MUZAK HOLDINGS FINANCE CORP, S-4/A, 1999-08-11

MUZAK HOLDINGS FINANCE CORP
S-4/A, 1999-08-11

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<PAGE>

As filed with the Securities and Exchange Commission on August 10, 1999.

Registration No. 333-78573
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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

MUZAK HOLDINGS LLC
(Exact name of registrant as specified in its charter)

Delaware 7389 04-3433730
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)

MUZAK HOLDINGS FINANCE CORP.

Delaware 7389 04-3433728
(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. [_]

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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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

$75,000,000
13% Senior Discount Notes due 2010
of Muzak Holdings LLC and Muzak Holdings Finance Corp.

Terms of the Exchange Offer

. We are offering to . We will not receive any
exchange the notes that proceeds from the
we sold in a private exchange offer.
offering for new
registered exchange
notes.

. The terms of the notes
to be issued are
identical to the
outstanding notes,
except for the transfer
restrictions and
registration rights
relating to the
outstanding notes.

. The exchange offer
expires 5:00 p.m., New
York City time, Tuesday,
September 14, 1999,
unless extended.

. You may withdraw your
tender of notes any time . Our subsidiaries will
before the expiration of not guarantee the notes.
the exchange offer.

. 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 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, based on the
advice of our counsel.

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 12 before
tendering your notes.

As of March 31, 1999, the existing notes were effectively subordinated to
$286.9 million of debt of our subsidiary.

Each broker-dealer that receives exchange notes must deliver a prospectus in
connection with any resales of those notes.

Broker-dealers that acquired exchange notes for its own account in exchange
for existing notes, where the existing notes were acquired as result of market-
making activities or other trading activities, must acknowledge that they will
deliver a prospectus in connection with any resale of those exchange 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............................................................. 12

The Merger, Acquisition and Financing Transactions....................... 24

The Exchange Offer....................................................... 26

Use of Proceeds.......................................................... 33

Capitalization........................................................... 34

Unaudited Pro Forma Financial Data....................................... 35

Selected Historical Financial and Other Data............................. 41

Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 45

Business................................................................. 58

Management............................................................... 70

Certain Relationships and Related Transactions........................... 75

Security Ownership of Certain Beneficial Owners and Management........... 78

LLC Agreements........................................................... 80

Description of the Senior Credit Facility................................ 81

Description of the Notes................................................. 85

Exchange Offer; Registration Rights...................................... 122

United States Federal Income Tax Consequences............................ 124

Plan of Distribution..................................................... 125

Legal Matters............................................................ 125

Experts.................................................................. 125

Additional Information................................................... 126

Index to Consolidated Financial Statements............................... F-1
</TABLE>

i
<PAGE>

PROSPECTUS SUMMARY

The following is a summary of important information about Muzak, the
exchange offer and the notes. We encourage you to read this entire document and
the documents we have referred you to for more complete information.

Overview

Muzak is the leading provider of business music programming in the U.S.,
based on market share. 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.

Our nationwide network divides the country into 168 affiliate territories,
of which 46 are served by our 35 owned affiliate offices, and the remaining 122
are served by our 73 independent affiliates. Our independent affiliates have
exclusive licenses to sell our products and to use our trademarks in their
territories. They pay us a monthly fee based on the number of businesses within
their territory and a monthly broadcasting royalty based on their billings. We
share revenues from the sale of some services with our independent affiliates.

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.

1
<PAGE>

Muzak Holdings and its Subsidiaries

The exchange notes will be issued by Muzak Holdings and Muzak Holdings
Finance. The following diagram shows the ownership interests of Muzak Holdings
and its subsidiaries.

Muzak Holdings is a holding company, whose only significant asset is its
ownership of Muzak, so the primary source of funds for Muzak Holdings is
distributions from Muzak. Muzak's ability to make distributions to Muzak
Holdings are limited by the terms of Muzak's credit facility and by the terms
of the indenture under which Muzak's Senior Subordinated Notes due 2009 were
issued. In addition, Muzak Holdings' interests in Muzak are pledged as
collateral under Muzak's credit facility. As a result, if Muzak Holdings is
unable to make payments on the exchange notes, holders of the exchange notes
could not proceed against Muzak until Muzak satisfied its obligations under the
credit facility and senior subordinated notes.

Muzak Holdings Finance has no operations or assets. It is a co-issuer of the
exchange notes because we were advised by the initial purchasers of the
existing notes that many possible purchasers of the existing notes require
corporate co-issuers for notes issued by limited liability companies, such as
Muzak Holdings. We understand that this is the result of historic requirements
in the charters of these purchasers that limited their investments to
securities issued by corporations.

Muzak Capital, Muzak Finance, and Muzak Holdings Finance have no operations
and substantially no assets. MLP Environmental Music holds intangible rights to
background music created by Muzak. Electro Systems owns and operates the Muzak
affiliate in Panama City, Florida, and Business Sound owns and operates the
Muzak affiliate in Mobile, Alabama and New Orleans, Louisiana. Muzak Heart &
Soul Foundation is a non-profit charitable corporation. It is not permitted to
issue shares of stock, but the members of its board of directors are elected by
Muzak.

2
<PAGE>

As of May 26, 1999, the beneficial interests in Muzak Holdings' voting
interests were held by the following:

. 68.0% was owned by ABRY Broadcast Partners III, L.P. and ABRY Broadcast
Partners II, L.P. which are private equity funds of ABRY Partners, Inc.,

. 22.6% was owned by Capstar Broadcasting,

. 4.4% was owned by management and

. 5.0% was owned by other investors.

Our headquarters are located at 2901 Third Avenue, Suite 400, Seattle,
Washington 98121. Our telephone number is 206-633-3000.

The Initial Offering

On March 18, 1999, we issued $75,000,000 aggregate principal amount at
maturity of 13% senior discount notes due 2010 to CIBC Oppenheimer Corp. and
Goldman, Sachs & Co. in a private offering. These initial purchasers sold the
existing notes to institutional investors in transactions exempt from the
registration requirements of the Securities Act of 1933. The existing notes
have not been registered under the Securities Act of 1933, and may only be
offered or sold in compliance with the registration requirements of the
Securities Act or if an exemption from the registration requirements is
available.

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 proceeds of initial offering, together with the proceeds from Muzak's
offering of $115 million of senior subordinated notes, borrowings under Muzak's
credit facility and equity investments were used:

. to pay merger consideration for the merger of Old Muzak into Audio
Communications Network LLC, which changed its name to Muzak LLC,

. to repurchase $99.7 million of Old Muzak's 10% Senior Notes due 2003,

. to repay most of the existing debt of Old Muzak and Audio Communications
Network,

. to purchase Muzak independent affiliates from Capstar Broadcasting, and

. to pay fees and expenses of these transactions.

Borrowings under Old Muzak's credit facility accrued interest at the
lender's prime interest rate plus 1.25%. Old Muzak's credit facility was
scheduled to mature on December 30, 2001. Borrowings under the ABRY Broadcast
Partners III loan accrued interest at a variable interest rate that was
approximately 9% at December 31, 1998 and were scheduled to mature on October
6, 1999.

The Exchange Offer

We are offering to exchange $75,000,000 principal amount at maturity of 13%
senior subordinated notes which have been registered under the Securities Act
of 1933 for the existing notes which we issued in March 1999. We will not
receive any cash proceeds from the issuance of the exchange notes.

The exchange notes are substantially identical to the existing notes, except
that 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 Tuesday,
September 14, 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.

Conditions of the Exchange Offer

The exchange offer is subject to customary conditions that no events of
specified types occur

3
<PAGE>

that we believe might materially impair our ability to proceed with the
exchange offer or materially impair the contemplated benefits of the exchange
offer and that necessary governmental approvals have been obtained. If these
conditions are not met, we have the option of refusing to accept tendered
notes, extending the exchange offer or waiving the conditions that have not
been satisfied.

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, based on the advice of our counsel, 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.

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.

Acceptance of Initial Notes; Delivery of Exchange Notes

We will accept existing notes which are properly tendered in accordance with
the terms of 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

$75,000,000 aggregate principal amount at maturity, or $39,996,375 in
accreted value on the issue date, of 13% senior discount notes due 2010. The
terms of the exchange notes and the existing notes are identical in all
material respects, except that the transfer restrictions and registration
rights relating to the existing notes do not apply to the exchange notes. In
addition, the interest rate on the existing notes will increase if we do not
meet our deadlines in connection with the exchange offer.

Maturity Date

March 15, 2010.

4
<PAGE>

Yield and Interest

Cash interest will not accrue on the exchange notes until March 15, 2004.
The principal amount represented by each exchange note will accrete from
$533.285 to $1,000 during the period from the issue date to March 15, 2004.
Thereafter, cash interest on the exchange notes will accrue at a rate of 13%
per annum and will be payable in arrears on March 15 and September 15 of each
year, commencing on September 15, 2004.

Original Issue Discount

For U.S. federal income tax purposes, the exchange notes will be treated as
having been issued with original issue discount equal to the difference between
the issue price of the exchange notes and the sum of all cash payments, whether
denominated as principal or interest, to be made thereon. Each U.S. holder of
an exchange note must include as gross income for U.S. federal income tax
purposes a portion of such original issue discount for each day during each
taxable year in which an exchange note and an existing note is held even though
cash interest payments will not be received prior to September 15, 2004.

Security and Ranking

The exchange notes will not be secured by any collateral.

The exchange notes will be our general unsecured obligations and will rank
equal in right of payment to all of our unsubordinated debt.

Our subsidiaries will not guarantee the exchange notes. Since we are a
holding company and we conduct our business through subsidiaries, the exchange
notes will be effectively subordinated to all debt and other liabilities,
including trade payables, of our subsidiaries. Therefore, if we default, your
right to payment under the exchange notes will be junior to the rights of
holders of the debt of our subsidiaries. In addition, the assets of our
subsidiaries will not be available to satisfy our obligations under the
exchange notes except under limited circumstances.

We estimate that, as of March 31, 1999, on a pro forma basis, Holdings would
have had approximately $327.1 million of debt including the debt of Holdings'
subsidiaries of approximately $286.9 million.

Subordination of the Notes

Although you will be free to exercise your rights and remedies against
Holdings, you will be bound under the indenture governing the exchange notes,
so long as any obligations under of the senior credit facility remain
outstanding, by standstill provisions prohibiting you from initiating or
intervening in an insolvency proceeding of Muzak. The indenture provisions also
specifically prohibit you from seeking a substantive consolidation of Muzak.

In addition, the indenture governing the exchange notes contains
subordination provisions to the effect that, in the event of a substantive
consolidation of Muzak, Holdings and/or Muzak Holdings Finance, you:

. will not be entitled to receive any cash or other payments in respect of
the exchange notes or any obligations under the exchange notes, the
registration rights agreement or the indenture until all obligations
under the senior credit facility have been indefeasibly paid in full in
cash and

. will be required to turn over to the lenders under the senior credit
facility any payments received in violation of such provisions.

Optional Redemption

We cannot choose to redeem the exchange notes prior to March 15, 2004,
except with the proceeds of specified equity offerings.

After March 15, 2004, we can choose to redeem some or all of the exchange
notes at specified prices, plus accrued interest.

Optional Redemption after Equity Offerings

Before March 15, 2002, we can choose to buy back up to 35% of the aggregate
principal amount at maturity of the exchange notes with money that we raise in
one or more equity offerings, as long as:

. we pay a redemption price equal to 113% of the accreted value of the
exchange notes bought;

5
<PAGE>

. we buy the exchange notes back within 60 days of completing the equity
offering; and

. at least 65% of the aggregate principal amount at maturity 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 accreted
value, 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 other 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 100% of their accreted value, plus accrued interest.

Indenture Provisions

The indenture governing the exchange notes limits what we and most or all of
our subsidiaries may do. The provisions of the indenture limit our ability to:

. incur more debt;

. pay dividends and make distributions;

. issue stock of subsidiaries;

. make investments;

. repurchase stock;

. create liens;

. enter into transactions with affiliates;

. enter into sale-leaseback transactions;

. receive guarantees on our other indebtedness from our subsidiaries;

. merge or consolidate; and

. transfer and sell assets.

These covenants are subject to a number of important exceptions.

6
<PAGE>

MUZAK HOLDINGS LLC

SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA

The tables on pages 9 and 10 have been prepared by Muzak Holdings LLC,
formerly known as ACN Holdings, LLC, and are based on the historical financial
statements of Muzak Holdings LLC, Audio Communications Network, Inc., Muzak
Limited Partnership, the independent affiliate territories located in Atlanta,
Albany and Macon, Georgia and Ft. Myers, Florida and Omaha, Nebraska
contributed by Capstar Broadcasting, Business Sound, Music Technologies 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, acquisition and financing transactions we have completed since October
7, 1998, which are discussed in this prospectus in the section entitled "The
Merger, Acquisition and Financing Transactions" and which we refer to as the
merger and the completed transactions, as if they had occurred on January 1,
1998, (b) do not purport to represent what such results of operations or
financial position actually would have been if the merger and the completed
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 specified non-recurring charges or cost savings expected to result
from the merger and completed transactions, 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 Muzak Holdings 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
transactions. 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 respective notes thereto included
elsewhere in this prospectus.

Prior to March 18, 1999, the Capstar Broadcasting affiliates, excluding the
Omaha affiliate, operated as part of Capstar Broadcasting and the Omaha
affiliate operated as part of Triathlon Broadcasting Company. The tables
following this page show the 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 operated as an independent company and,
accordingly, 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 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
the assets and liabilities acquired from Music Technologies did not operate as
an independent company and, accordingly, 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 9 and 10, 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

7
<PAGE>

Muzak Limited Partnership of approximately $3,110,000 for the three
months ended March 31, 1999 and $2,217,000 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
transactions equal to $.4 million for the three months ended March 31,
1999 and $1.5 million for the year ended December 31, 1998.

. EBITDA. Represents net income before interest, income taxes,
depreciation and amortization. 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 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,
however, it is not necessarily comparable to similarly titled amounts
of other companies.

. Adjusted EBITDA. Represents EBITDA before non-cash compensation and
other non-operating income/(expense), adjusted for non-recurring or
eliminated costs and expenses. Adjusted 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 EBITDA is a meaningful measure of performance
but understands that it is not necessarily comparable to similarly
titled amounts of other companies.

. Adjusted EBITDA margin. Represents Adjusted EBITDA as a percentage of
revenues.

. Ratio of total debt to Adjusted EBITDA. Represents total pro forma
debt outstanding, excluding $13,613 of restricted borrowings and $2.4
million of non-recourse debt, as of March 31, 1999, divided by an
amount equal to Adjusted EBITDA for the three months ended March 31,
1999 multiplied by four and reflects the calculation under the terms
of the indenture governing the exchange notes in determining Muzak
Holdings' ability to incur additional debt.

. 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. On a pro forma basis, Muzak Holdings's earnings would
have been inadequate to cover fixed charges by approximately
$11,918,000 and $40,869,000 for the three months ended March 31, 1999
and for the year ended December 31, 1998, respectively.

8
<PAGE>

MUZAK HOLDINGS LLC
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA AS OF AND FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)

<TABLE>
<CAPTION>
Unaudited Pro Forma
-------------------------
For the
three months For the year
ended ended
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Statement of operations data
Revenues............................................ $ 36,026 $142,100
Cost of sales....................................... 13,611 58,728
-------- --------
Gross profit...................................... 22,415 83,372
Selling, general and administrative................. 15,449 48,816
Depreciation and amortization....................... 10,443 41,772
-------- --------
Operating (loss) income............................. (3,477) (7,216)
Interest expense, net............................... (8,425) (33,701)
Other income (expense), net......................... (16) 48
-------- --------
Net loss before extraordinary gain on the
extinguishment of debt............................. (11,918) (40,869)
Extraordinary gain on the extinguishment of debt.... 727 --
-------- --------
Net loss............................................ $(11,191) $(40,869)
======== ========
Other financial data
Cash flows from operations.......................... $ 8,430 $ 25,599
Cash flows from investing activities................ (282,261) (376,898)
Cash flows from financing activities................ 272,376 346,206
EBITDA.............................................. 6,950 34,604
Adjusted EBITDA..................................... 10,616 42,425
Adjusted EBITDA margin.............................. 29.5% 29.9%
Ratio of total debt to Adjusted EBITDA.............. 7.3x --
Ratio of earnings to fixed charges.................. -- --
Balance sheet data (end of period)
Total assets........................................ $432,820
Total debt.......................................... 327,109
Members' interest................................... 68,196
</TABLE>

see notes on the following page

9
<PAGE>

MUZAK HOLDINGS LLC
SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
FOR THE THREE MONTHS END MARCH 31, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)

<TABLE>
<CAPTION>
Three
Months
Three Months Period from January 1, Three Months ended
ended March 1999 through March 18, ended March 31, March 31,
31, 1999 1999 1999 1999
------------ ------------------------ ---------------- ---------
Georgia and
Florida
Muzak Old Capstar Other Pro Forma Unaudited
Holdings (1) Muzak (1) Affiliates (1) Acquisitions (3) Adjustments (5) Pro Forma
------------ --------- -------------- ---------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $12,151 $20,915 $2,288 $1,212 $ (540) $ 36,026
Cost of sales........... 4,471 8,487 1,034 209 (590) 13,611
------- ------- ------ ------ ------- --------
Gross profit........... 7,680 12,428 1,254 1,003 50 22,415
Selling, general and
administrative......... 2,947 10,641 836 492 533 15,449
Depreciation and
amortization........... 3,197 5,973 440 125 708 10,443
------- ------- ------ ------ ------- --------
Operating income
(loss)................. 1,536 (4,186) (22) 386 (1,191) (3,477)
Interest expense, net... (2,331) (2,736) (4) (43) (3,311) (8,425)
Other (expense) income,
net.................... (21) 5 -- -- -- (16)
------- ------- ------ ------ ------- --------
Net (loss) income before
extraordinary gain on
the extinguishment of
debt................... (816) (6,917) (26) 343 (4,502) (11,918)
Extraordinary gain on
the extinguishment of
debt................... 727 -- -- -- -- 727
------- ------- ------ ------ ------- --------
Net (loss) income....... $ (89) $(6,917) $ (26) $ 343 $(4,502) $(11,191)
======= ======= ====== ====== ======= ========
</TABLE>

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

<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 Georgia and
Audio Florida
Muzak Communications Old Capstar Other Pro Forma Unaudited
Holdings (2) Network (2) Muzak Affiliates Acquisitions (4) Adjustments (5) Pro Forma
------------ -------------- -------- ----------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 5,914 $18,917 $ 99,748 $9,845 $11,185 $ (3,509) $142,100
Cost of sales............ 2,556 8,206 42,509 3,970 5,034 (3,547) 58,728
------- ------- -------- ------ ------- -------- --------
Gross profit............ 3,358 10,711 57,239 5,875 6,151 38 83,372
Selling, general and
administrative ......... 1,794 7,245 36,536 3,349 3,238 (3,346) 48,816
Depreciation and
amortization............ 1,683 4,372 21,563 1,931 1,967 10,256 41,772
------- ------- -------- ------ ------- -------- --------
Operating (loss) income.. (119) (906) (860) 595 946 (6,872) (7,216)
Interest expense, net.... (888) (2,520) (10,992) (30) (1,187) (18,084) (33,701)
Other income (expense), net.. 5 (2) (137) 1 17 164 48
------- ------- -------- ------ ------- -------- --------
Net (loss) income........ $(1,002) $(3,428) $(11,989) $ 566 $ (224) $(24,792) $(40,869)
======= ======= ======== ====== ======= ======== ========
</TABLE>

see notes on the following page

10
<PAGE>

MUZAK HOLDINGS LLC
NOTES TO THE SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND THE YEAR ENDED DECEMBER 31, 1998

(1) On March 18, 1999, Old Muzak merged with and into Muzak Holdings' wholly
owned subsidiary, Muzak, formerly Audio Communications Network, and
acquired the Georgia and Florida Capstar Broadcasting Muzak affiliates.
Muzak Holdings' results of operations for the three months ended March 31,
1999 includes the results of operations for Old Muzak and the Georgia and
Florida Capstar Broadcasting Muzak affiliates for the period from March 19,
1999 through March 31, 1999.

(2) Muzak LLC, a wholly-owned subsidiary of Muzak Holdings LLC, acquired the
Muzak affiliates located in the Baltimore, Charlotte, Hillsborough, Kansas
City, St. Louis, Jacksonville, Phoenix and Fresno areas from Audio
Communications Network, Inc. on October 7, 1998. Prior to the acquisition,
Muzak LLC, a wholly-owned subsidiary of Muzak Holdings LLC, had no
operations.

(3) Includes the unaudited historical results of operations of the Muzak
affiliate located in Omaha, Advertising On Hold, Custom On Hold,
CustomTronics and Penobscot Broadcasting Corporation, which does business
as PBC Sound Technologies, for the three months ended March 31, 1999.

(4) Includes the unaudited historical results of operations of Business Sound,
the assets and liabilities of Music Technologies, the Muzak affiliate in
Omaha, Electro Systems, Advertising On Hold, Custom On Hold, CustomTronics
and PBC Sound Technologies for the year ended December 31, 1998.

(5) The pro forma adjustments represent those adjustments necessary to present
the operating results of Muzak Holdings as if the merger and the completed
transactions occurred on January 1, 1998. These adjustments include the
following:

. reflecting the unaudited historical results of operations for the
acquisitions consummated by Muzak, a wholly-owned subsidiary of Muzak
Holdings LLC, and Muzak Limited Partnership during the three months ended
March 31, 1999 and 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 subscriber acquisition costs of
Muzak Limited Partnership with that of Muzak Holdings for the period from
January 1, 1999 through March 18, 1999 and the year ended December 31,
1998. Muzak, a wholly owned subsidiary of Muzak Holdings, defers 100% of
its subscriber acquisition costs and amortizes these commissions as a
component of selling, general and administrative expenses over the life
of the customer contract or five years on a straight-line basis. Muzak
Limited Partnership deferred subscriber acquisition costs, which include
direct costs incurred associated with acquiring new subscribers, and
amortized these costs as a component of depreciation and amortization
over the life of the customer contract or five years on a straight-line
basis.

. eliminating intercompany revenues and cost of sales, primarily for
royalty fees and equipment sales, for transactions between (a) Muzak
Limited Partnership and (b) Muzak Holdings and the entities acquired by
Muzak,

. eliminating 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
transactions, and

. increasing interest expense as a result of debt incurred in connection
with the merger and the completed transactions.

11
<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 existing 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 or do not exchange their notes
properly, their notes may only be transferred in limited circumstances under
the federal securities laws. As a result, a holder of existing notes after the
exchange offer may be unable to sell their notes.

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 important credit statistics and is
presented assuming we had completed the merger and the other completed
transactions as of March 31, 1999 and applied the proceeds as intended:

<TABLE>
<CAPTION>
At March 31, 1999
Pro Forma
-----------------
(in millions)
<S> <C>
Total debt.................................................... $327.1
Equity interests of Muzak Holdings' members................... 68.2
Debt to equity ratio.......................................... 4.8x
Ratio of earnings to fixed charges............................ --
</TABLE>

The ratios provided above are often used by investors to evaluate a
company's capital structure and its ability to make payments on its debt.

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 and our obligations under our credit facility;

. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, which will reduce the funds
available for working capital, capital expenditures, acquisitions of
independent affiliates or competitors and other general corporate
purposes and may require us to limit new customer installations,
which require an initial capital outlay for equipment;

. limit our flexibility in planning for, or reacting to, changes in the
production, distribution or marketing of our products, customer
demand, competitive pressures, and the business music industry;

. place us at a competitive disadvantage compared to our competitors
that have proportionately less debt;

. increase our vulnerability to general adverse economic and business
music industry conditions; and

. limit our ability to borrow additional funds.

On a pro forma basis, Muzak Holdings' earnings would have been inadequate to
cover fixed charges by approximately $11,918,000 for the three months ended
March 31, 1999.

Increases in market interest rates will increase our debt service obligations.

A portion of our debt, including all of the 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

12
<PAGE>

exchange notes and our other debt and for operations and future business
opportunities and will intensify the consequences of our leveraged capital
structure. As of March 31, 1999, on a pro forma basis $165.0 million of our
total outstanding debt of $327.1 million bore interest at variable rates.

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 and the senior subordinated note indenture do not fully
prohibit us or our subsidiaries from doing so. As of March 31, 1999, on a pro
forma basis, our credit facility would permit additional borrowing of
approximately $44.6 million. The addition of further debt to our current debt
levels could intensify the leverage related risks that we now face. In July
1999, we increased the amount available for borrowing under our senior credit
facility by $30 million. 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
additional debt which may be senior and which may be secured debt.

The existing notes and the exchange notes are effectively subordinated to all
liabilities of our subsidiaries.

Muzak Holdings is a holding company. As a result, the exchange notes are
effectively subordinated to all existing and future liabilities of its
subsidiaries, including debt under our senior credit facility and the senior
subordinated notes.

If the maturity of the loans under the senior credit facility were
accelerated, Muzak would have to repay all debt outstanding under the senior
credit facility before it could distribute any assets or cash to Muzak
Holdings. Remedies to the lenders under the senior credit facility could
constitute events of default under the indenture governing the exchange notes.
If these remedies were exercised, the maturity of the exchange notes could be
accelerated, and Muzak's obligations under the senior credit facility could be
accelerated also. In such circumstances, there can be no assurance that Muzak's
assets would be sufficient to repay all of its debt and then to make
distributions to Muzak Holdings to enable Muzak Holdings to meet its
obligations under the indenture.

Claims of creditors of our subsidiaries, including general trade creditors,
will generally have priority over holders of the exchange notes as to the
assets of our subsidiaries. Additionally, any right of Muzak Holdings to
receive assets of any of its subsidiaries upon such subsidiary's liquidation or
reorganization will be effectively subordinated to the claims of the
subsidiary's creditors, except to the extent, if any, that Muzak Holdings
itself is recognized as a creditor of such subsidiary, in which case the claims
of Muzak Holdings would still be subordinate to the claims of such creditors
who hold security in the assets of such subsidiary to the extent of such assets
and to the claims of such creditors who hold indebtedness of such subsidiary
senior to that held by Muzak Holdings. As of March 31, 1999, on a pro forma
basis, the aggregate amount of the liabilities of Muzak Holdings' subsidiaries
as to which holders of the exchange notes would be effectively subordinated was
approximately $286.9 million. Muzak Holdings' subsidiaries may incur additional
debt in the future and the exchange notes will be effectively subordinated to
such debt.

We have no operations and must rely on dividends from our subsidiaries to make
payments on the exchange notes.

Muzak Holdings does not have any operations or assets other than its
ownership of Muzak, and Muzak Holdings Finance does not have any operations or
assets. As a result, we must rely on dividends and other advances and transfers
of funds from our subsidiaries to provide the funds necessary to make payments
on the exchange notes. Our subsidiaries' ability to pay such dividends and make
such advances and transfers will be subject to applicable state laws
restricting the payment of dividends, and to restrictions in our credit
facility and the senior subordinated note indenture and other agreements
governing debt of our subsidiaries.

13
<PAGE>

Muzak's ability to make distributions to Muzak Holdings is limited by its
agreements and by state law.

Muzak's senior credit facility and senior subordinated note indenture impose
substantial restrictions on its ability to make distributions to Muzak
Holdings. The senior credit facility permits Muzak to make distributions to
Muzak Holdings only:

. beginning on September 15, 2004, with respect to interest accruing after
March 15, 2004,

. in an amount sufficient to permit Muzak Holdings to make payments of
interest on the existing notes and the exchange notes,

. if after giving effect to the payment, on a pro forma basis as of the end
of the most recent fiscal quarter, Muzak's interest coverage ratio is
greater than 2.5 to 1, its fixed charge coverage ratio is greater than
1.35 to 1, its total leverage ratio is not more than 3.75 to 1, and its
senior leverage ratio is no more than 2.25 to 1.

Muzak's senior subordinated note indenture permits Muzak to make payments or
distributions to Muzak Holdings on and after September 15, 2004 in an amount
sufficient to permit Muzak Holdings to make cash interest payments when due to
holders of the existing notes and the exchange notes, but other payments and
distributions can be made only if, among other things:

. Muzak's consolidated leverage ratio is less than 6.5 to 1 on or before
March 15, 2001 or 6.0 to 1 after that date, so that Muzak could incur at
least $1 of additional debt under the terms of the senior subordinated
note indenture,

. the payment or distribution to Muzak Holdings, together with all payments
or distributions in respect of capital stock, purchases or redemptions of
capital stock, or payments of principal or purchases or redemption on
debt that is subordinated to the senior subordinated notes prior to
scheduled maturity or scheduled repayment made from March 18, 1999 to the
date of the payment is not more than the sum of, among other things:

. Muzak's cumulative EBITDA over the same period minus 1.4 times its
consolidated interest expense over the period, plus

. net cash proceeds from the sale of capital stock or debt during the
period.

Muzak's ability to comply with these conditions may be affected by events that
are beyond the control of Muzak Holdings.

Future borrowings by Muzak can also be expected to contain restrictions or
prohibitions on distributions by Muzak to Muzak Holdings.

Muzak Holdings' interests in Muzak are pledged as collateral under the senior
credit facility and may not be available to holders of the exchange notes.

All of Muzak Holdings' interests in Muzak are pledged as collateral under
the senior credit facility. Therefore, if Muzak Holdings were unable to pay the
accreted value or principal or interest on the exchange notes, the ability of
the holders of the exchange notes to proceed against the member interests of
Muzak to satisfy such amounts would be subject to the prior satisfaction in
full of all amounts owing under our credit facility. Any action to proceed
against such interests by or on behalf of the holders of exchange notes would
constitute an event of default under our credit facility entitling the lenders
thereunder to declare all amounts owing thereunder to be immediately due and
payable, which event would in turn constitute an event of default under the
senior subordinated note indenture, entitling the holders of the senior
subordinated notes to declare the principal and accrued interest on the senior
subordinated notes to be immediately due and payable. In addition, as secured
creditors, the lenders under our credit facility would control the disposition
and sale of Muzak interests after an event of default under our credit facility
and would not be legally required to take into account the interests of
unsecured creditors of Muzak Holdings, such as the holders of the exchange
notes, with

14
<PAGE>

respect to any such disposition or sale. There can be no assurance that the
assets of Muzak Holdings after the satisfaction of claims of its secured
creditors would be sufficient to satisfy any amounts owing with respect the
exchange notes.

Lenders under our credit facility will get paid before the holders of exchange
notes in some situations.

The indenture governing the exchange notes contains an agreement for the
benefit of the lenders under the credit facility. These provisions prohibit the
holders of the existing notes and the exchange notes from initiating or
intervening in an insolvency proceeding of Muzak, so long as any obligations
under the credit facility are outstanding. These provisions also specifically
prohibit the holders of the existing notes and the exchange notes from seeking
a substantive consolidation of Muzak, Muzak Holdings and/or Muzak Holdings
Finance. The indenture also provides that, in the event of a substantive
consolidation of Muzak, Muzak Holdings and/or Muzak Holdings Finance, the
holders of the exchange notes

. will not be entitled to receive any cash or other payments in respect of
the exchange notes, any obligations under the exchange notes, the
registration rights agreement or the indenture related thereto until
obligations under the credit facility have been indefeasibly paid in full
in cash and

. will be required to turn over to the lenders under the credit facility
any payments received in violation of such provisions.

You may be taxed on income from the exchange notes before you receive cash
payments of that income.

The exchange notes will be issued at a substantial discount from their
principal amount at maturity. Consequently, holders of the exchange notes
generally will be required to include amounts in gross income for federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable.

We may have to make increased tax distributions to our members because we may
be unable to deduct some of our interest payments on the exchange notes.

The indenture permits us to make cash distributions to our members in
amounts calculated to provide the members with enough cash to satisfy their tax
liabilities from income allocated to them by Muzak Holdings. Any cash
distributed to the members will not be available to satisfy our obligations
under the exchange notes. If the exchange notes are treated as applicable high
yield discount obligations for federal income tax purposes, then interest
deductions of Muzak Holdings will be deferred or permanently disallowed.
Deferral or disallowance of deductions results in an increase in taxable income
or a reduction in taxable losses allocable to some or all of the members of
Muzak Holdings thereby increasing the tax distributions Muzak Holdings must
make to its members.

The rules defining applicable high yield discount obligations were written
to apply only to issuers that are corporations. Muzak Holdings is a limited
liability company, and is treated as a partnership for federal income tax
purposes. As a result, Muzak Holdings does not fall within the explicit terms
of the definition. However, the Internal Revenue Service has announced an
interpretation of the rules that would disallow a portion of Muzak Holdings'
interest deduction equal to the percentage of its membership units that are
directly or indirectly owned by a corporation. If the applicable high yield
discount obligations are deemed to be applicable to Muzak Holdings, Muzak
Holdings could not claim a deduction for original issue discount that accrues
with respect to substantially all of the exchange notes until amounts
attributable to such original issue discount are actually paid. In addition, to
the extent that the yield to maturity of the exchange notes exceeds 11.23%, any
deduction that is attributable to that excess would be permanently disallowed.
This deferral and disallowance of tax deductions will increase the taxable
income of Muzak Holdings, thereby increasing the tax distributions it must make
to its members and reducing the cash available to satisfy the obligations of
Muzak Holdings under the exchange notes.

15
<PAGE>

While not free from doubt, to the extent the non-deductible portion of
original issue discount would have been treated as a dividend if it had been
distributed with respect to stock of the corporate member of Muzak Holdings, it
would be treated as a dividend for purposes of the rules relating to the
dividends received deduction for corporate holders.

If there is a bankruptcy case against the issuers, the principal amount of your
exchange notes may be limited.

If a bankruptcy case is commenced by or against either of the issuers under
the United States Bankruptcy Code after the issuance of the exchange notes, the
claim of a holder of exchange notes with respect to the principal amount
thereof may be limited to an amount equal to the sum of (1) the issue price of
the exchange notes as shown on the cover page hereof plus (2) the original
issue discount that is not deemed to constitute "unmatured interest" for the
purposes of the Bankruptcy Code. Any original issue discount that was not
amortized as of any such bankruptcy filing would likely constitute "unmatured
interest."

Our net losses from operations and working capital deficit may continue and we
may not have sufficient earnings to make payments on the notes.

Our ability to make payments on our debt, including the exchange notes, 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. 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 part of our
debt, including the exchange notes. We cannot assure you that we could
accomplish any of these alternatives on a timely basis or on satisfactory
terms, if at all.

In the past, many of the businesses that now comprise Muzak had net losses.
In particular, 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. Muzak 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 the merger and completed
transactions and fees and expenses incurred in connection with the merger and
completed transactions. 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 ABRY Broadcast Partners III's subordinated
note of $40.8 million plus interest, which was repaid concurrently with the
consummation of the merger.

The terms of our debt impose operational and financial restrictions on our
company.

Our credit facility, the indenture and the senior subordinated notes
indenture will contain various provisions that limit our management's
discretion by restricting the ability of Muzak and Muzak Holdings to:

.incur additional debt;

.make investments and other restricted payments;

.enter into sale and leaseback transactions;

.incur liens;

.engage in mergers, acquisitions and asset sales;

16
<PAGE>

.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 financial ratios. If we do not
comply with the restrictions in our credit facility, the indenture, the senior
subordinated notes 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.

Our ability to purchase your notes on a change of control may be limited.

If we undergo a change of control, we may need to refinance large amounts of
our debt, including the exchange notes, the senior subordinated notes and our
credit facility and we must offer to buy back your exchange notes for a price
equal to 101% of the accreted value, 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.

The events that would trigger these requirements are very technical, but
they generally involve:

. a person or one or more related entities obtains the power to vote or
dispose or direct the disposition of more than 35% of the total voting
power of the company's capital stock, or obtains the right to acquire
such power, and certain ABRY affiliates do not have the power to vote or
dispose or direct the disposition of a greater percentage of the total
voting power of the company's capital stock and do not have the right or
ability to elect a majority of the board of directors,

. the company merges and is not the surviving entity,

. the company merges and the common stock of the company is converted into
cash, securities or other property and holders of the capital stock of
the company immediately prior to the merger hold less than a majority of
the capital stock of the surviving entity after the merger,

. the members of the board of directors change during any 2 year period
such that the members of the board at the beginning of the period,
together with directors added during the period with the approval of 2/3
of the board no longer comprise a majority of the board,

. the stockholders of the company approve a plan or proposal for the
liquidation or dissolution of the company.

In addition, our credit facility prohibits us from repurchasing the exchange
notes after a change of control until we have repaid in full our debt under the
credit facility and the senior subordinated exchange notes indenture restricts
Muzak's availability to us until we have made a change of control offer. If we
fail to repurchase the senior subordinated notes or 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 Muzak.

We are permitted to redeem the existing notes and the exchange notes prior to
maturity

The indenture permits us to redeem some or all of the existing notes and the
exchange notes after March 15, 2004 at specified prices declining to par on
March 15, 2007. The indenture also permits us to redeem up to 35% of the
existing notes and the exchange notes before March 15, 2002 at a price equal to
113% of the face amount, plus accrued interest. Any redemption before March 15,
2002 can only be made with proceeds of an equity offering in which we receive
at least $20 million, and must be made within 60 days of the offering.

17
<PAGE>

If we redeem existing notes or exchange notes, the redemption price may be
less than the market price for the existing notes or exchange notes at that
time, and you may therefore receive less in a redemption that you would if you
sold existing notes or exchange notes in a market transaction.

Changes in our controlling equityholders' interests could result in
acceleration of our obligations.

Certain changes in the ownership interest of ABRY Broadcast Partners III,
L.P. or ABRY Broadcast Partners II, L.P. in us would constitute a change of
control under the indenture, our senior credit facility, and other agreements
and obligations. As such, they could result in acceleration of our obligations
or an event of default under these agreements. In that event, we may not have
sufficient funds to make the change of control offer required by the indenture,
or otherwise meet our obligations under the exchange notes. The ownership
interests of the ABRY entities are not within our control.

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.
We have in the past experienced satellite failure that disrupted our
transmissions, and we cannot assure you that we will not experience satellite
failures in the future, or that the satellites we use will remain in operation
through their projected useful lives. Satellite failure could result in
disruptions in service to our customers, additional expenditures for satellite
receiver re-pointing or new receiving equipment, and could damage our
relationships with our clients. As a result, satellite failure could have a
material adverse effect on our financial condition and results of operations.

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.

Prior to May 1998, we transmitted music to many clients from transponders
located on PanAmSat Corporation'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. If this 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.

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. This coverage does not cover year 2000 related satellite failures.

We may be unable to complete acquisitions or integrate acquired businesses.

Our long-term strategy includes seeking acquisitions of providers of music,
audio marketing and video services to businesses. Our results of operations
could be materially affected if we do not complete acquisitions. Expenses
arising from our efforts to make acquisitions could adversely affect our
financial condition and results of operations. We cannot assure you that we
will have sufficient resources to continue to pursue acquisitions or of the
terms of future acquisitions.

18
<PAGE>

The process of integrating acquired businesses into our operations may
result in unforeseen difficulties. Integrating acquired businesses may also
require a disproportionate amount of resources and management attention. There
can be no assurances that we will be successful in integrating acquired
businesses or that the acquired businesses will perform as expected or generate
significant revenues or profits. In 1998 Muzak Limited Partnership and Audio
Communications Network, LLC acquired eight independent Muzak affiliate
territories and a competing national provider of business music. In January and
February 1999, Audio Communications Network acquired two additional affiliate
territories. In March 1999, Audio Communications Network and Old Muzak merged,
and Muzak acquired four additional affiliate territories. Since the merger,
Muzak has acquired two affiliate territories through June 1999. We cannot
assure you that we will have sufficient capital resources to continue to pursue
acquisitions. 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 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 EAIC 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

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. Some aspects of copyright law with respect to use
of these materials are not yet settled, industry customs dealing with these
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 these 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 these
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 must be executed by each independent affiliate to be
effective with respect to that 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. As of May 24, 1999, we have received signed
amendments from independent affiliates with respect to 76 of our 122 affiliate
territories. With respect to 34 of the remaining affiliate territories, we are
awaiting state approval submit the amendment to those affiliates.

The amendment increases the commission rate independent affiliates pay us
for national clients' locations in their territories. It also provides for
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. If we do not
receive signed amended affiliate agreements from the remaining

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affiliate territories, we will not be able to benefit from the increased
commissions and improved installation and service coordination for these
affiliates and these affiliates will not benefit from the product exclusivity
provisions for Audio Marketing and Video Imaging.

Our independent affiliates have exclusive licenses to sell our products and
to use our trademarks in their territories. They pay us a monthly fee based on
the number of businesses within their territory and a monthly broadcasting
royalty based on their billings. We share revenues from the sale of some
services with our independent affiliates.

The controlling equityholder of our company may have interests that conflict
with your interests.

ABRY Broadcast Partners II, L.P. and ABRY Broadcast Partners III, L.P., as
beneficial owners, control 68.0% of the membership interests of Holdings, and
Holdings is the sole member of Muzak. ABRY Broadcast Partners II and ABRY
Broadcast Partners III can therefore direct Muzak Holdings' policies and those
of Muzak, and can select a majority of our managers and directors. The
interests of ABRY Broadcast Partners II and ABRY Broadcast Partners III and
their affiliates and the members of our management may conflict with the
interests of the noteholders.

ABRY Broadcast Partners II and ABRY Broadcast Partners III and their
affiliates make controlling investments in media businesses and businesses that
support or enhance media properties. ABRY Broadcast Partners II and ABRY
Broadcast Partners III, 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. ABRY
Broadcast Partners II and ABRY Broadcast Partners III 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, these acquisition opportunities would
not be available to Muzak.

You should not expect the co-issuer of the exchange notes to participate in
making payments on the notes.

Muzak Holdings Finance is a wholly-owned subsidiary of Holdings that was
incorporated for the sole purpose of serving as a co-issuer of the exchange
notes to accommodate the issuance of the exchange notes by Holdings. Muzak
Holdings 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 Holdings Finance to
participate in servicing the interest or principal obligations of additional
interest, if any, on the exchange notes.

We may be unable to successfully compete in our industry.

We compete with many local, regional, national and international providers
of business music and business services. National and international competitors
such as AEI Music Network, Inc., DMX, Inc. and Music Choice are typically
large, well-capitalized entities that target customers with multiple widespread
locations. Local and regional competitors are typically small entities that
target businesses with few locations. We are seldom the lowest-price provider
of business music in any territory, and we may be unable to compete with
competitors that offer lower prices. Some of our competitors may have
substantially greater financial, technical, personnel and other resources than
we do.

We may be unable to keep pace with technological change affecting the
production and delivery of our products.

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

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and the Internet. Competitors may use different forms of delivery for the
services we offer, and customers may prefer these alternative delivery methods.
We may not have the financial or technological resources to adapt to changes in
available technology and our clients' preferences.

We cannot assure you that we will be able to use, or compete effectively
with competitors that adopt, new delivery methods and technologies, or 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. Advances in telecommunications
technology and Internet music delivery systems could lower the barriers to
entry in the business music industry and result in increased competitive
pressure on us.

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 proceeding. The industry-wide agreement between business
music providers and ASCAP expired 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.

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, in particular, Mr. William Boyd, our Chief
Executive Officer. The loss of 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.

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 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

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could be subordinated to all other debts of either issuer if, among other
things, the court found that, at the time we incurred the debt represented by
the exchange notes, we:

. received less than reasonably equivalent value or fair consideration
for the incurrence of the debt; and

. were insolvent or rendered insolvent by reason of this 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 would incur, debts beyond our
ability to pay them 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

. 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. 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 were completed in connection with the merger, we will not be
insolvent, will not have unreasonably small capital for the business in which
we are engaged, and will not have incurred debts beyond our ability to pay them
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 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. This 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 have replaced our primary computer
system at our headquarters, and we believe that it is now substantially year
2000 compliant. We are in the process of replacing the software at our owned
affiliates and expect the

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replacement to be completed by September 1999. The new software is also
available to our independent 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 these 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 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 existing notes
or the exchange notes.

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THE MERGER, ACQUISITION AND FINANCING TRANSACTIONS

Acquisition of Audio Communications Network, Inc. Audio Communications
Network, LLC, which we refer to as Audio Communications Network, acquired the
Muzak affiliates in the Baltimore, Charlotte, Hillsborough, Kansas City, St.
Louis, Jacksonville, Phoenix and Fresno areas from Audio Communications
Network, Inc., which we refer to as Old Audio Communications Network on October
7, 1998, from DMA Holdings Statutory Trust. The purchase price for this
acquisition was approximately $66.8 million, including fees, expenses and other
adjustments.

On the day prior to this acquisition, DMA Holdings, Inc., a wholly owned
subsidiary of DMA Holdings Statutory Trust, acquired all of the stock of Old
Audio Communications Network when it merged into Old Audio Communications
Network. DMA Holdings, Inc. received all of the outstanding shares of Old Audio
Communications Network, and the former holders of Old Audio Communications
Network shares received cash for their shares. The agreement, which was dated
June 5, 1998, included representations and warranties with respect to the
condition of the Muzak affiliates acquired from Old Audio Communications
Network, covenants as to the conduct of business prior to the closing and
various closing conditions.

Audio Communications Network, as the assignee of ABRY Partners, Inc.,
exercised its option to purchase the Muzak affiliates acquired from Old Audio
Communications Network under the terms of letter agreement dated June 5, 1998
between ABRY Partners and DMA Holdings, Inc. The agreement included
representations and warranties with respect to conditions of the Muzak
affiliates acquired from Old Audio Communications Network, 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 into Audio Communications Network. At the time
of this merger, Audio Communications Network changed its name to Muzak LLC and
ACN Holdings LLC changed its name to Muzak Holdings LLC, which we refer to as
Holdings. As of May 26, 1999 beneficial ownership of Holdings' voting
membership units was as follows: ABRY Broadcast Partners III and ABRY Broadcast
Partners II owned approximately 68.0%; Capstar Broadcasting owned approximately
22.6%, Muzak's management owned approximately 4.4% and other investors owned
approximately 5.0%.

In connection with the merger and the purchase of the Omaha affiliate:

. Muzak entered into a new senior secured credit facility that provided
for $135.0 million of term loans and a $35.0 million revolving credit
facility of which $3.4 million was drawn at closing;

. Muzak issued the senior subordinated notes;

. Holdings issued approximately $40.0 million of gross proceeds of the
existing notes;

. Holdings received an equity investment of approximately $34.9
million, of which approximately $17.9 million reflects cash
contributed by ABRY Broadcast Partners II and ABRY Broadcast Partners
III, $1.1 million reflects cash contributed by management and $15.9
million reflects the contribution of the assets acquired, net of
consideration paid in cash, pursuant to the acquisition of Capstar
Broadcasting's Muzak affiliates;

. Holdings paid cash consideration in the acquisition of Capstar
Broadcasting's Muzak affiliates of approximately $5.4 million;

. Muzak paid approximately $125.5 million in cash merger consideration
and issued non-voting equity interests to the partners of Old Muzak;

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<PAGE>

. Muzak completed a tender offer and consent solicitation for $99.7
million of the outstanding 10% Senior Notes due 2003 of Old Muzak;

. Muzak repaid the majority of the other existing debt of Old Muzak;

. Muzak repaid the majority of the existing debt of Audio
Communications Network; and

. we paid our fees and expenses in connection with the foregoing
transactions.

The Business Sound Acquisition. On January 15, 1999, Audio Communications
Network acquired all of the outstanding stock of Business Sound, Inc. for
approximately $4.1 million. This acquisition was financed with approximately
$4.1 million of cash contributed by ABRY Broadcast Partners 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 Music Technologies Acquisition. On December 31, 1998, Old Muzak acquired
assets and liabilities from Music Technologies, Inc., for approximately $10.0
million. Music Technologies was a national provider of business music. This
acquisition was financed by borrowings under Old Muzak's credit facilities.
During 1998, the assets and liabilities acquired from Music Technologies
produced revenues of approximately $2.8 million.

The Electro Systems Acquisition. On February 24, 1999, Audio Communications
Network acquired Electro Systems, the Muzak independent affiliate located in
Panama City, Florida for approximately $0.6 million, plus the assumption of
debt, which is non-recourse to Muzak. 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, Ft. Myers, Florida and on May 3, 1999, acquired the Muzak
affiliate territory located in Omaha, Nebraska from Capstar Broadcasting. We
refer to all of the Muzak affiliates that we acquired from Capstar Broadcasting
as the Capstar Broadcasting Muzak affiliates. Capstar Broadcasting received
$21.3 million, comprised of voting membership units of Holdings valued at $15.9
million and cash consideration of approximately $5.4 million. During 1998, the
Capstar Broadcasting Muzak affiliates had combined revenues of $11.2 million.

The Custom On Hold Acquisition. On March 24, 1999, Muzak acquired the net
assets of Custom On Hold Services, Inc. for approximately $180,000. Custom On
Hold Services was an audio marketing company located in the state of
Washington.

The Advertising On Hold Acquisition. On June 15, 1999, Muzak acquired the
net assets of Advertising On Hold, Inc. for approximately $6.9 million.
Advertising On Hold was a national provider of business music with offices
located in Florida, Georgia and North Carolina.

The CustomTronics Acquisition. On June 18, 1999, Muzak acquired the net
assets of CustomTronics Sound, a sole propriertorship located in California,
for approximately $780,000. CustomTronics was a provider of business music and
was located in California.

The PBC Sound Technologies Acquisition. On June 30, 1999, Muzak acquired the
net assets of Penobscot Broadcasting Corporation, which does business as PBC
Sound Technologies, for approximately $907,000. PBC Sound Technologies was the
Muzak affiliate for the Bangor, Maine area.

MEM Holdings Note. On July 1, 1999, Muzak issued a 15% junior subordinated
unsecured note to MEM Holdings, LLC in the amount of $3.0 million. MEM Holdings
is a holding company that owns 68% of the voting interests in Muzak Holdings
LLC. ABRY Broadcast Partners III and ABRY Broadcast Partners II are the
beneficial owners of MEM Holdings.

Additional Borrowings under the Senior Credit Facility. On July 14, 1999,
Muzak increased its borrowings under the senior secured credit facility by
$30.0 million of term loans such that it provides for a total of $165.0 million
of term loans and the $35 million revolving credit facility.

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<PAGE>

THE EXCHANGE OFFER

Purpose of the Exchange Offer

On March 18, 1999 Muzak Holdings and Muzak Holdings Finance privately placed
the existing notes in a transaction exempt from registration under the
Securities Act. Accordingly, the existing notes may not be reoffered, resold or
otherwise transferred in the U.S. unless registered under the Securities Act or
unless an exemption from the Securities Act registration requirements is
available. At the time of the private placement, we entered into a registration
rights agreement, in which we agreed to:

. file registration statement not later than 75 days following the date of
original issuance of the existing notes;

. use our reasonable best efforts to cause the registration statement to
become effective no later than 150 days after the date of original
issuance of the existing notes;

. use our 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 our 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.

Resale of the exchange notes

Based on interpretations by the SEC's staff in no-action letters issued to
other parties, we believe that holders of exchange notes may transfer the
exchange notes without complying with the registration requirements of the
Securities Act and without delivering a prospectus that meets the requirements
of Section 10 of the Securities Act if the holders:

. are not affiliates of Muzak Holdings or Muzak Holdings Finance within
the meaning of Rule 405 under the Securities Act,

. acquired the exchange notes in the ordinary course of their business,

. are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes,

. are not broker-dealers that acquired existing notes directly from us,
and

. are not broker-dealers that acquired existing notes as a result of
market-making activities or other trading activities.

Each holder of existing notes that participates in the exchange offer will
be required to make representations to us in the Letter of Transmittal to the
foregoing effect.

Consequences of Failure to Exchange

The existing notes that are not exchanged in the exchange offer will remain
restricted securities. These existing notes may be resold only:

. to us, upon redemption or otherwise,

. so long as the existing notes are eligible for resale under 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 on an opinion of counsel reasonably acceptable
to us, or

. pursuant to an effective registration statement under the Securities
Act.

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In any case, the existing notes may only be sold in accordance with any
applicable securities laws of any state of the United States.

Terms of the Exchange

Upon the terms and subject to the conditions 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 Tuesday,
September 14, 1999, or a later date and time as to which the exchange offer has
been extended. In that case, the expiration date will be the latest time and
date to which the exchange offer is open, which will not be more than 60 days
after the original expiration date. 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 a exchange note designation and a different
CUSIP number from the existing notes;

. the exchange notes will not bear legends restricting their transfer 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, $75,000,000
aggregate principal amount at maturity of existing notes were outstanding.

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 indenture relating to the existing 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 of acceptance, 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 other events described herein or otherwise,
the certificates for any unaccepted existing notes will be returned, without
expense, to the tendering holder 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 some 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 Tuesday, September
14, 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 that case, the expiration date will be the latest time and date to which the
exchange offer is open.

In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice, which notice if given orally, to be
confirmed in writing, and will issue a press release or other public
announcement of the extension, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.

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<PAGE>

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 described below
under "conditions" shall not have been satisfied, by giving oral or
written notice, which notice if given orally, to be confirmed in
writing, of the 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 of the delay to
the registered holders.

Procedures for Tendering

Only a registered holder of existing notes may tender those 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 the Letter of Transmittal or facsimile thereof, 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 provided 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 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 the book-entry transfer
facility has received an express acknowledgment from the participant in the
book-entry transfer facility tendering the existing notes that the participant
has received and agrees:

. to participate in the Automated Tender Option Program;

. to be bound by the terms of the Letter of Transmittal; and

. that we may enforce this agreement against the participant.

By executing the Letter of Transmittal or agent's message, each holder will
make to us the representations described above in the fourth paragraph under
the heading "--Purpose and Effect of the Exchange Offer."

The tender by a holder and the acceptance of the tender by us will
constitute agreement between the holder and the company in accordance with the
terms and subject to the conditions described 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 Holdings 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 them.

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 the
registered holder to tender on the 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.

28
<PAGE>

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, the guarantee must be by a member firm of the
Medallion System, which we refer to as an eligible institution.

If the Letter of Transmittal is signed by a person other than the registered
holder of any existing notes listed therein, the notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered holder
as the registered holder's name appears on the notes with the signature on
those notes guaranteed by an eligible institution.

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, for
the purpose of facilitating the exchange offer, and subject to the
establishment of the book-entry transfer facility, 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 the book-entry transfer
facility to transfer the 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 the
Authorized Tender Option Program on or prior to the expiration date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under those procedures, the tender of the 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 Muzak Holdings and Muzak Holdings Finance,
which we refer to as the Holdings Issuers, in their sole discretion, which
determination will be final and binding. The Holdings 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
Holdings Issuers' counsel, be unlawful. The Holdings Issuers also reserve the
right to waive any defects, irregularities or conditions of tender as to
particular existing notes. The Holdings Issuers may not waive any condition to
the exchange offer unless the condition is legally waiveable. If a waiver by
the Holdings Issuers gives rise to the legal requirement to do so, the Holdings
Issuers will hold the exchange offer open for at least five business days
thereafter. The Holdings 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 Holdings Issuers shall determine. Although the Holdings
Issuers intend to notify holders of defects or irregularities with respect to
tenders of existing notes, neither the Holdings Issuers, the exchange agent nor
any other person shall incur any liability for failure to give notification.
Tender of existing notes will not be deemed to have been made until the 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.

29
<PAGE>

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 the 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 the 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 the
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 provided herein prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer. Any notice of
withdrawal must:

. specify the name of the person having deposited notes to be withdrawn;

. identify the notes to be withdrawn, including the certificate number(s)
and principal amount of those 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 those 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 those notes into the name of the person
withdrawing the tender; and

. specify the name in which any of the 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 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 without cost to the
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.

30
<PAGE>

Conditions

Notwithstanding any other term of the exchange offer, the Holdings 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 the 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 Holdings Issuers' reasonable judgment, might materially
impair the Holdings 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 Holdings 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 Holdings Issuers'
reasonable judgment, might materially impair the Holdings Issuers'
ability to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer; or

. any governmental approval has not been obtained, which approval the
Holdings Issuers shall, in their reasonable discretion, deem necessary
for the consummation of the exchange offer as contemplated hereby.

If the Holdings Issuers determine, in their reasonable discretion, that any
of the conditions are not satisfied, the Holdings 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 the existing notes as described in "--Withdrawal
of Tenders" above;

. waive the 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
or Overnight Courier:
State Street Bank and Trust Company
2 Avenue de Lafayette
5th Floor
Boston, MA 02111

Attention: Susan Lavey

By Facsimile.
(For Eligible Institutions Only)

(617) 662-1452

Confirm by Telephone:

(617) 662-1544

Susan Lavey

Delivery to an address other than those above will not constitute a valid
delivery.

31
<PAGE>

Fees and Expenses

The expenses of soliciting tenders will be borne by the Holdings 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 Holdings Issuers and their affiliates.

The Holdings 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 Holdings 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 with the exchange offer.

The Holdings Issuers will pay the cash expenses to be incurred in connection
with the exchange offer. These 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, as reflected in the Holdings Issuers' accounting records on the
date of exchange. Accordingly, the Holdings 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.

32
<PAGE>

USE OF PROCEEDS

We used the gross proceeds of approximately $330.2 million from the existing
note offering, the senior credit facility, the senior subordinated note
offering 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 $99.7 million of the outstanding 10% senior notes due 2003
of Old Muzak 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 Broadcast Partners III on a
subordinated note made in connection with the acquisition of Muzak
affiliates from Old Audio Communications Network and the accrued
interest thereon;

. to pay cash consideration of approximately $5.4 million and equity
consideration of approximately $15.9 million in the acquisitions of
Capstar Broadcasting's Muzak affiliates; and

. to pay fees and expenses associated with the merger and related
transactions of approximately $10.0 million.

For information on the interest rates and maturities of the existing debt of
Old Muzak and the existing debt of Audio Communications Network 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.

33
<PAGE>

CAPITALIZATION

The following table sets forth, as of March 31, 1999, the actual
capitalization of Holdings and the pro forma capitalization of Holdings, after
giving effect to the following transactions, all of which occurred after March
31, 1999:

. the acquisitions of the Omaha affiliate, Advertising On Hold,
CustomTronics and PBC Sound Technologies,

. Muzak's issuance of a $3.0 million promissory note to MEM Holdings, and

. the amendment of Muzak's credit facility to provide for an additional
$30.0 million of term loans.

These transactions are described more fully under the heading "The Merger,
Acquisition and Financing Transactions." You should read the information
contained in the following table in conjunction with "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 Audio Communications Network and their related notes.

<TABLE>
<CAPTION>
March 31, 1999
----------------
Unaudited
Actual Pro Forma
------ ---------
(unaudited)
(in millions)
<S> <C> <C> <C>
Revolving credit facility................................ $ 3.4 $ --
Senior term loans........................................ 135.0 165.0
Senior subordinated notes................................ 115.0 115.0
Existing notes........................................... 40.2 40.2
Other debt............................................... 7.3 6.9(a)
------ ------
Total debt............................................. 300.9 327.1(b)
Members' interest........................................ 65.8 68.2(c)
------ ------
Total capitalization................................... $366.7 $395.3
====== ======
</TABLE>
- --------
(a) Other debt includes the following:

. $2.4 million of debt of Electro Systems that is non-recourse to
Holdings,

. capital lease obligations of $1.0 million and

. related party notes payable of $3.5 million.

(b) Total debt that is recourse to Holdings equals $324.7 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 Holdings.

(c) Unaudited pro forma members' interest includes the following contributions
made to Muzak Holdings and an accumulated deficit of $1.2 million generated
by Muzak Holdings for the period from October 7, 1998 through March 31,
1999:

. the contributions from ABRY Broadcast Partners III and ABRY Broadcast
Partners II of $48.0 million collectively, consisting of $25.3 million
of aggregate cash contributions made in connection with the acquisition
of Audio Communications Network, Inc., $17.9 million made in connection
with the merger, $4.1 million made in connection with the Business Sound
acquisition, and $0.7 million made in connection with the Electro
Systems acquisition,

. the issuance of membership interests valued at $18.7 million to be made
in connection with the acquisitions of the Capstar Broadcasting Muzak
affiliates and Muzak Limited Partnership and

. management contributions of $2.7 million, consisting of $1.5 million
contributed in connection with the capitalization of Muzak and $1.2
million contributed in connection with the merger.

34
<PAGE>

UNAUDITED PRO FORMA FINANCIAL DATA

The tables on page 36 have been prepared by Muzak Holdings, formerly known
as ACN Holdings, LLC, and are based on the historical financial statements of
Muzak Holdings, Old Audio Communications Network, Old Muzak, the independent
affiliate territories located in Atlanta, Albany and Macon, Georgia and Ft.
Myers, Florida and Omaha, Nebraska contributed by Capstar Broadcasting,
Business Sound, Music Technologies 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 merger, acquisition and financing
transactions we have completed since October 7, 1998, which are discussed in
this prospectus in the section entitled "The Merger, Acquisition and Financing
Transactions" and which we refer to as the merger and the completed
transactions as if they had occurred on January 1, 1998, (b) do not purport to
represent what Holdings' results of operations or financial position actually
would have been if the merger and the completed 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 non-recurring charges
or cost savings expected to result from the merger and the completed
transactions.

The following unaudited pro forma balance sheet was prepared as if the
acquisitions and financing transactions completed after March 31, 1999 had
occurred on March 31, 1999. 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 Holdings, Old Audio Communications Network 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 Holdings 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 the completed
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," "Selected
Historical Financial and Other Data" and the audited financial statements and
the respective 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 Omaha affiliate operated as part of Triathlon Broadcasting Company. The
tables following this page show the 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, allocations were made in preparing this carve-out
financial data. Therefore, this 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 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
the assets and liabilities acquired from Music Technologies did not operate as
an independent company and, accordingly, allocations were made in preparing
this carve-out financial data. Therefore, this carve-out financial data may not
reflect the results of operations or the financial condition which would have
resulted if the assets and liabilities acquired from Music Technologies had
operated as a separate independent company, and are not necessarily indicative
of the future results of operations or financial position of the assets and
liabilities acquired from Music Technologies.

35
<PAGE>

MUZAK HOLDINGS LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)

<TABLE>
<CAPTION>
Three
Three Months Period from Months
Ended January 1, 1999 Three Months Ended
March 31, through Ended March 31, March 31,
1999 March 18, 1999 1999 1999
------------ ------------------------ ---------------- ---------
Georgia and
Florida
Muzak Old Capstar Other Pro Forma Unaudited
Holdings (1) Muzak (1) Affiliates (1) Acquisitions (3) Adjustments (5) Pro Forma
------------ --------- -------------- ---------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $12,151 $20,915 $2,288 $1,212 $ (540)(b,e) $ 36,026
Cost of sales........... 4,471 8,487 1,034 209 (590)(b,e) 13,611
------- ------- ------ ------ ------- --------
Gross profit............ 7,680 12,428 1,254 1,003 50 22,415
Selling, general and
administrative......... 2,947 10,641 836 492 533 (b,d) 15,449
Depreciation and
amortization........... 3,197 5,973 440 125 708 (g) 10,443
------- ------- ------ ------ ------- --------
Operating income
(loss)................. 1,536 (4,186) (22) 386 (1,191) (3,477)
Interest expense, net... (2,331) (2,736) (4) (43) (3,311)(h) (8,425)
Other (expense) income,
net.................... (21) 5 -- -- -- (16)
------- ------- ------ ------ ------- --------
Net (loss) income before
extraordinary gain on
extinguishment of
debt................... (816) (6,917) (26) 343 (4,502) (11,918)
Extraordinary gain on
the extinguishment of
debt................... 727 -- -- -- -- 727
------- ------- ------ ------ ------- --------
Net (loss) income....... $ (89) $(6,917) $ (26) $ 343 $(4,502) $(11,191)
======= ======= ====== ====== ======= ========
</TABLE>

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

<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
Old Audio Florida
Muzak Communications Old Capstar Other Pro Forma Unaudited
Holdings (2) Network (2) Muzak Affiliates Acquisitions (4) Adjustments (5) Pro Forma
------------ -------------- -------- ---------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $ 5,914 $18,917 $ 99,748 $9,845 $11,185 $ (3,509)(a,c,e) $142,100
Cost of sales........ 2,556 8,206 42,509 3,970 5,034 (3,547)(a,c,e) 58,728
------- ------- -------- ------ ------- -------- --------
Gross profit........ 3,358 10,711 57,239 5,875 6,151 38 83,372
Selling, general and
administrative...... 1,794 7,245 36,536 3,349 3,238 (3,346)(a,c,d,f) 48,816
Depreciation and
amortization........ 1,683 4,372 21,563 1,931 1,967 10,256 (g) 41,772
------- ------- -------- ------ ------- -------- --------
Operating (loss)
income ............. (119) (906) (860) 595 946 (6,872) (7,216)
Interest expense,
net................. (888) (2,520) (10,992) (30) (1,187) (18,084)(h) (33,701)
Other income
(expense), net...... 5 (2) (137) 1 17 164 (c) 48
------- ------- -------- ------ ------- -------- --------
Net (loss) income.... $(1,002) $(3,428) $(11,989) $ 566 $ (224) $(24,792) $(40,869)
======= ======= ======== ====== ======= ======== ========
</TABLE>

see notes on the following page

36
<PAGE>

MUZAK HOLDINGS LLC
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998

(2) Muzak, a wholly owned subsidiary of Muzak Holdings, acquired the Muzak
affiliates located in the Baltimore, Charlotte, Hillsborough, Kansas City,
St. Louis, Jacksonville, Phoenix and Fresno areas from Audio Communications
Network, Inc. on October 7, 1998. Prior to the acquisition, Muzak, a wholly
owned subsidiary of Muzak Holdings, had no operations.

(3) Includes the unaudited historical results of operations of the Muzak
affiliate in Omaha, Advertising On Hold, Custom On Hold, CustomTronics and
PBC Sound Technologies for the three months ended March 31, 1999.

(4) Includes the unaudited historical results of operations of Business Sound,
the assets and liabilities acquired from Music Technologies, the Omaha
Capstar Broadcasting Muzak affiliate, Electro Systems, Advertising On Hold,
Custom On Hold, CustomTronics and PBC Sound Technologies for the year ended
December 31, 1998.

(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 ended December 31, 1998 as if they occurred
on January 1, 1998,

(b) adjustments to increase revenues, cost of sales and selling general and
administrative expenses by $90,000, $40,000 and $5,000, respectively,
to reflect acquisitions consummated by Muzak, a wholly owned subsidiary
of Muzak Holdings, during the three months ended March 31, 1999 as if
they occurred on January 1, 1999,

(c) 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 for the year ended
December 31, 1998. The spin-off of EAIC was completed in March 1999,
prior to the consummation of the merger,

(d) increasing selling, general and administrative expenses by
approximately $528,000 and $2,180,000 for the period from January 1,
1999 through March 31, 1999 and the year ended December 31, 1998,
respectively, in order to conform the accounting policy for subscriber
acquisition costs of Old Muzak with that of Muzak Holdings, Muzak
Holdings defers 100% of its subscriber acquisition costs and amortizes
these commissions as a component of selling, general and administrative
expenses over the life of the customer contract or five years on a
straight-line basis. Muzak Limited Partnership deferred subscriber
acquisition costs, which include direct costs incurred associated with
acquiring new subscribers, and amortized these costs as a component of
depreciation and amortization over the life of the customer contract or
five years on a straight-line basis.

(e) eliminating intercompany revenues of approximately $630,000 and
$2,990,000 and cost of sales of approximately $630,000 and $2,963,000
for the period from January 1, 1999 through March 31, 1999 and the year
ended December 31, 1998, respectively for royalty fees and equipment
sales, for transactions between (1) Old Muzak and (2) Muzak Holdings
and the entities acquired by Audio Communications Network,

(f) decreasing selling, general and administrative expenses by
approximately (1) $2,192,000 in order to account for costs not assumed
pursuant to the acquisition of assets and liabilities from Music
Technologies and (2) $1,351,000 in order to account for seller
transaction costs related to the sales of Old Audio Communications
Network and Old Muzak,

(g) increasing depreciation and amortization expense due to the excess of
fair value over historical cost generated from the merger and the
completed transactions,

37
<PAGE>

MUZAK HOLDINGS LLC
NOTES TO THE UNAUDITED PRO FORMA STATEMENT
OF OPERATIONS--(Continued)

FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND THE YEAR ENDED DECEMBER 31, 1998

At March 31, 1999, intangible assets and property and equipment consisted of
the following (dollars in thousands):

<TABLE>
<CAPTION>
Intangible Assets
- ----------------------------------------
Useful
Life Pro
(years) Forma
------- --------
<S> <C> <C>
Goodwill............... 20 $123,781
Income producing
contracts............. 12 117,948
License agreements..... 20 14,600
Trademarks............. 5 7,400
Non-compete
agreements............ 2-7 4,807
Other.................. 5-20 15,700
---- --------
284,236
Less accumulated
Amortization ......... (2,601)
--------
$281,635
========
</TABLE>
<TABLE>
<CAPTION>
Property and equipment
- --------------------------------------------------------------------------
Useful
Life Pro
(years) Forma
------- -------
<S> <C> <C>
Equipment provided to subscribers......................... 4 $67,723
Machinery and equipment................................... 4 9,497
Vehicles.................................................. 3 3,157
Furniture and fixtures.................................... 7 2,078
Other..................................................... 7-35 1,650
---- -------
84,105
Less accumulated depreciation............................. (2,280)
-------
$81,825
=======
</TABLE>

<TABLE>
<CAPTION>
Three Months
ended Year ended
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Pro forma depreciation and amortization............... $10,443 $41,772
Historical depreciation and amortization.............. 9,735 31,516
------- -------
Pro forma adjustment.................................. $ 708 $10,256
======= =======
</TABLE>

(h) increasing interest expense due to the debt incurred in conjunction with
the merger and the completed transactions.

<TABLE>
<CAPTION>
Three Months
ended Year ended
March 31, December 31,
1999 1998
------------ --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Historical interest expense, net.................. $5,114 $15,617
------ -------
Senior credit facility (assuming a weighted
average rate of 8.9%) (1)........................ 3,675 14,700
Existing notes.................................... 2,839 11,356
Senior discount notes............................. 1,341 5,362
Other debt........................................ 206 823
Amortization of deferred financing fees........... 364 1,460
----- ------
Pro forma interest expense, net................... 8,425 33,701
------ -------
Pro forma interest adjustment .................... $3,311 $18,084
====== =======
</TABLE>

- -------
(1) If the assumed interest rate on the senior credit facility increases by
0.125%, total pro forma interest expense would increase by $52,000 and
$206,000 for the months ended March 31, 1999 and the year ended
December 31, 1998, respectively.

38
<PAGE>

MUZAK HOLDINGS LLC
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999
(dollars in thousands)

<TABLE>
<CAPTION>
Muzak Other Pro Forma Unaudited
Holdings Acquisitions Adjustments Pro Forma
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Currents assets:
Cash and cash equivalents....... $ 2,037 $ 183 $ -- $ 2,220
Restricted cash................. -- -- 13,613 (c) 13,613
Accounts receivable, net........ 24,275 698 -- 24,973
Inventory ...................... 8,719 64 -- 8,783
Prepaids and other current
assets......................... 4,079 225 -- 4,304
-------- ------ -------- --------
Total current assets.......... 39,110 1,170 13,613 53,893
Property and equipment, net....... 79,429 999 1,397 (a) 81,825
Deferred financing costs, net..... 13,450 -- -- 13,450
Intangible assets, net............ 273,145 58 8,432 (a) 281,635
Other assets...................... 2,017 -- -- 2,017
-------- ------ -------- --------
Total assets.................. $407,151 $2,227 $ 23,442 $432,820
======== ====== ======== ========
Current liabilities:
Current portion of long-term
debt........................... $ 5,841 $ 35 $ 9,587 (a) $ 1,926
(13,537)(c)
Accounts payable and accrued
expenses....................... 30,195 10 (3,000)(b) 27,205
Advance billings................ 5,470 -- -- 5,470
-------- ------ -------- --------
Total current liabilities..... 41,506 45 (6,950) 34,601
Senior credit facility............ 135,000 -- 30,000 (c) 165,000
Senior subordinated notes......... 115,000 -- -- 115,000
Senior discount notes............. 40,202 -- -- 40,202
Other long-term debt.............. 4,831 -- 3,000 (b) 4,981
(2,850)(c)
Other liabilities................. 4,801 39 -- 4,840
-------- ------ -------- --------
Total liabilities............. 341,340 84 23,200 364,624
Members' interest................. 65,811 2,143 242 (a) 68,196
-------- ------ -------- --------
Total liabilities and members'
interest..................... $407,151 $2,227 $ 23,442 $432,820
======== ====== ======== ========
</TABLE>

see notes on the following page

39
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO UNAUDITED BALANCE SHEET AS OF MARCH 31, 1999

(a) To reflect the financial impact of the merger and the completed
transactions on the balance sheet of Holdings as of March 31, 1999
(dollars in thousands):

<TABLE>
<CAPTION>
Omaha
Capstar Advertising
Affiliate on Hold Other Total
--------- ----------- ------ -------
<S> <C> <C> <C> <C>
Purchase Price:
Debt assumed at closing............. $ 812 $6,908 $1,867 $ 9,587
Issuance of members' interest in
Holdings(1)........................ 2,385 -- -- 2,385
------ ------ ------ -------
Fair value of the Transactions....... $3,197 $6,908 $1,867 $11,972
====== ====== ====== =======
Allocation of Purchase Price:
Historical cost basis of net assets
acquired(1)........................ $ 579 $1,564 $ -- $ 2,143
Identified value of property and
equipment in excess of historical
cost............................... 413 572 412 1,397
Identified value of intangible
assets in excess of historical
cost............................... 2,205 4,772 1,455 8,432
------ ------ ------ -------
$3,197 $6,908 $1,867 $11,972
====== ====== ====== =======
</TABLE>

(1) The pro forma adjustment of $242,000 to equity represents deemed
equity contributed by Capstar Broadcasting of $2,385,000 for the
Omaha affiliate offset by elimination of historical equity of the
acquired entities of $2,143,000.

Total future maturities of debt obligations on a pro forma basis are as
follows (dollars in thousands):

<TABLE>
<S> <C>
1999............................. $ 1,926
2000............................. 3,600
2001............................. 6,300
2002............................. 7,800
2003............................. 8,574
Thereafter....................... 298,909
--------
$327,109
========
</TABLE>

(b) To reflect the issuance of the 15% junior subordinated note to a
related party for working capital requirements.

(c) To reflect the increase in borrowings under the term loan B of the
senior credit facility. Borrowings of $30,000,000 were used to
refinance $12,987,000 of borrowings under the revolving credit facility
and $3,400,000 of acquisition indebtedness. The remainder of the
borrowings have been reflected as cash as of March 31, 1999.

40
<PAGE>

SELECTED HISTORICAL FINANCIAL AND OTHER DATA

Muzak Holdings and Old Audio Communications Network

The selected historical financial and other data of Old Audio Communications
Network provided below as of December 31, 1995 and for the period from July 6,
1995 (inception) through December 31, 1995 and as of and for each of the two
years ended December 31, 1997 have been derived from the consolidated financial
statements of Old Audio Communications Network which have been audited by
Deloitte & Touche LLP, independent auditors. The selected historical financial
and other data of Old Audio Communications Network 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 Audio Communications Network
which have been audited by PricewaterhouseCoopers LLP, independent accountants.
The selected historical financial and other data of Muzak Holdings 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 Muzak Holdings which
have been audited by PricewaterhouseCoopers LLP, independent accountants. The
selected historical financial and other data for the three months period ended
March 31, 1999, have been derived from the unaudited financial statements of
Muzak Holdings, which in the opinion of management reflect all adjustments
necessary to present fairly the financial position and results of operation for
the period presented. Certain financial information and the auditor's reports
thereon are included elsewhere in this offering memorandum. The audited
consolidated financial statements of Old Audio Communications Network 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 Muzak Holdings 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 Audio Communications Network completed a business
combination with SunCom Communications L.L.C., a Delaware limited liability
company. Under the terms of the business combination, Old Audio Communications
Network, through a wholly owned subsidiary, acquired the assets and business of
SunCom, in exchange for 2.1 million shares of Old Audio Communications
Network'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 Audio Communications Network the acquired entity for
accounting purposes, even though Old Audio Communications Network was the
surviving legal entity. As a result of this reverse acquisition accounting
treatment, (a) the historical consolidated financial statements of Old Audio
Communications Network for the periods prior to the date of the business
combination are no longer the historical consolidated financial statements of
Old Audio Communications Network, and therefore, are no longer presented or
relevant; (b) the historical consolidated financial statements of Old Audio
Communications Network prior to the date of the business combination are those
of SunCom; (c) all references to the consolidated financial statements of Old
Audio Communications Network apply to the historical consolidated financial
statements of SunCom prior to the business combination and to the consolidated
financial statements of Old Audio Communications Network subsequent to the
business combination.

41
<PAGE>

<TABLE>
<CAPTION>
Predecessor
----------------------------------------------
Period from
July 6, 1995
(inception) Year ended Period from Period from Three Months
through December 31, January 1, 1998 October 7, 1998 ended
December 31, ---------------- through through March 31,
1995 1996 1997 October 6, 1998 December 31, 1998 1999
------------ ------- ------- --------------- ----------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations
data
Revenues................ $ 2,970 $10,122 $17,552 $18,917 $ 5,914 $ 12,151
Cost of revenues........ 1,056 3,412 7,169 8,206 2,556 4,471
------- ------- ------- ------- ------- --------
Gross profit.......... 1,914 6,710 10,383 10,711 3,358 7,680
Selling, general and
administrative......... 963 2,984 5,113 7,245 1,794 2,947
Depreciation and
amortization........... 1,240 2,356 4,057 4,372 1,683 3,197
------- ------- ------- ------- ------- --------
Operating income
(loss)................. (289) 1,370 1,213 (906) (119) 1,536
Interest expense, net... (561) (1,915) (2,649) (2,520) (888) (2,331)
Other income (expense),
net.................... -- -- 33 (2) 5 (21)
------- ------- ------- ------- ------- --------
Net loss before the
extraordinary gain on
the extinguishment of
debt................... (850) (545) (1,403) (3,428) (1,002) (816)
Extraordinary gain on
the extinguishment of
debt................... -- -- -- -- -- 727
------- ------- ------- ------- ------- --------
Net (loss) income....... $ (850) $ (545) $(1,403) $(3,428) $(1,002) $ (89)
======= ======= ======= ======= ======= ========
Other financial data
Capital expenditures.... $ 294 $ 1,344 $ 296 $ 3,538 $ 1,308 $ 2,705
Ratio of earnings to
fixed charges (1)...... -- -- -- -- -- --
Balance sheet data (end
of period)
Cash and cash
equivalents............ $ 800 $ 133 $ 680 $ 390 $ 1,293 $ 2,037
Total assets............ 4,052 23,104 45,306 43,854 72,927 407,151
Long-term obligations,
including current
portion................ 17,915 18,666 32,952 34,658 42,703 300,874
Net equity.............. 3,094 2,548 8,178 4,758 26,260 65,811
</TABLE>

See notes to the Selected Historical Financial and Other Data

42
<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
selected historical financial and other data for the period from January 1,
1999 through March 18, 1999, have been derived from the unaudited financial
statements of Old Muzak, which in the opinion of management reflect all
adjustments necessary to present fairly the financial position and results of
operations for the period presented. The following information is qualified by
reference to and should be read in conjunction with the "Summary of Unaudited
Pro Forma Financial and Operating Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," 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>
Three Months Period from
Year Ended December 31, Ended January 1, 1999
------------------------------------------------ March 31, through
1994 1995 1996 1997 1998 1998 March 18, 1999
-------- -------- -------- -------- -------- ------------ ---------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations
data
Revenues................ $ 83,416 $ 86,881 $ 86,811 $ 91,204 $ 99,748 $ 23,396 $20,915
Cost of revenues........ 37,098 38,360 37,026 40,709 42,509 9,826 8,487
-------- -------- -------- -------- -------- -------- -------
Gross profit.......... 46,318 48,521 49,785 50,495 57,239 13,570 12,428
Selling, general and
administrative......... 28,699 28,496 31,659 33,464 36,536 7,762 10,641
Depreciation and
amortization........... 17,833 18,291 20,219 20,668 21,563 4,961 5,973
-------- -------- -------- -------- -------- -------- -------
Operating (loss)
income................. (214) 1,734 (2,093) (3,637) (860) 847 (4,186)
Interest expense, net... (6,887) (7,354) (7,674) (9,758) (10,992) (2,577) (2,736)
Other expense, net...... (82) (94) (434) (40) (137) (170) 5
-------- -------- -------- -------- -------- -------- -------
Net loss before
extraordinary item..... (7,183) (5,714) (10,201) (13,435) (11,989) (1,900) (6,917)
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) (1,900) (6,917)
Redeemable preferred
return................. (933) (1,029) (916) (400) (619) (113) (98)
-------- -------- -------- -------- -------- -------- -------
Net loss attributable to
general and limited
partners............... $ (8,116) $ (6,743) $(11,739) $(13,835) $(12,608) $ (2,013) $(7,015)
======== ======== ======== ======== ======== ======== =======
Other financial data
Capital expenditures.... $ 13,804 $ 12,757 $ 16,337 $ 19,572 $ 21,426 $ 4,282 $ 5,319
Ratio earnings to fixed
charges (1)............ -- -- -- -- -- -- --
Balance sheet data (end
of period)
Cash and cash
equivalents............ $ 1,445 $ 1,115 $ 25,686 $ 8,524 $ 2,971 $ 10,316 $ 3,228
Total assets............ 103,092 96,439 119,042 104,395 123,131 105,170 119,367
Long-term obligations,
including current
portion................ 56,833 53,005 101,102 101,044 118,413 100,878 120,311
Partners' capital
(deficit).............. 7,943 1,373 (10,078) (26,095) (35,589) (27,858) (39,503)
</TABLE>

43
<PAGE>

NOTES TO THE SELECTED HISTORICAL FINANCIAL AND OTHER DATA

(1) 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 $12,600,000 and $6,900,000
for each of the five years ended December 31, 1998 for the period from
January 1, 1999 through March 18, 1999, respectively. Old Audio
Communications Network's earnings were inadequate to cover fixed charges by
approximately $850,000, $545,000, $1,403,000, and $3,428,000 for the period
from July 6, 1995 (inception) through December 31, 1995, each of the two
years ended December 31, 1997 and for the period from January 1, 1998
through October 6, 1998, respectively. Muzak Holding's earnings were
inadequate to cover fixed charges by $1,002,000 and $816,000 for the period
from October 7, 1998 through December 31, 1998 and the three months ended
March 31, 1999, respectively. On a pro forma basis, Muzak Holdings'
earnings would have been inadequate to cover fixed charges by approximately
$40,869,000 and $11,918,000 for the year ended December 31, 1998 and three
months ended March 31, 1999, respectively.

44
<PAGE>

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 Audio Communications Network, Old Audio
Communications Network and Old Muzak and the related notes thereto appearing
elsewhere in this prospectus.

General

Audio Communications Network was formed in 1998 to acquire and operate Muzak
independent franchises. On October 7, 1998, Audio Communications Network
acquired the eight independent affiliate territories in the Baltimore, Kansas
City, St. Louis, Jacksonville, Phoenix, Charlotte, Hillsborough, and Fresno
areas from Old Audio Communications Network. On March 18, 1999, Old Muzak
merged with and into Audio Communications Network. At the time of the Merger,
Audio Communications Network will change its name to Muzak LLC. Additionally,
Audio Communications Network and Old Muzak each have entered into a number of
other acquisition transactions. On January 15, 1999, Audio Communications
Network 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 assets and liabilities from
Music Technologies, a national provider of business music. On February 24,
1999, Audio Communications Network 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 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.

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.

Recent Developments

On March 24, 1999, Muzak acquired the net assets of Custom On Hold Services,
Inc. for approximately $180,000. Custom On Hold Services was an audio marketing
company located in the state of Washington.

On June 15, 1999, Muzak acquired the net assets of Advertising On Hold, Inc.
for approximately $6.9 million. Advertising On Hold was a national provider of
business music with offices located in Florida, Georgia and North Carolina.

On June 18, 1999, Muzak acquired the net assets of CustomTronics Sound, a
sole proprietorship located in California, for approximately $780,000.
CustomTronics was a provider of business music and was located in California.

45
<PAGE>

On June 30, 1999, Muzak acquired the net assets of Penobscot Broadcasting
Corporation, which does business as PBC Sound Technologies, for approximately
$907,000. PBC Sound Technologies was the Muzak affiliate for the Bangor, Maine
area.

On July 1, 1999, Muzak issued a 15% junior subordinated unsecured note to
MEM Holdings, LLC in the amount of $3.0 million. MEM Holdings is a holding
company that owns 68% of the voting interests in Muzak Holdings LLC. ABRY
Broadcast Partners III and ABRY Broadcast Partners II are the beneficial owners
of MEM Holdings.

On July 14, 1999, Muzak increased its borrowings under the term loan B of
the senior credit facility by $30 million, for a total amount borrowed under
term loan B of $135 million. Muzak plans to use the additional borrowed funds
to finance acquisitions, including the acquisitions completed on or before June
30, 1999.

Business Overview

Muzak is the leading provider of business music programming in the U.S.,
based on market share. 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 $36.0 million, net loss of
$11.2 million and Adjusted EBITDA of $10.6 million for the quarter ended
March 31, 1999 and revenues of $142.1 million, net loss of $40.9 million and
Adjusted EBITDA of $42.4 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.

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

46
<PAGE>

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 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' contracts.

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. These
expenses also include personnel and other costs in connection with Muzak'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.

47
<PAGE>

Results of Operations

Set forth below are discussions of the results of operations for Old Muzak,
Audio Communications Network and Old Audio Communications Network for the
periods indicated. Audio Communications Network had no operations until it
acquired Old Audio Communications Network in October 1998. Audio Communications
Network changed its name to Muzak in connection with its merger with Old Muzak.
For these reasons, Muzak did not have results of operations for the quarter
ended March 31, 1998.

Old Muzak--Period from January 1, 1999 through March 18, 1999 compared to the
Quarter Ended March 31, 1998

Revenues. Total revenues decreased 10.7% from $23.4 million in the 1998
period to $20.9 million in the 1999 period, including a 5.6% increase in
business services revenues and a 42.1% decrease in equipment and related
services revenues. The decrease is largely due to the shorter 1999 period. The
difference also reflected decreased equipment and related services over the
prior year period primarily due to sound systems installed into certain large
national accounts that occurred in the 1998 period.

Gross Profit. Total gross profit decreased 8.8% from $13.6 million in the
1998 period to $12.4 million in the 1999 period. As a percentage of total
revenues, gross profit increased from 58.1% in the 1998 period to 59.3% in the
1999 period. The improvement in the gross profit percentage was due to sales
growth in higher margin business services such as broadcast music, combined
with the acquisition of competitors' business music contracts.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 35.9% from $7.8 million in the 1998 period to
$10.6 million in the 1999 period. As a percentage of total revenues, selling,
general and administrative expenses increased from 33.3% in the 1998 period to
50.7% in the 1999 period. Selling and marketing expenses decreased 21.9% from
$3.2 million in the 1998 period to $2.5 million in the 1999 period. General and
administrative costs increased 76.1% from $4.6 million in the 1998 period to
$8.1 million in the 1999 period. These variances are primarily due to the
shorter 1999 period, combined with a $3.3 million charge to general and
administrative expense in the 1999 period related to an increase in recorded
equity based compensation.

Depreciation and Amortization. Depreciation and amortization expense
increased 20.0% from $5.0 million in the 1998 period to $6.0 million in the
1999 period. This increase is primarily due to increased amortization expense
related to the acquisition of competitors' business music contracts.

Interest Expense and Other Income. Total interest expense increased 3.7%
from $2.7 million in the 1998 period to $2.8 million in the 1999 period. Total
interest bearing debt at March 31, 1998 was $100.9 million compared to $120.3
million at March 18, 1999.

Net Loss. Net loss increased from $1.9 million in the 1998 period to $6.9
million in the 1999 period. The increase in net loss was the result of an
increase in equity based compensation combined with increased amortization and
interest expense related to the acquisition of competitors' business music
contracts.

Old Muzak--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

48
<PAGE>

in equipment sales and related services. Music and other business services
revenues increased due to an increase in the number of broadcast music
subscribers, sales growth and the acquisition of competitors' business music
contracts, together with 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 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 the 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 these 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

49
<PAGE>

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.

Old Muzak--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 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 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 some 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

50
<PAGE>

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.

Muzak LLC -- Quarter Ended March 31, 1999 Compared to Period October 7, 1998 to
December 31, 1998

Revenues. Total revenues increased 105.5% to $12.2 million from $5.9 million
in the period ended December 31, 1998, primarily as a result of the merger
transaction completed on March 18, 1999, as well as growth in business music
revenues resulting from an increase in numbers of subscribers and increased
equipment sales and related services.

Gross Profit. Total gross profit increased 128.7% from $3.3 million in the
period ended December 31, 1998 to $7.7 million in the first quarter of 1999.
Gross margin in the first quarter of 1999 was 63.2% as compared to 56.8% in the
period ended December 31, 1998. Such gross margin is not comparable to the
prior period as a result of the merger transaction completed on March 18, 1999.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 164.3% to $2.9 million in the first quarter
of 1999 as compared to $1.8 million in the period ended December 31, 1998. Such
increase was primarily the result of new operations added through the merger
transaction.

Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased to $3.2 million in the first quarter of 1999 as compared to
$1.7 million in the period ended December 31, 1998. This increase was primarily
due to the increased assets now owned by the company related to the merger
transaction.

Interest Expense. Interest expense increased from $0.9 million in the period
ended December 31, 1998 to $2.1 million in the first quarter of 1999. This
increase was primarily the result of the merger transaction and the related
increased debt levels.

Muzak Holdings LLC -- 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 Audio Communications Network -- 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 Audio Communications Network's gross margin in
1998 was 56.7%. Such gross margin is not comparable to the prior period as a
result of 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.

51
<PAGE>

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 the impact of the
reverse acquisition in 1997, the growth in business music revenues and
equipment sales related services, and approximately $0.8 million being incurred
in 1998 pertaining to transaction costs related to the sale of Old Audio
Communications Network in October 1998.

Old Audio Communications Network -- 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 1997. Such increase was primarily the result of the impact of the
reverse acquisition in 1997 and 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 merger and completed 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 existing notes, the senior subordinated
notes, the new equity investment and the senior credit facility. As of July 14,
1999, after giving effect to the additional $30 million of borrowings under
term loan B, the lenders under the senior credit facility were Goldman Sachs
Credit Partners L.P., Canadian Imperial Bank of Commerce, BankBoston, N.A.,
Magnetite Asset Investors LLC, KZH CNC LLC, North American Senior Floating Rate
Fund, Cypresstree Senior Floating Rate Fund, KZH Cypresstree-1 LLC, Cypresstree
Investment Fund, LLC, Cypresstree Investment Partners I, Ltd., Cypress Tree
Institutional Fund, LLC, Freemont Investment & Loan, Merrill Lynch Senior
Floating Rate Fund, Inc., Merrill Lynch Prime Rate Portfolio, New York Life
Insurance Company, Sequils I, Ltd., Toronto Dominion Bank, Van Kempen Prime
Rate Income Trust, Coast Business Credit, a division of Southern Pacific Bank,
Great Point ClO 1991-1 Ltd., Cypresstree Investment Management Company, Inc.,
Merrill Lynch Senior Floating Rate Fund II, Inc. and Morgan Guaranty Trust
Company of New York. The net proceeds of our financing were used principally:

. to pay the cash merger consideration of $125.5 million to the partners
of Old Muzak;

. to repay approximately $99.7 million of borrowings by Old Muzak under
its 10% Senior Notes due 2003 together with accrued interest,

. to repay approximately $20.4 million of other borrowings by Old Muzak
together with accrued interest,

. to repay approximately $42.5 million of borrowings by Audio
Communications Network under ABRY Broadcast Partners III's subordinated
note, including accrued interest,

52
<PAGE>

. 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.

As of March 31, 1999, on a pro forma basis, after giving effect to the
merger and the completed transactions, we had $327.1 million of indebtedness
outstanding which includes:

. $115.0 million under the senior subordinated notes,

. approximately $40.2 million of accreted value of the existing notes,

. $165.0 million under the senior credit facility, excluding $44.6 million
of availability under the revolving credit facility and the term loan B,
and

. $6.9 million of other debt.

In October 1998, Audio Communications Network borrowed $40.8 million from
ABRY Broadcast Partners III under the ABRY Broadcast Partners III's
subordinated note. Amounts outstanding under the ABRY Broadcast Partners III's
subordinated note earn interest at the rate of 9.0% per annum. Interest and
principal under the ABRY Broadcast Partners III's subordinated note are payable
within one year from the date of the related borrowing. We repaid the ABRY
Broadcast Partners III's subordinated note concurrently with the offering and
the merger transactions.

The senior credit facility initially provided for a $35.0 million revolving
credit facility, a $30.0 million term loan facility, which we refer to as term
loan A, which matures on December 31, 2005 and a $105.0 million term loan
facility, which we refer to as term loan B, which matures on December 31, 2006.
On July 14, 1999, we increased the amount borrowed under the term loan B by $30
million, for a total amount borrowed under term loan B of $135 million. 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 all
of Muzak'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, and is described in greater detail under the
heading "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
some of our affiliates to incur additional indebtedness, incur liens, pay
dividends or make other restricted payments, consummate asset sales, enter into
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.

The senior subordinated notes were issued on March 18, 1999 in an aggregate
principal amount of $115.0 million and will mature on March 15, 2009. The first
interest payment on the senior subordinated notes will be due on September 15,
1999. The senior subordinated notes are general unsecured obligations of Muzak
and Muzak Finance Corp., as issuers, and are subordinated in right of payment
to all current and future senior

53
<PAGE>

indebtedness of Muzak and Muzak Finance Corp., including indebtedness under the
senior credit facility. Interest on the senior subordinated notes accrues at
the rate of 9.875% per annum and is payable semi-annually in arrears on March
15 and September 15 of each year, to holders of record on the immediately
preceding March 1 and September 1. Holdings Business Sound, Inc., MLP
Environmental Music, LLC and Muzak Capital Corp. guaranteed the senior
subordinated notes.

As of March 31, 1999, on a pro forma basis, $165.0 million of our total
outstanding debt of $327.1 million bore interest at variable rates. If the
assumed interest rate on the senior credit facility increases by 0.125%, total
pro forma interest expense would increase by $52,000 and $206,000 for the three
months ended March 31, 1999 and the year ended December 31, 1998, respectively.
Muzak Holdings believes that its market risk exposure with regard to its
financial instruments is limited to changes in interest rates in the United
States. Based upon Muzak Holdings' variable rate debt outstanding at March 31,
1999, on a pro forma basis, which consists only of the credit facility, a
hypothetical 1% increase in interest rates would increase interest expense by
approximately $1.6 million a year. Holdings is a holding company with no
significant assets other than its investment in its wholly owned subsidiary,
Muzak. The primary source of funds to the Holdings Issuers are dividends and
other advances and transfers from Muzak. However, the assets of Muzak are not
generally available to our creditors due to substantial restrictions under the
senior credit facility, the senior subordinated note indenture and other future
agreements to which Muzak may become a party. The restrictions in the senior
credit facility and the senior subordinated note indenture limit Muzak's
ability to make dividends and other advances and transfers of funds, including
funds required to pay interest on the existing notes and the exchange notes
when due. A payment default under the indenture or the senior subordinated note
indenture would constitute an event of default under the senior credit
facility, and could result in the acceleration of the indebtedness thereunder.
In addition, because of the restrictions on Muzak imposed by the senior
subordinated notes, the existing notes and the exchange notes are effectively
subordinated to the senior subordinated notes. For more detailed information on
the restrictions on Muzak under the senior credit facility and the senior
subordinated notes, please refer to the section entitled "Description of
Certain Debt" that appears later in this prospectus.

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 next 24
months. 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.

Year 2000 Compliance

We have replaced our primary computer system at our headquarters and we
believe that it is now substantially year 2000 compliant. We are in the process
of replacing the software at our owned affiliates and expect the replacement to
be completed by September 1999. 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, including testing systems for year 2000
compliance, to confirm that all critical risks have been identified and will be
addressed.

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<PAGE>

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. We have received letters assuring
year 2000 compliance from our satellite providers, EchoStar and PanAmSat.
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 which we expect to be completed by
September 1999.

Inflation and Changing Prices

We do not believe that inflation and other changing prices have had a
significant impact on our operations.

Adjusted EBITDA

Adjusted EBITDA represents EBITDA adjusted for the elimination of cost
reductions and non-recurring costs and expenses arising from acquisitions as
set forth in the definition of "Acquisition EBITDA" in the indenture governing
the existing notes and the exchange notes. This definition of "Acquisition
EBITDA" is used in determining the "Consolidated Leverage Ratio", as defined
in the indenture, which is used exclusively to determine compliance with the
debt incurrence covenant in the indenture. See "Description of Notes--Certain
Definitions." As more fully described within the notes to the summary
unaudited pro forma financial data, as a result of the merger and completed
transactions, pro forma adjustments were recorded to present the operating
results as if the merger and completed transactions occurred on January 1,
1998. Such adjustments primarily consist of:

. including the estimated historical results of operations for the various
acquisitions consummated by Old Muzak during the three months ended
March 31, 1999 and the year ended December 31, 1998 as if these
acquisitions occurred on January 1, 1998,

. conforming the accounting policy for sales commissions of Old Muzak with
that of Muzak Holdings

. eliminating intercompany revenues and cost of sales,

. eliminating costs not assumed in connection with the acquisition of
assets and liabilities from Music Technologies, and

. eliminating seller transaction costs related to the sales of Old Audio
Communications Network and Old Muzak. These pro forma adjustments
resulted in a $.5 million decrease and $3.4 million increase to EBITDA
for the three months ended March 31, 1999 and year ended December 31,
1998, respectively.

Management intends to implement structural and operating changes to the
acquired entities. The following adjustments eliminate the impact of 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.

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<PAGE>

<TABLE>
<CAPTION>
Three months ended Year ended
March 31, 1999 December 31, 1998
------------------ -----------------
(dollars in thousands)
<S> <C> <C>
Pro forma EBITDA (1)................ $10,076 $36,773
------- -------
Adjustments:
Galaxy IV non-recurring costs (2)... -- 2,113
Old Muzak non-recurring expenses
(3)................................ 90 1,454
Audio Communications Network
restructuring (4).................. -- 660
Business Sound duplicative expenses
(5)................................ -- 228
Music Technologies duplicative
expenses (6)....................... -- 346
Cost savings adjustments (7)........ 450 851
------- -------
Total additional adjustments.... 540 5,652
------- -------
Adjusted EBITDA: $10,616 $42,425
======= =======
</TABLE>
--------

(1) Represents EBITDA, as defined, before non-cash compensation and
other non-operating income/(expense) of $3,110,000 and ($16,000),
respectively for the three months ended March 31, 1999 and
$2,217,000 and $48,000, respectively for the year ended December 31,
1998.

(2) Represents the non-recurring charges of $1,548,000 at Old Muzak and
$565,000 at Audio Communications Network for the year ended December
31, 1998 due to costs associated with repointing satellite dishes at
client locations as a result of the failure in May 1998 of the
Galaxy IV satellite.

(3) 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) legal expenses and the elimination of the general
partner's management fee.

<TABLE>
<CAPTION>
Three months ended Year ended
March 31, 1999 December 31, 1998
------------------ -----------------
(dollars in thousands)
<S> <C> <C>
Costs of brand repositioning....... $-- $ 418
Web site design and construction... -- 101
Expenses of converting acquired
client locations.................. -- 408
Non-recurring legal expenses and
Old Muzak general partner's fees.. 90 527
---- ------
$ 90 $1,454
==== ======
</TABLE>

(4) Represents the restructuring actions completed in connection with
the acquisition of Muzak affiliates from Old Audio Communications
Network, including (a) the termination of seven employees; (b) the
restructuring of compensation for some corporate employees and (c)
the closure of redundant offices.

<TABLE>
<CAPTION>
Three months ended Year ended
March 31, 1999 December 31, 1998
------------------ -----------------
(dollars in thousands)
<S> <C> <C>
Employee terminations and
restructuring of compensation.... $-- $385
Closing of redundant offices...... -- 275
---- ----
$-- $660
==== ====
</TABLE>

(5) Represents the elimination of the expense associated with some
executive functions at Business Sound that are now being performed
by the management of Audio Communications Network.

(6) Represents the elimination of duplicative general corporate expenses
as a result of the acquisition from Music Technologies, including
rent, legal and accounting expenses.

(7) 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, Muzak believes that it
would have realized Adjusted EBITDA of $10.6 million and $42.4 million for the
three months ended March 31, 1999 and year ended December 31, 1998,
respectively.

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<PAGE>

BUSINESS

General

Muzak is the leading provider of business music programming in the U.S.,
based on market share. 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 $36.0 million and Adjusted
EBITDA of $10.6 million for the quarter ended March 31, 1999 and revenues of
$142.1 million and Adjusted EBITDA of $42.4 million for the year ended December
31, 1998. On a pro forma basis, we generated a net loss of $11.2 million and
$40.9 million for the quarter ended March 31, 1999 and the year ended December
31, 1998, respectively.

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 direct broadcast
satellite, 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 Muzak products are generated by our 46 owned affiliate
territories. The remaining 48% are generated by our 122 independent affiliate
territories.

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 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

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$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.

The exchange notes will be issued by Muzak Holdings and Muzak Holdings
Finance. Muzak Holdings is a holding company, whose only significant asset is
its ownership of Muzak. Muzak Holdings Finance has no operations or assets.
Muzak Holdings Finance is a co-issuer of the exchange notes because we were
advised by the initial purchasers of the existing notes that many possible
purchasers of the existing notes require corporate co-issuers for notes issued
by limited liability companies, such as Muzak Holdings. We understand that this
is the result of historic requirements in the charters of these purchasers that
limited their investments to securities issued by corporations.

Operating Strengths

We believe the following attributes have helped us become the world's
leading provider of business music programming:

Market Leadership. 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 are the leader in the
business music programming industry in the U.S. based on market share.

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 46 are
served by our 35 owned affiliate offices and the remaining 122 are served by
our 73 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. 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 Muzak. We 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

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an average length of service per client of approximately 12 years. Based on our
experience, economic 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. Muzak 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 Muzak, 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 a result of our large nationwide network, we believe we are
well positioned to capitalize on these growth opportunities. 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 73 individuals or
entities that operate in our 122 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, Music Technologies. In 1998, ABRY Broadcast Partners
III formed Audio Communications Network to acquire and operate Muzak
independent affiliates. Audio Communications Network acquired eight Muzak
independent affiliate territories from Old Audio Communications Network. Audio
Communications Network 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. Muzak
acquired one affiliate territory from Capstar Broadcasting in May 1999 and one
affiliate territory from PBC Sound Technologies in June 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

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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 approximately 1,250,000 recordings. 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.

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

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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.

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 March 31, 1999, on a pro forma basis, more than 25,000 client
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. 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

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. As of March 31, 1999, we had approximately 5,500 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 46 are served by our 35 owned affiliate offices and the remaining 122 are
served by our 73 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 Muzak 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
direct broadcast satellite 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 net fee and royalty payment represents approximately $5 per month
per client location. However, this monthly royalty is subject to 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

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. 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.

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 150 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:

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. changes in organizational structure,

. improved sales training and support, and

. changes to our independent affiliate agreement.

During 1998, we reorganized our staffing 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 positions that did not contribute to the profitability of
Audio Marketing;

. 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.

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 direct
broadcast satellite 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 March 31, 1999, we served our
music client locations through the following means: approximately 65% through
direct broadcast satellite 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 direct broadcast satellite to
clients primarily from transponders leased from Microspace and EchoStar.
Microspace provides us with facilities for uplink transmission of our medium-
powered direct broadcast satellite signals to the transponders. Microspace, in
turn, leases its transponder capacity on satellites operated by third parties,
including the Galaxy IIIR satellite

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operated by PanAmSat through which a majority of our direct broadcast satellite
clients 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 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 this event, we would only be able to
provide 30 music programs and would need to lease other transponder space 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 direct
broadcast satellite 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 direct broadcast satellite 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 direct broadcast satellite 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:

. compete successfully with our existing or potential new competitors,

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<PAGE>

. maintain or increase our current market share,

. use, or compete effectively with competitors that adopt, new delivery
methods and technologies, or

. 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

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 expired 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 amended U.S.
copyright law to create a limited performance right in sound recordings
publicly performed by means of digital audio transmission, which we refer to as
a 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 this Act. This Act
exempts digital transmissions to business establishments for use in the
ordinary course of business from copyright liability, provided those
transmissions satisfy limitations on the number of selections from one
phonorecord or by the same featured artist, as provided in this Act. 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, this Act
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 some 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 direct

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<PAGE>

broadcast satellite 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.

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 March 31, 1999, we had 1,323 full-time and part-time employees, of
whom 307 held sales and marketing positions, 587 held administrative positions
and 429 held technical and service positions. Approximately 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, Robert D. Thompson,
initiated a suit against us in the United States District Court for the
Northern District of Illinois alleging violations of the Americans with
Disabilities Act and seeking monetary damages in an unspecified amount. 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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<PAGE>

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
following table sets forth information about the 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, has served as director of Holdings since March 1999 and is serving a
one-year term. The election of the directors is subject to the terms of the
Members Agreement and the Securityholders Agreement, which are described under
the heading "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
Robert L. Cauley......... 45 Vice President, Audio Marketing
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. He was 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
Muzak. 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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<PAGE>

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 Braodcasting.

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 Partners. She joined ABRY
Partners 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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<PAGE>

David W. Unger has served as Vice President of Muzak since March 1999 and
was Executive Vice President of Audio Communications Network 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 Partners is the principal investor in Avalon
Cable and Mercom.

Royce Yudkoff is the President and Managing Partner of ABRY Partners. Prior
to joining ABRY Partners, 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 Broadcasting, Inc. 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 of Holdings 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 of Directors requires the approval of a majority of the votes
of the Board of Directors. The authorized number of each class of directors is
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 of Directors. Directors
hold office until their respective successors are elected and qualified or
until their earlier death, resignation or removal.

Compensation of Directors

Directors of Holdings who are not employees of Muzak will not receive any
compensation for serving on the Board of Directors of Holdings. All directors
of Holdings receive reimbursement of reasonable out-of-pocket expenses incurred
in connection with meetings of the Board of Directors of Holdings.

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<PAGE>

Management Employment Agreements

Concurrently with the consummation of the merger, Muzak entered into an
employment agreement with Mr. W. Boyd and amended Mr. Unger's employment
agreement with Audio Communications Network. After the merger, 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.

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 will be:

. 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 of Directors of
Holdings, 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 Audio
Communications Network, Audio Communications Network 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 Audio Communications Network,

. entitled to receive a minimum base salary of $75,000,

. eligible to receive a bonus, as determined by the Board of Directors of
Holdings,

. prohibited from competing with Audio Communications Network during his
employment period and for six months thereafter, and

. prohibited from disclosing any confidential information gained during
his employment period.

If Audio Communications Network 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 his employment agreement.

Other Executive Officers. Each of the executive officers of Muzak, other
than Mr. Boyd and Mr. Unger, 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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<PAGE>

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, which we refer to
collectively as the Muzak named executive officers, for services in all
capacities rendered to Muzak and its subsidiaries in 1998. Audio Communications
Network is the predecessor entity to Muzak as a result of the merger on March
18, 1999 of Muzak Limited Partnership with and into Audio Communications
Network.

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 Audio
Communications Network
Mitchell Kleinhandler... 1998 $187,500 -- -- -- --
Former Chief Executive
Officer of Audio
Communications Network
David Unger............. 1998 $ 93,750 -- -- -- $68,000 (5)
Vice President of Audio
Communications Network
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 Audio Communications
Network.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Investor Securities Purchase Agreement

David W. Unger, ABRY Broadcast Partners III and Holdings are parties to an
Investor Securities Purchase Agreement dated as of October 6, 1998, pursuant to
which Holdings sold to investors, and investors purchased from Holdings, class
A units of Holdings for $1,000 per unit, in cash. The investors are entitled to
indemnification in some circumstances to the extent that Holdings is determined
to have breached 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 Mr. Unger purchased
incentive units from Holdings. The incentive units purchased by Mr. 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:

(1) subject to limitations, automatically vest in full upon a Sale, as
defined in the Management Securities Repurchase Agreement, of Holdings and

(2) 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 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 Broadcast Partners 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. 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
Music Holdings Corp. have agreed to vote their equity interests in Holdings to
elect Mr. Unger to the Board of Directors of Holdings. The Members Agreement
also contains:

. ""co-sale" rights exercisable in the event of specified sales by ABRY
Broadcast Partners III,

. ""drag along" sale rights exercisable by the Board of Directors 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,

. preemptive rights and

. restrictions on transfers of membership interests by Mr. Koff, Mr. Unger,
Music Holdings Corp. 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 Qualified Public Offering, as
defined in the Members Agreement, or 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 of Directors of Holdings and elect Steven Hicks as the Chairman. The
Securityholders Agreement also contains:

. ""co-sale" rights exercisable in the event of specified sales by MEM
Holdings or Capstar Broadcasting, respectively,

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<PAGE>

. preemptive rights, and

. 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 Qualified Public Offering, as defined in the
Securityholders Agreement, or an Approved Company Sale. The co-sale rights will
terminate upon the consummation of the first to occur of an initial public
offering by Holdings or an Approved Company Sale.

Registration Agreement

Holdings, MEM Holdings, Mr. Koff, Mr. Unger, MHC and Capstar Broadcasting
are parties to an Amended and Restated Registration Agreement. Pursuant to this
Registration Agreement, the holders of a majority of the ABRY Registrable
Securities, as defined in the Registration Agreement, may request a demand
registration under the Securities Act of all or any portion of the ABRY
Registrable Securities:

. on Form S-1 or any similar long-form registration,

. on Form S-2 or S-3 or any similar short-form registration, if available,
and

. on any applicable form pursuant to Rule 415 under the Securities Act.

In accordance with the Registration Agreement, the holders of a majority of
Capstar Registrable Securities, as defined in the Registration Agreement, may
request a demand registration under the Securities Act of all or any portion of
the Capstar Registrable Securities on Form S-1 or any similar long-form
registration and 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 entitle
them to include their registrable equity securities in registrations of
securities by Holdings, subject to the satisfaction of specified conditions.

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 Partners Management and Consulting Services Agreement

Pursuant to a Management Agreement between ABRY Partners and Muzak dated as
of October 6, 1998, ABRY Partners is entitled to a management fee when, and if,
it provides advisory and management consulting services to Muzak and based on
the amount invested by ABRY Partners and its affiliates in Audio Communications
Network. 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
Partners or Muzak, with the approval of the Board of Directors of Holdings, may
terminate the Management Agreement by prior written notice to the other.

ABRY Broadcast Partners III's Subordinated Note

In connection with the acquisition of Muzak affiliates from Old Audio
Communications Network, Audio Communications Network borrowed approximately
$40.8 million from ABRY Broadcast Partners III under

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ABRY Broadcast Partners III's subordinated note. During 1998, no interest
payments were made on ABRY Broadcast Partners III's subordinated note and
interest accrued at 9% per annum. The approximately $42.4 million outstanding
under ABRY Broadcast Partners III's subordinated note, which includes the
accrued interest, was paid in full and the commitments thereunder terminated
concurrently with the closing of the merger and related transactions.

Intercompany Loans

In connection with the acquisition of Muzak affiliates from Old Audio
Communications Network, Audio Communications Network borrowed $17.6 million
from Holdings. On October 9, 1998, Audio Communications Network borrowed
$850,000 from Holdings to provide working capital and for acquisitions. On
November 25, 1998, Audio Communications Network 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 Audio
Communications Network.

MEM Holdings' Junior Subordinated Unsecured Note

On July 1, 1999, Muzak borrowed $3.0 million from MEM Holdings, LLC under a
junior subordinated unsecured note. Interest accrues on this note at a rate of
15% per year on the unpaid principal amount outstanding and on any accrued
interest that is not paid as of the applicable interest accumulation date. The
interest accumulation dates are March 31, June 30, September 30 and December
31. The existing notes are and the exchange notes will be senior to this MEM
Holdings note.

Family Relationships

William Boyd, Muzak's Chief Executive Officer, is the father of Robert Boyd,
Muzak'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, Muzak's Vice President, Strategic Planning and Development and is the
brother of Donald Chaffee, Muzak's Western Regional Operations Manager. Both
Ms. Chetwin and Donald Chaffee earned over $60,000 during 1998.

Old Muzak Option Plans

The executive officers of Old Muzak 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, of approximately the following amounts: Mr. W. Boyd--
$3,245,000; Mr. Saldarini--$1,585,000, Mr. Tracy--$101,250, Mr. DeRose--$35,750
and Mr. Kahn--$27,000.

76
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Holdings owned all of the membership units of Muzak. The following table
sets forth 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 26, 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 of Holdings, and

. all directors and executive officers as a group.

<TABLE>
<CAPTION>
Beneficial Ownership
(a)
------------------------
Beneficial Owner Number Percentage
---------------- ----------- ------------
<S> <C> <C>
ABRY Broadcast Partners III, L.P. .................. 38,537 53.8%
18 Newbury Street
Boston, MA 02116

Capstar Broadcasting Corporation.................... 15,921 22.6%
600 Congress, Suite 1400
Austin, Texas 28701

ABRY Broadcast Partners II, L.P. ................... 9,411 14.2%
18 Newbury Street
Boston, MA 02116

William A. Boyd..................................... 1,155 1.6%

Charles A. Saldarini................................ 150 *

Steven M. Tracy..................................... 125 *

Dino J. DeRose...................................... 150 *

Kenneth F. Kahn..................................... 10 *

Steven Hicks........................................ -- --

Geoff Armstrong..................................... -- --

Andrew Banks........................................ -- --

Peni Garber......................................... -- --

David W. Unger...................................... 1,067 1.5%

Royce G. Yudkoff (b)................................ 47,948 68.0%

All directors of Holdings and Muzak executive
officers as a
group (17 persons)................................. 50,765 72.0%
</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.

77
<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 Broadcast Partners 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 Broadcast Partners II. As a result, Mr. Yudkoff
may be deemed to beneficially own the shares owned by ABRY Broadcast
Partners III and ABRY Broadcast Partners II. The address of Mr. Yudkoff is
the address of ABRY Partners.

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 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,
some 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. A
preferred return accrues annually on the original issue price of each class A
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 original issue
price and accrued Holdings Preferred Return in respect of each class A unit is
paid to each holder, which distributions we refer to as priority distributions.
In addition to the priority distributions, each holder of class A units is also
entitled to participate in distributions payable to the residual common equity
interests of Holdings.

Non-Voting Units

The class B units are non-voting equity interests in Holdings. The class B-1
units, class B-2 units and class B-3 units, which we refer to collectively as
incentive units, were issued to Mr. Unger subject to the terms and conditions
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 distributions payable to residual common equity interests of Holdings, if
any, provided that priority distributions on all class A units shall have been
paid in full.

78
<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 of Directors. The directors are to be elected by the
members, although the Board of Directors 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 of Directors. 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 of Directors. 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 of Directors acquires the approval of a majority of votes of
the Board of Directors. ABRY Broadcast Partners 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.

79
<PAGE>

DESCRIPTION OF CERTAIN DEBT

Description of the Senior Credit Facility

General. In connection with the merger, Muzak entered into a senior credit
facility with Goldman Sachs Credit Partners L.P. as a lender and as syndication
agent, Canadian Imperial Bank of Commerce as a lender and as administrative
agent, and other financial institutions as lenders.

The senior credit facility initially provided for two term loans to Muzak
for $30.0 million, the term loan A, and $105.0 million, the term Loan B, and
revolving loans to Muzak for up to $35.0 million. On July 14, 1999, we
increased the amount borrowed under the term Loan B, for a total amount
borrowed under term Loan B of $135 million. The senior credit facility was used
to finance the merger and related transactions, including the repayment of up
to $42.4 million of loans made by ABRY Broadcast Partners III, and the Electro
Systems acquisition, 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.

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 in accordance with the terms of the senior credit
facility. 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 shown 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 are 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 specified
outstanding borrowings 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 annual excess cash repayments.

Security; Guaranty. The obligations of Muzak 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:

. the base rate, which is defined as the greater of (a) Canadian
Imperial Bank of Commerce's announced prime commercial lending rate
or (b) the federal funds rate plus 0.5%; or

. LIBOR, adjusted for reserves.

80
<PAGE>

The applicable borrowing margin for base rate borrowings under term loan A
and the revolving loan ranges from 1.0% if Muzak's Total Leverage Ratio is
less than 3.75:1 to 2.0% if Muzak's Total Leverage Ratio is greater than
5.25:1. The applicable borrowing margin for LIBOR loans under Term Loan A and
the Revolving Loan ranges from 2.0% if Muzak's Total Leverage Ratio is less
than 3.75:1 to 3.0% if Muzak's Total Leverage Ratio is greater than 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 some fees in connection with the senior
credit facility, including: arrangement fees, agency fees, and commitment
fees. Commitment fees range from 0.375% if Muzak'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 some of its
subsidiaries 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 material agreements, including the indenture and

. make capital expenditures.

The senior credit facility also requires Muzak and its restricted
subsidiaries to satisfy 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 representations and
warranties, including Year 2000 preparedness and to make 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 some 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.

81
<PAGE>

The senior credit facility also imposes substantial restrictions on Muzak's
ability to make distributions to Holdings. The senior credit facility permits
Muzak to make distributions to Holdings only:

. beginning on September 15, 2004, with respect to interest accruing after
March 15, 2004,

. in an amount sufficient to permit Holdings to make payments of interest
on the existing notes and the exchange notes,

Events of Default. The senior credit facility contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, specified events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-default to other indebtedness, and a
change in control of Holdings or Muzak.

Description of Senior Subordinated Notes

The senior subordinated notes are limited in aggregate principal amount to
$150.0 million, of which $115.0 million were issued in the senior subordinated
note offering, and will mature on March 15, 2009. The senior subordinated notes
were issued pursuant to the senior subordinated note indenture, and are general
unsecured obligations of Muzak and Muzak Finance Corp., as co-issuers,
subordinated in right of payment to all present and future Senior Debt, as
defined in the senior subordinated note indenture, of the issuers of the senior
subordinated notes. The senior subordinated notes are unconditionally
guaranteed on a senior subordinated basis by Holdings and each of Muzak's
present and future restricted domestic subsidiaries. Interest on the senior
subordinated notes accrues at the rate of 9.875% per annum from their original
issue date and is payable semi-annually in arrears on each March 15 and
September 15, commencing September 15, 1999, to the holders of record on the
immediately preceding March 1 and September 1, respectively. Additional senior
subordinated notes may be issued from time to time after the senior
subordinated note offering, subject to the provisions of the senior
subordinated note indenture.

The senior subordinated notes are not redeemable at the Issuers' option
prior to March 15, 2004. Thereafter, the senior subordinated notes are subject
to redemption at any time at Muzak's option in whole or part, upon not less
than 30 nor more than 60 days notice, at the redemption prices which are
expressed as percentages of principal amount provided in the senior
subordinated note indenture plus accrued and unpaid interest thereon to the
applicable redemption date.

Notwithstanding the foregoing, at any time prior to March 15, 2002, the
issuers of the senior subordinated notes may on any one or more occasions
redeem from the net proceeds of one or more Equity Offerings, as defined in the
senior subordinated note indenture, up to an aggregate of 35% of the aggregate
principal amount of the senior subordinated notes at a redemption price of
109.875% of the principal amount of those notes, plus accrued and unpaid
interest thereon to the redemption date; provided that at least 65% of the
original principal amount of the senior subordinated notes originally issued
remain outstanding immediately after the occurrence of such redemption.

Upon the occurrence of a Change of Control, as defined in the senior
subordinated note indenture, each holder of senior subordinated notes will have
the right to require the issuers of the senior subordinated notes to repurchase
all or any part of such holder's senior subordinated notes that is equal to
$1,000 or an integral multiple thereof at an offer price in cash equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon to the date of repurchase. In addition, upon the occurrence of some
asset sales, holders of senior subordinated notes may have the right to require
the issuers of the senior subordinated notes to repurchase their senior
subordinated notes at an offer price in cash equal to 100% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon to the date
of repurchase.

82
<PAGE>

The senior subordinated note indenture contains covenants that limit, among
other things, the ability of Muzak and its Restricted Subsidiaries, as defined
in the senior subordinated note indenture, to:

. incur additional indebtedness;

. issue Disqualified Capital Stock, as defined in the senior
subordinated note indenture;

. make restricted payments;

. grant liens on assets;

. merge, consolidate or transfer substantially all of their assets;

. enter into transactions with Affiliates;

. impose restrictions on any Restricted Subsidiary's ability to pay
dividends or make other payments to Muzak and its Restricted
Subsidiaries;

. sell assets; and

. issue capital stock of Restricted Subsidiaries.

The senior subordinated note indenture contains customary events of default,
which include the failure to pay interest and principal, the failure to comply
with covenants in the senior subordinated notes or the senior subordinated note
indenture, a default under indebtedness, the imposition of final judgements and
events occurring under bankruptcy laws.

The senior subordinated note indenture also restricts Muzak's ability to
make distributions to Holdings. Muzak's senior subordinated note indenture
permits Muzak to make payments or distributions to Muzak Holdings on and after
September 15, 2004 in an amount sufficient to permit Muzak Holdings to make
cash interest payments when due to holders of the existing notes and the
exchange notes, but other payments and distributions can be made only if, among
other things:

. Muzak's cumulative EBITDA over the same period minus 1.4 times its
consolidated interest expense over the period, plus

. net cash proceeds from the sale of capital stock or debt during the
period.

Muzak has agreed to file within 75 days after the original issue date and to
cause to become effective within 150 days of the original issue date, or later
under certain circumstances, a registration statement under the Securities Act
with respect to an offer to holders to exchange the senior subordinated notes
and any related guarantees for registered notes and any related guarantees. In
the event the registration requirements are not met, a registration default
shall be deemed to have occurred and additional interest will become payable
with respect to the senior subordinated notes until such registration default
has been cured.

83
<PAGE>

DESCRIPTION OF THE NOTES

You can find the definitions of the terms used in this description under the
subheading "Certain Definitions." In this description, "Holdings" refers only
to Muzak Holdings LLC and not to any of its subsidiaries.

We issued the existing notes and will issue the exchange notes, collectively
referred to as the "Notes," under an indenture, dated as of March 18, 1999
among Holdings, Muzak Holdings Finance and State Street Bank and Trust Company,
as trustee. The indenture is governed by the Trust Indenture Act of 1939, as
amended.

The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of the Notes. We have filed a copy of the indenture as an exhibit to
the registration statement that includes this Prospectus.

Brief Description of the Notes

The Notes

The Notes:

. are general unsecured obligations of Holdings and Muzak Holdings
Finance, and

. are effectively subordinated in right of payment to all existing and
future Senior Indebtedness of Muzak and Muzak Finance.

Methods of Receiving Payments on the Notes

Payments on the Notes will be made at the office the office of the Paying
Agent in the city of New York. Muzak may elect to make interest payments by
check mailed to the holders of the notes at their address shown in the register
of holders.

Paying Agent and Registrar for the Notes

The Trustee will initially act as Paying Agent and Registrar. Holdings may
change the Paying Agent and Registrar without prior notice to holders of the
Notes. None of Holdings, Muzak Holdings Finance or their affiliates may act as
Paying Agent.

Transfer and Exchange

Holders may transfer or exchange Notes in accordance with the indenture. The
Registrar may require the holder 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 Notes to be
redeemed.

The registered Holder of a Note will be treated as the owner of it for all
purposes.

Principal, Maturity and Interest

The Notes are limited in aggregate principal amount at maturity to $75
million. The Notes are general unsecured joint and several obligations of the
Holdings Issuers, ranking pari passu in right of payment with all
unsubordinated indebtedness of each Holdings Issuer. The Notes will mature on
March 15, 2010.

84
<PAGE>

Cash interest on the Notes does not accrue and is not payable prior to March
15, 2004. The Notes were issued at a substantial discount from their principal
amount at maturity. Until March 15, 2004, the Notes will accrete in value such
that the Accreted Value on March 15, 2004 will equal the principal amount at
maturity of the Notes. From and after March 15, 2004, interest on the Notes
will accrue at a rate of 13% per annum. Interest will be payable semi-annually
in arrears on each March 15 and September 15, commencing September 15, 2004, to
holders of record of the Notes at the close of business on the immediately
preceding March 1 and September 1. The interest rate on the Notes is subject to
increase, and such Additional Interest will be payable on the above payment
dates, in some circumstances, if the Notes (or other securities substantially
similar to the Notes) are not registered with the Commission within the
prescribed time periods.

Holding Company Structure

Holdings is a holding company for its Subsidiaries, with no material
operations of its own and only limited assets. Holdings Finance has no
operations and substantially no assets. Accordingly, Holdings is dependent upon
the distribution of the earnings of its Subsidiaries to service its debt
obligations.

The claims of the Holders of Notes are subject to the prior payment of all
liabilities, whether or not for borrowed money, including, without limitation,
Muzak's Obligations under the Senior Credit Facility, and to any preferred
stock interest of such Subsidiaries. Holdings and its Restricted Subsidiaries
may not have sufficient assets to satisfy the claims of the Holders of Notes.
Additionally, any right of Holdings to receive assets of any of its
Subsidiaries upon such Subsidiary's liquidation or reorganization will be
effectively subordinated to the claims of that Subsidiary's creditors, except
to the extent that Holdings itself is recognized as a creditor of such
Subsidiary. In that case, the claims of Holdings would still be subordinate to
the claims of such creditors who hold security in the assets of such Subsidiary
to the extent of such assets and to the claims of such creditors who hold
Indebtedness of such Subsidiary senior to that held by Holdings.

The Senior Credit Facility restricts Muzak's ability to pay dividends or
making any other distributions to Holdings. In addition, the Indenture contains
standstill provisions that prohibit the Holders from initiating or intervening
in an insolvency proceeding of Muzak while the Senior Credit Facility is in
place. These provisions also prohibit Holders from seeking a substantive
consolidation of Holdings, Muzak and/or Muzak Holdings Finance. The Indenture
also contains subordination provisions to the effect that, in the event of a
substantive consolidation of Holdings, Muzak and/or Muzak Holdings Finance, the
Holders:

. will not be entitled to receive any cash or other payments in respect of
the Notes, any Obligations under the Notes, the Registration Rights
Agreement or the Indenture until the Obligations under the Senior Credit
Facility have been indefeasibly paid in full in cash and

. will be required to turn over to the lenders under the Senior Credit
Facility any payments received in violation of such provisions.

Optional Redemption

Before March 15, 2002, the Holdings Issuers may on any one or more occasions
redeem up to 35% of the aggregate principal amount of the Notes originally
issued under the indenture at a redemption price of 113% of the aggregate
principal amount so redeemed, plus accrued and unpaid interest to the
redemption date, with the net cash proceeds of one ore more Equity Offerings so
long as:

(1) at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after such redemption and

(2) the redemption occurs within 60 days following the closing of such
Equity Offering.

Except pursuant to the preceding paragraph, the Notes will not be redeemable
at the Holdings Issuers' option prior to March 15, 2004.

85
<PAGE>

After March 15, 2004, the Holdings Issuers may redeem all or a part of the
Notes on no less than 30 nor more than 60 days' prior written notice, at the
redemption prices, expressed as percentages of principal amount, set forth
below plus accrued and unpaid interest, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on March 15 of the
years indicated below:

<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.......................................................... 106.500%
2005.......................................................... 104.333%
2006.......................................................... 102.167%
2007 and thereafter........................................... 100.000%
</TABLE>

Repurchase at the Option of Holders

Change of Control

If a Change of Control occurs, the Holdings Issuers must 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 date
of purchase. The Holdings Issuers will comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934, as amended, 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.

Within 20 days following a Change of Control, the Holdings Issuers must mail
to the Trustee and to each holder of the Notes and send to the Dow Jones News
Service or similar business news service in the United States a notice
describing the transactions and offering to repurchase Notes pursuant to the
procedures required by the Indenture.

On the Change of Control Payment Date, the Holdings Issuers must, 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 Holdings Issuers.

The Paying Agent will promptly mail to each holder of Notes so accepted
payment in an amount equal to the purchase price for such Notes, and Trustee
will promptly authenticate and mail to such holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered. Each such
new Note will be issued in an original principal amount in denominations of
$1,000 and integral multiples thereof.

Prior to mailing the notice to holders described above, but in any event
within 60 days following a Change of Control, the Holdings Issuers will either
repay all Senior Debt that requires repayment upon a Change of Control or
obtain the requisite consents, if any, under all agreements governing Senior
Indebtedness to permit the repurchase of the Notes as required by this
covenant.

As a result of the foregoing, a holder of the Notes may not be able to
compel the Holdings Issuers to purchase the Notes unless the Holdings Issuers
are able at the time to refinance all of the obligations under or in respect of
Senior Indebtedness or obtain requisite consents under the agreements governing
Senior Indebtedness.

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<PAGE>

If a Change of Control Offer is made, there can be no assurance that the
Holdings 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 Holdings
Issuers are required to purchase outstanding Notes pursuant to a Change of
Control Offer, the Holdings 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 Holdings Issuers would
be able to obtain such financing.

Asset Sales

Holdings will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:

(1) Holdings 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 Holdings, and
evidenced by a board resolution);

(2) not less than 75% of the consideration received by Holdings 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 Holdings, or any combination thereof, except to the extent to which
Holdings is undertaking a Permitted Asset Swap. For purposes of this
provision, each of the following will be deemed to be cash:

(a) any liabilities (as shown on Holdings's or such Restricted
Subsidiary's most recent balance sheet), of Holdings 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; and

(b) any securities, notes or other obligations received by Holdings
or any such Restricted Subsidiary from such transferee that are
promptly converted by Holdings or such Restricted Subsidiary into cash
(to the extent of the cash received); and

(3) the Asset Sale Proceeds received by Holdings or such Restricted
Subsidiary are applied

(a) first, to the extent Holdings 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
Holdings or any such Restricted Subsidiary within 360 days following
the receipt of the Asset Sale Proceeds from any Asset Sale; so long as
any such repayment will 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 Holdings 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 Holdings or any
such Restricted Subsidiary as conducted on the date of the indenture;
so long as 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, Holdings must apply
an amount equal to the Available Asset Sale Proceeds to an offer to
repurchase the Notes and all other pari passu Indebtedness of Holdings
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, Holdings may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes
and such pari passu Indebtedness.

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Pending the final application of any Asset Sale Proceeds, Holdings 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 Holdings is required to make an Excess Proceeds Offer, Holdings will
mail, within 45 days following the date specified in clause (3)(c) above, a
notice to the holders describing the Asset Sale Offer, including the
calculations used in determining the amount of Available Asset Sale Proceeds to
be applied to the purchase of such Notes.

In the event of the transfer of substantially all of the property and assets
of Holdings 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 will be deemed to have sold the properties and assets of Holdings and
its Restricted Subsidiaries not so transferred for purposes of this covenant,
and will comply with the provisions of this covenant with respect to such
deemed sale as if it were an Asset Sale.

The Senior Credit Facility restricts Muzak's ability to pay dividends or
make distributions to Holdings. These provisions may result in Holdings not
having funds sufficient to purchase Notes pursuant to the Excess Proceeds
Offer, unless they are waived by the lenders or the Senior Credit Facility is
repaid, replaced or amended to permit distributions to Holdings. Holdings'
Subsidiaries may not have sufficient resources to make the distributions or
dividends necessary for Holdings to purchase Notes pursuant to an Excess
Proceeds Offer. Holdings' failure to make an Excess Proceeds Offer when
required would constitute an Event of Default under the indenture.

Holdings will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934, as amended, 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.

Covenants

The Indenture contains, among others, the following covenants:

Limitation on Additional Indebtedness

Holdings will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness); provided that Holdings and any of its Restricted Subsidiaries
may incur Indebtedness (including Acquired Indebtedness) 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, and if after giving effect
to the incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, Holdings' Consolidated Leverage Ratio is less than 7.5 to 1
if such Indebtedness is incurred on or before March 15, 2001 and 7.0 to 1 if
such Indebtedness is incurred thereafter.

Holdings and its Restricted Subsidiaries may, however, incur any of the
following (collectively, "Permitted Indebtedness").

(1) Indebtedness of Holdings 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

(a) 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

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(b) 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, the Exchange Notes
and the Guarantees thereof and the Senior Subordinated Notes and the Senior
Subordinated Guarantees;

(3) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the indenture;

(4) Indebtedness of Holdings to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to Holdings or to another
Restricted Subsidiary;

(5) Purchase Money Indebtedness that does not in the aggregate exceed 5%
of Holdings's consolidated total assets;

(6) the incurrence by Holdings or any Restricted Subsidiary of Hedging
Obligations that are incurred in the ordinary course of business of
Holdings or such Restricted Subsidiary and not for speculative purposes so
long as:

(a) any Hedging Obligation that relates to interest rate risk has a
notional principal amount that does not exceed the principal amount of
the Indebtedness to which such Hedging Obligation related and

(b) any Hedging Obligation that relates to currency risk, does not
increase the Indebtedness of Holdings 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 Holdings in an
aggregate principal amount not to exceed $10 million at any one time
outstanding so long as the aggregate amount then outstanding under this
clause (8) when added to the aggregate amount then outstanding under clause
(1) above does not exceed the aggregate amount permitted under clause (1)
above;

(9) guarantees by Holdings and its Restricted Subsidiaries of each
other's Indebtedness so long as such Indebtedness is permitted to be
incurred under the Indenture;

(10) Indebtedness incurred by Holdings 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 Holdings or a Restricted
Subsidiary of Holdings 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 Holdings, 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 must at
no time exceed the gross proceeds actually received by Holdings and its
Restricted Subsidiaries in connection with such disposition;

(12) obligations in respect of performance and surety bonds and
completion guarantees provided by Holdings or any Restricted Subsidiary of
Holdings in the ordinary course of business;

(13) the ABRY Subordinated Debt;

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(14) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to Holdings or
any Subsidiary of Holdings (except for Standard Securitization
Undertakings);

(15) Indebtedness of Holdings issued to current or former members of
management of Holdings 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" below; and

(16) additional Indebtedness of Holdings and its Restricted Subsidiaries
not to exceed $5 million in aggregate principal amount at any one time
outstanding.

If 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, Holdings will, 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.

Holdings will not incur any Indebtedness which by its terms (or by the terms
of any agreement governing such Indebtedness) is subordinated in right of
payment to any other Indebtedness of Holdings unless such Indebtedness is also
by its terms (or by the terms of any agreement governing such Indebtedness)
made expressly subordinate in right of payment to the Notes pursuant to
subordination provisions that are substantially identical to the subordination
provisions of such Indebtedness (or such agreement) that are most favorable to
the holders of any other Indebtedness of Holdings; provided that no
Indebtedness of Holdings shall be deemed to be subordinated in right of payment
to any other Indebtedness of Holdings solely by virtue of being unsecured.

Limitation on Restricted Payments

Holdings will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any of the following payments or
other actions (collectively, "Restricted Payments"):

(1) the declaration or payment of any dividend or any other distribution
or payment on Capital Stock of Holdings or any Restricted Subsidiary of
Holdings or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of Holdings or any Restricted
Subsidiary of Holdings (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 Holdings, dividends or distributions
payable to Holdings or to a Restricted Subsidiary of Holdings 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 Holdings or any of its Restricted
Subsidiaries (other than Capital Stock owned by Holdings or a Wholly Owned
Subsidiary of Holdings, 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,

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(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 Holdings (other
than a Restricted Subsidiary) to Holdings or a Restricted Subsidiary of
Holdings

unless at the time of and after giving effect to such Restricted Payment:

(1) no Default or Event of Default shall have occurred and be
continuing;

(2) Holdings could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under "-- Limitation on Additional Indebtedness"
above; and

(3) the aggregate of all Restricted Payments declared or made after the
date of the indenture does not exceed the sum of

(a) 100% of Holdings' Cumulative EBITDA (or, in the event that such
Cumulative EBITDA shall be a deficit, minus 100% of such deficit) minus
1.4 times Holdings' Cumulative Consolidated Interest Expense,

(b) 100% of the aggregate net cash proceeds received by Holdings
from the issue or sale after the date of the indenture of Capital Stock
(other than Disqualified Capital Stock or Capital Stock of Holdings
issued to any Subsidiary of Holdings) of Holdings or any Indebtedness
or other securities of Holdings convertible into or exercisable or
exchangeable for Capital Stock (other than Disqualified Capital Stock)
of Holdings 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 Holdings from any equity
contribution from a holder of Holdings' Capital Stock, excluding, in
the case of clauses (3)(b) and (c), any net proceeds from an Equity
Offering to the extent used to redeem the Notes and any net proceeds
directly or indirectly received in connection with the Capstar
acquisition, and

(d) without duplication, the sum of

. the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made
subsequent to the date of the indenture whether through
interest payments, principal payments, dividends or other
distributions;

. the net proceeds received by Holdings 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 Holdings); and

. 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 described in clause (d) above shall not exceed
the aggregate amount of all such Investments made subsequent to the date of the
indenture.

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 do 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 Holdings or of Indebtedness
that is subordinated to the Notes by conversion into, or by or in exchange
for, shares of Capital Stock of Holdings (other than Disqualified Capital
Stock), or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of Holdings) of other shares of Capital
Stock of Holdings (other than Disqualified Capital Stock),

(3) the redemption, repurchase, defeasance, retirement or other
acquisition of Indebtedness of Holdings 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 Holdings
(other than any Indebtedness owed to a Subsidiary) that is Refinancing
Indebtedness,

(4) the retirement of any shares of Disqualified Capital Stock of
Holdings by conversion into, or by exchange for, shares of Disqualified
Capital Stock of Holdings, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of Holdings) of
other shares of Disqualified Capital Stock of Holdings,

(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 Holdings to pay federal, state or local income tax liabilities arising
from income of Holdings and attributable to them solely as a result of
Holdings (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 Holdings held by any current or former
members of the management of Holdings (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 will be increased by the amount of
any proceeds to Holdings 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 Holdings (which net proceeds have been
contributed by Holdings) to management or other employees subsequent to
the date of the indenture and

(y) any "key-man" life insurance policies which are used to make
such redemptions or repurchases, although the cancellation of
Indebtedness owing to Holdings from management or other employees of
Holdings or any of its Restricted Subsidiaries in connection with a
repurchase of Capital Stock of Holdings will not be deemed to
constitute a Restricted Payment under the indenture,

(7) any payments or distributions or other transactions to be made in
connection with the merger and related transactions, the Electro Systems
acquisition or the Capstar acquisition, including the repayment of loans
made by ABRY Broadcast Partners III (including, in each case, fees and
expenses incurred in connection therewith),

(8) Investments received in connection with an Asset Sale that complies
with the covenant described under "-- Limitation on Certain Asset Sales"
below,

(9) payments or distributions to dissenting stockholders pursuant to
transactions permitted under the terms of the indenture,

(10) 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,

(11) payments to enable Holdings to make payments to holders of its
Capital Stock in lieu of issuance of fractional shares of its Capital
Stock,

(12) payments of principal and interest on the ABRY Subordinated Debt in
accordance with the terms thereof,

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(13) any dividend or distribution made so long as concurrently therewith
a capital contribution in an equal amount is made to Holdings, and

(14) other Restricted Payments in an aggregate amount not to exceed $5
million.

In calculating the aggregate amount of Restricted Payments made subsequent
to the date of the indenture for purposes of clause (3) of the first paragraph
above, amounts expended pursuant to clauses (1), (2) and (13) of the
immediately preceding paragraph will be included in such calculation.

Not later than the date of making any Restricted Payment, the Holdings
Issuers must deliver to the trustee an Officers' Certificate stating:

.that such Restricted Payment is permitted,

.the basis upon which the calculations required by the covenant described
above were computed, which calculations may be based upon the Holdings
Issuers' latest available financial statements, and

.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 (other than with respect to any Restricted
Payment permitted under clauses (5) and (6)).

Limitation on Investments

Holdings 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 date of the indenture as a
Restricted Payment in compliance with the "Limitation on Restricted
Payments" covenant.

Limitation on Liens

Holdings 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
Holdings or any of its Restricted Subsidiaries or any shares of Capital Stock
or Indebtedness of any Restricted Subsidiary of Holdings 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 is 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

Holdings 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 date of the
indenture unless:

(1) such Affiliate Transaction is between or among Holdings 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 Holdings 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

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permitted under clause (1) above, Holdings must obtain a resolution of its
Board of Directors 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, Holdings 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 Holdings or any
Restricted Subsidiary of Holdings as determined in good faith by Holdings'
Board of Directors or senior management,

(3) any agreement as in effect as of the date of the indenture 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 date of the indenture,

(4) transactions effected as part of a Qualified Securitization
Transaction,

(5) any employment agreement entered into by Holdings 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 Holdings 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 date
of the indenture and any similar agreements which it may enter into
thereafter; provided, however, that the existence of, or the performance by
Holdings 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 date of the indenture will 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 Holdings or its Restricted Subsidiaries, in the
reasonable determination of the Board of Directors of Holdings 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 and the Capstar
acquisition, including the repayment of loans made by ABRY Broadcast
Partners 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 date of the indenture as
determined in good faith by the Board of Directors of Holdings 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
Holdings or the Company, as long as that issuance has been approved by

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the Board of Directors of Holdings or the Company and the board resolution
described in the immediately preceding paragraph has been delivered to the
Trustee.

Limitation on Preferred Stock of Restricted Subsidiaries

Holdings will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (except Preferred Stock issued to Holdings or a Restricted
Subsidiary of Holdings) or permit any Person (other than Holdings or a
Restricted Subsidiary of Holdings) 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

Holdings 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 Holdings to:

(1) (a) pay dividends or make any other distributions to Holdings or any
Restricted Subsidiary of Holdings on its Capital Stock or 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 Holdings or
any Restricted Subsidiary of Holdings,

(2) make loans or advances or capital contributions to Holdings or any
of its Restricted Subsidiaries or

(3) transfer any of its properties or assets to Holdings 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 date of the indenture
to the extent and in the manner such encumbrances and restrictions are in
effect on the date of the indenture,

(2) (a) the indenture, the Notes and the Exchange Notes, (b) Muzak's 9
7/8% Senior Subordinated Notes due 2009, the guarantees thereof and the
indenture governing those notes, and (c) 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, as long as 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 Holdings 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,

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(10) any agreement or instrument governing Capital Stock of any Person
that is acquired, as long as 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 Qualified Securitization Transaction, as long as
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 Restricted Subsidiary which encumbrances or restrictions
are no more restrictive than those contained in the indenture governing
Muzak's 9 7/8% Senior Subordinated Notes due 2009,

(14) any agreement or instrument governing Indebtedness (whether or not
outstanding) of Foreign Restricted Subsidiaries of Holdings 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

Holdings and its Restricted Subsidiaries will not engage in any businesses
which are not reasonably similar, ancillary, complementary or related to the
businesses in which Holdings and its Restricted Subsidiaries are engaged in on
the date of the indenture except to such extent as would not be material to
Holdings and its Restricted Subsidiaries, taken as a whole.

Limitation on Sale and Lease-Back Transactions

Holdings 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 Holdings and
evidenced by a board resolution,

(2) Holdings 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 Holdings or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with "--Limitation on Certain
Asset Sales" above.

Limitation of Guarantees by Restricted Subsidiaries

Holdings will not permit any of its Restricted Subsidiaries, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
assume, guarantee or in any other manner become liable with respect to any
Indebtedness of Holdings, unless, in any such case

(a) such Restricted Subsidiary executes and delivers a supplemental
indenture to the Indenture, providing a guarantee of payment of the Notes
by such Restricted Subsidiary (the "Guarantee") and

(b) if any such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Indebtedness that is
expressly subordinated to the Notes, the guarantee or other instrument
provided by such Restricted Subsidiary in respect of such subordinated
Indebtedness shall be subordinated to the Guarantee substantially to the
same extent as such Indebtedness is subordinated to the Notes.

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Any such Guarantee by a Restricted Subsidiary of the Notes must, however,
provide that it will be automatically and unconditionally released and
discharged, without any further action required on the part of the Trustee or
any Holder, upon:

(1) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such
Guarantee was executed and delivered pursuant to the preceding paragraph or

(2) any sale or other disposition (by merger or otherwise) to any Person
which is not a Restricted Subsidiary of Holdings of all of Holdings'
Capital Stock in, or all or substantially all of the assets of, such
Restricted Subsidiary;

provided that such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of the indenture and such assumption,
guarantee or other liability of such Restricted Subsidiary has been released by
the holders of the other Indebtedness so guaranteed.

Payments for Consent

Holdings 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.

Merger, Consolidation or Sale of Assets

Holdings 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 Holdings (as an entirety or substantially as an entirety in one
transaction or a series of related transactions), to any Person unless:

(1) Holdings is the continuing Person, or the Person (if other than
Holdings) formed by such consolidation or into which Holdings is merged or
to which the properties and assets of Holdings are sold, assigned,
transferred, leased, conveyed or otherwise disposed of is 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 expressly assumes, by a supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the trustee, all of the
obligations of Holdings under the indenture and the Notes, and the
obligations thereunder remain in full force and effect, however if at any
time Holdings or such successor Person is a limited liability company,
partnership or trust, there must be a co-issuer of the Notes that is a
Restricted Subsidiary of Holdings 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 has occurred and be continuing;
and

(3) immediately after giving effect to such transaction on a pro forma
basis Holdings or such Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "-- Certain
Covenants -- Limitation on Additional Indebtedness" above.

In connection with any consolidation, merger or transfer of assets
contemplated by this provision, Holdings must 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.

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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 Holdings, the Capital Stock of which constitutes all or
substantially all of the properties and assets of Holdings, will be deemed to
be the transfer of all or substantially all of the properties and assets of
Holdings.

This restriction does not apply, however, to Holdings' ability to 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 Holdings or the form of
organization of Holdings so long as the amount of Indebtedness of Holdings and
its Restricted Subsidiaries is not increased thereby and that the successor
assumes all obligations of Holdings under the Indenture, the Notes and the
Registration Rights Agreement. Nothing in this covenant shall be deemed to
prevent the consummation of the merger and related transactions.

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;

(2) default for 30 days in payment of any interest on the Notes;

(3) default by any Holdings 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 at maturity 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 will 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 Holdings or any Restricted
Subsidiary thereof, other than a Securitization Entity, or the acceleration
of any such Indebtedness, which acceleration is not 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
Holdings is contesting such challenge or denial in good faith, rendered
against Holdings or any Restricted Subsidiary thereof, and not discharged
for any period of 60 consecutive days during which a stay of enforcement is
not in effect; and

(6) certain events involving bankruptcy, insolvency or reorganization of
any Holdings Issuer or any Significant Subsidiary thereof.

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, has occurred and is
continuing, then the trustee or the holders of not less than 25% in aggregate
principal amount at maturity of the Notes then outstanding may declare to be
immediately due and payable the entire Accreted Value of all the Notes then
outstanding plus accrued and unpaid interest, if any, to the date of
acceleration and (1) the same will become immediately due and payable or (2) if
there are any

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amounts outstanding under the Senior Credit Facility, will 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 Holdings Issuers and
the representative under the Senior Credit Facility of a notice of
acceleration, except 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 at maturity 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 Holdings 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
has received an Officers' Certificate and an opinion of counsel that such
Event of Default has been cured or waived.

No such rescission will 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 occurs, the principal, premium and interest
amount with respect to all of the Notes will 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 at maturity of the Notes then
outstanding 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 has
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 at
maturity of the outstanding Notes have made written request and offered
reasonable indemnity to the trustee to institute such proceeding as trustee,
and unless the trustee has not received from the holders of a majority in
aggregate principal amount at maturity of the outstanding Notes a direction
inconsistent with such request and has failed to institute such proceeding
within 60 days. These 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 Holdings Issuers may elect either

(1) to defease and be discharged from any and all of their 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

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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 Holdings 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 has 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 has not resulted in a breach
or violation of, or constitute a Default under the indenture or any other
material agreement or instrument to which any Holdings Issuer or any of its
Subsidiaries is a party or by which any Holdings Issuer or any of its
Subsidiaries is bound;

(4) the Holdings Issuers have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by the Holdings Issuers
with the intent of preferring the holders of the Notes over any other
creditors of the Holdings Issuers or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Holdings
Issuers or others;

(5) the Holdings Issuers 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 Holdings Issuers have delivered to the trustee an opinion of
counsel to the effect that assuming no intervening bankruptcy occurred and
that no holder is an insider of the Holdings Issuers, after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any 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 Holdings Issuers 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 Holdings Issuers and the Trustee, with the
consent of holders of at least a majority in principal amount at maturity of
the outstanding Notes, to modify or supplement the Indenture, except that no
such modification will, 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 or Accreted Value 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,

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(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 at
maturity of Notes to waive Defaults or Events of Default,

(7) amend, change or modify in any material respect the obligation of
Holdings 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, or

(8) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the Notes in a manner which adversely
affects the holders of Notes.

Reports to Holders

For fiscal periods ending after the date of the indenture so long as the
Holdings Issuers are subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, 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 Holdings Issuers are entitled under the
Securities Exchange Act of 1934, as amended, 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.

The Trustee

The trustee under the indenture is 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.

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 date of the indenture between ABRY and
Muzak.

"ABRY Subordinated Debt" means Indebtedness of Holdings or Muzak in
principal amount not to exceed $30 million in the aggregate at any time
outstanding:

(a) that is owed to ABRY Broadcast Partners III, ABRY, MEM Holdings,
Inc. or any other investment fund controlled by ABRY,

(b) if such Indebtedness is Indebtedness of Holdings, as to which the
payment of principal of, and premium, if any, and interest and other
payment obligations in respect of such Indebtedness is subordinate to the
prior payment in full of Holdings' 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 has occurred and be continuing,

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(c) that will 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 Holdings or
Muzak, as the case may be, and evidenced by a board resolution delivered to
the trustee.

"Accreted Value" means an amount per $1,000 principal amount at maturity of
the Notes that is equal to:

(a) as of any date prior to March 15, 2004, the sum of

(x) the initial offering price of each Note and

(y) the portion of the excess of the principal amount at maturity of
each Note over such initial offering price which shall have been
amortized through such date, such amount to be so amortized on a daily
basis and compounded semi-annually on each March 15 and September 15 at
the rate of 13% per annum from the Issue Date through the date of
determination computed on the basis of a 360-day year of twelve 30-day
months and

(b) as of any date after March 15, 2004, $1,000.

"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,

(1) EBITDA attributable to the assets to be acquired in such Asset
Acquisition for the same fiscal quarter utilized in determining
"Consolidated Leverage Ratio" plus

(2) 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 Holdings.

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, Holdings 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.

"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; except 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, will be deemed to be control. However, no Person,
other than Holdings or any Subsidiary of

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Holdings, in whom a Securitization Entity makes an Investment in connection
with a Qualified Securitization Transaction will be deemed to be an Affiliate
of Holdings or any of its Subsidiaries solely by reason of such Investment.

"Asset Acquisition" means

(1) an Investment by Holdings or any Restricted Subsidiary of Holdings
in any other Person pursuant to which such Person becomes a Restricted
Subsidiary of Holdings or any Restricted Subsidiary of Holdings, or is
merged with or into Holdings or any Restricted Subsidiary of Holdings or

(2) the acquisition by Holdings or any Restricted Subsidiary of Holdings
of the assets of any Person, other than a Restricted Subsidiary of
Holdings, 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 Holdings
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 Holdings or

(2) any other property or assets of Holdings or of any Restricted
Subsidiary thereof;

however, Asset Sales do not include

(1) a transaction or series of related transactions for which Holdings
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 Holdings 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, which for the purposes of this clause (8), Purchase Money
Notes will be deemed to be cash, and

(9) any transfer of assets acquired by Holdings or any of its Restricted
Subsidiaries to an independent affiliate of Holdings or any of its
Restricted Subsidiaries in accordance with the terms of the license
agreement between Muzak and its independent affiliates as such agreements
were in effect on the date of the indenture 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
date of the indenture.

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"Asset Sale Proceeds" means, with respect to any Asset Sale,

(1) cash and Cash Equivalents received by Holdings or any Restricted
Subsidiary of Holdings 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,

(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 Holdings or a
Restricted Subsidiary of Holdings 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 Holdings 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
Holdings or any Restricted Subsidiary of Holdings 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."

"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 will 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 (a) 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 (b) 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 Holdings 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 Securities Exchange Act of 1934, as amended (a "Group"), other than
a Permitted Holder, becomes the beneficial owner (as defined in Rule 13d-3
or any successor rule or regulation promulgated under the Securities
Exchange Act of 1934, as amended, except that a Person will 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
Holdings' 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 Holdings 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 Holdings,

(2) any consolidation or merger is consummated of Holdings in which
Holdings is not the continuing or surviving Person or pursuant to which the
Common Stock of Holdings would be converted into cash, securities or other
property, other than a merger or consolidation of Holdings in which the
holders of the Capital Stock of Holdings 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 Holdings
together with any new directors whose election by such Board of Directors
or whose nomination for election by the equityholders of Holdings 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 Holdings or

(4) the approval by the holders of Capital Stock of Holdings of any plan
or proposal for the liquidation or dissolution of Holdings 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

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(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 Muzak LLC, a Delaware limited liability company.

"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 Holdings 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 will 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

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(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 will 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 will be included.

If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding paragraph gives 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;
however,

(1) the Net Income of any Person other than a Restricted Subsidiary of
the referent Person will 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, other than those permitted
under "-- Certain Covenants -- Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" above, will 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 will 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 will 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, will 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 will be excluded.

"Control Investment Affiliate" means, as to any Person, any other Person
which is an Affiliate of such Person and 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.

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"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; except 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, will 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

(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;

except that, for purposes of calculating EBITDA during any fiscal quarter, cash
income from a particular Investment other than a Restricted Subsidiary of such
Person will 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.

"Equity Offering" means any public or private sale of Common Stock, other
than Disqualified Capital Stock, of Holdings pursuant to which Holdings
receives net proceeds of at least $20 million.

"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 will be

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determined by the Board of Directors of Holdings acting reasonably and in good
faith and will be evidenced by a resolution of the Board of Directors of
Holdings delivered to the Trustee.

"Foreign Restricted Subsidiary" means any Restricted Subsidiary of Holdings
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.

"Hedging Obligations" means, with respect to any Person, the net payment
obligations of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements and other agreements or
arrangements entered into in order to protect such Person against fluctuations
in commodity prices, interest rates or currency exchange rates.

"Holdings Finance Corp." means Muzak Holdings Finance Corp., a Delaware
corporation, or any successor corporation that is a co-issuer of the Notes.

"Holdings Issuers" means each of Holdings and Holdings Finance Corp.

"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; however, a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness will
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 foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and will 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 was 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 will 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; however:

(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,

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(2) Indebtedness will 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 will 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
will 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 will 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 will 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.

For the purposes of this definition, any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business will not be deemed to be "Indebtedness" of Holdings or any of its
Restricted Subsidiaries. Furthermore, guarantees of, or obligations with
respect to letters of credit supporting, Indebtedness otherwise included in the
determination of such amount will 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 Holdings
and

(2) which, in the judgment of the Board of Directors of Holdings, is
otherwise independent and qualified to perform the task for which it is to
be engaged.

"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. The term Investments excludes:

(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 Holdings or any Restricted Subsidiary of Holdings sells or otherwise
disposes of any Capital Stock of any direct or indirect Restricted Subsidiary
of Holdings such that such Restricted Subsidiary would no longer constitute a
Subsidiary, Holdings will 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.

"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).

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"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.

"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 complies with
applicable provisions of the indenture.

"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 Broadcast Partners III, ABRY
Broadcast Partners II and each Control Investment Affiliate of ABRY Broadcast
Partners III or ABRY Broadcast Partners II.

"Permitted Investments" means

(1) Investments by Holdings, or by a Restricted Subsidiary thereof, in
Holdings or any Restricted Subsidiary;

(2) Investments by Holdings, or by a Restricted Subsidiary thereof, in a
Person, if as a result of such Investment

(a) such Person becomes a Restricted Subsidiary of Holdings 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, Holdings or a Restricted Subsidiary thereof;

(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 Holdings 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 Holdings 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 Holdings'
or its Restricted Subsidiaries' business and not for speculative purposes;

(7) any acquisition of assets to be used in the business of Holdings or
any of its Restricted Subsidiaries solely in exchange for the issuance of
Capital Stock, other than Disqualified Capital Stock, of Holdings;

(8) additional Investments not to exceed $5 million at any one time
outstanding;

(9) Investments existing on the date of the indenture;

(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 Holdings or any Restricted Subsidiary of Indebtedness
otherwise permitted to be incurred by Restricted Subsidiaries of Holdings
under the indenture; and

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(12) any Investment by Holdings or a Restricted Subsidiary of Holdings
in a Securitization Entity or any Investment by a Securitization Entity in
any other Person in connection with a Qualified Securitization Transaction,
as long as 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 Holdings or at the time such Person is
merged into Holdings or any of its Restricted Subsidiaries, as long as such
Liens are not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary of Holdings or merging into
Holdings or any of its Restricted Subsidiaries,

(2) Liens securing Indebtedness under the Senior Credit Facility and
Liens securing other Indebtedness of any Restricted Subsidiary of the
Company, as long as in each case, such Indebtedness is incurred in
compliance with "-- Certain Covenants -- Limitation on Additional
Indebtedness" above,

(3) Liens securing Refinancing Indebtedness, as long as 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 Holdings 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, as long as

(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 is required in conformity with GAAP must
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 Holdings 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 date of the indenture and Liens securing the
Notes (and the Guarantees, if any) and the Exchange Notes (and the
Guarantees thereof, if any),

(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,

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(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 Holdings 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 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,

(19) Liens arising from filing Uniform Commercial Code financing
statements regarding leases,

(20) 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,

(21) deposits made in the ordinary course of business to secure
liability to insurance carriers,

(22) any interest or title of a lessor or a sublessor under an operating
lease,

(23) Liens under licensing agreements for use of intellectual property
entered into in the ordinary course of business,

(24) Liens imposed by law incurred by Holdings or any of its Restricted
Subsidiaries in the ordinary course of business,

(25) Liens securing Muzak's 9 7/8 Senior Subordinated Notes due 2009 and
the guarantees of those notes in accordance with their terms as in effect
on the date of the indenture, 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.

"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from Holdings or any
Subsidiary of Holdings in connection with a Qualified Securitization
Transaction to a Securitization Entity, which note must be repaid from cash
available to the Securitization Entity, other than amounts required to be
established as reserves pursuant to agreements,

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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 Holdings or any of its Subsidiaries
pursuant to which Holdings or any or its Subsidiaries may sell, convey or
otherwise transfer to (a) a Securitization Entity, in the case of a transfer by
Holdings 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 Holdings 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 date of the indenture or other Indebtedness permitted to be incurred by
Holdings 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,

(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

"Restricted Subsidiary" means a Subsidiary of Holdings other than an
Unrestricted Subsidiary. The Board of Directors of Holdings may designate any
Unrestricted Subsidiary or any Person that is to become a

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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) Holdings could have incurred at least $1.00 of additional
Indebtedness other than Permitted Indebtedness pursuant to "-- Certain
Covenants -- Limitation on Additional Indebtedness" above,

(2) no Default or Event of Default has occurred and be continuing or
result therefrom.

"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by Holdings or any Restricted Subsidiary of Holdings
of any real or tangible personal property, which property has been or is to be
sold or transferred by Holdings or such Restricted Subsidiary to such Person in
contemplation of such leasing.

"Securitization Entity" means a Wholly Owned Subsidiary of Holdings or
another Person in which Holdings or any Subsidiary of Holdings makes an
Investment and to which Holdings or any Subsidiary of Holdings 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 Holdings, as
provided below, as a Securitization Entity:

(1) no portion of the Indebtedness or any other obligation, contingent
or otherwise, of which

(a) is guaranteed by Holdings or any Subsidiary of Holdings,
excluding guarantees of obligations, other than the principal of, and
interest on, Indebtedness, pursuant to Standard Securitization
Undertakings,

(b) is recourse to or obligates Holdings or any Subsidiary of
Holdings in any way other than pursuant to Standard Securitization
Undertakings or

(c) subjects any property or asset of Holdings or any Subsidiary of
Holdings, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings,

(2) with which neither Holdings nor any Subsidiary of Holdings has any
material contract, agreement, arrangement or understanding other than on
terms no less favorable to Holdings or such Subsidiary than those that
might be obtained at the time from Persons that are not Affiliates of
Holdings, other than fees payable in the ordinary course of business in
connection with servicing receivables of such entity, and

(3) to which neither Holdings nor any Subsidiary of Holdings 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 Holdings must be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of
the Board of Directors of Holdings 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 the Company, Holdings, 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 irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Senior

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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 also includes 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 or holders, including one or more agreements extending the maturity of,
or increasing the amount of, any Indebtedness incurred thereunder or
contemplated thereby, or 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.

"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 date of the indenture.

"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Holdings or any Subsidiary of
Holdings 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.

However, 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 Holdings which is classified after the date of
the indenture as an Unrestricted Subsidiary by a resolution adopted by the
Board of Directors of Holdings;

however, 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,

(b) immediately after giving effect to such classification, Holdings
could have incurred at least $1.00 of additional Indebtedness, other than
Permitted Indebtedness, pursuant to "-- Certain Covenants -- Limitation on
Additional Indebtedness" above,

(d) neither Holdings nor any Restricted Subsidiary shall at any time

. provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary, including any undertaking, agreement
or instrument evidencing such Indebtedness,

. be directly or indirectly liable for any Indebtedness of such
Subsidiary or

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. 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 the first two bullets of clause (d) to the extent

(x) that Holdings 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

(y) 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 Holdings of each resolution adopted
by the Board of Directors of Holdings under this provision, together with a
copy of each such resolution adopted. Electro Systems shall be an Unrestricted
Subsidiary as of the date of the indenture.

"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing

(1) the then outstanding aggregate principal amount of such
Indebtedness into

(2) the sum of the total of the products obtained by multiplying

(a) 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

(b) 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 Holdings.

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 definitive exchange notes in registered
certificated form, which we refer to as certificated notes. Certificated Notes
(as defined below).

The exchange notes may be presented for registration of transfer and
exchange at the offices of the Exchange Agent.

The Depositary has advised the Holdings Issuers that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate

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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 Holdings 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 Holdings 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 Holdings
Issuers, the Trustee nor any agent of the Holdings 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 Holdings 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 Holdings Issuers. Neither the Holdings 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 Holdings
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.

The Depositary has advised the Holdings 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 Holdings Issuers believe to be
reliable, but the Holdings 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 Holdings
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 certificated notes if:

. the Depositary (A) notifies the Holdings Issuers that it is unwilling or
unable to continue as depositary for the Global Note and the Holdings
Issuers thereupon fail to appoint a successor depositary or (B) has
ceased to be a clearing agency registered under the Securities Exchange
Act,

. the Holdings 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 Holdings 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 Holdings 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.

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 notes, the Holdings Issuers will make all payments of
principal, premium, if any, interest and Liquidated

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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 Holdings 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 Holdings 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 original issue date of the existing notes,
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),

(2) within 150 days after the original issue date of the existing notes,
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 Holdings 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 Holdings Issuers pursuant to the exchange offer, the
holder of such existing note will receive an exchange note having a
principal amount at maturity 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 Holdings 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 Holdings Issuers, 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 Holdings Issuers to effect such an exchange offer, or if for
any other reason the exchange offer is not consummated within 185 days of the
original issue date of the existing notes or, under certain circumstances, if
the initial purchasers shall so request, the Holdings Issuers will, at their
own expense,

(1) as promptly as practicable, file a shelf registration statement
covering resales of the existing notes,

(2) use their respective best efforts to cause the shelf registration
statement to be declared effective under the Securities Act, and

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(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
original issue date of the existing notes.

The Holdings 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 Holdings 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
Holdings Issuers fail to comply with the above provisions or if such
registration statement fails to become effective, then, as liquidated damages,
additional cash interest shall become payable, whether or not cash interest is
otherwise 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 original issue
date of the existing notes or (b) notwithstanding that the Holdings Issuers
have consummated or will consummate an exchange offer, the Holdings 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
original issue date of the existing notes or (b) notwithstanding that the
Holdings Issuers have consummated or will consummate an exchange offer, the
Holdings 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 75th day following the date such shelf
registration statement was filed; or

(3) If either (a) the Holdings 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 original issue date of the
existing notes;

(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 cash interest ("Additional
Interest") as follows: Additional Interest shall accrue on the average Accreted
Value of the existing notes at a rate of 0.5% per annum for the first 90 days
immediately following the Registration Default, such Additional Interest rate
increasing by on additional .25% per annum for each subsequent 90-day period
during which the Registration Default remains uncured, up to a maximum
Additional Interest rate of 2.0% per annum. All Additional Interest will be
payable in cash to holders of the existing notes on each March 15 and September
15, commencing with the first such date occurring after any such Additional
Interest commences to accrue, until such Registration Default is cured.

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 Holdings Issuer.

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UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES

The following discussion, including the opinion of counsel described below,
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and administrative
rulings and practice. The Internal Revenue Service may take a contrary view,
and no ruling from the Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the following statements and conditions. Any changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Some holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. We recommend that
each holder consult his own tax advisor as to the particular tax consequences
of exchanging such holder's existing notes for exchange notes, including the
applicability and effect of any state, local or foreign tax laws.

Kirkland & Ellis, counsel to Muzak, has advised us that in its opinion, the
exchange of the existing notes for exchange notes pursuant to the exchange
offer will not be treated as an "exchange" for federal income tax purposes
because the exchange notes will not be considered to differ materially in kind
or extent from the existing notes. Rather, the exchange notes received by a
holder will be treated as a continuation of the existing notes in the hands of
such holder. As a result, there will be no federal income tax consequences to
holders exchanging existing notes for exchange notes pursuant to the exchange
offer.

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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 Holdings 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. The Holdings Issuers will undertake to update
this prospectus if and to the extent necessary during this period. In addition,
until 90 days after the commencement of the exchange offer, all dealers
effecting transactions in the exchange notes may be required to delivery a
prospectus.

The Holdings 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 Holdings 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
Holdings Issuers.

EXPERTS

The consolidated financial statements of Muzak Holdings, 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

124
<PAGE>

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.

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.

125
<PAGE>

INDEX TO THE FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Muzak Holdings LLC
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet as of December 31, 1998...................... F-4
Consolidated Statement of Operations for the period from October 7, 1998
through December 31, 1998.............................................. F-5
Consolidated Statement of Changes in Members' Interest for the period
from October 7, 1998
through December 31, 1998.............................................. F-6
Consolidated Statement of Cash Flows for the period from October 7, 1998
through December 31, 1998.............................................. F-7
Notes to the Consolidated Financial Statements.......................... F-8
Consolidated Balance Sheet as of March 31, 1999......................... F-15
Consolidated Statement of Operations for the quarter ended March 31,
1999................................................................... F-16
Consolidated Statement of Changes in Members' Interest for the quarter
ended March 31, 1999................................................... F-17
Consolidated Statement of Cash Flows for the quarter ended March 31,
1999................................................................... F-18
Notes to the Consolidated Financial Statements.......................... F-19
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 Consolidated Financial Statements.......................... F-8
Audio Communications Network, Inc.
Report of Independent Certified Public Accountants...................... F-24
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-25
Consolidated Statement of Operations for the two years ended December
31, 1996 and 1997...................................................... F-27
Consolidated Statement of Stockholders' Equity for the two years ended
December 31, 1996 and 1997............................................. F-28
Consolidated Statement of Cash Flows for the two years ended December
31, 1996 and 1997...................................................... F-29
Notes to the Consolidated Financial Statements.......................... F-31
Muzak Limited Partnership
Independent Auditors' Report............................................ F-38
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-39
Consolidated Statement of Operations for the three years ended
December 31, 1996, 1997 and 1998....................................... F-40
Consolidated Statements of Partners' Deficit for the three years ended
December 31, 1996, 1997 and 1998....................................... F-41
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996, 1997 and 1998....................................... F-43
Notes to the Consolidated Financial Statements.......................... F-44
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of Muzak Holdings LLC

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in member's interest and of cash
flows present fairly, in all material respects, the financial position of Muzak
Holdings LLC, formerly known as ACN Holdings, LLC, (the "Company") at December
31, 1998, and the results of their operations and their 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 Muzak Holdings 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>

MUZAK HOLDINGS LLC

CONSOLIDATED BALANCE SHEET

(dollars in thousands, except units issued and outstanding)

<TABLE>
<CAPTION>
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 Members' 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 10)............................
Members' interest:
Class A units (27,262 issued and outstanding)................... 27,262
Class B-1 units (804 issued and outstanding).................... --
Class B-2 units (805 issued and outstanding).................... --
Class B-3 units (804 issued and outstanding).................... --
Class B-4 units (none issued and outstanding)................... --
Accumulated deficit............................................. (1,002)
-------
Total members' interest....................................... 26,260
-------
Total liabilities and members' interest....................... $72,927
=======
</TABLE>

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

F-4
<PAGE>

MUZAK HOLDINGS LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands)

<TABLE>
<CAPTION>
Muzak
Audio Communications Holdings LLC
Network, Inc. for the for the
period from period from
January 1, 1998 October 7, 1998
through through
October 6, 1998 December 31, 1998
--------------------- -----------------
<S> <C> <C>
Revenues:
Music and other business services.................................................... $12,315 $ 3,909
Equipment and related services....................................................... 6,602 2,005
------- -------
18,917 5,914
Costs of sales:
Music and other business services.................................................... 2,670 833
Equipment and related services....................................................... 5,536 1,723
------- -------
8,206 2,556
------- -------
Gross Profit........................................................................... 10,711 3,358
Selling, general and administrative expenses......................................... 7,245 1,794
Depreciation and amortization expense................................................ 4,372 1,683
------- -------
Loss from operations................................................................... (906) (119)
Other income (expense):
Interest expense, net................................................................ (2,520) (888)
Other, net........................................................................... 6 5
------- -------
Loss before income taxes............................................................... (3,420) (1,002)
Provision for income taxes............................................................. (8) --
------- -------
Net loss............................................................................... $(3,428) $(1,002)
======= =======
</TABLE>

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

F-5
<PAGE>

MUZAK HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND MEMBERS'
INTEREST

(dollars in thousands, except for units)

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>

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

MUZAK HOLDINGS LLC:

<TABLE>
<CAPTION>
Class A
---------------
Total
Units Accumulated Members'
Dollars Deficit Interest
------ -------- ----------- --------
<S> <C> <C> <C> <C>
Balance at October 7, 1998 (prior to
initial contribution by Members)........ -- $ -- $ -- $ --
Issuance of Class A units................ 27,262 27,262 -- 27,262
Net loss................................. -- -- (1,002) (1,002)
------ ------- ------- -------
Balance at December 31, 1998............. 27,262 $27,262 $(1,002) $26,260
====== ======= ======= =======
</TABLE>

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

F-6
<PAGE>

MUZAK HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

<TABLE>
<CAPTION>
Audio Communications Muzak
Network, Inc. for the Holdings 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) $(1,002)
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
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......................................... -- 40,818
Proceeds from long-term debt...................................................... 2,200 --
Proceeds from contributions by members............................................ -- 27,262
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 consolidated financial
statements

F-7
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

1. Description of Business

Muzak Holdings LLC (the "Company") was formerly known as ACN Holdings, LLC
which was formed in September 1998 pursuant to the laws of Delaware. Muzak LLC,
a wholly owned subsidiary of the Company, owns and operates 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. Muzak LLC, a
wholly owned subsidiary of 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

The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly owned subsidiaries. All intercompany balances
and transactions are eliminated in the 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 $202, which use is restricted for the January 15, 1999 acquisition of
Business Sound, Inc. (Note 12).

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. 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.

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. Income producing contracts 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>

MUZAK HOLDINGS LLC

NOTES TO CONSOLIDATED 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 non-cancelable 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.

Subscriber Acquisition Costs

Subscriber acquisition costs are direct sales commissions incurred in
connection with acquiring new subscribers, which are amortized as a component
of selling, general and administrative expenses over the life of the customer
contract or five years, whichever is shorter, on a straight-line basis. If a
customer contract terminates early, the unamortized subscriber acquisition
costs is typically recovered from the salesperson.

3. Acquisition of ACN

On October 7, 1998, Muzak LLC, a wholly owned subsidiary of 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. 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, Muzak LLC, a wholly owned
subsidiary of the Company, issued notes payable to a related party for $40,817
(see note 6).

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 Muzak LLC, a wholly owned subsidiary of 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>

MUZAK HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(dollars in thousands)

4. Property and Equipment

At December 31, 1998, property and equipment consist of the following:

<TABLE>
<S> <C>
Equipment provided to subscribers
(including capitalized installation
costs of $4,834).................... $16,186
Machinery and equipment.............. 1,584
Furniture and fixtures............... 397
Leasehold improvements............... 132
-------
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................. $34,810
Goodwill............................. 15,112
-------
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>

MUZAK HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(dollars in thousands)

7. Members' Interest

The Company has authorized two classes of equity units; class A units
("Class A Units") and class B units ("Class B Units") (collectively, the
"Units"). Each class of the Units represents a fractional part of the
membership interests of the Company and has the rights and obligations
specified in the Company's Limited Liability Company Agreement. Each Class A
Unit is entitled to voting rights equal to the percentage such units represents
of the aggregate number of outstanding Class A Units. The Class B Units are not
entitled to voting rights.

Class A Units

Each class A unit accrues a preferred return (the "ACN Holdings Preferred
Return") annually on the original issue price (the "Capital Value") of each
voting unit at a rate of 15% per annum. The Company 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 ACN 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 the Company (the "Last Priority
Distributions").

Class B Units

The Class B Units are non-voting securities which are divided into four
identical subclasses, Class B-1 Units, Class B-2 Units, Class B-3 Units and
Class B-4 Units. 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. At December 31, 1998, there were
2,414 Class B units outstanding. The value of these units was de minimis at the
date of issuance.

8. 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.

9. 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 Muzak LLC, a wholly owned
subsidiary of the Company.

Muzak LLC, a wholly owned subsidiary of the Company, has a profit-sharing
plan continued from the Predecessor Company which covers all employees of Muzak
LLC, a wholly owned subsidiary 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 Muzak LLC 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.

F-11
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(dollars in thousands)

10. 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.

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.

11. Muzak Holdings Finance Corp.

Muzak Holdings Finance Corp. ("Holdings Finance Corp.") was formerly known
as ACN Holdings, Inc. which was formed in August 1998, pursuant to the laws of
Delaware, as a wholly owned subsidiary of the Company. Holdings Finance Corp.
had no 1998 activities.

12. Subsequent Events (unaudited)

On January 15, 1999, Muzak LLC, a wholly owned subsidiary of 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, Muzak LLC, a wholly owned subsidiary of 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.

F-12
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(dollars in thousands)

On March 18, 1999, Muzak Limited Partnership merged with and into a
subsidiary of the Company (the "merger"). Under the terms of the agreement,
total consideration was approximately $268,688 which includes non-voting units
of the Company and excludes transaction fees. At the time of the merger, the
subsidiary, Audio Communications Network, LLC, changed its name to Muzak LLC.

On March 18, 1999, Muzak LLC, a wholly owned subsidiary of 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 $21,337, comprised of
voting membership units of the Company and a cash payment of approximately
$5,417 which is subject to adjustment.

On May 3, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired Capstar Broadcasting's Muzak affiliate territory located in Omaha,
Nebraska. Under the terms of the Agreement, Muzak LLC paid $3,197 in total
consideration comprised of voting membership units of the parent and a cash
payment of approximately $811, excluding transaction fees.

On March 24, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of Custom On Hold Services, Inc. for approximately
$180, excluding transaction fees.

On June 15, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of Advertising On Hold, Inc. for approximately $6,908.

On June 18, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of CustomTronics Sound for approximately $780.

On June 30, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of Penobscot Broadcasting Corporation for approximately
$907.

The above transactions were accounted for under the purchase method of
accounting. Accordingly, the consideration paid was allocated based on the
estimated fair market value of the net assets acquired. The excess of the
consideration paid over the estimated fair market value of the net assets
acquired approximated $108,669 and is being amortized using the straight-line
method over 20 years.

In connection with the Merger, Muzak LLC, a wholly owned subsidiary of 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 Muzak LLC under the Senior Credit Facility are guaranteed by
each of the future direct and indirect domestic subsidiaries of Muzak LLC, a
wholly owned subsidiary of the Company. Interest accrues at the election of
Muzak LLC, a wholly owned subsidiary of the Company, 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%. The obligations of Muzak LLC under the Senior Credit Facility are
guaranteed by the Company, and are secured by first priority security interests
in all material intellectual property and other property and assets of Muzak
LLC and the Company, and a pledge of all of the membership units of Muzak LLC
and the Company.

F-13
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(dollars in thousands)

On March 18, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
issued $115,000,000, principal amount of Senior Subordinated Notes
("Subordinated Notes"). Interest on the Subordinated Notes accrues at a rate of
9.875%, per annum. Interest is 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.

On March 18, 1999, the Company co-issued $75,000,000, gross proceeds, Senior
Discount Notes ("Discount Notes") offering. The Discount Notes accrete in
value, with no payments of cash interest until September 15, 2004. From and
after March 15, 2004, interest on the Discount Notes will accrue at a rate of
13% per annum. Interest will be payable semi-annually in arrears on March 15
and September 15 each year, commencing September 15, 2004. The Discount Notes
will mature on March 15, 2010.

The Senior Credit Facility, Subordinated Notes and Discount Notes restrict
the Company and Muzak LLC from declaring or paying any dividend or payment on
common units of the Company or Muzak LLC.

In July 1999, Muzak LLC, a wholly owned subsidiary of the Company, increased
its borrowings under the term loan B of the Senior Credit Facility by $30,000,
for a total amount borrowed under term loan B of $135,000. Muzak LLC plans to
use the additional borrowed funds to finance acquisitions, including those
completed on or before June 30, 1999.

In July 1999, Muzak LLC, a wholly owned subsidiary of the Company, issued a
15% junior subordinated note to a related party for $3,000. Interest on this
note accrues at a rate of 15% per annum, and is payable, together with the
principal on June 30, 2007.

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...................................................... $142,100
========
Loss from operations......................................... $ (7,216)
========
Net loss..................................................... $(40,869)
========
</TABLE>

F-14
<PAGE>

MUZAK HOLDINGS LLC

CONSOLIDATED BALANCE SHEET

(dollars in thousands, except units issued and outstanding)

<TABLE>
<CAPTION>
March 31, December 31,
1999 1999
----------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 2,037 $ 1,293
Accounts receivable, net............................. 24,275 1,764
Inventory............................................ 8,719 1,323
Prepaid expenses and other assets.................... 4,079 125
-------- -------
Total current assets............................... 39,110 4,505
Property and equipment, net............................ 79,429 17,499
Deferred financing costs, net.......................... 13,450 --
Intangible assets, net................................. 273,145 49,039
Deposits and other assets.............................. 2,017 1,884
-------- -------
Total assets....................................... $407,151 $72,927
======== =======
Liabilities and Members' Interest
Current liabilities:
Line of credit--revolving facility................... $ 3,400 $ --
Current portion of long term debt.................... 2,441 42,217
Accounts payable and accrued expenses................ 30,195 3,964
Advance billings..................................... 5,470 --
-------- -------
Total current liabilities.......................... 41,506 46,181
Senior credit facility................................. 135,000 --
Senior subordinated notes.............................. 115,000 --
Senior discount notes.................................. 40,202 --
Other long-term debt................................... 4,831 486
Other liabilities...................................... 4,801 --
-------- -------
Total liabilities.................................. 341,340 46,667
Members' interest
Common units......................................... 70,041 27,262
Accumulated deficit.................................. (4,230) (1,002)
-------- -------
Total members' interest............................ $ 65,811 26,260
-------- -------
Total liabilities and members' interest............ $407,151 $72,927
======== =======
</TABLE>

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

F-15
<PAGE>

MUZAK HOLDINGS LLC

CONSOLIDATED STATEMENT OF OPERATIONS

(dollars in thousands)

<TABLE>
<CAPTION>
For the Quarter
Ended
March 31, 1999
---------------
(Unaudited)
<S> <C>
Revenues:
Music and other business services............................ $ 8,179
Equipment and related services............................... 3,972
-------
12,151
Cost of revenues:
Music and other business services............................ 1,599
Equipment and related services............................... 2,872
-------
4,471
-------
Gross profit............................................... 7,680
Selling, general and administrative expenses................... 2,947
Depreciation and amortization expense.......................... 3,197
-------
Income from operations..................................... 1,536
Other income (expense):
Interest expense, net........................................ (2,331)
Other, net................................................... (21)
-------
Net loss before extraordinary gain on the extinguishment of
debt...................................................... (816)
Extraordinary gain on the extinguishment of debt............... 727
-------
Net loss................................................... $ (89)
=======
</TABLE>

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

F-16
<PAGE>

MUZAK HOLDINGS LLC

CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' INTEREST

(dollars in thousands, except for units)

<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1999
---------------------------------------------------
Common Total
Units Common Accumulated Members'
Outstanding Units($) Deficit Interest
----------- --------- ----------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998..................... 27,262 $27,262 $(1,002) $26,260
Issuance of common units
......................... 39,767 39,640 -- 39,640
Split of common units
effected in the form of a
dividend................. 3,139 3,139 (3,139) --
Net loss for the quarter
ended March 31, 1999..... -- -- (89) (89)
------ ------- ------- -------
Balance, March 31, 1999... 70,168 $70,041 $(4,230) $65,811
====== ======= ======= =======
</TABLE>

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

F-17
<PAGE>

MUZAK HOLDINGS LLC

CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands)

<TABLE>
<CAPTION>
For the Quarter Ended
March 31, 1999
---------------------
(unaudited)
<S> <C>
Cash flows from operating activities
Net loss................................................ $ (89)
Depreciation and amortization........................... 3,197
Accretion of senior discount notes...................... 206
Amortization of deferred financing fees................. 13
Extraordinary gain on extinguishment of debt............ 727
Net change in certain assets and liabilities, net of
business acquisitions
Increase in accounts receivable....................... (364)
Decrease in inventory and prepaid expenses............ 531
Increase in other assets.............................. (133)
Increase in accounts payable and accrued expenses..... 1,365
Decrease in advance billings.......................... (457)
Decrease in other liabilities......................... (27)
---------
Net cash provided by operating activities........... 4,969
Cash flows from investing activities
Acquisitions, net of cash............................... (262,509)
Capital expenditures.................................... (2,705)
---------
Net cash used in investing activities............... (265,214)
Cash flows from financing activities
Proceeds from issuance of senior subordinated notes..... 115,000
Proceeds from issuance of senior credit facility and
revolver............................................... 138,400
Proceeds from the issuance of senior discount notes..... 39,996
Proceeds from the issuance of membership units to
parent................................................. 22,148
Proceeds from the issuance of membership units to
management............................................. 1,155
Repayment of notes payable to related party............. (41,683)
Repayment of other debt................................. (564)
Payment of fees associated with the financing........... (13,463)
---------
Net cash provided by financing activities........... 260,989
---------
Net increase in cash and cash equivalents............. 744
Cash and cash equivalents, beginning of the period.... 1,293
---------
Cash and cash equivalents, end of period............ $ 2,037
=========
Supplement disclosures:
Cash paid for interest................................ $ 1,014
=========
</TABLE>

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

F-18
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--MARCH 31, 1999

(dollars in thousands)

1. Description of Business

Muzak Holdings LLC ( the "Company") was formerly known as ACN Holdings, LLC
which was formed in September 1998, pursuant to the laws of Delaware. Muzak
LLC, a wholly owned subsidiary of the Company, began its operations on October
7, 1998, with the acquisition of certain assets and liabilities of Audio
Communications Network, Inc.

Muzak LLC, a wholly owned subsidiary of the Company, provides business music
services and products, 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. Muzak LLC, a wholly owned
subsidiary of the Company, and its franchises also sell, install and maintain
electronic equipment related to its business.

The music services of Muzak LLC, a wholly owned subsidiary of the Company,
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 broadcasting satellite
transmission, local broadcasting transmission and pre-recorded tapes played on
the customer's premises.

Muzak LLC, a wholly owned subsidiary of the Company, is subject to certain
business risk, 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.

2. Basis of Presentation

Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally
accepted accounting principles.

These condensed financial statements should be read in conjunction with the
Company's audited financial statements as of December 31, 1998 and the notes
thereto included elsewhere herein.

The financial statements as of March 31, 1999 and for the three month period
then ended are unaudited; however, in the opinion of management, such
statements include all adjustments (consisting solely of normal and recurring
adjustments except for the acquisitions of Business Sound, Inc., Electro
Systems Inc., Muzak L.P., and the Muzak affiliate territories located in
Atlanta, Albany and Macon Georgia and Ft. Myers, Florida contributed by Capstar
Broadcasting necessary to present fairly the financial information included
herein.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements of the Company include
the accounts of the Company and its wholly owned subsidiaries, Muzak LLC and
Muzak Holdings Finance Corp. All significant intercompany balances and
transactions have been eliminated in consolidation.

Revenue Recognition

Revenues from music services are recognized on a straight-line basis over
the term of the customer contract 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 non-cancelable period
with renewal options for an additional five years. Fees from independent
affiliates are recognized as music revenues in the month that the independent
affiliate generates its revenues.

F-19
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--MARCH 31, 1999--(Continued)

(dollars in thousands)

Deferred Financing Fees

Deferred financing fees are stated at cost and amortized over the term of
the debt using the effective interest method.

Advance Billings

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

Reclassifications

Certain amounts have been reclassified to conform to the current quarter's
presentation.

4. Acquisitions

On January 15, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired all of the outstanding stock of Business Sound, Inc. for $4,148,
excluding transaction fees. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the consideration paid was
allocated based on the estimated fair market value of the net assets acquired.
The excess of the consideration paid over the estimated fair market value of
the net assets acquired approximated $862 and is being amortized using the
straight-line method over 20 years.

On February 24, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired all of the outstanding stock of Electro Systems Corporation for
$2,950, excluding transaction fees. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the consideration paid was
allocated based on the estimated fair market value of the net assets acquired.
The excess of the consideration paid over the estimated fair market value of
the net assets acquired approximated $664 and is being amortized using the
straight-line method over 20 years.

On March 18, 1999, Muzak Limited Partnership ("Muzak L.P.") merged with and
into Muzak LLC, a wholly owned subsidiary of the Company. Under the terms of
the Agreement, Muzak LLC, a wholly owned subsidiary of the Company, paid
$268,688 in total consideration, which includes non-voting units of the Company
and excludes transaction fees. The transaction was accounted for under the
purchase method of accounting. Accordingly, the consideration paid was
allocated based on the estimated fair market value of the net assets acquired.
The excess of the consideration paid over the estimated fair market value of
the net assets acquired approximated $100,403 and is being amortized using the
straight-line method over 20 years.

On March 18, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired Capstar Broadcasting Corporation's Muzak affiliates comprised of
territories, which are located in Atlanta, Albany and Macon, Georgia; Ft.
Myers, Florida. Under the terms of the Agreement, Muzak LLC paid $18,141in
total consideration comprised of voting membership units of the parent and a
cash payment of approximately $4,606, excluding transaction fees. The
transaction was accounted for under the purchase method of accounting.
Accordingly, the consideration paid was allocated based on the estimated fair
market value of the net assets acquired. The excess of the consideration paid
over the estimated fair market value of the net assets acquired approximated
$4,171 and is being amortized using the straight-line method over 20 years.

In order to complete the acquisitions of Business Sound, Inc., Electro
Systems Corporation, and Capstar and the merger with and into Muzak L.P.,
(collectively, the "Acquisitions"), the Company received $22,148 in capital
contributions from ABRY Broadcast Partners III and ABRY Broadcast Partners II
and $1,155 in capital contributions from management of the Company. In
addition, the Company became a co-issuer of $75,000, aggregate principle amount
at maturity, of senior discount notes, and a co-guarantor of $115,000,
principle amount, of senior subordinated notes. Lastly, Muzak LLC, a wholly
owned subsidiary of the Company, borrowed $138,400 under a senior credit
facility (collectively, the "Financings").

F-20
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--MARCH 31, 1999--(Continued)

(dollars in thousands)

The following presents the unaudited pro forma results of the Company for
the quarter ended March 31, 1999, as if the Acquisition and Financings occurred
on January 1, 1999. These unaudited pro forma results are not necessarily
indicative of the results that will occur in future quarters.

<TABLE>
<S> <C>
Revenue................................. $ 34,566
========
Loss from operations.................... $ (3,711)
========
Net loss................................ $(10,786)
========
</TABLE>

5. Property and Equipment

Property and equipment consists of the following:

<TABLE>
<CAPTION>
Useful
Life March 31, December 31,
(Years) 1999 1998
------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Equipment provided to subscribers...... 4 $65,327 $16,186
Machinery and equipment................ 3-4 12,654 1,584
Furniture and fixtures................. 7 2,078 397
Land and buildings..................... 35 855 --
Leasehold improvements................. 7 795 132
------- -------
81,709 18,299
Less accumulated depreciation........ (2,280) (800)
------- -------
$79,429 $17,499
======= =======
</TABLE>

Depreciation expense approximated $1,480 and $800 for the three months ended
March 31, 1999 and for the period from October 7, 1998 through December 31,
1998, respectively.

6. Intangible Assets

Intangible assets consists of the following:

<TABLE>
<CAPTION>
Useful
Life March 31, December 31,
(Years) 1999 1998
------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
Goodwill................................. 20 $121,212 $15,112
Income producing contracts............... 12 112,027 34,810
License agreements....................... 20 14,600 --
Trademarks............................... 5 7,400 --
Non-compete agreements................... 2-7 4,807 --
Other.................................... 5-20 15,700 --
-------- -------
275,746 49,922
Less accumulated amortization.......... (2,601) (883)
-------- -------
$273,145 $49,039
======== =======
</TABLE>

Amortization expense was $1,718 and $883 for the three months ended March
31, 1999 and for the period from October 7, 1998 through December 31, 1998,
respectively.

F-21
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--MARCH 31, 1999--(Continued)

(dollars in thousands)

7. Debt

In March 1999, Muzak LLC, a wholly owned subsidiary of 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 Muzak LLC
under the Senior Credit Facility are guaranteed by each of its future direct
and indirect domestic subsidiaries. Interest accrues at Muzak LLC'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 co-issued $75,000,000, gross proceeds, Senior
Discount Notes ("Discount Notes") offering. The Discount Notes are expected to
accrete in value, with no payments of cash interest until September 15, 2004.
From and after March 15, 2004, interest on the Discount Notes will accrue at a
rate of 13% per annum. Interest will be payable semi-annually in arrears on
March 15 and September 15 each year, commencing September 15, 2004. The
Discount Notes will mature on March 15, 2010.

Debt obligations consist of the following:

<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
Line of credit--revolving facility............... $ 3,400 $ --
Senior credit facility........................... 135,000 --
Senior subordinated notes........................ 115,000 --
Senior discount notes............................ 40,202 --
Notes payable--related party..................... -- 41,683
Other............................................ 7,272 960
-------- --------
Total debt obligations......................... 300,874 42,643
Less current portion........................... (5,841) (42,183)
-------- --------
$295,033 $ 460
======== ========
</TABLE>

Annual maturities of debt obligations are as follows:

<TABLE>
<S> <C>
1999............................................................. $ 5,841
2000............................................................. 3,300
2001............................................................. 6,000
2002............................................................. 7,500
2003............................................................. 8,274
Thereafter....................................................... 269,959
--------
$300,874
========
</TABLE>

F-22
<PAGE>

MUZAK HOLDINGS LLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--MARCH 31, 1999--(Concluded)

(dollars in thousands)

8. Members' Interest

Preferred Units

No preferred units have been issued or authorized as of March 3, 1999. The
Company's Board of Members is authorized, subject to limitations prescribed by
law, to provide for the issuance of such preferred units and to fix the
relative rights, obligations, preferences and limitations of the preferred
units.

Class B-5 Units

In March 1999, the Company authorized Class B-5 Units, none of which were
issued or outstanding as of March 31, 1999.

9. Muzak Holdings Finance Corp.

Muzak Holdings Finance Corp. had no activities during the three months ended
March 31, 1999.

10. Subsequent Events

On March 24, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of Custom On Hold Services, Inc. for approximately
$180, excluding transaction fees.

On June 15, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of Advertising On Hold, Inc. for approximately $6,908.

On June 18, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of CustomTronics Sound for approximately $780.

On June 30, 1999, Muzak LLC, a wholly owned subsidiary of the Company,
acquired the net assets of Penobscot Broadcasting Corporation for approximately
$907.

The above transactions were accounted for under the purchase method of
accounting. Accordingly, the consideration paid was allocated based on the
estimated fair market value of the net assets acquired. The excess of the
consideration paid over the estimated fair market value of the net assets
acquired approximated $2,569 and is being amortized using the straight-line
method over 20 years.

In July 1999, Muzak LLC, a wholly owned subsidiary of the Company, amended
its Senior Credit Facility, which resulted in an increase in the amount
available for borrowings under this facility by $30,000. In addition, Muzak LLC
may request lenders to commit to additional loans of up to $50,000 million
under a second revolving facility prior to December 31, 2000.

In July 1999, Muzak LLC, a wholly owned subsidiary of the Company, executed
a note agreement with a related party for $3,000. Interest on this note accrues
at a rate of 15% per annum, and is payable, together with the principal on June
30, 2007.

The following presents the unaudited pro forma results of the Company for
the quarter ended March 31, 1999, as if the above acquisitions and the
Acquisitions and Financings discussed in Note 4 occurred onJanuary 1, 1999.
These unaudited pro forma results are not necessarily indicative of the results
that will occur in future quarters.

<TABLE>
<S> <C>
Revenue................................. $ 36,026
========
Loss from operations.................... $ (3,477)
========
Net loss................................ $(11,191)
========
</TABLE>

F-23
<PAGE>

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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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............................................. $ 556,830
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-34
<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-35
<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-36
<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-37
<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.

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-38
<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-39
<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-40
<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-43)

<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-41
<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-42)

<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-42
<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-43
<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-44
<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. Deferred subscriber acquisition
costs, which include sales commissions and other identifiable costs directly
incurred in acquiring new music service contracts, are capitalized and
amortized over five years. 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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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. Due to the significant control that the Partnership has over the
redemption rights, the partnership interests covered by the put options are
deemed to be redeemable at the sole option of the issuer. 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-56
<PAGE>

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

$75,000,000

[LOGO OF MUZAK HOLDINGS LLC]

Muzak Holdings LLC
Muzak Holdings Finance Corp.

Offer to Exchange

Series B 13% Senior Discount Notes due 2010

for any and all outstanding

13% Senior Discount Notes due 2010

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

PROSPECTUS

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

Subject to completion, , 1999

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

PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20. Indemnification of Directors and Officers.

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 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 the members. Section 3.6 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 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.

Muzak Holdings Finance Corp. Muzak Holdings 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 Holdings 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 the fact that he (or a person of
whom he is the legal representative), is or was a director or officer of

II-1
<PAGE>

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 Section145.

Article Eight further provides that Muzak Holdings 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
Holdings Finance Corp. or was serving at the request of Muzak Holdings 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 Holdings Finance Corp. would have the power to indemnify
such person against such liability under Article Eight.

II-2
<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.(1)
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.(1)
*2.3 Contribution Agreement between Capstar Broadcasting Corporation and
ACN Holdings, LLC dated as of February 19, 1999.
*2.4 First Amendment, dated as of March 18, 1999, to the Contribution
Agreement dated as of February 19, 1999 between Capstar Broadcasting
Corporation and Muzak Holdings LLC (f/k/a ACN Holdings, LLC).
*3.1 Certificate of Formation of ACN Holdings, LLC.
*3.2 Certificate of Amendment to the Certificate of Formation of ACN
Holdings, LLC.
*3.3 Certificate of Incorporation of ACN Holdings, Inc.
*3.4 Certificate of Amendment of Certificate of Incorporation of ACN
Holdings, Inc.
3.5 [intentionally omitted]
*3.6 Amended and Restated Limited Liability Company Agreement of Muzak
Holdings LLC, dated as of March 18, 1999.
*3.7 By-laws of ACN Holdings, Inc.
*4.1 Indenture, 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.
*4.2 Form of Series A 13% Senior Discount Notes due 2010 (included in
Exhibit 4.1 above as Exhibit A).
*4.3 Registration Rights Agreement, dated as of March 18, 1999, Muzak
Holdings LLC and Muzak Holdings Finance Corp., as Issuers and CIBC
Oppenheimer Corp. and Goldman, Sachs & Co. as Initial Purchasers.
*4.4 Purchase Agreement, dated as of March 12, 1999, by and among ACN
Holdings, LLC and Muzak Holdings Finance Corp., as Issuers and CIBC
Oppenheimer Corp. and Goldman, Sachs & Co. as Initial Purchasers.
5.1 Opinion of Kirkland & Ellis.
*8.1 Tax Opinion.
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, and Goldman Sachs Credit Partners L.P. and CIBC
Oppenheimer Oppenheimer Corp. as Co-Lead Arrangers.(1)
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 Grantors, and Canadian Imperial Bank of Commerce, as agent of
Lenders and Lender Counterparties and Indemnitees as Administrative
Agent.(1)
10.3 Indenture relating to the Senior Subordinated Notes, dated as of March
18, 1999, by and among Audio Communications Network 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.(1)
10.4 Amended and Restated Members Agreement, dated as of March 18, 1999, by
and among Muzak Holdings LLC, MEM Holdings LLC, David Unger, Joseph
Koff, William Boyd and Music Holdings Corp.(1)
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
Management and Consulting Services Agreement dated as of October 6,
10.5 1998 by and between
ABRY Partners, Inc. and ACN Operating, LLC.(1)
*10.6 Form of Employment Agreement by and between Muzak LLC and each of the
Named Executives 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.(1)
10.8 Executive Employment Agreement dated as of October 6, 1998, by and
among ACN Operating, LLC, Audio Communications Network, LLC and David
Unger.(1)
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.(1)
*10.10 Securities Repurchase Agreement dated as of October 6, 1998 by and
among ACN Holdings, LLC, David Unger and ABRY Broadcast Partners III,
L.P.
*10.11 Securityholders Agreement dated as of March 18, 1999 by and among
Muzak Holdings LLC (f/k/a ACN Holdings, LLC), MEM Holdings, LLC and
Capstar Broadcasting Corporation.
*10.12 Investor Securities Purchase Agreement dated as of October 6, 1998 by
and among ACN Holdings, LLC and the investors named therein.
*10.13 Form of Incentive Unit Agreement by and among Muzak Holdings LLC, each
of the Named Executives and ABRY Broadcast Partners III, L.P.
10.14 First Amendment, Consent and Waiver, dated as of July 1, 1999 to the
Credit and Guaranty Agreement, dated as of March 18, 1999 among Muzak
LLC, as Borrower, Muzak Holdings LLC and certain Subsidiaries of Muzak
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.(2)
10.15 Muzak LLC 15% Junior Subordinated Unsecured Promissory Note due
2007.(2)
*12.1 Statement regarding computation of ratio of earnings to fixed charges
for Audio Communications Network, Inc. and Muzak Holdings LLC.
12.2 Statement regarding computation of ratio of earnings to fixed charges
for Muzak Limited Partnership.
*21.1 Subsidiaries of Muzak Holdings LLC and Muzak Holdings Finance Corp.
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.
*24.2 Power of Attorney of S. Hicks and D.G. Armstrong.
Statement of Eligibility of Trustee on Form T-1 with respect to the
*25.1 New Notes.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
* Previously Filed.

(1) Filed as an Exhibit to the Registration Statement on Form S-4 (File No.
333-78571) filed by Muzak LLC on May 17, 1999.

(2) Filed as an Exhibit to the Registration Statement on Form S-4 (File No.
333-78571) filed by Muzak LLC on August 10, 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.

II-4
<PAGE>

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 Section10(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.

(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 Item4, 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.

II-5
<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 9th day of August, 1999.

MUZAK HOLDINGS LLC

By:*
_________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President

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 9th day of August, 1999.

<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<C> <S>
* Director, President and Chief
Executive Officer
___________________________________________
William A. Boyd (Principal Executive Officer)
/s/ Brad D. Bodenman Chief Financial Officer
(Principal Financial Officer
___________________________________________
Brad D. Bodenman and Principal Accounting Officer)
* Director
___________________________________________
Peni Garber
* Director
___________________________________________
David W. Unger
* Director
___________________________________________
Royce Yudkoff
* Chairman of the Board
___________________________________________
Steven Hicks
* Director
___________________________________________
D. Geoff Armstrong
* Director
___________________________________________
Andrew Banks
</TABLE>
- --------
* The undersigned, by signing his name hereto, does hereby execute this
amendment to the registration statement on behalf of the officers and
directors of the registrant listed above pursuant to Powers of Attorney.

<TABLE>
<S> <C>
/s/ Brad D. Bodenman
___________________________________________
Brad D. Bodenman, Attorney in Fact
</TABLE>

II-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
Muzak Holdings 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 9th day of August, 1999.

MUZAK HOLDINGS FINANCE CORP.

By:*
_________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President

<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<C> <S>
* President and Chief Executive
Officer
___________________________________________
William A. Boyd (Principal Executive Officer)
/s/ Brad D. Bodenman Chief Financial Officer
(Principal Financial Officer
___________________________________________
Brad D. Bodenman and Principal Accounting Officer)
* Director
___________________________________________
Royce Yudkoff
</TABLE>
- --------
* The undersigned, by signing his name hereto, does hereby execute this
amendment to the registration statement on behalf of the officers and
directors of the registrant listed above pursuant to Powers of Attorney.

<TABLE>
<S> <C>
/s/ Brad D. Bodenman
___________________________________________
Brad D. Bodenman, Attorney in Fact
</TABLE>

II-7

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF KIRKLAND & ELLIS]

August 9, 1999

Muzak Holdings LLC and
Muzak Holdings Finance Corp.
2901 Third Avenue, Suite 400
Seattle, WA 98121

Re: Muzak Holdings LLC and
Muzak Holdings Finance Corp.
Registration Statement on Form S-4
Registration No. 333-78573

Ladies and Gentlemen:

We are issuing this opinion letter in our capacity as special legal counsel
to Muzak Holdings LLC, a Delaware limited liability company ("Muzak Holdings"),
and Muzak Holdings Finance Corp., a Delaware corporation ("Holdings Finance"
and, together with Muzak Holdings, the "Issuers" and the "Registrants") in
connection with the proposed registration by the Issuers of up to $75,000,000
in aggregate principal amount of the Issuers' 13% Series B Senior Discount
Notes due 2010 (the "Exchange Notes"), pursuant to a Registration Statement on
Form S-4 (Registration No. 333-78573) originally filed with the Securities and
Exchange Commission (the "Commission") on May 17, 1999, under the Securities
Act of 1933, as amended (the "Act") (such Registration Statement, as amended or
supplemented, is hereinafter referred to as the "Registration Statement"). The
Exchange Notes are to be issued pursuant to the Indenture (as supplemented, the
"Indenture"), dated as of March 18, 1999, among Muzak Holdings and Holdings
Finance, as issuers, and State Street Bank and Trust Company, as trustee. The
Exchange Notes are to be issued in exchange for and in replacement of the
Issuers' outstanding 13% Senior Discount Notes due 2010 (the "Old Notes"), of
which $75,000,000 in aggregate principal amount at maturity is outstanding.

In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the Certificate of Incorporation and By-Laws or limited
liability company agreement, as applicable, of the Registrants, (ii) minutes
and records of the corporate or limited liability company proceedings of the
Registrants with respect to the issuance of the Exchange Notes, (iii) the
Registration Statement, and (iv) the Registration Rights Agreement, dated as of
March 18, 1999, among Muzak Holdings, Holdings Finance, CIBC Oppenheimer Corp.
and Goldman, Sachs & Co.

For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of
all documents submitted to us as copies. We have also assumed the genuineness
of the signatures of persons signing all documents in connection with which
this opinion is rendered, the authority of such persons signing on behalf of
the parties thereto other than the Registrants and the due authorization,
execution and delivery of all documents by the parties thereto other than the
Registrants. As to any facts material to the opinions expressed herein which we
have not independently established or verified, we have relied upon statements
and representations of officers and other representatives of the Registrants
and others.

<PAGE>

Our opinion expressed below is subject to the qualifications that we express
no opinion as to the applicability of, compliance with, or effect of (i) any
bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York,
the General Corporation Law of the State of Delaware and the Delaware case law
decided thereunder, the Limited Liability Company Act of the State of Delaware
and the federal laws of the United States of America.

Based upon and subject to the assumptions, qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that when (i) the Registration Statement becomes effective, (ii) the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as amended, and
(iii) the Exchange Notes has been duly executed and authenticated in accordance
with the provisions of the Indenture and duly delivered to the purchasers
thereof in exchange for the Old Notes, the Exchange Notes will be validly
issued and binding obligations of the Registrants.

We hereby consent to the filing of this opinion with the commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.

This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of New York or Delaware or the federal law of the United
States be changed by legislative action, judicial decision or otherwise.

This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.

Sincerely,

Kirkland & Ellis

<PAGE>

EXHIBIT 12.2

MUZAK LIMITED PARTNERSHIP

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in Thousands)

<TABLE>
<CAPTION>
Period from
January 1, Quarter
Year Ended Year Ended Year Ended Year Ended Year Ended 1999 through Ended
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, March 18, March 31,
1994 1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net loss attributable to general
and limited partners $ (8,116) $ (6,743) $ (11,739) $ (13,835) $ (12,608) $ (7,015) $ (2,013)
-------- -------- --------- --------- --------- -------- --------
ADD BACK FIXED CHARGES:

Interest expense including
amortization of deferred
financing costs 6,990 7,483 8,112 10,775 11,248 2,772 2,683
Preferred returns 933 1,029 916 400 619 98 113
Assumed interest component
of rent expense (1) 2,128 2,586 2,584 2,800 2,875 623 648
-------- -------- --------- --------- --------- -------- --------
Total fixed charges 10,051 11,078 11,612 13,975 14,742 3,493 3,444
-------- -------- --------- --------- --------- -------- --------
Adjusted earnings $ 1,935 $ 4,335 $ (127) $ 140 $ 2,134 $ (3,522) $ 1,431
======== ======== ========= ========= ========= ======== ========
Ration of earnings to fixed charges 0.19 0.39 (0.01) 0.01 0.14 (1.01) 0.42
-------- -------- --------- --------- --------- -------- --------
Deficiency of earnings to
fixed charges $ 8,116 $ 6,743 $ 11,739 $ 13,835 $ 12,608 $ 7,015 $ 2,013
======== ======== ========= ========= ========= ======== ========
</TABLE>

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

(1) Estimated as one-third of operationg lease expenses

<PAGE>

EXHIBIT 23.1

Consent of Independent Accountants

We hereby consent to the use in this Registration Statement on Form S-4 of Muzak
Holdings LLC and Muzak Holdings Finance Corp. (No. 333-78573) of our report
dated February 19, 1999 relating to the consolidated financial statements of
Muzak Holdings LLC as of December 31, 1998 and for the period from October 7,
1998 through December 31, 1998, which appears in such Registration Statement. We
also consent to the reference to us under the headings "Experts" and "Selected
Historical Financial and Other Data" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Charlotte, North Carolina
August 9, 1999
<PAGE>

Consent of Independent Accountants

We hereby consent to the use in this Registration Statement on Form S-4 of Muzak
Holdings LLC and Muzak Holdings Finance Corp. (No. 333-78573) 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 appears in such Registration Statement. We also consent to
the reference to us under the headings "Experts" and "Selected Historical
Financial and Other Data" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Charlotte, North Carolina
August 9, 1999

<PAGE>

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement
No. 333-78573 of Muzak Holdings LLC and Muzak Holdings Finance Corp. 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 headings "Selected Historical
Financial and Other Data" and "Experts" in such Prospectus.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Seattle, Washington
August 9, 1999
<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement
No. 333-78573 of Muzak Holdings LLC and Muzak Holdings Finance Corp. on Form S-4
of our report dated March 31, 1998, on Audio Communications Network, Inc. and
subsidiaries, appearing in the Prospectus, which is part of this Registration
Statement.

We also consent to the reference to us under the headings "Selected Historical
Financial and Other Data" and "Experts" in such Prospectus.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Seattle, Washington
August 9, 1999