<PAGE>
As filed with the Securities and Exchange Commission on May 14, 1999.
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
MUZAK 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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed maximum
Title of each class of Amount maximum aggregate Amount of
securities to be to be offering price offering registration
registered registered per unit(1) price(1) fee
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<S> <C> <C> <C> <C>
Series B 13% Senior
Discount Notes due
2010.................. $75,000,000 53.3285% $39,996,000 $11,118.89
- ------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
---------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION; DATED , 1999
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
exchange the notes that
we sold in a private
offering for new . We will not receive any
registered exchange proceeds from the
notes. exchange offer.
. The exchange offer . The terms of the notes to
expires 5:00 p.m., New be issued are identical
York City time, , to the outstanding notes,
1999, unless extended. except for the transfer
restrictions and
registration rights
relating to the
outstanding notes.
. You may withdraw your
tender of notes any time
before the expiration of
the exchange offer.
. This exchange offer is
. We will exchange all subject to customary
outstanding notes that conditions, which we may
you validly tender and do waive.
not validly withdraw.
. Our subsidiaries will not
. We believe that the guarantee the notes.
exchange of notes will
not be a taxable exchange
for U.S. federal income
tax purposes.
. There is no existing
market for the exchange
notes and we do not
intend to apply for their
listing on any securities
exchange.
We are not making an offer to exchange notes in any jurisdiction where the
offer is not permitted.
You should carefully consider the risks described beginning on page 11 before
tendering your notes.
Neither the Securities and Exchange Commission nor any State securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 11
The Merger and the Acquisition Transactions.............................. 22
The Exchange Offer....................................................... 23
Use of Proceeds.......................................................... 31
Capitalization........................................................... 32
Unaudited Pro Forma Financial Data....................................... 34
Selected Historical Financial and Other Data............................. 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 41
Business................................................................. 50
Management............................................................... 62
Certain Relationships and Related Transactions........................... 67
Security Ownership of Certain Beneficial Owners and Management........... 70
LLC Agreements........................................................... 72
Description of the Senior Credit Facility................................ 73
Description of the Notes................................................. 77
Exchange Offer; Registration Rights...................................... 115
Certain United States Federal Income Tax Considerations.................. 117
Plan of Distribution..................................................... 122
Legal Matters............................................................ 123
Experts.................................................................. 123
Additional Information................................................... 123
Index to Consolidated Financial Statements............................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about the exchange offer.
It likely does not contain all the information that is important to you. For a
more complete understanding of the exchange offer, we encourage you to read
this entire document and the documents we have referred you to.
The Company
Overview
Muzak is the world's leading provider of business music programming.
Together with our independent affiliates, we have nationwide coverage to serve
our clients. We offer three products. Our core product is Audio ArchitectureSM,
and we offer two complementary products, Audio Marketing and Video Imaging.
Audio Architecture is business music programming designed to enhance a
client's brand image. Our staff of in-house audio architects analyzes a variety
of music to develop and maintain 60 core music programs in 10 genres ranging
from current top-of-the-charts hits to jazz, classic rock, urban, country,
Latin, classical music and others. Our Audio Marketing product provides
telephone on-hold and in-store messages for more than 17,000 client locations.
We have also introduced Video Imaging, which we believe is the most widely used
in-store video product in the U.S.
We complete our clients' business music experience by designing and
installing sound and intercom systems, telephone on-hold and in-store messaging
and video systems at their locations and providing after-sale services and
enhancements to those systems, which we sell or lease to our customers.
Our Clients
We provide music to numerous types of businesses including specialty
retailers, restaurants, department stores, supermarkets, drug stores, financial
institutions, hotels, golf clubs, health and fitness centers, business offices,
manufacturing facilities, medical centers and HMOs, among others. Approximately
70% of our client base is comprised of local clients and the remaining 30% is
comprised of national and regional chains. Our national clients include The
Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass Hut, Burger King,
Taco Bell, Nordstrom, Citibank, Travelers and Prudential, among many others.
Our regional clients include A&P, Kroger, Rite Aid, Kaiser Permanente,
PetsMart, Dillards and Wells Fargo, among many others.
Operating Strengths
We believe the following attributes have helped us become the world's
leading provider of business music programming:
. market leadership;
. nationwide installation and service presence;
. large and diverse client base;
. attractive economics;
. long-term contracts with recurring revenue and a low churn rate;
. the demand-based nature of capital expenditures;
. unique product offerings; and
. an experienced management team.
Business Strategy
Our strategy is to increase monthly recurring revenue and cash flow by
concentrating on our Audio Architecture, Audio Marketing and Video Imaging
products. Our business strategy focuses on:
. concentrating on our core competency of assisting clients in enhancing
their brand images through planned programs of music and video;
. increasing United States market penetration;
. capitalizing on changes in our sales and marketing strategy; and
. pursuing acquisitions.
The Merger and Other Acquisitions
ABRY Broadcast Partners III, L.P. formed Audio Communications Network, LLC
in 1998 to
1
<PAGE>
acquire Muzak independent affiliate territories. Before the merger with Muzak
Limited Partnership, Audio Communications Network, LLC acquired:
. eight independent affiliate territories from Audio Communications
Network, Inc. in 1998;
. Business Sound, Inc., the Muzak independent affiliate for the New
Orleans, Louisiana and Mobile, Alabama areas on January 15, 1999; and
. Electro Systems Corporation, the Muzak independent affiliate located in
Panama City, Florida on February 24, 1999.
In 1998, Muzak Limited Partnership acquired certain assets and liabilities
of Music Technologies, Inc., which was a national provider of business music.
On March 18, 1999, concurrently with our initial offering, Muzak Limited
Partnership merged
with and into Audio Communications Network, LLC which changed its name to Muzak
LLC in the merger.
On the same day, we acquired the assets of Capstar Broadcasting
Corporation's Muzak independent affiliate territories located in Atlanta,
Albany and Macon, Georgia and Ft. Myers, Florida in exchange for voting
membership units of our parent company and cash.
On May 3, 1999, we acquired the Muzak independent affiliate territory
located in Omaha, Nebraska from Capstar.
Sponsors
As of May 3, 1999, as a result of investments made in connection with the
merger and other acquisitions and investments made by management after the
merger, the approximate beneficial ownership of our parent company's voting
membership units was as follows:
. two private equity funds of ABRY Partners, Inc., ABRY Broadcast Partners
III, L.P and ABRY Broadcast Partners II, L.P., owned 73.2%;
. Capstar Broadcasting owned 22.9%; and
. our management owned 3.2%.
The Initial Offering
On March 18, 1999, we issued $75,000,000 aggregate principal amount at
maturity of 13% Senior Notes due 2010 to CIBC Oppenheimer Corp. and Goldman,
Sachs & Co. in a private offering. These initial purchasers sold the notes to
institutional investors in transactions exempt from the registration
requirements of the Securities Act of 1933.
When we issued the existing notes, we entered into a Registration Rights
Agreement in which we agreed to file a registration statement by June 1, 1999
and to use our reasonable best efforts to have the registration statement
declared effective by August 15, 1999.
The Exchange Offer
We are offering to exchange $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.
The exchange notes are substantially identical to the existing notes, except
that some of the transfer restrictions and registration rights relating to the
existing notes do not apply to the exchange notes. You may tender your existing
notes by following the procedures described in this prospectus under the
heading "The Exchange Offer."
Expiration Date
The exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless we extend it.
Withdrawal Rights
You may withdraw your tender of your notes at any time before 5:00 p.m., New
York City time, on the expiration date of the exchange offer.
Conditions of the Exchange Offer
The exchange offer is subject to customary conditions, which we may waive.
Please read "The
2
<PAGE>
Exchange Offer--Conditions" section of this prospectus for more information
regarding conditions of the exchange offer.
Procedures for Tendering Your Notes
If you are a holder of existing notes and wish to accept the exchange offer,
you must either:
. complete, sign and date the accompanying Letter of Transmittal, or a
facsimile of that letter and deliver the documentation, together with
your existing notes, to the exchange agent at the address shown under
"The Exchange Offer--Exchange Agent;" or
. arrange for The Depository Trust Company to transmit the required
information to the exchange agent for this exchange offer in connection
with a book-entry transfer.
By tendering your notes in this manner, you will be representing, among
other things, that:
. you are acquiring the exchange notes in the exchange offer in the
ordinary course of your business;
. you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate in the
distribution of the exchange notes issued to you in the exchange offer;
and
. you are not an "affiliate" of our company.
Tax Considerations
We do not believe that your exchange of existing notes for exchange notes in
the exchange offer will result in any gain or loss to you for federal income
tax purposes. See the "Certain United States Federal Income Tax Consequences"
section of this prospectus.
Consequences of Failure to Exchange
Existing notes that are not tendered, or that are tendered but not accepted,
will continue to be subject to the existing transfer restrictions on those
notes after the exchange offer. We will have no further obligation to register
the existing notes. If you do not participate in the exchange offer, the
liquidity of your notes could be adversely affected.
Procedures for Beneficial Owners
If you are the beneficial owner of existing notes registered in the name of
a broker, dealer or other nominee and you wish to tender your notes, you should
contact the person in whose name your notes are registered and promptly
instruct the person to tender on your behalf.
Guaranteed Delivery Procedures
If you wish to tender your existing notes and time will not permit your
required documents to reach the exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be completed on time, you may tender
your notes according to the guaranteed delivery procedures. See "The Exchange
Offer--Guaranteed Delivery Procedures."
Acceptance of Initial Notes; Delivery of Exchange Notes
Subject to certain conditions, we will accept existing notes which are
properly tendered in the exchange offer and not withdrawn, before 5:00 p.m.,
New York City time, on the expiration date of the exchange offer. The exchange
notes will be delivered as promptly as practicable following the expiration
date.
Exchange Agent
State Street Bank and Trust Company is the exchange agent for the exchange
offer.
Summary of the Exchange Notes
Securities Offered
$75,000,000 aggregate principal amount at maturity ($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 certain 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 certain
deadlines in connection with the exchange offer. See "The Exchange Offer--
Purpose and Effect of the
3
<PAGE>
Exchange Offer" section of this prospectus for a discussion of the payment of
increased interest.
Maturity Date
March 15, 2010.
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. See
"Certain United States Federal Income Tax Considerations."
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 December 31, 1998, on a pro forma basis, Holdings
would have had approximately $40.0 million of debt and Holdings' subsidiaries
would have had approximately $260.4 million of debt.
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 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 the Company. Such provisions will also specifically
prohibit you from seeking a substantive consolidation of the Company.
In addition, the indenture governing the exchange notes will contain
subordination provisions to the effect that, in the event of a substantive
consolidation of the Company, Holdings and/or Muzak Holdings Finance, you (i)
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 related thereto until all obligations under
the senior credit facility have been indefeasibly paid in full in cash and (ii)
will be required to turn over to the lenders under the senior credit facility
any payments received in violation of such provisions.
Optional Redemption
Except in the case of certain equity offerings by us, we cannot choose to
redeem the exchange notes prior to March 15, 2004.
At any time after that date (which may be more than once), we can choose to
redeem some or all of the exchange notes at certain specified prices, plus
accrued interest.
4
<PAGE>
Optional Redemption after Equity Offerings
At any time (which may be more than once) before March 15, 2002, we can
choose to buy back up to 35% of the 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
Notes bought;
. 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 will limit what we (and most or
all of our subsidiaries) may do. The provisions of the indenture will limit our
ability to:
. incur more debt;
. pay dividends and make distributions;
. issue stock of subsidiaries;
. make certain 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.
For more complete information about the exchange notes, see the "Description
of the Notes" section of this prospectus.
Use of Proceeds
We will not receive any cash proceeds from the issuance of the exchange
notes.
Forward Looking Statements
Some of the information contained in this prospectus, including information
with respect to our plans and strategy for our business and its financing, are
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors."
Principal Executive Office
Our headquarters are located at 2901 Third Avenue, Suite 400, Seattle,
Washington 98121. Our telephone number is 206-633-3000.
5
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The tables on pages 8 and 9 have been prepared by Muzak Holdings LLC and are
based on the historical financial statements of Audio Communications LLC, Audio
Communications Network, Inc., Muzak Limited Partnership, the independent
affiliate territories located in Atlanta, Albany and Macon, Georgia and Ft.
Myers, Florida contributed by Capstar Broadcasting, Business Sound, Music
Technologies, the independent affiliate located in Omaha contributed by Capstar
Broadcasting and Electro Systems and the assumptions and adjustments described
in the accompanying notes.
The summary unaudited pro forma financial data (a) give effect to the merger
and completed acquisitions as if they had occurred on January 1, 1998, (b) do
not purport to represent what Muzak Holdings' results of operations or
financial position actually would have been if the merger and completed
acquisitions had occurred as of the date indicated or what such results of
operations or financial position will be for future periods and (c) do not give
effect to certain non-recurring charges or cost savings expected to result from
the merger and completed acquisitions, although they are included in "Other
financial data" on the following page.
Management believes that the summary unaudited pro forma financial data is a
meaningful presentation because 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
acquisitions. The following information is qualified by reference to and should
be read in conjunction with "Capitalization," "Unaudited Pro Forma Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the "Selected Historical Financial and Other Data" and the
audited financial statements and the 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 affiliate
operated as part of Triathlon Broadcasting Company. The tables following this
page set forth selected historical carve-out financial data for the Capstar
Broadcasting Muzak affiliates and the Muzak affiliate in Omaha. The historical
carve-out financial data presented on the following pages reflect periods
during which neither the Capstar Broadcasting Muzak affiliates nor the Muzak
affiliate in Omaha operated as an independent company and, accordingly, certain
allocations were made in preparing such carve-out financial data. Therefore,
such carve-out financial data may not reflect the results of operations or the
financial condition which would have resulted if the Capstar Broadcasting Muzak
affiliates or the Muzak affiliate in Omaha had operated as a separate
independent company during such periods, and are not necessarily indicative of
the future results of operations or financial position of the Capstar
Broadcasting Muzak affiliates or the Muzak affiliate in Omaha.
Prior to December 31, 1998, the assets and liabilities acquired from Music
Technologies operated as part of Music Technologies. The historical carve-out
financial data presented on the following pages reflect periods during which
the assets and liabilities acquired from Music Technologies did not operate as
an independent company and, accordingly, certain allocations were made in
preparing such carve-out financial data. Therefore, such carve-out financial
data may not reflect the results of operations or the financial condition which
would have resulted if these assets and liabilities had operated as a separate
independent company and are not necessarily indicative of the future results of
operations or financial position of these assets and liabilities.
As you review the information contained in the tables on pages 8 and 9, you
should note the following:
. Selling, general and administrative expenses. These expenses for Muzak
Limited Partnership include non-cash compensation expense incurred in
conjunction with stock options granted by Muzak Limited Partnership of
approximately $2,217,000 for the three months ended December 31, 1998
and $750,000 for the year ended December 31, 1998.
6
<PAGE>
. Interest expense. Our interest expense includes amortization of
deferred financing costs related to the merger and other completed
acquisitions equal to $1.2 million for the three months ended December
31, 1998 and $0.3 million for the year ended December 31, 1998.
. Pro forma EBITDA. Represents net income before interest, income taxes,
depreciation and amortization, gain on sale of assets, other
income/(expense) and certain non-cash expenses. Pro forma EBITDA is
not intended to be a performance measure that should be regarded as an
alternative to, or more meaningful than, either operating income or
net income as an indicator of operating performance or cash flow as a
measure of liquidity, as determined in accordance with generally
accepted accounting principles, known as GAAP. However, management
believes that pro forma EBITDA is a meaningful measure of performance
and that it is commonly used in similar industries to analyze and
compare companies on the basis of operating performance, leverage and
liquidity.
. Adjusted pro forma EBITDA. Adjusted pro forma EBITDA represents pro
forma EBITDA adjusted for non-recurring or eliminated costs and
expenses. See "Pro Forma Operating Results-- Managment's Discussion
and Analysis" for detail on the adjustments. Represents pro forma
EBITDA adjusted for non-recurring or eliminated costs and expenses.
Adjusted pro forma EBITDA is not intended to be a performance measure
that should be regarded as an alternative to, or more meaningful than,
either operating income or net income as an indicator of operating
performance or cash flow as a measure of liquidity, as determined in
accordance with GAAP. However, management believes that Adjusted pro
forma EBITDA is a meaningful measure of performance but understands
that it is not necessarily comparable to similarly titled amounts of
other companies.
. Adjusted pro forma EBITDA margin. Represents Adjusted pro forma EBITDA
as a percentage of revenues.
. Ratio of total debt to Adjusted pro forma EBITDA. Represents total pro
forma debt outstanding (excluding $2.4 million of debt described in
note 7 below) (as of December 31, 1998) divided by an amount equal to
Adjusted pro forma EBITDA (for the three months ended December 31,
1998) multiplied by four and reflects the calculation under the terms
of the indenture governing the exchange notes in determining Holdings'
ability to incur additional debt.
. Total debt. Excludes $2.4 million of debt of Electro Systems that is
non-recourse to Holdings, Electro Systems will be an unrestricted
subsidiary under the indenture governing the exchange notes.
7
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA AS OF
AND FOR THE YEAR AND THREE MONTHS ENDED DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Unaudited Pro Forma
--------------------------
For the year For the three
ended months ended
December 31, December 31,
1998 1998
------------ -------------
<S> <C> <C>
Statement of operations data
Revenues............................................ $138,584 $ 36,334
Cost of sales....................................... 58,078 14,726
-------- --------
Gross profit...................................... 80,506 21,608
Selling, general and administrative................. 48,289 13,242
Depreciation and amortization....................... 34,732 8,683
-------- --------
Operating (loss) income............................. (2,515) (317)
Interest expense, net............................... (30,806) (7,701)
Other income (expense), net......................... 48 (73)
-------- --------
Net loss............................................ $(33,273) $ (8,091)
======== ========
Other financial data
Pro forma EBITDA.................................... $ 34,434 $ 9,116
Adjusted pro forma EBITDA........................... 40,086 10,385
Adjusted pro forma EBITDA margin.................... 28.9% 28.6%
Ratio of total debt to Adjusted pro forma EBITDA.... 7.2x
Balance sheet data (end of period)
Total assets..................................................... $400,826
Total debt....................................................... 298,046
Members' interest................................................ 65,380
</TABLE>
see notes on the following page
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
FOR THE YEAR AND THREE MONTHS ENDED DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
October 7, January 1,
1998 1998
through through Year ended
December 31, October 6, December 31,
1998 1998 Year ended December 31, 1998 1998
------------ ----------- -------------------------------------- ------------
Georgia and
Florida
Old Old Capstar Other Pro Forma Unaudited
ACN (1) ACN (1) Muzak Affiliates Acquisitions (2) Adjustments (3) Pro Forma
------------ ----------- -------- ----------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 5,914 $18,917 $ 99,748 $9,845 $7,669 $ (3,509) $138,584
Cost of sales............... 2,556 8,206 42,509 3,970 4,384 (3,547) 58,078
------- ------- -------- ------ ------ -------- --------
Gross profit............... 3,358 10,711 57,239 5,875 3,285 38 80,506
Selling, general and
administrative ............ 1,794 7,245 36,536 3,349 2,711 (3,346) 48,289
Depreciation and
amortization............... 1,683 4,372 21,563 1,931 713 4,470 34,732
------- ------- -------- ------ ------ -------- --------
Operating (loss) income..... (119) (906) (860) 595 (139) (1,086) (2,515)
Interest expense, net....... (1,033) (2,520) (10,992) (30) (397) (15,834) (30,806)
Other income (expense), net.. 5 (2) (137) 1 17 164 48
------- ------- -------- ------ ------ -------- --------
Net (loss) income........... $(1,147) $(3,428) $(11,989) $ 566 $ (519) $(16,756) $(33,273)
======= ======= ======== ====== ====== ======== ========
----------------------------------------------------------------------------------------------------------------
<CAPTION>
Period from Period from
October 7, October 1,
1998 1998 Three months
through through ended
December 31, October 6, Three months December 31,
1998 1998 ended December 31, 1998 1998
------------ ----------- -------------------------------------- ------------
Georgia and
Florida
Old Old Capstar Other Pro Forma Unaudited
ACN (1) ACN (1) Muzak Affiliates Acquisitions (2) Adjustments (3) Pro Forma
------------ ----------- -------- ----------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 5,914 $ 325 $ 27,082 $2,528 $1,773 $ (1,288) $ 36,334
Cost of sales............... 2,556 88 11,119 1,057 918 (1,012) 14,726
------- ------- -------- ------ ------ -------- --------
Gross profit............... 3,358 237 15,963 1,471 855 (276) 21,608
Selling, general and
administrative ............ 1,794 120 11,153 911 714 (1,450) 13,242
Depreciation and
amortization............... 1,683 94 6,484 477 156 (211) 8,683
------- ------- -------- ------ ------ -------- --------
Operating (loss) income..... (119) 23 (1,674) 83 (15) 1,385 (317)
Interest expense, net....... (1,033) (54) (3,050) (8) (85) (3,471) (7,701)
Other income (expense),
net........................ 5 -- (241) (2) 4 161 (73)
------- ------- -------- ------ ------ -------- --------
Net (loss) income........... $(1,147) $ (31) $ (4,965) $ 73 $ (96) $ (1,925) $ (8,091)
======= ======= ======== ====== ====== ======== ========
</TABLE>
see notes on the following page
9
<PAGE>
NOTES TO THE SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
FOR THE YEAR AND THREE MONTHS ENDED DECEMBER 31, 1998
(1) Audio Communications Network, LLC acquired the Old ACN Assets on October 7,
1998. Prior to the acquisition, Audio Communications Network, LLC had no
operations.
(2) Includes the unaudited historical results of operations of Business Sound,
the assets and liabilities of Music Technologies, the affiliate and Electro
Systems.
(3) The pro forma adjustments represent those adjustments necessary to present
the operating results of Muzak Holdings as if the merger and the completed
acquisitions occurred on January 1, 1998. These adjustments include the
following:
. reflecting the unaudited historical results of operations for the
acquisitions consummated by Muzak Limited Partnership during the year
ended December 31, 1998, as if these acquisitions occurred on January 1,
1998,
. eliminating the unaudited historical results of operations for the year
ended December 31, 1998 of EAIC Corp., a formerly wholly owned subsidiary
of Muzak Limited Partnership. The spin-off of EAIC Corp. was completed
prior to the consummation of the merger.
. conforming the accounting policy for sales commissions of Muzak Limited
Partnership with that of Audio Communications Network, LLC,
. eliminating intercompany revenues and cost of sales (primarily for
royalty fees and equipment sales) for transactions between (i) Muzak
Limited Partnership and (ii) Audio Communications Network, LLC and the
entities acquired by Audio Communications Network, LLC,
. eliminating certain costs not assumed in the acquisition from Music
Technologies and seller transaction costs related to the sales of Audio
Communications Network, Inc. and Muzak Limited Partnership,
. adjusting depreciation and amortization expense due to the excess of fair
value over historical cost generated from the merger and the completed
acquisitions, and
. increasing interest expense as a result of debt incurred in connection
with the merger and the completed acquisitions.
10
<PAGE>
RISK FACTORS
You should carefully consider the following factors when you evaluate
tendering your notes in the exchange offer.
Holders of existing notes who fail to exchange their notes may be unable to
resell their notes.
We did not register the existing notes under the federal or any state
securities laws, nor do we intend to register them following the exchange
offer. As a result, the exchange notes may only be transferred in limited
circumstances under the securities laws. If the holders of existing notes do
not exchange their notes in the exchange offer, they lose their right to have
their notes registered under the federal securities laws, subject to certain
limitations. As a result, a holder of existing notes after the exchange offer
may be unable to sell their notes.
Your notes will not be accepted for exchange if you fail to follow the exchange
offer procedures.
The exchange notes will be issued to you in exchange for your notes only
after timely receipt by the exchange agent of:
. your notes; and
. a properly completed and executed Letter of Transmittal and all other
required documentation; or
. a book-entry delivery by transmittal of an agent's message through
The Depository Trust Company.
If you want to tender your notes in exchange for exchange notes, you should
allow sufficient time to ensure timely delivery.
None of the exchange agent nor any of the issuers or any of their affiliates
are under any duty to give you notification of defects or irregularities with
respect to tenders of existing notes for exchange. Existing notes that are not
tendered or are tendered but not accepted will, following the exchange offer,
continue to be subject to their existing transfer restrictions. In addition, if
you tender your notes in the exchange offer to participate in a distribution of
the exchange notes, you will be required to comply with the registration and
prospectus delivery requirements of the federal securities laws in connection
with any resale transaction. For additional information, please refer to "The
Exchange Offer" and "Plan of Distribution" sections of this prospectus.
Our substantial debt could make us unable to make payments on the notes and
could adversely affect our financial health.
We have now and, after the offering, will continue to have a significant
amount of debt. The following chart shows certain important credit statistics
and is presented assuming we had completed the merger and the completed
acquisitions as of December 31, 1998 and applied the proceeds as intended:
<TABLE>
<CAPTION>
At December 31, 1998
Pro Forma
--------------------
(in millions)
<S> <C>
Total debt................................................. $300.4
Members' interest.......................................... 65.4
Debt to equity ratio....................................... 4.6x
</TABLE>
Our substantial debt could have important consequences to you. For example,
it could:
. make it more difficult for us to satisfy our obligations with respect
to the exchange notes;
. limit our ability to fund future working capital, capital
expenditures, acquisitions and other general corporate purposes;
11
<PAGE>
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability
of our cash flow to fund working capital, capital expenditures,
acquisitions and other general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors
that have less debt;
. increase our vulnerability to general adverse economic and industry
conditions; and
. limit, along with the financial and other restrictive covenants in
our debt, among other things, our ability to borrow additional funds.
Failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.
A portion of our debt, including debt to be incurred under our credit
facility, bears interest at variable rates. An increase in the interest rates
on our debt will reduce the funds available to repay the exchange notes and our
other debt and for operations and future business opportunities and will
intensify the consequences of our leveraged capital structure.
See "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Pro Forma Liquidity and Capital
Resources," "Description of the Notes -- Change of Control Offer" and
"Description of Certain Debt."
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. Our credit facility would permit
additional borrowing of approximately $31.6 million after completion of the
offering. In addition, prior to December 31, 2000, we may request lenders to
commit to additional loans of up to $50 million under a second revolving credit
facility. The indenture also permits us to incur certain additional debt which
may be senior and which may be secured debt. The addition of further debt to
our current debt levels could intensify the leverage related risks that we now
face. See "Capitalization," "Selected Historical Financial and Other Data,"
"Description of the Notes --Change of Control Offer" and "Description of
Certain Debt."
The issuers have no operations and will rely on dividends from their
subsidiaries to pay amounts due on the exchange notes.
Muzak Holdings is a holding company and does not have any operations or
assets other than ownership of the 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. 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 December 31, 1998, 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 $260.4 million. Muzak Holdings' subsidiaries may incur additional
debt in the future and the exchange notes will be effectively subordinated to
such debt.
12
<PAGE>
We will 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.
The Company is a party to a credit facility that imposes substantial
restrictions, including the satisfaction of certain financial conditions, on
the Company's ability to make distributions to Muzak Holdings. The ability of
the Company to comply with such conditions in the credit facility may be
affected by events that are beyond the control of Muzak Holdings. If the
maturity of loans under the credit facility were to be accelerated, all
indebtedness outstanding thereunder would be required to be paid in full before
the Company would be permitted to distribute any assets or cash to Muzak
Holdings. In addition, certain remedies available to the lenders under the
credit facility could constitute events of default under the indenture
governing the exchange notes and so cause acceleration of the exchange notes.
In such circumstances there can be no assurance that the assets of the Company
would be sufficient to repay all of such outstanding debt and then to make
distributions to Muzak Holdings to enable Muzak Holdings to meet its
obligations under the indenture. Future borrowings by the Company can also be
expected to contain restrictions or prohibitions on distributions by the
Company to Muzak Holdings. In addition, all of Muzak Holdings' interests in the
Company will be pledged by Muzak Holdings as collateral under our 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 the Company 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 Notes 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 the
Company 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
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 will contain an agreement for the
benefit of the lenders under the credit facility which will provide that the
holders of the exchange notes, while free to exercise their rights and remedies
against Muzak Holdings, will be bound, for so long as any obligations under the
credit facility are outstanding, by standstill provisions prohibiting the
holders of the Notes from initiating or intervening in an insolvency proceeding
of the Company. Such provisions will also specifically prohibit the holders of
the Notes from seeking a substantive consolidation of the Company, Muzak
Holdings and/or Muzak Holdings Finance. The indenture will also contain
subordination provisions to the effect that, in the event of a substantive
consolidation of the Company, Muzak Holdings and/or Muzak Holdings Finance, the
holders of the exchange notes (i) 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 (ii) will be required to turn over to the lenders under the
credit facility any payments received in violation of such provisions.
We may not have sufficient earnings to make payments on your notes in the
future.
Our ability to make payments on and to refinance our debt, including the
exchange notes, and to fund planned capital expenditures will depend on our
ability to generate cash in the future. This, to a certain extent,
13
<PAGE>
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
Based on our current level of operations and anticipated operating
improvements, we believe our cash flow from operations, available cash and
available borrowings under our credit facility will be adequate to meet our
future liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated operating improvements
will be realized on schedule or that future borrowings will be available to us
under our credit facility in an amount sufficient to enable us to pay our debt,
including the exchange notes, or to fund our other liquidity needs. If our
future cash flow from operations and other capital resources are insufficient
to pay our obligations as they mature or to fund our liquidity needs, we may be
forced to reduce or delay our business activities and capital expenditures,
sell assets, obtain additional equity capital or restructure or refinance all
or a portion of our debt, including the exchange notes on or before maturity.
We cannot assure you that we can accomplish any of these alternatives on a
timely basis or on satisfactory terms, if at all. In addition, the terms of
certain existing indebtedness such as the exchange notes and our credit
facility and other future indebtedness may limit our ability to pursue any of
these alternatives.
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. See "Certain United States Federal Income Tax
Considerations" for a more detailed discussion of the federal income tax
consequences to the holders of the Notes of the purchase, ownership and
disposition of the exchange notes.
We may be unable to deduct some of our interest payments on the exchange notes.
Although the law is unclear in certain respects and the issue is therefore
not free from doubt, the Notes should, to a significant extent, constitute
"applicable high yield discount obligations", known as AHYDOs, for federal
income tax purposes. A proportion of the exchange notes equal to the proportion
of the membership interests of Holdings held by a C corporation would
constitute AHYDOs if (i) the yield to maturity on the exchange notes is equal
to or greater than the sum of the relevant applicable federal rate, known as
the "AFR", in effect for the month in which the exchange notes are issued (for
March 1999, the AFR is 5.23%, assuming semi-annual compounding) plus five
percentage points and (ii) the exchange notes bear significant original issue
discount ("original issue discount"). A debt instrument bears significant
original issue discount for this purpose if, as of the close of any accrual
period ending more than five years after issuance, the total amount of income
includible by a holder with respect to the debt instrument exceeds the sum of
(a) interest paid to the holder (in cash or, generally, in property other than
debt instruments or stock of the issuer or a related person) and (b) an amount
equal to the issue price of the debt instrument multiplied by its yield to
maturity. Should any portion of the exchange notes be AHYDOs, Holdings would
not be entitled to claim a deduction for original issue discount that accrues
with respect to such portion of the 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 exceeded the sum of the AFR plus six
percentage points (the "non-deductible portion"), any deduction that is
attributable to the non-deductible portion would be permanently disallowed.
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 the exchange notes, to some extent, are treated as AHYDOs for federal
income tax purposes, then interest deductions of Muzak Holdings will be
deferred or permanently disallowed, as described above. Such a deferral or
disallowance of deductions would have the effect of increasing taxable income
(or reducing taxable
14
<PAGE>
losses) allocable to some or all of the members of Muzak Holdings. This in turn
could increase (depending upon the results of the operations of Muzak Holdings
and its subsidiaries without regard to such interest deductions) or accelerate
the distributions Muzak Holdings must make to its members in respect of the
taxes of the members, as provided in the Muzak Holdings LLC Agreement. Such
distributions are permitted distributions under the terms of the indenture.
See "Certain United States Federal Income Tax Considerations" for a more
detailed discussion of the federal income tax consequences to the holders of
the exchange notes of the purchase, ownership and disposition of the exchange
notes.
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 (the "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 (i)
the issue price of the exchange notes as set forth on the cover page hereof and
(ii) 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.
Muzak Limited Partnership had net losses attributable to general and limited
partners of approximately $11.7 million, $13.8 million and $12.6 million for
the years ended December 31, 1996, 1997 and 1998, respectively. Audio
Communications Network, Inc. had net losses of approximately $0.5 million and
$1.4 million for the years ended December 31, 1996 and 1997, respectively, and
had net losses from operations of approximately $3.4 million for the period of
January 1, 1998 through October 6, 1998. Audio Communications Network, LLC had
net losses of $1.1 million for the period of October 7, 1998 through December
31, 1998. During these periods, Muzak Limited Partnership and Audio
Communications Network, Inc. were highly leveraged. Muzak Limited Partnership's
losses resulted primarily from interest payments on acquisition financing,
accelerated amortization of income-producing contracts acquired through
acquisitions, other related acquisition and financing costs and depreciation
and amortization. In addition to the reasons stated above, Muzak Limited
Partnership expects that it will continue to incur net losses in the future, in
part because of non-cash compensation charges relating to the vesting of
employee stock options in connection with the Transactions and fees and
expenses incurred in connection with the merger and completed acquisitions.
Audio Communications Network, Inc.'s losses resulted primarily from interest
payments on acquisition financing and depreciation and amortization. We cannot
assure you that we will generate net profits from operations. Muzak Limited
Partnership had a working capital deficit of $7.1 million at December 31, 1998.
Audio Communications Network, Inc. had a working capital deficit of $1.7
million as of October 6, 1998. Audio Communications Network, LLC had a working
capital deficit of $41.7 million as of December 31, 1998 (which includes the
ABRY Subordinated Note of $40.8 million plus interest, which is to be repaid
concurrently with the consummation of the merger). We cannot assure you that we
will have positive working capital in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --General."
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 the Company and Muzak Holdings to:
.incur additional debt;
.pay dividends and make other distributions;
15
<PAGE>
.make investments and other restricted payments;
.enter into sale and leaseback transactions;
.incur liens;
.engage in mergers, acquisitions and asset sales;
.enter into transactions with affiliates;
.make capital expenditures;
.amend or otherwise alter debt and other material agreements; and
.alter the business we conduct.
The credit facility also requires us to meet certain financial ratios. If we
do not comply with the restrictions in our credit facility, the indenture, 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. See
"Description of Certain Debt."
Our ability to purchase your notes on a change of control may be limited.
If we undergo a change of control, as defined later in this prospectus under
the heading "Description of the Notes -- Change of Control Offer", we may need
to refinance large amounts of our debt, including the Notes, the Senior
Subordinated Notes and our credit facility. If a change of control occurs, we
must offer to buy back your exchange notes for a price equal to 101% of the
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. In addition, our
credit facility will prohibit us from repurchasing the exchange notes after a
change of control until we have repaid in full our debt under the credit
facility and the Senior Subordinated exchange notes indenture restricts the
Company'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 the Company. See "Description of the Notes -- Change of
Control Offer" and "Description of Certain Debt."
We are dependent on satellite delivery capabilities of third parties.
We transmit our 60 core music programs via direct broadcast satellite to
clients from transponders located primarily on satellites from two companies.
There are a limited number of satellites with orbital positions suitable for
direct broadcast satellite transmission of our signals and a limited number of
available transponders on those satellites. Satellite transponders receive
signals, translate signal frequencies and transmit signals to receiving
satellite dish antennas. We lease transponder capacity primarily from
Microspace Communications Corporation and EchoStar Satellite Corporation. See
"Business--Distribution--Microspace and EchoStar Agreements."
Prior to May 1998, we transmitted music to many clients from transponders
located on PanAmSat's Galaxy IV satellite. On May 19, 1998, all services on
Galaxy IV were permanently lost when the satellite ceased communicating to
uplink stations throughout the United States. As a result of the Galaxy IV
failure, on May 20, 1998, we began transmitting from transponders located on
the Galaxy IIIR satellite, which required repointing of satellite dishes at
approximately 100,000 client locations. We estimate that our costs for
satellite dish repointing were approximately $2.1 million. We cannot assure you
that any such event will not occur in
16
<PAGE>
the future, or that the satellites we use will remain in operation through
their projected useful lives. If such an event were to occur or if our current
transponder lessors were unable to provide us with transponder services, we
would have to seek alternative transponder or satellite facilities. However,
alternative facilities may not be available on a timely or cost-effective
basis, may be available only on a satellite that is not positioned as favorably
as our current satellites or may require a change in the frequency currently
used to transmit and receive our signal. If we are required to enter into new
transponder lease agreements, we cannot assure you that we will be able to do
so on terms as favorable as those in our current agreements. If we were
required to use alternate satellite facilities, we would incur additional
expenditures. Our ability to serve our client base could degrade. Either of
these events could have a material adverse effect on our financial condition
and results of operations. In July 1998, we purchased insurance that provides
up to $5.0 million of coverage for increased costs and lost revenue in the
event of satellite failure. Such coverage does not cover year 2000 related
satellite failures. See the risk factor relating to the Year 2000 issue and
"Business -- Distribution Systems."
We may be unable to complete acquisitions or integrate acquired businesses.
As part of our long-term strategy, we will seek to acquire providers of
music, audio marketing and video services to businesses at attractive prices.
We cannot assure you that we will have sufficient capital resources to continue
to pursue acquisitions. We cannot assure you that we will successfully
identify, complete or integrate additional acquisitions, or that the acquired
businesses will perform as expected or contribute significant revenues or
profits to us. We may face increased competition for acquisition opportunities,
which may inhibit our ability to consummate suitable acquisitions on terms
favorable to us.
Our results of operations may be adversely affected by the terms of our license
agreement with EAIC Corp.
In connection with our sale of certain digitized music samples to EAIC
Corp., a Delaware corporation we entered into a license agreement with EAIC in
July, 1998. Under the terms of this 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 (c)
music for the production of individually customized CDs, DVDs or any similar
digital based media by consumers. We cannot assure you that these restrictions
will not have a material adverse effect on our financial condition and results
of operations.
We may be subject to claims relating to assets that we transferred to EAIC.
In 1996, we began providing digitized music samples and images used by
retailers to sell music. We sold our library of these digitized music samples
and images to EAIC in 1998. Certain aspects of copyright law with respect to
use of such materials are not yet settled, industry customs dealing with such
materials have not fully emerged and it is unclear what, if any, consents or
rights companies must secure with music licensors, including the American
Society of Composers, Authors and Publishers, known as ASCAP, and Broadcast
Music, Inc.) known as BMI, music publishers and music record companies, to
create and use such materials on the Internet or otherwise. We cannot assure
you that we will not be subject to claims by music licensors or others alleging
breach of contract or copyright infringement with respect to the use of such
materials.
We may not be able to achieve all our anticipated benefits from our amended
affiliate agreement.
We recently introduced an amendment to our agreement with our independent
affiliates. The amendment provides us and our independent affiliates with more
attractive financial terms for each new national client, better coordination
for the installation and service of national account locations and among other
things, the inclusion of the Audio Marketing and Video Imaging products in the
product exclusivity provisions. See "Business -- Nationwide Affiliate
Network -- Independent Affiliate Agreement Terms." The amendment must be
executed by each independent affiliate in order to be effective with respect to
such independent affiliate. If all of our independent affiliates do not execute
the amendment, we will not be able to fully realize the benefits of the
amendment.
17
<PAGE>
The controlling equityholder of our company may have interests that conflict
with your interests.
The ABRY Funds, as beneficial owners, control 73.2% of the membership
interests of Holdings, and Holdings is the sole member of the Company. The ABRY
Funds can therefore direct Muzak Holdings' policies and those of the Company,
and can select a majority of our managers and directors. The interests of the
ABRY Funds and their affiliates and the members of our management may conflict
with the interests of the noteholders.
The ABRY Funds and their affiliates make controlling investments in media
businesses and businesses that support or enhance media properties. The ABRY
Funds, their affiliates and members of management, may at any time own
controlling or non-controlling interests in media and related businesses other
than through Muzak, some of which may compete with Muzak. The ABRY Funds and
their affiliates other than Muzak and members of Muzak's management may
identify, pursue and consummate acquisitions of media businesses that would be
complementary to the business of Muzak. If this were to occur, such acquisition
opportunities would not be available to Muzak.
Certain changes in the ABRY Funds' beneficial ownership interest in us would
constitute a change of control under the indenture and a "change in control"
under our credit facility and under our other agreements and obligations. Any
change of control could result in an event of default or otherwise require us
to make an immediate payment under such agreements and obligations.
You should not expect the co-issuer of the exchange notes to participate in
making payments on the notes.
Muzak Holdings Finance is a wholly-owned subsidiary of Holdings that was
incorporated for the sole purpose of serving as a co-issuer of the Notes in
order to accommodate the issuance of the 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 Notes). You should not expect Muzak Holdings Finance to participate in
servicing the interest or principal obligations of additional interest, if any,
on the Notes. See "Description of the Notes."
We may be unable to successfully compete in our industry or keep pace with
technological change.
We compete with many local, regional, national and international providers
of business music and business services. Some of our competitors may have
substantially greater financial, technical, personnel and other resources than
we do. There are numerous methods by which our existing and future competitors
can deliver programming, including various forms of direct broadcast satellite
services, wireless cable, fiber optic cable, digital compression over existing
telephone lines, advanced television broadcast channels, Digital Audio Radio
Service and the Internet.
We cannot assure you that we will be able to (a) compete successfully with
our existing or potential new competitors, (b) maintain or increase our current
market share, (c) use, or compete effectively with competitors that adopt, new
delivery methods and technologies, or (d) keep pace with discoveries or
improvements in the communications, media and entertainment industries. We also
cannot assure you that the technology we currently rely upon will not become
obsolete. See "Business -- Competition."
Our business depends on music rights licensed from third parties.
We license rights to rerecord and distribute music from a variety of sources
and pay royalties to songwriters and publishers through contracts negotiated
with performing rights societies such as ASCAP, BMI and the Society of European
Stage Authors and Composers, known as SESAC.
The industry-wide agreement between business music providers and BMI expired
in December 1993. Since then, we have been operating under an interim agreement
pursuant to which we have continued to pay
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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 expires in May, 1999.
We cannot predict what the terms of the new BMI or ASCAP agreements with
business music providers will be or when agreements will be reached, although
BMI has indicated that it is seeking royalty rate increases and a retroactive
royalty rate increase. In 1998, Old Muzak paid approximately $3.5 million in
royalties to ASCAP, $1.3 million in royalties to BMI and $13,000 in royalties
to SESAC. Increases in the fees we must pay under these agreements could
adversely affect our operating margin, and, therefore, our results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Music Licenses."
Our business results could be adversely affected if we lose key personnel.
Our success depends in large part upon the abilities and continued service
of our senior management personnel. The loss of certain members of senior
management could seriously affect our business prospects. We do not maintain
key man life insurance on any of our senior management personnel. See
"Management."
Changes in the regulation of the transmission of our products could adversely
affect our business.
We are subject to governmental regulation by the United States and by the
governments of other countries in which we provide services. Our business
prospects could be adversely affected by the adoption of new laws, policies or
regulations that change the present regulatory environment. We currently
provide music services in a few areas in the United States through 928 to 960
megahertz radio frequencies licensed by the FCC. Additionally, the FCC licenses
the radio frequencies used by satellites on which we transmit our direct
broadcast satellite services in the United States. If the FCC or any other
person revokes or refuses to extend authorizations for any of these satellites,
we would be required to seek alternate satellite facilities. Laws, regulations
and policies, or changes therein, in other countries could adversely affect our
existing services or restrict the growth of our business in these countries.
The notes could be voided or subordinated to our other debt if the issuance of
the notes constituted a fraudulent conveyance.
If a bankruptcy case or lawsuit is initiated by unpaid creditors of either
issuer, the debt represented by the exchange notes 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 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 such debt; and
. were insolvent or rendered insolvent by reason of such incurrence; or
. were engaged in a business or transaction for which the remaining
assets constituted unreasonably small capital; or
. intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they matured; or
. intended to hinder, delay or defraud creditors.
The measure of insolvency for purposes of fraudulent transfer laws varies
depending on the law applied. Generally, however, a debtor would be considered
insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets; or
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. 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 such
debts as they mature. We can give no assurance, however, what standard a court
would apply in reviewing the transactions or that a court would agree with our
conclusions in this regard.
We may be adversely affected if our year 2000 efforts are not successful.
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.
We use and rely on computer technology in many facets of our operations,
including our satellite broadcast systems. If we or our significant customers
or suppliers are not successful in making necessary modifications and
conversions on a timely basis, the year 2000 issue could have a material
adverse effect on our operations. In particular, if the year 2000 issue causes
failure of one or more of the satellites or uplink and transmission systems on
which we rely for transmission of our programming, we would be unable to
provide service to our customers via satellite or local broadcast technology
until we obtained service on another satellite or resolved the ground system
problem. Depending on the magnitude of satellite failure, we cannot assure you
that we would be able to obtain service on another satellite, or of the costs
of such substitute service. In addition, depending on the substitutes
available, we could be required to redirect our clients' satellite dishes, or
possibly replace satellite dish and receiving equipment. Such an event could
have a material adverse effect on our financial position and results of
operations. Our business interruption insurance does not cover year 2000-
related satellite failures.
We also rely on information technology systems for our accounting, billing,
shipping systems, and in software used to create our Audio Architecture, Audio
Marketing, and Video Imaging products. We are in the process of replacing our
primary computer system at our headquarters, and expect the replacement to be
completed in March 1999. Following completion of the system at our
headquarters, we will begin replacing the software at our owned affiliates. We
estimate that our year 2000 compliance program will cost approximately $1.5
million, of which approximately $1.0 million had been spent as of December 31,
1998. We cannot assure you that our actual costs will not be substantially
higher, however.
We have no control over the year 2000 compliance of our independent
affiliates or our clients. If our information technology systems, or those of
our owned or independent affiliates or clients have not been made year 2000
compliant in a timely manner, we may not be able to generate, collect or
process client bills, or to track our own expenses, both of which could have a
material adverse effect on our financial position and results of operations.
Year 2000 issues could affect our ability to obtain supplies and produce and
distribute our products. We cannot assure you that such problems would not have
a material adverse effect on our financial position or results of operations.
There is currently no prior market for the exchange notes and one may not
develop.
While the existing notes are presently eligible for trading in the Private
Offerings, Resales and Trading Through Automated Linkages, known as PORTAL,
market of the National Association of Securities Dealers by qualified
institutional buyers, there is no existing market for the exchange notes. We
have been informed by the
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initial purchasers of the existing notes that they intend to make a market,
after the exchange offer is completed, in the exchange notes. However, the
initial purchasers have no obligation to make a market and may cease their
market-making at any time.
We have applied to have the exchange notes designated as eligible for
trading in the PORTAL Market. However, we do not intend to apply for listing of
the existing notes or the exchange notes on any securities exchange or for
quotation through the Nasdaq National Market.
The liquidity of any market for the exchange notes and the market price
quoted for the exchange notes will depend on the number of holders of the
exchange notes, our performance, the market for similar securities, the
interest of securities dealers in making a market in the exchange notes and
other factors. A liquid trading market may not develop for the existing notes
or the exchange notes.
Our actual results from operations may differ from those contained in forward-
looking statements.
We make forward-looking statements throughout this prospectus. Whenever you
read a statement that is not simply a statement of historical fact, such as
when we describe what we "believe," "expect," or "anticipate" will occur, and
other similar statements, you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described, or that they will happen at all. You should read this prospectus
completely and with the understanding that actual future results may be
materially different from what we expect. We will not update these forward-
looking statements, even though our situation will change in the future.
Whether our actual results will conform with our expectations and predictions
is subject to a number of risks, including those addressed in this section of
this prospectus.
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THE MERGER AND THE ACQUISITION TRANSACTIONS
Old ACN Acquisition. Audio Communications Network, LLC, which we refer to as
ACN, entered into an Asset Purchase Agreement to acquire the Muzak affiliates
in the Baltimore, Charlotte, Hillsborough, Kansas City, St. Louis,
Jacksonville, Phoenix and Fresno areas (the "Old ACN Assets") from Audio
Communications Network, Inc., which we refer to as Old ACN. On October 7, 1998,
ACN acquired the Old ACN Assets and assumed certain liabilities relating to the
Old ACN Assets from DMA Holdings Statutory Trust (the "Old ACN Acquisition").
The purchase price for the Old ACN Acquisition was approximately $66.8 million,
including fees, expenses and certain other adjustments.
On the day prior to the Old ACN Acquisition, DMA Holdings, Inc., a wholly
owned subsidiary of DMA Holdings Statutory Trust, acquired all of the issued
and outstanding stock of Old ACN pursuant to an agreement dated as of June 5,
1998, as amended, whereby Diverse Media Acquisition, Inc., a wholly owned
subsidiary of DMA Holdings, Inc., merged with Old ACN, with Old ACN surviving.
DMA Holdings, Inc. received all of the outstanding shares of Old ACN, and the
former holders of Old ACN shares received cash for their shares. The agreement
included representations and warranties with respect to the condition of the
Old ACN Assets, covenants as to the conduct of business prior to the closing
and various closing conditions.
The Asset Purchase Agreement was entered into pursuant to ACN, as the
assignee of ABRY Partners, Inc. ("ABRY"), exercising its option to purchase the
Old ACN Assets under the terms of letter agreement dated June 5, 1998 between
ABRY and DMA Holdings, Inc. The Asset Purchase Agreement included
representations and warranties with respect to conditions of the Old ACN
Assets, covenants as to the conduct of business prior to the closing and
various closing conditions.
The Merger Transactions. On March 18, 1999, Muzak Limited Partnership, which
we refer to as Old Muzak, merged with and into ACN (the "Merger"). At the time
of the Merger, ACN changed its name to Muzak LLC and ACN Holdings LLC changed
its name to Muzak Holdings LLC ("Holdings"). As of May 3, 1999 beneficial
ownership of Holdings' voting membership units was as follows: ABRY Broadcast
Partners III, L.P. ("ABRY III") and ABRY Broadcast Partners II, L.P. ("ABRY
II", and together with ABRY III, the "ABRY Funds") owned approximately 73.2%;
Capstar owned approximately 22.9% and the Company's management owned
approximately 3.2%.
In connection with the Merger and the purchase of the Omaha affiliate:
. the Company entered into a new senior secured credit facility (the
"Senior Credit Facility") that provides for $135.0 million of term
loans and a $35.0 million revolving credit facility (the "Revolving
Credit Facility") of which $3.4 million was drawn at closing;
. the Company issued the Senior Subordinated Notes;
. Holdings issued approximately $40.0 million of gross proceeds of the
Notes;
. Holdings received an equity investment of approximately $34.9
million, of which approximately $17.9 million reflects cash
contributed by the ABRY Funds, $2.0 million reflects cash contributed
by management and $15.0 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 $5.5 million;
. the Company paid approximately $127.5 million in cash merger
consideration and issued non-voting equity interests to the partners
of Old Muzak;
. the Company completed a tender offer and consent solicitation for the
outstanding 10% Senior Notes due 2003 of Old Muzak;
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. the Company repaid the majority of the other existing debt of Old
Muzak;
. the Company repaid the majority of the existing debt of ACN; and
. we paid our fees and expenses in connection with the foregoing
transactions.
The Business Sound Acquisition. On January 15, 1999, ACN acquired all of the
outstanding stock of Business Sound, Inc. for approximately $4.1 million (the
"Business Sound Acquisition"). The Business Sound Acquisition was financed with
approximately $4.1 million of cash contributed by ABRY III. Business Sound is
the Muzak affiliate for the New Orleans, Louisiana and Mobile, Alabama areas.
During 1998, Business Sound had revenues of approximately $2.3 million.
The MTI Acquisition. On December 31, 1998, Old Muzak acquired certain assets
and liabilities of Music Technologies, Inc. ("MTI"), for approximately $10.0
million (the "MTI Business"). MTI was a national provider of business music.
The MTI Acquisition was financed by borrowings under Old Muzak's credit
facilities. During 1998, the MTI Business produced revenues of approximately
$2.8 million.
The Electro Systems Acquisition. On February 24, 1999, ACN acquired Electro
Systems, the Muzak independent affiliate located in Panama City, Florida for
approximately $0.6 million (plus the assumption of certain debt, which is non-
recourse to the Company). During 1998, Electro Systems would have contributed
approximately $0.1 million to our EBITDA.
The Capstar Broadcasting Acquisitions. On March 18, 1999, Holdings acquired
Capstar Broadcasting's Muzak affiliate territories in Atlanta, Albany and
Macon, Georgia, Ft. Myers, Florida and on May 3, 1999, acquired the Muzak
affiliate territory located in Omaha, Nebraska from Capstar Broadcasting.
Capstar Broadcasting received $20.5 million, comprised of voting membership
units of Holdings valued at $15.0 million and cash consideration of
approximately $5.5 million. During 1998, the Capstar Broadcasting Muzak
affiliates had combined revenues of $11.2 million.
THE EXCHANGE OFFER
This is a summary of material provisions of the Registration Rights
Agreement entered into by and among Muzak Holdings and Muzak Holdings Finance
(the "Holdings Issuers"), the guarantors named therein and the initial
purchasers as of March 18, 1999. It does not purport to be complete and
reference is made to the provisions of the Registration Rights Agreement which
has been filed as an exhibit to the registration statement.
General
In connection with the issuance of the existing notes pursuant to a Purchase
Agreement dated as of March 12, 1999 by and among the Holdings Issuers, the
guarantors named therein and the initial purchasers, the initial purchasers and
their respective assignees became entitled to the benefits of the Registration
Rights Agreement.
The Registration Rights Agreement requires us to file the registration
statement of which this prospectus is a part for a registered exchange offer
relating to an issue of exchange notes identical in all material respects to
the existing notes but containing no restrictive legend. Under the Registration
Rights Agreement, the Holdings Issuers are required to:
. file the registration statement not later than 75 days following the
date of original issuance of the existing notes (the "Issue Date");
. use their reasonable best efforts to cause the registration statement
to become effective no later than 150 days after the Issue Date;
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. use their reasonable best efforts to keep the exchange offer effective
for not less than 30 business days (or longer if required by applicable
law) after the date that notice of the exchange offer is first mailed to
holders of the existing notes; and
. use their reasonable best efforts to consummate the exchange offer on or
prior to the 60th day following the date on which the exchange offer
registration statement is initially declared effective.
The exchange offer being made hereby, if commenced and consummated with the
time periods described above, will satisfy those requirements under the
Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, we will accept any and all existing notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 1999, or such later date and time as to which the exchange offer has been
extended. We will issue $1,000 principal amount of exchange notes in exchange
for each $1,000 principal amount of outstanding existing notes accepted in the
exchange offer. Holders may tender some or all of their existing notes pursuant
to the exchange offer. However, existing notes may be tendered only in integral
multiples of $1,000.
The form and terms of the exchange notes are substantially the same as the
form and terms of the existing notes except that:
. the exchange notes bear a exchange note designation and a different
CUSIP number from the existing notes;
. the exchange notes have been registered under the federal securities
laws and hence will not bear legends restricting the transfer thereof as
the existing notes do; and
. the holders of the exchange notes will generally not be entitled to
rights under the Registration Rights Agreement, which rights generally
will be satisfied when the exchange offer is consummated.
The exchange notes will evidence the same debt as the tendered existing
notes and will be entitled to the benefits of the indenture under which the
existing notes were issued. As of the date of this prospectus, $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 indentures relating to such notes in connection with the
exchange offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Securities Exchange Act of 1934, and the rules
and regulations of the SEC thereunder.
We shall be deemed to have accepted validly tendered existing notes when, as
and if we have given oral or written notice thereof, such notice if given
orally, to be confirmed in writing, to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the
exchange notes from our company.
If any tendered existing notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted existing notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the expiration date.
Holders who tender existing notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of existing
notes pursuant to the exchange offer. We will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
exchange offer. For additional information, please refer to the "--Fees and
Expenses" section of this prospectus.
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Expiration Date; Extensions; Amendments
The expiration date is 5:00 p.m., New York City time, on , 1999, unless
we extend the exchange offer, in which case the expiration date will be the
latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice, such notice if given orally, to be
confirmed in writing, and will issue a press release or other public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right:
. to delay accepting any existing notes, to extend the exchange offer or
to terminate the exchange offer if any of the conditions set forth below
under "conditions" shall not have been satisfied, by giving oral or
written notice, such notice if given orally, to be confirmed in writing,
of such delay, extension or termination to the exchange agent, or
. to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
Procedures for Tendering
Only a registered holder of existing notes may tender such notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the existing notes and any other required documents, or cause The Depository
Trust Company to transmit an agent's message as described below in connection
with a book-entry transfer, to the exchange agent prior to the expiration date.
To be tendered effectively, the existing notes, the Letter of Transmittal or
agent's message and other required documents must be completed and received by
the exchange agent at the address set forth below under "--Exchange Agent"
prior to the expiration date. Delivery of the existing notes may be made by
book entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the exchange agent
prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the existing notes that such participant
has received and agrees:
. to participate in the Automated Tender Option Program ("ATOP");
. to be bound by the terms of the Letter of Transmittal; and
. that we may enforce such agreement against such participant.
By executing the Letter of Transmittal or agent's message, each holder will
make to us the representations set forth above in the fourth paragraph under
the heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by us will constitute
agreement between such holder and the company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal or
agent's message.
The method of delivery of existing notes and the Letter of Transmittal or
agent's message and all other required documents to the exchange agent is at
the election and sole risk of the holder. As an
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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 such holders.
Any beneficial owner whose existing notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. For additional
information, please refer to the "Instructions to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" included with
the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution (as defined below) unless
the existing notes tendered pursuant thereto are tendered by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal,
or for the account of an eligible institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "eligible institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any existing notes listed therein, such notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such notes with the
signature thereon guaranteed by an eligible institution.
If the Letter of Transmittal or any existing notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence to our satisfaction
of their authority to so act must be submitted with the Letter of Transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the existing
notes at the book-entry transfer facility, The Depository Trust Company (the
"book-entry transfer facility"), for the purpose of facilitating the exchange
offer, and subject to the establishment thereof, any financial institution that
is a participant in the book-entry transfer facility's system may make book-
entry delivery of existing notes by causing such book-entry transfer facility
to transfer such existing notes into the exchange agent's account with respect
to the existing notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of the existing notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, unless an agent's message is transmitted to and
received by the exchange agent in compliance with ATOP on or prior to the
expiration date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures, the
tender of such notes will not be valid. Delivery of documents to the book-entry
transfer facility does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered existing notes and withdrawal of tendered
existing notes will be determined by the 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 such
condition is legally waiveable. In the event such 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
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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 such notification. Tender of existing notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any existing notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their existing notes and whose existing notes are
not immediately available, who cannot deliver their existing notes, the Letter
of Transmittal or any other required documents to the exchange agent, or who
cannot complete the procedures for book-entry transfer, prior to the expiration
date, may effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives by facsimile
transmission, mail or hand delivery from such eligible institution a
properly completed and duly executed Notice of Guaranteed Delivery,
setting forth the name and address of the holder, the certificate
number(s) of such existing notes and the principal amount of existing
notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the Letter of Transmittal, or facsimile
thereof, or, in the case of a book-entry transfer, an agent's message,
together with the certificate(s) representing the existing notes, or a
confirmation of book-entry transfer of such notes into the exchange
agent's account at the Book-Entry Transfer Facility, and any other
documents required by the Letter of Transmittal will be deposited by the
eligible institution with the exchange agent; and
(c) the certificate(s) representing all tendered existing notes in proper
form for transfer, or a confirmation of a book-entry transfer of such
existing notes into the exchange agent's account at the book entry
transfer facility, together with a Letter of Transmittal, of facsimile
thereof, properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an
agent's message, are received by the exchange agent within three New
York Stock Exchange trading days after the expiration date of the
exchange offer.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of existing notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date of the exchange offer.
To withdraw a tender of existing notes in the exchange offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the exchange agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer. Any such notice
of withdrawal must:
. specify the name of the person having deposited notes to be withdrawn
(the "Depositor");
. identify the notes to be withdrawn, including the certificate number(s)
and principal amount of such notes, or, in the case of existing notes
transferred by book-entry transfer, the name and number of the account
at the book entry transfer facility to be credited;
. be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such notes were tendered, including
any required signature guarantees, or be accompanied by
27
<PAGE>
documents of transfer sufficient to have the trustee with respect to the
existing notes register the transfer of such notes into the name of the
person withdrawing the tender; and
. specify the name in which any such existing notes are to be registered,
if different from that of the Depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us and shall be final and
binding on all parties. Any existing notes so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer and no exchange
notes will be issued with respect thereto unless the existing notes so
withdrawn are validly retendered. Any existing notes which have been tendered
but which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn existing
notes may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, the 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 such existing notes, if:
. any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in the Holdings Issuers' sole 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'
sole 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 sole discretion, deem necessary for the
consummation of the exchange offer as contemplated hereby.
If the Holdings Issuers determine, in their sole 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 such existing notes as described in "--Withdrawal
of Tenders" above;
. waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered existing notes which have not been
withdrawn.
28
<PAGE>
Exchange Agent
State Street Bank and Trust Company has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
By Registered or Certified Mail By Hand:
or Overnight Courier: [ ]
[ ]
By Facsimile.
(For Eligible Institutions Only)
( ) -
Confirm by Telephone:
( ) -
[ ]
Delivery to an address other than set forth above will not constitute a
valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by the 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 therewith.
The Holdings Issuers will pay the cash expenses to be incurred in connection
with the exchange offer. Such expenses include fees and expenses of the
exchange agent and trustee, accounting and legal fees and printing costs, among
others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
existing notes, 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.
Consequences of Failure to Exchange
The existing notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such existing
notes may be resold only:
. to the Holdings Issuers, upon redemption thereof or otherwise;
. so long as the existing notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person inside the United States whom
the seller reasonably believes is a qualified institutional buyer within
the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A;
. in accordance with Rule 144 under the Securities Act;
. outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act;
29
<PAGE>
. pursuant to another exemption from the registration requirements of the
Securities Act, and based upon an opinion of counsel reasonably
acceptable to the Holdings Issuers; or
. pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws of
any state of the United States.
Resale of the exchange notes
With respect to resales of exchange notes, based on interpretations by the
staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder or other person who receives exchange notes, whether or
not such person is the holder, other than a person that is an "affiliate" of
the Holdings Issuers within the meaning of Rule 405 under the Securities Act,
in exchange for existing notes in the ordinary course of business and who is
not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
exchange notes, will be allowed to resell the exchange notes to the public
without further registration under the Securities Act and without delivering to
the purchasers of the exchange notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires exchange notes in the exchange offer for the purpose of distributing
or participating in a distribution of the exchange notes, such holder cannot
rely on the position of the staff of the SEC enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that receives
exchange notes for its own account in exchange for existing notes, where such
existing notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such exchange notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder who participates in the exchange offer will be required
to represent to the Holdings Issuers in the Letter of Transmittal that:
. any exchange notes received by it will be acquired in the ordinary
course of its business;
. at the time of the consummation of the exchange offer such holder will
have no arrangement or understanding with any person to participate in
the distribution of the exchange notes;
. such holder is not an "affiliate" of any Issuer within the meaning of
the Securities Act; and
. any additional representation that in the written opinion of counsel to
the Holdings Issuers are necessary under then-existing interpretations
of the SEC in order for the exchange registration statement to be
declared effective.
30
<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 $127.5 million in cash merger consideration;
. to repurchase the outstanding 10% senior notes due 2003 of Old Muzak for
approximately $100.0 million and to pay a tender premium for these notes
of approximately $10.7 million;
. to repay approximately $17.6 million of other existing debt of Old
Muzak;
. to repay approximately $42.4 million to ABRY III on a subordinated note
made in connection with the Old ACN Acquisition and the accrued interest
thereon (the "ABRY Subordinated Note");
. to pay cash consideration of approximately $5.5 million and equity
consideration of approximately $15.0 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 $11.5 million.
For information on the interest rates and maturities of the existing debt of
Old Muzak and the existing debt of ACN that was repaid, please see note 7 of
the notes to the audited financial statements of Old Muzak.
We will not receive any cash proceeds from the issuance of the exchange
notes in the exchange offer. In consideration for issuing these notes as
contemplated in this prospectus, we will receive existing notes in like
principal amount, the terms of which are the same in all material respects to
the exchange notes. The existing notes surrendered in exchange for the exchange
notes will be retired and canceled and not reissued. Accordingly, the issuance
of the exchange notes will not result in any increase or decrease in our debt.
31
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the actual
capitalization of Holdings and the pro forma capitalization of Holdings, after
giving effect to the Merger and the completed acquisitions (the "Transactions")
You should read the information contained in the following table in conjunction
with "Use of Proceeds," "Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements of Old Muzak and ACN and their related notes.
<TABLE>
<CAPTION>
December 31,
1998
----------------
Unaudited
Actual Pro Forma
------ ---------
(in millions)
<S> <C> <C> <C>
Revolving credit facility................................ $ -- $ 3.4
Senior term loans........................................ -- 135.0
Senior Subordinated Notes................................ -- 115.0
Senior discount notes offered hereby..................... -- 40.0
Other debt............................................... 42.7 7.0(a)
----- ------
Total debt............................................. 42.7 300.4(b)
Members' interest........................................ 26.3 65.4(c)
----- ------
Total capitalization................................... $69.0 $365.8
===== ======
</TABLE>
- --------
(a) Other debt includes the following: (i) non-compete agreement of $2.2
million, (ii) $2.4 million of debt of Electro Systems that is non-recourse
to Holdings, (iii) capital lease obligations of $1.4 million, (iv) related
party note payable of $0.9 million in connection with an employment
agreement, and (v) other mortgage obligations of $0.1 million.
(b) Total debt that is recourse to Holdings equals $298.0 million and excludes
$2.4 million of debt of Electro Systems (an Unrestricted Subsidiary under
the terms of the indenture governing the exchange notes) that is non-
recourse to Holdings.
(c) Unaudited pro forma members' interest includes the following contributions
made to Holdings and the net loss of approximately $1.0 million generated
by ACN for the period from October 7, 1998 through December 31, 1998:
(i) The ABRY Funds' contributions of $47.9 million, consisting of $25.3
million of aggregate cash contributions made in connection with the
acquisition of ACN, $17.9 million made in connection with the
Merger, $4.1 million made in connection with the Business Sound
Acquisition, and $0.6 million made in connection with the Electro
Systems Acquisition,
(ii) the issuance of membership interests valued at $15.0 million to be
made in connection with the acquisitions of the Capstar
Broadcasting Muzak affiliates and
(iii) management contributions of $3.5 million, consisting of $1.5
million contributed in connection with the capitalization of ACN
and $2.0 million contributed in connection with the Merger.
32
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following tables on pages 34 and 36 have been prepared by Holdings and
are based on the historical financial statements of ACN, Old ACN, Old Muzak,
the Capstar Broadcasting Muzak affiliates, Business Sound, MTI, and Electro
Systems and the assumptions and adjustments described in the accompanying
notes.
The unaudited pro forma statements of operations and unaudited pro forma
financial data (a) give effect to the Transactions as 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 Transactions
had occurred as of the date indicated or what such results of operations or
financial position will be for future periods and (c) do not give effect to
certain non-recurring charges or cost savings expected to result from the
Transactions.
The following unaudited pro forma balance sheet was prepared as if the
Transactions had occurred on December 31, 1998. The unaudited pro forma balance
sheet reflects the preliminary allocations of purchase price to tangible and
intangible assets and liabilities. The final allocation of purchase price, and
the resulting depreciation and amortization expense in the accompanying
unaudited pro forma statement of operations, may differ from the preliminary
estimates due to the final allocation being based on (a) actual closing date
amounts of assets and liabilities and (b) actual appraised values of property
and equipment and any identifiable intangible assets.
The unaudited pro forma financial data should be read in conjunction with
the financial statements of ACN, Old ACN and Old Muzak and the respective
accompanying notes thereto included elsewhere in this prospectus.
Management believes that the unaudited pro forma financial data is a
meaningful presentation because 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 Transactions. The following
information is qualified by reference to and should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the "Selected Historical Financial and Other
Data" for ACN, Old ACN and Old Muzak and the ACN, Old ACN and Old Muzak audited
financial statements and the respective notes thereto included elsewhere in
this prospectus.
Prior to March 18, 1999, the Capstar Broadcasting Muzak affiliates operated
as part of Capstar Broadcasting (other than the Omaha Affiliate, which operated
as part of Triathlon Broadcasting Company). The tables following this page sets
forth selected historical carve-out financial data for the Capstar Broadcasting
Muzak affiliates. The historical carve-out financial data presented on the
following pages reflect periods during which the Capstar Broadcasting Muzak
affiliates did not operate as an independent company and, accordingly, certain
allocations were made in preparing such carve-out financial data. Therefore,
such carve-out financial data may not reflect the results of operations or the
financial condition which would have resulted if the Capstar Broadcasting Muzak
affiliates had operated as a separate independent company during such periods,
and are not necessarily indicative of the future results of operations or
financial position of the Capstar Broadcasting Muzak affiliates.
Prior to December 31, 1998, the MTI Business operated as part of MTI. The
historical carve-out financial data presented on the following pages reflect
periods during which the MTI Business did not operate as an independent company
and, accordingly, certain allocations were made in preparing such carve-out
financial data. Therefore, such carve-out financial data may not reflect the
results of operations or the financial condition which would have resulted if
the MTI Business had operated as a separate independent company, and are not
necessarily indicative of the future results of operations or financial
position of the MTI Business.
33
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
October 7, January 1,
1998 1998
through through
December 31, October 6, Year ended
1998 1998 Year ended December 31, 1998 December 31, 1998
------------ ----------- ------------------------------------- -----------------
Georgia
and
Florida
Old Old Capstar Other Pro Forma Unaudited
ACN (1) ACN (1) Muzak Affiliates Acquisitions (2) Adjustments (3) Pro Forma
------------ ----------- -------- ---------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 5,914 $18,917 $ 99,748 $9,845 $7,669 $ (3,509)(a,b,d) $138,584
Cost of sales........... 2,556 8,206 42,509 3,970 4,384 (3,547)(a,b,d) 58,078
------- ------- -------- ------ ------ -------- --------
Gross profit........... 3,358 10,711 57,239 5,875 3,285 38 80,506
Selling, general and
administrative ........ 1,794 7,245 36,536 3,349 2,711 (3,346)(a,b,c,e) 48,289
Depreciation and
amortization........... 1,683 4,372 21,563 1,931 713 4,470 (f) 34,732
------- ------- -------- ------ ------ -------- --------
Operating (loss)
income ................ (119) (906) (860) 595 (139) (1,086) (2,515)
Interest expense, net... (1,033) (2,520) (10,992) (30) (397) (15,834)(g) (30,806)
Other income (expense),
net.................... 5 (2) (137) 1 17 164 (b) 48
------- ------- -------- ------ ------ -------- --------
Net (loss) income....... $(1,147) $(3,428) $(11,989) $ 566 $ (519) $(16,756) $(33,273)
======= ======= ======== ====== ====== ======== ========
</TABLE>
see notes on the following page
34
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(1) ACN acquired the Old ACN Assets on October 7, 1998. Prior to the
acquisition, ACN had no operations.
(2) Includes the unaudited historical results of operations of Business Sound,
the MTI Business, the Omaha Capstar Broadcasting Muzak affiliate and
Electro Systems.
(3) The pro forma adjustments represent those adjustments necessary to present
the operating results of Holdings as if the Transactions occurred on
January 1, 1998. These adjustments include the following:
(a) adjustments to increase revenues and cost of sales by approximately
$1,159,000 and $141,000, respectively, and eliminate approximately
$304,000 of selling, general and administrative expenses not
transferred to Old Muzak, to reflect the acquisitions consummated by
Old Muzak during the year as if they occurred on January 1, 1998,
(b) eliminating revenues, cost of sales, selling, general and
administrative expenses and other expense, net of approximately
$1,678,000, $725,000, $1,679,000 and $164,000 respectively, for EAIC, a
formerly wholly owned subsidiary of Old Muzak. The spin-off of EAIC was
completed in March 1999, prior to consummation of the Merger,
(c) increasing selling, general and administrative expenses by
approximately $2,180,000 in order to conform the accounting policy for
sales commissions of Old Muzak with that of ACN,
(d) eliminating intercompany revenues and cost of sales of approximately
$2,990,000 and $2,963,000, respectively (primarily for royalty fees and
equipment sales) for transactions between (i) Old Muzak and (ii) ACN
and the entities acquired by ACN,
(e) decreasing selling, general and administrative expenses by
approximately (i) $2,192,000 in order to account for certain costs not
assumed pursuant to the MTI Acquisition and (ii) $1,351,000 in order to
account for seller transaction costs related to the sales of Old ACN
and Old Muzak,
(f) increasing depreciation and amortization expense due to the excess of
fair value over historical cost generated from the Transactions
(dollars in thousands), and
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
Pro forma depreciation and amortization.................. $34,732
Historical depreciation and amortization................. 30,262
-------
Pro forma adjustment..................................... $ 4,470
=======
</TABLE>
(g) increasing interest expense due to the debt incurred in conjunction
with the Transactions (dollars in thousands).
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C> <C>
Historical interest expense, net....................... $ 14,972
--------
Senior Credit Facility (assuming a weighted average
rate of 8.9%) (1)..................................... $ 12,292
Senior Discount Notes.................................. 5,362
Senior Subordinated Notes.............................. 11,356
Other debt............................................. 646
Amortization of deferred financing fees................ 1,150
--------
Pro forma interest expense, net........................ 30,806
--------
Pro forma interest adjustment.......................... $ 15,834
========
</TABLE>
--------
(1) If the assumed interest rate on the Senior Credit Facility
increases by 0.125%, total pro forma interest expense would
increase by $173,000.
35
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Georgia
and
Florida
Old Capstar Other Pro Forma Unaudited
ACN Muzak Affiliates Acquisitions Adjustments Pro Forma
------- -------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Currents assets:
Cash and cash equivalents..... $ 1,293 $ 2,971 $ 1,358 $ 499 $ 313,324 (a) $ --
(4,241)(b)
(315,204)(c)
Accounts receivable, net...... 1,764 21,130 2,469 609 -- 25,972
Inventory .................... 1,323 5,790 664 281 -- 8,058
Prepaids and other current
assets....................... 125 3,640 90 20 -- 3,875
------- -------- ------- ------ --------- --------
Total current assets........ 4,505 33,531 4,581 1,409 (6,121) 37,905
Property and equipment, net..... 17,499 46,070 6,815 872 47,604 (b) 118,860
Deferred financing costs........ -- -- -- -- 11,500 (c) 11,500
Intangible assets, net.......... 49,039 42,527 13,725 1,377 111,078 (b) 228,457
10,711 (c)
Other assets.................... 1,884 1,003 834 383 -- 4,104
------- -------- ------- ------ --------- --------
Total assets................ $72,927 $123,131 $25,955 $4,041 $ 174,772 $400,826
======= ======== ======= ====== ========= ========
Current liabilities:
Revolving credit facility..... $ -- $ 12,041 $ -- $ -- $ 3,429 (a) $ 3,429
(12,041)(c)
Current portion of long-term
debt......................... 42,217 3,582 -- -- (1,829)(b) 1,570
(42,400)(c)
Accounts payable and accrued
expenses..................... 3,964 19,521 616 637 -- 24,738
Advance billings.............. -- 5,492 -- -- -- 5,492
------- -------- ------- ------ --------- --------
Total current liabilities... 46,181 40,636 616 637 (52,841) 35,229
Senior credit facility.......... -- -- -- -- 135,000 (a) 135,000
Senior subordinated notes....... -- -- -- -- 115,000 (a) 115,000
Senior discount notes........... -- -- -- -- 39,996 (a) 39,996
Other long-term debt............ 486 102,790 -- 2,623 138,104 (b) 5,451
(238,552)(c)
Other liabilities............... -- 4,770 -- -- -- 4,770
Redeemable preferred interests.. -- 10,524 -- -- (10,524)(b) --
------- -------- ------- ------ --------- --------
Total liabilities........... 46,667 158,720 616 3,260 126,183 335,446
Equity/(deficit)................ 26,260 (35,589) 25,339 781 19,899 (a) 65,380
28,690 (d)
------- -------- ------- ------ --------- --------
Total liabilities and equity $72,927 $123,131 $25,955 $4,041 $ 174,772 $400,826
======= ======== ======= ====== ========= ========
</TABLE>
see notes on the following page
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
(a) To record the sources of cash in the aggregate of $313,324,000
generated from the net proceeds from (i) the Revolving Credit Facility
of $3,429,000, (ii) the term loans under the Senior Credit Facility of
$135,000,000, (iii) the issuance by the Company of the Senior
Subordinated Notes of $115,000,000, (iv) the issuance by Holdings of
the Notes of $39,996,000 and (v) cash contributed to Holdings of
$19,899,000 including $17,899,000 from a new equity contribution from
the ABRY Funds, and a new equity contribution from Old Muzak management
of $2,000,000.
(b) To reflect the financial impact of the Transactions on the balance
sheet of Holdings as of December 31, 1998: (dollars in thousands)
<TABLE>
<CAPTION>
Georgia and
Florida
Old Capstar Business Electro
Muzak Affiliates Sound Systems Total
-------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Purchase Price:
Cash paid at closing... $245,119 $ 5,474 $4,100 $ 550 $255,243
Debt assumed at
closing............... -- -- -- 2,400(1) 2,400
Issuance of members'
interest in Holdings.. -- 15,010 -- -- 15,010
-------- ------- ------ ------ --------
Fair value of the
Transactions........... $245,119 $20,484 $4,100 $2,950 $272,653
======== ======= ====== ====== ========
Allocation of Purchase
Price:
Historical book value
of the net assets
acquired ............ $ 77,116 $25,963 $2,190 $ 590 $105,859
Cash not acquired..... (2,971) (1,358) -- 88 (4,241)
Redeemable preferred
interests............ 10,524 -- -- -- 10,524
Debt not assumed...... 1,829 -- -- -- 1,829
-------- ------- ------ ------ --------
Historical cost basis
of net assets
acquired.............. 86,498 24,605 2,190 678 113,971
Identified value of
property and equipment
in excess of
historical cost....... 47,586 (1,236) 572 682 47,604
Identified value of
intangible assets in
excess of historical
cost.................. 111,035 (2,885) 1,338 1,590 111,078
-------- ------- ------ ------ --------
$245,119 $20,484 $4,100 $2,950 $272,653
======== ======= ====== ====== ========
</TABLE>
(1) Debt assumed of $2,400,000 in connection with the Electro Systems
Acquisition, which is non-recourse to the Company.
(c) To reflect the uses of cash in the aggregate of $315,204,000 consisting
of (i) the cash consideration paid in conjunction with the Merger and
the acquisition of the Capstar Broadcasting Muzak affiliates of
$250,593,000, of which $12,041,000 was used to pay the existing
revolving credit facility at Old Muzak, (ii) the payment of existing
ACN indebtedness, plus accrued interest, of $42,400,000, (iii) fees and
expenses of $11,500,000 incurred in conjunction with the Transactions
and (iv) tender premium on Old Muzak's notes of $10,711,000.
(d) The pro forma adjustment of $28,690,000 to equity/(deficit) represents
(i) the issuance of members' interest in Holdings of $15,010,000 in
connection with the acquisition of the Capstar Broadcasting Muzak
affiliates, (ii) the elimination of historical deficit, net for the
acquired entities of $9,469,000 and (iii) additional cash contributions
by the ABRY Funds of $4,211,000 consisting of $3,661,000 and $550,000
for the Business Sound Acquisition and the Electro Systems Acquisition,
respectively.
37
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
ACN and Old ACN
The selected historical financial and other data of Old ACN set forth below
as of and for each of the two years ended December 31, 1997 have been derived
from the consolidated financial statements of Old ACN which have been audited
by Deloitte & Touche LLP, independent auditors. The selected historical
financial and other data of Old ACN as of October 6, 1998 and for the period
from January 1, 1998 through October 6, 1998 have been derived from the
consolidated financial statements of Old ACN which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The selected historical
financial and other data of ACN as of December 31, 1998 and for the period from
October 7, 1998 through December 31, 1998 have been derived from the financial
statements of ACN which have been audited by PricewaterhouseCoopers LLP,
independent accountants. Certain financial information and the auditor's
reports thereon are included elsewhere in this offering memorandum. The audited
consolidated financial statements of Old ACN as of December 31, 1996 and 1997
and for each of the two years ended December 31, 1997 and as of October 6, 1998
and for the period from January 1, 1998 through October 6, 1998 are included
elsewhere in this prospectus. The audited financial statements of ACN as of
December 31, 1998 and for the period from October 7, 1998 through December 31,
1998 are included elsewhere in this prospectus.
On May 30, 1997, Old ACN completed a business combination with SunCom
Communications L.L.C., a Delaware limited liability company. Under the terms of
the business combination, Old ACN, through a wholly owned subsidiary, acquired
the assets and business of SunCom, in exchange for 2.1 million shares of Old
ACN's common stock. The business combination was accounted for as a reverse
acquisition under GAAP. As a result, SunCom was considered to be the acquiring
legal entity and Old ACN the acquired entity for accounting purposes, even
though Old ACN was the surviving legal entity. As a result of this reverse
acquisition accounting treatment, (i) the historical consolidated financial
statements of Old ACN for the periods prior to the date of the business
combination are no longer the historical consolidated financial statements of
Old ACN, and therefore, are no longer presented or relevant; (ii) the
historical consolidated financial statements of Old ACN prior to the date of
the business combination are those of SunCom; (iii) all references to the
consolidated financial statements of Old ACN apply to the historical
consolidated financial statements of SunCom prior to the business combination
and to the consolidated financial statements of Old ACN subsequent to the
business combination.
<TABLE>
<CAPTION>
Year Ended Period from Period from
December 31, January 1, 1998 October 7, 1998
---------------- through through
1996 1997 October 6, 1998 December 31, 1998
------- ------- --------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Statement of operations
data
Revenues.................. $10,122 $17,552 $18,917 $ 5,914
Cost of revenues.......... 3,412 7,169 8,206 2,556
------- ------- ------- -------
Gross profit............ 6,710 10,383 10,711 3,358
Selling, general and
administrative........... 2,984 5,113 7,245 1,794
Depreciation and
amortization............. 2,356 4,057 4,372 1,683
------- ------- ------- -------
Operating income (loss)... 1,370 1,213 (906) (119)
Interest expense, net..... (1,915) (2,649) (2,520) (1,033)
Other income (expense),
net...................... -- 33 (2) 5
------- ------- ------- -------
Net loss.................. $ (545) $(1,403) $(3,428) $(1,147)
======= ======= ======= =======
Other financial data
EBITDA (1)................ $ 3,726 $ 5,270 $ 3,466 $ 1,564
EBITDA margin (2)......... 36.8% 30.0% 18.3% 26.4%
Capital expenditures...... $ 1,344 $ 296 $ 3,538 $ 1,308
Ratio of earnings to fixed
charges (3).............. -- -- -- --
Balance sheet data (end of
period)
Cash and cash
equivalents.............. $ 133 $ 680 $ 390 $ 1,293
Total assets.............. 23,104 45,306 43,854 72,927
Long-term obligations,
including current
portion.................. 18,666 32,952 34,658 42,703
Net equity................ 2,548 8,178 4,758 26,260
</TABLE>
see notes to the Selected Historical Financial and Other Data
38
<PAGE>
Old Muzak
The selected historical financial and other data of Old Muzak set forth
below as of and for each of the five years in the period ended December 31,
1998 have been derived from the consolidated financial statements of Old Muzak
which have been audited by Deloitte & Touche LLP, independent auditors. The
following information is qualified by reference to and should be read in
conjunction with the "Summary of Unaudited Pro Forma Financial 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>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
-------- ------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of operations data
Revenues..................... $ 83,416 $86,881 $ 86,811 $ 91,204 $ 99,748
Cost of revenues............. 37,098 38,360 37,026 40,709 42,509
-------- ------- -------- -------- --------
Gross profit............... 46,318 48,521 49,785 50,495 57,239
Selling, general and
administrative.............. 28,699 28,496 31,659 33,464 36,536
Depreciation and
amortization................ 17,833 18,291 20,219 20,668 21,563
-------- ------- -------- -------- --------
Operating (loss)............. (214) 1,734 (2,093) (3,637) (860)
Interest (expense), net...... (6,887) (7,354) (7,674) (9,758) (10,992)
Other (expense), net......... (82) (94) (434) (40) (137)
-------- ------- -------- -------- --------
Net loss before extraordinary
item........................ (7,183) (5,714) (10,201) (13,435) (11,989)
Extraordinary loss on write-
off of deferred financing
and debt discount........... -- -- (3,713) -- --
Extraordinary gain on
retirement of redeemable
preferred partnership
interests................... -- -- 3,091 -- --
-------- ------- -------- -------- --------
Net loss..................... (7,183) (5,714) (10,823) (13,435) (11,989)
Redeemable preferred return.. (933) (1,029) (916) (400) (619)
-------- ------- -------- -------- --------
Net loss attributable to
general and limited
partners.................... $ (8,116) $(6,743) $(11,739) $(13,835) $(12,608)
======== ======= ======== ======== ========
Other financial data
EBITDA (1)................... $ 17,619 $20,025 $ 18,186 $ 17,233 $ 22,920
EBITDA margin (2)............ 21.1% 23.0% 20.9% 18.9% 23.0%
Capital expenditures......... $ 13,804 $12,757 $ 16,337 $ 19,572 $ 21,426
Ratio earnings to fixed
charges (3)................. -- -- -- -- --
Balance sheet data (end of
period)
Cash and cash equivalents.... $ 1,445 $ 1,115 $ 25,686 $ 8,524 $ 2,971
Total assets................. 103,092 96,439 119,042 104,395 123,131
Long-term obligations,
including current portion... 56,833 53,005 101,102 101,044 118,413
Partners' capital (deficit).. 7,943 1,373 (10,078) (26,095) (33,578)
</TABLE>
see notes on the following page
39
<PAGE>
NOTES TO THE SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(1) Represents net income before interest, income taxes, depreciation and
amortization, gain on sale of assets, other income and non-cash expenses.
Old Muzak's EBITDA excludes non-cash compensation of approximately $60,000,
$202,000, $2,217,000 for the three years ended December 31, 1998.
Management believes that EBITDA is a meaningful measure of performance and
it is commonly used in similar industries to analyze and compare companies
on the basis of operating performance, leverage and liquidity. However,
EBITDA is not intended to be a performance measure that should be regarded
as an alternative to, or more meaningful than, either operating income or
net income as an indicator of operating performance or cash flows as a
measure of liquidity, as determined in accordance with GAAP. EBITDA, as
computed by management, is not necessarily comparable to similarly titled
amounts of other companies. See financial statements, including Statements
of Cash Flows.
(2) Represents EBITDA as a percentage of revenues.
(3) The ratio of earnings to fixed charges represents the number of times fixed
charges were covered by net income adjusted for provision (benefit) for
income taxes and extraordinary gains (losses) and fixed charges. Fixed
charges consist of interest expense, net and a portion of operating leases
rental expense deemed to be representative of the interest factor. Old
Muzak's earnings were inadequate to cover fixed charges by approximately
$8,100,000, $6,700,000, $11,700,000, $13,800,000 and $12,600,000 for each
of the five years ended December 31, 1998, respectively. Old ACN's earnings
were inadequate to cover fixed charges by approximately $545,000,
$1,403,000, and $3,428,000 for each of the two years ended December 31,
1997 and for the period from January 1, 1999 through October 6, 1998,
respectively. ACN's earnings were inadequate to cover fixed charges by
$1,147,000 for the period from October 7, 1998 through December 31, 1998.
On a pro forma basis, Holdings' earnings would have been inadequate to
cover fixed charges by approximately $33,273,000 for the year ended
December 31, 1998.
40
<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 ACN, Old ACN and Old Muzak and the related
notes thereto appearing elsewhere in this prospectus. This prospectus contains
certain forward-looking statements that involve risks and uncertainties. Future
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
set forth under "Risk Factors" and elsewhere in this offering memorandum.
General
ACN was formed in 1998 to acquire and operate Muzak independent franchises.
On October 7, 1998, ACN acquired the Old ACN Assets. As a result of this
transaction, ACN acquired the eight independent affiliate territories in the
Baltimore, Kansas City, St. Louis, Jacksonville, Phoenix, Charlotte,
Hillsborough, and Fresno areas. On March 18, 1999, Old Muzak merged with and
into ACN. At the time of the Merger, ACN will change its name to Muzak LLC.
Additionally, ACN and Old Muzak each have entered into a number of other
acquisition transactions. On January 15, 1999, ACN acquired all of the
outstanding stock of Business Sound. Business Sound is the Muzak affiliate for
the New Orleans, Louisiana and Mobile, Alabama areas. On December 31, 1998, Old
Muzak acquired certain assets and liabilities of MTI, a national provider of
business music. On February 24, 1999, ACN acquired all of the outstanding stock
of Electro Systems, the Muzak independent affiliate located in Panama City,
Florida. On March 18, 1999, Holdings acquired the Georgia and Florida Capstar
Broadcasting Muzak affiliates and on May 3, 1999 acquired the Omaha Capstar
Broadcasting Muzak affiliate.
In connection with these Transactions Muzak plans to implement certain
structural and operating changes to the businesses it has and may acquire
consistent with its acquisition strategy. Our strategy recognizes the operating
leverage inherent to our business. Through acquisitions, we expect to realize
cost savings by eliminating duplicative sales and marketing, programming,
distribution technical and other general administrative expenses. See "Pro
Forma Operating Results".
Business Overview
Muzak is the world's leading provider of business music programming.
Together with our independent affiliates, we serve an installed base of
approximately 250,000 business locations, and we believe that we have a market
share of approximately 55% of the estimated number of U.S. business locations
currently subscribing to business music programming. Together with our
independent affiliates, we have nationwide coverage. Our owned affiliates
operate in 8 of the 10 largest DMAs and 17 of the largest 25 DMAs. On a pro
forma basis, we generated revenues of $36.3 million and Adjusted EBITDA of
$10.4 million for the quarter ended December 31, 1998 and revenues of $138.6
million and Adjusted EBITDA of $40.1 million for the year ended December 31,
1998.
We offer three products. Our core product is Audio Architecture, and we
offer two complementary products, Audio Marketing and Video Imaging. We believe
that our clients use our products because they recognize them as a key element
in establishing a desired business environment, in promoting their corporate
identities and in strengthening their brand images. We assist our clients in
selecting programming that is appropriate for their business and consistent
with the experiences they are trying to create for their customers. We believe
our products are highly cost effective, providing an important business tool to
our clients at a low monthly cost.
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
41
<PAGE>
offices, manufacturing facilities, medical centers and HMOs, among others.
Approximately 70% of our client base is comprised of local clients and the
remaining 30% is comprised of national and regional chains. Our national
clients include The Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass
Hut, Burger King, Taco Bell, Nordstrom, Citibank, Travelers and Prudential,
among many others. Our regional clients include A&P, Kroger, Rite Aid, Kaiser
Permanente, PetsMart, Dillards and Wells Fargo, among many others.
Revenues and Expenses
We derive the majority of our revenues from the sale of our business music
products. Our core product is Audio Architecture and our two complementary
products are Audio Marketing and Video Imaging. These revenues are generated
from our clients, who pay us monthly subscription fees under noncancelable five
year contracts. For example, our typical Audio Architecture client generates a
monthly net subscription fee of approximately $45 per client location, which
typically includes the provision of music receiving equipment for use at the
client's location. We believe that approximately 52% of revenues from the sale
of our products are generated by our 45 owned affiliate territories. The
remaining 48% are generated by our 123 independent affiliate territories.
We also derive revenues from the sale and lease of audio system-related
products, principally sound systems and intercoms, to business music clients
and other clients. In addition, we sell electronic equipment, such as
proprietary tape playback equipment and other audio and video equipment to our
independent affiliates to support their sale of our business music services.
Installation, service and repair revenues consist principally of revenues from
the installation of sound systems and other equipment that is not expressly
part of a business music contract, such as paging, security and drive-through
systems. These revenues also include revenue from the installation, service and
repair of equipment installed under a business music contract. Music contract
installation revenues are deferred and recognized over the term of the
respective contracts.
The cost of revenues 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. Such
expenses also include personnel and other costs in connection with the
Company's headquarters functions. Sales commissions are capitalized and charged
as selling, general and administrative expense over the typical contract term
of five years. If a client contract is terminated early, the unamortized sales
commission is typically recovered from the salesperson.
Muzak was organized as a limited liability company as a wholly-owned
subsidiary of Holdings. For federal (and some state) income tax purposes, the
separate existence of Muzak is ignored, and the results of its operations are
included in the operations of Holdings.
Holdings was organized as a limited liability company. Holdings is taxed as
a partnership for federal (and some state) income tax purposes. As such,
Holdings does not pay federal (and where applicable, state) income taxes on
income from its operations (including the operations of Muzak). Rather, any
such income is reported as the taxable income of the owners of Holdings, in
amounts allocated to them as required by the limited liability company
agreement of Holdings.
42
<PAGE>
Pro Forma Operating Results
As more fully described within the notes to the summary unaudited pro forma
financial data, as a result of the Transactions, certain pro forma adjustments
were recorded in order to present the operating results as if the Transactions
occurred on January 1, 1998. Such adjustments primarily consist of: (a)
including the estimated historical results of operations for the various
acquisitions consummated by Old Muzak during the year ended December 31, 1998
as if such acquisitions occurred on January 1, 1998, (b) conforming the
accounting policy for sales commissions of Old Muzak with that of ACN (c)
eliminating intercompany revenues and cost of sales, (d) eliminating certain
costs not assumed in connection with the MTI Acquisition, and (e) eliminating
seller transaction costs related to the sales of Old ACN and Old Muzak. These
pro forma adjustments resulted in a $1.3 million and $5.7 million increase to
EBITDA for the three months and year ended December 31, 1998, respectively.
Management intends to implement certain structural and operating changes to
the acquired entities. The following adjustments eliminate the impact of
certain non-recurring charges and reflect the estimated impact of management's
operational and organizational changes to its existing business and to the
businesses it has and expects to acquire.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 December 31, 1998
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Pro forma EBITDA.................... $34,434 $ 9,116
------- -------
Adjustments:
Galaxy IV non-recurring costs (i)... 2,113 76
Old Muzak non-recurring expenses
(ii)............................... 1,454 784
ACN restructuring (iii)............. 660 --
Business Sound duplicative expenses
(iv)............................... 228 110
MTI duplicative expenses (v)........ 346 86
Cost savings adjustments (vi)....... 851 213
------- -------
Total additional adjustments.... 5,652 1,269
------- -------
Adjusted pro forma EBITDA: $40,086 $10,385
======= =======
</TABLE>
--------
(i) Represents the non-recurring charges of $1,548,000 at Old Muzak and
$565,000 at ACN for the year ended December 31, 1998 and $76,000 at
Old Muzak for the three months ended December 31, 1998 due to costs
associated with repointing satellite dishes at client locations as a
result of the failure in May 1998 of the Galaxy IV satellite.
(ii) Represents one-time and non-recurring expenses incurred by Old
Muzak, including: (a) payments made to an outside marketing and
design firm associated with the repositioning of our brand,
including the design of a new logo and marketing materials and the
creation of our CD ROM sales tool; (b) payments made to outside
consultants related to the design and construction of our web site,
(c) costs associated with temporarily servicing client locations
acquired from a former competitor through a third party music
service while converting these acquired locations to the Muzak
service; and (d) certain legal expenses and the elimination of the
general partner's management fee.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 December 31, 1998
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Costs of brand repositioning........ $ 418 $105
Web site design and construction.... 101 91
Expenses of converting acquired
client locations................... 408 287
Non-recurring legal expenses and Old
Muzak general partner's fees....... 527 301
------ ----
$1,454 $784
====== ====
</TABLE>
(iii) Represents the restructuring actions completed in connection with
the Old ACN Acquisition, including (a) the termination of seven
employees; (b) the restructuring of compensation for certain
corporate employees and (c) the closure of redundant offices.
43
<PAGE>
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1998 December 31, 1998
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Employee terminations and
restructuring of compensation..... $385 $--
Closing of redundant offices....... 275 --
---- ----
$660 $--
==== ====
</TABLE>
(iv) Represents the elimination of the expense associated with certain
executive functions at Business Sound that are now being performed
by the management of ACN.
(v) Represents the elimination of duplicative general corporate expenses
as a result of the MTI Acquisition, including rent, legal and
accounting expenses.
(vi) Represents the elimination of duplicative sales and marketing,
finance, administrative and technical support costs to be realized
from the Merger.
After giving effect to the foregoing considerations, the Company believes
that it would have realized Adjusted pro forma EBITDA of $10.4 million and
$40.1 million for the three months and year ended December 31, 1998,
respectively.
Old Muzak -- Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Total revenues increased 9.4% from $91.2 million in 1997 to $99.7
million in 1998 principally as a result of an 11.1% increase in music and other
business services revenues and a 6.1% increase in equipment sales and related
services. Music and other business services revenues increased due to (i) an
increase in the number of broadcast music subscribers, sales growth and the
acquisition of competitors' business music contracts, together with (ii) an
increase in the royalties paid by independent affiliates resulting from growth
in the broadcast music subscribers in the independent affiliate network. Music
and other business services revenues with the exception of on-premise video and
in-store advertising increased at more rapid rates than broadcast music
revenues due to the increased marketing of, and increasing customer demand for,
audio marketing products and services. Royalties and other fees from
independent affiliates and international distributors (included in broadcast
music revenues) accounted for $8.9 million or 8.9% of Old Muzak's revenues in
1998, compared with $8.8 million or 9.6% of Old Muzak's revenues in 1997. The
continued decrease in the surcharges assessed to affiliates for satellite
transmission costs was offset by increased growth in royalties related to new
subscriber billing. Equipment and installation revenues increased 4.7% and
8.7%, respectively due to the expansion of national accounts.
Gross Profit. Total gross profit increased 13.4% from $50.5 million in 1997
to $57.2 million in 1998. As a percentage of total revenues, gross profit
increased from 55.4% in 1997 to 57.4% in 1998. The improvement in gross profit
percentage in 1998 was due to growth of higher margin business services, such
as broadcast music, audio marketing and on-premise music and video services.
The improvement in gross profit was partially offset by approximately $1.5
million of one-time charges related to the Galaxy IV satellite failure. On May
19, 1998, services on the Galaxy IV satellite were permanently lost when the
satellite ceased communicating to uplink stations throughout the United States.
Also impacting gross profit was $0.4 million of non-recurring costs related to
the conversion of competitor locations acquired during 1998. Had we not
incurred these expenses our gross profit margin would have been 59.3% for 1998,
an increase of 17.2% over 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.2% from $33.3 million in 1997 to $34.3
million in 1998. As a percentage of total revenues, selling, general and
administrative expenses decreased from 36.5% in 1997 to 34.4% in 1998. Selling
and marketing expenses 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
44
<PAGE>
repositioning our brand, the design and construction of our web site and one-
time printing expenses. Had we not incurred such expenses, our selling and
marketing expenses would have decreased 0.8% to $13.6 million in 1998. General
and administrative costs increased 3.3% from $19.5 million in 1997 to $20.1
million in 1998, primarily due to transaction costs related to the Merger. Had
we not incurred these expenses, our general and administrative costs would have
only increased 0.6% to $19.6 million. If we had not incurred the non-recurring
selling and marketing expenses and the non-recurring general and administrative
costs, our 1998 selling, general and administrative expenses as a percentage of
total revenues would have been 33.4%.
Non-Cash Incentive Compensation. Non-cash incentive compensation increased
from $0.2 million in 1997 to $2.2 million in 1998. This increase is primarily
due to the meeting of performance criteria for options issued combined with
management's estimate of the increase in value of Old Muzak.
Depreciation Expense. Depreciation expense decreased 8.6% from $10.7 million
in 1997 to $9.7 million in 1998, principally as a result of a reduction of
depreciation expense for assets that were fully depreciated in 1997 related to
the acquisition of Old Muzak in September 1992.
Amortization Expense. Amortization expense increased 18.1% from $10.0
million in 1997 to $11.8 million in 1998. The increase in amortization expense
was due to an increase in intangibles related to the increased investment in
the expanded customer base and acquisitions of competitors' business music
contracts in 1997 and 1998.
Interest Expense. Total interest expense increased 4.4% from $10.8 million
in 1997 to $11.2 million in 1998. The increase in interest expense in 1998
compared to 1997 is related to the increase in the average outstanding debt
during the year. Old Muzak's total interest-bearing debt increased from $101.0
million to $118.4 million at December 31, 1997 and 1998, respectively.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased 5.1% from $86.8 million in 1996 to $91.2
million in 1997 principally as a result of an 8.7% increase in music and other
business services revenues offset by a 1.2% decrease in equipment and related
services revenues. Music and other business services revenues increased due to
an increase in the number of broadcast music subscribers and an increase in the
royalties paid by independent affiliates resulting from an increase in the
broadcast music subscribers in the affiliate network. Music and other business
services revenues (with the exception of on-premises tape sales) increased at
more rapid rates than broadcast music revenues due to the increased marketing
of, and increasing customer demand for, on-premise music video and audio
marketing services, among others. On-premise tape revenues declined due to Old
Muzak's conversion of such customers to broadcast services, primarily direct
broadcast satellite ("DBS") transmission. Royalties and other fees from
franchisees and international distributors (included in broadcast music
revenues) accounted for $8.8 million or 9.6% of Old Muzak's revenues in 1997,
compared with $8.2 million or 9.5% of Old Muzak's revenues in 1996. This
increase is principally due to a reduction in the surcharges assessed to
franchisees for satellite transmission costs. Equipment revenues decreased 3.9%
as Old Muzak continued to exit the low margin business of reselling equipment
to its affiliates and reduced its participation in lower margin competitively
bid equipment sales. Installation, service and repair revenues increased 4.6%
from the level generated in 1996 due to more installations and large equipment
orders during 1997.
Gross Profit. Total gross profit increased 1.4% from $49.8 million in 1996
to $50.5 million in 1997. As a percentage of total revenues, gross profit
decreased from 57.3% in 1996 to 55.4% in 1997. Declines in gross profit as a
percentage of sales reflect a dilution of the margin percentage due to the
continued development of 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.
45
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 5.3% from $31.6 million in 1996 to $33.3
million in 1997. As a percentage of total revenues, selling, general and
administrative expenses increased from 36.4% in 1996 to 36.5% in 1997. Selling
and marketing expenses increased 19.7% from $11.5 million in 1996 to $13.8
million in 1997, principally due to an increase in sales volumes for business
service products. General and administrative costs decreased 3.1% from $20.1
million in 1996 to $19.5 million in 1997, primarily due to costs associated
with the unconsummated initial public offering in 1996. General and
administrative costs also include $0.8 million in non-recurring severance
charges in 1997 related to certain executive officers.
Non-Cash Incentive Compensation. Non-cash incentive compensation increased
from $0.1 million in 1996 to $0.2 million in 1997. This increase is primarily
due to the increase in options issued combined with management's estimate of
the increase in value of Old Muzak.
Depreciation Expense. Depreciation expense increased 0.3% from $10.6 million
in 1996 to $10.7 million in 1997, principally as a result of an increased
investment in equipment installed at customers' premises due to an expanded
customer base and related to new investments in the EchoStar system and the
Internet music sampling business.
Amortization Expense. Amortization expense increased 4.4% from $9.6 million
in 1996 to $10.0 million in 1997. The increase in amortization expense was due
to an increase in intangibles related to the increased investment in the
expanded customer base.
Interest Expense. Total interest expense increased 32.8% from $8.1 million
in 1996 to $10.8 million in 1997. The increase in interest expense in 1997
compared to 1996 resulted from a full year of interest expense on the $100
million of senior notes issued by Old Muzak in October 1996. Old Muzak's total
interest-bearing debt remained constant at $101.0 million at December 31, 1996
and 1997.
Extraordinary Items. Extraordinary items reflected non-recurring non-cash
charges from the write-off of $3.7 million of deferred financing fees, debt
discount and organizational costs and a non-recurring gain of $3.1 million from
the retirement of a redeemable preferred limited partnership interest during
1996.
ACN -- Results of Operations
Period From October 7, 1998 Through December 31, 1998
Revenues totaled $5.9 million for the period ended December 31, 1998,
comprised primarily of business music revenues. For the same period, cost of
sales totaled $2.6 million, resulting in a gross profit margin of 56.8%. Total
selling, general and administrative expenses for the period totaled $1.8
million, comprised principally of salary, benefits and overhead expenses.
Old ACN -- Results of Operations
Period From January 1, 1998 Through October 6, 1998 Compared to the Nine Month
Period Ended September 30, 1997
Revenues. Total revenues increased 60.2% from $11.8 million in 1997 to $18.9
million in 1998, primarily as a result of the impact of the reverse acquisition
which occurred in May 1997, as well as growth in business music revenues and
equipment sales and related services.
46
<PAGE>
Gross Profit. Total gross profit increased 35.0% from $8.0 million in 1997
to $10.7 million in 1998, Old ACN's gross margin in 1998 was 56.7%. Such gross
margin is not comparable to the prior period as a result of the reverse
acquisition in 1997. The 1998 gross margin was negatively impacted by
approximately 3.0% or $0.6 million resulting from one-time charges related to
the Galaxy IV satellite failure.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 84.6% from $3.9 million in 1997 to $7.2
million in 1998. Such increase was primarily the result of (i) the impact of
the reverse acquisition in 1997, (ii) the growth in business music revenues and
equipment sales related services, and (iii) approximately $0.8 million being
incurred in 1998 pertaining to transaction costs related to the sale of Old ACN
in October 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased 73.4% from $10.1 million in 1996 to $17.6
million in 1997, primarily as a result of the impact of the reverse acquisition
in 1997 and growth in business music revenues and equipment sales and related
services.
Gross Profit. Total gross profit increased 54.7% from $6.7 million in 1996
to $10.4 million in 1997. Such gross profit, as well as gross margin for the
periods, is not comparable as a result of the reverse acquisition in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 71.3% from $3.0 million in 1996 to $5.1
million 1997. Such increase was primarily the result of (i) the impact of the
reverse acquisition in 1997 and (ii) the growth in business music revenues and
equipment sales and related services.
Pro Forma Liquidity and Capital Resources
Our business generally requires capital for the installation of equipment
for new business music clients. We estimate that in 1998, demand-based capital
expenditures represented approximately 80% of our total capital expenditures.
Pro forma for the Transactions, capital expenditures for the year ended
December 31, 1998 were approximately $25.2 million. Capital expenditures for
1999 are not expected to change significantly from the 1998 level. In addition,
we have pursued and will continue to pursue a business strategy that includes
selective acquisitions. We have historically funded our operations and
acquisitions with proceeds from equity contributions, bank borrowings and cash
flow from operations. We intend to use amounts available under the Senior
Credit Facility, future debt and equity financings and internally generated
funds to finance our working capital requirements, capital expenditures and
future acquisitions.
Our financing consisted of the Senior Credit Facility, the existing notes,
the Senior Subordinated Notes, and the new equity investment. The net proceeds
of which were used principally:
. to pay the cash Merger consideration of $127.5 million to the partners
of Old Muzak;
. to repay approximately $100.0 million of borrowings by Old Muzak under
its 10% Senior Notes due 2003 together with accrued interest,
. to repay approximately $17.6 million of other borrowings by Old Muzak
together with accrued interest,
. to repay approximately $42.4 million of borrowings by ACN under the ABRY
Subordinated Note, including accrued interest,
. to pay approximately $10.7 million as a tender premium in connection
with the tender offer and consent solicitation for the senior notes of
Old Muzak, and
. to pay our fees and expenses in connection with the foregoing.
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As of December 31, 1998, on a pro forma basis, after giving effect to the
Transactions, we had $300.4 million of indebtedness outstanding which includes:
. $115.0 million under the Senior Subordinated Notes,
. approximately $40.0 million of accreted value of the existing notes,
. $138.4 million under the Senior Credit Facility, excluding $31.6 million
of availability under the Revolving Credit Facility, and
. $7.0 million of other debt.
In October 1998, ACN borrowed $40.8 million from ABRY III under the ABRY
Subordinated Note. Amounts outstanding under the ABRY Subordinated Note earn
interest at the rate of 9.0% per annum. Interest and principal under the ABRY
Subordinated Note are payable within one year from the date of the related
borrowing. We repaid the ABRY Subordinated Note with the proceeds from the
offering.
The Senior Credit Facility provides for a $35.0 million Revolving Credit
Facility, a $30.0 million term loan facility ("Term Loan A") which matures on
December 31, 2005 and a $105.0 million term loan facility ("Term Loan B") which
matures on December 31, 2006. Subject to compliance with the terms of the
Senior Credit Facility, borrowings under the Revolving Credit Facility will be
available for working capital purposes, capital expenditures and pending and
future acquisitions. Prior to December 31, 2000, we may request lenders to
commit to additional loans of up to $50 million under a second revolving credit
facility.
The Revolving Credit Facility terminates, and all amounts outstanding
thereunder are payable, on December 31, 2005. Advances under Term Loan A and
the Revolving Credit Facility subject to the base rate (as defined in the
Senior Credit Facility) bear interest, payable in quarterly installments at the
base rate plus a margin ranging from 1.00% to 2.00%, and advances under Term
Loan A and the Revolving Credit Facility subject to LIBOR bear interest,
payable in installments at periods no greater than six months, at LIBOR plus a
margin, ranging from 2.00% to 3.00%. Advances under Term Loan B subject to the
base rate bear interest at the base rate plus 2.50% and advances under Term
Loan B subject to the LIBOR rate bear interest at the LIBOR rate plus 3.50%.
Borrowings under the Senior Credit Facility are guaranteed by Holdings and all
of the Company's present and future direct and indirect domestic subsidiaries.
The Senior Credit Facility is secured by substantially all of our assets in
which a security interest may be granted. For additional information concerning
the Senior Credit Facility, including the timing of scheduled payments, see
"Description of the Senior Credit Facility."
The Senior Credit Facility and the indenture contain financial and other
covenants that restrict, among other things, our ability and the ability of
certain of our affiliates to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets. Such limitations, together
with our highly leveraged nature, could limit our corporate and operating
activities in the future, including the implementation of our growth strategy.
The Senior Subordinated Notes were be issued in an aggregate principal
amount of $115.0 million and will mature on March 15, 2009. The Senior
Subordinated Notes are general unsecured obligations of Muzak and Muzak Finance
Corp., as issuers (the "Issuers") and will be subordinated in right of payment
to all current and future senior indebtedness of the Issuers, including
indebtedness under the Senior Credit Facility. Interest on the Senior
Subordinated Notes will accrue at the rate of 9.875% per annum and will be
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 and certain of Muzak's subsidiaries will guarantee the Senior
Subordinated Notes. For additional information concerning the Senior
Subordinated Notes, see "Description of Certain Debt--The Senior Subordinated
Notes."
Muzak is a wholly owned subsidiary of Holdings. Holdings is a holding
company with no significant assets other than their investment in Muzak. The
primary source of funds to the Holdings Issuers will be dividends and other
advances and transfers from Muzak. However, the assets of our subsidiaries will
not be
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available to our creditors except under limited circumstances. Muzak's ability
to make dividends and other advances and transfers of funds (including funds
required to pay interest on the Notes when due) are and will be subject to
substantial restrictions under the Senior Credit Facility, the Senior
Subordinated Note indenture and other agreements to which Muzak become a
party. 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.
We believe that cash generated from operations and borrowings expected to
be available under the Senior Credit Facility will be sufficient to meet our
debt service, capital expenditure and working capital requirements for the
foreseeable future. We will require additional financing if our plans
materially change in an adverse manner or prove to be materially inaccurate,
or if we engage in any significant acquisitions. We cannot assure you that
such financing, if permitted under the terms of the Senior Credit Facility and
the indenture, will be available on terms acceptable to us or at all.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000.
We use and rely on computer technology in many facets of our operations,
including our satellite broadcast systems. If we or our significant customers
or suppliers are not successful in making necessary modifications and
conversions on a timely basis, the year 2000 issue could have a material
adverse effect on our operations. We cannot quantify the impact at this time,
however. We believe our competitors face similar risks.
We are in the process of replacing our primary computer system at our
headquarters, and expect the replacement to be completed in March 1999.
Following completion of the system at our headquarters, we will begin
replacing the software at our owned affiliates. The new software is also
available to our independent affiliates. We expect that our remediation
efforts for our critical computer systems will be completed by the end of the
third quarter of 1999. We are conducting ongoing reassessments to confirm that
all critical risks have been identified and will be addressed.
Costs related to the year 2000 issue are funded through operating cash
flows. We estimate that our year 2000 compliance program will cost
approximately $1.5 million, of which approximately $1.0 million had been
expended as of December 31, 1998.
While we believe all necessary work will be completed in a timely fashion,
we cannot assure you that all systems will be compliant by the year 2000, or
that the systems of other companies and government agencies on which we rely
will be compliant.
Since 1997, we have been communicating with outside vendors to determine
their state of readiness with regard to the year 2000 issue. Based on our
assessment to date, we have not received any indication from a third party
indicating that it expects to experience year 2000 non-compliance of a nature
which would have a material impact on us. However, the risk remains that
outside vendors or other third parties may not have accurately determined
their state of readiness, in which case such parties' lack of year 2000
compliance may have a material adverse effect on our results of operations. We
continue to monitor the year 2000 compliance of third parties with which we do
business.
We believe the most likely worst-case scenarios that we might confront with
respect to the year 2000 issues have to do with the possible failure of third
party systems over which we have no control, such as, but not limited to,
satellite, power and telephone services. We are currently developing a
specific year 2000 contingency plan.
Inflation and Changing Prices
We do not believe that inflation and other changing prices have had a
significant impact on our operations.
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BUSINESS
General
Muzak is the world's leading provider of business music programming.
Together with our independent affiliates, we serve an installed base of
approximately 250,000 business locations, and we believe that we have a market
share of approximately 55% of the estimated number of U.S. business locations
currently subscribing to business music programming. Together with our
independent affiliates, we have nationwide coverage. Our owned affiliates
operate in 8 of the 10 largest DMAs and 17 of the largest 25 DMAs. On a pro
forma basis, we generated revenues of $36.3 million and Adjusted EBITDA of
$10.4 million for the quarter ended December 31, 1998 and revenues of $138.6
million and Adjusted EBITDA of $40.1 million for the year ended December 31,
1998.
We offer three products. Our core product is Audio Architecture, and we
offer two complementary products, Audio Marketing and Video Imaging. We believe
that our clients use our products because they recognize them as a key element
in establishing a desired business environment, in promoting their corporate
identities and in strengthening their brand images. We assist our clients in
selecting programming that is appropriate for their business and consistent
with the experiences they are trying to create for their customers. We believe
our products are highly cost effective, providing an important business tool to
our clients at a low monthly cost.
Audio Architecture is business music programming designed to enhance a
client's brand image. Our staff of in-house audio architects analyzes a variety
of music to develop and maintain 60 core music programs in 10 genres ranging
from current top-of-the-charts hits to jazz, classic rock, urban, country,
Latin, classical music and others. Our audio architects change our music
programs on a daily basis, incorporating the continuous release of contemporary
artists' new music recordings and drawing from our current library of
approximately 1,250,000 recordings. In addition, we offer individual music
programs to clients who seek further customization beyond that offered by our
core music programs. As a complement to Audio Architecture, we have recently
focused on developing our Audio Marketing product that provides telephone on-
hold and in-store messages for more than 17,000 client locations. We have also
introduced Video Imaging, which we believe is the most widely used in-store
video product in the U.S. and is viewed in approximately 9,000 client
locations. Our programs are delivered to our clients through DBS, telephone
lines, local broadcast technology, audio and video tapes and compact discs.
We complete our clients' business music experience by designing and
installing sound and intercom systems, telephone on-hold and in-store messaging
and video systems at their locations and providing after-sale services and
enhancements to those systems, which we sell or lease to our customers. We
provide our products and services domestically through our integrated,
nationwide network of owned and independent affiliates. We believe our
nationwide network is the largest in the industry and provides us with a key
competitive advantage in effectively marketing and servicing clients ranging
from local accounts with single or multiple locations to national accounts with
significant geographic presences. We believe that approximately 52% of revenues
from the sale of Muzak products are generated by our 45 owned affiliate
territories. The remaining 48% are generated by our 123 independent affiliate
territories.
We provide music to numerous types of businesses including specialty
retailers, restaurants, department stores, supermarkets, drug stores, financial
institutions, hotels, golf clubs, health and fitness centers, business offices,
manufacturing facilities, medical centers and HMOs, among others. Approximately
70% of our client base is comprised of local clients and the remaining 30% is
comprised of national and regional chains. Our national clients include The
Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass Hut, Burger King,
Taco Bell, Nordstrom, Citibank, Travelers and Prudential, among many others.
Our regional clients include A&P, Kroger, Rite Aid, Kaiser Permanente,
PetsMart, Dillards and Wells Fargo, among many others.
Our clients typically enter into a noncancelable five-year contract that
renews automatically for at least one additional five-year term unless
specifically terminated at the initial contract expiration date. Our average
length of service per client is approximately 12 years. For a typical local
business music client generated by an
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owned affiliate, we receive approximately $45 of net revenue per month per
location. We typically make an initial one-time installation investment per
location (including sales commissions) averaging approximately $1,000. This
allows us to recover our capital costs within 22 months for a typical local
client. We generate an over 50% annual return on investment per music client
location, based on a twelve-year client relationship. In contrast, for music
clients generated by our independent affiliates, we receive a net monthly fee
of approximately $5 for each client location in exchange for our music
programming. We incur no capital outlay for a new client location generated by
an independent affiliate.
Operating Strengths
We believe the following attributes have helped us become the world's
leading provider of business music programming:
Market Leadership for 65 Years. We believe that Muzak is the most widely
recognized brand name in the industry. Together with our independent
affiliates, we have an estimated 55% share of the U.S. business music market.
We believe that we have been the leader in the business music programming
industry since its inception by the founders of Old Muzak 65 years ago.
Nationwide Presence. Our nationwide network is the largest in the industry
and would be costly and difficult to replicate. As a result, we believe this
nationwide network is a key competitive advantage. Our nationwide network
enables us to provide same-day sales, installation and service to clients
throughout the country and to service multiple widespread locations
efficiently. This network is comprised of 168 territories, of which 45 are
served by our 33 owned affiliate offices and the remaining 123 are served by
our 75 independent affiliates. The independent affiliate component of our
network is highly stable, as a significant majority of our independent
affiliates has been associated with us for over 20 years.
Large and Diverse Client Base. Our music products appeal to a variety of
clients, including specialty retailers, restaurants, department stores,
supermarkets, drug stores, financial institutions, hotels, golf clubs, health
and fitness centers, business offices, manufacturing facilities, medical
centers and HMOs, among others. Together with our independent affiliates, we
currently serve approximately 250,000 client locations. Our national clients
include The Gap, Barnes & Noble, McDonald's, Staples, Kinko's, Sunglass Hut,
Burger King, Taco Bell, Nordstrom, Citibank, Travelers and Prudential, among
many others. Our regional clients include A&P, Kroger, Rite Aid, Kaiser
Permanente, PetsMart, Dillards and Wells Fargo, among many others. We also have
numerous local clients with single or multiple locations. During 1998, none of
our clients represented more than 2% of our revenues and our top ten clients
represented in the aggregate less than 10% of our revenues.
Attractive Economics to Clients and the Company. We believe our products and
services are highly cost effective for our clients, providing them with an
important business tool at a low monthly cost. We also believe that our
business provides us with attractive economics. Our costs for incremental sales
are low because the nature of our business enables us to leverage our corporate
infrastructure (including programming, sales and marketing and general
administrative costs), our established music library, and our nationwide
network and music delivery system. As a result, our financial results are
favorably impacted by growth through incremental client locations. Our annual
return on investment is over 50% per client location, based on a twelve-year
client relationship. In addition, we receive a monthly fee for each client
location generated by our independent affiliates, for which we have no direct
incremental costs.
Long Term Contracts; Recurring Revenue Base; Low Churn. Our client contracts
generally have a non-cancelable term of five years that renews automatically
for at least one additional five-year term unless specifically terminated at
the initial contract expiration date. Our long term contracts provide us with
steady recurring monthly revenues per client location. In the majority of
cases, we also have the right to match any increase in our operating costs with
a corresponding price increase of up to 10% each year. During 1998, our monthly
churn rate averaged approximately 0.7% and our annual churn rate was
approximately 8%. We have an average length of service per client of
approximately 12 years. Based on our experience, economic downturns have not
significantly affected our monthly recurring revenues or our historical churn
rate, which we
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believe is primarily because we deliver products to a geographically diverse
client base in a range of industries at a low monthly cost.
Demand-Based Capital Expenditures. The substantial majority of our capital
expenditures are comprised of the initial investment for each new client
location. We incur those costs only after receiving a signed contract from a
client. Our typical initial investment per music client location (including
sales commission) averages approximately $1,000, and our after-sale service
costs are low. In the event of a contract termination, we can typically recover
and reuse the installed equipment. We estimate that in 1998, demand-based
capital expenditures represented approximately 80% of our total capital
expenditures.
Unique Product Offerings. Our staff of trained audio architects use their
intuition, innovation and skill and our proprietary software package to
continually change the content of our music programs for our clients. Our audio
architects create programs using music from our extensive music library, which
currently contains approximately 1,250,000 recordings and is continually
updated with new releases. In addition, we have the ability to create
integrated audio and video services through our Audio Marketing and Video
Imaging products.
Experienced Management. Our senior management team has extensive experience
in the business music programming industry. The Company is led by Mr. William
Boyd, its Chief Executive Officer, who has over 30 years of experience in the
industry. Prior to re-joining Old Muzak in 1996, Mr. Boyd owned one of the
largest independent affiliates and also served as President of our independent
affiliate organization. We believe that Mr. Boyd has brought a consistent
vision for sustained growth and profitability to the Company, has renewed focus
on our Audio Architecture, Audio Marketing and Video Imaging core products and
has strengthened our relationships with our independent affiliates. In
addition, Mr. Boyd has selected a dedicated and energetic senior management
team, that together with Mr. Boyd, has an average of approximately 13 years of
experience in the business music programming industry.
Business Strategy
Our strategy is to increase monthly recurring revenue and cash flow by
concentrating on our Audio Architecture, Audio Marketing and Video Imaging
products. Our strategy recognizes the operating leverage inherent to our
business. In addition to internal growth, we also believe that opportunities
exist to create synergies and enhance value through the selective acquisition
of in-market competitors and of our independent affiliates.
Concentrate on Core Competency. In late 1997, we discontinued our in-store
marketing program and spun-off our other non-core operations, allowing us,
under the strategic direction of our new management, to focus on our core
competency of assisting our clients in enhancing their brand images and the
experiences of their customers through planned programs of music and video. In
this pursuit, we have focused on our core Audio Architecture, Audio Marketing
and Video Imaging products. This focus has increased the opportunities for
sales growth and profitability for each of these products. In the short time
since implementing these changes, we have increased our monthly recurring
revenue by approximately 13% from December 1997 to December 1998 and increased
EBITDA by 33% from the fiscal year ended December 31, 1997 to December 31,
1998.
Increase United States Market Penetration. We have identified the potential
market for our products to include approximately six million U.S. businesses
that are operating in an industry currently served by us. We believe that less
than 10% of our identified market currently enhance their brand images through
business music. As the leading provider of business music services, we believe
we are well positioned to capitalize on the substantial growth opportunities
available within this significantly under-penetrated market. We also believe
that our ability to offer an integrated set of audio and video products through
Audio Architecture, Audio Marketing and Video Imaging will allow us to increase
penetration of our services to new clients and cross-sell new services to our
existing clients.
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:
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. We recently began amending our agreements with our independent
affiliates. The amendment provides us and our independent affiliates
with more attractive financial terms for each new national client and
provides for better coordination of the installation and service of
national account locations. The amendment also extends the prohibition
of sales of competing products from Audio Architecture to include Audio
Marketing and Video Imaging. In addition, the amended agreements give us
the ability to set sales goals and incentive plans for these new
products, similar to goals and plans previously established for Audio
Architecture.
. We have set more aggressive selling targets for our account executives
and increased the number of our national account executives. In
addition, we plan to hire product managers, each exclusively focused on
assisting the owned and independent affiliates in selling our newer
products, Audio Marketing and Video Imaging.
. In July 1998, we provided laptop computers to the account executives of
our owned affiliates to assist in the demonstration of product benefits
to potential clients. These computers include an interactive CD-ROM and
customized software which enhances the sales efforts of account
executives. Previously, account executives had no way to demonstrate our
music products other than from written brochures.
. We continue to strengthen our brand image and awareness of our products
through an updated Internet web site (www.muzak.com), new marketing
materials that focus on the Muzak brand and the recent establishment of
a charitable program, Muzak Heart and Soul Foundation, that promotes
music education.
Pursue Acquisitions. The business music industry remains highly fragmented,
with numerous independent operators. For example, we have 75 individuals or
entities that operate in our 123 independent affiliate territories. Since
September 1997, Old Muzak has acquired two affiliate territories and has
acquired client accounts of thirteen of its competitors' affiliates as well as
one national competitor, MTI. In 1998, ABRY III formed ACN to acquire and
operate Muzak independent affiliates. ACN acquired the Old ACN Assets, which
included eight independent affiliate territories. ACN subsequently acquired two
additional affiliate territories in January 1999, one additional affiliate
territory in February 1999, four affiliate territories from Capstar
Broadcasting in March 1999 and one additional affiliate territory from Capstar
Broadcasting in May 1999. Through acquisitions, we expect to realize cost
savings by eliminating duplicative programming, distribution, sales and
marketing, technical and other general administrative expenses. We will
continue to seek attractive opportunities to acquire music contract portfolios
in the future and will review the acquisition of our own independent affiliates
if they become available. Future acquisition targets may also include providers
of complementary marketing on-hold and on-premises video products.
Products
We offer three products, Audio Architecture, Audio Marketing, and Video
Imaging, to assist our clients in strengthening their brand images and in
enhancing the experiences of their customers. We believe our clients use our
products because they recognize that our products can provide a key element in
establishing a desired business environment, in promoting their corporate
identity and in strengthening their brand image.
Audio Architecture
Audio Architecture is business music programming designed to strengthen a
client's brand image. Our in-house staff of 19 audio architects analyzes a
variety of music to develop and maintain 60 core music programs in 10 genres
that appeal to a wide range of tastes. Our programs include current top-of-the-
charts hits to jazz, classic rock, urban, country, Latin, classical music and
others. Our audio architects update our music programs on a daily basis,
incorporating the continuous release of new music recordings and drawing from
our library of approximately 1,250,000 recordings, which we believe is the
largest of its kind. In designing our music programs, our audio architects use
a proprietary computer software package that allows them to efficiently access
our extensive library, avoid repeated songs and manage tempo and music variety
to provide clients with high quality, seamlessly arranged programs.
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We assist our clients in selecting music programming that is appropriate for
their business and consistent with the experiences they are trying to create
for their customers. We accomplish this goal in two ways. First, we can suggest
one or more of our 60 core music programs. For example, in 1997, Barnes &
Noble, one of the nation's largest retail bookstore chains, engaged Muzak to
recommend music programming to evoke the appropriate blend of relaxation and
education and create a uniform atmosphere in all of their stores. Second, we
can create custom music programs for our clients that wish to convey a unique
and specific brand image, a process we call Audio Imaging. Our Audio Imaging
clients include Crate & Barrel, DKNY, Esprit, Fossil, Liz Claiborne, Lindt
Chocolate, Spencer Gifts, Sunglass Hut and Watch Station.
Clients who subscribe to our 60 program core music service may utilize our
DayParting and WeekParting services. These services allow us to vary the
programs that are delivered to our clients during different hours of the day
and days of the week in response to our clients' changing customer patterns.
All of our clients have access to our extensive in-house programming and
editing capabilities and the technological strengths we have developed in
engineering, equipment, and delivery systems.
Some of our popular programs include:
FM-1(R) -- A mainstream mix of Hot FM SM -- A mix of melodic upbeat
familiar adult contemporary adult oriented pop vocals and
favorites. instrumentals.
Country Currents(R) -- Current EuroStyle SM -- An ultra-hip mix of
country hits by established and cutting edge sounds from Europe.
emerging artists.
Contemporary Jazz Flavors SM -- A
Urban Beat SM -- A youth-oriented smooth mix of contemporary
mix of contemporary urban music with instrumentals and adult pop vocals
a focus on funky beats and tough by popular artists.
jams.
Contemporary Christian -- Today's
KidTunes SM -- A mix of educational popular Christian music.
and entertaining music for kids.
Hitline(R) -- A youth-oriented mix
Latin Styles SM -- The smooth side of up-tempo styles that reflect the
of contemporary Spanish language diversity of today's pop music
music. culture.
In addition, we offer approximately 600 different tape and compact disc
based programs of music. We develop these tapes to meet the specialized
business needs of our clients with more focused customer demographics. Some of
the formats offered are Italian-American, reggae, hard rock, German and
Chinese. We distribute these music programs to clients in the form of long-
playing audio tapes or compact discs that our clients play using specially-
designed equipment that we installed.
Audio Marketing
Our Audio Marketing staff creates customized music and messages that allow
our clients' telephone systems to deliver targeted music and messaging during
their customers' time on hold. Several studies have substantiated the value of
on-hold marketing. A study performed by Telemarketing Magazine found that 85%
of calling customers prefer hearing about a company's products to silence or
music and 20% of those who hear such messages purchase the item or service
advertised. The cost implications of this data for a telephone-oriented
business can be very significant. Because on-hold music and messaging reduce
the need for telephone operators, it is appealing to both cost-conscious larger
businesses and to smaller businesses that are, by their nature, more sensitive
to the incremental fixed costs associated with telephone operators. In addition
to cost savings, on-hold messaging provides a revenue enhancing opportunity.
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.
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As of December 31, 1998, more than 17,000 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. Clients
using Audio Marketing to effectively convey messages to their customers include
Citibank, GTE, Kinko's, Kaiser Permanente, Coldwell Banker, Harrah's Casino,
Esprit, Texaco, Shell, BPAmoco and Budget Car Rental. We believe that our Audio
Marketing product creates an opportunity to attract new clients in new market
segments and to increase penetration of our existing client base. Our existing
client base includes many smaller businesses, and we believe that our existing
client base is sufficiently sophisticated to appreciate the added value of
business music and messaging to their on-hold customers.
Video Imaging
We believe we are the largest producer and distributor of in-store video
programs in the world. Video Imaging is unique, demographically-tailored video
programming designed to enhance the brand personality of our clients by
entertaining, informing and captivating their customers. We have a library of
over 30,000 video programs. These video programs use both original artist music
videos and other non-music video content such as sports, entertainment, fashion
and comedy. We produce our video programs through our in-house production
facilities and distribute them on high-grade VHS videotape to our clients on a
monthly rotation. We produce these programs for a variety of retail
environments, such as department stores, specialty shops, athletic footwear
stores, children's apparel stores, restaurants, sporting goods stores, toy and
hobby stores, drug stores and appliance stores. Clients currently using Video
Imaging include Macy's, McDonald's, Bloomingdale's, Lord & Taylor, Oshman's
Sporting Goods, Burger King, Camelot Music, Rooms to Go, Rent-A-Center, KFC,
Game Works, Best Way and Donna Karan Jeans Shop. As of December 31, 1998, we
had approximately 9,000 client locations subscribing to our Video Imaging
product.
Our 22 in-store video programs are available in the following genres:
. Total Music Programs. Segued music video programs in two-hour or four-
hour lengths that represent a style and tempo of music applicable to
particular business environments.
. Variety Programs. A series of video programs hosted by an off-camera
voice talent that incorporate music videos and entertainment features
targeting specific audiences.
. Children's Programs. Children's programs incorporate select music
videos, sing-alongs, educational features and cartoons that are selected
specifically to entertain and educate children.
. Sports Programs. Sports documentaries, sports trivia, classic sports
features, high energy music videos, and extreme sports features.
. VeeJay Programs. One-hour long programs produced exclusively for
nightclubs and entertainment facilities with video jockeys or "veejays."
Equipment Sales and Related Services
In connection with the sale of our Audio Architecture, Audio Marketing and
Video Imaging products, we sell and lease various audio and video system-
related products, principally sound systems. We believe that style and
placement of sound and video systems can further enhance the experience we
create through Audio Architecture and Video Imaging. As part of a typical music
programming contract, we provide music receiving or playback equipment to our
client. Our business music clients generally purchase or lease audio equipment
from us that supplements the music receiving or playback equipment.
We also sell, install and maintain non-music related equipment, such as
intercom, paging and drive-thru systems. We provide these services for our
business music and other clients. Maintenance of program-receiving 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.
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Nationwide Affiliate Network
We believe our integrated nationwide network is the largest and most
comprehensive in the business music industry and enables us to pursue sales on
a nationwide basis to local, regional and national accounts. It also allows us
to provide same-day installation and service to our clients throughout the
country and to service multiple geographically disperse locations efficiently.
Our nationwide network divides the country into 168 affiliate territories, of
which 45 are served by our 33 owned affiliate offices and the remaining 123 are
served by our 75 independent affiliates. Our owned affiliates generally operate
in the larger and the more populated territories. For example, 17 of our owned
affiliate territories are located in the top 25 DMAs. We believe that
approximately 52% of revenues from the sale of 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
DBS distribution system.
Pursuant to the agreements, each independent affiliate pays us a monthly fee
based on the number of businesses within its territory and a monthly
broadcasting royalty equal to approximately 10% of its billings. Typically,
this combined net fee and royalty payment represents approximately $5 per month
per client location. However, this monthly royalty is subject to certain
adjustments, as we charge the independent affiliate additional amounts for on-
premise tape services and other services. We share revenues from the sale of
other broadcast business services with our independent affiliates.
In order to increase our national and regional sales in January 1999, we
began amending our independent affiliate and national sales agreements in a
number of respects. As part of these amendments we are:
. restructuring commission and other provisions to increase national and
regional sales and make these sales more profitable for our independent
affiliates and for us, and to coordinate sales, installation and service
of national and regional client locations;
. extending our product exclusivity requirements to include our Audio
Marketing and Video Imaging products in order to preclude independent
affiliates from selling products which compete with Audio Marketing and
Video Imaging;
. introducing an incentive plan to encourage independent affiliates to
increase their sales of our products and exceed an agreed-upon budget by
offering credits against future royalties to be paid to us;
. reducing the requirements for approval of future amendments to the
independent affiliate agreement from 100% to 75% of the independent
affiliates, thereby allowing us the opportunity to further amend the
agreements and introduce new programs and products more efficiently; and
. agreeing to remit amounts owed to each independent affiliate under bills
we collect for it within 60 days of our receipt of its customers'
payments in exchange for the right to withhold from those amounts any
past due fees and royalties owed by the affiliate, with clients' bad
debts charged back to the affiliate.
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
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initial contract expiration date. Repeat clients comprise the core of our
account base. We believe that our high renewal rate of existing client
contracts reflects the importance of our products to our clients' business
operations.
Local salesforce
We build and maintain our local client base through a team of over 200 local
sales account executives. Local account executives typically focus on clients
that have fewer than 50 locations. For clients with more locations a regional
or national specialist is available to assist the local account executive in
securing the sale. Our local account executives are almost exclusively
compensated on commission. Each year, local account executives are given sales
goals and their progress is monitored by their General Manager. Local account
executives are provided the opportunity to attend our week-long sales training
program in Seattle and completion of this program is mandatory for local
account executives employed by our owned affiliates. Each affiliate, whether
owned or independent, is responsible for installing, servicing and billing the
local client base within its territory.
National and Regional Salesforce
We build and maintain our existing client base of national and regional
accounts primarily through our national and regional sales group headquartered
in Chicago. Our National Sales Director has a sales force of five national
account executives. The Regional Sales Director has a sales force of five
account executives each responsible for coverage of a particular region of the
United States. Both national and regional account executives are given sales
goals each year and their progress is then monitored and reviewed by their
respective Sales Director. The majority of billing for national and regional
accounts is centrally performed in our Seattle headquarters.
Continuing Training and Sales Tools
In addition to our training program for new account executives, we use
continuing education programs and update our sales tools to improve the
effectiveness of our account executives. Our newly hired training staff is
developing educational programs designed to strengthen account executives'
knowledge of our Audio Marketing and Video Imaging products. In July 1998 we
provided account executives associated with our owned affiliates with laptop
computers equipped with an interactive CD-ROM based sales tool. This software
enables us to give multimedia sales presentations that vividly demonstrate how
our products can help potential clients enhance their brand images. These
presentations also enable us to simulate the use of our products at a potential
client's business location. The CD-ROM program is also available to account
executives associated with our independent affiliates.
Recent Changes in Sales Approach
During 1998, our new senior management team designed and implemented a
number of changes in our approach to marketing and selling our Audio Marketing
and Video Imaging products. The majority of changes fall into three categories:
(a) changes in organizational structure, (b) improved sales training and
support, and (c) changes to our independent affiliate agreement.
During 1998, we reorganized our staffing in order to operate more
efficiently, to assign responsibility for our Audio Marketing and Video Imaging
products and to ensure adequate support for the future growth of such products.
Accordingly, we:
. eliminated certain positions that did not contribute to the
profitability of Audio Marketing;
. 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.
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In order to improve our sales training and support for our Audio Marketing
and Video Imaging products, we hired a training coordinator responsible for
educating our newly hired account executives and our existing owned and
independent affiliate account executives. Our training coordinator created a
training program and sales kit for our account executives. These guides provide
account executives with the information they need to approach prospective
clients, including direct mail pieces, information on product pricing and
equipment and answers to questions most frequently asked by potential clients.
We also equipped our salespeople with demonstration CDs that illustrate our
Audio Marketing and Video Imaging products.
We also have begun amending our independent affiliate agreements with
changes that promote the sale of our Audio Marketing and Video Imaging products
throughout our nationwide network. Prior to these changes, our independent
affiliates did not actively market our Audio Marketing or Video Imaging
products. We extended our product exclusivity requirements in the amended
independent affiliate agreement to include our Audio Marketing and Video
Imaging products thus prohibiting independent affiliates from selling products
competing with Muzak's Audio Marketing and Video Imaging products.
Branding and Corporate Promotion
In addition to providing greater support for our account executives, we are
continuing to strengthen our brand image and awareness of our products through
an updated Internet web site (www.muzak.com), new marketing materials that
focus on the Muzak brand and the recent establishment of a charitable program,
the Muzak Heart and Soul Foundation, that promotes music education.
Distribution Systems
We believe that our ability to distribute our products through DBS
transmission, telephone lines, local broadcast transmission, audio and video
tapes and compact discs enables us to effectively serve our clients that have
either single or multiple locations as well as those having varied music or
service needs. At December 31, 1998, we served our music client locations
through the following means: approximately 65% through DBS transmission or
telephone lines, approximately 25% through local broadcast technology, and
approximately 10% through on-premises tapes or compact discs. From time to
time, we also evaluate new delivery systems.
Microspace and EchoStar Agreements
We transmit our 60 core music programs via DBS to clients primarily from
transponders leased from Microspace and EchoStar. Microspace provides us with
facilities for uplink transmission of our medium-powered DBS signals to the
transponders. Microspace, in turn, leases its transponder capacity on
satellites operated by third parties, including the Galaxy IIIR satellite
operated by PanAmSat through which a majority of our DBS 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 such event, we would only be able to
provide 30 music programs and would need to lease other transponder space in
order to continue providing the other 30 music programs. We would also lose the
programming fee and commission revenue generated by EchoStar's
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residential subscribers, which was approximately $1.4 million during 1998. The
term of our agreements with EchoStar is projected to end in 2010.
EchoStar has agreed that it will not provide transponder space to, enter
into or maintain distributor agreements or relationships with, or enter into
any agreements for the programming or delivery of any audio services via DBS
frequencies with, a specified group of our competitors. We have agreed that we
will not secure transponder space for, enter into or maintain distributor
agreements or relationships with, or enter into any agreement for the
programming or delivery of any of our services with any competitor of EchoStar
via DBS frequencies or with specified competitors of EchoStar via specified
frequencies.
Local Broadcast Transmission
We also use local broadcast transmission to distribute business music in
localized metropolitan areas where the concentration of client locations is
sufficiently large to justify the cost. Local area FM broadcasting is primarily
made via commercial FM radio station subcarriers and requires the use of a
separate subcarrier and an on-premises client receiver for each program format
being distributed. Accordingly, local broadcasting is not cost-effective for
delivery of more than two formats to a particular area and is generally limited
to our most popular program formats.
Competition
We compete with many local, regional, national and international providers
of business music and business services. We compete on the basis of service,
the quality and variety of our music programs, versatility and flexibility, the
availability of our non-music services and, to a lesser extent, price. Even
though we are seldom the lowest-priced provider of business music in any
territory, we believe that we can compete effectively on all these bases due to
the widespread recognition of the Muzak(R) name, our nationwide network, the
quality and variety of our music programming, the talent of our audio
architects and our multiple delivery systems.
Some of our competitors may have substantially greater financial, technical,
personnel and other resources than we do. There are numerous methods by which
our existing and future competitors can deliver programming, including various
forms of DBS services, wireless cable, fiber optic cable, digital compression
over existing telephone lines, advanced television broadcast channels, DARS and
the Internet. We cannot assure you that we will be able to (a) compete
successfully with our existing or potential new competitors, (b) maintain or
increase our current market share, (c) use, or compete effectively with
competitors that adopt, new delivery methods and technologies, or (d) keep pace
with discoveries or improvements in the communications, media and entertainment
industries such that our existing technologies or delivery systems that we
currently rely upon will not become obsolete.
Music Licenses
We license rights to rerecord and distribute music from a variety of sources
and pay royalties to songwriters and publishers through contracts negotiated
with performing rights societies such as ASCAP, BMI and SESAC.
The industry-wide agreement between business music providers and BMI expired
in December 1993. Since then, we have been operating under an interim agreement
pursuant to which we have continued to pay royalties at the 1993 rates and
business music providers and BMI have been negotiating the terms of a new
agreement. If an agreement is not reached, BMI may seek to have rates
determined through a rate court proceeding. The industry-wide agreement between
business music providers and ASCAP expires in May, 1999. We cannot predict what
the terms of the new BMI or ASCAP agreements with business music providers will
be or when agreements will be reached, although BMI has indicated that it is
seeking royalty rate increases and a retroactive royalty rate increase. In
1998, Old Muzak paid approximately $3.5 million in royalties to ASCAP, $1.3
million in royalties to BMI and $13,000 in royalties to SESAC. Increases in the
fees we must pay under these agreements could adversely affect our operating
margin, and, therefore, our results of operations.
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The Digital Performance Right in Sound Recordings Act of 1995 (the "DPRA")
amended U.S. copyright law to create a limited performance right in sound
recordings publicly performed by means of digital audio transmission ("digital
performance right"). Our digital transmission of music to businesses are
considered public performances for the purposes of U.S. copyright law but may
qualify for an exemption from copyright liability for digital performance
rights, and any obligation to pay a royalty therefor, under the DPRA. The DPRA
exempts digital transmissions to business establishments for use in the
ordinary course of business from copyright liability, provided those
transmissions satisfy certain limitations on the number of selections from one
phonorecord or by the same featured artist, as set forth in the DPRA. We
believe our music services to businesses satisfy the conditions necessary to
qualify for the exemption. To the extent we provide digital audio services to
residential clients or consumers by means of digital transmissions, the DPRA
would require the payment of additional royalties.
The Fairness in Music Licensing Act enacted in 1998 revised the U.S.
copyright law to expand an exemption that enables certain small businesses to
transmit background music by means of radio and television. Those exemptions
are subject to limitations on the size of area of the business location in
which such transmissions are received, limitations on the number of speakers or
television sets and the restriction that the business does not charge
admission. As a result of the Fairness in Music Licensing Act, more small
businesses can transmit background music at their business locations without
paying licensing fees which may reduce the potential number of clients for our
products. However, we do not believe that small businesses could replicate our
products and services because of our extensive music library, unique product
offerings and the talents of our audio architects.
Government Regulation
We are subject to the governmental regulation by the United States and the
governments of other countries in which we provide services. Our business
prospects could be adversely affected by the adoption of new laws, policies or
regulations that change the present regulatory environment. We currently
provide music services in a few areas in the United States through 928 to 960
megahertz radio frequencies licensed by the FCC. Additionally, the FCC licenses
the radio frequencies used by satellites on which we transmit our DBS services
in the United States. If the FCC or any other person revokes or refuses to
extend any of these licenses, we would be required to seek alternative
transmission facilities. Laws, regulations and policy, or changes therein, in
other countries could also adversely affect our existing services or restrict
the growth of our business in these countries.
Properties
Our headquarters are located in Seattle, Washington and consist of
approximately 80,000 square feet. We also have 51 local sales offices in
various locations, a national sales office in Chicago, office and satellite
uplink facilities at Raleigh, North Carolina and Cheyenne, Wyoming and five
warehouses in various locations. We consider our facilities to be adequate to
meet our current and reasonably foreseeable needs.
Muzak's executive offices are located at 2901 Third Avenue, Suite 400,
Seattle, Washington 98121, and its telephone number is (206) 633-3000.
Employees
As of December 31, 1998, on a pro forma basis, we had 1,041 full-time and
part-time employees, of whom 275 held sales and marketing positions, 215 held
administrative positions and 551 held technical and service positions. A total
of 100 of our technical and service personnel are covered by twelve union
contracts, eleven of which are with the International Brotherhood of Electrical
Workers and one of which is with the Communications Workers of America. One of
the International Brotherhood of Electrical Workers contracts
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that covers 11 employees expired on December 31, 1998 and we are in the process
of negotiating a replacement agreement. The other contracts expire on dates
ranging from October 31, 1999 to April 30, 2001. All of the International
Brotherhood of Electrical Workers contracts provide for successive automatic
one-year renewals, unless a notice of renegotiation or termination is given
prior to the end of the then-effective term. We believe that our relationships
with our employees and the unions are good.
Divestitures
In March of 1998, as part of new management's focus on our core products, a
non-core operation which provided music sampling on the Internet was spun-off
into a wholly-owned subsidiary of Old Muzak, EAIC. In July 1998, the voting
equity interests in EAIC were sold to a related party investor, with Old Muzak
retaining an equity interest in the form of non-voting equity. Prior to the
consummation of the Merger, Old Muzak will divest itself of its remaining
ownership interests in EAIC through a distribution to Music Holdings Corp.
Legal Proceedings
We are subject to various proceedings arising in the ordinary course of
business. On March 5, 1999, one of our former employees initiated a suit
against us in the United States District Court for the Northern District of
Illinois alleging certain violations of the Americans with Disabilities Act.
While we are still in the process of evaluating this claim, we anticipate that
neither this claim nor any other proceeding to which we are a party,
individually or in the aggregate, will have a material adverse effect on our
financial condition, results of operations or liquidity.
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MANAGEMENT
Executive Officers and Directors
Muzak is a wholly owned subsidiary of Holdings. Holdings is a limited
liability company whose affairs are governed by a Board of Directors (the
"Board"). The following table sets forth certain information about the
directors ("Directors") of Holdings and the executive officers of Muzak as of
March 31, 1999 and their ages as of March 31, 1999. Each of the Directors
identified below is currently a Director of Holdings and has served as Director
of Holdings since March 1999. The election of the Directors is subject to the
terms of the Members Agreement and the Securityholders Agreement (each, as
defined). See "Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
Name Age Position and Offices
---- --- --------------------
<S> <C> <C>
William A. Boyd.......... 57 Director, President and Chief Executive Officer
Charles A. Saldarini..... 55 Chief Operating Officer
Brad D. Bodenman......... 35 Chief Financial Officer and Treasurer
Steven M. Tracy.......... 48 Senior Vice President
Robert L. Cauley......... 45 Vice President, Audio Marketing
Richard Chaffee.......... 54 Vice President, Operations
D. Alvin Collis.......... 46 Vice President, Audio Architecture
Jack D. Craig............ 63 Vice President, Affiliate Sales and Development
Dino J. DeRose........... 38 Vice President, National Sales
Kenneth F. Kahn.......... 37 Vice President, Marketing
Bruce McKagan............ 48 Vice President, Video Imaging
Peni Garber.............. 36 Director, Vice President and Secretary
David W. Unger........... 42 Director and Vice President
Royce G. Yudkoff......... 43 Director and Vice President
Steven Hicks............. 48 Chairman of the Board
D. Geoff Armstrong....... 41 Director
Andrew Banks............. 44 Director
</TABLE>
The following sets forth biographical information with respect to the
Directors of Holdings and executive officers of Muzak.
William A. Boyd is a director, has been the Chief Executive Officer of Muzak
since March 1999 and was the Chief Executive Officer of Old Muzak from 1997 to
March 1999. 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
the Company. Mr. Boyd was President of the independent affiliate organization
from 1994 to 1995 and from 1986 to 1987. Mr. Boyd was also President of Old
Muzak's Owned Affiliate division in 1987. Prior to owning an independent
affiliate, Mr. Boyd held various positions with Old Muzak. Mr. Boyd is the
father of Robert T. Boyd.
Charles A. Saldarini has been Chief Operating Officer of Muzak since March
1999 and was Chief Operating Officer of Old Muzak from 1997 to March 1999.
Prior to joining Old Muzak, Mr. Saldarini was employed from 1976 to 1997 by
First Union National Bank where he rose to the rank of Senior Vice President.
From 1971 to 1976, Mr. Saldarini held commercial/corporate lender positions
with Irving Trust Company.
Brad D. Bodenman has been Chief Financial Officer and Treasurer of Muzak
since March 1999 and was the Chief Financial Officer of Old Muzak from 1998 to
March 1999. Mr. Bodenman served as Old Muzak's Vice President, Finance and
Administration from 1997 to 1998, as its controller from 1996 to 1997, as its
Director of Finance from 1994 to 1996, as an Accounting Manager from 1991 to
1994, and Accounting Supervisor from 1990 to 1991 and as Senior Accountant from
1989 to 1990. Prior to joining Old Muzak, he served as a senior accountant at
Price Waterhouse.
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Steven M. Tracy has served as Senior Vice President, Owned Operations of
Muzak since March 1999 and was the senior Vice President, Owned Operations of
Old Muzak from 1998 to March 1999. From 1997 to 1998, Mr. Tracy was Old Muzak's
Vice President, Owned Operations, Western Region. Prior to 1997, Mr. Tracy
served as a Regional Director from 1994 to 1997, General Manager from 1988 to
1994 and Vice President/General Manager for Old Muzak from 1986 to 1988.
Robert L. Cauley has served as Vice President, Audio Marketing of Muzak
since March 1999. From 1998 to March 1999, Mr. Cauley was Old Muzak's Manager
of Audio Marketing. From 1996 to 1998, Mr. Cauley served as Operations Manager
of Audio Marketing. Mr. Cauley was Lead Coordinator-Eastern Region for Audio
Marketing from 1994 through 1996. Mr. Cauley joined Old Muzak's Audio Marketing
as an Account Coordinator in 1993. Prior to joining Old Muzak he was Media
Relations Officer for Escambia County Florida from 1987 through 1991. Mr.
Cauley was Operations Manager for EJM Broadcasting in New Orleans from 1984 to
1987. From 1979 through 1984, he was Program Director for Seaway Braodcasting.
Richard Chaffee has been Muzak's Vice President, Operations since March 1999
and was Old Muzak's Vice President, Operations from 1997 to March 1999.
Previously, Mr. Chaffee had been Vice President, Owned Affiliate Operations of
Old Muzak since 1987. Since joining Old Muzak in 1968, Mr. Chaffee has served
in both local sales offices and independent affiliate operations in New York,
Boston, Chicago, Minneapolis and Charlotte, primarily as Chief Engineer and
Operations Manager.
D. Alvin Collis has been Muzak's Vice President, Audio Architecture since
March 1999 and was Old Muzak's Vice President, Audio Architecture from 1997 to
March 1999. From 1994 to 1997, Mr. Collis served as Old Muzak's Director of
Programming. Prior to that time, he served as an audio architect at Old Muzak
from 1988 to 1994 and as an audio architect at Yesco from 1984 to 1988. From
1980 to 1983, Mr. Collis was a partner at MoDaMu (Modern Dance Music) Records.
Prior to 1980, Mr. Collis was a record producer/engineer for various record
companies.
Jack D. Craig has been Muzak's Vice President, Affiliate Sales and
Development since March 1999 and was Vice President, Affiliate Sales and
Development of Old Muzak from 1988 to March 1999. From 1983 to 1988, Mr. Craig
was Vice President, Dealer Sales for AEI. From 1979 to 1983, Mr. Craig was
Marketing/Sales Manager for Aiphone Corporation, a leading intercom
manufacturer. Prior to joining Aiphone Corporation, Mr. Craig served as vice
president/account supervisor for 11 years with J. Walter Thompson Advertising.
Dino J. DeRose has been Muzak's Vice President, National Sales since March
1999 and was Old Muzak's Vice President, National Sales from 1997 to March
1999. Prior to 1997, Mr. DeRose served as Director of National Sales from 1994
to 1997, as General Manager of Old Muzak's InStore Marketing Group from 1992 to
1994 and as a National Account Executive from 1988 to 1992. From 1985 to 1988,
he served as National Retail Sales Manager with SelfVision and was Regional
Sales Manager at Steidel Wine from 1982 to 1985.
Kenneth F. Kahn has been Muzak's Vice President Marketing, since March 1999
and was Old Muzak's Vice President, Marketing from 1997 to March 1999. From
1996 to 1997, Mr. Kahn served as Sales Manager for Old Muzak's New York office.
From 1995 to 1996, Mr. Kahn served as Director of Sales and Marketing at
Emphasis Music. From 1992 to 1994, he served as Vice President, Sales and
Marketing at Astroland Amusement Park. From 1989 to 1992, he was Partner and
Vice President of Phase One Distribution. From 1982 to 1989, he was Partner and
Vice President at Ezra Kahn & Associates.
Bruce McKagan has been Muzak's Vice President, Video Imaging since March
1999 and was Old Muzak's Vice President, Video Imaging from 1998 to March 1999.
From 1995 to 1998, Mr. McKagan served as Old Muzak's Director, Video Imaging.
Prior to joining Old Muzak, Mr. McKagan was Vice President of Sales, Marketing
and Programming for Sight and Sound Entertainment from 1990 to 1995. Mr.
McKagan was Vice President of Entertainment at Restaurant Enterprises Group,
Inc. from 1987 to 1990 and Director of Entertainment for Black Angus
Restaurants from 1981 to 1987.
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Peni Garber is a principal and Secretary of ABRY. She joined ABRY in 1990
from Price Waterhouse, where she served as Senior Accountant in the Audit
Division from 1985 to 1990. Ms. Garber is presently a director (or the
equivalent) of Nexstar Broadcasting Group LLC, Network Music Holdings LLC,
Quorum Broadcast Holdings Inc. and Pinnacle Towers Inc. Ms. Garber graduated
summa cum laude from Bryant College.
David W. Unger has served as Vice President of Muzak since March 1999 and
was Executive Vice President of ACN from May 30, 1997 to March 1999. Since
1995, Mr. Unger has invested in, operated and sold communications businesses.
Prior to 1995, Mr. Unger worked for Communications Equity Associates,
Teleprompter Corp., TKR Cable Co. and as an investment banker. Mr. Unger is a
director of Avalon Cable LLC and Mercom, Inc., operators of cable television
systems. ABRY is the principal investor in Avalon Cable and Mercom.
Royce Yudkoff is the President and Managing Partner of ABRY. Prior to
joining ABRY, Mr. Yudkoff was affiliated with Bain & Company, an international
management consulting firm. At Bain, where he was a partner from 1985 through
1988, he shared significant responsibility for the firm's media practice. Mr.
Yudkoff is presently a director (or the equivalent) of various companies
including Quorum Broadcast Holdings Inc., Nexstar Broadcasting Group LLC,
Metrocall, Inc. and Pinnacle Towers Inc. Mr. Yudkoff graduated as a Baker
Scholar from the Harvard Business School and is an honors graduate of Dartmouth
College.
Steven Hicks has served as President, Chief Executive Officer and a director
of Capstar Broadcasting since June 1997, and as Chairman of the Board of
Capstar Broadcasting from June to September 1997. Previously, Mr. Hicks acted
as Chairman of the Board and Chief Executive Officer of Gulfstar
Communications, Inc. from January 1987 to July 1997 and as President and Chief
Executive Officer of SFX from November 1993 to May 1996.
D. Geoff Armstrong has served as Chief Operating Officer of Capstar
Broadcasting since 1998, and as Executive Vice President and Director of SFX
Entertainment since 1996. From 1996 to 1998, Mr. Armstrong was Executive Vice
President and Chief Operating Officer of SFX Broadcasting, Inc. From 1989 to
1996, Mr. Armstrong served as Executive Vice President, Chief Financial Officer
and Director of SFX Broadcasting. Mr. Armstrong served as Chief Financial
Officer of Sterling Communications from 1986 to 1988 and as Chief Executive
Officer from 1988 to 1989.
Andrew Banks is Chairman of ABRY Holdings, Inc. Previously, Mr. Banks was
affiliated with Bain & Company, an international management consulting firm. At
Bain, where he was a partner from 1986 until 1988, he shared significant
responsibility for the firm's media practice. Mr. Banks is presently a director
(or the equivalent) of DirecTel International, LLC and Pinnacle Towers, Inc.
Mr. Banks is a graduate of the Harvard Law School, a Rhodes Scholar holding a
Master's degree from Oxford University and a graduate of the University of
Florida.
Voting and Terms of Office
Pursuant to the Amended and Restated Limited Liability Company Agreement of
Holdings, each Director is designated as either a "Class A Director" or a
"Class B Director." Each Class A Director is entitled to three votes and each
Class B Director is entitled to one vote. Any decisions to be made by the Board
requires the approval of a majority of the votes of the Board. Following the
Merger Transactions, the authorized numbers of each class of Directors will be
three Class A Directors (Messrs. Banks and Yudkoff and Ms. Garber) and four
Class B Directors (Messrs. Hicks, Armstrong, W. Boyd and Unger). The number of
Directors may be increased or decreased by the Board. Directors hold office
until their respective successors are elected and qualified or until their
earlier death, resignation or removal.
Compensation of Directors
Directors who are not employees of Muzak will not receive any compensation
for serving on the Board. All Directors receive reimbursement of reasonable
out-of-pocket expenses incurred in connection with meetings of the Board.
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<PAGE>
Management Employment Agreements
Concurrently with the consummation of the Merger Transactions, Muzak entered
into an employment agreement with Mr. W. Boyd and amended Mr. Unger's
employment agreement with ACN. 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, up to $150,000 with
annual increases by the consumer price index of the preceding year,
. prohibited from competing with Muzak during the term of his employment
period and for a period of twelve months thereafter, and
. prohibited from disclosing any confidential information gained during
his employment period.
If Muzak terminates Mr. Boyd's employment without "cause," Mr. Boyd will be
entitled to receive his base salary for a period of one year thereafter.
David W. Unger. Pursuant to an employment agreement dated as of October 6,
1998, as amended as of March 18, 1999, between Mr. Unger and ACN, ACN agreed to
employ, Mr. Unger as Vice President until his earlier resignation, death,
disability or termination of employment. Under the agreement Mr. Unger is:
. required to devote approximately thirty-three percent of his business
time to ACN,
. entitled to receive a minimum base salary of $75,000,
. eligible to receive a bonus, as determined by the Board,
. prohibited from competing with ACN during his employment period and for
six months thereafter, and
. prohibited from disclosing any confidential information gained during his
employment period.
If ACN terminates Mr. Unger's employment without "cause," Mr. Unger is
entitled to receive his base salary then in effect and benefits for a period of
six months thereafter subject to compliance with all other applicable
provisions of the Employment Agreement.
Other Executive Officers. Each of the 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 (collectively the "Muzak
Named Executive Officers") for services in all capacities rendered to Muzak and
its subsidiaries in 1998. ACN is the predecessor entity to Muzak as a result of
the Merger on March 18, 1999 of Muzak Limited Partnership with and into ACN.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options/SARs Compensation(1)
- ------------------ ---- -------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
William A. Boyd......... 1998 $300,017 -- $42,000(2) -- $ 2,625
Chief Executive Officer
Charles A. Saldarini.... 1998 $250,014 -- $36,000(3) -- $ 2,552
President and Chief
Operating Officer
Steven M. Tracy......... 1998 $135,008 -- $ 6,000(4) -- $ 4,707
Senior Vice President,
Owned Operations
Dino J. DeRose.......... 1998 $150,217 -- -- -- $ 4,302
Vice President,
National Sales
Kenneth F. Kahn......... 1998 $115,008 $29,000 $ 6,000(4) -- $ 5,250
Vice President,
Marketing
Joseph Koff............. 1998 $116,287 -- -- -- --
Former Chief Executive
Officer and President
of ACN
Mitchell Kleinhandler... 1998 $187,500 -- -- -- --
Former Chief Executive
Officer of ACN
David Unger............. 1998 $ 93,750 -- -- -- $68,000 (5)
Vice President of ACN
and Muzak
</TABLE>
- --------
(1) Consists of contributions by Old Muzak to a defined contribution 401(k)
plan.
(2) Consists of a housing allowance of $36,000 and a car allowance of $6,000.
(3) Consists of a housing allowance of $30,000 and a car allowance of $6,000.
(4) Reflects a car allowance.
(5)Amounts payable in connection with the sale of Old ACN.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investor Securities Purchase Agreement
David W. Unger, ABRY III and Holdings are parties to an Investor Securities
Purchase Agreement dated as of October 6, 1998, pursuant to which Holdings sold
to certain investors, and such investors purchased from Holdings, certain Class
A Units of Holdings for $1,000 per Unit, in cash. The investors are entitled to
indemnification in certain circumstances to the extent that Holdings is
determined to have breached certain representations, warranties or agreements
contained in the Investor Securities Purchase Agreement.
Management Securities Repurchase Agreements
Mr. Unger has entered into a Management Securities Repurchase Agreement with
Holdings, pursuant to which Holdings sold to Mr. Unger, and Mr. Unger purchased
from Holdings certain Incentive Units. 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 (i) subject to certain limitations, automatically
vest in full upon a Sale (as defined in the Management Securities Repurchase
Agreement) of Holdings and (ii) cease to vest upon the date on which Mr. Unger
ceases to be employed by Holdings or any of its subsidiaries. The Management
Securities Repurchase Agreement further provides that Holdings or MEM Holdings,
LLC may repurchase Mr. Unger's unvested units at the initial purchase price at
any time within 18 months of termination of his employment. On November 30,
1998, ABRY III transferred all of its membership units as well as, among other
things, all of its rights and obligations under the original Members Agreement
to MEM Holdings.
Members Agreement
Holdings, MEM Holdings, Joseph Koff, Mr. Unger and Music Holdings Corp.
("MHC") are parties to an Amended and Restated Members Agreement dated as of
March 18, 1999. Pursuant to the Members Agreement, MEM Holdings, Mr. Koff, Mr.
Unger and MHC have agreed to vote their equity interests in Holdings to elect
Mr. Unger to the Board. The Members Agreement also contains (i) certain "co-
sale" rights exercisable in the event of certain sales by ABRY III, (ii)
certain "drag along" sale rights exercisable by the Board of Holdings and
holders of a majority of the then Class A Units, in the event of an Approved
Company Sale (as defined in the Members Agreement), (iii) certain preemptive
rights and (iv) certain restrictions on transfers of membership interests by
Mr. Koff, Mr. Unger, MHC and its permitted transferees. The voting, co-sale,
drag along and transfer restrictions will terminate upon the consummation of
the first to occur of (a) a Qualified Public Offering (as defined in the
Members Agreement) or (b) an Approved Company Sale.
Securityholders Agreement
Holdings, MEM Holdings and Capstar Broadcasting are parties to a
Securityholders Agreement dated as of March 18, 1999. Pursuant to the
Securityholders Agreement, MEM Holdings and Capstar Broadcasting have agreed to
vote their equity interests in Holdings to establish the composition of the
Board and elect Steven Hicks as the Chairman. The Securityholders Agreement
also contains (i) certain "co-sale" rights exercisable in the event of certain
sales by MEM Holdings or Capstar Broadcasting, respectively, (ii) certain "drag
along" sale rights exercisable by the Board of Holdings and holders of a
majority of the then Class A Units, in the event of an Approved Company Sale
(as defined in the Securityholders Agreement), (iii) certain preemptive rights,
and (iv) any transfer by MEM Holdings is subject to a right of first offer by
Capstar Broadcasting, and vice versa. The voting restrictions will terminate
upon an Approved Company Sale. The drag-along and the transfer restrictions
will terminate upon the consummation of the first to occur of (a) a Qualified
Public Offering (as defined in the Securityholders Agreement) or (b) an
Approved Company Sale. The co-sale rights will terminate upon the consummation
of the first to occur of (a) an initial public offering by Holdings or (b) an
Approved Company Sale.
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<PAGE>
Registration Agreement
Holdings, MEM Holdings, Mr. Koff, Mr. Unger, MHC and Capstar Broadcasting
are parties to an Amended and Restated Registration Agreement dated as of March
18, 1999. Pursuant to the Registration Agreement, the holders of a majority of
the ABRY Registrable Securities (as defined in the Registration Agreement) may
request registration (a "Demand Registration") under the Securities Act of all
or any portion of the ABRY Registrable Securities (i) on Form S-1 or any
similar long-form registration, (ii) on Form S-2 or S-3 or any similar short-
form registration, if available, and (iii) on any applicable form pursuant to
Rule 415 under the Securities Act. The holders of a majority of Capstar
Registrable Securities (as defined in the Registration Agreement), subject to
certain terms and conditions, may request a Demand Registration under the
Securities Act of all or any portion of the Capstar Registrable Securities (i)
on Form S-1 or any similar long-form registration and (ii) on Form S-2 or S-3
or any similar short-from registration. In addition, all holders of Registrable
Securities (as defined in the Registration Agreement) will have unlimited
"piggyback" registration rights, which, subject to certain terms and
conditions, entitle them to include their registrable equity securities in any
registration of securities by Holdings (other than in certain registrations).
Holdings is responsible for all expenses incident to its performance under
the Registration Agreement, including without limitation all registration and
filing fees, fees and expenses of compliance with securities or blue sky laws,
printing expenses, fees of counsel for Holdings and the holders of registrable
securities and all independent certified public accountants and underwriters.
ABRY Management and Consulting Services Agreement
Pursuant to a Management Agreement between ABRY and Muzak dated as of
October 6, 1998, ABRY is entitled to a management fee when, and if, it provides
certain advisory and management consulting services to the Company and based on
the amount invested by ABRY and its affiliates in ACN. Muzak anticipates that
any such management fee, if incurred, would be $300,000 per annum payable
quarterly in arrears plus reimbursable expenses, adjusted as follows. The
Management Agreement provides that beginning in 1999, any applicable management
fee should be multiplied by 1.05 raised to the power obtained by subtracting
1998 from the number of the calendar year. Either ABRY or Muzak (with the
approval of the Board) may terminate the Management Agreement by prior written
notice to the other.
ABRY Subordinated Note
In connection with the Old ACN Acquisition, ACN borrowed approximately $40.8
million from ABRY III under the ABRY Subordinated Note. During 1998, no
interest payments were made on the ABRY Subordinated Note and interest accrued
at 9% per annum. The approximately $42.4 million outstanding under the ABRY
Subordinated Note (which includes the accrued interest) was paid in full and
the commitments thereunder terminated concurrently with the closing of the
Merger Transactions. See "Use of Proceeds."
Intercompany Loans
In connection with the Old ACN Acquisition, ACN borrowed $17.6 million from
Holdings. On October 9, 1998, ACN borrowed $850,000 from Holdings to provide
working capital and for acquisitions. On November 25, 1998, ACN borrowed an
additional $210,000 from Holdings for acquisitions. Each of these loans bore
interest at market rates and did not require scheduled cash payments.
On December 4, 1998, Holdings converted these loans of $18.7 million plus
accrued interest of approximately $0.1 million into membership units of ACN.
Certain Family Relationships
William Boyd, the Company's Chief Executive Officer, is the father of Robert
Boyd, the Company's Vice President, Eastern Region. Robert Boyd earned over
$60,000 during 1998.
68
<PAGE>
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, the Company's Western Regional Operations Manager.
Both Ms. Chetwin and Donald Chaffee earned over $60,000 during 1998.
Old Muzak Option Plans
The Old Muzak Named Executive Officers held options that became fully
exercisable upon a change in control of Old Muzak. Upon the consummation of the
Merger such executives received cash payments of merger consideration with
respect to such options, estimated to be as follows: Mr. W. Boyd--$3,245,000;
Mr. Saldarini--$1,585,000, Mr. Tracy--$101,250, Mr. DeRose--$35,750 and Mr.
Kahn--$27,000.
69
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Holdings owned all of the membership units of Muzak. The following table
sets forth certain information regarding the beneficial ownership of the Class
A Units of Holdings, which are the only outstanding membership interests in
Holdings with voting rights, as of May 3, 1999, by:
. holders having beneficial ownership of more than 5% of the voting equity
interests of Holdings,
. each director of Holdings,
. each Muzak Named Executive Officer and each ACN Named Executive Officer
of Holdings, and
. all directors and executive officers as a group.
For descriptions of certain voting and other arrangements among such
holders, see "Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
Beneficial Ownership
(a)
-----------------------
Beneficial Owner Number Percentage
---------------- ---------- ------------
<S> <C> <C>
ABRY Broadcast Partners III, L.P. .................... 40,948 58.8%
18 Newbury Street
Boston, MA 02116
Capstar Broadcasting Corporation...................... 15,921 22.9%
600 Congress, Suite 1400
Austin, Texas 28701
ABRY Broadcast Partners II, L.P. ..................... 10,000 14.4%
18 Newbury Street
Boston, MA 02116
William A. Boyd....................................... 1,155 1.7%
Charles A. Saldarini.................................. -- --
Steven M. Tracy....................................... -- --
Joseph Koff........................................... 534 *
Dino J. DeRose........................................ -- --
Kenneth F. Kahn....................................... -- --
Steven Hicks.......................................... -- --
Geoff Armstrong....................................... -- --
Andrew Banks.......................................... -- --
Peni Garber........................................... -- --
David W. Unger........................................ 1,067 1.5%
Royce G. Yudkoff (b).................................. 50,948 73.2%
Mitchell Kleinhandler................................. -- --
All Directors and executive officers as a
group (18 persons)................................... 69,625 100.0%
</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.
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<PAGE>
(b) Mr. Yudkoff is the sole owner of the equity interests of ABRY Holdings III,
Inc., the general partner of ABRY Equity Investors, L.P., the general
partner of ABRY III. Mr. Yudkoff is also the sole owner of ABRY Holdings,
Inc., the general partner of ABRY Capital, L.P., which is the general
partner of ABRY II. As a result, Mr. Yudkoff may be deemed to beneficially
own the shares owned by ABRY III and ABRY II. The address of Mr. Yudkoff is
the address of ABRY.
Holdings Equity Structure
Muzak is a wholly-owned subsidiary of Holdings. Holdings has authorized two
classes of equity units: class A units and class B units, which we refer to
collectively as the "Units". Each class of the Units represents a fractional
part of the membership interests of Muzak and has the rights and obligations
specified in Holdings' Amended and Restated Limited Liability Company
Agreement. To date, certain of Holdings' class A units and class B units have
been issued and are outstanding.
Voting Units
Each class A unit is entitled to voting rights equal to the percentage such
Unit represents of the aggregate number of outstanding class A units (the
"Voting Units"). A preferred return (the "ACN Holdings Preferred Return")
accrues annually on the original issue price (the "Capital Value") of each
Voting Unit at a rate of 15% per annum. Holdings cannot pay distributions
(other than Tax Distributions) in respect of other classes of securities
(including distributions made in connection with a liquidation) until the
Capital Value and accrued Holdings Preferred Return in respect of each Voting
Unit is paid to each holder thereof (such distributions being the "Priority
Distributions"). In addition to the Priority Distributions, each holder of
Voting Units is also entitled to participate in distributions payable to the
residual common equity interests of Holdings (the "Last Priority
Distributions").
Non-Voting Units
The class B units (the "Non-Voting Units") are non-voting equity interests
in Holdings. The class B-1 units, class B-2 units and class B-3 units (the
"Incentive Units") were issued to Mr. Unger subject to the terms and conditions
set forth in his Management Securities Repurchase Agreement. The Class B-4
Units were issued to Music Holdings Corp. concurrently with the closing of the
Merger under the terms and conditions set forth in the Merger Agreement. On
March 25, 1999, Holdings issued a total of 7,501 Incentive Units to all of the
executive officers of Muzak except Richard Chaffee and Jack D. Craig, and to
other employees of Muzak. Each holder of the class B units is entitled to
participate in Last Priority Distributions, if any, provided that Priority
Distributions on all Voting Units shall have been paid in full.
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<PAGE>
LLC AGREEMENTS
Muzak and Holdings are each limited liability companies organized under the
Delaware Limited Liability Company Act, and each are governed by a limited
liability company agreement that governs the relative rights and duties of the
members.
Muzak LLC
The Amended and Restated Limited Liability Company Agreement of Muzak
provides that the business and affairs of Muzak are to be managed by or under
the direction of a Board. The Directors are to be elected by the members,
although the Board may fill a vacancy. Directors hold office until their
successors are elected and qualified or until their earlier resignation or
removal. The number of Directors may be increased or decreased by the
Directors. Each Director is entitled to one vote. The ownership interests of
Holdings in Muzak consist of 100 membership units.
This agreement, and therefore Muzak's existence, will continue in effect
until the earlier to occur of:
. the sale or other disposition by Muzak of all or substantially all of
the assets it then owns;
. the written consent of the Members holding greater than a majority of
the outstanding Common Units; or
. the entry of a decree of judicial dissolution under the Delaware Limited
Liability Company Act.
Holdings LLC
The Limited Liability Company Agreement of Holdings was amended and
restated concurrently with the closing of the Merger. Pursuant to this
agreement, the business and affairs of Holdings are managed by or under the
direction of a Board. The Directors are elected by the Members. Each Director
is designated as either a "Class A Director" or a "Class B Director."
Directors hold office until their successors are elected and qualified or
until their earlier resignation or removal. The number of Directors may be
increased or decreased by the Board. Each Class A Director is entitled to
three votes and each Class B Director is entitled to one vote. Any decisions
to be made by the Board requires the approval of a majority of votes of the
Board. ABRY III, as the beneficial owner, owns the majority of the voting
membership units of Holdings, and as such controls the policies and operations
of Holdings and of Muzak through Holdings.
This agreement, and therefore Holdings' existence, will continue in effect
until the earlier to occur of:
. the sale or other disposition by Holdings of all or substantially all of
the assets it then owns;
. a vote to dissolve Holdings by members that own units representing at
least a majority of the voting interests; or
. the entry of a decree of judicial dissolution under the Delaware Limited
Liability Company Act.
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<PAGE>
DESCRIPTION OF CERTAIN DEBT
Description of the Senior Credit Facility
General. As part of the Merger Transactions, Muzak entered into a senior
credit facility (the "Senior Credit Facility") with Goldman Sachs Credit
Partners L.P. ("GSCP") as a lender and as Syndication Agent, Canadian Imperial
Bank of Commerce ("CIBOC") as a lender and as Administrative Agent, and certain
other financial institutions (the "Lenders").
The Senior Credit Facility provides for two term loans to Muzak for $30.0
million and $105.0 million ("Term Loan A" and "Term Loan B," respectively, and
collectively, the "Term Loans") and revolving loans to Muzak for up to $35.0
million (the "Revolving Loan" and, together with the Term Loans, the "Loans").
Subject to certain restrictions, the Senior Credit Facility may be used to
finance the Merger Transactions (including the repayment of up to $42.4 million
of loans made by ABRY 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, subject to certain conditions. The obligations of
the Lenders to provide the initial advances under the Senior Credit Facility
will be subject to the satisfaction of certain conditions.
Repayment. The Revolving Loan must be repaid on or before December 31, 2005.
Prior to that time, the Revolving Loan may be borrowed, repaid and reborrowed,
without premium or penalty subject to the satisfaction of certain conditions on
the date of any such borrowing. The Term Loans are required to be amortized in
equal semi-annual installments on June 30 and December 31 of each year,
beginning on June 30, 2000, as set forth below:
<TABLE>
<CAPTION>
Term Loan A Term Loan B
Year Amortization Amortization
---- ------------ ------------
<S> <C> <C>
2000 7.5% 1.0%
2001 12.5% 1.0%
2002 17.5% 1.0%
2003 20.0% 1.0%
2004 20.0% 15.0%
2005 22.5% 25.0%
2006 N/A 56.0%
------ ------
Totals: 100.0% 100.0%
</TABLE>
Prepayments of Term Loan B other than scheduled payments will be subject to
prepayment penalties of 2% of the amount of the repayment ,within the first
year, or 1% of the amount of the repayment during the second year. In addition,
the Senior Credit Facility provides for mandatory repayments, with
corresponding permanent reductions on Revolving Loan commitments, of any
outstanding borrowings, subject to certain exceptions, out of any proceeds
received from a sale of assets, net cash proceeds of permitted debt issuances,
net cash proceeds from insurance recovery and condemnation events and,
beginning December 31, 2000 the Senior Credit Facility requires certain annual
excess cash repayments.
Security; Guaranty. The obligations of Muzak under the Senior Credit
Facility are guaranteed by Holdings and will be guaranteed by each of the
Company'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.
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<PAGE>
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 the Company's election, of
the following rates plus the applicable borrowing margin:
. the greater of (a) CIBOC's announced prime commercial lending rate or
(b) the federal funds rate plus 0.5% (the "Base Rate"); or
. LIBOR, adjusted for reserves.
The applicable borrowing margin for Base Rate borrowings under Term Loan A
and the Revolving Loan ranges from 1.0% if the Company's Total Leverage Ratio
is less than 3.75:1 to 2.0% if the Company's Total Leverage Ratio is greater
than 5.25:1. The applicable borrowing margin for LIBOR loans under Term Loan A
and the Revolving Loan ranges from 2.0% if the Company's Total Leverage Ratio
is less than 3.75:1 to 3.0% if the Company's Total Leverage Ratio is greater
than 5.25:1. The applicable margin for borrowings under Term Loan B is 2.50%
for all Base Rate borrowings and 3.50% for all LIBOR borrowings.
Fees. Muzak has agreed to pay certain fees in connection with the Senior
Credit Facility, including: (i) arrangement fees; (ii) agency fees; and (iii)
commitment fees. Commitment fees range from 0.375% if the Company's Leverage
Ratio is less than or equal to 4:1 to 0.625% if Muzak's Leverage Ratio is
greater than or equal to 5:1.
Covenants. The Senior Credit Facility contains negative covenants which,
among other things, restrict the ability of Holdings, Muzak and its
subsidiaries (subject to certain exceptions) to incur indebtedness, incur
liens, issue guarantees, transact with affiliates, declare or pay dividends or
redeem or repurchase capital stock, make loans and investments, repay other
debt, engage in other lines of business, engage in mergers, acquisitions, sale
and leaseback transactions and asset sales, acquire assets, stock, or debt
securities of any person, have additional subsidiaries, amend certain material
agreements, including the Indenture and make capital expenditures. The Senior
Credit Facility also requires Muzak and its restricted subsidiaries to satisfy
certain customary affirmative covenants, including financial reporting, notice
provisions, books and records, inspection of property, maintenance of property
and insurance, maintenance of corporate rights, maintain interest rate
protection, payment of taxes, contributions from Holdings to Muzak, cash
management systems, pledges of additional collateral, security and guarantees,
use of proceeds, to make certain representations and warranties, including
Year 2000 preparedness and to make certain customary indemnifications to the
Lenders and the agents under the Senior Credit Facility.
The Senior Credit Facility further requires Muzak to maintain compliance
with four financial covenants:
. Total Leverage Ratio: restricts the amount of total debt less amounts
outstanding under certain letters of credit as a ratio of annualized
operating cash flow for the most recent fiscal quarter, adjusted for
acquisitions, dispositions, exchanges and franchise terminations;
. Senior Leverage Ratio: restricts the amount of senior debt as a ratio
of annualized operating cash flow for the most recent fiscal quarter,
adjusted for acquisitions, dispositions, exchanges and franchise
terminations;
. Interest Coverage Ratio: establishes minimum amounts of operating cash
flow as a ratio of consolidated interest expense; and
. Fixed Charge Coverage Ratio: establishes minimum amounts of operating
cash flow as a ratio of fixed charges.
Events of Default. The Senior Credit Facility contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, certain events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-default to certain other indebtedness,
and a change in control of Holdings or Muzak.
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<PAGE>
Description of Senior Subordinated Notes
The Senior Subordinated Notes are limited in aggregate principal amount to
$150.0 million, of which $115.0 million will be 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 (the "Issuers"), subordinated in right of payment to all
present and future Senior Debt (as defined in the Senior Subordinated Note
Indenture) of the Issuers. 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 the Issue Date
and will be 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 (expressed as
percentages of principal amount) set forth 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 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
thereof, 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 to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Senior Subordinated
Notes 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 certain asset sales, holders of Senior
Subordinated Notes may have the right to require the Issuers 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.
The Senior Subordinated Note Indenture contains certain 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 certain 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 certain other payments to Muzak and its Restricted
Subsidiaries;
. sell assets; and
. issue capital stock of Restricted Subsidiaries.
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The Senior Subordinated Note Indenture contains certain customary events of
default, which include the failure to pay interest and principal, the failure
to comply with certain covenants in the Senior Subordinated Notes or the Senior
Subordinated Note Indenture, a default under certain indebtedness, the
imposition of certain final judgements and certain events occurring under
bankruptcy laws.
Muzak has agreed to file within 75 days after the Issue Date and to cause to
become effective within 150 days of the 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.
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DESCRIPTION OF THE NOTES
The Holdings Issuers have issued the existing notes and will issue the
exchange notes (collectively, the "Notes") under an indenture, to be dated as
of March 18, 1999 by and among themselves and State Street Bank and Trust
Company, as trustee. The terms of the Notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended (the "TIA") as in effect on the date of the
Indenture. The Notes are subject to all such terms, and holders of the Notes
are referred to the indenture and the TIA for a statement of them. The
following is a summary of the material terms and provisions of the Notes. This
summary does not purport to be a complete description of the Notes and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the indenture (including the definitions contained
therein). A copy of the form of Indenture may be obtained from the Holdings
Issuers by any holder or prospective investor upon request. Definitions
relating to certain capitalized terms are set forth under "--Certain
Definitions." Capitalized terms that are used but not otherwise defined herein
have the meanings ascribed to them in the Indenture and such definitions are
incorporated herein by reference.
General
The Notes are limited in aggregate principal amount 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.
Maturity, Interest and Principal
The Notes will mature on March 15, 2010. Cash interest on the Notes will
not accrue or be payable prior to March 15, 2004. The Notes will be issued at
a substantial discount from their principal amount at maturity. From the Issue
Date 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, respectively. The interest rate on the Notes is
subject to increase, and such Additional Interest will be payable on the
payment dates set forth above, in certain circumstances, if the Notes (or
other securities substantially similar to the Notes) are not registered with
the Commission within the prescribed time periods. See "Exchange Offer;
Registration Rights."
Optional Redemption
The Holdings Issuers may redeem the Notes at their option in whole at any
time or in part from time to time on or after March 15, 2004 at the following
redemption prices (expressed as percentages of the principal amount at
maturity thereof), together, in each case, with accrued and unpaid interest,
if any, to the redemption date, if redeemed during the twelve-month period
beginning on March 15 of each year listed below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.......................................................... 106.500%
2005.......................................................... 104.333%
2006.......................................................... 102.167%
2007 and thereafter........................................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Holdings Issuers may redeem in the
aggregate up to 35% of the original aggregate principal amount at maturity of
Notes at any time and from time to time prior to March 15, 2002 at a
redemption price equal to 113% of the Accreted Value thereof out of the net
cash proceeds of one or more Equity Offerings; provided that
(1) at least 65% of the aggregate principal amount at maturity of Notes
originally issued remains outstanding immediately after the occurrence of
any such redemption and
(2) any such redemption occurs within 60 days following the closing of
any such Equity Offering.
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In the event of a redemption of fewer than all of the Notes, the trustee
shall select the Notes to be redeemed in compliance with the requirements of
the principal national securities exchange, if any, on which such Notes are
listed, or if such Notes are not then listed on a national securities exchange,
on a pro rata basis, by lot or in such other manner as the Trustee shall deem
fair and equitable. The Notes will be redeemable in whole or in part upon not
less than 30 nor more than 60 days' prior written notice, mailed by first class
mail to a holder's last address as it shall appear on the register maintained
by the Registrar of the Notes. On and after any redemption date, Accreted Value
will cease to accrete and interest will cease to accrue, in each case to the
extent applicable, on the Notes or portions thereof called for redemption.
Holding Company Structure
Holdings is a holding company for its Subsidiaries, with no material
operations of its own and only limited assets. Accordingly, Holdings is
dependent upon the distribution of the earnings of its Subsidiaries, whether in
the form of dividends, advances or payments on account of intercompany
obligations, to service its debt obligations. In addition, 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, the Company's
Obligations under the Senior Credit Facility) and to any preferred stock
interest of such Subsidiaries. There can be no assurance that, after providing
for all prior claims, there would be sufficient assets available from Holdings
and its Restricted Subsidiaries 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, if any, that Holdings itself is recognized as a creditor of such
Subsidiary, in which 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. See "Risk
Factors -- Holding Company Structure; Subordination."
The Senior Credit Facility will restrict, subject to limited exceptions, the
Company from paying any dividends, if applicable, or making any other
distributions to Holdings. In addition, the Indenture will provide that the
holders of the Notes, while free to exercise their rights and remedies against
Holdings, will be bound, for so long as any Obligations under the Senior Credit
Facility are outstanding, by standstill provisions prohibiting the Holders from
initiating or intervening in an insolvency proceeding of the Company. Such
provisions will also specifically prohibit the Holders from seeking a
substantive consolidation of Holdings, the Company and/or Muzak Holdings
Finance. The Indenture will also contain subordination provisions to the effect
that, in the event of a substantive consolidation of Holdings, the Company
and/or Muzak Holdings Finance, the Holders (i) 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 (ii) will be required to turn over to the lenders under the Senior Credit
Facility any payments received in violation of such provisions.
Certain 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 (as defined) any Indebtedness (including
Acquired Indebtedness); provided that if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness, Holdings and any of its Restricted
Subsidiaries may incur Indebtedness (including Acquired Indebtedness) if after
giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof, 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.
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Notwithstanding the foregoing, Holdings and its Restricted Subsidiaries may
incur Permitted Indebtedness. For purposes of determining compliance with this
covenant, in the event that an item of proposed Indebtedness meets the criteria
of more than one of the categories of Permitted Indebtedness as of the date of
incurrence thereof or is entitled to be incurred pursuant to the first
paragraph of this covenant as of the date of incurrence thereof, Holdings
shall, in its sole discretion, classify or reclassify such item of Indebtedness
in any manner that complies with this covenant. Accrual of interest, the
accretion of accreted value and the payment of interest in the form of
additional Indebtedness will not be deemed to be an incurrence of Indebtedness
for purposes of this covenant and the payment of dividends on Disqualified
Capital Stock in the form of additional shares of the same class of
Disqualified Capital Stock will not be deemed an issuance of Disqualified
Capital Stock.
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 Restricted Payment, unless:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(2) immediately after giving pro forma effect to such Restricted
Payment, Holdings could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under "-- Limitation on Additional Indebtedness"
above; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of
(a) 100% of 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 Issue Date 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), (i) any net proceeds from an Equity
Offering to the extent used to redeem the Notes and (ii) any net
proceeds directly or indirectly received in connection with the Pending
Capstar Acquisition, and
(d) without duplication, the sum of
(i) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent to
the Issue Date whether through interest payments, principal
payments, dividends or other distributions;
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(ii) 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
(iii) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the net assets of
such Subsidiary;
provided, however, that the sum of clauses (i), (ii) and (iii) above shall not
exceed the aggregate amount of all such Investments made subsequent to the
Issue Date.
For purposes of determining under clause (3) above the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit
(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the indenture,
(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 shall 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 Issue Date and (y) any "key-man" life insurance
policies which are used to make such redemptions or repurchases); provided,
that the cancellation of Indebtedness owing to 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 Transactions, the Electro Systems Acquisition or
the Pending Capstar Acquisition, including the
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repayment of loans made by ABRY 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,
(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 Issue Date for purposes of clause (3) of the first paragraph above,
amounts expended pursuant to clauses (1), (2) and (13) of the immediately
preceding paragraph shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Holdings
Issuers shall deliver to the trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant described above were computed, which
calculations may be based upon the Holdings Issuers' latest available financial
statements, and (other than with respect to any Restricted Payment permitted
under clauses (5) and (6)) that no Default or Event of Default has occurred and
is continuing and no Default or Event of Default will occur immediately after
giving effect to any such Restricted Payments.
Limitation on Investments
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 Issue Date 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 shall be subordinated to any Lien granted to the
holders of the Notes to the same extent as such Indebtedness is
subordinated to the Notes and
(2) in all other cases, the Notes are equally and ratably secured.
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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 Issue Date
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 permitted
under clause (1) above, Holdings must obtain a resolution of the Board of
Directors of Holdings 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 Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
holders in any material respect than the original agreement as in effect on
the Issue Date,
(4) transactions effected as part of a Qualified Securitization
Transaction,
(5) any employment agreement entered into by 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 Issue
Date 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 Issue Date shall only be permitted by this clause
(6) to the extent that the terms of any such amendment or new agreement are
not otherwise disadvantageous to the Holders of the Notes in any material
respect,
(7) transactions permitted by, and complying with, the provisions
described under "--Merger, Consolidation and Sale of Assets" below,
(8) payments of principal and interest on the ABRY Subordinated Debt in
accordance with the terms thereof,
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(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 Transactions and the
Pending Capstar Acquisition, including the repayment of loans made by ABRY
III,
(11) transactions pursuant to the ABRY Management Agreement or pursuant
to the terms of any amendment thereto or restatement thereof which terms
are not more disadvantageous to the Holders in any material respect than
the terms of such agreement as in effect on the Issue Date as determined in
good faith by the Board of Directors of 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; provided, that such issuance has been approved by
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 Certain 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 and/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; provided that the
amount of
(a) any liabilities (as shown on Holdings' 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 shall be deemed to
be cash for purposes of this clause (2); 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), shall be deemed to
be cash for purposes of this clause (2); 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 elects, or is required, to prepay, repay or purchase any
Indebtedness of a Restricted Subsidiary, the prepayment, repayment
or repurchase of such Indebtedness within 360 days following the
receipt of the Asset Sale Proceeds from any Asset Sale; provided
that in the case of the repayment of borrowings under any revolving
credit facility, any such repayment shall result in a permanent
reduction of the commitments thereunder in an amount equal to the
principal amount so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds
after application as described above, to the extent Holdings elects,
to an investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital
Stock or
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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 Issue Date;
provided that such investment occurs within 360 days following
receipt of such Asset Sale Proceeds; and
(c) third, if on such 360th day with respect to any Asset Sale,
the Available Asset Sale Proceeds exceed $10 million, Holdings shall
apply an amount equal to the Available Asset Sale Proceeds to an
offer to repurchase the Notes and all other pari passu Indebtedness
of 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 Accreted Value 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.
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 shall
mail, within 45 days following the date specified in clause (3)(c) above, a
notice to the holders stating, among other things:
(1) that such holders have the right to require Holdings to apply the
Available Asset Sale Proceeds to repurchase such Notes at a purchase price
in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date;
(2) the purchase date, which shall be no earlier than 45 days and not
later than 60 days from the date such notice is mailed;
(3) the instructions that each holder must follow in order to have such
Notes purchased; and
(4) the calculations used in determining the amount of Available Asset
Sale Proceeds to be applied to the purchase of such Notes.
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 shall be deemed to have sold the properties and assets of Holdings and
its Restricted Subsidiaries not so transferred for purposes of this covenant,
and shall comply with the provisions of this covenant with respect to such
deemed sale as if it were an Asset Sale.
The Senior Credit Facility will (subject to limited exceptions) restrict the
Company from paying any dividends, if applicable, or making any other
distributions to Holdings. If Holdings is unable to obtain dividends, if
applicable, or other distributions from the Company sufficient to permit the
purchase of the Notes pursuant to the Excess Proceeds Offer or the Company does
not repay the Senior Credit Facility or refinance the Senior Credit Facility so
it is no longer restricted from paying such dividends or making such
distributions, Holdings will likely not have the financial resources to
purchase the Notes. In any event, there can be no assurance that Holdings'
Subsidiaries will have the resources available to pay any such dividend, if
applicable, or make any such distribution. Holdings' failure to make an Excess
Proceeds Offer when required to purchase the Notes when tendered would
constitute an Event of Default under the indenture.
Holdings will comply with the requirements of Rule 14e-1 under the Exchange
act and other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to an Excess Proceeds Offer. To the extent that the provisions of any
securities
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laws or regulations conflict with the "Asset Sale" provisions of the Indenture,
Holdings shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Asset Sale"
provisions of the indenture by virtue thereof.
Limitation on Preferred Stock of Restricted Subsidiaries
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
(i) on its Capital Stock or
(ii) with respect to any other interest or participation in, or
measured by, its profits or
(b) repay any Indebtedness or any other obligation owed to 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 Issue Date to the
extent and in the manner such encumbrances and restrictions are in effect
on the Issue Date,
(2) (a) the indenture, the Notes and the Exchange Notes, (b) the Senior
Subordinated Indenture, the Senior Subordinated Notes and the Senior
Subordinated Guarantees, 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; provided that such restrictions are not
materially more restrictive, when taken as a whole, than those contained in
the agreements governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded,
(7) customary restrictions in security agreements or mortgages securing
Indebtedness of 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,
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(9) restrictions on the transfer of assets subject to any Lien permitted
under the Indenture imposed by the holder of such Lien,
(10) any agreement or instrument governing Capital Stock of any Person
that is acquired; provided that no such restriction is created in
contemplation of the acquisition of such Capital Stock,
(11) Indebtedness or other contractual requirements of a Securitization
Entity in connection with Qualified Securitization Transaction; provided
that such restrictions apply only to such Securitization Entity,
(12) Purchase Money Indebtedness incurred to acquire property in the
ordinary course of business which Indebtedness imposes restrictions
regarding transfer of the property acquired,
(13) the terms of any Indebtedness permitted by the Indenture to be
incurred by any Restricted Subsidiary which encumbrances or restrictions
are no more restrictive than those contained in the Senior Subordinated
Indenture,
(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 Issue Date 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
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subordinated to the Guarantee substantially to the same extent as such
Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon: (i) 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 (ii) 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 (a) such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of the Indenture and (b) 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.
Change of Control Offer
Upon the occurrence of a Change of Control, the Holdings Issuers shall be
obligated to make an offer to purchase (the "Change of Control Offer") each
holder's outstanding Notes at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the Change of Control Payment Date (as defined) in
accordance with the procedures set forth below.
Within 20 days of the occurrence of a Change of Control, the Holdings
Issuers shall (i) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in
the United States and (ii) send by first-class mail, postage prepaid, to the
Trustee and to each holder of the Notes, at the address appearing in the
register maintained by the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Holdings Issuers default in the payment of the
Change of Control Purchase Price, any Notes accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount
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of the Notes delivered for purchase, and a statement that such holder is
withdrawing his election to have such Notes purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Holdings Issuers shall, to the
extent lawful,
(1) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so tendered, and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Holdings Issuers.
The Paying Agent shall promptly mail to each holder of Notes so accepted
payment in an amount equal to the purchase price for such Notes, and the
Holdings Issuers shall execute and issue, and the Trustee shall promptly
authenticate and mail to such holder, a new Note equal in principal amount to
any unpurchased portion of the Notes surrendered; provided that each such new
Note shall be issued in an original principal amount in denominations of $1,000
and integral multiples thereof.
The Indenture requires that if the Senior Credit Facility is in effect, or
any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control prior to the mailing of the notice to holders
described in the second preceding paragraph, but in any event within 60 days
following any Change of Control, the Holdings Issuers covenant to
(1) repay in full all obligations and terminate all commitments under or
in respect of the Senior Credit Facility, the terms of which require
repayment upon a Change of Control or offer to repay in full all
obligations and terminate all commitments under or in respect of the Senior
Credit Facility and repay the Indebtedness owed to each such lender who has
accepted such offer, or
(2) obtain the requisite consents under the Senior Credit Facility to
permit the repurchase of the Notes as described above.
The Holdings Issuers must first comply with the covenant described in the
preceding sentence before they shall be required to purchase Notes in the event
of a Change of Control; provided that the Holdings Issuers' failure to comply
with the covenant described in the preceding sentence constitutes an Event of
Default described in clause (3) under "-- Events of Default" below if not cured
within 30 days after the notice required by such clause. As a result of the
foregoing, a holder of the Notes may not be able to compel the 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 the Senior Credit
Facility or obtain requisite consents under the Senior Credit Facility.
The Senior Credit Facility limits, and the indenture governing the Senior
Subordinated Notes will limit, the ability of the Holdings Issuers to purchase
any Notes. The Senior Subordinated Notes Indenture requires the Company to
repurchase the Senior Subordinated Notes upon the occurrence of certain change
of control events. The Senior Credit Facility provides that certain change of
control events with respect to the Holdings Issuers or the Company would
constitute a default thereunder. Any future credit agreements or other
agreements relating to Indebtedness to which the Holdings Issuers or the
Company become a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Holdings Issuers are
prohibited from purchasing Notes, the Holdings Issuers could seek the consent
of their lenders or lenders of the Company
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to the purchase of Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Holdings Issuers or the Company do not obtain
such a consent or repay such borrowings, the Holdings Issuers and the Company
will remain prohibited from purchasing the Notes and the Senior Subordinated
Notes. In such case, the Holdings Issuers' failure to purchase tendered Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Senior Credit Facility.
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.
Neither the Board of Directors of any Holdings Issuer nor the Trustee may
waive the covenant relating to a holder's right to redemption upon a Change of
Control. Restrictions in the Indenture described herein on the ability of
Holdings and its Restricted Subsidiaries to incur additional Indebtedness, to
grant liens on their respective properties, to make Restricted Payments and to
make Asset Sales may also make more difficult or discourage a takeover of
Holdings, whether favored or opposed by the management of Holdings.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that the
Holdings Issuers or the acquiring party will have sufficient financial
resources to effect such redemption or repurchase. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of Holdings or any of
its Subsidiaries by the management of Holdings. While such restrictions cover a
wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the holders of
Notes protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Holdings Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Holdings Issuers shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Merger, Consolidation or Sale of Assets
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 shall be 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 shall be a
corporation, partnership, trust or a limited liability company organized
and existing under the laws of the United States or any State thereof or
the District of Columbia and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the trustee, all of the obligations of Holdings under the indenture and the
Notes, and the obligations thereunder shall remain in full force and
effect; provided that if at any time Holdings or such successor Person is a
limited liability company, partnership or trust, there shall be a co-issuer
of the Notes that is a Restricted Subsidiary of 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;
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(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction on a pro forma
basis 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 shall deliver, or cause to be
delivered, to the trustee, in form and substance reasonably satisfactory to
the trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this provision and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Holdings, the Capital Stock of which constitutes all or
substantially all of the properties and assets of Holdings, shall be deemed to
be the transfer of all or substantially all of the properties and assets of
Holdings.
Notwithstanding the foregoing, Holdings may merge or consolidate with or
transfer substantially all of its assets to an Affiliate that has no
significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of 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 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 shall constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(4) failure to pay at final maturity (after giving effect to any
applicable grace period) any Indebtedness of Holdings or any Restricted
Subsidiary thereof (other than a Securitization Entity), or the
acceleration of any such Indebtedness, which acceleration shall not be
rescinded or annulled within 20 days after written notice as provided in
the Indenture, if the aggregate amount of such Indebtedness, together with
the amount of any other such Indebtedness in default for failure to pay or
which has been accelerated, aggregates $5 million or more at any time;
(5) any final judgment or judgments which can no longer be appealed for
the payment of money in excess of $5 million (excluding amounts covered by
insurance for which coverage is not being challenged or denied unless
Holdings is contesting such challenge or denial in good faith) shall be
rendered against Holdings or any Restricted Subsidiary thereof, and shall
not be discharged for any period of 60 consecutive days during which a stay
of enforcement shall not be in effect; and
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(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) shall have occurred and be
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 shall become immediately due and payable or (2)
if there are any amounts outstanding under the Senior Credit Facility, shall
become immediately due and payable upon the first to occur of an acceleration
under the Senior Credit Facility or five business days after receipt by the
Holdings Issuers and the representative under the Senior Credit Facility of a
notice of acceleration; provided, however, that after such acceleration but
before a judgment or decree based on acceleration is obtained by the trustee,
the holders of a majority in aggregate principal amount 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
shall have received an Officers' Certificate and an opinion of counsel that
such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default of the type described in clause
(6) of the first paragraph above shall occur, the principal, premium and
interest amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the trustee or
the holders of the Notes.
The holders of a majority in principal amount at maturity of the Notes then
outstanding shall have the right to waive any existing default or compliance
with any provision of the Indenture or the Notes and to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee,
subject to certain limitations provided for in the indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount at
maturity of the outstanding Notes shall have made written request and offered
reasonable indemnity to the trustee to institute such proceeding as trustee,
and unless the trustee shall not have received from the holders of a majority
in aggregate principal amount at maturity of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. Notwithstanding the foregoing, such limitations do
not apply to a suit instituted on such Note on or after the respective due
dates expressed in such Note.
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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 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 shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from
bankruptcy, insolvency or reorganization events are concerned, at any time
in the period ending on the 91st day after the date of deposit;
(3) such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a Default under the indenture or any other
material agreement or instrument to which any 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 shall 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 shall have delivered to the trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the defeasance or the
covenant defeasance have been complied with;
(6) the Holdings Issuers shall have delivered to the trustee an opinion
of counsel to the effect that assuming no intervening bankruptcy shall
occur 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
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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 shall, without the consent of each holder
affected thereby,
(1) reduce the amount of Notes whose holders must consent to an
amendment, supplement, or waiver to the indenture,
(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Note,
(3) reduce the principal 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,
(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 Issue Date, so long as the Holdings
Issuers are subject to the periodic reporting requirements of the Exchange Act,
they will continue to furnish the information required thereby to the
Commission and to the holders of the Notes. The indenture provides that even if
the Holdings Issuers are entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, they will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.
The Trustee
The trustee under the indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the trustee will perform only such duties as are
specifically set forth in the indenture. During the existence of an Event of
Default, the trustee will exercise such rights and powers vested in it under
the Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
Transfer and Exchange
Holders of the Notes may transfer or exchange Notes in accordance with the
indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and
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transfer documents, and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar is not required to transfer or exchange any
Note selected for redemption and, further, is not required to transfer or
exchange any Note for a period of 15 days before selection of the Notes to be
redeemed.
The Notes will be issued in a transaction exempt from registration under the
Securities Act and will be subject to the restrictions on transfer described in
"Notice to Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"ABRY" means ABRY Partners, Inc., a Delaware corporation.
"ABRY Management Agreement" means the Management Agreement dated as of
October 6, 1998, and as amended prior to Issue Date, 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 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 shall be
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 shall have occurred and be continuing, (c) that
shall automatically convert into common equity of Holdings within 18 months of
the date of issuance thereof, unless refinanced, and (d) the terms of which
have been determined to be fair and reasonable to Muzak as determined in good
faith by the Board of Directors of Holdings or Muzak, as the case may be, and
evidenced by a board resolution delivered to the trustee.
"ABRY II" means ABRY Broadcast Partners II, L.P., a Delaware limited
partnership.
"ABRY III" means ABRY Broadcast Partners III, L.P., a Delaware limited
partnership.
"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, (i)
EBITDA attributable to the assets to be acquired in such Asset Acquisition for
the same fiscal quarter utilized in determining "Consolidated Leverage Ratio"
plus (ii) the projected, quantifiable cost reductions expected to be realized
and non-recurring costs and expenses, in each case, in connection with such
Asset Acquisition and as a result of, in the case of cost reductions, an
established program of cost reductions adopted in good faith by the Board of
Directors of Holdings. For purposes of the foregoing, cost reductions and non-
recurring costs and expenses, in
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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; provided that, for purposes of the covenant described under "--
Certain Covenants--Limitation on Transactions with Affiliates" beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control. Notwithstanding the foregoing, no
Person (other than Holdings or any Subsidiary of Holdings) in whom a
Securitization Entity makes an Investment in connection with a Qualified
Securitization Transaction shall 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 shall become a Restricted
Subsidiary of Holdings or any Restricted Subsidiary of Holdings, or shall
be 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;
provided that Asset Sales shall 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,
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(7) sales of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
Qualified Securitization Transaction to a Securitization Entity for the
fair market value thereof, including cash in an amount at least equal to
75% of the fair market value thereof as determined in accordance with GAAP,
(8) transfers of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
Qualified Securitization Transaction (or a fractional undivided interest
therein) by a Securitization Entity in a Qualified Securitization
Transaction (for the purposes of this clause (8), Purchase Money Notes
shall be deemed to be cash), and
(9) any transfer of assets acquired by 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
Agreements as such agreements are in effect on the Issue Date and as the
same may be amended or restated in a manner which is not more
disadvantageous to the Holders in any material respect than the terms of
such agreements as in effect on the Issue Date.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(1) cash and Cash Equivalents received by 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,
(c) provision for minority interest holders in any Restricted
Subsidiary of Holdings as a result of such Asset Sale,
(d) repayment of Indebtedness that is secured by the assets subject
to such Asset Sale or otherwise required to be repaid in connection
with such Asset Sale and
(e) deduction of appropriate amounts to be provided by 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
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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."
"Board of Directors" means, with respect to any Person, the board of
directors of such Person (or, if such Person is a limited liability company,
the board of managers of such company) or similar governing body or any duly
authorized committee thereof.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Equivalents" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency or
instrumentality thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by (i) any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000 or (ii) Brown Brothers Harriman;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
A "Change of Control" of 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 Exchange Act (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 Exchange Act, except that a Person shall
be deemed to have "beneficial ownership" of all securities that such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time) of more than 35% of the total voting power
of 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,
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(2) there shall be consummated any consolidation or merger 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
(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).
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"Consolidated Leverage Ratio" means, with respect to any Person, the ratio
of
(1) the sum of the aggregate outstanding amount of Indebtedness of such
Person and its Restricted Subsidiaries and Preferred Stock of any such
Restricted Subsidiary issued in accordance with "-- Certain Covenants --
Limitation on Preferred Stock of Restricted Subsidiaries" as of the date
of calculation (the "Transaction Date") on a consolidated basis determined
in accordance with GAAP to
(2) the product of (a) such Person's EBITDA for the full fiscal quarter
(the "One Quarter Period") ending on or prior to the date of determination
for which financial statements are available and (b) four.
For purposes of this definition, clauses (1) and (2) above shall be calculated
after giving effect on a pro forma basis to:
(a) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries or the issuance or redemption or other
repayment of Preferred Stock of any such Restricted Subsidiary (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness and, in
the case of any Restricted Subsidiary, the issuance or redemption or other
repayment of Preferred Stock (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the One Quarter Period or at any time
subsequent to the last day of the One Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment or issuance or
redemption or other repayment, as the case may be (and the application of
the proceeds thereof), occurred on the first day of the One Quarter Period;
and
(b) any Asset Sales or Asset Acquisitions occurring during the One
Quarter Period or at any time subsequent to the last day of the One Quarter
Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for
any Acquired Indebtedness) occurred on the first day of the One Quarter
Period as follows:
(x) with respect to Asset Sales, the EBITDA attributable to the
assets which are the subject of Asset Sales that occurred shall be
excluded; and
(y) with respect to Asset Acquisitions, the Acquisition EBITDA
attributable to the assets which are the subject of the applicable
Asset Acquisition shall be included.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding paragraph shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary or such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that
(1) the Net Income of any Person other than a Restricted Subsidiary of
the referent Person shall be included only to the extent of the amount of
dividends or distributions paid to the referent Person or a Restricted
Subsidiary of such referent Person,
(2) the Net Income of any Restricted Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions, other than those permitted
under "-- Certain Covenants -- Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" above, shall be excluded to
the extent of such restriction or limitation,
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
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(4) any net gain or loss (in the case of any net loss, only to the
extent that such determination of Consolidated Net Income is being made in
connection with the determination of amounts available for Restricted
Payments pursuant to the provisions described under "-- Certain
Covenants -- Limitation on Restricted Payments" above) resulting from an
Asset Sale by the Person in question or any of its Restricted Subsidiaries
other than in the ordinary course of business shall be excluded,
(5) extraordinary gains and losses shall be excluded,
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued) shall be excluded and
(7) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets shall be excluded.
"Control Investment Affiliate" means, as to any Person, any other Person
which (a) is an Affiliate of such Person and (b) is organized by such Person
primarily for the purpose of making equity or debt investments in one or more
companies.
"Cumulative Consolidated Interest Expense" means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense from
April 1, 1999 to the end of such Person's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
"Cumulative EBITDA" means, with respect to any Person, as of any date of
determination, EBITDA from April 1, 1999 to the end of such Person's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
"Director" means, with respect to any Person, a member of the Board of
Directors of such Person (or, if such Person is a limited liability company, a
member of the board of managers of such Person).
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes. Without limitation of the foregoing,
Disqualified Capital Stock shall be deemed to include any Preferred Stock of a
Person or a Restricted Subsidiary of such Person, with respect to either of
which, under the terms of such Preferred Stock, by agreement or otherwise, such
Person or Restricted Subsidiary is obligated to pay current dividends or
distributions in cash during the period prior to the maturity date of the
Notes; provided, however, that Preferred Stock of a Person or any Restricted
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer or asset sale offer to be made for such Preferred Stock
in the event of a change of control of such Person or Restricted Subsidiary or
the sale of any assets of such Person or Restricted Subsidiary which provisions
have substantially the same effect as the provisions described under "-- Change
of Control Offer" and "-- Certain Covenants -- Limitation on Certain Asset
Sales," respectively, above, shall not be deemed to be Disqualified Capital
Stock solely by virtue of such provisions.
"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (a) hereof, plus
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(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period (but excluding any
non-cash item to the extent it represents the amortization of a prepaid
cash expense that was paid in any prior period) on a consolidated
basis, plus
(f) any other non-cash items reducing Consolidated Net Income for
such period except for any non-cash items that represent accruals of,
or reserves for, cash disbursements to be made in any future accounting
period, minus
(2) all non-cash items increasing Consolidated Net Income (other than
any non-cash items representing deferred revenue to the extent that such
revenue was not included in Consolidated Net Income in any prior period)
for such period, all for such Person and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP;
provided, however, that, for purposes of calculating EBITDA during any fiscal
quarter, cash income from a particular Investment (other than a Restricted
Subsidiary) of such Person shall be included only
(1) if cash income has been received by such Person with respect to such
Investment during each of the previous four fiscal quarters, or
(2) if the cash income derived from such Investment is attributable to
Cash Equivalents.
"Electro Systems Acquisition" means the acquisition of Electro Systems
Corporation pursuant to a Stock Purchase Agreement dated as of February 18,
1999 between the Company and Carolina Georgia Sound, Inc.
"Equity Offering" means any public or private sale of Common Stock (other
than Disqualified Capital Stock) of Holdings pursuant to which Holdings
receives net proceeds of at least $20 million.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of Holdings acting
reasonably and in good faith and shall 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 (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (b) other
agreements or arrangements entered into in order to protect such Person against
fluctuations in commodity prices, interest rates or currency exchange rates.
"Holdings" means Muzak Holdings LLC, a Delaware limited liability company.
"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
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Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "incurrence," "incurred," "incurrable," and "incurring"
shall have meanings correlative to the foregoing); provided that a change in
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the
ordinary course of business) if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and shall also include, to the extent not
otherwise included
(1) any Capitalized Lease Obligations of such Person,
(2) obligations secured by a lien to which the property or assets owned
or held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed,
(3) guarantees of items of other Persons which would be included within
this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor),
(4) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction,
(5) Disqualified Capital Stock of such Person or any Restricted
Subsidiary thereof, and
(6) hedging obligations of any such Person (if and to the extent such
hedging obligations would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that
(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the principal amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP,
(2) Indebtedness shall not include any liability for federal, state,
local or other taxes,
(3) the amount of Indebtedness of a Person which is without recourse to
any property or assets of such Person except to the extent of any Lien on
property or assets of such Person which secures such Indebtedness shall be
the lesser of the principal amount of such Indebtedness and the fair market
value of the property or assets subject to the Lien, and
(4) the amount of Indebtedness represented by Disqualified Capital Stock
shall be the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.
The "maximum fixed repurchase price" of any Disqualified Capital Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock as if such Disqualified Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such
fair market value shall be determined reasonably and in good faith by the Board
of Directors of the issuer of such Disqualified Capital Stock.
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Notwithstanding any other provision of the foregoing definition, any trade
payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business shall not be deemed to be
"Indebtedness" of Holdings or any of its Restricted Subsidiaries for purposes
of this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Independent Financial Advisor" means an investment banking firm of national
reputation in the United States
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in 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. Investments shall exclude
(1) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices of such Person and
(2) the repurchase of securities of any Person by such Person.
If 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 shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Capital
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date the Notes are first issued by the Holdings
Issuers and authenticated by the trustee under the indenture.
"License Agreements" means the License Agreements between the Company and
its independent affiliates.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same
economic effect as any of the foregoing).
"Merger Transactions" means those transactions referred to collectively in
this offering memorandum as "Merger Transactions."
"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"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.
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"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the indenture.
"Pending Capstar Acquisition" means the acquisition by Holdings of certain
Muzak franchises from Capstar Broadcasting Corporation pursuant to a
Contribution Agreement between Holdings and Capstar Broadcasting Corporation,
dated February 19, 1999, and the subsequent transfer of such assets to Muzak in
exchange for equity interests in Muzak.
"Permitted Asset Swap" means, with respect to any Person, the substantially
concurrent exchange of assets of such Person for assets of another Person which
are useful to the business of such aforementioned Person.
"Permitted Holders" means each of ABRY III, ABRY II and each Control
Investment Affiliate of ABRY III or ABRY II.
"Permitted Indebtedness" means:
(1) Indebtedness of 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 (i) any
mandatory prepayment actually made thereunder (to the extent, in the case
of payments of revolving credit borrowings, that the corresponding
commitments have been permanently reduced) or scheduled payments actually
made thereunder and (ii) the aggregate amount of Indebtedness of
Securitization Entities in Qualified Securitization Transactions (other
than Qualified Securitization Transactions involving equipment and related
assets);
(2) Indebtedness under (i) the Notes and the Guarantees (if any) and the
Exchange Notes and the Guarantees (if any) thereof and (ii) 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 Issue Date;
(4) Indebtedness of Holdings to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to Holdings or another Restricted
Subsidiary;
(5) Purchase Money Indebtedness that does not in the aggregate exceed 5%
of Holdings' 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;
provided that, in the case of any Hedging Obligation that relates to (i)
interest rate risk, the notional principal amount of such Hedging
Obligation does not exceed the principal amount of the Indebtedness to
which such Hedging Obligation related and (ii) currency risk, such Hedging
Obligation does not increase the Indebtedness of 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; provided the aggregate amount then outstanding under
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this clause (8) when added to the aggregate amount then outstanding under
clause (1) above shall not exceed the aggregate amount permitted under
clause (1) above;
(9) guarantees by Holdings and its Restricted Subsidiaries of each
other's Indebtedness; provided that such Indebtedness is permitted to be
incurred under the Indenture;
(10) Indebtedness incurred by 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 shall
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;
(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" above; and
(16) additional Indebtedness of Holdings and its Restricted Subsidiaries
not to exceed $5 million in aggregate principal amount at any one time
outstanding.
"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
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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 Issue Date;
(10) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(11) guarantees by Holdings or any Restricted Subsidiary of Indebtedness
otherwise permitted to be incurred by Restricted Subsidiaries of Holdings
under the indenture; and
(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;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note or an equity interest.
"Permitted Liens" means
(1) Liens on property or assets of, or any shares of Capital Stock of or
secured indebtedness of, any Person existing at the time such Person
becomes a Restricted Subsidiary of Holdings or at the time such
Person is merged into Holdings or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of 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; provided in each case, such Indebtedness is incurred in compliance
with "-- Certain Covenants -- Limitation on Additional Indebtedness" above,
(3) Liens securing Refinancing Indebtedness; provided that any such Lien
does not extend to or cover any Property, Capital Stock or Indebtedness
other than the Property, shares or debt securing the Indebtedness so
refunded, refinanced or extended,
(4) Liens in favor of 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; provided that
(a) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of the purchase price, or the cost of
installation, construction or improvement, of the Property to which
such Purchase Money Indebtedness relates, and
(b) such Lien does not extend to or cover any Property other than
such item of Property and any improvements on such Property,
(7) statutory liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor,
(8) Liens for taxes, assessments or governmental charges that are being
contested in good faith by appropriate proceedings,
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(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 Issue Date 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,
(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 the Senior Subordinated Notes and the Senior
Subordinated Guarantees in accordance with their terms as in effect on the
Issue Date, 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.
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"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 shall be repaid from cash
available to the Securitization Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts paid in connection with the purchase of newly generated receivables or
newly acquired equipment.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by 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 Issue Date 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
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(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
(c) the amount of customary fees, expenses and costs related to the
incurrence of such Refinancing Indebtedness.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other distribution
or payment on Capital Stock of 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,
(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.
"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 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 shall have occurred and be continuing
or result therefrom.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by 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
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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: (a) no portion of the Indebtedness or any other
obligation (contingent or otherwise) of which (i) 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), (ii) is recourse to or obligates Holdings or any
Subsidiary of Holdings in any way other than pursuant to Standard
Securitization Undertakings or (iii) 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, (b) 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 (c) 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 shall 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 Credit
Facility" shall include agreements in respect of interest rate agreements and
hedging obligations with lenders party to any Senior Credit Facility and their
affiliates and shall also include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any Senior
Credit Facility and any and all refundings, refinancings (in whole or in part)
and replacements of any Senior Credit Facility, whether by the same or any
other agents, trustee, representative lenders or lenders or group of lenders or
holders, including one or more agreements (i) extending the maturity of, or
increasing the amount of, any Indebtedness incurred thereunder or contemplated
thereby, or (ii) adding or deleting borrowers or guarantors thereunder, so long
as borrowers and issuers include one or more of the Company and its Restricted
Subsidiaries and their respective successors and assigns.
"Senior Subordinated Guarantees" means the guarantees of the Senior
Subordinated Notes as provided for in the Senior Subordinated Indenture.
"Senior Subordinated Note Indenture" means the indenture governing the terms
of the Senior Subordinated Notes.
"Senior Subordinated Notes" means the 9 7/8% Senior Subordinated Notes due
2009 of the Company and Muzak Finance Corp., a Delaware limited liability
company, as co-issuers, issued pursuant to the Senior Subordinated Note
Indenture and the notes issued in exchange therefor pursuant to the
registration rights agreement relating thereto as in effect on the Issue Date.
"Significant Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act, as such Rule is in effect on the Issue Date.
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"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.
Notwithstanding the foregoing a charitable trust or foundation organized
pursuant to section 501(c)(3) of the Internal Revenue Code of 1986, as amended,
shall not be a "Subsidiary."
"Unrestricted Subsidiary" means
(1) any Subsidiary of an Unrestricted Subsidiary and
(2) any Subsidiary of Holdings which is classified after the Issue Date
as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of Holdings;
provided that a Subsidiary may be so classified as an Unrestricted Subsidiary
only if
(a) such classification is in compliance with the "Limitation on
Restricted Payments" covenant,
(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,
(c) no Default or Event of Default shall have occurred and be continuing
or result therefrom, and
(d) neither Holdings nor any Restricted Subsidiary shall at any time
(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness),
(ii) be directly or indirectly liable for any Indebtedness of such
Subsidiary or
(iii) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time
or both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness (other
than Indebtedness assumed by such Subsidiary in connection with the
Electro Systems Acquisition) that is Indebtedness of such Subsidiary
(including any corresponding right to take enforcement action against
such Subsidiary),
except in the case of clause (i) or (ii) to the extent
(i) that 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
(ii) the provision of such guarantee and the incurrence of such
Indebtedness otherwise would be permitted under "-- Certain Covenants --
Limitation on Restricted Payments" above.
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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 Issue Date.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by 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 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 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.
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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.
Interests in the Global Note are expected to be eligible to trade in the
Depositary's Same-Day Funds Settlement System and secondary market trading
activity in such interests will, therefore, settle in immediately available
funds, subject in all cases to the rules and procedures of the Depositary and
its Participants. See "--Same Day Settlement and Payment."
The Depositary has advised the 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.
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Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive exchange notes in registered
certificated form ("Certificated Notes") if:
. the Depositary (A) notifies the 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. See "Notice to Investors."
Same Day Settlement and Payment
The Indenture requires that payments in respect of the exchange notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Notes, the Holdings Issuers will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The exchange notes represented by the Global
Note are expected to be eligible to trade in the PORTAL market and to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such exchange notes will, therefore, be required by
the Depositary to be settled in immediately available funds. The 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 Issue Date, file a registration statement
with the Commission with respect to a registered offer to exchange the
existing notes for the exchange notes, which will have terms substantially
identical in all material respects to the existing notes (except that the
exchange notes will not contain terms with respect to transfer
restrictions),
(2) within 150 days after the Issue Date, use their best efforts to
cause the exchange offer registration statement to be declared effective
under the Securities Act. Upon the exchange offer registration statement
being declared effective, the 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
Issue Date 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,
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(2) use their respective best efforts to cause the shelf registration
statement to be declared effective under the Securities Act, and
(3) use their respective best efforts to keep effective the shelf
registration statement until the earlier of the disposition of the existing
notes covered by the shelf registration statement or two years after the
Issue Date.
The 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 Issue Date 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
Issue Date 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 Issue Date;
(each such event referred to in clauses (1) through (3) above is a
"Registration Default"), the sole remedy available to holders of the existing
notes will be the immediate assessment of additional 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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CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material U.S. Federal income tax
consequences of the exchange of existing notes pursuant to the exchange offer
and the ownership and disposition of the exchange notes. Unless otherwise
stated, this discussion is limited to the tax consequences to those persons who
are original owners of the exchange notes and who hold such Notes as capital
assets ("Holders"). The discussion does not purport to address specific tax
consequences that may be relevant to particular persons (including, for
example, financial institutions, broker-dealers, insurance companies, tax-
exempt organizations, and persons in special situations, such as those who hold
exchange notes as part of a straddle, hedge, conversion transaction, or other
integrated investment). In addition, this discussion does not address U.S.
Federal alternative minimum tax consequences or any aspect of state, local or
foreign taxation. This discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Department regulations promulgated
thereunder (the "Treasury Regulations"), and administrative and judicial
interpretations thereof, all of which are subject to change, possibly with
retroactive effect. The Company will treat the exchange notes as indebtedness
for Federal income tax purposes, and the following discussion assumes that such
treatment is correct.
For purposes of this discussion, a "U.S. Holder" is a Holder of an exchange
note who is (i) a United States citizen or resident, (ii) a corporation or
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to U.S. Federal income taxation regardless of its source,
(iv) or a trust if a United States court exercises primary jurisdiction over
its administration and one or more United States persons have the authority to
control all of its substantial decisions. A "Non-U.S. Holder" is a Holder of a
Note who is not a U.S. Holder.
THE ORIGINAL HOLDERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM
OF ACQUIRING, OWNING AND DISPOSING OF THE EXCHANGE NOTES, AS WELL AS THE
APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
Original Issue Discount
The existing notes were issued with and the exchange notes will have
original issue discount ("OID") for U.S. Federal income tax purposes. A U.S.
Holder will be required to include OID in income as it accrues, regardless of
such Holder's regular method of accounting for Federal income tax purposes, and
in advance of the receipt of cash to which such income is attributable. OID
generally will be treated as interest income to the U.S. Holder and will accrue
on a yield-to-maturity basis over the life of the Note, as discussed below.
The amount of OID with respect to an existing note will be equal to the
excess of the "stated redemption price at maturity" of such existing note over
its "issue price." The stated redemption price at maturity of each existing
note will include all cash payments required to be made under the existing note
through maturity, whether denominated as principal or interest. The issue price
of an existing note will be the first price at which a substantial part of the
existing notes were sold for money (excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers). The existing notes were issued at a
substantial discount. The OID on the exchange notes will equal the amount of
OID on the existing notes, a portion of which will have accrued as income from
the date of issuance of the existing notes, as described below.
The amount of OID accruing to a Holder with respect to an exchange note will
be the sum of the "daily portions" of OID with respect to such exchange note
for each day during the taxable year (or portion thereof) on which such Holder
owns such exchange note ("accrued OID"). A daily portion is determined by
allocating to each day in an "accrual period" a pro rata portion of the OID
allocable to that accrual period. An accrual period of an exchange note may be
of any length and may vary in length over the term of an exchange note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or
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interest occurs either on the final day or on the first day of an accrual
period. The amount of OID accruing during any full accrual period with respect
to a Note will be equal to (i) the "adjusted issue price" of such exchange note
at the beginning of that accrual period, multiplied by (ii) the "yield-to-
maturity" of such exchange note (taking into account the length of the accrual
period). The adjusted issue price of an exchange note at the beginning of its
first accrual period will be equal to the issue price of the existing note for
which it was exchanged. The adjusted issue price at the beginning of any
subsequent accrual period will be equal to (i) the adjusted issue price at the
beginning of the preceding accrual period, plus (ii) the amount of OID accrued
during the preceding accrual period, minus (iii) any payments on the exchange
note during the preceding accrual period and on the first day of such
subsequent accrual period.
Under these rules, a Holder generally will have to include in income
increasingly greater amounts of OID in successive accrual periods. The yield-
to-maturity of an exchange note is the discount rate that, when used in
computing the present value of all payments to be made on the exchange note,
produces an amount equal to the issue price of the existing note.
Interest paid on an exchange note generally will be taxable to a U.S. Holder
as ordinary income at the time it accrues or is received, in accordance with
the U.S. Holder's method of accounting for federal income tax purposes.
Under certain circumstances, the Company may be entitled to redeem all or a
portion of the exchange notes. In addition, under certain circumstances, each
holder of an exchange note will have the right to require the Company to
repurchase all or part of such holder's exchange notes. The Treasury
Regulations contain special rules for determining the yield to maturity and
maturity on a debt instrument in the event the debt instrument provides for a
contingency that could result in the acceleration or deferral of one or more
payments. The Company does not intend to treat such redemption and repurchase
provisions of the exchange notes as affecting the computation of the yield to
maturity date of the exchange notes.
The Company will report to Holders and to the Internal Revenue Service (the
"Service") each year the amount of OID that accrued on the exchange notes for
that year and the amount of any interest paid during that year.
Applicable High Yield Discount Obligations
Although the law is unclear in certain respects and the issue is therefore
not free from doubt, the exchange notes should, to some extent, constitute
"applicable high yield discount obligations" ("AHYDOs") for federal income tax
purposes. A portion of the exchange notes equal to the proportion of the
membership interests of Holdings held by a corporation would constitute AHYDOs
if (i) the yield to maturity on the exchange notes is equal to or greater than
the sum of the relevant applicable federal rate (the "AFR") in effect for the
month in which the existing notes are issued (for March 1999, the AFR was
5.23%, assuming semi-annual compounding) plus five percentage points and (ii)
the exchange notes bear significant OID. A debt instrument bears significant
OID for this purpose if, as of the close of any accrual period ending more than
five years after issuance, the total amount of income includible by a holder
with respect to the debt instrument exceeds the sum of (a) interest paid to the
holder (in cash or, generally, in property other that debt instruments or stock
of the issuer or a related person) and (b) an amount equal to the issue price
of the debt instrument multiplied by its yield to maturity. Should any portion
of the exchange notes be AHYDOs, Holdings would not be entitled to claim a
deduction for OID that accrues with respect to such portion of the exchange
notes until amounts attributable to such OID are actually paid. In addition, to
the extent that the yield to maturity of such portion of the exchange notes
exceeded the sum of the AFR plus six percentage points (the "non-deductible
portion"), any deduction that is attributable to the non-deductible portion
would be permanently disallowed. While not free from doubt, to the extent the
non-deductible portion of OID would have been treated as a dividend if it had
been distributed with respect to stock of the corporate member of Holdings, it
would be treated as a dividend for purposes of the rules relating to the
dividends received deduction for corporate Holders.
If the exchange notes, to some extent, are treated as AHYDOs for federal
income tax purposes, then interest deductions of Holdings will be deferred or
permanently disallowed, as described above. Such a deferral or disallowance of
deductions would have the effect of increasing taxable income (or reducing
taxable losses)
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allocable to some or all of the members of Holdings. This in turn could
increase (depending upon the results of the operations of Holdings and its
subsidiaries without regard to such interest deductions) or accelerate the
distributions Holdings must make to its members in respect of the taxes of the
members, as provided in the Holdings LLC agreement. Such distributions are
permitted distributions under the terms of the indenture.
Market Discount and Premium
If a U.S. Holder acquires an exchange note for an amount that is less than
the revised issue price (which generally approximates adjusted issue price) of
the exchange note, the amount of the difference is treated as "market discount"
for U.S. federal income tax purposes, unless such difference is less than a
statutory de minimis amount. Under the market discount rules of the Code, a
U.S. Holder must treat any principal payment on, or any amount received on the
sale, exchange, retirement or other disposition of, an exchange note as
ordinary income to the extent of any market discount that has not previously
been included in income and is treated as having accrued on the exchange note
by the time of such payment or disposition. Market discount generally accrues
on a straight-line basis over the remaining term of an exchange note. If a U.S.
Holder makes a gift of such an exchange note, accrued market discount, if any,
is recognized as if the U.S. Holder had sold the exchange note for its fair
market value. A U.S. Holder may not be allowed to deduct immediately all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or to carry such exchange note. A U.S. Holder may elect to include
market discount in income currently as it accrues (either on a straight-line
basis or, if the Holder so elects, on a constant yield basis), in which case
the interest deferral rule described in the preceding sentence will not apply.
Such an election will apply to all bonds acquired by the U.S. Holder on or
after the first day of the first taxable year to which such election applies
and may be revoked only with the consent of the Internal Revenue Service.
A U.S. Holder that purchases an exchange note for an amount greater than the
adjusted issue price of the exchange note but equal to or less than the sum of
all amounts payable on such exchange note after the purchase date is considered
to have purchased the Note at an "acquisition premium." Under the acquisition
premium rules, the amount of OID which such U.S. Holder must include in gross
income with respect to such exchange note for any taxable year is reduced by
the portion of the acquisition premium properly allocable to such year.
Sale, Exchange or Retirement of the Exchange Notes
Upon the sale, exchange or retirement of an exchange note, a U.S. Holder
will recognize gain or loss equal to the difference between the amount realized
upon such sale, exchange or retirement and the U.S. Holder's adjusted tax basis
in the exchange note. A U.S. Holder's adjusted tax basis in an exchange note
generally will be the U.S. Holder's cost therefor, increased by the amount of
OID previously included in income with respect to such exchange note and
decreased by all prior payments received on the exchange note (other than
payments of qualified stated interest).
Gain or loss recognized by a U.S. Holder on the sale, exchange or retirement
of the exchange notes will be capital gain or loss, and will be long-term
capital gain or loss if the exchange notes have been held by the U.S. Holder
for more than 12 months. The deductibility of capital losses by U.S. Holders is
subject to limitation.
Exchange Offer
The exchange of existing notes for exchange notes pursuant to the exchange
offer should not be a taxable exchange for U.S. Federal income tax purposes.
Therefore, the exchange should not result in any U.S. Federal income tax
consequences to tendering Holders. The U.S. Federal income tax consequences of
holding and disposing of exchange notes should be the same as the U.S. Federal
income tax consequences of holding and disposing of existing notes.
119
<PAGE>
Tax Consequences to Non-U.S. Holders
Taxation of Interest
A Non-U.S. Holder generally will not be subject to U.S. Federal income or
withholding tax on interest (including OID) paid on the exchange notes so long
as such interest is not effectively connected with the Non-U.S. Holder's
conduct of a trade or business within the United States, and the Non-U.S.
Holder (i) does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company, (ii) is not a
"controlled foreign corporation" with respect to which the Company is a
"related person" within the meaning of the Code, (iii) is not a bank receiving
interest described in Section 881 (c)(3)(A) of the Code, and (iv) satisfies
the requirements of Sections 871(h) or 881(c) of the Code, as set forth below
under "--Owner Statement Requirement." If the foregoing conditions are not
satisfied, then interest paid on the exchange notes generally will be subject
to U.S. withholding tax at a rate of 30%, unless such rate is reduced or
eliminated pursuant to an applicable tax treaty.
Sale, Exchange or Retirement of the Notes
Any capital gain a Non-U.S. Holder realizes on the sale, exchange,
retirement or other taxable disposition of an exchange note generally will be
exempt from U.S. Federal income and withholding tax, provided that (i) the
gain is not effectively connected with the Non-U.S. Holder's conduct of a
trade or business within the United States, and (ii) in the case of a Non-U.S.
Holder that is an individual, the Non-U.S. Holder is not present in the United
States for 183 days or more during the taxable year.
Effectively Connected Income
If the interest, gain or other income a Non-U.S. Holder recognizes on an
exchange note is effectively connected with the Non-U.S. Holder's conduct of a
trade or business within the United States, the Non-U.S. Holder (although
exempt from the withholding tax previously discussed if an appropriate
statement is furnished) generally will be subject to U.S. Federal income tax
on the interest, gain or other income at regular Federal income tax rates. In
addition, if the Non-U.S. Holder is a corporation, it may be subject to a
branch profits tax equal to 30% of its "effectively connected earnings and
profits," as adjusted for certain items, unless it qualifies for a lower rate
under an applicable tax treaty.
Owner Statement Requirement
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of an exchange note or a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business (a "Financial Institution") and that holds an
exchange note on behalf of such owner files a statement with the Company or
its agent to the effect that the beneficial owner is not a United States
person in order to avoid withholding of United States Federal income tax.
Under current regulations, this requirement will be satisfied if the Company
or its agent receives (i) a statement (an "Owner Statement") from the
beneficial owner of a Note in which such owner certifies, under penalties of
perjury, that such owner is not a United States person and provides such
owner's name and address, or (ii) both a statement from the Financial
Institution holding the Note on behalf of the beneficial owner in which the
Financial Institution certifies, under penalties of perjury, that it has
received the Owner Statement and a copy of the Owner Statement. The beneficial
owner must inform the Company or its agent (or, in the case of a statement
described in clause (ii) of the immediately preceding sentence, the Financial
Institution) within 30 days of any change in information on the Owner
Statement. The Internal Revenue Service has amended the transition period
relating to recently issued Treasury Regulations governing backup withholding
and information reporting requirements. Withholding certificates or statements
that are valid on December 31, 1999, may be treated as valid until the earlier
of its expiration or December 31, 2000. All existing certificates or
statements will fail to be effective after December 31, 2000.
120
<PAGE>
Information Reporting and Backup Withholding
The Company will, where required, report to the Holders of the exchange
notes and to the Service the amount of any interest paid and OID accrued on the
exchange in each calendar year and the amounts of tax withheld, if any, with
respect to such payments. A non-corporate U.S. Holder may be subject to
information reporting and to backup withholding at a rate of 31% with respect
to payments of principal and interest made on an exchange, or on proceeds of
the disposition of an exchange note before maturity, unless such U.S. Holder
provides a correct taxpayer identification number or proof of an applicable
exemption, and otherwise complies with applicable requirements of the
information reporting and backup withholding rules.
In the case of payments of interest to Non-U.S. Holders, current Treasury
Regulations provide that the 31% backup withholding tax and certain information
reporting requirements will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established, provided that neither the Company nor
its payment agent has actual knowledge that the Holder is a United States
person or that the conditions of any other exemption are not in fact satisfied.
Under current Treasury Regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-U.S. Holder on the disposition of the Notes by or through a United States
office of a United States or foreign broker, unless the Non-U.S. Holder
otherwise establishes an exemption. Information reporting requirements, but not
backup withholding, will also apply to payment of the proceeds of a disposition
of the exchange notes by or through a foreign office of a United States broker
or foreign brokers with certain types of relationships to the United States
unless such broker has documentary evidence in its file that the Holder of the
exchange notes is not a United States person and such broker has no actual
knowledge to the contrary, or the Holder establishes an exception. Neither
information reporting nor backup withholding generally will apply to payment of
the proceeds of a disposition of the exchange notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
The Treasury Department has released new Treasury Regulations governing the
backup withholding and information reporting requirements. The new regulations
will not generally alter the treatment of a Non-U.S. Holder who furnishes an
Owner Statement to the payor. The new regulations may change certain procedures
applicable to the foreign office of a United States broker or foreign brokers
with certain types of relationships to the United States. The new regulations
are generally effective for payments made after December 31, 2000. Non-U.S.
Holders should consult their own tax advisors with respect to the impact, if
any, of the new final regulations.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Holder's
United States Federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
THE PRECEDING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR
SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT
OF PURCHASING, HOLDING AND DISPOSING OF EXCHANGE NOTES AS WELL AS THE EXCHANGE
OF NOTES FOR EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAWS.
121
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with the resale of exchange
notes received in exchange for existing notes where such existing notes were
acquired as a result of market-making activities or other trading activities.
The 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. In addition, until 90 days after the
commencement of the exchange offer, all dealer 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.
122
<PAGE>
LEGAL MATTERS
Kirkland & Ellis, Chicago, Illinois will pass upon the validity of the
exchange notes offered hereby and certain other legal matters on behalf of the
Issuers.
EXPERTS
The financial statements of ACN 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 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.
123
<PAGE>
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.
124
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ACN Holdings, LLC
Report of Independent Accountants....................................... F-2
Balance Sheet as of December 31, 1998................................... F-4
Statement of Operations for the period from October 7, 1998
through December 31, 1998.............................................. F-5
Statement of Changes in Members' Interest for the period from October 7,
1998
through December 31, 1998.............................................. F-6
Statement of Cash Flows for the period from October 7, 1998
through December 31, 1998.............................................. F-7
Notes to the Financial Statements....................................... F-8
Audio Communications Network, Inc.
Report of Independent Accountants....................................... F-3
Consolidated Statement of Operations for the period from January 1, 1998
through October 6, 1998................................................ F-5
Consolidated Statement of Changes in Stockholders' Equity for the period
from January 1, 1998 through October 6, 1998........................... F-6
Consolidated Statement of Cash Flows for the period from January 1, 1998
through October 6, 1998................................................ F-7
Notes to the Financial Statements....................................... F-8
Audio Communications Network, Inc.
Report of Independent Certified Public Accountants...................... F-13
Consolidated Balance Sheets as of December 31, 1996 and 1997............ F-14
Consolidated Statement of Operations for the two years ended December
31, 1996 and 1997...................................................... F-16
Consolidated Statement of Stockholders' Equity for the two years ended
December 31, 1996 and 1997............................................. F-17
Consolidated Statement of Cash Flows for the two years ended December
31, 1996 and 1997...................................................... F-18
Notes to the Consolidated Financial Statements.......................... F-20
Muzak Limited Partnership
Independent Auditors' Report............................................ F-27
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-28
Consolidated Statement of Operations for the three years ended
December 31, 1996, 1997 and 1998....................................... F-29
Consolidated Statements of Partners' Deficit for the three years ended
December 31, 1996, 1997 and 1998....................................... F-30
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996, 1997 and 1998....................................... F-32
Notes to the Consolidated Financial Statements.......................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of ACN 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 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 ACN 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>
ACN HOLDINGS, LLC
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<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 Member's Interest
Current liabilities:
Current portion of notes payable to related parties............. $42,183
Current portion of obligations under capital lease.............. 34
Accounts payable................................................ 2,439
Accrued expenses................................................ 1,525
-------
Total current liabilities..................................... 46,181
Notes payable to related parties, net of current portion.......... 460
Obligations under capital lease, net of current portion........... 26
-------
Total liabilities............................................. 46,667
Commitment and contingencies (Note 9).............................
Member's interest:
Member's capital................................................ 27,262
Accumulated deficit............................................. (1,002)
-------
Total member's interest....................................... 26,260
-------
Total liabilities and member's interest....................... $72,927
=======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
ACN HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Audio Communications ACN 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............................................................................... $18,917 $ 5,914
Costs and expenses:
Cost of sales........................................................................ 8,206 2,556
Selling, general and administrative expenses......................................... 7,245 1,794
Depreciation and amortization expense................................................ 4,372 1,683
------- -------
Total cost and expenses............................................................ 19,823 6,033
------- -------
Loss from operations................................................................... (906) (119)
Other income (expense)
Interest expense..................................................................... (2,520) (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 financial statements
F-5
<PAGE>
ACN HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND MEMBER'S
INTEREST
(dollars in thousands)
AUDIO COMMUNICATIONS NETWORK, INC:
<TABLE>
<CAPTION>
Contributed
Capital Total
Common in Excess Accumulated Stockholders'
Stock of Par Deficit Equity
------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997...... $1,126 $9,851 $(2,799) $ 8,178
Stock options exercised........... 1 6 -- 7
Net loss.......................... -- -- (3,428) (3,428)
------ ------ ------- -------
Balance at October 6, 1998........ $1,127 $9,857 $(6,227) $ 4,757
====== ====== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
ACN HOLDINGS, LLC:
<TABLE>
<CAPTION>
Class A
----------------
Total
Accumulated Member's
Units 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 financial statements
F-6
<PAGE>
ACN HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Audio Communications ACN
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 financial statements
F-7
<PAGE>
ACN HOLDINGS, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Business
ACN Holdings, LLC (the "Company") was formed in September 1998, pursuant to
the laws of Delaware. The Company owns and operates Muzak Limited Partnership
("Muzak") franchises, which provide background music programming and ancillary
services to customers, located in Baltimore, Maryland; Kansas City and St.
Louis, Missouri; Jacksonville, Florida; Fresno, California; Phoenix, Arizona;
Charlotte and Hillsborough, North Carolina; as its single line of business. The
Company began its operations on October 7, 1998, with the acquisition of
certain assets and liabilities of Audio Communications Network, Inc ("ACN" or
"Predecessor Company") (Note 3).
2. Summary of Significant Accounting Policies
Principles of Consolidation
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 10).
Inventories
Inventories consist primarily of electronic equipment and are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
Property and Equipment
Property is recorded at cost. Depreciation is computed on the straight-line
method over the estimated useful lives of the assets, ranging from three to
twenty years. Sound and music equipment installed at customer premises under
contracts to provide music programming services is transferred from inventory
to property and equipment at cost plus an allocation of installation costs and
is amortized over 8 years.
Intangible Assets
Goodwill, the excess of the purchase price over the fair value of net assets
of businesses acquired, is amortized over twenty years using the straight-line
method. Other intangible assets acquired, principally subscriber contract
rights, are amortized using the straight-line method over periods ranging from
8 to 14 years. Management evaluates the recoverability of intangibles by
comparing recorded values to the undiscounted future cash flows that can be
generated by such assets. Impairment losses are recognized if recorded values
exceed undiscounted future cash flows, by reducing them to estimated fair
value. No impairment losses were recognized by the Company or ACN for the
periods presented.
Income Taxes
As a Limited Liability Company ("LLC"), federal and state income taxes are
the responsibility of the Company's member. Accordingly, the financial
statements of the Company includes no provision for income taxes.
F-8
<PAGE>
ACN 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 period with renewal
options for an additional five years.
Concentrations of Credit Risk
The Company maintains its cash in bank accounts that at times may exceed
federally insured limits. The Company performs ongoing credit evaluations of
its customers and generally requires no collateral from the customers. Credit
losses are provided for in the financial statements and consistently have been
within management's expectations. Management believes that the Company's credit
risk is somewhat lessened due to the fact that its customers operate in a wide
range of industries and are geographically disbursed.
3. Acquisition of ACN
On October 7, 1998, the Company acquired certain assets and liabilities of
ACN for $66,818. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the consideration paid was allocated based on the
estimated fair market value of the net assets acquired as determined by an
independent appraisal. The excess of the consideration paid over the estimated
fair market value of the net assets acquired approximated $17,000 and is being
amortized using the straight-line method over 20 years.
In order to complete the acquisition of ACN, the Company 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 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>
ACN 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>
Leasehold improvements............... $ 132
Equipment............................ 17,770
Furniture and fixtures............... 397
-------
18,299
Less: accumulated depreciation....... (800)
-------
$17,499
=======
</TABLE>
Depreciation expense approximated $800 for the period from and October 7,
1998 through December 31, 1998.
Depreciation expense approximated $1,865 for the period from January 1, 1998
through October 6, 1998.
5. Intangible Assets
At December 31, 1998, intangible assets consist of the following:
<TABLE>
<S> <C>
Subscriber contracts................. $32,930
Goodwill............................. 16,971
Other................................ 21
-------
49,922
Less: accumulated amortization....... (883)
-------
$49,039
=======
</TABLE>
Amortization expense approximated $883 for the period from October 7, 1998
through December 31, 1998.
Amortization expense approximated $2,507 for the period from January 1, 1998
through October 6, 1998.
6. Notes Payable to Related Parties
At December 31, 1998, notes payable to related parties included the
following;
<TABLE>
<S> <C>
Promissory note payable to a related party due October 6, 1999;
including unpaid interest of $866, which compounds quarterly at
variable interest rate (approximately 9% at December 31, 1998)
and is payable at maturity....................................... $41,683
Note payable to a related party; two annual payments of $500 due
January 1999 and 2000, respectively, net of unamortized discount
(at 10%) of $40 at December 31, 1998............................. 960
-------
42,643
Less: current portion of notes payable to related parties...... (42,183)
-------
$ 460
=======
</TABLE>
F-10
<PAGE>
ACN HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
7. Members' Capital
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 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 the Company.
The Company has a profit-sharing plan continued from the Predecessor Company
which covers all employees of the Company who have at least one-half year of
service. Contributions to the plan by employees may be at least 1% but not more
than 15% of annual salary, subject to certain restrictions. Contributions by
the Company to the plan are discretionary. Employees are always 100% vested in
employee contributions; no vesting in employer contributions occurs prior to
the first two years of service and 100% vesting occurs after the third year of
service. Plan expense for the period from October 7, 1998 to December 31, 1998
and the period from January 1, 1998 to October 6, 1998 was $55 and $23,
respectively.
F-11
<PAGE>
ACN 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 Finance Holdings Corp.
Muzak Holdings Finance Corp. ("Holdings Finance Corp." formerly known as ACN
Holdings, Inc.) was formed in August 1998, pursuant to the laws of Delaware, as
a wholly owned subsidiary of the Company. Holdings Finance Corp. was
capitalized with one dollar of equity for the period of inception through
December 31, 1998. Holdings Finance Corp. had no operations. had no 1998
activities.
12. Subsequent Events (unaudited)
On January 15, 1999, the Company acquired all of the outstanding stock of
Business Sound, Inc. ("Business Sound") for approximately $4,100. The Business
Sound acquisition was financed with approximately $4,100 of cash contributed by
the Parent. Business Sound is the Muzak affiliate for the New Orleans,
Louisiana and Mobile, Alabama areas.
On February 24, 1999, the Company acquired all of the outstanding stock of
Electro Systems Corporation ("Electro Systems") the Muzak independent affiliate
located in Panama City, Florida for cash of approximately $550, plus the
assumption of $2,400 of existing indebtedness.
F-12
<PAGE>
ACN HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
On March 18, 1999, the Company merged with and into Muzak (the "merger").
Under the terms of the agreement, total consideration was approximately
$245,000. At the time of the merger, the Company changed its name to Muzak LLC.
On March 18, 1999, the Company acquired Capstar Broadcasting Corporation's
("Capstar") Muzak affiliates comprised of territories which are located in
Atlanta, Albany and Macon, Georgia; Ft. Myers, Florida; and on May 3, 1999
acquired the Muzak affiliate territory located in Omaha, Nebraska (the "Capstar
Acquisition"). The purchase price for the Capstar Acquisition was approximately
$20,484, comprised of voting membership units of the Company and a cash payment
of approximately $5,474 which is subject to adjustment.
In connection with the Merger, the Company entered into a new senior credit
facility ("Senior Credit Facility") which provides for two term loans (the
"Term Loans") for $30,000 and $105,000 and revolving loans (the "Revolving
Loan") for up to $35,000 of which $3,400 was drawn at closing. The Term Loans
are required to be paid in semi-annual installments on June 30 and December 31
of each year beginning on June 30, 2000. The Revolving Loan must be repaid on
or before December 31, 2005. The obligations of the Company under the Senior
Credit Facility are guaranteed by each of the Company's future direct and
indirect domestic subsidiaries. Interest accrues at the Company's election at a
rate based on either (a) the Base Rate (as described in the Senior Credit
Facilities Agreement) or (b) Libor (as defined in the Senior Credit Facilities
Agreement) plus in either case, the applicable margin. The applicable borrowing
margin under Term Loans and Revolving Loans range from 1% to 3.5%. Commitment
fees range from .375% to .0625%.
On March 18, 1999, the Company issued $115,000,000, principal amount of
Senior Subordinated Notes ("Subordinated Notes") executed by its wholly owned
subsidiary Muzak LLC. Interest on the Subordinated Notes is expected to accrue
at a rate of 9.875%, per annum. Interest is expected to be payable semi-
annually, in arrears, on each March 15 and September 15 of each year,
commencing on September 15, 1999. The Subordinated Notes will mature on March
15, 2009.
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.
The following table summarizes the unaudited pro forma results of operations
for the year ended December 31, 1998, as if the acquisitions and financings
described above and the acquisition of ACN as disclosed in Note 3 occurred on
January 1, 1998:
<TABLE>
<CAPTION>
December 31,
1998
------------
(Unaudited)
<S> <C>
Revenue...................................................... $138,584
========
Loss from operations......................................... $ (2,515)
========
Net loss..................................................... $(33,273)
========
</TABLE>
F-13
<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-14
<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-15
<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-16
<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-17
<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-18
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
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-19
<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-20
<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-21
<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-22
<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-23
<PAGE>
AUDIO COMMUNICATIONS NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997 and 1996
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Credit agreement, interest rate varies........... $ -- $26,700,000
Term loan, interest rate varies; repaid in 1997.. 14,000,000 --
Subordinated promissory note to a limited partner
of SCL; interest payable quarterly at a per
annum rate of 12.27% through July 1, 2004;
principal payments of $250,000 payable quarterly
commencing January 1, 2000 and due July 1, 2004;
principal may be subject to mandatory
prepayments under certain conditions............ 4,584,136 4,750,000
Note payable to director; noninterest bearing,
payments of $500,000 due annually commencing
January 1998, net of discount (at 10%) of
$118,202 at December 31, 1997................... -- 1,381,798
Other long-term debt............................. 82,149 120,407
----------- -----------
Total............................................ 18,666,285 32,952,205
Less current portion............................. 1,468,420 556,830
----------- -----------
Long-term portion................................ $17,197,865 $32,395,375
=========== ===========
Long-term debt matures as follows:
<CAPTION>
Year
----
<S> <C> <C>
1998............................................. $ 566,830
1999............................................. 527,754
2000............................................. 1,410,553
2001............................................. 1,006,539
2002............................................. 1,000,529
Thereafter....................................... 28,450,000
-----------
Total.......................................... $32,952,205
===========
</TABLE>
CREDIT AGREEMENT--In connection with the Merger, the Company entered into a
new Credit Agreement with PNC Bank, National Association, individually and as
Agent, SunTrust Bank, Central Florida, N.A., and Lehman Commercial Paper Inc.
on May 30, 1997. Pursuant to the Credit Agreement, the Company has the ability
to borrow monies on a revolving basis until May 2004. Initially, the Company
can borrow up to $32,000,000 and the maximum available decreases at quarterly
intervals. Loans bear interest based on either the rate of interest announced
by the Agent periodically as its prime rate or the London interbank offered
rates quoted periodically by the British Bankers' Association, as selected by
the Company at the time of each borrowing. Interest is payable quarterly in
arrears on the last business day of March, June, September, and December. The
Company must make annual payments of principal equal to 75% of "excess cash
flow" for 1997 and 50% thereafter in addition to mandatory payments upon
certain sales of assets or stock. No principal payments were required in 1997.
For purposes of the debt maturity schedule above, the expected maturity date is
assumed to be 2004.
F-24
<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-25
<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-26
<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-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
General and Limited Partners
Muzak Limited Partnership
We have audited the accompanying consolidated balance sheets of Muzak
Limited Partnership and subsidiaries (the Partnership) as of December 31, 1997
and 1998, and the related consolidated statements of operations, partners'
deficit, and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Muzak Limited Partnership and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 5, 1999
(May 14, 1999, as to Note 14)
Seattle, Washington
F-28
<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-29
<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-30
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT (in thousands)
Years Ended December 31, 1996, 1997, and 1998
(Continued on Page F-31)
<TABLE>
<CAPTION>
General partners' interest Class A Class B
-------------------------- Limited Class A Limited
Number partners' put/call partners'
of units Amount interests options interests
-------------- -------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... 9,101 $ (4,264) $(1,021) $ 137 $ (776)
Net loss ............. -- (6,973) (1,288) (1,172) (1,390)
Payment of foreign
income taxes......... -- (54) (11) (9) (10)
Preferred return on
redeemable preferred
partnership
interests............ -- (591) (109) (99) (117)
Preferred return on
preferred limited
partners' interests.. -- (407) (75) (69) (81)
Principal payments on
subscriptions
receivable........... -- -- -- -- --
Capital contribution
from noncash
incentive
compensation......... -- -- -- -- --
Contribution by
partner.............. -- -- -- -- 105
----------- -------------- ------- ------- -------
Balance, December 31,
1996................... 9,101 (12,289) (2,504) (1,212) (2,269)
Net loss.............. -- (8,730) (1,593) (1,527) (1,585)
Payment of foreign
income taxes......... -- (50) (10) (8) (8)
Preferred return on
redeemable preferred
partnership
interests............ -- (257) (49) (48) (46)
Preferred return on
preferred limited
partners' interests.. -- (367) (72) (88) (85)
Principal payments on
subscriptions
receivable........... -- -- -- -- --
Capital contribution
from noncash
incentive
compensation......... -- -- -- -- --
Contribution by
partner.............. -- -- -- -- 2,072
Withdrawal by
partner.............. (7) (805) -- -- (2,032)
----------- -------------- ------- ------- -------
Balance, December 31,
1997................... 9,094 (22,498) (4,228) (2,883) (3,953)
Net loss.............. -- (7,730) (1,620) (1,300) (1,339)
Payment of foreign
income taxes......... -- (40) (10) (6) (6)
Preferred return on
redeemable preferred
partnership
interests............ -- (298) (60) (48) (48)
Preferred return on
interest in EAIC
Corp. ............... -- (107) (24) (17) (17)
Preferred return on
preferred limited
partners' interests.. -- (483) (101) (83) (83)
Principal payments on
subscriptions
receivable........... -- -- -- -- --
Capital contribution
from noncash
incentive
compensation......... -- -- -- -- --
Contribution by
partner.............. -- -- 895 -- 244
Withdrawal by
partner.............. -- -- -- -- (215)
----------- -------------- ------- ------- -------
Balance, December 31,
1998................... 9,094 $(31,156) $(5,148) $(4,337) $(5,417)
=========== ============== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT (in thousands)
Years Ended December 31, 1996, 1997, and 1998
(Continued from page F-30)
<TABLE>
<CAPTION>
Class B Total limited
limited Preferred partners' interests Total partners' interests
partners' limited Class B ---------------------- ---------------------------
subscriptions partners' partnership Number Number
receivable interests unit options of units Amount of units Amount
- ------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (374) $7,671 $ -- 8,989 $ 5,637 18,090 $ 1,373
-- -- -- -- (3,850) -- (10,823)
-- -- -- -- (30) -- (84)
-- -- -- -- (325) -- (916)
-- 632 -- -- 407 -- --
207 -- -- -- 207 -- 207
-- -- 60 -- 60 -- 60
-- -- -- 60 105 60 105
- ------- ------ ------ --------- ---------- ----------- -------------
(167) 8,303 60 9,049 2,211 18,150 (10,078)
-- -- -- -- (4,705) -- (13,435)
-- -- -- -- (26) -- (76)
-- -- -- -- (143) -- (400)
-- 612 -- -- 367 -- --
132 -- -- -- 132 -- 132
-- -- 202 -- 202 -- 202
(1,601) -- -- 889 471 889 471
-- (74) -- (1,250) (2,106) (1,257) (2,911)
- ------- ------ ------ --------- ---------- ----------- -------------
(1,636) 8,841 262 8,688 (3,597) 17,782 (26,095)
-- -- -- -- (4,259) -- (11,989)
-- -- -- -- (22) -- (62)
-- -- -- -- (156) -- (454)
-- -- -- -- (58) -- (165)
-- 750 -- -- 483 -- --
35 -- -- -- 35 -- 35
-- -- 2,217 -- 2,217 -- 2,217
-- -- -- 375 1,139 375 1,139
-- -- -- (100) (215) (100) (215)
- ------- ------ ------ --------- ---------- ----------- -------------
$
(1,601) $9,591 $2,479 8,963 $ (4,433) 18,057 $ (35,589)
======= ====== ====== ========= ========== =========== =============
</TABLE>
F-32
<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-33
<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-34
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Deferred costs and intangible assets: Income-producing contracts, acquired
through acquisition, are being charged to amortization expense using an
accelerated method over their expected benefit period of eight years. Deferred
financing costs are charged to interest expense using the effective interest
method over the term of the related agreements. Other deferred costs and
intangible assets are recorded at cost and are being charged to amortization
expense over their estimated useful lives or the period of their expected
benefit, ranging from five to ten years.
Impairment of long-lived assets: The carrying value of long-lived assets is
reviewed on a regular basis for the existence of facts or circumstances that
may indicate that the carrying amount is not recoverable. To date, no
impairment has been indicated. Should there be impairment in the future, the
Partnership will measure the impairment based on the discounted expected future
cash flows from the impaired assets.
Revenue recognition: Revenues are recognized in the month that the related
services are provided. Fees from independent affiliates are recognized as music
revenues in the month that the independent affiliate generates its revenues.
Equipment sales and related services revenues are recorded in the period that
the installation is completed.
Advance billings: The Partnership bills certain customers in advance for
contracted music and other business services. Amounts billed in advance of the
service period are deferred when billed and recognized as revenue in the period
earned.
Unearned installation income: The Partnership defers recognition of income
from the installation of equipment provided to subscribers and recognizes these
amounts as revenue on a straight-line basis over the average subscriber service
period.
Income taxes: The income tax effects of all earnings or losses of the
Partnership are passed directly to the partners. Payment of foreign income
taxes is reflected as a reduction to the partners' capital accounts. Thus, no
provision or benefit for federal, state, local or foreign income taxes are
required.
Partnership unit options: The Partnership accounts for its partnership unit
options in accordance with Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees, and provide pro forma
net income, and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and beyond as if the fair value-based method defined
in SFAS No. 123 had been applied. The Partnership has elected to continue to
apply the provisions of APB No. 25, which recognizes compensation expense based
on the intrinsic value of the equity instrument when awarded, and provide the
pro forma disclosure provisions of SFAS No. 123.
Fair value of financial instruments: The carrying amounts of cash and cash
equivalents and the revolving credit facility approximate fair value because of
the short maturity of these instruments. The fair value of the senior notes at
December 31, 1997 and 1998, approximates $105,000,000 and $104,000,000,
respectively. The carrying amount of the notes receivable and long-term
obligations other than the senior notes approximates the fair value, as the
rates are either comparable to or based on the current prime rate.
European joint venture: During 1998 the Partnership sold its interest in a
joint venture providing business music services in Europe (Muzak Europe) in
exchange for a note receivable of approximately
F-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<PAGE>
MUZAK LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1996, 1997 and 1998
Put options: A general partner and certain of the Class A limited partners
can require the Partnership to purchase limited partnership units held by them
at fair market value. However, such right may not be exercised if the purchase
of units would have a material adverse effect on the Partnership or would be in
contravention of any then-existing agreement to which the Partnership is a
party. These partners have not elected to exercise their redemption rights as
of December 31, 1998.
Allocation of profits and losses: Losses are allocated among the general
partners and Class A and B limited partners based upon the total of the
interests held by each individual, including the put/call units under option,
as a percentage of the total of all such interests.
NOTE 13: ENTERPRISE-WIDE INFORMATION
Management organizes its business around its independent and owned
affiliates. These operating segments have been aggregated as each segment has
similar economic characteristics and the nature of the segments, its production
processes, customers and distribution methods are similar. Information related
to the Partnership's products and services revenue is summarized for the years
ended December 31, as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
Broadcast music...................................... $42,242 $43,761 $47,916
On-premise music..................................... 4,368 4,035 4,157
Other broadcast services............................. 1,530 1,546 1,746
Audio marketing...................................... 2,480 3,248 4,418
On-premise video..................................... 2,108 4,126 2,973
In-store advertising................................. 717 949 745
Internet music server................................ 22 359 1,678
Other................................................ 1,118 1,327 2,323
------- ------- -------
Total music and other business services............ 54,585 59,351 65,956
Equipment............................................ 21,873 21,026 22,021
Installation, service, and repair.................... 10,353 10,827 11,771
------- ------- -------
Total equipment and related services............... 32,226 31,853 33,792
------- ------- -------
Total revenue.......................................... $86,811 $91,204 $99,748
======= ======= =======
</TABLE>
NOTE 14: SUBSEQUENT EVENTS
On January 29, 1999, the Partnership entered into a definite merger
agreement to be acquired by Audio Communications Network Holdings, LLC (ACN).
Under the terms of the agreement which was effective March 18, 1999, the
Partnership merged into a subsidiary of ACN for total consideration of
approximately $245,000,000. The current partners retained a minor ownership
interest in the merged entity. The accounts of EAIC Corp. were not part of the
merger.
Upon change of control of the Partnership, all outstanding options to
purchase partnership units became immediately vested and exercisable unless the
performance criteria was not achievable. The accelerated vesting of certain
options resulted in a significant charge as performance criteria for these
options became achievable.
F-46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$75,000,000
Muzak Holdings LLC
Muzak Holdings Finance Corp.
Series B 13% Senior Discount Notes due 2010
-----------------------
PROSPECTUS
-----------------------
CIBC Oppenheimer
Goldman, Sachs & Co.
Subject to completion, , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Muzak 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.
Certificate of Amendment to the Certificate of Formation of ACN
3.2 Holdings, LLC.
3.3 Certificate of Incorporation of ACN Holdings, Inc.
Certificate of Amendment of Certificate of Incorporation of ACN
3.4 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.
Form of Series A 13% Senior Discount Notes due 2010 (included in
4.2 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.
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 WilliamA. 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.
*12.1 Statement regarding computation of ratio of earnings to fixed charges.
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).
Power of Attorney (included in signature page to the Registration
24.1 Statement).
Statement of Eligibility of Trustee on Form T-1 with respect to the
*25.1 New Notes.
Statement of Eligibility of Trustee on Form T-1 with respect to the
*25.2 guarantees of the New Notes.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- --------
* To be filed by Amendment.
(1) Filed as an Exhibit to the Registration Statement on Form S-4 (File No.
333- ) filed by Muzak LLC on May , 1999.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
Item 22. Undertakings.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i)To include any prospectus required by Section10(a)(3) of the
Securities Act of 1933;
II-4
<PAGE>
(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 day of May, 1999.
MUZAK HOLDINGS LLC
By:/s/ William A. Boyd
_________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<C> <S>
/s/ William A. Boyd 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)
/s/ Peni Garber Director
___________________________________________
Peni Garber
/s/ David W. Unger Director
___________________________________________
David W. Unger
/s/ Royce Yudkoff Director
___________________________________________
Royce Yudkoff
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<C> <S>
Chairman of the Board
___________________________________________
Steven Hicks
Director
___________________________________________
D. Geoff Armstrong
/s/ Andrew Banks Director
___________________________________________
Andrew Banks
</TABLE>
II-7
<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 day of May, 1999.
MUZAK HOLDINGS FINANCE CORP.
By:/s/ William A. Boyd
_________________________________
Name: William A. Boyd
Title: Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brad D. Bodenman and Royce Yudkoff, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the day of May, 1999.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<C> <S>
/s/ William A. Boyd 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)
/s/ Royce Yudkoff Director
___________________________________________
Royce Yudkoff
</TABLE>
II-8
<PAGE>
EXHIBIT 2.3
CONTRIBUTION AGREEMENT
between
Capstar Broadcasting Corporation
and
ACN Holdings, LLC
dated as of
February 19, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINED TERMS
1.1 Defined Terms....................................................... 2
ARTICLE II
CONTRIBUTION OF ASSETS
2.1 Agreement to Contribute............................................. 12
2.2 Excluded Assets..................................................... 13
2.3 Issuance of Class A Units........................................... 14
2.4 Working Capital Adjustment.......................................... 14
2.5 Acceptance of Assets As Is.......................................... 18
2.6 Assumption of Liabilities and Obligations........................... 18
2.7 Deemed Assignment of Contracts...................................... 19
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Capstar........................... 19
(a) Organization, Standing and Power............................. 19
(b) Power; Authority; and Enforceability......................... 19
(c) No Conflict; Required Filings and Consents................... 20
(d) Title and Sufficiency of Assets.............................. 20
(e) Third Party Consents......................................... 21
(f) Affiliate Relationships...................................... 21
(g) No Brokers................................................... 21
(h) MRR.......................................................... 21
(k) No Other Representations and Warranties...................... 21
3.2 Representations and Warranties of ACN Holdings...................... 21
(a) Organization, Standing and Power............................. 21
(b) Power; Authority; and Enforceability......................... 22
(c) No Conflict; Required Filings and Consents................... 22
(d) Capitalization............................................... 23
(e) Financial Statements......................................... 23
(f) Absence of Certain Changes or Events......................... 23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(g) ABRY Investments.............................................. 24
(h) Material Contracts............................................ 24
(i) Pending and Completed Acquisitions............................ 24
(j) MRR........................................................... 24
(k) Tax Matters................................................... 24
(l) No Brokers.................................................... 25
(m) No Other Representations and Warranties....................... 25
ARTICLE IV
COVENANTS
4.1 Conduct of Business.................................................. 25
4.2 Third Party Consents; Release of Liens............................... 27
4.3 Governmental Consents................................................ 27
4.4 Membership Agreements................................................ 28
4.5 Bridge Loan Conversion............................................... 28
4.6 Transaction Structure................................................ 28
4.7 Employee Matters..................................................... 29
4.8 Access and Information............................................... 29
4.9 Notification of Certain Events....................................... 30
4.10 Public Announcements................................................. 30
4.11 Assistance........................................................... 30
4.12 MLP Merger Agreement................................................. 30
4.13 Additional Agreements................................................ 31
4.14 Receivables.......................................................... 31
4.15 Osborn Healthcare Division........................................... 31
ARTICLE V
CLOSING CONDITIONS
5.1 Conditions to each Party's Obligations............................... 31
(a) No Injunctions or Restraints.................................. 31
(b) No Action..................................................... 31
(c) Proceedings or Investigations................................. 32
(d) HSR Act....................................................... 32
(e) Governmental and Regulatory Consents.......................... 32
5.2 Conditions to Obligations of Capstar................................. 32
(a) Representations and Warranties................................ 32
(b) Performance of Obligations.................................... 32
(c) Senior Lender Consent......................................... 32
(e) Legal Opinion................................................. 33
(f) Closing Deliveries............................................ 33
5.3 Conditions to Obligation of ACN Holdings............................. 33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(a) Representations and Warranties................................ 33
(b) Performance of Obligations.................................... 33
(c) Third Party Consents.......................................... 33
(d) Legal Opinion................................................. 33
(e) Closing Deliveries............................................ 33
ARTICLE VI
CLOSINGS
6.1 Closings............................................................. 34
6.2 Actions to Occur at the First Closing................................ 34
6.3 Actions to Occur at the Second Closing............................... 37
ARTICLE VII
TERMINATION
7.1 Termination.......................................................... 39
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of ACN Holdings...................................... 40
8.2 Indemnification of Capstar........................................... 40
8.3 Defense of Third-Party Claims........................................ 40
8.4 Direct Claims........................................................ 41
8.5 Limitation on Indemnification........................................ 42
ARTICLE IX
MISCELLANEOUS
9.1 Survival of Representations and Warranties........................... 42
9.2 Fees and Expenses.................................................... 42
9.3 Assignment; Amendment................................................ 43
9.4 Waiver of Compliance................................................. 43
9.5 Specific Performance................................................. 43
9.6 Parties in Interest.................................................. 43
9.7 Notices.............................................................. 43
9.8 Entire Agreement..................................................... 44
9.9 Governing Law........................................................ 44
9.10 Interpretation....................................................... 45
9.11 Counterparts......................................................... 45
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
9.12 Further Assurances................................................... 45
9.13 Severability......................................................... 45
9.14 No Liability......................................................... 45
</TABLE>
Exhibits
- --------
Exhibit A -- Form of LLC Agreement
Exhibit B -- Form of Omaha Lease Agreement
Exhibit C -- Form of Registration Rights Agreement
Exhibit D -- Form of SCA Lease Agreement
Exhibit E -- Form of Securityholders Agreement
Exhibit F -- Form of Bill of Sale and Assignment for the First Closing
Exhibit G -- Form of Assumption Agreement for the First Closing
Exhibit H -- Form of Bill of Sale and Assignment for the Second Closing
Exhibit I -- Form of Assumption Agreement for the Second Closing
Schedules
- ---------
Schedule 1.1(jjj) -- FCC Licenses
Schedule 1.1(xxx) -- Leased Real Property
Schedule 1.1(kkkk) -- Personal Property
Schedule 2.1 -- Assumed Contracts
Schedule 3.1(f) -- Affiliate Relationships
Schedule 3.1(g) -- MRR Calculation
Schedule 3.2(d) -- Capitalization of ACN Holdings
Schedule 3.2(f) -- Absence of Certain Changes or Events
Schedule 3.2(g) -- Abry Investments
Schedule 3.2(h) -- Material Contracts
Schedule 3.2(i) -- Pending and Completed Acquisitions
Schedule 3.2(k) -- Tax Matters
Schedule 4.1(b) -- ACN Holdings Conduct of Business
Schedule 4.1(c) -- Capstar Conduct of Business
Schedule 4.7(a) -- Continuing Employees
iv
<PAGE>
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (this "Agreement") is made and entered into as
---------
of February 19, 1999, by and between Capstar Broadcasting Corporation, a
Delaware corporation ("Capstar"), and ACN Holdings, LLC, a Delaware limited
-------
liability company ("ACN Holdings").
------------
R E C I T A L S
- - - - - - - -
A. Capstar desires to contribute, and ACN Holdings desires to accept and
acquire those certain Assets (as hereinafter defined) in exchange for units
representing a fractional part of the membership interests in ACN Holdings of
all unitholders having the rights and obligations specified with respect to
"Class A Units" in that certain Amended and Restated Limited Liability Company
Agreement of ACN Holdings to be entered into by Capstar in substantially the
form of Exhibit A attached hereto (the "LLC Agreement").
--------- -------------
B. The Assets of the Atlanta Muzak Franchise (as hereinafter defined) and
of the Ft. Myers Muzak Franchise (as hereinafter defined) are currently owned
by one or more Subsidiaries of Capstar and, upon the consummation of the
Triathlon Acquisition (as hereinafter defined), the Assets of the Omaha Muzak
Franchise (as hereinafter defined) shall be owned by one or more Subsidiaries
of Capstar, and, immediately prior to each Closing (as hereinafter defined), the
Assets to be contributed to ACN Holdings at such Closing will be distributed
(each, a "Capstar Distribution") by the applicable Subsidiaries of Capstar to
--------------------
Capstar via one or more property dividends so that Capstar may contribute such
Assets to ACN Holdings at such Closing as provided herein.
C. Immediately after each Closing, ACN Holdings will contribute the
Assets received from Capstar at such Closing to Audio Communications Network,
LLC, a Delaware limited liability company and wholly-owned subsidiary of ACN
Holdings ("ACN") or to the successor entity of the MLP Merger (as hereinafter
---
defined), which will be a wholly-owned Subsidiary of ACN Holdings.
A G R E E M E N T S
- - - - - - - - - -
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants, agreements and conditions hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
<PAGE>
ARTICLE 1.
DEFINED TERMS
-------------
1.1 Defined Terms. The following terms shall have the following
-------------
meanings in this Agreement:
(a) "ABRY" means ABRY Broadcast Partners III, L.P.
----
(b) "ACN" has the meaning set forth in Recital C. of this
---
Agreement.
(c) "ACN Accountants" means the Boston, Massachusetts office of
---------------
PricewaterhouseCoopers LLP.
(d) "ACN Documents" has the meaning set forth in Section 3.2(i).
-------------
(e) "ACN Estimated Closing Balance Sheet" has the meaning set
-----------------------------------
forth in Section 2.4(c).
(f) "ACN Holdings" has the meaning set forth in the first
------------
paragraph of this Agreement.
(g) "ACN Indemnified Costs" means any and all damages, losses,
---------------------
claims, liabilities, demands, charges, suits, penalties, costs, and expenses
(including court costs and reasonable attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding) that any of the
ACN Indemnified Parties incurs and that arise out of (i) any breach or default
by Capstar of any representation, warranty, covenant or agreement under this
Agreement or any agreement or document executed in connection herewith, (ii) any
obligations or liabilities of Capstar or any of its Subsidiaries (including
under any contract or agreement) not expressly assumed by ACN Holdings pursuant
to the terms hereof or (iii) any Employee Benefit Plan obligation.
(h) "ACN Indemnified Parties" means ACN Holdings and each
-----------------------
officer, director, employee, consultant, member, and Affiliate of ACN Holdings.
(i) "ACN MRR" means $1,385,600, which was determined as provided
-------
in Schedule 3.1(g).
---------------
(j) "ACN Working Capital Statement" has the meaning set forth in
-----------------------------
Section 2.4(g).
(k) "Affiliate" means, with respect to any person, any other
---------
person controlling, controlled by or under common control with such person. For
purposes of this definition and this
2
<PAGE>
Agreement, the term "control" (and correlative terms) means the power, whether
by contract, equity ownership or otherwise, to direct the policies or management
of a person.
(l) "Agreement" has the meaning set forth in the first paragraph
---------
of this Agreement.
(m) "Assets" means all the tangible and intangible assets owned,
leased or licensed by Capstar as of immediately prior to the applicable Closing
Date (after giving effect to the applicable Capstar Distributions) that are
principally used or held for principal use in connection with the business or
operations of any of the Contributed Franchises, including the assets described
in Section 2.1(b), but specifically excluding therefrom the Excluded Assets.
(n) "Assumed Contracts" means those Contracts set forth on
-----------------
Schedule 2.1 and all other contracts entered into or assumed by Capstar or any
- ------------
of its Subsidiaries in the ordinary course of business before or after the date
of this Agreement that are principally used or held for principal use in
connection with the business or operations of any of the Contributed Franchises.
(o) "Atlanta Muzak Franchise" means that certain business
-----------------------
consisting of the marketing and distribution of subscription music services
through local franchises pursuant to those two certain Muzak License Agreements,
each dated as of January 1, 1991, as amended, between Muzak Limited Partnership
and Osborn Sound & Communications of Georgia, Inc., a predecessor entity to
Osborn Entertainment.
(p) "Bridge Loan" means the $40,817,757.69 in principal amount
-----------
Promissory Note issued on October 6, 1998 by ACN to ABRY.
(q) "Bridge Loan Conversion" has the meaning set forth in
----------------------
Section 4.5.
(r) "Bridge Loan Payment" has the meaning set forth in Section
-------------------
4.5.
(s) "business" means, with respect to Capstar, the business of
--------
the Atlanta Muzak Franchise and the Ft. Myers Muzak Franchise and, to the extent
within Capstar's control, the Omaha Muzak Franchise.
(t) "Business Day" means any day, other than (i) a Saturday or
------------
Sunday or (ii) a day on which commercial banks in New York, New York or Dallas,
Texas are authorized or required to be closed.
(u) "Capstar" has the meaning set forth in the first paragraph
-------
of this Agreement.
(v) "Capstar Accountants" means the Austin, Texas office of
-------------------
PricewaterhouseCoopers LLP.
(w) "Capstar Atlanta-Ft. Myers MRR" means $356,900, which was
-----------------------------
determined as provided in Schedule 3.1(g).
---------------
3
<PAGE>
(x) "Capstar Atlanta-Ft. Myers MRR Ratio" means a fraction, the
-----------------------------------
numerator of which shall be the Capstar Atlanta-Ft. Myers MRR and the
denominator of which shall be the sum of the ACN MRR and the Capstar Atlanta-Ft.
Myers MRR.
(y) "Capstar Combined MRR Ratio" means a fraction, the numerator
--------------------------
of which shall be the sum of the Capstar Atlanta-Ft. Myers MRR and the Capstar
Omaha MRR and the denominator of which shall be the sum of the ACN MRR, the
Capstar Atlanta-Ft. Myers MRR and the Capstar Omaha MRR.
(z) "Capstar Credit Agreement" means the Credit Agreement dated
------------------------
as of May 29, 1998, as amended, among Capstar Radio Broadcasting Partners, Inc.
as the borrower, Capstar, Capstar Broadcasting Partners, Inc. and the financial
institutions party thereto.
(aa) "Capstar Distribution" has the meaning set forth in Recital
--------------------
B. to this Agreement.
(bb) "Capstar Estimated First Closing Balance Sheet" has the
---------------------------------------------
meaning set forth in Section 2.4(a).
(cc) "Capstar Estimated Second Closing Balance Sheet" has the
----------------------------------------------
meaning set forth in Section 2.4(b).
(dd) "Capstar Estimated First Closing WC Target" means if the
-----------------------------------------
Omaha Muzak Franchise is contributed to ACN Holdings at the First Closing, then
the amount equal to the quotient of the amount equal to the product of the
Capstar Combined MRR Ratio multiplied times the Estimated ACN Working Capital
----------------
divided by the amount equal to one (1) minus the Capstar Combined MRR Ratio or
- ---------- -----
if the Omaha Muzak Franchise is not contributed to ACN Holdings at the First
Closing, then the amount equal to the quotient of the amount equal to the
product of the Capstar Atlanta-Ft. Myers MRR Ratio multiplied times the
----------------
Estimated ACN Working Capital divided by the amount equal to one (1) minus the
---------- -----
Capstar Atlanta-Ft. Myers MRR Ratio.
(ee) "Capstar Estimated Second Closing WC Target" means the
amount equal to the quotient of the amount equal to the product of the Capstar
Omaha MRR Ratio multiplied times the Estimated ACN Working Capital (or, if
----------------
determined, the Final ACN Working Capital) divided by the amount equal to one
----------
(1) minus the Capstar Omaha MRR Ratio.
-----
(ff) "Capstar Final First Closing WC Target" means if the Omaha
-------------------------------------
Muzak Franchise is contributed to ACN Holdings at the First Closing, then the
amount equal to the quotient of the amount equal to the product of the Capstar
Combined MRR Ratio multiplied times the Final ACN Working Capital divided by the
---------------- ----------
amount equal to one (1) minus the Capstar Combined MRR Ratio or if the Omaha
-----
Muzak Franchise is not contributed to ACN Holdings at the First Closing, then
the amount equal to the quotient of the amount equal to the product of the
Capstar Atlanta-Ft. Myers MRR Ratio multiplied times the Final ACN Working
----------------
Capital divided by the amount equal to one (1) minus the Capstar Atlanta-Ft.
---------- -----
Myers MRR Ratio.
4
<PAGE>
(gg) "Capstar Final Second Closing WC Target" means the amount
--------------------------------------
equal to the quotient of the amount equal to the product of the Capstar Omaha
MRR Ratio multiplied times the Final ACN Working Capital divided by the amount
---------------- ----------
equal to one (1) minus the Capstar Omaha MRR Ratio.
-----
(hh) "Capstar Indemnified Costs" means any and all damages,
-------------------------
losses, claims, liabilities, demands, charges, suits, penalties, costs, and
expenses (including court costs and reasonable attorneys' fees and expenses
incurred in investigating and preparing for any litigation or proceeding) that
any of the Capstar Indemnified Parties incurs and that arise out of any breach
or default by ACN Holdings of any representation, warranty, covenant or
agreement under this Agreement or any agreement or document executed in
connection herewith, the items indemnified against pursuant to Section 4.11 and
except in any Capstar Indemnified Party's capacity as a direct or indirect
holder or owner of any equity securities of ACN Holdings (or any of its
successors), the waiver by ACN Holdings of the conditions to Closing set forth
in Section 5.3(c).
(ii) "Capstar Indemnified Parties" means Capstar and each
---------------------------
officer, director, employee, consultant, member, and Affiliate of Capstar (other
than ACN Holdings or any of its Subsidiaries).
(jj) "Capstar Omaha MRR" means $62,900, which was determined as
-----------------
provided in Schedule 3.1(g).
---------------
(kk) "Capstar Omaha MRR Ratio" means a fraction, the numerator of
-----------------------
which shall be the Capstar Omaha MRR and the denominator of which shall be the
ACN MRR and the Capstar Omaha MRR.
(ll) "Capstar's Expenses" has the meaning set forth in Section
------------------
9.2.
(mm) "Capstar First Closing Working Capital Statement" has the
meaning set forth in Section 2.4(f).
(nn) "Choses in Action" means a right to receive or recover
----------------
property, debt, or damages on a cause of action principally related to the
Assets or any of the Contributed Franchises, whether pending or not and whether
arising in contract, tort or otherwise. The term shall include rights to
indemnification, damages for breach of warranty or any other event or
circumstance, judgments, settlements, and proceeds from judgments or
settlements.
(oo) "Class A Unit" has the meaning set forth in Recital A. to
------------
this Agreement.
(pp) "Closing" has the meaning set forth in Section 6.1.
-------
(qq) "Closing Date" has the meaning set forth in Section 6.1.
------------
5
<PAGE>
(rr) "Consents" means all governmental consents and approvals and
--------
all consents and approvals of third parties, in each case that are necessary in
order to transfer the Assets to ACN Holdings and otherwise to consummate the
transactions contemplated hereby.
(ss) "Continuing Employee" has the meaning set forth in Section
-------------------
4.7.
(tt) "Contracts" means all agreements, contracts, or other
---------
binding commitments or arrangements, written or oral (including any amendments
and other modifications thereto), to which Capstar or any of its Subsidiaries
will be a party or otherwise bound as of the applicable Closing Date and which
principally affect or principally relate to the Assets or the business or
operations of any of the Contributed Franchises.
(uu) "Contributed Franchise Financial Statements" has the meaning
------------------------------------------
set forth in Section 3.1(j).
(vv) "Contributed Franchises" means, collectively, the Atlanta
----------------------
Muzak Franchise, the Ft. Myers Muzak Franchise and the Omaha Muzak Franchise.
(ww) "Contribution" has the meaning set forth in Section 2.1(a).
------------
(xx) "Conversion Principal Amount" has the meaning set forth in
---------------------------
Section 4.5.
(yy) "Cure Period" has the meaning set forth in Section
-----------
7.1(b)(i).
(zz) "Employee Benefit Plan" means any "employee benefit plan"
---------------------
within the meaning of Section 3(3) of ERISA and any bonus, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, vacation, severance, disability, death benefit,
hospitalization or insurance plan providing benefits to any present or former
employee or contractor of Capstar or any member of the ERISA Group maintained by
any such entity or as to which any such entity has any liability or obligation.
(aaa) "ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended.
(bbb) "ERISA Group" means the collective reference to Capstar and
-----------
any other trades or businesses under common control with Capstar within the
meaning of Section 4001(b)(1) of ERISA.
(ccc) "Estimated ACN Working Capital" has the meaning set forth in
-----------------------------
Section 2.4(c).
(ddd) "Estimated First Closing Capstar Working Capital" has the
-----------------------------------------------
meaning set forth in Section 2.4(a).
(eee) "Estimated Second Closing Capstar Working Capital" has the
------------------------------------------------
meaning set forth in Section 2.4(b).
6
<PAGE>
(fff) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(ggg) "Excluded Assets" has the meaning set forth in Section 2.2.
---------------
(hhh) "FCC" means the Federal Communications Commission.
---
(iii) "FCC Consents" has the meaning set forth in Section 4.3.
------------
(jjj) "FCC Licenses" means all of the licenses, permits and other
------------
authorizations issued by the FCC and all applications, if any, to the FCC
relating to or used in the business or operations of the Contributed Franchises,
including the licenses, permits and other authorizations issued by the FCC which
are listed on Schedule 1.1(jjj) hereto, together with any pending applications
-----------------
therefor and renewals, extensions or modifications thereof and any additions
thereto between the date hereof and the applicable Closing Date.
(kkk) "Final ACN Balance Sheet" has the meaning set forth in
-----------------------
Section 2.4(g).
(lll) "Final First Closing Capstar Balance Sheet" has the meaning
-----------------------------------------
set forth in Section 2.4(f).
(mmm) "Final Second Closing Capstar Balance Sheet" has the meaning
------------------------------------------
set forth in Section 2.4(i).
(nnn) "Final ACN Working Capital" has the meaning set forth in
-------------------------
Section 2.4(i).
(ooo) "Final First Closing Capstar Working Capital" has the
-------------------------------------------
meaning set forth in Section 2.4(i).
(ppp) "First Closing" has the meaning set forth in Section 6.1.
-------------
(qqq) "First Closing Date" has the meaning set forth in Section
------------------
6.1.
(rrr) "Ft. Myers Muzak Franchise" means that certain business
-------------------------
consisting of the marketing and distribution of subscription music services
through a local franchise pursuant to that certain Muzak License Agreement dated
as of January 1, 1991, as amended, between Muzak Limited Partnership and Osborn
Sound & Communications of Florida, Inc., a predecessor entity to Osborn
Entertainment.
(sss) "GAAP" means generally accepted accounting principles in the
----
United States.
(ttt) "Governmental Entity" means any governmental department,
-------------------
commission, board, bureau, agency, court or other instrumentality of the United
States or any state, county, parish or municipality, jurisdiction, or other
political subdivision thereof.
7
<PAGE>
(uuu) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvement
-------
Act of 1976, as amended.
(vvv) "Indemnified Parties" means the ACN Indemnified Parties or
-------------------
the Capstar Indemnified Parties, as applicable.
(www) "Intellectual Property" means (i) all patents, patent
---------------------
applications and patent disclosures; all inventions (whether or not patentable
and whether or not reduced to practice); (ii) all trademarks, service marks,
trade names, logos, slogans, and Internet domain names, including, with respect
to the Omaha Muzak Franchise, the trademark and trade name "Business Music
Service," and all the goodwill associated with each of the foregoing; (iii) all
mask works; (iv) all registered and unregistered statutory and common law
copyrights; (v) all registrations, applications and renewals for any of the
foregoing; and (vi) all trade secrets, confidential information, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research information, drawings, specifications, designs, plans,
improvements, proposals, technical and computer data, documentation and
software, financial business and marketing plans, customer and supplier lists
and related information and marketing materials, in the case of clauses (i)
through (vi), principally relating to the business or operations of any of the
Contributed Franchises.
(xxx) "Leased Real Property" means all leasehold interests,
easements, licenses, rights to access and rights-of-way which are solely used or
held for sole use in the business and operations of the Contributed Franchises
(excluding any use of any such leasehold interests, easements, licenses, rights
to access and rights-of-way to the Osborn Healthcare Division of Capstar)
including the leasehold interests leased pursuant to the leases listed on
Schedule 1.1(xxx) hereto, with any additions between the date hereof and the
- -----------------
applicable Closing Date.
(yyy) "Licenses" means the FCC Licenses and all Permits issued by
any Governmental Entity and relating to or used or held for use in the business
and operations of any of the Contributed Franchises, with any additions thereto
between the date hereof and the applicable Closing Date.
(zzz) "Liens" means, collectively, all liens, pledges, claims,
-----
security interests, restrictions, mortgages, deeds of trust, tenancies, and
other possessory interests, conditional sale or other title retention
agreements, assessments, easements, rights of way, covenants, restrictions,
rights of first refusal, defects in title, encroachments, and other burdens,
options or encumbrances of any kind.
(aaaa) "LLC Agreement" has the meaning set forth in Recital A. to
-------------
this Agreement.
(bbbb) "Material Adverse Effect" means a material adverse effect on
-----------------------
the business, operations, properties (taken as a whole), condition (financial or
otherwise), results of operations, assets (taken as a whole), liabilities, or
prospects of (i) with respect to Capstar, the Contributed Franchises, taken as a
whole, and (ii) with respect to ACN Holdings, ACN Holdings and its Subsidiaries,
taken as a whole.
8
<PAGE>
(cccc) "MLP Merger" means the pending merger of Muzak Limited
----------
Partnership with and into ACN pursuant to the MLP Merger Agreement.
(dddd) "MLP Merger Agreement" means that certain Agreement and Plan
--------------------
of Merger dated as of January 29, 1999, among ACN Holdings, ACN, Muzak Limited
Partnership, MLP Acquisition L.P., and Music Holdings Corp.
(eeee) "Omaha Lease Agreement" means the Office Lease Agreement to
---------------------
be entered into by and between an indirect wholly-owned subsidiary of Capstar
and ACN or the successor entity of the MLP Merger, which will be a wholly-owned
Subsidiary of ACN Holdings, in substantially the form attached as Exhibit B
---------
hereto.
(ffff) "Omaha Muzak Franchise" means that certain business
---------------------
consisting of the marketing and distribution of subscription music services
through a local franchise pursuant to that certain Muzak License Agreement dated
as of October 25, 1996, by and between Muzak Limited Partnership and Business
Music Service, the business name of the Omaha Muzak Franchise.
(gggg) "Osborn Entertainment" means Osborn Entertainment
--------------------
Enterprises Corporation, a Delaware corporation and indirect wholly-owned
subsidiary of Capstar.
(hhhh) "Permits" means permits, registrations, licenses,
-------
authorizations, and the like.
(iiii) "Permitted Liens" means, with respect to any person, Liens
---------------
for taxes, assessments or other governmental charges with reserve or levies that
are not yet due or payable or that are being contested in good faith by such
person in an appropriate proceeding, statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen, repairmen and other Liens
imposed by law and on a basis consistent with past practice for amounts not yet
due, Liens incurred or deposits made in the ordinary course of business and on a
basis consistent with past practice in connection with workers' compensation,
unemployment insurance or other types of social security, nonconsensual Liens
incurred in the ordinary course of business and on a basis consistent with past
practice securing obligations or liabilities which are not material individually
or in the aggregate to the conduct of the business of such persons and prior to
the applicable Closing, Liens related to or arising out of the Capstar Credit
Agreement.
(jjjj) "person" means an individual, corporation, limited liability
------
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
(kkkk) "Personal Property" means all of the machinery, equipment,
-----------------
computer programs, computer software, tools, furniture, furnishings, leasehold
improvements, office equipment, inventories, supplies, plant, spare parts, and
other tangible or intangible personal property, whether owned or leased, which
are principally used or held for principal use in the business or operations of
any of the Contributed Franchises, including the personal property listed on
Schedule 1.1(kkkk) hereto, together with any additions thereto between the date
- ------------------
hereof and the Closing Date.
9
<PAGE>
(llll) "Referee" has the meaning set forth in Section 2.4(i).
-------
(mmmm) "Registration Rights Agreement" means the Second Amended and
-----------------------------
Restated Registration Rights Agreement to be entered into at the First Closing
among ACN Holdings, MEM Holdings, LLC, Capstar and the other parties named
therein in substantially the form attached as Exhibit C hereto.
---------
(nnnn) "SCA Lease Agreement" means the SCA Lease Agreement to be
-------------------
entered into by and between an indirect wholly-owned subsidiary of Capstar and
ACN or to the successor entity of the MLP Merger, which will be a wholly-owned
Subsidiary of ACN Holdings, in substantially the form attached as Exhibit D
---------
hereto.
(oooo) "Second Closing" has the meaning set forth in Section 6.1.
--------------
(pppp) "Second Closing Date" has the meaning set forth in Section
-------------------
6.1.
(qqqq) "Securityholders Agreement" means the Securityholders
-------------------------
Agreement to be entered into at the First Closing among ACN Holdings, MEM
Holdings, LLC and Capstar in substantially the form attached as Exhibit E
---------
hereto.
(rrrr) "Securities Act" means the Securities Act of 1933.
--------------
(ssss) "Subsidiary" means, with respect to any person, any person
----------
of which such person owns, directly or indirectly, fifty percent (50%) or more
of the equity securities the holders of which are generally entitled to vote for
the election of the board of directors or similar governing body of such person.
(tttt) "Taxes" means taxes, charges, fees, imposts, levies,
-----
interest, penalties, additions to tax or other assessments or fees of any kind
(including any such assessments or fees imposed upon a transferee or successor
in interest to assets), including, but not limited to, income, corporate,
capital, excise, property, sales, use, turnover, value added and franchise
taxes, deductions, withholdings and customs duties, imposed by any Governmental
Entity and any payments with respect thereto required under any tax-sharing
agreement.
(uuuu) "Triathlon Acquisition" means Capstar's pending acquisition
---------------------
of Triathlon Broadcasting Company pursuant to that certain Agreement and Plan of
Merger dated as of July 23, 1998, as amended, among Capstar Radio Broadcasting
Partners, Inc., TBC Radio Acquisition Corp. and Triathlon Broadcasting Company.
(vvvv) "Transaction Documents" means, collectively, this Agreement,
---------------------
the LLC Agreement, the Registration Rights Agreement, the Securityholders
Agreement, the Omaha Lease Agreement, the SCA Lease Agreement(s) and each other
agreement, certificate or other instrument as is required to be executed and
delivered in accordance herewith or therewith.
10
<PAGE>
(wwww) "WC Adjustment Amount" means an amount equal to the sum of
--------------------
the WC Difference and the WC Target Difference, which sum shall be increased or
decreased, as applicable, to give effect to any payment made by Capstar or ACN
Holdings pursuant to Section 2.4(d), in the case of the First Closing, or
Section 2.4(e), in the case of the Second Closing.
(xxxx) "WC Difference" means (i) for the First Closing, an amount
-------------
equal to the Estimated First Closing Capstar Working Capital minus the Final
First Closing Capstar Working Capital and (ii) for the Second Closing, an amount
equal to the Estimated Second Closing Capstar Working Capital minus the Final
Second Closing Capstar Working Capital.
(yyyy) "WC Target Difference" means (i) for the First Closing, an
--------------------
amount equal to the Capstar Final First Closing WC Target minus the Capstar
Estimated First Closing WC Target and (ii) for the Second Closing, an amount
equal to the Capstar Final Second Closing WC Target minus the Capstar Estimated
Second Closing WC Target.
(zzzz) "Working Capital" means, as of the applicable date, with
---------------
respect to each Contributed Franchise, without duplication, the sum of the
current assets of the Contributed Franchise (excluding any current assets
described in Section 2.2) minus the sum of the ordinary course current
-----
liabilities of the Contributed Franchise being assumed by ACN Holdings
(including an appropriate reserve for any fees payable retroactively to
Broadcast Music, Inc. under the Broadcast Music, Inc. Agreement referred to on
Schedule 2.1) and with respect to ACN Holdings and its Subsidiaries, without
- ------------
duplication, the sum of the current assets of ACN Holdings and its Subsidiaries
of the business acquired from Audio Communications Network, Inc. and its
Subsidiaries on October 6, 1998 (the "ACN Business"), pursuant to the Asset
------------
Purchase Agreement dated as of October 6, 1998, between ACN and DMA Holdings
Statutory Trust (including in such amount any current assets of a nature similar
to that described in Section 2.2(a)), minus the sum of the current liabilities
-----
of ACN Holdings and its Subsidiaries of the ACN Business, excluding from such
amount (i) any expenses incurred but not paid by ACN Holdings and its
Subsidiaries in connection with the MLP Merger and any amounts payable to
Capstar in accordance with Section 2.4 or 9.2 and (ii) all amounts payable under
the Bridge Loan other than the Bridge Loan Payment, and the Bridge Loan Payment.
Working Capital for ACN shall exclude intercompany receivables and payables.
Except as otherwise provided herein, items included in the calculation of
Working Capital shall be determined in accordance with GAAP.
11
<PAGE>
ARTICLE II
CONTRIBUTION OF ASSETS
----------------------
2.1 Agreement to Contribute.
-----------------------
(a) Subject to the terms and conditions set forth in this
Agreement, Capstar shall contribute, assign, transfer and deliver to ACN
Holdings, and ACN Holdings shall accept and acquire, at the times indicated
below, all of the Assets (the "Contribution"):
------------
(i) at the First Closing, all of the Assets of the Atlanta
Muzak Franchise, the Ft. Myers Muzak Franchise and, if the Triathlon Acquisition
has been consummated before the First Closing Date, the Omaha Muzak Franchise;
and
(ii) at the Second Closing, all of the Assets of the Omaha
Muzak Franchise if such Assets were not previously contributed to ACN Holdings
at the First Closing.
(b) The Assets to be assigned, transferred and delivered by
Capstar hereunder shall include the following:
(i) All current assets of the Contributed Franchises as
determined in accordance with GAAP;
(ii) All Personal Property;
(iii) All Leased Real Property;
(iv) All Licenses;
(v) All Assumed Contracts;
(vi) All Intellectual Property;
(vii) Each Contributed Franchise's technical information and
data, machinery and equipment warranties (to the extent such warranties are
assignable), if any, maps, plans, diagrams, blueprints and schematics relating
to such Contributed Franchise, if any, including filings with any Governmental
Entity which relate to the Contributed Franchise, and goodwill relating to the
foregoing;
(viii) All books and records principally relating to each
Contributed Franchise, including (A) an executed copy of each Assumed Contract,
or if no executed agreement exists, summaries of each Assumed Contract
transferred pursuant to clause (v) above and (B) all records, if any, required
by any Governmental Entity to be kept by a Contributed Franchise, subject to the
right of Capstar to copy and have such books and records made reasonably
available to Capstar
12
<PAGE>
for tax and other legitimate organization purposes for a period of four years
after the applicable Closing;
(ix) To the extent assignable, all computer programs and
software, and all rights and interests of Capstar in and to any computer
programs and software principally used or held for principal use in connection
with the business or operations of the Contributed Franchises;
(x) All Choses in Action; and
(xi) All intangible assets of Capstar principally relating to
the Contributed Franchises not specifically described above, including goodwill,
and all other assets principally used or held for principal use in connection
with the business or operations of the Contributed Franchises.
2.2 Excluded Assets. The Excluded Assets shall consist of the
---------------
following:
(a) Capstar's and its Subsidiaries' cash on hand and all other
cash in any of Capstar's and its Subsidiaries' bank or savings accounts; notes
receivable, letters of credit or other similar items of Capstar and its
Subsidiaries; any stocks, bonds, certificates of deposit and similar investments
of Capstar and its Subsidiaries; and any other cash equivalents of Capstar and
its Subsidiaries;
(b) Capstar's books and records relating to internal corporate
matters and any other books and records not related to any Contributed Franchise
or the business or operations of any Contributed Franchise;
(c) Any claims, rights and interest of Capstar in and to any
refunds of Taxes or fees of any nature whatsoever, which, in each case, relate
solely to any period ending prior to the applicable Closing Date;
(d) All Employee Benefit Plans and all assets or funds held in
trust, or otherwise, associated with or used in connection with the Employee
Benefit Plans;
(e) All Choses in Action, if any, relating to Taxes;
(f) All tangible and intangible personal property disposed of or
consumed in the ordinary course of business consistent with past practice
between the date of this Agreement and the applicable Closing Date, or as
otherwise permitted hereunder; and
(g) Any collective bargaining agreement, any other Contract not
included in the Assumed Contracts, and all Contracts that have terminated or
expired prior to the applicable Closing Date in the ordinary course of business
consistent with past practice and as otherwise permitted hereunder.
13
<PAGE>
2.3 Issuance of Class A Units.
-------------------------
(a) At the First Closing, ACN Holdings shall deliver to Capstar a
certificate or certificates representing a number of Class A Units against
Capstar's transfer to ACN Holdings of the Assets of the Atlanta Muzak Franchise
and the Ft. Myers Muzak Franchise and, if applicable, the Omaha Muzak Franchise
in exchange therefor. The number of Class A Units that Capstar shall be entitled
to receive (without duplication) shall be such number of Class A Units as may be
necessary to represent the Capstar Combined MRR Ratio of the number of fully-
diluted Class A Units outstanding immediately after the First Closing and
calculated after giving effect to (x) the issuance of additional Class A Units
to MEM Holdings, LLC, Joseph Koff and David Unger as contemplated by Notes A, B,
and C to Schedule 3.2(d), (y) the Bridge Loan Conversion and the issuance of
---------------
other Class A Units pursuant to Section 4.5 and (z) the issuance of Class A
Units to Capstar hereunder (including the Class A Units which would be issued to
Capstar if the Assets of the Omaha Muzak Franchise were transferred to ACN
Holdings at the First Closing whether or not such Assets are transferred to ACN
Holdings at the First Closing), but excluding from such fully-diluted Class A
Units any Common Units (as defined in the LLC Agreement) issued or to be issued
by ACN Holdings pursuant to Section 2.3 of the MLP Merger Agreement and any
Class A Units issued or to be issued to William Boyd or any other employee of
Muzak Limited Partnership (in the case of any other employee of Muzak Limited
Partnership, after consultation with Capstar) as contemplated herein or in a
schedule hereto; provided that if the Assets of the Omaha Muzak Franchise are
not transferred to ACN Holdings at the First Closing, then the number of Class A
Units otherwise issuable to Capstar under this Section 2.3(a) shall be reduced
by the number of Class A Units related to the contribution of the Omaha Muzak
Franchise.
(b) At the Second Closing, if any, ACN Holdings shall deliver to
Capstar a certificate or certificates representing a number of Class A Units
against Capstar's transfer to ACN Holdings of the Assets of the Omaha Muzak
Franchise in exchange therefor. The number of Class A Units that Capstar shall
be entitled to receive shall equal the number of Class A Units that were
withheld from issuance to Capstar at the First Closing because the Assets of the
Omaha Muzak Franchise were not then contributed to ACN Holdings.
2.4 Working Capital Adjustment.
--------------------------
(a) No later than the close of business on the fifth Business Day
before the First Closing Date, Capstar shall deliver to ACN Holdings an
estimated balance sheet, as of immediately prior to the First Closing Date, for
the Contributed Franchises being contributed at the First Closing, which balance
sheet shall only be required to reflect a reasonable, good faith estimate of the
assets, liabilities and the other line items on the balance sheet included in
the calculation of Working Capital for the Contributed Franchises being
contributed at the First Closing, as of immediately prior to the First Closing
Date (the "Capstar Estimated First Closing Balance Sheet"). Capstar (after good
---------------------------------------------
faith consultation with ACN Holdings and the Capstar Accountants) shall make a
reasonable, good faith estimate of Working Capital for such Contributed
Franchises based on the Capstar Estimated First Closing Balance Sheet
("Estimated First Closing Capstar Working Capital") as soon as reasonably
-----------------------------------------------
practicable, but in no event later than the close of business on the third
Business Day prior to the First Closing Date. The Estimated First Closing
Capstar Working Capital shall be set forth in a
14
<PAGE>
written statement executed by Capstar (the execution and delivery of which shall
not in any manner prejudice the rights of any party under this Agreement). The
Capstar Estimated First Closing Balance Sheet shall be prepared by Capstar in
accordance with GAAP, subject to adjustments that would be made after audit,
except as otherwise contemplated by this Agreement. ACN Holdings shall, and ACN
Holdings shall request the ACN Accountants, to consult in good faith with
Capstar and the Capstar Accountants, when preparing the Capstar Estimated First
Closing Balance Sheet.
(b) If the Omaha Muzak Franchise is not contributed to ACN
Holdings at the First Closing, then no later than the close of business on the
fifth Business Day before the Second Closing Date, Capstar shall deliver to ACN
Holdings an estimated balance sheet, as of immediately prior to the Second
Closing Date, for the Omaha Muzak Franchise, which balance sheet shall only be
required to reflect a reasonable, good faith estimate of the assets, liabilities
and the other line items on the balance sheet included in the calculation of
Working Capital for the Omaha Muzak Franchise to be contributed at the Second
Closing, as of immediately prior to the Second Closing Date (the "Capstar
-------
Estimated Second Closing Balance Sheet"). Capstar (after good faith consultation
- --------------------------------------
with ACN Holdings and the Capstar Accountants) shall make a reasonable, good
faith estimate of Working Capital for the Omaha Muzak Franchise based on the
Capstar Estimated Second Closing Balance Sheet ("Estimated Second Closing
------------------------
Capstar Working Capital") as soon as reasonably practicable, but in no event
- -----------------------
later than the close of business on the third Business Day prior to the Second
Closing Date. The Estimated Second Closing Capstar Working Capital shall be set
forth in a written statement executed by Capstar (the execution and delivery of
which shall not in any manner prejudice the rights of any party under this
Agreement). The Capstar Estimated Second Closing Balance Sheet shall be prepared
by Capstar in accordance with GAAP, subject to adjustments that would be made
after audit, except as otherwise contemplated by this Agreement. ACN Holdings
shall, and ACN Holdings shall request the ACN Accountants, to consult in good
faith with Capstar and the Capstar Accountants, when preparing the Capstar
Estimated Second Closing Balance Sheet.
(c) No later than the close of business on the fifth Business Day
before the First Closing Date, ACN Holdings shall deliver to Capstar an
estimated balance sheet for ACN Holdings and its Subsidiaries as of immediately
prior to the First Closing Date, which balance sheet shall only be required to
reflect a reasonable, good faith estimate of the assets, liabilities and the
other line items on the balance sheet included in the calculation of Working
Capital for ACN Holdings and its Subsidiaries, as of immediately prior to the
First Closing Date (except that such balance sheet shall reflect the Bridge Loan
Payment) (the "ACN Estimated Closing Balance Sheet"). ACN Holdings (after good
-----------------------------------
faith consultation with Capstar and the ACN Accountants) shall make a
reasonable, good faith estimate of Working Capital for ACN Holdings and its
Subsidiaries based on the ACN Estimated Closing Balance Sheet ("Estimated ACN
-------------
Working Capital") as soon as reasonably practicable, but in no event later than
- ---------------
the close of business on the third Business Day prior to the First Closing Date.
The Estimated ACN Working Capital shall be set forth in a written statement
executed by ACN Holdings (the execution and delivery of which shall not in any
manner prejudice the rights of any party under this Agreement). The ACN
Estimated Closing Balance Sheet shall be prepared by ACN in accordance with
GAAP, subject to adjustments that would be made after audit, except as otherwise
contemplated by this Agreement. Capstar shall, and Capstar shall request the
Capstar Accountants, to consult in good faith with ACN Holdings and the ACN
Accountants, when preparing the ACN Estimated Closing Balance Sheet.
15
<PAGE>
(d) At the First Closing, (i) if the Estimated First Closing
Capstar Working Capital exceeds the Capstar Estimated First Closing WC Target,
then ACN Holdings shall pay to Capstar an amount in cash equal to the amount of
such excess and (ii) if the Capstar Estimated First Closing WC Target exceeds
the Estimated First Closing Working Capital, then Capstar shall pay to ACN
Holdings an amount in cash equal to the amount of such excess.
(e) At the Second Closing, if any, (i) if the Estimated Second
Closing Capstar Working Capital exceeds the Capstar Estimated Second Closing WC
Target (or, if known, the Capstar Final Second Closing WC Target), then ACN
Holdings shall pay to Capstar an amount in cash equal to the amount of such
excess and (ii) if the Capstar Estimated Second Closing WC Target (or, if known,
the Capstar Final Second Closing WC Target) exceeds the Estimated Second Closing
Capstar Working Capital, then Capstar shall pay to ACN Holdings an amount in
cash equal to the amount of such excess.
(f) No later than thirty (30) days after the First Closing Date,
ACN Holdings shall cause to be prepared and delivered to Capstar a balance sheet
for the Contributed Franchises that were contributed at the First Closing as of
immediately prior to the First Closing Date (but not giving effect to any
payment made pursuant to Section 2.4(d)), which balance sheet shall only be
required to reflect the assets, liabilities and the other line items on the
balance sheet included in the calculation of Working Capital for the Contributed
Franchises that were contributed to ACN Holdings at the First Closing, which
shall be reviewed by the ACN Accountants (the "Final First Closing Capstar
---------------------------
Balance Sheet") which review shall include therein a statement of Working
- --------------
Capital for such Contributed Franchises (the "Capstar First Closing Working
-----------------------------
Capital Statement"). The Final First Closing Capstar Balance Sheet shall be
- -----------------
prepared in accordance with GAAP, except as otherwise contemplated by this
Agreement, and shall fairly present the financial position, as of immediately
prior to the First Closing Date, of the Contributed Franchises that were
contributed to ACN Holdings at the First Closing (but not giving effect to any
payment made pursuant to Section 2.4(d)).
(g) No later than thirty (30) days after the First Closing Date,
ACN Holdings shall cause to be prepared and delivered to Capstar a balance sheet
for ACN Holdings and its Subsidiaries as of immediately prior to the First
Closing (except that such balance sheet shall reflect the Bridge Loan Payment),
which balance sheet shall only be required to reflect the assets, liabilities
and the other line items on the balance sheet included in the calculation of
Working Capital for ACN Holdings and its Subsidiaries, which shall be reviewed
by the ACN Accountants (the "Final ACN Balance Sheet") which review shall
------------------------
include therein a statement of Working Capital for ACN Holdings and its
Subsidiaries (the "ACN Working Capital Statement"). The Final ACN Balance Sheet
-----------------------------
shall be prepared in accordance with GAAP, except as otherwise contemplated by
this Agreement, and shall fairly present the financial position of ACN Holdings
and its Subsidiaries as of immediately prior to the First Closing (except that
such balance sheet shall reflect the Bridge Loan Payment).
(h) If the Omaha Muzak Franchise is not contributed to ACN
Holdings at the First Closing, then no later than thirty (30) days after the
Second Closing Date, ACN Holdings shall cause
16
<PAGE>
to be prepared and delivered to Capstar a balance sheet for the Omaha Muzak
Franchise as of immediately prior to the Second Closing Date (but not giving
effect to any payment made pursuant to Section 2.4(e)), which balance sheet
shall only be required to reflect the assets, liabilities and the other line
items on the balance sheet included in the calculation of Working Capital for
the Omaha Muzak Franchise, which shall be reviewed by the ACN Accountants (the
"Final Second Closing Capstar Balance Sheet") which review shall include therein
------------------------------------------
a statement of Working Capital for the Omaha Muzak Franchise (the "Capstar
-------
Second Closing Working Capital Statement"). The Final Second Closing Capstar
- ----------------------------------------
Balance Sheet shall be prepared in accordance with GAAP, except as otherwise
contemplated by this Agreement, and shall fairly present the financial position,
as of immediately prior to the Second Closing Date, of the Omaha Muzak Franchise
(but not giving effect to any payment made pursuant to Section 2.4(e)).
(i) If within fifteen (15) days following delivery of each of the
Capstar First Closing Working Capital Statement, the ACN Working Capital
Statement and the Capstar Second Closing Working Capital Statement to Capstar,
Capstar has not given ACN Holdings written notice of its objection to such
statement (such notice must contain a statement describing, in reasonable
detail, the amount in dispute and the basis of such objection), then the Working
Capital reflected thereon shall be deemed final and conclusive and shall be the
"Final First Closing Capstar Working Capital," the "Final ACN Working Capital"
------------------------------------------- -------------------------
and the "Final Second Closing Capstar Working Capital," respectively. If Capstar
--------------------------------------------
gives such written notice of objection within such 15-day period, then, unless
the parties reach an agreement with respect to the issues in dispute within 20
days after such notice, the issues in dispute will be submitted for resolution
to a "big five" accounting firm to be selected jointly by Capstar and ACN
Holdings within the following fifteen days (after such five day period) or, if
they fail to agree, such accounting firm shall be the Seattle, Washington office
of Deloitte & Touche (the "Referee"). The Referee shall determine the Final
-------
First Closing Capstar Working Capital, the Final ACN Working Capital and/or the
Final Second Closing Capstar Working Capital, as the case may be, within thirty
(30) days after the dispute is submitted to it. If issues in dispute are
submitted to the Referee for resolution, each party will furnish to the Referee
such work papers and other documents and information relating to the disputed
issues as the Referee may request and are available to that party or its
subsidiaries (or its independent public accountants) and will be afforded the
opportunity to present to the Referee any material relating to the determination
of the Final First Closing Capstar Working Capital, the Final ACN Working
Capital or the Final Second Closing Capstar Working Capital, as the case may be,
and to discuss such determination with the Referee and the determination by the
Referee of the Final First Closing Capstar Working Capital, the Final ACN
Working Capital and the Final Second Closing Capstar Working Capital, as set
forth in a written notice delivered to all parties by the Referee, will be
binding and conclusive on the parties.
(j) Within five Business Days after the final determination of the
Final First Closing Capstar Working Capital and Final ACN Working Capital, (i)
if the WC Adjustment Amount for the First Closing is a positive number, then
Capstar shall pay to ACN Holdings an amount in cash equal to such WC Adjustment
Amount and (ii) if the WC Adjustment Amount for the First Closing is a negative
number, then ACN Holdings shall pay to Capstar an amount in cash equal to the
absolute value of such WC Adjustment Amount.
17
<PAGE>
(k) Within five Business Days after the final determination of the
Final ACN Working Capital and Final Second Closing Capstar Working Capital, (i)
if the WC Adjustment Amount for the Second Closing is a positive number, then
Capstar shall pay to ACN Holdings an amount in cash equal to such WC Adjustment
Amount and (ii) if the WC Adjustment Amount for the Second Closing is a negative
number, then ACN Holdings shall pay to Capstar an amount in cash equal to the
absolute value of such WC Adjustment Amount.
(l) Capstar and ACN Holdings agree to give each other reasonable
access to relevant records, facilities and personnel of the other and, as
applicable, to cause their respective auditors to permit the other party and its
authorized representatives to examine all working papers, schedules and other
documentation used or prepared by such auditors in regard to the calculations
described in this Section 2.4; provided, however, that prior to the consummation
-------- -------
of the Triathlon Acquisition, such rights of access and to information shall be
limited in respect of the Omaha Muzak Franchise to the contractual rights of
access and to information regarding the Omaha Muzak Franchise that Capstar or an
Affiliate thereof has with Triathlon Broadcasting Company.
2.5 Acceptance of Assets As Is. ACN Holdings shall accept from
--------------------------
Capstar, and Capstar shall contribute the Assets free and clear of all Liens,
except Permitted Liens, but otherwise AS IS, and, except as expressly provided
herein, without any representation or warranty as to the condition,
merchantability or suitability for a particular purpose of any of the Assets,
and ACN Holdings acknowledges that Capstar, except as expressly provided herein,
is not making any representation or warranty of any kind with respect thereto.
2.6 Assumption of Liabilities and Obligations. As of the applicable
-----------------------------------------
Closing Date, ACN Holdings shall assume and undertake to pay, discharge and
perform all current liabilities of the Contributed Franchises as determined in
accordance with GAAP but only to the extent included in the Final First Closing
Capstar Working Capital and/or the Final Second Closing Capstar Working Capital,
as applicable, and the obligations and liabilities of Capstar under the Assumed
Contracts, whether or not relating to the time period beginning on or arising
out of events occurring on or after the applicable Closing Date. Notwithstanding
the foregoing sentence, the following obligations and liabilities of Capstar and
its Subsidiaries shall remain and be the obligation and liability solely of
Capstar and its Subsidiaries: obligations or liabilities under any Contract not
included in the Assumed Contracts, obligations or liabilities under any Assumed
Contract for which a Consent, if required, has not been obtained as of the
applicable Closing Date, and any unpaid Taxes or Employee Benefit Plan
obligations. Other than as specified in the first sentence of this Section 2.6,
ACN Holdings, directly or indirectly, shall assume no liabilities or obligations
of Capstar and shall not be liable therefor. This Section 2.6 is not intended to
and shall not benefit any person other than Capstar and ACN Holdings. Nothing in
this Section 2.6 shall create or be construed as creating any third party
beneficiary right in any person. Notwithstanding anything contained herein to
the contrary, none of the liabilities or obligations to be assumed by ACN
Holdings pursuant to the terms of this Agreement (including pursuant to the
assumption of the obligations and liabilities under the Assumed Contracts) shall
include any liabilities or obligations arising out of indebtedness for borrowed
money, installment payment or deferred purchase price liabilities or
obligations, liabilities or obligations evidenced by any note, bond, debenture
or other debt security or capital lease liabilities or obligations.
18
<PAGE>
2.7 Deemed Assignment of Contracts. To the extent that the assignment
------------------------------
hereunder of any of the Assumed Contracts shall require the Consent of any other
party which has not been obtained (or in the event that any of the same shall be
non-assignable), neither this Agreement nor any actions taken hereunder shall
constitute an assignment or an agreement to assign if such assignment or
attempted assignment would constitute a breach thereof or result in a loss or
diminution thereof; provided, however, that Capstar shall cooperate, at ACN
Holdings' expense, with ACN Holdings to establish a reasonable arrangement
designed to provide ACN Holdings with the benefits and burdens of any Assumed
Contract, including appointing ACN Holdings to act as its agent to perform all
of Capstar's obligations under such Assumed Contract and to collect and promptly
remit to ACN Holdings all compensation received by Capstar or any of its
Subsidiaries pursuant to such Assumed Contract and to enforce, for the account
and benefit of ACN Holdings, any and all rights of Capstar or any of its
Subsidiaries against any other person arising out of the breach or cancellation
of such Assumed Contract by such other person or otherwise (any and all of which
arrangements shall constitute, as between the parties hereto, a deemed
assignment or transfer); provided, that from and after Closing, Capstar shall
have no liability to ACN Holdings in the event that any Assumed Contract
requiring Consent to assignment hereunder (or which by its terms is non-
assignable) is terminated. Upon transfer of the Assets to ACN, all references to
ACN Holdings in this Section 2.7 shall thereafter refer to the successor entity
of the MLP Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Representations and Warranties of Capstar. Capstar represents and
-----------------------------------------
warrants to ACN Holdings as follows:
(a) Organization, Standing and Power. Capstar is a corporation
--------------------------------
duly incorporated, validly existing and in good standing under the laws of
the State of Delaware and has all requisite corporate power and authority
to own, lease, and operate its properties and to carry on its business as
now being conducted.
(b) Power; Authority; and Enforceability. Capstar has all
------------------------------------
requisite corporate power and authority to enter into each Transaction
Document to which it is or will be a party and to consummate the
transactions contemplated by each such Transaction Document. Capstar's
execution, delivery and performance of each Transaction Document to which
it is or will be a party has been duly and validly authorized by all
necessary corporate action on the part of Capstar. Each Transaction
Document to which Capstar is or will be a party has been duly executed and
delivered or, when executed and delivered in accordance herewith or
therewith, will be duly executed and delivered by Capstar and, assuming
such Transaction Document constitutes or, upon execution and delivery,
will constitute a valid and binding obligation of the other party(ies)
thereto (if any), enforceable against Capstar in accordance with its
terms, except to the extent that such enforcement may be subject to (i)
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, (ii) general principles of equity, including
19
<PAGE>
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether such enforcement is sought in a proceeding at law
or in equity) and in the case of the Registration Rights Agreement,
federal and state securities laws and public policy considerations as to
any rights to indemnity or contribution thereunder.
(c) No Conflict; Required Filings and Consents. The execution and
------------------------------------------
delivery of the Transaction Documents by Capstar do not and the
performance by Capstar of the transactions contemplated hereby or thereby
will not, subject to obtaining the consents, approvals, authorizations,
and permits and making the filings described in this Section 3.1(c),
Section 4.2 or on Schedule 2.1, violate, conflict with, or result in any
------------
breach of any provision of Capstar's amended and restated certificate of
incorporation or bylaws, except for the execution, delivery and
performance of the Omaha Lease Agreement, violate, conflict with, or
result in a violation or breach of, or constitute a default (with or
without due notice or lapse of time or both) under, or permit the
termination of, or result in the acceleration of, or entitle any party to
accelerate any obligation, or result in the loss of any benefit, or give
any person the right to require any security to be repurchased, or give
rise to the creation of any Lien, upon any of the Assets under any of the
terms, conditions, or provisions of any loan or credit agreement, note,
bond, mortgage, indenture, or deed of trust, or any license, lease,
agreement, or other instrument or obligation to which Capstar or any of
its Subsidiaries is a party or by which or to which it or any of the
Assets may be bound or subject, or violate any order, writ, judgment,
injunction, decree, statute, law, rule, or regulation, of any Governmental
Entity applicable to Capstar or any of its Subsidiaries or by which or to
which any of the Assets is bound or subject, except as would not
reasonably be expected to have a Material Adverse Effect with respect to
the Contributed Franchises, taken as a whole, or materially impair the
ability of Capstar to consummate the transactions contemplated by the
Transaction Documents in accordance with the terms hereof and thereof. No
Consent of any Governmental Entity is required by or with respect to
Capstar in connection with the execution and delivery of this Agreement or
any of the other Transaction Documents by Capstar or the consummation of
the transactions contemplated hereby or thereby, except for (i) the filing
of a premerger notification report under the HSR Act and the expiration or
termination of any waiting period in connection therewith, (ii) the FCC
Consents (as contemplated by Section 4.3 hereof) and notification to the
FCC upon consummation of the transactions contemplated by this Agreement
and (iii) applicable requirements, if any, of the Securities Act and the
Exchange Act and the rules and regulations thereunder and state securities
or blue sky laws.
(d) Title and Sufficiency of Assets. Immediately prior to each
-------------------------------
Closing, Capstar will have good title to, or a valid leasehold or license
interest in, all of the Assets to be contributed to ACN Holdings at such
Closing, and, at the applicable Closing, none of the Assets to be
contributed to ACN Holdings at such Closing, will be subject to any Liens,
except for Permitted Liens. The Assets and Excluded Assets include all
assets that are principally used or held for principal use in the business
or operations of the Contributed Franchises as currently conducted.
20
<PAGE>
(e) Third Party Consents. Schedule 2.1 identifies as to each Assumed
-------------------- ------------
Contract as of the date hereof whether the consent of the other party
thereto is required to consummate the transactions contemplated hereby.
(f) Affiliate Relationships. Except for the agreements listed on
-----------------------
Schedule 3.1(f), as of the date hereof there are no agreements or other
---------------
arrangements involving any of the Contributed Franchises and Capstar or any
of its Affiliates. True and complete copies of any such agreements have
been provided to ACN Holdings, and, as of the date hereof, neither Capstar
nor any of its Affiliates has entered into or agreed to any amendment or
modification of or material waiver of rights under such agreements or
arrangements.
(g) No Brokers. No person acting on behalf of Capstar in connection
----------
with the transactions contemplated herein or in any other Transaction
Document is or will be entitled to any brokerage fee, commission, finder's
fee or financial advisory fee, directly or indirectly, from Capstar.
(h) MRR. The Capstar Atlanta-Ft. Myers MRR and the Capstar Omaha MRR
---
reflect monthly recurring revenue earned in the ordinary course of
business, excluding revenues which are distributed to other franchises, by
the Contributed Franchises as of October 15, 1998.
(i) Employees. None of the employees who are employed in the
---------
operation of the Contributed Franchises are subject to any collective
bargaining agreement or any similar type of agreement.
(j) Financial Statements. Capstar has delivered to ACN Holdings
--------------------
copies of (i) the unaudited balance sheet of the Atlanta Muzak Franchise
and the Ft. Myers Muzak Franchise as of December 31, 1998, (ii) the
unaudited balance sheet of the Omaha Muzak Franchise as of December 31,
1998, and (iii) the unaudited statement of income of the Contributed
Franchises for the year ending December 31, 1998 (collectively, the
"Contributed Franchise Financial Statements"). The Contributed Franchise
------------------------------------------
Financial Statements were prepared, in all material respects, in accordance
with GAAP, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments.
(k) No Other Representations and Warranties. Except for the
---------------------------------------
representations and warranties made by Capstar as expressly set forth in
this Agreement or in any certificate or document delivered pursuant to this
Agreement, neither Capstar nor any of its Affiliates has made and shall not
be construed as having made to ACN Holdings or to any Affiliate thereof any
representation or warranty of any kind.
3.2. Representations and Warranties of ACN Holdings. ACN Holdings
----------------------------------------------
represents and warrants to Capstar as follows:
(a) Organization, Standing and Power. ACN Holdings is a limited
--------------------------------
liability company duly organized, validly existing and in good standing
under the laws of the State
21
<PAGE>
of Delaware and has all requisite power and authority to own, lease, and
operate its properties and to carry on its business as now being conducted.
(b) Power; Authority; and Enforceability. ACN Holdings has all
------------------------------------
requisite power and authority to enter into each Transaction Document to
which it is or will be a party and to consummate the transactions
contemplated by each such Transaction Document. ACN Holdings' execution,
delivery and performance of each Transaction Document to which it is or
will be a party has been duly and validly authorized by all necessary
limited liability company action on the part of ACN Holdings. Each
Transaction Document to which ACN Holdings is or will be a party has been
duly executed and delivered or, when executed and delivered in accordance
herewith or therewith, will be duly executed and delivered by ACN Holdings
and, assuming such Transaction Document constitutes or, upon execution and
delivery, will constitute a valid and binding obligation of the other
party(ies) thereto (if any), enforceable against ACN Holdings in accordance
with its terms, except to the extent that such enforcement may be subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of
whether such enforcement is sought in a proceeding at law or in equity) and
in the case of the Registration Rights Agreement, federal and state
securities laws and public policy considerations as to any rights to
indemnity or contribution thereunder.
(c) No Conflict; Required Filings and Consents. The execution and
------------------------------------------
delivery of the Transaction Documents by ACN Holdings do not and the
performance by ACN Holdings of the transactions contemplated hereby or
thereby will not, subject to obtaining the consents, approvals,
authorizations, and permits and making the filings described in this
Section 3.2(c), (i) violate, conflict with, or result in any breach of any
provision of ACN Holdings' certificate of formation, limited liability
company agreement, members agreement or other constitutive documents, (ii)
violate, conflict with, or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under, or permit the termination of, or result in the acceleration of, or
entitle any party to accelerate any obligation, or result in the loss of
any benefit, or give any person the right to require any security to be
repurchased, or give rise to the creation of any Lien, upon any of the
properties of ACN Holdings or any of its Subsidiaries under any of the
terms, conditions, or provisions of any loan or credit agreement, note,
bond, mortgage, indenture, or deed of trust, or any license, lease,
agreement, or other instrument or obligation to which ACN Holdings or any
of its Subsidiaries is a party or by which or to which it or any of its
properties may be bound or subject, or (iii) violate any order, writ,
judgment, injunction, decree, statute, law, rule, or regulation, of any
Governmental Entity applicable to ACN Holdings or any of its Subsidiaries
or by which or to which any of its properties is bound or subject, except
as would not reasonably be expected to (A) have a Material Adverse Effect
with respect to ACN Holdings and its Subsidiaries, taken as a whole or (B)
materially impair the ability of ACN Holdings to consummate the
transactions contemplated by the Transaction Documents in accordance with
the terms hereof and thereof. No Consent of any Governmental Entity is
required by or with respect to ACN Holdings in connection with the
execution and
22
<PAGE>
delivery of this Agreement or any of the other Transaction Documents by ACN
Holdings or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of a premerger notification report under
the HSR Act and the expiration or termination of any waiting period in
connection therewith, (ii) the FCC Consents (as contemplated by Section 4.3
hereof) and notification to the FCC upon consummation of the transactions
contemplated by this Agreement and (iii) applicable requirements, if any,
of the Securities Act and the Exchange Act and the rules and regulations
thereunder and state securities or blue sky laws.
(d) Capitalization. The capitalization of ACN Holdings immediately
--------------
after the First Closing and assuming the closing of the MLP Merger has
occurred shall be as set forth on Schedule 3.2(d) hereto. Except as
---------------
expressly provided in this Agreement and except for the Transaction
Documents and the ACN Documents (as herein defined), as of the date hereof,
there is no existing option, warrant, call, right, commitment or other
agreement to which ACN Holdings or any of its Affiliates is a party
requiring, and there is no membership interest or other equity security of
ACN Holdings outstanding which upon conversion or exchange would require,
the issuance by ACN Holdings or any of its Affiliates of any additional
membership interests or other equity securities of ACN Holdings or ACN or
other securities convertible into, exchangeable for or evidencing the
rights to subscribe for or purchase, a membership interest or other equity
security of ACN Holdings or ACN. The Class A Units issuable to Capstar
pursuant to the terms hereof, when issued, will be duly authorized, validly
issued, fully paid and nonassessable; will not be issued in violation of
any preemptive or similar rights; and, upon execution and delivery to the
Secretary of ACN Holdings of the LLC Agreement or a written undertaking to
be bound by the terms and conditions of the LLC Agreement, Capstar will be
a member of ACN Holdings and deemed listed as such on the books and records
of ACN Holdings.
(e) Financial Statements. ACN Holdings has delivered to Capstar
--------------------
copies of the unaudited balance sheet of ACN as of December 31, 1998,
together with the unaudited statement of operations of ACN for the period
from October 7, 1998 through December 31, 1998 (collectively, the "ACN
---
Financial Statements"). The ACN Financial Statements were prepared, in all
--------------------
material respects, in accordance with GAAP, consistently applied, subject
to the absence of footnote disclosures and to normal year-end adjustments.
(f) Absence of Certain Changes or Events. ACN Holdings and ACN were
------------------------------------
organized for the purpose of acquiring the assets formerly of Audio
Communications Network, Inc. and its Subsidiaries pursuant to the terms and
conditions of the Asset Purchase Agreement dated as of October 6, 1998,
between ACN and DMA Holdings Statutory Trust, and prior to the consummation
of such acquisition neither ACN Holdings nor ACN were engaged in any other
business or operating activities. Since October 6, 1998 to the date hereof,
except as set forth on Schedule 3.2(f) or as contemplated by this
---------------
Agreement, neither ACN Holdings nor ACN has done any of the following:
(i) (A) declared, set aside or paid any distributions (whether
in cash, equity securities or other property) in respect of its
membership interests or other equity securities; or (B) except from
current or former employees of ACN Holdings
23
<PAGE>
or ACN, redeemed, purchased or otherwise acquired any of its
membership interests or other equity securities or any other
securities or obligations convertible into or exercisable or
exchangeable for any such membership interests or equity securities;
(ii) entered into any material transaction with ABRY, its
partners or employees or any of their respective Affiliates (other
than David Unger, Joseph Koff, ACN Holdings or any of ACN Holdings'
Subsidiaries); or
(iii) incurred any indebtedness for borrowed money or issued any
debt securities or assumed, granted, guaranteed or endorsed, or
otherwise as an accommodation become responsible for, the obligations
of any person, or made any loans or advances (other than advances of
expenses to employees in the ordinary course of business) of cash in
excess of $100,000 in the aggregate.
(g) ABRY Investments. Schedule 3.2(g) sets forth all equity or debt
---------------- ---------------
investments made by ABRY and its Affiliates (other than David Unger, Joseph
Koff, ACN Holdings or any of ACN Holdings' Subsidiaries) in ACN Holdings
and ACN through the date hereof.
(h) Material Contracts. Except for the agreements on Schedule 3.2(h)
------------------ ---------------
and the Transaction Documents (collectively, the "ACN Documents"), as of
-------------
the date hereof there are no agreements or other arrangements with respect
to the voting, sale or transfer of any membership interests or other equity
securities of ACN Holdings or ACN to which ACN Holdings, ACN or, to the
knowledge of ACN Holdings, any member of ACN Holdings is a party. True and
complete copies of the ACN Documents have been provided to Capstar, and, as
of the date hereof, neither ACN Holdings nor ACN has entered into or agreed
to any amendment or modification of or material waiver of rights under,
except as expressly provided in the MLP Merger Agreement, as expressly
provided herein or as set forth on Schedule 3.2(h), the ACN Documents.
---------------
(i) Pending and Completed Acquisitions. Schedule 3.2(i) sets forth a
---------------------------------- ---------------
true and complete list of all pending and completed acquisitions of Muzak
franchises (other than the MLP Merger) since October 6, 1998 to the date
hereof, including the cash purchase price and transaction costs incurred or
expected to be incurred in connection therewith (the "Acquisition Costs").
-----------------
(j) MRR. The ACN MRR reflects monthly recurring revenue earned in
---
the ordinary course of business, excluding revenues which are distributed
to other franchises, by ACN as of October 15, 1998.
(k) Tax Matters. Except as set forth on Schedule 3.2(k), (i) all
----------- ---------------
material returns, statements, reports and forms relating to Taxes required
to be filed with any taxing authority by, or with respect to ACN Holdings
and/or ACN (collectively, the "ACN Returns") have been duly and timely
filed in accordance with applicable laws; (ii) ACN Holdings and/or ACN have
timely paid all material Taxes due and payable, whether or not shown on any
ACN Return, and the ACN Returns, in all material respects, currently and
completely reflect
24
<PAGE>
the income, business, assets, operations, activities and the status of ACN
Holdings and ACN; (iii) ACN Holdings and ACN have made, in all material
respects, provision for all Taxes payable by ACN Holdings and/or ACN for
which no ACN Return has yet been filed; (iv) as of the date hereof, there
are no material Liens for Taxes upon any property or asset of ACN Holdings
or ACN, except for Liens for Taxes not yet due or with respect to matters
being contested by ACN Holdings or ACN in good faith; (v) the charges,
accruals and reserves for Taxes with respect to ACN Holdings and ACN as
reflected in the ACN Financial Statements were adequate under GAAP to cover
the liabilities for Taxes accruing through the date thereof; and (vi) as of
the date hereof, there is no action, suit, proceeding, audit or claim now
proposed or pending against or with respect to ACN Holdings or ACN in
respect of any Tax where there is a reasonable possibility of an adverse
determination which could reasonably be expected to have a Material Adverse
Effect with respect to ACN Holdings and its Subsidiaries, taken as a whole.
(l) No Brokers. No person acting on behalf of ACN Holdings or any of
----------
its Affiliates in connection with the transactions contemplated herein or
in any other Transaction Document is or will be entitled to any brokerage
fee, commission, finder's fee or financial advisory fee, directly or
indirectly, from ACN Holdings.
(m) No Other Representations and Warranties. Except for the
---------------------------------------
representations and warranties made by ACN Holdings as expressly set forth
in this Agreement or in any certificate or document delivered pursuant to
this Agreement, neither ACN Holdings nor any of its Affiliates has made and
shall not be construed as having made to Capstar or to any Affiliate
thereof any representation or warranty of any kind.
ARTICLE IV.
COVENANTS
---------
4.1 Conduct of Business.
-------------------
(a) Except as contemplated by this Agreement or to the extent that
Capstar or ACN Holdings, as the case may be, shall otherwise consent in writing
(which consent shall not be unreasonably withheld), (x) from the date of this
Agreement until the First Closing, Capstar and ACN Holdings shall, and shall
cause their Subsidiaries to, carry on their respective businesses in the
ordinary course of business consistent with past practice and (y) from the date
of the consummation of the Triathlon Acquisition until the Closing in which
Capstar contributes the Assets of the Omaha Muzak Franchise to ACN Holdings,
Capstar shall and shall cause its Subsidiaries to carry on the business of the
Omaha Muzak Franchise in the ordinary course of business consistent with past
practice.
(b) Except as set forth on Schedules 3.2(f) and 4.1(b) or as
---------------- ------
otherwise contemplated by this Agreement or the MLP Merger Agreement or to the
extent that Capstar shall otherwise consent in writing (which consent shall not
be unreasonably withheld), from the date of
25
<PAGE>
this Agreement until the First Closing, ACN Holdings covenants and agrees that
it shall not and it shall cause its Subsidiaries not to:
(i) declare, set aside or pay any dividends or distributions
(whether in cash, equity securities, membership interests or other
property) in respect of its capital stock, membership interests or equity
securities; redeem, purchase or otherwise acquire any of its capital stock,
membership interests or equity securities or any other securities or
obligations convertible into or exercisable or exchangeable for any such
capital stock, membership interests or equity securities; issue, sell or
encumber any of its capital stock, membership interests or equity
securities or any securities or obligations convertible into or exercisable
or exchangeable for any such capital stock, membership interests or equity
securities; and sell, assign, transfer, lease or otherwise dispose of any
assets other than the sale of inventory in the ordinary course of business,
except in connection with the sale or other disposition or replacement of
used or obsolete equipment in the ordinary course of business consistent
with past practice;
(ii) except in connection with the financing of the transactions
contemplated by the MLP Merger Agreement, mortgage, pledge, or subject to
any material Lien, other than Permitted Liens, any of the assets of its
business;
(iii) except in connection with the financing of the transactions
contemplated by the MLP Merger Agreement, incur any indebtedness for
borrowed money or issue any debt securities or assume, grant, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans or advances (other than
advances of expenses to employees in the ordinary course of business) of
cash in excess of $100,000 in the aggregate;
(iv) except in the ordinary course of business consistent with
past practice, take any action with the intention of causing a material
reduction in capital expenditures;
(v) finance the MLP Merger with other than borrowings under
additional long-term indebtedness of ACN Holdings or any of its
Subsidiaries;
(vi) enter into any material transaction with ABRY, its partners
or employees or any of their respective Affiliates (other than ACN Holdings
or any of ACN Holdings' Subsidiaries); or
(vii) agree in writing or otherwise take any action inconsistent
with any of the foregoing.
(c) Except as set forth on Schedule 4.1(c) or as otherwise
---------------
contemplated by this Agreement or to the extent that ACN Holdings shall
otherwise consent in writing (which consent shall not be unreasonably withheld),
(x) from the date of this Agreement until the First Closing, Capstar covenants
and agrees that, with respect to the businesses of the Atlanta Muzak Franchise
and the Ft. Myers Muzak Franchise and (y) from the date of the consummation of
the Triathlon
26
<PAGE>
Acquisition until the Closing in which Capstar contributes the Assets of the
Omaha Muzak Franchise to ACN Holdings, it shall not and it shall cause its
Subsidiaries not to:
(i) sell, assign, transfer, lease or otherwise dispose of any
assets other than the sale of inventory in the ordinary course of business,
except in connection with the sale or other disposition or replacement of
used or obsolete equipment in the ordinary course of business consistent
with past practice;
(ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, grant, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances (other than advances of expenses to employees in
the ordinary course of business) or distributions of cash;
(iii) except in the ordinary course of business consistent with
past practice, take any action with the intention of causing a material
reduction in capital expenditures;
(iv) enter into any transaction with an Affiliate; or
(v) agree in writing or otherwise take any action inconsistent
with any of the foregoing.
4.2. Third Party Consents; Release of Liens. After the date hereof and
--------------------------------------
prior to each Closing, Capstar shall use all commercially reasonable efforts to
obtain the written Consent from any party to an agreement or instrument
identified in Schedule 2.1 or any other Assumed Contract which is required to
------------
permit the consummation of the transactions contemplated by such Closing and the
release of all Liens on the Assets to be transferred to ACN Holdings pursuant to
such Closing, including those related to or arising out of the Capstar Credit
Agreement, except Permitted Liens. As promptly as reasonably practicable after
the date hereof and prior to the First Closing, Capstar shall use commercially
reasonable efforts to obtain any Consent required under the Capstar Credit
Agreement in order to consummate the transactions contemplated hereby.
4.3. Governmental Consents. Promptly following the execution of this
---------------------
Agreement, the parties shall proceed to prepare and file with the appropriate
Governmental Entities such requests, reports, or notifications as may be
required in connection with this Agreement and shall diligently and
expeditiously prosecute, and shall cooperate fully with each other in the
prosecution of, such matters. Without limiting the foregoing, promptly following
the execution of this Agreement, the parties (a) shall file with the Federal
Trade Commission and the Antitrust Division of the Department of Justice the
notifications and other information (if any) required to be filed under the HSR
Act with respect to the transactions contemplated hereby and shall use their
commercially reasonable efforts to cause all applicable waiting periods under
the HSR Act to expire or be terminated as of the earliest possible date, (c)
file with the FCC all necessary applications to permit the transfer of the FCC
Licenses to ACN and shall use their commercially reasonable efforts to
diligently prosecute such applications and obtain the FCC's consent to transfer
the FCC Licenses to ACN (the "FCC Consents") and (c) make all necessary filings
------------
and, thereafter, make any other
27
<PAGE>
required submissions with respect to the transactions contemplated hereby under
the Securities Act and the rules and regulations thereunder and any other
applicable federal or state securities laws. Each party hereto shall provide the
other party copies of all applications in advance of filing or submission of
such applications to any Governmental Entity in connection with this Agreement.
4.4. Membership Agreements. At the First Closing,
---------------------
(a) Capstar shall execute and deliver to ACN Holdings and ACN
Holdings shall cause there to be executed and delivered to Capstar by each party
thereto other than Capstar, the LLC Agreement, or if the LLC Agreement has been
executed and delivered previously to ACN Holdings by the other parties to the
LLC Agreement, then Capstar and ACN Holdings shall execute and deliver to each
other a written joinder to the LLC Agreement in substantially the form attached
as Exhibit C to the LLC Agreement.
(b) Capstar shall execute and deliver to ACN Holdings and ACN
Holdings shall execute and deliver and cause there to be executed and delivered
to Capstar by each party thereto other than Capstar, the Securityholders
Agreement.
(c) Capstar shall execute and deliver to ACN Holdings and ACN
Holdings shall execute and deliver and cause there to be executed and delivered
to Capstar by the parties thereto that are required for such agreement to be a
valid and binding obligation of ACN Holdings with respect to Capstar, the
Registration Rights Agreement.
4.5 Bridge Loan Conversion. At the First Closing, ACN Holdings shall
----------------------
directly or indirectly convert into Class A Units (the "Bridge Loan Conversion")
----------------------
an amount of the then outstanding principal amount of the Bridge Loan (such
amount, the "Conversion Principal Amount") equal to (x) the principal amount of
---------------------------
the Bridge Loan then outstanding minus (y) the sum of (i) the Acquisition Costs
-----
and (ii) any cash payment to be made at the First Closing to ABRY in excess of
the Acquisition Costs in partial payment of principal then outstanding on the
Bridge Loan (the "Bridge Loan Payment"), and ACN Holdings shall cause all
-------------------
interest accrued on the Conversion Principal Amount from October 6, 1998 through
and including the date of the Bridge Loan Conversion to be discharged in
exchange for the payment in kind by ACN Holdings of Class A Units on the capital
contributions represented (or deemed to be represented) by the Bridge Loan
Conversion in satisfaction of the 15% annual "yield" thereon as described in
clause (z) of Note A on Schedule 3.2(d). ACN Holdings shall notify Capstar in
---------------
writing of the amount of the Bridge Loan Payment at least five Business Days
prior to the First Closing.
4.6 Transaction Structure. The parties hereto acknowledge and agree that
---------------------
this Agreement contemplates that the First Closing shall occur contemporaneously
with the consummation of the MLP Merger. Accordingly, the parties agree that if
the First Closing does not occur contemporaneously with the consummation of the
MLP Merger, then the parties hereto shall negotiate in good faith with each
other to amend this Agreement in accordance with Section 9.3, such that the
parties hereto shall receive substantially similar rights and benefits, economic
or otherwise, as contemplated hereby.
28
<PAGE>
4.7 Employee Matters.
----------------
(a) At the applicable Closing, ACN Holdings and its Subsidiaries
shall extend an offer of employment to each employee of Capstar who is solely or
in part employed by Capstar or any of its Subsidiaries as of the applicable
Closing Date in the operation of the Contributed Franchises being contributed at
such Closing (each a "Continuing Employee"); provided, however, that nothing in
-------------------
this Agreement shall limit ACN Holdings or any of its Subsidiaries' right to
terminate any Continuing Employee after the applicable Closing. The terms and
conditions of each employment offer shall, in the aggregate, be at least
substantially as favorable to the Continuing Employee as the terms and
conditions of employment of such Continuing Employee preceding the applicable
Closing Date. Schedule 4.7(a) sets forth a list of the Continuing Employees as
---------------
of the date hereof.
(b) ACN Holdings shall take such action as may be necessary so that
on and after the applicable Closing, Continuing Employees shall be provided
employee benefits, plans and programs (including but not limited to incentive
compensation, deferred compensation, pension, life insurance, medical), profit
sharing (including 401(k), severance, salary continuation and fringe benefits),
which are no less favorable in the aggregate than those generally available to
similarly situated employees of ACN Holdings and its Subsidiaries. Each such
plan, arrangement or policy shall be offered to the Continuing Employees (and,
if applicable, their dependents) with recognition for period of service under
corresponding benefit plans of Capstar and its Subsidiaries prior to the
applicable Closing for purposes of eligibility, vesting, any waiting period,
pre-existing conditions or insurability (other than any waiting period, pre-
existing conditions of lack of insurability that constituted a restriction or
limitation with respect to the benefits available to a Continuing Employee
immediately prior to the applicable Closing), and ACN Holdings and its
Subsidiaries shall credit the Continuing Employees with any co-payments or
deductibles satisfied in the current plan year to the same extent as if such
amounts had been paid under such plan, arrangement or policy. Capstar and its
Subsidiaries shall fully vest each Continuing Employee in his or her accrued
benefits under each Employee Benefit Plan under which such Continuing Employee
participated prior to the Closing Date.
(c) ACN Holdings shall permit and, as applicable, shall cause its
Subsidiaries to permit, each Continuing Employee to retain and take any paid
vacation days accrued but not taken or lost under Capstar's and its
Subsidiaries' vacation policies prior to the applicable Closing.
4.8 Access and Information. Until the First Closing, each party hereto
----------------------
shall afford to the other party hereto and its representatives (including
accountants and counsel) and until the Second Closing, Capstar shall afford ACN
Holdings and its representatives (including accountants and counsel), in each
case, full access, during normal business hours, upon reasonable notice and in
such manner as will not unreasonably interfere with the conduct of the business
of the party, to all properties, books, and records of the party and all other
information with respect to its business, together with the opportunity to make
copies of such books, records, and other documents and to discuss the business
of the party with such officers, directors, accountants, consultants, and
counsel for the party as the other party deems reasonably necessary or
appropriate for the purposes of familiarizing itself with the party and its
business. In furtherance of the foregoing, the party shall
29
<PAGE>
authorize and instruct its independent public accountants to meet with the other
party and its representatives, including the other party's independent public
accountants, to discuss the business and accounts of the party. Prior to the
consummation of the Triathlon Acquisition, the rights of access and to
information provided in this Section 4.8 shall be limited in respect of the
Omaha Muzak Franchise to the contractual rights of access and to information
regarding the Omaha Muzak Franchise that Capstar or an Affiliate thereof has
with Triathlon Broadcasting Company.
4.9 Notification of Certain Events. Each of the parties hereto shall use
------------------------------
its commercially reasonable efforts to notify the other parties hereto in
writing of the occurrence of any event, change or condition that results in the
breach of a representation or warranty or covenant of such party under this
Agreement.
4.10 Public Announcements. Except for statements made or press releases
--------------------
issued pursuant to the Securities Act or the Exchange Act, pursuant to any
listing agreement with any national securities exchange or the National
Association of Securities Dealers, Inc., or as otherwise required by law,
Capstar and ACN Holdings shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
or the transactions contemplated hereby.
4.11 Assistance. If ACN Holdings requests, Capstar will cooperate, and
----------
will cause its accountants to cooperate, in all reasonable respects with any
financing efforts of ACN Holdings or its Affiliates (including providing
assistance in the preparation of one or more offering circulars, private
placement memoranda, registration statements or other offering documents
relating to debt and/or equity financing) and any other filings that may be made
by ACN Holdings or its Affiliates with the Securities and Exchange Commission,
all at the sole expense of ACN Holdings. Capstar shall furnish to its
independent accountants (or, if requested by ACN Holdings, to ACN Holdings'
independent public accountants), such customary management representation
letters as its accountants may require of Capstar as a condition to its
execution of any required accountants' consents necessary in connection with the
delivery of any "comfort" letters requested by financing sources of ACN Holdings
or its Affiliates and shall furnish to ACN Holdings all financial statements
(audited and unaudited) and other information in the possession of Capstar or
its representatives or agents as ACN Holdings shall reasonably determine are
necessary or appropriate in connection with such financing. ACN Holdings will
indemnify and hold harmless Capstar and its officers, directors, and controlling
persons (except, with respect to Capstar or any of its officers, directors or
controlling persons, in his or its capacity as a direct or indirect holder or
owner of any equity securities of ACN Holdings (or any of its successors))
against any and all claims, losses, liabilities, damages, costs, or expenses
(including reasonable attorneys' fees and expenses) that may arise out of or
with respect to the financing efforts by ACN Holdings or its Affiliates,
including any registration statement, prospectus, offering documents, and other
filings related thereto; provided, however, that subject to the limitations and
provisions of this Agreement, nothing herein shall prevent ACN Holdings from
asserting any claim for breach of representation or warranty under this
Agreement.
4.12 MLP Merger Agreement. Except for the amendment described on Schedule
-------------------- --------
3.2(h) hereto, ACN Holdings and its Subsidiaries shall not amend the MLP Merger
- ------
Agreement in any
30
<PAGE>
respect or (b) waive, in whole or in part, (i) the satisfaction of any
conditions precedent to the consummation of the MLP Merger or (ii) the
performance of any obligations required to be performed or complied with under
the MLP Merger Agreement by the parties thereto, in each case, without the prior
written consent of Capstar, which consent shall not be unreasonably withheld.
4.13 Additional Agreements. Subject to the terms and conditions of this
---------------------
Agreement, each of the parties hereto will use its commercially reasonable
efforts to do, or cause to be taken all action and to do, or cause to be done,
all things necessary, proper, or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement.
4.14 Receivables. If any party hereto (or any Affiliate thereof) at any
-----------
time receives any funds or other property from any third party that are properly
payable to the other party hereto (or any Affiliate thereof), the party
receiving such funds or other property (or whose Affiliate has received such
funds or other property) shall promptly remit such funds or other property to
the person entitled to such funds or other property.
4.15 Osborn Healthcare Division. If requested by Capstar, Capstar and ACN
--------------------------
Holdings shall negotiate in good faith the terms of a sublease agreement of
office space for the Osborn Healthcare Division of Capstar in the offices of the
Atlanta Muzak Franchise located at 4754-B North Royal Atlanta Drive, Tucker,
Georgia 30084, the terms of which shall be substantially similar to the terms of
the Omaha Lease Agreement.
4.16 SCA Lease Agreement. Prior to the First Closing, Capstar and ACN
-------------------
Holdings shall negotiate in good faith the terms of Exhibits A and B to the SCA
---------- -
Lease Agreement and such other modifications to the form of the SCA Lease
Agreement attached as Exhibit D hereto as Capstar and ACN Holdings may mutually
---------
agree.
ARTICLE V
CLOSING CONDITIONS
------------------
5.1 Conditions to each Party's Obligations. The obligations of each party
--------------------------------------
hereto to effect the Contribution and the other transactions contemplated hereby
are subject to the satisfaction or waiver of the following conditions on or
before the applicable Closing:
(a) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the transactions contemplated under this Agreement at
such Closing shall be in effect.
(b) No Action. No action shall have been taken nor any statute,
---------
rule, or regulation shall have been enacted by any Governmental Entity that
makes the consummation of the transactions contemplated under this
Agreement at such Closing illegal.
31
<PAGE>
(c) Proceedings or Investigations. No litigation or administrative
-----------------------------
proceeding or investigation (whether formal or informal) shall be pending
or, to either party's knowledge, threatened which challenges the
transactions contemplated hereby at such Closing.
(d) HSR Act. The waiting period (and any extension thereof)
-------
applicable to the Contribution under the HSR Act shall have been terminated
or shall have otherwise expired.
(e) Governmental and Regulatory Consents. All required
------------------------------------
authorizations, consents, orders, or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity necessary for the consummation of the transactions
contemplated by this Agreement at such Closing, including, without
limitation, the FCC Consents, shall have been filed, occurred, or been
obtained and shall be final and nonappealable (except for the FCC Consents
which shall have been granted and shall be effective) and in form and
substance reasonably satisfactory.
5.2 Conditions to Obligations of Capstar. The obligations of Capstar to
------------------------------------
effect the Contribution and the other transactions contemplated hereby are
further subject to the satisfaction of the following conditions on or before the
applicable Closing unless waived, in whole or in part, by Capstar:
(a) Representations and Warranties. The representations and
------------------------------
warranties of ACN Holdings set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and as of the
applicable Closing Date as though made on and as of the applicable Closing
Date, except to the extent such representations and warranties are made as
of a specified date, in which case the same shall continue on the
applicable Closing Date to be true and correct as of the specified date,
and except to the extent that the failure of such representations and
warranties (without giving effect to any materiality standard contained in
such representations and warranties) to be true and correct could not
reasonably be expected to have a Material Adverse Effect on ACN Holdings
and its Subsidiaries, taken as a whole, and Capstar shall have received a
certificate of an officer of ACN Holdings to such effect.
(b) Performance of Obligations. ACN Holdings shall have performed and
--------------------------
complied in all material respects with all obligations required to be
performed or complied with by ACN Holdings on or before the Closing Date,
and Capstar shall have received a certificate of an officer of ACN Holdings
to such effect.
(c) Senior Lender Consent. All necessary Consents under the Capstar
---------------------
Credit Agreement in order to consummate the transactions contemplated by
this Agreement at such Closing shall have been obtained.
(d) Triathlon Acquisition. In respect of Capstar's obligation to
---------------------
transfer the Assets of the Omaha Muzak Franchise to ACN Holdings, whether
at the First Closing or the Second Closing, the Triathlon Acquisition shall
have been consummated.
32
<PAGE>
(e) Legal Opinion. Capstar shall have received from Kirkland & Ellis,
-------------
counsel to ACN Holdings, an opinion in a form and substance reasonably
acceptable to Capstar, dated the applicable Closing Date.
(f) Closing Deliveries. All documents, instruments, certificates or
------------------
other items required to be delivered by ACN Holdings pursuant to Section
6.2(b), in the case of the First Closing, or Section 6.3(b), in the case of
the Second Closing, shall have been delivered.
5.3 Conditions to Obligation of ACN Holdings. The obligations of ACN
----------------------------------------
Holdings to effect the Contribution and the other transactions contemplated
hereby are further subject to the satisfaction of the following conditions on or
before the applicable Closing unless waived, in whole or in part, in writing by
ACN Holdings:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Capstar set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and as of the
applicable Closing Date as though made on and as of the applicable Closing
Date, except to the extent such representations and warranties are made as
of a specified date, in which case the same shall continue on the
applicable Closing Date to be true and correct as of the specified date,
and except to the extent that the failure of such representations and
warranties (without giving effect to any materiality standard contained in
such representations and warranties) to be true and correct could not
reasonably be expected to have a Material Adverse Effect on the Contributed
Franchises, and ACN Holdings shall have received a certificate of an
officer of Capstar to such effect.
(b) Performance of Obligations. Capstar shall have performed and
--------------------------
complied in all material respects with all obligations required to be
performed or complied with by Capstar on or before the Closing Date, and
ACN Holdings shall have received a certificate of an officer of Capstar to
such effect.
(c) Third Party Consents. ACN Holdings shall have been furnished with
--------------------
evidence reasonably satisfactory to it of the Consent of each person that
is a party to an agreement or instrument identified in Schedule 2.1 or any
------------
other Assumed Contract which is required for the valid assignment of such
agreement, instrument or Assumed Contract, as the case may be, at such
Closing and such consent or approval shall be in form and substance
reasonably satisfactory to ACN Holdings.
(d) Legal Opinion. ACN Holdings shall have received from Vinson &
-------------
Elkins L.L.P., counsel to Capstar, an opinion in a form and substance
reasonably acceptable to ACN Holdings, dated the applicable Closing Date.
(e) Closing Deliveries. All documents, instruments, certificates or
------------------
other items required to be delivered by Capstar pursuant to Section 6.2(a),
in the case of the First Closing, or Section 6.3(a), in the case of the
Second Closing, shall have been delivered.
33
<PAGE>
ARTICLE V
CLOSINGS
--------
6.1 Closings. Subject to the satisfaction or waiver of the conditions set
--------
forth in Article V, the closing of the Contribution may take place at two
closings (each a "Closing"). The closing of the contribution of Assets pursuant
-------
to Section 2.1(a)(i) (the "First Closing") shall occur at the offices of
-------------
Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022-4675, on the
closing date of the MLP Acquisition and contemporaneously with the closing of
the MLP Acquisition, or if the MLP Merger Agreement is terminated or is
otherwise not consummated by April 30, 1999, at 9:00 a.m., New York time, on the
second business day following any date on or after April 30, 1999 upon which
each of the conditions to the obligations of the parties hereto to effect the
transactions to occur at the First Closing have been satisfied or waived,
unless, in either case, another date, time or place is agreed to in writing by
the parties hereto (the "First Closing Date"). The closing of the contribution
------------------
of Assets pursuant to Section 2.1(a)(ii), if any (the "Second Closing"), shall
--------------
occur at the offices of Kirkland & Ellis, at 9:00 a.m., New York time, on the
second business day following any date on or after the First Closing Date upon
which each of the conditions to the obligations of the parties hereto to effect
the transactions to occur at the Second Closing have been satisfied or waived,
unless another date, time or place is agreed to in writing by the parties hereto
(the "Second Closing Date;" and any reference herein to "Closing Date" shall
------------------- ------------
mean the First Closing Date or the Second Closing Date, as applicable). All
proceedings to be taken and all documents to be executed and delivered by all
parties hereto at the First Closing shall be deemed to have been taken, executed
and delivered simultaneously, and all proceedings to be taken and all documents
to be executed and delivered by all parties hereto at the Second Closing shall
be deemed to have been taken, executed and delivered simultaneously, and, at
each Closing, no proceedings shall be deemed taken nor any documents executed or
delivered until all have been taken, executed and delivered.
6.2 Actions to Occur at the First Closing.
-------------------------------------
(a) At the First Closing, Capstar shall deliver to ACN Holdings the
following:
(i) Officer's Certificates. The certificates described in
----------------------
Sections 5.3(a) and 5.3(b);
(ii) Working Capital Adjustment. The amount, if any, payable by
--------------------------
Capstar pursuant to Section 2.4(d), by wire transfer of immediately
available funds to an account of ACN Holdings or at the direction of ACN
Holdings;
(iii) LLC Agreement. A duly executed counterpart of the LLC
-------------
Agreement or a written joinder to the LLC Agreement in substantially the
form attached as Exhibit C to the LLC Agreement;
(iv) Securityholders Agreement. A duly executed counterpart of
-------------------------
the Securityholders Agreement;
34
<PAGE>
(v) Registration Rights Agreement. A duly executed counterpart
-----------------------------
of the Registration Rights Agreement;
(vi) Transfer Documents. A duly executed counterpart of a Bill
------------------
of Sale and Assignment in substantially the form attached as Exhibit F
hereto, together with such other assignments and other transfer documents
as reasonably requested by ACN Holdings;
(vii) Assumption Agreement. A duly executed counterpart of an
--------------------
Assumption Agreement in substantially the form attached as Exhibit G
hereto;
(viii) Third Party Consents. The original of each Consent
--------------------
referred to in Section 5.3(c) insofar as it relates to the Assets being
contributed at the First Closing;
(ix) Legal Opinion. The opinion of Vinson & Elkins L.L.P.
-------------
referred to in Section 5.3(d);
(x) Release of Liens. Evidence reasonably satisfactory to ACN
----------------
Holdings of an agreement on the part of the applicable lienholder(s) to
release all Liens other than Permitted Liens on the Assets of the Atlanta
Muzak Franchise, the Ft. Myers Muzak Franchise and, if applicable, the
Omaha Muzak Franchise (including all Liens on such Assets related to or
arising out of the Capstar Credit Agreement), including UCC-3 termination
statements to be filed in connection therewith;
(xi) Licenses, Permits, Contracts, Business Records, Etc. To the
---------------------------------------------------
extent they are in the possession of Capstar, copies of all Licenses,
Permits, Assumed Contracts, blueprints, schematics, working drawings,
plans, projections, statistics, engineering records and all files and
records used by Capstar in connection with the Contributed Franchises, the
Assets of which are contributed at the First Closing, which copies shall be
available at the First Closing or at the principal business offices of the
Contributed Franchises;
(xii) Omaha Lease Agreement. If the Assets of the Omaha Muzak
---------------------
Franchise are contributed to ACN Holdings at the First Closing, a duly
executed counterpart of the Omaha Lease Agreement;
(xiii) SCA Lease Agreement. If the Assets of the Omaha Muzak
-------------------
Franchise are contributed to ACN Holdings at the First Closing, a duly
executed counterpart of one or more SCA Lease Agreements; and
(xiv) Other Documents, Instruments, Etc. Such other documents or
---------------------------------
instruments as ACN Holdings may reasonably request.
(b) At the First Closing, ACN Holdings shall deliver to Capstar the
following:
(i) Class A Units. A certificate or certificates representing
-------------
the number of Class A Units described in Section 2.3(a);
35
<PAGE>
(ii) Capstar's Expenses. An amount equal to Capstar's Expenses
------------------
incurred through the First Closing in connection with the transactions
contemplated hereby for such First Closing as provided in Section 9.2 by
wire transfer of immediately available funds to an account of Capstar or at
the direction of Capstar, but only to the extent Capstar delivers a written
list of the amount of such Capstar Expenses, in reasonable detail, to ACN
Holdings at least two business days prior to the First Closing;
(iii) Working Capital Adjustment. The amount, if any, payable
--------------------------
by ACN Holdings pursuant to Section 2.4(c), by wire transfer of immediately
available funds to an account of Capstar or at the direction of Capstar;
(iv) Officer's Certificates. The certificates described in
----------------------
Sections 5.2(a) and 5.2(b);
(v) LLC Agreement. A counterpart of the LLC Agreement duly
-------------
executed by all parties thereto other than Capstar or a written joinder to
the LLC Agreement in substantially the form attached as Exhibit C to the
LLC Agreement and an original duly executed LLC Agreement attached thereto;
(vi) Schedule B to LLC Agreement. Schedule B to the LLC
---------------------------
Agreement, which has been amended to reflect the issuance of Class A Units
to Capstar at the First Closing and the issuance of the additional Common
Units (as defined in the LLC Agreement) to MEM Holdings, LLC, Joseph Koff
and David Unger as described in Schedule 3.2(d);
---------------
(vii) Securityholders Agreement. A counterpart of the
-------------------------
Securityholders Agreement duly executed by all parties thereto other than
Capstar;
(viii) Registration Rights Agreement. A counterpart of the
-----------------------------
Registration Rights Agreement duly executed by all parties thereto other
than Capstar that are required for such agreement to be a valid and binding
obligation of ACN Holdings with respect to Capstar;
(ix) Transfer Documents. A duly executed counterpart of a Bill
------------------
of Sale and Assignment in substantially the form attached as Exhibit F
---------
hereto;
(x) Assumption Agreement. A duly executed counterpart of an
--------------------
Assumption Agreement in substantially the form attached as Exhibit G
---------
hereto;
(xi) Legal Opinion. The opinion of Kirkland & Ellis referred
-------------
to in Section 5.2(d);
(xii) Bridge Loan Conversion. Evidence reasonably satisfactory
----------------------
to Capstar of the Bridge Loan Conversion referred to in Section 4.5;
36
<PAGE>
(xiii) Omaha Lease Agreement. If the Assets of the Omaha Muzak
---------------------
Franchise are contributed to ACN Holdings at the First Closing, a duly
executed counterpart by the successor entity of the MLP Merger of the Omaha
Lease Agreement;
(xiv) SCA Lease Agreement. If the Assets of the Omaha Muzak
-------------------
Franchise are contributed to ACN Holdings at the First Closing, a duly
executed counterpart by the successor entity of the MLP Merger of one or
more SCA Lease Agreements; and
(xv) Other Documents, Instruments, Etc. Such other documents
---------------------------------
or instruments as Capstar may reasonably request.
6.3 Actions to Occur at the Second Closing.
--------------------------------------
(a) At the Second Closing, Capstar shall deliver to ACN Holdings the
following:
(i) Working Capital Adjustment. The amount, if any, payable by
--------------------------
Capstar pursuant to Section 2.4(e), by wire transfer of immediately
available funds to an account of ACN Holdings or at the direction of ACN
Holdings;
(ii) Officer's Certificates. The certificates described in
----------------------
Sections 5.3(a) and 5.3(b) ;
(iii) Transfer Documents. A duly executed counterpart of a Bill
------------------
of Sale and Assignment in substantially the form attached as Exhibit H
hereto, together with such any other assignments and other transfer
documents as reasonably requested by ACN Holdings;
(iv) Assumption Agreement. A duly executed counterpart of an
--------------------
Assumption Agreement in substantially the form attached as Exhibit I
---------
hereto;
(v) Third Party Consents. The original of each Consent
--------------------
referred to in Section 5.3(c) insofar as it relates to the Assets being
contributed at the Second Closing;
(vi) Legal Opinion. The opinion of Vinson & Elkins L.L.P.
-------------
referred to in Section 5.3(d);
(vii) Release of Liens. Evidence reasonably satisfactory to ACN
----------------
Holdings of an agreement on the part of the applicable lienholder(s) to
release all Liens other than Permitted Liens on the Assets of the Omaha
Muzak Franchise (including all Liens on such Assets related to or arising
out of the Capstar Credit Agreement), including, without limitation, UCC-3
termination statements to be filed in connection therewith;
(viii) Licenses, Permits, Contracts, Business Records, Etc. To
---------------------------------------------------
the extent they are in the possession of Capstar, copies of all Licenses,
Permits, Assumed Contracts, blueprints, schematics, working drawings,
plans, projections, statistics, engineering records
37
<PAGE>
and all files and records used by Capstar in connection with the
Contributed Franchises, the Assets of which are contributed at the Second
Closing, which copies shall be available at the Second Closing or at the
principal business offices of the Contributed Franchises; and
(ix) Omaha Lease Agreement. A duly executed counterpart of the
---------------------
Omaha Lease Agreement;
(x) SCA Lease Agreement. A duly executed counterpart of one or
-------------------
more SCA Lease Agreements; and
(xi) Other Documents, Instruments, Etc. Such other documents or
---------------------------------
instruments as ACN Holdings may reasonably request.
(b) At the Second Closing, ACN Holdings shall deliver to Capstar the
following:
(i) Class A Units. A certificate or certificates representing
-------------
the number of Class A Units described in Section 2.3(b);
(ii) Working Capital Adjustment. The amount, if any, payable by
--------------------------
ACN Holdings pursuant to Section 2.4(e), by wire transfer of immediately
available funds to an account of Capstar or at the direction of Capstar;
(iii) Capstar's Expenses. An amount equal to Capstar's Expenses
------------------
incurred from the First Closing through the Second Closing in connection
with the transactions contemplated hereby as provided in Section 9.2 by
wire transfer of immediately available funds to an account of Capstar or at
the direction of Capstar, but only to the extent Capstar delivers a written
list of the amount of such Capstar Expenses, in reasonable detail, to ACN
Holdings at least two business days prior to the Second Closing.
(iv) Officer's Certificates. The certificates described in
----------------------
Sections 5.2(a) and 5.2(b);
(v) Schedule B to LLC Agreement. Schedule B to the LLC
---------------------------
Agreement, which has been amended to reflect the issuance of Class A Units
to Capstar at the Second Closing;
(vi) Transfer Documents. A duly executed counterpart of a Bill
------------------
of SAle and Assignment in substantially the form attached as Exhibit H
hereto;
(vii) Assumption Agreement. A duly executed counterpart of an
--------------------
Assumption Agreement in substantially the form attached as Exhibit I
hereto;
(viii) Legal Opinion. The opinion of Kirkland & Ellis referred to
-------------
in Section 5.2(d);
38
<PAGE>
(ix) Omaha Lease Agreement. A duly executed counterpart by the
---------------------
successor entity of the MLP Merger of the Omaha Lease Agreement;
(x) SCA Lease Agreement. A duly executed counterpart by the
-------------------
successor entity of the MLP Merger of one or more SCA Lease Agreements; and
(xi) Other Documents, Instruments, Etc. Such other documents or
---------------------------------
instruments as Capstar may reasonably request.
ARTICLE VII
TERMINATION
-----------
7.1 Termination. This Agreement may be terminated prior to either Closing:
-----------
(a) by mutual consent of Capstar and ACN Holdings;
(b) by either Capstar or ACN Holdings;
(i) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set forth
in Sections 5.2(a) and 5.2(b) or Sections 5.3(a) and 5.3(b), as applicable,
and (B) cannot be or has not been cured within 20 days (the "Cure Period")
-----------
following receipt by the breaching party of written notice of such breach;
(ii) if a court of competent jurisdiction or other Governmental
Entity shall have issued an order, decree, or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use their
best efforts to lift), in each case permanently restraining, enjoining, or
otherwise prohibiting the transactions contemplated by this Agreement and
the other Transaction Documents, and such order, decree, ruling, or other
action shall have become final and nonappealable; or
(iii) if the First Closing shall not have occurred by the later
of (A) June 30, 1999 or (B) the date to which the First Closing is extended
pursuant to Section 6.1; provided, however, that the right to terminate
this Agreement under this clause (iii) shall not be available to any party
whose breach of this Agreement has been the cause of, or resulted in, the
failure of the First Closing to occur on or before such date; or
(iv) if the Second Closing shall not have occurred by the later
of (A) July 31, 1999 or (B) the date to which the Second Closing is
extended pursuant to Section 6.1; provided, however, that the right to
terminate this Agreement under this clause (iv) shall not be available to
any party whose breach of this Agreement has been the cause of, or resulted
in, the failure of the Second Closing to occur on or before such date; or
39
<PAGE>
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
employees, accountants, consultants, legal counsel, agents, or other
representatives whether prior to or after the execution of this Agreement.
Notwithstanding anything in the foregoing to the contrary, no party that is in
material breach of this Agreement shall be entitled to terminate this Agreement
except with the consent of the other party.
7.2 Effect of Termination. In the event of a termination of this Agreement
---------------------
by either Capstar or ACN Holdings as provided in Section 7.1, this Agreement
(except for the provisions of this Section 7.2, which shall survive termination)
shall forthwith become null and void. Subject to the provisions of Section 9.2,
in the event of a termination of this Agreement by either Capstar or ACN
Holdings as provided in Section 7.1, there shall be no liability on the part of
Capstar or ACN Holdings, except for any liability arising out of a breach of, or
misrepresentation under, this Agreement which occurs prior to the termination of
this Agreement. A termination of this Agreement after the First Closing shall
only be effective as to the transactions to occur hereunder at the Second
Closing and the provisions relating thereto and all other provisions of this
Agreement shall survive any such termination.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Indemnification of ACN Holdings. Subject to the provisions of this
-------------------------------
Article VIII, from and after the First Closing Date, Capstar agrees to indemnify
and hold harmless the ACN Indemnified Parties from and against any and all ACN
Indemnified Costs.
8.2 Indemnification of Capstar. Subject to the provisions of this Article
--------------------------
VIII, from and after the First Closing Date, ACN Holdings agrees to indemnify
and hold harmless the Capstar Indemnified Parties from and against any and all
Capstar Indemnified Costs.
8.3 Defense of Third-Party Claims. An Indemnified Party shall give prompt
-----------------------------
written notice to any person who is obligated to provide indemnification
hereunder (an "Indemnifying Party") of the commencement or assertion of any
------------------
action, proceeding, demand, or claim by a third party (collectively, a "third-
-----
party action") in respect of which such Indemnified Party shall seek
- ------------
indemnification hereunder. Any failure so to notify an Indemnifying Party shall
not relieve such Indemnifying Party from any liability that it, he, or she may
have to such Indemnified Party under this Article VIII except to the extent that
the failure to give such notice materially and adversely prejudices such
Indemnifying Party. The Indemnifying Party shall have the right to assume
control of the defense of, settle, or otherwise dispose of such third-party
action on such terms as it deems appropriate; provided, however, that:
(a) The Indemnified Party shall be entitled, at its own expense, to
participate in the defense of such third-party action (provided, however,
that the Indemnifying Party shall
40
<PAGE>
pay the attorneys' fees of the Indemnified Party if (i) the employment of
separate counsel shall have been authorized in writing by any such
Indemnifying Party in connection with the defense of such third-party
action, (ii) the Indemnifying Parties shall not have employed counsel
reasonably satisfactory to the Indemnified Party to have charge of such
third-party action, (iii) counsel to the Indemnified Party shall have
reasonably concluded that there may be defenses available to the
Indemnified Party that are different from or additional to those
available to the Indemnifying Party or (iv) counsel to the Indemnified
Party shall have advised the Indemnified Party in writing, with a copy
delivered to the Indemnifying Party, that there is a conflict of interest
that could make it inappropriate under applicable standards of
professional conduct to have common counsel);
(b) The Indemnifying Party shall obtain the prior written approval of
the Indemnified Party before entering into or making any settlement,
compromise, admission, or acknowledgment of the validity of such third-
party action or any liability in respect thereof if, pursuant to or as a
result of such settlement, compromise, admission, or acknowledgment,
injunctive or other equitable relief would be imposed against the
Indemnified Party or if, in the opinion of the Indemnified Party, such
settlement, compromise, admission, or acknowledgment could have a
material adverse effect on its business;
(c) No Indemnifying Party shall consent to the entry of any judgment
or enter into any settlement that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to each Indemnified
Party of a release from all liability in respect of such third-party
action; and
(d) The Indemnifying Party shall not be entitled to control (but
shall be entitled to participate at its own expense in the defense of),
and the Indemnified Party shall be entitled to have sole control over,
the defense or settlement, compromise, admission, or acknowledgment of
any third-party action as to which the Indemnifying Party fails to assume
the defense within a reasonable length of time; or to the extent the
third-party action seeks an order, injunction, or other equitable relief
against the Indemnified Party which, if successful, would materially
adversely affect the business, operations, assets, or financial condition
of the Indemnified Party; provided, however, that the Indemnified Party
shall make no settlement, compromise, admission, or acknowledgment that
would give rise to liability on the part of any Indemnifying Party
without the prior written consent of such Indemnifying Party.
The parties hereto shall extend reasonable cooperation in connection with the
defense of any third-party action pursuant to this Article VIII and, in
connection therewith, shall furnish such records, information, and testimony and
attend such conferences, discovery proceedings, hearings, trials, and appeals as
may be reasonably requested.
8.4 Direct Claims. In any case in which an Indemnified Party seeks
-------------
indemnification hereunder which is not subject to Section 8.3 because no third-
party action is involved, the Indemnified Party shall notify the Indemnifying
Party in writing of any Indemnified Costs which such Indemnified Party claims
are subject to indemnification under the terms hereof. The failure of
41
<PAGE>
the Indemnified Party to exercise promptness in such notification shall not
amount to a waiver of such claim except to the extent that the resulting delay
materially prejudices the position of the Indemnifying Party with respect to
such claim.
8.5 Limitation on Indemnification. Notwithstanding anything to the
-----------------------------
contrary contained herein, in no event shall the ACN Indemnified Parties be
entitled to recover any ACN Indemnified Costs pursuant to the breach by Capstar
of representations and warranties under this Agreement in excess of the value of
the consideration received by Capstar, which for purposes of this Agreement
shall equal the product of the number of Class A Units received by Capstar
multiplied by $1,000.
ARTICLE IX
MISCELLANEOUS
-------------
9.1 Survival of Representations and Warranties. Regardless of any
------------------------------------------
investigation at any time made by or on behalf of any party hereto or of any
information any party may have in respect thereof, each of the representations
and warranties made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the applicable Closing. Except as
otherwise provided in the next two sentences, the representations and warranties
set forth in this Agreement shall terminate on the second anniversary of the
later to occur of the First Closing and the Second Closing, except that this
time limitation shall not apply to any claims for fraud pursuant to Section 9.15
or claims for breaches of the representations and warranties contained in
Sections 3.1(a), 3.1(b), 3.2(a), 3.2(b), 3.2(d) and 3.2(k), which
representations and warranties shall survive until the expiration of the
applicable statute of limitations. Following the date of termination of a
representation or warranty, no claim can be brought with respect to a breach of
such representation or warranty, but such termination shall not affect any claim
for a breach of a representation or warranty that was asserted before the date
of termination. To the extent that such are performable after the applicable
Closing, each of the covenants and agreements contained in each of the
Transaction Documents shall survive such Closing indefinitely.
9.2 Fees and Expenses. At or after each Closing, ACN Holdings shall pay
-----------------
to, or at the direction of, Capstar an amount equal to all reasonable out-of-
pocket fees, costs and expenses incurred by Capstar in connection with the
transactions contemplated hereby for such Closing, including fees, costs and
expenses of its accountants and financial and legal advisors and counsel and
fees paid to any Governmental Entity (collectively, "Capstar's Expenses"). If
------------------
this Agreement is terminated, except as otherwise expressly provided in this
Agreement or as provided by law, all costs and expenses incurred by Capstar in
connection with the transactions contemplated in this Agreement or in the other
related documents shall be borne solely and entirely by Capstar. Except as
otherwise expressly provided in this Agreement or as provided by law, all costs
and expenses incurred by ACN Holdings in connection with the transactions
contemplated in this Agreement or in the other related documents shall be borne
solely and entirely by ACN Holdings. In the event of a dispute between the
parties in connection with this Agreement and the transactions contemplated
hereby, each of the parties hereto agrees that the prevailing party shall be
entitled to reimbursement
42
<PAGE>
by the other party of reasonable legal fees and expenses incurred in connection
with any action or proceeding.
9.3 Assignment; Amendment. Neither this Agreement nor any of the rights,
---------------------
interests or obligations hereunder shall be assigned, whether by operation of
law or otherwise without the prior written consent of the other party hereto. In
the event of such an assignment, the provisions of this Agreement shall inure to
the benefit of and be binding on the assigns of the assignor. No amendment,
waiver of compliance with any provision or condition hereof or consent pursuant
to this Agreement shall be effective unless evidenced by an instrument in
writing signed by the party against whom enforcement of any waiver, amendment or
consent is sought.
9.4 Waiver of Compliance. Any failure of Capstar on the one hand, or ACN
--------------------
Holdings, on the other hand, to comply with any obligation, covenant, agreement,
or condition contained herein may be waived only if set forth in an instrument
in writing signed by the party to be bound thereby, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
other failure.
9.5 Specific Performance. The parties recognize that, in the event any
--------------------
party should refuse to perform under the provisions of this Agreement, monetary
damages alone will not be adequate. Each party shall therefore be entitled, in
addition to any other remedies which may be available, including money damages,
to obtain specific performance of the terms of this Agreement. In the event of
any action to enforce this Agreement specifically, each party hereby waives the
defense that there is an adequate remedy at law.
9.6 Parties in Interest. This Agreement shall be binding upon and, except
-------------------
as provided below, inure solely to the benefit of each party hereto and their
successors and assigns, and nothing in this Agreement, except as set forth
below, express or implied, is intended to confer upon any other person (other
than the Indemnified Parties as provided in Article VIII) any rights or remedies
of any nature whatsoever under or by reason of this Agreement.
9.7 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, telecopied or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
43
<PAGE>
(a) If to Capstar, to:
Capstar Broadcasting Corporation
600 Congress, Suite 1400
Austin, Texas 78701
Attention: William S. Banowsky, Jr.
Facsimile: (512) 340-7890
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attn: A. Winston Oxley
Facsimile: (214) 999-7891
(b) If to ACN Holdings, to:
ACN Holdings, LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
Peni Garber
Facsimile: (617) 859-8797
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Attention: John L. Kuehn
W. Brian Raftery
Facsimile: (212) 446-4900
9.8 Entire Agreement. This Agreement (which term shall be deemed to
----------------
include the other certificates, documents and instruments delivered hereunder)
constitutes the entire agreement of the parties hereto and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof. There are no representations or
warranties, agreements, or covenants other than those expressly set forth in
this Agreement.
9.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT REFERENCE TO ITS
RULES AS TO CONFLICTS OF LAW).
44
<PAGE>
9.10 Interpretation. All references in this Agreement to Articles,
--------------
Sections, subsections, and other subdivisions refer to the corresponding
Articles, Sections, subsections, and other subdivisions of this Agreement unless
expressly provided otherwise. Titles appearing at the beginning of any Articles,
Sections, subsections or other subdivision of this Agreement are for convenience
only, do not constitute any part of such Articles, Sections, subsections, or
other subdivisions, and shall be disregarded in construing the language
contained therein. The words "this Agreement," "herein," "hereby," "hereunder,"
and "hereof," and words of similar import, refer to this Agreement as a whole
and not to any particular subdivision unless expressly so limited. The word
"including" (in its various forms) means "including without limitation."
Pronouns in masculine, feminine, or neuter genders shall be construed to state
and include any other gender and words, terms, and titles (including terms
defined herein) in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise expressly requires. Unless the
context otherwise requires, all defined terms contained herein shall include the
singular and plural and the conjunctive and disjunctive forms of such defined
terms. The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
9.11 Counterparts. This Agreement may be executed and delivered (including
------------
by facsimile transmission) in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.12 Further Assurances. From time to time following either Closing, the
------------------
parties hereto shall execute and deliver such other instruments of assignment,
transfer and delivery and shall take such other actions as the other reasonably
may request in order to consummate, complete and carry out the transactions
contemplated by this Agreement.
9.13 Severability. If any term or other provision of this Agreement is
------------
determined by a court of competent jurisdiction to be invalid, illegal, or
incapable of being enforced by any rule of applicable law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated herein are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated herein are consummated as originally
contemplated to the fullest extent possible.
9.14 No Liability. The parties hereto agree that no stockholder, director
------------
or officer of Capstar or ACN Holdings or their respective Affiliates (other than
Capstar or ACN Holdings) shall have any personal or individual liability for the
obligations of Capstar or ACN Holdings under this Agreement or any other
agreement entered into in connection with this Agreement other than as an
assignee of this Agreement.
45
<PAGE>
9.15 No Waiver Relating to Claims for Fraud. The liability of any party
--------------------------------------
under Article VIII shall be in addition to, and not exclusive of any other
liability that such party may have at law or equity based on such party's
fraudulent acts or omissions. None of the provisions set forth in this Agreement
shall be deemed a waiver by any party to this Agreement of any right or remedy
which such party may have at law or equity based on any other party's fraudulent
acts or omissions, nor shall any such provisions limit, or be deemed to limit,
the amounts of recovery sought or awarded in any such claim for fraud, the time
period during which a claim for fraud may be brought, or the recourse which any
such party may seek against another party with respect to a claim for fraud;
provided, that with respect to such rights and remedies at law or equity, the
parties further acknowledge and agree that none of the provisions of this
Section 9.15, nor any reference to this Section 9.15 throughout this Agreement,
shall be deemed a waiver of any defenses which may be available in respect of
actions or claims for fraud, including but not limited to, defenses of statutes
of limitations or limitations of damages.
[Remainder of page intentionally left blank]
46
<PAGE>
IN WITNESS WHEREOF, ACN Holdings and Capstar have each caused this
Agreement to be executed on their behalf by a duly authorized officer effective
as of the date first written above.
CAPSTAR:
CAPSTAR BROADCASTING CORPORATION
By: /s/ William S. Banowsky, Jr.
----------------------------------
Name: William S. Banowsky
--------------------------------
Title: Executive Vice President
-------------------------------
ACN HOLDINGS:
ACN HOLDINGS, LLC
By: _________________________________
Name: _______________________________
Title: ______________________________
<PAGE>
IN WITNESS WHEREOF, ACN Holdings and Capstar have each caused this
Agreement to be executed on their behalf by a duly authorized officer effective
as of the date first written above.
CAPSTAR:
CAPSTAR BROADCASTING CORPORATION
By:__________________________________
Name:________________________________
Title:_______________________________
ACN HOLDINGS:
ACN HOLDINGS, LLC
By: /s/ Royce Yudkoff
----------------------------------
Name: Royce Yudkoff
--------------------------------
Title: Executive Vice President
-------------------------------
<PAGE>
EXHIBIT 2.4
EXECUTION COPY
FIRST AMENDMENT TO THE CONTRIBUTION AGREEMENT
This First Amendment (this "Amendment"), dated as of March 18, 1999 to
---------
the certain Contribution Agreement (the "Contribution Agreement") dated as of
----------------------
February 19, 1999 between Capstar Broadcasting Corporation ("Capstar") and Muzak
-------
Holdings LLC (f/k/a ACN Holdings, LLC) ("ACN Holdings").
------------
WHEREAS, Capstar and ACN Holdings (collectively, the "Parties") desire to
-------
amend the Contribution Agreement on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual agreements set forth herein,
the Parties agree as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
-----------------
shall have the meanings ascribed to such terms in the Contribution Agreement.
2. Working Capital Adjustment. A new Section 2.4(m) is added to the
--------------------------
Contribution Agreement to read in its entirety as follows:
"(m) Notwithstanding anything contained herein to the contrary, the
parties hereto agree that for purposes of the First Closing, the "Estimated
ACN Working Capital" shall be deemed to be a negative $17,880,870 (which
amount represents solely the "Bridge Loan Payment") and the "Estimated
First Closing Capstar Working Capital" shall be deemed to be zero. As a
result, the "Capstar Estimated First Closing WC Target" equals negative
$4,605,718 and, as required by Section 2.4(d) hereof, at the First Closing,
ACN Holdings shall pay to Capstar $4,605,718.
3. SCA Lease Agreement. Section 4.16(a) of the Contribution Agreement is
-------------------
hereby amended in its entirety to read as follows:
"4.16 SCA Lease Agreement. Prior to the Second Closing, Capstar and
-------------------
ACN Holdings shall negotiate in good faith the terms of Exhibits A and B to
---------- -
the SCA Lease Agreement and such other modifications to the form of the SCA
Lease Agreement attached as Exhibit D hereto as Capstar and ACN Holdings
---------
may mutually agree."
4. Waivers.
-------
(a) Each party hereto hereby waives the obligations pursuant to
Sections 2.4(a) and 2.4(c) of the Contribution Agreement of the other party
hereto and the failure to perform
<PAGE>
or otherwise satisfy such obligations shall not constitute a breach of any
covenant, agreement or condition of the Contribution Agreement.
(b) ACN Holdings hereby waives the obligations of Capstar pursuant to
Sections 5.3(c) and 6.2(a)(viii) to deliver the Consent of Muzak Limited
Partnership and the failure to perform or otherwise satisfy such
obligations shall not constitute a breach of any covenant, agreement or
condition of the Contribution Agreement.
5. Consent. Capstar hereby consents to ACN Holdings' and ACN's execution
-------
and delivery of (i) the Contribution Agreement, dated as of the date hereof (the
"Boyd Contribution Agreement"), among ACN Holdings, ACN and William Boyd and
---------------------------
(ii) the First Amendment to the Agreement and Plan of Merger, dated as of the
date hereof (the "Amendment to the MLP Merger Agreement") among the parties to
-------------------------------------
the MLP Merger Agreement. ACN Holdings has delivered to Capstar complete copies
of the Boyd Contribution Agreement and the Amendment to the MLP Merger
Agreement.
6. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware (without reference to its
rules as to conflicts of law).
7. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
8. Agreement. In all other respects the Contribution Agreement is
---------
ratified and shall, as so changed by these amendments, continue in full force
and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
MUZAK HOLDINGS LLC
By: /s/ Royce Yudkoff
------------------
Name: Royce Yudkoff
Title: Executive Vice President
CAPSTAR BROADCASTING CORPORATION
By: /s/ Kathy Archer
-----------------
Name: Kathy Archer
Title: Vice President
3
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
ACN HOLDINGS, LLC
This Certificate of Formation of ACN Holdings, LLC (the "LLC") has
been duly executed and is being filed by the undersigned, as an authorized
person, to form a limited liability company under the Delaware Limited Liability
Act (6 Del. C. (S) 18-101, et. seq.).
------- --------
FIRST. The name of the limited liability company formed hereby is ACN
Holdings, LLC.
SECOND. The address of the registered office of the LLC in the State
of Delaware is c/o Corporation Service Company, 1301 Centre Road, Wilmington,
New Castle County, Delaware 19805.
THIRD. The name and address of the registered agent for service of
process on the LLC in the State of Delaware is Corporation Service Company, 1301
Centre Road, Wilmington, New Castle County, Delaware 19805.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
of Formation as of this 28th day of August, 1998.
/s/ Royce Yudkoff
-----------------
Royce Yudkoff
Authorized Person
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF FORMATION
OF
ACN HOLDINGS, LLC
It is hereby certified that:
1. The name of the limited liability company (hereinafter called the
"limited liability company") is ACN Holdings, LLC
2. The certificate of formation of the limited liability company is
hereby amended by striking out Article First thereof and by substituting in lieu
of said Article First the following:
"First: The name of the limited liability company is Muzak Holdings
LLC"
IN WITNESS WHEREOF, the undersigned has duly executed this Amendment
to the Certificate of Formation as of this 15th day of March 1999.
ACN Holdings, LLC
By: /s/ Peni Garber
---------------------------
Name: Peni Garber
Title: Secretary
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
ACN HOLDINGS, INC.
ARTICLE ONE
-----------
The name of the corporation is ACN Holdings, Inc. (hereinafter called
the "Corporation").
ARTICLE TWO
-----------
The address of the Corporation's registered office in the state of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Service Company.
ARTICLE THREE
-------------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE FOUR
------------
The total number of shares which the Corporation shall have the
authority to issue is One Thousand (1,000) shares, all of which shall be shares
of Common Stock, with a par value of $0.01 (One Cent) per share.
ARTICLE FIVE
------------
The name and mailing address of the incorporator is as follows:
Name Address
---- -------
Eileen M. Carrig Kirkland & Ellis
153 East 53rd Street, 39th Fl.
New York, NY 10022
<PAGE>
ARTICLE SIX
-----------
The directors shall have the power to adopt, amend or repeal By-Laws,
except as may be otherwise be provided in the By-Laws.
ARTICLE SEVEN
-------------
The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
ARTICLE EIGHT
-------------
Section 1. Nature of Indemnity. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he (or a person of whom
he is the legal representative), is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in Section 2 of this Article Eight, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article Eight shall
be a contract right and, subject to Sections 2 and 5 of this Article Eight,
shall include the right to payment by the Corporation of the expenses incurred
in defending any such proceeding in advance of its final disposition. The
Corporation may, by action of the Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers.
Any indemnification of a director or officer of the Corporation under Section 1
of this Article Eight or advance of expenses under Section 5 of this Article
Eight shall be made promptly, and in any event within 30 days, upon the written
request of the director or officer. If a determination by the Corporation that
the director or officer is entitled to indemnification pursuant to this Article
Eight is required, and the Corporation fails to respond within sixty days to a
written request for indemnity,
2
<PAGE>
the Corporation shall be deemed to have approved the request. If the Corporation
denies a written request for indemnification or advancing of expenses, in whole
or in part, or if payment in full pursuant to such request is not made within 30
days, the right to indemnification or advances as granted by this Article Eight
shall be enforceable by the director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Corporation. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the Corporation. Neither the failure of the
Corporation (including the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Nonexclusivity of Article Eight. The rights to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this Article Eight shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the certificate of incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Corporation or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the Corporation would have the power
to indemnify such person against such liability under this Article Eight.
Section 5. Expenses. Expenses incurred by any person described in
Section 1 of this Article Eight in defending a proceeding shall be paid by the
Corporation in advance of such proceeding's final disposition unless otherwise
determined by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
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Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article Eight and who are or were employees or
agents of the Corporation, or who are or were serving at the request of the
Corporation as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified to the extent authorized
at any time or from time to time by the Board of Directors.
Section 7. Contract Rights. The provisions of this Article Eight shall
be deemed to be a contract right between the Corporation and each director or
officer who serves in any such capacity at any time while this Article Eight and
the relevant provisions of the General Corporation Law of the State of Delaware
or other applicable law are in effect, and any repeal or modification of this
Article Eight or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article
Eight, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
Eight with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.
ARTICLE NINE
------------
The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservation.
I, the undersigned, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation in pursuance of the General Corporation
Law of the State of Delaware, do make and file this Certificate, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 28th day of August 1998.
/s/ Eileen M. Carrig
----------------------------
Eileen M. Carrig
Sole Incorporator
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<PAGE>
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ACN HOLDINGS, INC.
Under Section 242 of the Delaware Corporation Law
-------------------------------------------------
Pursuant to Section 242 of the Delaware Corporation Law of the State
of Delaware, the undersigned, being the Secretary of ACN Holdings, Inc., a
Delaware corporation (the "Corporation") does hereby certify the following:
FIRST: The name of the Corporation is ACN Holdings, Inc.
SECOND: The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of Delaware on August 28, 1998.
THIRD: The Certificate of Incorporation of the Corporation is
hereby amended to effect a change in Article I thereof, relating to the name of
the Corporation, accordingly Article I of the Certificate of Incorporation shall
be amended to read in its entirety as follows:
ARTICLE I
"The name of the Corporation" is Muzak Holdings Finance Corp.
(hereinafter called the "Corporation")"
FOURTH: The amendment to the Certificate of Incorporation of the
Corporation effected hereby was approved by the Board of Directors of the
Corporation, and by written consent of the sole stockholder of the Corporation.
IN WITNESS WHEREOF, the undersigned affirms as true the foregoing
under penalties of perjury, and has executed this Certificate this _____ day of
February 1999.
ACN HOLDINGS, INC.
By: /s/ Peni Garber
---------------------
Name: Peni Garber
Title: Secretary
<PAGE>
EXHIBIT 3.6
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MUZAK HOLDINGS LLC,
A DELAWARE LIMITED LIABILITY COMPANY
DATED AS OF MARCH 18, 1999
<PAGE>
EXHIBIT 3.7
BYLAWS
OF
ACN HOLDINGS, INC.
A Delaware Corporation
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located at 1013 Centre Road, Wilmington Delaware
19805, in the County of New Castle. The name of the corporation's registered
agent at such address shall be Corporation Service Company. The registered
office and/or registered agent of the corporation may be changed from time to
time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting may be determined by resolution of the
board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be called
for any purpose (including, without limitation, the filling of board vacancies
and newly created directorships), and may be held at such time and place, within
or without the State of Delaware, as shall be stated in a notice of meeting or
in a duly executed waiver of notice thereof. Such meetings may be called at any
time by two or more members of the board of directors, the president or the
holders of shares entitled to cast not less than a majority of the votes at the
meeting or the holders of fifty percent (50%) of the outstanding shares of any
series or class of the corporation's capital stock.
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Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting is otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose(s), of such meeting, shall be
given to each stockholder entitled to vote at such meeting not less than 10 nor
more than 60 days before the date of the meeting. All such notices shall be
delivered, either personally or by mail, by or at the direction of the board of
directors, the president or the secretary, and if mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, postage
prepaid, addressed to the stockholder at his, her or its address as the same
appears on the records of the corporation. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened.
Section 5. Stockholders List. The officer having charge of the stock ledger
of the corporation shall make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. Except as otherwise provided by applicable law or by the
corporation's certificate of incorporation, a majority of the outstanding shares
of the corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time in accordance with Section
7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting, at which the adjournment is taken.
At the adjourned meeting the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
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<PAGE>
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the corporation's certificate of incorporation a different
vote is required, in which case such express provision shall govern and control
the decision of such question. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class, unless the
question is one upon which by express provisions of an applicable law or of the
corporation's certificate of incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto, every stockholder shall at every
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person(s) to act for him, her or it by
proxy. Every proxy must be signed by the stockholder granting the proxy or by
his, her or its attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in the
corporation's certificate of incorporation, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent(s) in writing, setting forth the action so taken and bearing the dates
of signature of the stockholders who signed the consent(s), shall be signed by
the holders of outstanding shares of stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in the state
of Delaware, or the corporation's principal place of business, or an officer or
agent of the corporation having custody of the book(s) in which proceedings of
meetings of the stockholders are recorded. Delivery made to the corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested, provided, however, that no consent(s) delivered by certified
or registered mail shall be deemed delivered until such consent(s) are actually
received at the registered office. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent
3
<PAGE>
shall be effective to take the corporate action referred to therein unless,
within sixty days of the earliest dated consent delivered to the corporation as
required by this section, written consents signed by the holders of a sufficient
number of shares to take such corporate action are so recorded. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing. Any action taken pursuant to such written consent(s) of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the first board shall be one, which number may be
increase or decreased from time to time by resolution of the board. The
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote in the
election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors;
provided however, whenever the holders of any class or series are entitled to
elect one or more directors by the provisions of the corporation's certificate
of incorporation, the provisions of this section shall apply, in respect to the
removal without cause or a director or directors so elected, to the vote of the
holders of the outstanding shares of that class or series and not to the vote of
the outstanding shares as a whole; provided further, in the event any of the
stockholders of the corporation have entered into an agreement which provides
for the manner in which the directors of the corporation are to be elected, and
such stockholders have so caused the election of such directors, a director(s)
may be removed from the board of directors only in accordance with such
agreement (as the same may be amended from time to time, the "Stockholders
Agreement"), for so long as (i) such agreement has been filed with the
corporation and (ii) has not been terminated. Any director may resign at any
time upon written notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the certificate of
incorporation of the corporation or any amendments thereto, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director or by a majority vote of the
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<PAGE>
holders of the corporation's outstanding stock entitled to vote thereon. Each
director so chosen shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as herein
provided.
Section 5. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by or at the
request of the president or vice president on at least 24 hours notice to each
director, either personally, by telephone, by mail, or by telegraph; in like
manner and on like notice the president must call a special meeting on the
written request of at least a majority of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation, which to the
extent provided in such resolution or these bylaws shall have and may exercise
the powers of the board of directors in the management and affairs of the
corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee(s) shall have such name(s) as may be determined from time to time by
resolution adopted by the board of directors. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member(s) thereof present at any meeting and not disqualified
from voting, whether or not such member(s) constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in place
of any such absent or disqualified member.
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<PAGE>
Section 10. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
corporation's certificate of incorporation, any action required or permitted to
be taken at any meeting of the board of directors, or of any committee thereof,
may be taken without a meeting if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing(s) are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by the
board of directors and shall consist of a chairman, if any is elected, a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person, except
that no person may simultaneously hold the office of president and secretary. In
its discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The president shall appoint other officers to serve for such terms as he
or she deems desirable. Vacancies may be filled or new offices created and
filled at any meeting of the board of directors. Each officer shall hold office
until a successor is duly elected and qualified or until his or her earlier
death, resignation or removal as hereinafter provided.
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<PAGE>
Section 3. Removal. Any officer or agent elected by the board of directors
may be removed by the board of directors whenever in its judgment the best
interests of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term by the board of directors
then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. The President. The president shall be the chief executive
officer of the corporation. In the absence of the Chairman of the Board or if a
Chairman of the Board shall have not been elected, the president (i) shall
preside at all meetings of the stockholders and board of directors at which he
or she is present; (ii) subject to the powers of the board of directors, shall
have general charge of the business, affairs and property of the corporation,
and control over its officers, agents and employees; and (iii) shall see that
all orders and resolutions of the board of directors are carried into effect.
The president shall have such other powers and perform such other duties as may
be prescribed by the board of directors or as may be provided in these bylaws.
Section 7. Vice-Presidents. The vice-president, if any, or if there shall
be more than one, the vice-presidents in the order determined by the board of
directors shall, in the absence or disability of the president, act with all of
the powers and be subject to all the restrictions of the president. The vice-
presidents shall also perform such other duties and have such other powers as
the board of directors, the president or these bylaws may, from time to time,
prescribe.
Section 8. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book(s) to be kept for that purpose. Under the president's
supervision, the secretary (i) shall give, or cause to be given, all notices
required to be given by these bylaws or by law; (ii) shall have such powers and
perform such duties as the board of directors, the president or these bylaws
may, from time to time, prescribe; and (iii) shall have custody of the corporate
seal of the corporation. The secretary, or an assistant secretary, shall have
authority to affix the corporate seal to any instrument requiring it and when so
affixed, it may be attested by his or her signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his or her signature. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other
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<PAGE>
duties and have such other powers as the board of directors, the president, or
secretary may, from time to time, prescribe.
Section 9. The Treasurer and Assistant Treasurers. The treasurer (i) shall
have the custody of the corporate funds and securities; (ii) shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; (iii) shall deposit all monies and other valuable effects in the
name and to the credit of the corporation as may be ordered by the board of
directors; (iv) shall cause the funds of the corporation to be disbursed when
such disbursements have been duly authorized, taking proper vouchers for such
disbursements; (v) shall render to the president and the board of directors, at
its regular meeting or when the board of directors so requires, an account of
the corporation; and (vi) shall have such powers and perform such duties as the
board of directors, the president or these bylaws may, from time to time,
prescribe. If required by the board of directors, the treasurer shall give the
corporation a bond (which shall be rendered every six years) in such sums and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of the office of treasurer and for
the restoration to the corporation, in case of death, resignation, retirement,
or removal from office, of all books, papers, vouchers, money, and other
property of whatever kind in the possession or under the control of the
treasurer belonging to the corporation. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors, shall in the absence or disability of the treasurer, perform
the duties and exercise the powers of the treasurer. The assistant treasurers
shall perform such other duties and have such other powers as the board of
directors, the president or treasurer may, from time to time, prescribe.
Section 10. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 11. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by (i) the
chairman of the board, the president or a vice-president and (ii) the secretary
or an assistant secretary of the corporation, certifying
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<PAGE>
the number of shares owned by such holder in the corporation. If such a
certificate is countersigned (1) by a transfer agent or an assistant transfer
agent other than the corporation or its employee or (2) by a registrar, other
than the corporation or its employee, the signature of any such chairman of the
board, president, vice-president, secretary, or assistant secretary may be
facsimiles. In case any officer(s) who have signed, or whose facsimile
signature(s) have been used on, any such certificate(s) shall cease to be such
officer(s) of the corporation whether because of death, resignation or otherwise
before such certificate(s) have been delivered by the corporation, such
certificate(s) may nevertheless be issued and delivered as though the person or
persons who signed such certificate(s) or whose facsimile signature(s) have been
used thereon had not ceased to be such officer(s) of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
corporation. Shares of stock of the corporation shall only be transferred on the
books of the corporation by the holder of record thereof or by such holder's
attorney duly authorized in writing, upon surrender to the corporation of the
certificate(s) for such shares endorsed by the appropriate person(s), with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate(s), and record the transaction on its books. The board of
directors may appoint a bank or trust company organized under the laws of the
United States or any state thereof to act as its transfer agent or registrar, or
both in connection with the transfer of any class or series of securities of the
corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate(s) to be issued in place of any certificate(s) previously issued by
the corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen, or destroyed. When authorizing such issue of a new
certificate(s), the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate(s), or his or her legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against the corporation on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the board of directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be the close of business on the day immediately
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day immediately preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders
9
<PAGE>
shall apply to any adjournment of the meeting; provided, however, that the board
of directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights of the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate(s) for a share(s) of stock with a request to
record the transfer of such share(s), the corporation may treat the registered
owner as the person entitled to receive dividends, to vote, to receive
notifications, and otherwise to exercise all the rights and powers of an owner.
The corporation shall not be bound to recognize any equitable or other claim to
or interest in such share(s) on the part of any other person, whether or not it
shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of
10
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the same series. In case of default in the payment of any installment or call
when such payment is due, the corporation may proceed to collect the amount due
in the same manner as any debt due the corporation.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum(s) as the directors from time to
time, in their absolute discretion, think proper as a reserve(s) to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or any other purpose and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer(s), agent(s) of the corporation, and in such manner, as shall be
determined by resolution of the board of directors or a duly authorized
committee thereof.
Section 3. Contracts. The board of directors may authorize any officer(s),
or any agent(s), of the corporation to enter into any contract or to execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
11
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Section 6. Corporate Seal. The board of directors shall provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in any
other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these bylaws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these bylaws is or becomes inconsistent with any provision of the corporation's
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, such provision of these bylaws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
-----------
AMENDMENTS
----------
These bylaws may be amended, altered, or repealed and new bylaws adopted at
any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal the bylaws has been conferred upon the
board of directors shall not divest the stockholders of the same powers.
12
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EXHIBIT 4.1
================================================================================
----------------------
MUZAK HOLDINGS LLC
and
MUZAK HOLDINGS FINANCE CORP.,
as Issuers,
----------------------
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
INDENTURE
================================================================================
Dated as of March 18, 1999
$75,000,000 aggregate principal amount at maturity of
13% Senior Discount Notes due 2010
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C>
310(a)(1)................................................................. 7.10
(a)(2)................................................................. 7.10
(a)(3)................................................................. N.A.
(a)(4)................................................................. N.A
(b).................................................................... 7.08; 7.10; 12.02
(b)(1)................................................................. 7.10
(b)(9)................................................................. 7.10
(c).................................................................... N.A.
311(a).................................................................... 7.11
(b).................................................................... 7.11
(c).................................................................... N.A.
312(a).................................................................... 2.05
(b).................................................................... 10.03
(c).................................................................... 10.03
313(a).................................................................... 7.06
(b)(1)................................................................. 7.06
(b)(2)................................................................. 7.06
(c).................................................................... 12.02
(d).................................................................... 7.06
314(a).................................................................... 4.02; 4.04; 12.02
(b).................................................................... N.A.
(c)(1)................................................................. 12.04; 12.05
(c)(2)................................................................. 12.04; 12.05
(c)(3)................................................................. N.A.
(d).................................................................... N.A.
(e).................................................................... 10.05
(f).................................................................... N.A.
315(a).................................................................... 7.01; 7.02
(b).................................................................... 7.05; 10.02
(c).................................................................... 7.01
(d).................................................................... 6.05; 7.01; 7.02
(e).................................................................... 6.11
316(a) (last sentence).................................................... 12.06
(a)(1)(A).............................................................. 6.05
(a)(1)(B).............................................................. 6.04
(a)(2)................................................................. 8.02
(b).................................................................... 6.07
(c).................................................................... 8.04
317(a)(1)................................................................. 6.08
(a)(2)................................................................. 6.09
</TABLE>
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<TABLE>
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(b).................................................................... 7.12
318(a).................................................................... 12.01
</TABLE>
N.A. means Not Applicable
____________________
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
Section 1.01. Definitions.................................................................... 1
Section 1.01. Other Definitions.............................................................. 44
Section 1.02. Incorporation by Reference of
Trust Indenture Act......................................................... 45
Section 1.03. Rules of Construction.......................................................... 46
ARTICLE 2
THE NOTES
Section 2.01. Dating; Incorporation of Form in Indenture..................................... 46
Section 2.02. Execution and Authentication................................................... 47
Section 2.03. Registrar and Paying Agent..................................................... 49
Section 2.04. Paying Agent to Hold Money in Trust............................................ 49
Section 2.05. Noteholder Lists............................................................... 50
Section 2.06. Transfer and Exchange.......................................................... 50
Section 2.07. Replacement Notes.............................................................. 51
Section 2.08. Outstanding Notes.............................................................. 52
Section 2.09. Temporary Notes................................................................ 52
Section 2.10. Cancellation................................................................... 52
Section 2.11. Defaulted Interest............................................................. 53
Section 2.12. Deposit of Moneys.............................................................. 53
Section 2.13. CUSIP Number................................................................... 54
Section 2.14. Book-Entry Provisions for Global Notes......................................... 54
Section 2.15. Registration of Transfers and Exchanges........................................ 56
Section 2.16. Joint and Several Liability.................................................... 62
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ARTICLE 3
REDEMPTION
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Section 3.01. Notices to Trustee............................................................. 63
Section 3.02. Selection by Trustee of Notes to Be Redeemed................................... 63
Section 3.03. Notice of Redemption........................................................... 64
Section 3.04. Effect of Notice of Redemption................................................. 65
Section 3.05. Deposit of Redemption Price.................................................... 65
Section 3.06. Notes Redeemed in Part......................................................... 66
Section 3.07. Optional Redemption............................................................ 66
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes............................................................... 67
Section 4.02. Provision of Financial Statements and Other Information........................ 67
Section 4.03. Waiver of Stay, Extension or Usury Laws........................................ 68
Section 4.04. Compliance Certificate; Notice
of Default; Tax Information................................................. 69
Section 4.05. Taxes.......................................................................... 70
Section 4.06. Limitation on Additional Indebtedness.......................................... 70
Section 4.07. Limitation on Restricted Payments.............................................. 71
Section 4.08. Limitation of Guarantees by Restricted Subsidiaries............................ 76
Section 4.09. Limitation on Certain Asset Sales.............................................. 77
Section 4.10. Limitation on Transactions with Affiliates..................................... 82
Section 4.11. Limitations on Liens........................................................... 85
Section 4.12. Limitations on Investments..................................................... 85
Section 4.13. Limitation on Sale and Lease-Back Transactions................................. 86
Section 4.14. Payments for Consent........................................................... 86
Section 4.15. Corporate Existence............................................................ 86
Section 4.16. Change of Control.............................................................. 87
Section 4.17. Maintenance of Office or Agency................................................ 90
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Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting
Affecting Restricted Subsidiaries............................................ 91
Section 4.19. Limitation on Conduct of Business.............................................. 93
Section 4.20. Compliance with Laws........................................................... 94
Section 4.21. Limitation on Preferred Stock of Restricted Subsidiaries....................... 94
Section 4.22. [Intentionally Omitted]........................................................ 94
Section 4.23. Maintenance of Properties and Insurance........................................ 94
ARTICLE 5
SUCCESSOR CORPORATION
Section 5.01. Limitation on Consolidation Merger and Sale of Assets.......................... 95
Section 5.02. Successor Person Substituted................................................... 97
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.............................................................. 98
Section 6.02. Acceleration................................................................... 100
Section 6.03. Other Remedies................................................................. 101
Section 6.04. Waiver of Past Defaults and Events of Default.................................. 102
Section 6.05. Control by Majority............................................................ 102
Section 6.06. Limitation on Suits............................................................ 103
Section 6.07. Rights of Holders to Receive Payment........................................... 103
Section 6.08. Collection Suit by Trustee..................................................... 104
Section 6.09. Trustee May File Proofs of Claim............................................... 104
Section 6.10. Priorities..................................................................... 105
Section 6.11. Undertaking for Costs.......................................................... 105
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.............................................................. 106
</TABLE>
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Section 7.02. Rights of Trustee.............................................................. 108
Section 7.03. Individual Rights of Trustee................................................... 109
Section 7.04. Trustee's Disclaimer........................................................... 109
Section 7.05. Notice of Defaults............................................................. 110
Section 7.06. Reports by Trustee to Holders.................................................. 110
Section 7.07. Compensation and Indemnity..................................................... 111
Section 7.08. Replacement of Trustee......................................................... 112
Section 7.09. Successor Trustee by Consolidation, Merger or Conversion....................... 113
Section 7.10. Eligibility; Disqualification.................................................. 113
Section 7.11. Preferential Collection of Claims Against Issuers.............................. 114
Section 7.12. Paying Agents.................................................................. 114
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. Without Consent of Holders..................................................... 115
Section 8.02. With Consent of Holders........................................................ 116
Section 8.03. Compliance with Trust Indenture Act............................................ 118
Section 8.04. Revocation and Effect of Consents.............................................. 118
Section 8.05. Notation on or Exchange of Notes............................................... 119
Section 8.06. Trustee to Sign Amendments, etc................................................ 119
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Satisfaction and Discharge of Indenture........................................ 119
Section 9.02. Legal Defeasance............................................................... 120
Section 9.03. Covenant Defeasance............................................................ 121
Section 9.04. Conditions to Defeasance or Covenant Defeasance................................ 122
Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions....................................... 125
Section 9.06. Reinstatement.................................................................. 126
Section 9.07. Moneys Held by Paying Agent.................................................... 126
Section 9.08. Moneys Held by Trustee......................................................... 127
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ARTICLE 10
GUARANTEES
<S> <C>
Section 10.01. Guarantees..................................................................... 127
Section 10.02. Limitation on Liability........................................................ 130
Section 10.03. Successors and Assigns......................................................... 131
Section 10.04. No Waiver...................................................................... 131
Section 10.05. Modification................................................................... 131
Section 10.06. Release of Guarantor........................................................... 132
Section 10.07. Execution of Supplemental Indenture for Future Guarantors...................... 132
Section 10.08. Execution and Delivery of Guarantees........................................... 133
ARTICLE 11
INTERCREDITOR AGREEMENT WITH LENDERS
UNDER THE SENIOR CREDIT FACILITY
Section 11.01. Non-Petition Covenant.......................................................... 134
Section 11.02. Subordination Upon Substantive Consolidation................................... 134
Section 11.03. When Distribution Must be Paid Over............................................ 135
Section 11.04. Trustee's Relation to Senior Indebtedness...................................... 136
Section 11.05. Subrogation of Rights of Holders of Senior Indebtedness........................ 136
Section 11.06. Provisions Solely to Define Relative Rights.................................... 137
Section 11.07. Trustee to Effectuate Subordination............................................ 138
Section 11.08. No Waiver of Subordination Provisions.......................................... 139
Section 11.09. Notice to Trustee.............................................................. 140
Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent................. 141
Section 11.11. Rights of Trustee as a Holder of Indebtedness under the Senior
Credit Facility; Preservation of Trustee's
Rights...................................................................... 142
Section 11.12. Article Applicable to Paying Agents............................................ 142
</TABLE>
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Section 11.13. No Suspension of Remedies...................................................... 122
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls................................................... 122
Section 12.02. Notices........................................................................ 123
Section 12.03. Communications by Holders with Other Holders................................... 124
Section 12.04. Certificate and Opinion as to Conditions Precedent............................. 124
Section 12.05. Statements Required in Certificate and Opinion................................. 125
Section 12.06. When Treasury Notes Disregarded................................................ 125
Section 12.07. Rules by Trustee and Agents.................................................... 126
Section 12.08. Business Days; Legal Holidays.................................................. 126
Section 12.09. Governing Law.................................................................. 126
Section 12.10. No Adverse Interpretation of Other Agreements.................................. 126
Section 12.11. No Recourse Against Others..................................................... 126
Section 12.12. Successors..................................................................... 127
Section 12.13. Multiple Counterparts.......................................................... 127
Section 12.14. Table of Contents, Headings, etc............................................... 127
Section 12.15. Separability................................................................... 127
EXHIBITS
Exhibit A. Form of Note..................................................................... A-1
Exhibit B. Form of Legend for Global Notes.................................................. B-1
Exhibit C. Form of Certificate to Be Delivered in Connection with Transfers to
Non-QIB Accredited Investors..................................................... C-1
Exhibit D. Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S......................................................... D-1
Exhibit E. Form of Guarantee................................................................ E-1
</TABLE>
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<S> <C>
Exhibit F. Form of Supplemental Indenture................................................... F-1
</TABLE>
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<PAGE>
INDENTURE, dated as of March 18, 1999, among MUZAK HOLDINGS LLC, a
Delaware limited liability company (the "Company"), MUZAK HOLDINGS FINANCE
CORP., a Delaware corporation ("Finance Corp." and, together with the Company,
the "Issuers") and STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking
corporation, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Issuers' 13% Senior
Discount Notes due 2010 (the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
-----------
"ABRY" means ABRY Partners, Inc., a Delaware corporation.
"ABRY Management Agreement" means the Management Agreement dated as of
October 6, 1998, and as amended prior to the Issue Date, between ABRY and the
Company.
"ABRY Subordinated Debt" means Indebtedness of the Company or Muzak
LLC in principal amount not to exceed $30 million in the aggregate at any time
outstanding (a) that is owed to ABRY III, ABRY, MEM Holdings, Inc. or any other
investment fund controlled by ABRY, (b) if such Indebtedness is Indebtedness of
the Company, as to which the payment of principal of (and premium, if any) and
interest and other payment obligations in respect of such Indebtedness shall be
subordinate to the prior payment in full of the Company's Obligations under the
Notes such that no payments of principal (or premium, if any) or interest on or
otherwise due in respect of such Indebtedness may be permitted for so long as
any Default or Event of Default shall have occurred and be continuing, (c) that
shall automatically convert into common equity of the Company within
<PAGE>
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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 the Company or Muzak
LLC, as the case may be, as determined in good faith by the Board of Directors
of the Company or Muzak LLC, as the case may be, and evidenced by a Board
Resolution delivered to the Trustee.
"ABRY II" means ABRY Broadcast Partners II, L.P., a Delaware limited
partnership.
"ABRY III" means ABRY Broadcast Partners III, L.P., a Delaware limited
partnership.
"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) $533.285 and (y) the portion of the excess of the principal
amount at maturity of each Note over $533.285 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, (i)
EBITDA attributable to the assets to be acquired in such Asset Acquisition for
the same fiscal quarter utilized in determining "Consolidated Leverage Ratio"
plus (ii) the projected, quantifiable cost reductions expected to be realized
and non-recurring costs and expenses, in each case, in
<PAGE>
-3-
connection with such Asset Acquisition and as a result of, in the case of cost
reductions, an established program of cost reductions adopted in good faith by
the Board of Directors of the Company. For purposes of the foregoing, cost
reductions and non-recurring costs and expenses, in each case, shall be
calculated on a pro forma basis as if such cost reductions and non-recurring
--- -----
costs and expenses, in each case, had been implemented at the beginning of such
fiscal quarter. Prior to the consummation of any transaction requiring the
inclusion of Acquisition EBITDA in the calculation of Consolidated Leverage
Ratio, the Company shall deliver to the Trustee an Officers' Certificate
indicating the cost reductions and non-recurring costs and expenses, in each
case, taken into account in determining Acquisition EBITDA and the assumptions
underlying such cost reductions and non-recurring costs and expenses.
"Adjusted Net Assets" of any Person at any date shall mean the lesser
of
(1) the amount by which the fair salable value of the assets of such
Person at such date exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all
other fixed and contingent liabilities), but excluding liabilities under
the Guarantee of such Person at such date, and
(2) the amount by which the fair salable value of the assets of such
Person at such date exceeds the amount that will be required to pay the
probable liability of such Person on its debts (after giving effect to all
other fixed and contingent liabilities and after giving effect to any
collection from any Subsidiary of such Person in respect of the obligations
of such Person under the Guarantee of such Person), excluding Indebtedness
in respect of the Guarantee of such Person, as they become absolute and
matured.
"Affiliate" means, with respect to any specific Person, any other
Person that directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. For
the pur-
<PAGE>
-4-
poses of this definition, "control" (including, with correlative meanings, the
terms "controlling," "controlled by," and "under common control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that, for purposes of Section 4.10 of this Indenture,
--------
beneficial ownership of at least 10% of the voting securities of a Person,
either directly or indirectly, shall be deemed to be control. Notwithstanding
the foregoing, no Person (other than the Company or any Subsidiary of the
Company) in whom a Securitization Entity makes an Investment in connection with
a Qualified Securitization Transaction shall be deemed to be an Affiliate of the
Company or any of its Subsidiaries solely by reason of such Investment.
"Agent" means any Registrar, Paying Agent, co-registrar or agent for
service of notices and demands.
"Asset Acquisition" means
(1) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person pursuant to which such Person shall become a
Restricted Subsidiary of the Company or any Restricted Subsidiary of the
Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company or
(2) the acquisition by the Company or any Restricted Subsidiary of
the Company of the assets of any Person (other than a Restricted Subsidiary
of the Company) which constitute all or substantially all of the assets of
such Person or comprise any division or line of business of such Person or
any other Properties or assets of such Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and Lease-
Back Transaction), other than in the ordinary course of business or to the
Company or
<PAGE>
-5-
any of its Restricted Subsidiaries, in any single transaction or series of
related transactions of
(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of the Company or
(2) any other Property or assets of the Company or of any Restricted
Subsidiary thereof; provided that Asset Sales shall not include
--------
(1) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of
less than $1 million,
(2) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under
Section 5.01 of this Indenture 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
<PAGE>
-6-
accordance with GAAP (for the purposes of this clause (7), Purchase Money
Notes shall be deemed to be cash),
(8) transfers of accounts receivable, equipment and related assets
(including contract rights) of the type specified in the definition of
Qualified Securitization Transaction (or a fractional undivided interest
therein) by a Securitization Entity in a Qualified Securitization
Transaction, and
(9) any transfer of assets acquired by the Company or any of its
Restricted Subsidiaries to an independent affiliate of the Company or any
of its Restricted Subsidiaries in accordance with the terms of the License
Agreements as such agreements are in effect on the Issue Date and as the
same may be amended or restated in a manner which is not more
disadvantageous to the Holders in any material respect than the terms of
such agreements as in effect on the Issue Date.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(1) cash and Cash Equivalents received by the Company or any
Restricted Subsidiary of the Company from such Asset Sale (including cash
and Cash Equivalent received as consideration for the assumption of
liabilities incurred in connection with or in anticipation of such Asset
Sale), after
(a) provision for all income or other taxes measured by or
resulting from such Asset Sale (after taking into account any
reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrangements),
(b) payment of all brokerage commissions, underwriting and other
fees and expenses related to such Asset Sale,
<PAGE>
-7-
(c) provision for minority interest holders in any Restricted
Subsidiary of the Company as a result of such Asset Sale,
(d) repayment of Indebtedness that is secured by the assets
subject to such Asset Sale or otherwise required to be repaid in
connection with such Asset Sale and
(e) deduction of appropriate amounts to be provided by the
Company or a Restricted Subsidiary of the Company as a reserve, in
accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the
Company or a Restricted Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or
against any indemnification obligations associated with the assets
sold or disposed of in such Asset Sale, and
(2) promissory notes and other noncash consideration received by the
Company or any Restricted Subsidiary of the Company from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or
noncash consideration into cash or Cash Equivalents.
"Attributable Indebtedness" in respect of a Sale and Lease-Back
Transaction means, as at the time of determination, the greater of
(1) the fair value of the Property subject to such arrangement and
(2) the present value of the notes (discounted at the rate of
interest implied in such transaction, determined in accordance with GAAP)
of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale and Lease-Back
Transaction (including any period for which such lease has been extended).
<PAGE>
-8-
"Available Asset Sale Proceeds" means, with respect to any Asset Sale,
the aggregate Asset Sale Proceeds from such Asset Sale that have not been
applied in accordance with clauses (3)(a) or (3)(b), and which have not yet been
the basis for an Excess Proceeds Offer in accordance with clause (3)(c) of
Section 4.09(a) under this Indenture.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person (or, if such Person is a limited liability company, the
board of managers of such company) or similar governing body or any duly
authorized committee thereof.
"Board Resolution" means with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
"Capitalized Lease Obligation" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Equivalents" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency or
instrumentality thereof and
<PAGE>
-9-
backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by (i) any bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of
not less than $250,000,000 or (ii) Brown Brothers Harriman;
(5) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in clause
(4) above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
A "Change of Control" of the Company will be deemed to have occurred
at such time as
(1) any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"),
<PAGE>
-10-
other than a Permitted Holder, becomes the beneficial owner (as defined in
Rule under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time) of more than 35% of the total voting power of the Company's Capital
Stock, and the Permitted Holders beneficially do not own, in the aggregate,
a greater percentage of the total voting power of the Capital Stock of the
Company than such other Person or Group and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company,
(2) there shall be consummated any consolidation or merger of the
Company in which the Company is not the continuing or surviving Person or
pursuant to which the Common Stock of the Company would be converted into
cash, securities or other Property, other than a merger or consolidation of
the Company in which the holders of the Capital Stock of the Company
outstanding immediately prior to the consolidation or merger hold, directly
or indirectly, at least a majority of the Capital Stock of the surviving
corporation immediately after such consolidation or merger,
(3) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new Directors whose election by such Board of
Directors or whose nomination for election by the equityholders of the
Company has been approved by 66 2/3% of the Directors then still in office
who either were Directors at the beginning of such period or whose election
or recommendation for election was previously so approved) cease to
constitute a majority of the Board of Directors of the Company or
(4) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or
<PAGE>
-11-
dissolution of the Company (whether or not otherwise in compliance with the
provisions of this Indenture).
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" of any Person means all Capital Stock of such Person
that is generally entitled to
(1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or
others that will control the management and policies of such Person.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces such party pursuant to Article 5 of this
Indenture and thereafter means the successor.
"Consolidated Interest Expense" means, with respect to any Person, for
any period, the aggregate amount of interest which, in conformity with GAAP,
would be set forth opposite the caption "interest expense" or any like caption
on an income statement for such Person and its Restricted Subsidiaries on a
consolidated basis including, but not limited to,
(1) Redeemable Dividends, whether paid or accrued, on Preferred
Stock,
(2) imputed interest included in Capitalized Lease Obligations,
(3) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(4) the net costs associated with Hedging Obligations,
<PAGE>
-12-
(5) amortization of other financing fees and expenses,
(6) the interest portion of any deferred payment obligation,
(7) amortization of discount or premium, if any, and
(8) all other non-cash interest expense (other than interest
amortized to cost of sales)
plus, without duplication,
(1) all net capitalized interest for such period,
(2) all interest incurred or paid under any guarantee of Indebtedness
(including a guarantee of principal, interest or any combination thereof)
of any Person, and
(3) the amount of all dividends or distributions paid on Disqualified
Capital Stock (other than dividends paid or payable in shares of Capital
Stock of the Company that does not constitute Disqualified Capital Stock).
"Consolidated Leverage Ratio" means, with respect to any Person, the
ratio of
(1) the sum of the aggregate outstanding amount of Indebtedness of
such Person and its Restricted Subsidiaries and Preferred Stock of any such
Restricted Subsidiary issued in accordance with Section 4.21 of this
Indenture as of the date of calculation (the "Transaction Date") on a
consolidated basis determined in accordance with GAAP to
(2) the product of (a) such Person's EBITDA for the full fiscal
quarter (the "One Quarter Period") ending on or prior to the date of
determination for which financial statements are available and (b) four.
For purposes of this definition, clauses (1) and (2) above shall be calculated
after giving effect on a pro forma basis to:
--- -----
<PAGE>
-13-
(a) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries or the issuance or redemption or other
repayment of Preferred Stock of any such Restricted Subsidiary (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness and, in
the case of any Restricted Subsidiary, the issuance or redemption or other
repayment of Preferred Stock (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the One Quarter Period or at any time
subsequent to the last day of the One Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment or issuance or
redemption or other repayment, as the case may be (and the application of
the proceeds thereof), occurred on the first day of the One Quarter Period;
and
(b) any Asset Sales or Asset Acquisitions occurring during the One
Quarter Period or at any time subsequent to the last day of the One Quarter
Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for
any Acquired Indebtedness) occurred on the first day of the One Quarter
Period as follows:
(x) with respect to Asset Sales, the EBITDA attributable to the
assets which are the subject of Asset Sales that occurred shall be
excluded; and
(y) with respect to Asset Acquisitions, the Acquisition EBITDA
attributable to the assets which are the subject of the applicable
Asset Acquisition shall be included.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding paragraph shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted
<PAGE>
-14-
Subsidiary or such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that
-------- -------
(1) the Net Income of any Person other than a Restricted Subsidiary
of the referent Person shall be included only to the extent of the amount
of dividends or distributions paid to the referent Person or a Restricted
Subsidiary of such referent Person,
(2) the Net Income of any Restricted Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions, other than those permitted
under Section 4.18, shall be excluded to the extent of such restriction or
limitation,
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(4) any net gain or loss (in the case of any net loss, only to the
extent that such determination of Consolidated Net Income is being made in
connection with the determination of amounts available for Restricted
Payments pursuant to the provisions described under Section 4.07 of this
Indenture) resulting from an Asset Sale by the Person in question or any of
its Restricted Subsidiaries other than in the ordinary course of business
shall be excluded,
(5) extraordinary gains and losses shall be excluded,
(6) income or loss attributable to discontinued operations
(including, without limitation, operations dis-
<PAGE>
-15-
posed of during such period whether or not such operations were classified
as discontinued) shall be excluded and
(7) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets shall be excluded.
"Control Investment Affiliate" means, as to any Person, any other
Person which (a) is an Affiliate of such Person and (b) is organized by such
Person primarily for the purpose of making equity or debt investments in one or
more companies.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 225 Franklin Street, Boston, Massachusetts 02110.
"Cumulative Consolidated Interest Expense" means, with respect to any
Person, as of any date of determination, Consolidated Interest Expense from
April 1, 1999 to the end of such Person's most recently ended full fiscal
quarter prior to such date, taken as a single accounting period.
"Cumulative EBITDA" means, with respect to any Person, as of any date
of determination, EBITDA from April 1, 1999 to the end of such Person's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depository" means, with respect to the Notes issued in the form of
one or more Global Notes, The Depository Trust Company or another Person
designated as Depository by the Company, which Person must be a clearing agency
registered under the Exchange Act.
<PAGE>
-16-
"Director" means, with respect to any Person, a member of the Board of
Directors of such Person (or, if such Person is a limited liability company, a
member of the board of managers of such Person).
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes. Without limitation of the foregoing,
Disqualified Capital Stock shall be deemed to include any Preferred Stock of a
Person or a Restricted Subsidiary of such Person, with respect to either of
which, under the terms of such Preferred Stock, by agreement or otherwise, such
Person or Restricted Subsidiary is obligated to pay current dividends or
distributions in cash during the period prior to the maturity date of the Notes;
provided, however, that Preferred Stock of a Person or any Restricted Subsidiary
- -------- -------
thereof that is issued with the benefit of provisions requiring a change of
control offer or asset sale offer to be made for such Preferred Stock in the
event of a change of control of such Person or Restricted Subsidiary or the sale
of any assets of such Person or Restricted Subsidiary which provisions have
substantially the same effect as the provisions described under Sections 4.16
and 4.09 of this Indenture, respectively, shall not be deemed to be Disqualified
Capital Stock solely by virtue of such provisions.
"EBITDA" means, with respect to any Person and its Restricted
Subsidiaries, for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or
profits to the extent such income
<PAGE>
-17-
or profits were included in computing Consolidated Net Income and any
provision for taxes utilized in computing net loss under clause (a)
hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period (but excluding
any non-cash item to the extent it represents the amortization of a
prepaid cash expense that was paid in any prior period) on a
consolidated basis, plus
(f) any other non-cash items reducing Consolidated Net Income for
such period except for any non-cash items that represent accruals of,
or reserves for, cash disbursements to be made in any future
accounting period, minus
(2) all non-cash items increasing Consolidated Net Income (other than
any non-cash items representing deferred revenue to the extent that such
revenue was not included in Consolidated Net Income in any prior period)
for such period, all for such Person and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP;
provided, however, that, for purposes of calculating EBITDA during any fiscal
- -------- -------
quarter, cash income from a particular Investment (other than a Restricted
Subsidiary) of such Person shall be included only
(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.
<PAGE>
-18-
"Electro Systems" means Electro Systems Corporation, a Florida
corporation.
"Electro Systems Acquisition" means the acquisition of Electro Systems
pursuant to a Stock Purchase Agreement dated as of February 18, 1999 between
Muzak LLC and Carolina Georgia Sound, Inc.
"Equity Offering" means any public or private sale of Common Stock
(other than Disqualified Capital Stock) of the Company pursuant to which the
Company receives net proceeds of at least $20 million.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
and the rules and regulations of the Commission promulgated thereunder.
"fair market value" means, with respect to any asset or Property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Company delivered to the Trustee.
"Finance Corp." means the party named as such in the first paragraph
of this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is not organized under the laws of the United States or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles consistently
applied as in effect in the United States from time to time.
<PAGE>
-19-
"Guarantee" means any guarantee of the obligations of the Issuers
under this Indenture and the Notes by any Restricted Subsidiary in accordance
with the provisions of this Indenture. When used as a verb, "Guarantee" shall
have a corresponding meaning.
"Guarantor" means each Restricted Subsidiary of the Company which
Guarantees the Notes pursuant to the terms of this Indenture; provided that upon
--------
the release and discharge of such Restricted Subsidiary from its Guarantee in
accordance with the terms of this Indenture, such Restricted Subsidiary shall
cease to be a Guarantor.
"Hedging Obligations" means, with respect to any Person, the net
payment obligations of such Person under (a) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (b) other
agreements or arrangements entered into in order to protect such Person against
fluctuations in commodity prices, interest rates or currency exchange rates.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
--------
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any
Person, any indebtedness at any time outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
recourse of the lender is to
<PAGE>
-20-
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 shall also include, to the extent not otherwise included
(1) any Capitalized Lease Obligations of such Person,
(2) obligations secured by a lien to which the Property or assets
owned or held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed,
(3) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items
would appear upon the balance sheet of the guarantor),
(4) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction,
(5) Disqualified Capital Stock of such Person or any Restricted
Subsidiary thereof, and
(6) hedging obligations of any such Person (if and to the extent such
hedging obligations would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that
--------
<PAGE>
-21-
(1) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the principal amount of such Indebtedness
less the remaining unamortized portion of the original issue discount of
such Indebtedness at such time as determined in conformity with GAAP,
(2) Indebtedness shall not include any liability for federal, state,
local or other taxes,
(3) the amount of Indebtedness of a Person which is without recourse
to any Property or assets of such Person except to the extent of any Lien
on Property or assets of such Person which secures such Indebtedness shall
be the lesser of the principal amount of such Indebtedness and the fair
market value of the Property or assets subject to the Lien, and
(4) the amount of Indebtedness represented by Disqualified Capital
Stock shall be the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any.
The "maximum fixed repurchase price" of any Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.
Notwithstanding any other provision of the foregoing definition, any
trade payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business shall not be deemed to be
"Indebtedness" of the Company or any of its Restricted Subsidiaries for purposes
of this definition. Furthermore, guarantees of (or obligations
<PAGE>
-22-
with respect to letters of credit supporting) Indebtedness otherwise included in
the determination of such amount shall not also be included.
"Indenture" means this Indenture as amended, restated or supplemented
from time to time.
"Independent Financial Advisor" means an investment banking firm of
national reputation in the United States
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the
Company and
(2) which, in the judgment of the Board of Directors of the Company,
is otherwise independent and qualified to perform the task for which it is
to be engaged.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3) or
(7) promulgated under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Investments" means, with respect of any Person, directly or
indirectly, any advance, account receivable (other than advances and accounts
receivable arising in the ordinary course of business of such Person), loan or
capital contribution to (by means of transfers of Property to others, payments
for Property or services for the account or use of others or otherwise), the
purchase of any Capital Stock, bonds, notes, debentures, partnership or joint
venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude
<PAGE>
-23-
(1) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices of such Person and
(2) the repurchase of securities of any Person by such Person.
If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Capital Stock of any direct or indirect Restricted
Subsidiary of the Company such that such Restricted Subsidiary would no longer
constitute a Subsidiary, the Company shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Capital Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means March 18, 1999.
"Issuers" means each party named as such in the first paragraph of
this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"License Agreements" means the License Agreements between the Muzak
LLC and its independent affiliates.
"Lien" means, with respect to any Property or assets of any Person,
any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Maturity Date" means March 15, 2010.
<PAGE>
-24-
"Merger Transactions" means those transactions referred to
collectively in the Offering Memorandum as "Merger Transactions."
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Muzak Finance" means Muzak Finance Corp., a Delaware corporation.
"Muzak LLC" means Muzak LLC, a Delaware limited liability company.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Notes" means the securities that are issued under this Indenture, as
amended or supplemented from time to time pursuant to this Indenture and any
notes issued in exchange therefor as contemplated hereunder.
"Obligations" means all obligations for principal, premium, interest,
penalties, charges, fees, fees and expenses of counsel, indemnities,
reimbursement obligations, damages, claims and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means the offering memorandum dated March 12,
1999 pursuant to which the Notes were originally offered.
"Officer" means, with respect to any Person, the Chief Executive
Officer, the Chief Financial Officer, Treasurer or the President, of such
Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Of-
<PAGE>
-25-
ficer or any Treasurer of such Person that shall comply with applicable
provisions of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who
and which is reasonably acceptable to the Trustee complying with the
requirements of this Indenture. Such legal counsel shall be outside counsel and
not an employee of or in-house counsel to the Company.
"Pending Capstar Acquisition" means the acquisition by the Company of
certain Muzak franchises from Capstar Broadcasting Corporation pursuant to a
Contribution Agreement between the Company and Capstar Broadcasting Corporation,
dated February 19, 1999, and the subsequent transfer of such assets to Muzak LLC
in exchange for equity interests in Muzak LLC.
"Permitted Asset Swap" means, with respect to any Person, the
substantially concurrent exchange of assets of such Person for assets of another
Person which are useful to the business of such aforementioned Person.
"Permitted Holders" means each of ABRY III, ABRY II and each Control
Investment Affiliate of ABRY III or ABRY II.
"Permitted Indebtedness" means:
(1) Indebtedness of the Company or any Restricted Subsidiary arising
under or in connection with the Senior Credit Facility in an aggregate
principal amount not to exceed $200 million outstanding at any time less
(i) any mandatory prepayment actually made thereunder (to the extent, in
the case of payments of revolving credit borrowings, that the corresponding
commitments have been permanently reduced) or scheduled payments actually
made thereunder and (ii) the aggregate amount of Indebtedness of
Securitization Entities in Qualified Securitization Transactions (other
than Qualified Securitization Transactions involving equipment and related
assets);
<PAGE>
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(2) Indebtedness under the (i) Notes and the Guarantees (if any)
thereof and (ii) 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 Issue Date;
(4) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(5) Purchase Money Indebtedness that does not in the aggregate exceed
5% of the Company's consolidated total assets;
(6) the incurrence by the Company or any Restricted Subsidiary of
Hedging Obligations that are incurred in the ordinary course of business of
the Company or such Restricted Subsidiary and not for speculative purposes;
provided that, in the case of any Hedging Obligation that relates to (i)
--------
interest rate risk, the notional principal amount of such Hedging
Obligation does not exceed the principal amount of the Indebtedness to
which such Hedging Obligation related and (ii) currency risk, such Hedging
Obligation does not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(7) Refinancing Indebtedness;
(8) Indebtedness of Foreign Restricted Subsidiaries of the Company in
an aggregate principal amount not to exceed $10 million at any one time
outstanding; provided the aggregate amount then outstanding under this
--------
clause (8) when added to the aggregate amount then outstanding under clause
(1) above shall not exceed the aggregate amount permitted under clause (1)
above;
<PAGE>
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(9) guarantees by the Company and its Restricted Subsidiaries of each
other's Indebtedness; provided that such Indebtedness is permitted to be
--------
incurred under this Indenture;
(10) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(11) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case, incurred or assumed in connection with the acquisition or
disposition of any business, assets or a Restricted Subsidiary of the
Company, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition; provided that, in
--------
the case of a disposition, the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition;
(12) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(13) the ABRY Subordinated Debt;
(14) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to the Company or
any Subsidiary of
<PAGE>
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the Company (except for Standard Securitization Undertakings);
(15) Indebtedness of the Company issued to current or former members
of management of the Company or any of its Restricted Subsidiaries to
finance the repurchase, redemption or other acquisition of Capital Stock of
the Company pursuant to clause (6) of Section 4.07(b) of this Indenture;
and
(16) additional Indebtedness of the Company and its Restricted
Subsidiaries not to exceed $5 million in aggregate principal amount at any
one time outstanding.
"Permitted Investments" means
(1) Investments by the Company or by a Restricted Subsidiary thereof,
in the Company or any Restricted Subsidiary;
(2) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment
(a) such Person becomes a Restricted Subsidiary of the Company or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company 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 the Company or a Restricted
Subsidiary thereof in the form of any Capital Stock, bonds, notes,
debentures, partnership or joint venture interests or other securities that
are issued by a third party to the Company or such Restricted Subsidiary
<PAGE>
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solely as partial consideration for the consummation of an Asset Sale that
is otherwise permitted under Section 4.09 of this Indenture;
(6) Hedging Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' business and not for speculative
purposes;
(7) any acquisition of assets to be used in the business of the
Company or any of its Restricted Subsidiaries solely in exchange for the
issuance of Capital Stock (other than Disqualified Capital Stock) of the
Company;
(8) additional Investments not to exceed $5 million at any one time
outstanding;
(9) Investments existing on the Issue Date;
(10) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(11) guarantees by the Company or any Restricted Subsidiary of
Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries
of the Company under this Indenture; and
(12) any Investment by the Company or a Restricted Subsidiary of the
Company in a Securitization Entity or any Investment by a Securitization
Entity in any other Person in connection with a Qualified Securitization
Transaction; provided that any Investment in a Securitization Entity is in
--------
the form of a Purchase Money Note or an equity interest.
"Permitted Liens"
(1) Liens on Property or assets of, or any shares of Capital Stock of
or secured indebtedness of, any Person existing at the time such Person
becomes a Restricted Subsidiary of the Company or at the time such Person
is
<PAGE>
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merged into the Company or any of its Restricted Subsidiaries; provided
--------
that such Liens are not incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary of the Company or merging
into the Company or any of its Restricted Subsidiaries,
(2) Liens securing Indebtedness under the Senior Credit Facility and
Liens securing other Indebtedness of any Restricted Subsidiary of the
Company; provided in each case, such Indebtedness is incurred in compliance
--------
with Section 4.06 of this Indenture,
(3) Liens securing Refinancing Indebtedness; provided that any such
--------
Lien does not extend to or cover any Property, Capital Stock or
Indebtedness other than the Property, shares or debt securing the
Indebtedness so refunded, refinanced or extended,
(4) Liens in favor of the Company or any of its Restricted
Subsidiaries,
(5) Liens securing industrial revenue bonds,
(6) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under this Indenture; provided that
--------
(a) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of the purchase price, or the cost of
installation, construction or improvement, of the Property to which
such Purchase Money Indebtedness relates, and
(b) such Lien does not extend to or cover any Property other than
such item of Property and any improvements on such Property,
(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
<PAGE>
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in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor,
(8) Liens for taxes, assessments or governmental charges that are
being contested in good faith by appropriate proceedings,
(9) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances or title defects or leases or subleases granted to
others in respect of real property not interfering in any material respect
with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries,
(10) other Liens securing obligations incurred in the ordinary course
of business which obligations do not exceed $5 million in the aggregate at
any one time outstanding,
(11) Liens existing on the Issue Date and Liens securing the Notes
(and the Guarantees, 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,
(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
<PAGE>
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purchase, shipment, or storage of such inventory or other goods,
(15) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other Property
relating to such letters of credit and products and proceeds thereof,
(16) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off,
(17) Liens securing Hedging Obligations with respect to Indebtedness
that is otherwise permitted under this Indenture,
(18) Liens 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,
<PAGE>
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(24) Liens imposed by law incurred by the Company or any of its
Restricted Subsidiaries in the ordinary course of business,
(25) Liens securing the Senior Subordinated Notes and the Senior
Subordinated Guarantees in accordance with the terms of the Senior
Subordinated Note Indenture as in effect on the Issue Date, and
(26) any extensions, substitutions, replacements or renewals of the
foregoing.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government (including any agency or political
subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth on Exhibit A.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means Indebtedness and Capitalized Lease
Obligations of any Person incurred in the normal course of business of such
Person for the purpose of financing all or any part of the purchase price, or
the cost of installation, construction or improvement of, any Property.
"Purchase Money Note" means a promissory note of a Securitization
Entity evidencing a line of credit, which may be irrevocable, from the Company
or any Subsidiary of the Company
<PAGE>
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in connection with a Qualified Securitization Transaction to a Securitization
Entity, which note shall be repaid from cash available to the Securitization
Entity, other than amounts required to be established as reserves pursuant to
agreements, amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts paid in connection with the
purchase of newly generated receivables or newly acquired equipment.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A promulgated under the Securities Act.
"Qualified Securitization Transaction" means any transaction or series
of transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any or its Subsidiaries may sell,
convey or otherwise transfer to (a) a Securitization Entity (in the case of a
transfer by the Company or any of its Subsidiaries) and (b) any other Person (in
the case of a transfer by a Securitization Entity), or may grant a security
interest in, any accounts receivable or equipment (whether now existing or
arising or acquired in the future) of the Company or any of its Subsidiaries,
and any assets related thereto including, without limitation, all collateral
securing such accounts receivable and equipment, all contracts and contract
rights and all guarantees or other obligations in respect of such accounts
receivable and equipment, proceeds of such accounts receivable and equipment and
other assets (including contract rights) which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable and equipment.
"Redeemable Dividend" means, for any dividend or distribution with
regard to Preferred Stock, the quotient of the dividend or distribution divided
by the difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Preferred Stock.
<PAGE>
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"Redemption Date" when used with respect to any Note to be redeemed
means the date fixed for such redemption pursuant to this Indenture.
"Refinancing Indebtedness" means Indebtedness that refunds,
refinances, modifies, replaces, defers, supplements or extends any Indebtedness
outstanding on the Issue Date or other Indebtedness permitted to be incurred by
the Company or its Restricted Subsidiaries pursuant to the terms of this
Indenture (other than pursuant to clauses (1), (4), (6) and (8) through (16) of
the definition of Permitted Indebtedness), but only to the extent that
(1) the Refinancing Indebtedness is subordinated to the Notes to at
least the same extent as the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended, if at all,
(2) the Refinancing Indebtedness is scheduled to mature either
(a) no earlier than the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended, or
(b) after the maturity date of the Notes,
(3) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Indebtedness being refunded, refinanced,
modified, replaced, deferred, supplemented or extended that is scheduled to
mature on or prior to the maturity date of the Notes, and
(4) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of
<PAGE>
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(a) the aggregate principal amount of the Indebtedness being
refunded, refinanced, modified, replaced, deferred, supplemented or
extended,
(b) the amount of accrued and unpaid interest, if any, and
premiums owed, if any, not in excess of preexisting prepayment
provisions on such Indebtedness being refunded, refinanced, modified,
replaced, deferred, supplemented or extended and
(c) the amount of customary fees, expenses and costs related to
the incurrence of such Refinancing Indebtedness.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of March 18, 1999 among the Issuers and CIBC Oppenheimer
Corp. and Goldman Sachs & Co., as Initial Purchasers.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution or payment on Capital Stock of the Company or any Restricted
Subsidiary of the Company or any payment made to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any Restricted Subsidiary of the Company (other than (a) dividends or
distributions payable solely in Capital Stock (other than Disqualified
Capital Stock), and (b) in the case of Restricted Subsidiaries of the
Company, dividends or distributions payable to the Company or to a
Restricted Subsidiary of the Company and to the other holders of Capital
Stock of each such Restricted Subsidiary, in each case on a pro rata
--------
basis),
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than Capital
<PAGE>
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Stock owned by the Company or a Wholly Owned Subsidiary of the Company,
excluding Disqualified Capital Stock),
(3) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for
value of any Indebtedness which is subordinated in right of payment to the
Notes prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment (other than subordinated Indebtedness acquired in
anticipation of satisfying a scheduled sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date
of acquisition) other than the ABRY Subordinated Debt,
(4) the making of any Investment or guarantee of any Investment in
any Person other than a Permitted Investment,
(5) any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary (valued at the fair market value of the net assets of such
Restricted Subsidiary) and
(6) forgiveness of any Indebtedness of an Affiliate of the Company
(other than a Restricted Subsidiary) to the Company or a Restricted
Subsidiary of the Company.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
promulgated under the Securities Act; provided that the Trustee shall be
--------
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Note is a Restricted Security.
"Restricted Subsidiary" means a Subsidiary of the Company other than
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such action (and
treating any Indebtedness of such Unrestricted Subsidiary or Person as having
been incurred at the time of such action),
<PAGE>
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(1) the Company could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06
of this Indenture, and
(2) no Default or Event of Default shall have occurred and be
continuing or result therefrom.
"Rule 144A" means Rule 144A under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the Commission.
"Sale and Lease-Back Transaction" means any arrangement with any
Person providing for the leasing by the Company or any Restricted Subsidiary of
the Company of any real or tangible personal property, which Property has been
or is to be sold or transferred by the Company or such Restricted Subsidiary to
such Person in contemplation of such leasing.
"S&P" means Standard & Poor's Corporation and its successors.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable or equipment and related assets) which engages in
no activities other than in connection with the financing of accounts receivable
or equipment and which is designated by the Board of Directors of the Company
(as provided below) as a Securitization Entity: (a) no portion of the
Indebtedness or any other obligation (contingent or otherwise) of which (i) is
guaranteed by the Company or any Subsidiary of the Company (excluding guarantees
of obligations (other than the principal of, and interest on, Indebtedness)
pursuant to Standard Securitization Undertakings), (ii) is recourse to or
obligates the Company or any Subsidiary of the Company in any way other than
<PAGE>
-39-
pursuant to Standard Securitization Undertakings or (iii) subjects any Property
or asset of the Company or any Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings, (b) with which neither the
Company nor any Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing receivables of such
entity, and (c) to which neither the Company nor any Subsidiary of the Company
has any obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution of
the Company giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"Senior Credit Facility" means one or more credit agreements, loan
agreements or similar agreements providing for working capital advances, term
loans, letter of credit facilities or similar advances, loans, or facilities to
Muzak LLC or any of its Subsidiaries, including the Credit and Guaranty
Agreement dated as of March 18, 1999, among Muzak LLC, Muzak LLC'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
<PAGE>
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the terms and conditions thereof. Without limiting the generality of the
foregoing, the term "Senior Credit Facility" shall include agreements in respect
of interest rate agreements and hedging obligations with lenders party to any
Senior Credit Facility and their affiliates and shall also include any
amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to any Senior Credit Facility and any and all
refundings, refinancings (in whole or in part) and replacements of any Senior
Credit Facility, whether by the same or any other agents, trustee,
representative lenders or lenders or group of lenders, including one or more
agreements (i) extending the maturity of, or increasing the amount of, any
Indebtedness incurred thereunder or contemplated thereby, or (ii) adding or
deleting borrowers or guarantors thereunder, so long as borrowers and issuers
include one or more of Muzak LLC and its Restricted Subsidiaries and their
respective successors and assigns,
"Senior Subordinated Guarantees" means the guarantees of the Senior
Subordinated Notes as provided for in the Senior Subordinated Indenture.
"Senior Subordinated Note Indenture" means the indenture pursuant to
which the Senior Subordinated Notes are issued, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"Senior Subordinated Notes" means $115,000,000 aggregate principal
amount of 9 7/8% Senior Subordinated Notes due 2009 of Muzak LLC and Muzak
Finance, as co-issuers, issued pursuant to the Senior Subordinated Note
Indenture and the notes issued in exchange therefor pursuant to the registration
rights agreement relating thereto as in effect on the Issue Date.
"Significant Subsidiary" means, with respect to any Person, any
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Exchange Act, as such Rule is in effect on the Issue Date.
<PAGE>
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"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in an accounts
receivable or equipment transaction.
"Subsidiary" of any specified Person means any corporation,
partnership, limited liability company, joint venture, association or other
business entity, whether now existing or hereafter organized or acquired,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of
its Subsidiaries; or
(2) in the case of a partnership, limited liability company, joint
venture, association or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or
cause the direction of the management and policies of such entity by
contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement purposes.
Notwithstanding the foregoing a charitable trust or foundation organized
pursuant to section 501(c)(3) of the Internal Revenue Code of 1986, as amended,
shall not be a "Subsidiary."
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
(15 U.S. Code sections 77aaa-77bbbb) as in effect on the date of this Indenture
(except as provided in Section 8.03 hereof).
"Trust Officer" means any officer of the Trustee in its Corporate
Trust Department with direct responsibility for the administration of the trusts
established hereby and, also, with respect to any particular matter, any other
officer of the Trustee to whom such matter is referred because of such offi-
<PAGE>
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cer's knowledge of, and familiarity with, the particular subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Unrestricted Subsidiary" means
(1) any Subsidiary of an Unrestricted Subsidiary and
(2) any Subsidiary of the Company which is classified after the Issue
Date as an Unrestricted Subsidiary by a Board Resolution of the Company;
provided that a Subsidiary may be so classified as an Unrestricted
--------
Subsidiary only if
(a) such classification is in compliance with Section 4.07 of this
Indenture,
(b) immediately after giving effect to such classification, the
Company could have incurred at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 4.06 of this
Indenture,
(c) no Default or Event of Default shall have occurred and be
continuing or result therefrom, and
(d) neither the Company nor any Restricted Subsidiary shall at any
time
(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary (including any undertaking, agreement
or instrument evidencing such Indebtedness),
(ii) be directly or indirectly liable for any Indebtedness of
such Subsidiary or
(iii) be directly or indirectly liable for any other
Indebtedness which provides that the holder
<PAGE>
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thereof may (upon notice, lapse of time or both) declare a default
thereon (or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity) upon the occurrence of a
default with respect to any other Indebtedness (other than
Indebtedness assumed by such Subsidiary in connection with the Electro
Systems Acquisition) that is Indebtedness of such Subsidiary
(including any corresponding right to take enforcement action against
such Subsidiary),
except in the case of clause (i) or (ii) to the extent
(i) that the Company or such Restricted Subsidiary could
otherwise provide such a guarantee or incur such Indebtedness (other
than as Permitted Indebtedness) pursuant to Section 4.06 of this
Indenture and
(ii) the provision of such guarantee and the incurrence of such
Indebtedness otherwise would be permitted under Section 4.07 of this
Indenture.
The Trustee shall be given prompt notice by the Company of each Board Resolution
of the Company under this provision, together with a copy of each such Board
Resolution. Electro Systems shall be an Unrestricted Subsidiary as of the Issue
Date.
"U.S. Government Obligations" means (a) securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation
<PAGE>
-44-
held by such custodian for the account of the holder of such depository receipt;
provided that (except as required by law) such custodian is not authorized to
- --------
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or a specific payment of principal or interest on any such
U.S. Government Obligation held by such custodian for the account of the holder
of such depository receipt.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
Section 1.01. Other Definitions.
------------------
The definitions of the following terms may be found in the sections
indicated as follows:
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Affiliate Transaction"..................................... 4.10
"Agent Members"............................................. 2.14
"Bankruptcy Law"............................................ 6.01
"Business Day".............................................. 12.08
"Certificated Notes"........................................ 2.01
"Change of Control Offer"................................... 4.16
"Change of Control Payment Date"............................ 4.16
"Change of Control Purchase Price".......................... 4.15
</TABLE>
<PAGE>
-45-
<TABLE>
<S> <C>
"Covenant Defeasance"....................................... 9.03
"Custodian"................................................. 6.01
"Event of Default".......................................... 6.01
"Excess Proceeds Offer"..................................... 4.09
"Excess Proceeds Payment Date".............................. 4.09
"Global Notes".............................................. 2.01
"Guaranteed Obligations..................................... 10.01
"Legal Defeasance".......................................... 9.02
"Legal Holiday"............................................. 12.08
"Paying Agent".............................................. 2.03
"Registered Exchange"....................................... 2.02
"Registrar"................................................. 2.03
"Regulation S Global Notes"................................. 2.01
"Resale Restriction Termination Date"....................... 2.15
"U.S. Global Notes"......................................... 2.01
</TABLE>
Section 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the portion
of such provision required to be incorporated herein in order for this Indenture
to be qualified under the TIA is incorporated by reference in and made a part of
this Indenture. The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes.
"indenture securityholder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the indenture securities" means the Issuers, the
Guarantors or any other obligor on the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined in the TIA by reference to another
<PAGE>
-46-
statute or defined by SEC rule have the meanings therein assigned to them.
Section 1.03. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein, whether defined
expressly or by reference;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) words used herein implying any gender shall apply to every
gender.
ARTICLE 2
THE NOTES
Section 2.01. Dating; Incorporation of Form in Indenture.
------------------------------------------
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A which is incorporated in and made part of
this Indenture. The Notes may have notations, legends or endorsements required
by law, stock exchange rule or usage. The Issuers may use "CUSIP" numbers in
issuing the Notes. The Issuers shall approve the form of the Notes. Each Note
shall be dated the date of its authentication.
Unless the applicable Holder requests Notes in the form of physical
certificated Notes in registered form ("Certificated Notes"), which shall be
substantially in the form of Exhibit A, Notes offered and sold in reliance on
Rule 144A or
<PAGE>
-47-
in offshore transactions in reliance on Regulation S shall be issued initially
in the form of permanent Global Notes in registered form, substantially in the
form set forth in Exhibit A ("Global Notes"), deposited with the Depository,
duly executed by the Issuers and authenticated by the Trustee as hereinafter
provided and shall bear the legend set forth on Exhibit B. The aggregate
principal amount at maturity of any Global Note may from time to time be
increased or decreased by adjustments made on the records of the Depository, as
hereinafter provided.
Notes offered and sold to Qualified Institutional Buyers in reliance
on Rule 144A issued in the form of one or more Global Notes (the "U.S. Global
Note") shall be registered in the name of the Depository or its nominee and
deposited with the Depository, duly executed by the Issuers and authenticated by
the Trustee as hereinafter provided, for credit by the Depository to the
respective accounts of beneficial owners of the Notes represented thereby (or
such other accounts as they may direct).
Notes offered and sold in reliance on Regulation S issued in the form
of Global Notes (the "Regulation S Global Note") shall be registered in the name
of the Depository or its nominee, duly executed by the Issuers and authenticated
by the Trustee as hereinafter provided, for credit by the Depository to the
respective accounts of the beneficial owners of the Notes represented thereby
(or such other accounts as they may direct).
The Issuers shall cause the U.S. Global Note and the Regulation S
Global Note to have separate CUSIP and ISIN numbers.
Section 2.02. Execution and Authentication.
----------------------------
The Notes shall be executed on behalf of the Issuers by two Officers
of each of the Issuers or an Officer and the Secretary of each of the Issuers.
Such signature may be either manual or facsimile. The Issuers' seals may be
impressed, affixed, imprinted or reproduced on the Notes and may be in facsimile
form.
<PAGE>
-48-
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee authenticates the Note, the Note shall be valid
nevertheless.
A Note shall not be valid until the Trustee manually signs the
certificate of authentication on the Note. Such signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee or an authentication agent shall authenticate Notes for
original issue in the aggregate principal amount at maturity not to exceed
$75,000,000 upon receipt of an authentication order in the form of an Officers'
Certificate. The aggregate principal amount at maturity of Notes outstanding at
any time may not exceed $75,000,000 except as provided in Section 2.07 hereof.
Upon receipt of an authentication order in the form of an Officers' Certificate,
the Trustee shall authenticate an additional series of Notes for issuance in
exchange for all Notes previously issued pursuant to an exchange offer
registered under the Securities Act (a "Registered Exchange") or pursuant to a
Private Exchange (as defined in the Registration Rights Agreement). Exchange
Notes (as defined in the Registration Rights Agreement) may have such
distinctive series designation and "CUSIP" numbers as and such changes in the
form thereof as are specified in the Officers' Certificate referred to in the
preceding sentence. Exchange Notes issued pursuant to a Registered Exchange
shall not bear the Private Placement Legend. The Notes shall be issuable only
in registered form without coupons and only in denominations of $1,000 and
integral multiples thereof.
The Trustee may appoint an authenticating agent to authenticate Notes.
Any such appointment shall be evidenced by an instrument signed by an authorized
officer of the Trustee, a copy of which shall be furnished to the Issuers. An
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same right as an
Agent to deal with the Issuers or an Affiliate of any Issuer.
<PAGE>
-49-
Section 2.03. Registrar and Paying Agent.
--------------------------
The Issuers shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar"), an office
or agency located in the Borough of Manhattan, City of New York, State of New
York where Notes may be presented for payment ("Paying Agent") and an office or
agency where notices and demands to or upon the Issuers in respect of the Notes
and this Indenture may be served. The Registrar shall keep a register of the
Notes and of their transfer and exchange. The Registrar shall provide the
Issuers a current copy of such register from time to time upon request of the
Issuers. The Issuers may have one or more co-registrars and one or more
additional paying agents. None of the Issuers nor any Affiliate of the Issuers
may act as Paying Agent. The Issuers may change any Paying Agent, Registrar or
co-registrar without notice to any Noteholder.
The Issuers shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Issuers shall notify the Trustee of the name and address of any such Agent. If
the Issuers fail to maintain a Registrar or Paying Agent, or agent for service
of notices and demands, or fail to give the foregoing notice, the Trustee shall
act as such. The Issuers initially appoint the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
-----------------------------------
The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of Accreted Value of, premium, if any, or interest on Notes (whether such assets
have been distributed to it by the Issuers or any other obligor on the Notes),
and shall notify the Trustee in writing of any Default in making any such
payment. The Issuers at any time may require a Paying Agent to distribute all
assets
<PAGE>
-50-
held by it to the Trustee and account for any assets disbursed and the Trustee
may at any time during the continuance of any payment Default, upon written
request to a Paying Agent, require such Paying Agent to forthwith distribute to
the Trustee all assets so held in trust by such Paying Agent together with a
complete accounting of such sums. Upon doing so, the Paying Agent shall have no
further liability for such assets.
Section 2.05. Noteholder Lists.
----------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. If the Trustee is not the Registrar, the Issuers shall furnish to
the Trustee on or before each March 1 and September 1 in each year, and at such
other times as the Trustee may request in writing, a list in such form and as of
such date as the Trustee may reasonably require of the names and addresses of
Noteholders.
Section 2.06. Transfer and Exchange.
---------------------
When a Note is presented to the Registrar with a request to register
the transfer thereof, the Registrar shall register the transfer as requested if
the requirements of applicable law are met and, when Notes are presented to the
Registrar with a request to exchange them for an equal principal amount at
maturity of Notes of other authorized denominations, the Registrar shall make
the exchange as requested; provided that every Note presented or surrendered for
--------
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Issuers and the
Registrar duly executed by the Holder thereof or his attorney duly authorized in
writing. To permit transfers and exchanges, upon surrender of any Note for
registration of transfer at the office or agency maintained pursuant to Section
2.03 hereof, the Issuers shall execute and the Trustee shall authenticate Notes
at the Registrar's request. Any exchange or transfer shall be without charge,
except that the Issuers may require payment by the Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall
<PAGE>
-51-
not apply to any exchange pursuant to Sections 2.09, 3.06 or 8.05 hereof. The
Trustee shall not be required to register transfers of Notes or to exchange
Notes for a period of 15 days before selection of any Notes to be redeemed. The
Trustee shall not be required to exchange or register transfers of any Notes
called or being called for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of the beneficial interests in such Global Note may
be effected only through a book entry system maintained by the Depository of
such Global Note (or its agent), and that ownership of a beneficial interest in
the Global Note shall be required to be reflected in a book entry.
Section 2.07. Replacement Notes.
-----------------
If a mutilated Note is surrendered to the Trustee or if the Holder
presents evidence to the satisfaction of the Issuers and the Trustee that the
Note has been lost, destroyed or wrongfully taken, the Issuers shall issue and
the Trustee shall authenticate a replacement Note. An indemnity bond may be
required by the Issuers or the Trustee that is sufficient in the judgment of the
Issuers and the Trustee to protect the Issuers, the Trustee or any Agent from
any loss which any of them may suffer if a Note is replaced. In every case of
destruction, loss or theft, the applicant shall also furnish to the Issuers and
to the Trustee evidence to their satisfaction of the destruction, loss or the
theft of such Note and the ownership thereof. Each of the Issuers and the
Trustee may charge for its expenses in replacing a Note. Every replacement Note
is an additional obligation of the Issuers. In the event any such mutilated,
lost, destroyed or wrongfully taken Note has become due and payable, the Issuers
in their discretion may pay such Note instead of issuing a new Note in
replacement thereof. The provisions of this Section 2.07 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with respect
to replacement or payment of mutilated, lost, destroyed or wrongfully taken
Notes.
<PAGE>
-52-
Section 2.08. Outstanding Notes.
-----------------
Notes outstanding at any time are all Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section 2.08 as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding until the Issuers and the Trustee receive proof satisfactory to each
of them that the replaced Note is held by a bona fide purchaser.
If a Paying Agent holds on a Redemption Date or Maturity Date money
sufficient to pay the Accreted Value of, premium, if any, and accrued interest
on Notes payable on that date, then on and after that date such Notes cease to
be outstanding and interest on them ceases to accrue.
Subject to Section 12.06, a Note does not cease to be outstanding
solely because the Issuers or any Affiliate of an Issuer hold the Note.
Section 2.09. Temporary Notes.
---------------
Until definitive Notes are ready for delivery, the Issuers may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form, and shall carry all rights, of definitive Notes but
may have variations that the Issuers consider appropriate for temporary Notes.
Without unreasonable delay, the Issuers shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes presented to it.
Section 2.10. Cancellation.
------------
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee
shall cancel and retain or, upon written request of the Issuers, may destroy or
return to the Issuers in accordance with its normal practice,
<PAGE>
-53-
all Notes surrendered for transfer, exchange, payment or cancellation and if
such Notes are destroyed, deliver a certificate of destruction to the Issuers.
Subject to Section 2.07 hereof, the Issuers may not issue new Notes to replace
Notes in respect of which they have previously paid all Accreted Value, premium
and interest accrued thereon, or delivered to the Trustee for cancellation.
Section 2.11. Defaulted Interest.
------------------
If the Issuers default in a payment of interest on the Notes, they
shall pay the defaulted amounts, plus any interest payable on defaulted amounts
pursuant to Section 4.01 hereof, to the persons who are Noteholders on a
subsequent special record date. The Issuers shall fix the special record date
and payment date in a manner satisfactory to the Trustee and provide the Trustee
at least 20 days notice of the proposed amount of defaulted interest to be paid
and the special payment date. At least 15 days before the special record date,
the Issuers shall mail or cause to be mailed to each Noteholder at its address
as it appears on the Notes register maintained by the Registrar a notice that
states the special record date, the payment date (which shall be not less than
five nor more than ten days after the special record date), and the amount to be
paid. In lieu of the foregoing procedures, the Issuers may pay defaulted
interest in any other lawful manner satisfactory to the Trustee.
Section 2.12. Deposit of Moneys.
-----------------
Prior to 10:00 a.m., New York City time, on each Interest Payment
Date, Redemption Date and Maturity Date, the Issuers shall have deposited with
the Paying Agent in immediately available funds U.S. legal tender sufficient to
make payments, if any, due on such Interest Payment Date, Redemption Date or
Maturity Date, as the case may be, in a timely manner which permits the Trustee
to remit payment to the Holders on such Interest Payment Date, Redemption Date
or Maturity Date, as the case may be. The Accreted Value and interest on Global
Notes shall be payable to the Depository or its nominee, as the case may be, as
the sole registered owner and the sole holder of the
<PAGE>
-54-
Global Notes represented thereby. The Accreted Value and interest on Notes in
certificated form shall be payable at the office of the Paying Agent.
Section 2.13. CUSIP Number.
------------
The Issuers in issuing the Notes may use one or more "CUSIP" numbers,
and if so, the Trustee shall use such CUSIP numbers in notices of redemption or
exchange as a convenience to Holders, provided that any such notice may state
--------
that no representation is made as to the correctness or accuracy of the CUSIP
numbers printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes.
Section 2.14. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nominee of such Depository and (ii) bear legends as set
forth in Exhibit B.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository or under the Global Note, and the Depository may
be treated by the Issuers, the Trustee and any agent of the Issuers or the
Trustee as the absolute owner of the Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the
Trustee or any agent of the Issuers or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder.
(b) Interests of beneficial owners in the Global Notes may be
transferred or exchanged for Certificated Notes in accordance with the rules and
procedures of the Depository and the provisions of Section 2.15. In addition,
Certificated Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in Global Notes if (i) the De-
<PAGE>
-55-
pository (x) notifies the Issuers that it is unwilling or unable to continue as
Depository for any Global Note or (y) has ceased to be a clearing company
registered under the Exchange Act and, in each case, a successor depositary is
not appointed by the Issuers within 90 days of such notice, (ii) the Issuers, at
their option, notify the Trustee in writing that they elect to cause the
issuance of Certificated Notes, or (iii) a Default or an Event of Default has
occurred and is continuing and the Registrar has received a written request from
the Depository to issue Certificated Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Certificated Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount at maturity of the Global Note in an amount equal to the
principal amount at maturity of the beneficial interest in the Global Note to be
transferred, and the Issuers shall execute, and the Trustee shall upon receipt
of a written order from the Issuers authenticate and make available for
delivery, one or more Certificated Notes of like tenor and amount.
(d) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to
be surrendered to the Trustee for cancellation, and the Issuers shall execute,
and the Trustee shall, upon receipt of an authentication order from the Issuers
in the form of an Officers' Certificate, authenticate and deliver, to each
beneficial owner identified by the Depository in writing in exchange for its
beneficial interest in the Global Notes, an equal aggregate principal amount at
maturity of Certificated Notes of authorized denominations.
(e) Any Certificated Note constituting a Restricted Security
delivered in exchange for an interest in a Global Note pursuant to paragraph
(b), (c) or (d) shall, except as otherwise provided by Section 2.15, bear the
Private Placement Legend.
<PAGE>
-56-
(f) The Holder of any Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
Section 2.15. Registration of Transfers and Exchanges.
---------------------------------------
(a) Transfer and Exchange of Certificated Notes. When Certificated
-------------------------------------------
Notes are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Certificated Notes; or
(ii) to exchange such Certificated Notes for an equal principal
amount at maturity of Certificated Notes of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.15 for such transactions are met; provided, however, that the
-------- -------
Certificated Notes presented or surrendered for registration of transfer or
exchange:
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Certificated Notes the offer and sale of which
have not been registered under the Securities Act and are presented for
transfer or exchange prior to (x) the date which is two years after the
later of the date of original issue and the last date on which any Issuer
or any Affiliate of an Issuer was the owner of such Note, or any
predecessor thereto and (y) such later date, if any, as may be required by
any subsequent change in applicable law (the "Resale Restriction
Termination Date"), such Certificated Notes shall be accompanied, in the
sole
<PAGE>
-57-
discretion of the Issuers, by the following additional information and
documents, as applicable:
(A) if such Certificated Note is being delivered to the Registrar
or co-Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (substantially in the form of Exhibit C hereto); or
---------
(B) if such Certificated Note is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A, a certification to
that effect (substantially in the form of Exhibit C hereto); or
---------
(C) if such Certificated Note is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit C hereto) and a transferor
---------
certificate for Regulation S transfers substantially in the form of
Exhibit D-1 hereto; or
-----------
(D) if such Certificated Note is being transferred to an
Institutional Accredited Investor, delivery of certification
substantially in the form of Exhibit C hereto, a certificate of the
---------
transferee in substantially the form of Exhibit D-2 and an Opinion of
-----------
Counsel and/or other information reasonably satisfactory to the
Issuers to the effect that such transfer is in compliance with the
Securities Act; or
(E) if such Certificated Note is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to that
effect substantially in the form of Exhibit C hereto; or
---------
(F) if such Certificated Note is being transferred in reliance on
another exemption from the registration requirements of the Securities
Act, a certification to that effect (substantially in the form of
Exhibit C hereto) and an Opinion of Counsel rea-
---------
<PAGE>
-58-
sonably acceptable to the Issuers to the effect that such transfer is
in compliance with the Securities Act.
(b) Restrictions on Transfer of a Certificated Note for a Beneficial
----------------------------------------------------------------
Interest in a Global Note. A Certificated Note may not be exchanged for a
- -------------------------
beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or co-Registrar of
a Certificated Note, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or co-Registrar, together with:
(A) in the case of Certificated Notes, the offer and sale of which
have not been registered under the Securities Act and which are presented
for transfer prior to the Resale Restriction Termination Date,
certification, substantially in the form of Exhibit C hereto, that such
---------
Certificated Note is being transferred (I) to a Qualified Institutional
Buyer or (II) in an offshore transaction in reliance on Regulation S (and
in the case of this clause II, the Issuers shall have received a transferor
certificate for Regulation S transfers substantially in the form of Exhibit
-------
D-1 hereto); and
---
(B) written instructions from the Holder thereof directing the
Registrar or co-Registrar to make, or to direct the Depository to make, an
endorsement on the applicable Global Note to reflect an increase in the
aggregate principal amount at maturity of the Notes represented by the
Global Note,
then the Registrar or co-Registrar shall cancel such Certificated Note and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the principal amount at maturity of Notes represented by the
applicable Global Note to be increased accordingly. If no Global Note
representing Notes held by Qualified Institutional Buyers or Persons acquiring
Notes in offshore transactions in reliance on Regulation S, as the case may be,
is then outstanding, the
<PAGE>
-59-
Issuers shall issue and the Trustee shall, upon receipt of an authentication
order in the form of an Officers' Certificate in accordance with Section 2.02,
authenticate such a Global Note in the appropriate principal amount at maturity.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
-------------------------------------
of Global Notes or beneficial interests therein shall be effected through the
Depository in accordance with this Indenture (including the restrictions on
transfer set forth herein) and the procedures of the Depository therefor. Upon
receipt by the Registrar or co-Registrar of written instructions, or such other
instruction as is customary for the Depository, from the Depository or its
nominee, requesting the registration of transfer of an interest in a U.S. Global
Note or Regulation S Global Note, as the case may be, to another type of Global
Note, together with the applicable Global Notes (or, if the applicable type of
Global Note required to represent the interest as requested to be transferred is
not then outstanding, only the Global Note representing the interest being
transferred), the Registrar or Co-Registrar shall cancel such Global Notes (or
Global Note) and the Issuers shall issue and the Trustee shall, upon receipt of
an authentication order in the form of an Officers' Certificate in accordance
with Section 2.02, authenticate new Global Notes of the types so cancelled (or
the type so cancelled and applicable type required to represent the interest as
requested to be transferred) reflecting the applicable increase and decrease of
the principal amount at maturity of Notes represented by such types of Global
Notes, giving effect to such transfer. If the applicable type of Global Note
required to represent the interest as requested to be transferred is not
outstanding at the time of such request, the Issuers shall issue and the Trustee
shall, upon written instructions from the Issuers in accordance with Section
2.02, authenticate a new Global Note of such type in principal amount at
maturity equal to the principal amount at maturity of the interest requested to
be transferred.
(d) Transfer of a Beneficial Interest in a Global Note for a
--------------------------------------------------------
Certificated Note. (i) Any Person having a beneficial interest in a Global Note
- -----------------
may upon request exchange such
<PAGE>
-60-
beneficial interest for a Certificated Note. Upon receipt by the Registrar or
co-Registrar of written instructions, or such other form of instructions as is
customary for the Depository, from the Depository or its nominee on behalf of
any Person having a beneficial interest in a Global Note and upon receipt by the
Trustee of a written order or such other form of instructions as is customary
for the Depository or the Person designated by the Depository as having such a
beneficial interest containing registration instructions and, in the case of any
such transfer or exchange of a beneficial interest in Notes the offer and sale
of which have not been registered under the Securities Act and which Notes are
presented for transfer or exchange prior to the Resale Restriction Termination
Date, the following additional information and documents:
(A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the beneficial owner, a certification
from such Person to that effect (substantially in the form of Exhibit C
---------
hereto); or
(B) if such beneficial interest is being transferred to a Qualified
Institutional Buyer in accordance with Rule l44A, a certification to that
effect (substantially in the form of Exhibit C hereto); or
---------
(C) if such beneficial interest is being transferred in reliance on
Regulation S, delivery of a certification to that effect (substantially in
the form of Exhibit C hereto) and a transferor certificate for Regulation S
---------
transfers substantially in the form of Exhibit D-1 hereto; or
-----------
(D) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of certification substantially
in the form of Exhibit C hereto, a certificate of the transferee in
---------
substantially the form of Exhibit D-2 and an Opinion of Counsel and/or
-----------
other information reasonably satisfactory to the Issuers to the effect that
such transfer is in compliance with the Securities Act; or
<PAGE>
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(E) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to that
effect substantially in the form of Exhibit C hereto; or
---------
(F) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act,
a certification to that effect (substantially in the form of Exhibit C
---------
hereto) and an Opinion of Counsel reasonably satisfactory to the Issuers to
the effect that such transfer is in compliance with the Securities Act,
then the Registrar or co-Registrar will cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar or
co-Registrar, the aggregate principal amount at maturity of the applicable
Global Note to be reduced and, following such reduction, the Issuers will
execute and, upon receipt of an authentication order in the form of an Officers'
Certificate in accordance with Section 2.02, the Trustee will authenticate and
deliver to the transferee a Certificated Note in the appropriate principal
amount at maturity.
(ii) Certificated Notes issued in exchange for a beneficial interest
in a Global Note pursuant to this Section 2.15(d) shall be registered in such
names and in such authorized denominations as the Depository, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Registrar or co-Registrar in writing. The Registrar or co-
Registrar shall deliver such Certificated Notes to the Persons in whose names
such Certificated Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
-----------------------------------------------------
Notwithstanding any other provisions of this Indenture, a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
<PAGE>
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(f) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Notes not bearing the Private Placement Legend, the Registrar or
co-Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Registrar or co-Registrar shall deliver only Notes that
bear the Private Placement Legend unless, and the Trustee is hereby authorized
to deliver Notes without the Private Placement Legend if, (i) the Resale
Restriction Termination Date shall have occurred, (ii) there is delivered to the
Trustee an Opinion of Counsel reasonably satisfactory to the Issuers and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act or (iii) such Note has been sold pursuant to an effective
registration statement under the Securities Act.
(g) General. By its acceptance of any Note bearing the Private
-------
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.14 or this Section 2.15.
The Issuers shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
Section 2.16. Joint and Several Liability.
---------------------------
Except as otherwise expressly provided herein, the Issuers shall be
jointly and severally liable for the performance of all obligations and
covenants under this Indenture and the Notes.
<PAGE>
-63-
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee.
------------------
If the Issuers elect to redeem Notes pursuant to Section 3.07 hereof,
at least 60 days prior to the Redemption Date or during such other period as the
Trustee may agree to, the Issuers shall notify the Trustee in writing of the
Redemption Date, the principal amount at maturity of Notes to be redeemed and
the redemption price, and deliver to the Trustee an Officers' Certificate
stating that such redemption will comply with the conditions contained in
Section 3.07 hereof, as appropriate.
Section 3.02. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
In the event that less than all of the Notes are to be redeemed at any
time, selection of the Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
--------
the Trustee shall deem fair and appropriate; provided, that no Notes of $1,000
--------
principal amount at maturity or less shall be redeemed in part. The Trustee may
select for redemption portions of the principal of the Notes that have
denominations larger than $1,000. The Trustee shall promptly notify the Issuers
of the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount at maturity thereof to be redeemed.
For all purposes of this Indenture unless the context otherwise requires,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
<PAGE>
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Section 3.03. Notice of Redemption.
--------------------
Notice of redemption shall be mailed by first class mail at least 30
but not more than 60 calendar days before the Redemption Date to each Holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed
in part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount at maturity thereof to be redeemed.
The notice shall identify the Notes to be redeemed (including the
CUSIP number(s) thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of accrued interest, if any,
to be paid;
(3) that, if any Note is being redeemed in part, the portion of the
principal amount at maturity (equal to $1,000 in principal amount at
maturity or any integral multiple thereof) of such Note to be redeemed and
that, on and after the Redemption Date, upon surrender of such Note, a new
Note or Notes in principal amount at maturity equal to the unredeemed
portion thereof will be issued;
(4) the name, address and telephone number of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent at the address specified to collect the redemption price plus
accrued interest, if any;
(6) that, unless the Issuers default in making the redemption
payment, Accreted Value or interest on Notes called for redemption ceases
to accrete or accrue, as the case may be, on and after the Redemption Date
and the only remaining right of the Holders is to receive payment of the
redemption price plus accrued interest to the Redemption Date, if any, upon
surrender of the Notes to the Paying Agent;
<PAGE>
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(7) the paragraph of Section 3.07 hereof pursuant to which the Notes
called for redemption are being redeemed; and
(8) the aggregate principal amount at maturity of Notes that are
being redeemed.
Section 3.04. Effect of Notice of Redemption.
------------------------------
Once the notice of redemption described in Section 3.03 is mailed,
Notes called for redemption become due and payable on the Redemption Date and at
the redemption price, including any premium, plus accrued interest to the
Redemption Date, if any. Upon surrender to the Paying Agent, such Notes shall
be paid at the redemption price, including any premium, plus accrued interest to
the Redemption Date, if any, provided that if the Redemption Date is after a
--------
regular interest payment record date and on or prior to the Interest Payment
Date, the accrued interest shall be payable to the Holder of the redeemed Notes
registered on the relevant record date.
Section 3.05. Deposit of Redemption Price.
---------------------------
On or prior to 10:00 a.m., New York City time, on each Redemption
Date, the Issuers shall have deposited with the Paying Agent in immediately
available funds U.S. legal tender sufficient to pay the redemption price of and
accrued interest on all Notes to be redeemed on that date.
On and after any Redemption Date, if U.S. legal tender sufficient to
pay the redemption price of and accrued interest, if any, on Notes called for
redemption shall have been made available in accordance with the preceding
paragraph, the Notes called for redemption will cease to accrete Accreted Value
and cease to accrue interest, if any, and the only right of the Holders of such
Notes will be to receive payment of the redemption price of and, subject to the
first proviso in Section 3.04, accrued and unpaid interest, if any, on such
Notes to the Redemption Date. If any Note called for redemption shall not be so
paid, Accreted Value or interest will continue to accrete or accrue, as the case
may be, from the Redemption
<PAGE>
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Date until such redemption payment is made, on the unpaid Accreted Value of the
Note and any interest not paid on such unpaid Accreted Value, in each case, at
the rate and in the manner provided in the Notes.
Section 3.06. Notes Redeemed in Part.
----------------------
Upon surrender of a Note that is redeemed in part, the Trustee shall
authenticate for a Holder a new Note equal in principal amount at maturity to
the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
--------------------
(a) The Issuers may redeem the Notes that are redeemable at their
option, in whole at any time or in part from time to time on or after March 15,
2004 at the redemption prices (expressed as percentages of the principal amount
at maturity thereof), set forth below plus accrued and unpaid interest, if any,
to the Redemption Date, if redeemed during the twelve-month period beginning on
March 15 of each year indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004............................................ 106.500%
2005............................................ 104.333%
2006............................................ 102.167%
2007 and thereafter............................. 100.000%
</TABLE>
(b) The Issuers may redeem up to 35% of the aggregate principal
amount at maturity of the Notes originally issued under the Indenture, at any
time and from time to time prior to March 15, 2002, at a redemption price equal
to 113% of the Accreted Value thereof out of the net cash proceeds of one or
more Equity Offerings; provided, that at least 65% of the aggregate principal
--------
amount at maturity of the Notes originally issued under the Indenture remains
outstanding immediately after any such redemption (it being expressly agreed
that for purposes of determining whether this condition is satisfied, Notes
owned by the Issuers or any of its Affiliates shall be
<PAGE>
-67-
deemed not to be outstanding). In order to effect the foregoing redemption with
the proceeds of any Equity Offering, the Issuers shall make such redemption not
more than 60 days following the closing of any such Equity Offering.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
----------------
The Issuers shall pay the Accreted Value of and interest (including
all Additional Interest (as defined in the Registration Rights Agreement) as
provided in the Registration Rights Agreement on the Notes on the dates and in
the manner provided in the Notes and this Indenture. An installment of Accreted
Value or interest shall be considered paid on the date it is due if the Trustee
or Paying Agent holds, for the benefit of the Holders, on that date U.S. legal
tender designated for and sufficient to pay such installment.
The Issuers shall pay interest on overdue principal (including post-
petition interest in a proceeding under any Bankruptcy Law), and interest on
overdue interest, to the extent lawful, at the rate specified in the Notes.
Section 4.02. Provision of Financial Statements and Other Information.
-------------------------------------------------------
(a) Commencing with the first fiscal quarter of the Company ending
after the Issue Date, the Issuers will file with the Commission all information,
documents and reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act and will provide the Trustee and the
Noteholders with copies of all such information, documents and reports within 15
days of filing thereof with the Commission; provided that if the Issuers are not
--------
required to file such information, documents or reports with the Commission,
they will nonetheless continue to furnish such information, documents and
<PAGE>
-68-
reports required to be filed by issuers subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act to the Trustee and the Noteholders
within 15 days of the date on which filing with the Commission would have been
required. The Issuers shall also comply with the provisions of TIA (S) 314(a).
The Trustee shall retain such reports, information and documents at its
Corporate Trust Office and permit any Noteholder to examine such material upon
prior written request at reasonable times. Except to determine whether the
Issuers have complied with the provisions of this Section 4.02, the Trustee
shall not be required to examine or review such material or any of it and shall
not be considered to have had notice, constructive or otherwise, from anything
set forth in such material of any Default or other fact or event which might
require the Trustee to take any action or give any notice hereunder.
(b) The Issuers will, upon request, provide to any Holder or any
prospective transferee of any such Holder any information concerning the Issuers
(including financial statements) necessary in order to permit such Holder to
sell or transfer Notes in compliance with Rule 144 and Rule 144A under the
Securities Act.
Section 4.03. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Issuers covenant (to the extent that they may lawfully do so) that
they will not at any time insist upon, or plead (as a defense or otherwise) or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Issuers from paying all or any portion of the Accreted Value of, premium, if
any, and/or interest on the Notes as contemplated herein, wherever enacted, now
or at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that they may lawfully do so)
the Issuers hereby expressly waive all benefit or advantage of any such law, and
covenant that they will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
<PAGE>
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Section 4.04. Compliance Certificate; Notice of Default; Tax Information.
----------------------------------------------------------
(a) The Issuers shall deliver to the Trustee, within 120 days after
the end of each fiscal year an Officers' Certificate (one of the signers of
which shall be the principal executive officer, principal financial officer or
principal accounting officer of each Issuer) stating that a review of the
activities of the Issuers and their Subsidiaries during such fiscal year has
been made under the supervision of the signing Officers with a view to
determining whether the Issuers have kept, observed, performed and fulfilled
their obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Issuers have kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and, in the case of Restricted Payments, listing all
Restricted Payments for such quarter, and are not in default in the performance
or observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all or such Defaults
or Events of Default of which he or she may have knowledge and what action each
is taking or proposes to take with respect thereto) and that to the best of his
or her knowledge no event has occurred and remains in existence by reason of
which payments on account of the Accreted Value of or interest, if any, on the
Notes are prohibited or if such event has occurred, a description of the event
and what action the Issuers are taking or propose to take with respect thereto.
(b) The Issuers will, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Issuers is taking or proposes to take with
respect thereto.
(c) The annual financial statements delivered pursuant to Section
4.02 shall be accompanied by a written report of the Issuers' independent
accountants (who shall be a firm of established national reputation) that in
conducting their audit
<PAGE>
-70-
of such financial statements nothing has come to their attention that would lead
them to believe that any Issuer has violated any material provisions of Article
Four, Five or Six of this Indenture insofar as they relate to accounting matters
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of any
such violation.
(d) The Issuers shall file with the Trustee promptly at the end of
each calendar year (i) a written notice specifying the amount of the original
issue discount (including daily rates and accrual periods) accrued on
outstanding Notes as of the end of such year and (ii) such other specific
information relating to such original issue discount as may then be relevant
under the Internal Revenue Code of 1986, as amended from time to time.
Section 4.05. Taxes.
-----
The Issuers shall, and shall cause each of their Subsidiaries to, pay
prior to delinquency all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
Section 4.06. Limitation on Additional Indebtedness.
-------------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness); provided that if no Default or Event of
--------
Default shall have occurred and be continuing at the time or as a consequence of
the incurrence of such Indebtedness, the Company and any of its Restricted
Subsidiaries may incur Indebtedness (including Acquired Indebtedness) if after
giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof, the Company's Consolidated Leverage Ratio
is less than 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.
<PAGE>
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(b) Notwithstanding the foregoing clause (a), the Company and its
Restricted Subsidiaries may incur Permitted Indebtedness. For purposes of
determining compliance with this Section 4.06, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness as of the date of incurrence thereof or is entitled to be
incurred pursuant to the first paragraph of this covenant as of the date of
incurrence thereof, the Company shall, in its sole discretion, classify or
reclassify such item of Indebtedness in any manner that complies with this
covenant. Accrual of interest, the accretion of accreted value and the payment
of interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant and the payment of
dividends on Disqualified Capital Stock in the form of additional shares of the
same class of Disqualified Capital Stock will not be deemed an issuance of
Disqualified Capital Stock.
(c) The Company 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 the Company 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 the Company; provided that
--------
no Indebtedness of the Company shall be deemed to be subordinated in right of
payment to any other Indebtedness of the Company solely by virtue of being
unsecured.
Section 4.07. Limitation on Restricted Payments.
---------------------------------
(a) The Company will not make, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make, any Restricted
Payment, unless:
(1) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
<PAGE>
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(2) immediately after giving pro forma effect to such Restricted
--- -----
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.06 of this Indenture; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of
(a) 100% of the Company's Cumulative EBITDA (or, in the event
that such Cumulative EBITDA shall be a deficit, minus 100% of such
deficit) minus 1.4 times the Company's Cumulative Consolidated
Interest Expense,
(b) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale after the Issue Date of Capital Stock
(other than Disqualified Capital Stock or Capital Stock of the Company
issued to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which have been so converted, exercised
or exchanged, as the case may be,
(c) without duplication of any amounts included in clause (3)(b)
above, 100% of the aggregate net proceeds (including the fair market
value of Property other than cash) received by the Company from any
equity contribution from a holder of the Company's Capital Stock,
excluding, in the case of clauses (3)(b) and (c), (i) any net proceeds
from an Equity Offering to the extent used to redeem the Notes and
(ii) any net proceeds directly or indirectly received in connection
with the Pending Capstar Acquisition, and
(d) without duplication, the sum of
<PAGE>
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(i) the aggregate amount returned in cash on or with
respect to Investments (other than Permitted Investments) made
subsequent to the Issue Date whether through interest payments,
principal payments, dividends or other distributions;
(ii) the net proceeds received by the Company or any of
its Restricted Subsidiaries from the disposition, retirement or
redemption of all or any portion of such Investments (other than
to a Subsidiary of the Company); and
(iii) upon redesignation of an Unrestricted Subsidiary
as a Restricted Subsidiary, the fair market value of the net
assets of such Subsidiary;
provided, however, that the sum of clauses (d)(i), (ii) and (iii) above shall
- -------- -------
not exceed the aggregate amount of all such Investments made subsequent to the
Issue Date.
For purposes of determining under clause (3) above the amount expended
for Restricted Payments, cash distributed shall be valued at the face amount
thereof and Property other than cash shall be valued at its fair market value.
(b) The provisions of this Section 4.07 shall not prohibit
(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of this Indenture,
(2) the repurchase, redemption, defeasance or other acquisition or
retirement of any shares of Capital Stock of the Company or of Indebtedness
that is subordinated to the Notes by conversion into, or by or in exchange
for, shares of Capital Stock of the Company (other than Disqualified
Capital Stock), or out of the net cash proceeds
<PAGE>
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of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock),
(3) the redemption, repurchase, defeasance, retirement or other
acquisition of Indebtedness of the Company that is subordinated to the
Notes in exchange for, by conversion into, or out of the net cash proceeds
of a substantially concurrent sale or incurrence of, Indebtedness of the
Company (other than any Indebtedness owed to a Subsidiary) that is
Refinancing Indebtedness,
(4) the retirement of any shares of Disqualified Capital Stock of the
Company by conversion into, or by exchange for, shares of Disqualified
Capital Stock of the Company, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of other shares of Disqualified Capital Stock of the Company,
(5) the payment of any dividend or distribution to the extent
necessary to permit direct or indirect beneficial owners of shares of
Capital Stock of the Company to pay federal, state or local income tax
liabilities arising from income of the Company and attributable to them
solely as a result of the Company (and any intermediate entity through
which the holder owns such shares) being a limited liability company,
partnership or similar entity for federal income tax purposes (collectively
"Permitted Tax Distributions"),
(6) the repurchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any current or former
members of the management of the Company (or any of its Restricted
Subsidiaries) pursuant to any management equity subscription or purchase
agreement, members agreement, securityholders agreement or stock option
agreement or similar agreement, in an aggregate amount not to exceed $2
million in any fiscal year (which amount shall be increased by the amount
of any proceeds to the Company from (x) without duplica-
<PAGE>
-75-
tion of any amounts included in clauses 3(b) and (c) of subsection (a)
above, sales of Capital Stock (other than Disqualified Capital Stock) of
the Company (which net proceeds have been contributed by the Company) to
management or other employees subsequent to the Issue Date and (y) any
"key-man" life insurance policies which are used to make such redemptions
or repurchases); provided, that the cancellation of Indebtedness owing to
--------
the Company from management or other employees of the Company or any of its
Restricted Subsidiaries in connection with a repurchase of Capital Stock of
the Company will not be deemed to constitute a Restricted Payment under
this Indenture,
(7) any payments or distributions or other transactions to be made in
connection with the Merger Transactions, the Electro Systems Acquisition or
the Pending Capstar Acquisition, including the repayment of loans made by
ABRY III (including, in each case, fees and expenses incurred in connection
therewith),
(8) Investments received in connection with an Asset Sale that
complies with Section 4.09 of this Indenture,
(9) payments or distributions to dissenting stockholders pursuant to
transactions permitted under the terms of this 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 the Company 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,
(13) any dividend or distribution made so long as concurrently
therewith a capital contribution in an equal amount is made to the Company,
and
<PAGE>
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(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 Issue Date for purposes of clause (3) of subsection (a) above,
amounts expended pursuant to clauses (1), (2) and (13) of the immediately
preceding paragraph shall be included in such calculation.
(c) Not later than the date of making any Restricted Payment, the
Issuers shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations may
be based upon the Issuers' latest available financial statements, and (other
than with respect to any Restricted Payment permitted under clauses (5) and (6))
that no Default or Event of Default has occurred and is continuing and no
Default or Event of Default will occur immediately after giving effect to any
such Restricted Payments.
Section 4.08. Limitation of Guarantees by Restricted Subsidiaries.
---------------------------------------------------
(a) The Company 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 the Company, unless, in any such case (i) such
Restricted Subsidiary executes and delivers a supplemental indenture to the
Indenture, providing a Guarantee of the Notes by such Restricted Subsidiary and
(ii) 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.
<PAGE>
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(b) Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder as provided in Section
10.06.
Section 4.09. Limitation on Certain Asset Sales.
---------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless
(1) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such sale or other disposition at
least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Board of Directors of the
Company, and evidenced by a Board Resolution);
(2) not less than 75% of the consideration received by the Company or
such Restricted Subsidiary, as the case may be, is in the form of cash or
Cash Equivalents and/or a controlling interest in a Person whose assets are
useful to the Company, or any combination thereof, except to the extent to
which the Company is undertaking a Permitted Asset Swap; provided that the
--------
amount of
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any of its
Restricted Subsidiaries (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes) that
are assumed by the transferee of any such assets shall be deemed to be
cash for purposes of this clause (2); and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that
are promptly converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received), shall
<PAGE>
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be deemed to be cash for purposes of this clause (2); and
(3) the Asset Sale Proceeds received by the Company or such
Restricted Subsidiary are applied
(a) first, to the extent the Company or any such Restricted
Subsidiary elects, or is required, to prepay, repay or purchase any
Indebtedness of a Restricted Subsidiary, the prepayment, repayment or
repurchase of such Indebtedness within 360 days following the receipt
of the Asset Sale Proceeds from any Asset Sale; provided that in the
--------
case of the repayment of borrowings under any revolving credit
facility, any such repayment shall result in a permanent reduction of
the commitments thereunder in an amount equal to the principal amount
so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds
after application as described above, to the extent the Company
elects, to an investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital
Stock or Property of another Person) used or useful in businesses
reasonably related, ancillary or complementary to the business of the
Company or any such Restricted Subsidiary as conducted on the Issue
Date; provided that such investment occurs within 360 days following
--------
receipt of such Asset Sale Proceeds; and
(c) third, if on such 360th day with respect to any Asset Sale,
the Available Asset Sale Proceeds exceed $10 million, the Company
shall apply an amount equal to the Available Asset Sale Proceeds to an
offer to repurchase the Notes and all other pari passu Indebtedness of
---- ------
the Company containing provisions substantially similar to those set
forth in this Indenture regarding offers to purchase or redeem with
Asset Sale Proceeds, in each case, at a purchase price in cash equal
to 100% of the Accreted Value
<PAGE>
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thereof plus accrued and unpaid interest, if any, to the purchase date
(an "Excess Proceeds Offer").
If an Excess Proceeds Offer is not fully subscribed, the Company may
retain the portion of the Available Asset Sale Proceeds not required to
repurchase Notes and such pari passu Indebtedness.
---- -----
Pending the final application of any Asset Sale Proceeds, the Company
or such Restricted Subsidiary may temporarily reduce Indebtedness under a
revolving credit facility, if any, or otherwise invest such Asset Sale Proceeds
in Cash Equivalents.
(b) If the Company is required to make an Excess Proceeds Offer, the
Company shall within 45 days following the date specified in subparagraph
(a)(3)(c) above (i) cause a notice of the Excess Proceeds Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (ii) mail a notice of the Excess Proceeds Offer to the Trustee
and the Holders. Such notice shall be sent by first-class mail, postage prepaid,
to the Trustee and to each Noteholder, at the address appearing in the register
maintained by the Registrar of the Notes, and shall state:
(i) that the Excess Proceeds Offer is being made pursuant to this
Section 4.09;
(ii) that such Holders have the right to require the Company to
apply the Available Asset Sale Proceeds to repurchase such Notes at a
purchase price in cash equal to 100% of the Accreted Value thereof plus
accrued and unpaid interest, if any, to the purchase date which shall be no
earlier than 45 days and not later than 60 days from the date such notice
is mailed (the "Excess Proceeds Payment Date");
(iii) that any Note not tendered or accepted for payment will
continue to accrete Accreted Value or accrue interest, as the case may be;
<PAGE>
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(iv) that any Notes accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrete Accreted Value or accrue interest, as
the case may be, accrete Accreted Value after the Excess Proceeds Payment
Date;
(v) that Holders accepting the offer to have their Notes purchased
pursuant to an Excess Proceeds Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day preceding
the Excess Proceeds Payment Date;
(vi) that Holders will be entitled to withdraw their acceptance of
the Excess Proceeds Offer if the Paying Agent receives, not later than the
close of business on the third Business Day preceding the Excess Proceeds
Payment Date, a facsimile transmission or letter setting forth the name of
the Holder, the principal amount at maturity of the Notes delivered for
purchase, and a statement that such Holder is withdrawing his election to
have such Notes purchased;
(vii) that if the aggregate Accreted Value of Notes surrendered by
Holders exceeds the amount of Excess Proceeds, Company shall select the
Notes to be purchased on a pro rata basis (with such adjustments as may be
--------
deemed appropriate by the Company so that only Notes in denominations of
$1,000 in principal amount at maturity or integral multiples thereof, shall
be purchased);
(viii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount at maturity to the
unpurchased portion of the Notes surrendered; provided that each Note
--------
purchased and each such new Note issued shall be in an original principal
amount at maturity in denominations of $1,000 and integral multiples
thereof;
<PAGE>
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(ix) the calculations used in determining the amount of Available
Asset Sale Proceeds to be applied to the purchase of such Notes;
(x) any other procedures that a Holder must follow to accept an
Excess Proceeds Offer or effect withdrawal of such acceptance; and
(xi) the name and address of the Paying Agent.
On the Excess Proceeds Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment, on a pro rata basis to the extent necessary,
--------
Notes or portions thereof validly tendered pursuant to the Excess Proceeds
Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase
price plus accrued and unpaid interest, if any, on the Notes to be purchased or
portions thereof, (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Issuers in accordance with the
terms of this Section 4.09. The Paying Agent shall promptly mail to each Holder
so accepted payment in an amount equal to the purchase price for such Notes, and
the Issuers shall execute and issue, and the Trustee shall promptly authenticate
and make available for delivery to such Holder, a new Note equal in principal
amount at maturity to any unpurchased portion of the Notes surrendered; provided
--------
that each such new Note shall be issued in an original principal amount at
maturity in denominations of $1,000 and integral multiples thereof. The Issuers
will publicly announce the results of the Excess Proceeds Offer on the Excess
Proceeds Payment Date.
(c) In the event of the transfer of substantially all of the Property
and assets of the Company and its Restricted Subsidiaries as an entirety to a
Person in a transaction permitted under Section 5.01 of this Indenture below but
which transaction does not constitute a Change of Control, the successor Person
shall be deemed to have sold the properties and assets of the Issuers and their
Restricted Subsidiaries not so transferred for purposes of this covenant, and
shall comply
<PAGE>
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with the provisions of this Section 4.09 with respect to such deemed sale as if
it were an Asset Sale.
(d) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Excess Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section
4.09, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.09 by virtue thereof.
Section 4.10. Limitation on Transactions with Affiliates.
------------------------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, Property or services) with any
Affiliate (each an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless
(1) such Affiliate Transaction is between or among the Company and
its Restricted Subsidiaries; or
(2) the terms of such Affiliate Transaction are at least as favorable
as the terms which could be obtained by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis between unaffiliated parties.
In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $2.5 million which is not permitted
under clause (1) above, the Company must obtain a Board Resolution of the
Company certifying that such Affiliate Transaction complies with clause (2)
above. In any Affiliate Transaction (or any se-
<PAGE>
-83-
ries of related Affiliate Transactions which are similar or part of a common
plan) involving an amount or having a fair market value in excess of $10 million
which is not permitted under clause (1) above, the Company must obtain a
favorable written opinion as to the fairness of such transaction or
transactions, as the case may be, from an Independent Financial Advisor.
(b) The foregoing provisions will not apply to
(1) any Restricted Payment that is not prohibited by the provisions
described under Section 4.07 of this Indenture,
(2) reasonable fees and compensation paid to, and indemnity provided
on behalf of, officers, Directors, employees or consultants of the Company
or any Restricted Subsidiary of the Company as determined in good faith by
the Company's Board of Directors or senior management,
(3) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date,
(4) transactions effected as part of a Qualified Securitization
Transaction,
(5) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business, and
advances to employees for moving, entertainment and travel expenses,
drawing accounts and similar expenditures in the ordinary course of
business,
(6) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of, any
securityholders agreement (including any registration rights agreement or
purchase
<PAGE>
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agreement related thereto) to which it is a party as of the Issue Date and
any similar agreements which it may enter into thereafter; provided,
--------
however, that the existence of, or the performance by the Company or any of
-------
its Restricted Subsidiaries of obligations under, any future amendment to
any such existing agreement or under any similar agreement entered into
after the Issue Date shall only be permitted by this clause (6) to the
extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders in any material respect,
(7) transactions permitted by, and complying with, the provisions
described under Article 5 of this Indenture below,
(8) payments of principal and interest on the ABRY Subordinated Debt
in accordance with the terms thereof,
(9) transactions with customers, clients, suppliers, joint venture
partners or purchasers or sellers of goods or services, in each case in the
ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of
this Indenture which are fair to the Company or its Restricted
Subsidiaries, in the reasonable determination of the Board of Directors of
the Company or the senior management thereof, or are on terms at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party,
(10) all transactions associated with the Merger Transactions and the
Pending Capstar Acquisition, including the repayment of loans made by ABRY
III,
(11) transactions pursuant to the ABRY Management Agreement or
pursuant to the terms of any amendment thereto or restatement thereof which
terms are not more disadvantageous to the Holders in any material respect
than the terms of such agreement as in effect on the Issue
<PAGE>
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Date as determined in good faith by the Board of Directors of the Company
and evidenced by a Board Resolution, and
(12) with regard to the requirement to obtain the opinion of an
Independent Financial Advisor only, the issuance of Capital Stock of the
Company or Muzak LLC; provided that such issuance has been approved by the
--------
Board of Directors of the Company or Muzak LLC and the Board Resolution
described in the immediately preceding paragraph has been delivered to the
Trustee.
Section 4.11. Limitations on Liens.
--------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any Property
or asset of the Company or any of its Restricted Subsidiaries or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary of the Company which
owns Property or assets, now owned or hereafter acquired, unless
(1) if such Lien secures Indebtedness which is subordinated to the
Notes, any such Lien shall be subordinated to any Lien granted to the
Holders to the same extent as such Indebtedness is subordinated to the
Notes and
(2) in all other cases, the Notes are equally and ratably secured.
Section 4.12. Limitations on Investments.
--------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Investment other than
(1) a Permitted Investment or
(2) an Investment that is made after the Issue Date as a Restricted
Payment in compliance with Section 4.07.
<PAGE>
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Section 4.13. Limitation on Sale and Lease-Back Transactions.
----------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale and Lease-Back Transaction unless
(1) the consideration received in such Sale and Lease-Back
Transaction is at least equal to the fair market value of the Property
sold, as determined in good faith by the Board of Directors of the Company
and evidenced by a Board Resolution,
(2) the Company could incur the Attributable Indebtedness in respect
of such Sale and Lease-Back Transaction in compliance with Section 4.06 and
(3) the transfer of assets in such Sale and Lease-Back Transaction is
permitted by, and the Company or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with Section 4.09.
Section 4.14. Payments for Consent.
--------------------
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this Indenture
or the Notes unless such consideration is offered to be paid or agreed to be
paid to all Holders which so consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such consent, waiver or
agreement.
Section 4.15. Corporate Existence.
-------------------
Subject to Article 5 hereof, each of the Issuers shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate or limited liability company existence, and the corporate,
partnership or limited liability company or other existence of each Subsidi-
<PAGE>
-87-
ary, in accordance with the respective organizational documents (as the same may
be amended from time to time) of each Subsidiary and, within thirty days of the
Issue Date, the material rights (charter and statutory), licenses and franchises
of the Issuers and their Subsidiaries except where the failure to preserve and
keep in full force and effect any such rights, licenses and franchise shall not
have a material adverse effect on the financial condition, business, operations
or prospects of the Issuers and their Subsidiaries taken as a whole; and
provided that the Issuers shall not be required to preserve any such right,
- --------
license or franchise, or the corporate, limited liability company, partnership
or other existence of any of Subsidiaries, if the Board of Directors of the
applicable Issuer shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Issuers and their Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders.
Section 4.16. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, the Issuers shall be
obligated to make an offer to purchase (the "Change of Control Offer") each
Holder's outstanding Notes at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the Change of Control Payment Date (as defined) in
accordance with the procedures set forth below.
(b) Within 20 days of the occurrence of a Change of Control, the
Issuers shall (i) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (ii) send by first-class mail, postage prepaid, to the Trustee
and to each Noteholder, at the address appearing in the register maintained by
the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
<PAGE>
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(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrete Accreted
Value or accrue interest, as the case may be;
(4) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrete Accreted Value or accrue
interest, as the case maybe, after the Change of Control Payment Date;
(5) that Holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that Holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount at maturity of the Notes delivered for
purchase, and a statement that such Holder is withdrawing his election to
have such Notes purchased;
(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount at maturity to the unpurchased
portion of the Notes surrendered;
(8) any other procedures that a Holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
<PAGE>
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(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the
extent lawful,
(1) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so tendered, and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Issuers.
The Paying Agent shall promptly mail to each Holder so accepted payment in an
amount equal to the purchase price for such Notes, and the Issuers shall execute
and issue, and the Trustee shall promptly authenticate and mail to such Holder,
a new Note equal in principal amount at maturity to any unpurchased portion of
the Notes surrendered; provided that each such new Note shall be issued in an
--------
original principal amount in denominations of $1,000 at maturity and integral
multiples thereof.
(c) If the Senior Credit Facility is in effect, or any amounts are
owing thereunder or in respect thereof, at the time of the occurrence of a
Change of Control, prior to the mailing of the notice to Holders described in
Section 4.16(b) above, but in any event within 60 days following any Change of
Control, the Issuers covenant to
(1) repay in full all obligations and terminate all commitments under
or in respect of the Senior Credit Facility, the terms of which require
repayment upon a Change of Control or offer to repay in full all
obligations and terminate all commitments under or in respect of the Senior
Credit Facility and repay the Indebtedness owed to each such lender who has
accepted such offer, or
<PAGE>
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(2) obtain the requisite consents under the Senior Credit Facility to
permit the repurchase of the Notes as described above.
The Issuers must first comply with the covenant described in the preceding
sentence before they shall be required to purchase Notes in the event of a
Change of Control; provided that the Issuers' failure to comply with the
--------
covenant described in the preceding sentence constitutes an Event of Default
described in clause (3) under Section 6.01 if not cured within 30 days after the
notice required by such clause.
(d) The Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.16, the Issuers shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached their obligations under
this Section 4.16 by virtue thereof.
Section 4.17. Maintenance of Office or Agency.
-------------------------------
The Issuers shall maintain an office or agency in the Borough of
Manhattan, The City of New York where Notes may be surrendered for registration
of transfer or exchange or for presentation for payment and where notices and
demands to or upon the Issuers in respect of the Notes and this Indenture may be
served. The Issuers shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuers shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee as set forth in Section 12.02.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from
<PAGE>
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time to time rescind such designations. The Issuers shall give prompt written
notice to the Trustee of such designation or rescission and of any change in the
location of any such other office or agency.
The Issuers hereby initially designate the offices of State Street
Bank and Trust Company, N.A. at 61 Broadway, New York, New York 10006 as such
office of the Issuers.
Section 4.18. Limitation on Dividend and Other
Payment Restrictions Affecting
Restricted Subsidiaries.
------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to
(1) (a) pay dividends or make any other distributions to the Company
or any Restricted Subsidiary of the Company
(i) on its Capital Stock or
(ii) with respect to any other interest or participation in,
or measured by, its profits or
(b) repay any Indebtedness or any other obligation owed to the
Company or any Restricted Subsidiary of the Company,
(2) make loans or advances or capital contributions to the Company or
any of its Restricted Subsidiaries or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
<PAGE>
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(1) encumbrances or restrictions existing on the Issue Date to the
extent and in the manner such encumbrances and restrictions are in effect
on the Issue Date,
(2) (a) this Indenture and the Notes, (b) the Senior Subordinated
Note Indenture, the Senior Subordinated Notes and the Senior Subordinated
Guarantees, 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; provided that such restrictions are not
--------
materially more restrictive, when taken as a whole, than those contained in
the agreements governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded,
(7) customary restrictions in security agreements or mortgages
securing Indebtedness of the Issuers or a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the Property subject to
such security agreements and mortgages,
(8) customary restrictions pursuant to an agreement that has been
entered into for the sale or disposition of Capital Stock or assets
permitted under this Indenture,
(9) restrictions on the transfer of assets subject to any Lien
permitted under this Indenture imposed by the holder of such Lien,
<PAGE>
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(10) any agreement or instrument governing Capital Stock of any
Person that is acquired; provided that no such restriction is created in
--------
contemplation of the acquisition of such Capital Stock,
(11) Indebtedness or other contractual requirements of a
Securitization Entity in connection with a Qualified Securitization
Transaction; provided that such restrictions apply only to such
--------
Securitization Entity,
(12) Purchase Money Indebtedness incurred to acquire Property in the
ordinary course of business which Indebtedness imposes restrictions
regarding transfer of the Property acquired,
(13) the terms of any Indebtedness permitted by this Indenture to be
incurred by any Restricted Subsidiary which encumbrances or restrictions
are no more restrictive than those contained in the Senior Subordinated
Note Indenture as in effect on the Issue Date,
(14) any agreement or instrument governing Indebtedness (whether or
not outstanding) of Foreign Restricted Subsidiaries of the Company incurred
in reliance on clauses (8) and (16) of the definition of Permitted
Indebtedness, or
(15) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Section 4.19. Limitation on Conduct of Business.
---------------------------------
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not reasonably similar, ancillary, complementary or related
to the businesses in which the Company and its Restricted Subsidiaries are
engaged in on the Issue Date except to such extent as would not be material to
the Company and its Restricted Subsidiaries, taken as a whole.
<PAGE>
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Section 4.20. Compliance with Laws.
--------------------
The Issuers shall comply, and shall cause each of their respective
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as would not in the aggregate have a
material adverse effect on the financial condition or results of operations of
the Issuers and their Subsidiaries taken as a whole.
Section 4.21. Limitation on Preferred Stock of Restricted Subsidiaries.
--------------------------------------------------------
The Company will not permit any of its Restricted Subsidiaries to
issue any Preferred Stock (except Preferred Stock issued to the Company or a
Restricted Subsidiary of the Company) or permit any Person (other than the
Company or a Restricted Subsidiary of the Company) to hold any such Preferred
Stock unless such Restricted Subsidiary would be entitled to incur or assume
Indebtedness under Section 4.06 (other than Permitted Indebtedness) in the
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Section 4.22. [Intentionally Omitted].
-----------------------
Section 4.23. Maintenance of Properties and Insurance.
---------------------------------------
(a) Each Issuer shall cause all material properties owned by or leased
by it or any of its Subsidiaries used or useful to the conduct of such Issuer's
business or the business of any of its Subsidiaries to be maintained and kept in
normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in its judgment may
be necessary, so that the
<PAGE>
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business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 4.23
-------- -------
shall prevent an Issuer or any of its Subsidiaries from discontinuing the use,
operation or maintenance of any of such properties, or disposing of any of them,
if such discontinuance or disposal is, in the judgment of the Board of Directors
of such Issuer or of the Board of Directors of any Subsidiary of such Issuer
concerned, or of an officer (or other agent employed by such Issuer or of any of
its Subsidiaries) of such Issuer or any of its Subsidiaries having managerial
responsibility for any such property, desirable in the conduct of the business
of such Issuer or any Subsidiary of such Issuer, and if such discontinuance or
disposal is not adverse in any material respect to the Holders.
(b) The Issuers shall maintain, and shall cause their respective
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation and
interruption of business insurance. The Issuers shall provide, and shall cause
their respective Subsidiaries to provide, an Officers' Certificate as to
compliance with the foregoing requirements to the Trustee prior to the
anniversary or renewal date of each such policy, together with satisfactory
evidence of such insurance, which certificate shall expressly state such
expiration date for each policy listed.
ARTICLE 5
SUCCESSOR CORPORATION
Section 5.01. Limitation on Consolidation Merger and Sale of Assets.
-----------------------------------------------------
The Company will not consolidate with, merge with or into, or sell,
assign, transfer, lease, convey or otherwise
<PAGE>
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dispose of all or substantially all of the assets of the Company (as an entirety
or substantially as an entirety in one transaction or a series of related
transactions), to any Person unless:
(1) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or to which the Properties and assets of the Company are
sold, assigned, transferred, leased, conveyed or otherwise disposed of
shall be a corporation, partnership, trust or a limited liability company
organized and existing under the laws of the United States or any State
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company under
this Indenture and the Notes, and the obligations thereunder shall remain
in full force and effect; provided that if at any time the Company or such
--------
successor Person is a limited liability company, partnership or trust there
shall be a co-issuer of the Notes that is a Restricted Subsidiary of the
Company and that is a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction on a pro
---
forma basis the Company or such Person could incur at least $1.00 of
-----
additional Indebtedness (other than Permitted Indebtedness) under Section
4.06.
In connection with any consolidation, merger or transfer of assets
contemplated by this Section 5.01, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and the supple-
<PAGE>
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mental indenture in respect thereto comply with this provision and that all
conditions precedent herein provided for relating to such transaction or
transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Notwithstanding the foregoing, the Company may merge or consolidate
with or transfer substantially all of its assets to an Affiliate that has no
significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of the Company or the form of
organization of the Company so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby and that the successor
assumes all obligations of the Company under this Indenture, the Notes and the
Registration Rights Agreement. Nothing in this Section 5.01 shall be deemed to
prevent the consummation of the Merger Transactions.
Section 5.02. Successor Person Substituted.
----------------------------
Upon any consolidation, merger, conveyance or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01
above, the successor entity formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor entity had been named
as the Company herein, and thereafter the predecessor entity shall be relieved
of all obligations and covenants under this Indenture and the Notes.
<PAGE>
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ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
-----------------
An "Event of Default" occurs if
(a) there is a default in the payment of any principal of, or premium,
if any, on the Notes when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise;
(b) there is a default in the payment of any interest on any Note when
the same becomes due and payable and the default continues for a period of
30 calendar days;
(c) there is a default by any Issuer or any Restricted Subsidiary in
the observance or performance of any other covenant in the Notes or this
Indenture for 30 calendar days after written notice from the Trustee or the
holders of not less than 25% in aggregate principal amount at maturity of
the Notes then outstanding (except in the case of a default with respect to
Sections 4.16 or 5.01 which shall constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(d) there is a failure to pay at final maturity (after giving effect
to any applicable grace period) any Indebtedness of the Company or any
Restricted Subsidiary thereof (other than a Securitization Entity), or the
acceleration of any such Indebtedness, which acceleration shall not be
rescinded or annulled within 20 days after written notice to the Company by
the Trustee or any Holder, if the aggregate amount of such Indebtedness,
together with the amount of any other such Indebtedness in default for
failure to pay or which has been accelerated, aggregates $5 million or more
at any time;
<PAGE>
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(e) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5 million (excluding amounts covered
by insurance for which coverage is not being challenged or denied unless
the Company is contesting such challenge or denial in good faith) shall be
rendered against the Company or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive calendar days
during which a stay of enforcement shall not be in effect;
(f) any Issuer or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its Property, or
(D) makes a general assignment for the benefit of its creditors,
or
(E) generally is not able to pay its debts as they become due;
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against any Issuer or any Significant
Subsidiary in an involuntary case,
(B) appoints a Custodian of any Issuer or any Significant
Subsidiary or for all or substantially all of the Property of any
Issuer or any Significant Subsidiary, or
(C) orders the liquidation of any Issuer or any Significant
Subsidiary,
<PAGE>
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and the order or decree remains unstayed and in effect for 60 days; and
(h) any Guarantee, if any, of a Significant Subsidiary ceases to be in
full force and effect or any Guarantee, if any, of a Significant Subsidiary
is declared to be null and void and unenforceable or any Guarantee, if any,
of a Significant Subsidiary is found to be invalid or any of the
Guarantors, if any, denies its liability under its Guarantee, if any,
(other than by reason of release of a Guarantor in accordance with the
terms of this Indenture).
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
The Trustee may withhold notice to the Holders of any Default (except
in payment of principal or premium, if any, or interest on the Notes) if the
Trustee considers it to be in the best interest of the Holders to do so.
Section 6.02. Acceleration.
------------
If an Event of Default (other than an Event of Default of the type
described in Section 6.01(f) or (g)) shall have occurred and be continuing, then
the Trustee or the holders of not less than 25% in aggregate principal amount 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
but unpaid interest, if any, to the date of acceleration and (1) the same shall
become immediately due and payable or (2) if there are any amounts outstanding
under the Senior Credit Facility, shall become immediately due and payable upon
the first to occur of an acceleration under the Senior Credit Facility or five
Business Days after receipt by the Issuers and the representative under the
Senior Credit Facility of a notice of acceleration; provided, however, that
-------- -------
after such acceleration but before a judgment or decree based on acceleration is
obtained by the Trustee, the holders of a majority in aggregate principal amount
at maturity
<PAGE>
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of outstanding Notes may, under certain circumstances, rescind and
annul such acceleration if
(1) all Events of Default, other than nonpayment of Accreted Value,
premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in this Indenture,
(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue Accreted Value, which has
become due otherwise than by such declaration of acceleration, has been
paid,
(3) the Issuers have paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and
(4) in the event of the cure or waiver of an Event of Default of the
type described in Section 6.01(f) or (g) above, the Trustee shall have
received an Officers' Certificate and an Opinion of Counsel that such Event
of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default of the type described in Section
6.01(f) or (g) above shall occur, the Accreted Value, premium and interest, if
any, amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the Noteholders.
Section 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of Accreted Value of, or premium, if any, and interest on the Notes or
to enforce the performance of any provision of the Notes, the obligations set
forth in the Guarantees, if any, or this Indenture and may take any necessary
action requested of it as Trustee to settle, com-
<PAGE>
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promise, adjust or otherwise conclude any proceedings to which it is a party.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 6.04. Waiver of Past Defaults and Events of Default.
---------------------------------------------
Subject to Sections 6.02, 6.07 and 8.02 hereof, the Holders of a
majority in principal amount at maturity of the Notes then outstanding shall
have the right to waive past Defaults under this Indenture except a Default in
------
the payment of the Accreted Value of, or interest or premium, if any, on any
Note, which cannot be waived without the consent of the Holder of such Notes or
in respect of a covenant or a provision which cannot be modified or amended
without the consent of all Holders. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
Section 6.05. Control by Majority.
-------------------
The Holders of a majority in principal amount at maturity of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee by this Indenture. The Trustee,
however, may refuse to follow any direction that conflicts with law or this
Indenture or that the Trustee determines may be unduly prejudicial to the rights
of another Noteholder not taking part in such direction, and the Trustee shall
have the right to decline to follow any such direction if the Trustee, being
ad-
<PAGE>
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vised by counsel, determines that the action so directed may not lawfully be
taken or if the Trustee in good faith shall, by a Trust Officer, determine that
the proceedings so directed may involve it in personal liability; provided that
--------
the Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Section 6.06. Limitation on Suits.
-------------------
Subject to Section 6.07 below, no Holder has any right to institute
any proceeding with respect to this Indenture or any remedy thereunder unless:
(1) the Holders of at least 25% in aggregate principal amount at
maturity of the outstanding Notes make a written request to the Trustee to
pursue the remedy;
(2) such Holder or Holders offer to the Trustee indemnity reasonably
satisfactory to the Trustee against any loss, liability or expense which
may be incurred in compliance with such request;
(3) the Trustee fails to institute such proceeding within 60 calendar
days after receipt of such notice and the offer of indemnity; and
(4) the Trustee has not received directions inconsistent with such
written request during such 60-day period by the Holders of a majority in
aggregate principal amount at maturity of the outstanding Notes.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of Accreted Value or principal of, or premium, if
any, or accrued interest of any Note held by such Holder on or after the
respective due dates expressed in such Note, or to bring suit for the
enforce-
<PAGE>
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ment of any such payment on or after such respective dates, is absolute and
unconditional and shall not be impaired or affected without the consent of the
Holder.
Section 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of Accreted Value, premium or
interest specified in Section 6.01(a), (b) or (c) hereof occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against any or all of the Issuers and the Guarantors, if any,
for the whole amount of unpaid Accreted Value and accrued interest, if any,
remaining unpaid, together with interest on overdue principal and, to the extent
that payment of such interest is lawful, interest on overdue installments of
interest, in each case at the rate then borne by the Notes, and such further
amounts as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Noteholders allowed in any judicial proceedings relative to the Issuers (or any
other obligor upon the Notes), its creditors or its Property and shall be
entitled and empowered to collect and receive any monies or other Property
payable or deliverable on any such claims and to distribute the same after
deduction of its charges and expenses to the extent that any such charges and
expenses are not paid out of the estate in any such proceedings and any
custodian in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee,
<PAGE>
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its agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
or reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such proceedings.
Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07 hereof;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
Accreted Value, premium, if any, and interest, if any, as to each, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Notes; and
THIRD: to the Issuers or, to the extent the Trustee collects any
amounts from any Guarantor, if any, to such Guarantor.
The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the
<PAGE>
-106-
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof or
a suit by Holders of more than 10% in principal amount at maturity of the Notes
then outstanding.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
-----------------
(a) If an Event of Default known to the Trustee has occurred and is
continuing, the Trustee shall exercise such rights and powers vested in it by
this Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default known to the
Trustee:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture but, in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
<PAGE>
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(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Sections 6.02, 6.04 and 6.05 hereof.
(4) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its rights or powers if it determines in the
exercise of its reasonable discretion that repayment of such funds or
adequate indemnity satisfactory to it against such risk or liability is not
reasonably assured to it.
(d) The Trustee is not under any obligation to exercise any of
its rights or powers at the request or direction of any of the Holders unless
such Holders shall have offered to the Trustee indemnity or security
satisfactory to it in its reasonable discretion against any loss, liability,
expense or fee.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by the law.
(f) The Trustee shall not be deemed to have knowledge of any
Default or fact or event which might require the Trustee to take any action or
give any notice unless one of its Trust Officers has actual knowledge thereof.
(g) The Trustee is also being appointed, and may serve
contemporaneously with its service hereunder, as Trustee
<PAGE>
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under the Senior Subordinated Note Indenture and shall not be considered to be
conflicted in its duties under either Indenture by reason of its acting as
trustee under the other. After an Event of Default under either the Senior
Subordinated Note Indenture or this Indenture, and in order that it might not be
conflicted in the performance of its duties under either Indenture, the Trustee
shall resign as trustee under one of the Indentures; provided, however, that
-------- -------
until the appointment of a successor Trustee, the Trustee shall not be
considered to have violated the standard set forth in Section 7.01(a) hereof by
continuing to act as Trustee under both the Senior Subordinated Note Indenture
and this Indenture if it separates the performance of its discretionary duties
under the Senior Subordinated Note Indenture and this Indenture within its
corporate trust department and retains separate counsel for itself as trustee
under each of the Indentures.
(h) Whether or not therein expressly so provided, paragraphs (a),
(b), (c), (d), (e), (f) and (g) of this Section 7.01 shall govern every
provision of this Indenture that in any way relates to the Trustee.
Section 7.02. Rights of Trustee.
-----------------
Subject to Section 7.01 hereof:
(1) The Trustee may rely on any document reasonably believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting with respect to
any matters contemplated by this Indenture or the Notes it may require an
Officers' Certificate or an Opinion of Counsel, or both, which shall
conform to the provisions of Section 12.05 hereof. The Trustee shall be
protected and shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion.
<PAGE>
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(3) The Trustee may act through Agents and shall not be responsible
for the misconduct or negligence of any agent so long as the appointment of
such agent was made with due care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(5) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
Section 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may make loans to, accept deposits from, perform
services for or otherwise deal with the Issuers, or any Affiliates thereof, with
the same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. The Trustee, however, shall be subject to Sections 7.10 and
7.11 hereof.
Section 7.04. Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuers' use of the proceeds from the sale of Notes or any
money paid to the Issuers pursuant to the terms of this Indenture and it shall
not be responsible for any statement in the Notes other than its certificate of
authentication.
<PAGE>
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Section 7.05. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Noteholder notice of the Default within
30 days after it occurs. Except in the case of a Default in payment of the
Accreted Value of, or premium, if any, or interest, if any, on any Note the
Trustee may withhold the notice if and so long as the board of directors of the
Trustee, the executive committee or any trust committee of such board and/or its
Trust Officers in good faith determine(s) that withholding the notice is in the
interests of the Noteholders.
Section 7.06. Reports by Trustee to Holders.
-----------------------------
If required by TIA Section 313(a), within 60 days after May 15 of any
year, commencing the May 15 following the date of this Indenture, the Trustee
shall mail to each Noteholder a brief report dated as of such May 15 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c) and TIA Section 313(d).
Reports pursuant to this Section 7.06 shall be transmitted by mail:
(1) to all registered Holders, as the names and addresses of such
Holders appear on the Registrar's books; and
(2) to such Holder as have, within the two years preceding such
transmission, filed their names and addresses with the Trustee for that
purpose.
A copy of each report at the time of its mailing to Noteholders shall
be filed with the Commission and each stock exchange on which the Notes are
listed. The Issuers shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
<PAGE>
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Section 7.07. Compensation and Indemnity.
--------------------------
The Issuers shall pay to the Trustee from time to time such
compensation as shall be agreed in writing between the Issuers and the Trustee
for its services hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust). The Issuers shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it in connection with
its duties under this Indenture, including the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Issuers shall indemnify each of the Trustee and its officers,
directors, employees and agents and any predecessor Trustee and its officers,
directors, employees and agents for, and hold each of them harmless against, any
and all loss, damage, claim, liability or expense, including taxes (other than
taxes based on the income of the Trustee) incurred by any of them in connection
with the acceptance or performance of its duties under this Indenture including
the reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of the powers or
duties of the Trustee hereunder (including, without limitation, settlement
costs). The Trustee shall notify the Issuers in writing promptly of any claim
asserted against the Trustee or any such officer, director, employee or agent
for which any of them may seek indemnity. However, the failure by the Trustee
to so notify the Issuers shall not relieve the Issuers of their obligations
hereunder except to the extent the Issuers are prejudiced thereby. This
indemnity shall survive the termination of this Indenture, final payment of the
Notes, and resignation or removal of the Trustee.
Notwithstanding the foregoing, the Issuers need not reimburse the
Trustee or any such officer, director, employee or agent for any expense or
indemnify any of them against any loss or liability incurred by the Trustee or
any such officer, director, employee or agent through its negligence, willful
misconduct or bad faith. To secure the payment obligations of the Issuers in
this Section 7.07, the Trustee shall have a lien
<PAGE>
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prior to the Notes on all money or Property held or collected by the Trustee
except such money or Property held in trust to pay principal of and interest on
particular Notes.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
For purposes of this Section 7.07, the term "Trustee" shall include
any trustee appointed pursuant to Article 9.
Section 7.08. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Issuers in writing. The
Holders of a majority in principal amount at maturity of the outstanding Notes
may remove the Trustee by notifying the removed Trustee in writing and may
appoint a successor Trustee with the Issuers' written consent which consent
shall not be unreasonably withheld. The Issuers may remove the Trustee at its
election if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its Property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers or the
holders of a majority in
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principal amount at maturity of the outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
7.07 hereof, transfer all property held by it as Trustee to the successor
Trustee, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Issuers' obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Consolidation, Merger or Conversion.
--------------------------------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, subject to Section 7.10 hereof, the successor corporation without
any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5) in every respect. The
Trustee shall have a combined capital and surplus of at least $100,000,000 as
set forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b), including the provision in Sec-
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tion 310(b)(1). The provisions of TIA Section 310 shall apply to the Issuers as
obligors of the Notes.
Section 7.11. Preferential Collection of Claims Against Issuers.
-------------------------------------------------
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311 (b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311 shall apply to the Issuers as
obligors of the Notes.
Section 7.12. Paying Agents.
-------------
The Issuers shall cause each Paying Agent other than the Trustee to
execute and deliver to it and the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 7.12:
(A) that it will hold all sums held by it as agent for the payment of
Accreted Value of, or premium, if any, or interest, if any, on, the Notes
(whether such sums have been paid to it by the Issuers or by any obligor on
the Notes) in trust for the benefit of Holders or the Trustee;
(B) that it will at any time during the continuance of any Event of
Default, upon written request from the Trustee, deliver to the Trustee all
sums so held in trust by it together with a full accounting thereof; and
(C) that it will give the Trustee written notice within three (3)
Business Days of any failure of the Issuers (or by any other obligor on the
Notes) in the payment of any installment of the Accreted Value of, premium,
if any, or interest, if any, on, the Notes when the same shall be due and
payable.
<PAGE>
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ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. Without Consent of Holders.
--------------------------
The Issuers and the Guarantors, if any, when authorized by a Board
Resolution, and the Trustee may amend or supplement this Indenture or the Notes
without notice to or consent of any Noteholder:
(1) to comply with Section 5.01 hereof;
(2) to provide for uncertificated Notes in addition to or in place of
Certificated Notes;
(3) to comply with any requirements of the Commission under the TIA;
(4) to cure any ambiguity, defect or inconsistency, or to make any
other change that does not, in the opinion of the Trustee, materially and
adversely affect the rights of any Noteholder;
(5) add Guarantors with respect to the Notes; or
(6) release Guarantors when permitted by this Indenture.
The Trustee is hereby authorized to join with the Issuers and the
Guarantors, if any, in the execution of any supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee
shall not be obligated to enter into any such supplemental indenture which
adversely affects its own rights, duties or immunities under this Indenture.
<PAGE>
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Section 8.02. With Consent of Holders.
-----------------------
The Issuers, the Guarantors, if any, and the Trustee may modify or
supplement this Indenture or the Notes with the written consent of the Holders
of not less than a majority in principal amount at maturity of the outstanding
Notes without notice to any Noteholder. The Holders of not less than a majority
in aggregate principal amount at maturity of the outstanding Notes may waive
compliance in a particular instance by the Issuers and the Guarantors, if any,
with any provision of this Indenture or the Notes without notice to any
Noteholder. Subject to Section 8.04, without the consent of each Noteholder
affected, however, an amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver to this Indenture or the Notes;
(2) reduce the rate of or change the time for payment of interest
(including Additional Interest (as defined in the Registration Rights
Agreement)) on any Note;
(3) reduce the Accreted Value or principal of, or premium on, or
change the stated maturity, of any Note or change the date on which any
Notes may be subject to redemption or repurchase or reduce the redemption
or repurchase price therefor;
(4) make any Note payable in money other than that stated in the Note
or change the place of payment from New York, New York;
(5) waive a Default in the payment of the Accreted Value of, or
interest on, or any redemption payment with respect to, any Note;
(6) make any changes in Sections 6.04 or 6.07 hereof or this sentence
of Section 8.02;
<PAGE>
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(7) amend, change or modify in any material respect, the obligation
of the Issuers to make and consummate a Change of Control Offer in the
event of a Change of Control or, make and consummate an Excess Proceeds
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto;
(8) modify or change any provision of this Indenture or the related
definitions affecting the ranking of the Notes or any Guarantee, if any, in
a manner which adversely affects the Holders; or
(9) release any Guarantor, if any, from any of its obligations under
its Guarantee or this Indenture otherwise than in accordance with the terms
of this Indenture.
After an amendment, supplement or waiver under this Section 8.02
becomes effective, the Issuers shall mail to the Holders a notice briefly
describing the amendment, supplement or waiver.
Upon the request of the Issuers, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
receipt by the Trustee of evidence reasonably satisfactory to the Trustee of the
consent of the Noteholders as aforesaid and upon receipt by the Trustee of the
documents described in Section 8.06 hereof, the Trustee shall join with the
Issuers and the Guarantors in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
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Section 8.03. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
Section 8.04. Revocation and Effect of Consents.
---------------------------------
Until an amendment, supplement, waiver or other action becomes
effective, a consent to it by a Holder is a continuing consent conclusive and
binding upon such Holder and every subsequent Holder of the same Note or portion
thereof, and of any Note issued upon the transfer thereof or in exchange
therefor or in place thereof, even if notation of the consent is not made on any
such Note. Any such Holder or subsequent Holder, however, may revoke the
consent as to his Note or portion of a Note, if the Trustee receives the notice
of revocation before the date the amendment, supplement, waiver or other action
becomes effective.
The Issuers may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement, or waiver. If a record date is fixed, then, notwithstanding the
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only such Persons, shall be entitled to
consent to such amendment, supplement, or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date unless the consent of the requisite number of Holders has
been obtained.
After an amendment, supplement, waiver or other action becomes
effective, it shall bind every Noteholder, unless it makes a change described in
any of clauses (1) through (9) of Section 8.02 hereof. In that case the
amendment, supplement, waiver or other action shall bind each Holder who has
consented to it and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the consenting Holder's Note.
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Section 8.05. Notation on or Exchange of Notes.
--------------------------------
If an amendment, supplement, or waiver changes the terms of a Note,
the Trustee may request the Holder to deliver it to the Trustee. In such case,
the Trustee shall place an appropriate notation on the Note about the changed
terms and return it to the Holder. Alternatively, if the Issuers or the Trustee
so determine, the Issuers in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation or issue a new Note shall not affect the validity and
effect of such amendment supplement or waiver.
Section 8.06. Trustee to Sign Amendments, etc.
-------------------------------
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article 8 if the amendment, supplement or waiver does not
materially adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may, but need not, sign it. In signing or
refusing to sign such amendment, supplement or waiver the Trustee shall be
entitled to receive and, subject to Section 7.01 hereof, shall be fully
protected in relying upon an Officers' Certificate and an Opinion of Counsel
stating that such amendment, supplement or waiver is authorized or permitted by
this Indenture. The Issuers and each Guarantor, if any, may not sign an
amendment or supplement until the Board of Directors of each of the Issuers and
each such Guarantor, if any, approves it.
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of Notes herein
expressly provided for) and the Trus-
<PAGE>
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tee, on written demand of and at the expense of the Issuers, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when either:
(a) all Notes theretofore authenticated and delivered (other than (A)
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.07 hereof and (B) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuers and thereafter repaid to the Issuers or
discharged from such trust) have been delivered to the Trustee for
cancellation; or
(b) (i) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Issuers have irrevocably
deposited or caused to be deposited with the Trustee in trust for the
purpose an amount of U.S. legal tender or U.S. Government Obligations
sufficient to pay and discharge the entire Indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for the Accreted
Value or premium, if any, and interest to the date of such deposit; (ii)
the Issuers have paid or caused to be paid all other sums payable hereunder
by the Issuers; and (iii) the Issuers have delivered to the Trustee (A)
irrevocable instructions to apply the deposited money toward payment of the
Notes at the maturity thereof, and (B) an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuers to the Trustee under Section 7.07 and, if money shall
have been deposited with the Trustee pursuant to subclause (a)(B) of this
Section 9.01, the obligations of the Trustee under Section 9.05, shall survive.
Section 9.02. Legal Defeasance.
----------------
The Issuers may at their option, by Board Resolution, be discharged
from their obligations with respect to the Notes
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and the Guarantors discharged from their obligations under the Guarantees
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Issuers shall be deemed to have paid and discharged the entire
indebtedness represented by the Notes and to have satisfied all of their other
obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Issuers, shall, subject to
Section 9.06 hereof, execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of outstanding Notes to receive solely from
the trust funds described in Section 9.04 hereof and as more fully set forth in
such Section, payments in respect of the Accreted Value of, premium, if any, and
interest on such Notes when such payments are due, (B) the Issuers' obligations
with respect to such Notes under Article 2 and Section 4.17 hereof, (C) the
rights, powers, trusts, duties, and immunities of the Trustee hereunder
(including claims of, or payments to, the Trustee under or pursuant to Section
7.07 hereof) and (D) this Article 9. Subject to compliance with this Article 9,
the Issuers may exercise their option under this Section 9.02 with respect to
the Notes notwithstanding the prior exercise of their option under Section 9.03
below with respect to the Notes.
Section 9.03. Covenant Defeasance.
-------------------
At the option of the Issuers, pursuant to a Board Resolution, the
Issuers and the Guarantors, if any, shall be released from their respective
obligations under Sections 4.02, 4.04 through 4.14, 4.16, and 4.18 through 4.23
hereof, and clause (3) of the first paragraph of Section 5.01 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 9.04 hereof are satisfied (hereinafter, "Covenant Defeasance"). For
this purpose, such Covenant Defeasance means that the Issuers may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such specified Section or portion thereof, whether directly or
indirectly by reason of any reference elsewhere herein to any such specified
Section or portion
<PAGE>
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thereof or by reason of any reference in any such specified Section or portion
thereof to any other provision herein or in any other document, but the
remainder of this Indenture and the Notes shall be unaffected thereby.
Section 9.04. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of Section 9.02
or Section 9.03 hereof to the outstanding Notes:
(1) the Issuers shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 hereof who shall agree to comply with the provisions of
this Article 9 applicable to it) as funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders, (A) U.S. legal tender in
an amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than the due date of any payment, money
in an amount, or (C) a combination thereof, sufficient, in the opinion of a
nationally-recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the Accreted Value of, premium, if any, and
accrued interest on the outstanding Notes at the maturity date of such
Accreted Value, premium, if any, or interest, or on dates for payment and
redemption of such Accreted Value, premium, if any, and interest selected
in accordance with the terms of this Indenture and of the Notes; provided,
--------
however, that the Trustee (or other qualifying trustee) shall have received
-------
an irrevocable written order from the Issuers instructing the Trustee (or
other qualifying trustee) to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Notes;
<PAGE>
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(2) no Event of Default or Default shall have occurred and no Event
of Default of the type specified in Section 6.01(g) or (h) shall have
occurred and be continuing on the date of such deposit, or shall have
occurred and be continuing at any time during the period ending on the 91st
day after the date of such deposit or, if longer, ending on the day
following the expiration of the longest preference period under any
Bankruptcy Law applicable to the Issuers in respect of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period);
(3) such Legal Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest for purposes of the TIA with respect
to any securities of the Issuers;
(4) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute default under any other material
agreement or instrument to which the Issuers or any of their Subsidiaries
are a party or by which any Issuer or any of its Subsidiaries is bound;
(5) the Issuers shall have delivered to the Trustee an Opinion of
Counsel stating that, as a result of such Legal Defeasance or Covenant
Defeasance, neither the trust nor the Trustee will be required to register
as an investment company under the Investment Company Act of 1940, as
amended;
(6) in the case of an election under Section 9.02 above, the Issuers
shall have delivered to the Trustee an Opinion of Counsel stating that (i)
the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling to the effect that or (ii) there has been
a change in any applicable Federal income tax law with the effect that, and
such opinion shall confirm that, the Holders of the outstanding Notes or
persons in their positions will not recognize income, gain or loss for
Federal income tax purposes solely as a result of such Legal
<PAGE>
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Defeasance and will be subject to Federal income tax on the same amounts,
in the same manner, including as a result of prepayment, and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(7) in the case of an election under Section 9.03 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel describing either
a private ruling concerning the Notes or a published ruling of the Internal
Revenue Service to the effect that the Holders of the outstanding Notes
will not recognize income, gain or loss for Federal income tax purposes as
a result of such Covenant Defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(8) the Issuers shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance under
Section 9.02 above or the Covenant Defeasance under Section 9.03 hereof (as
the case may be) have been complied with;
(9) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by the
Issuers with the intent of preferring the holders of the Notes over any
other creditors of the Issuers or with the intent of defeating, hindering,
delaying or defrauding any creditors of the Issuers or others; and
(10) the Issuers shall have delivered to the Trustee an Opinion of
Counsel to the effect that:
(a) the funds deposited in trust will not be subject to any rights of
holders of Senior Indebtedness, including, without limitation,
those arising under this Indenture, and
<PAGE>
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(b) assuming no intervening event of the type described in Section
6.01(g) or (h) shall occur and no Holder is an "insider" (as such
term is used under applicable Bankruptcy Law) of any Issuer after
the 91st day after the date of such deposit or, if longer, ending
on the day following the expiration of the longest preference
period under any Bankruptcy Law applicable to the Issuers in
respect of such deposit, the funds deposited in trust will not be
subject to the effect of any Bankruptcy Law; and
(11) before or after a deposit, the Issuers may make arrangements
satisfactory to the Trustee for the redemption of Notes at a future date in
accordance with Section 3.07(a) hereof.
Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
-------------------------
All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 9.01 or 9.04 hereof in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Notes, of all sums due and to become due
thereon in respect of Accreted Value, premium, if any, and accrued interest, if
any, but such money need not be segregated from other funds except to the extent
required by law.
The Issuers and the Guarantors shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 9.01 or 9.04 hereof or the
principal, premium, if any, and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of the Holders
of the outstanding Notes.
<PAGE>
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Anything in this Article 9 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon a written
request of the Issuers in the form of an Officers' Certificate any money or U.S.
Government Obligations held by it as provided in Section 9.01 or 9.04 hereof
which, in the opinion of a nationally-recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 9.06. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 9.01, 9.02 or 9.03 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Issuers' and each Guarantor's, if any, obligations under
this Indenture, the Notes and the Guarantees, if any, shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 9 until
such time as the Trustee or Paying Agent is permitted to apply all such money or
U.S. Government Obligations in accordance with Section 9.01 hereof; provided,
--------
however, that if the Issuers or the Guarantors, if any, have made any payment of
- -------
Accreted Value of, premium, if any, or accrued interest on any Notes because of
the reinstatement of their obligations, the Issuers and each such Guarantor
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
Section 9.07. Moneys Held by Paying Agent.
---------------------------
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Issuers, be paid to the Trustee, or if sufficient
moneys have been deposited pursuant to Section 9.01 hereof, to the Issuers (or,
if such moneys had been deposited by any Guarantor, to
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such Guarantor) and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
Section 9.08. Moneys Held by Trustee.
----------------------
Any moneys deposited with the Trustee or any Paying Agent or then held
by the Issuers or any Guarantor, if any, in trust for the payment of the
Accreted Value of, or premium, if any, or interest, if any, on any Note that are
not applied but remain unclaimed by the Holder of such Note for two years after
the date upon which the Accreted Value of, or premium, if any, or interest, if
any, on such Note shall have respectively become due and payable shall be repaid
to the Issuers (or, if appropriate, the applicable Guarantor) upon a written
request of the Issuers in the form of an Officers' Certificate, or if such
moneys are then held by the Issuers or any Guarantor, if any, in trust, such
moneys shall be released from such trust; and the Holder of such Note entitled
to receive such payment shall thereafter, as an unsecured general creditor, look
only to the Issuers and the Guarantors, if any, for the payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
shall thereupon cease.
ARTICLE 10
GUARANTEES
Section 10.01. Guarantees.
----------
Each Guarantor, if any, hereby unconditionally and irrevocably
guarantees, jointly and severally, to each Holder and to the Trustee on behalf
of the Holders and its successors and assigns (a) the due and punctual payment
of principal of, premium, if any, and interest on the Notes when due, whether at
maturity, by acceleration, by redemption or otherwise, and all other monetary
obligations of the Issuers under this Indenture, the Notes and the Registration
Rights Agreement and (b) the full and punctual performance within applicable
grace periods of all other obligations of the Issuers under this Indenture,
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the Notes and the Registration Rights Agreement (all the foregoing being
hereinafter collectively called the "Guaranteed Obligations"). Each Guarantor,
if any, further agrees that the Guaranteed Obligations may be extended or
renewed, in whole or in part, without notice or further assent from such
Guarantor and that such Guarantor will remain bound under this Article 10
notwithstanding any extension or renewal of any Guaranteed Obligation.
Each Guarantor, if any, waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of any Issuer, any right to require a proceeding first against the Issuer,
protest, notice and all demands whatsoever. Each Guarantor, if any, waives
notice of any default under the Notes or the Guaranteed Obligations. The
obligations of each Guarantor, if any, hereunder shall not be affected by (a)
the failure of any Holder or the Trustee to assert any claim or demand or to
enforce any right or remedy against the Company or any other Person under this
Indenture, the Notes or any other agreement or otherwise; (b) any extension or
renewal of any thereof; (c) any rescission, waiver, amendment or modification of
any of the terms or provisions of this Indenture, the Notes or any other
agreement; (d) the release of any security held by any Holder or the Trustee for
the Guaranteed Obligations or any of them; (e) the failure of any Holder or the
Trustee to exercise any right or remedy against any other guarantor of the
Guaranteed Obligations; or (f) except as provided in Section 10.06, any change
in the ownership of such Guarantor.
Except as expressly set forth in Sections 10.02 and 10.06, the
obligations of each Guarantor, if any, hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
Guaranteed Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of each Guarantor, if any, herein shall not be
dis-
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charged or impaired or otherwise affected by the failure of any Holder or the
Trustee to assert any claim or demand or to enforce any remedy under this
Indenture, the Notes or any other agreement, by any waiver or modification of
any thereof, by any default, failure or delay, willful or otherwise, in the
performance of the Guaranteed Obligations, or by any other act or thing or
omission or delay to do any other act or thing which may or might in any manner
or to any extent vary the risk of such Guarantor or would otherwise operate as a
discharge of such Guarantor as a matter of law or equity.
Each Guarantor, if any, further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of, premium, if any, or interest on
any Guaranteed Obligation is rescinded or must otherwise be restored by any
Holder or the Trustee upon the bankruptcy or reorganization of any Issuer or
otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Guarantor by virtue hereof, upon the failure of any Issuer to pay the principal
of, premium, if any, or interest on any obligation under the Notes or this
Indenture when and as the same shall become due, whether at maturity, by
acceleration, by redemption or otherwise, or to perform or comply with any other
obligation under the Notes or this Indenture, each Guarantor, if any, hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid amount of such Guaranteed Obligations, (ii) accrued
and unpaid interest on such Guaranteed Obligations (but only to the extent not
prohibited by law) and (iii) all other monetary Guaranteed Obligations of the
Issuers to the Holders and the Trustee.
Each Guarantor, if any, agrees that it shall not be entitled to any
right of subrogation in respect of any Guaranteed Obligations guaranteed hereby
until payment in full of all Guaranteed Obligations. Each Guarantor, if any,
further agrees that, as between it, on the one hand, and the Holders and the
<PAGE>
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Trustee, on the other hand, (x) the maturity of the Guaranteed Obligations
hereby may be accelerated as provided in Section 6 for the purposes of such
Guarantor's Guarantee herein, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations under the
Notes or this Indenture guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in Section 6, such
obligations (whether or not due and payable) shall forthwith become due and
payable by such Guarantor for the purposes of this Section.
Each Guarantor, if any, also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Article 10.
Section 10.02. Limitation on Liability.
-----------------------
Any term or provision of this Indenture to the contrary
notwithstanding, the maximum aggregate amount of the obligations guaranteed
hereunder by any Guarantor shall not exceed the maximum amount that can be
hereby guaranteed without rendering this Indenture, as it relates to such
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
To effectuate the foregoing intention, the obligations of each Guarantor, if
any, shall be limited to the maximum amount as will, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor,
if any, in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations hereunder, result in the
obligations of such Guarantor under its Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in a pro rata amount based on the
--- ----
Adjusted Net Assets of each Guarantor.
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In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 10.03. Successors and Assigns.
----------------------
This Article 10 shall be binding upon each Guarantor and its
successors and assigns and shall enure to the benefit of the successors and
assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
conferred upon that party in this Indenture and in the Notes shall automatically
extend to and be vested in such transferee or assignee, all subject to the terms
and conditions of this Indenture.
Section 10.04. No Waiver.
---------
Neither a failure nor a delay on the part of either the Trustee or the
Holders in exercising any right, power or privilege under this Article 10 shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any right, power or privilege. The
rights, remedies and benefits of the Trustee and the Holders herein expressly
specified are cumulative and not exclusive of any other rights, remedies or
benefits which either may have under this Article 10 at law, in equity, by
statute or otherwise.
Section 10.05. Modification.
------------
No modification, amendment or waiver of any provision of this Article
10, nor the consent to any departure by any Guarantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Trustee, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on any
Guarantor in any case shall entitle such Guarantor to any other or further
notice or demand in the same, similar or other circumstances.
<PAGE>
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Section 10.06. Release of Guarantor.
--------------------
A Guarantor shall be released from all of its obligations under its
Guarantee if:
(i) (a) the Guarantor has sold all or substantially all of its
assets or the Company and its Restricted Subsidiaries have sold all of the
Capital Stock of the Guarantor owned by them, in each case in a transaction
in compliance with Sections 4.09 and 5.01 hereof and (b) such Guarantor is
unconditionally released from all of the Obligations under the Indebtedness
described in Section 4.08 which resulted in the requirement that such
Guarantor Guarantee the Notes;
(ii) (a) the Guarantor merges with or into or consolidates with, or
transfers all or substantially all of its assets to, the Company or another
Guarantor in a transaction in compliance with Section 5.01 hereof and (b)
such Guarantor is unconditionally released from all of the Obligations
under the Indebtedness described in Section 4.08 which resulted in the
requirement that such Guarantor Guarantee the Notes; or
(iii) such Guarantor is unconditionally released from all of the
Obligations under the Indebtedness described in Section 4.08 which resulted
in the requirement that such Guarantor Guarantee the Notes;
and in each such case, such Guarantor has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to such transactions have been complied
with.
Section 10.07. Execution of Supplemental Indenture for Future Guarantors.
----------------------------------------------------------
Each Subsidiary which is required to become a Guarantor pursuant to
Section 4.08 shall, and the Issuers shall cause each such Subsidiary to,
promptly execute and deliver to the Trustee a supplemental indenture in the form
of Exhibit F
---------
<PAGE>
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hereto pursuant to which such Subsidiary shall become a Guarantor under this
Section 10 and shall guarantee the obligations of the Company under the Notes
and this Indenture. Concurrently with the execution and delivery of such
supplemental indenture, the Company shall deliver to the Trustee an Opinion of
Counsel to the effect that such supplemental indenture has been duly authorized,
executed and delivered by such Subsidiary and that, subject to the application
of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and
other similar laws relating to creditors' rights generally and to the principles
of equity, whether considered in a proceeding at law or in equity, the Guarantee
of such Guarantor is a legal, valid and binding obligation of such Guarantor,
enforceable against such Guarantor in accordance with its terms.
Section 10.08. Execution and Delivery of Guarantees.
------------------------------------
To evidence the Guarantee set forth in this Article 10, each Guarantor
hereby agrees that a notation of such Guarantee substantially in the form of
Exhibit E hereto shall be placed on each Note authenticated and made available
- ---------
for delivery by the Trustee and that this Guarantee shall be executed on behalf
of each Guarantor by the manual or facsimile signature of two Officers or an
Officer and the Secretary of each Guarantor.
Each Guarantor hereby agrees that the Guarantee set forth in Section
10.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on the Guarantee no
longer holds that office at the time the Trustee authenticates the Note on which
the Guarantee is endorsed, the Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of each Guarantor.
<PAGE>
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ARTICLE 11
INTERCREDITOR AGREEMENT WITH LENDERS
UNDER THE SENIOR CREDIT FACILITY
Section 11.01. Non-Petition Covenant.
---------------------
Each Holder, by accepting the Note or Notes issued to it, covenants
and agrees that, prior to the indefeasible payment and satisfaction in full in
cash of all outstanding Obligations under the Senior Credit Facility, neither it
nor the Trustee shall (a) institute against, or join any other Person in
instituting against, or intervene with respect to, Muzak LLC, any involuntary
bankruptcy, reorganization, arrangement, insolvency, receivership or liquidation
case under the laws of the United States or any state of the United States or
(b) in any voluntary or involuntary bankruptcy case of any Issuer, seek a
substantive consolidation of the estate of such Issuer with the estates of Muzak
LLC and/or Muzak Finance.
Section 11.02. Subordination Upon Substantive Consolidation.
---------------------------------------------
Notwithstanding Section 11.01 hereof (and without limitation of any
other rights or remedies of any holder of Indebtedness under the Senior Credit
Facility), upon any substantive consolidation of the estate of any Issuer with
the estates of Muzak LLC and/or Muzak Finance in any bankruptcy, reorganization,
arrangement, insolvency, receivership, liquidation or similar case relating to
such Issuer or its property, the Issuers agree, and each Holder by accepting a
Note agrees, that the Indebtedness evidenced by the Notes and all Obligations
under the Notes, the Registration Rights Agreement and the Indenture with
respect thereto, including recission claims, are subordinated in right of
payment, to the extent and in the manner provided in this Article 11, to the
prior indefeasible payment and satisfaction in full in cash of all Indebtedness
under the Senior Credit Facility (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed), and that the subordination
is for the benefit of the holders of Indebt-
<PAGE>
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edness under the Senior Credit Facility. In the event of any such substantive
consolidation of the estate of any Issuer with the estates of Muzak LLC and/or
Muzak Finance:
(1) holders of Indebtedness under the Senior Credit Facility shall be
entitled to receive payment in full in cash of all Obligations due in
respect of such Indebtedness under the Senior Credit Facility (including
interest after the commencement of any such proceeding at the rate
specified in the Senior Credit Facility), before Holders of the Notes shall
be entitled to receive any payment with respect to the Notes or any
Obligations under the Notes, the Registration Rights Agreement or the
Indenture with respect thereto, including recission claims (except that
Holders may receive payments and other distributions made from any
defeasance trust created pursuant to Section 9.04 hereof); and
(2) until all Obligations with respect to Indebtedness under the
Senior Credit Facility (as provided in subsection (1) above) are paid in
full in cash, any distribution to which Holders would be entitled but for
this Article 11 shall be made to holders of Indebtedness under the Senior
Credit Facility or their representative (except that Holders of Notes may
receive payments and other distributions made from any defeasance trust
created pursuant to Section 9.04 hereof), as their interests may appear.
Section 11.03. When Distribution Must be Paid Over.
-----------------------------------
In the event that, notwithstanding the foregoing provisions of Section
11.02, the Trustee or any Holder receives any payment or distribution of assets
of any Issuer of any kind, whether in cash, property or securities, including,
without limitation, by way of set-off or otherwise, in respect of the Notes or
any Obligations under the Notes, the Registration Rights Agreement or the
Indenture, before all Indebtedness under the Senior Credit Facility is
indefeasibly paid and satisfied in full in cash, then such payment or
distribution (other than a payment or distribution from the trust described in
Section 9.04) will be held by the recipient in trust for the bene-
<PAGE>
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fit of holders of Indebtedness under the Senior Credit Facility and will be
immediately paid over or delivered to the holders of Indebtedness under the
Senior Credit Facility or their representative to the extent necessary to make
payment in full of all Indebtedness under the Senior Credit Facility remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to or for the holders of Indebtedness under the Senior
Credit Facility as provided for in Section 11.02.
Section 11.04. Trustee's Relation to Senior Indebtedness.
-----------------------------------------
With respect to the holders of Indebtedness under the Senior Credit
Facility, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article 11, and
no implied covenants or obligations with respect to the holders of Indebtedness
under the Senior Credit Facility shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Indebtedness under the Senior Credit Facility and the Trustee shall
not be liable to any holder of Indebtedness under the Senior Credit Facility
(other than for its willful misconduct or negligence) if it shall mistakenly pay
over or deliver to Holders, any Issuer or any other Person moneys or assets to
which any holder of Indebtedness under the Senior Credit Facility shall be
entitled by virtue of this Article 11 or otherwise. Nothing in this Section
11.04 shall affect the obligation of any other such Person receiving such
payment or distribution from the Trustee or any other Agent to hold such payment
for the benefit of, and to pay such payment over to, the holders of Indebtedness
under the Senior Credit Facility.
Section 11.05. Subrogation of Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
Upon the payment in full of all Indebtedness under the Senior Credit
Facility, the Holders shall be subrogated to the rights of the holders of such
Indebtedness under the Senior Credit Facility to receive payments and
distributions of cash, Property and securities applicable to the Indebtedness
under
<PAGE>
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the Senior Credit Facility until the Accreted Value of, premium, if any and
interest on the Notes shall be paid in full. For purposes of such subrogation,
no payments or distributions to the holders of Indebtedness under the Senior
Credit Facility of any cash, property or securities to which the Holders or the
Trustee would be entitled except for the provisions of this Article 11, and no
payments over pursuant to the provisions of this Article 11 to the holders of
Indebtedness under the Senior Credit Facility by Holders or the Trustee, shall,
as among any Issuer, its creditors other than holders of Indebtedness under the
Senior Credit Facility and the Holders, be deemed to be a payment or
distribution by such Issuer to or on account of the Indebtedness under the
Senior Credit Facility.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 11 shall have been
applied, pursuant to the provisions of this Article 11, to the payment of all
amounts payable under the Indebtedness under the Senior Credit Facility of any
Issuer, then and in such case the Holders shall be entitled to receive from the
holders of such Indebtedness under the Senior Credit Facility at the time
outstanding any payments or distributions received by such holders of such
Indebtedness under the Senior Credit Facility in excess of the amount sufficient
to pay all amounts payable under or in respect of such Indebtedness under the
Senior Credit Facility in full in cash.
Section 11.06. Provisions Solely to Define Relative Rights.
--------------------------------------------
The provisions of this Article 11 are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Indebtedness under the Senior Credit Facility on the other hand.
Nothing contained in this Article 11 or elsewhere in this Indenture or in the
Notes is intended to or shall (a) impair, as among any Issuer, its creditors
other than holders of Indebtedness under the Senior Credit Facility and the
Holders, the obligation of the Issuers, which is absolute and unconditional, to
pay to the Holders the Accreted Value of, premium, if any, and interest on the
Notes as and when the same shall become due and payable in
<PAGE>
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accordance with their terms; or (b) affect the relative rights against the
Issuers of the Holders and creditors of the Issuers other than the holders of
Indebtedness under the Senior Credit Facility; or (c) prevent the Trustee or any
Holder from exercising all remedies otherwise permitted by applicable law upon a
Default or an Event of Default under this Indenture, subject to the rights, if
any, under this Article 11 of the holders of Indebtedness under the Senior
Credit Facility in any bankruptcy, reorganization, arrangement, insolvency or
liquidation case, referred to in Section 11.01 hereof, to receive, pursuant to
and in accordance with such Section, cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
The failure to make a payment on account of the Accreted Value of,
premium, if any, or interest on the Notes by reason of any provision of this
Article 11 shall not be construed as preventing the occurrence of a Default or
an Event of Default hereunder.
Section 11.07. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Note by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of any
Issuer whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
indebtedness of any Issuer owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file such a claim prior to 30 days before the expiration of the time to file
such a claim, the holders of Senior Indebtedness, or any Representative, is
hereby authorized to have the right to file such a claim for or on behalf of the
Holders, and the Trustee shall supply such holders and representatives all
information and copies of documents in the Trustee's possession and relating to
this Indenture, the Notes or
<PAGE>
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the Issuers, which such holders or representatives reasonably request an order
to file such claims.
Section 11.08. No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Indebtedness under
the Senior Credit Facility to enforce subordination as herein provided shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of any Issuer or by any act or failure to act, in good faith, by any
such holder, or by any non-compliance by any Issuer with the terms, provisions
and covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section
11.08, the holders of Indebtedness under the Senior Credit Facility may, at any
time and from time to time, without the consent of or notice to the Trustee or
the Holders, without incurring responsibility to the Holders and without
impairing or releasing the subordination provided in this Article 11 or the
obligations hereunder of the Holders to the holders of Indebtedness under the
Senior Credit Facility, do any one or more of the following: (1) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Indebtedness under the Senior Credit Facility or otherwise amend or
supplement in any manner such Indebtedness or any instrument evidencing the same
or any agreement under which Indebtedness under the Senior Credit Facility is
outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Indebtedness under the Senior Credit
Facility; (3) release any Person liable in any manner for the collection or
payment of Indebtedness under the Senior Credit Facility; and (4) exercise or
refrain from exercising any rights against the Issuers and any other Person;
provided, however, that in no event shall any such actions limit the right of
- -------- -------
the Holders to take any action to accelerate the maturity of the Notes pursuant
to Article 6 hereof or to pursue any rights or remedies hereunder or under
applicable laws if the taking of such action does not otherwise violate the
terms of this Indenture.
<PAGE>
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Section 11.09. Notice to Trustee.
-----------------
(a) The Issuers shall give prompt written notice to the Trustee of any
fact known to the Issuers which would prohibit the making of any payment to or
by the Trustee at its Corporate Trust Office in respect of the Notes.
Notwithstanding the provisions of this Article 11 or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to or by the Trustee in
respect of the Notes, unless and until the Trustee shall have received written
notice thereof from the Issuers or a holder of Indebtedness under the Senior
Credit Facility or from any trustee, fiduciary or agent therefor; and, prior to
the receipt of any such written notice, the Trustee, subject to the provisions
of this Section 11.09, shall be entitled in all respects to assume that no such
facts exist; provided, however, that if the Trustee shall not have received the
-------- -------
notice provided for in this Section 11.09 in accordance with Section 12.02 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose under this Indenture (including,
without limitation, the payment of the Accreted Value of, premium, if any, or
interest on any Note), then, anything herein contained to the contrary
notwithstanding but without limiting the rights and remedies of the holders of
Indebtedness under the Senior Credit Facility or any trustee, fiduciary or agent
therefor, the Trustee shall have full power and authority to receive such money
and to apply the same to the purpose for which such money was received and shall
not be affected by any notice in accordance with Section 12.02 to the contrary
which may be received by it within two Business Days prior to such date; nor
shall the Trustee be charged with knowledge of the curing of any such default or
the elimination of the act or condition preventing any such payment unless and
until the Trustee shall have received an Officers' Certificate to such effect.
(b) Subject to the provisions of Section 7.01 hereof, the Trustee
shall be entitled to rely on the delivery to it of a written notice to the
Trustee and the Issuers by a
<PAGE>
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Person representing itself to be a holder of Indebtedness under the Senior
Credit Facility (or a trustee, fiduciary or agent therefor) to establish that
such notice has been given by a holder of Indebtedness under the Senior Credit
Facility (or a trustee, fiduciary or agent therefor); provided, however, that
-------- -------
failure to give such notice to the Issuers shall not affect in any way the
ability of the Trustee to rely on such notice. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Indebtedness under the Senior Credit Facility
to participate in any payment or distribution pursuant to this Article 11, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Indebtedness under the Senior
Credit Facility held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent to
the rights of such Person under this Article 11, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Issuers referred to
in this Article 11, the Trustee, subject to the provisions of Section 7.01
hereof, and the Holders shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Indebtedness under the Senior Credit Facility and other Indebtedness of any
Issuer, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent
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thereto or to this Article 11; provided that the foregoing shall apply only if
--------
such court has been fully apprised of the provisions of this Article 11.
Section 11.11. Rights of Trustee as a Holder of Indebtedness under the Senior
Credit Facility; Preservation of Trustee's Rights.
-------------------------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 11 with respect to any Indebtedness under the
Senior Credit Facility which may at any time be held by it, to the same extent
as any other holder of Indebtedness under the Senior Credit Facility, and
nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 11 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07 hereof.
Section 11.12. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Issuers and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article 11 in addition to or in place of the Trustee.
Section 11.13. No Suspension of Remedies.
-------------------------
Nothing contained in this Article 11 shall limit the right of the
Trustee or the Holders to take any action to accelerate the maturity of the
Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article 11 of
the holders, from time to time, of Indebtedness under the Senior Credit
Facility.
<PAGE>
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ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 12.02. Notices.
-------
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Issuers or any Guarantor:
c/o Muzak Holdings LLC
2901 Third Avenue
Suite 400
Seattle, Washington 98121
Attention: Brad Bodenman
Tel: (206) 633-3000
Fax: (206) 633-6210
Copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Laurie Gunther, Esq.
Tel: (312) 861-2000
Fax: (312) 861-2200
<PAGE>
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Copy to:
ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attention: Peni Garber
Tel: (617) 859-2959
Fax: (617) 859-8797
If to the Trustee:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Corporate Trust Department
/Ref: Muzak 13% Senior Discount Notes due 2010
Fax: (617) 664-5150
The Issuers, any Guarantor or the Trustee by written notice to the
others may designate additional or different addresses for subsequent notices or
communications. Any notice or communication to the Issuers, any Guarantor and
the Trustee, shall be deemed to have been given or made as of the date so
delivered if personally delivered; when answered back, if telexed; when receipt
is acknowledged, if telecopied; and five (5) calendar days after mailing if sent
by registered or certified mail, postage prepaid (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Noteholder shall be mailed to
him by first-class mail, postage prepaid, at his address shown on the register
kept by the Registrar.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication to a Noteholder is mailed in the manner provided
above, it shall be deemed duly given, whether or not the addressee receives it.
<PAGE>
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In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 12.03. Communications by Holders with Other Holders.
--------------------------------------------
Noteholders may communicate pursuant to TIA Section 312(b) with other
Noteholders with respect to their rights under this Indenture or the Notes. The
Issuers, the Guarantors (if any), the Trustee, the Registrar and anyone else
shall have the protection of TIA Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Issuers or any Guarantor to the
Trustee to take any action under this Indenture, the Issuers or such Guarantor,
as the case may be, shall furnish to the Trustee if and to the extent reasonably
requested by the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 11.05 below) stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 11.05 below) stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
<PAGE>
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Section 12.05. Statements Required in Certificate and Opinion.
----------------------------------------------
Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, it or he has
made such examination or investigation as is necessary to enable it or him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such covenant or condition has been complied with.
Section 12.06. When Treasury Notes Disregarded.
-------------------------------
In determining whether the Holders of the required aggregate principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Issuers, any Guarantor or any other obligor on the Notes or by any
Affiliate of any of them shall be disregarded, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes which the Trustee actually knows are so
owned shall be so disregarded. Notes so owned which have been pledged in good
faith shall not be disregarded if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to the Notes and that the
pledgee is not an Issuer, any Guarantor or any other obligor upon the Notes or
any Affiliate of any of them.
<PAGE>
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Section 12.07. Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or at meetings of
Noteholders. The Registrar and Paying Agent may make reasonable rules for their
functions.
Section 12.08. Business Days; Legal Holidays.
-----------------------------
A "Business Day" is a day that is not a Legal Holiday. A "Legal
Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on
which banking institutions are not required to be open in the State of New York.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 12.09. Governing Law.
-------------
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES.
Section 12.10. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan,
security or debt agreement of any Issuer or any Subsidiary thereof. No such
indenture, loan, security or debt agreement may be used to interpret this
Indenture.
Section 12.11. No Recourse Against Others.
--------------------------
A director, officer, employee, stockholder or incorporator, as such,
of any Issuer or any Guarantor shall not have any liability for any obligations
of any Issuer or any Guarantor under the Notes, the Guarantees (if any) or this
Indenture or for any claim based on, in respect of or by reason of such
<PAGE>
-148-
obligations or their creations. Each Noteholder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
Section 12.12. Successors.
----------
All agreements of each of the Issuers and each Guarantor (if any) in
this Indenture and the Notes shall bind their respective successors. All
agreements of the Trustee, any additional trustee and any Paying Agents in this
Indenture shall bind its successor.
Section 12.13. Multiple Counterparts.
---------------------
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
Section 12.14. Table of Contents, Headings, etc.
--------------------------------
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 12.15. Separability.
------------
Each provision of this Indenture shall be considered separable and if
for any reason any provision which is not essential to the effectuation of the
basic purpose of this Indenture or the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE>
-149-
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed all as of the date and year first written above.
MUZAK HOLDINGS LLC
By: /s/ Peni Garber
---------------------------------------------
Name: Peni Garber
Title:
MUZAK HOLDINGS FINANCE CORP.
By: /s/ Peni Garber
---------------------------------------------
Name: Peni Garber
Title:
<PAGE>
-150-
Trustee:
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: /s/ Carolina D. Altomare
---------------------------------------------
Name: Carolina D. Altomare
Title: Assistant Vice President
<PAGE>
EXHIBIT A
---------
(FACE OF NOTE)
[FORM OF NOTE]
--------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES
THAT (1) IT WILL NOT PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION
DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS NOTE
AND THE LAST DATE ON WHICH ANY ISSUER, OR ANY AFFILIATE OF ANY ISSUER, WAS THE
OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE), RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO ANY ISSUER OR ANY SUBSIDIARY THEREOF, (B)
INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT, PRIOR TO SUCH
TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (2) WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE PRIOR TO THE RESALE RESTRICTION TERMINATION DATE, IF THE
PROPOSED TRANSFER IS BEING MADE PURSUANT TO CLAUSE (C) OR (E) ABOVE, PRIOR TO
SUCH TRANSFER, THE HOLDER WILL BE REQUIRED TO FURNISH TO THE TRUSTEE AND THE
ISSUERS SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS ANY OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT
A-1
<PAGE>
TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
A-2
<PAGE>
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTION
1271 ET SEQ. OF THE INTERNAL REVENUE CODE. FOR EACH $1,000 PRINCIPAL AMOUNT
AT MATURITY OF THIS NOTE, THE ISSUE PRICE IS $533.285. THE ISSUE DATE OF
THIS NOTE IS MARCH 18, 1999 AND THE YIELD TO MATURITY IS 13%.
CUSIP
No. $
MUZAK HOLDINGS LLC
MUZAK HOLDINGS FINANCE CORP.
13% Senior Discount Notes due 2010
Muzak Holdings LLC, a Delaware limited liability company and Muzak
Holdings Finance Corp., a Delaware corporation (collectively, the "Issuers",
which term includes any successor entities), for value received promise to pay
to ________________________ or registered assigns the principal sum of
___________________ Dollars, on March 15, 2010.
Interest Payment Dates: March 15 and September 15 commencing September
15, 2004.
Record Dates: March 1 and September 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-3
<PAGE>
IN WITNESS WHEREOF, the Issuers have caused this Note to be signed
manually or by facsimile by their duly authorized officers.
MUZAK HOLDINGS LLC
By: ______________________________________________
Name:
Title:
By: ______________________________________________
Name:
Title:
MUZAK HOLDINGS FINANCE CORP.
By: ______________________________________________
Name:
Title:
By:
Name:
Title:
Certificate of Authentication:
This is one of the 13% Senior Discount Notes due 2010 referred to in the within-
mentioned Indenture
Dated:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ______________________________
A-4
<PAGE>
Authorized Signatory
A-5
<PAGE>
(REVERSE SIDE)
MUZAK HOLDINGS LLC
MUZAK HOLDINGS FINANCE CORP.
13% Senior Discount Notes due 2010
1. INTEREST.
Muzak Holdings LLC, a Delaware limited liability company (the
"Company") and Muzak Holdings Finance Corp., a Delaware corporation ("Finance
Corp." and together with the Company, the "Issuers"), promise to pay cash
interest on the principal amount of this Note semiannually on March 15 and
September 15 of each year (each an "Interest Payment Date"), commencing on
September 15, 2004, at the rate of 13% per annum. Cash interest will be
--- -----
computed on the basis of a 360-day year of twelve 30-day months. Cash interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from March 15, 2004.
The Issuers shall pay cash interest on overdue principal, and on
overdue premium, if any, and overdue interest, to the extent lawful, at the rate
of interest borne by the Notes.
2. METHOD OF PAYMENT.
The Issuers will pay interest on this Note provided for in Paragraph 1
above (except defaulted interest) to the person who is the registered Holder of
this Note at the close of business on the March 1 or September 1 preceding the
Interest Payment Date (whether or not such day is a Business Day). The Holder
must surrender this Note to a Paying Agent to collect principal payments. The
Issuers will pay Accreted Value or principal, premium, if any, and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts; provided, however, that the Issuers may pay
-------- -------
Accreted Value or principal, premium, if any, and interest by check payable in
such money. The Issuers may mail an interest check to the Holder's registered
address.
A-6
<PAGE>
3. PAYING AGENT AND REGISTRAR.
Initially, State Street Bank and Trust Company, a Massachusetts
banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The
Issuers may change any Paying Agent or Registrar without notice to the Holders.
Neither the Issuers nor any of its Subsidiaries or Affiliates may act as Paying
Agent but may act as Registrar or co-Registrar.
4. INDENTURE; RESTRICTIVE COVENANTS.
The Issuers issued this Note under an Indenture dated as of March 18,
1999 (the "Indenture") among the Issuers and the Trustee. The terms of this Note
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-
77bbbb) as in effect on the date of the Indenture. This Note is subject to all
such terms, and the Holder of this Note is referred to the Indenture and said
Trust Indenture Act for a statement of them. All capitalized terms in this Note,
unless otherwise defined, have the meanings assigned to them by the Indenture.
The Notes are general unsecured obligations of the Issuers limited to
$75,000,000 aggregate principal amount at maturity. The Indenture imposes
certain restrictions on, among other things, the incurrence of indebtedness, the
incurrence of liens, the making of certain investments, mergers and sale of
assets, the payments of dividends on or the repurchase of, capital stock of the
Issuers, certain other restricted payments by the Issuers and their
Subsidiaries, certain transactions with, and investments in, their Affiliates,
the issuance of capital stock by Subsidiaries, the types of businesses which the
Issuers and their Subsidiaries may engage in, the creation of dividend and other
payment restrictions affecting Subsidiaries, certain sale-leaseback transactions
and a provision regarding change-of-control transactions.
5. REDEMPTION.
(a) The Issuers may redeem the Notes that are redeemable at their
option, in whole at any time or in part from
A-7
<PAGE>
time to time on or after March 15, 2004 at the redemption prices (expressed as
percentages of the principal amount at maturity thereof), set forth below plus
accrued and unpaid interest, if any, to the Redemption Date, if redeemed during
the twelve-month period beginning on March 15 of each year indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................ 106.500%
2005........................ 104.333%
2006........................ 102.167%
2007 and thereafter......... 100.000%
</TABLE>
(b) The Issuers may redeem up to 35% of the aggregate principal
amount at maturity of the Notes originally issued under the Indenture, at any
time and from time to time prior to March 15, 2002, at a redemption price equal
to 113.0% of the Accreted Value thereof, plus accrued and unpaid interest, if
any, to the Redemption Date out of the net cash proceeds of one or more Equity
Offerings; provided, that at least 65% of the aggregate principal amount at
--------
maturity of the Notes originally issued under the Indenture remains outstanding
immediately after any such redemption (it being expressly agreed that for
purposes of determining whether this condition is satisfied, Notes owned by the
Issuers or any of its Affiliates shall be deemed not to be outstanding). In
order to effect the foregoing redemption with the proceeds of any Equity
Offering, the Issuers shall make such redemption not more than 60 days following
the closing of any such Equity Offering.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed via first class mail at least 30
days but not more than 60 days prior to the Redemption Date to each Holder to be
redeemed at its registered address as it shall appear on the register of the
Notes maintained by the Registrar. On and after any Redemption Date, interest
will cease to accrue on the Notes or portions thereof called for redemption
unless the Issuers shall fail to redeem any such Note.
A-8
<PAGE>
7. SUBORDINATION.
Each Holder, by accepting the Note or Notes issued to it, covenants
and agrees that, prior to the payment in full in cash of all outstanding amounts
under the Senior Credit Facility, neither it nor the Trustee shall (a) institute
against, or join any other Person in instituting against or intervene with
respect to Muzak LLC, any involuntary bankruptcy, reorganization, arrangement,
insolvency or liquidation case under the laws of the United States or any state
of the United States or (b) in any voluntary or involuntary bankruptcy case of
any Issuer, seek a substantive consolidation of the estate of such Issuer with
the estates of Muzak LLC and/or Muzak Finance. In addition, and without
limitation of any other rights or remedies of any holder of Indebtedness under
the Senior Credit Facility, upon any substantive consolidation of the estate of
any Issuer with the estates of Muzak LLC and/or Muzak Finance in any bankruptcy,
reorganization, receivership or similar case relating to such Issuer or its
property, the Issuers agree under the Notes, the Registration Rights Agreement
and the Indenture, and each Holder by accepting a Note agrees, that the
Indebtedness evidenced by the Notes and all Obligations under the Notes, the
Registration Rights Agreement and the Indenture with respect thereto, including
recission claims, are subordinated in right of payment, to the extent and in the
manner provided for in Article 11 of the Indenture, to the prior payment in full
in cash of all Indebtedness under the Senior Credit Facility (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed), and that the subordination is for the benefit of the holders of the
Indebtedness under the Senior Credit Facility.
8. OFFERS TO PURCHASE.
The Indenture requires that certain proceeds from Asset Sales be used,
subject to further limitations contained therein, to make an offer to purchase
certain amounts of Notes in accordance with the procedures set forth in the
Indenture. The Issuers are also required to make an offer to purchase Notes upon
occurrence of a Change of Control in accordance with procedures set forth in the
Indenture.
A-9
<PAGE>
9. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement among the Issuers and
CIBC Oppenheimer Corp. and Goldman, Sachs & Co., as initial purchasers of the
Notes, the Issuers will be obligated to consummate an exchange offer pursuant to
which the Holder of this Note shall have the right to exchange this Note for
Notes of a separate series issued under the Indenture (or a trust indenture
substantially identical to the Indenture in accordance with the terms of the
Registration Rights Agreement) which have been registered under the Securities
Act, in like principal amount and having substantially identical terms as the
Notes. The Holders shall be entitled to receive certain additional interest
payments in the event such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement.
10. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 principal amount at maturity and integral multiples thereof. A Holder may
register the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Note selected for redemption or register the transfer of or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed or any Note after it is called for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
11. PERSONS DEEMED OWNERS.
The registered Holder of this Note may be treated as the owner of it
for all purposes.
A-10
<PAGE>
12. UNCLAIMED MONEY.
If money for the payment of Accreted Value or principal, premium or
interest on any Note remains unclaimed for two years, the Trustee or Paying
Agent will pay the money back to the Issuers at its request. After that, Holders
entitled to money must look to the Issuers for payment as general creditors
unless an "abandoned property" law designates another person.
13. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
modified, amended or supplemented by the Issuers, the Guarantors and the Trustee
with the consent of the Holders of at least a majority in aggregate principal
amount at maturity of the Notes then outstanding and any existing Default or
compliance with any provision may be waived in a particular instance with the
consent of the Holders of a majority in aggregate principal amount at maturity
of the Notes then outstanding. Without the consent of Holders, the Issuers, and
the Trustee may amend the Indenture or the Notes or supplement the Indenture for
certain specified purposes including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any Holder.
14. SUCCESSOR ENTITY.
When a successor entity assumes all the obligations of its predecessor
under the Notes and the Indenture and immediately before and thereafter no
Default exists and certain other conditions are satisfied, the predecessor
entity will be released from those obligations.
15. DEFAULTS AND REMEDIES.
Events of Default are set forth in the Indenture. If an Event of
Default (other than an Event of Default pursuant to Section 6.01(g) or (h) of
the Indenture with respect to the Company) occurs and is continuing, the Trustee
by notice to the Company, or the Holders of not less than 25% in aggregate
prin-
A-11
<PAGE>
cipal amount at maturity of the Notes then outstanding, may declare to be
immediately due and payable the entire principal amount of all the Notes then
outstanding plus accrued but unpaid interest to the date of acceleration;
provided, however, that after such acceleration but before judgment or decree
- -------- -------
based on such acceleration is obtained by the Trustee, the Holders of a majority
in aggregate principal amount at maturity of the outstanding Notes may, under
certain circumstances, rescind and annul such acceleration and its consequences
if all existing Events of Default, other than the nonpayment of principal,
premium or interest that has become due solely because of the acceleration, have
been cured or waived and if the rescission would not conflict with any judgment
or decree. No such rescission shall affect any subsequent Default or impair any
right consequent thereto. In case an Event of Default specified in Section
6.01(g) or (h) of the Indenture occurs, such principal amount, together with
premium, if any, and interest with respect to all of the Notes, shall be due and
payable immediately without any declaration or other act on the part of the
Trustee or the Holders of the Notes.
16. TRUSTEE DEALINGS WITH THE ISSUERS.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Issuers, and may otherwise deal with the Issuers, as if it were not Trustee.
17. NO RECOURSE AGAINST OTHERS.
As more fully described in the Indenture, a director, officer,
employee or stockholder, as such, of the Issuers or any Guarantor shall not have
any liability for any obligations of the Issuers or the Guarantors (if any)
under the Notes, the Guarantees (if any) or the Indenture or for any claim based
on, in respect or by reason of, such obligations or their creation. The Holder
of this Note by accepting this Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of this Note.
A-12
<PAGE>
18. DEFEASANCE AND COVENANT DEFEASANCE.
The Indenture contains provisions for defeasance of the entire
indebtedness on this Note and for defeasance of certain covenants in the
Indenture upon compliance by the Issuers with certain conditions set forth in
the Indenture.
19. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (joint tenants with right of survivorship and not as tenants
in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Securities Identification Procedures, the Issuers have caused CUSIP Numbers to
be printed on the Notes and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of the Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
21. GOVERNING LAW.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES TO THE INDENTURE HAS AGREED TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THE INDENTURE OR THIS NOTE.
THE ISSUERS WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST
AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: MUZAK
HOLDINGS LLC, 2901 Third Ave-
A-13
<PAGE>
nue, Suite 400, Seattle, Washington 98121, Attention: Brad Bo-
denman.
A-14
<PAGE>
ASSIGNMENT
----------
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
__________________________________________________________________________
__________________________________________________________________________
Agent to transfer this Note on the books of the Issuers. The Agent may
substitute another to act for him.
A-15
<PAGE>
Date:____________________ Your Signature:__________________
_________________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee: _________________________________
A-16
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
----------------------------------
If you want to elect to have all or any part of this Note purchased by
the Issuers pursuant to Section 4.09 or Section 4.16 of the Indenture, check the
appropriate box:
[_] Section 4.09 [_] Section 4.16
If you want to have only part of the Note purchased by the Issuers
pursuant to Section 4.09 or Section 4.16 of the Indenture, state the amount you
elect to have purchased:
$__________________
Date: ____________
Your Signature: _____________________
(Sign exactly as your name appears on the
face of this Note)
___________________________
Signature Guaranteed
A-17
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY
TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE
ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
------------------------------------------
Re: 13% Senior Discount Notes
due 2010 (the "Notes"), of
Muzak Holdings LLC and
Muzak Holdings Finance Corp.
This Certificate relates to $_______ principal amount at
maturity of Notes held in the form of* ___ a beneficial interest in a Global
Note or* _______ Certificated Notes by ______ (the "Transferor").
The Transferor:*
[_] has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Note held by the Depository a
Certificated Note or Certificated Notes in definitive, registered form of
authorized denominations and an aggregate number equal to its beneficial
interest in such Global Note (or the portion thereof indicated above); or
[_] has requested that the Registrar by written order to exchange
or register the transfer of a Certificated Note or Certificated Notes.
In connection with such request and in respect of each such
Note, the Transferor does hereby certify that the Transferor is familiar with
the Indenture relating to the above captioned Notes and the restrictions on
transfers thereof as provided in Section 2.06 of such Indenture, and that the
transfer of this Note does not require registration under the Securities Act of
1933, as amended (the "Securities Act"), because*:
[_] Such Note is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.06 of the Indenture).
C-1
<PAGE>
[_] Such Note is being transferred to a Qualified Institutional
Buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule
144A.
[_] Such Note is being transferred in reliance on Regulation S
under the Securities Act and a Transferor Certificate substantially in the form
of Exhibit D-1 to the Indenture accompanies this Certificate.F
-----------
[_] Such Note is being transferred in reliance on Rule 144 under
the Securities Act.
[_] Such Note is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the
Securities Act other than Rule 144A or Rule 144 or Regulation S under the
Securities Act to a person other than an institutional "accredited investor." An
opinion of counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate.
[_] Such Note is being transferred to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities
Act), who has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its investment in the Notes,
and it and any accounts for which it is acting are each able to bear the
economic risk of their investment. An opinion of counsel to the effect that such
transfer does not require registration under the Securities Act and a Transferee
Certificate substantially in the form of Exhibit D-2 to the Indenture
-----------
accompanies this Certificate.
-------------------------------
[INSERT NAME OF TRANSFEROR]
By: _______________________
[Authorized Signatory]
Date: ________________________
*Check applicable box.
C-2
<PAGE>
EXHIBIT D-1
-----------
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
---------------------------
Re: 13% Senior Discount Notes due 2010 (the
"Notes") of Muzak Holdings LLC (the
"Company") and Muzak Holdings Finance
Corp. (together with the Company, the
"Issuers")
----------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount at maturity of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent
that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
D-1-1
<PAGE>
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By: ___________________________________
[Authorized Signatory]
D-1-2
<PAGE>
EXHIBIT D-2
-----------
Accredited Investor Transferee Certificate
------------------------------------------
Muzak Holdings LLC
Muzak Holdings Finance Corp.
State Street Bank and Trust Company
c/o State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount at maturity of the 13% Senior Discount Notes due 2010 (the
"Notes") of Muzak Holdings LLC (the "Company") and Muzak Holdings Finance Corp.
(together with the Company, the "Issuers"), we confirm that:
1. We understand that none of the Notes has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence.
We agree on our own behalf and on behalf of any investor account for which
we are purchasing any Notes to offer, sell or otherwise transfer any such
Notes prior to the date the "Resale Restriction Termination Date") that is
two years after the later of the original issuance of this Note and the
last date on which any Issuer, or any Affiliate of any Issuer, was the
owner of this Note (or any predecessor of this Note) except (A) to any
Issuer or any subsidiary thereof, (B) inside the United States to a
Qualified Institutional Buyer in compliance with Rule 144A under the
Securities Act, (C) inside the United States to an Institutional Accredited
Investor within the meaning of subparagraph (a)(1),(2),(3) or (7) of Rule
501 under the Securities Act that, prior to such transfer, furnishes (or
has furnished on its behalf by a U.S. broker-dealer) to the Trustee a
signed letter substantially in the form of
D-2-1
<PAGE>
this letter, (D) outside the United States in an offshore transaction in
compliance with Rule 904 under the Securities Act, (E) pursuant to any
other available exemption from the registration requirements of the
Securities Act or (F) pursuant to an effective Registration Statement under
the Securities Act. Each purchaser acknowledges that the Issuers and the
Trustee reserve the right prior to any offer, sale or other transfer prior
to the Resale Restriction Termination Date of the applicable Notes pursuant
to clause (c) or (e) above to require the delivery of an opinion of
counsel, certification and/or other information satisfactory to the Issuers
and the Trustee.
2. We are an Institutional Accredited Investor purchasing such Notes
for our own account or for the account of one or more Institutional
Accredited Investors, and we are acquiring such Notes for investment
purposes and not with a view to, or for offer or sale in connection with,
any distribution in violation of the Securities Act or the securities laws
of any state of the United States and we have such knowledge and experience
in financial and business matters as to be capable of evaluating the merits
and risks of our investment in such Notes, and we and any accounts for
which we are acting are each able to bear the economic risk of our or its
investment in such Notes for an indefinite period.
3. We acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such questions
of representatives of the Issuers and receive answers thereto, as we deem
necessary.
We understand that the Trustee will not be required to accept for
registration of transfer any Notes acquired by us, except upon presentation of
evidence satisfactory to the Issuers and the Trustee that the foregoing
restrictions on transfer have been complied with. We further understand that
any Notes purchased by us will be in the form of definitive physical
certificates and that such certificates will bear a legend reflecting the
substance of this paragraph 1 of this
D-2-2
<PAGE>
letter. We further agree to provide to any person acquiring any of the Notes
from us a notice advising such person that transfers of such Notes are
restricted as stated herein and that certificates representing such Notes will
bear a legend to that effect.
We represent that the Issuers and the Trustee and others are entitled
to rely upon the truth and accuracy of our acknowledgments, representations and
agreements set forth herein, and we agree to notify you promptly in writing if
any of our acknowledgments, representations or agreements herein cease to be
accurate and complete. You are also irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
We represent to you that we have full power to make the foregoing
acknowledgments, representations and agreements on our own behalf and on behalf
of any investor account for which we are acting as fiduciary agent.
As used herein, the terms "offshore transaction," "United States" and
"U.S. person" have the respective meanings given to them in Regulation S under
the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By: _____________________________
Date: ___________________________
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name: ___________________________
Address: ________________________
D-2-3
<PAGE>
EXHIBIT E
---------
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
GUARANTEE
---------
Each Guarantor (the "Guarantor", which term includes any successor
Person under the Indenture) has unconditionally guaranteed, jointly and
severally, to the extent set forth in the Indenture and subject to the
provisions of the Indenture, (a) the due an punctual payment of the Accreted
Value or principal of and interest on the Notes, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on overdue
Accreted Value or principal, and, to the extent permitted by law, interest, and
the due and punctual performance of all other Obligations of the Issuers to the
Noteholders or the Trustee all in accordance with the terms set forth in Article
10 of the Indenture, and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other Obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the undersigned to the Holders of Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article 10 of the Indenture and reference is hereby made to the Indenture for
the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
E-1
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be duly
executed.
GUARANTORS:
[ ]
By:_____________________________
Name:
Title:
[ ]
By:_____________________________
Name:
Title:
E-2
<PAGE>
EXHIBIT F
---------
FORM OF SUPPLEMENTAL INDENTURE
------------------------------
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
_______________, among [ ] (the "New Guarantor"), a subsidiary of Muzak
Holdings LLC (or its successor), a Delaware limited liability company (the
"Company"), Muzak Holdings Finance Corp., a Delaware corporation ("Finance
Corp., and together with the Company, the "Issuers"), the Guarantors (if any)
(the "Existing Guarantors") under the Indenture referred to below, and State
Street Bank and Trust Company, as trustee under the Indenture referred to below
(the "Trustee").
W I T N E S S E T H :
-------------------
WHEREAS the Issuers have has heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of March 18, 1999, providing for the issuance of an
aggregate principal amount at maturity of $75,000,000 of Senior Discount Notes
due 2010 (the "Notes");
WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers is required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers' obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and
WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors (if any) and the Trustee
mutually covenant
F-1
<PAGE>
and agree for the equal and ratable benefit of the Noteholders as follows:
1. Definitions. (a) Capitalized terms used herein without
-----------
definition shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
to any particular section hereof.
2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
----------------------
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Notes on the terms and subject to the conditions set forth in Article
10 of the Indenture and to be bound by all other applicable provisions of the
Indenture. From and after the date hereof, the New Guarantor shall be a
Guarantor for all purposes under the Indenture and the Notes.
3. Ratification of Indenture; Supplemental Indentures Part of
----------------------------------------------------------
Indenture. Except as expressly amended hereby, the Indenture is in all respects
- ---------
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every Noteholder heretofore or
hereafter authenticated and delivered shall be bound hereby.
4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
-------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW.
F-2
<PAGE>
5. Trustee Makes No Representation. The Trustee makes no
-------------------------------
representation as to the validity or sufficiency of this Supplemental Indenture.
6. Counterparts. The parties may sign any number of copies of this
------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. Effect of Headings. The Section headings herein are for
------------------
convenience only and shall not affect the construction thereof.
F-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR]
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
MUZAK HOLDINGS LLC
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
MUZAK HOLDINGS FINANCE CORP.
By:__________________________________
Name:
Title:
F-4
<PAGE>
By:__________________________________
Name:
Title:
F-5
<PAGE>
EXISTING GUARANTORS:
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
TRUSTEE:
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:__________________________________
Name:
Title:
F-6
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of March 18, 1999
by and among
MUZAK HOLDINGS LLC,
MUZAK HOLDINGS FINANCE CORP.,
and
CIBC OPPENHEIMER CORP.
and
GOLDMAN, SACHS & CO.
as Initial Purchasers
----------------------------
$75,000,000 Principal Amount at Maturity
13% SENIOR DISCOUNT NOTES DUE 2010
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions............................................................................... 1
2. Exchange Offer............................................................................ 6
3. Shelf Registration........................................................................ 11
4. Additional Interest....................................................................... 13
5. Registration Procedures................................................................... 16
6. Registration Expenses..................................................................... 29
7. Indemnification........................................................................... 31
8. Rules 144 and 144A........................................................................ 35
9. Underwritten Registrations................................................................ 36
10. Miscellaneous............................................................................. 36
(a) Remedies............................................................................. 36
(b) No Inconsistent Agreements........................................................... 37
(c) Adjustments Affecting Registrable Notes.............................................. 37
(d) Amendments and Waivers............................................................... 37
(e) Notices.............................................................................. 38
(f) Successors and Assigns............................................................... 40
(g) Counterparts......................................................................... 40
(h) Headings............................................................................. 40
(i) Governing Law........................................................................ 40
(j) Severability......................................................................... 41
(k) Notes Held by any Issuer or Its Affiliates........................................... 41
(l) Third Party Beneficiaries............................................................ 41
(m) Entire Agreement..................................................................... 41
(n) Joint and Several Obligations........................................................ 42
</TABLE>
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
---------
entered into as of March 18, 1999, by and among Muzak Holdings LLC, a Delaware
limited liability company ("Holdings"), Muzak Holdings Finance Corp., a Delaware
corporation (together with Holdings, the "Issuers") and CIBC Oppenheimer Corp.
and Goldman, Sachs & Co. (the "Initial Purchasers").
------------------
This Agreement is entered into in connection with the Purchase
Agreement, dated March 12, 1999, by and among the Issuers and the Initial
Purchasers (the "Purchase Agreement") relating to the sale by the Issuers to the
------------------
Initial Purchasers of $75,000,000 aggregate principal amount at maturity of the
Issuers' 13% Senior Discount Notes due 2010 (the "Notes"). In order to induce
-----
the Initial Purchasers to enter into the Purchase Agreement, the Issuers (as
defined) have agreed to provide the registration rights set forth in this
Agreement for the benefit of the holders of Registrable Notes (as defined),
including, without limitation, the Initial Purchasers. The execution and
delivery of this Agreement is a condition to the Initial Purchasers' obligation
to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a).
-------------------
Advice: See the last paragraph of Section 5.
------
Agreement: See the first introductory paragraph to this Agreement.
---------
<PAGE>
-2-
Applicable Period: See Section 2(b).
-----------------
Business Day: A day that is not a Saturday, a Sunday, or a day on
------------
which banking institutions in New York, New York are required to be closed.
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Commission: The Securities and Exchange Commission.
----------
Effectiveness Date: The 150th day after the Issue Date, in the case
------------------
of the Exchange Registration Statement, and the 75th day after the delivery of
the Shelf Notice, in the case of the Initial Shelf Registration.
Effectiveness Period: See Section 3(a).
--------------------
Event Date: See Section 4(b).
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission promulgated thereunder.
Exchange Notes: See Section 2(a).
--------------
Exchange Offer: See Section 2(a).
--------------
Exchange Registration Statement: See Section 2(a).
-------------------------------
Filing Date: The 75th day after the Issue Date (regardless of whether
-----------
the actual filing precedes such date).
Holder: Any registered holder of Registrable Notes.
------
Holdings: See the first introductory paragraph to this Agreement.
--------
Indemnified Person: See Section 7(c).
------------------
<PAGE>
-3-
Indemnifying Person: See Section 7(c).
-------------------
Indenture: The Indenture, dated as of March 18, 1999, by and among
---------
the Issuers and State Street Bank and Trust Company, as trustee, pursuant to
which the Notes are being issued, as amended or supplemented from time to time
in accordance with the terms thereof.
Initial Purchasers: See the first introductory paragraph to this
------------------
Agreement.
Initial Shelf Registration: See Section 3(a).
--------------------------
Inspectors: See Section 5(o).
----------
Issue Date: The date on which the original Notes were sold to the
----------
Initial Purchasers pursuant to the Purchase Agreement.
Issuers: See the first introductory paragraph to this Agreement.
-------
NASD: National Association of Securities Dealers, Inc.
----
Notes: See the second introductory paragraph to this Agreement.
-----
Participant: See Section 7(a).
-----------
Participating Broker-Dealer: See Section 2(b).
---------------------------
Person: Any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
Private Exchange: See Section 2(b).
----------------
<PAGE>
-4-
Private Exchange Notes: See Section 2(b).
----------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Notes covered by such Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph to this
------------------
Agreement.
Records: See Section 5(o).
-------
Registrable Notes: Each Note upon original issuance thereof and at
-----------------
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance thereof and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at all
times subsequent thereto, until, in the case of any such Note, Exchange Note or
Private Exchange Note, as the case may be, the earliest to occur of (i) a
Registration Statement (other than, with respect to any Exchange Note as to
which Section 2(c)(iv) hereof is applicable) covering such Note, Exchange Note
or Private Exchange Note, as the case may be, has been declared effective by the
Commission and such Note, Exchange Note or Private Exchange Note, as the case
may be, has been disposed of in accordance with such effective Registration
Statement, (ii) such Note, Exchange Note or Private Exchange Note, as the case
may be, is sold in compliance with Rule 144, (iii) in the case of any Note, such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes which may
<PAGE>
-5-
be resold without restriction under federal securities laws, or (iv) such Note,
Exchange Note or Private Exchange Note, as the case may be, ceases to be
outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of any of the
----------------------
Issuers, including, but not limited to, the Exchange Registration Statement,
that covers any of the Registrable Notes pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the Commission providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
---------
amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the Commission.
Rule 415: Rule 415 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the Commission promulgated thereunder.
Shelf Notice: See Section 2(c).
------------
<PAGE>
-6-
Shelf Registration: See Section 3(b).
------------------
Subsequent Shelf Registration: See Section 3(b).
-----------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if existent, the
-------
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
--------------
(a) Each of the Issuers agrees to file with the Commission no later
than the Filing Date, an offer to exchange (the "Exchange Offer") any and all of
--------------
the Registrable Notes (other than Private Exchange Notes, if any) for a like
aggregate principal amount at maturity of debt securities of the Issuers which
are identical in all material respects to the Notes (the "Exchange Notes") (and
--------------
which are entitled to the benefits of the Indenture or a trust indenture which
is identical in all material respects to the Indenture (other than such changes
to the Indenture or any such identical trust indenture as are necessary to
comply with any requirements of the Commission to effect or maintain the
qualification thereof under the TIA) and which, in either case, has been
qualified under the TIA), except that the Exchange Notes shall have been
registered pursuant to an effective Registration Statement under the Securities
Act and shall contain no restrictive legend thereon. The Exchange Offer shall be
registered under the Securities Act on the appropriate form (the "Exchange
--------
Registration Statement") and shall comply with all applicable tender offer rules
- ----------------------
and regulations under the Exchange Act. Each of the Issuers agrees to use its
reasonable best efforts to (x) cause the Exchange Registration Statement to be
declared
<PAGE>
-7-
effective under the Securities Act on or before the Effectiveness Date; (y) keep
the Exchange Offer open for at least 30 days (or longer if required by
applicable law) after the date that notice of the Exchange Offer is first mailed
to Holders; and (z) consummate the Exchange Offer on or prior to the 60th day
following the date on which the Exchange Registration Statement is declared
effective. If after such Exchange Registration Statement is initially declared
effective by the Commission, the Exchange Offer or the issuance of the Exchange
Notes thereunder is interfered with by any stop order, injunction or other order
or requirement of the Commission or any other governmental agency or court, such
Exchange Registration Statement shall be deemed not to have become effective for
purposes of this Agreement. Each Holder who participates in the Exchange Offer
will be required to represent that any Exchange Notes received by it will be
acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Notes, that such Holder is not an affiliate of any Issuer within the meaning of
the Securities Act, and any additional representations that in the written
opinion of counsel to the Issuers are necessary under then-existing
interpretations of the Commission in order for the Exchange Registration
Statement to be declared effective. Upon consummation of the Exchange Offer in
accordance with this Section 2, the provisions of this Agreement shall continue
to apply, mutatis mutandis, solely with respect to Registrable Notes that are
------- --------
Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers,
and the Issuers shall have no further obligation to register Registrable Notes
(other than Private Exchange Notes and other than in respect of any Exchange
Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 of this
Agreement.
<PAGE>
-8-
(b) The Issuers shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, which shall contain a summary
statement of the positions taken or policies made by the Staff of the Commission
with respect to the potential "underwriter" status of any broker-dealer that is
the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Notes received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
---------------------------
publicly disseminated by the Staff of the Commission or such positions or
policies, in the reasonable judgment of the Initial Purchasers, represent the
prevailing views of the Staff of the Commission. Such "Plan of Distribution"
section shall also allow, to the extent permitted by applicable policies and
regulations of the Commission, the use of the Prospectus by all Persons subject
to the prospectus delivery requirements of the Securities Act, including, to the
extent so permitted, all Participating Broker-Dealers, and include a statement
describing the manner in which Participating Broker-Dealers may resell the
Exchange Notes.
Each of the Issuers shall use its reasonable best efforts to keep the
Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein, in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time, not to exceed 180 days from the date the
Exchange Offer is consummated, as such Persons must comply with such
requirements in connection with offers and sales of the Exchange Notes (the
"Applicable Period").
-----------------
If, upon consummation of the Exchange Offer, any Initial Purchaser
holds any Notes acquired by it and having the status of an unsold allotment in
the initial distribution, the Issuers upon the request of any Initial Purchaser
shall, simultaneously with the delivery of the Exchange Notes in the Ex-
<PAGE>
-9-
change Offer, issue and deliver to such Initial Purchaser, in exchange (the
"Private Exchange") for the Notes held by such Initial Purchaser, a like
----------------
principal amount at maturity of debt securities of the Issuers that are
identical in all material respects to the Exchange Notes except for the
existence of restrictions on transfer thereof under the Securities Act and
securities laws of the several states of the U.S. (the "Private Exchange Notes")
----------------------
(and which are issued pursuant to the same indenture as the Exchange Notes). The
Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and Private Exchange Notes will accrue from the
last interest payment date on which interest was paid on the Notes surrendered
in exchange therefor or, if no interest has been paid on the Notes, from the
Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York, which may be
the Trustee or an affiliate thereof;
(3) permit Holders to withdraw tendered Registrable Notes at any time
prior to the close of business, New York time, on the last Business Day on
which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws.
<PAGE>
-10-
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Issuers shall:
(1) accept for exchange all Registrable Notes validly tendered and
not validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(2) deliver to the Trustee for cancellation all Registrable Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder tendering such Registrable Notes, Exchange Notes or Private Exchange
Notes, as the case may be, equal in principal amount at maturity to the
Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be issued under
(i) the Indenture or (ii) an indenture identical in all material respects to the
Indenture, which in either event will provide that the Exchange Notes will not
be subject to the transfer restrictions set forth in the Indenture and that the
Exchange Notes, the Private Exchange Notes and the Notes, if any, will vote and
consent together on all matters as one class and that none of the Exchange
Notes, the Private Exchange Notes or the Notes, if any, will have the right to
vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Issuers are not permitted to
effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 185
days of the Issue Date, (iii) any holder of Private Exchange Notes so requests
in writing to Holdings or (iv) in the case of any Holder that participates in
the Exchange Offer (and tenders its Registrable Notes prior to the expiration
thereof), such Holder does not receive Exchange Notes on the date of the
exchange that may be sold without restriction under federal
<PAGE>
-11-
securities laws (other than due solely to the status of such Holder as an
affiliate of any Issuer within the meaning of the Securities Act) and so
notifies Holdings within 30 days following the consummation of the Exchange
Offer (and providing a reasonable basis for its conclusions), in the case of
each of clauses (i)-(iv), then the Issuers shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") and shall file a
------------
Shelf Registration pursuant to Section 3.
3. Shelf Registration
------------------
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Shelf Registration. The Issuers shall as promptly as reasonably
------------------
practicable file with the Commission a Registration Statement for an offering to
be made on a continuous basis pursuant to Rule 415 covering all of the
Registrable Notes (the "Initial Shelf Registration"). If the Issuers shall not
--------------------------
have yet filed the Exchange Registration Statement, each of the Issuers shall
use its reasonable best efforts to file with the Commission the Initial Shelf
Registration on or prior to the Filing Date and shall use its reasonable best
efforts to cause such Initial Shelf Registration to be declared effective under
the Securities Act on or prior to the Effectiveness Date. Otherwise, each of the
Issuers shall file with the Commission the Initial Shelf Registration within 75
days of the delivery of the Shelf Notice and shall use its reasonable best
efforts to cause such Shelf Registration to be declared effective under the
Securities Act on or prior to the Effectiveness Date. The Initial Shelf
Registration shall be on Form S-1 or another appropriate form permitting
registration of such Registrable Notes for resale by Holders in the manner or
manners designated by them (including, without limitation, one or more
underwritten offerings). The Issuers shall not permit any securities other than
the Registrable Notes to be included in any Shelf Registration.
<PAGE>
-12-
Each of the Issuers shall use its reasonable best efforts to keep the Initial
Shelf Registration continuously effective under the Securities Act until the
date which is 24 months from the effective date of such Initial Shelf
Registration (or, if Rule 144(k) under the Securities Act is amended to permit
unlimited resales by non-affiliates within a lesser period, such lesser period)
(subject to extension pursuant to the last paragraph of Section 5 hereof) (the
"Effectiveness Period") or such shorter period ending when (i) all Registrable
--------------------
Notes covered by the Initial Shelf Registration have been sold in the manner set
forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent
Shelf Registration covering all of the Registrable Notes has been declared
effective under the Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration
------------------------------
or any Subsequent Shelf Registration ceases to be effective for any reason at
any time during the Effectiveness Period (other than because of the sale of all
of the securities registered thereunder), each of the Issuers shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Shelf Registration in a manner to obtain
the withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Notes (a "Subsequent Shelf Registration"). If a Subsequent
-----------------------------
Shelf Registration is filed, each of the Issuers shall use its reasonable best
efforts to cause the Subsequent Shelf Registration to be declared effective as
soon as practicable after such filing and to keep such Subsequent Shelf
Registration continuously effective for a period equal to the number of days in
the Effectiveness Period less the aggregate number of days during which the
Initial Shelf Registration or any Subsequent Shelf Registrations was previously
continuously effective. As used herein the term "Shelf Registration" means
------------------
<PAGE>
-13-
the Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. Each of the Issuers shall promptly
--------------------------
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount at maturity
of the Registrable Notes covered by such Shelf Registration or by any
underwriter of such Registrable Notes, in each case, with each Issuer's consent,
which consent shall not be unreasonably withheld or delayed.
4. Additional Interest
-------------------
(a) The Issuers and the Initial Purchasers agree that the Holders of
Registrable Notes will suffer damages if the Issuers fail to fulfill their
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
each of the Issuers agrees to pay, as liquidated damages, additional cash
interest, whether or not cash interest is otherwise payable on the Registrable
Notes pursuant to the terms of the Indenture, on the Registrable Notes
("Additional Interest") under the circumstances and to the extent set forth
-------------------
below (each of which shall be given independent effect):
(i) if (A) neither the Exchange Registration Statement nor the
Initial Shelf Registration has been filed on or prior to the Filing Date or
(B) notwithstanding that the Issuers have consummated or will consummate an
Exchange Offer, the Issuers are required to file a Shelf Registration and
such Shelf Registration is not filed on or prior to the 75th day after
delivery of the Shelf Notice, then, in the case of subclause (A),
commencing on the day after the Filing Date or, in the case of subclause
(B), commencing on the 76th day following delivery of the
<PAGE>
-14-
Shelf Notice, Additional Interest shall accrue on the average Accreted
Value (as defined in the Indenture) during the period of the Registrable
Notes at a rate of 0.50% per annum of such average Accreted Value for the
first 90 days immediately following the Filing Date or such 75th day, as
the case may be, such Additional Interest rate increasing by an additional
0.25% per annum of such average Accreted Value at the beginning of each
subsequent 90-day period;
(ii) if (A) neither the Exchange Registration Statement nor the
Initial Shelf Registration is declared effective on or prior to the
Effectiveness Date applicable thereto or (B) notwithstanding that the
Issuers have consummated or will consummate an Exchange Offer, the Issuers
are required to file a Shelf Registration and such Shelf Registration is
not declared effective by the Commission on or prior to the Effectiveness
Date, then, commencing on the day after such applicable Effectiveness Date,
Additional Interest shall accrue on the average Accreted Value during the
period of the Registrable Notes at a rate of 0.50% per annum of such
average Accreted Value for the first 90 days immediately following the day
after the applicable Effectiveness Date, such Additional Interest rate
increasing by an additional 0.25% per annum of such average Accreted Value
at the beginning of each subsequent 90-day period; and
(iii) if (A) the Issuers have not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to 35 days after the date on which the Exchange Registration
Statement was declared effective, (B) the Exchange Registration Statement
ceases to be effective prior to consummation of the Exchange Offer or (C)
if applicable, a Shelf Registration has been declared effective and such
Shelf Registration ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on
<PAGE>
-15-
the average Accreted Value during the period of the Registrable Notes at a
rate of 0.50% per annum of such average Accreted Value for the first 90
days commencing on the (x) 36th day after such effective date in the case
of (A) above or (y) the day such Exchange Registration Statement or Shelf
Registration ceases to be effective in the case of (B) and (C) above, such
Additional Interest rate increasing by an additional 0.25% per annum of
such average Accreted Value at the beginning of each such subsequent 90-day
period;
provided, however, that the Additional Interest rate on the Registrable Notes
- -------- -------
may not exceed in the aggregate 2.0% per annum of the average Accreted Value of
the Registrable Notes during the interest payment periods in which such
Additional Interest shall accrue; provided further that (1) upon the filing of
-------- -------
the Exchange Registration Statement or each Shelf Registration (in the case of
(i) above), (2) upon the effectiveness of the Exchange Registration Statement or
each Shelf Registration, as the case may be (in the case of (ii) above), or (3)
upon the exchange of Exchange Notes for all Registrable Notes validly tendered
(in the case of (iii)(A) above) or upon the effectiveness of an Exchange
Registration Statement or Shelf Registration which had ceased to remain
effective (in the case of (iii)(B) and (C) above), Additional Interest on any
Registrable Notes then accruing Additional Interest as a result of such clause
(or the relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Issuers shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
----------
Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section
4 will be payable in cash semi-annually on each March 15 and September 15 (to
the Holders of Registrable Notes of record on March 1 and September 1
immediately preceding such dates), commencing
<PAGE>
-16-
with the first such payment date occurring after any such Additional Interest
commences to accrue. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the applicable average
Accreted Value of the Notes subject thereto, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
5. Registration Procedures
-----------------------
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, each Issuer shall effect such registrations to permit
the sale of such securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by each Issuer hereunder, each Issuer
shall:
(a) Prepare and file with the Commission prior to the Filing Date, the
Exchange Registration Statement or if the Exchange Registration Statement is not
filed or is unavailable, a Shelf Registration as prescribed by Section 2 or 3,
and use its reasonable best efforts to cause each such Registration Statement to
become effective and remain effective as provided herein; provided that, if (1)
--------
a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus
contained in an Exchange Registration Statement filed pursuant to Section 2 is
required to be delivered under the Securities Act by any Participating Broker-
Dealer who seeks to sell Exchange Notes during the Applicable Period and has
advised Holdings that it is a Participating Broker-Dealer, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto,
the Issuers shall, if requested, furnish to and afford the Holders of the
Registrable Notes to be registered pursuant to such Shelf Registration or each
such Participating Broker-Dealer, as the case may be, covered by
<PAGE>
-17-
such Registration Statement, their counsel and the managing underwriters, if
any, a reasonable opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein and all exhibits
thereto) proposed to be filed (in each case, to the extent practicable, at least
five Business Days prior to such filing). The Issuers shall not file any such
Registration Statement or Prospectus or any amendments or supplements thereto if
the Holders of a majority in aggregate principal amount at maturity of the
Registrable Notes covered by such Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented by
any Prospectus supplement required by applicable law, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in force) under
the Securities Act; and comply with the provisions of the Securities Act and the
Exchange Act applicable to it with respect to the disposition of all securities
covered by such Registration Statement as so amended or in such Prospectus as so
supplemented and with respect to the subsequent resale of any securities being
sold by a Participating Broker-Dealer covered by any such Prospectus. The
Issuers shall be deemed not to have used their reasonable best efforts to keep a
Registration Statement effective during the Applicable Period if they
voluntarily take any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by
<PAGE>
-18-
applicable law, rule or regulation or unless the Issuers comply with this
Agreement, including, without limitation, the provisions of paragraph 5(k)
hereof and the last paragraph of Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period from whom the Issuers have received written notice that it
will be a Participating Broker-Dealer, notify the selling Holders of Registrable
Notes, and each such Participating Broker-Dealer, their counsel and the managing
underwriters, if any, promptly (but in any event within two Business Days), and
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective (including in such notice a written statement that any Holder may,
upon request, obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, documents incorporated or deemed to be incorporated by reference and
exhibits), (ii) of the issuance by the Commission of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose, (iii) if at any time when a prospectus is required
by the Securities Act to be delivered in connection with sales of the
Registrable Notes the representations and warranties of any Issuer contained in
any agreement (including any underwriting agreement contemplated by Section 5(n)
hereof) cease to be true and correct in any material respect, (iv) of the
receipt by any Issuer of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration
<PAGE>
-19-
Statement or any of the Registrable Notes or the Exchange Notes to be sold by
any Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event, the existence of any condition or any information
becoming known that makes any statement made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in, or amendments or supplements to, such Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(vi) of the Issuers' reasonable determination that a post-effective amendment to
a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in
any jurisdiction, and, if any such order is issued, to use its reasonable best
efforts to obtain the withdrawal of any such order at the earliest possible
date.
<PAGE>
-20-
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount at maturity of the Registrable Notes being sold in
connection with an underwritten offering, (i) as promptly as practicable
incorporate in a prospectus supplement or post-effective amendment such
information or revisions to information therein relating to such underwriters or
selling Holders as the managing underwriters, if any, or such Holders or their
counsel reasonably request to be included or made therein, (ii) make all
required filings of such prospectus supplement or such post-effective amendment
as soon as practicable after the Issuers have received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to such Registration
Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of Registrable Notes and to
each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, without charge, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer, deliver to each selling Holder of Registrable
<PAGE>
-21-
Notes or each such Participating Broker-Dealer, as the case may be, their
respective counsel, and the underwriters, if any, without charge, as many copies
of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Issuers hereby consent to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes and each Participating Broker-Dealer,
and the underwriters or agents, if any, and dealers (if any), in connection with
the offering and sale of the Registrable Notes covered by, or the sale by
Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its reasonable best efforts to register or qualify, and
cooperate with the selling Holders of Registrable Notes and each such
Participating Broker-Dealer, the underwriters, if any, and their respective
counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Notes or Exchange Notes,
as the case may be, for offer and sale under the securities or Blue Sky laws of
such jurisdictions within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriter or underwriters, if any, reasonably
request in writing; provided that where Exchange Notes held by Participating
--------
Broker-Dealers or Registrable Notes are offered pursuant to an underwritten
offering, counsel to the underwriters shall, at the reasonable cost and expense
of the Issuers, perform the Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section 5(h); keep each
such registration or
<PAGE>
-22-
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Notes by Participating Broker-Dealers or the
Registrable Notes covered by the applicable Registration Statement; provided
--------
that no Issuer shall be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3, cooperate
with the selling Holders of Registrable Notes, any Participating Broker-Dealer
and the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may reasonably
request.
(j) Use its reasonable best efforts to cause the Registrable Notes
covered by the Registration Statement to be registered with or approved by such
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Notes, in which case the Issuers will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange
<PAGE>
-23-
Registration Statement filed pursuant to Section 2 is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as reasonably
practicable prepare and (subject to Section 5(a) hereof) file with the
Commission, at the Issuers' sole expense, a supplement or post-effective
amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Notes being sold thereunder or to the
purchasers of the Exchange Notes to whom such Prospectus will be delivered by a
Participating Broker-Dealer, any such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(l) Use its reasonable best efforts to cause the Registrable Notes
covered by a Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate principal
amount at maturity of Registrable Notes covered by such Registration Statement
or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with printed
certificates for the Registrable Notes in a form eligible for deposit with The
Depository Trust Company and (ii) provide a CUSIP number for the Registrable
Notes.
(n) In connection with an underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as is
customary in underwritten
<PAGE>
-24-
offerings of debt securities similar to the Notes and take all such other
actions as are reasonably requested by the managing underwriter or underwriters
in order to expedite or facilitate the registration or the disposition of such
Registrable Notes and, in such connection, (i) make such reasonable
representations and warranties to the underwriters, with respect to the business
of the Issuers and their subsidiaries and the Registration Statement, Prospectus
and documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings of debt securities similar to the Notes, and confirm the
same in writing if and when requested; (ii) obtain the opinion of counsel to the
Issuers and updates thereof in form and substance reasonably satisfactory to the
managing underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings of
debt securities similar to the Notes and such other matters as may be reasonably
requested by underwriters; (iii) obtain "cold comfort" letters and updates
thereof in form and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public accountants of
the Issuers (and, if necessary, any other independent certified public
accountants of any subsidiary of any Issuer or of any business acquired by any
Issuer (including Muzak Limited Partnership, a Delaware limited partnership) for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings of debt securities similar to the Notes and such other matters as
reasonably requested by the managing underwriter or underwriters; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to
<PAGE>
-25-
Holders of a majority in aggregate principal amount at maturity of Registrable
Notes covered by such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified pursuant
to said Section. The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, and each Participating Broker-Dealer, any
underwriter participating in any such disposition of Registrable Notes, if any,
and any attorney, accountant or other agent retained by any such selling Holder,
each Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
----------
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of each Issuer and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
-------
applicable due diligence responsibilities, and cause the officers, directors and
employees of each Issuer and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records which an Issuer determines, in good faith, to be
confidential and any Records which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction or (iii) the
information in such Records has been made generally available to the public
<PAGE>
-26-
other than as a result of a disclosure or failure to safeguard by such
Inspector. Each selling Holder of such Registrable Notes and each Participating
Broker-Dealer will be required to agree that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of any Issuer
unless and until such is made generally available to the public. Each
Inspector, each selling Holder of such Registrable Notes and each Participating
Broker-Dealer will be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction
pursuant to clause (ii) of the previous sentence or otherwise, give notice to
the Issuers and allow the Issuers to undertake appropriate action to obtain a
protective order or otherwise prevent disclosure of the Records deemed
confidential at its expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a), as the case may be, to be qualified
under the TIA not later than the effective date of the Exchange Offer or the
first Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its reasonable best efforts to cause such
trustee to execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the Commission to enable
such indenture to be so qualified in a timely manner.
(q) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its
securityholders earnings statements satisfying the provisions of Section 11(a)
of the Securities
<PAGE>
-27-
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 90 days after the end of any 12-month period (i)
commencing at the end of any fiscal quarter in which Registrable Notes are sold
to underwriters in a firm commitment or best efforts underwritten offering and
(ii) if not sold to underwriters in such an offering, commencing on the first
day of the first fiscal quarter of Holdings after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
(r) Upon consummation of the Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Issuers, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
Holders of Registrable Notes participating in the Exchange Offer or the Private
Exchange, as the case may be, that the Exchange Notes or the Private Exchange
Notes, as the case may be, and the related indenture constitute legally valid
and binding obligations of the Issuers, enforceable against the Issuers in
accordance with their respective terms.
(s) If the Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Issuers (or to such
other Person as directed by Holdings) in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be, the Issuers shall mark, or caused to
be marked, on such Registrable Notes that such Registrable Notes are being
canceled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the NASD.
<PAGE>
-28-
(u) Use its reasonable best efforts to take all other steps reasonably
necessary to effect the registration of the Registrable Notes covered by a
Registration Statement contemplated hereby.
The Issuers may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Issuers such information
regarding such seller and the distribution of such Registrable Notes as the
Issuers may, from time to time, reasonably request. The Issuers may exclude
from such registration the Registrable Notes of any seller who fails to furnish
such information within a reasonable time after receiving such request. Each
seller as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Issuers all information required to be disclosed in
order to make the information previously furnished to the Issuers by such seller
not materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon receipt of any
notice from the Issuers of the happening of any event of the kind described in
Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder will forthwith
discontinue disposition of such Registrable Notes covered by such Registration
Statement or Prospectus or Exchange Notes to be sold by such Holder or
Participating Broker-Dealer, as the case may be, and, in each case,
dissemination of such Prospectus until such Holder's or Participating Broker-
Dealer's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
------
by Holdings that the use of the applicable Prospectus may be resumed, and has
received copies of any amendments or supplements thereto. In the event the
Issuers shall give any such notice, each of the Effectiveness Period and the
Applicable Period shall be extended by the number of days during such periods
from and in-
<PAGE>
-29-
cluding the date of the giving of such notice to and including the date when
each seller of Registrable Notes covered by such Registration Statement or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case may
be, shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) or (y) the Advice.
6. Registration Expenses
---------------------
All reasonable fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange Notes for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriter or
underwriters, if any, or by the Holders of a majority in aggregate principal
amount at maturity of the Registrable Notes included in any Registration
Statement or by any Participating Broker-Dealer, as the case may be, (iii)
reasonable messenger, telephone and delivery expenses incurred in connection
with the Exchange Registration
<PAGE>
-30-
Statement and any Shelf Registration, (iv) fees and disbursements of counsel for
the Issuers and fees and disbursements of special counsel for the Initial
Purchasers and the sellers of Registrable Notes, (v) fees and disbursements of
all independent certified public accountants referred to in Section 5(n)(iii)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) rating
agency fees, (vii) Securities Act liability insurance, if any Issuer desires
such insurance, (viii) fees and expenses of all other Persons retained by the
Issuers, (ix) internal expenses of the Issuers (including, without limitation,
all salaries and expenses of officers and employees of the Issuers performing
legal or accounting duties), (x) the expense of any annual or special audit,
(xi) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange, (xii) the fees and
disbursements of underwriters, if any, customarily paid by issuers or sellers of
securities (but not including any underwriting discounts or commissions or
transfer taxes, if any, attributable to the sale of the Registrable Notes which
discounts, commissions or taxes shall be paid by Holders of such Registrable
Notes) and (xiii) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement.
7. Indemnification
---------------
(a) Each of the Issuers jointly and severally agrees to indemnify and
hold harmless each Holder of Registrable Notes and each Participating Broker-
Dealer, the officers, directors, employees and agents of each such Person, and
each Person, if any, who controls any such Person within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant"), from and against any and all losses, claims, damages and
- ------------
liabilities (including, without
<PAGE>
-31-
limitation, the reasonable legal fees and other reasonable expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (as amended or supplemented if the Issuers shall have
furnished any amendments or supplements thereto) or caused by, arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Participant
furnished to the Issuers in writing by or on behalf of such Participant
expressly for use therein; provided, however, that the Issuers shall not be
-------- -------
liable if such untrue statement or omission or alleged untrue statement
or omission was contained or made in any preliminary prospectus and corrected in
the Prospectus or any amendment or supplement thereto and the Issuers shall have
furnished the Prospectus or any amendment or supplement thereto in compliance
with Section 5 of this Agreement.
(b) Each Participant will be required to agree, severally and not
jointly, to indemnify and hold harmless each Issuer, its directors and officers
and each Person who controls each Issuer within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuers to each Participant, but only with
reference to information relating to such Participant furnished to the Issuers
in writing by such Participant expressly for use in any Registration Statement
or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. The liability of any Participant under this paragraph shall in no
event exceed the proceeds received by
<PAGE>
-32-
such Participant from sales of Registrable Notes or Exchange Notes giving rise
to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
------------------
notify the Person against whom such indemnity may be sought (the "Indemnifying
------------
Person") in writing, and the Indemnifying Person, upon request of the
- ------
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
-------- -------
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise except to the extent it has been materially
prejudiced by such failure. In any such proceeding, any Indemnified Person
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually agreed in
writing to the contrary, (ii) the Indemnifying Person has failed within a
reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses
<PAGE>
-33-
shall be reimbursed promptly upon demand. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes
sold by all such Participants and any such separate firm for each Issuer, its
directors, officers and such control Persons of each Issuer shall be designated
in writing by Holdings. The Indemnifying Person shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there is a final non-appealable judgment for the
plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person
from and against any loss or liability by reason of such settlement or judgment.
No Indemnifying Person shall, without the prior written consent (which consent
shall not be unreasonbly withheld) of the Indemnified Person, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A) includes
an unconditional release of such Indemnified Person, in form and substance
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of an
Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Person or Persons on the one
<PAGE>
-34-
hand and the Indemnified Person or Persons on the other in connection with the
statements or omissions (or alleged statements or omissions) that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof) as
well as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Issuers
on the one hand or by the Participants or such other Indemnified Person, as the
case may be, on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission and
any other equitable considerations appropriate under the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--- ----
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act)
<PAGE>
-35-
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
------------------
Each of the Issuers covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder in a timely manner and, if
at any time it is not required to file such reports, it will, upon the request
of any Holder of Registrable Notes, make publicly available other information so
long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. Each of the Issuers further covenants, for so long as any
Registrable Notes remain outstanding, to make available to any Holder or
beneficial owner of Registrable Notes in connection with any sale thereof and
any prospective purchaser of such Registrable Notes from such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
9. Underwritten Registrations
--------------------------
If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount at maturity of such
Registrable Notes included in such offering and reasonably acceptable to the
Issuers.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder
<PAGE>
-36-
(a) agrees to sell such Holder's Registrable Notes on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Miscellaneous
-------------
(a) Remedies. In the event of a breach by any Issuer of any of its
--------
obligations under this Agreement, each Holder of Registrable Notes and each
Participating Broker-Dealer holding Exchange Notes, in addition to being
entitled to exercise all rights provided herein, in the Indenture or, in the
case of an Initial Purchaser, in the Purchase Agreement, or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. Each Issuer agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. None of the Issuers has entered,
--------------------------
as of the date hereof, and none of the Issuers shall enter, after the date of
this Agreement, into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the Holders of Registrable Notes in this
Agreement or otherwise conflicts with the provisions hereof. None of the
Issuers has entered and none of the Issuers shall enter into any agreement with
respect to any of its securities which will grant to any Person piggy-back
rights with respect to a Registration Statement.
(c) Adjustments Affecting Registrable Notes. None of the Issuers
---------------------------------------
shall, directly or indirectly, take any action with respect to the Registrable
Notes as a class that would
<PAGE>
-37-
adversely affect the ability of the Holders of Registrable Notes to include such
Registrable Notes in a registration undertaken pursuant to this Agreement.
(d) Amendments and Waivers. The provisions of this Agreement may
----------------------
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, otherwise than with the prior
written consent of (A) the Holders of not less than a majority in aggregate
principal amount at maturity of the then outstanding Registrable Notes and (B)
in circumstances that would adversely affect Participating Broker-Dealers, the
Participating Broker-Dealers holding not less than a majority in aggregate
principal at maturity amount of the Exchange Notes held by all Participating
Broker-Dealers. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Registrable Notes whose securities are being tendered
pursuant to the Exchange Offer or sold pursuant to a Registration Statement and
that does not directly or indirectly affect, impair, limit or compromise the
rights of other Holders of Registrable Notes may be given by Holders of at least
a majority in aggregate principal amount at maturity of the Registrable Notes
being tendered or being sold by such Holders pursuant to such Registration
Statement.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, next-day air courier or telecopier:
1. if to a Holder of Registrable Notes or any Participating Broker-
Dealer, at the most current address of such Holder or Participating Broker-
Dealer, as the case may be, set forth on the records of the registrar under
the Indenture, with a copy in like manner to the Initial Purchasers as
follows:
<PAGE>
-38-
CIBC OPPENHEIMER CORP.
GOLDMAN, SACHS & CO.
c/o CIBC Oppenheimer Corp.
424 Lexington Avenue
3rd Floor
New York, New York 10017
Facsimile No.: (212) 885-4998
Attention: Corporate Finance
Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: John A. Tripodoro, Esq.
2. if to the Initial Purchasers, at the address specified in Section
10(e)(1);
3. if to the Issuers, as follows:
Muzak Holdings LLC
2901 Third Avenue
Suite 900
Seattle, Washington 98121
Facsimile No.: (206) 633-6210
Attention: Brad D. Bodenman
with copies to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Facsimile No.: (312) 861-2200
Attention: Laurie Gunther, Esq.
<PAGE>
-39-
and to:
ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Facsimile No.: (617) 859-8797
Attention: Peni Garber
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier guaranteeing overnight
delivery; and when receipt is acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto and the Holders; provided, however, that this Agreement shall not inure
-------- -------
to the benefit of or be binding upon a successor or assign of a Holder unless
and to the extent such successor or assign holds Registrable Notes.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
-40-
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Notes Held by any Issuer or Its Affiliates. Whenever the
------------------------------------------
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by any Issuer or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
(l) Third Party Beneficiaries. Holders of Registrable Notes and
-------------------------
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
<PAGE>
-41-
(m) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda among the Initial Purchasers on the
one hand and the Issuers on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
(n) Joint and Several Obligations. All of the obligations of the
-----------------------------
Issuers hereunder shall be joint and several obligations of each of them.
<PAGE>
-42-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MUZAK HOLDINGS LLC
By: /s/ Peni Garber
--------------------------------------
Name: Peni Garber
Title:
MUZAK HOLDINGS FINANCE CORP.
By: /s/ Peni Garber
--------------------------------------
Name: Peni Garber
Title:
CIBC OPPENHEIMER CORP.
By: /s/ Kevin Magid
--------------------------------------
Name: Kevin Magid
Title:
GOLDMAN, SACHS & CO.
By: /s/ Goldman, Sachs & Co.
--------------------------------------
Goldman, Sachs & Co.
<PAGE>
EXHIBIT 4.4
ACN Holdings, LLC
(to be renamed Muzak Holdings LLC)
Muzak Holdings Finance Corp.
$39,996,375 Gross Proceeds
13% Senior Discount Notes due 2010
PURCHASE AGREEMENT
------------------
March 12, 1999
CIBC OPPENHEIMER CORP.
GOLDMAN, SACHS & CO.
c/o CIBC Oppenheimer Corp.
425 Lexington Avenue
3rd Floor
New York, New York 10017
Ladies and Gentlemen:
ACN Holdings, LLC, a Delaware limited liability company ("Holdings"), Muzak
Holdings Finance Corp., a Delaware Corporation, and a wholly-owned subsidiary of
Holdings ("Holdings Finance Corp." and, together with Holdings, the "Issuers"),
hereby confirm their agreement with you (the "Initial Purchasers"), as set forth
below.
1. The Transactions. Subject to the terms and conditions herein
------------
contained, the Issuers propose to issue and sell to the Initial Purchasers
$75,000,000 aggregate principal amount at maturity of their 13% Senior Discount
Notes due 2010 (the "Notes"). The Notes are to be issued pursuant to the
Indenture (the "Indenture"), to be dated March 12, 1999, among the Issuers and
State Street Bank and Trust Company, a Massachusetts banking corporation, as
trustee (the "Trustee").
The sale of the Notes to the Initial Purchasers (the "Offering") will be
made without registration of the Notes under the Securities Act of 1933, as
amended together with the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, the "Securities
<PAGE>
-2-
Act"), in reliance upon the exemption therefrom provided by Section 4(2) of the
Securities Act.
In connection with the sale of the Notes, Holdings has prepared a
preliminary offering memorandum dated February 25, 1999 (the "Preliminary
Memorandum") and a final offering memorandum dated the date hereof (the "Final
Memorandum"), each setting forth or including a description of the terms of the
Notes, the terms of the Offering, the other Transactions (as defined herein) and
the transactions contemplated thereby and hereby, a description of the Issuers,
Audio Communications Network, LLC, a Delaware limited liability company, and a
wholly-owned subsidiary of Holdings (the "Company"), and Old Muzak (as defined
herein) and any material developments relating to the Issuers, the Company and
Old Muzak occurring after the date of the most recent financial statements
included therein.
The Issuers understand that the Initial Purchasers propose to make an
offering of the Notes only on the terms and in the manner set forth in the Final
Memorandum and Section 9 hereof as soon as the Initial Purchasers deem advisable
after this Agreement has been executed and delivered, to persons in the United
States whom the Initial Purchasers reasonably believe to be qualified
institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act,
as such rule may be amended from time to time ("Rule 144A"), in transactions
under Rule 144A and outside the United States to certain persons in reliance on
Regulation S under the Securities Act.
The Initial Purchasers and their direct and indirect transferees of the
Notes will be entitled to the benefits of the Registration Rights Agreement to
be dated as of March 18, 1999 among the parties hereto (the "Registration Rights
Agreement") pursuant to which the Issuers will agree, among other things, to
file (i) a registration statement (the "Registration Statement") with the
Commission registering the Notes or the Exchange Notes (as defined in the
Registration Rights Agreement) under the Securities Act or (ii) a shelf
registration statement pursuant to Rule 415 under the Securities Act relating to
the resale of the Notes by holders thereof or, if appli-
<PAGE>
-3-
cable, relating to the resale of Private Exchange Notes (as defined in the
Registration Rights Agreement) by the Initial Purchasers pursuant to an exchange
of the Notes for Private Exchange Notes.
The Notes are being issued in connection with the merger of Muzak Limited
Partnership, a Delaware limited partnership ("Old Muzak"), with and into the
Company (the "Merger") pursuant to the Agreement and Plan of Merger, dated as of
January 29, 1999, among the Company, Holdings, Old Muzak, MLP Acquisition L.P.,
a Delaware limited partnership and the managing general partner of Old Muzak and
Music Holdings Corp., a Delaware corporation and the general partner of MLP
Acquisition (the "Merger Agreement"). At the time of the Merger, the Company
will change its name to Muzak LLC and Holdings will change its name to Muzak
Holdings LLC. In connection with the Merger, the Company will: (i) enter into a
new senior secured credit facility that provides for $135 million of term loans
and a $35 million revolving credit facility (the "New Credit Agreement"); (ii)
issue $115 million of Senior Subordinated Notes due 2009 (the "Senior
Subordinated Notes Offering"); and (iii) complete a tender offer and consent
solicitation for the outstanding 10% Senior Notes due 2003 of Old Muzak (the
"Muzak Notes") (the "Tender Offer"); and Holdings will make (i) a cash equity
investment of approximately $59.9 million in the Company of which approximately
$40 million will be made from the proceeds of the Offering and (ii) a $15.0
million equity investment of assets to be acquired in the Pending Capstar
Acquisition (as defined herein) (the "Equity Contribution"). The date and time
of the consummation of the Merger is referred to herein as the "Effective Time."
In addition, (i) Holdings has entered into a Contribution Agreement dated as of
February 19, 1999 with Capstar Broadcasting Corporation ("Capstar") pursuant to
which Capstar agreed to contribute to Holdings certain Muzak franchises
principally in exchange for equity interests in Holdings (the "Pending Capstar
Acquisition") and (ii) the Company has entered into a Stock Purchase Agreement
dated as of February 18, 1999 with Carolina Georgia Sound, Inc. pursuant to
which the Company acquired Electro Systems Corporation, an owner of Muzak
franchises (the "Electro Systems Acquisition").
<PAGE>
-4-
Concurrently with the Tender Offer, the Company is soliciting consents
(the "Consent Solicitation") from holders of the Muzak Notes to amendments (the
"Proposed Amendments") to certain of the provisions in the Indenture governing
the Muzak Notes (the "Muzak Indenture") as described in the Offer to Purchase
and Consent Solicitation Statement dated February 8, 1999. After receipt of the
required consents from the holders of the Muzak Notes, Old Muzak and the trustee
under the Muzak Indenture will enter into a supplemental indenture to give
effect to the Proposed Amendments (the "Supplemental Indenture"). Unless
otherwise indicated, the use of the term Tender Offer herein shall be deemed to
include the Consent Solicitation.
The Merger Agreement and the documents entered into in connection
therewith are herein collectively referred to as the "Merger Documents." This
Agreement, the Notes, the Exchange Notes, the Private Exchange Notes, the
Registration Rights Agreement and the Indenture are herein collectively referred
to as the "Offering Documents." The Merger Documents, the Offering Documents,
the New Credit Agreement, and all the documents related to the Equity
Contribution, the Pending Capstar Acquisition, the Electro Systems Acquisition
and the Tender Offer are herein collectively referred to as the "Transaction
Documents."
The Merger, the issuance of the Notes, the Equity Contribution, the
Pending Capstar Acquisition, the Electro Systems Acquisition and the Tender
Offer and the transactions contemplated by the New Credit Agreement are herein
collectively referred to as the "Transactions."
2. Representations and Warranties of the Issuers. The Issuers,
---------------------------------------------
jointly and severally, represent and warrant to and agree with the Initial
Purchasers that:
(a) The Final Memorandum, as of its date and the Closing Date (as
defined in Section 3 hereof), does not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, ex-
<PAGE>
-5-
cept that the representations and warranties set forth in this Section 2(a) do
not apply to statements or omissions that are made in reliance upon and in
conformity with information relating to the Initial Purchasers furnished to the
Issuers in writing by the Initial Purchasers expressly for use in the Final
Memorandum or any amendment or supplement thereto. The Final Memorandum and any
amendment or supplement thereto complied or will comply in all material respects
with Rule 144A(d)(4) under the Securities Act.
(b) Each of the Issuers and their subsidiaries set forth in Exhibit A
---------
hereto (the "Subsidiaries") has been and, at and as of the Effective Time will
be, and to the best knowledge of the Issuers, each of Old Muzak and its
subsidiaries set forth in Exhibit B hereto (the "Muzak Subsidiaries") has been
---------
and, at and as of the Effective Time, each of the Muzak Subsidiaries will be,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has and, at and as of the Effective Time, will
have the power and authority to carry on its business as now being conducted and
as contemplated to be conducted and to own and operate the properties and assets
now owned and being operated by it or to be owned and operated by it in each
case as described in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum). Each of the Issuers and the
Subsidiaries is and, at and as of the Effective Time will be, and to the best
knowledge of the Issuers, each of Old Muzak and the Muzak Subsidiaries is, and
at and as of the Effective Time, each of the Muzak Subsidiaries will be, duly
qualified to do business as a foreign entity and is or will be in good standing
in each jurisdiction in which such qualification is necessary under the
applicable law as a result of the conduct of its business or the ownership of
its properties, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the general
affairs, management, business, condition (financial or other), properties,
prospects or
<PAGE>
-6-
results of operations of the Issuers, taken as a whole (any such event, a
"Material Adverse Effect").
(c) As of the Closing Date (after giving effect to the Transactions and
assuming the Pending Capstar Acquisition has been consummated by such date):
Holdings will have the capitalization materially in conformance with that set
forth in the Final Memorandum; and all of the outstanding capital stock of
Holdings Finance Corp. will be owned and held by Holdings.
(d) Except as described in the Final Memorandum: (i) all of the issued and
outstanding shares or capital stock of the Issuers and the Subsidiaries are and,
at and as of the Effective Time, will be, and to the best knowledge of the
Issuers, as of the Closing Date, all of the issued and outstanding shares of
capital stock of the Muzak Subsidiaries will be, duly authorized and validly
issued and fully paid and non-assessable and none of them have been issued in
violation of any preemptive or other right; (ii) all of the outstanding shares
of capital stock of the Subsidiaries are owned, directly or indirectly, by
Holdings; (iii) except for options issued to management, as of the Effective
Time, no options, warrants or other rights to purchase from Holdings or any
agreements or other obligations of Holdings or any Subsidiary to issue or other
rights to convert any obligation into, or exchange any securities for, shares of
capital stock of or ownership interests in Holdings or any Subsidiary are
outstanding and no holder of securities of Holdings or any Subsidiary is
entitled to have such securities registered under the Registration Statement;
and (iv) as of the Effective Time, there will be no agreement, understanding or
arrangement among Holdings or any Subsidiary and each of their respective
stockholders or any other person relating to the ownership or disposition of any
capital stock of Holdings or any Subsidiary, or the election of directors of
Holdings or any Subsidiary, or the governance of Holdings' or any Subsidiary's
affairs, and, if any, such agreements, understandings and arrangements will not
be
<PAGE>
-7-
breached or violated as a result of the execution and delivery of, or the
consummation of the Transactions.
(e) Each of the Issuers has and, at and as of the Effective Time, each of
the Issuers will have the required corporate or limited liability company power
and authority to execute, deliver and perform its obligations under the Notes,
the Exchange Notes and the Private Exchange Notes. The Notes, the Exchange
Notes, the Private Exchange Notes have each been duly and validly authorized by
each of the Issuers for issuance and, when executed by the Issuers and
authenticated by the Trustee in accordance with the provisions of the Indenture
and, in the case of the Notes, when delivered to and paid for by the Initial
Purchasers in accordance with the terms hereof, will have been duly executed,
issued and delivered and will constitute valid and legally binding obligations
of the Issuers, entitled to the benefits of the Indenture and enforceable
against the Issuers in accordance with their terms except that the enforcement
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforcement is considered in a proceeding at law or in equity) and
the discretion of the court before which any proceeding with respect thereto may
be brought (the "Enforceability Exceptions"). The Notes are in the form
contemplated by the Indenture.
(f) Each of the Issuers has the requisite corporate or limited liability
company power and authority to execute, deliver and perform its obligations
under the Indenture. The Indenture has been duly and validly authorized by the
Issuers and meets the requirements for qualification under the Trust Indenture
Act of 1939, as amended (the "TIA"), and, when executed and delivered by the
Issuers (assuming the due authorization, execution and delivery by the Trustee),
will constitute a valid and legally binding agreement of the Issuers,
enforceable against the Issuers in accordance with its terms except that the
en-
<PAGE>
-8-
forcement thereof may be limited by the Enforceability Exceptions.
(g) Each of the Issuers has the requisite corporate or limited liability
company power and authority to execute, deliver and perform its obligations
under the Registration Rights Agreement. The Registration Rights Agreement has
been duly and validly authorized by the Issuers and, when executed and delivered
by the Issuers (assuming due authorization, execution and delivery by the
Initial Purchasers), will constitute a valid and legally binding agreement of
the Issuers, enforceable against the Issuers in accordance with its terms except
(i) that the enforcement thereof may be limited by the Enforceability Exceptions
and (ii) as any rights to indemnity or contribution thereunder may be limited by
federal and state securities laws and public policy considerations.
(h) Each of the Issuers has the requisite corporate or limited liability
power and authority to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly and validly authorized by the Issuers
and, when executed and delivered by the Issuers (assuming due authorization,
execution and delivery by the Initial Purchasers), will constitute a valid and
legally binding agreement of such Issuer, enforceable against the Issuers in
accordance with its terms except (i) that the enforcement thereof may be limited
by the Enforceability Exceptions and (ii) as any rights to indemnity or
contribution hereunder may be limited by federal and state securities laws and
public policy considerations. The Notes, the Indenture and the Registration
Rights Agreement conform in all material respects to the descriptions thereof in
the Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum).
(i) The Issuers and the Subsidiaries (to the extent a party thereto) and,
to the best knowledge of the Issuers, Old Muzak and each of the Muzak
Subsidiaries (to the extent a party thereto), each have the requisite power and
authority to execute, deliver and perform each of their
<PAGE>
-9-
respective obligations under each of the Transaction Documents other than the
Offering Documents and to enter into all other agreements, instruments and
documents executed and delivered by any of them pursuant thereto and to carry
out their respective obligations thereunder. As of the Closing Date, each of the
Transaction Documents other than the Offering Documents will have been duly and
validly authorized by the Issuers, the Subsidiaries and Old Muzak (in each case
to the extent a party thereto) and, when executed and delivered by the Issuers,
the subsidiaries and Old Muzak (in each case to the extent a party thereto),
will constitute a valid and legally binding agreement of the Issuers, the
Subsidiaries and Old Muzak (in each case to the extent a party thereto),
enforceable against the Issuers, the Subsidiaries and Old Muzak (in each case to
the extent a party thereto) in accordance with their respective terms except
that (i) the enforcement thereof may be limited by the Enforceability Exceptions
and (ii) as any rights to indemnity or contribution hereunder may be limited by
federal and state securities laws and public policy considerations.
(j) (i) Holdings has delivered to the Initial Purchasers a true and
correct copy of each of the Transaction Documents that have been executed and
delivered prior to the date of this Agreement, together with all related
agreements and all schedules and exhibits thereto, and as of the date hereof
there have been no amendments, alterations, modifications or waivers of any of
the provisions of any of such Transaction Documents since their date of
execution; and (ii) there exists as of the date hereof (after giving effect to
the transactions contemplated by each of the Transaction Documents) no event or
condition that would constitute a default or an event of default (in each case
as defined in each of the Transaction Documents) under any of the Transaction
Documents that would result in a Material Adverse Effect or materially adversely
affect the ability of the Issuers, the Company and Old Muzak to consummate the
Transactions.
<PAGE>
-10-
(k) Except as set forth in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum), no
consent, approval, authorization or order of any court or governmental agency or
body is required for the performance of any of the Transaction Documents by the
Issuers, the Subsidiaries and Old Muzak, to the extent each is or will be a
party thereto, or for the consummation by the Issuers, the Subsidiaries or Old
Muzak, of any of the transactions contemplated thereby, except for such
consents, approvals, authorizations or orders as have been obtained or made or
as may be required under the Securities Act and the TIA (with respect to the
transactions contemplated by the Registration Rights Agreement) or as may be
required under state securities or "Blue Sky" laws in connection with the
purchase and distribution of the Notes by the Initial Purchasers or such that
the failure to obtain would not reasonably be expected to have a Material
Adverse Effect; and none of the Issuers or the Subsidiaries is and, to the best
knowledge of the Issuers, none of Old Muzak or the Muzak Subsidiaries is, (i) in
violation of its respective certificate of incorporation, organizational
documents, limited liability company agreement, partnership agreement or bylaws,
(ii) in violation of any statute, judgment, decree, order, rule or regulation
applicable to it or any of its properties or assets, which violation would,
individually or in the aggregate, have a Material Adverse Effect, or (iii) in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any of the Transaction Documents or any other
contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which it is a party or to which it is subject, which default would, individually
or in the aggregate, have a Material Adverse Effect.
(l) The execution, delivery and performance by (i) the Issuers and the
Subsidiaries and (ii) to the best knowledge of the Issuers, Old Muzak and the
Muzak Subsidiaries of, in each case, each of the Transaction Documents
<PAGE>
-11-
to which it is a party, and the consummation of the transactions contemplated
hereby and thereby and the fulfillment of the terms hereof and thereof, will not
violate, conflict with or constitute or result in a breach of or a default under
(or an event that, with notice or lapse of time, or both, would constitute a
breach of or a default under) any of (a) the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, or agreement or instrument to which any of them is a party
or to which any of their respective properties or assets are subject, which
violation, conflict, breach or default would, individually or in the aggregate,
have a Material Adverse Effect, (b) the certificate of incorporation,
organizational documents, limited liability company agreement, partnership
agreement or by-laws of any of them or (c) (assuming compliance with all
applicable Federal and state securities and "Blue Sky" laws and the accuracy of
the representations and warranties of the Initial Purchasers in Section 9
hereof) any statute, judgment, decree, order, rule or regulation of any court or
governmental agency or other body applicable to any of them or any of their
respective properties or assets, which violation, conflict, breach or default
would, individually or in the aggregate, have a Material Adverse Effect.
(m) The audited historical financial statements of the Company and Audio
Communications Network, Inc. ("ACN Inc.") and, to the best knowledge of the
Issuers, Old Muzak, included in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum) present
fairly in all material respects the consolidated financial position, results of
operations and cash flows of each such entity, at the dates and for the periods
to which they relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except as
otherwise stated therein; the unaudited financial statements and financial
information of the Capstar Affiliate (as defined in the Final Memorandum),
Business Sound Inc. (as defined in the
<PAGE>
-12-
Final Memorandum), the MTI Business (as defined in the Final Memorandum),
Electro Systems Inc. and the Omaha Muzak affiliate to be acquired by Capstar
included in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum) present fairly in all
material respects the financial position and results of operations of each such
entity at the dates and for the periods to which they relate, and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis except as otherwise stated therein and have been prepared on
a basis substantially consistent with that of the audited financial statements
of the Company referred to above except as otherwise stated therein; the summary
and selected financial and statistical data included in the Final Memorandum
(or, if the Final Memorandum is not in existence, the most recent Preliminary
Memorandum) present fairly in all material respects the information shown
therein and have been prepared and compiled on a basis consistent with the
audited and unaudited financial statements included therein, except as otherwise
stated therein; and each of PricewaterhouseCoopers LLP and Deloitte & Touche
LLP, which have examined certain of such financial statements as set forth in
their reports included in the Final Memorandum (or, if the Final Memorandum is
not in existence, the most recent Preliminary Memorandum), are independent
public accounting firms within the meaning of Rule 101 of the Code of
Professional Conduct of the American Institute of Certified Public Accountants
and its interpretations and rulings.
(n) (i) The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Final Memorandum (or,
if the Final Memorandum is not in existence, the most recent Preliminary
Memorandum) have been properly computed on the bases described therein; and the
assumptions used in the preparation of the pro forma financial statements and
other pro forma financial information included in the Final Memorandum (or, if
the Final Memorandum is not in ex-
<PAGE>
-13-
istence, the most recent Preliminary Memorandum) are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(o) Except as described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum), there
is not pending or, to the best knowledge of the Issuers, threatened any action,
suit, proceeding, inquiry or investigation, governmental or otherwise, to which
any of the Issuers or, to the best knowledge of the Issuers, Old Muzak or any
Muzak Subsidiary is a party, or to which their respective properties or assets
are subject, before or brought by any court, arbitrator or governmental agency
or body, that, if determined adversely to the Issuers, the Subsidiaries or Old
Muzak or any Muzak Subsidiary, would, individually or in the aggregate, have a
Material Adverse Effect, or that seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of the Notes to be
sold hereunder or the other Transactions.
(p) None of the Issuers or the Subsidiaries has, and, to the best
knowledge of the Issuers, none of Old Muzak or any of the Muzak Subsidiaries
has, and, after giving effect to the Transactions and the issuance and sale of
the Notes, none of the Issuers or the Subsidiaries will not have, any liability
for any prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which any of them makes or ever has made a contribution
and in which any employee of any of them is or has ever been a participant. With
respect to such plans, the Issuers and the Subsidiaries are, and, to the best
knowledge of the Issuers, Old Muzak and the Muzak Subsidiaries are, and, after
giving effect to the Transactions and the issuance and sale of the Notes, the
Issuers
<PAGE>
-14-
and the Subsidiaries will be, in compliance in all material respects with all
provisions of ERISA.
(q) The Issuers and the Subsidiaries and, to the best knowledge of the
Issuers, Old Muzak and the Muzak Subsidiaries, own or possess adequate licenses
or other rights to use all patents, trademarks, service marks, trade names,
copyrights and know-how that are necessary to conduct their business as
described in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum). None of the Issuers or the
Subsidiaries and, to the best knowledge of the Issuers, none of Old Muzak or any
of the Muzak Subsidiaries, has received any notice of infringement of or
conflict with (or knows of any such infringement of or conflict with) asserted
rights of others with respect to any patents, trademarks, service marks, trade
names, copyrights or know-how that, if such assertion of infringement or
conflict were sustained, would, individually or in the aggregate, have a
Material Adverse Effect.
(r) Each of the Issuers and the Subsidiaries, and, to the best knowledge
of the Issuers, each of Old Muzak and the Muzak Subsidiaries, possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum) ("Permits"), except where the
failure to obtain such Permits would not, individually or in the aggregate, have
a Material Adverse Effect; each of the Issuers and the Subsidiaries and, to the
best knowledge of the Issuers, each of Old Muzak and the Muzak Subsidiaries, has
fulfilled and performed all of its obligations with respect to such Per-
<PAGE>
-15-
mits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit, except for
nonperformance or events or revocations or terminations that would not,
individually or in the aggregate, have a Material Adverse Effect; and none of
the Issuers or the Subsidiaries and, to the best knowledge of the Issuers, none
of Old Muzak and the Muzak Subsidiaries, has received any notice of any
proceeding relating to revocation or modification of any such Permit, except as
described in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum) and except where such
revocation or modification would not, individually or in the aggregate, have a
Material Adverse Effect.
(s) Subsequent to the respective dates as of which information is given in
the Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) and except as described therein or as
contemplated by the Transaction Documents, (i) the Issuers, the Subsidiaries
and, to the best knowledge of the Issuers, Old Muzak and the Muzak Subsidiaries
have not incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions not in the ordinary course of
business, (ii) the Issuers, the Subsidiaries and, to the best knowledge of the
Issuers, Old Muzak and the Muzak Subsidiaries have not purchased any of their
respective outstanding capital stock, membership interests, partnership
interests or the equivalent, or declared, paid or otherwise made any dividend or
distribution of any kind on any of their respective capital stock, membership
interests, partnership interest or otherwise, (iii) there shall not have been
any change in the capital stock or long-term indebtedness of the Issuers, the
Subsidiaries and, to the best knowledge of the Issuers, Old Muzak and the Muzak
Subsidiaries and (iv) none of the Issuers, the Subsidiaries or, to the best
knowledge of the Issuers, Old Muzak or any of the Old Muzak Subsidiar-
<PAGE>
-16-
ies, has sustained any material loss or interference with its business from
fire, explosion, flood, earthquake or other calamity, whether or not covered by
insurance, except in each case as would not have a Material Adverse Effect.
(t) Except as described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum), none of
the Issuers or the Subsidiaries and, to the best knowledge of the Issuers, Old
Muzak or the Muzak Subsidiaries is in default under any of the contracts
described in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum), has received a notice or
claim of any such default or has knowledge of any breach of such contracts by
the other party or parties thereto, except such defaults or breaches as would
not, individually or in the aggregate, have a Material Adverse Effect.
(u) None of the Issuers, the Subsidiaries or, to the best knowledge of the
Issuers, Old Muzak or the Old Muzak Subsidiaries has taken or will take any
action that would cause this Agreement or the issuance or sale of the Notes to
violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System, in each case as in effect, or as the same may hereafter be in effect, on
the Closing Date.
(v) Each of the Issuers and the Subsidiaries and, to the best knowledge of
the Issuers, Old Muzak and the Muzak Subsidiaries has good and marketable title
to all real property described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum) as being
owned by it and good and marketable title to the leasehold estate in the real
property described therein as being leased by it, free and clear of all liens,
charges, encumbrances or restrictions, except, in each case, as described in the
Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) or such as would not, indi-
<PAGE>
-17-
vidually or in the aggregate, have a Material Adverse Effect.
(w) Each of the Issuers and the Subsidiaries and, to the best knowledge of
the Issuers, Old Muzak and the Muzak Subsidiaries, has filed all necessary
federal, state and foreign income and franchise tax returns, except where the
failure to so file such returns would not, individually or in the aggregate,
have a Material Adverse Effect; and, other than taxes due thereon or tax
deficiencies which any Issuer or any Subsidiary or, to the best knowledge of the
Issuers, Old Muzak or any Muzak Subsidiary reasonably believes that it has
provided adequate reserves, has paid all taxes due thereon and there is no tax
deficiency that has been asserted against any Issuer or any Subsidiary or, to
the best knowledge of the Issuers, Old Muzak and the Muzak Subsidiaries, that
would, individually or in the aggregate, have a Material Adverse Effect.
(x) (i) Immediately after the consummation of the Transactions, the fair
value and present fair saleable value of the assets of the Issuers will exceed
the sum of their stated liabilities and identified contingent liabilities; and
(ii) the Issuers are not, nor will they be, after giving effect to the
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated thereby, (a) left with
unreasonably small capital with which to carry on their businesses as is
proposed to be conducted, (b) unable to pay their debts (contingent or
otherwise) as they mature or (c) insolvent.
(y) Except as disclosed in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum) and
except as would not individually or in the aggregate have a Material Adverse
Effect, (A) each of the Issuers and the Subsidiaries and, to the best knowledge
of the Issuers, Old Muzak and the Muzak Subsidiaries, is in compliance with all
applicable Environmental Laws, (B) each of the Issuers and the Subsidiaries and,
to the best knowledge of the Issuers, Old Muzak
<PAGE>
-18-
and the Muzak Subsidiaries has made all filings and provided all notices
required under any applicable Environmental Law, and has all permits,
authorizations and approvals required under any applicable Environmental Laws
and is in compliance with their requirements, (C) there are no pending or, to
the best knowledge of the Issuers, after due inquiry, threatened Environmental
Claims against any of the Issuers or the Subsidiaries or, in each case, to the
best knowledge of the Issuers, Old Muzak and the Muzak Subsidiaries and (D) none
of the Issuers or the Subsidiaries or, to the best knowledge of the Issuers, Old
Muzak and the Muzak Subsidiaries has knowledge of any circumstances with respect
to any of their respective properties or operations that could reasonably be
anticipated to form the basis of an Environmental Claim against any of them or
any of their subsidiaries or any of their respective properties or operations
and the business operations relating thereto.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any federal, state, local or
municipal statute, law, rule, regulation, ordinance, code or rule and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment binding on any of the Issuers,
the Subsidiaries or Old Muzak relating to pollution or protection of the
environment or health or safety or any chemical, material or substance that is
subject to regulation thereunder. "Environmental Claims" means any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
claims, written notices of responsibility, information requests, liens, written
notices of noncompliance or violation, investigations or proceedings relating in
any way to any Environmental Law.
(z) None of the Issuers or the Subsidiaries or, to the best knowledge of
the Issuers, Old Muzak and the Muzak Subsidiaries, or any of their respective
Affiliates (as defined in Rule 501(b) of Regulation D under the Securi-
<PAGE>
-19-
ties Act) directly, or through any agent, (i) sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of any "security" (as defined
in the Securities Act) which is or could be integrated with the sale of the
Notes in a manner that would require the registration under the Securities Act
of the Notes or (ii) engaged in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
in connection with the offering of the Notes or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act. Assuming the
accuracy of the Initial Purchasers' representations and warranties set forth in
Section 9 hereof, the offer and sale of the Notes to the Initial Purchasers in
the manner contemplated by this Agreement and the Final Memorandum does not
require registration under the Securities Act and the Indenture does not require
qualification under the TIA.
(aa) No securities of the Issuers or any of the Subsidiaries are (i) of
the same class (within the meaning of Rule 144A under the Securities Act) as the
Notes and (ii) listed on a national securities exchange registered under Section
6 of the Exchange Act or quoted in a U.S. automated interdealer quotation
system.
(bb) None of the Issuers or the Subsidiaries or, to the best knowledge of
the Issuers, Old Muzak or the Muzak Subsidiaries, or, in each case, any of their
respective Affiliates or any person acting on their behalf, has engaged in any
directed selling efforts (as that term is defined in Regulation S under the
Securities Act ("Regulation S")) with respect to the Notes; and the Issuers and
the Subsidiaries and, to the best knowledge of the Issuers, Old Muzak and the
Muzak Subsidiaries, their respective Affiliates and any person acting on their
behalf have acted in accordance with the offering restrictions requirements of
Regulation S.
(cc) None of the Issuers or the Subsidiaries or, to the best knowledge of
the Issuers, Old Muzak and the Muzak
<PAGE>
-20-
Subsidiaries, is required to register as an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(dd) None of the Issuers or the Subsidiaries or, to the best knowledge of
the Issuers, Old Muzak or the Muzak Subsidiaries, or any of their respective
directors, officers or controlling persons, has taken, directly or indirectly,
any action designed, or that might reasonably be expected, to cause or result,
under the Act or otherwise, in, or that has constituted, stabilization or
manipulation of the price of any security of any Issuer to facilitate the sale
or resale of the Notes (it being understood that no representation or warranty
is made as to any actions by the Initial Purchasers).
(ee) Except as set forth in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum), there
is no strike, labor dispute, slowdown or work stoppage with the employees of any
of the Issuers or the Subsidiaries or, to the best knowledge of the Issuers, Old
Muzak or the Muzak Subsidiaries, which is pending or, to the best knowledge of
the Issuers, threatened that would have a Material Adverse Effect.
(ff) Each of the Issuers and the Subsidiaries and, to the best knowledge
of the Issuers, Old Muzak and the Muzak Subsidiaries, carries insurance
(including self-insurance) in such amounts and covering such risks as in its
reasonable determination is adequate for the conduct of its business and the
value of its properties.
(gg) Each of the Issuers and the Subsidiaries and, to the best knowledge
of the Issuers, Old Muzak and the Muzak Subsidiaries, (i) makes and keeps
accurate books and records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
<PAGE>
-21-
accountability for its assets, (C) access to its assets is permitted only in
accordance with management's authorization and (D) the reported accountability
for its assets is compared with existing assets at reasonable intervals.
(hh) The statistical and market and industry-related data included in the
Final Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) are based on or derived from sources which the
Issuers believe to be reliable and accurate or represent the Issuers' good faith
estimates that are made on the basis of data derived from such sources.
Any certificate signed by any officer of any Issuer and delivered to any
Initial Purchaser or to counsel for the Initial Purchasers shall be deemed a
joint and several representation and warranty by the Issuers to each Initial
Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Notes. On the basis of the
----------------------------------------
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Issuers agree to issue
and sell to the Initial Purchasers, and each of the Initial Purchasers, acting
severally and not jointly, agrees to purchase from the Issuers, at 51.595% of
their principal amount, the respective aggregate principal amounts of the Notes
set forth opposite their respective names on Schedule 1 hereto.
----------
One or more certificates in definitive form for the Notes that the Initial
Purchasers have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as each Initial Purchaser
requests upon notice to Holdings at least 48 hours prior to the Closing Date,
shall be delivered by or on behalf of Holdings, against payment by or on behalf
of the Initial Purchasers of the purchase price therefor by wire transfer of
immediately available funds to the account of Holdings previously designated by
it in writing. Such delivery of and payment for the Notes shall be made at the
offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022, at
9:00 a.m., New York time, on
<PAGE>
-22-
March 18, 1999, or at such date as the Initial Purchasers and Holdings may agree
upon, such time and date of delivery against payment being herein referred to as
the "Closing Date." Holdings will make such certificate or certificates for the
Notes available for inspection by the Initial Purchasers at the offices in New
York, New York of Kirkland & Ellis at least 24 hours prior to the Closing Date.
4. Offering by the Initial Purchasers. The Initial Purchasers
----------------------------------
propose to make an offering of the Notes at the price and upon the terms set
forth in the Final Memorandum as soon as practicable after this Agreement is
entered into and as in the judgment of the Initial Purchasers is advisable.
5. Certain Covenants. The Issuers, jointly and severally, covenant
-----------------
and agree with the Initial Purchasers that:
(a) None of the Issuers will amend or supplement the Final Memorandum
or any amendment or supplement thereto of which the Initial Purchasers shall not
previously have been advised and furnished a copy for a reasonable period of
time prior to the proposed amendment or supplement and as to which the Initial
Purchasers shall not have given its consent (which consent shall not be
unreasonably withheld). The Issuers will promptly, upon the reasonable request
of the Initial Purchasers or counsel to the Initial Purchasers, make any
amendments or supplements to the Final Memorandum that may be reasonably
necessary or advisable in connection with the resale of the Notes by the Initial
Purchasers.
(b) The Issuers will cooperate with the Initial Purchasers in
arranging for the qualification of the Notes for offering and sale under the
securities or "Blue Sky" laws of such jurisdictions as the Initial Purchasers
may designate and will continue such qualifications in effect for as long as may
be necessary to complete the distribution of the Notes by the Initial
Purchasers; provided, however, that in connection therewith none of the Issuers
-------- -------
shall be required to qualify as a foreign corporation or to execute a general
consent to service of process in any
<PAGE>
-23-
jurisdiction or to take any other action that would subject it to general
service of process or to taxation in respect of doing business in any
jurisdiction in which it is not otherwise subject.
(c) If, at any time prior to the completion of the resale by the
Initial Purchasers of the Notes or the Private Exchange Notes, any event shall
occur as a result of which it is necessary, in the opinion of counsel for the
Initial Purchasers, to amend or supplement the Final Memorandum in order to make
such Final Memorandum not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if for any other reason it shall
be necessary to amend or supplement the Final Memorandum in order to comply with
applicable laws, rules or regulations, the Issuers shall (subject to Section
5(a)) forthwith amend or supplement such Final Memorandum at their own expense
so that, as so amended or supplemented, such Final Memorandum will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading and will comply with all applicable laws, rules or regulations.
(d) The Issuers will, without charge, provide to each Initial
Purchaser and to counsel to the Initial Purchasers as many copies of each of the
Preliminary Memorandum and Final Memorandum or any amendment or supplement
thereto as the Initial Purchasers may reasonably request.
(e) During the period of five years from the Closing Date, the
Issuers will furnish to the Initial Purchasers (a) as soon as available, a copy
of each report and other communication (financial or otherwise) of any Issuer
mailed to the Trustee or the holders of the Notes, stockholders or any national
securities exchange on which any class of securities of any Issuer may be listed
other than materials filed with the Commission and (b) from time to
<PAGE>
-24-
time such other information concerning the Issuers as the Initial Purchasers may
reasonably request.
(f) If this Agreement shall terminate or shall be terminated after
execution because of any failure or refusal on the part of the Issuers to comply
with the terms or fulfill any of the conditions of this Agreement, the Issuers
agree to reimburse the Initial Purchasers for all reasonable out-of-pocket
expenses (including fees and expenses of counsel for the Initial Purchasers)
incurred by you in connection herewith.
(g) The Issuers will apply the net proceeds from the sale of the
Notes materially as set forth under "Use of Proceeds" in the Final Memorandum.
(h) None of the Issuers or any of their respective Affiliates will
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any "security" (as defined in the Securities Act) which could be integrated
with the sale of the Notes in a manner which would require the registration
under the Securities Act of the Notes.
(i) For so long as the Notes constitute "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, the Issuers will
not, and will not permit any of the Subsidiaries to, solicit any offer to buy or
offer to sell the Notes by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act, except in connection with the exchange offer contemplated
by the Registration Rights Agreement.
(j) For so long as any of the Notes remain outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act and not able to be sold in their entirety under Rule 144 under
the Securities Act (or any successor provision), the Issuers will make
<PAGE>
-25-
available, upon request, to any seller of such Notes the information
specified in Rule 144A(d)(4) under the Securities Act, unless the Issuers
are then subject to Section 13 or 15(d) of the Exchange Act.
(k) The Issuers will use their best efforts to (i) permit the Notes
to be included for quotation on the PORTAL Market and (ii) permit the Notes
to be eligible for clearance and settlement through The Depository Trust
Company ("DTC").
(l) In connection with Notes offered and sold in an offshore
transaction (as defined in Regulation S), the Issuers will not register any
transfer of such Notes not made in accordance with the provisions of
Regulation S and will not, except in accordance with the provisions of
Regulation S, if applicable, issue any such Notes in the form of definitive
securities.
(m) The Issuers will use their best efforts to do and perform all
things required to be done and performed by them under this Agreement and
the other Offering Documents prior to or after the Closing Date and to
satisfy all conditions precedent on their part to the obligations of the
Initial Purchasers to purchase and accept delivery of the Notes.
6. Expenses. Notwithstanding any termination of this Agreement
--------
(pursuant to Section 11 or otherwise), the Issuers jointly and severally agree
to pay the following costs and expenses and all other costs and expenses
incident to the performance by the Issuers of their obligations hereunder: (i)
the negotiation, preparation, printing, typing, reproduction, execution and
delivery of this Agreement and of the other Offering Documents, any amendment or
supplement to or modification of any of the foregoing and any and all other
documents furnished pursuant hereto or thereto or in connection herewith or
therewith; (ii) the preparation, printing or reproduction of each Preliminary
Memorandum, the Final Memorandum and each amendment or supplement to any of
them; (iii) the delivery (including postage, air freight charges and charges for
counting and pack-
<PAGE>
-26-
aging) of such copies of each Preliminary Memorandum, the Final Memorandum and
all amendments or supplements to any of them as may be reasonably requested for
use in connection with the offering and sale of the Notes; (iv) the preparation,
printing, authentication, issuance and delivery of certificates for the Notes,
including any stamp taxes in connection with the original issuance and sale of
the Notes and trustees' fees; (v) the reproduction and delivery of this
Agreement and the other Offering Documents, the preliminary and supplemental
"Blue Sky" memoranda and all other agreements or documents reproduced and
delivered in connection with the offering of the Notes; (vi) the registration or
qualification of the Notes for offer and sale under the securities or Blue Sky
laws of the several states (including filing fees and the reasonable fees,
expenses and disbursements of Cahill Gordon & Reindel, counsel to the Initial
Purchasers, relating to such registration and qualification not to exceed
$10,000); (vii) the transportation and other expenses incurred by or on behalf
of Holdings' representatives in connection with presentations to and related
communications with prospective purchasers of the Notes; (viii) the fees and
expenses of Holdings' accountants and the fees and expenses of counsel
(including local and special counsel) for the Issuers; (ix) fees and expenses of
the Trustee including fees and expenses of its counsel; (x) all expenses and
listing fees incurred in connection with the application for quotation of the
Notes on the PORTAL Market; and (xi) any fees charged by investment rating
agencies for the rating of the Notes.
7. Conditions of the Initial Purchasers' Obligations. The several
-------------------------------------------------
obligations of the Initial Purchasers to purchase and pay for the Notes are
subject to the accuracy of the representations and warranties contained herein,
to the performance by the Issuers of their respective covenants and agreements
hereunder and to the following additional conditions unless waived in writing by
the Initial Purchasers:
(i) The Initial Purchasers shall have received an opinion of counsel
in form and substance satisfactory to the Initial Purchasers and Cahill
Gordon & Reindel, counsel to the Initial Purchasers, dated the Closing
Date, of
<PAGE>
-27-
each of (i) Kirkland & Ellis, counsel to the Issuers, substantially in the
form of Exhibit C hereto, (ii) Weil, Gotshal & Manges LLP, counsel
---------
to Old Muzak, substantially in the form of Exhibit D hereto. In rendering
---------
such opinions, each such counsel shall have received and may rely upon such
certificates and other documents and information, including one or more
opinions of local counsel reasonably acceptable to the Initial Purchasers
and Cahill Gordon & Reindel, counsel to the Initial Purchasers, as they may
reasonably request to pass upon such matters.
(ii) The Initial Purchasers shall have received an opinion, dated the
Closing Date, of Cahill Gordon & Reindel, counsel to the Initial
Purchasers, with respect to the sufficiency of certain legal matters
relating to this Agreement and such other related matters as the Initial
Purchasers may require. In rendering such opinion, Cahill Gordon & Reindel
shall have received and may rely upon such certificates and other documents
and information as they may reasonably request to pass upon such matters.
In addition, in rendering their opinion, Cahill Gordon & Reindel may state
that their opinion is limited to matters of New York, Delaware corporate
and federal law.
(iii) The Initial Purchasers shall have received from
PricewaterhouseCoopers LLP and Deloitte & Touche LLP, independent public
accountants for the Company and Old Muzak, "comfort" letters dated the date
hereof and the Closing Date, in form and substance reasonably satisfactory
to the Initial Purchasers and Cahill Gordon & Reindel, counsel to the
Initial Purchasers.
(iv) The representations and warranties of the Issuers contained in
this Agreement shall be true and correct on and as of the Closing Date; the
Issuers shall have complied in all material respects with all agreements
and satisfied all conditions on their part to be performed or satisfied
hereunder at or prior to the Closing Date.
(v) None of the issuance and sale of the Notes pursuant to this
Agreement or any of the Transactions or any
<PAGE>
-28-
of the other transactions contemplated by any of the other Offering Documents or
the Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued; and there
shall not have been any legal action, order, decree or other administrative
proceeding instituted or threatened against any of the Issuers or against the
Initial Purchasers relating to the issuance of the Notes or the Initial
Purchasers' activities in connection therewith or any other transactions
contemplated by this Agreement or the Final Memorandum, the other Offering
Documents or the Transaction Documents.
(vi) Subsequent to the date of this Agreement and since the date of
the most recent financial statements in the Final Memorandum (exclusive of any
amendment or supplement thereto after the date hereof), there shall not have
occurred (i) any change, or any development involving a prospective change, in
or affecting the general affairs, management, business, condition (financial or
other), properties, prospects or results of operations of the Issuers, the
Subsidiaries, Old Muzak and the Muzak Subsidiaries, taken as a whole, not
contemplated by the Final Memorandum that, in the opinion of the Initial
Purchasers, would materially adversely affect the market for the Notes, or (ii)
any event or development relating to or involving any of the Issuers, the
Subsidiaries, Old Muzak or the Muzak Subsidiaries, or any of their respective
officers or directors that makes any statement made in the Final Memorandum
untrue or that, in the opinion of the Issuers and their counsel or the Initial
Purchasers and their counsel, requires the making of any addition to or change
in the Final Memorandum in order to state a material fact required by any
applicable law, rule or regulation to be stated therein or necessary in order to
make the statements made therein not misleading.
(vii) The Initial Purchasers shall have received certificates, dated
the Closing Date and signed by the chief
<PAGE>
-29-
executive officer and the chief financial officer of each Issuer (in their
capacities as such), to the effect that:
a. All of the representations and warranties of such Issuer set
forth in this Agreement are true and correct as if made on and as of the
Closing Date and such Issuer has complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date.
b. The issuance and sale of the Notes pursuant to this Agreement or
the Final Memorandum and the consummation of the transactions contemplated
by the Transaction Documents have not been enjoined (temporarily or
permanently) and no restraining order or other injunctive order has been
issued and there has not been any legal action, order, decree or other
administrative proceeding instituted or, to such officers' knowledge,
threatened against such Issuer relating to the issuance of the Notes or the
Initial Purchasers' activities in connection therewith or in connection
with any other transactions contemplated by this Agreement or the Final
Memorandum, the other Offering Documents or the Transaction Documents.
c. Subsequent to the date of this Agreement and since the date of
the most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), there has not
occurred (i) any change, or any development involving a prospective change,
in or affecting the general affairs, management, business, condition
(financial or other), properties, prospects or results of operations of the
Issuers, the Subsidiaries, Old Muzak and the Muzak Subsidiaries, taken as a
whole, not contemplated by the Final Memorandum that would materially
adversely affect the market for the Notes, or (ii) any event or development
relating to or involving any of the Issuers, the Subsidiaries, Old Muzak
and the Muzak Subsidiaries or any of their
<PAGE>
-30-
respective officers or directors that makes any statement made in the
Final Memorandum untrue or that requires the making of any addition to
or change in the Final Memorandum in order to state a material fact
required by any applicable law, rule or regulation to be stated
therein or necessary in order to make the statements made therein not
misleading.
d. At the Closing Date and after giving effect to the
consummation of the transactions contemplated by the Transaction
Documents, there exists no Default or Event of Default (as defined in
the Indenture).
(viii) Each of the Transaction Documents and each other agreement or
instrument executed in connection with the Transactions shall be reasonably
satisfactory in form and substance to the Initial Purchasers and shall have been
executed and delivered by all the respective parties thereto and shall be in
full force and effect, and there shall have been no material amendments,
alterations, modifications or waivers of any provision thereof since the date of
this Agreement. On the Closing Date, the New Credit Agreement shall provide for
revolving credit and term loan borrowings in such amounts as are sufficient to
consummate the Transactions to be consummated on the Closing Date and
substantially as described in the Final Memorandum.
(ix) On the Closing Date, the Company shall have received not less
than $115 million in gross proceeds from the Senior Subordinated Notes Offering.
(x) The Company shall have received cash equity financing (including
the proceeds of the Offering) pursuant to the Equity Contribution in such an
amount as is sufficient to consummate the Transactions to be consummated on the
Closing Date, substantially as described in the Final Memorandum.
<PAGE>
-31-
(xi) The Certificate of Merger with respect to the Merger shall
have been filed with the Secretary of State of the State of Delaware and
shall have become effective.
(xii) Each of the Proposed Amendments to the Muzak Notes shall
have been approved by the requisite percentage of holders of Muzak Notes;
simultaneously with the closing of the sale of the Notes by the Issuers,
the Issuers shall have accepted for payment and have instructed the
depositary with respect thereto to pay to the trustee under the Muzak
Indenture the purchase price for all Muzak Notes properly tendered pursuant
to the Tender Offer. The Supplemental Indenture shall have been executed by
Old Muzak and the trustee under the Muzak Indenture and the terms of the
Muzak Indenture shall be as modified by such Supplemental Indenture.
(xiii) All proceedings taken in connection with the issuance of the
Notes and the transactions contemplated by this Agreement, the other
Offering Documents and the Transaction Documents and all documents and
papers relating thereto shall be reasonably satisfactory to the Initial
Purchasers and counsel to the Initial Purchasers. The Initial Purchasers
and counsel to the Initial Purchasers shall have received copies of such
papers and documents as they may reasonably request in connection
therewith, all in form and substance reasonably satisfactory to them.
(xiv) The Issuers shall apply the proceeds necessary from the
issuance and sale of the Notes as described under "Use of Proceeds" in the
Final Memorandum.
(xv) On the Closing Date, the Initial Purchasers shall have
received a letter, dated the Closing Date, from Houlihan Lokey Howard &
Zukin Inc. with respect to the solvency of the Issuers as of the Effective
Time in form, scope and substance reasonably satisfactory to the Initial
Purchasers.
<PAGE>
-32-
(xvi) Since the date of this Agreement, there shall not have
been any announcement by any "nationally recognized statistical rating
organization," as defined for purposes of Rule 436(g) under the Securities
Act, that (A) it is downgrading its rating assigned to any debt securities
of Holdings, the Company or Old Muzak, or (B) it is reviewing its rating
assigned to any debt securities of Holdings, the Company or Muzak with a
view to possible downgrading, or with negative implications, or direction
not determined.
(xvii) On or before the Closing Date, the Initial Purchasers
shall have received the Registration Rights Agreement executed by the
Issuers and such agreement shall be in full force and effect at all times
from and after the Closing Date.
(xviii) The Issuers shall have furnished or caused to be furnished
to the Initial Purchasers such further certificates and documents as the
Initial Purchasers shall have reasonably requested.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchasers and counsel to the Initial Purchasers. The Issuers shall
furnish to the Initial Purchasers such conformed copies of such opinions,
certificates, letters, schedules, documents and instruments in such quantities
as the Initial Purchasers shall reasonably request.
8. Indemnification and Contribution. (a) Each Issuer jointly
--------------------------------
and
severally agrees to indemnify and hold harmless the Initial Purchasers, each
director, officer, employee or agent of any Initial Purchaser and each person,
if any, who controls any Initial Purchaser within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities or expenses to which such Initial Purchaser or such
director, officer, employee, agent or controlling person may become subject
under
<PAGE>
-33-
the Securities Act, the Exchange Act or otherwise, insofar as any such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) arise
out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) any Preliminary Memorandum or the Final
Memorandum or any amendment or supplement thereto or (B) any of the
Offering Documents or any application or other document, or any amendment
or supplement thereto, executed by any Issuer or based upon written
information furnished by or on behalf of any Issuer filed in any
jurisdiction in order to qualify the Notes under the securities or "Blue
Sky" laws thereof or filed with the Commission or any securities
association or securities exchange (collectively, the "Documents"); or
(ii) the omission or alleged omission to state, in any
Preliminary Memorandum or the Final Memorandum or any amendment or
supplement thereto, or any of the Documents, a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading,
and will reimburse, promptly after demand, the Initial Purchasers and each such
director, officer, employee, agent or controlling person for any legal or other
expenses reasonably incurred by the Initial Purchasers or such director,
officer, employee, agent or controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability, expense or action; provided, however, that
-------- -------
none of the Issuers will be liable in any such case to any Initial Purchaser or
any director, officer, employee, agent or controlling person of such Initial
Purchaser to the extent that any such loss, claim, damages, liability expense or
action arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Memorandum or
the Final Memorandum or any amendment or supplement thereto, or any Document, in
reliance upon and in conformity with written information furnished to Holdings
by or on behalf of an Initial Purchaser specifically for use therein; and
provided, further,
- -------- -------
<PAGE>
-34-
that none of the Issuers will be liable to any Initial Purchaser or any
director, officer, employee, agent or any person controlling any Initial
Purchaser with respect to any such untrue statement or omission made in any
Preliminary Memorandum that is corrected in the Final Memorandum (or any
amendment or supplement thereto) to the extent that any such loss, claim,
damage, expense or liability results from the fact that the person asserting any
such loss, claim, damage, expense or liability purchased Notes from an Initial
Purchaser in reliance upon the Preliminary Memorandum but was not sent or given
a copy of the Final Memorandum (as amended or supplemented) that was made
available by the Issuers to such Initial Purchaser at or prior to the written
confirmation of the sale of the Notes to such person unless such failure to
deliver such Final Memorandum (as amended or supplemented) was a result of
noncompliance by the Issuers with Section 5(d) of this Agreement. This indemnity
agreement will be in addition to any liability that the Issuers may otherwise
have to the indemnified parties. The Issuers further agree that the
indemnification, contribution and reimbursement commitments set forth in this
Section 8 shall apply whether or not any Initial Purchaser is a formal party to
any such lawsuits, claims or other proceedings.
(b) The Initial Purchasers severally and not jointly will indemnify
and hold harmless the Issuers, their respective directors, officers, employees
and agents and each person, if any, who controls any of the Issuers within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which any of the Issuers
or any such director, officer, employee, agent or controlling person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Memorandum or the Final Memorandum or
any amendment or supplement thereto or any Document, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
was made in reliance upon and in conformity with written information furnished
to Holdings by or on behalf
<PAGE>
-35-
of an Initial Purchaser specifically for use therein; and, subject to the
limitation set forth immediately preceding this clause, will reimburse, promptly
after request, any legal or other expenses reasonably incurred by any of the
Issuers or any such director, officer, employee, agent or controlling person in
connection with investigating or defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action in
respect thereof. This indemnity agreement will be in addition to any liability
that the Initial Purchasers may otherwise have to the indemnified parties.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability that it may have to any indemnified party except to the extent that
such omission results in the forfeiture by the indemnifying party of substantial
rights and defenses. In case any such action is brought against any indemnified
party, and such indemnified party notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the named
-------- -------
parties in any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties that are different from or additional to
those available to any such indemnifying party, and a conflict of interest may
exist between an indemnified party and the indemnifying party and the
representation of both would be inappropriate, then the indemnifying parties
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to
<PAGE>
-36-
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable out-of-pocket costs of
investigation, incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, representing the indemnified parties under such
paragraph (a) or paragraph (b), as the case may be, who are parties to such
action or actions); (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying parties; or (iii) the indemnifying party shall have failed to
assume the defense or retain counsel reasonably satisfactory to the indemnified
party. After such notice from the indemnifying parties to such indemnified party
(so long as the indemnified party shall have informed the indemnifying parties
of such action in accordance with this Section 8 on a timely basis prior to the
indemnified party seeking indemnification hereunder), the indemnifying parties
will not be liable under this Section 8 for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party, unless such indemnified party waived its rights under
this Section 8, in which case the indemnified party may effect such a settlement
without such consent. No indemnifying party will, without the prior written
consent of the indemnified party (which shall not be unreasonably withheld or
delayed), settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification by an indemnified party may be sought hereunder (whether or not
<PAGE>
-37-
the indemnified party or any person who controls any indemnified party within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party and each such director, officer, employee, agent or
controlling person from all liability arising out of such claim, action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act as to any such person.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages,
expenses or liabilities (or actions in respect thereof), each indemnifying
party, in order to provide for just and equitable contribution, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect (i) the relative benefits
received by the Issuers on the one hand and the Initial Purchasers on the other
from the offering of the Notes or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the indemnifying party or parties on the
one hand and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities (or actions in respect
thereof). The relative benefits received by the Issuers on the one hand and the
Initial Purchasers on the other shall be deemed to be in the same proportion as
the total proceeds from the offering of the Notes (before deducting expenses)
received by the Issuers bear to the total discounts and commissions received by
the Initial Purchasers. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuers on
<PAGE>
-38-
the one hand or the Initial Purchasers on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include any legal or other fees or expenses incurred by such party in connection
with investigating or defending any such claim. The Issuers and the Initial
Purchasers agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Issuers on the one hand and the Initial Purchasers on the other hand were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to in the
first sentence of this paragraph (d). Notwithstanding any other provision of
this paragraph (d), the Initial Purchasers shall not be obligated to make
contributions hereunder that in the aggregate exceed the total discounts and
commissions received by the Initial Purchasers under this Agreement, less the
aggregate amount of any damages that the Initial Purchasers have otherwise been
required to pay by reason of the untrue or alleged untrue statements, and no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), each director, officer, employee or agent of and each person, if
any, who controls any Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Initial Purchaser, and each director, officer, employee and
agent of any of the Issuers and each person, if any, who controls any of the
Issuers within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Issuers.
(e) Notwithstanding anything to the contrary in this Section 8, the
indemnification and contribution provisions of
<PAGE>
-39-
the Registration Rights Agreement shall govern any claim with respect thereto.
9. Offering of Notes; Restrictions on Transfer. Each Initial
-------------------------------------------
Purchaser represents and warrants as to itself only that it is a QIB. Each
Initial Purchaser agrees with the Issuers as to itself only that (i) it has not
and will not solicit offers for, or offer or sell, the Notes by any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act; and (ii) it
has and will solicit offers for the Notes only from, and will offer the Notes
only to, (A) in the case of offers inside the United States persons whom such
Initial Purchaser reasonably believes to be QIBs or, if any such person is
buying for one or more institutional accounts for which such person is acting as
fiduciary or agent, only when such person has represented to such Initial
Purchaser that each such account is a QIB, to whom notice has been given that
such sale or delivery is being made in reliance on Rule 144A and, in each case,
in transactions under Rule 144A and (B) in the case of offers outside the United
States, to persons other than U.S. persons ("foreign purchasers," which term
shall include dealers or other professional fiduciaries in the United States
acting on a discretionary basis for foreign beneficial owners (other than an
estate or trust)); provided, however, that, in the case of this clause (B), in
-------- -------
purchasing such Notes such persons are deemed to have represented and agreed as
provided under the caption "Notice to Investors" contained in the Final
Memorandum (or, if the Final Memorandum is not in existence, the most recent
Preliminary Memorandum).
10. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Issuers, their
respective officers and the Initial Purchasers set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Issuers, any of their respective officers or directors, the
Initial Purchasers or any
<PAGE>
-40-
controlling person referred to in Section 8 hereof and (ii) delivery of and
payment for the Notes, and shall be binding upon and shall inure to the benefit
of, any successors, assigns, heirs, personal representatives of the Issuers, the
Initial Purchasers and indemnified parties referred to in Section 8 hereof. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
-----------
discretion of the Initial Purchasers by notice to the Issuers given in the event
that the Issuers shall have failed, refused or been unable to satisfy all
conditions on its respective part to be performed or satisfied hereunder on or
prior to the Closing Date or, if at or prior to the Closing Date:
(i) any of the Issuers, the Subsidiaries or Old Muzak shall have
sustained any loss or interference with respect to their respective
businesses or properties from fire, flood, hurricane, earthquake, accident
or other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, which loss or interference
has had or has a Material Adverse Effect or there shall have been any
material adverse change, or any development involving a prospective
material adverse change (including without limitation a change in
management or control of the Issuers, the Company or Old Muzak), in the
general affairs, management, business, condition (financial or other),
properties, prospects or results of operations of the Issuers, the
Subsidiaries or Old Muzak except as described in or contemplated by the
Final Memorandum (exclusive of any amendment or supplement thereto);
(ii) trading in securities generally on the New York, American Stock
Exchange or the Nasdaq National Market shall have been suspended or minimum
or maximum prices shall have been established on any such exchange;
<PAGE>
-41-
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any material change in the financial
markets of the United States that, in the sole judgment of the Initial
Purchasers, makes it impracticable or inadvisable to proceed with the
offering or the delivery of the Notes as contemplated by the Final
Memorandum, as amended as of the date hereof; or
(v) any securities of the Issuers, the Company or Old Muzak shall
have been downgraded or placed on any "watch list" for possible downgrading
by any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Initial Purchasers, shall be hand delivered, mailed by first-
class mail, couriered by next-day air courier or telecopied and confirmed in
writing to the Initial Purchasers c/o CIBC Oppenheimer Corp., 425 Lexington
Avenue, 3rd Floor, New York, New York 10017, Attention: Kevin Magid, and with a
copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005,
Attention: John A. Tripodoro, Esq. If sent to the Issuers, shall be delivered,
mailed, couriered or telecopied and confirmed in writing, to Muzak LLC, 2901
Third Avenue, Suite 400, Seattle, Washington 98121, Attention: Brad D. Bodenman,
with a copy to Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois
60601, Attention: Laurie Gunther, Esq., and a copy to ABRY Partners, Inc., 18
Newbury Street, Boston, Massachusetts 02116, Attention: Peni Garber.
<PAGE>
-42-
13. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Initial Purchasers and each of the Issuers and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained; this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Issuers contained in Section 9 of this Agreement shall
also be for the benefit of any person or persons who control the Initial
Purchasers within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Initial Purchasers contained in
Section 9 of this Agreement shall also be for the benefit of the directors of
the Issuers, their respective officers, employees and agents and any person or
persons who controls any Issuer within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act. No purchaser of Notes from the Initial
Purchasers will be deemed a successor because of such purchase.
14. No Waiver; Modifications in Writing. No failure or delay on the
-----------------------------------
part of any Issuer or the Initial Purchasers in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any Issuer or the Initial Purchasers at law or
in equity or otherwise. No waiver of or consent to any departure by any Issuer
or Initial Purchasers from any provision of this Agreement shall be effective
unless signed in writing by the party entitled to the benefit thereof, provided
--------
that notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of each of the
<PAGE>
-43-
Issuers and the Initial Purchasers. Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Issuers or the Initial
Purchasers from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on the Issuers in any case shall entitle the Issuers to any other
or further notice or demand in similar or other circumstances.
15. Joint and Several Obligations. All of the obligations of the
-----------------------------
Issuers hereunder shall be joint and several obligations of each of them.
16. Information Supplied by the Initial Purchasers. The statements
----------------------------------------------
set forth in the fifth, ninth and tenth paragraphs under the heading "Plan of
Distribution" constitute the only information furnished by the Initial
Purchasers to the Issuers for purposes of Section 2(a) hereof.
17. Entire Agreement. This Agreement constitutes the entire
----------------
agreement among the parties hereto and supersedes all prior agreements,
understandings and arrangements, oral or written, among the parties hereto with
respect to the subject matter hereof.
18. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
--------------
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-44-
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Issuers and
the Initial Purchasers.
Very truly yours,
ACN HOLDINGS, LLC,
a Delaware limited liability company
By: /s/ Peni Garber
--------------------------------------------------
Name: Peni Garber
Title:
MUZAK HOLDINGS FINANCE CORP., a Delaware corporation
By: /s/ Peni Garber
--------------------------------------------------
Name: Peni Garber
Title:
<PAGE>
-45-
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
CIBC OPPENHEIMER CORP.
By: /s/ Kevin Magid
----------------------------------------
Name: Kevin Magid
Title: Managing Director
GOLDMAN, SACHS & CO.
By: /s/ Goldman, Sachs & Co.
----------------------------------------
Goldman, Sachs & Co.
<PAGE>
Schedule 1
----------
<TABLE>
<CAPTION>
Principal Amount
of Notes at
Initial Purchaser Maturity
- ----------------- ----------------
<S> <C>
CIBC Oppenheimer Corp................................. $45,000,000
30,000,000
Goldman, Sachs & Co................................... -----------
Total............................................ $75,000,000
===========
</TABLE>
<PAGE>
EXHIBIT A
---------
Subsidiaries
- ------------
Muzak LLC
Muzak Finance Corp.
Business Sound, Inc.
<PAGE>
EXHIBIT B
---------
Muzak Subsidiaries
- ------------------
MLP Environmental Music, LLC
<PAGE>
EXHIBIT C
---------
Form of Opinion of Kirkland & Ellis
-----------------------------------
Opinion, dated the Closing Date and addressed to the Initial Purchasers, of
Kirkland & Ellis, counsel to the Issuers, to the effect that:
<PAGE>
EXHIBIT D
---------
Form of Opinion of Weil, Gotshal & Manges, LLP
----------------------------------------------
Opinion, dated the Closing Date and addressed to the Initial
Purchasers, of Weil, Gotshal & Manges, LLP, counsel to Old Muzak, to the effect
that:
(i) Old Muzak has been duly formed, is validly existing in good
standing as a limited partnership under the laws of its jurisdiction of
formation, with the requisite power and authority to own its properties and
conduct its business as now conducted as described in the Final Memorandum
and is duly qualified to do business as a foreign partnership in good
standing in all other jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified would not, individually or in
the aggregate, have a Material Adverse Effect.
(ii) Old Muzak has the requisite limited partnership power and
authority to execute, deliver and perform its obligations under the
Transaction Documents to which it is a party. The Transaction Documents
have been duly and validly authorized by Old Muzak to the extent a party
thereto and, when executed and delivered by the other parties thereto, will
constitute valid and legally binding agreements of Old Muzak, enforceable
against Old Muzak in accordance with their terms except that the
enforcement thereof may be limited by the Enforceability Exceptions and
except as any rights to indemnity or contribution thereunder may be limited
by federal and state securities laws and public policy considerations.
(iii) No consent, approval, authorization, license, qualification,
exemption or order of any court or governmental agency or body or third
party is required for the performance of the Transaction Document by Old
Muzak or for the consummation by Old Muzak of any of the Transactions or
any of the other transactions contemplated thereby; all such consents,
approvals, authorizations, li-
<PAGE>
-2-
censes, qualifications, exemptions and orders set forth in the Final
Memorandum which are required to be obtained by the Closing Date have been
obtained or made, as the case may be, and are in full force and effect and
not the subject of any pending or, to the best knowledge of such counsel,
threatened attack by appeal or direct proceeding or otherwise.
(iv) The execution, delivery and performance of the Transaction
Documents and the consummation of the Transactions and the other
transactions contemplated thereby and by the Final Memorandum and the
fulfillment of the terms thereof will not (a) violate, conflict with or
constitute or result in a breach of or a default under (or an event that,
with notice or lapse of time, or both, would constitute a breach of or a
default under) any of (i) the terms or provisions of any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to
which Old Muzak is a party or to which any of their respective properties
or assets are subject, (ii) the certificate of formation or limited
partnership agreement of Old Muzak or (iii) (assuming compliance with all
applicable state securities or "Blue Sky" laws) any statute, judgment,
decree, order, rule or regulation of any court or governmental agency or
other body applicable to Old Muzak or any of its properties or assets or
(b) result in the imposition of any lien upon or with respect to any of the
properties or assets of Old Muzak, which violation, conflict, breach,
default or lien would, individually or in the aggregate, have a Material
Adverse Effect.
<PAGE>
EXHIBIT 10.10
SECURITIES REPURCHASE AGREEMENT
THIS AGREEMENT is made as of October 6, 1998 by and between ACN
Holdings, LLC, a Delaware limited liability company (the "Company"), David Unger
-------
(the "Executive"), and ABRY Broadcast Partners III, L.P., a Delaware limited
---------
partnership ("ABRY").
----
The Company, Executive and ABRY desire to enter into this Agreement in
order to, among other things, set forth certain terms and conditions relating to
the vesting of and right to repurchase certain Class B Units of the Company
acquired by Executive (the "Incentive Units") pursuant to that certain Investor
---------------
Securities Purchase Agreement dated as of the date hereof (as in effect from
time to time, the "Investor Securities Purchase Agreement") by and among ABRY,
--------------------------------------
the Company, ACN Operating, LLC ("ACN") and the other parties thereto. Each
---
capitalized term used but not otherwise defined herein is defined in Section 3.
Each capitalized term used and not otherwise defined in Section 3 has the
meaning ascribed to it in the Investor Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Vesting of Incentive Units. The Incentive Units of each Class
--------------------------
shall "vest" as provided in this Section 1. As of any date, the total number of
Incentive Units of any Class which will be "Vested Units" shall equal the
product of the total number of Incentive Units of such Class multiplied by the
applicable "Percentage" set forth in the following Schedule for such date;
provided that all of the Incentive Units shall be "Vested Units" upon a Sale of
- --------
the Company; provided further, that on the date upon which Executive's
-------- -------
employment by the Company or any of its Subsidiaries terminates, vesting shall
cease, with the effect that from and after such date the total number of
Incentive Units of any Class which will be Vested Units shall equal the number
of Incentive Units of such Class which were "Vested Units" on the date of such
termination, whether or not a Sale of the Company occurs thereafter.
SCHEDULE
--------
<TABLE>
<CAPTION>
Date Percentage
- -------------------------------------------------------------------------------- --------------------
<S> <C>
prior to the 1st anniversary of the date hereof, 0%
if no sale of the Company has occurred
1st anniversary, and prior to the 2nd anniversary of the date hereof, 10%
if no Sale of the Company has occurred
on or after the 2nd anniversary, and prior to the 3rd anniversary of the date 30%
hereof, if no Sale of the Company has occurred
on or after the 3rd anniversary, and prior to the 4th anniversary of the date 50%
hereof, if no Sale of the Company has occurred
on or after the 4th anniversary, and prior to the 5th anniversary of the date 75%
hereof, if no Sale of the Company has occurred
on or after the 5th anniversary, or if a Sale of the Company has occurred 100%
</TABLE>
<PAGE>
As of any date, the term "Unvested Units" of any Class means the Incentive Units
--------------
of such Class which are not Vested Units.
2. Repurchase of Unvested Units. The Company or ABRY may repurchase
-----------------------------
the Unvested Units of each Class in the event that Executive's employment by the
Company or any of its Subsidiaries terminates (the "Repurchase Right"). Such
----------------
right shall be exercisable at any time within 18 months after the date of such
termination. The aggregate repurchase price for all Unvested Units shall be
$1.00.
3. Definitions.
-----------
"Class B Units" has the meaning set forth in the LLC Agreement.
-------------
"Permitted Transferee" has the meaning set forth in the Members
--------------------
Agreement.
"Sale of the Company" has the meaning set forth in the Members
-------------------
Agreement.
4. General Provisions.
------------------
(a) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(b) Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of and be enforceable by the Company, Executive and ABRY and their
respective successors and assigns (including subsequent holders of Incentive
Units); provided, that the rights and obligations of Executive (and his
--------
Permitted Transferees) under this Agreement shall not be assignable except in
connection with a transfer of Incentive Units permitted by the Members
Agreement.
(c) Remedies. Each of the parties to this Agreement shall be
--------
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorney's fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(d) Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended and waived only with the prior written consent of the Company, Executive
and ABRY.
(e) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or holiday in the
state in which the Company's chief
-2-
<PAGE>
executive office is located, the time period shall be automatically extended to
the business day immediately following such Saturday, Sunday or holiday.
(f) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(g) Governing Law. All issues and questions concerning the
-------------
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Delaware, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(h) Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid), or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the Company, Executive and ABRY at the
respective addresses indicated below:
If to the Company, to:
ACN Holdings, LLC
c/o ACN Operating, LLC
3 Nashua Court, Suite B
Baltimore, MD 21221
Attn: Joseph Koff, President
with a copy (which will not constitute notice to the Company) to:
ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
-3-
<PAGE>
If to Executive to:
David Unger
The Excelsior
303 East 57th Street, Apt. 30G
New York, NY 10022
SS# ###-##-####
with a copy (which will not constitute notice to Executive) to:
Baer Marks & Upham LLP
805 Third Avenue
New York, NY 10022
Attention: Anne E. Pitter, Esq.
If to ABRY, to:
ABRY Broadcast Partners III, L.P.
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
with a copy (which will not constitute notice to ABRY) to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: John L. Kuehn, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(i) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
(j) Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY
--------------------
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR
ENFORCEMENT THEREOF.
(k) No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and
-4-
<PAGE>
no presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any of the provisions of this Agreement.
(l) Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this agreement and the other agreements referred to herein embodies the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersedes and preempts any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
* * * * *
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Repurchase Agreement as of the date first written above.
ACN HOLDINGS, LLC
By: /s/ PENI GARBER
-------------------------------
Name: Peni Garber
Title: Vice President
/s/ DAVID UNGER
-------------------------------
DAVID UNGER
ABRY BROADCAST PARTNERS III, L.P.
By: ABRY Equity Investors, L.P.
Its: General Partner
By: ABRY Holdings III, Inc.
Its: General Partner
By: /s/ ROYCE YUDKOFF
-------------------------------
Name:
Title:
<PAGE>
Schedule I
----------
No. Of Units Class
--------------------- ---------------------
251 B-1
252 B-2
251 B-3
<PAGE>
EXECUTION 10.11
EXECUTION COPY
SECURITYHOLDERS AGREEMENT
-------------------------
This SECURITYHOLDERS AGREEMENT is dated as of March 18, 1999, by and
among Muzak Holdings LLC (f/k/a ACN Holdings, LLC), a Delaware limited liability
company (the "Company"); MEM Holdings, LLC ("MEM Holdings"); and Capstar
------- ------------
Broadcasting Corporation ("Capstar").
-------
As of the date hereof, (i) MEM Holdings and Capstar each owns a number
of the Company's Class A Common Units and (ii) MEM Holdings is an indirect
Subsidiary of ABRY (as defined below).
The Company and the Equityholders (as defined below) desire to enter
into this Agreement for the purposes, among others, of (i) establishing the
composition of the Board (as defined below), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which the Equityholder Units (as defined below) may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings:
"ABRY" means ABRY Broadcast Partners III, L.P., a Delaware limited
----
partnership.
"ABRY Investor" means any of MEM Holdings or any of its Permitted
-------------
Transferees.
"ABRY Management Services Agreement" means the Amended and Restated
----------------------------------
Management and Consulting Services Agreement, dated as of the date hereof
between ABRY and Muzak, as amended pursuant to the First Amendment to the
Management and Consulting Services Agreement dated as of January 11, 1999.
"ABRY Units" means all Equityholder Units owned by any ABRY Investor.
----------
"Affiliate" means, when used with reference to a specified Person, any
---------
Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). With respect to any Person who
<PAGE>
is an individual, "Affiliates" shall also include, without limitation, any
member of such individual's Family Group.
"Board" means the Company's board of directors.
-----
"Capstar Contribution Agreement" means the Contribution Agreement
------------------------------
dated as of February 19, 1999 between Capstar and the Company.
"Capstar Credit and Pledge Agreement" means the Credit Agreement dated
-----------------------------------
as of May 29, 1998, as amended, among Capstar Radio Broadcasting Partners, Inc.
as the borrower, Capstar, Capstar Broadcasting Partners, Inc. and the financial
institutions party thereto, as well as any pledge agreement executed in
connection therewith.
"Capstar Investor" means any of Capstar, a Section 10 Assignee (as
----------------
herein defined) or any of their respective Permitted Transferees.
"Capstar Units" means all Equityholder Units owned by any Capstar
-------------
Investor.
"Class A Units" means the Company's Class A Units (as such term is
-------------
defined in the LLC Agreement).
"Class A Director" shall have the meaning ascribed to such term in
----------------
the LLC Agreement.
"Class B Units" means the Company's Class B Units (as such term is
-------------
defined in the LLC Agreement).
"Class B Director" shall have the meaning ascribed to such term in
----------------
the LLC Agreement.
"Common Units" means collectively the Class A Units, Class B Units and
------------
any other equity securities of the Company which is not limited to a fixed sum
or percentage of par value or stated value in respect of the rights of the
holders thereof to participate in dividends and in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
issuer of such securities (including, by way of example and without limitation,
the common stock of any Successor Corporation (as herein defined)).
"Distributions" has the meaning which the LLC Agreement assigns to
-------------
that term.
"Equityholder Units" means (i) all Common Units held, directly or
------------------
indirectly, by the Equityholders, and (ii) all equity securities issued directly
or indirectly with respect to any Common Units referred to in clause (i) above
by way of a unit or stock dividend or other distribution, or unit or stock
split, or in connection with a combination of units or shares, recapitalization,
merger, consolidation or other reorganization. As to any particular units or
shares constituting Equityholder
-2-
<PAGE>
Units, such units or shares will cease to be Equityholder Units when they have
been Transferred in a Public Sale.
"Equityholders" means collectively the ABRY Investors and the Capstar
-------------
Investors.
"Family Group" means, with respect to any Person who is an individual,
------------
(i) such Person's spouse, former spouse, ancestors and descendants (whether
natural or adopted), parents and their descendants and any spouse of the
foregoing persons (collectively, "relatives") or (ii) the trustee, fiduciary or
personal representative of such Person and any trust solely for the benefit of
such Person and/or such Person's relatives.
"Independent Third Party" means any Person who, immediately prior to
-----------------------
the contemplated transaction, does not own in excess of 5% of the number of
Common Units on a fully diluted basis (a "5% Owner"), who is not an Affiliate of
--------
any such 5% Owner and who is not the spouse or descendent (by birth or adoption)
of any such 5% Owner or a trust for the benefit of any such 5% Owner and/or such
other Persons.
"LLC Agreement" means the Amended and Restated Limited Liability
-------------
Company Agreement of the Company, dated as of the date hereof, as amended from
time to time.
"Majority in Voting Interest" has the meaning which the LLC Agreement
---------------------------
assigns to that term.
"Members Agreement" means the Amended and Restated Members Agreement,
-----------------
dated as of the date hereof, among the Company, MEM Holdings and the other
equityholders of the Company named therein as such exists on the date hereof.
"Muzak" means Muzak LLC, a Delaware limited liability company, the
-----
successor entity to the merger of Muzak Limited Partnership with and into Audio
Communications Network, LLC (f/k/a ACN Operating, LLC) and a wholly-owned
subsidiary of the Company.
"Permitted Transferee" has the meaning set forth in Section 5(d)(iii)
--------------------
hereof.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Public Offering" means an underwritten public offering and sale of
---------------
Common Units pursuant to an effective registration statement under the
Securities Act; provided that a Public Offering shall not include an offering
made in connection with a business acquisition or combination pursuant to a
registration statement on Form S-4 or any similar form, or an employee benefit
plan pursuant to a registration statement on Form S-8 or any similar form.
-3-
<PAGE>
"Public Sale" means any sale of Equityholder Units to the public
-----------
pursuant to an offering registered under the Securities Act or, after the
consummation of an initial Public Offering, to the public pursuant to the
provisions of Rule 144 (or any similar rule or rules then in effect) under the
Securities Act.
"Qualified Public Offering" means the sale in a public offering
-------------------------
registered under the Securities Act of Common Units of the Company or any of its
successors (A)(i) providing net proceeds to the Company or any of its successors
and the selling equity holders of at least $25,000,000 or (ii) where at least
25% (determined after such offering) of the outstanding Common Units of the
Company or any of its successors have been sold in such sale.
"Registration Agreement" means the Amended and Restated Registration
----------------------
Agreement dated as of the date hereof by and among the Company and the
securityholders named therein, as in effect from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
"Transfer" means any direct or indirect sale, transfer, assignment,
--------
pledge or other disposition; provided that, notwithstanding anything contained
--------
herein to the contrary, the pledge by Capstar of Capstar Units pursuant to the
terms of the Capstar Credit and Pledge Agreement shall not be a "Transfer" for
purposes of this Agreement, but any actual transfer of title pursuant to such
pledge shall be a "Transfer" for purposes of this Agreement.
"Unpaid Yield" has the meaning which the LLC Agreement assigns to that
------------
term.
"Unreturned Capital Value" has the meaning which the LLC Agreement
------------------------
assigns to that term.
-4-
<PAGE>
2. Board of Directors.
------------------
(a) To the extent permitted by law, each Equityholder shall vote all
voting securi ties of the Company over which such Equityholder has voting
control, and shall take all other reasonably necessary or desirable actions
within such Equityholder's control (whether in such Equityholder's capacity as a
equityholder, director, member of a board committee or officer of the Company or
otherwise, and including, without limitation, attendance at meetings in person
or by proxy for purposes of obtaining a quorum and execution of written consents
in lieu of meetings), and the Company shall take all necessary and desirable
actions within its control (including, without limitation, calling special board
and equityholder or member meetings), so that:
(i) holders of record of a majority of the ABRY Units will designate
a number of directors of the Board (whether Class A Directors and/or Class
B Directors or otherwise) which possess a majority of the votes of the
Board (each an "ABRY Director");
-------------
(ii) so long as the Capstar Investors own a majority of the number of
Equityholder Units issued to Capstar pursuant to the Capstar Contribution
Agreement (such number to be appropriately adjusted for any stock split,
reverse stock split, stock dividend or other subdivision, combination or
restructuring of Common Units after the date hereof), holders of record of
a majority of the Capstar Units shall have the right to designate two Class
B Directors of the Board (each, a "Capstar Director") or, if applicable, at
----------------
any time, upon the written request of the holders of record of a majority
of the Capstar Units to the ABRY Investors, such greater number of Class B
Directors of the Board (any such additional Class B Director, also a
"Capstar Director") as is necessary so that all of the then Capstar
-----------------
Directors possess a percentage of the votes of the then Board approximately
equal to the percentage of then outstanding voting Common Units then owned
by the Capstar Investors; provided that any individual designated as a
--------
Capstar Director must be approved by the holder(s) of record of a majority
of the ABRY Units, which approval shall not be unreasonably withheld;
provided, further, that Steven Hicks and Geoffrey Armstrong shall be deemed
-------- -------
approved by the holders of the ABRY Units (the provisions of this clause
(ii) shall terminate on the date the Capstar Investors cease to own a
majority of the number of Equityholder Units issued to Capstar pursuant to
the Capstar Contribution Agreement (such number to be appropriately
adjusted for any stock split, reverse stock split, stock dividend or other
subdivision, combination or restructuring of Common Units after the date
hereof));
(iii) so long as the Capstar Investors own at least twenty percent
(20%) of the number of Equityholder Units issued to Capstar pursuant to the
Capstar Contribution Agreement (such number to be appropriately adjusted
for any stock split, reverse stock split, stock dividend or other
subdivision, combination or restructuring of Common Units after the date
hereof), holders of record of a majority of the Capstar Units shall have
the right to designate one Class B Director of the Board (also, a "Capstar
-------
Director") or, if applicable, at any time, upon the written request of the
--------
holders of record of a majority of the Capstar Units to the ABRY Investors,
such greater number of Class B Directors of the Board (any such additional
Class B Director, also a "Capstar Director") as is necessary so that all of
----------------
the then Capstar Directors possess a percentage of the votes of the then
Board approximately equal
-5-
<PAGE>
to the percentage of then outstanding voting Common Units then owned by the
Capstar Investors; provided that any individual designated as a Capstar
--------
Director must be approved by the holder(s) of record of a majority of the
ABRY Units, which approval shall not be unreasonably withheld; provided,
--------
further, that Steven Hicks and Geoffrey Armstrong shall be deemed approved
-------
by the holders of the ABRY Units (the provisions of this clause (iii) shall
terminate on the date the Capstar Investors cease to own at least twenty
percent (20%) of the number of Equityholder Units issued to Capstar
pursuant to the Capstar Contribution Agreement (such number to be
appropriately adjusted for any stock split, reverse stock split, stock
dividend or other subdivision, combination or restructuring of Common Units
after the date hereof));
(iv) so long as Steven Hicks is a Capstar Director, he shall be the
Chairman (as such term is defined in the LLC Agreement);
(v) any director designated pursuant to clause (i), (ii) or (iii)
above shall be removed from the Board (with or without cause) at the
written request of the Equityholder or Equityholders which have the right
to designate such director hereunder, but only upon such written request
and under no other circumstances (in each case, determined on the basis
specified in clause (i), (ii) or (iii) above, as the case may be);
(vi) in the event that any director designated hereunder for any
reason ceases to serve as a member of the Board during such director's term
of office, the resulting vacancy on the Board shall be filled by a director
designated by the Equityholders referred to in clause (i), (ii) or (iii)
above, as the case may be; and
(vii) if, within a reasonable period of time, any Equityholder(s) fail
to designate in writing a representative to fill a director position
pursuant to the terms of this Section 2, and such failure shall continue
for more than 30 days after notice from the Company to such Equityholder(s)
with respect to such failure, the election of an individual to such
director position shall be accomplished in accordance with the LLC
Agreement and applicable law; provided that such individual shall be
--------
removed from such director position if such Equityholder(s) so direct.
(b) In the event that, at any time, any provision of the LLC Agreement
is inconsistent with the requirements of any provision of this Section 2, the
Equityholders shall take such action as may be necessary and is within their
legal rights to amend any such provision in the LLC Agreement to conform with
such requirements.
3. Conflicting Agreements. Each Equityholder represents that such
----------------------
Equityholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement, and no holder of Equityholder Units shall grant any proxy or
become party to any voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement.
-6-
<PAGE>
4. Restrictions on Transactions with Affiliates. Except for
--------------------------------------------
transactions contemplated by the ABRY Management Services Agreement and except
in connection with the issuance of equity securities of the Company, after the
date hereof, the Company will not, and will not permit any of its Subsidiaries
to, enter into any material transactions with any Equityholder or any employee,
officer, director or Affiliate (other than David Unger, Joseph Koff, the Company
or any of the Company's Subsidiaries) of any Equityholder on any basis less
favorable, in all material respects, to the Company or its Subsidiary, as the
case may be, then would be the case in an arms-length transaction with an
unrelated third party, unless such transaction has been approved by a majority
of the votes of the directors of the Board without a conflict of interest in
such transaction.
5. Restrictions on Transfer of Equityholder Units.
----------------------------------------------
(a) General Restrictions. Subject to Article XI of the LLC
--------------------
Agreement, an Equityholder may Transfer Equityholder Units only (i) in Public
Sales, (ii) if such Equityholder has complied with the terms and requirements of
Sections 5(b) and 5(c), to the extent applicable, or if such Equityholder is
exercising a participation right granted to such Equityholder pursuant to
Section 5(c), then to any Person, provided, that such Person shall have complied
--------
with the requirements of Section 5(d)(iii), or (iii) pursuant to an Approved
Company Sale (as herein defined).
(b) Right of First Offer granted to the ABRY Investors and the
----------------------------------------------------------
Capstar Investors. Subject to Section 5(d)(i):
- -----------------
(i) If at any time any ABRY Investor or any Capstar Investor (a
"Selling Holder") proposes to Transfer any Equityholder Units (other than
---------------
pursuant to a Public Sale, pursuant to an Approved Company Sale, if such
Selling Holder is exercising a participation right granted to such Selling
Holder pursuant to Section 5(c), or if any ABRY Investor is assigning
rights to any Capstar Investor pursuant to Section 12 hereof), then such
Selling Holder will, not fewer than fifteen (15) business days prior to
making such Transfer, give notice (the "Proposed Transfer Notice") if the
------------------------
Selling Holder is an ABRY Investor, then to each of the Capstar Investors
or if the Selling Holder is a Capstar Investor, then to each of the ABRY
Investors specifying the Equityholder Units proposed to be Transferred (the
"Offered Units").
-------------
(ii) At any time within ten (10) business days after delivery of the
Proposed Transfer Notice (the "Exercise Period") if the Selling Holder is
---------------
an ABRY Investor, then holders of a majority of the then outstanding number
of Capstar Units or if the Selling Holder is a Capstar Investor, then
holders of a majority of the then outstanding number of ABRY Units (in
either case, "Offering Holder") may notify the Selling Holder in writing of
---------------
their offer (the "Offer") to purchase all of the Offered Units and the
-----
price (the "Offered Price") and the other terms and conditions upon which
-------------
such Offering Holder proposes to purchase such Offered Units (such offer
must be solely for cash) (the "Offer Notice"). The Offer Notice will
------------
constitute an irrevocable offer by the Offering Holder to acquire the
Offered Units from the Selling Holder at the Offered Price and on the terms
specified in the Offer Notice.
-7-
<PAGE>
(iii) At any time during the 60 day period commencing upon the
expiration of the Exercise Period, the Selling Holder may
(A) if an Offer Notice has been delivered to the Selling Holder
during the applicable Exercise Period, then (x) deliver notice to the
Offering Holder accepting the applicable Offer (the "Acceptance
----------
Notice") or (y) provided the Selling Holder has also complied with any
------
applicable provisions of Section 5(c), Transfer all (unless reduced
pursuant to the exercise of rights granted to other Equityholders in
Section 5(c) and/or to other equityholders of the Company in the
Members Agreement) of the Offered Units, at a price which is greater
than the price specified in the Offer Notice and on other terms and
conditions which are not in the aggregate more favorable to the
transferee thereof than those specified in the Offer Notice, to any
Person(s), or
(B) if an Offer Notice has not been delivered to the Selling
Holder during the applicable Exercise Period, then, provided the
Selling Holder has also complied with any applicable provisions of
Section 5(c), Transfer all (unless reduced pursuant to the exercise of
rights granted to other Equityholders in Section 5(c) and/or to other
equityholders of the Company in the Members Agreement) of the Offered
Shares to any Person(s).
(iv) Subject to Section 5(b)(viii) hereof, upon the proper delivery
of an Acceptance Notice, the Offering Holder and the Selling Holder shall
be firmly bound to consummate the purchase and sale of all of the Offered
Units (subject to adjustment as provided in Section 5(b)(viii)) in
accordance with the terms hereof and the applicable Proposed Transfer
Notice, Offer Notice and Acceptance Notice. Subject to the provisions
hereof (including Section 5(b)(viii)), within sixty (60) days after the
Offering Holder's receipt of the applicable Acceptance Notice, the Offering
Holder shall purchase and the Selling Holder shall sell all of the Offered
Units (subject to adjustment as provided in Section 5(b)(viii)) at a
mutually agreeable time and place (the "Offered Units Closing").
---------------------
(v) At the Offered Units Closing, the Selling Holder shall deliver
to the Offering Holder certificates representing the Offered Units (if
certificated) to be purchased by the Offering Holder, duly endorsed with
signature guaranteed, and the Offering Holder shall deliver to the Selling
Holder the Offered Price by wire transfer of immediately available funds to
an account designated by such Selling Holder.
(vi) Any Offered Units not Transferred within the applicable time
periods specified above will again be subject to the provisions of this
Section 5(b) upon any subsequent proposed Transfer.
(vii) The Capstar Investors hereby acknowledge and agree that in
connection with any Transfer of Equityholder Units from any ABRY
Investor(s) to any Capstar Investor (including pursuant to this Section
5(b)), such ABRY Investor(s) must offer the Non-ABRY Members (as such term
is defined in the Members Agreement) the right to participate in such
Transfer pursuant to the terms of Sections 1(b), 1(c) and 1(d) of the
Members Agreement and
-8-
<PAGE>
the applicable Capstar Investors will include in any such Transfer any
Securities (as such term is defined in the Members Agreement) that such
Non-ABRY Members elect to include in such Transfer pursuant to Sections
1(b), 1(c) and 1(d) of the Members Agreement.
(viii) The provisions of this Section 5(b) shall terminate upon the
consummation of a Qualified Public Offering.
(c) Participation Rights. Subject to Section 5(d)(i):
--------------------
(i) Participation Rights Granted to the Capstar Investors. In the
-----------------------------------------------------
event of a Transfer of Equityholder Units by any ABRY Investor (a "Selling
-------
ABRY Investor") (other than pursuant to a Public Sale, pursuant to an
-------------
Approved Company Sale, or Transfer to any Capstar Investor), at least 10
business days prior to such Transfer, such Selling ABRY Investor will
deliver a written notice (the "ABRY Sale Notice") to the Capstar Investors
----------------
specifying in reasonable detail the Equityholder Units to be sold, the
terms and conditions of the Transfer and the identity of the proposed
transferee(s). Subject to Section 5(c)(iii), such Capstar Investors may
elect to participate in the contemplated Transfer by delivering written
notice to such Selling ABRY Investor within 10 business days after delivery
of the applicable ABRY Sale Notice. If any Capstar Investor has elected to
participate in such Transfer, each such Capstar Investor will be entitled
to include in the contemplated Transfer, at the same price and on the same
terms (subject to Sections 5(c)(iii) and 5(c)(iv)), a number of
Equityholder Units (regardless of the class thereof) equal to the product
of (x) the quotient determined by dividing the percentage of the number of
such Equityholder Units (regardless of the class thereof) on a fully
diluted basis, held by such Capstar Investor by the aggregate percentage of
the number of Equityholder Units, on a fully diluted basis, owned by the
Capstar Investors participating in such Transfer and all of the ABRY
Investors and (y) the number of Equityholder Units (regardless of the class
thereof) to be sold in the contemplated Transfer.
For example, if the ABRY Sale Notice contemplated a sale of 100
-----------
Class A Units in the aggregate by certain of the ABRY
Investors, and if all of the ABRY Investors at such time own
80% of all Class A Units (on a fully diluted basis) and if one
Capstar Investor elects to participate and owns 5% of all Class
A Units and if no Class B Units are then outstanding, such
Capstar Investor would be entitled to sell 6 Class A Units
(5% / 85% x 100 Common Units).
Any ABRY Investor Transferring Equityholder Units pursuant to this Section
5(c)(i) shall use its best efforts to obtain the agreement of the
prospective Transferee(s) to the participation of the Capstar Investors in
any contemplated Transfer, and such ABRY Investor shall not Transfer any of
its Equityholder Units to the prospective Transferee(s) if the prospective
Transferee(s) declines to allow the participation of the Capstar Investors
as contemplated by this Section 5(c)(i).
(ii) Participation Rights Granted to the ABRY Investors. In the
--------------------------------------------------
event of a Transfer of Equityholder Units by any Capstar Investor
(a "Selling Capstar Investor") (other
------------------------
-9-
<PAGE>
than pursuant to a Public Sale, pursuant to an Approved Company Sale, or a
Transfer to any ABRY Investor), at least 10 business days prior to such
Transfer, such Selling Capstar Investor will deliver a written notice (the
"Capstar Sale Notice") to the ABRY Investors specifying in reasonable
-------------------
detail the Equityholder Units to be sold, the terms and conditions of the
Transfer and the identity of the proposed transferee(s). Subject to Section
5(c)(iii), such ABRY Investors may elect to participate in the contemplated
Transfer by delivering written notice to such Selling Capstar Investor
within 10 business days after delivery of the applicable Capstar Sale
Notice. If any ABRY Investor has elected to participate in such Transfer,
each such ABRY Investor will be entitled to include in the contemplated
Transfer, at the same price and on the same terms (subject to Sections
5(c)(iii) and 5(c)(iv)), a number of Equityholder Units (regardless of the
class thereof) equal to the product of (x) the quotient determined by
dividing the percentage of the number of such Equityholder Units
(regardless of the class thereof) on a fully diluted basis, held by such
ABRY Investor by the aggregate percentage of the number of Equityholder
Units, on a fully diluted basis, owned by the ABRY Investors participating
in such Transfer and all of the Capstar Investors and (y) the number of
Equityholder Units (regardless of the class thereof) to be sold in the
contemplated Transfer. Any Capstar Investor Transferring Equityholder Units
pursuant to this Section 5(c)(ii) shall use its best efforts to obtain the
agreement of the prospective Transferee(s) to the participation of the ABRY
Investors in any contemplated Transfer, and such Capstar Investor shall not
Transfer any of its Equityholder Units to the prospective Transferee(s) if
the prospective Transferee(s) declines to allow the participation of the
ABRY Investors as contemplated by this Section 5(c)(ii) .
(iii) Limitations on Participation Rights. An Equityholder may
-----------------------------------
exercise its participation rights in accordance with Section 5(c)(i) or
Section 5(c)(ii), as the case may be, subject to the following limitations:
(i) no Class B Unit may be included by any Capstar Investor in any Transfer
pursuant to Section 5(c)(i) unless the aggregate purchase price to be paid
for all Class A Units to be included by the applicable ABRY Investors in
such Transfer is equal to or greater than the aggregate Unpaid Yield and
Unreturned Capital Value for such Class A Units to be included by such ABRY
Investor(s) and (ii) no Class B Unit may be included by any ABRY Investor
in any Transfer pursuant to Section 5(c)(ii) unless the aggregate purchase
price to be paid for all Class A Units to be included by the applicable
Capstar Investors in such Transfer is equal to or greater than the
aggregate Unpaid Yield and Unreturned Capital Value for such Class A Units
to be included by such Capstar Investor(s).
(iv) Allocation of Transfer Price. In any event, each Person
----------------------------
Transferring Equityholder Units pursuant to Section 5(c)(i) or Section
5(c)(ii) shall receive, in exchange for the Equityholder Units to be
Transferred by such Person, the same portion of the aggregate consideration
from the aggregate Transfer that such Person would have received if such
aggregate consideration had been distributed by the Company in complete
liquidation pursuant to the LLC Agreement as in effect immediately prior to
the Transfer and the Equityholder Units included in such Transfer
constituted all of the outstanding Equityholder Units of the Company at
such time.
-10-
<PAGE>
(v) Termination of Participation Rights. The provisions of this
-----------------------------------
Section 5(c) shall terminate upon the consummation of an initial Public
Offering.
(d) Permitted Transfers.
-------------------
(i) The restrictions contained in Sections 5(a), 5(b) and 5(c)
shall not apply with respect to any Transfer of Equityholder Units by any
Equityholder (A) in the case of an individual Equityholder, pursuant to
applicable laws of descent and distribution or to any member of such
Equityholder's Family Group, (B) in the case of a non-individual
Equityholder, to its employees, consultants and Affiliates, (C) in the case
of ABRY (if it becomes a Permitted Transferee), in a pro rata distribution
to its partners, or (D) in the case of Capstar, to any financial
institution who is a party to the Capstar Credit and Pledge Agreement but
only if such Transfer occurs as a result of such financial institution
exercising its rights pursuant to Capstar's pledge of Capstar Units to such
financial institution pursuant to the terms of the Capstar Credit and
Pledge Agreement; provided, in each case, that any such transferee shall
--------
have complied with the requirements of Section 5(d)(iii).
(ii) In addition, the restrictions contained in Sections 5(a), 5(b)
and 5(c) shall not apply with respect to the Transfer of up to 3,000 Class
A Units (such number to be appropriately adjusted for any unit or stock
split, reverse unit or stock split, stock or unit dividend or other
distribution or other subdivision or combination of Common Units after the
date hereof) by MEM Holdings to CMS Co-Investment Subpartnership, CMS
Diversified Partners, L.P. and/or any of their respective Affiliates (a
"CMS Transferee"), but only if such Transfer occurs on or prior to the date
---------------
six months after the date hereof; provided that, notwithstanding anything
--------
contained herein to the contrary, any such CMS Transferee shall not have to
comply with the requirements of Section 5(d)(iii) and shall not obtain any
rights under this Agreement and upon such Transfer such Class A Units shall
no longer be deemed "ABRY Units" or "Equityholder Units" for purposes of
this Agreement.
(iii) Prior to any proposed transferee's acquisition of Equityholder
Units pursuant to a Transfer permitted by Section 5(a)(ii) or Section
5(d)(i), such proposed transferee must agree to take such Equityholder
Units subject to and to be fully bound by the terms of this Agreement
applicable to such Equityholder Units by executing a joinder to this
Agreement substantially in the form attached hereto as Exhibit A and
---------
delivering such executed joinder to the Secretary of the Company prior to
the effectiveness of such Transfer (unless such Transfer is pursuant to
applicable laws of descent and distribution, in which case, such executed
joinder shall be delivered to the Secretary of the Company as soon as
reasonably possible after such Transfer). All transferees acquiring
Equityholder Units and executing a joinder in compliance with this Section
5(d)(iii) are collectively referred to herein as "Permitted Transferees".
---------------------
(e) If (i) any Transfer of a majority interest in the common equity
securities of a Equityholder owning Equityholder Units to a transferee(s) that
is not an Affiliate of such Equityholder as of the date hereof occurs, or (ii)
any Equityholder Transfers Equityholder Units to an Affiliate and an event
occurs which causes such Affiliate to cease to be an Affiliate of such
-11-
<PAGE>
Equityholder, such event or Transfer shall be deemed a Transfer of Equityholder
Units subject to all of the restrictions on Transfers of Equityholder Units set
forth in this Agreement, including without limitation, this Section 5; provided
that no transfer of Equityholder Units shall be deemed to occur hereunder by
virtue of (x) any merger, consolidation, combination, exchange or sale of assets
between Capstar (or any Subsidiary thereof) and Chancellor Media Corporation (or
any Subsidiary thereof) or (y) the issuance and distribution of additional
common equity securities of an Equityholder pursuant to an underwritten public
offering.
6. Approved Company Sale.
---------------------
(a) If the Board and a Majority in Voting Interest approve a sale
of all or substantially all of the Company's assets determined on a consolidated
basis or a sale of all (or a lesser percentage, if the acquiring Person(s)
reasonably requests for accounting or tax reasons) of the Company's outstanding
Common Units (in either case, whether by merger, recapitalization,
consolidation, reorganization, combination or otherwise) or any other
transaction which has the same effect as any of the foregoing to an Independent
Third Party or group of Independent Third Parties (each such sale or
transaction, an "Approved Company Sale"), then each holder of Equityholder Units
---------------------
will consent to and raise no objections against the Approved Company Sale. If
the Approved Company Sale is structured as a merger or consolidation, then each
holder of Equityholder Units shall waive any dissenters rights, appraisal rights
or similar rights in connection with such merger or consolidation. If the
Approved Company Sale is structured as a Transfer of Equityholder Units, then
subject to the following sentence each holder of Equityholder Units shall agree
to sell all of his or its Equityholder Units and rights to acquire Equityholder
Units on the terms and conditions approved by the Board and a Majority in Voting
Interest. Each holder of Equityholder Units shall take all necessary or
desirable actions in connection with the consummation of an Approved Company
Sale as requested by the Board, including, without limitation, executing a sale
contract pursuant to which each holder of Equityholder Units will severally (but
not jointly) make the same representations, warranties and indemnities regarding
the Company and its assets, liabilities and business (collectively, the "Company
-------
Reps") and such representations and warranties concerning such holder and the
- ----
Equityholder Units to be sold by it or him as may be set forth in any agreement
approved by the Board; provided, that if any holder of Equityholder Units pays
--------
any amount in connection with any claim under the Company Reps by the purchaser
or purchasers in such Approved Company Sale (a "Company Loss"), then each other
------------
holder of Equityholder Units will simultaneously contribute to such holder of
Equityholder Units an amount equal to such contributing holder's pro rata share
(based upon the amount of consideration received in such Approved Company Sale)
of such Company Loss; provided further, that a holder of Equityholder Units
----------------
shall be required to make the Company Reps only if the sale contract which such
holder is required to sign provides that such holder's maximum liability for any
breach of the Company Reps shall be the purchase price received by such holder
for the sale of its Equityholder Units.
(b) The obligations of the holders of Equityholder Units pursuant
to Section 6(a) are subject to the satisfaction of the following conditions: (i)
upon the consummation of the Approved Company Sale, each holder of Equityholder
Units shall receive the same form of consideration and the same portion of the
aggregate consideration such holder would have received if such aggregate
consideration had been distributed by the Company in complete liquidation
-12-
<PAGE>
pursuant to the rights and preferences set forth in the LLC Agreement as in
effect immediatel y prior to the consummation of the Approved Company Sale (and,
if less than all of the outstanding Common Units are being sold in the Approved
Company Sale, then the form and portions of aggregate consideration shall be
determined as if the Equityholder Units included in the Approved Company Sale
were all of the outstanding Common Units then outstanding); (ii) if any holders
of Equityholder Units are given an option as to the form and amount of
consideration to be received, each holder of Equityholder Units shall be given
the same option; and (iii) each holder of then currently exercisable rights to
acquire Equityholder Units shall be given an opportunity to exercise such rights
prior to the consummation of the Approved Company Sale and participate in such
sale as a holder of such Equityholder Units.
(c) If the Board, the Company or any of the holders of Equityholder
Units enter into any negotiation or transaction for which Rule 506 under the
Securities Act (or any similar rule then in effect) promulgated by the
Securities Exchange Commission may be available with respect to such negotiation
or transaction (including a merger, consolidation or other reorganization), each
holder of Equityholder Units who is not an "accredited investor," as that term
is defined in Regulation D as promulgated under the Securities Act, will, at the
request of the Company, appoint either a purchaser representative (as such term
is defined in Rule 501 under the Securities Act) designated by the Company, in
which event the Company will pay the fees of such purchaser representative, or
another purchaser representative (reasonably acceptable to the Company), in
which event such holder will be responsible for the fees of the purchaser
representative so appointed.
(d) All holders of Equityholder Units will bear their pro rata
share (based upon the amount of consideration received or proposed to be
received in the applicable actual or proposed Approved Company Sale) of the
costs of any actual or proposed Approved Company Sale to the extent such costs
are incurred for the benefit of all such holders of Equityholder Units and are
not otherwise paid by the Company or the acquiring party. Costs incurred by the
holders of Equityholder Units on their own behalf will not be considered costs
of the Approved Company Sale; provided, that in any event the Company shall pay
--------
the reasonable attorney's fees and expenses of one counsel chosen by a Majority
in Voting Interest in connection with the Approved Company Sale.
(e) Termination of Restrictions and Requirements. The restrictions
--------------------------------------------
and requirements set forth in this Section 6 will continue with respect to the
Equityholders and their Equityholder Units until the consummation of a Qualified
Public Offering.
7. Financial Statements and Information.
------------------------------------
(a) Prior to the consummation of an initial Public Offering, the
Company shall deliver to each Capstar Investor who holds more than 5% of the
then outstanding number of Common Units:
(i) within 60 days after the end of each monthly accounting period
in each fiscal year of the Company (other than any monthly accounting
period ending on the last day of a fiscal quarter of the Company) (or such
earlier date as such financial statements are delivered to the providers of
any of the Company's debt financing), unaudited consolidated
-13-
<PAGE>
statements of income and cash flo ws of the Company and its Subsidiaries
for such monthly period (and, if otherwise available, unaudited
consolidated statements of income of the Company and its Subsidiaries for
the period from the beginning of the fiscal year to the end of such month)
and unaudited consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period (and, if otherwise
available, such financial statements shall set forth in each case
comparisons to the Company's and its Subsidiaries' corresponding period in
the preceding fiscal year). Such financial statements shall be prepared, in
all material respects, in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments;
(ii) within 60 days after the end of each quarterly accounting
period in each fiscal year of the Company (other than any quarterly
accounting period ending on the last day of a fiscal year of the Company)
(or such earlier date as such financial statements are delivered to the
providers of any of the Company's debt financing), unaudited consolidated
statements of income and cash flows of the Company and its Subsidiaries for
such quarterly period (and, if otherwise available, unaudited consolidated
statements of income of the Company and its Subsidiaries for the period
from the beginning of the fiscal year to the end of such quarter) and
unaudited consolidated balance sheets of the Company and its Subsidiaries
as of the end of such quarterly period (and, if otherwise available, such
financial statements shall set forth in each case comparisons to the
Company's and its Subsidiaries' corresponding period in the preceding
fiscal year). Such financial statements shall be prepared, in all material
respects, in accordance with generally accepted accounting principles,
consistently applied, subject to the absence of footnote disclosures and to
normal year-end adjustments; and
(iii) within 120 days after the end of each fiscal year of the
Company (or such earlier date as such financial statements are delivered to
the providers of any of the Company's debt financing), audited consolidated
statements of income and cash flows of the Company and its Subsidiaries for
such fiscal year, and audited consolidated balance sheets of the Company
and its Subsidiaries as of the end of such fiscal year (and, if otherwise
available, such financial statements shall set forth in each case
comparisons to the Company's and its Subsidiaries' corresponding period in
the preceding fiscal year). Such financial statement shall be prepared, in
all material respects, in accordance with generally accepted accounting
principles, consistently applied.
(b) Prior to the consummation of an initial Public Offering, as may
be reasonably requested from time to time, the Company shall cooperate with and
provide financial information to each Capstar Investor who holds more than 5% of
the then outstanding number of Common Units for purposes of such Capstar
Investor's reporting obligations under the Securities Exchange Act of 1934, as
amended, or as may otherwise be required by such Capstar Investor for disclosure
to the securities analysts who follow such Capstar Investor's publicly traded
securities.
-14-
<PAGE>
8. Legend. Each certificate or instrument evidencing Equityholder
------
Units and each certificate or instrument issued in exchange for or upon the
Transfer of any Equityholder Units (if such securities remain Equityholder Units
(as defined herein) after such Transfer) shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SECURITYHOLDERS AGREEMENT DATED AS OF MARCH 18, 1999, AS MAY BE
AMENDED FROM TIME TO TIME, BY AND AMONG THE ISSUER AND CERTAIN OF THE
ISSUER'S EQUITYHOLDERS. A COPY OF SUCH SECURITYHOLDERS AGREEMENT WILL
BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
The legend set forth above shall be removed from the certificates evidencing any
securities which cease to be Equityholder Units.
9. Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Equityholder Units in violation of any provision of this
Agreement or the LLC Agreement shall be null and void, and the Company shall not
record such Transfer on its books or treat any purported transferee of such
Equityholder Units as the owner of such securities for any purpose.
10. Preemptive Rights granted to the Capstar Investors.
--------------------------------------------------
(a) If at any time after the date hereof and prior to the
consummation of a Qualified Public Offering the Company wishes to issue any
Common Units or any options, warrants or other rights to acquire Common Units or
any notes or other securities convertible or exchangeable into Common Units (all
such Common Units and other rights and securities, collectively, the "Equity
------
Equivalents") to any Person or Persons, the Company shall promptly deliver a
- -----------
notice of intention to sell or otherwise issue (the "Company's Notice of
-------------------
Intention to Sell") to each Capstar Investor setting forth a description and the
- -----------------
number of the Equity Equivalents and any other securities proposed to be issued
and the proposed purchase price and terms of sale. Upon receipt of the Company's
Notice of Intention to Sell, each Capstar Investor shall have the right to elect
to purchase, at the price and on the terms stated in the Company's Notice of
Intention to Sell, a number of the Equity Equivalents equal to the product of
(i) such Capstar Investor's proportionate ownership of the then outstanding
number of Common Units (calculated on a fully-diluted basis assuming all holders
of then outstanding warrants, options and convertible securities of the Company
which are convertible or exercisable on such date and which have pre-emptive
rights with respect to the applicable issuance of Equity Equivalents have
converted such convertible securities or exercised such warrants or options)
held by all Persons multiplied by (ii) the number of Equity Equivalents proposed
to be issued (as described in the applicable Company's Notice of Intention to
Sell). Notwithstanding anything contained herein to the contrary, if the Company
is issuing Equity Equivalents together as a unit with the issuance of any debt
or other equity securities of the Company or any of its Subsidiaries, then any
Capstar Investor who elects to purchase such Equity Equivalents pursuant to this
Section 10 must also purchase a corresponding proportion of such other
-15-
<PAGE>
debt or equity securities, all at the proposed purchase price and on terms of
sale as specified in the applicable Company's Notice of Intention to Sell. Such
election shall be made by the electing Capstar Investor by written notice to the
Company within ten (10) business days after receipt by such Capstar Investor of
the Company's Notice of Intention to Sell (the "Acceptance Period"). With
-----------------
respect to any Company's Notice of Intention to Sell delivered to any Capstar
Investor which is Capstar or an Affiliate of Capstar, such Capstar Investor may
assign in whole or in part its preemptive rights pursuant to this Section 10
with respect to the sale or issuance of the Equity Equivalents which are the
subject of such Company's Notice of Intention to Sell to any Affiliate of
Capstar (a "Section 10 Assignee") provided that, as a condition to the sale or
-------------------
issuance of the applicable Equity Equivalents to such Section 10 Assignee, such
Section 10 Assignee must execute and deliver to the Company a joinder to this
Agreement substantially in the form of Exhibit A hereto pursuant to which such
---------
Section 10 Assignee shall be deemed to be a "Capstar Investor" and an
"Equityholder" for purposes of this Agreement.
(b) To the extent an effective election to purchase has not been
received from a Capstar Investor pursuant to subsection (a) above in respect of
the Equity Equivalents proposed to be issued pursuant to the applicable
Company's Notice of Intention to Sell, the Company may, at its election, during
a period of one hundred and eighty (180) days following the expiration of the
applicable Acceptance Period, issue and sell the remaining Equity Equivalents to
be issued and sold to any Person at a price and upon terms not more favorable to
such Person than those stated in the applicable Company's Notice of Intention to
Sell; provided, however, that failure by a Capstar Investor to exercise its
-------- -------
option to purchase with respect to one issuance and sale of Equity Equivalents
shall not affect its option to purchase Equity Equivalents in any subsequent
offering, sale and purchase. In the event the Company has not sold any Equity
Equivalents covered by a Company's Notice of Intention to Sell within such one
hundred and eighty (180) day period, the Company shall not thereafter issue or
sell such Equity Equivalents, without first offering such Equity Equivalents to
each Capstar Investor in the manner provided in this Section 10.
(c) If a Capstar Investor gives the Company notice, pursuant to the
provisions of this Section 10, that such Capstar Investor desires to purchase
any Equity Equivalents, payment therefor shall be by check or wire transfer of
immediately available funds, against delivery of the securities (which
securities shall be issued free and clear of any liens or encumbrances) at the
executive offices of the Company no later than the last closing date fixed by
the Company for the sale of the applicable Equity Equivalents, which last
closing date shall be no earlier than 20 business days after the date the
Company delivers the applicable Company's Notice of Intention to Sell. In the
event that any proposed sale is for a consideration other than cash, such
Capstar Investor may pay cash in lieu of all (but not part) of such other
consideration, in the amount determined reasonably and in good faith by the
Board to represent the fair value of such consideration other than cash.
(d) The preemptive rights contained in this Section 10 shall not
apply to (i) the issuance of shares or units of Equity Equivalents as a stock or
unit dividend or other distribution or upon any subdivision, split or
combination of the outstanding Common Units; (ii) the issuance of Equity
Equivalents upon conversion, exchange or redemption of any outstanding
convertible or exchangeable securities; (iii) the issuance of Equity Equivalents
upon exercise of any outstanding options or warrants; (iv) the issuance of
Equity Equivalents to any employee or director of the
-16-
<PAGE>
Company or any of its Subsidiaries (unless such employee or director is also an
officer or employee of ABRY or any of ABRY's Affiliates (other than David Unger,
Joseph Koff, the Company or any of the Company's Subsidiaries)); (v) the
issuance of Equity Equivalents to any Independent Third Party or group of
Independent Third Parties as consideration (whether partial or otherwise) for
the purchase by the Company or any of its Subsidiaries from such Independent
Third Party or group of Independent Third Parties, as the case may be, of assets
constituting a business unit or of the stock or other equity securities of any
Person or Persons; (vi) the issuance of Equity Equivalents pursuant to the
Capstar Contribution Agreement; (vii) the issuance of Class B-4 Units pursuant
to Section 5.6 of the LLC Agreement; or (viii) the issuance of Equity
Equivalents pursuant to a Qualified Public Offering.
(e) The provisions of this Section 10 shall terminate upon the
consummation of a Qualified Public Offering.
11. Further Assurances. In the event that the Board approves a
------------------
recapitalization of, or a transaction requiring the recapitalization of, the
Company or its Subsidiaries, including, without limitation, an initial Public
Offering, including pursuant to the Registration Agreement, then the Company and
all holders of Equityholder Units shall take all necessary or desirable actions
in connection with the consummation of such recapitalization or transaction as
the Board or a Majority in Voting Interest so request subject to the following
limitation: immediately after any such recapitalization or transaction, each
Equityholder shall hold securities of the applicable surviving entity with
rights, preferences and privileges substantially equivalent to the Equityholder
Units held by such Equityholder immediately prior to such recapitalization or
transaction. Without limiting the generality of the foregoing, if requested as
provided in the immediately preceding sentence, then (i) the Company and each
Equityholder shall take such actions as may be necessary or desirable for the
Company to convert to a corporate form, including without limitation the
approval of a merger of the Company with and into a corporation, with the result
that each Equityholder shall hold capital stock of such surviving corporation
(the "Successor Corporation") with rights, preferences and privileges
---------------------
substantially equivalent to the Equityholder Units held by such Equityholder,
and (ii) the Company and each Equityholder shall take such actions as may be
necessary or desirable to cause the Successor Corporation to assume all of the
obligations of the Company under this Agreement.
12. Participation Rights Granted to the Capstar Investors. If at
-----------------------------------------------------
any time any ABRY Investor(s) (collectively, a "Purchasing ABRY Investor")
------------------------
exercises its right of first refusal pursuant to Section 3 of the Members
Agreement with respect to the transfer by any MHC Member (as such term is
defined in the Members Agreement) of any Securities (as such term is defined in
the Members Agreement) by delivering an Acceptance Notice (as such term is
defined in the Members Agreement) to such MHC Member, then, no later than five
(5) business days after delivering such Acceptance Notice to such MHC Member,
such Purchasing ABRY Investor shall give notice (a "Participation Notice") to
--------------------
the Capstar Investors specifying (x) the Securities to be purchased by such
Purchasing ABRY Investor from such MHC Member and (y) the price and the other
terms and conditions upon which such Purchasing ABRY Investor shall purchase
such Securities. Each Capstar Investor will have five (5) business days after
its receipt of a Participation Notice during which to notify the applicable
Purchasing ABRY Investor in writing of its election to participate with such
Purchasing ABRY Investor's purchase of the applicable Securities (an "Election
--------
to
- --
-17-
<PAGE>
Participate Notice"). If any Capstar Investor elects to participate with a
- ------------------
Purchasing ABRY Investor in the purchase of Securities from an MHC Member
pursuant to the terms of this Section 12, then such Purchasing ABRY Investor
shall assign to such Capstar Investor the right to purchase from such MHC Member
a number of Securities equal to the product of (x) the quotient determined by
dividing the percentage of the number of Equityholder Units on a fully diluted
basis owned by such Capstar Investor by the aggregate percentage of the number
of Equityholder Units on a fully-diluted basis owned by all Capstar Investors
participating in such purchase of Securities from such MHC Member and all of the
ABRY Investors and (y) the number of Securities which the applicable Purchasing
ABRY Investor originally elected to purchase from such MHC Member pursuant to
the applicable Acceptance Notice. Upon delivery of an Election to Participate
Notice, the Capstar Investor which delivered such Election to Participate Notice
shall be firmly bound to consummate the purchase of the applicable Securities in
accordance with the terms of this Section 12 and Section 3 of the Members
Agreement and such purchase shall occur at the applicable Offered Securities
Closing (as such term is defined in the Members Agreement).
13. Amendment and Waiver. No modification or amendment of any
--------------------
provision of this Agreement shall be effective against the Equityholders or the
Company unless such modifi cation or amendment is approved in writing by (i)
the Company, (ii) the holder(s) of a majority of the number of then outstanding
ABRY Units and (iii) the holder(s) of a majority of the number of the then
outstanding Capstar Units. No waiver of any provision of this Agreement shall
be effective against any Equityholder unless such waiver is approved in writing
by such Equityholder. No waiver of any provision of this Agreement shall be
effective against the Company unless such waiver is approved in writing by the
Company. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms. Each Equityholder
shall remain a party to this Agreement only so long as such person is the holder
of record of Equityholder Units.
14. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
15. Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
16. Termination. This Agreement will automatically terminate and be
-----------
of no further force or effect immediately after the consummation of an Approved
Company Sale.
-18-
<PAGE>
17. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Equityholders and any subsequent
holders of Equityholder Units and the respective successors, heirs and assigns
of each of them, so long as they hold Equityholder Units.
18. Counterparts. This Agreement may be executed in separate
------------
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
19. Remedies. The parties hereto shall be entitled to enforce their
--------
rights under this Agreement specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company and any Equityholder may in his, hers, or its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunc tive relief (without posting a bond or
other security) in order to enforce or prevent any violation of the provisions
of this Agreement.
20. Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered if delivered
personally, sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient, or if sent by certified or registered mail, return
receipt requested, will be deemed to have been given two business days
thereafter. Such notices, demands and other communications will be sent to the
address indicated below:
To the Company:
--------------
Muzak Holdings LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
Telecopy No. (914) 592-8548
-19-
<PAGE>
With a copy, which shall not constitute notice, to:
--------------------------------------------------
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: John L. Kuehn, Esq.
Telecopy No.: (212) 446-4900
To MEM Holdings:
---------------
MEM Holdings, LLC
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
Telecopy No.: (914) 592-8548
With a copy, which shall not constitute notice, to:
--------------------------------------------------
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: John L. Kuehn, Esq.
Telecopy No.: (212) 446-4900
To Capstar:
----------
Capstar Broadcasting Corporation
600 Congress, Suite 1400
Austin, Texas 78701
Attention: William S. Banowsky, Jr.
Telecopy No. (512) 340-7890
With a copy, which shall not constitute notice, to:
--------------------------------------------------
Vinson & Elkins, L.L.P.
3700 Trammel Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: A. Winston Oxley, Esq.
Telecopy No. (214) 220-7716
or such other address, telecopy number or to the attention of such other person
as the recipient party shall have specified by prior written notice to the
sending party.
-20-
<PAGE>
21. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the state of Delaware, without giving effect to
any rules, principles or provisions of choice of law or conflict of laws.
22. Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
23. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY
--------------------
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
* * * * *
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Securityholders
Agreement as of the date first above written.
MUZAK HOLDINGS LLC
By: /s/ ROYCE YUDKOFF
------------------------------------
Name: Royce Yudkoff
Title: Vice President
MEM HOLDINGS, LLC
By: /s/ ROYCE YUDKOFF
------------------------------------
Name: Royce Yudkoff
Title: President
CAPSTAR BROADCASTING CORPORATION
By: /s/ KATHY ARCHER
------------------------------------
Name: Kathy Archer
Title: Vice President
-22-
<PAGE>
EXHIBIT A
---------
FORM OF JOINDER TO
SECURITYHOLDERS AGREEMENT
-------------------------
THIS JOINDER to the Securityholders Agreement dated as of March 18,
1999 by and among Muzak Holdings LLC, a Delaware limited liability company (the
"Company"), and certain equityholders of the Company (the "Agreement"), is made
------- ---------
and entered into as of _________ by and between the Company and
________("Holder"). Capitalized terms used herein but not otherwise defined
------
shall have the meanings set forth in the Agreement.
WHEREAS, Holder has acquired certain Equityholder Units and the
Agreement and the Company require Holder, as a holder of such Equityholder
Units, to become a party to the Agreement, and Holder agrees to do so in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Joinder hereby agree as
follows:
1. Agreement to be Bound. Holder hereby agrees that upon execution
---------------------
of this Joinder, it shall become a party to the Agreement and shall be fully
bound by, and subject to, all of the covenants, terms and conditions of the
Agreement as though an original party thereto and shall be deemed [an ABRY
Investor/a Capstar Investor] and an Equityholder for all purposes thereof. In
addition, Holder hereby agrees that all Common Units held by Holder shall be
deemed [ABRY/Capstar] Units and Equityholder Units for all purposes of the
Agreement.
2. Successors and Assigns. Except as otherwise provided herein,
----------------------
this Joinder shall bind and inure to the benefit of and be enforceable by the
Company and its successors, heirs and assigns and Holder and any subsequent
holders of Equityholder Units and the respective successors, heirs and assigns
of each of them, so long as they hold any Equityholder Units.
3. Counterparts. This Joinder may be executed in separate
------------
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
4. Notices. For purposes of Section 20 of the Agreement, all
-------
notices, demands or other communications to the Holder shall be directed to:
[Name]
[Address]
[Facsimile Number]
5. Governing Law. This Joinder shall be governed by and construed in
-------------
accordance with the laws of the state of Delaware, without giving effect to any
rules, principles or provisions of choice of law or conflict of laws.
6. Descriptive Headings. The descriptive headings of this Joinder
--------------------
are inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of the
date first above written.
MUZAK HOLDINGS LLC
By:
------------------------------------------
Name:
Title:
[HOLDER]
By:
-------------------------------------------
Name:
Title:
-2-
<PAGE>
EXHIBIT 10.12
================================================================================
INVESTOR SECURITIES PURCHASE AGREEMENT
by and among
ACN HOLDINGS, LLC
and
THE INVESTORS NAMED ON SCHEDULE I HERETO
------------------------------
October 6, 1998
------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Purchase and Sale of Class A Units................................... 1
2. Representations and Warranties of the Company........................ 1
2.1 Organization, Good Standing and Qualification.................. 1
2.2 Capitalization................................................. 2
2.3 Authorization.................................................. 2
2.4 No Violation; Consents......................................... 3
2.5 Permits and Licenses........................................... 3
2.6 Litigation..................................................... 3
2.7 Proprietary Information and Confidentiality Agreements......... 4
2.8 Intellectual Property.......................................... 4
2.9 Contracts, Leases, Etc......................................... 5
2.10 Compliance with Laws........................................... 5
2.11 Agreements; Restrictions....................................... 5
2.12 Brokers or Finders............................................. 6
2.13 Disclosure..................................................... 6
2.14 Title to Personal Property..................................... 6
2.15 Title to Real Property......................................... 6
2.16 Employee Benefit Plans......................................... 6
2.17 Tax Matters.................................................... 7
2.18 Environmental and Safety Laws.................................. 7
2.19 No Other Agreements to Sell Units.............................. 7
2.20 Representations and Warranties from Asset Purchase Agreement... 8
2.21 Conduct of Business; Liabilities............................... 8
3. Representations and Warranties of the Investors...................... 8
3.1 Authorization.................................................. 8
3.2 Purchase for Own Account....................................... 8
3.3 Investment Experience; Economic Risk........................... 8
4. Covenants of the Company............................................. 9
5. Conditions of the Investors' Obligations at the Closing..............11
5.1 Representations and Warranties.................................11
5.2 Performance....................................................11
5.3 Compliance Certificate.........................................11
5.4 Qualifications.................................................11
5.5 No Litigation Threatened.......................................11
5.6 Proceedings and Documents......................................11
5.7 Ancillary Agreements...........................................12
<PAGE>
6. Conditions of the Company's Obligations at the Closing...............12
6.1 Representations and Warranties.................................12
6.2 Performances...................................................12
7. Items to be Delivered by the Company to the Investors................12
8. Indemnification......................................................12
8.1 Indemnification................................................12
8.2 Indemnification Procedures.....................................13
9. Miscellaneous........................................................14
9.1 Survival.......................................................14
9.2 Transfer; Successors and Assigns...............................14
9.3 Governing Law..................................................14
9.4 Definitions....................................................14
9.5 Notices........................................................18
9.6 Expenses.......................................................18
9.7 Attorneys' Fees................................................18
9.8 Amendments and Waivers.........................................18
9.9 Severability...................................................19
9.10 Waiver of Jury Trial...........................................19
9.11 No Strict Construction.........................................19
9.12 Headings and Sections..........................................19
9.13 Number and Gender..............................................19
9.14 Binding Effect.................................................19
9.15 Counterparts...................................................19
9.16 Remedies.......................................................19
9.17 Business Days..................................................20
9.18 Entire Agreement...............................................20
-ii-
<PAGE>
INVESTOR SECURITIES PURCHASE AGREEMENT
THIS INVESTOR SECURITIES PURCHASE AGREEMENT (this "Agreement") is made
---------
as of October 6, 1998 by and among ACN Holdings, LLC, a Delaware limited
liability company (the "Company"), Joseph Koff ("Koff"), David Unger ("Unger"
------- ---- -----
and, together with Koff, the "Executive Investors"), and ABRY Broadcast Partners
-------------------
III, L.P. ("ABRY" and, together with the Executive Investors, the "Investors").
---- ---------
The Company and the Investors are referred collectively herein as the "Parties."
-------
Capitalized items used but not otherwise defined herein are defined in Section
9.4.
The Company has agreed to issue and sell to the Investors, and the
Investors have agreed to purchase from the Company (and thereby become members
of the Company), certain Class A Units of the Company in accordance with the
terms and conditions set forth in this Agreement.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties, intending to be legally bound, agree as follows:
1. Purchase and Sale of Class A Units. Subject to the applicable
----------------------------------
conditions set forth in Section 5 and the other terms and conditions of this
Agreement, at a closing being held concurrently with the execution of this
Agreement, each Investor hereby agrees to purchase, and the Company hereby
agrees to sell and issue to such Investor, the quantity of Class A Units set
forth opposite such Investor's name on the attached Schedule I, in each case at
----------
a purchase price of $1,000 per Unit (the "Purchase Price"), in cash. The
--------------
issuance, sale and purchase of Class A Units pursuant to this Section 1 is
referred to as the "Closing" and the date thereof is the "Closing Date".
------- ------------
2. Representations and Warranties of the Company. As a material
---------------------------------------------
inducement to the Investors to enter into this Agreement and purchase the
Purchased Units, the Company hereby represents and warrants to the Investors
after giving effect to the transactions to be consummated in connection with the
Closing, as follows:
2.1 Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and the Subsidiaries is a limited liability company, corporation or
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company and each Subsidiary has all requisite
corporate, partnership or limited liability company power and authority to own,
lease and operate its respective assets and properties and to conduct the
Business in the manner and in the locations where the Business is to be owned
and conducted by it and is duly qualified to conduct business as a foreign
Person in each jurisdiction in which such qualification is necessary under
applicable Legal Requirements and where the failure to be so qualified could,
individually or in the aggregate, have a material adverse effect on the
Business, or the properties, assets, condition (financial or other), prospects,
results of operations or general affairs of the Company and the Subsidiaries.
<PAGE>
2.2 Capitalization.
--------------
(a) The outstanding Equity Securities of the Company consist of
26,000 Class A Units (plus the aggregate number of Class A Units, if any issued
at all Subsequent Closings), 804 Class B-1 Units, 806 Class B-2 Units, and 804
Class B-3 Units. The rights, privileges and preferences of the Units are as
stated in the LLC Agreement.
(b) An accurate list of the outstanding Equity Securities of
each of the Company and the Subsidiaries and the holders thereof is set forth on
the attached Schedule 2.2. All of the outstanding Equity Securities of each of
------------
the Company and the Subsidiaries have been duly authorized, validly issued,
fully paid and non-assessable and have been issued in compliance with all
applicable securities laws.
(c) Other than this Agreement and the Ancillary Agreements,
neither the Company nor any Subsidiary has any agreement with any holder(s) of
any Equity Securities of the Company relating to Equity Securities of the
Company. Except as otherwise provided in the Ancillary Agreements, there are no
holders of Equity Securities of the Company or any of its Subsidiaries with any
preemptive rights, registration rights, voting rights or any other rights with
respect to any such securities.
(d) The Company has no subsidiary and owns no Equity Security of
any other Person other than as set forth on the attached Schedule 2.2.
------------
2.3 Authorization. (i) All action on the part of each of the
-------------
Company and the Subsidiaries and its respective officers, stockholders,
directors, managers, partners and/or members necessary for the authorization,
execution and delivery of each of this Agreement and the Ancillary Agreements to
which it is a party, (ii) the performance of all obligations of each of the
Company and the Subsidiaries hereunder and under each of the Ancillary
Agreements to which it is party; (iii) the authorization, sale, issuance and
delivery of the Purchased Units; and (iv) the vesting in the Investor(s) on the
Closing Date of good and marketable title in the Purchased Units, free and clear
of any Encumbrances; have been duly taken. Each of this Agreement and the
Ancillary Agreements to which the Company is a party has been duly authorized,
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of specific performance, injunctive relief,
or other equitable remedies. Each of the Ancillary Agreements to which any
Subsidiary is a party has been duly authorized, executed and delivered by such
Subsidiary and constitutes a legal, valid and binding obligation of such
Subsidiary, enforceable against such Subsidiary in accordance with its terms
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws of general application
affecting enforcement of creditors' rights generally, and as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies. The Purchased Units, when issued in compliance with
the provisions of this Agreement, will be validly issued and will be fully paid
and nonassessable and will have been issued in
-2-
<PAGE>
compliance with all applicable securities laws. The Purchased Units will be free
of any (i) Encumbrances other than those created by or imposed upon the holders
thereof through no action of the Company or any Subsidiary and (ii) restrictions
on transfer, other than the restrictions on transfer under this Agreement and
the Ancillary Agreements and under applicable state and federal securities laws.
2.4 No Violation; Consents. The execution, delivery and performance
----------------------
of each of this Agreement, the Ancillary Agreements or any document related
hereto or thereto by the Company or any Subsidiary, the offering, sale and
issuance of the Purchased Units, and the consummation by the Company or any
Subsidiary of all of the transactions contemplated hereby and thereby do not and
will not (with or without the giving of notice or the lapse of time or both):
(i) violate or require any consent, notice, filing, registration or approval
under any applicable provision of any Legal Requirement other than such as could
not, individually or in the aggregate, have a material adverse effect on the
Business, or the properties, assets, condition (financial or other), prospects,
results of operations or general affairs of the Company or any Subsidiary; (ii)
require any consent or approval under, conflict with, result in termination of,
accelerate the performance required by, result in a breach of, create any
Encumbrance upon, constitute a default under, require any filing with or notice
to any other Person pursuant to, or otherwise violate the terms of, any
agreement, instrument or obligation to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or any of their respective
properties or assets may be bound or affected, except as set forth on Schedule
--------
2.3(e) to Asset Purchase Agreement dated as of October 6, 1998 (the "Asset
- ------ -----
Purchase Agreement") by and among ACN Operating, LLC and DMA Holdings Statutory
- ------------------
Trust; (iii) require any consent or approval by, notice to or registration with,
any governmental authority or any other Person; or (iv) violate any provision of
the Certificate of Formation or the LLC Agreement or the organizational
documents of the any Subsidiary.
2.5 Permits and Licenses. The Company and each Subsidiary (i)
--------------------
possesses all approvals, authorizations, certificates, permits, licenses and the
like (collectively, the "Licenses") issued by appropriate governmental or
--------
regulatory agencies or bodies as are necessary to own, lease and operate its
assets and properties and to conduct the Business, and all such Licenses are in
full force and effect, (ii) is in compliance with its obligations under such
Licenses, and (iii) has not received notice of any proceedings, investigations
or inquiries, or, to the knowledge of each of the Company and the Subsidiaries,
are any proceedings, investigations or inquiries threatened, relating to the
revocation, modification, termination or suspension of any such License, except
where any such failure to possess such Licenses or the failure of such Licenses
to be in full force and effect or such noncompliance, revocation, modification,
termination or suspension could not, individually or in the aggregate, have a
material adverse effect on the Business, or the properties, assets, condition
(financial or other), prospects, results of operations or general affairs of the
Company or any Subsidiary.
2.6 Litigation. Neither the Company nor any Subsidiary is subject to
----------
any order, writ, injunction, judgment or decree of any court or governmental or
regulatory authority or body of any jurisdiction which relates to the Business
or the assets or properties of the Company or any Subsidiary. There is no
pending or, to the knowledge of each of the Company and the Subsidiaries,
threatened, action, dispute, claim, litigation, arbitration, investigation or
other judicial or
-3-
<PAGE>
administrative proceeding before any governmental or other administrative agency
which could, individually or in the aggregate, materially adversely affect the
Business, or the properties, assets, condition (financial or other), prospects,
results of operations or general affairs of the Company or any Subsidiary,
including, without limitation, (i) the properties of others used or leased by
the Company or any Subsidiary, (ii) any employee plan or any fiduciary or
administrator thereof, (iii) the transactions contemplated by this Agreement or
any Ancillary Agreement, or (iv) any employee or consultant of the Company or
any Subsidiary ("Company Personnel"), in reference to actions taken by them in
-----------------
such capacities, and to the knowledge of each of the Company and the
Subsidiaries there is no valid basis therefor. There is no legal or equitable
claim, action, suit, arbitration or other legal, administrative or governmental
proceeding against any other Person or the property or rights of any other
Person by the Company or any Subsidiary currently pending, and neither the
Company nor any Subsidiary has any present intention to bring any such legal
claim, action, suit, arbitration or other legal, administrative or governmental
proceeding.
2.7 Proprietary Information and Confidentiality Agreements. Neither
------------------------------------------------------
the Company nor any Subsidiary is, and to the knowledge of each of the Company
and its Subsidiaries no third party is, in violation of the proprietary rights
(including rights to proprietary or confidential information or trade secrets)
of any other Person. No third party has claimed or, to the knowledge of the
Company or any Subsidiary, has reason to claim that the Company or any
Subsidiary or any Person employed by, consultant to, agent of, or affiliated
with, the Company or any Subsidiary has (i) violated or may be violating any of
the terms or conditions of his employment, non-competition or non-disclosure
agreement with such third party, (ii) disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of such third party or (iii) interfered or may be interfering in the employment,
consulting or agency relationship between such third party and any of its
present or former employees, consultants or agents. No third party has
requested information from the Company or any Subsidiary which suggests that
such a claim might be contemplated. To the knowledge of each of the Company and
the Subsidiaries, no Person employed by, consultant to, agent of, or affiliated
with, the Company or any Subsidiary has used or proposes any unauthorized use of
any trade secret or any information or documentation proprietary to any former
employer, and no Person employed by, consultant to or agent of, or affiliated
with, the Company or any Subsidiary has violated any confidential relationship
which such Person may have had with any third party, and neither the Company nor
any Subsidiary has reason to believe that there will be any such use or
violation. None of the execution and delivery of this Agreement and the
Ancillary Agreements, the carrying on of the Business by any officer, manager,
director or key employee of the Company or any Subsidiary, or the conduct or
proposed conduct of the Business, will conflict with or result in a breach of
the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such Person is obligated.
2.8 Intellectual Property. The Company and the Subsidiaries owns or
---------------------
is the licensee of sufficient legal rights to all patents, trademarks, service
marks, tradenames, copyrights, trade secrets, licenses, information and
proprietary rights and processes (collectively, the "Intellectual Property")
---------------------
necessary for the conduct of the Business without any conflict with, or
infringement with the rights of, others. Neither the Company nor any Subsidiary
has received any communication alleging that the Company or any Subsidiary has
violated or, by conducting the Business, would violate any of the Intellectual
Property of any other Person, and there is no basis
-4-
<PAGE>
for any such claim. Neither the Company nor any Subsidiary has knowledge that
any of its respective employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employees' best efforts to promote the
interest of the Company and the Subsidiaries or that would conflict with the
Business.
2.9 Contracts, Leases, Etc. All material contracts, agreements,
-----------------------
leases, licenses and other commitments to which the Company or any Subsidiary is
a party, or by which the Company or any Subsidiary or any of their respective
properties or assets may be bound, are valid and in full force and effect. No
material breach or default, or event which, with notice or lapse of time or
both, would constitute a material breach or default, by the Company or any
Subsidiary (or, to the knowledge of the Company or any Subsidiary by any other
party thereto) exists with respect to any material contract, agreement, lease,
license or other commitment to which the Company or any Subsidiary is a party or
by which the Company or any Subsidiary or any of their respective properties or
assets may be bound. Neither the Company nor any Subsidiary has received any
notice of cancellation or non-renewal of any material lease, contract or
agreement. The Company is in compliance with its Certificate of Formation, this
Agreement and the Ancillary Agreements to which it is a party. Each Subsidiary
is in compliance with its organizational documents and the Ancillary Agreements
to which it is a party.
2.10 Compliance with Laws. The Company and the Subsidiaries are in
--------------------
material compliance in all respects with all material applicable foreign or
domestic federal, state and local laws, statutes, codes, ordinances, rules,
directives, binding policies, governmental permits and authorizations,
regulations, orders, judgments, writs and decrees applicable to the Business or
the properties or assets of the Company or any Subsidiary including, without
limitation, matters relating to the environment, zoning, antitrust and anti-
competitive practices, discrimination and employment and health and safety
(collectively, "Legal Requirements"). Neither of the Company nor any Subsidiary
------------------
has received any notice of any material, unremedied violation of any applicable
Legal Requirement, nor does the Company or any Subsidiary have any reason to
anticipate that any existing circumstances are likely to result in any violation
of any such Legal Requirements. There is no existing Legal Requirement, and
neither the Company nor any Subsidiary is aware of any proposed Legal
Requirement, which individually or in the aggregate with one or more existing or
proposed Legal Requirement(s), could prohibit or restrict the Company or any
Subsidiary from conducting the Business, or otherwise materially adversely
affect the Business, or the properties, assets, condition (financial or other),
prospects, results of operations or general affairs of the Company or any
Subsidiary.
2.11 Agreements; Restrictions. Except for this Agreement and the
------------------------
Ancillary Agreements, (a) there are no agreements, understandings or proposed
transactions between the Company or any Subsidiary and any of their respective
officers, managers, directors, employees, affiliates, or any affiliate or
relative thereof, and (b) neither the Company nor any Subsidiary is a party to
or is bound by any contract, agreement or instrument, and is not subject to any
restriction under its organizational documents, that materially and adversely
affects or could reasonably be anticipated to materially and adversely affect
the Business, or the properties, assets, condition
-5-
<PAGE>
(financial or other), prospects, results of operations or general affairs of the
Company or any Subsidiary.
2.12 Brokers or Finders. Neither the Company nor any Subsidiary has
------------------
incurred or will incur, directly or indirectly, as a result of any action taken
by the Company or any Subsidiary, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with the
transactions contemplated by this Agreement or any Ancillary Agreement.
2.13 Disclosure. No representation or warranty made by the Company
----------
in this Agreement, and no statement made by the Company in any schedule, exhibit
or certificate or other writing delivered or to be delivered in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of material fact, or omits or will omit any statement of a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances under which they were made, not misleading. There is no fact
or facts which the Company or any Subsidiary has not disclosed to the Investors
and of which the Company or any Subsidiary is aware which, individually or in
the aggregate, materially and adversely affects or could reasonably be
anticipated to materially and adversely affect the Business, or the properties,
assets, condition (financial or other), prospects, results of operations or
general affairs of the Company or any Subsidiary.
2.14 Title to Personal Property. The Company and the Subsidiaries,
--------------------------
taken as a whole, have good and valid title to all assets (other than real
property or interests in real property) used by it in the operation and conduct
of the Business, in each case free and clear of all mortgages, easements,
imperfections of title or Encumbrances of any nature whatsoever except Permitted
Liens. As used in this Agreement, "Permitted Liens" will mean any Encumbrances
---------------
disclosed or described on Schedule 5.4(f) to the Asset Purchase Agreement or
permitted under the Company's senior credit facility.
2.15 Title to Real Property. The Company and each Subsidiary has (i)
----------------------
fee title to all real property purported to be owned by it, capable of being
insured by a title insurance company licensed to do business in the jurisdiction
in which such owned property is located, and (ii) valid title to the leasehold
estates in all real property purported to be leased by it, in each case, free
and clear of Encumbrances other than Permitted Liens. Each related lease or
agreement is a valid and subsisting agreement without any default of the Company
or any Subsidiary, as applicable, thereunder, and to the knowledge of the
Company and each Subsidiary, without any material default thereunder of any
other party thereto. No event has occurred and is continuing which, with due
notice or lapse of time or both, would constitute a material default or event of
default by the Company or any Subsidiary, as applicable, under any such lease or
agreement or, to the knowledge of each of the Company and its Subsidiaries, by
any other party thereto.
2.16 Employee Benefit Plans. Neither the Company nor any Subsidiary
----------------------
currently sponsors, maintains, contributes to or has any liability with respect
to, or has at any time sponsored, maintained or contributed to, any employee
benefit plan which is or was subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), in
-----
-6-
<PAGE>
which any of their employees are or were participants (whether or not on an
active or frozen basis).
2.17 Tax Matters. Except with respect to matters that the Company is
-----------
contesting in good faith and which have been disclosed to the Investors: (a)
the Company and each Subsidiary has duly filed all required Tax Returns; (b) all
Tax Returns filed by the Company or any Subsidiary are accurate and complete in
all material respects and were prepared in conformity with all applicable Legal
Requirements; (c) the Company and each Subsidiary has paid in full all Taxes
required to be paid by it with respect to any taxable year or portion thereof
ending on or before each Closing Date, and has adequate reserves for all Taxes
due and not yet payable; (d) the Company and each Subsidiary has complied (and
will comply) in all respects with applicable provisions of Legal Requirements
relating to the payment and withholding of Taxes; (e) neither the Company nor
any Subsidiaries is a party to any pending action or proceeding by any
governmental entity or Taxing authority for the assessment of any Tax, and no
claim for assessment or collection of any Tax has been asserted against the
Company or any Subsidiary; (f) to the knowledge of the Company and each
Subsidiary, there is no valid basis for any assessment, deficiency notice,
thirty (30) day letter or similar intention to assess any Tax to be issued to
the Company or any Subsidiary by any governmental authority having jurisdiction
with respect to any taxable period ending on or before any Closing Date; and (g)
there is not pending or in effect (i) any extension or request for extension
with respect to the filing of any Tax Return of the Company or any Subsidiary,
or (ii) any extension or waiver of any statute of limitations on the assessment
or collection of any Tax.
2.18 Environmental and Safety Laws. Neither the Company nor any
-----------------------------
Subsidiary has undertaken, or contracted with any Person to undertake on its
behalf, the generation, transportation, treatment, recycling, storage or
disposal of any Hazardous Substance in connection with the operations of its
Business or otherwise, except for such Hazardous Substances of the character and
quantity as are ordinarily present in typical office trash or household waste.
The Company and the Subsidiaries, their respective operations, and any real
property that the Company or any Subsidiary owns, leases, occupies or otherwise
uses (the "Premises") are in compliance with all applicable Environmental Laws
--------
including, without limitation, Environmental Laws relating to any cleanup or
remediation of any Release or threat of Release of Hazardous Substances, except
to the extent that the failure of such compliance could not reasonably be
expected to be materially adverse to the Company and its Subsidiaries, taken as
a whole. Neither the Company nor any Subsidiary has received any citation,
directive, letter or other communication, written or oral, or any notice of any
proceedings, claims or lawsuits, from any Person (including any governmental
authority) alleging that the Company or any Subsidiary has any liability or
potential liability of any kind under any Environmental Law, nor is the Company
or any Subsidiary aware of any basis therefor. The Company and each Subsidiary
has obtained and is maintaining in full force and effect all permits, licenses
and approvals required under any Environmental Laws for their operations at the
Premises and the Business, and is in compliance with all such permits, licenses,
and approvals, other than such permits, licenses and approvals the absence of
which could not reasonably be expected to be materially adverse to the Company
and its Subsidiaries, taken as a whole. The Company nor any Subsidiary has
caused or contributed to any Release or threatened Release of any Hazardous
Substance at any location. To the best knowledge of the Company and the
Subsidiaries, there has been no Release or threatened Release of any Hazardous
Substance at, to, or from the Premises or any property located within a one-half
mile radius of any of the Premises.
-7-
<PAGE>
2.19 No Other Agreements to Sell Units. Other than pursuant to this
---------------------------------
Agreement or any Ancillary Agreement, neither the Company nor any Subsidiary has
any legal obligation, absolute or contingent, to any other third party to sell
any of its Equity Securities or to enter into any agreement with respect
thereto.
2.20 Representations and Warranties from Asset Purchase Agreement.
------------------------------------------------------------
Each of the representations and warranties made in the Asset Purchase Agreement
is true, complete and correct in all material respects as of the Closing Date.
2.21 Conduct of Business; Liabilities. Prior to the date of this
--------------------------------
Agreement, neither the Company nor any Subsidiary has conducted any business,
incurred any expenses, obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known to the Company and
whether or not known to the Company and whether due or to become due and
regardless of when asserted) or entered into any contracts or agreements, other
than in connection with the entry by the Company or its Subsidiaries into the
Asset Purchase Agreement, this Agreement and the other Ancillary Agreements.
3. Representations and Warranties of the Investors. The Investors hereby
-----------------------------------------------
severally, and not jointly, represent and warrant to the Company as to itself or
himself that, as of the Closing Date:
3.1 Authorization. This Agreement and the Ancillary Agreements to
-------------
which such Investor is a party constitutes a valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms, except as may limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief or other equitable remedies. Such Investor has full power, capacity
and/or authority to enter into this Agreement and the Ancillary Agreements to
which it or he is a party.
3.2 Purchase for Own Account. Such Investor is acquiring the
------------------------
Purchased Units to be acquired by it or him hereunder for its or his own
account, for the purposes of investment only, and not with a present view to the
resale or distribution thereof within the meaning of the Securities Act.
3.3 Investment Experience; Economic Risk. Such Investor has such
------------------------------------
knowledge and experience in financial and business matters that it or he is
capable of evaluating the merits and risks of an investment in the Purchased
Units to be acquired by it or him. Such Investor understands that it or he must
bear the economic risk of an investment in the Purchased Units to be acquired by
it or him for an indefinite length of time because the Purchased Units have not
been registered under the Securities Act or any applicable state securities laws
and, therefore, the Purchased Units cannot be transferred, sold, pledged or
otherwise disposed of, and such Person will not transfer, sell, pledge or
otherwise dispose of the Purchased Units, except pursuant to (i) an effective
registration statement under the Securities Act and qualification under
applicable state securities laws, or (ii) an exemption from such registration.
Such Investor understands that the purchase of Purchased Units involves a
-8-
<PAGE>
high degree of risk, and that such a purchase is suitable only for a Person who
can afford the loss of its entire investment. Such Investor has been given the
opportunity to ask questions of and receive answers from the Company regarding
the Purchased Units and the Company.
4. Covenants of the Company. The Company hereby covenants with the
------------------------
Investors as follows:
(a) Financial Statements and Other Information. The Company will
------------------------------------------
deliver to ABRY, so long as ABRY is a member of the Company:
(i) as soon as practicable (but in any event within thirty (30)
days) after the end of each month, as soon as practicable (but in any event
within thirty (30) days) after the end of each fiscal quarter, and as soon
as practicable (but in any event within sixty (60) days) after the end of
each fiscal year, unaudited summary financial statements, including balance
sheets of the Company and the related statements of income, members' equity
and cash flows and including comparisons with the applicable budget and
with the corresponding period during the preceding fiscal year (all of
which will be prepared on consolidated and consolidating bases for the
Company and the Subsidiaries, if the Company has any Subsidiary during all
or part of the period covered thereby), prepared in accordance with GAAP on
a consistent basis (except that the unaudited financial statements may not
contain all footnotes required by GAAP and will be subject to normal year
end adjustments) and accompanied by a report showing indicators of the
Company's and the Subsidiaries' operations and performance (including
information reasonably requested by ABRY);
(ii) as soon as practicable (but in any event within 105 days) after
the end of each fiscal year, audited statements of income, members' equity
and cash flows of the Company for such fiscal year, and balance sheets of
the Company as of the end of such fiscal year, setting forth in each case
comparisons to the annual budget and to the preceding fiscal year (all of
which will be prepared on consolidated and consolidating bases for the
Company and the Subsidiaries, if the Company has any Subsidiary during all
or part of the period covered thereby), all of which will be prepared in
accordance with GAAP on a consistent basis and accompanied by (A) an
opinion of an independent accounting firm of recognized national standing
and (B) a certificate from such accounting firm, addressed to the Company's
Managers, stating that in the course of its examination, nothing came to
its attention that caused it to believe that there was any default in any
material respect by the Company or any Subsidiary in the fulfillment of or
compliance with any of the terms, covenants, provisions or conditions of
any material agreement to which the Company or any Subsidiary is a party or
by which it or any Subsidiary may be bound or, if such accountants have
reason to believe any such default by the Company or any Subsidiary exists,
a certificate specifying the nature and period of existence thereof;
(iii) promptly upon receipt thereof, a copy of such accounting firm's
annual management letter to the Managers of the Company and any additional
reports, management letters or other detailed information concerning
significant aspects of the operations and financial affairs of the Company
or any Subsidiary given to the Company or any Subsidiary
-9-
<PAGE>
by its independent accountants (and not otherwise contained in other
materials provided hereunder);
(iv) as soon as practicable (but in any event within thirty (30)
days) prior to the end of each fiscal year, an annual budget prepared on a
monthly basis for the Company and the Subsidiaries (if any) for the
succeeding fiscal year (reflecting anticipated statements of income,
members' equity and cash flows and balance sheets) together with a summary
of the assumptions underlying such budget (including information reasonably
requested by ABRY), and promptly upon preparation thereof any other
significant budgets which the Company or any Subsidiary prepares and any
revisions of such annual or other budgets, and within thirty (30) days
after any monthly period in which there is a material adverse deviation
from the annual budget, an officer's certificate explaining the deviation
and what actions the Company or any Subsidiary has taken or propose to take
with respect thereto;
(v) promptly (but in any event within five (5) business days) after
the discovery or receipt of a notice of any breach or default under any
material agreement to which it or any Subsidiary is a party or any other
material adverse event or circumstance affecting the Company or any
Subsidiary (including the filing of any material litigation against the
Company or any Subsidiary or the existence of any dispute with any Person
which involves a reasonable likelihood of such litigation being commenced),
an officer's certificate specifying the nature and period of existence
thereof and what actions the Company or any Subsidiary has taken and
propose to take with respect thereto;
(vi) as soon as practicable (but in any event within ten (10) days)
after transmission thereof, copies of registration statements and all
regular, special or periodic reports which it files, or any of its officers
or managers file with respect to the Company or any Subsidiary, with the
Securities and Exchange Commission or with any securities exchange on which
any of its securities are then listed, copies of all press releases and
other statements made available generally by the Company or any Subsidiary
to the public concerning material developments in the Business and any
information which the Company supplies or is required to supply to its
lenders;
(vii) with reasonable promptness, such other information and
financial data concerning the Company or any Subsidiary as ABRY may
reasonably request.
(b) Inspection of Property. The Company will permit any
----------------------
representatives designated by ABRY, upon reasonable notice and during normal
business hours, and at the Company's expense, to (i) visit and inspect any of
the properties of the Company or any Subsidiary, (ii) examine the corporate and
financial records of the Company or any Subsidiary and make copies thereof or
extracts therefrom and (iii) discuss the affairs, finances and accounts of the
Company and the Subsidiaries with the managers, directors, officers, key
employees and independent accountants of the Company.
(c) Compliance with Law. The Company and each Subsidiary will duly
-------------------
observe and comply with all Legal Requirements applicable to the Business
including, but not limited to,
-10-
<PAGE>
those Legal Requirements relating to the preservation and maintenance of the
Licenses, and will maintain in full force and effect and take all actions
necessary or appropriate to comply with their respective obligations under all
licenses as are necessary to own, lease and operate their respective assets and
properties and to conduct the Business, in each case, except to the extent that
the failure to do so could not reasonably be expected to have a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
5. Conditions of the Investors' Obligations at the Closing. The
-------------------------------------------------------
obligation of any Investor to purchase Class A Units at the Closing is subject
to the fulfillment, on the Closing Date (except as otherwise indicated), of each
of the following conditions, unless such condition is not applicable to the
Closing by its terms or unless such condition is otherwise waived in writing by
such Investor.
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement, and all representations
and warranties of the Company or any Subsidiary set forth in any Ancillary
Agreement, will be true, complete and correct as of the date of the Closing,
without the necessity of any amendment or modification, with the same force and
effect as though such representations and warranties had been made on and as of
the date of the Closing (except as disclosed in writing to and accepted by
ABRY).
5.2 Performance. Each of the covenants, agreements, obligations and
-----------
conditions contained in this Agreement or in any Ancillary Agreement that is
required to be performed or complied with by the Company or any Subsidiary and
all other Persons (other than such Investor) on or before the Closing pursuant
to the terms hereof and thereof will have been duly performed or complied with
in all material respects on or before the Closing.
5.3 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company will deliver to such Investor a certificate dated as of the Closing Date
signed on behalf of the Company certifying that the conditions specified in
Sections 5.1, 5.2, 5.4 and 5.5 have been fulfilled.
5.4 Qualifications. All authorizations, filings, registrations,
--------------
approvals or permits, if any, of or with any governmental authority or
regulatory body that are required in connection with the lawful issuance and
sale of Class A Units at the Closing pursuant to this Agreement will be obtained
and effective as of the Closing.
5.5 No Litigation Threatened. No action, suit or other proceeding
------------------------
will be pending before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement or any Ancillary Agreement, or seeking to obtain
substantial damages in respect thereof, or involving a claim that consummation
thereof would result in the violation of any Legal Requirement.
5.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto will be reasonably satisfactory in form and substance
to such Investor's counsel, and such counsel will
-11-
<PAGE>
have received all such counterpart original and certified or other copies of
such documents as it may reasonably request.
5.7 Ancillary Agreements. The Company, each Subsidiary and each
--------------------
Investor will have executed and delivered the respective Ancillary Agreements to
which it is a party and each Ancillary Agreement will be in full force and
effect.
6. Conditions of the Company's Obligations at the Closing. The
------------------------------------------------------
obligation of the Company to sell Class A Units to an Investor at the Closing is
subject to the fulfillment, on or before the Closing, of each of the following
conditions, unless otherwise waived in writing:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor contained in this Agreement will be true, complete
and correct with respect to the Investor as of the Closing, without the
necessity of any amendment or modification, with the same force and effect as
though such representations and warranties had been made on and as of the date
of the Closing.
6.2 Performances. Each of the covenants, agreements, obligations and
------------
conditions contained in this Agreement or in the Ancillary Agreements that are
required to be performed or complied with by the Investor on or before the
Closing pursuant to the terms hereof and thereof will have been duly performed
or complied with on or before the Closing.
7. Items to be Delivered by the Company to the Investors. On the Closing
-----------------------------------------------------
Date, the Company will furnish to the Investor(s):
(a) the Certificate of Formation and the Ancillary Agreements,
with all amendments to date;
(b) the officer's certificate required by Section 5.3; and
(c) such other documents or instruments as such Investor
reasonably requests in order to consummate the transaction contemplated
hereby.
8. Indemnification.
---------------
8.1 Indemnification.
---------------
(a) In consideration of the Investors' execution and delivery of this
Agreement and acquiring Purchased Units hereunder and in addition to all of the
Company's other obligations under this Agreement and the Ancillary Agreements,
the Company will defend, protect, indemnify and hold harmless each Investor and
all of its officers, directors, employees, agents and affiliates (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnified Persons") from
-------------------
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnified Person is a party to the action
-12-
<PAGE>
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by
-----------------------
the Indemnified Persons or any of them as a result of, or arising out of, or
relating to, any misrepresentation or any breach by the Company or any
Subsidiary of any warranty, certification or other agreement of the Company or
any Subsidiary forth in this Agreement or any Ancillary Agreements or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnified Persons; provided, that the Company will not be liable for
--------
Indemnified Liabilities unless and until the aggregate amount of all such
Indemnified Liabilities exceeds five percent (5%) of the aggregate purchase
price theretofore paid for Units under this Agreement (the "Threshold Amount"),
----------------
in which event, the Company will be liable for all such Indemnified Liabilities
in excess of the Threshold Amount.
(b) Notwithstanding any examination made by or on behalf of any
Party, the knowledge of any Party or the acceptance by any Party of any
certificate or opinion, each representation and warranty contained herein will
survive the Closing. The indemnification and contribution provided for in this
Section 8.1 will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Persons or any officer, director,
employee, agent of the Indemnified Persons, except that there will be no
indemnity in respect of any fact or circumstance which the Company establishes
was known to the person seeking indemnity on the date of this Agreement.
8.2 Indemnification Procedures. Promptly after the receipt by the
--------------------------
Indemnified Person in question of a notice of any claim, action, suit or
proceeding of any third party which is subject to indemnification hereunder,
such Person (the "Indemnified Party") will give written notice of such claim to
-----------------
the party obligated to provide indemnification hereunder (the "Indemnifying
------------
Party"), stating the nature and basis of such claim and the amount thereof, to
- -----
the extent known. Failure of the Indemnified Party to give such notice promptly
will not relieve the Indemnifying Party from any liability which it may have on
account of this indemnification or otherwise, except to the extent that the
Indemnifying Party is materially prejudiced thereby. The Indemnifying Party
will be entitled to participate in the defense of and, if it so chooses, to
assume the defense of, or otherwise contest, such claim, action, suit or
proceeding with counsel selected by the Indemnifying Party and reasonably
satisfactory to the Indemnified Party; provided, that, the Indemnified Party
--------
will be entitled, to the extent it so elects and at its sole cost and expense,
to assume and control the defense of any claim involving any equitable claim,
including, but not limited to, injunctive relief. Upon the election by the
Indemnifying Party to assume the defense of, or otherwise contest, such claim,
action, suit or proceeding, the Indemnifying Party will not be liable for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof, although the Indemnified Party will have
the right to participate in the defense thereof and to employ counsel, at its
own expense. Notwithstanding the foregoing, the Indemnifying Party will be
liable for the reasonable fees and expenses of counsel employed by the
Indemnified Party, if, and only to the extent that (i) the Indemnifying Party
has not employed counsel or counsel reasonably acceptable to the Indemnified
Party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, (ii) the employment of
counsel and the amount reimbursable therefor by the Indemnified Party has been
authorized in writing by the Indemnifying Party or (iii) representation of the
Indemnifying Party and the Indemnified Party by the same counsel would, in the
reasonable determination of such Indemnified Party, constitute a conflict of
interest
-13-
<PAGE>
(in which case the Indemnifying Party will not have the right to direct the
defense of such action on behalf of the Indemnified Party). The parties will use
commercially reasonable efforts to mitigate Indemnified Liabilities from claims
by third parties and will act in good faith in responding to, defending against,
settling or otherwise dealing with such claims, notwithstanding any dispute as
to liability as between the parties under this Section 8. The parties will also
cooperate in any such defense, give each other reasonable access to all
information relevant thereto and make employees and other representatives
available on a mutually convenient basis to provide additional information and
explanation of any material provided in connection therewith.
9. Miscellaneous.
-------------
9.1 Survival. The warranties, representations and covenants of the
--------
Company and the Investors contained in or made pursuant to this Agreement will
survive the execution and delivery of this Agreement and the Closing.
9.2 Transfer; Successors and Assigns. The provisions of this
--------------------------------
Agreement will inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any Person other than the parties hereto and
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Notwithstanding any other provision of this Agreement to the
contrary, the rights and obligations of this Agreement may be expressly
transferred to any Person which acquires Purchased Units from any Investor (so
long as such transfer is made in compliance with all applicable Ancillary
Agreements) or direct or indirect transferee thereof (so long as such transfer
is made in compliance with all applicable Ancillary Agreements) and which will
agree to be subject to all limitations set forth herein.
9.3 Governing Law. All issues and questions concerning the
-------------
application, construction, validity, interpretation and enforcement of this
Agreement and the exhibits and schedules hereto will be governed by, and
construed in accordance with, the laws of the State of Delaware, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
9.4 Definitions. The following terms will have the following
-----------
meanings for all purposes of this Agreement and such meanings are equally
applicable both to the singular and plural forms of the terms defined.
"ABRY" has the meaning set forth in the Preamble.
----
"Ancillary Agreements" the Consulting Agreement, the Employment
--------------------
Agreements, the Asset Purchase Agreements, the LLC Agreement, the Management
Securities Repurchase Agreements, the Members Agreement and the Registration
Rights Agreement.
-14-
<PAGE>
"Asset Purchase Agreement" means the Agreement to Purchase Assets by
------------------------
and between ACN Operating, LLC and DMA Holdings, Inc. dated October 6, 1998 and
all agreements and other documents entered into or delivered in connection
therewith, each as in effect from time to time.
"Business" means the business providing business music programming and
--------
ancillary communications products and services including broadcast data
delivery, satellite delivered cable television channels, audio marketing and in-
store advertising services to a diverse customer base that includes, among
others, restaurants, retailers, supermarkets and business offices.
"Certificate of Formation" means the Company's Certificate of
------------------------
Formation as filed with the Secretary of State of Delaware, as in effect from
time to time.
"Class A Units," "Class B Units," "Class B-1 Units," "Class B-2
------------- ------------- --------------- ---------
Units," and "Class B-3 Units" have the respective meanings set forth in the LLC
---------------
Agreement.
"Closing" has the meaning set forth in Section 1.
-------
"Closing Date" has the meaning set forth in Section 1.
------------
"Company" has the meaning set forth in the Preamble.
-------
"Company Personnel" has the meaning set forth in Section 2.6.
-----------------
"Consulting Agreement" means the Management and Consulting Services
--------------------
Agreement dated as of the date of this Agreement between ACN Operating, LLC and
ABRY Partners, Inc., as in effect from time to time.
"Employment Agreements" means the Koff Employment Agreement and the
---------------------
Unger Employment Agreement.
"Encumbrance" means any lien, security interest, claim, pledge,
-----------
option, judgment, charge or encumbrance of any nature whatsoever.
"Environmental Law" means any Legal Requirement (including any foreign
-----------------
Legal Requirement) pertaining to the protection of human health or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S. Sections 9601, et seq.,
Emergency Planning and Community Right to Know Act, 42 U.S. Sections 11001, et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq.
"Equity Securities" of any Person means (i) any capital stock,
-----------------
partnership, membership, joint venture or other ownership or equity interest,
participation or securities (whether voting or non-voting, whether preferred,
common or otherwise, and including any stock appreciation, contingent interest
or similar right) and (ii) any option, warrant, security or other right
(including debt securities) directly or indirectly convertible into or
exercisable or exchangeable for,
-15-
<PAGE>
or otherwise to acquire directly or indirectly, any stock, interest,
participation or security described in clause (i) above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Executive Investors" has the meaning set forth in the Preamble.
-------------------
"GAAP" means United States generally accepted accounting principles.
----
"Hazardous Substance" includes oil and petroleum products, asbestos,
-------------------
polychlorinated biphenyls and urea formaldehyde, and any other material of any
nature regulated pursuant to any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 2.8.
---------------------
"Investor" has the meaning set forth in the Preamble.
--------
"Koff" has the meaning set forth in the Preamble.
----
"Koff Employment Agreement" means the Executive Employment Agreement
-------------------------
dated as of the date hereof between ACN Operating, LLC and Koff, as in effect
from time to time.
"Koff Repurchase Agreement" means the Management Securities Repurchase
-------------------------
Agreement dated as of the date hereof among the Company, Koff and ABRY, as in
effect from time to time.
"Knowledge" refers to all information actually known after due inquiry
---------
to (a) the person in question, in the case of an individual or (b) in the case
of a corporation or other Person, an officer or employee of the Person in
question or any subsidiary thereof.
"Legal Requirements" has the meaning set forth in Section 2.10.
------------------
"Licenses" has the meaning set forth in Section 2.5.
--------
"LLC Agreement" means the Limited Liability Company Agreement of the
-------------
Company dated as of the date hereof among the Investors, as in effect from time
to time.
"Managers" means, at any time, the managers of the Company.
--------
"Management Securities Repurchase Agreements" means the Koff
-------------------------------------------
Repurchase Agreement and the Unger Repurchase Agreement.
"Members Agreement" means the Members Agreement dated as of the date
-----------------
hereof among the Company and the Investors, as in effect from time to time.
-16-
<PAGE>
"Permitted Liens" has the meaning set forth in Section 2.14.
---------------
"Person" means any individual, corporation, partnership, limited
------
liability company, trust, joint venture, governmental entity or other
unincorporated entity, association or group.
"Public Sale" means any sale to the public pursuant to an offering
-----------
registered under the Securities Act or to the public through a broker, dealer or
market maker pursuant to the provisions of Rule 144.
"Purchase Price" has the meaning set forth in Section 1.
--------------
"Purchased Units" means the Class A Units purchased and sold at the
---------------
Closings pursuant to this Agreement.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of the date hereof among the Company, and the Investors, as
in effect from time to time.
"Release" means release, spill, emission, leaking, pumping, injection,
-------
deposit, disposal, discharge, dispersal, leaching or migrating.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of such Person or entity or a combination thereof. For purposes
hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director, managing member,
or general partner of such limited liability company, partnership, association
or other business entity. The capitalized term "Subsidiary" refers to a
----------
subsidiary of the Company.
"Tax" means any federal, state, local or foreign gross income, net
---
income, sales, use, transfer, payroll, employment, personal property, real
property, occupancy, unincorporated business, ad valorem, franchise, profits,
license, withholding, excise, severance, stamp, occupation, premium, property or
windfall profits tax, alternative or add-on minimum tax, customs duty, tariff or
other tax, levy, impost, fee, imposition, assessment or similar charge together
with any related addition to tax, interest or penalty thereon.
-17-
<PAGE>
"Tax Return" means all returns, reports and information statements
----------
with respect to Taxes required to be filed with the Internal Revenue Service or
any other governmental entity or Taxing authority, whether domestic or foreign,
including, without limitation, consolidated, combined or unitary tax returns.
"Threshold Amount" has the meaning set forth in Section 8.1.
----------------
"Unger" has the meaning set forth in Preamble.
-----
"Unger Employment Agreement" means the Executive Employment Agreement
--------------------------
dated as of the date hereof between ACN Operating, LLC and Unger, as in effect
from time to time.
"Unger Repurchase Agreement" means the Management Securities
--------------------------
Repurchase Agreement dated as of the date hereof among the Company, Unger and
ABRY, as in effect from time to time.
9.5 Notices.
-------
(a) All notices, requests, demands and other communications
under this Agreement or in connection herewith will be given to or made upon (i)
the Company, at 3 Nashua Court, Suite B, Baltimore, Maryland 21221, Attention:
Joseph Koff, President, with a copy to ABRY Partners, Inc., 18 Newbury Street,
Boston, MA 02116, Attention: Royce Yudkoff and (ii) to any Investor, at such
Investor's address set forth on the attached Schedule I (or in any case to such
other address as the addressee may from time to time designate in writing to the
sender).
(b) All notices, requests, demands and other communications
given or made in accordance with the provisions of this Agreement will be in
writing, and will be deemed effectively given upon personal delivery or delivery
by courier to the party to be notified or three (3) business days after deposit
with the United States Post Office, by registered or certified mail, return
receipt requested, postage prepaid and addressed as provided in Section 9.5(a).
9.6 Expenses. The Company will pay the fees, expenses and
--------
disbursements of (x) ABRY (including, but not limited to, the fees, expenses and
disbursements of Kirkland & Ellis, counsel to ABRY), and (y) the Executive
Investors (including, but not limited to, the fees, expenses and disbursements
of Baer Marks & Upham LLP, counsel to the Company and the Executive Investors),
incurred in connection with the negotiation, preparation and entry into this
Agreement and the Ancillary Agreements and the transactions contemplated hereby
and thereby. The Company shall also reimburse the Executive Investors for any
reasonable expenses incurred on behalf of the Company prior to the date hereof.
9.7 Attorneys' Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Agreement or
the Ancillary Agreements, the prevailing party will be entitled to reasonable
attorneys' fees and expenses in addition to any other relief to which such party
may be entitled.
-18-
<PAGE>
9.8 Amendments and Waivers. Except as otherwise expressly set forth
----------------------
in this Agreement, any provision of this Agreement may be amended, and the
observance of any provision of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), with the
written consent of the Company and Investors which have purchased a majority of
the Purchased Units theretofore issued hereunder; provided that no such
--------
amendment or waiver shall materially and adversely affect the rights hereunder
of any of the parties hereto when compared with its effect on the other parties
hereto without the prior written approval of such party. Any amendment or waiver
effected in accordance with this Section 9.8 will be binding upon the Investors,
each holder of any Purchased Units issued pursuant to this Agreement, and each
future holder of such securities and the Company. No waivers of or exceptions
to any provision of this Agreement, in any one or more instances, will be deemed
to be, or construed as, a further or continuing waiver of any such provision.
9.9 Severability. Whenever possible, each provision of this
------------
Agreement will be interpreted in such manner as to be effective and valid under
any applicable Legal Requirement, but if any provision of this Agreement is held
to be prohibited by or invalid under any applicable Legal Requirement, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
9.10 Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY
--------------------
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS, TRIAL BY JURY
IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
9.11 No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement will be
construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof will arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
9.12 Headings and Sections. The headings in this Agreement are
---------------------
inserted for convenience only and are in no way intended to describe, interpret,
define, or limit the scope, extent or intent of this Agreement or any provision
hereof. Unless the context requires otherwise, all references in this Agreement
to Sections, Articles, Exhibits or Schedules will be deemed to mean and refer to
Sections, exhibits or schedules of or to this Agreement.
9.13 Number and Gender. Where the context so indicates, the
-----------------
masculine will include the feminine, the neuter will include the masculine and
feminine, the singular will include the plural and any reference to a "person"
will mean a natural person or a corporation, limited liability company,
association, partnership, joint venture, estate, trust or any other entity.
-19-
<PAGE>
9.14 Binding Effect. Except as herein otherwise provided to the
--------------
contrary, this Agreement will be binding upon and inure to the benefit of the
parties, their distributees, heirs, legal representatives, executors,
administrators, successors and permitted assigns.
9.15 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which will be deemed to be an original and will be binding
upon the parties who executed the same, but all of such counterparts will
constitute the same Agreement.
9.16 Remedies. Each of the parties to this Agreement will be
--------
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorney's fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
9.17 Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or holiday in the
state in which the Company's chief executive office is located, the time period
will be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
9.18 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this agreement and the other agreements referred to herein embodies the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersedes and preempts any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
* * * * *
-20-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investor
Securities Purchase Agreement as of the date first above written.
ACN HOLDINGS, LLC
By: /s/ PENI GARBER
----------------------------------
Name: Peni Garber
Title: Vice President
ABRY BROADCAST PARTNERS III, L.P.
By: ABRY Equity Investors, L.P.
Its: General Partner
By: ABRY Holdings III, Inc.
Its: General Partner
By: /s/ ROYCE YUDKOFF
-----------------------------
Name: Royce Yudkoff
Title: President
/s/ JOSEPH KOFF
---------------------------------------
JOSEPH KOFF
/s/ DAVID UNGER
---------------------------------------
DAVID UNGER
<PAGE>
Schedule I
----------
Quantity of Class of
Investor Name and Units Units
Notice Address Purchased/1/ Purchased
------------------------------ ------------ ---------
Koff 500 A
5 Old Crown Court
Baltimore, MD 21208
with a copy (which will not constitute notice) to:
-------------------------------------------------
Blum, Yumkas, Mailman, Gutman
& Denick, P.A.
2 Hopkins Plaza, Suite 1200
Baltimore, MD 21201
Attention: Charles Yumkas, Esq.
Unger 1,000 A
The Excelsior
303 East 57th Street, Apt. 30G
New York, NY 10022
with a copy (which will not constitute notice) to:
-------------------------------------------------
Baer Marks & Upham LLP
805 Third Avenue
New York, NY 10022
Attention: Anne Pitter, Esq.
ABRY 24,500 A
18 Newbury Street
Boston, MA 02116
Attention: Royce Yudkoff
with a copy (which will not constitute notice) to:
-------------------------------------------------
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: John Kuehn, Esq.
- --------------------
/1/ Purchase Price: $1,000/Unit.
<PAGE>
Schedule 2.2
to
Investor Securities Purchase Agreement
dated October 6, 1998 re:
ACN Holdings, LLC
Subsidiaries and Outstanding Equity Securities
- ----------------------------------------------
. ACN Holdings, Inc. 100% owned by the Company
. ACN Operating, Inc. 100% owned by ACN Holdings, Inc.
Company Outstanding Equity Securities
- -------------------------------------
None -- other than those being issued pursuant to this Agreement and those
to be issues pursuant to the Management Securities Repurchase Agreement.
<PAGE>
EXHIBIT 21.1
STATE OR OTHER JURISDICTION
OF INCORPORATION OR
SUBSIDIARIES OF MUZAK HOLDINGS LLC ORGANIZATION
- ---------------------------------------- ------------------------------
Muzak LLC Delaware
Business Sound, Inc. Ohio
Muzak Finance Corp. Delaware
Muzak Capital Corporation Delaware
MLP Environmental Music, LLC Washington
Electro-Systems Corporation Florida
Muzak Heart & Soul Foundation Washington
Muzak Holdings Finance Corp. Delaware
STATE OR OTHER JURISDICTION
SUBSIDIARIES OF OF INCORPORATION OR
MUZAK HOLDINGS FINANCE CORP. ORGANIZATION
- ---------------------------------------- ------------------------------
None.
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Muzak Holdings LLC and Muzak Holdings
Finance Corp. of our report dated February 19, 1999 relating to the consolidated
financial statements of ACN Holdings, LLC as of December 31, 1998 and for the
period from October 7, 1998 through December 31, 1998 which appear in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Historical Financial and Other Data" in such Prospectus. However,
it should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such "Selected Historical Financial and Other Data."
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
May 14, 1999
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Muzak Holdings LLC and Muzak Holdings
Finance Corp. of our report dated February 19, 1999 relating to the consolidated
financial statements of Audio Communications Network, Inc. for the period from
January 1, 1998 through October 6, 1998 which appear in such Prospectus. We also
consent to the references to us under the headings "Experts" and "Selected
Historical Financial and Other Data" in such Prospectus. However, it should be
noted that PricewaterhouseCoopers LLP has not prepared or certified such
"Selected Historical Financial and Other Data."
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
May 14, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Muzak Holdings LLC 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 heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Seattle, Washington
May 14, 1999
