversely
affect the validity, grant, or enforceability of the security interest granted
herein in such material Intellectual Property, other than with the prior written
consent of Administrative Agent. Each Grantor shall (a) provide Administrative
Agent with copies of each written notice from any third party regarding any
actual or potential infringement by it of any intellectual property of such
third party and (b) shall notify Administrative Agent if, to the best of each
Grantor's knowledge, the conduct of its business as then conducted infringes on
the intellectual property of any third party. Each Grantor shall provide
Administrative Agent with copies of each written notice from any third party
regarding any assertion or claim challenging the validity of any Intellectual
Property owned or used by such Grantor and shall notify Administrative Agent if
any Grantor has knowledge of any basis for such a claim. No Grantor shall
license or sublicense any material rights in any Intellectual Property or
receive or be granted any such rights, other than pursuant to License
Agreements.
(b) COLLECTIONS. Except as otherwise provided in this Section 5.4, each
Grantor shall continue to collect, at its own expense, all amounts due or to
become due to Grantor in respect of
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the Intellectual Property or any portion thereof. In connection with such
collections, each Grantor may take (and, at Administrative Agent's reasonable
direction, shall take) such action as Grantor or Administrative Agent may deem
reasonably necessary or advisable to enforce collection of such amounts;
provided, Administrative Agent shall have the right at any time, upon the
occurrence and during the continuation of an Event of Default and upon written
notice to Grantor of its intention to do so, to notify the obligors with respect
to any such amounts of the existence of the security interest created hereby and
to direct such obligors to make payment of all such amounts directly to
Administrative Agent, and, upon such notification and at the expense of Grantor,
to enforce collection of any such amounts and to adjust, settle or compromise
the amount or payment thereof, in the same manner and to the same extent as
Grantor might have done. After receipt by any Grantor of the notice from
Administrative Agent referred to in the proviso to the preceding sentence and
during the continuation of any Event of Default, (i) all amounts and proceeds
(including checks and other instruments) received by Grantor in respect of
amounts due to Grantor in respect of the Collateral or any portion thereof shall
be received in trust for the benefit of Administrative Agent hereunder, shall be
segregated from other funds of Grantor and shall be forthwith paid over or
delivered to Administrative Agent in the same form as so received (with any
necessary endorsement) to be held as Cash Collateral and applied as provided by
Section 7.5, and (ii) Grantor shall not adjust, settle or compromise the amount
or payment of any such amount or release wholly or partly any obligor with
respect thereto or allow any credit or discount thereon.
(c) APPLICATIONS AND REGISTRATIONS. Each Grantor shall have the duty
diligently, through counsel reasonably acceptable to Administrative Agent, to
prosecute, file and/or make, (i) any application relating to any of the
Intellectual Property owned by Grantor and identified on Schedules 3.5(a)(i),
3.5(a)(ii) or 3.5(a)(iii), that is pending as of the date of this Agreement,
(ii) any applications for registration of any existing or future unregistered
but material copyrightable works owned by any Grantor (except for works of
nominal commercial value), (iii) any existing patent application or applications
for future patentable but unpatented invention owned by any Grantor and included
in the Intellectual Property,(iv) any Intellectual Property opposition and
cancellation proceedings, reexaminations or similar challenges to the extent
reasonably necessary to maintain and protect the material Intellectual Property,
and (v) renew Intellectual Property registrations and do any and all acts which
are necessary or desirable, as determined in such Grantor's commercially
reasonable judgment, to preserve and maintain all rights in all Intellectual
Property. Notwithstanding the foregoing, none of the Grantors shall be required
to take the foregoing actions with respect to an item of Intellectual Property
in the event such Grantor determines, in its reasonable business judgment, that
the relevant item of Intellectual Property is no longer used in or proposed for
use in the conduct of its business or is of nominal commercial value. Any
expenses incurred in connection therewith shall be borne solely by Grantor.
Subject to the foregoing, each Grantor shall give Administrative Agent prior
written notice of any abandonment of any material Intellectual Property or any
right to file an Intellectual Property application, or any pending Intellectual
Property application or any determination not to renew a registration or patent
included in the Intellectual Property.
(d) LITIGATION. Except as provided herein, each Grantor shall have the
right to commence and prosecute in its own name, as real party in interest, for
its own benefit and at its own expense,
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such suits, proceedings or other actions for infringement, unfair competition,
dilution, misappropriation or other damage, or reexamination or reissue
proceedings as are in its commercially reasonable judgment necessary to protect
the Intellectual Property. Administrative Agent shall provide, at such Grantor's
expense, all reasonable and necessary cooperation in connection with any such
suit, proceeding or action including, without limitation, joining as a necessary
party. Each Grantor shall promptly, following its becoming aware thereof, notify
Administrative Agent of the institution of, or of any adverse determination in,
any proceeding (whether in the United States Patent and Trademark Office, the
United States Copyright Office or any federal, state, local or foreign court,
administrative agency or registry) or regarding Grantor's ownership, right to
use, or interest in any material Intellectual Property. Grantor shall provide to
Administrative Agent any information known by Grantor or its agents with respect
thereto reasonably requested by Administrative Agent.
(e) CERTAIN RIGHTS OF ADMINISTRATIVE AGENT. In addition to, and not by
way of limitation of, the granting of a security interest in the Collateral
pursuant hereto, each Grantor, hereby grants to Administrative Agent a non-
exclusive, fully paid, royalty free license in all of each Grantor's right,
title and interest in and to the Intellectual Property to the extent necessary
to enable Administrative Agent to use, possess and realize on the Collateral in
connection with the exercise of the Administrative Agent's rights and remedies
hereunder or as a matter of law or equity (to the extent Administrative Agent is
entitled to exercise its rights and remedies under law and equity). This license
shall inure to the benefit of all successors, assigns and transferees of
Administrative Agent and their successors, assigns and transferees, whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure, or otherwise. Each Grantor shall have such rights of
quality control and inspection which are reasonably necessary to preserve the
validity of the trademarks included in the Intellectual Property. In addition,
each Grantor hereby grants to Administrative Agent and its employees,
representatives and agents the right to visit each Grantor's and any of its
Affiliate's or subcontractor's plants, facilities and other places of business
that are utilized in connection with the manufacture, production, inspection,
storage or sale of products and services sold or delivered under any of the
Intellectual Property (or which were so utilized during the prior six month
period), and to inspect the quality control and all other records relating
thereto upon reasonable advance written notice to such Grantor and at reasonable
dates and times and as often as may be reasonably requested.
5.5. EQUIPMENT AND INVENTORY. (a) Each Grantor shall keep the Equipment
and Inventory in the jurisdictions specified on Schedule 3.6; provided that such
Grantor may establish a new location for such Inventory and Equipment only if
(i) it shall have given to Administrative Agent not less than 15 days' prior
written notice of its intention to do so, clearly describing such new location
and providing such other information in connection therewith as the
Administrative Agent may reasonably request, and (ii) with respect to such new
location, it shall have taken all action satisfactory to Administrative Agent as
may be necessary and as Administrative Agent may reasonably request to maintain
the security interest of Administrative Agent in the Collateral intended to be
granted hereby at all times fully perfected with the same or better priority and
in full force and effect.
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(b) Each Grantor shall:
(i) cause the Equipment owned by such Grantor to be maintained and
preserved in the same condition, repair and working order as when new, ordinary
wear and tear excepted, and in accordance with such Grantor's past practices.
Each Grantor shall promptly furnish to Administrative Agent a statement
respecting any material loss or damage to any of the Equipment owned by such
Grantor;
(ii) keep correct and accurate records of the Inventory, itemizing
and describing the kind, type and quantity of Inventory, such Grantor's cost
therefor and (where applicable) the current list prices for the Inventory in
accordance with prudent business practices; and
(iii) if any Inventory is in possession or control of any of such
Grantor's agents or processors, upon the occurrence and during the continuance
of an Event of Default, instruct such agent or processor to hold all such
Inventory for the account of Administrative Agent and subject to the
instructions of Administrative Agent.
5.6. CHIEF EXECUTIVE OFFICE; ACCOUNTS AND RELATED CONTRACTS. (a) Each
Grantor shall keep its chief place of business and chief executive office and
the office where it keeps its records concerning the material Accounts and
Related Contracts, and all originals of all chattel paper that evidence
Accounts, at the location therefor specified on Schedule 3.7; provided that such
Grantor may establish a new location for its chief executive office only if (i)
it shall have given to Administrative Agent not less than 15 days' prior written
notice of its intention to do so, clearly describing such new location and
providing such other information in connection therewith as the Administrative
Agent may reasonably request, and (ii) with respect to such new location, it
shall have taken all action satisfactory to Administrative Agent as may be
necessary and as Administrative Agent may reasonably request to maintain the
security interest of Administrative Agent in the Collateral intended to be
granted hereby at all times fully perfected with the same or better priority and
in full force and effect.
(b) Each Grantor shall:
(i) in accordance with prudent business practices, maintain (A)
complete records of all Accounts, including records of all payments received,
credits granted and merchandise returned, and (B) all documentation relating
thereto; and
(ii) except as otherwise provided in this subsection (ii), continue
to collect, at its own expense, all amounts due or to become due to such Grantor
under the Accounts and Related Contracts, and in connection with such
collections, such Grantor shall take such action as such Grantor or
Administrative Agent may deem necessary or advisable to enforce collection of
amounts due or to become due under the Accounts; provided, Administrative Agent
shall have the right at any time, upon the occurrence and during the
continuation of an Event of Default and upon written notice to such Grantor of
its intention to do so, to notify the account debtors or obligors under any
Accounts of the assignment of such Accounts to Administrative Agent and to
direct such account debtors or
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obligors to make payment of all amounts due or to become due to such Grantor
thereunder directly to Administrative Agent, to notify each Person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lockbox or other arrangement directly to Administrative Agent
and, upon such notification and at the expense of such Grantor, to enforce
collection of any such Accounts and to adjust, settle or compromise the amount
or payment thereof, in the same manner and to the same extent as such Grantor
might have done. After receipt by any Grantor of the notice from Administrative
Agent referred to in the proviso to the preceding sentence, (A) any payments of
Accounts, received by such Grantor shall be forthwith (and in any event within
two Business Days) deposited by such Grantor in the exact form received, duly
indorsed by such Grantor to Administrative Agent if required, in the Collateral
Account, (B) until so turned over in accordance with the preceding subsection
(A), all amounts and proceeds (including checks and other instruments) received
by such Grantor in respect of the Accounts and the Related Contracts shall be
received in trust for the benefit of Administrative Agent hereunder and shall be
segregated from other funds of such Grantor and (C) such Grantor shall not
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
5.7. ASSIGNED AGREEMENTS. (a) Each Grantor shall at its expense:
(i) if consistent with sound business practices, perform and
observe all terms and provisions of the Assigned Agreements to be performed or
observed by it, maintain the Assigned Agreements in full force and effect,
enforce the Assigned Agreements in accordance with their terms, and take all
such action to such end as may be from time to time reasonably requested by
Administrative Agent; and
(ii) upon the reasonable request of Administrative Agent, furnish
to Administrative Agent, promptly upon receipt thereof, copies of all notices,
requests and other documents received by such Grantor under or pursuant to the
Assigned Agreements, and from time to time (A) furnish to Administrative Agent
such information and reports regarding the Assigned Agreements as Administrative
Agent may reasonably request and (B) upon the reasonable request of
Administrative Agent make to the parties to such Assigned Agreements such
demands and requests for information and reports for action as such Grantor is
entitled to make under such Assigned Agreements.
(b) Upon the occurrence and during the continuation of an Event of
Default, no Grantor shall:
(i) cancel or terminate any of the Assigned Agreements or consent
to or accept any cancellation or termination thereof;
(ii) amend or otherwise modify the Assigned Agreements or give any
consent, waiver or approval thereunder;
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(iii) waive any default under or breach of the Assigned Agreements;
(iv) consent to or permit or accept any prepayment of amounts to
become due under or in connection with the Assigned Agreements, except as
expressly provided therein; or
(v) take any other action in connection with the Assigned
Agreements that would materially impair the value of the interest or rights of
such Grantor thereunder or that would materially impair the interest or rights
of the Administrative Agent.
5.8. DEPOSIT ACCOUNTS. Upon the occurrence and during the continuation of
an Event of Default, the Administrative Agent may exercise dominion and control
over, and refuse to permit further withdrawals (whether of money, securities,
instruments or other property) from any deposit accounts maintained with the
Administrative Agent constituting part of the Collateral.
SECTION 6. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT
Each Grantor hereby irrevocably appoints Administrative Agent as such
Grantor's attorney-in-fact, with full authority in the place and stead of
Grantor and in the name of Grantor, Administrative Agent or otherwise, from time
to time in Administrative Agent's discretion to take any action and to execute
any instrument that Administrative Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including:
(a) to obtain and adjust insurance required to be maintained by Grantor
or paid to Administrative Agent pursuant to the Credit Agreement;
(b) upon the occurrence and during the continuation of any Event of
Default, to ask for, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) upon the occurrence and during the continuation of any Event of
Default, to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (b) above;
(d) upon the occurrence and during the continuation of any Event of
Default, to direct any party liable for any payment under any of the Collateral
to make payment of any and all moneys due or to become due thereunder directly
to the Administrative Agent or as the Administrative Agent shall direct;
(e) upon the occurrence and during the continuation of any Event of
Default, to file any claims or take any action or institute any proceedings that
Administrative Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of Administrative Agent
with respect to any of the Collateral;
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(f) to defend any suit, action or proceeding brought against such Grantor
with respect to any Collateral;
(g) to settle, compromise or adjust any suit, action or proceeding
described in the preceding clause and, in connection therewith, to give such
discharges or releases as Administrative Agent may deem appropriate;
(h) to prepare, sign, and file for recordation in any intellectual
property registry, appropriate evidence of the lien and security interest
granted herein in the Intellectual Property in the name of such Grantor as such
Grantor;
(i) prepare, sign using any symbol that the Administrative Agent may
adopt to signify Grantor's intent to authenticate and file any Uniform
Commercial Code financing statements in the name of Grantor as debtor in any
form authorized by an applicable filing office, including, without limitation,
by facsimile or electronic data transmission;
(j) to pay or discharge taxes or Liens (other than Permitted Liens when
no Event of Default has occurred and is continuing) levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Administrative Agent
in its sole discretion, any such payments made by Administrative Agent to become
obligations of Grantor to Administrative Agent, due and payable immediately
without demand;
(k) upon the occurrence and during the continuation of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
Administrative Agent were the absolute owner thereof for all purposes, and to
do, at Administrative Agent's option and Grantor's expense, at any time or from
time to time, all acts and things that Administrative Agent deems reasonably
necessary to protect, preserve or realize upon the Collateral and Administrative
Agent's security interest therein in order to effect the intent of this
Agreement, all as fully and effectively as Grantor might do; and
(l) upon the occurrence and during the continuation of an Event of
Default, at any time and from time to time, to execute, in connection with any
foreclosure, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
SECTION 7. REMEDIES
7.1. GENERALLY. If any Event of Default shall have occurred and be
continuing, Administrative Agent may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"CODE") (whether or not the Code applies to the affected Collateral) and all
rights now or hereafter existing under all other applicable laws or in equity,
and also may (a) require any Grantor to, and
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each Grantor hereby agrees that it will at its expense and upon request of
Administrative Agent forthwith, assemble all or part of the Collateral as
directed by Administrative Agent and make it available to Administrative Agent
at a place to be designated by Administrative Agent that is reasonably
convenient to both parties; (b) enter onto the property where any Collateral is
located and take possession thereof with or without judicial process; (c) prior
to the disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner to
the extent Administrative Agent deems appropriate; (d) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of Administrative Agent's offices or
elsewhere, for Cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Administrative Agent may
deem commercially reasonable; and (e) exercise dominion and control over, and
refuse to permit further withdrawals (whether of money, securities, instruments
or other property) from any deposit account maintained with Administrative Agent
constituting part of the Collateral. Administrative Agent may in its sole
discretion restrict prospective bidders as to their number, nature of their
business and investment intention. Administrative Agent or any Lender, Lender
Counterparty or Indemnitee may be the purchaser of any or all of the Collateral
at any such sale and Administrative Agent, as agent for and representative of
Lenders, Lender Counterparties and Indemnitees (but not any Lender, Lender
Counterparty or Indemnitee in its or their respective individual capacities
unless Requisite Obligees (as defined below) shall otherwise agree in writing),
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply any of the Secured Obligations as a credit on
account of the purchase price for any Collateral payable by Administrative Agent
at such sale. Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of any Grantor, and each
Grantor hereby waives (to the extent permitted by applicable law) all rights of
redemption, stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
Each Grantor agrees that, to the extent notice of sale shall be required by law,
at least ten days' notice to such Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. Administrative Agent shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given.
Administrative Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. Each
Grantor hereby waives any claims against Administrative Agent arising by reason
of the fact that the price at which any Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if Administrative Agent accepts the first offer received and does not
offer such Collateral to more than one offeree. If the proceeds of any sale or
other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantors shall be liable for the deficiency and the fees of any
attorneys employed by Administrative Agent to collect such deficiency. Each
Grantor further agrees that a breach of any of the covenants contained in this
Section will cause irreparable injury to Administrative Agent, that
Administrative Agent has no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section
shall be specifically enforceable against Grantor, and Grantor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no
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default has occurred giving rise to the Secured Obligations becoming due and
payable prior to their stated maturities. Nothing in this Section shall in any
way alter the rights of Administrative Agent hereunder. As used herein,
"REQUISITE OBLIGEES" shall mean (a) prior to payment in full of all Obligations
under the Credit Agreement, Requisite Lenders or (b) after payment in full of
all Obligations under the Credit Agreement and the other Credit Documents, the
holders of a majority of the aggregate notional amount (or, with respect to any
Hedge Agreement that has been terminated in accordance with its terms, the
amount then due and payable (exclusive of expenses and similar payments but
including any early termination payments then due) under such Hedge Agreement)
under all Hedge Agreements.
7.2. INVESTMENT PROPERTY. (a) Each Grantor recognizes that, by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws, Administrative Agent may be compelled, with respect to any sale
of all or any part of the Investment Property conducted without prior
registration or qualification of such Investment Property under the Securities
Act and/or such state securities laws, to limit purchasers to those who will
agree, among other things, to acquire the Investment Property for their own
account, for investment and not with a view to the distribution or resale
thereof. Each Grantor acknowledges that any such private sales may be at prices
and on terms less favorable than those obtainable through a public sale without
such restrictions (including a public offering made pursuant to a registration
statement under the Securities Act) and, notwithstanding such circumstances each
Grantor agrees that any such private sale shall be deemed to have been made in a
commercially reasonable manner and that Administrative Agent shall have no
obligation to engage in public sales and no obligation to delay the sale of any
Investment Property for the period of time necessary to permit the issuer
thereof to register it for a form of public sale requiring registration under
the Securities Act or under applicable state securities laws, even if such
issuer would, or should, agree to so register it.
(b) If Administrative Agent determines to exercise its right to sell any
or all of the Investment Property, upon written request, each Grantor shall and
shall cause each issuer of any Pledged Securities to be sold hereunder from time
to time to furnish to Administrative Agent all such information as
Administrative Agent may request in order to determine the number and nature of
interest, shares or other instruments included in the Investment Property which
may be sold by Administrative Agent in exempt transactions under the Securities
Act and the rules and regulations of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
(c) Administrative Agent shall have no responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Investment Property,
whether or not Administrative Agent has or is deemed to have knowledge of such
matters, (ii) taking any necessary steps (other than steps taken in accordance
with the standard of care set forth in Section 10 to maintain possession of the
Investment Property) to preserve rights against any parties with respect to any
Investment Property, (iii) taking any necessary steps to collect or realize upon
the Secured Obligations or any guarantee therefor, or any part thereof, or any
of the Investment Property, or (iv) initiating any action to protect the
Investment Property against the possibility of a decline in market value.
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7.3. INTELLECTUAL PROPERTY. (a) Anything contained herein to the contrary
notwithstanding, upon the occurrence and during the continuation of an Event of
Default, (i) Administrative Agent shall have the right (but not the obligation)
to bring suit, in the name of any Grantor, Administrative Agent or otherwise, to
enforce any Intellectual Property, in which event such Grantor shall, at the
request of Administrative Agent, do any and all lawful acts and execute any and
all documents required by Administrative Agent in aid of such enforcement and
such Grantor shall promptly, upon demand, reimburse and indemnify Administrative
Agent as provided in Sections 10.2 and 10.3 of the Credit Agreement and Section
11 of this Agreement in connection with the exercise of its rights under this
Section, and to the extent that Administrative Agent shall elect not to bring
suit to enforce any Intellectual Property as provided in this Section, each
Grantor agrees to use all reasonable measures, whether by action, suit,
proceeding or otherwise, to prevent the infringement of any of the Intellectual
Property by others and, for that purpose, agrees to diligently maintain any
action, suit or proceeding against any Person so infringing necessary to prevent
such infringement; (ii) upon written demand from Administrative Agent, each
Grantor shall execute and deliver to Administrative Agent an assignment or
assignments of the Intellectual Property and such other documents as are
necessary or appropriate to carry out the intent and purposes of this Agreement;
(iii) each Grantor agrees that such an assignment and/or recording shall be
applied to reduce the Secured Obligations outstanding only to the extent that
Administrative Agent (or any Lender) receives Cash proceeds in respect of the
sale of, or other realization upon, the Intellectual Property; and (iv) within
five (5) Business Days after written notice from Administrative Agent, Grantor
shall make available to Administrative Agent, to the extent within Grantor's
power and authority, such personnel in Grantor's employ on the date of such
Event of Default as Administrative Agent may reasonably designate, by name,
title or job responsibility, to permit Grantor to continue, directly or
indirectly, to produce, advertise and sell the products and services sold or
delivered by Grantor under or in connection with the Intellectual Property, such
persons to be available to perform their usual functions on Administrative
Agent's behalf and to be compensated by Administrative Agent at Grantor's
expense on a per diem, pro-rata basis consistent with the salary and benefit
structure applicable to each as of the date of such Event of Default.
(b) If (i) an Event of Default shall have occurred and, by reason of
cure, waiver, modification, amendment or otherwise, no longer be continuing,
(ii) no other Event of Default shall have occurred and be continuing, (iii) an
assignment to Administrative Agent of any rights, title and interests in and to
the Intellectual Property shall have been made and shall have become absolute
and effective, and (iv) the Secured Obligations shall not have become
immediately due and payable, then upon the written request of Grantor,
Administrative Agent shall promptly execute and deliver to Grantor such
assignments as may be necessary to reassign to Grantor any such rights, title
and interests as may have been assigned to Administrative Agent as aforesaid,
subject to any disposition thereof that may have been made by Administrative
Agent; provided, that after giving effect to such reassignment, Administrative
Agent's security interest granted pursuant hereto, as well as all other rights
and remedies of Administrative Agent granted hereunder, shall continue to be in
full force and effect until the indefeasible payment in full of all Secured
Obligations and the cancellation or termination of the Commitments and
cancellation or expiration of all outstanding Letters of Credit.
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7.4. DEPOSIT OF PROCEEDS. If an Event of Default shall occur and be
continuing, upon request of the Administrative Agent, all proceeds received by
any Grantor consisting of Cash, checks and other near-cash items shall be held
by such Grantor in trust for the Administrative Agent and the Secured Parties,
segregated from other funds of such Grantor, and shall, forthwith upon receipt
by such Grantor, be turned over to the Administrative Agent in the exact form
received by such Grantor (duly indorsed by such Grantor to the Administrative
Agent, if required) and held by the Administrative Agent in the Collateral
Account. All proceeds while held by the Administrative Agent in the Collateral
Account (or by the Company in trust for the Administrative Agent and the Secured
Parties) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 7.5.
7.5. APPLICATION OF PROCEEDS. Except as expressly provided elsewhere in
this Agreement, all proceeds received by Administrative Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral shall be applied as provided in Section 2.14 of the Credit Agreement.
7.6. COLLATERAL ACCOUNT. Upon the occurrence and during the continuance of
an Event of Default at the request of Issuing Bank or Requisite Lenders, Company
shall deliver funds for deposit in the Collateral Account and pay to
Administrative Agent an amount equal to the Letter of Credit Usage at such time.
If for any reason the aggregate amount delivered by Company for deposit in the
Collateral Account as aforesaid is less than the Letter of Credit Usage at such
time, the aggregate amount so delivered by Company shall be apportioned among
all outstanding Letters of Credit for purposes of this Section in accordance
with the ratio of the maximum amount available for drawing under each such
Letter of Credit (as to such Letter of Credit, the "MAXIMUM AVAILABLE AMOUNT")
to the Letter of Credit Usage at such time. Upon any drawing under any
outstanding Letter of Credit in respect of which Company has deposited in the
Collateral Account any amounts described above, Administrative Agent shall apply
such amounts to reimburse Issuing Bank for the amount of such drawing. In the
event of cancellation or expiration of any Letter of Credit in respect of which
Company has deposited in the Collateral Account any amount described above, or
in the event of any reduction in the Maximum Available Amount under such Letter
of Credit, Administrative Agent shall apply the amount then on deposit in the
Collateral Account in respect of such Letter of Credit (less, in the case of
such a reduction, the Maximum Available Amount under such Letter of Credit
immediately after such reduction) first, to the payment of any amounts payable
to Administrative Agent pursuant to Section 9 of the Credit Agreement, second,
to the extent of any excess, to the cash collateralization pursuant to the terms
of this Agreement of any outstanding Letters of Credit in respect of which
Company has failed to pay all or a portion of the amounts described above (such
cash collateralization to be apportioned among all such Letters of Credit in the
manner described above), and third, to the extent of any further excess, to the
payment of any other outstanding Obligations in such order as directed by the
Lenders holding more than 50% of the sum of outstanding Revolving Commitments
and Revolving Loans.
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SECTION 8. ADMINISTRATIVE AGENT AS AGENT
Each Grantor acknowledges that the rights and responsibilities of
Administrative Agent under this Agreement with respect to any action taken by
Administrative Agent or the exercise or non-exercise by Administrative Agent of
any option, voting right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Agreement shall, as between
Administrative Agent and Lenders, be governed by the Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between Administrative Agent and Grantors, Administrative Agent
shall be conclusively presumed to be acting as agent for Lenders with full and
valid authority so to act or refrain from acting, and no Grantor shall be under
any obligation, or entitlement, to make any inquiry respecting such authority.
SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations and the cancellation or termination of the
Commitments and cancellation or expiration of all outstanding Letters of Credit,
(b) be binding upon each Grantor, its successors and assigns, and (c) inure,
together with the rights and remedies of Administrative Agent hereunder, to the
benefit of Administrative Agent and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), but subject to the
terms of the Credit Agreement, any Lender may assign or otherwise transfer any
Loans held by it to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to Lenders herein
or otherwise. Upon the indefeasible payment in full of all Secured Obligations
and the cancellation or termination of the Commitments and cancellation or
expiration of all outstanding Letters of Credit, the security interest granted
hereby shall terminate hereunder and of record and all rights to the Collateral
shall revert to Grantor. Upon any such termination Administrative Agent will,
at Grantors' expense, execute and deliver to Grantors such documents as Grantors
shall reasonably request to evidence such termination.
SECTION 10. STANDARD OF CARE; ADMINISTRATIVE AGENT MAY PERFORM.
The powers conferred on Administrative Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Administrative Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.
Administrative Agent shall be deemed to have exercised reasonable care in the
custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which Administrative Agent
accords its own property of a similar kind. If any Grantor fails to perform any
agreement contained herein, Administrative
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Agent may itself perform, or cause performance of, such agreement, and the
expenses of Administrative Agent incurred in connection therewith shall be
payable by each Grantor under Section 10.2 of the Credit Agreement.
SECTION 11. INDEMNITY AND EXPENSES
(a) Each Grantor agrees to:
(i) jointly and severally, with all other Grantors, indemnify
Administrative Agent and each Lender, Lender Counterparty and Indemnitee from
and against any and all claims, losses and liabilities in any way relating to,
growing out of or resulting from this Agreement and the transactions
contemplated hereby (including without limitation enforcement of this
Agreement), except to the extent such claims, losses or liabilities result from
Administrative Agent's or such Lender's, Lender Counterparty's or Indemnitee's
gross negligence or willful misconduct as determined by a final, nonappealable
judgment of a court of competent jurisdiction; and
(ii) jointly and severally, with all other Grantors, pay to
Administrative Agent promptly upon demand the amount of any and all reasonable
costs and reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Administrative Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Administrative Agent hereunder, or (iv) the failure by any
Grantor to perform or observe any of the provisions hereof.
(b) The obligations of each Grantor in this Section 11 shall survive the
termination of this Agreement and the discharge of such Grantor's other
obligations under this Agreement, the Hedge Agreements, the Credit Agreement and
any other Credit Documents.
SECTION 12. AMENDMENTS AND WAIVERS
None of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument which (i) is
executed by Grantors and Administrative Agent and (ii) is otherwise made in
accordance with the Credit Agreement; provided that any amendment hereto
pursuant to Sections 4.2, 4.3 and 4.6 shall be effective upon execution by any
Grantor or any Additional Grantor, as applicable, and the Grantors hereby waive
any requirement of notice of or consent to any such amendment. Any such
amendment, supplement, modification or waiver shall be binding upon each Grantor
and Administrative Agent and all future holders of the Secured Obligations. Any
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
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SECTION 13. MISCELLANEOUS
Any notice required or permitted to be given under this Agreement shall be
given in accordance with Section 10.1 of the Credit Agreement. No failure or
delay on the part of Administrative Agent in the exercise of any power, right or
privilege hereunder or under any other Credit Document shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other power,
right or privilege. All rights and remedies existing under this Agreement and
the other Credit Documents are cumulative to, and not exclusive of, any rights
or remedies otherwise available. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or would otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists. This Agreement shall be binding upon and
inure to the benefit of Administrative Agent and Grantors and their respective
successors and assigns. No Grantor shall, without the prior written consent of
Administrative Agent, assign any right, duty or obligation hereunder. This
Agreement and the other Credit Documents embody the entire agreement and
understanding between Grantors and Administrative Agent and supersede all prior
agreements and understandings between such parties relating to the subject
matter hereof and thereof. Accordingly, the Credit Documents may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties.
This Agreement may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
SECTION 14. APPLICABLE LAW; TERMS; RULES OF CONSTRUCTION
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UNIFORM
COMMERCIAL CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER,
OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the
Uniform Commercial Code in the State of New York are used herein as therein
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defined. The rules of construction set forth in subsection 1.3 of the Credit
Agreement shall be applicable to this Agreement mutatis mutandis.
SECTION 15. SUBMISSION TO JURISDICTION
Any legal action or proceeding with respect to this Agreement and any
action for enforcement of any judgment in respect thereof may be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and, by execution and delivery of this Agreement,
each Grantor hereby accepts for itself and in respect of its property, generally
and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and
appellate courts from any thereof. Each Grantor irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such Grantor at its address set forth on Appendix B to the
Credit Agreement. Each Grantor hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Agreement brought in
the courts referred to above and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum. Nothing
herein shall affect the right of Administrative Agent to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against any Grantor in any other jurisdiction.
SECTION 16. WAIVER OF TRIAL BY JURY
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR AND ADMINISTRATIVE
AGENT HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY MATTER ARISING HEREUNDER.
[The remainder of this page is intentionally left blank.]
35
<PAGE>
IN WITNESS WHEREOF, each Grantor and Administrative Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
AUDIO COMMUNICATIONS NETWORK, LLC,
as a Grantor
By____________________________________
Name:
Title:
MUZAK HOLDINGS LLC,
as a Grantor
By____________________________________
Name:
Title:
[SUBSIDIARIES]
By____________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent
By____________________________________
Name:
Title:
36
<PAGE>
SCHEDULE 1(a) TO
PLEDGE AND SECURITY AGREEMENT
PLEDGED STOCK:
<TABLE>
<CAPTION>
=======================================================================================
Number of Percentage of
Stock Class of Stock Par Pledged Outstanding
Grantor Issuer Stock Certificate Nos. Value Stock Pledged Stock Pledged
<S> <C> <C> <C> <C> <C> <C>
=======================================================================================
=======================================================================================
</TABLE>
INDEBTEDNESS:
<TABLE>
<CAPTION>
=====================================
Debt Issuer Amount of Indebtedness
- ------------- ----------------------
<S> <C>
=====================================
=====================================
</TABLE>
PARTNERSHIP INTERESTS:
<PAGE>
SCHEDULE 3.4 TO
PLEDGE AND SECURITY AGREEMENT
FILING OFFICES
<PAGE>
SCHEDULE 3.5(a)(i) TO
PLEDGE AND SECURITY AGREEMENT
REGISTERED
TRADEMARKS, SERVICE MARKS AND APPLICATIONS
------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Reg. No. / Issued /
Jurisdiction Trademark / Service Mark (App. No.) (Date App.)
------------ ------------------------ ---------- -----------
<S> <C> <C> <C>
-----------------------------------------------------------------
</TABLE>
REGISTERED
COPYRIGHTS AND APPLICATIONS
---------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Reg. No. / Issued /
Jurisdiction Copyright (App. No.) (Date App.)
------------ ------------------------ ---------- -----------
<S> <C> <C> <C>
-----------------------------------------------------------------
</TABLE>
REGISTERED
PATENTS AND APPLICATIONS
------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Patent No. / Issued /
Jurisdiction Patent (App. No.) (Date App.)
------------ ----------------------- ------------ -----------
<S> <C> <C> <C>
-----------------------------------------------------------------
</TABLE>
UNREGISTERED
TRADEMARKS AND SERVICE MARKS
----------------------------
UNREGISTERED
COPYRIGHTS AND EXCLUSIVELY LICENSED COPYRIGHTS
----------------------------------------------
<PAGE>
SCHEDULE 3.5(a)(ii) TO
PLEDGE AND SECURITY AGREEMENT
PROPRIETARY SOFTWARE
<PAGE>
SCHEDULE 3.5(a)(iii) TO
PLEDGE AND SECURITY AGREEMENT
LICENSE AGREEMENTS
<PAGE>
SCHEDULE 3.5(b)(iii) TO
PLEDGE AND SECURITY AGREEMENT
INFRINGEMENT
<PAGE>
SCHEDULE 3.5(b)(iv) TO
PLEDGE AND SECURITY AGREEMENT
VALIDITY
<PAGE>
SCHEDULE 3.5(b)(ix) TO
PLEDGE AND SECURITY AGREEMENT
CONSENT
<PAGE>
SCHEDULE 3.6 TO
PLEDGE AND SECURITY AGREEMENT
Locations of Equipment and Inventory:
<PAGE>
SCHEDULE 3.7 TO
PLEDGE AND SECURITY AGREEMENT
Chief Place of Business
-----------------------
Chief Executive Office
----------------------
Office where Records are Kept
Regarding the Accounts and all Originals
of all Chattel Paper that evidence Accounts
-------------------------------------------
<PAGE>
SCHEDULE 3.8 TO
PLEDGE AND SECURITY AGREEMENT
Other Names
-----------
<PAGE>
EXHIBIT A TO
PLEDGE AND SECURITY AGREEMENT
PLEDGE SUPPLEMENT
This PLEDGE SUPPLEMENT, dated _______, is delivered pursuant to the Pledge
and Security Agreement, dated as of March 18, 1999 (as it may be from time to
time amended, modified or supplemented, the "Security Agreement"), among Muzak
LLC (formerly known as Audio Communications Network, LLC), the other Grantors
named therein, and Canadian Imperial Bank of Commerce, as Administrative Agent.
Capitalized terms used herein not otherwise defined herein shall have the
meanings ascribed thereto in the Security Agreement.
Subject to the terms and conditions of the Security Agreement, Grantor
hereby confirms the grant of a security interest pursuant to Section 1 of the
Security Agreement and also hereby grants to Administrative Agent a security
interest in all of Grantor's right, title and interest in and to [the Investment
Property listed on Supplemental Schedule 1(a) attached hereto] [and] [the
Intellectual Property listed on Supplemental Schedules [3.5(a)(i), 3.5(a)(ii)
and 3.5(a)(iii)] attached hereto] the following, in each case whether now or
hereafter existing or in which Grantor now has or hereafter acquires an interest
and wherever the same may be located. All such [Investment Property] [and]
[Intellectual Property] shall be deemed to be part of the Collateral and
hereafter subject to each of the terms and conditions of the Security Agreement.
IN WITNESS WHEREOF, Grantor has caused this Supplement to be duly executed
and delivered by its duly authorized officer as of ______________.
[GRANTOR]
By: _______________________________
Name:
Title:
<PAGE>
EXHIBIT B TO
PLEDGE AND SECURITY AGREEMENT
ACKNOWLEDGMENT OF PLEDGE
This ACKNOWLEDGMENT OF PLEDGE, dated _______, is delivered to Canadian
Imperial Bank of Commerce, as Administrative Agent ("Administrative Agent"),
pursuant to the Pledge and Security Agreement, dated as of March 18, 1999 (as it
may be from time to time amended, modified or supplemented, the "Security
Agreement"), among Muzak LLC (formerly known as Audio Communications Network,
LLC), the other Grantors named therein, and Administrative Agent. Capitalized
terms used herein not otherwise defined herein shall have the meanings ascribed
thereto in the Security Agreement.
[NAME OF ISSUER], a _________________ ("Issuer"), hereby acknowledges
receipt of a conformed copy of the Security Agreement and (a) consents to the
terms thereof, and (b) confirms that a pledge of all of [NAME OF APPLICABLE
GRANTOR]'s right, title and interest in, to and under the security referred to
below has been registered or otherwise duly noted in the books and records of
Issuer in the name of Administrative Agent as follows:
1. Security: [Describe Interest]
2. Number of Pledged Stock,
Units or other Interests Pledged: [______________]
3. Registered Owner: [Name of Grantor]
4. Registered Pledgee: Canadian Imperial Bank of
Commerce, as Administrative Agent
5. Date of Registration of Pledgee: [______________]
Issuer hereby represents and warrants that there are no Liens, restrictions
or adverse claims as to which Issuer has a duty pursuant to Section 8-403 of the
UCC to which such security is or may be subject, other than Permitted Liens.
Issuer hereby agrees, at the request of Administrative Agent and at the
sole cost and expense of Issuer, to register any further pledge or transfer of
such security effected in the manner contemplated by the Security Agreement and
to promptly furnish to Administrative Agent and any such pledgee or transferee
any statement contemplated by Section 8-408 of the UCC.
<PAGE>
IN WITNESS WHEREOF, Issuer has caused this Acknowledgment of Pledge to be
duly executed and delivered by its duly authorized officer as of the date above
first written.
[ISSUER]
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT C TO
PLEDGE AND SECURITY AGREEMENT
SECURITIES ACCOUNT CONTROL AGREEMENT
This Securities Account Control Agreement dated as of _________, ____ among
Muzak LLC (formerly known as Audio Communications Network, LLC) (the "Debtor"),
Canadian Imperial Bank of Commerce (the "Secured Party"), and ____________ (the
"Securities Intermediary"). Capitalized terms used but not defined herein shall
have the meaning assigned in the Pledge and Security Agreement dated as of March
18, 1999, among the Debtor, Muzak LLC (formerly known as Muzak Holdings LLC),
the Subsidiary Guarantors, and Administrative Agent (the "Security Agreement").
All references herein to the "UCC" shall mean the Uniform Commercial Code as in
effect in the State of New York.
Section 1. Establishment of Securities Account. The Securities
Intermediary hereby confirms and agrees that:
(a) The Securities Intermediary has established account number [identify
account number] in the name "[identify exact title of account]" (such account
and any successor account, the "Securities Account") and the Securities
Intermediary shall not change the name or account number of the Securities
Account without the prior written consent of the Secured Party;
(b) All securities or other property underlying any financial assets
credited to the Securities Account shall be registered in the name of the
Securities Intermediary, indorsed to the Securities Intermediary or in blank or
credited to another securities account maintained in the name of the Securities
Intermediary and in no case will any financial asset credited to the Securities
Account be registered in the name of the Debtor, payable to the order of the
Debtor or specially indorsed to the Debtor except to the extent the foregoing
have been specially indorsed to the Securities Intermediary or in blank;
(c) All property delivered to the Securities Intermediary pursuant to the
Security Agreement will be promptly credited to the Securities Account; and
(d) The Securities Account is an account to which financial assets are or
may be credited, and the Securities Intermediary shall, subject to the terms of
this Agreement, treat the Debtor as entitled to exercise the rights that
comprise any financial asset credited to the account.
Section 2. "Financial Assets" Election. The Securities Intermediary hereby
agrees that each item of property (including, without limitation, any investment
property, financial assets, securities, instruments, general intangibles or
cash) credited to the Securities Account shall be treated as a "financial asset"
within the meaning of Section 8-102(a)(9) of the UCC.
<PAGE>
Section 3. Entitlement Orders. If at any time the Securities Intermediary
shall receive any order from the Secured Party directing transfer or redemption
of any financial asset relating to the Securities Account, the Securities
Intermediary shall comply with such entitlement order without further consent by
the Debtor or any other person. If the Debtor is otherwise entitled to issue
Entitlement Orders and such orders conflict with any Entitlement Order issued by
the Secured Party, the Securities Intermediary shall follow the orders issued by
the Secured Party.
Section 4. Subordination of Lien; Waiver of Set-Off. In the event that the
Securities Intermediary has or subsequently obtains by agreement, by operation
of law or otherwise a security interest in the Securities Account or any
security entitlement credited thereto, the Securities Intermediary hereby agrees
that such security interest shall be subordinate to the security interest of the
Secured Party. The financial assets and other items deposited to the Securities
Account will not be subject to deduction, set-off, banker's lien, or any other
right in favor of any person other than the Secured Party (except that the
Securities Intermediary may set off (i) all amounts due to the Securities
Intermediary in respect of customary fees and expenses for the routine
maintenance and operation of the Securities Account and (ii) the face amount of
any checks which have been credited to the Securities Account but are
subsequently returned unpaid because of uncollected or insufficient funds).
Section 5. Choice of Law. Both this Agreement and the Securities Account
shall be governed by the laws of the State of New York. Regardless of any
provision in any other agreement, for purposes of the UCC, New York shall be
deemed to be the Securities Intermediary's jurisdiction and the Securities
Account (as well as the securities entitlements related thereto) shall be
governed by the laws of the State of New York.
Section 6. Conflict with Other Agreements.
(a) In the event of any conflict between this Agreement (or any portion
thereof) and any other agreement now existing or hereafter entered into, the
terms of this Agreement shall prevail;
(b) No amendment or modification of this Agreement or waiver of any right
hereunder shall be binding on any party hereto unless it is in writing and is
signed by all of the parties hereto;
(c) The Securities Intermediary hereby confirms and agrees that:
(i) There are no other agreements entered into between the
Securities Intermediary and the Debtor with respect to the
Securities Account;
(ii) It has not entered into, and until the termination of this
agreement will not enter into, any agreement with any other
person relating to the Securities Account and/or any financial
assets credited thereto pursuant to which it has agreed to
comply with entitlement orders (as defined in Section
8-102(a)(8) of the UCC) of such other person; and
(iii) It has not entered into, and until the termination of this
agreement will not enter into, any agreement with the Debtor or
the Secured Party purporting to limit or condition the
<PAGE>
obligation of the Securities Intermediary to comply with entitlement orders as
set forth in Section 3 hereof.
Section 7. Adverse Claims. Except for the claims and interest of the
Secured Party and of the Debtor in the Securities Account, the Securities
Intermediary does not know of any claim to, or interest in, the Securities
Account or in any "financial asset" (as defined in Section 8-102(a) of the UCC)
credited thereto. If any person asserts any lien, encumbrance or adverse claim
(including any writ, garnishment, judgment, warrant of attachment, execution or
similar process) against the Securities Account or in any financial asset
carried therein, the Securities Intermediary will promptly notify the Secured
Party and the Debtor thereof.
Section 8. Maintenance of Securities Account. In addition to, and not in
lieu of, the obligation of the Securities Intermediary to honor entitlement
orders as agreed in Section 3 hereof, the Securities Intermediary agrees to
maintain the Securities Account as follows:
(a) Notice of Sole Control. If at any time the Secured Party delivers to
the Securities Intermediary a Notice of Sole Control in substantially the form
set forth in Exhibit 1 hereto, the Securities Intermediary agrees that after
receipt of such notice, it will take all instruction with respect to the
Securities Account solely from the Secured Party.
(b) Voting Rights. Until such time as the Securities Intermediary receives
a Notice of Sole Control pursuant to subsection (a) of this Section 8, the
Debtor shall direct the Securities Intermediary with respect to the voting of
any financial assets credited to the Securities Account.
(c) Permitted Investments. Until such time as the Securities Intermediary
receives a Notice of Sole Control signed by the Secured Party, the Debtor shall
direct the Securities Intermediary with respect to the selection of investments
to be made; provided, however, that the Securities Intermediary shall not honor
any instruction to purchase any investments other than investments of a type
describe on Exhibit 2 hereto.
(d) Statements and Confirmations. The Securities Intermediary will promptly
send copies of all statements, confirmations and other correspondence concerning
the Securities Account and/or any financial assets credited thereto
simultaneously to each of the Debtor and the Secured Party at the address for
each set forth in Section 12 of this Agreement.
(e) Tax Reporting. All items of income, gain, expense and loss recognized
in the Securities Account shall be reported to the Internal Revenue Service and
all state and local taxing authorities under the name and taxpayer
identification number of the Debtor.
Section 9. Representations, Warranties and Covenants of the Securities
Intermediary. The Securities Intermediary hereby makes the following
representations, warranties and covenants:
(a) The Securities Account has been established as set forth in Section 1
above and the Securities Account will be maintained in the manner set forth
herein until termination of this Agreement; and
<PAGE>
(b) This Securities Account Control Agreement is the valid and legally
binding obligations of the Securities Intermediary.
Section 10. Indemnification of Securities Intermediary. The Debtor and the
Secured Party hereby agree that (a) the Securities Intermediary is released from
any and all liabilities to the Debtor and the Secured Party arising from the
terms of this agreement and the compliance of the Securities Intermediary with
the terms hereof, except to the extent that such liabilities arise from the
Securities Intermediary's negligence and (b) the Debtor, its successors and
assigns shall at all times indemnify and save harmless the Securities
Intermediary from and against any and all claims, actions and suits of others
arising out of the terms of this agreement or the compliance of the Securities
Intermediary with the terms hereof, except to the extent that such arises from
the Securities Intermediary's negligence, and from and against any and all
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising by reason of the same, until the termination
of this agreement.
Section 11. Successors; Assignment. The terms of this Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective corporate successors or heirs and personal representatives who obtain
such rights solely by operation of law. The Secured Party may assign its rights
hereunder only with the express written consent of the Securities Intermediary
and by sending written notice of such assignment to the Debtor.
Section 12. Notices. Any notice, request or other communication required or
permitted to be given under this Agreement shall be in writing and deemed to
have been properly given when delivered in person, or when sent by telecopy or
other electronic means and electronic confirmation of error free receipt is
received or two days after being sent by certified or registered United States
mail, return receipt requested, postage prepaid, addressed to the party at the
address set forth below.
Debtor:
Secured Party:
Securities Intermediary:
Any party may change his address for notices in the manner set forth
above.
Section 13. Termination. The obligations of the Securities Intermediary to
the Secured Party pursuant to this Control Agreement shall continue in effect
until the security interests of the Secured Party in the Securities Account have
been terminated pursuant to the terms of the Security Agreement and the Secured
Party has notified the Securities Intermediary of such termination in writing.
The Secured Party agrees to provide Notice of Termination in substantially the
form of Exhibit 3 hereto to the Securities Intermediary upon the request of the
Debtor on or after the
<PAGE>
termination of the Secured Party's security interest in the Securities Account
pursuant to the terms of the Security Agreement. The termination of this Control
Agreement shall not terminate the Securities Account or alter the obligations of
the Securities Intermediary to the Debtor pursuant to any other agreement with
respect to the Securities Account.
Section 14. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing and delivering one or more
counterparts.
MUZAK LLC
By: _____________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By: ____________________________________
Name:
Title:
[NAME OF INSTITUTION SERVING AS
SECURITIES INTERMEDIARY]
By: ____________________________________
Name:
Title:
<PAGE>
Exhibit 1
---------
[Letterhead of Canadian Imperial Bank of Commerce]
[Date]
[Name and Address of Securities Intermediary]
Attention: __________________
Re: Notice of Sole Control
----------------------
Ladies and Gentlemen:
As referenced in the Securities Account Control Agreement, dated _______,
___, among Muzak LLC, you and the undersigned (a copy of which is attached) we
hereby give you notice of our sole control over securities account number
____________ (the "Securities Account") and all financial assets credited
thereto. You are hereby instructed not to accept any direction, instructions or
entitlement orders with respect to the Securities Account or the financial
assets credited thereto from any person other than the undersigned, unless
otherwise ordered by a court of competent jurisdiction.
You are instructed to deliver a copy of this notice by facsimile
transmission to Muzak LLC.
Very truly yours,
CANADIAN IMPERIAL BANK OF COMMERCE
By: __________________________________
Name:
Title:
cc: Muzak LLC
<PAGE>
Exhibit 2
---------
Permitted Investments
---------------------
<PAGE>
Exhibit 3
---------
[Letterhead of Canadian Imperial Bank of Commerce]
[Date]
[Name and Address of Securities Intermediary]
Attention:_____________
Re: Termination of Control Agreement
--------------------------------
You are hereby notified that the Control Agreement between you, Audio
Communications Network, LLC and the undersigned (a copy of which is attached) is
terminated and you have no further obligations to the undersigned pursuant to
such Agreement. Notwithstanding any previous instructions to you, you are hereby
instructed to accept all future directions with respect to Securities Account
number ______________ from Audio Communications Network, LLC. This notice
terminates any obligations you may have to the undersigned with respect to such
account, however nothing contained in this notice shall alter any obligations
which you may otherwise owe to Audio Communications Network, LLC pursuant to any
other agreement.
You are instructed to deliver a copy of this notice by facsimile
transmission to [insert name of Debtor].
Very truly yours,
CANADIAN IMPERIAL BANK OF COMMERCE
By: _________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.3
================================================================================
----------------------
MUZAK HOLDINGS LLC
and
MUZAK HOLDINGS FINANCE CORP.,
as Issuers,
----------------------
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
INDENTURE
================================================================================
Dated as of March 18, 1999
$75,000,000 aggregate principal amount at maturity of
13% Senior Discount Notes due 2010
<PAGE>
EXHIBIT 10.4
EXECUTION COPY
AMENDED AND RESTATED MEMBERS AGREEMENT
THIS AMENDED AND RESTATED MEMBERS AGREEMENT (this "Agreement") is made
---------
as of March 18, 1999 by and among Muzak Holdings LLC (f/k/a ACN Holdings, LLC),
a Delaware limited liability company (the "Company"), MEM Holdings, LLC, a
-------
Delaware limited liability company ("MEM Holdings"), David Unger ("Unger"),
------------ -----
Joseph Koff ("Koff"), William Boyd ("Boyd") and Music Holdings Corp. ("MHC").
---- ---- ---
WHEREAS, the Company, ABRY Broadcast Partners III, L.P. ("ABRY"),
----
Unger and Koff entered into that certain Members Agreement, dated as of October
6, 1998 (the "Original Agreement").
------------------
WHEREAS, on November 30, 1998, ABRY transferred all of its Common
Units as well as, among other things, all of its rights and obligations under
the Original Agreement to MEM Holdings.
WHEREAS, on the date hereof, the Company issued certain Class A Units
and Class B-4 Units to Boyd.
WHEREAS, on the date hereof, the Company issued certain Class B-4
Units to MHC.
WHEREAS, the parties hereto desire (i) to amend and restate the
Original Agreement in its entirety as set forth below and (ii) to enter into
this Agreement for the purposes, among others, of (x) assuring continuity in the
management and ownership of the Company, (y) limiting the manner and terms by
which the Securities may be transferred and (z) Boyd and MHC becoming a party to
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Restrictions on Transfer of Securities.
--------------------------------------
(a) Transfer of Securities by the Non-ABRY Members. A Non-ABRY Member
----------------------------------------------
shall not, directly or indirectly, sell, transfer, assign, pledge or otherwise
dispose of (a "Transfer") any interest in any Securities, except (i) if such
--------
Non-ABRY Member is exercising a participation right granted to such Non-ABRY
Member pursuant to the provisions of Section 1(b) or 1(c), (ii) pursuant to an
Approved Company Sale, (iii) in the case of any Executive, as may be required
under any applicable Management Securities Repurchase Agreement, (iv) in the
case of any MHC Member, if such MHC Member has complied with all of the
applicable terms and requirements of
<PAGE>
Section 3, then to any Person, (v) in the case of any MHC Member, pursuant to a
Public Sale or (vi) as may otherwise expressly be permitted by prior written
consent of the Board.
(b) Participation Rights. In the event of a Transfer of Securities by
--------------------
any ABRY Member (other than a Public Sale or a sale pursuant to an Approved
Company Sale), at least 10 business days prior to such Transfer, such ABRY
Member will deliver a written notice (the "Sale Notice") to the Non-ABRY Members
-----------
specifying in reasonable detail the Securities to be sold, the terms and
conditions of the Transfer, and, with specificity, the identity of the proposed
transferee(s). Subject to Section 1(c), such Non-ABRY Members may elect to
participate in the contemplated Transfer by delivering written notice to ABRY
within 10 business days after delivery of the Sale Notice. If any Non-ABRY
Member has elected to participate in such Transfer, each such Non-ABRY Member
will be entitled to include in the contemplated Transfer, at the same price and
on the same terms (subject to Sections 1(c) and (d)), a number of Securities
(regardless of the class thereof) equal to the product of (i) the quotient
determined by dividing the percentage of such Securities (regardless of the
class thereof) on a fully diluted basis, held by such Non-ABRY Member by the
aggregate percentage of Securities, on a fully diluted basis, owned by the Non-
ABRY Members participating in such Transfer and all of the ABRY Members and (ii)
the number of Securities (regardless of the class thereof) to be sold in the
contemplated Transfer.
For example, if the Sale Notice contemplated a sale of 100 Class A Units in
-----------
the aggregate by certain of the ABRY Members, and if all of the ABRY Member
at such time own 80% of all Class A Units (on a fully diluted basis) and if
one Non-ABRY Member elects to participate and owns 5% of all Class A Units
(on a fully diluted basis) and if no Class B Units are then outstanding,
such Non-ABRY Member would be entitled to sell 6 Class A Units (5% / 85% x
100 Common Units).
Any ABRY Member Transferring Securities pursuant to this Section 1 shall use its
best efforts to obtain the agreement of the prospective Transferee(s) to the
participation of the Non-ABRY Members in any contemplated Transfer, and such
ABRY Member shall not Transfer any of its Securities to the prospective
Transferee(s) if the prospective Transferee(s) declines to allow the
participation of the Non-ABRY Members as contemplated by this Section 1(b).
Notwithstanding anything contained herein to the contrary, MEM Holdings hereby
agrees that, so long as MEM Holdings is an ABRY Member for purposes of this
Agreement, any Transfer of any percentage of MEM Holdings' common equity
securities (or any percentage of the common equity securities of any other
Subsidiary of ABRY which directly or indirectly owns any common equity
securities of MEM Holdings) shall be deemed a Transfer of the same percentage of
the number of Securities then held by MEM Holdings for purposes of this Section
1(b).
(c) Limitations on Participation Rights. A Non-ABRY Member may
-----------------------------------
exercise his participation rights in accordance with Section 1(b); subject to
the following limitations: (i) no Class B Unit may be included in any Transfer
pursuant to Section 1(b) in any event unless such Unit is a Vested Unit, and
(ii) no Class A Unit or Class B Unit may be included by any Non-ABRY Member in
any Transfer pursuant to Section 1(b) unless the aggregate purchase price to be
paid for all Class A Units to be
-2-
<PAGE>
included by the applicable ABRY Member in such Transfer is equal to or greater
than the aggregate Unpaid Yield and Unreturned Capital Value for such Class A
Units to be included by such ABRY Member. For the purposes of calculating the
rights of the Non-ABRY Members to exercise any participation rights under this
Section 1, the Non-ABRY Members shall not be allowed to Transfer, and shall not
be deemed to hold (for the purposes of any calculations hereunder), any
Securities that are Unvested Units.
(d) Allocation of Transfer Price. In any event, each Person
----------------------------
Transferring Securities pursuant to Section 1(b) shall receive, in exchange for
the Securities to be Transferred by such Person, the same portion of the
aggregate consideration from the aggregate Transfer that such Person would have
received if such aggregate consideration had been distributed by the Company in
complete liquidation pursuant to the LLC Agreement as in effect immediately
prior to the Transfer and the Securities included in such Transfer constituted
all of the outstanding Securities of the Company at such time.
(e) Permitted Transfers.
-------------------
(i) The restrictions contained in Sections 1(a), 1(b), 1(c) and
1(d) shall not apply with respect to any Transfer of Securities (x) in the case
of any individual Non-ABRY Member (A) to such Non-ABRY Member's parents, spouse
or descendants (whether natural, step or adopted), (B) upon such Non-ABRY
Member's death, to such Non-ABRY Member's heirs, executors or administrators, or
(C) to a trust formed exclusively for the benefit of such Non-ABRY Member and/or
one or more of the persons described in clause (A) above, or (y) in the case of
MHC, during any period in which the Company (or any successor corporation) is
then subject to income tax under Section 11 of the Internal Revenue Code of
1986, as amended, in a pro rata distribution of all Securities then held by MHC
to the former partners of Old Muzak and the equity owners of such partners, or
(z) in the case of any ABRY Member, among its Affiliates or to employees of,
to and advisors to such ABRY Member or any of its Affiliates; provided, that the
--------
restrictions contained in this Section 1 shall continue to be applicable to the
Securities after any such Transfer. In addition, the restrictions contained in
Sections 1(a), 1(b), 1(c) and 1(d) shall not apply with respect to the Transfer
of up to 3,000 Class A Units (such number to be appropriately adjusted for any
unit or stock split, reverse unit or stock split, stock or unit dividend or
other distribution or other subdivision or combination of Common Units after the
date hereof) by MEM Holdings to CMS Co-Investment Subpartnership, CMS
Diversified Partners, L.P. and/or any of their respective Affiliates (a "CMS
---
Transferee"), but only if such Transfer occurs on or prior to the date six
- ----------
months after the date hereof; provided that, notwithstanding anything contained
--------
herein to the contrary, upon such Transfer and upon the execution and delivery
by such CMS Transferee of a joinder as provided in Section 1(e)(ii) hereof, such
CMS Transferee shall be deemed to be a "Non-ABRY Member" and not an "ABRY
Member" for purposes of this Agreement and accordingly, for purposes of this
Agreement, shall have all of the rights of a "Non-ABRY Member" and shall not
have any of the rights of an "ABRY Member".
(ii) Prior to any proposed transferee's acquisition of Securities
pursuant to a Transfer in accordance with the terms of and otherwise permitted
by this Agreement (other than in a Public Sale or an Approved Company Sale or a
Transfer to any ABRY Member or the Company
-3-
<PAGE>
pursuant to Section 3) to any Person (including pursuant to Section 1(e)(i)),
the Person Transferring such Securities must cause the prospective Transferee to
execute and deliver to the Company (for itself and as the agent of the Members)
a joinder to this Agreement substantially in the form of Exhibit A hereto
---------
pursuant to which the prospective Transferee agrees to be bound by this
Agreement to the same extent as the Person Transferring with respect to the
Securities so Transferred (unless such Transfer is pursuant to applicable laws
of descent and distribution, in which case, such executed joinder shall be
delivered to the Company as soon as reasonably possible after such Transfer),
except if such prospective Transferee is a CMS Transferee, in which case, such
prospective Transferee shall agree to be bound by this Agreement as a "Non-ABRY
Member". Other than a CMS Transferee, all transferees acquiring Securities and
executing a joinder in compliance with this Section 1(e)(ii) are collectively
referred to herein as "Permitted Transferees".
---------------------
(f) Termination of Restrictions. The restrictions set forth in this
---------------------------
Section 1 will continue with respect to each of the Securities until the
consummation of a Qualified Public Offering.
2. Legend. Each instrument evidencing Securities shall be stamped
------
or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO
AN AMENDED AND RESTATED MEMBERS AGREEMENT DATED AS OF MARCH
18, 1999 AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY")
AND CERTAIN OF THE COMPANY'S SECURITY HOLDERS, AS AMENDED
FROM TIME TO TIME. A COPY OF SUCH AMENDED AND RESTATED
MEMBERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
The legend set forth above shall be removed from any instrument evidencing
Securities which cease to be subject to the terms of this Agreement.
3. Right of First Refusal granted by the MHC Members.
-------------------------------------------------
(i) If at any time any MHC Member (a "Selling Holder") proposes to
--------------
Transfer any Securities (other than pursuant to a Public Sale, pursuant to
an Approved Company Sale, or if such Selling Holder is exercising a
participation right granted to such Selling Holder pursuant to Section 1(b)
or 1(c)), then such Selling Holder will, not fewer than 10 business days
prior to making such Transfer, give notice (the "Transfer Notice") to the
---------------
ABRY Members, Unger, Koff, Boyd and to the Company specifying (x) the
Securities proposed to be Transferred (the "Offered Securities"), (y) the
------------------
price (the "Offered Price") and the other terms and conditions upon which
-------------
such Selling Holder proposes to Transfer such Offered Securities, and (z)
with specificity, the proposed transferee(s). After the delivery of a
-4-
<PAGE>
Transfer Notice, the Selling Holder shall in a timely manner provide any
ABRY Member with any written information regarding the proposed Transfer as
reasonably requested by such ABRY Member.
(ii) The Transfer Notice will constitute an irrevocable offer (for
the time periods set forth in items (iii) and (iv) below) to Transfer any
of the Offered Securities to the Company, Unger, Koff, Boyd and the ABRY
Members at the Offered Price and on the terms specified in the Transfer
Notice (the "Offer to Sell"), except that if the proposed Transfer is to be
-------------
wholly or partly for consideration other than cash, then the Offer to Sell
will constitute an offer to Transfer the Offered Securities to the Company,
Unger, Koff, Boyd and the ABRY Members for a cash purchase price equal to
the amount of cash (if any) specified in the Transfer Notice, plus the fair
market value determined in the good faith judgement of the Board, at the
date of the Transfer Notice, of such non-cash consideration.
(iii) The Company will have 7 business days after its receipt of the
Transfer Notice (the "Company Exercise Period") during which to notify the
-----------------------
Selling Holder, Unger, Koff, Boyd and the ABRY Members in writing of its
election to purchase all of the Offered Securities (an "Acceptance
----------
Notice").
------
(iv) If the Company has not elected to purchase the Offered
Securities, the ABRY Members, Unger, Koff and Boyd will have 10 business
days after the ABRY Members receipt of the Transfer Notice (the "Members
-------
Exercise Period") during which to notify the Selling Holder and the Company
---------------
in writing of its election to purchase all of the Offered Securities (which
election, if approved by the Board, may state that the Company will
purchase a portion of the Offered Securities) (such written notice, also an
"Acceptance Notice"). Any Member who delivers an Acceptance Notice
-----------------
pursuant to the immediately preceding sentence shall be referred to herein
as a "Purchasing Member". If the Purchasing Members elect to purchase in
-----------------
the aggregate more than the Offered Securities, then the Offered Securities
shall be sold among the Purchasing Members pro rata based upon the number
of Class A Units then owned by such Purchasing Members or in such other
manner as the Purchasing Members may agree.
(v) Upon the delivery of the Acceptance Notice(s), the Company
and/or the Purchasing Member(s), as the case may be, and the Selling Holder
shall be firmly bound to consummate the purchase and sale of the applicable
Offered Securities in accordance with the Transfer Notice, the Acceptance
Notice(s) and the terms hereof. Subject to the provisions hereof, within
35 business days after the Selling Holder's receipt of the last Acceptance
Notice, the Company and/or the Purchasing Member(s), as the case may be,
shall purchase and the Selling Holder shall sell the applicable Offered
Securities at a mutually agreeable time and place (the "Offered Securities
------------------
Closing"); provided, that if the applicable Transfer Notice specifies a
------- --------
proposed closing date for such Offered Securities Closing which occurs on
any business day during the period beginning on the date 35 business days
after the applicable Selling Holder has delivered such Transfer Notice to
Unger, Koff, Boyd, the
-5-
<PAGE>
ABRY Members and the Company and ending on the date 45 business days after
such Selling Holder has delivered such Transfer Notice to Unger, Koff,
Boyd, the ABRY Members and the Company, then such Offered Securities
Closing shall occur on such proposed closing date.
(vi) At the Offered Securities Closing, the Selling Holder shall
deliver to the Company and/or the Purchasing Member(s), as the case may be,
certificates representing the Offered Securities (which Offered Securities
shall be free and clear of any liens or encumbrances) to be purchased by
the Company and/or the Purchasing Member(s), as the case may be, and the
Company and/or the Purchasing Member(s), as the case may be, shall deliver
to the Selling Holder the applicable purchase price for such Offered
Securities by wire transfer of immediately available funds to an account(s)
designated by such Selling Holder.
(vii) If the Company, Unger, Koff, Boyd and the ABRY Members
collectively do not elect to purchase all of the Offered Securities in
accordance with Section 3(iii) and 3(iv), then the Selling Holder may
Transfer all of such Offered Securities, at a price which is not less than
the price specified in the Transfer Notice and on other terms and
conditions which are not materially more favorable in the aggregate to any
transferee thereof than those specified in the Transfer Notice, to any
Person specified in the applicable Transfer Notice, but only to the extent
that such Transfer occurs within 90 days after expiration of the Members
Exercise Period. Any Securities not Transferred within such 90-day period
will be subject to the provisions of this Section 3 upon subsequent
Transfer.
(viii) The provisions of this Section 3 shall terminate upon the
consummation of a Qualified Public Offering.
4. Approved Company Sale.
---------------------
(a) If the Board and a Majority in Voting Interest approve a sale
of all or substantially all of the Company's assets determined on a consolidated
basis or a sale of all (or a lesser percentage, if the acquiring Person(s)
reasonably so requests for accounting or tax reasons) of the Company's
outstanding Common Units (in either case, whether by merger, recapitalization,
consolidation, reorganization, combination or otherwise) or any other
transaction which has the same effect as any of the foregoing to an Independent
Third Party or group of Independent Third Parties (each such sale or
transaction, an "Approved Company Sale"), then each holder of Securities will
---------------------
consent to and raise no objections against the Approved Company Sale. If the
Approved Company Sale is structured as a merger or consolidation, then each
holder of Securities shall waive any dissenters rights, appraisal rights or
similar rights in connection with such merger or consolidation. If the Approved
Company Sale is structured as a Transfer of Securities, then subject to the
following sentence each holder of Securities shall agree to sell all of his or
its Securities and rights to acquire Securities on the terms and conditions
approved by the Board and a Majority in Voting Interest. Each holder of
Securities shall take all necessary or desirable actions in connection with the
-6-
<PAGE>
consummation of an Approved Company Sale as requested by the Board, including,
without limitation, executing a sale contract pursuant to which each holder of
Securities will severally (but not jointly) make the same representations,
warranties and indemnities regarding the Company and its assets, liabilities and
business (collectively, the "Company Reps") and such representations and
------------
warranties concerning such holder and the Securities to be sold by it or him as
may be set forth in any agreement approved by the Board; provided, that if any
--------
holder of Securities pays any amount in connection with any claim under the
Company Reps by the purchaser or purchasers in such Approved Company Sale (a
"Company Loss"), then each other holder of Securities will simultaneously
- -------------
contribute to such holder of Securities an amount equal to such contributing
holder's pro rata share (based upon the amount of consideration received in such
Approved Company Sale) of such Company Loss; provided further, that a holder of
----------------
Securities shall be required to make the Company Reps only if the sale contract
which such holder is required to sign provides that such holder's maximum
liability for any breach of the Company Reps shall be the purchase price
received by such holder for the sale of his or her Securities.
(b) The obligations of the holders of Securities pursuant to Section
4(a) are subject to the satisfaction of the following conditions: (i) upon the
consummation of the Approved Company Sale, each holder of Securities shall
receive the same form of consideration and the same portion of the aggregate
consideration such holder would have received if such aggregate consideration
had been distributed by the Company in complete liquidation pursuant to the
rights and preferences set forth in the LLC Agreement as in effect immediately
prior to the consummation of the Approved Company Sale (and, if less than all of
the outstanding Common Units are being sold in the Approved Company Sale, then
the form and portions of aggregate consideration shall be determined as if the
Securities included in the Approved Company Sale were all of the outstanding
Common Units then outstanding); (ii) if any holders of Securities are given an
option as to the form and amount of consideration to be received, each holder of
Securities shall be given the same option; and (iii) each holder of then
currently exercisable rights to acquire Securities shall be given an opportunity
to exercise such rights prior to the consummation of the Approved Company Sale
and participate in such sale as a holder of such Securities.
(c) If the Board, the Company or any of the holders of Securities
enter into any negotiation or transaction for which Rule 506 under the
Securities Act (or any similar rule then in effect) promulgated by the
Securities Exchange Commission may be available with respect to such negotiation
or transaction (including a merger, consolidation or other reorganization), each
holder of Securities who is not an "accredited investor," as that term is
defined in Regulation D as promulgated under the Securities Act, will, at the
request of the Company, appoint either a purchaser representative (as such term
is defined in Rule 501 under the Securities Act) designated by the Company, in
which event the Company will pay the fees of such purchaser representative, or
another purchaser representative (reasonably acceptable to the Company), in
which event such holder will be responsible for the fees of the purchaser
representative so appointed.
(d) All holders of Securities will bear their pro rata share (based
upon the amount of consideration received or proposed to be received in the
applicable actual or proposed Approved
-7-
<PAGE>
Company Sale) of the costs of any actual or proposed Approved Company Sale to
the extent such costs are incurred for the benefit of all such holders of
Securities and are not otherwise paid by the Company or the acquiring party.
Costs incurred by the holders of Securities on their own behalf will not be
considered costs of the Approved Company Sale; provided, that in any event the
--------
Company shall pay the reasonable attorney's fees and expenses of one counsel
chosen by a Majority in Voting Interest in connection with the Approved Company
Sale.
(e) Termination of Restrictions and Requirements. The restrictions
--------------------------------------------
and requirements set forth in this Section 4 will continue with respect to the
Members and their Securities until the consummation of a Qualified Public
Offering.
5. Further Assurances. In the event that the Board approves a
------------------
recapitalization of, or a transaction requiring the recapitalization of, the
Company or its Subsidiaries, including, without limitation, a public offering
and sale of Securities pursuant to an effective registration statement under the
Securities Act (an "Initial Public Offering"), including pursuant to the
-----------------------
Registration Agreement, then the Company and all holders of Securities shall
take all necessary or desirable actions in connection with the consummation of
such recapitalization or transaction as the Board or a Majority in Voting
Interest so request subject to the following limitation: immediately after any
such recapitalization or transaction, each Member shall hold securities of the
applicable surviving entity with rights, preferences and privileges
substantially equivalent to the Securities held by such Member immediately prior
to such recapitalization or transaction. Without limiting the generality of the
foregoing, if requested as provided in the immediately preceding sentence, then
(i) the Company and each Member shall take such actions as may be necessary or
desirable for the Company to convert to a corporate form, including without
limitation the approval of a merger of the Company with and into a corporation,
with the result that each Member shall hold capital stock of such surviving
corporation (the "Successor Corporation") with rights, preferences and
---------------------
privileges substantially equivalent to the Securities held by such Member, and
(ii) the Company and each Member shall take such actions as may be necessary or
desirable to cause the Successor Corporation to assume all of the obligations of
the Company under this Agreement. Notwithstanding anything contained herein to
the contrary, in connection with any conversion of the Company into a corporate
form in contemplation of an Initial Public Offering, all Class B-4 Units shall
be converted into shares of voting common stock of the Successor Corporation.
6. Unger Board Seat. Notwithstanding Section 3.1 of the LLC
----------------
Agreement: (a) Unger may not be removed as a Director (as such term is defined
in the LLC Agreement) at any time when he is an employee of the Company or any
of its Subsidiaries, and (b) at any time when Unger is not an employee of the
Company or any of its Subsidiaries, he may be removed only after there has
occurred any of:
(1) an Initial Public Offering of Class A Units or securities issued
pursuant to Section 5 in respect of the Class A Units issued to
Unger on October 6, 1998 (the "Unger Units"),
-----------
-8-
<PAGE>
(2) a Sale of the Company in which all or substantially all of the
consideration payable to the owners of Class A Units is in the
form of cash and/or marketable securities, or in which owners of
Unger Units have the option to elect that all or substantially
all of such consideration payable to the electing owner(s) be in
the form of cash and/or marketable securities, or
(3) a Transfer by MEM Holdings and/or one or more of its Permitted
Transferees of Class A Units to which the rights of the Non-ABRY
Members under Section 1(b) apply (an "Eligible Transfer") in
-----------------
which (i) all of the Class A Units owned by MEM Holdings and its
Permitted Transferees in the aggregate are Transferred and (ii)
either all or substantially all of the consideration is in the
form of cash and/or marketable securities or owners of Unger
Units have the right to elect that all or substantially all of
the consideration payable to the electing owner(s) is in the form
of cash and/or marketable securities.
7. Preemptive Rights.
-----------------
(a) If at any time after the date hereof and prior to the
consummation of a Qualified Public Offering the Company wishes to issue any
Common Units or any options, warrants or other rights to acquire Common Units or
any notes or
other securities convertible or exchangeable into Common Units (all such Common
Units and other rights and securities, collectively, the "Equity Equivalents")
------------------
to any Person or Persons, the Company shall promptly deliver a notice of
intention to sell or otherwise issue (the "Company's Notice of Intention to
--------------------------------
Sell") to each Member setting forth a description and the number of the Equity
- ----
Equivalents and any other securities proposed to be issued and the proposed
purchase price and terms of sale. Upon receipt of the Company's Notice of
Intention to Sell, each Member shall have the right to elect to purchase, at the
price and on the terms stated in the Company's Notice of Intention to Sell, a
number of the Equity Equivalents equal to the product of (i) such Member's
proportionate ownership of the then outstanding number of Common Units
(calculated on a fully-diluted basis assuming all holders of then outstanding
warrants, options and convertible securities of the Company which are
convertible or exercisable on such date and which have pre-emptive rights with
respect to the applicable issuance of Equity Equivalents have converted such
convertible securities or exercised such warrants or options; provided that, for
--------
all purposes of this Section 7, at any time, no then Unvested Units shall be
deemed to be part of the "outstanding number of Common Units" as of such time)
held by all Persons multiplied by (ii) the number of Equity Equivalents proposed
to be issued (as described in the applicable Company's Notice of Intention to
Sell). Notwithstanding anything contained herein to the contrary, if the
Company is issuing Equity Equivalents together as a unit with the issuance of
any debt or other equity securities of the Company or any of its Subsidiaries,
then any Member who elects to purchase such Equity Equivalents pursuant to this
Section 7 must also purchase a corresponding proportion of such other debt or
equity securities, all at the proposed purchase price and on terms of sale as
specified in the applicable Company's Notice of Intention to Sell. Such
election shall be made by the electing Member by written notice to the Company
within ten (10) business days after receipt
-9-
<PAGE>
by such Member of the Company's Notice of Intention to Sell (the "Acceptance
----------
Period"). With respect to any Company's Notice of Intention to Sell delivered to
- ------
any Member which is an Affiliate of Centre Partners Management LLC, such Member
may assign in whole or in part its preemptive rights pursuant to this Section 7
with respect to the sale or issuance of the Equity Equivalents which are the
subject of such Company's Notice of Intention to Sell to any other Affiliate of
Centre Partners Management LLC (a "Section 7 Assignee") provided that, as a
------------------
condition to the sale or issuance of the applicable Equity Equivalents to such
Section 7 Assignee, such Section 7 Assignee must execute and deliver to the
Company a joinder to this Agreement substantially in the form of Exhibit A
---------
hereto pursuant to which such Section 7 Assignee shall be deemed to be a "Non-
ABRY Member" and an "MHC Member" for purposes of this Agreement.
(b) To the extent an effective election to purchase has not been
received from a Member pursuant to subsection (a) above in respect of the Equity
Equivalents proposed to be issued pursuant to the applicable Company's Notice of
Intention to Sell, the Company may, at its election, during a period of one
hundred and eighty (180) days following the expiration of the applicable
Acceptance Period, issue and sell the remaining Equity Equivalents to be issued
and sold to any Person at a price and upon terms not more favorable to such
Person than those stated in the applicable Company's Notice of Intention to
Sell; provided, however, that failure by a Member to exercise its option to
-------- -------
purchase with respect to one issuance and sale of Equity Equivalents shall not
affect its option to purchase Equity Equivalents in any subsequent offering,
sale and purchase. In the event the Company has not sold any Equity Equivalents
covered by a Company's Notice of Intention to Sell within such one hundred and
eighty (180) day period, the Company shall not thereafter issue or sell such
Equity Equivalents, without first offering such Equity Equivalents to each
Member in the manner provided in this Section 7.
(c) If a Member gives the Company notice, pursuant to the provisions
of this Section 7, that such Member desires to purchase any Equity Equivalents,
payment therefor shall be by check or wire transfer of immediately available
funds, against delivery of the securities (which securities shall be issued free
and clear of any liens or encumbrances) at the executive offices of the Company
no later than the last closing date fixed by the Company for the sale of the
applicable Equity Equivalents, which last closing date shall be no earlier than
20 business days after the date the Company delivers the applicable Company's
Notice of Intention to Sell. In the event that any proposed sale is for a
consideration other than cash, such Member may pay cash in lieu of all (but not
part) of such other consideration, in the amount determined reasonably and in
good faith by the Board to represent the fair value of such consideration other
than cash.
(d) The preemptive rights contained in this Section 7 shall not apply
to (i) the issuance of shares or units of Equity Equivalents as a stock or unit
dividend or other distribution or upon any subdivision, split or combination of
the outstanding Common Units; (ii) the issuance of Equity Equivalents upon
conversion, exchange or redemption of any outstanding convertible or
exchangeable securities; (iii) the issuance of Equity Equivalents upon exercise
of any outstanding options or warrants; (iv) the issuance of Equity Equivalents
to any employee or director of the Company or any of its Subsidiaries (unless
such employee or director is also an officer or employee
-10-
<PAGE>
of ABRY or any of ABRY's Affiliates (other than Unger, Koff, the Company or any
of the Company's Subsidiaries)); (v) the issuance of Equity Equivalents to any
Independent Third Party or group of Independent Third Parties as consideration
(whether partial or otherwise) for the purchase by the Company or any of its
Subsidiaries from such Independent Third Party or group of Independent Third
Parties, as the case may be, of assets constituting a business unit or of the
stock or other equity securities of any Person or Persons; (vi) the issuance of
Equity Equivalents pursuant to the Capstar Contribution Agreement; (vii) the
issuance of Class B-4 Units pursuant to Section 5.6 of the LLC Agreement or
(viii) the issuance of Equity Equivalents pursuant to a Qualified Public
Offering.
(e) The provisions of this Section 7 shall terminate upon the
consummation of a Qualified Public Offering.
8. Information and Verification Rights.
-----------------------------------
(a) Financial Statements and other Information. Prior to the
------------------------------------------
consummation of a Qualified Public Offering, the Company shall deliver to (x)
any MHC Member who holds at least a majority of the number of Class B-4 Units
originally issued by the Company to such MHC Members (in calculating "the number
of Class B-4 Units originally issued by the Company", such number shall include
all Class B-4 Units which are issued as of or after the date hereof and such
number shall not be reduced if any Class B-4 Units are acquired and/or canceled
by the Company) or (y) so long as the MHC Members continue to hold at least a
majority of the number of Class B-4 Units originally issued by the Company to
such MHC Members (in calculating "the number of Class B-4 Units originally
issued by the Company", such number shall include all Class B-4 Units which are
issued as of or after the date hereof and such number shall not be reduced if
any Class B-4 Units are acquired and/or canceled by the Company), any MHC Member
who has been nominated and granted the authority to represent the MHC Members
and to sign agreements and other documents on behalf of the MHC Members
(including agreements, amendments and documents in connection with this
Agreement, the Registration Agreement and the LLC Agreement) pursuant to a
written agreement executed by all of the then MHC Members (which agreement must
be reasonably acceptable to the Company) (in either case, such MHC Member, a
"Majority MHC Member"):
- --------------------
(i) within 60 days after the end of each monthly accounting
period in each fiscal year of the Company (other than any monthly accounting
period ending on the last day of a fiscal quarter of the Company) (or such
earlier date as such financial statements are delivered to the providers of any
of the Company's debt financing), unaudited consolidated statements of income
and cash flows of the Company and its Subsidiaries for such monthly period (and,
if otherwise available, unaudited consolidated statements of income of the
Company and its Subsidiaries for the period from the beginning of the fiscal
year to the end of such month) and unaudited consolidated balance sheets of the
Company and its Subsidiaries as of the end of such monthly period (and, if
otherwise available, such financial statements shall set forth in each case
comparisons to the Company's and its Subsidiaries' corresponding period in the
preceding fiscal
-11-
<PAGE>
year). Such financial statements shall be prepared, in all material respects, in
accordance with generally accepted accounting principles, consistently applied,
subject to the absence of footnote disclosures and to normal year-end
adjustments;
(ii) within 60 days after the end of each quarterly accounting
period in each fiscal year of the Company (other than any quarterly accounting
period ending on the last day of a fiscal year of the Company) (or such earlier
date as such financial statements are delivered to the providers of any of the
Company's debt financing), unaudited consolidated statements of income and cash
flows of the Company and its Subsidiaries for such quarterly period (and, if
otherwise available, unaudited consolidated statements of income of the Company
and its Subsidiaries for the period from the beginning of the fiscal year to the
end of such quarter) and unaudited consolidated balance sheets of the Company
and its Subsidiaries as of the end of such quarterly period (and, if otherwise
available, such financial statements shall set forth in each case comparisons to
the Company's and its Subsidiaries' corresponding period in the preceding fiscal
year). Such financial statements shall be prepared, in all material respects, in
accordance with generally accepted accounting principles, consistently applied,
subject to the absence of footnote disclosures and to normal year-end
adjustments;
(iii) within 120 days after the end of each fiscal year of the
Company (or such earlier date as such financial statements are delivered to the
providers of any of the Company's debt financing), audited consolidated
statements of income and cash flows of the Company and its Subsidiaries for such
fiscal year, and audited consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year (and, if otherwise available,
such financial statements shall set forth in each case comparisons to the
Company's and its Subsidiaries' corresponding period in the preceding fiscal
year). Such financial statement shall be prepared, in all material respects, in
accordance with generally accepted accounting principles, consistently applied;
(iv) within 120 days after the end of each fiscal year of the
Company, a report which describes in reasonable detail, each material
transaction entered into between any ABRY Member or any employee, officer,
director or Affiliate (other than Unger, Koff, the Company or any of the
Company's Subsidiaries) of any ABRY Member, on the one hand, and the Company or
any of its Subsidiaries, on the other hand, during such fiscal year, except (x)
for transactions contemplated by the ABRY Management Services Agreement as in
effect as of March 18, 1999, (y) in connection with the issuance of Equity
Equivalents, and (z) for transactions which have been previously disclosed to a
Majority MHC Member, which have been disclosed in any of the financial
statements delivered to a Majority MHC Member pursuant to any of the provisions
of this Section 8(a) or which have been disclosed in any filing made by the
Company or any of its Subsidiaries with the Securities and Exchange Commission;
and
(v) within 10 days after the applicable effective date, any
amendment to the LLC Agreement, the Registration Agreement or this Agreement
(unless a Majority MHC Holder is a signatory to such amendment).
-12-
<PAGE>
(b) Verification Rights of the Unpaid Yield. So long as there is a
---------------------------------------
Majority MHC Member, promptly after any calculation of any Distribution (any
such calculation, the "Company's Calculation"), the Company shall deliver such
---------------------
Company's Calculation, in writing and in reasonable detail, to such Majority MHC
Member. If the Company does not receive a written dispute notice from such
Majority MHC Member within 10 business days after the Company delivers a
Company's Calculation to such Majority MHC Member, then such Company's
Calculation shall be binding upon the MHC Members. If the Company receives such
a written dispute notice from such Majority MHC Member (which written notice
must set forth, in reasonable detail, the amount in dispute) within the time
period specified in the immediately preceding sentence, then the Company and
such Majority MHC Member shall use reasonable efforts to resolve the dispute
during the 20 day period commencing on the date the Company receives the
applicable written dispute notice from such Majority MHC Member. If the Company
and such Majority MHC Member do not obtain a final resolution of such dispute
within such 20 day period, then the items in dispute shall be submitted
immediately to an accounting firm mutually acceptable to the Company and such
Majority MHC Member. If the Company and such Majority MHC Member are unable to
agree on the choice of an accounting firm, then the Company and such Majority
MHC Member shall select a nationally-recognized accounting firm by lot (after
excluding their respective regularly used accounting firms). Any accounting
firm so selected ("Accounting Firm") shall be required to render a determination
---------------
of the applicable dispute within 45 days after referral of the matter to such
Accounting Firm, which determination must be in writing and must set forth, in
reasonable detail, the basis therefor. The determination of such Accounting
Firm shall be binding and conclusive upon the Company and the MHC Members. The
fees and expenses of such Accounting Firm shall be borne by such Majority MHC
Member (on behalf of the MHC Members); provided that if such Accounting Firm
--------
determines in its reasonable judgment that the applicable Company's Calculation
was materially inaccurate, then the fees and expenses of such Accounting Firm
shall be borne by the Company. Subject to such Majority MHC Member executing
any confidentiality agreement reasonably required by the Board, the Company
shall provide such Majority MHC Member with reasonable access to the financial
information of the Company as is reasonably necessary for such Majority MHC
Member to review a Company's Calculation during the period beginning on the date
such Majority MHC Member receives notice of such Company's Calculation and
ending on the date when such Company's Calculation (as may be adjusted pursuant
to this Section 8(b)) is binding upon the MHC Members.
(c) Confidentiality. Notwithstanding anything contained herein to the
---------------
contrary, no Majority MHC Member may disclose any financial statements or other
documents, agreements or information received from the Company pursuant to this
Section 8 to any Person (including any other MHC Member) without the prior
written consent of the Company; provided, that a Majority MHC Member may
--------
disclose such financial statements, documents, agreements and/or information to
another MHC Member if such MHC Member has executed a confidentiality agreement
with the Company in form and substance reasonably satisfactory to the Company.
-13-
<PAGE>
9. Restrictions on Transactions with Affiliates.
--------------------------------------------
(a) Except for transactions contemplated by the ABRY Management
Services Agreement and except in connection with the issuance of Equity
Equivalents, after the date hereof, the Company will not, and will not permit
any of its Subsidiaries to, enter into any material transaction with any ABRY
Member or any employee, officer, director or Affiliate (other than Unger, Koff,
the Company or any of the Company's Subsidiaries) of any ABRY Member, unless (i)
member(s) of the Board holding a majority of the votes of the directors of the
Board without a conflict of interest in such transaction have determined such
transaction to be on a basis no less favorable, in all material respects, to the
Company or its Subsidiary, as the case may be, then would be the case in an
arms-length transaction with an unrelated third party or (ii) if no member of
the board is without a conflict of interest in such transaction, such
transaction is otherwise on a basis no less favorable, in all material respects,
to the Company or the Company's Subsidiary, as the case may be, then would be
the case in an arms-length transaction with an unrelated third party.
(b) Notwithstanding anything to the contrary herein, so long as
there is a Majority MHC Member, without the consent of such Majority MHC Member,
in no event shall the ABRY Members during any calendar year accrue management
fees or similar fees or compensation (other than the reimbursement of out-of-
pocket expenses) from the Company which, together with all compensation (other
than the reimbursement of out-of-pocket expenses) accrued during such period to
the directors and officers of the Company who are also officers or employees of
any ABRY Member or any Affiliate of any ABRY Member (other than Unger, Koff, the
Company or any of the Company's Subsidiaries) (including pursuant to the ABRY
Management Services Agreement), exceed $300,000 in the aggregate.
(c) This Section 9 shall terminate upon the consummation of a
Qualified Public Offering.
10. Definitions.
-----------
"ABRY Management Services Agreement" means the Amended and Restated
----------------------------------
Management and Consulting Services Agreement dated as of the date hereof between
ABRY and ACN Operating Company.
"ABRY Member" means any of MEM Holdings or any of MEM Holdings'
-----------
Permitted Transferees.
"ACN Operating Company" means Audio Communications Network, LLC (f/k/a
---------------------
ACN Operating, LLC), a Delaware limited liability company and a wholly-owned
Subsidiary of the Company.
"Affiliate" means with respect to any Person, any other Person
---------
controlling, controlled by, or under common control with such first Person.
-14-
<PAGE>
"Board" means the Company's board of directors.
-----
"Boyd Employment Agreement" means the Executive Employment Agreement,
-------------------------
dated as of the date hereof, among the Company, Boyd and Muzak LLC.
"Capstar Contribution Agreement" means the Contribution Agreement
------------------------------
dated as of February 19, 1999, as amended, between Capstar Broadcasting
Corporation and the Company.
"Class A Unit" and "Class B Unit," have the meanings set forth in the
------------ ------------
LLC Agreement.
"Class B-4 Unit," has the meaning set forth in the LLC Agreement.
--------------
"Common Units" means collectively the Class A Units, Class B Units and
------------
any other equity securities of the Company which is not limited to a fixed sum
or percentage of par value or stated value in respect of the rights of the
holders thereof to participate in dividends and in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
issuer of such securities (including, by way of example and without limitation,
the common stock of any Successor Corporation).
"Distribution" has the meaning set forth in the LLC Agreement.
------------
"Executive" means any Member (other than MEM Holdings) who has been,
---------
is, or will be, employed by the Company or any Subsidiary thereof or is an
independent contractor of the Company or any Subsidiary thereof.
"Independent Third Party" means any Person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 5% of the number of
Common Units on a fully diluted basis (a "5% Owner"), who is not an Affiliate of
--------
any such 5% Owner and who is not the spouse or descendent (by birth or adoption)
of any such 5% Owner or a trust for the benefit of any such 5% Owner and/or such
other Persons.
"LLC Agreement" means the Amended and Restated Limited Liability
-------------
Company Agreement of the Company dated as of the date hereof, as in effect from
time to time.
"Majority in Voting Interest" has the meaning which the LLC Agreement
---------------------------
assigns to that term.
"Management Securities Repurchase Agreement" means one of the two
------------------------------------------
Management Securities Repurchase Agreements, each dated as of October 6, 1998,
one among the Company, Koff and any other party named therein, and the other
among the Company, Unger and any other party named therein, or any other
agreement pursuant to which the Company has any right to purchase or repurchase
Securities, in each case as in effect from time to time.
-15-
<PAGE>
"Member" means any Member (as such term is defined in the LLC
------
Agreement) of the Company who is party to this Agreement.
"MHC Members" means any of MHC, any Section 7 Assignee or any of their
-----------
respective Permitted Transferees.
"Non-ABRY Members" means all of the Members (including the MHC
----------------
Members) with the exception of MEM Holdings and MEM Holdings' Permitted
Transferees.
"Old Muzak" means Muzak Limited Partnership, a Delaware limited
---------
partnership, which, as of the date hereof, has been merged with and into ACN
Operating Company, with ACN Operating Company surviving.
"Person" means an individual, a partnership, a corporation, an
------
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or any other entity (including,
without limitation, any governmental entity or any department, agency or
political subdivision thereof).
"Public Sale" means any sale of Securities to the public pursuant to
-----------
an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 (or any
similar provision then in effect) adopted under the Securities Act.
"Qualified Public Offering" means the sale in a public offering
-------------------------
registered under the Securities Act of Common Units of the Company or any of its
successors (A)(i) providing net proceeds to the Company or any of its successors
and the selling equity holders of at least $25,000,000 or (ii) where at least
25% (determined after such offering) of the outstanding Common Units of the
Company or any of its successors have been sold in such sale and (B) unless
waived in writing by holders of a majority of the number of Securities held by
the ABRY Members, the offering price per Common Unit in such public offering is
greater than the highest Unpaid Yield and Unreturned Capital Value attributable
to any Class A Unit as of immediately prior to such public offering (as adjusted
for any unit or stock split, or dividend or distribution or any other
recapitalization in contemplation of such public offering).
"Registration Agreement" means the Amended and Restated Registration
----------------------
Agreement, dated as of the date hereof, by and among the Company and the
securityholders named therein, as in effect from time to time.
"Sale of the Company" means the sale of the Company and/or its
-------------------
Subsidiaries to an Independent Third Party or group of Independent Third Parties
in which the purchaser(s) directly or indirectly acquire (i) a number of Common
Units constituting a majority (by voting power) of the Common Units on a fully-
diluted basis (whether by merger, consolidation, sale or Transfer of any or all
of the Company's outstanding Securities) or (ii) all or substantially all of the
Company's assets
-16-
<PAGE>
determined on a consolidated basis (including the equity securities or assets of
the Company's Subsidiaries).
"Securities" means collectively, the Common Units which are owned or
----------
held of record by the Members. As to any particular equity securities
constituting Securities, such equity securities will cease to be Securities when
they have been transferred in a Public Sale.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time.
"Subsidiaries" means, with respect to any Person, any corporation,
------------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of such Person or entity or a combination thereof. For purposes
hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director, managing member,
or general partner of such limited liability company, partnership, association
or other business entity.
"Unpaid Yield" has the meaning set forth in the LLC Agreement.
------------
"Unreturned Capital Value" has the meaning set forth in the LLC
------------------------
Agreement.
"Unvested Units" means any Securities which are not "vested" under the
--------------
terms of any Management Securities Repurchase Agreement, and any Securities
derivative thereof.
"Vested Units" means all Class B-4 Units and any other Securities
------------
which are not Unvested Units.
11. Miscellaneous.
-------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Securities in violation of any provision of this Agreement shall
be void, and the Company shall not record such Transfer on its books or treat
any purported Transferee of such Securities as the owner of such Securities for
any purpose.
-17-
<PAGE>
(b) Selection of Counsel. So long as MEM Holdings or any of its
--------------------
Affiliates owns Securities constituting a Majority in Voting Interest, MEM
Holdings shall be entitled to designate and/or replace any and all legal counsel
to the Company and its Subsidiaries.
(c) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of a majority of the number of
Securities; provided that no such amendment or waiver shall (x) amend, modify or
--------
change the provisions of Sections 3, 8 or 9 or this Section 11(d) or otherwise
adversely affect the rights, preferences and privileges of the MHC Members under
this Agreement in any material respect without the consent of MHC Member(s)
holding a majority of the number of Securities then held by the MHC Members, (y)
materially and adversely affect the rights hereunder of any of the parties
hereto when compared with its effect on the other parties hereto without the
prior written approval of such party, or (z) amend, modify or change the
provisions of Section 6 without the consent of Unger.
(e) Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not, including, without limitation, any Successor
Corporation. In addition, except as otherwise provided herein, whether or not
any express assignment has been made, the provisions of this Agreement which are
for the benefit of purchasers or holders of Securities are also for the benefit
of, and enforceable by, any subsequent holder of Securities.
(f) Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
-18-
<PAGE>
(h) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
-------------
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF DELAWARE OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE.
(j) Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given upon receipt or refusal when
delivered personally to the recipient, sent to the recipient by reputable
overnight courier service (charges prepaid), or mailed to the recipient by
certified or registered mail, return receipt requested and postage prepaid. Such
notices, demands and other communications shall be sent to any Member at such
Member's last address on the records of the Company, and to the Company at the
address indicated below:
If to the Company, to:
Muzak Holdings LLC
2901 Third Avenue, Suite 400
Seattle, Washington 98121
Attention: President
with a copy (which will not constitute notice to the Company) to:
ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
and to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: John L. Kuehn
-19-
<PAGE>
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(k) WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES,
--------------------
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY ANCILLARY AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT THEREOF.
(l) No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
-20-
<PAGE>
(m) Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this agreement and the other agreements referred to herein embodies the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes and preempts any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way. This Agreement amends and
restates the Original Agreement in its entirety.
(n) Issuance by the Company of Additional Class A Units or Class B
--------------------------------------------------------------
Units. The parties hereto hereby acknowledge that, after the date hereof, the
- -----
Company may issue additional Class A Units and/or Class B Units to certain
Persons (the "New Members") in accordance with the terms of this Agreement. In
-----------
connection with any such issuance, the parties hereto agree that, with the prior
written consent of MEM Holdings, the Company may grant (but shall be under no
obligation to grant) such New Members rights substantially similar to the rights
granted to the Non-ABRY Members hereunder (provided that, if such grant is made,
each such New Member is also subject to the obligations of Non-ABRY Members
hereunder) by causing each such New Member to execute a joinder to this
Agreement substantially in the form of Exhibit A hereto.
---------
(o) Termination. This Agreement will automatically terminate and be
-----------
of no further force or effect immediately after the consummation of an Approved
Company Sale.
(p) Boyd Board Seat. Each Member hereby agrees to vote all voting
---------------
securities of the Company over which such Member has voting control and agrees
to take all other reasonably necessary actions within such Members control so
that the Company complies with paragraph 5 of the Boyd Employment Agreement
which provides that, during the Employment Period (as such term is defined in
the Boyd Employment Agreement), Boyd shall serve as a member of the Board, but
only if Boyd is then serving as the President and Chief Executive Officer of the
Company and Muzak LLC.
* * * * *
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Members Agreement as of the date first written above.
MUZAK HOLDINGS LLC
By: /s/ Royce Yudkoff
----------------------------------
Name: Royce Yudkoff
Title: Vice President
MEM HOLDINGS, LLC
By: /s/ Royce Yudkoff
----------------------------------
Name: Royce Yudkoff
Title: President
/s/ Joseph Koff
-------------------------------------
JOSEPH KOFF
/s/ David Unger
-------------------------------------
DAVID UNGER
/s/ William Boyd
-------------------------------------
WILLIAM BOYD
MUSIC HOLDINGS CORP.
By: /s/ William Boyd
----------------------------------
Name: William Boyd
Title: Chief Executive Officer
<PAGE>
EXHIBIT A
---------
FORM OF JOINDER TO
MEMBERS AGREEMENT
-----------------
THIS JOINDER to the Amended and Restated Members Agreement dated as of
March 18, 1999 by and among Muzak Holdings LLC, a Delaware corporation (the
"Company"), and certain securityholders of the Company (the "Agreement"), is
- -------- ---------
made and entered into as of _______ by and between the Company and _____________
("Holder"). Capitalized terms used herein but not otherwise defined shall have
------
the meanings set forth in the Agreement.
WHEREAS, Holder has acquired [CLASS A UNITS/CLASS B-[1/2/3/4/5] UNITS]
from _____ and the Agreement and the Company require Holder, as a holder of such
Securities, to become a party to the Agreement, and Holder agrees to do so in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1. Agreement to be Bound. Holder hereby (i) acknowledges that
---------------------
it has received and reviewed a complete copy of the Agreement and (ii) agrees
that upon execution of this Joinder, it shall become a party to the Agreement
and shall be fully bound by, and subject to, all of the covenants, terms and
conditions of the Agreement as though an original party thereto and shall be
deemed [AN ABRY MEMBER/A NON-ABRY MEMBER,] [AN MHC MEMBER] and a Member for all
purposes thereof.
2. Successors and Assigns. Except as otherwise provided
----------------------
herein, this Joinder shall bind and inure to the benefit of and be enforceable
by the Company and its successors and assigns and Holder and any subsequent
holders of Securities and the respective successors, heirs and assigns of each
of them, so long as they hold any Securities.
3. Notices. For purposes of Section 11(j) of the Agreement,
-------
all notices, demands or other communications to the Holder shall be directed to:
[NAME]
[ADDRESS]
4. Counterparts. This Joinder may be executed in separate
------------
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
5. GOVERNING LAW. THIS JOINDER SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO ANY RULES, PRINCIPLES OR PROVISIONS OF CHOICE OF LAW OR CONFLICT OF
LAWS (WHETHER OF THE STATE OF DELAWARE
<PAGE>
OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE.
6. Descriptive Headings. The descriptive headings of this
--------------------
Joinder are inserted for convenience only and do not constitute a part of this
Joinder.
* * * * *
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of
the date first above written.
MUZAK HOLDINGS LLC
By:
_______________________________________
Name:
Title:
[HOLDER]
By:
_______________________________________
Name:
Title:
-3-
<PAGE>
EXHIBIT 10.5
MANAGEMENT AND CONSULTING SERVICES AGREEMENT
THIS MANAGEMENT AND CONSULTING SERVICES AGREEMENT is entered into as
of October 6, 1998 between ABRY Partners, Inc., a Delaware corporation ("ABRY"),
----
and ACN Operating, LLC, a Delaware limited liability company ("the Company").
-------
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth and the mutual benefits to be
derived from this Agreement, ABRY and the Company hereby agree as follows:
1. Definitions.
-----------
An "Affiliate" of any Person means any other Person controlling,
---------
controlled by or under common control with such first Person.
"ACN Holdings" means ACN Holdings, LLC, a Delaware limited liability
------------
company of which the Company is a Subsidiary.
"Person" means an individual, a partnership, a limited liability
------
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or any governmental entity.
With respect to ACN Holdings, a "Subsidiary" means any corporation,
----------
partnership, limited liability company, association or other business entity of
which a majority of the total voting power of shares of stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or a majority economic interest, is at
the time owned or controlled, directly or indirectly, by ACN Holdings or one or
more of the other Subsidiaries of ACN Holdings or a combination thereof.
2. Engagement. The Company (on behalf of ACN Holdings and its
----------
Subsidiaries) hereby engages ABRY as a financial and management consultant, and
ABRY hereby agrees to provide financial and management consulting services to
ACN Holdings and its Subsidiaries, all on the terms and subject to the
conditions set forth in this Agreement.
3. Services of ABRY. ABRY hereby agrees during the term of this
----------------
Agreement to consult with the Managers of ACN Holdings (the "Board"), the boards
-----
of directors (or similar governing bodies) of ACN Holdings' Subsidiaries, and
management of ACN Holdings and its Subsidiaries, in such manner and on such
business and financial matters as the Board may reasonably request from time to
time, including but not limited to corporate strategy, budgeting of future
corporate investments, acquisition and divestiture strategies, and debt and
equity financing.
<PAGE>
4. Personnel. ABRY will provide and devote to the performance of
---------
this Agreement those officers, employees and agents of ABRY which ABRY deems
appropriate for the furnishing of the services described in this Agreement.
5. Management Fees. From and after the date of this Agreement, the
---------------
Company will pay to ABRY a management fee (pro-rated, for partial calendar
years) in installments, at the rate of (a) $50,000 per annum, if the original
cost of all securities of the Company held by ABRY and its Affiliates is less
than $10,000,000, (b) $100,000 per annum, if the original cost of all securities
of the Company held by ABRY and its Affiliates equals or exceeds $10,000,000 and
is less than $15,000,000, (c) $150,000 per annum, if the original cost of all
securities of the Company held by ABRY and its Affiliates equals or exceeds
$15,000,000 and is less than $25,000,000, or (d) $200,000 per annum, if the
original cost of all securities of the Company held by ABRY and its Affiliates
equals or exceeds $25,000,000; provided that for any calendar year (or partial
--------
calendar year, as the case may be) the management fee for such period shall be
calculated pro-rata, based on the number of days during such period that the
original cost of ABRY's and its Affiliates' aggregate holdings of the Company's
securities was within each of the four fee classifications specified above
(taking into account any additional purchases by ABRY or its Affiliates of
securities of the Company during such period but ignoring any sales of such
securities by ABRY or its Affiliates during such period); provided further that,
--------
each calendar year beginning with calendar year 1999, the Company shall pay to
ABRY the applicable fee as specified above multiplied by the Multiplier (as
defined below) for such calendar year. The "Multiplier" for each calendar year
----------
equals 1.05/X /where X equals (A) the number of such calendar year, minus (B)
1998 (i.e., X for calendar year 2000 equals 2000-1998 or 2, therefore the
Multiplier for calendar year 2000 equals 1.05/2/ or 1.1025). The management fee
described in this Section 5 will be payable quarterly, in arrears, on each March
31, June 30, September 30 and December 31.
6. Expenses. In addition to the management fees described in
--------
Section 5, the Company will reimburse ABRY for reasonable travel expenses and
other out-of-pocket costs and expenses incurred by ABRY or any director,
officer, employee or other agent or representative of ABRY in connection with
the rendering of services under this Agreement (without duplication of any
reimbursement of expenses incurred by any representative of an Affiliate of ABRY
in such person's capacity as a manager of ACN Holdings or otherwise), which
reimbursement shall be payable quarterly, in arrears.
7. Effect of Termination. Either ABRY or the Company (with the
---------------------
approval of the Board) may terminate this Agreement by prior written notice to
the other. No termination of this Agreement, whether pursuant to this Section 7
or otherwise, will affect the Company's duty to pay any management fee accrued,
or to reimburse any cost or expense incurred, prior to the effective date of
that termination.
8. Liability. Neither ABRY nor any of its Affiliates, stockholders,
---------
officers, employees or agents will be liable to ACN Holdings or its Subsidiaries
or Affiliates for any loss, liability, damage, cost or expense (including
reasonable attorneys' fees) (in the aggregate, "Losses") arising out of or in
------
connection with the performance of services contemplated by this Agreement,
2
<PAGE>
unless such Losses are a result of the gross negligence or willful misconduct of
such Person. The Company agrees to indemnify and hold harmless ABRY, its
stockholders, Affiliates, officers, agents and employees against and from any
and all Losses arising from ABRY's performance under this Agreement, except as a
result of the gross negligence or willful misconduct of the Person in question.
9. Independent Contractor Status. ABRY and the Company agree that
-----------------------------
ABRY will perform services under this Agreement as an independent contractor,
retaining control over and responsibility for its own operations and personnel.
Neither ABRY nor its officers, employees or agents will be considered employees
or agents of ACN Holdings or any of its Subsidiaries as a result of this
Agreement nor will any of them have authority to contract in the name of or bind
the Company by reason of this Agreement, except as the Company may expressly
agree in writing.
10. Amendment and Waiver. No modification, amendment or waiver of
--------------------
any provision of this Agreement will be effective unless approved in writing by
the Company and ABRY. The failure of the Company or ABRY to enforce any of the
provisions of this Agreement will in no way be construed as a waiver of such
provisions and will not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
11. Notices. Any notice provided for in this Agreement will be in
-------
writing and will be either personally delivered, or mailed by first class mail,
return receipt requested, or sent by reputable overnight courier, in each case
with delivery charges or postage prepaid, to the recipient at the address below
indicated:
Notices to ABRY:
---------------
ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
Notices to the Company:
----------------------
ACN Holdings, LLC
c/o ACN Operating, LLC
3 Nashua Court, Suite B
Baltimore, MD 21221
Attention: Joseph Koff, President
with a copy (which will not constitute notice to the Company) to:
----------------------------------------------------------------
Baer, Marks & Upham
805 Third Avenue
New York, NY 10022
3
<PAGE>
Attention: Anne E. Pitter, Esq.
or to such other address or to the attention of such other Person as the
recipient party will have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given when
so delivered or mailed.
12. Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect the validity, legality or enforceability of any other provision of
this Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained in this
Agreement.
13. Entire Agreement. This Agreement embodies the complete agreement
----------------
and understanding among the parties to this Agreement with respect to the
subject matter of this Agreement and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter of this Agreement in any
way.
14. Successors and Assigns. This Agreement will bind and inure to
----------------------
the benefit of and be enforceable by the Company and ABRY and their respective
assigns; provided that none of the Company or ABRY may assign its rights or
--------
delegate its duties under this Agreement, without the prior written consent of
each of the others.
15. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
16. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a substantive part of
this Agreement.
17. Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforcement of this Agreement will be
governed by and construed in accordance with the domestic laws of the
Commonwealth of Massachusetts, without giving effect to any choice of law or
conflict provision or rule (whether of the Commonwealth of Massachusetts or of
any other jurisdiction) that would cause the laws of any jurisdiction other than
the Commonwealth of Massachusetts to be applied. In furtherance of the
foregoing, the internal law of the Commonwealth of Massachusetts will control
the interpretation and construction of this Agreement, even if under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
4
<PAGE>
18. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY
--------------------
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
19. No Strict Construction. The parties to this Agreement have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties, and no
presumption or burden of proof will arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
* * * *
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Management
and Consulting Services Agreement as of the day and year first above written.
ABRY PARTNERS, INC.
By: /s/ Royce Yudhoff
--------------------------------------------
Name: Royce Yudhoff
Title: President
ACN OPERATING, LLC
By: /s/ Peni Garber
----------------------------------------------
Name: Peni Garber
Title: Vice President
The undersigned, being the parent company of the "Company" referred to
in this Agreement, hereby unconditionally guarantees the payment and performance
of the Company's obligations under this Agreement.
ACN HOLDINGS, LLC
By: /s/ Peni Garber
----------------------------------------------
Name: Peni Garber
Title: Vice President
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of March 18, 1999, among
---------
Muzak Holdings LLC, a Delaware limited liability company ("Holdings LLC"), Muzak
------------
LLC, a Delaware limited liability company and a wholly-owned subsidiary of
Holdings LLC (the "Company"), and William A. Boyd ("Executive").
------- ---------
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company will employ Executive, and Executive
----------
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement, for the period beginning on the date of this Agreement and
ending as provided in Section 6 (the "Employment Period").
-----------------
2. Position and Duties. During the Employment Period, Executive
-------------------
will (i) serve on the board of directors (or equivalent supervising body) of
Holdings LLC (the "Board"), (ii) exclusively serve as the President and Chief
-----
Executive Officer of Holdings LLC and the Company and (iii) render such
managerial, analytical, administrative, marketing, creative and other executive
services to Holdings LLC, the Company and their respective subsidiaries (such
entities, the "Muzak Entities") as are from time to time necessary in connection
--------------
with the management and affairs of the Muzak Entities, subject to the authority
of the Board and to the proviso set forth in the following sentence. Executive
will devote substantially all of his business time and attention (except for
permitted vacation periods, community service and service on the boards of non-
competitive entities and reasonable periods of illness or other incapacity) to
the business and affairs of the Muzak Entities, if any; provided that, during
--------
the Employment Period, Executive will not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any other
manner engage in the business of providing business music programming and
ancillary communications products and services including broadcast data
delivery, satellite delivered cable television channels, audio marketing and in-
store advertising services to a diverse customer base that includes, among
others, restaurants, retailers, supermarkets and business offices (together with
all reasonably related activities, the "Business") other than (i) on behalf of
--------
any of the Muzak Entities or (ii) as a passive owner of less than 5% of the
outstanding stock of a corporation of any class which is publicly traded, so
long as Executive has no direct or indirect participation in the business of
such corporation. Executive will report to the Board. Executive will perform
his duties and responsibilities in a diligent, trustworthy, businesslike and
efficient manner.
3. Compensation and Benefits.
-------------------------
(a) Base Salary. During the Employment Period, Executive shall be
-----------
entitled to receive from the Company $300,000 per annum as base compensation for
services (as in effect from
<PAGE>
time to time, the "Base Salary"); provided that, effective on January 1, 2000
----------- --------
and each anniversary of such date, the Base Salary shall increase by 5% over the
preceding year. The Base Salary will be payable in regular installments in
accordance with the general payroll practices of the Company.
(b) Bonus. In addition to the Base Salary, the Board in its sole
-----
discretion may award a bonus from the Company (as in effect from time to time,
the "Bonus") in an amount up to $150,000 (as in effect from time to time, the
-----
"Maximum Bonus") to Executive following the end of each fiscal year during the
- --------------
Employment Period as the Board deems appropriate based upon, among other things,
the Company's overall performance and satisfaction of the personal goals of
Executive as established by the Board in advance of each fiscal year; provided
--------
that, effective on January 1, 2000 and each anniversary of such date the Maximum
Bonus shall increase by 5% over the preceding year. The Bonus, if awarded, for
a fiscal year shall be paid in a single payment within thirty (30) days after
the audited financial statements for such fiscal year have been delivered to the
Board. For any fiscal year which Executive is not employed by the Company at
the end of the fiscal year, Executive shall not be entitled to receive such
Bonus.
(c) Reimbursement of Expenses. During the Employment Period, the
-------------------------
Company will reimburse Executive for all reasonable expenses incurred by him in
the course of performing his duties under this Agreement and which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
reasonable requirements with respect to reporting and documentation of such
expenses.
(d) Benefits. During the Employment Period, Executive shall be
--------
entitled to participate in any health insurance plan and other similar benefits
which the Company makes available generally to other Company executives and
consistent, in all material respects, with recent past practice at Muzak Limited
Partnership, and shall be entitled to a monthly automobile allowance of $500 and
a monthly housing allowance of $3,000.
4. Vacation Days. Executive shall be entitled to four (4) weeks of
-------------
paid vacation during each year of the Employment Period, in addition to legal
holidays; provided, however, that no such vacation time shall accrue or be
-------- -------
earned to the extent that such accrual or earning would cause Executive's
accrued or earned, but unused, vacation time to exceed four (4) weeks.
Executive shall make reasonable efforts to schedule vacations so as not to
conflict with the conduct of the Muzak Entities' business.
5. Board Membership. During the Employment Period, Executive shall
----------------
serve as a member of the Board, but only if Executive is then serving as the
President and Chief Executive Officer of Holdings LLC and the Company.
6. Termination. The Employment Period shall terminate under the
-----------
following circumstances:
(a) Death. Executive's death, in which case Executive's employment
-----
shall terminate on the date of death.
-2-
<PAGE>
(b) Disability. If, as a result of Executive's illness, physical or
----------
mental disability or other incapacity, Executive is unable to perform his duties
under this Agreement for any period of three (3) consecutive months, and within
thirty (30) days after written notice of termination is given by the Company to
Executive (which notice may be given before or after the end of such three-month
period) he shall not have returned to the performance of his duties hereunder on
a full-time basis, the Company may terminate Executive's employment hereunder as
of the latest of (i) the expiration of such three-month period or (ii) the
thirty-first (31st) day following the giving by the Company of the written
notice of termination.
(c) Consolidation, Merger or Comparable Transaction. In the event
-----------------------------------------------
that Holdings LLC consolidates with or merges with and into any other entity,
effects a share exchange, sells or causes its Subsidiaries to sell all or
substantially all of its and its Subsidiaries' consolidated assets or enters
into a comparable capital transaction pursuant to which Holdings LLC is not the
continuing or surviving corporation or sale of a majority of the outstanding
voting power of Holdings LLC's equity securities to a third party occurs such
that a majority of the beneficial ownership of Holdings LLC shall have changed,
Executive's employment may, by written notice of termination, be terminated by
the Company simultaneous with the consummation of such consolidation, merger,
share exchange, asset sale, stock sale or comparable transaction; provided,
--------
however, that if as a result of any such consolidation, merger, share exchange,
- -------
asset sale, stock sale or comparable transaction, Holdings LLC's common
equityholders do not, directly or indirectly, receive cash and/or marketable
securities having a value of at least fifty percent (50%) of the value of their
common equity of Holdings LLC held immediately prior to such transaction, then
in any such event a termination of Executive's employment by the Company shall
be deemed and treated as a termination of the employment period hereunder by the
Company other than for Company's Good Reason under Paragraph 6(d)(i) for
purposes of this Agreement, including without limitation, for determining
termination benefits under Paragraph 7 hereof.
(d) Voluntary Termination by the Company. The Company may terminate
------------------------------------
Executive's employment (i) for "Company's Good Reason," which for purposes of
this Agreement shall mean a material breach by Executive of any material
provision of this Agreement or violation in any material respect of a written
directive of the Board which has not been cured within ten (10) days after
written notice to Executive, or (ii) for any other reason or for no reason, in
each case, subject to payment of the termination payments, if any, specified in
Paragraph 7 hereof.
(e) Termination by Executive With Good Reason. Executive may
-----------------------------------------
terminate his employment hereunder at any time for Executive's Good Reason, with
such termination to be effective as of the date stated in a written notice of
termination delivered by Executive to the Board. For purposes of this Agreement,
"Executive's Good Reason" shall mean a material breach by Holdings LLC or the
Company of a material provision of this Agreement which has not been cured
within ten (10) days after written notice of noncompliance has been given by
Executive to the Board.
(f) Voluntary Termination by Executive Without Good Reason. Executive
------------------------------------------------------
may terminate his employment hereunder for any reason other than Executive's
Good Reason as defined above, or for no reason, upon written notice to the
Board.
-3-
<PAGE>
(g) Retirement. The Company may require Executive to retire upon
----------
attaining age 65 if not violative of applicable law, such a decision shall not
be treated as a voluntary termination by the Company for purposes of Paragraph
6(d) above.
In no event shall the termination of Executive's employment affect the
rights and obligations of the parties set forth in this Agreement, except as
expressly set forth herein.
7. Termination Payments. Executive (or his or her estate pursuant
--------------------
to Paragraph 6(a) hereof) shall be entitled to receive the following payments
upon termination of his employment hereunder:
(a) In the event of the termination of Executive's employment pursuant
to Paragraph 6(a), 6(c) or 6(f) hereof, or by the Company pursuant to Paragraph
6(d)(i) for Company's Good Reason or pursuant to Paragraph 6(g), the Company
shall pay to Executive (or his estate, as the case may be) as soon as
practicable following such termination any accrued and unpaid Base Salary
through the date of termination as provided in Paragraph 3 hereof.
(b) In the event of the termination of Executive's employment pursuant
to Paragraph 6(b) hereof, the Company shall pay to Executive for a period of
twelve (12) months after the date of termination the amount of the Base Salary
through the end of such twelve (12) month period, less any amounts paid to
Executive pursuant to disability insurance, if any, provided by any of the Muzak
Entities.
(c) In the event of termination pursuant to Paragraph 6(d) of
Executive's employment other than for Company's Good Reason, or pursuant to
Paragraph 6(e) for Executive's Good Reason, the Company shall continue to pay
the Base Salary for twelve (12) months after the date of termination.
(d) Without limiting the remedies available to the Company for breach
by Executive of Paragraph 10 hereof, in the event that Executive violates the
provisions of Paragraph 10 after the termination of his employment with the
Company in a manner materially injurious to the Company (as that term is defined
in Paragraph 10), any termination payments provided in this Paragraph 7
remaining unpaid at the time such violation occurs shall be automatically
forfeited.
8. Resignation as Officer or Director. Upon the termination of the
----------------------------------
Employment Period, Executive will resign each position (if any) that he then
holds as an officer or director of any of the Muzak Entities (including, without
limitation, his membership on the Board).
9. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data that (i) have been or may be obtained by him
during his employment or other relationship or interaction with any Muzak Entity
or any predecessor of any Muzak Entity (any such Muzak Entity or any such
predecessor being a "Muzak-Related Company," and collectively they are the
---------------------
"Muzak-Related Companies"), prior to and/or after the date hereof concerning the
- ------------------------
business or affairs of the Muzak-Related Companies, and (ii) is treated by the
Muzak-Related Companies as confidential information (collectively, "Confidential
------------
Information") are and will be the property of
- -----------
-4-
<PAGE>
the Muzak-Related Companies. Therefore, Executive agrees that he will not
disclose to any unauthorized Person or use for his own account any Confidential
Information without the prior written consent of Holdings LLC (by the action of
the Board), unless and to the extent that (x) the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act, or (y) disclosure of the aforementioned
matters is required under federal or state law or a duly issued subpoena. In the
event any disclosure pursuant to clause (y) above is to be made, Executive will
give the Board reasonable prior notice thereof and will permit the Muzak-Related
Companies to resist or limit the scope of the disclosure to be made. Executive
will deliver or cause to be delivered to the Company at the termination of the
Employment Period, or at any other time any Muzak Entity or the Board may
request, all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) containing or
relating to Confidential Information or the business of any Muzak-Related
Company, which he may then possess or have under his control.
10. Non-Compete, Non-Solicitation.
-----------------------------
(a) Non-Compete. Executive acknowledges that during his employment or
-----------
other relationship or interaction with the Muzak-Related Companies, he has and
will become familiar with trade secrets and other confidential information
concerning the Muzak-Related Companies, and with investment opportunities
relating to the business of the Muzak-Related Companies (the "Business"), and
--------
that his services have been and will be of special, unique and extraordinary
value to the foregoing entities. Therefore, Executive agrees that, during the
Employment Period and thereafter, until the 2nd anniversary of the last day of
the Employment Period (the Employment Period and the remainder of such period
being the "Noncompete Period"), he will not directly or indirectly own, manage,
-----------------
control, participate in, consult with, render services for, or in any other
manner engage in any business, or as an investor in or lender to any business
(in each case including, without limitation, on his own behalf or on behalf of
another entity) which constitutes or is competitive with all or part of the
Business (as and where the same is conducted or proposed to be conducted by any
of Muzak-Related Companies during the Employment Period). In addition, in as
much as the Company regularly seeks to acquire additional Muzak franchises
and/or Muzak franchisees, Executive agrees that, during the Employment Period
and thereafter, until the 1st anniversary of the last day of the Employment
Period, he will not directly or indirectly acquire or seek to acquire any Muzak
franchise or the assets or ownership interest of any Muzak franchisee within the
United States. Nothing in this Section 10 will prohibit Executive from being a
passive owner of less than 5% of the outstanding stock of a corporation engaged
in a competing business described above of any class which is publicly traded,
so long as Executive has no direct or indirect participation in the business of
such corporation.
(b) Non-Solicitation. During the Noncompete Period, Executive will
----------------
not directly or indirectly (i) induce or attempt to induce any employee or full-
time independent contractor of any Muzak-Related Company to leave the employ or
contracting relationship with such entity, (ii solicit for employment or as an
independent contractor any person who was an employee or full-time independent
contractor of any Muzak-Related Company, at any time during the Employment
Period, or (ii induce or attempt to induce any customer, supplier or other
business relation of any Muzak-Related Company to cease doing business with such
entity.
-5-
<PAGE>
11. Enforcement. The parties hereto agree that if, at the time of
-----------
enforcement of Section 9 or 10, a court holds that any restriction stated in any
such Section is unreasonable under circumstances then existing, then the maximum
period, scope or geographical area reasonable under such circumstances will be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to information of the type described
in Sections 9 and 10, the parties hereto agree that money damages would be an
inadequate remedy for any breach of Section 9 or 10. Therefore, in the event of
a breach or threatened breach of Section 9 or 10, any Muzak-Related Company,
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions of Section 9 or 10, without posting a bond or other security. The
provisions of Sections 9, 10 and 11 are intended to be for the benefit of the
Company, Holdings LLC, each of the other Muzak Entities, and their respective
successors and assigns, each of which may enforce such provisions and each of
which (other than Holdings LLC and the Company) is an express third-party
beneficiary of such provisions and this Agreement generally. Sections 9 and 10
and this Section 11 will survive and continue in full force in accordance with
their terms notwithstanding any termination of the Employment Period.
12. Representations. Executive represents and warrants to the
---------------
Company and Holdings LLC that Executive is not a party to or bound by any
employment agreement, noncompete agreement or confidentiality agreement with any
other Person.
13. Key-Man Life Insurance. Executive agrees to submit to any
----------------------
requested physical examination in connection with any Muzak Entity's purchase of
a "key-man" insurance policy. Executive agrees to cooperate fully in connection
with the underwriting, purchase and/or retention of a key-man insurance policy
by any Muzak Entity.
14. Miscellaneous.
-------------
(a) Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid), or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the address indicated below:
Notices to Executive:
--------------------
William A. Boyd
c/o Muzak LLC
2901 Third Avenue, Suite 400
Seattle, Washington 98121
-6-
<PAGE>
with a copy (which shall not constitute notice to Executive) to:
---------------------------------------------------------------
Weil, Gotshal & Manges
767 Fifth Avenue, Room 3062
New York, NY 10153
Attention: Norman D. Chirite
Notices to Holdings LLC or the Company:
--------------------------------------
Muzak Holdings, LLC
Muzak LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Royce Yudkoff
with copies (which shall not constitute notice to any Muzak-Related
-------------------------------------------------------------------
Company) to:
- -----------
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: John L. Kuehn, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(b) Amendment and Waiver. No modification, amendment or waiver of any
--------------------
provision of this Agreement will be effective unless such modification,
amendment or waiver is approved in writing by Holdings LLC (with written
approval of the Board), the Company, Executive and ABRY Broadcast Partners III,
L.P. ("ABRY"), if ABRY, directly or indirectly, then holds any common equity
----
securities of Holdings LLC. The failure of any party to enforce any of the
provisions of this Agreement will in no way be construed as a waiver of such
provisions and will not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
(c) Severability. Without limiting Section 11, whenever possible, each
------------
provision of this Agreement will be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect the validity, legality or enforceability of any
other provision of this Agreement in such jurisdiction or affect the validity,
legality or enforceability of any provision in any other jurisdiction, but this
Agreement will be reformed, construed and enforced in that jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained in
this Agreement.
-7-
<PAGE>
(d) Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this agreement and the other agreements referred to herein embodies the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes and preempts any prior understandings, agreements
or representations by or among the parties, written or oral (including the
Employment Agreement dated May 30, 1997 between Muzak Limited Partnership (a
predecessor entity to the Company) and Executive which Employment Agreement is
hereby terminated), which may have related to the subject matter hereof in any
way.
(e) Successors and Assigns. This Agreement will bind and inure to the
----------------------
benefit of and be enforceable by Holdings LLC, the Company and Executive and
their respective assigns; provided that Executive may not assign his rights
--------
under this Agreement without the prior written consent of each of Holdings LLC
(with written approval of the Board), the Company and ABRY, if ABRY then holds
any common equity securities of Holdings LLC.
(f) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
(g) Descriptive Headings; Interpretation. The descriptive headings of
------------------------------------
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement.
(h) GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
-------------
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT WILL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE
OF WASHINGTON, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT PROVISION
OR RULE (WHETHER OF THE STATE OF WASHINGTON OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF WASHINGTON TO
BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF
WASHINGTON WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT,
EVEN IF UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE
SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(i) WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES,
--------------------
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY ANCILLARY AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT THEREOF.
-8-
<PAGE>
(j) No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
* * * * *
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Executive
Employment Agreement as of the date first written above.
MUZAK HOLDINGS LLC
By: /s/ ROYCE YUDKOFF
----------------------------
Name: Royce Yudkoff
Title: Vice President
MUZAK LLC
By: /s/ ROYCE YUDKOFF
----------------------------
Name: Royce Yudkoff
Title: Vice President
/s/ WILLIAM A. BOYD
---------------------------------
WILLIAM A. BOYD
<PAGE>
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of October 6, 1998,
---------
between ACN Operating, LLC, a Delaware limited liability company t/b/k/a Audio
Communications Network, LLC (the "Company"), and David Unger ("Executive").
------- ---------
This Agreement is being entered into in connection with the
consummation of the transactions contemplated by the Investor Securities
Purchase Agreement dated as of the date hereof (as in effect from time to time,
the "Investor Securities Purchase Agreement") by and among ABRY Broadcast
--------------------------------------
Partners III, L.P. ("ABRY"), ACN Holdings, LLC ("Holdings LLC"), the Company,
---- ------------
Executive, and the other parties thereto. The execution and delivery of this
Agreement are conditions precedent to ABRY's obligation to consummate the
transactions contemplated by the Investor Securities Purchase Agreement. Each
capitalized term which is used and not otherwise defined in this Agreement has
the meaning which the Investor Securities Purchase Agreement assigns to that
term.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company will employ Executive, and Executive
----------
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement, for the period beginning on the date of this Agreement and
ending as provided in Section 5 (the "Employment Period").
-----------------
2. Position and Duties. During the Employment Period, Executive
-------------------
will serve as the Executive Vice President for Business Development of the
Company and its Subsidiaries and render such managerial, analytical,
administrative, marketing and other executive services to the Company and its
Subsidiaries, if any, as are from time to time necessary in connection with the
management and affairs of the Company and its Subsidiaries, subject to the
authority of the Managers of Holdings LLC (the "Board") and to the provisos set
-----
forth in the following sentence. Executive will devote his best efforts and
approximately thirty-three percent (33%) of substantially all of his business
time and attention (provided that Executive shall also be allowed permitted
vacation periods and reasonable periods of illness or other incapacity) to the
business and affairs of the Company and its Subsidiaries, if any; provided that
--------
Executive may continue to serve as chairman of Suncom Communications, LLC and
Avalon Cable Holdings, LLC and its Subsidiaries ("Avalon"); and provided further
------ -------- -------
that, without limiting Section 9, during the Employment Period, Executive will
not directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any other manner engage in the business of providing
business music programming and ancillary communications products and services
including broadcast data delivery, satellite delivered cable television channels
for commercial customers (other than on behalf of Avalon), audio marketing and
in-store advertising service to a diverse customer base that includes, among
others, restaurants, retailers, supermarkets and business offices (the
"Business") other than (i) on behalf of the Company or any Subsidiary thereof or
--------
(ii) as a passive owner of less than 5% of
<PAGE>
the outstanding stock of a corporation of any class which is publicly traded, so
long as Executive has no direct or indirect participation in the business of
such corporation. Executive will report to the Board. Executive will perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
3. Base Salary, Bonus and Benefits.
-------------------------------
(a) Base Salary. During the Employment Period, Executive will be paid
-----------
$75,000 per annum as base compensation for services (as in effect from time to
time, the "Base Salary"). The Board may review, and in its sole discretion
-----------
otherwise may increase, the Base Salary as and when the Board deems appropriate
if and when the size and scope of the Company and its Subsidiaries and/or scope
of Executive's duties increases beyond its currently expected size and scope.
The Base Salary will be payable in regular installments in accordance with the
general payroll practices of the Company and its Subsidiaries. In addition,
during the Employment Period, Executive will be entitled to participate in all
of the employee benefit programs for which senior executive employees of the
Company and its Subsidiaries are generally eligible, including without
limitation health insurance, dental insurance, life insurance, pension and
profit-sharing plans.
(b) Reimbursement of Expenses. The Company will reimburse Executive
-------------------------
for all reasonable expenses incurred by him in the course of performing his
duties under this Agreement and which are consistent with the Company's policies
in effect from time to time with respect to travel, entertainment and other
business expenses, subject to the Company's requirements with respect to
reporting and documentation of such expenses.
(c) Bonus. In addition to the Base Salary, the Board may in its sole
-----
discretion award a bonus (the "Bonus") to Executive following the end of each
-----
fiscal year during the Employment Period as the Board deems appropriate, in an
amount (if any) determined by the Board in its sole discretion based on the
Company's acquisition activity during such fiscal year. The Bonus, if awarded,
for a fiscal year will be paid in a single payment within (30) days after
delivery of the audited financial statements for such fiscal year have been
reviewed by the Board.
(d) Use of Company Automobile. During the Employment Period, in
-------------------------
addition to all other compensation and benefits payable to Executive hereunder,
Executive shall have use of a company automobile. Executive shall be
responsible for all gasoline, insurance, repairs, maintenance and other expenses
incurred in connection with the services rendered hereunder. Executive
acknowledges and agrees that the Company may report the foregoing automobile
usage as additional compensation to Executive, if the Company believes the same
may be required by applicable law.
4. Vacation Days. Executive shall be entitled to four (4) weeks of
-------------
paid vacation during each year of the Employment Period, in addition to legal
holidays; provided, however, that no such vacation time shall accrue or be
-------- -------
earned to the extent that such accrual or earning would cause Executive's
accrued or earned, but unused, vacation time to exceed four (4) weeks.
Executive shall make best efforts to schedule vacations so as not to conflict
with the conduct of the Company's business, and Executive shall give to the
Board adequate advance notice of his planned absences.
-2-
<PAGE>
5. Termination.
-----------
(a) The Employment Period will continue until the earlier of: (i) the
fifth anniversary of the date hereof; or (ii Executive's resignation, death or
disability or other incapacity (as determined by the Company in good faith) or
until the Employment Period is terminated by the Company for any reason or for
no reason (provided that the Company shall not terminate the Employment Period
in bad faith). For the purposes of this Agreement, "Cause" shall mean (i) the
-----
commission of a felony or a crime involving moral turpitude or the commission
of any other act or omission involving dishonesty, disloyalty or fraud with
respect to Holdings LLC or any of its Subsidiaries, (ii) conduct tending to
bring Holdings LLC or any of its Subsidiaries into substantial public disgrace
or disrepute, (iii) substantial and repeated failure to perform duties as
reasonably directed by the Board, (iv) gross negligence or willful misconduct
with respect to Holdings LLC or any of its Subsidiaries, (v) substantial
underperformance in carrying out Executive's duties under this Agreement, or
(vi) any material breach of or misrepresentation by Executive or the Company
under this Agreement or any Related Agreement (as defined below). For the
purposes of this Agreement, "Related Agreements" means the Members Agreement,
------------------
the Registration Agreement, the Investor Securities Purchase Agreement, the LLC
Agreement and the Management Securities Repurchase Agreement to which Executive
is a party, each dated as of the date hereof among the Company (except for the
LLC Agreement) and its members, and each as in effect from time to time. For
purposes of this Agreement, "disability" means the inability of Executive to
----------
perform his duties hereunder for 120 days during any 12-month period.
(b) In the event of Executive's resignation, death, disability or
other incapacity or the termination of the Employment Period by the Company for
Cause or effective upon a Sale of the Company (as that term is defined in the
Members Agreement), Executive will not be entitled to receive his Base Salary or
any fringe benefits or Bonus for periods after the termination of the Employment
Period. In the event of termination of the Employment Period by the Company for
any other reason or for no reason, Executive will be entitled to receive his
Base Salary (at the rate then in effect) and fringe benefits described in
paragraph 3(a) for a period of six months thereafter (so long as Executive is
not in breach of Section 7, 8 or 9 hereof).
6. Resignation as Officer or Director. Upon the termination of the
----------------------------------
Employment Period, Executive will resign each position (if any) that he then
holds as an officer, director or manager of the Company, Holdings LLC, or any of
its Subsidiaries (including, without limitation, his membership on the Board).
7. Confidential Information. The Executive acknowledges that the
------------------------
information, observations and data that have been or may be obtained by him
during his employment or other relationship or interaction with the Company,
Holdings LLC, or any Subsidiary or predecessor thereof or of any such Subsidiary
(each of the Company, Holdings LLC, or any other Subsidiary or any such
predecessor being an "ACN-Related Company" and collectively they are the "ACN-
------------------- ---
Related Companies", including Audio Communications Network, Inc.), prior to and
- -----------------
after the date of this Agreement concerning the business or affairs of the ACN-
Related Companies (collectively, "Confidential Information") are and will be the
------------------------
property of the ACN-Related Companies. Therefore, Executive agrees that he will
not disclose to any unauthorized Person or use for his own account any
Confidential Information without the prior written consent of Holdings LLC (by
the action of the
-3-
<PAGE>
Board), unless and to the extent that (x) the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act or (y) disclosure of the aforementioned
matters is required under federal or state law or a duly issued subpoena. In the
event any disclosure pursuant to clause (y) above is made, Executive will give
the Company reasonable prior notice thereof and will permit the ACN-Related
Companies to resist or limit the scope of the disclosure to be made. Executive
will deliver to or cause to be delivered to Holdings, LLC at the termination of
the Employment Period, or at any other time any ACN-Related Company may request,
all memoranda, notes, plans, records, reports, computer tapes and software and
other documents and data (and copies thereof) containing or relating to
Confidential Information or the business of any ACN-Related Company, which he
may then possess or have under his control.
8. Non-Compete, Non-Solicitation.
-----------------------------
(a) Non-Compete. Executive acknowledges that during his employment or
-----------
other relationship or interaction with the ACN-Related Companies, he has and
will become familiar with trade secrets and other confidential information
concerning such Persons, and with investment opportunities relating to the
Business, and that his services have been and will be of special, unique and
extraordinary value to the foregoing entities. Therefore, Executive agrees
that, during the Employment Period and for six (6) months thereafter (the
Employment Period and such six month period being the "Noncompete Period"), he
-----------------
will not directly or indirectly own, manage, control, participate in, consult
with, render services for, or in any other manner engage in any business, or as
an investor in or lender to any business (in each case including, without
limitation, on his own behalf or on behalf of another entity) which constitutes
or is competitive with all or part of the Business, as defined in Section 2
above, in any market in which any ACN-Related Company is operating or is
considering operating (including pursuant to any potential acquisitions), at any
given point in time during the Employment Period or as of the end of the
Employment Period if the Employment Period has ended; provided that for purposes
--------
of this Section 8(a), but not for purposes of Section 8(b), the Noncompete
Period will terminate at the end of the Employment Period if the Employment
Period is terminated by the Company other than for Cause or Executive's
disability. Nothing in this Section 8 will prohibit Executive from being a
passive owner of less than 5% of the outstanding stock of a corporation engaged
in a competing business described above of any class which is publicly traded,
so long as Executive has no direct or indirect participation in the business of
such corporation. By initialing in the space provided below, Executive
acknowledges that he has read carefully and had the opportunity to consult with
legal counsel regarding the provisions of this Section 8(a). ______ [initial]
(b) Non-Solicitation. During the Noncompete Period, Executive will
----------------
not directly or indirectly (i) induce or attempt to induce any employee or full-
time independent contractor of any ACN-Related Company, to leave the employ or
contracting relationship with such entity, or in any way interfere with the
relationship between any such entity and any employee or full-time independent
contractor thereof, (ii) solicit for employment or as an independent contractor
any person who was an employee or full-time independent contractor of any ACN-
Related Company, at any time during the Employment Period, or (iii) induce or
attempt to induce any customer, supplier or other business relation of ACN-
Related Company, to cease doing business with such entity or in any way
interfere with the relationship between any such customer, supplier or other
business relation and such entity. By initialing in the space provided below,
Executive
-4-
<PAGE>
acknowledges that he has read carefully and had the opportunity to consult with
legal counsel regarding the provisions of this Section 8(b). ______ [initial].
9. Enforcement. The Company and Executive agree that if, at the
-----------
time of enforcement of Section 7 or 8, a court holds that any restriction stated
in any such Section is unreasonable under circumstances then existing, then the
maximum period, scope or geographical area reasonable under such circumstances
will be substituted for the stated period, scope or area. Because Executive's
services are unique and because Executive has access to information of the type
described in Sections 7 and 8, the Company and Executive agree that money
damages would be an inadequate remedy for any breach of Section 7 or 8.
Therefore, in the event of a breach or threatened breach of Section 7 or 8, any
ACN-Related Company may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions of Section 7 or 8, without posting a bond or
other security. The provisions of Sections 7, 8 and 9 are intended to be for the
benefit of the Company, Holdings LLC, and its Subsidiaries, and their respective
successors and assigns, each of which may enforce such provisions and each of
which (other than the Company) is an express third-party beneficiary of such
provisions and this Agreement generally. Sections 7, 8 and 9 will survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period. By initialing in the space provided
below, Executive acknowledges that he has read carefully and had the opportunity
to consult with legal counsel regarding the provisions of this Section 9.
______ [initial]
10. Representations. Executive represents and warrants to Holdings
---------------
LLC and its Subsidiaries that Executive is not a party to or bound by any
employment agreement, noncompete agreement or confidentiality agreement with any
other Person, other than Avalon Cable Holdings, LLC and/or any of its
Subsidiaries or Affiliates.
11. Key-Man Life Insurance. If the Board determines that the Company
----------------------
and/or one or more of its Subsidiaries should purchase a "key-man" insurance
policy on the life of Executive, then Executive agrees to submit to any
requested physical examination in connection with Holdings LLC's or any
Subsidiary's purchase of such a key-man insurance policy. Executive agrees to
cooperate fully in connection with the underwriting, purchase and/or retention
of any such key-man insurance policy by Holdings LLC or any of its Subsidiaries.
12. Miscellaneous.
-------------
(a) Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid), or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the address indicated below:
-5-
<PAGE>
Notices to Executive:
--------------------
David Unger
The Excelsior
303 East 57th Street, Apt. 30G
New York, NY 10022
with a copy (which shall not constitute notice to Executive) to:
---------------------------------------------------------------
Baer Marks & Upham LLP
805 Third Avenue
New York, NY 10022
Attention: Anne E. Pitter, Esq.
Notices to the Company:
----------------------
ACN Operating, LLC
3 Nashua Court, Suite B
Baltimore, MD 21221
Attention: Joseph Koff, President
with copies (which shall not constitute notice to any ACN-Related
-----------------------------------------------------------------
Company) to:
- -----------
ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Royce Yudkoff
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: John L. Kuehn, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(b) Amendment and Waiver. No modification, amendment or waiver of any
--------------------
provision of this Agreement will be effective unless such modification,
amendment or waiver is approved in writing by the Company, Executive and ABRY,
if ABRY then holds any Equity Securities of Holdings LLC. The failure of any
party to enforce any of the provisions of this Agreement will in no way be
construed as a waiver of such provisions and will not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
-6-
<PAGE>
(c) Severability. Without limiting Section 8, whenever possible, each
------------
provision of this Agreement will be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect the validity, legality or enforceability of any
other provision of this Agreement in such jurisdiction or affect the validity,
legality or enforceability of any provision in any other jurisdiction, but this
Agreement will be reformed, construed and enforced in that jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained in
this Agreement.
(d) Entire Agreement. Except as otherwise expressly set forth herein,
----------------
this agreement and the other agreements referred to herein embodies the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes and preempts any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
(e) Successors and Assigns. This Agreement will bind and inure to the
----------------------
benefit of and be enforceable by the Company and Executive and their respective
assigns; provided that Executive may not assign his rights under this Agreement
--------
without the prior written consent of each of the Company and ABRY, if ABRY then
holds any Equity Securities of Holdings LLC.
(f) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
(g) Descriptive Headings; Interpretation. The descriptive headings of
------------------------------------
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement.
(h) GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
-------------
CONSTRUCTION, VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT WILL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT PROVISION OR
RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK TO BE
APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW
YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF
UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE
SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(i) Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES,
--------------------
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY ANCILLARY AGREEMENT
-7-
<PAGE>
OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
(j) No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Executive Employment
Agreement as of the date first written above.
ACN OPERATING, LLC
t/b/k/a AUDIO COMMUNICATIONS NETWORK, LLC
By:
----------------------------------------
Name:
Title:
/s/ DAVOD IMGER
----------------------------------------
DAVID UNGER
The undersigned, being the parent company of the "Company" referred to
in this Agreement, hereby unconditionally guarantees the payment and performance
of the Company's obligations under this Agreement.
ACN HOLDINGS, LLC
By: /s/ PENI GARBER
----------------------------------------
Name: PENI GARBER
Title: VICE PRESIDENT
-9-
<PAGE>
EXHIBIT 10.9
FIRST AMENDMENT TO THE EXECUTIVE EMPLOYMENT AGREEMENT
This First Amendment to the Executive Employment Agreement (this
"First Amendment"), dated as of March 18, 1999 to the certain Executive
- ----------------
Employment Agreement (the "Executive Employment Agreement") dated as of October
------------------------------
6, 1998 by and between Audio Communications Network, LLC f/k/a ACN Operating,
LLC. (the "Company") and David Unger ("Executive").
------- ---------
WHEREAS, the Company and the Executive (collectively, the "Parties") desire
-------
to amend the Executive Employment Agreement on the terms and conditions set
forth herein.
NOW THEREFORE, in consideration of the mutual agreements set forth herein,
the Parties agree as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
-----------------
shall have the meanings ascribed to such terms in the Executive Employment
Agreement.
2. Additional Consideration. The first sentence of Paragraph 2 of the
------------------------
Executive Employment Agreement is hereby amended in its entirety to read as
follows:
"2. Position and Duties. During the Employment Period, Executive
--------------------
will serve as the Vice President of the Company and render such managerial,
analytical, administrative, marketing and other executive services to the
Company and its Subsidiaries, if any, as are from time to time necessary in
connection with the management and affairs of the Company and its
Subsidiaries, subject to the authority of the Board of Directors of
Holdings LLC (the "Board") and to the provisos set forth in the following
-----
sentence."
3. Governing Law. This First Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under the applicable principles of
conflicts of laws thereof.
4. Counterparts. This First Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
5. Agreement. In all other respects the Executive Employment Agreement
---------
is ratified and shall, as so changed by these amendments, continue in full force
and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first set forth above.
AUDIO COMMUNICATIONS NETWORK, LLC
By: /s/ ROBERT MACINNIS
--------------------------------
Name: Robert MacInnis
Title: Vice President
EXECUTIVE
By: /s/ DAVID UNGER
------------------------------
DAVID UNGER
<PAGE>
EXHIBIT 21.1
STATE OR OTHER JURISDICTION OF
SUBSIDIARIES OF INCORPORATION OR
MUZAK HOLDINGS LLC ORGANIZATION
------------------ ------------------------------
Muzak LLC Delaware
Business Sound, Inc. Ohio
Muzak Finance Corp. Delaware
Muzak Capital Corporation Delaware
MLP Environmental Music, LLC Washington
Electro-Systems Corporation Florida
Muzak Heart & Soul Foundation Washington
Muzak Holdings Finance Corp. Delaware
STATE OR OTHER JURISDICTION OF
INCORPORATION OR
SUBSIDIARIES OF MUZAK LLC ORGANIZATION
------------------------- ------------------------------
See Above
STATE OR OTHER JURISDICTION OF
INCORPORATION OR
SUBSIDIARIES OF MUZAK FINANCE CORP. ORGANIZATION
- ----------------------------------- ------------------------------
None.
STATE OR OTHER JURISDICTION
OF
SUBSIDIARIES OF INCORPORATION OR
MUZAK CAPITAL CORPORATION ORGANIZATION
------------------------- ---------------------------
None.
STATE OR OTHER JURISDICTION OF
SUBSIDIARIES OF INCORPORATION OR
MLP ENVIRONMENTAL MUSIC, LLC ORGANIZATION
---------------------------- ------------------------------
None.
STATE OR OTHER JURISDICTION OF
INCORPORATION OR
SUBSIDIARIES OF BUSINESS SOUND, INC. ORGANIZATION
- ------------------------------------ ------------------------------
None.
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Muzak LLC and Muzak Finance Corp. of our
report dated February 19, 1999 relating to the consolidated financial statements
of Audio Communications Network, LLC as of December 31, 1998 and for the period
from October 7, 1998 through December 31, 1998 which appear in such Prospectus.
We also consent to the references to us under the headings "Experts" and
"Selected Historical Financial and Other Data" in such Prospectus. However, it
should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such "Selected Historical Financial and Other Data."
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
May 14, 1999
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Muzak LLC and Muzak Finance Corp. of our
report dated February 19, 1999 relating to the consolidated financial statements
of Audio Communications Network, Inc. for the period from January 1, 1998
through October 6, 1998 which appear in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Historical Financial
and Other Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Historical Financial and Other Data."
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
May 14, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Muzak LLC on Form S-4 of
our report dated February 5, 1999 (May 14, 1999, as to Note 14) on Muzak Limited
Partnership and subsidiaries, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Seattle, Washington
May 14, 1999
