MUZAK LLC
10-Q, 2000-05-15
BUSINESS SERVICES, NEC
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            - - - - - - - - - - - - -

                                    FORM 10-Q
                                  - - - - - - -


[x]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934  For the quarterly period ended March 31, 2000.
                                       or

[_]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934  For the transition period from ______ to ______.

                        Commission file number: 333-78571
                                  333-78571-01

                       MUZAK LLC
                       MUZAK FINANCE CORP.
            (Exact Name of Registrants as Specified in their charter)

             DELAWARE                                   04-3433729
             DELAWARE                                   56-2187963
    (State or Other Jurisdiction of         (I.R.S. Employer Identification No.)
     Incorporated or Organization)

                         5550 77 CENTER DRIVE SUITE 380
                               CHARLOTTE, NC 28217
                                 (704) 559-5277

    (Address, Including Zip Code and Telephone Number including Area Code of
                    Registrants' Principal Executive Offices)

                                       N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
 Report)

Indicate by check mark whether the registrants have filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes  [X ]   No  [ ]

Muzak Finance Corp meets the conditions set forth in General Instruction H(1)
(a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.


Muzak Finance Corp. had 100 shares of outstanding common stock as of May 12,
2000.

<PAGE>

                          PART I- FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.

                                    MUZAK LLC
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                        MARCH 31,              DECEMBER 31,
                                                                          2000                     1999
                                                                       (UNAUDITED)
                                                                  ----------------------   ---------------------
                              ASSETS
<S>                                                                         <C>                     <C>
Current assets:
     Cash and cash equivalents..................................            $  3,370                $  2,275
     Accounts receivable, net...................................              38,684                  39,203
     Inventory..................................................              11,182                  12,283
     Prepaid expenses and other assets..........................               2,179                   2,304
                                                                            --------               ---------
         Total current assets...................................              55,415                  56,065
Property and equipment, net.....................................              99,548                  95,050
Intangible assets, net..........................................             331,928                 314,364
Deposit and other assets, net...................................              32,411                  28,795
                                                                            --------               ---------
         TOTAL ASSETS...........................................            $519,302               $ 494,274
                                                                            ========               =========


                LIABILITIES AND MEMBER'S INTEREST
Current liabilities:
     Revolving credit facility..................................            $ 24,692                $ 25,000
     Current maturities of long term debt.......................               3,692                   4,197
     Current maturities of other liabilities....................               1,400                   1,394
     Accounts payable...........................................              15,567                  15,123
     Accrued expenses...........................................              17,862                  34,433
     Advance billings...........................................              11,905                  11,171
                                                                            --------               ---------
         Total current liabilities..............................              75,118                  91,318
Long-term debt..................................................             315,012                 278,917
Related party notes.............................................              30,000                  30,000
Other liabilities...............................................              12,825                   9,798
Commitments and contingencies (Note 9)..........................
Member's interest:
       Common units (100 issued and
       outstanding).............................................             119,018                 107,124
       Accumulated deficit......................................            (32,671)                (22,883)
                                                                            --------               ---------
         Total member's interest................................              86,347                  84,241
                                                                            --------               ---------
         TOTAL LIABILITIES AND MEMBER'S INTEREST................            $519,302                $494,274
                                                                            ========                ========

</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.


                                       2
<PAGE>
                                    MUZAK LLC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                     QUARTER                 QUARTER
                                                                                      ENDED                   ENDED
                                                                                    MARCH 31,               MARCH 31,
                                                                                       2000                   1999
                                                                                -------------------     ------------------
<S>                                                                                    <C>                     <C>
Revenues:
     Music and other business services..........................................       $  32,259               $ 8,179
     Equipment and related services.............................................          11,436                 3,972
                                                                                       ---------              --------


         Total revenues.........................................................          43,695                12,151


Cost of revenues:
     Music and other business services..........................................           6,773                 1,599
     Equipment and related services.............................................           8,931                 2,872
                                                                                       ---------              --------
         Total cost of revenues.................................................          15,704                 4,471
                                                                                       ---------              --------
         Gross profit...........................................................          27,991                 7,680
                                                                                       ---------              --------
Selling, general and administrative expenses....................................          14,182                 2,947
Depreciation and amortization expense...........................................          13,954                 3,197
                                                                                       ---------              --------
         Income (loss) from operations..........................................           (145)                 1,536


Other income (expense):
     Interest expense, net......................................................         (9,630)               (2,112)
     Other, net.................................................................              7                   (21)
                                                                                       ---------              --------
     Loss before income taxes...................................................         (9,768)                 (597)
Income tax provision.............. .............................................             20                     -


         Net loss...............................................................       $ (9,788)               $ (597)
                                                                                       =========              ========

</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.

                                       3
<PAGE>
                                    MUZAK LLC
             CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST
                                   (UNAUDITED)
                        (IN THOUSANDS, EXCEPT FOR UNITS)
<TABLE>
<CAPTION>
                                                                                                           TOTAL
                                                             COMMON UNITS              ACCUMULATED        MEMBER'S
                                                      OUTSTANDING        DOLLARS         DEFICIT          INTEREST
                                                   ---------------------------------------------------------------------
<S>                                                       <C>           <C>             <C>                 <C>
Balance at December 31, 1999.......................       100           $ 107,124       $ (22,883)          $ 84,241


Additional capital contributed.....................       --               11,894               --            11,894
Net loss ..........................................       --                   --          (9,788)           (9,788)

Balance at March 31, 2000..........................       100           $ 119,018        $(32,671)          $ 86,347
                                                          ===           =========        =========          ========

</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.

                                       4
<PAGE>
                                    MUZAK LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                     QUARTER ENDED         QUARTER ENDED
                                                                                       MARCH 31,             MARCH 31,
                                                                                         2000                  1999
                                                                                  --------------------  --------------------
<S>                                                                                      <C>                     <C>

CASH FLOW FROM OPERATING ACTIVITIES
Net loss..........................................................................       $ (9,788)               $ (597)
Adjustments to derive cash flow from continuing operating activities:
Deferred income tax expense.......................................................              15                     -
Depreciation and amortization.....................................................          13,954                 3,197
Amortization of deferred financing fees...........................................             365                     -
Deferred subscriber acquisition costs.............................................         (3,076)                 (133)
Unearned installment income.......................................................            (62)                     -
Net change in certain assets and liabilities, net of business acquisitions
  Decrease (increase) in accounts receivable......................................             771                 (364)
  Decrease (increase) in inventory ...............................................           1,287                 (207)
  Increase (decrease) in accrued interest.........................................         (1,488)                 1,238
  Increase (decrease) in accounts payable ........................................             444                 (116)
  Increase (decrease) in accrued expenses.........................................         (7,813)                 1,697
  Increase (decrease) in advance billings........................................             734                 (457)
  Other, net......................................................................           (185)                   711
                                                                                          --------              --------
     NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES..........................         (4,842)                 4,969
                                                                                          --------              --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash.........................................................        (33,236)             (262,509)
Capital expenditures..............................................................        (10,100)               (2,705)
                                                                                          --------              --------
     NET CASH USED IN INVESTING ACTIVITIES........................................        (43,336)             (265,214)
                                                                                          --------              --------


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior subordinated notes...............................               -               115,000
Proceeds from issuance of senior credit facility..................................               -               135,000
Net borrowings (repayments) on revolver...........................................            (308)                3,400
Proceeds from issuance of floating rate notes.....................................          36,000                     -
Proceeds from interest rate swap..................................................           4,364                     -
Proceeds from contributions by Parent.............................................          10,636                60,000
Repayment of notes payable to related party.......................................               -              (41,683)
Repayments of capital lease obligations and other debt............................           (671)                 (564)
Payment of fees associated with the financing.....................................           (748)              (10,164)
                                                                                          --------              --------
     NET CASH PROVIDED BY FINANCING ACTIVITES.....................................          49,273               260,989
                                                                                          --------              --------

NET INCREASE IN CASH AND CASH EQUIVALENTS.........................................           1,095                   744

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....................................           2,275                 1,293

CASH AND CASH EQUIVALENTS, END OF PERIOD.........................................          $ 3,370               $ 2,037
                                                                                          ========              ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements..

                                       5
<PAGE>
                                    MUZAK LLC
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION

         Muzak LLC ("the Company"), a Delaware limited liability company, was
formed on August 28, 1998 as ACN Operating LLC and in October 1998 changed its
name to Audio Communications Network, LLC ("ACN"). On October 7, 1998 ACN
commenced operations with its acquisition of the independent franchisees in the
Baltimore, Charlotte, Hillsborough, Kansas City, St. Louis, Jacksonville,
Phoenix, and Fresno areas from Audio Communications Network, Inc. (the
"Predecessor Company"). On March 18, 1999, Muzak Limited Partnership ("Old
Muzak") merged with and into ACN. At the time of the merger, ACN changed its
name to Muzak LLC.

         The Company is a wholly owned subsidiary of Muzak Holdings LLC (the
"Parent"), previously known as ACN Holdings, LLC. As of March 31, 2000, ABRY
Partners, LLC and its respective affiliates collectively own approximately 67%
of the voting interests in the Parent. All of the operating activities are
conducted through the Company and its subsidiaries.

         The Company derives the majority of its revenues from the sale of
business music products. The core product is Audio Architecture and its two
complementary products are Audio Marketing and Video Imaging. These revenues are
generated by clients, who pay monthly subscription fees under noncancelable five
year contracts.


         The Company also derives 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, the Company sells electronic
equipment, such as proprietary tape playback equipment and other audio and video
equipment to franchisees to support the sale of 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.

2.  BASIS OF PRESENTATION

         The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries; Muzak Capital Corporation, Muzak Finance
Corporation, Business Sound Inc., Electro Systems Corporation, BI Acquisition
LLC, MLP Environmental Music, LLC, Audio Environments, Inc, Background Music
Broadcasters, Inc, Telephone Audio Productions, Inc., Vortex Sound
Communications Company, Inc., Music Incorporated, and Muzak Houston, Inc. All
significant intercompany items have been eliminated in consolidation.

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

         The financial statements as of March 31, 2000 and March 31, 1999 and
for the three month periods then ended are unaudited; however in the opinion of
management, such statements include all adjustments (consisting solely of normal
recurring adjustments except for the acquisitions described in Note 3) necessary
for a fair statement of the financial information included herein subject to
year end audit adjustments. Results of operations for interim periods are not
necessarily indicative of results for the full year.


         For further information, refer to the consolidated financial statements
and footnotes thereto included in the Muzak LLC Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1999.

                                       6
<PAGE>
                                    MUZAK LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  ACQUISITIONS
         As discussed in Note 1, on March 18, 1999 Old Muzak merged with and
into ACN. Under the terms of the agreement, the Company paid total consideration
of $274.2 million, which is comprised of the following: $125.5 million cash
consideration, $114.9 million consideration in the tender offer and consent
solicitation for the 10% Senior Notes due 2003 of Old Muzak, $15.9 million for
debt repayment of Old Muzak outstanding obligations, and $17.9 million of other
assumed obligations. In addition, at the time of the merger, the Company repaid
$41.7 million borrowed from ABRY Broadcast Partners by ACN in October 1998 in
connection with the acquisition of the Company's independent franchisees from
the Predecessor Company and converted $0.7 million into voting units of the
Parent.

         In 1999, prior to the merger, the Company made the following
acquisitions:

    On January 15, 1999, the Company acquired all of the outstanding stock of
    Business Sound, Inc. for approximately $4.1 million, which included 3,661
    Class A units of the Parent. Business Sound was the Company's independent
    franchisee for the New Orleans, Louisiana and Mobile, Alabama areas.


    On February 24, 1999, the Company acquired all of the outstanding stock of
    Electro Systems for approximately $0.7 million, which included 650 Class A
    units of the Parent, and assumed certain non-recourse debt of $2.4 million.
    Electro Systems was the Company's independent franchisee located in Panama
    City, Florida.


    The Company made twenty acquisitions between the merger on March 18, 1999
and March 31, 2000. The table below provides information regarding these
acquisitions (in millions, except for number of Parent units).
<TABLE>
<CAPTION>
                        Purchase               Acquired Assets                       Acquired         Acquired
Date                    Price (1)                 Or Stock                           Business         Markets
- ----------------------- ---------- ----------------------------------------   ----------------------- ------------------------
<S>                     <C>                       <C>                           <C>                       <C>
March 18,1999           $18.1 (2)  Net assets of Capstar Broadcasting         Independent franchisee  Georgia, Florida
                                   Corporation's independent franchisee
April 1, 1999           $0.2       Net assets of Custom On Hold Services      Audio Marketing         Washington
                                   Inc
May 1,1999              $3.2 (3)   Net assets of Capstar Broadcasting         Independent franchisee  Nebraska
                                   Corporation's independent franchisee
June 1, 1999            $6.9       Net assets of Advertising on Hold, Inc     Audio Marketing         Florida, Georgia, North
                                                                                                      Carolina
July 1, 1999            $0.8       Net assets of CustomTronics Sound          Business Music          California
July 1, 1999            $0.9       Net assets of Penobscot Broadcasting       Independent             Maine
                                   Corporation                                franchisee
July 26, 1999           $1.3       Net assets of LaBov and Beyond, Inc        Audio Marketing         Indiana
August 1, 1999          $3.5       Net assets of US West Communications       Audio Marketing         National
                                   Services, Inc's Please Hold Promotions
September 1, 1999       $4.7       Stock of Broadcast International, Inc      Business Music          National
October 1, 1999         $10.3      Net assets of Midwest Systems and          Business Music          Illinois, Indiana, Ohio,
                                   Services, Inc                                                      West Virginia
November 1, 1999        $2.9       Net assets of A & D Music, Inc             Independent franchisee  Oregon
November 1, 1999        $7.9 (4)   Stock of  Audio Environment, Inc and       Independent             California
                                   Background Music Broadcasters Inc          franchisee
December 1, 1999        $13.2 (5)  Net assets of MountainWest Audio, Inc      Independent             Utah, Idaho, Washington
                                                                              franchisee
February 2, 2000        $0.4       Net assets of Quincy Broadcasting Company  Independent franchisee  Illinois
</TABLE>

                                       7
<PAGE>
                                    MUZAK LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
                        Purchase               Acquired Assets                     Acquired         Acquired
Date                    Price (1)                 Or Stock                         Business         Markets
- ----------------------- ---------- ---------------------------------------- ----------------------- ------------------------
<S>                      <C>                    <C>                              <C>                    <C>
February 2, 2000        $0.9       Net assets of General Communications     Audio Marketing         Indiana, Georgia,
                                   Corporation ("On Hold America")                                  Florida, Ohio
February 2, 2000        $0.4       Net assets of Texas Sound Co. Ltd        Business Music          Texas
February 24, 2000       $3.7       Stock of Telephone Audio Productions,    Audio Marketing         National
                                   Inc
March 24, 2000          $9.2 (6)   Stock of Vortex Sound Communications     Independent franchisee  District of Columbia
                                   Company, Inc
March 31, 2000          $1.6       Net assets of Dynamic Sound              Independent franchisee  Nevada, California
March 31, 2000          $8.3       Stock of Muzak Houston, Inc              Independent franchisee  Texas
</TABLE>


(1)  The purchase price does not include transaction costs
(2)  The Parent acquired Capstar Broadcasting Corporation's ("Capstar")
     independent franchisees located in Atlanta, Albany, and Macon, Georgia, and
     Ft Myers, Florida. The total consideration was accounted for as an equity
     contribution to the Company and included 13,535 Class A units of the
     Parent.
(3)  The Parent acquired Capstar's independent frachisee located in Omaha
     Nebraska. The total consideration was accounted for as an equity
     contribution to the Company and included 2,385 Class A units of the Parent.
(4)  Total purchase price included 100 Class A units of the Parent.
(5)  The Company paid $3.1 million of the purchase price of Mountain West Audio,
     Inc. as of December 31, 1999. In February 2000, the Company paid the
     remaining purchase price, which included 456 Class A units of the Parent.
(6)  Total purchase price included 802 Class A units of the Parent.



         The results of operations of the acquired companies are included in the
Company's consolidated statement of operations for the periods in which they
were owned by the Company.

         The acquisitions were accounted for under the purchase method of
accounting. Accordingly, the consideration was allocated to the net assets
acquired based on the fair market values at the date of acquisition as
determined through the use of an independent appraisal. The excess of purchase
price for each acquisition over the estimated fair value of the tangible and
identifiable intangible assets acquired approximated $7.0 million and $127.9
million for the quarter ended March 31, 2000 and the year ended December 31,
1999, respectively and is being amortized over a period of twenty years on a
straight-line basis.

         The following presents the unaudited pro forma results assuming that
the acquisitions discussed above had occurred as of the beginning of fiscal 2000
and 1999. These pro forma results are not necessarily indicative of the results
that will occur in future periods (in thousands).

                                                          QUARTER ENDED
                                                MARCH 31, 2000    MARCH 31, 1999
                                                --------------    --------------
                                                           (UNAUDITED)
       Revenues.............................     $ 45,648           $ 43,470
       Income (Loss) from operations........          167             (1,883)
       Net loss.............................      (10,000)           (10,091)



                                       8
<PAGE>
                                    MUZAK LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.   PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                   USEFUL       MARCH 31,          DECEMBER 31,
                                                                    LIFE           2000                1999
                                                                   (YEARS)     (UNAUDITED)
                                                                 ---------- ------------------- -------------------
<S>                                                                  <C>        <C>                <C>
   Equipment provided to subscribers..........................       4-6        $ 80,649           $  72,598

   Capitalized installation labor.............................         5          20,865              18,270
   Other......................................................      3-30          23,012              22,606
                                                                                 ---------           ---------
                                                                                 124,526             113,474
    Less accumulated depreciation.............................                   (24,978)            (18,424)
                                                                                 ---------           ---------
                                                                                $ 99,548           $  95,050
                                                                                 =========           =========

Depreciation expense approximated $6.6 million and $1.5 million for the quarters
ended March 31, 2000 and March 31, 1999, respectively.


5.   INTANGIBLE ASSETS

Intangible assets consists of the following (in thousands):
<CAPTION>
                                                                  USEFUL        MARCH 31,          DECEMBER 31,
                                                                   LIFE            2000                1999
                                                                  (YEARS)      (UNAUDITED)
                                                                 ---------- ------------------- -------------------
<S>                                                                   <C>       <C>                 <C>
   Goodwill.................................................          20        $ 150,079           $ 143,094
   Income producing contracts...............................        8-14          148,154             136,184
   License agreements.......................................          20            5,082               5,082
   Trademarks...............................................           5           14,891              14,866
   Non-compete agreements...................................         2-7           22,054              16,401
   Other....................................................        5-20           18,717              18,430
                                                                                 ---------           ---------


                                                                                  358,977             334,057
   Less accumulated amortization............................                      (27,049)            (19,693)
                                                                                 ---------           ---------
                                                                                $ 331,928           $ 314,364
                                                                                 =========           =========


</TABLE>
Amortization expense was $7.4 million and $1.7 million for the quarters ended
March 31, 2000 and March 31, 1999, respectively.

                                       9
<PAGE>
                                    MUZAK LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.   DEBT

     Debt obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                          MARCH 31,             DECEMBER 31,
                                                                            2000                    1999
                                                                         (UNAUDITED)
                                                                      ------------------    ---------------------
<S>                                                                       <C>                   <C>

   Revolving loan- Senior Credit Facility........................         $  24,692             $  25,000
                                                                          =========             =========
   Related Party Notes...........................................            30,000                30,000
                                                                          =========             =========


   Long term debt:
   Senior Credit Facility........................................           165,000               165,000
   Senior Notes..................................................           115,000               115,000
   Floating Rate Notes...........................................            36,000                     -
   Other.........................................................             2,704                 3,114
                                                                          ---------             ---------
   Total debt obligations........................................           318,704               283,114
   Less current maturities.......................................            (3,692)               (4,197)
                                                                          ---------             ---------
                                                                          $ 315,012             $ 278,917
                                                                          =========             =========
</TABLE>
SENIOR CREDIT FACILITY
          In March 1999, the Company entered into a new senior credit facility
("Senior Credit Facility") consisting of: (i) a term loan facility in the amount
of $30.0 million payable in semi-annual installments until final maturity on
December 31, 2005 ("Term Loan A") ; (ii) a term loan facility in the amount of
$105.0 million payable in semi-annual installments until final maturity on
December 31, 2006 ("Term Loan B") (together with Term Loan A , the "Term
Loans"); and (iii) a revolving loan (the "Revolving Loan") in an aggregate
principal amount of up to $35.0 million terminating on December 31, 2005. In
July 1999, the Company amended the Senior Credit Facility which increased the
principal amount of the Term Loan B by $30.0 million to $135.0 million. In
October 1999, the Company amended the Senior Credit Facility to enable a related
party to make a subordinated loan to the Company in the aggregate principal
amount of $20.0 million and to permit the Company to issue additional senior
subordinated notes and the Parent to issue preferred stock if certain covenants
are met by the Company.

         The Senior Credit Facility, which is guaranteed by the Parent, the
Company, and certain of its domestic subsidiaries contains restrictive covenants
including maintenance of interest and leverage ratios and various other
restrictive covenants which are customary for such facilities. In addition, the
Company is generally prohibited from incurring additional indebtedness,
incurring liens, paying dividends or making other restricted payments,
consummating asset sales, entering into transactions with affiliates, merging or
consolidating with any other person or selling assigning, transferring, leasing,
conveying, or otherwise disposing of assets. These conditions were satisfied as
of March 31, 2000.

         Indebtedness under the Term Loan A and the Revolving Loans bear
interest at a per annum rate equal to the Company's choice of (i) the Alternate
Base Rate (which is the highest of prime rate and the Federal Funds Rate plus
 .5%) plus a margin ranging from 1.00% to 2.00% or (ii) the offered rates for
Eurodollar deposits ("LIBOR") of one, two, three, or six months, as selected by
the Company, plus a margin ranging from 2.0% to 3.0%. Margins, which are subject
to adjustment based on the changes in the Company's ratio of consolidated total
debt to EBITDA (i.e., earnings before interest, taxes, depreciation,
amortization and other non cash charges) were 2.0% in the case of Alternate Base
Rate and 3.0% in the case of LIBOR as of March 31, 2000. Indebtedness under the
Term Loan B bears interest at a per annum rate equal to the Company's choice of
(i) the Alternate Base Rate (as described above) plus a margin of 2.5% or (ii)
LIBOR of one, two, three, or six months, as selected by the Company plus a
margin of 3.5%. The weighted average rate of interest on the Senior Credit
Facility at March 31, 2000 was 9.64%.

                                       10
<PAGE>
                                    MUZAK LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT (CONTINUED)

SENIOR NOTES
         On March 18, 1999, the Company together with its wholly owned
subsidiary, Muzak Finance Corp., co-issued $115.0 million in principal amount of
9 7/8% Senior Subordinated Notes ("Senior Notes") which mature on March 15,
2009. Interest is payable semi-annually, in arrears, on March 15 and September
15 of each year. The Senior Notes are general unsecured obligations of the
Company and Muzak Finance Corp. and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company and Muzak Finance Corp.
The Senior Notes are guaranteed by the Parent, MLP Environmental Music, LLC,
Business Sound, Inc., BI Acquisition LLC, Audio Environments, Inc., Background
Music Broadcasters, Inc., Muzak Capital Corporation, Telephone Audio
Productions, Inc., Muzak Houston, Inc., Vortex Sound Communications Company,
Inc., and Music Incorporated. The indenture governing the Senior Notes prohibits
the Company from making certain payments such as dividends and distributions of
their capital stock; repurchases or redemptions of their capital stock, and
investments (other than permitted investments) unless certain conditions are met
by the Company. Before March 15, 2002, the issuers may redeem up to 35% of the
aggregate principal amount of the Notes originally issued under the indenture at
a redemption price of 109.875% of the aggregate principal amount so redeemed,
plus accrued and unpaid interest to the redemption date, with the net proceeds
of one or more equity offerings if certain conditions are met. After March 15,
2004, the issuers may redeem all or part of the Notes at a redemption price
equal to 104.938% of the principal which redemption price declines to 100% of
the principal amount in 2007.

FLOATING RATE NOTES

         In January 2000, the Company entered into an indenture for up to $50.0
million Senior Subordinated Floating Rate Notes (the "Floating Rate Notes"). The
Floating Rate Notes will be available for drawdowns until July 31, 2000.
Commitments on all amounts undrawn under the Floating Rate Notes by July 31,
2000 will expire and will be ineligible for future drawdowns. The Floating Rate
Notes may be redeemed at 100% if redeemed before July 31, 2000 and at 101.50% if
redeemed August 1, 2000 through October 31, 2000. If the Company does not redeem
the Floating Rate Notes by November 1, 2000, the Floating Rate Notes will
automatically convert into fixed-rate permanent notes due March 2009. Proceeds
from the Floating Rate Notes are being used to fund acquisitions. As of March
31, 2000, the Company had drawn $36.0 million of the Floating Rate Notes.

         Indebtedness under the Floating Rate Notes bears interest at a rate
equal to 3 month LIBOR plus a margin of 5.00% for the period from January 2000
through July 31, 2000, at a rate of 3 month LIBOR plus a margin of 7.5% for the
period from August 1, 2000 through October 31, 2000, and at a fixed rate based
on the greater of (i) 3 month LIBOR plus a margin of 7.5% and (ii) the yield on
the Company's 9.875% Senior Subordinated Notes due 2009 at time of conversion
plus a margin of 2.5% after October 31, 2000. Interest on the Floating Rate
Notes is subject to a maximum annual cash rate of 14% and a maximum total annual
interest rate of 16%, with any interest in excess of 14% payable in-kind in
additional amounts of the Floating Rate Notes.

RELATED PARTY NOTES

         From July 1, 1999 through November 24, 1999, the Company borrowed an
aggregate amount of $30.0 million, from MEM Holdings LLC in the form of Junior
Subordinated Unsecured Notes (the "ABRY Notes"). MEM Holdings is a company that
owns 67% of the voting interests in the Parent. ABRY Broadcast Partners III and
ABRY Broadcast Partners II are the beneficial owners of MEM Holdings.


         The ABRY Notes mature on June 30, 2007, at which time principal and
accrued interest are due. Interest accrues at 15% per annum; any accrued
interest not paid as of March 31, June 30, September 30 or December 31 will bear
interest at 15% per annum until such interest is paid or extinguished. The ABRY
Notes are junior and subordinate to payments for the Senior Credit Facility, and
the Senior Notes. At any time, all of the ABRY Notes, with the exception of a
$3.0 million note may be converted into Class A units of the Parent. If the ABRY
Notes with the exception of a $3.0 million note, have not been repaid in full as
of May, 2001, the ABRY Notes will automatically be converted into Class A units
of the Parent. Proceeds from the ABRY Notes were used to fund operations and
acquisitions.


                                       11
<PAGE>
                                    MUZAK LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.  DEBT (CONTINUED)

         In order to complete the acquisition of the Predecessor Company, the
Company issued Notes payable to a related party for $40.8 million in 1998. The
Company repaid $41.7 million, which included $0.9 million of interest,
outstanding under this note at the time of the merger and converted $0.7 million
of interest into Class A units of the Parent during the quarter ended March 31,
1999.

OTHER DEBT

        In connection with the purchase of Electro Systems on February 24, 1999,
the Company assumed several promissory notes, totaling $2.4 million as of the
acquisition date. All of the notes, with the exception of one, bear interest at
9.887% and mature in November 2016. The Company is required to make interest
only payments on a monthly basis through October 2006, and principal and
interest payments for the remainder of the term. The Note terms are the same for
all but one of the notes. This note bears interest at 8% with principal and
interest payments due monthly until maturity in October 2006.

INTEREST RATE PROTECTION PROGRAMS

         During April 1999, the Company entered into a four year interest rate
swap agreement in which the Company effectively exchanged $100.0 million of
floating rate debt at three month LIBOR for 5.59% fixed rate debt. This
agreement was modified on January 28, 2000 resulting in an increase to 7.042%
fixed rate debt and a termination date of April 2002. The proceeds of $4.4
million from the modification are being recorded as an adjustment to interest
expense over the remaining life of the swap agreement.

         This agreement is designated as a hedge of interest rates, and the
differential to be paid or received on the swap is accrued as an adjustment to
interest expense as interest rates change. The Company is exposed to credit loss
in the event of nonperformance by the other party to the swap agreement.
However, the Company does not anticipate nonperformance by the counterparty.
During the quarter ended March 31, 2000, this agreement resulted in an increase
to interest expense of approximately $0.2 million.


ANNUAL MATURITIES OF DEBT


Annual maturities of debt obligations are as follows (in thousands):

   2000...............................................$ 3,672
   2001................................................ 5,181
   2002................................................ 6,680
   2003................................................ 7,761
   2004................................................26,344
Thereafter............................................269,066


         Total interest paid by the Company on all indebtedness was $10.9
million and $1.0 million for the quarters ended March 31, 2000 and March 31,
1999, respectively. Accrued interest payable was $4.6 million and $1.2 million
as of March 31, 2000 and March 31, 1999, respectively.


7. RELATED PARTY TRANSACTIONS

         During October 1998, the Company entered into a Management Agreement
with ABRY Partners which provides that the Company will pay a management fee as
defined in the Management Agreement. There were no fees incurred under the
agreement during the quarters ended March 31, 2000 and March 31, 1999. Either
the Company or ABRY Partners, with the approval of the Board of Directors of the
Parent, may terminate the Management Agreement by prior written notice to the
other.

         During fiscal 1999, the Company borrowed $30.0 million from MEM
Holdings under junior subordinated notes. See Note 6 for a description of this
related party note.

                                       12
<PAGE>
                                    MUZAK LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. MUZAK FINANCE CORP.

Muzak Finance Corp. had no operating activities during the quarters ended March
31, 2000 and March 31, 1999.

9. COMMITMENTS AND CONTINGENCIES

LITIGATION
         The Company is involved in various claims and lawsuits arising out of
the normal conduct of its business. Although the ultimate outcome of these legal
proceedings cannot be predicted with certainty, the management of the Company
believes that the resulting liability, if any, will not have a material effect
upon the Company's consolidated financial statements or liquidity.

OTHER COMMITMENTS
         As of March 31, 2000, the Company's operations has approximately $1.8
million in outstanding capital expenditure commitments. The Company is the
lessee under various operating and capital leases for equipment, vehicles,
satellite capacity, and buildings for periods ranging from 2 years to 10 years.


10. SUBSEQUENT EVENTS (UNAUDITED)

         On April 11, 2000 the Company acquired certain of the assets and
assumed certain obligations of Audio Plus, Inc, a Kentucky corporation, for
approximately $1.0 million. Audio Plus, Inc was the Company's independent
franchisee located in Fairfield, Ohio.

         The following presents the unaudited pro forma results of the Company
for the quarter ended March 31, 2000, as if the acquisitions and financings,
including those discussed above in subsequent events, occurred on January 1,
2000. These unaudited pro forma results are not necessarily indicative of the
results that will occur in future periods (in thousands).

Revenues...............................................       45,743
Income from operations.................................          189
Net Loss...............................................      (10,006)

                                       13
<PAGE>


                          PART I- FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.

                               MUZAK HOLDINGS LLC
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                        MARCH 31,            DECEMBER 31,
                                                                          2000                  1999
                                                                       (UNAUDITED)
                                                                  ----------------        --------------
                              ASSETS
<S>                                                                    <C>                     <C>
Current assets:
     Cash and cash equivalents..................................       $  3,370                $  2,275
     Accounts receivable, net...................................         38,684                  39,203
     Inventory..................................................         11,182                  12,283
     Prepaid expenses and other assets..........................          2,179                   2,304
                                                                  -------------            ------------
         Total current assets...................................         55,415                  56,065
Property and equipment, net.....................................         99,548                  95,050
Intangible assets, net..........................................        331,928                 314,364
Deposit and other assets, net...................................         35,370                  31,836
                                                                  -------------            ------------
         TOTAL ASSETS...........................................       $522,261               $ 497,315
                                                                  =============            ============

                LIABILITIES AND MEMBER'S INTEREST
Current liabilities:
     Revolving credit facility..................................       $ 24,692                $ 25,000
     Current maturities of long term debt.......................          3,692                   4,197
     Current maturities of other liabilities....................          1,400                   1,394
     Accounts payable...........................................         15,567                  15,123
     Accrued expenses...........................................         17,862                  34,433
     Advance billings...........................................         11,905                  11,171
                                                                  -------------            ------------
         Total current liabilities..............................         75,118                  91,318
Long-term debt..................................................        360,597                 323,131
Related party notes.............................................         30,000                  30,000
Other liabilities...............................................         12,825                   9,798
Commitments and contingencies (Note 9)..........................
Members' interest:
Class A units.................................................           82,493                  70,599

 Class B units..................................................          2,822                   2,822
       Accumulated deficit......................................        (41,594)                (30,353)
                                                                  -------------            ------------
         Total members' interest................................         43,721                  43,068
                                                                  -------------            ------------
         TOTAL LIABILITIES AND MEMBERS' INTEREST................       $522,261                $497,315
                                                                  =============            ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.

                                       14
<PAGE>
                               MUZAK HOLDINGS LLC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                     QUARTER            QUARTER
                                                                                      ENDED              ENDED
                                                                                    MARCH 31,           MARCH 31,
                                                                                       2000               1999
                                                                                ---------------     ---------------
<S>                                                                               <C>                 <C>
Revenues:
     Music and other business services..........................................  $   32,259          $  8,179
     Equipment and related services.............................................      11,436             3,972
                                                                                     -------           -------

         Total revenues.........................................................      43,695            12,151

Cost of revenues:
     Music and other business services..........................................       6,773             1,599
     Equipment and related services.............................................       8,931             2,872
                                                                                     -------           -------

         Total cost of revenues.................................................      15,704             4,471
                                                                                     -------           -------

         Gross profit...........................................................      27,991             7,680
                                                                                     -------           -------

Selling, general and administrative expenses....................................      14,182             2,947
Depreciation and amortization expense...........................................      13,954             3,197
                                                                                     -------           -------

         Income (loss) from operations..........................................        (145)            1,536

Other income (expense):
     Interest expense, net......................................................     (11,083)           (2,331)
     Other, net.................................................................           7               (21)
                                                                                     -------           -------

Loss  before income taxes.......................................................     (11,221)             (816)
Income  tax provision...........................................................          20                --
         Net loss...............................................................   $ (11,241)          $  (816)
                                                                                   =========           =======

</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.

                                       15
<PAGE>
                               MUZAK HOLDINGS LLC
             CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' INTEREST
                                   (UNAUDITED)
                        (IN THOUSANDS, EXCEPT FOR UNITS)
<TABLE>
<CAPTION>
                                                                                                               TOTAL
                                               CLASS A                   CLASS B            ACCUMULATED      MEMBERS'
                                          UNITS       DOLLARS       UNITS       DOLLARS       DEFICIT         EQUITY
                                      ------------------------------------------------------------------------------------
<S>                                      <C>         <C>            <C>          <C>         <C>            <C>
Balance at December 31, 1999..........   70,599      $ 70,599       10,281       $2,822      $ (30,353)     $ 43,068
Issuance of units.....................   11,894        11,894           --                          --        11,894
Net loss .............................       --            --           --           --        (11,241)      (11,241)

Balance at March 31, 2000.............   82,493      $ 82,493       10,281       $2,822       $(41,594)     $ 43,721
                                         ======      ========       ======       ======       =========     ========
</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.

                                       16
<PAGE>
                               MUZAK HOLDINGS LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                     QUARTER ENDED         QUARTER ENDED
                                                                                       MARCH 31,             MARCH 31,
                                                                                         2000                  1999
                                                                                  --------------------  --------------------
<S>                                                                                   <C>                    <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss........................................................................      $ (11,241)             $ (816)
Adjustments to derive cash flow from continuing operating activities:
Deferred income tax expense.....................................................             15                  --
Depreciation and amortization...................................................         13,954               3,197
Amortization of senior discount notes...........................................          1,371                 206
Amortization of deferred financing fees.........................................            365                  13
Deferred subscriber acquisition costs...........................................         (3,076)               (133)
Unearned installment income.....................................................            (62)                  -
Net change in certain assets and liabilities, net of business acquisitions
   Decrease (increase) in accounts receivable...................................            771                (364)
   Decrease (increase) in inventory ............................................          1,287                (207)
   Increase (decrease) in accrued interest......................................         (1,488)              1,238
   Increase (decrease) in accounts payable .....................................            444                (116)
   Increase (decrease) in accrued expenses......................................         (7,813)              1,697
   Increase (decrease) in advance billings......................................            734                (457)
   Other, net...................................................................           (103)                711
                                                                                       --------            --------
     NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES........................         (4,842)              4,969
                                                                                       --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash.......................................................        (33,236)           (262,509)
Capital expenditures............................................................        (10,100)             (2,705)
                                                                                       --------            --------
     NET CASH USED IN INVESTING ACTIVITIES......................................        (43,336)           (265,214)
                                                                                       --------            --------


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior subordinated notes.............................              -             115,000
Proceeds from issuance of senior credit facility................................              -             135,000
Net borrowings (repayments) on revolver.........................................           (308)              3,400
Proceeds from issuance of floating rate notes...................................         36,000                   -
Proceeds from interest rate swap................................................          4,364                   -
Proceeds from issuance of membership units......................................         10,636              60,000
Repayment of notes payable to related party.....................................              -             (41,683)
Repayments of capital lease obligations and other debt..........................           (671)               (564)
Payment of fees associated with the financing...................................           (748)            (10,164)
                                                                                       --------            --------
     NET CASH PROVIDED BY FINANCING ACTIVITES...................................         49,273             260,989
                                                                                       --------            --------

NET INCREASE IN CASH AND CASH EQUIVALENTS.......................................          1,095                 744

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................................          2,275               1,293

CASH AND CASH EQUIVALENTS, END OF PERIOD........................................        $ 3,370             $ 2,037
                                                                                       ========            ========
</TABLE>

The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.

                                       17
<PAGE>
                               MUZAK HOLDINGS LLC
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION

         Muzak Holdings LLC, together with its subsidiaries, ("the Company"),
formerly known as ACN Holdings, LLC, was formed in September 1998 pursuant to
the laws of Delaware. Muzak LLC, a wholly owned subsidiary of the Company, owns
and operates franchisees. Muzak LLC began its operations on October 7, 1998 with
the acquisition of the independent franchisees in the Baltimore, Charlotte,
Hillsborough, Kansas City, St. Louis, Jacksonville, Phoenix, and Fresno areas
from Audio Communications Network, Inc. (the "Predecessor Company"). On March
18, 1999, Muzak Limited Partnership ("Old Muzak") merged with and into Audio
Communications Network, LLC ("ACN"). At the time of the merger, ACN changed its
name to Muzak LLC.

         As of March 31, 2000, ABRY Partners, LLC. and its respective affiliates
collectively own approximately 67% of the beneficial interests in the Company's
voting interests.

         The Company derives the majority of its revenues from the sale of
business music products. The core product is Audio Architecture and its two
complementary products are Audio Marketing and Video Imaging. These revenues are
generated by clients, who pay monthly subscription fees under noncancelable five
year contracts.

         The Company also derives 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, the Company sells electronic
equipment, such as proprietary tape playback equipment and other audio and video
equipment to franchisees to support the sale of 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.

2.  BASIS OF PRESENTATION

         The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries; Muzak LLC, Muzak Capital Corporation, Muzak
Holdings Finance Corporation, Muzak Finance Corporation, Business Sound Inc.,
Electro Systems Corporation, BI Acquisition LLC, MLP Environmental Music, LLC,
Audio Environments, Inc, Background Music Broadcasters, Inc, Telephone Audio
Productions, Inc., Vortex Sound Communications Company, Inc., Music Incorporated
and Muzak Houston, Inc. All significant intercompany items have been eliminated
in consolidation.

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

         The financial statements as of March 31, 2000 and March 31, 1999 and
for the three month periods then ended are unaudited; however, in the opinion of
management, such statements include all adjustments (consisting solely of normal
recurring adjustments except for the acquisitions described in Note 3) necessary
for a fair statement of the financial information included herein subject to
year end audit adjustments. Results of operations for interim periods are not
necessarily indicative of results for the full year.

         For further information, refer to the consolidated financial statements
and footnotes thereto included in the Muzak Holdings LLC Annual Report on Form
10-K for the fiscal year ended December 31, 1999.

                                       18
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  ACQUISITIONS
         As discussed in Note 1, on March 18, 1999 Old Muzak merged with and
into ACN. Under the terms of the agreement, the Company paid total consideration
of $274.2 million, which is comprised of the following: $125.5 million cash
consideration, $114.9 million consideration in the tender offer and consent
solicitation for the 10% Senior Notes due 2003 of Old Muzak, $15.9 million for
debt repayment of Old Muzak outstanding obligations, and $17.9 million of other
assumed obligations. In addition, at the time of the merger, the Company repaid
$41.7 million borrowed from ABRY Broadcast Partners by ACN in October 1998 in
connection with the acquisition of the Company's independent franchisees from
the Predecessor Company and converted $0.7 million into voting units of the
Company.

         In 1999, prior to the merger, the Company made the following
acquisitions:

    On January 15, 1999, the Company acquired all of the outstanding stock of
    Business Sound, Inc. for approximately $4.1 million, which included 3,661
    Class A units of the Company. Business Sound was the Company's independent
    franchisee for the New Orleans, Louisiana and Mobile, Alabama areas.

    On February 24, 1999, the Company acquired all of the outstanding stock of
    Electro Systems for approximately $0.7 million, which included 650 Class A
    units of the Company, and assumed certain non-recourse debt of $2.4 million.
    Electro Systems was the Company's independent franchisee located in Panama
    City, Florida.

    The Company made twenty acquisitions between the merger on March 18, 1999
and March 31, 2000. The table below provides information regarding these
acquisitions (in millions, except for number of Company units).
<TABLE>
<CAPTION>
                        Purchase               Acquired Assets                       Acquired         Acquired
Date                    Price (1)                 Or Stock                           Business         Markets
- ------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                      <C>                             <C>                 <C>
March 18,1999           $18.1 (2)  Net assets of Capstar Broadcasting         Independent franchisee  Georgia, Florida
                                   Corporation's independent franchisee

April 1, 1999           $0.2       Net assets of Custom On Hold Services      Audio Marketing         Washington
                                   Inc

May 1, 1999             $3.2 (3)   Net assets of Capstar Broadcasting         Independent franchisee  Nebraska
                                   Corporation's independent franchisee

June 1, 1999            $6.9       Net assets of Advertising on Hold, Inc     Audio Marketing         Florida, Georgia,North
                                                                                                      Carolina

July 1, 1999            $0.8       Net assets of CustomTronics Sound          Business Music          California

July 1, 1999            $0.9       Net assets of Penobscot Broadcasting       Independent             Maine
                                   Corporation                                franchisee
July 26, 1999           $1.3       Net assets of LaBov and Beyond, Inc        Audio Marketing         Indiana

August 1, 1999          $3.5       Net assets of US West Communications       Audio Marketing         National
                                   Services, Inc's Please Hold Promotions

September 1, 1999       $4.7       Stock of Broadcast International, Inc      Business Music          National

October 1, 1999         $10.3      Net assets of Midwest Systems and          Business Music          Illinois, Indiana, Ohio,
                                   Services, Inc                                                      West Virginia

November 1, 1999        $2.9       Net assets of A & D Music, Inc             Independent franchisee  Oregon

November 1, 1999        $7.9 (4)   Stock of  Audio Environment, Inc and       Independent             California
                                   Background Music Broadcasters Inc          franchisee

December 1, 1999        $13.2 (5)  Net assets of MountainWest Audio, Inc      Independent             Utah, Idaho,Washington
                                                                              franchisee

February 2, 2000        $0.4       Net assets of Quincy Broadcasting Company  Independent franchisee  Illinois
</TABLE>

                                       19
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3.  ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
                        Purchase               Acquired Assets                     Acquired         Acquired
Date                    Price (1)                 Or Stock                         Business         Markets
- ----------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                           <C>                         <C>                  <C>
February 2, 2000        $0.9       Net assets of General Communications     Audio Marketing         Indiana, Georgia,
                                   Corporation ("On Hold America")                                  Florida, Ohio

February 2, 2000        $0.4       Net assets of Texas Sound Co. Ltd        Business Music          Texas

February 24, 2000       $3.7       Stock of Telephone Audio Productions,    Audio Marketing         National
                                   Inc

March 24, 2000          $9.2 (6)   Stock of Vortex Sound Communications     Independent franchisee  District of Columbia
                                   Company, Inc

March 31, 2000          $1.6       Net assets of Dynamic Sound              Independent franchisee  Nevada, California

March 31, 2000          $8.3       Stock of Muzak Houston Inc               Independent franchisee  Texas
</TABLE>

(1) The purchase price does not include transaction costs
(2) Total purchase price included 13,535 Class A units.
(3) Total purchase price included 2,385 Class A units.
(4) Total purchase price included 100 Class A units.
(5) The Company paid $3.1 million of the purchase price of Mountain West Audio,
    Inc. as of December 31, 1999. In February 2000, the Company paid the
    remaining purchase price, which included 456 Class A units.
(6) Total purchase price included 802 Class A units.


         The results of operations of the acquired companies are included in the
Company's consolidated statement of operations for the periods in which they
were owned by the Company.

         The acquisitions were accounted for under the purchase method of
accounting. Accordingly, the consideration was allocated to the net assets
acquired based on the fair market values at the date of acquisition as
determined through the use of an independent appraisal. The excess of purchase
price for each acquisition over the estimated fair value of the tangible and
identifiable intangible assets acquired approximated $7.0 million and $127.9
million for the quarter ended March 31, 2000 and the year ended December 31,
1999, respectively and is being amortized over a period of twenty years on a
straight-line basis.

         The following presents the unaudited pro forma results assuming that
the acquisitions discussed above had occurred as of the beginning of fiscal 2000
and 1999. These pro forma results are not necessarily indicative of the results
that will occur in future periods (in thousands).

                                                        QUARTER ENDED
                                              MARCH 31, 2000    MARCH 31, 1999
                                              --------------    --------------
                                                         (UNAUDITED)
     Revenues.............................       $ 45,648          $ 43,470
     Income (Loss) from operations........            167            (1,883)
     Net loss.............................        (11,453)          (11,514)


                                       20
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.   PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                   USEFUL       MARCH 31,          DECEMBER 31,
                                                                    LIFE           2000                1999
                                                                   (YEARS)     (UNAUDITED)
                                                                 ----------------------------------------------
<S>                                                                  <C>       <C>                  <C>
   Equipment provided to subscribers..........................       4-6       $   80,649           $  72,598
   Capitalized Installation Labor.............................        5            20,865              18,270
   Other......................................................      3-30           23,012              22,606
                                                                                ---------           ---------
                                                                                  124,526             113,474
    Less accumulated depreciation.............................                    (24,978)            (18,424)
                                                                                ---------           ---------
                                                                               $   99,548           $  95,050
                                                                                =========           =========

Depreciation expense approximated $6.6 million and $1.5 million for the quarters
ended March 31, 2000 and March 31, 1999, respectively.


5.   INTANGIBLE ASSETS

Intangible assets consists of the following (in thousands):
<CAPTION>
                                                                  USEFUL        MARCH 31,         DECEMBER 31,
                                                                   LIFE            2000               1999
                                                                  (YEARS)      (UNAUDITED)
                                                                 --------------------------------------------
<S>                                                                  <C>       <C>                 <C>
   Goodwill.................................................         20        $ 150,079           $ 143,094
   Income producing contracts...............................       8-14          148,154             136,184
   License agreements.......................................         20            5,082               5,082
   Trademarks...............................................          5           14,891              14,866
   Non-compete agreements...................................        2-7           22,054              16,401
   Other....................................................       5-20           18,717              18,430
                                                                                ---------           ---------
                                                                                 358,977             334,057
   Less accumulated amortization............................                    (27,049)            (19,693)
                                                                                ---------           ---------
                                                                               $ 331,928           $ 314,364
                                                                                =========           =========
</TABLE>

Amortization expense was $7.4 million and $1.7 million for the quarters ended
March 31, 2000 and March 31, 1999, respectively.

                                       21
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.   DEBT

     Debt obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                                          MARCH 31,             DECEMBER 31,
                                                                            2000                    1999
                                                                         (UNAUDITED)
                                                                      ------------------    ---------------------
<S>                                                                     <C>                      <C>
   Revolving loan- Senior Credit Facility........................       $  24,692                $  25,000
                                                                           ======                   ======
   Related Party Notes...........................................          30,000                   30,000
                                                                           ======                   ======

   Long term debt:
   Senior Credit Facility........................................         165,000                  165,000
   Senior Notes..................................................         115,000                  115,000
   Senior Discount Notes.........................................          45,585                   44,214
   Floating Rate Notes...........................................          36,000                        -
   Other.........................................................           2,704                    3,114
                                                                         --------                 --------
   Total debt obligations........................................         364,289                  327,328
   Less current maturities.......................................          (3,692)                  (4,197)
                                                                         --------                 --------
                                                                        $ 360,597                $ 323,131
                                                                        =========                =========
</TABLE>

SENIOR CREDIT FACILITY
          In March 1999, Muzak LLC entered into a new senior credit facility
("Senior Credit Facility") consisting of: (i) a term loan facility in the amount
of $30.0 million payable in semi-annual installments until final maturity on
December 31, 2005 ("Term Loan A") ; (ii) a term loan facility in the amount of
$105.0 million payable in semi-annual installments until final maturity on
December 31, 2006 ("Term Loan B") (together with Term Loan A , the "Term
Loans"); and (iii) a revolving loan (the "Revolving Loan") in an aggregate
principal amount of up to $35.0 million terminating on December 31, 2005. In
July 1999, Muzak LLC amended the Senior Credit Facility which increased the
principal amount of the Term Loan B by $30.0 million to $135.0 million. In
October 1999, Muzak LLC amended the Senior Credit Facility to enable a related
party to make a subordinated loan to Muzak LLC in the aggregate principal
amount of $20.0 million and to permit Muzak LLC to issue additional senior
subordinated notes and Muzak LLC to issue preferred stock if certain covenants
are met.

         The Senior Credit Facility, which is guaranteed by the Company and
certain of its domestic subsidiaries contains restrictive covenants including
maintenance of interest and leverage ratios and various other restrictive
covenants which are customary for such facilities. In addition, Muzak LLC and
its subsidiaries are generally prohibited from incurring additional
indebtedness, incurring liens, paying dividends or making other restricted
payments, consummating asset sales, entering into transactions with affiliates,
merging or consolidating with any other person or selling assigning,
transferring, leasing, conveying, or otherwise disposing of assets. These
conditions were satisfied as of March 31, 2000.

         Indebtedness under the Term Loan A and the Revolving Loans bear
interest at a per annum rate equal to the Company's choice of (i) the Alternate
Base Rate (which is the highest of prime rate and the Federal Funds Rate plus
 .5%) plus a margin ranging from 1.00% to 2.00% or (ii) the offered rates for
Eurodollar deposits ("LIBOR") of one, two, three, or six months, as selected by
the Company, plus a margin ranging from 2.0% to 3.0%. Margins, which are subject
to adjustment based on the changes in the Company's ratio of consolidated total
debt to EBITDA (i.e., earnings before interest, taxes, depreciation,
amortization and other non cash charges) were 2.0% in the case of Alternate Base
Rate and 3.0% in the case of LIBOR as of March 31, 2000. Indebtedness under the
Term Loan B bears interest at a per annum rate equal to the Company's choice of
(i) the Alternate Base Rate (as described above) plus a margin of 2.5% or (ii)
LIBOR of one, two, three, or six months, as selected by the Company plus a
margin of 3.5%. The weighted average rate of interest on the Senior Credit
Facility at March 31, 2000 was 9.64%.

                                       22
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT (CONTINUED)

SENIOR NOTES
         On March 18, 1999, Muzak LLC together with its wholly owned subsidiary,
Muzak Finance Corp., co-issued $115.0 million in principal amount of 9 7/8%
Senior Subordinated Notes ("Senior Notes") which mature on March 15, 2009.
Interest is payable semi-annually, in arrears, on March 15 and September 15 of
each year. The Senior Notes are general unsecured obligations of Muzak LLC and
Muzak Finance Corp. and are subordinated in right of payment to all existing and
future Senior Indebtedness of Muzak LLC and Muzak Finance Corp. The Senior Notes
are guaranteed by the Company, MLP Environmental Music, LLC, Business Sound,
Inc., BI Acquisition LLC, Audio Environments, Inc., Background Music
Broadcasters, Inc., Telephone Audio Productions, Inc., Muzak Capital
Corporation, Muzak Houston, Inc., Music Incorporated, and Vortex Sound
Communications Company, Inc. The indenture governing the Senior Notes prohibits
Muzak LLC and its subsidiaries from making certain payments such as dividends
and distributions of their capital stock; repurchases or redemptions of their
capital stock, and investments (other than permitted investments) unless certain
conditions are met. Before March 15, 2002, the issuers may redeem up to 35% of
the aggregate principal amount of the Notes originally issued under the
indenture at a redemption price of 109.875% of the aggregate principal amount so
redeemed, plus accrued and unpaid interest to the redemption date, with the net
proceeds of one or more equity offerings if certain conditions are met. After
March 15, 2004, the issuers may redeem all or part of the Notes at a redemption
price equal to 104.938% of the principal which redemption price declines to 100%
of the principal amount in 2007.

SENIOR DISCOUNT NOTES

         On March 18, 1999, the Company together with its wholly owned
subsidiary Muzak Holdings Finance Corp., co-issued $75.0 million in principal
amount at maturity, or $39.9 million in accreted value on the issue date, of 13%
Senior Discount Notes (the "Senior Discount Notes") due March 2010. Cash
interest on the Senior Discount Notes does not accrue and is not payable prior
to March 15, 2004. The Senior Discount Notes were issued at a substantial
discount from their principal amount at maturity. Until March 15, 2004, the
Senior Discount Notes will accrete in value such that the accreted value on
March 15, 2004 will equal the principal amount at maturity of the Senior
Discount Notes. From and after March 15, 2004, interest on the Senior Discount
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 Senior Discount Notes at the close of
business on the immediately preceding March 1 and September 1.

FLOATING RATE NOTES
         In January 2000, Muzak LLC entered into an indenture for up to $50.0
million Senior Subordinated Floating Rate Notes (the "Floating Rate Notes"). The
Floating Rate Notes will be available for drawdowns until July 31, 2000.
Commitments on all amounts undrawn under the Floating Rate Notes by July 31,
2000 will expire and will be ineligible for future drawdowns. The Floating Rate
Notes may be redeemed at 100% if redeemed before July 31, 2000 and at 101.50% if
redeemed August 1, 2000 through October 31, 2000. If Muzak LLC does not redeem
the Floating Rate Notes by November 1, 2000, the Floating Rate Notes will
automatically convert into fixed-rate permanent notes due March 2009. Proceeds
from the Floating Rate Notes are being used to fund acquisitions. As of March
31, 2000, Muzak LLC had drawn $36.0 million of the Floating Rate Notes.

         Indebtedness under the Floating Rate Notes bears interest at a rate
equal to 3 month LIBOR plus a margin of 5.00% for the period from January 2000
through July 31, 2000, at a rate of 3 month LIBOR plus a margin of 7.5% for the
period from August 1, 2000 through October 31, 2000, and at a fixed rate based
on the greater of (i) 3 month LIBOR plus a margin of 7.5% and (ii) the yield on
Muzak LLC's 9.875% Senior Subordinated Notes due 2009 at time of conversion
plus a margin of 2.5% after October 31, 2000. Interest on the Floating Rate
Notes is subject to a maximum annual cash rate of 14% and a maximum total annual
interest rate of 16%, with any interest in excess of 14% payable in-kind in
additional amounts of the Floating Rate Notes.

                                       23
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.  DEBT (CONTINUED)

RELATED PARTY NOTES

         From July 1, 1999 through November 24, 1999, the Company borrowed an
aggregate amount of $30.0 million, from MEM Holdings LLC in the form of Junior
Subordinated Unsecured Notes (the "ABRY Notes"). MEM Holdings is a company that
owns 67% of the voting interests in the Company. ABRY Broadcast Partners III and
ABRY Broadcast Partners II are the beneficial owners of MEM Holdings.

         The ABRY Notes mature on June 30, 2007, at which time principal and
accrued interest are due. Interest accrues at 15% per annum; any accrued
interest not paid as of March 31, June 30, September 30 or December 31 will bear
interest at 15% per annum until such interest is paid or extinguished. The ABRY
Notes are junior and subordinate to payments for the Senior Credit Facility, and
the Senior Notes. At any time, all of the ABRY Notes, with the exception of a
$3.0 million note may be converted into Class A units of the Company. If the
ABRY Notes with the exception of a $3.0 million note, have not been repaid in
full as of May, 2001, the ABRY Notes will automatically be converted into Class
A units of the Company. Proceeds from the ABRY Notes were used to fund
operations and acquisitions.

         In order to complete the acquisition of the Predecessor Company, Muzak
LLC issued Notes payable to a related party for $40.8 million in 1998. Muzak LLC
repaid $41.7 million, which included $0.9 million of interest, outstanding under
this note at the time of the merger and converted $0.7 million of interest into
Class A units of the Company during the quarter ended March 31, 1999.

OTHER DEBT

         In connection with the purchase of Electro Systems on February 24,
1999, Muzak LLC assumed several promissory notes, totaling $2.4 million as of
the acquisition date. All of the notes, with the exception of one, bear interest
at 9.887% and mature in November 2016. Muzak LLC is required to make interest
only payments on a monthly basis through October 2006, and principal and
interest payments for the remainder of the term. The Note terms are the same for
all but one of the notes. This note bears interest at 8% with principal and
interest payments due monthly until maturity in October 2006.

INTEREST RATE PROTECTION PROGRAMS

         During April 1999, Muzak LLC entered into a four year interest rate
swap agreement in which it effectively exchanged $100.0 million of floating rate
debt at three month LIBOR for 5.59% fixed rate debt. This agreement was modified
on January 28, 2000 resulting in an increase to 7.042% fixed rate debt and a
termination date of April 2002. The proceeds of $4.4 million from the
modification are being recorded as an adjustment to interest expense over the
remaining life of the swap agreement.

         This agreement is designated as a hedge of interest rates, and the
differential to be paid or received on the swap is accrued as an adjustment to
interest expense as interest rates change. The Company is exposed to credit loss
in the event of nonperformance by the other party to the swap agreement.
However, the Company does not anticipate nonperformance by the counterparty.
During the quarter ended March 31, 2000, this agreement resulted in an increase
to interest expense of approximately $0.2 million.

                                       24
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.  DEBT (CONTINUED)

ANNUAL MATURIES OF DEBT

Annual maturities of debt obligations are as follows (in thousands):

   2000...............................................$ 3,672
   2001................................................ 5,181
   2002................................................ 6,680
   2003................................................ 7,761
   2004................................................26,344
Thereafter............................................314,651

         Total interest paid by the Company on all indebtedness was $10.9
million and $1.0 million for the quarters ended March 31, 2000 and March 31,
1999, respectively. Accrued interest payable was $4.6 million and $1.2 million
as of March 31, 2000 and March 31, 1999, respectively.

7. RELATED PARTY TRANSACTIONS

         During October 1998, the Company entered into a Management Agreement
with ABRY Partners which provides that the Company will pay a management fee as
defined in the Management Agreement. There were no fees incurred under the
agreement during the quarters ended March 31, 2000 and March 31, 1999. Either
the Company or ABRY Partners, with the approval of the Board of Directors of the
Company, may terminate the Management Agreement by prior written notice to the
other.

         During fiscal 1999, Muzak LLC borrowed $30.0 million from MEM Holdings
under junior subordinated notes. See Note 6 for a description of this related
party note.


8. MUZAK HOLDINGS FINANCE CORP.

         Muzak Holdings Finance Corp. had no operating activities during the
quarters ended March 31, 2000 and March 31, 1999.

9. COMMITMENTS AND CONTINGENCIES

LITIGATION
         The Company is involved in various claims and lawsuits arising out of
the normal conduct of its business. Although the ultimate outcome of these legal
proceedings cannot be predicted with certainty, the management of the Company
believes that the resulting liability, if any, will not have a material effect
upon the Company's consolidated financial statements or liquidity.

OTHER COMMITMENTS
         As of March 31, 2000, the Company's operations has approximately $1.8
million in outstanding capital expenditure commitments. The Company is the
lessee under various operating and capital leases for equipment, vehicles,
satellite capacity, and buildings for periods ranging from 2 years to 10 years.

                                       25
<PAGE>
                               MUZAK HOLDINGS LLC
      NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10. SUBSEQUENT EVENTS (UNAUDITED)

         On April 11, 2000 the Company acquired certain of the assets and
assumed certain obligations of Audio Plus, Inc, a Kentucky corporation, for
approximately $1.0 million. Audio Plus, Inc was the Company's independent
franchisee located in Fairfield, Ohio.

         The following presents the unaudited pro forma results of the Company
for the quarter ended March 31, 2000, as if the acquisitions and financings,
including those discussed above in subsequent events, occurred on January 1,
2000. These unaudited pro forma results are not necessarily indicative of the
results that will occur in future periods (in thousands).

Revenues...............................................       45,743
Income from operations.................................          189
Net Loss...............................................     (11,459)



                                       26
<PAGE>

                                    MUZAK LLC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         This Form 10-Q contains statements which, to the extent they are not
historical fact, constitute forward-looking statements within the meaning of
Section 27A of the securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements
involve risks and uncertainties. The forward-looking statements in this Form
10-Q are intended to be subject to the safe harbor protection provided by the
Safe Harbor Acts.

         Risks and uncertainties that could cause actual results to vary
materially from those anticipated in the forward-looking statements included in
this Form 10-Q include industry-based factors such as the level of competition
in the business music industry, changes in consumer preference, competitive
pricing, concentrations in and dependence on satellite delivery capabilities,
rapid technological changes, as well as factors more specific to the Company
such as the substantial leverage of the Company, limitations imposed by the
Company's debt facilities, and changes made in connection with the integration
of operations acquired by the Company.

GENERAL

         The Company is the leading provider of business music programming in
the United States. Together with its independent franchisees, the Company serves
an installed base of approximately 300,000 business locations nationwide. The
Company and its independent franchisees also sell, install and maintain
electronic equipment related to the Company's business.

         The Company was formed on August 28, 1998 as ACN Operating LLC and in
October of 1998 changed its name to Audio Communications Network, LLC ("ACN").
On October 7, 1998 ACN acquired the independent franchisees in the Baltimore,
Charlotte, Hillsborough, Kansas City, St. Louis, Jacksonville, Phoenix, and
Fresno areas from Audio Communications Network, Inc. (the "Predecessor Company")
for $66.8 million. On March 18, 1999, Muzak Limited Partnership ("Old Muzak")
merged with and into ACN. At the time of the merger, ACN changed its name to
Muzak LLC. Under the terms of the agreement, the Company paid total
consideration of $274.2 million, which consisted of the following: $125.5
million cash consideration, $114.9 million consideration in the tender offer and
consent solicitation for the 10% Senior Notes due 2003 of Old Muzak, $15.9
million for debt repayment of Old Muzak outstanding obligations, and $17.9
million of other assumed obligations. In addition, at the time of the merger,
the Company repaid $41.7 million, which included $0.9 million of interest,
borrowed from ABRY Broadcast Partners by ACN in October 1998 in connection with
the acquisition of the Company's independent franchisees from the Predecessor
Company and converted $0.7 million of interest into voting units of the Parent.
Since the merger, the Company and the Parent have acquired twenty businesses for
total consideration of $98.4 million, which included 17,278 Class A units of
Muzak Holdings LLC ("the Parent").

    In 1999, prior to the merger, the Company made the following acquisitions:

     On January 15, 1999, the Company acquired all of the outstanding stock of
     Business Sound, Inc. for approximately $4.1 million, which included 3,661
     Class A units of the Parent. Business Sound was the Company's independent
     franchisee for the New Orleans, Louisiana and Mobile, Alabama areas.

     On February 24, 1999, the Company acquired all of the outstanding stock of
     Electro Systems for approximately $0.7 million, which included 650 Class A
     units of the Parent, and assumed certain non-recourse debt of $2.4 million.
     Electro Systems was the Company's independent franchisee located in Panama
     City, Florida.

                                      I-1
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


    The Company made twenty acquisitions between the merger on March 18, 1999
and March 31, 2000. The table below provides information regarding these
acquisitions (in millions, except for number of Parent units).
<TABLE>
<CAPTION>
                          Purchase               Acquired Assets                     Acquired          Acquired
Date                      Price (1)                 Or Stock                         Business          Markets
- ------------------------- ---------- ---------------------------------------- ------------------------ -----------------------
<S>                        <C>                      <C>                               <C>               <C>
March 18,1999             $18.1 (2)  Net assets of Capstar Broadcasting       Independent franchisee   Georgia, Florida
                                     Corporation's independent franchisee
April 1, 1999             $0.2       Net assets of Custom On Hold Services    Audio Marketing          Washington
                                     Inc
May 1,1999                $3.2 (3)   Net assets of Capstar Broadcasting       Independent franchisee   Nebraska
                                     Corporation's independent franchisee
June 1, 1999              $6.9       Net assets of Advertising on Hold, Inc   Audio Marketing          Florida, Georgia, North
                                                                                                       Carolina
July 1, 1999              $0.8       Net assets of CustomTronics Sound        Business Music           California
July 1, 1999              $0.9       Net assets of Penobscot Broadcasting     Independent  franchisee  Maine
                                     Corporation
July 26, 1999             $1.3       Net assets of LaBov and Beyond, Inc      Audio Marketing          Indiana
August 1, 1999            $3.5       Net assets of US West Communications     Audio Marketing          National
                                     Services, Inc's Please Hold Promotions
September 1, 1999         $4.7       Stock of Broadcast International, Inc    Business Music           National
October 1, 1999           $10.3      Net assets of Midwest Systems and        Business Music           Illinois, Indiana,
                                     Services, Inc                                                     Ohio,
                                                                                                       West Virginia
November 1, 1999          $2.9       Net assets of A & D Music, Inc           Independent franchisee   Oregon
November 1, 1999          $7.9 (4)   Stock of  Audio Environment, Inc and     Independent  franchisee  California
                                     Background Music Broadcasters Inc
December 1, 1999          $13.2 (5)  Net assets of MountainWest Audio, Inc    Independent  franchisee  Utah, Idaho, Washington
February 2, 2000          $0.4       Net assets of Quincy Broadcasting CompanyIndependent franchisee   Illinois
February 2, 2000          $0.9       Net assets of General Communications     Audio Marketing          Indiana, Georgia,
                                     Corporation ("On Hold America")                                   Florida, Ohio
February 2, 2000          $0.4       Net assets of Texas Sound Co. Ltd        Business Music           Texas
February 24, 2000         $3.7       Stock of Telephone Audio Productions,    Audio Marketing          National
                                     Inc
March 24, 2000            $9.2 (6)   Stock of Vortex Sound Communications     Independent franchisee   District of Columbia
                                     Company, Inc
March 31, 2000            $1.6       Net assets of Dynamic Sound              Independent franchisee   Nevada, California
March 31, 2000            $8.3       Stock of Muzak Houston, Inc              Independent franchisee   Texas
</TABLE>

(1)  The purchase price does not include transaction costs
(2)  The Parent acquired Capstar Broadcasting Corporation's ("Capstar")
     independent franchisees located in Atlanta, Albany, and Macon, Georgia, and
     Ft Myers, Florida. The total consideration was accounted for as an equity
     contribution to the Company and included 13,535 Class A units of the
     Parent.
(3)  The Parent acquired Capstar's independent franchisee located in Omaha
     Nebraska. The total consideration was accounted for as an equity
     contribution to the Company and included 2,385 Class A units of the Parent.
(4)  Total purchase price included 100 Class A units of the Parent.
(5)  The Company paid $3.1 million of the purchase price of Mountain West Audio,
     Inc. as of December 31, 1999. In February 2000, the Company paid the
     remaining purchase price, which included 456 Class A units of the Parent.
(6)  Total purchase price included 802 Class A units of the Parent.


                                      I-2
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


RECENT DEVELOPMENTS

NEW PRESIDENT AND CHIEF OPERATING OFFICER

         On April 23, 2000, Joseph Koff joined the Company as President and
Chief Operating Officer. Mr. Koff was formerly President and Chief Executive
Officer of Audio Communications Network, LLC. Prior to that, Mr. Koff served in
executive and managerial capacities at radio stations in Florida, North
Carolina, Ohio, and Maryland.

ADDITIONAL FINANCING

         In January 2000, the Company entered into an indenture for up to $50.0
million Senior Subordinated Floating Rate Notes (the "Floating Rate Notes"). The
Floating Rate Notes are available to be drawn up to $50.0 million in increments
of no less than $2.5 million to fund acquisitions. The Floating Rate Notes will
be available for drawdowns until July 31, 2000. Commitments on all amounts
undrawn under the Floating Rate Notes by July 31, 2000 will expire and will be
ineligible for future draw downs. The Floating Rate Notes may be redeemed at
100% if redeemed before July 31, 2000 and at 101.50% if redeemed August 1, 2000
through October 31, 2000. If the Company does not redeem the Floating Rate Notes
by November 1, 2000, the Floating Rate Notes will automatically convert into
fixed-rate permanent notes due March 2009. As of March 31, 2000, $36.0 million
of the Floating Rate Notes were outstanding.

         Also, in February 2000, the Company received an equity contribution of
approximately $10.6 million from its Parent. The proceeds of the equity
contribution were used to make repayments on the revolving loan (as defined
below) and for general corporate purposes.

ACQUISITIONS

         On April 11, 2000 the Company acquired certain of the assets and
assumed certain obligations of Audio Plus, Inc., a Kentucky corporation, for
approximately $1.0 million. Audio Plus, Inc. was the Company's independent
franchisee located in Fairfield, Ohio.

REVENUES AND EXPENSES

         The Company derives the majority of its revenues from the sale of
business music products. The core product is Audio Architecture and its two
complementary products are Audio Marketing and Video Architecture. These
revenues are generated by clients who pay monthly subscription fees.

         The Company also derives 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, the Company sells electronic
equipment, such as proprietary tape playback equipment and other audio and video
equipment to franchisees to support the sale of 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.

                                      I-3
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


         The cost of revenues for business services consists primarily of
broadcast delivery, programming and licensing associated with providing music
and other business programming to a client or a franchisee. 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 the clients' contract.

         The Company's customers typically enter into a noncancelable five-year
contract that renews automatically for at least one five-year term unless
specifically terminated at the initial contract expiration date. The average
length of service per customer is approximately 12 years. The Company typically
makes an initial one-time installation investment per location, in exchange for
recurring monthly fees. For music clients under contract with the independent
franchisees, the Company receives a net monthly royalty fee in exchange for
music programming. The Company does not incur a capital outlay for a new client
location generated by an independent franchisee.

         The business music industry remains highly fragmented, with numerous
independent operators. The Company plans to pursue acquisitions of competitors
and of its independent franchisees. Through acquisitions, the Company expects to
realize cost savings by eliminating duplicative programming, distribution, sales
and marketing, and technical and other general administrative expenses

         The business music industry is influenced by the recording industry,
performing rights societies, government regulations, technological advancements,
satellite capabilities, and competition. The Company must license rights to
rerecord and distribute music and is reliant on third parties for satellite
capabilities.

         Selling, general and administrative expenses include salaries,
benefits, commissions, travel, marketing materials, training and occupancy costs
associated with staffing and operating local and national sales offices. These
expenses also include personnel and other costs in connection with 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.

RESULTS OF OPERATIONS

The Company did not compare the results for the quarter ended March 31, 2000 to
the prior year period as the prior period does not include a full quarter of
operations of the Company subsequent to the merger of Old Muzak and ACN, which
occurred on March 18, 1999. To provide a more meaningful analysis, the Company
compared the results for the quarter ended December 31, 1999 to the quarter
ended March 31, 2000.

                                      I-4
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


SELECTED FINANCIAL DATA
(unaudited)
<TABLE>
<CAPTION>
                                                                           Three Months         Three Months
                                                                              Ended                Ended
                                                                            March 31,           December 31,
                                                                               2000                 1999
                                                                      ---------------------   -------------------
<S>                                                                        <C>                   <C>
Revenues:
     Music and other business services.............................        $  32,259             $ 29,693
     Equipment and related services................................           11,436               12,399
                                                                          ----------            ----------
                                                                              43,695               42,092
Cost of revenues:
     Music and other business services.............................            6,773                5,951
     Equipment and related services................................            8,931                9,021
                                                                          ----------            ----------
                                                                              15,704               14,972

         Gross profit..............................................           27,991               27,120

Selling, general and administrative expenses.......................           14,182               14,227
Depreciation and amortization expense..............................           13,954               12,885

         Income (loss)  from operations............................            (145)                    8

Other income (expense):
     Interest expense, net.........................................          (9,630)               (8,813)
     Other, net....................................................               7                  (113)
                                                                          ----------            ----------

     Loss before income taxes......................................          (9,768)               (8,918)
     Income tax provision (benefit)................................              20                  (439)
         Net loss..................................................        $ (9,788)             $ (8,479)
                                                                          ----------             =========
</TABLE>
REVENUES. Total revenues for the first quarter of 2000 increased 3.8% to $43.7
million, up $1.6 million from the fourth quarter of 1999. $1.3 million of this
increase was due to an increase of broadcast music revenues, slightly offset by
a decrease in equipment and related services revenues. The remaining $0.3
million was due to acquisitions completed during the first quarter of 2000.
Music and other business services revenue increased by $2.6 million or 8.6% for
the quarter ended March 31, 2000 as compared to the quarter ended December 31,
1999. Equipment and related services revenues decreased by $1.0 million or 7.7%
for the quarter ended March 31, 2000 as compared to the quarter ended December
31, 1999.

GROSS PROFIT. For the first quarter of 2000, gross profit margin was 64.1%.
Gross profit increased $0.9 million or 3.2% for the quarter ended March 31,
2000 as compared to the quarter ended December 31, 1999. Gross profit
contributed by the 2000 acquisitions was $0.2 million during the quarter ended
March 31, 2000.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended March 31, 2000 remained flat at
$14.2 million as compared to the quarter ended December 31, 1999. These
expenses, as a percentage of revenues, were 32.5% and 33.8% for the first
quarter of 2000 and the fourth quarter of 1999, respectively.

                                      I-5
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization increased
to $13.9 million in the first quarter of 2000, up $1.0 million from the fourth
quarter of 1999. This increase is due to the acquisition of competitors' and
independent franchisees business music contracts during the fourth quarter of
1999 and the first quarter of 2000.

INTEREST EXPENSE. Interest expense, net of interest income, increased to $9.6
million in the first quarter of 2000, up 9.3% from the fourth quarter of 1999.
The increase is due to the borrowings under the floating rate notes, as well as
an increase of interest rates, during the first quarter of 2000.


INCOME TAX PROVISION (BENEFIT). Income tax provision increased $0.5 million to
$20 thousand in the first quarter of 2000 as compared to a benefit of $0.5
million in the fourth quarter of 1999. The increase is due to lower losses at
the Company's corporate subsidiaries during the first quarter of 2000. The
Company is a limited liability company and is treated as a partnership for
income tax purposes.


NET LOSS. The combined effect of the foregoing resulted in net loss of $9.8
million for the first quarter of 2000, compared to a net loss of $8.5 million
for the fourth quarter of 1999.



LIQUIDITY AND CAPITAL RESOURCES

         The Company had cash and cash equivalents totaling $3.4 million and
$2.3 million at March 31, 2000 and December 31, 1999, respectively. The Company
had $10.1 million of borrowing availability (after giving effect to outstanding
letters of credit of $0.2 million) under its credit agreements as of March 31,
2000.

SOURCES AND USES OF FUNDS


         The Company's principal sources of funds are cash generated from
continuing operations, borrowings under the Senior Credit Facility, Floating
Rate Notes and proceeds from equity contributions. In February 2000, the Company
received an equity contribution of approximately $10.6 million from its Parent.
The proceeds were used to pay down the revolving loan and for general corporate
purposes. Net cash used by continuing operating activities of the Company was
$4.8 million during the quarter ended March 31, 2000.

         The Company expects that its principal uses of funds from operating
activities and borrowings will be to fund acquisitions, interest and principal
payments on its indebtedness, net working capital increases and capital
expenditures. The Company believes that its cash flows from operations and
borrowing availability will be sufficient to fund operations, excluding capital
expenditure requirements through December 31, 2000. Due to continued growth in
its operating activities and the associated need to invest capital in connection
with each new client location to realize such growth, the Company believes that
its capital expenditures will require the Company to pursue additional debt or
equity financing. The Company's strategic plan is to pursue opportunities to
acquire music contract portfolios of competitors and to review acquisitions of
independent franchisees if they become available. The Company plans to pursue
additional debt or equity financing to complete such acquisitions.


         Proceeds from the Senior Credit Facility, the $115.0 Senior
Subordinated Notes (the "Senior Notes"), and the Parent's 13% Senior Discount
Notes (the "Senior Discount Notes") were used to pay merger consideration
consisting of $125.5 million in cash to the partners of Old Muzak, approximately
$114.9 million consideration in the tender offer and consent solicitation for
the 10% Senior Notes due 2003 of Old Muzak together with accrued interest, $15.9
million for debt repayment of Old Muzak obligations, approximately $41.7 million
of borrowings by Audio Communications Network under ABRY Broadcast Partners III
subordinated note, merger consideration for Capstar Broadcasting Corporation,
and to pay fees and expenses in connection with the foregoing.

                                      I-6
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


CAPITAL EXPENDITURES

         The Company's business generally requires capital for the installation
of equipment for new business music clients. The Company currently anticipates
that its capital expenditures for fiscal 2000 will be in the range of $ 29.0
million to $32.0 million, a portion of which may be financed through leasing. As
of March 31, 2000, the Company had approximately $1.8 million in outstanding
capital expenditure commitments.

SENIOR CREDIT FACILITY

         In March 1999, the Company entered into a new senior credit facility
("Senior Credit Facility") consisting of: (i) a term loan facility in the amount
of $30.0 million payable in semi-annual installments until final maturity on
December 31, 2005 ("Term Loan A"); (ii) a term loan facility in the amount of
$105.0 million payable in semi-annual installments until final maturity on
December 31, 2006 ("Term Loan B") (together with Term Loan A, the "Term Loans");
and (iii) a revolving loan (the "Revolving Loan") in an aggregate principal
amount of up to $35.0 million terminating on December 31, 2005. In July 1999,
the Company amended the Senior Credit Facility which increased the principal
amount of Term Loan B by $30.0 million to $135.0 million. In October 1999, the
Company amended the Senior Credit Facility to enable a related party to make a
subordinated loan to the Company in the aggregate principal amount of $20.0
million and to permit the Company to issue additional senior subordinated notes
and the Parent to issue preferred stock if certain covenants are met by the
Company.

         The Senior Credit Facility, which is guaranteed by the Parent, the
Company, and certain of its domestic subsidiaries, contains restrictive
covenants including maintenance of interest and leverage ratios and various
other restrictive covenants which are customary for such facilities. In
addition, the Company is generally prohibited from incurring additional
indebtedness, incurring liens, paying dividends or making other restricted
payments, consummating asset sales, entering into transactions with affiliates,
merging or consolidating with any other person or selling assigning,
transferring, leasing, conveying, or otherwise disposing of assets. These
conditions were satisfied as of December 31, 1999. Such limitations, together
with the Company's highly leveraged nature could limit the Company's corporate
and operating activities in the future, including the implementation of future
acquisitions.

FLOATING RATE NOTES

         In January 2000, the Company entered into an indenture for up to $50.0
million Senior Subordinated Floating Rate Notes (the "Floating Rate Notes"). The
Floating Rate Notes will be available for drawdowns until July 31, 2000.
Commitments on all amounts undrawn under the Floating Rate Notes by July 31,
2000 will expire and will be ineligible for future drawdowns. The Floating Rate
Notes may be redeemed at 100% if redeemed before July 31, 2000 and at 101.50% if
redeemed August 1, 2000 through October 31, 2000. If the Company does not redeem
the Floating Rate Notes by November 1, 2000, the Floating Rate Notes will
automatically convert into fixed-rate permanent notes due March 2009.

                                      I-7
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


SENIOR  NOTES

         On March 18, 1999, the Company together with its wholly owned
subsidiary, Muzak Finance Corp., co-issued $115.0 million in principal amount of
Senior Subordinated Notes ("Senior Notes") which mature on March 15, 2009.
Interest is payable semi-annually, in arrears, on March 15 and September 15 of
each year, commencing on September 15, 1999.


         The Senior Notes are general unsecured obligations of the Company and
Muzak Finance and are subordinated in right of payment to all existing and
future Senior Indebtedness of the Company and Muzak Finance. The Senior Notes
are guaranteed by the Parent, the Company, MLP Environmental Music, LLC,
Business Sound, Inc., BI Acquisition LLC, Audio Environments, Inc., Background
Music Broadcasters, Inc., Muzak Capital Corporation, Muzak Houston, Inc.,
Telephone Audio Productions, Inc, Music Incorporated, and Vortex Sound
Communications Company, Inc. The indenture governing the Senior Notes generally
prohibits the Company from making certain payments such as dividends and
distributions of their capital stock; repurchases or redemptions of their
capital stock, and investments (other than permitted investments) unless certain
conditions are met by the Company.


         Before March 15, 2002, the issuers may redeem up to 35% of the
aggregate principal amount of the Notes originally issued under the indenture at
a redemption price of 109.875% of the aggregate principal amount so redeemed,
plus accrued and unpaid interest to the redemption date, with the net proceeds
of one or more equity offerings if certain conditions are met. After March 15,
2004, the issuers may redeem all or part of the Senior Notes at a redemption
price equal to 104.938% of the principal amount, which redemption price declines
to 100% of the principal amount in 2007.

SENIOR DISCOUNT NOTES

         On March 18, 1999, the Parent together with its wholly owned subsidiary
Muzak Holdings Finance Corp., co-issued $75.0 million in principal amount at
maturity or $39.9 million in accreted value on the issue date, of 13% Senior
Discount Notes (the "Senior Discount Notes") due 2010. Cash interest on the
Senior Discount Notes does not accrue and is not payable prior to March 15,
2004. The Senior Discount Notes were issued at a substantial discount from their
principal amount at maturity. Until March 15, 2004, the Senior Discount Notes
will accrete in value such that the accreted value on March 15, 2004 will equal
the principal amount at maturity of the Senior Discount Notes. From and after
March 15, 2004, interest on the Senior Discount 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
Senior Discount Notes at the close of business on the immediately preceding
March 1 and September 1.

The Senior Discount Notes are general unsecured obligations of the Parent and
Muzak Holdings Finance Corp and effectively subordinated in right of payment to
all existing and future Senior Indebtedness of the Company and Muzak Finance
Corp. The Parent is a holding company for the Company and its subsidiaries, with
no material operations of its own and only limited assets. Muzak Holdings
Finance has no operations and substantially no assets. Accordingly, the Parent
is dependent upon the distribution of the earnings of its subsidiaries to
service its debt obligations. The indenture governing the Senior Discount Notes
generally prohibits the Parent and its restricted subsidiaries from making
certain payments such as dividends and distributions of their capital stock,
repurchases or redemptions of their capital stock, and investments (other than
permitted investments) unless certain conditions are met by the Parent and its
restricted subsidiaries.

                                      I-8
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


         Before March 15, 2002, the issuers may redeem up to 35% of the
aggregate principal amount of the Senior Discount Notes originally issued under
the indenture at a redemption price of 113% of the aggregate principal amount so
redeemed, plus accrued and unpaid interest to the redemption date, with the net
proceeds of one or more equity offerings if certain conditions are met. After
March 15, 2004, the issuers may redeem all or part of the Senior Discount Notes
at a redemption price equal to 106.5% of the principal amount which redemption
price declines to 100% of the principal amount in 2007.

RELATED PARTY DEBT

         From July 1, 1999 through November 24, 1999, the Company borrowed an
aggregate amount of $30.0 million from MEM Holdings LLC in the form of Junior
Subordinated Unsecured Notes (the "ABRY Notes"). The ABRY Notes mature on June
30, 2007, at which time principal and accrued interest are due. Interest accrues
at 15% per annum; any accrued interest not paid as of March 31, June 30,
September 30 or December 31 will bear interest at 15% per annum until such
interest is paid or extinguished. The ABRY Notes are junior and subordinate to
payments for the Senior Credit Facility and the Senior Notes. Proceeds from the
ABRY Notes were used to fund operations and acquisitions.

INTEREST RATE EXPOSURE

         Indebtedness under the Term Loan A and the revolving loans bears
interest at a per annum rate equal to the Company's choice of (i) the Alternate
Base Rate (which is the highest of prime rate and the Federal Funds Rate plus
 .5%) plus a margin ranging from 1.00% to 2.00% or (ii) the offered rates for
Eurodollar deposits ("LIBOR") of one, two, three, or six months, as selected by
the Company, plus a margin ranging from 2.0% to 3.0%. Margins, which are subject
to adjustment based on the changes in the Company's ratio of consolidated total
debt to EBITDA (i.e., earnings before interest, taxes, interest, depreciation,
amortization and other non cash charges) were 2.0% in the case of Alternate Base
Rate and 3.0% in the case of LIBOR as of March 31, 2000. Indebtedness under the
Term Loan B bears interest at a per annum rate equal to the Company's choice of
(i) the Alternate Base Rate (as described above) plus a margin of 2.5% or (ii)
LIBOR of one, two, three, or six months, as selected by the Company plus a
margin of 3.5%. Commitment fees range from .375% to .625%.

         Indebtedness under the Floating Rate Notes bears interest at a per
annum rate equal to (i) three month LIBOR plus a margin of 5.0% until July 31,
2000 (ii) at three month LIBOR plus a margin of 7.5% for the period beginning
August 1, 2000 through October 31, 2000 and (iii) for the period from November
1, 2000 through maturity, at a fixed rate based on the greater of (a) three
month LIBOR plus 7.5% and (b) the yield on the Company's Senior Notes plus 2.5%.

         Interest on the Senior Notes accrues at a rate of 9.875% per annum.
Until March 15, 2004, the Senior Discount Notes will accrete in value such that
the accreted value on March 15, 2004 will equal the principal amount at maturity
of the Senior Discount Notes. From and after March 15, 2004, interest on the
Senior Discount Notes will accrue at a rate of 13% per annum.

         Cash interest paid was $10.9 million and $1.0 million for the quarters
ended March 31, 2000 and March 31, 1999, respectively.

         Due to the variable interest rates under the Senior Credit Facility,
the Company is sensitive to changes in interest rates. Accordingly, during April
1999, the Company entered into a four year interest rate swap agreement in which
the Company effectively exchanged $100.0 million of floating rate debt at three
month

                                      I-9
<PAGE>
                                    MUZAK LLC

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


LIBOR for 5.59% fixed rate debt. The Company modified this agreement on January
28, 2000 resulting in an increase to 7.042% fixed rate debt and a termination
date of April 2002. Based on amounts outstanding at March 31, 2000, a .5%
increase in each of LIBOR and the Alternate Base Rate (6.04% and 9.00%
respectively, at March 31, 2000) would impact interest costs by approximately
$0.9 million annually on the Senior Credit Facility.

DEBT MATURITIES

         The current maturities of long-term debt primarily consist of the
current portion of the Senior Credit Facility and other miscellaneous debt. The
maturities of long-term debt of the Company's operations during the remainder of
2000 and for 2001, 2002, 2003, and 2004 are $3.6 million, $5.2 million, $6.7
million, $7.8 million, $26.3 million, respectively. The Senior Notes mature in
March 2009. In addition, the Senior Credit Facility provides for mandatory
prepayments with net cash proceeds of certain asset sales, net cash proceeds of
permitted debt issuances, net cash proceeds from insurance recovery and
condemnation events, and beginning December 31, 2000 the Senior Credit Facility
requires annual excess cash repayments. The indentures governing the Senior
Notes and the Senior Discount Notes provide that in the event of certain asset
dispositions, the Company and the Parent must apply net proceeds first to repay
Senior Indebtedness. To the extent the net proceeds have not been applied within
360 days from the asset disposition to an investment in capital expenditures or
other long term tangible assets used in the business, and to the extent the
remaining net proceeds exceed $10.0 million, the Company must make an offer to
purchase outstanding Senior Notes at 100% of their principal amount plus accrued
interest. To the extent there are excess funds after the purchase of the Senior
Notes, the Parent must make an offer to purchase outstanding Senior Discount
Notes at 100% of the accreted value. The Company and the Parent must also make
an offer to purchase outstanding Senior Notes and the Senior Discount Notes at
101% of their principal amount plus accrued and unpaid interest if a Change in
Control of the Company occurs. Subject to compliance with the Senior Credit
facility, the Floating Rate Notes will be mandatory redeemable with the proceeds
of any securities issuances or incurrences of indebtedness at any time on or
prior to October 31, 2000. If the Company does not redeem the Floating Rate
Notes by November 1, 2000, the Floating Rate Notes will automatically convert
into fixed-rate permanent notes due March 15, 2009.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         For the period ended March 31, 2000, the Company did not experience any
material changes in market risk disclosure that affect the quantitative and
qualitative disclosures presented in the 10-K/A.

                                      I-10
<PAGE>
                                    MUZAK LLC

PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

         There have been no material developments in legal proceedings involving
the Company since those reported in the Company's Report on Form 10-K/A for
fiscal year ended December 31, 1999.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits



EXHIBIT
NUMBER                              DESCRIPTION
- ------                              -----------


4.1      Indenture, dated as of February 2, 2000 by and among Muzak LLC and
         Muzak Finance Corp., as Issuers and State Street Bank and Trust
         Company, as Trustee. (1)
4.2      Purchase Agreement, dated February 2, 2000 by and among Muzak LLC and
         Muzak Finance Corp., the Guarantors named therein and CIBC Inc. (1)
4.3      Registration Rights Agreement, dated as of February 2, 2000 by and
         among Muzak LLC and Muzak Finance Corp., the Guarantors named therein
         and CIBC Inc.(1)
4.4      Supplemental Indenture, dated as of February 24, 2000 by and among
         Telephone Audio Productions, Inc., Muzak LLC, and subsidiaries, as
         Guarantors and State Street Bank and Trust Company, as Trustee (Senior
         Subordinated Notes).
4.5      Supplemental Indenture, dated as of February 24, 2000 by and among
         Telephone Audio Productions, Inc., Muzak LLC, and subsidiaries, as
         Guarantors and State Street Bank and Trust Company, as Trustee
         (Floating Rate Notes).
4.6      Supplemental Indenture, dated as of March 24, 2000 by and among Vortex
         Sound Communications Company, Inc., Muzak LLC, and subsidiaries, as
         Guarantors and State Street Bank and Trust Company, as Trustee (Senior
         Subordinated Notes).
4.7      Supplemental Indenture, dated as of March 24, 2000 by and among Vortex
         Sound Communications Company, Inc., Muzak LLC, and subsidiaries, as
         Guarantors and State Street Bank and Trust Company, as Trustee
         (Floating Rate Notes).
4.8      Supplemental Indenture, dated as of March 31, 2000 by and among Music
         Incorporated, Muzak LLC, and subsidiaries, as Guarantors and State
         Street Bank and Trust Company, as Trustee (Senior Subordinated Notes).
4.9      Supplemental Indenture, dated as of March 31, 2000 by and among Music
         Incorporated, Muzak LLC, and subsidiaries, as Guarantors and State
         Street Bank and Trust Company, as Trustee (Floating Rate Notes).
4.10     Supplemental Indenture, dated as of March 31, 2000 by and among Muzak
         Houston, Inc., Muzak LLC, and subsidiaries, as Guarantors and State
         Street Bank and Trust Company, as Trustee (Senior Subordinated Notes).
4.11     Supplemental Indenture, dated as of March 31, 2000 by and among Muzak
         Houston, Inc., Muzak LLC, and subsidiaries, as Guarantors and State
         Street Bank and Trust Company, as Trustee (Floating Rate Notes).

27       Financial Data Schedule.



 (1) Incorporated by reference to the Company's Report on Form 10-K/A for the
fiscal year ended December 31, 1999.


         (b)      Reports on Form 8-K

         During the quarter for which this report on Form 10-Q is being filed,
the Company filed no reports on Form 8-K.

                                      I-11
<PAGE>
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.


                                      MUZAK LLC
                                      MUZAK FINANCE CORP.



                                      By: /s/ Robert M. Riley
                                      ---------------------------------
Date:  May 15, 2000                   Robert M. Riley
                                      Controller
                                      (Principal Financial
                                      Officer and Chief
                                      Accounting Officer)





                                      By: /s/ William A. Boyd
                                      ---------------------------------
Date:  May 15, 2000                   William A. Boyd
                                      President and Chief Executive Officer
                                      (Principal Executive Officer)

                                      I-12

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
February 24, 2000 among Telephone Audio Productions, Inc., a Texas corporation
d/b/a Sold-on-Hold Communications (the "New Guarantor"), a subsidiary of Muzak
LLC (or its successor), a Delaware limited liability company (the "Company"),
Muzak Finance Corp., a Delaware corporation ("Finance Corp.", and together with
the Company, the "Issuers"), the Guarantors (the "Existing Guarantors") under
the Indenture referred to below, and State Street Bank and Trust Company, as
trustee under the Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of February 2, 2000, providing for the issuance of up to
an aggregate principal amount of $50,000,000 of Senior Subordinated Floating
Rate Notes due 2009 (the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>

            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.

                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.


                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.



                                           By: /s/ Peni Garber
                                              _____________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK LLC


                                           By: /s/ Peni Garber
                                              __________________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK FINANCE CORP.


                                           By: /s/ Peni Garber
                                              _____________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC



                                           By: /s/ Peni Garber
                                              _____________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ Peni Garber
                                              _____________________

                                              Name:  Peni Garber
                                              Title: Vice President


                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                           By: /s/ Peni Garber
                                              _____________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BUSINESS SOUND INC.


                                           By: /s/ Peni Garber
                                              _____________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.


                                           By: /s/ Peni Garber
                                              _____________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ Peni Garber
                                              _____________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                              _____________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President

                                       4

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
February 24, 2000 among Telephone Audio Productions, Inc., a Texas corporation
d/b/a Sold-on-Hold Communications (the "New Guarantor"), a subsidiary of Muzak
LLC (or its successor), a Delaware limited liability company (the "Company"),
Muzak Finance Corp., a Delaware corporation ("Finance Corp.", and together with
the Company, the "Issuers"), the Guarantors (the "Existing Guarantors") under
the Indenture referred to below, and State Street Bank and Trust Company, as
trustee under the Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of March 18, 1999, providing for the issuance of up to an
aggregate principal amount of $150,000,000 of Senior Subordinated Notes due 2009
(the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>
            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.




                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.



                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK FINANCE CORP.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President



                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BUSINESS SOUND INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President


                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                               _____________________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President


                                       4

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
March 24, 2000 among Vortex Sound Communications Company, Inc., a Delaware
corporation (the "New Guarantor"), a subsidiary of Muzak LLC (or its successor),
a Delaware limited liability company (the "Company"), Muzak Finance Corp., a
Delaware corporation ("Finance Corp.", and together with the Company, the
"Issuers"), the Guarantors (the "Existing Guarantors") under the Indenture
referred to below, and State Street Bank and Trust Company, as trustee under the
Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of March 18, 1999, providing for the issuance of up to an
aggregate principal amount of $150,000,000 of Senior Subordinated Notes due 2009
(the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>

            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.


                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.



                                           VORTEX SOUND COMMUNICATIONS
                                           COMPANY, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK FINANCE CORP.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President


                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BUSINESS SOUND INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President


                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                              _______________________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President



                                       4

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
March 24, 2000 among Vortex Sound Communications Company, Inc., a Delaware
corporation (the "New Guarantor"), a subsidiary of Muzak LLC (or its successor),
a Delaware limited liability company (the "Company"), Muzak Finance Corp., a
Delaware corporation ("Finance Corp.", and together with the Company, the
"Issuers"), the Guarantors (the "Existing Guarantors") under the Indenture
referred to below, and State Street Bank and Trust Company, as trustee under the
Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of February 2, 2000, providing for the issuance of up to
an aggregate principal amount of $50,000,000 of Senior Subordinated Floating
Rate Notes due 2009 (the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>
            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.

                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.


                                           VORTEX SOUND COMMUNICATIONS
                                           COMPANY, INC.


                                           By: /s/ Peni Garber
                                              _________________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK FINANCE CORP.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President


                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BUSINESS SOUND INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                              ____________________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President


                                       4

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
March 24, 2000 among Music, Incorporated, a Delaware corporation (the "New
Guarantor"), a subsidiary of Vortex Sound Communications Company, Inc., a
Delaware corporation, which is a subsidiary of Muzak LLC (or its successor), a
Delaware limited liability company (the "Company"), Muzak Finance Corp., a
Delaware corporation ("Finance Corp.", and together with the Company, the
"Issuers"), the Guarantors (the "Existing Guarantors") under the Indenture
referred to below, and State Street Bank and Trust Company, as trustee under the
Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of March 18, 1999, providing for the issuance of up to an
aggregate principal amount of $150,000,000 of Senior Subordinated Notes due 2009
(the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>

            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.

                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.


                                           MUSIC, INCORPORATED


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK FINANCE CORP.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                               /s/ Peni Garber
                                           By:_________________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BUSINESS SOUND INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.


                                               /s/ Peni Garber
                                           By:_________________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                              _______________________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President


                                       4

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
March 24, 2000 among Music, Incorporated, a Delaware corporation (the "New
Guarantor"), a subsidiary of Vortex Sound Communications Company, Inc., a
Delaware corporation, which is a subsidiary of Muzak LLC (or its successor), a
Delaware limited liability company (the "Company"), Muzak Finance Corp., a
Delaware corporation ("Finance Corp.", and together with the Company, the
"Issuers"), the Guarantors (the "Existing Guarantors") under the Indenture
referred to below, and State Street Bank and Trust Company, as trustee under the
Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of February 2, 2000, providing for the issuance of up to
an aggregate principal amount of $50,000,000 of Senior Subordinated Floating
Rate Notes due 2009 (the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>

            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.

                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.


                                           MUSIC, INCORPORATED


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK FINANCE CORP.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President


                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BUSINESS SOUND INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President

                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.


                                           By: /s/ Peni Garber
                                              ______________________
                                              Name:  Peni Garber
                                              Title: Vice President


                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                              _______________________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President


                                       4

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
March 31, 2000 among Muzak Houston, Inc., a Texas corporation (f/k/a Taft
Broadcasting Company) (the "New Guarantor"), a subsidiary of Muzak LLC (or its
successor), a Delaware limited liability company (the "Company"), Muzak Finance
Corp., a Delaware corporation ("Finance Corp.", and together with the Company,
the "Issuers"), the Guarantors (the "Existing Guarantors") under the Indenture
referred to below, and State Street Bank and Trust Company, as trustee under the
Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of March 18, 1999, providing for the issuance of up to an
aggregate principal amount of $150,000,000 of Senior Subordinated Notes due 2009
(the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>
            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.

                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.


                                           MUZAK HOUSTON, INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MUZAK LLC


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MUZAK FINANCE CORP.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           BUSINESS SOUND INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.

                                               /s/ William Boyd
                                           By:________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer



                                           MUSIC INCORPORATED


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           VORTEX SOUND COMMUNICATIONS
                                           COMPANY, INC.

                                       4
<PAGE>
                                           By: /s/ William Boyd
                                              ________________________________
                                             Name:  William Boyd
                                              Title: Chief Executive Officer


                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                              ________________________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President


                                       5

                            SUPPLEMENTAL INDENTURE
                            ----------------------


            SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
March 31, 2000 among Muzak Houston, Inc., a Texas corporation (f/k/a Taft
Broadcasting Company) (the "New Guarantor"), a subsidiary of Muzak LLC (or its
successor), a Delaware limited liability company (the "Company"), Muzak Finance
Corp., a Delaware corporation ("Finance Corp.", and together with the Company,
the "Issuers"), the Guarantors (the "Existing Guarantors") under the Indenture
referred to below, and State Street Bank and Trust Company, as trustee under the
Indenture referred to below (the "Trustee").

                             W I T N E S S E T H :
                             -------------------

            WHEREAS the Issuers have heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of February 2, 2000, providing for the issuance of up to
an aggregate principal amount of $50,000,000 of Senior Subordinated Floating
Rate Notes due 2009 (the "Notes");

            WHEREAS Section 4.22 of the Indenture provides that under certain
circumstances the Issuers are required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all of the Issuers, obligations under
the Notes pursuant to a Guarantee on the terms and conditions set forth herein;
and

            WHEREAS pursuant to Section 8.01 of the Indenture, the Trustee, the
Issuers and Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;

            NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree 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.
<PAGE>
            2. Agreement to Guarantee. The New Guarantor hereby agrees, jointly
and severally with all other Guarantors, to guarantee the Issuers' obligations
under the Indenture and the Notes on the terms and subject to the conditions set
forth in Article 10 of the Indenture, and to be bound by all of said Article 10,
as a "Guarantor" thereunder, 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.

            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.


                                       2
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.


                                           MUZAK HOUSTON, INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MUZAK LLC


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MUZAK FINANCE CORP.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           EXISTING GUARANTORS:

                                           MUZAK HOLDINGS LLC


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MUZAK CAPITAL CORPORATION


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MLP ENVIRONMENTAL MUSIC, LLC

                                       3
<PAGE>
                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           BUSINESS SOUND INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           BACKGROUND MUSIC
                                           BROADCASTERS, INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           AUDIO ENVIRONMENTS, INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           TELEPHONE AUDIO
                                           PRODUCTIONS, INC.


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           MUSIC INCORPORATED


                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer

                                           VORTEX SOUND COMMUNICATIONS
                                           COMPANY, INC.

                                       4
<PAGE>
                                           By: /s/ William Boyd
                                              ________________________________
                                              Name:  William Boyd
                                              Title: Chief Executive Officer


                                           STATE STREET BANK AND TRUST
                                           COMPANY, as Trustee


                                           By: /s/ Jacqueline A. Bonhomme
                                              ________________________________
                                              Name: Jacqueline A. Bonhomme
                                              Title: Assistant Vice President



                                       5

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q of
MUZAK LLC and is qualified in its entirety by reference to such financial
statements.

</LEGEND>

<CIK> 0001085321
<NAME> MUZAK LLC
<MULTIPLIER> 1,000

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-END>                               MAR-31-2000
<CASH>                                           3,370
<SECURITIES>                                         0
<RECEIVABLES>                                   42,030
<ALLOWANCES>                                     3,346
<INVENTORY>                                     11,182
<CURRENT-ASSETS>                                55,415
<PP&E>                                         124,526
<DEPRECIATION>                                  24,978
<TOTAL-ASSETS>                                 519,302
<CURRENT-LIABILITIES>                           75,118
<BONDS>                                        115,000
                                0
                                          0
<COMMON>                                       119,018
<OTHER-SE>                                    (32,671)
<TOTAL-LIABILITY-AND-EQUITY>                   519,302
<SALES>                                         43,695
<TOTAL-REVENUES>                                43,695
<CGS>                                           15,704
<TOTAL-COSTS>                                   15,704
<OTHER-EXPENSES>                                28,136
<LOSS-PROVISION>                                    13
<INTEREST-EXPENSE>                               9,630
<INCOME-PRETAX>                                (9,768)
<INCOME-TAX>                                        20
<INCOME-CONTINUING>                            (9,788)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (9,788)
<EPS-BASIC>                                          0
<EPS-DILUTED>                                        0


</TABLE>

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q of
MUZAK FINANCE CORPORATION and is qualified in its entirety by reference to such
financial statements.

</LEGEND>
<CIK> 0001086484
<NAME> MUZAK FINANCE CORP
<MULTIPLIER> 1,000

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-END>                               MAR-31-2000
<CASH>                                               0
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                     0
<PP&E>                                               0
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                                       0
<CURRENT-LIABILITIES>                                0
<BONDS>                                              0
                                0
                                          0
<COMMON>                                             0
<OTHER-SE>                                           0
<TOTAL-LIABILITY-AND-EQUITY>                         0
<SALES>                                              0
<TOTAL-REVENUES>                                     0
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                      0
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                         0
<EPS-BASIC>                                          0
<EPS-DILUTED>                                        0




</TABLE>


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