<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1996
REGISTRATION NOS. 333-03741
333-03741-01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
(FORMERLY MUZAK, INC.)
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
DELAWARE 7389 13-3647593
DELAWARE 7389 91-1722302
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBERS) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
---------------
2901 THIRD AVENUE, SUITE 400
SEATTLE, WA 98121
(206) 633-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
MR. JOHN R. JESTER
PRESIDENT
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
2901 THIRD AVENUE, SUITE 400
SEATTLE, WA 98121
(206) 633-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
NORMAN D. CHIRITE, ESQ. LOUISA BARASH, ESQ. PHILIP E. COVIELLO,JR. ESQ.
WEIL, GOTSHAL & MANGES LLP HELLER, EHRMAN, WHITE & LATHAM & WATKINS
767 FIFTH AVENUE MCAULLIFFE 885 THIRD AVENUE, SUITE 1000
NEW YORK, NY 10153 701 FIFTH AVENUE, NEW YORK, NY 10022-4802
(212) 310-8000 SUITE 6100 (212) 906-1200
SEATTLE, WA 98104
(206) 447-0900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM AGGREGATE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE OFFERING PRICE(1) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes due
2003................... $85,000,000 100% $85,000,000 $29,310
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) The Company previously paid $29,187 of this registration fee.
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page;
Available Information;
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Outside Front Cover Page;
Prospectus Summary; Risk
Factors; The Issuers;
Unaudited Pro Forma
Financial Information;
Selected Financial Data
4. Use of Proceeds................................. Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price................. Not Applicable
6. Dilution........................................ Not Applicable
7. Selling Security Holders........................ Not Applicable
8. Plan of Distribution............................ Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered...... Outside Front Cover Page;
Prospectus Summary; Description
of the Senior Notes; Federal
Income Tax Consequences
10. Interests of Named Experts and Counsel.......... Legal Matters; Experts
11. Information with Respect to the Registrants..... Outside Front Cover Page;
Prospectus Summary; Risk
Factors; The Issuers; Use of
Proceeds; Capitalization;
Unaudited Pro Forma Financial
Information; Selected Financial
Data; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Relationships and Related
Transactions; Security Ownership
of Certain Beneficial Owners;
Description of the Partnership
Agreement; Index to Financial
Statements; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 28, 1996
, 1996
$85,000,000
[LOGO OF MUKAK APPEARS HERE]
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
% SENIOR NOTES DUE 2003
The % Senior Notes due 2003 (the "Senior Notes") are being offered (the
"Offering") by Muzak Limited Partnership, a Delaware limited partnership (the
"Company"), and Muzak Capital Corporation, a Delaware corporation ("Capital
Corp.", and together with the Company, the "Issuers"). The Senior Notes are the
joint and several obligations of the Issuers. Capital Corp. is a wholly-owned
subsidiary of the Company. The Company will receive all of the net proceeds of
the Offering.
Interest on the Senior Notes is payable semi-annually in cash on and
of each year, commencing , 1997. The Senior Notes will be redeemable
at the option of the Issuers, in whole or in part, at any time after , 2000,
in cash at the redemption prices set forth herein, plus accrued and unpaid
interest, if any, thereon to the date of redemption. In addition, during the
first 36 months after the date of this Prospectus, the Issuers may on any one
or more occasions redeem up to 35% of the initially outstanding aggregate
principal amount of Senior Notes at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date, with the net proceeds of one or more equity offerings of
the Issuers; provided that at least 65% of the initially outstanding aggregate
principal amount of Senior Notes remains outstanding immediately after the
occurrence of any such redemption. See "Description of the Senior Notes--
Optional Redemption." In addition, upon the occurrence of a Change of Control
(as defined herein), each holder of Senior Notes will have the right to require
the Issuers to repurchase all or any part of such holder's Senior Notes at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of purchase. See
"Description of the Senior Notes--Repurchase at the Option of Holders--Change
of Control." There can be no assurance that, in the event of a Change of
Control, the Issuers would have sufficient funds to purchase all Senior Notes
tendered. See "Risk Factors--Risk of Inability to Satisfy Change of Control
Offer."
The Senior Notes will represent unsecured senior obligations of the Issuers,
will rank senior in right of payment to all Subordinated Indebtedness (as
defined herein) of the Issuers and will rank pari passu in right of payment
with all senior indebtedness of the Issuers. At June 30, 1996, on a pro forma
basis after giving effect to the Offering and the application of the estimated
net proceeds therefrom, the Issuers would have had approximately $1.1 million
of total indebtedness, other than the Senior Notes. The Senior Notes will be
guaranteed on a senior basis by all future Domestic Subsidiaries (as defined
herein) of the Company (other than Capital Corp.). As of the date hereof, the
Company has no subsidiaries other than Capital Corp. The Indenture (as defined
herein) will limit the ability of the Issuers and their subsidiaries to incur
additional indebtedness; however, the Issuers and their subsidiaries will be
permitted to incur certain indebtedness, which may be secured. See "Description
of the Senior Notes--General" and "--Certain Covenants."
The Issuers do not intend to list the Senior Notes on any national securities
exchange or include the Senior Notes for quotation through an inter-dealer
quotation system. Although the Underwriters have indicated that they presently
intend to make a market in the Senior Notes, there can be no assurance that any
market for the Senior Notes will develop or, if any such market develops, that
it would continue to exist. Such market-making activities may be discontinued
at any time. See "Risk Factors--Absence of Public Market; Illiquidity; Market
Value."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC (1) COMMISSIONS (2) COMPANY (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note......................... % % %
Total................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Issuers have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses of the Offering payable by the Issuers estimated
at $ .
The Senior Notes are being offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to various conditions, including the right of the Underwriters to
reject any order in whole or in part. It is expected that delivery of the
Senior Notes will be made in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE LAZARD FRERES & CO. LLC
SECURITIES CORPORATION
<PAGE>
[GRAPHICS TO BE SUPPLIED]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, all
references to the "Company" include Muzak Limited Partnership and its
consolidated subsidiary, Muzak Capital Corporation ("Capital Corp.").
THE COMPANY
The Company is the leading provider of business music in the United States,
based on the number of customer locations served. The Company and its
franchisees serve approximately 180,000 customer locations in the United
States, representing a market share of approximately 50% of the estimated
number of domestic locations currently served by business music providers and
approximately twice the estimated number of locations served by its nearest
competitor. Through a network of distributors, the Company also provides
business music to subscribers outside the United States. In addition, the
Company offers its customers a range of non-music services, including broadcast
data delivery, video, audio marketing and in-store advertising services, and
sells, installs and services related equipment.
The Company markets business music in a variety of formats, including (i) its
well-known proprietary Environmental Music(R) (or "background" music) and (ii)
over 100 "foreground" music formats ranging from top-of-the-charts hits to
contemporary jazz, country music and classical music. Internal and third-party
studies sponsored by the Company have indicated that properly programmed music
can have a favorable impact on listeners in business and retail environments.
The broadcasting of music, including the rebroadcasting of commercial music, in
such locations is not permitted without licenses and the payment of royalties.
Environmental Music(R), which is principally comprised of instrumental versions
of popular songs that have been adapted and rerecorded by the Company, is
generally used in business offices and manufacturing facilities to improve
employee concentration and reduce stress. Foreground music, consisting
principally of original artist recordings, is most commonly used in public
areas, such as restaurants and retail establishments, primarily as a sales
enhancement tool. The Company distributes 30 of its channels by broadcast media
(principally direct broadcast satellite ("DBS") transmission) and supplies the
balance to subscribers in the form of long-playing audio tapes.
Since 1991, the total number of domestic customer locations served by the
Company and its franchisees has grown from 134,000 to 180,000, with the number
of domestic customer locations served by the Company, growing from
approximately 32,000 to approximately 62,000 and the number of domestic
customer locations served by the Company's franchisees, growing from
approximately 102,000 to approximately 118,000. Over the same period, the
Company's total revenues and earnings before interest, taxes, depreciation,
amortization and other income/expense ("EBITDA") have grown from $56.0 million
and $12.6 million in 1991, respectively, to $86.9 million and $20.0 million in
1995, respectively.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of attributes that have
allowed it to become the leading provider of business music in the nation
(based on number of customer locations served), including:
Broad Appeal to Diverse Customer Base. The Company's music products have been
programmed to appeal to a variety of end users, including business offices,
manufacturing facilities, retail establishments and restaurants. The Company's
salesforce markets over 100 different music formats, allowing each customer to
select a format appropriate for its line of business and customer base. The
Company's major national customers include national restaurant chains, such as
Taco Bell, McDonald's and Boston Market, and specialty retailers, such as
Nordstrom, Crate & Barrel, Kroger, Staples, Hallmark and Wal-Mart, as well as a
large number of local and regional accounts, none of which represents more than
3% of the Company's consolidated revenues and the top five of which represent
in the aggregate less than 10% of consolidated revenues. The Company believes
that the geographic dispersion of its customers, and the diversity of
businesses in which they are engaged minimizes the impact to the Company of a
cyclical downturn in any one area of the country or in any one sector of the
economy.
3
<PAGE>
Attractive Economics to Customers and the Company. The Company believes that
its services are highly cost effective, providing an important business tool to
its customers for a low monthly cost. On average, the Company receives
approximately $45 of revenue per month per subscriber location, net of
licensing fee and applicable royalties, for which it makes an investment per
subscriber location (including sales commission) of approximately $950 for
medium-powered DBS subscribers (substantially lower for local broadcast
technology subscribers). This allows the Company to recover its capital costs
within two years. The Company's customers typically enter into long-term
contracts, which are generally for a period of five years with an automatic
renewal option. The Company's annual cancellation rate is less than 10% of
music and other business services revenues, which equates to an average length
of service per customer of approximately eleven years.
Full Line of Audio, Video and Data Products and Services. The Company can
provide its customers with an integrated package of services including: (i)
over 100 different music formats including both background and foreground
music; (ii) customized audio messages inserted in regular programming; (iii) e-
mail and computer bulk data transfer; (iv) on-premise music videos; (v)
customized messages for use with "on-hold" business telephone systems; and (vi)
"point of purchase" audio advertising and merchandising services. The ability
to deliver a package of music and non-music services over a common transmission
system has been a critical factor in enabling the Company to generate
incremental revenues from its customers at little or no additional cost, gain
new customers and protect existing customers from competitive business music
providers that do not offer such a broad line of products and services.
Multiple Delivery Systems. The Company believes that its ability to
distribute its services through each of high-powered and medium-powered DBS
transmission, local radio broadcast transmission, telephone lines and audio
tapes enables it to effectively serve customers with either single or multiple
locations as well as those having varied music or service needs. The number of
domestic subscriber locations served by medium-powered DBS transmission has
grown from approximately 26,000 at the end of 1991 to approximately 120,000 at
June 30, 1996. In addition, the Company has recently entered into a unique
distribution arrangement with EchoStar Satellite Corporation ("EchoStar"). The
Company anticipates that its agreements with EchoStar will enable it to: (i)
attract additional business music subscribers by offering an expanded array of
DBS-delivered music programming; (ii) deliver music services to residential
subscribers for the first time; and (iii) deliver television programming, such
as CNN(R), MTV(R) and ESPN(R), to business music subscribers in packages
specifically designed for businesses (i.e., news, entertainment or lifestyles).
In addition, the EchoStar agreements provide the Company with high-powered DBS
transmission capability to supplement its existing medium-powered DBS system,
reduced equipment installation costs and an opportunity to shift certain
equipment costs to the subscriber.
Integrated Sales Network. The Company believes that its 35 sales offices in
the United States, its 81 franchisees, whose sales territories cover the
remaining market in the United States, and its 20 international distributors in
15 foreign countries, comprise the largest network of customer sales and
service offices among business music providers in the United States. The
Company further believes that this network allows the Company, among other
things, to more effectively market to and support its national and
international accounts.
OPERATING STRATEGY
The Company believes it has opportunities to achieve growth in revenues and
cash flow by:
Increasing U.S. Market Penetration. The Company intends to increase its
penetration of the U.S. market by expanding its local and national account
sales force, offering more music formats (including up to 60 broadcast formats
with the EchoStar agreements), developing sales strategies focused on
underserved market segments and aggressively marketing its services as part of
a unique bundled package. 1993 census data indicate that there are
approximately 6.4 million business locations in the United States, including
approximately 1.1 million retail outlets and 450,000 restaurant and other food
service locations. Of the total 6.4 million business locations, only about 5%
are currently believed by the Company to subscribe to a business music service.
4
<PAGE>
Pursuing Strategic Relationships and Acquisitions. The Company intends to
pursue additional strategic relationships, acquisitions and joint ventures,
such as the Company's recent distribution agreements with EchoStar and its 1994
acquisition of the assets of Comcast Sound Communications Inc. ("Comcast"),
then the Company's largest franchisee, in order to: (i) increase the breadth of
its programming offerings; (ii) further diversify its distribution channels;
and (iii) take advantage of certain economies of scale.
Expanding in International Markets. The Company plans to continue its
expansion in Europe primarily through strategic relationships and joint
ventures, such as Muzak Europe B.V. ("Muzak Europe"), a joint venture formed in
1995 between the Company and Alcas Holdings B.V. ("Alcas"), a leading European
business music provider. This joint venture couples the Company's broadcast
technology skills with Alcas' market knowledge and marketing expertise and
further permits the Company to leverage its assets and programming expertise
and diversify its sources of revenue. The Company also intends to expand into
Latin America and Asia by establishing similar strategic relationships in those
markets.
Exploiting New Market Opportunities. The Company intends to continue to
leverage its music programming expertise and its extensive recorded music
library into new products and markets. For example, the Company has recently
developed and begun operating its proprietary MusicServer (SM) service, which
permits real-time delivery of digitized song samples over the Internet to music
retailers and others (including companies such as CDnow!, Tower Records and
Microsoft) that require access to a large library of recorded music.
Enhancing Operating Margins. The Company seeks to enhance operating margins
through continued centralization of operations and leveraging fixed expenses
over a wider customer base. The Company strives to exploit less costly
transmission technologies and to reduce the capital required to initiate
service to a customer.
The Company was formed in September 1992 by Centre Capital Investors L.P.
("CCI"), a private investment partnership of which Centre Partners L.P.
("Centre Partners") is the general partner, to acquire substantially all of the
assets and business of the Company (the "1992 Acquisition") from a predecessor
entity (the "Predecessor"). MLP Holdings L.P. ("MLP"), an affiliate of CCI, and
the Management Investors (as defined herein), beneficially own approximately
62.9% and 9.7%, respectively, of the outstanding partnership interests of the
Company. Capital Corp., a Delaware corporation, is acting as co-obligor for the
Senior Notes. Capital Corp. is a wholly-owned subsidiary of the Company which
has nominal assets and will not conduct any operations. Certain institutional
investors that might otherwise be limited in their ability to invest in
securities offered by partnerships by reason of the investment laws of their
states of organization or their charter documents may be able to invest in the
Senior Notes because Capital Corp. is a corporation. A portion of the net
proceeds from the Offering will be used to retire indebtedness incurred in the
1992 Acquisition.
THE OFFERING
Securities Offered... $85,000,000 in aggregate principal amount of %
Senior Notes due 2003 (the "Senior Notes").
Maturity Date........ , 2003.
Interest Payment Dates.... and of each year, commencing , 1997.
Optional Redemption....... The Senior Notes will be redeemable at the option
of the Issuers, in whole or in part, at any time
after , 2000, in cash at the redemption prices
set forth herein, plus accrued and unpaid interest,
if any, thereon to the date of redemption. In addi-
tion, during the first 36 months after the date of
this Prospectus, the Issuers may on any one or more
occasions redeem up to 35% of the initially out-
standing aggregate principal amount of Senior Notes
at a redemption price equal to % of the principal
amount thereof, plus accrued and unpaid interest,
if any, thereon to the redemption date, with the
net proceeds of one or more equity offerings of the
Issuers; provided that at least 65% of the
5
<PAGE>
initially outstanding aggregate principal amount of
Senior Notes remain outstanding immediately after
the occurrence of any such redemption. See "De-
scription of the Senior Notes--Optional Redemp-
tion."
Change of Control.... Upon the occurrence of a Change of Control, each
holder of Senior Notes will have the right to re-
quire the Issuers to repurchase all or any part of
such holder's Senior Notes at an offer price in
cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of purchase. See "De-
scription of the Senior Notes--Repurchase at the
Option of Holders--Change of Control." There can be
no assurance that, in the event of a Change of Con-
trol, the Issuers would have sufficient funds to
purchase all Senior Notes tendered. See "Risk Fac-
tors--Risk of Inability to Satisfy Change of Con-
trol Offer."
Ranking.............. The Senior Notes will represent unsecured senior
obligations of the Issuers, will rank senior in
right of payment to all Subordinated Indebtedness
of the Issuers and will rank pari passu in right of
payment with all senior indebtedness of the Is-
suers. At June 30, 1996, on a pro forma basis after
giving effect to the Offering and the application
of the estimated net proceeds therefrom, the Is-
suers would have had approximately $1.1 million of
total indebtedness, other than the Senior Notes.
The Senior Notes will be guaranteed on a senior ba-
sis by all future Domestic Subsidiaries of the Com-
pany (other than Capital Corp.). As of the date
hereof, the Company has no subsidiaries other than
Capital Corp. The Indenture will limit the ability
of the Issuers and their subsidiaries to incur ad-
ditional indebtedness; however, the Issuers and
their subsidiaries will be permitted to incur cer-
tain indebtedness, which may be secured. See "De-
scription of the Senior Notes" and "--Certain Cove-
nants."
Certain Covenants.... The Indenture will contain certain covenants that
will limit, among other things, the ability of the
Issuers and their subsidiaries to (i) pay dividends
or make certain other restricted payments or in-
vestments, (ii) incur additional indebtedness or
issue preferred equity interests, (iii) merge, con-
solidate or sell all or substantially all of their
assets, (iv) create liens on assets, (v) enter into
certain transactions with affiliates or related
persons and (vi) engage in other lines of business.
See "Description of the Senior Notes--Certain Cove-
nants."
Use of Proceeds...... The net proceeds from the sale of the Senior Notes
are estimated to be approximately $82.0 million
(after deducting underwriting discounts and esti-
mated expenses of the Offering) and will be used:
(i) to repay approximately $49.2 million of secured
indebtedness outstanding under the Company's exist-
ing credit facility; (ii) to repay approximately
$12.5 million of subordinated indebtedness incurred
in connection with the 1992 Acquisition; and (iii)
for general corporate purposes.
RISK FACTORS
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES.
6
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ------------------
1993 1994(1) 1995 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Music and other business
services.................. $ 36,800 $ 50,410 $ 52,489 $ 25,916 $ 26,977
Equipment and related
services.................. 21,741 33,006 34,392 16,646 15,179
-------- -------- -------- -------- --------
Total revenues........... 58,541 83,416 86,881 42,562 42,156
-------- -------- -------- -------- --------
Cost of revenues:
Music and other business
services.................. 10,611 13,685 14,465 7,063 7,501
Equipment and related
services.................. 16,756 23,413 23,895 11,465 10,303
-------- -------- -------- -------- --------
Total cost of revenues... 27,367 37,098 38,360 18,528 17,804
-------- -------- -------- -------- --------
Gross profit................ 31,174 46,318 48,521 24,034 24,352
Selling, general and
administrative expenses.... 19,603 28,699 28,496 14,628 15,107
Depreciation................ 4,349 8,211 9,382 4,669 5,155
Amortization................ 6,942 9,622 8,909 4,443 4,463
-------- -------- -------- -------- --------
Operating income (loss)..... 280 (214) 1,734 294 (373)
Interest expense............ 3,785 6,990 7,483 3,791 3,574
Other (income) expense,
net........................ (30) (21) (35) (42) 228
-------- -------- -------- -------- --------
Net income (loss)........... ($ 3,475) ($ 7,183) ($ 5,714) ($ 3,455) ($ 4,175)
======== ======== ======== ======== ========
OTHER INFORMATION:
Gross profit margin(2)...... 53.3% 55.5% 55.8% 56.5% 57.8%
EBITDA(3)................... $ 11,571 $ 17,619 $ 20,025 $ 9,406 $ 9,245
Capital expenditures(4)..... 8,235 13,804 12,757 6,043 7,416
Estimated number of domestic
customer locations:
Company.................. 33,000 56,000 60,000 58,000 62,000
Franchisees.............. 116,000 103,000 111,000 107,000 118,000
-------- -------- -------- -------- --------
Total................... 149,000 159,000 171,000 165,000 180,000
======== ======== ======== ======== ========
Estimated number of domestic
DBS customer locations:
Company.................. 12,000 29,000 35,000 32,000 38,000
Franchisees.............. 49,000 55,000 72,000 64,000 82,000
-------- -------- -------- -------- --------
Total................... 61,000 84,000 107,000 96,000 120,000
======== ======== ======== ======== ========
PRO FORMA INFORMATION:(5)
Total interest expense(6)... -- -- $ 7,337 -- $ 3,610
Ratio of EBITDA to total in-
terest expense(6).......... -- -- 2.73x -- 2.56x
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------
AS
ACTUAL ADJUSTED(7)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,239 $ 23,490
Total assets.............................................. 95,358 116,037
Total long-term obligations, including current portion.... 50,672 86,085
Redeemable preferred partnership interests................ 16,265 16,265
Partners' deficit......................................... (3,200) (7,184)
Ratio of net debt to LTM EBITDA(8)........................ -- 3.15x
</TABLE>
(footnotes on following page)
7
<PAGE>
(footnotes to table on preceding page)
- --------------------
(1) Includes the results of Comcast since January 31, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Gross profit margin represents gross profit as a percentage of total
revenues.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles. The Company, however, believes that EBITDA provides useful
information regarding a company's ability to service and/or incur
indebtedness.
(4) Includes additions to property and equipment and additions to deferred
costs and intangible assets.
(5) Gives pro forma effect to the Offering and the application of $61.7 million
of the net proceeds therefrom to repay existing indebtedness as if the
Offering had taken place on January 1, 1995.
(6) Total interest expense consists of cash interest expense on the Senior
Notes at an assumed rate of 11% plus the amortization of deferred debt
issuance costs. Pro forma total interest expense gives effect to the
issuance of the Senior Notes only to the extent that the proceeds therefrom
are used to repay existing indebtedness. Giving effect to the full amount
of the Senior Notes, cash interest expense would have been $9.4 million and
$4.7 million, and the ratio of EBITDA to cash interest expense would have
been 2.14x and 1.98x, for the year ended December 31, 1995, and the six-
month period ended June 30, 1996, respectively.
(7) As adjusted to give effect to the Offering and the application of the net
proceeds therefrom as if the Offering had taken place on June 30, 1996.
(8) For purposes of calculating the ratio of net debt to LTM EBITDA, net debt
is defined as total long-term obligations (including the current portion
thereof) less cash and cash equivalents, and LTM EBITDA is defined as
EBITDA for the twelve months ended June 30, 1996.
8
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus, before
deciding whether to make an investment in the Senior Notes offered hereby.
SUBSTANTIAL LEVERAGE
The Company is, and after the consummation of the Offering will continue to
be, highly leveraged. After giving effect to the Offering and the use of
proceeds therefrom, on an as adjusted basis, the Company will have total long-
term indebtedness (excluding the current portion thereof), of approximately
$85.7 million and a ratio of total long-term indebtedness to total
capitalization of 90.4% at June 30, 1996 (as if the Offering and such use of
proceeds had occurred on such date). The Indenture will permit the Company and
its subsidiaries to incur certain specified additional indebtedness.
The Company currently incurs, and after the consummation of the Offering
will continue to incur, significant annual cash interest expense in connection
with its obligations under its long-term indebtedness. As a result of the
Offering, total interest expense would have increased from $3.6 million for
the six-month period ended June 30, 1996, to $4.8 million on a pro forma basis
(giving full effect to the issuance of the Senior Notes), for the six months
ended June 30, 1996, due primarily to the increase in overall debt levels as
well as substitution of long-term fixed-rate debt for high-rate subordinated
debt and the floating-rate debt under the Company's existing senior secured
credit facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Senior Notes, including, but not limited to,
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes will be restricted; (ii) a significant
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available to the Company for its operations; and (iii) such indebtedness
contains financial and restrictive covenants, the failure to comply with which
may result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
RANKING; UNSECURED STATUS OF THE SENIOR NOTES
The Senior Notes will represent unsecured senior obligations of the Issuers,
will rank senior in right of payment to all Subordinated Indebtedness of the
Issuers and will rank pari passu in right of payment with all senior
indebtedness of the Issuers. At June 30, 1996, on a pro forma basis after
giving effect to the Offering and the application of the estimated net
proceeds therefrom, the Issuers would have had approximately $1.1 million of
total indebtedness, other than the Senior Notes. The Senior Notes will be
guaranteed on a senior basis by all future Domestic Subsidiaries of the
Company (other than Capital Corp.). As of the date hereof, the Company has no
subsidiaries other than Capital Corp. The Indenture will limit the ability of
the Issuers and their subsidiaries to incur additional indebtedness; however,
the Issuers and their subsidiaries will be permitted to incur certain
indebtedness, which may be secured. See "Description of the Senior Notes" and
"--Certain Covenants." In the event of a bankruptcy, liquidation or
reorganization of the Company of any default in the payment of any
indebtedness under any senior secured credit facility or other secured
indebtedness, holders of such secured indebtedness will be entitled to payment
in full from the proceeds of all assets of the Company pledged to secure such
indebtedness prior to any payment of such proceeds to holders of the Senior
Notes. Consequently, there can be no assurance that the Company will have
sufficient funds to make payments to holders of the Senior Notes. See
"Description of the Senior Notes."
RISK OF INABILITY TO SATISFY CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, each holder of Senior Notes will
have the right to require the Issuers to repurchase all or any part of such
holder's Senior Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of purchase.
9
<PAGE>
There can be no assurance that the Issuers will have the funds necessary to
effect such a purchase if such an event were to occur. In the event a Change
of Control occurs at a time when the Issuers are unable to purchase the Notes,
the Issuers could seek to refinance the Notes. If the Issuers are unsuccessful
in refinancing the Notes, the Issuers' failure to purchase tendered Notes
would constitute an Event of Default under the Indenture. See "Description of
the Senior Notes--Repurchase at the Option of Holders--Change of Control."
NET LOSSES FROM OPERATIONS; WORKING CAPITAL DEFICIT
The Company had net losses from operations of approximately $3.5 million,
$7.2 million and $5.7 million for the years ended December 31, 1993, 1994 and
1995, respectively, and $3.5 million and $4.2 million for the six-month
periods ended June 30, 1995 and 1996, respectively. During these periods, the
Company was highly leveraged and these losses resulted primarily from interest
payments on acquisition financing, accelerated amortization of income-
producing contracts acquired through acquisitions and other related
acquisition and financing costs. The Company anticipates a net loss from
operations for the year ended December 31, 1996. There can be no assurance
that the Company will not continue to incur net losses from operations. As of
June 30, 1996, the Company had a working capital deficit of $12.1 million.
There can be no assurance that the Company will not experience working capital
deficits in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
DEPENDENCE ON SATELLITE DELIVERY CAPABILITIES
There are a limited number of satellites with orbital positions suitable for
DBS transmission of the Company's signals and a limited number of available
transponders on those satellites. Satellite transponders receive signals,
translate signal frequencies and transmit signals to receiving satellite dish
antennas. The Company leases transponder capacity from Microspace
Communications Corporation ("Microspace"), which also provides facilities for
uplink transmission of the Company's medium-powered DBS signals to the
transponders. Microspace, in turn, leases its transponder capacity on
satellites operated by third parties, including the Galaxy IV satellite
operated by Hughes Communications Galaxy Inc. ("Hughes") through which a
majority of the Company's DBS signals are transmitted. The term of the
Company's principal transponder lease with Microspace for the Galaxy IV
satellite runs through the life of that satellite (which is expected to
continue through 2004). Although there has never been sustained interruption
of the Company's DBS signals due to transponder failure or satellite
unavailability, failure or loss, no assurance can be given that any such event
will not occur in the future. If such an event were to occur or if Microspace
were unable to provide transponder services to the Company, the Company would
have to seek alternative transponder or satellite facilities. However,
alternative facilities may not be available on a timely or cost-effective
basis, may be available only on a satellite that is not positioned as
favorably as the Company's current satellites or may require a change in the
frequency currently used to transmit the Company's signal. Any one or more of
these events would require the Company to incur additional expenditures and
could degrade the Company's ability to serve its customer base and have a
material adverse effect on the Company's financial condition and results of
operations. If the Company is required to enter into new transponder lease
agreements, no assurance can be given that it will be able to do so on terms
as favorable as those in its current agreements with Microspace. See
"Business--Business Music Services."
DEPENDENCE ON ECHOSTAR AND ITS SATELLITES
In December 1995, the Company entered into several agreements with EchoStar,
a high-powered DBS home television service provider. Through these agreements,
the Company furnishes EchoStar with 30 channels of digital music programming,
of which 27 channels have begun to be distributed in stereo to EchoStar's
residential subscribers. The Company has only recently begun providing
services via EchoStar. There can be no assurance that either EchoStar's
business or the Company's relationship with EchoStar will be successful. In
addition, the Company's ability to expand its music services through the
EchoStar satellite system is subject to EchoStar's ability to launch a second
high-powered direct broadcast satellite by December 31, 1997, or, if a second
satellite
10
<PAGE>
is not launched by that date, EchoStar's willingness to allocate transponder
capacity to the Company on EchoStar's first satellite. Launch of the second
EchoStar satellite is currently scheduled for September 1996, but there can be
no assurance that this launch will be timely or successful. The Company is
obligated to pay certain fees, rents and royalties to EchoStar in connection
with these agreements. Any business failure of EchoStar, breach by EchoStar of
its agreements with the Company or failure by the Company to satisfy its
obligations to EchoStar, or any loss, failure or malfunction of the EchoStar
satellite system could impair the Company's ability to serve customers through
the EchoStar system. See "Business--EchoStar Agreements."
UNPROVEN CAPABILITIES OF NEW SERVICES
The Company's operating strategy includes developing new services and
technologies to complement and expand its existing technologies and services.
This strategy presents risks inherent in assessing the value, strengths and
weaknesses of development opportunities, in evaluating the costs and uncertain
returns of new services and in integrating and managing new technologies.
Within these new markets, the Company will encounter technical, financial and
operating challenges, including competition from a variety of sources. There
can be no assurance that the Company will successfully develop new services or
that any new service will achieve market acceptance and generate additional
revenues or earnings for the Company.
The Company has recently started providing its Internet MusicServer (SM)
service, which permits music retailers and others to offer visitors to their
websites access to digitized 30-second samples from recordings in the
Company's library of recorded songs. At present, the economic viability of
Internet-based technologies, including the Company's Internet service, cannot
be ascertained. There is no assurance that music sampling on the Internet will
increase sales of compact discs, that extensive music-related content and
sales will be provided over the Internet or that any other service that the
Company may develop will achieve market acceptance. There can also be no
assurance that the Internet will be able to support the high bandwidth
required for multimedia services, such as the MusicServer(SM) service. There are
also relatively limited barriers to entry to the Internet music-sampling
business, so that competition in the market may increase, and it is not
certain that the Company will be able to compete effectively with competitive
services on the Internet. There is also a risk that the record companies that
own the copyrights to the music used in the MusicServer(SM) service will
restrict the use of music samples by third parties, such as the Company, or
will decide to enter the Internet-based music-sampling business directly. See
"Business--Internet Services."
COMPETITION; TECHNOLOGICAL CHANGE
The Company competes in the business music and business services markets
with many competitors. In providing its business services, such as broadcast
data delivery, video, audio marketing and in-store advertising services, the
Company competes with numerous companies using broadcast as well as other
delivery systems to provide similar business services. There are numerous
methods by which programming, such as the Company's business music, broadcast
data delivery, video, audio marketing and in-store advertising services, can
be delivered by existing and future competitors, including medium and high-
powered DBS, wireless cable and fiber optic cable and digital compression over
existing telephone lines. Many competitors or potential competitors with
access to these delivery technologies have substantially greater financial,
technical, personnel and other resources than the Company.
The communications, media and entertainment industries are undergoing
significant and rapid change, including strategic relationships and the
development of new services, delivery systems and interactive technologies.
Many other companies also offer DBS services and strategic relationships
between these companies and cable, telephone, media and other related
businesses may provide increased competition in the future using new systems
and technologies to deliver business music, business data and other similar
services. In addition, the recently enacted Telecommunications Act of 1996 may
increase competition in the markets in which the
11
<PAGE>
Company operates. No assurance can be given that the Company will be able to
compete successfully with existing or potential new competitors using new
delivery methods and technologies, or that discoveries or improvements in the
communications, media and entertainment industries will not render obsolete
some or all of the technologies or delivery systems currently relied upon by
the Company. See "Business--Competition."
No assurance can be given that the Company will be able to compete
successfully with its existing or potential new competitors or to maintain or
increase its current market share, that it will be able to use, or compete
effectively with competitors that adopt, new delivery methods and
technologies, or that discoveries or improvements in the communications, media
and entertainment industries will not render obsolete some or all of the
technologies or delivery systems currently relied upon by the Company.
DEPENDENCE ON LICENSED RIGHTS; RISK OF INCREASED FEES
The Company and other business music providers license rights to rerecord
and distribute music from a variety of sources and pay royalties to
songwriters and publishers through contracts negotiated with performing rights
societies such as the American Society of Composers, Authors and Publishers
("ASCAP"), Broadcast Music, Inc. ("BMI") and the Society of European Stage
Authors and Composers ("SESAC"). The industry-wide agreement between business
music providers (including the Company) and ASCAP runs through 1999;
agreements with BMI and SESAC expired on December 31, 1993 and December 31,
1995, respectively, and new agreements are being negotiated. In 1995, the fees
paid by the Company to ASCAP, BMI and SESAC were approximately $2.6 million,
$946,000 and $7,000, respectively. The interim fee structure with BMI provides
for continued licensing at the 1993 payment levels. The BMI license extension
stipulates that any settlement of ongoing fees may include retroactivity to
January 1, 1994. If the fees paid by the Company to these licensors increase,
the Company's operating margin could be adversely affected, although the
Company does not believe that its liquidity or financial condition would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Music Licenses."
RELIANCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
personnel. The Company has in effect a $4.0 million key man term life
insurance policy covering John R. Jester, the Company's President and Chief
Executive Officer, but there can be no assurance that the coverage provided by
such policy will be sufficient to compensate the Company for the loss of
Mr. Jester's services. The Company believes that the loss of any one member of
senior management would not have a material adverse effect upon the Company.
However, the loss of the services of more than one member of senior management
could have a material adverse effect upon the Company. See "Management."
CERTAIN BENEFITS TO PRINCIPAL OWNERS AND MANAGEMENT
The Company intends to use a portion of the net proceeds of the Offering to
repay approximately $49.2 million of indebtedness outstanding under the
Company's existing senior credit facility, which is secured by, among other
things, the interests in the Company held by MLP, and the Named Executive
Officers referred to in "Management--Executive Compensation," Wallace R.
Borgeson, Bruce B. Funkhouser, L. Dale Stewart, Jack D. Craig, Richard
Chaffee, Roger C. Fairchild, J. Gary Henderson, Susan P. Chetwin, Dino J.
DeRose, Daniel Lee Hart and Steven Tracy (the "Management Investors"), and
their respective affiliates.
RISKS OF ADVERSE EFFECTS OF GOVERNMENT REGULATION
The Company is subject to the regulatory authority of the U.S. government
and the governments of other countries in which it provides services to
subscribers. The business prospects of the Company could be adversely affected
by the adoption of new laws, policies or regulations that modify the present
regulatory environment. The Company currently provides music services in a few
areas in the United States through 928 to 960 megahertz
12
<PAGE>
radio broadcast frequencies, which are transmission facilities licensed by the
Federal Communications Commission ("FCC"). Additionally, the radio frequencies
utilized by satellites on which the Company transmits its DBS services in the
United States are licensed by the FCC. If the FCC authorizations for any of
these satellites are revoked or are not extended, the Company would be
required to seek alternative satellite facilities. Laws, regulations and
policy, or changes therein, in other countries could adversely affect the
Company's existing services or restrict the growth of the Company's business
in these countries.
FRAUDULENT CONVEYANCE
Management believes that the indebtedness represented by the Senior Notes is
being incurred for proper purposes and in good faith, and that, based on
present forecasts, internal asset valuations and other financial information,
the Issuers are, and after the consummation of the Offering will be, solvent,
will have sufficient capital for carrying on their business and will be able
to pay their debts as they mature. Notwithstanding management's belief,
however, if a court of competent jurisdiction in a suit by an unpaid creditor
or a representative of creditors (such as a trustee in bankruptcy or a debtor-
in-possession) were to find that, at the time of the incurrence of such
indebtedness, the Issuers were insolvent, were rendered insolvent by reason of
such incurrence, were engaged in a business or transaction for which their
remaining assets constituted unreasonably small capital, intended to incur, or
believed that they would incur, debts beyond their ability to pay such debts
as they matured, or intended to hinder, delay or defraud their creditors, and
that the indebtedness was incurred for less than reasonably equivalent value,
then such court could, among other things, (a) void all or a portion of the
Issuers' obligations to the holders of the Senior Notes, the effect of which
would be that the holders of the Senior Notes might not be repaid in full,
and/or (b) subordinate the Issuers' obligations to the holders of the Senior
Notes to other existing and future indebtedness of the Issuers, the effect of
which would be to entitle such other creditors to paid in full before any
payment could be made on such Senior Notes.
ABSENCE OF PUBLIC MARKET; ILLIQUIDITY; MARKET VALUE
The Senior Notes will not be listed on any national securities exchange or
included for quotation through an inter-dealer quotation system. The Senior
Notes constitute new issues of securities with no established trading market.
Although the Underwriters have indicated that they presently intend to make a
market in the Senior Notes, there can be no assurance that a trading market
will develop or, if any such market develops, that it would continue to exist.
Such market-making may be discontinued at any time. Therefore, an investment
in the Senior Notes may be illiquid. In addition, the Senior Notes may trade
at a discount from their initial offering prices, depending upon prevailing
interest rates, the market for similar securities and other factors. All of
the foregoing may have an adverse effect on the market value of the Senior
Notes.
13
<PAGE>
THE ISSUERS
The Company is the leading provider of business music in the United States,
based on the number of customer locations served. The Company also offers its
customers a range of non-music services, including broadcast data delivery,
video, audio marketing and in-store advertising services, and sells, installs
and services related equipment.
The Company was formed in September 1992 by CCI, a private investment
partnership of which Centre Partners is the general partner, in order to
effectuate the 1992 Acquisition. MLP, an affiliate of CCI, and the Management
Investors beneficially own approximately 62.9% and 9.7%, respectively, of the
outstanding partnership interests of the Company. Capital Corp., a Delaware
corporation, is acting as co-obligor for the Senior Notes. Capital Corp. is a
wholly-owned subsidiary of the Company which has nominal assets and will not
conduct any operations. Certain institutional investors that might otherwise
be limited in their ability to invest in securities offered by partnerships by
reason of the investment laws of their states of organization or their charter
documents may be able to invest in the Senior Notes because Capital Corp. is a
corporation. A portion of the net proceeds from the Offering will be used to
retire indebtedness incurred in the 1992 Acquisition. See "Use of Proceeds."
The Company's business was founded in 1934. The Issuers' principal executive
offices are located at 2901 Third Avenue, Suite 400, Seattle, Washington
98121, and their telephone number is (206) 633-3000.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $82.0 million.
Of such proceeds, approximately $49.2 million will be used to repay
outstanding senior secured indebtedness payable in semi-annual installments
through January 2001 and bearing interest at an effective rate of 10.6% per
annum at June 30, 1996 and approximately $12.5 million will be used to repay
outstanding subordinated indebtedness bearing interest at an effective rate of
14.5% per annum and due in installments between September 2001 and September
2002. The balance of the net proceeds, approximately $20.3 million, will be
used for general corporate purposes, which may include working capital,
acquisitions or investment opportunities. The Company has no material
arrangement, commitment or understanding with respect thereto. Pending such
use, the balance of the proceeds will be invested in short-term investment
grade obligations as permitted by the Indenture.
14
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of the Company at June 30, 1996 and as adjusted to
give effect to the Offering. The information presented below should be read in
conjunction with the financial statements of the Company and the historical
and pro forma financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
Cash and cash equivalents.............................. $ 3,239 $ 23,490
======= ========
Short-term borrowings and current portion of long-term
debt.................................................. $17,121 $ 391
======= ========
Long-term debt (excluding current portion):
Senior secured credit facility....................... $32,519 $ --
Senior Notes......................................... -- 85,000
14.5% subordinated indebtedness (net of unamortized
discount of $1,412)................................. 11,088 --
Other long-term debt................................. 694 694
------- --------
Total long-term debt (excluding current por-
tion)........................................... 44,301 85,694
------- --------
Redeemable preferred partnership interest.............. 16,265 16,265
------- --------
Partners' capital (deficit):
Limited interests.................................... 4,328 2,917
General interests.................................... (7,528) (10,101)
------- --------
Total partners' deficit.............................. (3,200) (7,184)
------- --------
Total capitalization............................. $57,366 $ 94,775
======= ========
</TABLE>
- ---------------------
(1) Adjusted to reflect the Offering.
15
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information sets forth historical
information which has been adjusted to reflect (i) the application of the net
proceeds of the Offering to repay $49.2 million of senior secured indebtedness
and $12.5 million of subordinated debt and (ii) a related reduction in
interest expense.
No effect has been given in the Statements of Operations Data to non-
recurring expenses for the year ended December 31, 1995 and six-month period
ended June 30, 1996 for (i) the write-off of $3,056,000 and $2,572,000,
respectively, of deferred financing costs and (ii) the write-off of $1,536,000
and $1,412,000, respectively, of unamortized discount, both of which are
associated with long-term obligations expected to be repaid with the proceeds
of the Offering.
The Unaudited Pro Forma Statements of Operations Data assumes that the
Offering took place on January 1, 1995, the beginning of the earliest period
presented. The Unaudited Balance Sheet Data assumes the Offering took place on
June 30, 1996. The pro forma information is based on certain assumptions and
estimates that management believes are reasonable in the circumstances and
does not purport to be indicative of the results which actually would have
been attained had the above transactions occurred at the dates indicated or
the results which may be attained in the future. This information should be
read in conjunction with the Company's audited financial statements and
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
---------------------------- --------------------------
PRO FORMA PRO PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA ACTUAL ADJUSTMENTS FORMA
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Total interest ex-
pense................ $7,483 ($146)(1) $ 7,337 $3,574 $36 (1) $3,610
Net income (loss)..... (5,714) 146 (5,568) (4,175) (36) (4,211)
OTHER INFORMATION:(2)
Total interest ex-
pense(1)............. $ 7,337 $3,610
Ratio of EBITDA to to-
tal interest
expense.............. 2.73x 2.56x
Ratio of earnings to
fixed charges(3)..... -- --
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------------------
OFFERING
ACTUAL ADJUSTMENTS AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 3,239 $20,251 (4) $ 23,490
Total assets.............................. 95,358 20,679 (5) 116,037
Total long-term obligations, including
current portion.......................... 50,672 35,413 (6) 86,085
Redeemable preferred partnership inter-
ests..................................... 16,265 -- 16,265
Total partners' deficit................... (3,200) (3,984)(7) (7,184)
Ratio of net debt as adjusted to LTM
EBITDA(8)................................ 3.15x
</TABLE>
- ---------------------
(1) Total interest expense consists of cash interest expense on the Senior
Notes at an assumed rate of 11% plus the amortization of deferred debt
issuance costs. Pro forma total interest expense gives effect to the
issuance of the Senior Notes only to the extent that the proceeds
therefrom are used to repay existing indebtedness.
16
<PAGE>
Historical interest expense was adjusted as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
<S> <C> <C>
Average principal balance refinanced by Senior Notes.. $62,800 $61,750
Stated interest rate.................................. 11% 11%
------- -------
6,908 3,396
Amortization of new deferred issuance costs........... 429 214
------- -------
Pro forma interest expense............................ 7,337 3,610
Less: actual interest expense and amortization of his-
torical financing fees............................... 7,483 3,574
------- -------
Net increase (decrease) in interest expense........... $ (146) $ 36
======= =======
</TABLE>
Giving effect to the full amount of the Senior Notes, cash paid for interest
would have been $9.4 million and $4.7 million for the year ended December 31,
1995 and the six-month period ended June 30, 1996, respectively. Each 1/4%
change in the assumed interest rate on the Senior Notes would
increase/decrease pro forma total interest expense by $0.2 million.
(2) Gives pro forma effect to the Offering and the application of $61.7
million of the net proceeds therefrom to repay existing indebtedness as if
the Offering had taken place on January 1, 1995.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
include net loss attributable to general and limited partners, plus
redeemable preferred returns and interest expense, including that portion
of lease expense attributable to interest costs. Fixed charges consist of
preferred returns and interest expense, including that portion of lease
expense attributable to interest costs. On a pro forma basis, earnings
were insufficient to cover fixed charges by $6.6 million and $4.7 million
for the year ended December 31, 1995 and the six-month period ended June
30, 1996, respectively.
(4) Reflects the increase in cash and cash equivalents in an amount equal to
net proceeds in excess of refinanced debt calculated as follows:
<TABLE>
<S> <C>
Net proceeds................................................... $ 82,000
Less refinanced debt........................................... (61,749)
--------
Net increase in cash and cash equivalents.................... $ 20,251
========
</TABLE>
(5) Reflects increase in total assets due to the following transactions:
<TABLE>
<S> <C>
Net increase in cash and cash equivalents....................... $20,251
Write-off of deferred financing fees on refinanced debt......... (2,572)
Deferred debt issuance cost on Senior Notes..................... 3,000
-------
Net increase in total assets.................................. $20,679
=======
</TABLE>
(6) Reflects the increase in outstanding indebtedness as a result of the
Offering and the application of net proceeds therefrom:
<TABLE>
<S> <C>
Retirement of senior secured indebtedness..................... ($38,499)
Retirement of subordinated debt............................... (12,500)
Write-off of unamortized debt discount........................ 1,412
Issuance of Senior Notes...................................... 85,000
--------
Net increase in outstanding indebtedness.................... $35,413
========
</TABLE>
(7) Reflects the write-off of deferred financing costs and unamortized debt
discount associated with the refinanced debt:
<TABLE>
<S> <C>
Write-off of deferred financing costs.......................... ($2,572)
Write-off of unamortized debt discount......................... (1,412)
-------
Net increase in partners' deficit............................ ($3,984)
=======
</TABLE>
(8) For purposes of calculating the ratio of net debt to LTM EBITDA, net debt
is defined as total long-term obligations (including the current portion
thereof) less cash and cash equivalents and LTM EBITDA is defined as
EBITDA for the twelve months ended June 30, 1996.
17
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical and financial and
operating data of the Company and the Predecessor as of the dates and for the
periods indicated. The following selected financial data are qualified by
reference to, and should be read in conjunction with, the financial statements,
related notes and other financial information included elsewhere in this
Prospectus as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The statements of operations data set
forth below for each of the three years in the period ended December 31, 1995
and the balance sheet data at December 31, 1994, and 1995 are derived from the
financial statements of the Company audited by Deloitte & Touche LLP,
independent auditors, which are included elsewhere in this Prospectus.
The statements of operations data for the year ended December 31, 1991, the
eight-month period ended August 31, 1992 and the four-month period ended
December 31, 1992 and the balance sheet data at of December 31, 1991, August
31, 1992, and December 31, 1992 and 1993 are derived from audited financial
statements of the Predecessor and the Company, respectively, which are not
included herein.
The statements of operations data for the six-month periods ended June 30,
1995 and 1996 and the balance sheet data as of June 30, 1996 are derived from
unaudited financial statements of the Company that, in the opinion of
management, reflect all adjustments, which are of a normal recurring nature,
necessary to present fairly the information set forth therein. The results for
the six-month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for any other interim period or for the full year.
The pro forma financial information is based on certain assumptions and
estimates that management believes are reasonable in the circumstances and does
not purport to be indicative of the results which actually would have been
attained had the transactions described in the Unaudited Pro Forma Financial
Information occurred at the dates indicated or the results which may be
attained in the future.
18
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------ ----------------------------------------------------------
EIGHT FOUR
YEAR MONTHS MONTHS SIX MONTH PERIOD
ENDED ENDED ENDED YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DEC. 31, AUG. 31, DEC. 31, ---------------------------- ------------------
1991 1992 1992 1993 1994(1) 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Music and other busi-
ness services......... $ 36,689 $ 23,771 $ 12,039 $ 36,800 $ 50,410 $ 52,489 $ 25,916 $ 26,977
Equipment and related
services.............. 19,318 12,102 6,602 21,741 33,006 34,392 16,646 15,179
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues......... 56,007 35,873 18,641 58,541 83,416 86,881 42,562 42,156
-------- -------- -------- -------- -------- -------- -------- --------
Cost of revenues:
Music and other busi-
ness services......... 9,652 6,420 3,249 10,611 13,685 14,465 7,063 7,501
Equipment and related
services.............. 14,753 9,513 5,235 16,756 23,413 23,895 11,465 10,303
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of reve-
nues.................. 24,405 15,933 8,484 27,367 37,098 38,360 18,528 17,804
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 31,602 19,940 10,157 31,174 46,318 48,521 24,034 24,352
Selling, general & ad-
ministrative expenses.. 19,009 14,230 5,846 19,603 28,699 28,496 14,628 15,107
Depreciation............ 8,187 3,990 1,349 4,349 8,211 9,382 4,669 5,155
Amortization............ 6,936 5,005 2,259 6,942 9,622 8,909 4,443 4,463
-------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. (2,530) (3,285) 703 280 (214) 1,734 294 (373)
Interest expense........ 7,514 3,639 1,228 3,785 6,990 7,483 3,791 3,574
Other (income) expense,
net.................... (539) (949) (57) (30) (21) (35) (42) 228
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... (9,505) (5,975) (468) (3,475) (7,183) (5,714) (3,455) (4,175)
Redeemable preferred re-
turns.................. -- -- (188) (572) (933) (1,029) (506) (543)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) at-
tributable to general
and limited partners... ($9,505) ($5,975) ($656) ($4,047) ($8,116) ($6,743) ($3,961) ($4,718)
======== ======== ======== ======== ======== ======== ======== ========
OTHER INFORMATION:
Gross profit margin(2).. 56.4% 55.6% 54.5% 53.3% 55.5% 55.8% 56.5% 57.8%
EBITDA(3)............... $ 12,593 $ 5,710 $ 4,311 $ 11,571 $ 17,619 $ 20,025 $ 9,406 $ 9,245
Capital expendi-
tures(4)............... 7,722 5,034 3,628 8,235 13,804 12,757 6,043 7,416
Ratio of earnings to
fixed charges(5)....... -- -- -- -- -- -- -- --
Estimated number of do-
mestic customer loca-
tions:
Company................ 32,000 32,000 32,000 33,000 56,000 60,000 58,000 62,000
Franchisees............ 102,000 104,000 112,000 116,000 103,000 111,000 107,000 118,000
-------- -------- -------- -------- -------- -------- -------- --------
Total................. 134,000 136,000 144,000 149,000 159,000 171,000 165,000 180,000
======== ======== ======== ======== ======== ======== ======== ========
Estimated number of do-
mestic DBS customer lo-
cations:
Company................ 5,000 7,000 8,000 12,000 29,000 35,000 32,000 38,000
Franchisees............ 21,000 31,000 36,000 49,000 55,000 72,000 64,000 82,000
-------- -------- -------- -------- -------- -------- -------- --------
Total................. 26,000 38,000 44,000 61,000 84,000 107,000 96,000 120,000
======== ======== ======== ======== ======== ======== ======== ========
PRO FORMA INFORMA-
TION:(6)
Total interest ex-
pense(7).............. $ 7,337 $ 3,610
Ratio of EBITDA to to-
tal interest expense.. 2.73x 2.56x
Ratio of earnings to
fixed charges(5)...... -- --
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------------- ---------------------------------------------------------
AT AT AT AT DECEMBER 31, AT JUNE 30, 1996
DEC. 31, AUG. 31, DEC. 31, ------------------------ -----------------------
1991 1992 1992 1993 1994 1995 ACTUAL AS ADJUSTED(8)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 2,171 $ 2,070 $ 1,441 $ 1,436 $ 1,445 $ 1,115 $ 3,239 $ 23,490
Total assets............ 62,939 58,837 66,598 66,294 103,092 96,439 95,358 116,037
Total long-term
obligations, including
current portion........ 39,111 37,889 36,218 35,022 56,833 53,005 50,672 86.085
Redeemable preferred
partnership interests.. -- -- 8,188 8,760 14,693 15,722 16,265 16,265
Partners' capital
(deficit).............. 11,259 7,284 12,199 8,047 7,943 1,373 (3,200) (7,184)
Ratio of net debt to LTM
EBITDA(9).............. 3.15x
</TABLE>
(footnotes on following page)
19
<PAGE>
footnotes to table on preceding page
- -----------------------------------------
(1) Includes the results of Comcast since January 31, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Gross profit margin represents gross profit as a percentage of total
revenues.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles. The Company, however, believes that EBITDA provides useful
information regarding a company's ability to service and/or incur
indebtedness.
(4) Includes additions to property and equipment and additions to deferred
costs and intangible assets.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
include net loss attributable to general and limited partners, redeemable
preferred returns and interest expense, including that portion of lease
expense attributable to interest costs. Fixed charges consist of preferred
returns and interest expense, including that portion of lease expense
attributable to interest costs. Earnings were insufficient to cover fixed
charges by $9.5 million, $6.0 million, $0.7 million, $4.0 million, $8.1
million, $6.7 million, $4.0 million and $4.7 million for the year ended
December 31, 1991, the eight-month period ended August 31, 1992, four-
month period ended December 31, 1992, the years ended December 31, 1993,
1994, and 1995, and the six-month periods ended June 30, 1995 and 1996,
respectively. On a pro forma basis, earnings were insufficient to cover
fixed charges by $6.6 million and $4.7 million for the year ended December
31, 1995 and the six-month period ended June 30, 1996, respectively.
(6) Gives pro forma effect to the Offering and the application of $61.7
million of the net proceeds therefrom to repay existing indebtedness as if
the Offering had taken place on January 1, 1995.
(7) Total interest expense consists of cash interest expense on the Senior
Notes at an assumed rate of 11% plus the amortization of deferred debt
issuance costs. Pro forma total interest expense gives effect to the
issuance of the Senior Notes only to the extent that the proceeds
therefrom are used to repay existing indebtedness. Giving effect to the
full amount of the Senior Notes, cash interest expense would have been
$9.4 million and $4.7 million, and the ratio of EBITDA to cash interest
expense would have been 2.14x and 1.98x, for the year ended December 31,
1995 and the six-months period ended June 30, 1996, respectively.
(8) As adjusted to give effect to the Offering and the application of the net
proceeds therefrom as if the Offering had taken place on June 30, 1996.
(9) For purposes of calculating the ratio of net debt to LTM EBITDA, net debt
is defined as total long-term obligations (including the current portion
thereof) less cash and cash equivalents, and LTM EBITDA is defined as
EBITDA for the twelve months ended June 30, 1996.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company operates as a limited partnership and as such, the income tax
effects of all earnings or losses of the Company are passed directly to the
partners and no provision for income taxes is required.
In January 1994, the Partnership acquired the assets of its largest
franchisee, Comcast, for approximately $33.0 million (the "Comcast
Acquisition"). Operating results in 1994 include eleven months of Comcast
operations, while operating results in 1995 include a full year of Comcast
operations. The former Comcast operations represented approximately 28% of the
Company's revenues in 1995. Following the Comcast Acquisition, the Company
eliminated redundant administrative and field operations, resulting in
annualized net savings estimated by the Company to be approximately $1.8
million, the majority of which was realized immediately.
The Company derives revenues from its business services and from the sale,
installation and servicing of customer premises equipment. The Company's
principal business services include broadcast music services, on-premise
tapes, on-premise music video, audio marketing and in-store advertising.
Business services represented approximately 60% of total revenues in 1995.
Equipment and related revenues accounted for the remaining 40% of 1995
revenues. A large majority of the Company's broadcast and on-premise tape
revenues are generated from subscribers who typically execute five-year
contracts at rates ranging from $35 to $75 per month. These subscription rates
typically include the provision of the Company's equipment for use at the
subscriber's location. Royalties received from franchisees and international
distributors are included in broadcast music revenues and represented
approximately 7.9% of total revenues in 1995. The Company's franchisees pay
royalties to the Company based generally on 10% to 11.5% of adjusted music
revenues, which are broadcast music revenues less licensing payments and bad
debt write-offs. In-store advertising revenues are generated from the sale of
advertising for delivery to certain subscribers. On-premise music video
revenues are derived from the sale of specialized on-premise music videos
targeted for certain segments of the market place. Audio marketing revenues
are generated primarily from the sale of customized audio messages for use
with "on-hold" telephone systems. The Company also provides other broadcast
business services, including AdParting(R), data delivery services, custom
business television and other music-related services.
Equipment revenues are derived from the sale or lease of audio system-
related products, principally sound systems and intercoms, to business music
subscribers and other customers. The Company also sells electronic equipment,
principally DBS receivers and dishes, as well as proprietary tape playback
equipment, audio and video equipment to its franchisees to support their
business music services. Installation, service and repair revenues consist
principally of revenues from the installation of sound systems and other
equipment that is not expressly part of a business music contract, such as
paging, security and drive-through systems. These revenues also include
revenue from the installation, service and repair of equipment installed under
a business music contract. Music contract installation revenues are deferred
and recognized over the term of the respective contracts.
Cost of revenues for business services consists primarily of broadcast,
delivery, manufacturing, licensing and research costs associated with
providing music and other business services to a subscriber or a franchisee.
Cost of revenues for equipment represents the purchase cost plus handling,
shipping and warranty expenses. Cost of revenues for installation, service and
repair consists primarily of service and repair labor and labor for
installation that is not associated with new business music subscribers.
Installation costs associated with new business music subscribers are
capitalized and charged to depreciation expense over ten years.
Selling, general and administrative expenses include salaries, benefits,
commissions, travel, marketing materials, training and occupancy costs
associated with staffing and operating local and national sales offices. Such
expenses also include personnel and other costs in connection with the
Company's headquarters functions. A significant portion of commissions and
certain other selling costs are capitalized on a successful-efforts basis and
charged as amortization expense over the average contract term of five years
and, accordingly, are not
21
<PAGE>
reflected in selling, general and administrative expenses. The Company
capitalized $1.3 million, $2.8 million and $3.2 million of such costs in 1993,
1994 and 1995, respectively.
The Company amortizes leasehold improvements over the shorter of the lease
term or five years and deferred costs and intangible assets over lives ranging
from two and one-half to ten years. These deferred costs and intangible assets
consist of the costs associated with subscriber contracts acquired from third
parties (typically amortized on an accelerated basis over eight years),
commissions and certain other sales related expenses (five years), the
acquisition and production costs of a music library (typically five years),
organizational expenses related to acquiring certain franchise operations
(five years) and capitalized financing costs (over the life of the loans).
RESULTS OF OPERATIONS
The following table sets forth certain financial information for the periods
presented and should be read in conjunction with the Company's Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
SIX-MONTH -----------------------------
PERIOD ENDED FIRST HALF
YEAR ENDED DECEMBER 31, JUNE 30, 1996 VS.
---------------------------- ------------------ 1994 VS. 1995 VS. FIRST HALF
1993 1994 1995 1995 1996 1993 1994 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Business services:
Broadcast music........ $28,023 $39,519 $40,664 $20,166 $20,858 41.0 % 2.9 % 3.4 %
On-premise tapes....... 5,067 5,434 4,895 2,483 2,236 7.2 % (9.9)% (9.9)%
Other broadcast........ 950 1,227 1,403 669 742 29.2 % 14.3 % 10.9 %
On-premise music vid-
eo.................... 1,010 1,257 1,741 735 1,029 24.5 % 38.5 % 40.0 %
Audio marketing........ 769 1,615 2,027 970 1,199 110.0 % 25.5 % 23.6 %
In-store advertising... 306 814 913 550 320 166.0 % 12.2 % (41.8)%
Other.................. 675 544 846 343 593 (19.4)% 55.5 % 72.9 %
-------- -------- -------- -------- --------
Total music and other
business services... 36,800 50,410 52,489 25,916 26,977 37.0 % 4.1 % 4.1 %
-------- -------- -------- -------- --------
Equipment.............. 15,885 23,060 23,901 11,641 10,400 45.2 % 3.6 % (10.7)%
Installation, service
and repair............ 5,856 9,946 10,491 5,005 4,779 69.8 % 5.5 % (4.5)%
-------- -------- -------- -------- --------
Total equipment and
related services.... 21,741 33,006 34,392 16,646 15,179 51.8 % 4.2 % (8.8)%
-------- -------- -------- -------- --------
Total revenues....... 58,541 83,416 86,881 42,562 42,156 42.5 % 4.2 % (1.0)%
Gross profit:
Business services...... 26,188 36,725 38,024 18,853 19,476 40.2 % 3.5 % 3.3 %
Equipment.............. 5,139 9,596 10,450 5,206 4,970 86.7 % 8.9 % (4.5)%
Installation, service
and repair............ (153) (3) 47 (25) (94) * * *
-------- -------- -------- -------- --------
Total gross profit... 31,174 46,318 48,521 24,034 24,352 48.6 % 4.8 % 1.3 %
Gross profit margin(1).. 53.3% 55.5% 55.8% 56.5% 57.8%
Selling, general and
administrative ex-
penses................. $19,603 $28,699 $28,496 $14,628 $15,107 46.4 % (0.7)% 3.3 %
S,G&A margin(2)......... 33.5% 34.4% 32.8% 34.4% 35.8%
EBITDA(3)............... $11,571 $17,619 $20,025 $ 9,406 $ 9,245 52.3 % 13.7 % (1.7)%
EBITDA margin(4)........ 19.8% 21.1% 23.0% 22.1% 21.9%
Net income (loss)....... ($ 3,475) ($ 7,183) ($ 5,714) ($ 3,455) ($ 4,175) * * *
</TABLE>
- ---------------------
* Not meaningful.
(1) Gross profit margin represents gross profit as a percentage of total
revenues.
(2) S,G&A margin represents selling, general and administrative expenses as a
percentage of total revenues.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and other income/expense. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles. The Company, however, believes that EBITDA provides useful
information regarding a company's ability to service and/or incur
indebtedness.
(4) EBITDA margin represents EBITDA as a percentage of total revenues.
22
<PAGE>
SIX-MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX-MONTH PERIOD ENDED JUNE
30, 1995
Revenues. Total revenues decreased 1.0% from $42.6 million in the first six
months of 1995 to $42.2 million in the first six months of 1996 as a result of
an 8.8% decrease in equipment and related services revenues that was partially
offset by a 4.1% increase in business services revenues. Equipment sales
decreased 10.7% as the Company maintained its focus on higher margin sales and
reduced its participation in lower margin competitively bid equipment sales.
Starting in late 1995, the Company also began to deemphasize the sale of
equipment not integral to the Company's business services. Installation,
service and repair revenues decreased from strong levels generated in the 1995
period due to fewer installations of large equipment jobs in the 1996 period.
Broadcast music revenues grew 3.4% in the 1996 period due to increased demand
and the conversion of on-premise tape subscribers to broadcast music services,
which was offset in part by the cancellation of three national broadcast
accounts during the 1996 period. On-premise tape revenues continued to decline
principally due to the Company's conversion of many of these customers to
broadcast services. On-premise music video, audio marketing and other
broadcast services revenues continued to benefit from growing demand for these
services, as a group increasing 25.1% in the 1996 period over the 1995 period.
In-store advertising revenues declined 41.8% principally due to sales to a
single customer in the first six months of 1995 that did not continue into the
last six months of 1995 or the first six months of 1996. Other business
services revenues increased as a result of an increase in reimbursable
satellite fee revenue and the one-time sale of proprietary software and other
rights to Muzak Europe.
Gross Profit. Total gross profit increased 1.3% from $24.0 million in the
first six months of 1995 to $24.4 million for the first six months of 1996
while the gross profit margin increased from 56.5% to 57.8%, respectively.
This improvement was principally due to an improvement in equipment sales
gross profit margin from 44.7% in the 1995 period to 47.8% in the 1996 period
reflecting sales of higher margin equipment. This improvement was partially
offset by a slight decline in the business services gross profit margin
primarily due to lower in-store advertising and on-premise tape revenues and a
decrease in on-premise music video margin, combined with higher compensation,
satellite and licensing costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.3% from $14.6 million in the first six
months of 1995 to $15.1 million in the first six months of 1996 and increased
as a percentage of total revenues from 34.4% to 35.8%, respectively. Selling
and marketing expenses remained essentially unchanged at $5.4 million for the
first six months of 1995 and 1996. General and administrative expenses
increased 5.1% from $9.2 million in the first six months of 1995 to $9.7
million over the same period in 1996. This increase was due primarily to an
increase in relocation expenses, consulting expenses related to the EchoStar
agreements and the Internet MusicServer(SM) project, communication costs
related to the Internet MusicServer(SM) project and national account rollouts,
the continued centralization of data and collection systems, and higher travel
and rent expense and personal property taxes.
Depreciation Expense. Depreciation expense increased 10.4% from $4.7 million
in the first six months of 1995 to $5.2 million in the first six months of
1996 due to an increase in fixed assets of $8.2 million primarily related to
an increased investment in equipment for business service customers, new
service and delivery vehicles and computers and other equipment for video
production, the EchoStar uplink facility and systems upgrades and development.
Amortization Expense. Amortization expense increased 0.5% from $4.4 million
in the first six months of 1995 to $4.5 million in the first six months of
1996 as a result of an increase to intangible assets of $5.6 million primarily
attributable to business acquisitions, obtaining customer contracts and
creating master recordings partially offset by the final amortization in the
1995 period of the music purchased as part of the 1992 Acquisition.
Interest Expense. Interest expense decreased 5.7% from $3.8 million for the
first six months of 1995 to $3.6 million in the first six months of 1996
principally due to a $2.5 million paydown of the Company's term loan in July
1995, a $2.5 million paydown of the term loan in January 1996 and a reduction
of the effective weighted average interest rate under the term loan and
revolving credit facility from 11.3% for the 1995 period to 10.6% for the 1996
period.
23
<PAGE>
Other (Income) Expense. Other (income) expense reflected expense of $228,000
in the first six months of 1996 versus income of $42,000 in the comparable
period in 1995, primarily due to a loss on the sale of a product line acquired
in the Comcast Acquisition that was inconsistent with the Company's strategic
plans and equity in losses of Muzak Europe not included in the 1995 period.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Total revenues increased 4.2% from $83.4 million in 1994 to $86.9
million in 1995 principally as a result of a 4.1% increase in business
services revenues and a 4.2% increase in equipment and related revenues.
Business services revenues increased due to an increase in the number of
broadcast music subscribers, offset partially by a reduction in the royalty
surcharges paid by franchisees for DBS services. Other business services
revenues, with the exception of on-premise tape sales, increased at more rapid
rates than broadcast music revenues due to the increased marketing of, and
increasing customer demand for, video, audio messaging, and AdParting(R)
services, among others. On-premise tape revenues declined due to the Company's
conversion of such customers to broadcast services, primarily DBS
transmission. Royalties and other fees from franchisees and international
distributors (included in broadcast music revenues) accounted for $6.9 million
or 7.9% of the Company's revenues in 1995, compared with $6.8 million or 8.2%
of the Company's revenues in 1994 due to growth in the number of customer
locations being served, partially offset by a planned reduction in DBS
surcharges. Equipment revenues increased 3.6% as a result of an increase in
leased equipment subscribers. Installation, service and repair revenues
increased 5.5% primarily related to large job revenue increases. In-store
advertising revenues increased 12.2%, principally due to sales to a single
customer in the first quarter of 1995, which did not continue into the last
three quarters of the year.
Gross Profit. Total gross profit increased 4.8% from $46.3 million in 1994
to $48.5 million in 1995. As a percentage of total revenues, gross profit
increased slightly from 55.5% in 1994 to 55.8% in 1995. The improvement in the
gross profit percentage in 1995 was due to growth in higher margin business
services, such as broadcast music, audio marketing and on-premise music video
services, and improved equipment margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 0.7% from $28.7 million in 1994 to $28.5
million in 1995. As a percentage of total revenues, selling, general and
administrative expenses declined from 34.4% in 1994 to 32.8% in 1995. Selling
and marketing expenses declined 5.1% from $11.3 million in 1994 to $10.7
million in 1995. This decline was primarily attributable to a reduction in
local sales offices' administrative and operating support personnel, reduced
costs of new product and service research, a decrease in promotional expenses
and lower sales award costs, offset somewhat by higher non-capitalized selling
costs. General and administrative costs increased 2.1% from $17.4 million in
1994 to $17.8 million in 1995, primarily due to relocation and expansion of
the headquarters office, additional personnel to support centralization of
local and national sales office services, higher bad debt expense and
consulting expenses for the Internet MusicServer(SM) and EchoStar projects.
These increased expenses were partially offset by a decrease in bonuses
accrued and expenses incurred in 1994 in connection with an unconsummated
financing.
Depreciation Expense. Depreciation expense increased 14.3% from $8.2 million
in 1994 to $9.4 million in 1995, principally as a result of an increased
investment in equipment installed at customers' premises due to an expanded
customer base, and twelve months of depreciation of the assets acquired in the
Comcast Acquisition in 1995 compared to eleven months in 1994.
Amortization Expense. Amortization expense decreased 7.4% from $9.6 million
in 1994 to $8.9 million in 1995. The decline in amortization expense was due
to the final amortization in early 1995 of music acquired in the 1992
Acquisition.
Interest Expense. Total interest expense increased 7.1% from $7.0 million in
1994 to $7.5 million in 1995. The increase in interest expense in 1995 as
compared to 1994 was the result of increased borrowing as well as an increase
in the effective weighted average interest rate under the term loan and
revolving credit facility from 10.0% in 1994 to 11.2% in 1995.
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YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues. Total revenues increased 42.5% from $58.5 million in 1993 to $83.4
million in 1994 primarily as a result of the Comcast Acquisition. Business
services revenues increased 37.0% from $36.8 million to $50.4 million from
1993 to 1994. Equipment revenues increased 45.2% as a result of the Comcast
Acquisition, resulting in higher sales of DBS equipment, sound system
equipment and leased drive-through equipment. Installation, service and repair
revenues increased 69.8% from 1993 to 1994 also as a result of the Comcast
Acquisition. Video revenues increased 24.5% in 1994 as compared to 1993 due to
the acquisition of an on-premises music video operation as of February 28,
1994 that significantly expanded the Company's base of video customers and its
capability to service a larger customer base. In-store advertising revenues
increased 166.0% due to increased efforts in marketing this service.
Gross Profit. Total gross profit increased 48.6% from $31.2 million in 1993
to $46.3 million in 1994 primarily as a result of the Comcast Acquisition. As
a percentage of total revenues, gross profit increased from 53.3% in 1993 to
55.5% in 1994. The improvement in the gross profit percentage in 1994 was
principally due to improved profit margins on equipment revenues and business
services revenues. The significant improvement in equipment profit margin from
32.4% in 1993 to 41.6% in 1994 was due to a greater proportion of higher
margin equipment lease revenues and more selective bidding of competitive
equipment contracts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46.4% from $19.6 million in 1993 to $28.7
million in 1994. As a percentage of total revenues, selling, general and
administrative expenses increased from 33.5% in 1993 to 34.4% in 1994. Selling
and marketing expenses increased 44.7% from $7.8 million in 1993 to $11.3
million in 1994. This increase was attributable to the Comcast Acquisition,
and the acquisition of the video operation as well as an increase in research
and development. General and administrative expenses increased 47.6% from
$11.8 million in 1993 to $17.4 million in 1994, primarily due to the new
locations and facilities acquired from Comcast and expenses incurred in
connection with an unconsummated financing.
Depreciation Expense. Depreciation expense increased 88.8% from $4.3 million
in 1993 to $8.2 million in 1994. The significant increase in 1994 as compared
to 1993 is attributable to the acquisition of approximately $16.0 million in
tangible assets in the Comcast Acquisition.
Amortization Expense. Amortization expense increased 38.6% from $6.9 million
in 1993 to $9.6 million in 1994. The significant increase in 1994 as compared
to 1993 is attributable to the acquisition of approximately $14.0 million of
intangible assets related to the Comcast Acquisition.
Interest Expense. Total interest expense increased 84.7% from $3.8 million
in 1993 to $7.0 million in 1994 as a result of additional borrowings and an
effective weighted average interest rate under the term loan and revolving
credit facility of 10.0% in 1994 as compared to 9.1% in 1993. The additional
borrowings in 1994 were a result of the Comcast Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been primarily for capital expenditures,
business acquisitions, debt service and working capital. As of June 30, 1996,
the Company had a working capital deficit of $12.1 million compared with a
working capital deficit of $4.9 million as of June 30, 1995. The increase in
the deficit for this period was due principally to an increase in short-term
debt, utilized primarily to fund capital expenditures and repay term debt.
The Company's investing activities, excluding the Comcast Acquisition, have
historically included the purchase of on-premise customer equipment (such as
satellite dishes and receivers) and certain capitalized deferred costs related
to business acquisitions, obtaining customer contracts and creating master
recordings. Capital expenditures were $4.5 million in 1993, $9.5 million in
1994, $8.1 million in 1995, $3.7 million in the
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first half of 1995 and $4.5 million in the first half of 1996. Additions to
deferred costs were $3.7 million in 1993, $4.3 million in 1994, $4.6 million
in 1995, $2.4 million in the first half of 1995 and $2.9 million in the first
half of 1996. The Company believes that its future investing activities will
include strategic acquisitions in addition to these capital expenditures and
deferred customer and music acquisition costs.
The Company's primary sources of liquidity have been cash flows from
operations and bank borrowings. Net cash provided by operating activities for
the first half of 1996 was $10.6 million as compared to $8.1 million for the
comparable 1995 period. This increase was due to an increase in cash from
operating assets and liabilities, primarily payables and accruals. Net cash
provided by operating activities for the year ended December 31, 1995 was
$14.2 million as compared to $15.7 million in 1994. Cash provided by the
Company's operations, adjusted for the effect of non-cash items, totaled $14.7
million in 1995, an increase of $2.3 million over the $12.4 million provided
in 1994, due primarily to a reduction in the Company's net loss through
improved operating performance. Net changes in the operating assets and
liabilities utilized cash of $500,000 in 1995 as compared to providing cash of
$3.3 million in 1994. The change in operating assets and liabilities was
primarily attributable to a reduction in accounts payable and accrued
expenses.
The Company has a term loan ($38.5 million outstanding as of June 30, 1996)
and a $13.0 million revolving credit facility ($10.8 million outstanding as of
June 30, 1996) provided by Union Bank of Switzerland, New York Branch ("UBS"),
and other lenders. Substantially all of the Company's assets and the interests
in the Company held by MLP, certain of its affiliates and the Management
Investors are pledged as collateral under the UBS term loan and credit
facility. The revolving credit facility is available for, among other things,
ongoing working capital needs and letters of credit. This credit facility
terminates on January 15, 2001. Interest accrues on the outstanding principal
amounts of the term loan and the revolving credit facility at an interest rate
based on UBS's announced base rate plus 1.75% or LIBOR plus 3.00%. The Company
intends to repay the outstanding amounts under the UBS term loan and revolving
credit facility with the proceeds of the Offering. See "Use of Proceeds." As
of June 30, 1996, aggregate maturities of the Company's term loan were $3.0
million in 1996, $7.0 million in 1997, $8.0 million in 1998, $8.0 million in
1999, $8.3 million in 2000 and $4.2 million in 2001.
The Company leases certain facilities under both operating and capital
leases. Minimum lease payments for 1996 under noncancelable leases are $6.3
million.
The Company anticipates capital expenditures of between $11.9 and $12.4
million in 1996 and additions to deferred costs and intangible assets of
between $4.8 and $5.2 million in 1996. The level of capital expenditures and
additions to deferred costs and intangible assets are subject to a variety of
factors which may cause these expenditures to exceed the ranges set forth
above.
Through June 30, 1996, the Company had capitalized approximately $1.1
million of expenses associated with an initial underwritten public offering of
its equity securities. In August 1996, the Company postponed the equity
offering. If it is determined that a public equity offering is not likely to
occur, these capitalized expenses will be charged to operations in the quarter
such determination is made.
The Company believes that subsequent to the Offering, its cash flows from
operations, borrowing availability and cash on hand will be adequate to
support currently planned business operations, capital expenditures and debt
service requirements at least through the foreseeable future. If the Company
engages in one or more material acquisitions, joint ventures or alliances or
other major business initiatives requiring significant cash commitments, or
incurs unanticipated expenses, additional financing could be required.
The 1992 Acquisition of the business of the Predecessor by CCI and certain
of the Management Investors provides for contingent earn-out payments ("Earn-
Out Payments") of between $5.0 million to $24.0 million to the Predecessor if
certain performance measures are achieved in the five years following the
transaction. The minimum performance requirement for the $5.0 million Earn-Out
Payment requires the Company to achieve a cumulative performance target (as
defined in the acquisition documents) over the five-year period ending
August 31, 1997. The Company believes that the minimum performance target
triggering an Earn-Out Payment will not be reached.
The Washington State Department of Revenue has levied an assessment against
the Predecessor for $1.7 million in sales and use and business and occupation
taxes for the period from 1987 through September 1992.
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Under successor liability statutes in the State of Washington, the Company
could, if the Predecessor fails to pay its tax obligation, become liable for
the assessment. The assessment is under appeal by the Predecessor. The Company
has the right to offset any future payments from the Company to the
Predecessor if the Predecessor fails to pay its tax obligation. Management
does not believe that the assessment will have an adverse effect on the
Company's financial condition or results of operations.
INFLATION AND CHANGING PRICES
Management does not believe that inflation and other changing prices have
had a significant impact on the Company's operations.
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BUSINESS
GENERAL
The Company is the leading provider of business music in the United States,
based on the number of customer locations served. The Company and its
franchisees serve approximately 180,000 customer locations in the United
States, representing a market share of approximately 50% of the estimated
number of domestic locations currently served by business music providers and
approximately twice the estimated number of locations served by its nearest
competitor. Through a network of distributors, the Company also provides
business music to subscribers outside the United States. In addition, the
Company offers its customers a range of non-music services, including
broadcast data delivery, video, audio marketing and in-store advertising
services, and sells, installs and services related equipment.
The Company markets business music in a variety of formats, including (i)
its well-known proprietary Environmental Music(R) (or "background" music) and
(ii) over 100 "foreground" music formats ranging from top-of-the-charts hits
to contemporary jazz, country music and classical music. Internal and third-
party studies sponsored by the Company have indicated that properly programmed
music can have a favorable impact on listeners in business and retail
environments. Broadcasting of music, including the rebroadcasting of
commercial music, in such locations is not permitted without licenses and the
payment of royalties. Environmental Music(R), which is principally comprised
of instrumental versions of popular songs that have been adapted and
rerecorded by the Company, is generally used in business offices and
manufacturing facilities to improve employee concentration and reduce stress.
Foreground music, consisting principally of original artist recordings, is
most commonly used in public areas, such as restaurants and retail
establishments, primarily as a sales enhancement tool. The Company distributes
30 of its channels by broadcast media (principally DBS transmission) and
supplies the balance to subscribers in the form of long-playing audio tapes.
Since 1991, the total number of domestic customer locations served by the
Company and its franchisees has grown from 134,000 to 180,000, with the number
of domestic customer locations served by the Company, growing from
approximately 32,000 to approximately 62,000 and the number of domestic
customer locations served by the Company's franchisees, growing from
approximately 102,000 to approximately 118,000. Over the same period, the
Company's total revenues and EBITDA have grown from $56.0 million and $12.6
million in 1991, respectively, to $86.9 million and $20.0 million in 1995,
respectively.
COMPETITIVE STRENGTHS
The Company believes that it possesses a number of attributes that have
allowed it to become the leading provider of business music in the nation
(based on number of customer locations served), including:
Broad Appeal to Diverse Customer Base. The Company's music products have
been programmed to appeal to a variety of end users, including business
offices, manufacturing facilities, retail establishments and restaurants. The
Company's salesforce markets over 100 different music formats, allowing each
customer to select a format appropriate for its line of business and customer
base. The Company's major national customers include national restaurant
chains, such as Taco Bell, McDonald's and Boston Market, and specialty
retailers, such as Nordstrom, Crate & Barrel, Kroger, Staples, Hallmark and
Wal-Mart, as well as a large number of local and regional accounts, none of
which represents more than 3% of the Company's consolidated revenues and the
top five of which represent in the aggregate less than 10% of consolidated
revenues. The Company believes that the geographic dispersion of its
customers, and the diversity of businesses in which they are engaged minimizes
the impact to the Company of a cyclical downturn in any one area of the
country or in any one sector of the economy.
Attractive Economics to Customers and the Company. The Company believes that
its services are highly cost effective, providing an important business tool
to its customers for a low monthly cost. On average, the Company receives
approximately $45 of revenue per month per subscriber location, net of
licensing fee and applicable royalties, for which it makes an investment per
subscriber location (including sales commission) of approximately $950 for
medium-powered DBS subscribers (substantially lower for local broadcast
technology subscribers). This allows the Company to recover its capital costs
within two years. The Company's customers typically enter into long-term
contracts, which are generally for a period of five years with an automatic
renewal
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option. The Company's annual cancellation rate is less than 10% of music and
other business services revenues, which equates to an average length of
service per customer of approximately eleven years.
Full Line of Audio, Video and Data Products and Services. The Company can
provide its customers with an integrated package of services including: (i)
over 100 different music formats including both background and foreground
music; (ii) customized audio messages inserted in regular programming; (iii)
e-mail and computer bulk data transfer; (iv) on-premise music videos; (v)
customized messages for use with "on-hold" business telephone systems; and
(vi) "point of purchase" audio advertising and merchandising services. The
ability to deliver a package of music and non-music services over a common
transmission system has been a critical factor in enabling the Company to
generate incremental revenues from its customers at little or no additional
cost, gain new customers and protect existing customers from competitive
business music providers that do not offer such a broad line of products and
services.
Multiple Delivery Systems. The Company believes that its ability to
distribute its services through each of high-powered and medium-powered DBS
transmission, local radio broadcast transmission, telephone lines and audio
tapes enables it to effectively serve customers with either single or multiple
locations as well as those having varied music or service needs. The number of
domestic subscriber locations served by medium-powered DBS transmission has
grown from approximately 26,000 at the end of 1991 to approximately 120,000 at
June 30, 1996. In addition, the Company has recently entered into a unique
distribution arrangement with EchoStar. The Company anticipates that its
agreements with EchoStar will enable it to: (i) attract additional business
music subscribers by offering an expanded array of DBS-delivered music
programming; (ii) deliver music services to residential subscribers for the
first time; and (iii) deliver television programming, such as CNN(R), MTV(R)
and ESPN(R), to business music subscribers in packages specifically designed
for businesses (i.e., news, entertainment or lifestyles). In addition, the
EchoStar agreements provide the Company with high-powered DBS transmission
capability to supplement its existing medium-powered DBS system, reduced
equipment installation costs and an opportunity to shift certain equipment
costs to the subscriber.
Integrated Sales Network. The Company believes that its 35 sales offices in
the United States, its 81 franchisees, whose sales territories cover the
remaining market in the United States, and its 20 international distributors
in 15 foreign countries, comprise the largest network of customer sales and
service offices among business music providers in the United States. The
Company further believes that this network allows the Company, among other
things, to more effectively market to and support its national and
international accounts.
OPERATING STRATEGY
The Company believes it has opportunities to achieve growth in revenues and
cash flow by:
Increasing U.S. Market Penetration. The Company intends to increase its
penetration of the U.S. market by expanding its local and national account
sales force, offering more music formats (including up to 60 broadcast formats
with the EchoStar agreements), developing sales strategies focused on
underserved market segments and aggressively marketing its services as part of
a unique bundled package. 1993 census data indicate that there are
approximately 6.4 million business locations in the United States, including
approximately 1.1 million retail outlets and 450,000 restaurant and other food
service locations. Of the total 6.4 million business locations, only about 5%
are currently believed by the Company to subscribe to a business music
service.
Pursuing Strategic Relationships and Acquisitions. The Company intends to
pursue additional strategic relationships, acquisitions and joint ventures,
such as the Company's recent distribution agreements with EchoStar and its
1994 acquisition of the assets of Comcast, then the Company's largest
franchisee, in order to: (i) increase the breadth of its programming
offerings; (ii) further diversify its distribution channels; and (iii) take
advantage of certain economies of scale.
Expanding in International Markets. The Company plans to continue its
expansion in Europe primarily through strategic relationships and joint
ventures, such as Muzak Europe, a joint venture formed in 1995 between the
Company and Alcas, a leading European business music provider. This joint
venture couples the Company's broadcast technology skills with Alcas' market
knowledge and marketing expertise and further permits the Company to leverage
its assets and programming expertise and diversify its sources of revenue. The
Company
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also intends to expand into Latin America and Asia by establishing similar
strategic relationships in those markets.
Exploiting New Market Opportunities. The Company intends to continue to
leverage its music programming expertise and its extensive recorded music
library into new products and markets. For example, the Company has recently
developed and begun operating its proprietary MusicServer(SM) service, which
permits real-time delivery of digitized song samples over the Internet to
music retailers and others (including companies such as CDnow!, Tower Records
and Microsoft) that require access to a large library of recorded music.
Enhancing Operating Margins. The Company seeks to enhance operating margins
through continued centralization of operations and leveraging fixed expenses
over a wider customer base. The Company strives to exploit less costly
transmission technologies and to reduce the capital required to initiate
service to a customer.
The Company was formed in September 1992 by CCI, a private investment
partnership of which Centre Partners is the general partner, in order to
effectuate the 1992 Acquisition from the Predecessor. MLP, an affiliate of
CCI, and the Management Investors, beneficially own approximately 62.9% and
9.7%, respectively, of the outstanding partnership interests of the Company.
Capital Corp., a Delaware corporation, is acting as co-obligor for the Senior
Notes. Capital Corp. is a wholly-owned subsidiary of the Company which has
nominal assets and will not conduct any operations. Certain institutional
investors that might otherwise be limited in their ability to invest in
securities offered by partnerships by reason of the investment laws of their
states of organization or their charter documents may be able to invest in the
Senior Notes because Capital Corp. is a corporation. A portion of the net
proceeds from the Offering will be used to retire indebtedness incurred in the
1992 Acquisition.
BUSINESS MUSIC SERVICES
MUSIC FORMATS
The Company conducts on-going research into the effects of music on human
behavior. This research has shown that certain types of music may reduce
employee stress and improve worker performance by counteracting the fatigue
cycles that affect workers, particularly those involved in repetitive work.
This research also has shown that, in retail environments, certain types of
music may induce consumers to purchase more and may help the retailer in its
efforts to project a particular image of a store. The Company uses its
research to create proprietary music program formats that will have a
favorable impact on listeners. In addition, the Company's sales staff uses the
results of its research to explain to prospective subscribers the benefits of
business music and to assist each subscriber in choosing a music format which
will further the subscriber's desired business goal. These music formats cover
a wide range of musical tastes.
The Company's best-selling format, Environmental Music(R), is a unique blend
of completely instrumental music that is distributed to subscribers via DBS
transmission and local broadcast technology. Environmental Music(R) is
principally comprised of instrumental versions of popular songs that have been
adapted and rerecorded by the Company ("covers"), instrumentals that have been
composed and recorded exclusively for inclusion in the Environmental Music(R)
program ("originals"), and some commercially available instrumental
recordings, and is generally used in business offices and manufacturing
facilities to improve employee concentration and reduce stress. The
Environmental Music(R) library consists of approximately 30,000 recordings
owned by the Company, of which approximately 5,000 are actively used at any
given time. The library includes the instrumental recordings of titles made
popular by a wide variety of artists and composers, ranging from George
Gershwin to Elvis Presley, Boyz II Men and Toad the Wet Sprocket. The Company
spends over $400,000 annually in payments to third parties to update the
library and adds approximately 1,000 new selections each year. In 1993, in
order to improve the quality of its active Environmental Music(R) library, the
Company digitally remastered all of its recordings on compact discs.
Foreground music, consisting principally of original artist recordings, is
most commonly used in public areas, such as restaurants and retail
establishments, primarily as a sales enhancement tool. The Company's most
popular foreground music product, FM-1(R), features moderate tempo, original
artist recordings of familiar adult contemporary favorites. Like Environmental
Music(R), FM-1(R) has been developed for distribution to subscribers via DBS
transmission and local broadcast technology. With its broad appeal, FM-1(R) is
second to the Environmental Music(R) channel in the total number of subscriber
locations served and is the Company's most
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widely-used format in the restaurant and retail markets. FM-1(R) features a
broad range of popular artists from the last 30 years, with an emphasis on
current popular music. FM-1(R) artists include Sting, Celine Dion, Elton John
and Bonnie Raitt, among others.
In addition to FM-1(R), foreground music formats developed by the Company
for DBS or local broadcast transmission include:
HITLINE(R) ADULT CONTEMPORARY
An up-to-the-minute mix of top chart A more consumer-oriented version of
hits. FM-1(R) with higher repetition of
current hits.
COUNTRY CURRENTS(R)
An upbeat mix of current and recent ADULT ALTERNATIVE
country music hits. An eclectic mix of artists and
styles with a progressive edge.
JUKEBOX GOLD(R)
Rock 'n' roll hits of the '50s, '60s NON-STOP HIP HOP(SM)
and early '70s. The hottest new music from the
streets.
'70S SONGBOOK(SM)
A mix of familiar hits spanning the POWERROCK(SM)
late '60s to early '80s. Hard-edged hits and heavy metal
album tracks.
URBAN BEAT(SM)
The best of contemporary urban hits THE EDGE(SM)
from today's hottest artists. A mix of top hits and album tracks
from the college and alternative
music charts.
CONTEMPORARY JAZZ FLAVORS(SM)
Today's light contemporary jazz,
mainstream jazz and soft vocals. CLASSIC ROCK
A non-stop collection of the best
rock "n' roll tunes of all time.
LIGHT CLASSICAL
An artful blend of chamber and small
orchestral pieces from the Baroque NEW COUNTRY
and Romantic periods. An upbeat mix of top chart hits from
today's country superstars.
EXPRESSIONS(R)
Light hits from yesterday and today COUNTRY CLASSICS(SM)
plus instrumental versions of hit A blend of classic Country hits from
songs, easy jazz and acoustic music. the 1950s, '60s and '70s.
CONTEMPORARY INSTRUMENTALS CONCERT CLASSICS(SM)
Smart contemporary instrumentals for The most renowned classical
businesses where vocals are symphonies.
inappropriate.
JAZZ TRADITIONS(SM)
HOT FM(SM) The more traditional, acoustic side
The upbeat side of current Adult of the jazz genre.
Contemporary music.
BIG BAND ERA
EUROSTYLE(SM) A blend of the best known standards
Dance and Top 40 tracks hot off the and hits from vocalists and
European music charts. instrumental artists from the 30's,
40's, and 50's.
LATIN STYLES(SM)
A smooth blend of today's Spanish- EASY INSTRUMENTALS(SM)
language hits and Salsa rhythms. A mix of lush and soothing
instrumental favorites.
FIESTA MEXICANA(SM)
An upbeat blend of Mexican regional CONTEMPORARY CHRISTIAN
styles including Mariachi, Nortena The very best from the top artists
and Tejano. of contemporary Christian popular
music.
HOLIDAY
From November 1st through December KIDZONE(SM)
31st the Holiday Channel features a A bright, upbeat mix of sing alongs,
blend of traditional and folk songs, soundtracks and pop hits
contemporary holiday music. targeted to kids ages 3-10.
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The Company has also developed approximately 80 different tape-based formats
of foreground music targeted to the specialized business needs of subscribers
with more focused customer demographics. Among the formats offered are
contemporary jazz, chamber music, reggae, hard rock, German music, Chinese
music and seasonal (holiday) music. These music programs are distributed to
subscribers in the form of long-playing audio tapes that are replayed by the
subscriber on its own premises using specially-designed equipment that has
been installed by the Company. Subscribers typically receive an initial tape
library of approximately 40 hours of music programming and are allowed
unlimited exchanges of tapes during their first 30 days of service, thereby
enabling them to fine-tune their format selections to their individual
preferences and requirements. New tapes are generally sent to subscribers on a
fixed schedule (30, 60 or 90 days), as selected by the subscriber, although
subscribers can elect unlimited exchange privileges. In all cases, subscribers
are required to return old tapes upon receipt of new tapes, and pricing varies
with the frequency of exchange. As of June 30, 1996, the Company and its
franchisees had approximately 18,000 subscribers for taped-based services.
DISTRIBUTION SYSTEMS
The Company's Environmental Music(R) and FM-1(R) programs are distributed to
subscribers either through the Company's medium-powered DBS system or by local
broadcast technology. The Company also uses its medium-powered DBS system to
distribute these programs to its franchisees for local broadcasting to the
franchisees' subscribers. Medium-powered DBS systems utilize satellite dishes
ranging from 0.75 to 1.8 meters in diameter. At June 30, 1996, approximately
120,000 subscriber locations were served by its medium-powered DBS
transmission and approximately 42,000 locations were served by local broadcast
technology. In addition, at that date, on-premise tape programs were being
distributed to approximately 18,000 subscriber locations.
Satellite transmission has become the Company's primary delivery medium for
its business music programs and most of its newest program formats are
generally available only via satellite. The Company's proprietary Music
Plus(R) service permits its medium-powered DBS subscribers to choose the
traditional Environmental Music(R) and FM-1(R) formats as well as up to
fourteen other foreground music formats from a single satellite transmission
signal. In addition, its proprietary DayParting(R) and WeekParting(R) services
enable a subscriber to arrange for automatic switching from one music format
to another on a predetermined schedule to adjust to changing customer
demographic patterns.
The Company leases substantially all of its transponder capacity from
Microspace, which also provides facilities for the uplink of the Company's
signals to Microspace's transponder. Microspace, in turn, leases its
transponder capacity on satellites operated by third parties, including the
Galaxy IV satellite operated by Hughes, on which a majority of the Company's
DBS signals are transmitted. The term of the Company's principal transponder
lease with Microspace for the Galaxy IV satellite runs through the life of
that satellite (which is expected to continue through 2004). Microspace may
terminate its agreements with the Company if the Company materially breaches
its obligations thereunder or if any governmental restriction results in a
sustained interruption of the Company's performance thereunder. Microspace
also is entitled to terminate its agreements with the Company immediately upon
termination of its underlying agreement with Hughes. See "Risk Factors--
Dependence on Satellite Delivery Capabilities."
The Company has begun offering high-powered DBS transmission service through
the EchoStar satellite system, as more fully described below under "--EchoStar
Agreements." High-powered DBS systems utilize satellite dishes as small as 18
inches in diameter. The Company's ability to expand its music services on the
EchoStar satellite system is subject to EchoStar's ability to launch a second
high-powered direct broadcast satellite by December 31, 1997, or, if a second
satellite is not launched by December 31, 1997, EchoStar's willingness to
allocate additional transponder capacity to the Company on EchoStar's first
satellite. See "Risk Factors--Dependence on EchoStar and its Satellites" and
"--EchoStar Agreements."
Local broadcast transmission is used by the Company and its franchisees to
distribute business music in localized metropolitan areas where the
concentration of subscriber locations is sufficiently large to justify the
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cost. Local area FM broadcasting is primarily made via commercial FM radio
station subcarriers and requires the use of a separate subcarrier and on-
premises subscriber receiver for each program format being distributed.
Accordingly, local broadcasting is not cost-effective for delivery of more
than two formats to a particular area and is generally limited to the
Company's most popular program formats, Environmental Music(R) and FM-1(R).
OTHER SERVICES
NON-MUSIC BROADCAST SERVICES
The Company offers a variety of non-music services to its medium-powered DBS
business music subscribers that complement its music services. These services
are generally "bundled" and marketed in conjunction with the Company's
business music services. As a result, these services serve to stimulate sales
of music services to new customers. In addition to providing incremental
revenue, these services enable the Company to maintain strong relationships
with its business music subscribers. These non-music services generally carry
higher margins, since they require low incremental costs and when the
associated revenue is shared by the Company and its franchisees, the Company
receives 50% or 60% of these revenues in lieu of royalty payments.
The Company currently offers the following non-music business services to
its medium-powered DBS subscribers:
. AdParting(R). AdParting(R) permits the subscriber to receive customized
audio messages ("spots") interspersed in its business music service and to
control the message content of the spot. This service is used by retailers
ranging from supermarkets and convenience stores, to fast food restaurants
and fashion retailers. At June 30, 1996, the Company was providing
AdParting(R) to approximately 12,300 subscriber locations.
. Broadcast Data Delivery. The Company's broadcast data delivery service
provides point-to-multipoint electronic mail as well as computer to
computer bulk data transfer. This service provides the subscriber with a
low cost alternative to two-way data transmission systems. For example,
fast food chains use this service to deliver software and other data
updates to in-store computers at their outlets, while wholesale grocery
distributors use it to provide price, inventory, product recall and
delivery information to their network retailers. At June 30, 1996, the
Company was providing broadcast data delivery services to approximately
5,200 subscriber locations.
. Custom Business Television. The Company takes advantage of the
availability of occasional use video transponder space to offer its
customers the opportunity to broadcast private customer-specific video
programming. At June 30, 1996, the Company was providing custom business
television services to approximately 600 subscriber locations.
ON-PREMISE MUSIC VIDEO--ZTV(R)
The Company programs, duplicates on videotape and sells its proprietary
ZTV(R) on-premise music video service to subscribers wishing to increase the
impact of music through video. The Company's on-premise video programs allow
subscribers to create an "MTV(R)-type" environment for their customers through
specially programmed, long-playing videotapes. The ZTV(R) taped music videos
are produced and shipped directly from the Company's production facilities to
more than 3,000 viewing locations. Subscribers currently using the ZTV(R)
service include Macy's, Bloomingdale's, Lord & Taylor, Filene's Basement,
Oshman's Sporting Goods and Rent-A-Center.
ZTV(R) offerings are available in the following categories, each consisting
of multiple long-playing programs that are supplied to subscribers on a 30, 60
or 90-day rotation:
. Music and Entertainment Programs. Programs produced for a variety of
retailing environments, such as department stores, specialty shops,
athletic footwear stores, children's apparel stores, sporting goods
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stores, toy and hobby stores, drug stores and appliance stores. These
programs include licensed music video elements in addition to sports
clips, cartoon and fashion segments and other elements appropriate to the
demographics of a particular customer or application. These targeted
programs are produced monthly and are supplied in four-hour tapes.
. Music Video Programs. These are segued music video programs, representing
a style and tempo of music applicable to particular business environments,
and are produced monthly in two-hour and four-hour lengths.
. VeeJay Programs. These monthly programs are produced exclusively for
nightclubs and dance clubs and are furnished in one-hour lengths.
AUDIO MARKETING
The Company creates, produces and records spoken messages for use with "on-
hold" business telephone systems, AdParting(R) broadcasts and other forms of
in-store messaging and advertising.
IN-STORE ADVERTISING
The Company markets in-store "point of purchase" audio advertising and
merchandising services for transmission through its medium-powered DBS system.
The Company has established an industry-specific network (SuperLink(R)) of
grocery wholesalers and wholesaler-supplied retailers and sells time on the
network to advertisers seeking to deliver a message simultaneously to multiple
locations in the network.
ECHOSTAR AGREEMENTS
Through its agreements with EchoStar (the "EchoStar Agreements"), the
Company has begun providing 30 channels of digital music programming, of which
27 channels are being distributed in stereo to EchoStar's residential
customers, thus providing the Company with access to the residential consumer
market for the first time. EchoStar, as part of its overall sales activities,
will brand and market 27 channels of music programming provided by the Company
and currently plans to package these channels as an automatic inclusion in the
majority of its service packages. The launch of EchoStar's second high-powered
satellite, currently anticipated for September 1996, will give the Company the
exclusive right to distribute approximately 30 additional channels to business
music subscribers and will also provide EchoStar an additional three channels.
However, there can be no assurance that the launch of the second satellite
will be successful or timely.
The music services offered through EchoStar contain much of the Company's
Music Plus(R) programming but are broadcast in digital stereo to appeal to
residential customers instead of the monophonic format used in the Company's
medium-powered DBS transmission system, which is more appropriate to business
music applications. The Company's Environmental Music(R) and FM-1(R) channels
are transmitted in the monophonic format over the EchoStar System to appeal to
business music subscribers.
The EchoStar agreements will allow the Company to expand the range of music
that can be made available to businesses. They also provide the Company with
access to a family of television programming services that the Company
believes can be sold in several critical market segments, such as the
hospitality and retailing markets. The availability of these television
services is expected to allow the Company to penetrate commercial market
segments and reach new customers that have traditionally been outside of its
core subscriber base. The Company believes that EchoStar's high-powered DBS
delivery technology also provides the Company with the opportunity to realize
significant cost savings in furnishing music services to business subscribers.
EchoStar's receiving equipment is smaller, lighter in weight, and simpler to
install than the Company's medium-powered DBS receiving equipment, and as DBS
television service increases in popularity, this equipment is expected to be
mass manufactured and marketed, thus reducing its cost. In addition, the
EchoStar receiving equipment generally is not proprietary and has uses and
applications beyond commercial business music. Accordingly, the
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Company believes that subscribers to business music services through the
EchoStar system may be more likely to purchase the necessary receiving
equipment rather than rely on Company-provided equipment, as has generally
been the case to date, thus permitting the Company to reduce its per-
subscriber capital investment with only a limited reduction in the monthly
subscription charge.
Pursuant to the EchoStar Agreements, EchoStar will pay the Company a
programming fee for each residential music subscriber and will pay the
Company's franchisees a commission on sales by EchoStar distributors to
commercial customers in a franchisee's territory. Pursuant to the EchoStar
Agreements, the Company pays EchoStar a fee for uplink transmission of the 30
exclusive channels and rents space at EchoStar's Cheyenne, Wyoming uplink
facility. The fees for the uplink of the channels and use of the uplink
facility increase significantly upon the launch of EchoStar's second
satellite, when the Company will be allocated an additional 2.4 megahertz of
transponder capacity. Launch of the second satellite is expected to occur in
September 1996. The Company and its franchisees are obligated to pay EchoStar
a royalty on music sales from EchoStar channels to commercial customers.
EchoStar has agreed that it will not (i) provide transponder space to, (ii)
enter into or maintain distributor agreements or relationships with, or (iii)
enter into any agreements for the programming or delivery of any audio
services via DBS frequencies with, a specified group of the Company's
competitors. The Company has agreed it will not (i) secure transponder space
for, (ii) enter into or maintain distributor agreements or relationships with,
or (iii) enter into any agreement for the programming or delivery of any of
the Company's services with any competitor of EchoStar via DBS frequencies or
with specified competitors of EchoStar via K-band frequencies.
The Company may terminate its agreements with EchoStar if EchoStar is unable
to launch its second satellite by December 31, 1997, unless EchoStar allocates
2.4 megahertz of transponder capacity on the EchoStar-I satellite for the
Company's exclusive use.
EchoStar may cancel the terms of the EchoStar Agreements related to the
provision of residential music channels at any time. Upon such cancellation,
EchoStar is required to pay to the Company the depreciated book value of the
Company's capital investment in equipment to support residential music
channels and to continue to provide 2.4 megahertz of transponder capacity for
use by the Company. The Company and its franchisees also would be permitted to
continue to market and sell the video services carried on the EchoStar system.
The EchoStar relationship is still in its formative stage and there can be
no assurance that the benefits anticipated by the Company will be realized.
See "Risk Factors--Dependence on EchoStar and its Satellites."
INTERNET SERVICES
The Company has recently developed and begun operating its Internet
MusicServer(SM) service.
The Company is seeking to exploit recent software developments in real-time
delivery of audio via low-cost, high-speed modems to provide access to
digitized samples of recordings in its library to businesses having
informational or retailing sites on the Internet. The design of the Company's
Internet MusicServer(SM) service allows the Company to use a hardware and
software server system to, among other things, supply services to many
different Internet-based retailers and thus provide music samples to many
retailers more economically than those retailers could provide themselves. The
MusicServer(SM) service permits music retailers and others to offer visitors to
their websites access to digitized 30-second samples from the Company's
library of recorded music. This service, which permits, among other things, a
consumer to preview recordings offered for sale by a retailer, currently is
being provided to CDnow!, an on-line retailer of compact discs and audio
cassettes, Tower Records and Microsoft.
There can be no assurance that Internet services will be economically viable
or generate significant revenue for the Company. See "Risk Factors--Unproven
Capabilities of New Services."
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EQUIPMENT AND RELATED SERVICES
The Company sells or leases various audio system-related products,
principally sound systems and intercoms to its business music subscribers and
other customers. The Company also sells electronic equipment, principally DBS
receivers and dishes as well as proprietary tape playback equipment, to its
franchisees to support their business music services business. All the
equipment is manufactured by third parties, although some items bear the
Muzak(R) brand name. Revenues from equipment and related services accounted
for 40% of the Company's revenues in 1995 and 36% of such revenues during the
six-month period ended June 30, 1996.
The Company and its franchisees also sell, install and maintain non-music
related equipment, such as intercoms and paging systems, for use by their
business music subscribers and other customers. Although the maintenance of
program receiving equipment provided to business music subscribers is
typically included as part of the overall music subscription fee, installation
and maintenance of audio or other equipment not directly related to reception
of the Company's business music service is provided on a contractual or time-
and-materials basis. Labor rates and charges for installation and service vary
by location and are determined by the Company or its franchisee. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MARKETING
COMPANY SALES OFFICES
The Company has 35 sales offices in the United States, including in seven of
the top ten U.S. markets (the greater metropolitan areas of New York, Los
Angeles, Chicago, San Francisco, Boston, Dallas and Detroit). These 35 sales
offices accounted for approximately 72% of the Company's revenues in 1995 and
approximately 71% of such revenues during the six-month period ended June 30,
1996.
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The following are the locations of the Company's local sales offices (major
offices are shown in boldface in order of market size):
NEW YORK, NY (LONG ISLAND CITY) SEATTLE/TACOMA, WA
Hicksville, NY Spokane, WA
LOS ANGELES, CA (BURBANK) MINNEAPOLIS, MN
Tustin, CA
DENVER, CO
CHICAGO, IL Colorado Springs, CO
Peoria, IL
Milwaukee, WI ORLANDO, FL
Moline, IL
Springfield, IL PORTLAND, OR
Medford, OR
SAN FRANCISCO, CA
Sacramento, CA SAN DIEGO, CA
San Jose, CA
INDIANAPOLIS, IN
BOSTON, MA Ft. Wayne, IN
Providence, RI
Exeter, NH HARTFORD, CT
DALLAS, TX CINCINNATI, OH
Tyler, TX Columbus, OH
DETROIT, MI BUFFALO, NY
SCRANTON, PA
Holidaysburg, PA
FRANCHISEES
The Company has 81 franchisees serving 138 separate territories in the
United States. The Company's relationships with its franchisees have been very
stable. More than 80% of its franchisees have been affiliated with the Company
for over 20 years and, during the last ten years, the Company has terminated
relations with only one franchisee. Each franchisee has exclusive
responsibility for sales in its territory, except for sales to national
accounts, sales of in-store advertising services and on-premise music video.
All marketing literature, customer and training videos and sales materials are
designed and produced by the Company and made available to its franchisees.
The Company also conducts sales training for its franchisees' sales personnel.
The Company currently has a standard form of franchise agreement in effect
for 132 of 138 of its franchised territories. The standard form of agreement
has a renewable ten-year term, and grants to the franchisee an exclusive
license to offer and sell specified business music services and certain non-
music broadcast services and to use certain of the Company's registered marks
within a defined territory. The agreement also prohibits franchisees from
marketing or selling competing products. The agreement includes provisions
relating to distribution of services via the Company's medium-powered DBS
system and via EchoStar, and establishes terms for the provision of services
to "national accounts" on a unified basis.
Under the standard form of agreement, franchisees pay the Company (i) a
monthly fee based on the number of business locations within the specified
territory, (ii) a monthly royalty equal to 10% of billings for broadcast
business music services (subject to certain deductions and adjustments) and
(iii) additional amounts for non-music broadcast services and on-premise tape
services. In addition, franchisees have paid a variable surcharge of billings
to customers for eight years following the commencement of medium-powered DBS
services in the
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franchisee's territory. As a result of their agreement to participate in the
delivery of services via the EchoStar satellite system, franchisees also pay a
surcharge of monthly recurring billings in consideration of the Company's
development and implementation of services for delivery over the EchoStar
satellite system. Franchisees are also responsible for paying performing
rights fees in connection with the provision of services in their territories.
Revenues from the sale of other broadcast business services are shared
between the Company and its franchisees and the Company receives 50% or 60% of
these revenues in lieu of royalty payments. Franchisees generally pay a
monthly fee for use of various medium-powered DBS-delivered business music
services offered by the Company, such as Dayparting(R) and Weekparting(R).
NATIONAL SALES PROGRAM
The Company has established a national sales program to market its services
more effectively to subscribers with numerous locations in various
territories, including those served by franchisees, and to address the needs
of these subscribers for uniform service and centralized billing for all of
their locations. Subscribers with 50 or more locations operating in four or
more territories are deemed to be "national accounts." The national sales
program includes a committee of representatives of the Company and its
franchisees that oversees the pricing and other material terms for national
account subscriber contracts. The Company, through its Seattle headquarters,
coordinates the servicing of national accounts by its franchisees and
allocates revenues from national accounts among the participating franchisees.
The national sales office is comprised of 10 salespeople and is supported by
additional customer service personnel. At June 30, 1996, the Company and its
franchisees had national accounts representing over 65,000 subscriber
locations (of which approximately 40,000 were franchisee subscriber
locations), including those of Taco Bell, McDonald's, Burger King, Bob Evans,
Boston Markets, Crate & Barrel, Kroger, Staples, Hallmark and Wal-Mart. None
of the Company's national accounts represents more than 3% of the Company's
consolidated revenues, and the Company's top five national accounts represent
in the aggregate less than 10% of consolidated revenues.
INTERNATIONAL SALES
The Company has agreements with 15 international distributors and
franchisees in 10 countries outside the United States, including Canada,
Mexico, Japan, Argentina and Australia. These distributors and franchisees
either pay royalties to the Company based on their sales of business music
services or a flat fee based on the number of subscribers they serve.
Royalties and other fees from international sales accounted for approximately
2% of the Company's revenues in 1995.
In addition, in August 1995, the Company formed the Muzak Europe joint
venture with Alcas to more aggressively market the Company's services in
Europe. The joint venture, which is headquartered in Hilversum, The
Netherlands, has been offering business music and non-music services via
satellite transmission since January 1996 and is seeking to establish
relationships with key distributors throughout Europe. As of March 31, 1996,
Muzak Europe had entered into agreements with distributors in Ireland, the
United Kingdom, The Netherlands and Belgium. In addition, it recently acquired
the Company's German distributor. As of June 30, 1996, Muzak Europe was
providing services to approximately 3,400 subscriber locations throughout
Europe.
Muzak Europe is a Netherlands corporation in which the Company and Alcas
each own 50% of the outstanding shares. The joint venture agreement between
the Company and Alcas that established Muzak Europe contains restrictions on
the disposition of both parties' shares in Muzak Europe. A credit facility
entered into by Muzak Europe to finance the purchase of the Company's German
distributor requires the Company and Alcas to make any additional investments
in Muzak Europe necessary to maintain equity of four million Netherlands
guilders (approximately $2.5 million), and of at least 25% of its consolidated
total assets. Any additional equity investments must be made equally by the
Company and Alcas. The credit facility also restricts the transfer of the
Company's shares in Muzak Europe.
The Company plans to expand into Latin America and Asia by establishing
similar strategic relationships in those markets.
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Until recently, the Company has not aggressively pursued the development of
its international business; however, the Company believes that the
international market offers significant growth potential. Although the Company
is now pursuing this market, no assurance can be given that the Company will
achieve significant growth in the international market.
COMPETITION
The Company's principal direct competitors in providing business music
services are AEI Music Network, Inc. ("AEI") of Seattle, Washington, and 3M
Sound and Communications, an affiliate of Minnesota Mining and Manufacturing
Corporation. In addition, the Company competes with a number of local
independent providers of business music. DMX, Inc. and Digital Cable Radio
Associates L.P. market and sell commercial-free music programming over cable
to residential cable television subscribers and have launched DBS services
aimed at business users. No assurance can be given that such competition will
not attract customers to whom the Company markets its services, including its
existing customers. In broadcast data delivery, video, audio marketing and in-
store advertising services, the Company faces competition from numerous
companies using broadcast as well as other delivery systems to provide similar
business services.
There are numerous methods by which programming, such as the Company's
business music services, broadcast data delivery, video, audio marketing and
in-store advertising services, can be delivered by existing and future
competitors, including various forms of DBS services, wireless cable and fiber
optic cable and digital compression over existing telephone lines. Many
competitors or potential competitors with access to these delivery
technologies have substantially greater financial, technical, personnel and
other resources than the Company. In addition, the larger communications
industry of which the Company is a part is undergoing significant and rapid
change, including the development of new services, delivery systems and
interactive technologies. In addition, the recently enacted Telecommunications
Act of 1996 (the "Telecommunications Act") may increase competition in the
markets in which the Company operates. The Telecommunications Act resulted in
comprehensive changes to the regulatory environment for the telecommunications
industry as a whole. The legislation permits telephone companies to enter
certain broadcast services businesses. The entry of telephone companies into
such businesses, with greater access to capital and other resources, could
provide significant competition to the Company. In addition, the legislation
affords relief to DBS transmission providers by exempting them from local
restrictions on small-size reception antennae and preempting the authority of
local governments to impose certain taxes. The Company cannot reasonably
predict how the FCC will enforce the rules and policies promulgated under the
Telecommunications Act, or the effect of such rules and policies on
competition in the market for the Company's services.
The Company competes internationally with AEI and a number of regional
business music providers, some of whom have substantially greater financial,
technical, personnel and other resources than the Company.
The Company competes on the basis of service and system quality, versatility
and flexibility, the variety of its music formats, the availability of its
broadcast data and other non-music services and, to a lesser extent, price.
Even though it is seldom the lowest-priced provider of business music in any
territory, the Company believes that it can compete effectively on all these
bases due to the widespread recognition of the Muzak(R) name, its nationwide
sales and service infrastructure, the quality and variety of its music
programming and its multiple delivery systems. However, no assurance can be
given that the Company will be able to compete successfully with its existing
or potential new competitors or maintain or increase its current market share,
that it will be able to use, or compete effectively with competitors that
adopt, new delivery methods and technologies, or that discoveries or
improvements in the communications, media and entertainment industries will
not render obsolete some or all of the technologies or delivery systems
currently relied upon by the Company.
MUSIC LICENSES
Most music is copyrighted and the Company is required to enter into license
agreements to rerecord and play music in public spaces. The Company has
various types of licensing agreements and arrangements with
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major rights owners and organizations to permit the production and
distribution of its business music, including (i) master performance licensing
agreements with ASCAP, BMI and SESAC that permit public performance of
copyrighted music in a customer's location, (ii) mechanical licensing
agreements under which the Company receives rights to rerecord and make copies
of copyrighted music and (iii) licensing agreements with record companies that
allow the Company to produce, advertise and distribute to its on-premise tape
subscribers audio tapes containing original artist recordings.
The Company's agreement with ASCAP expires on May 31, 1999. During 1995, the
Company paid ASCAP fees aggregating approximately $2.6 million. The Company's
agreement with BMI expired on December 31, 1993 and its agreement with SESAC
expired on December 31, 1995. The Company has entered into an interim fee
structure with BMI and is in negotiations with BMI and SESAC with respect to
new agreements. The interim fee structure with BMI has been in place on an
ongoing month-to-month basis since the expiration of the underlying agreement,
and provides for continued payments at 1993 levels. The BMI license extension
stipulates that any settlement relating to ongoing fees may be retroactive to
January 1, 1994. Negotiations on a new contract with BMI began in early 1994
and at this time it is not known when negotiations will be completed. The
Company discontinued use of SESAC licensed material upon expiration of the
underlying agreement. Negotiations on a new contract with SESAC began in mid-
1995 and it is not known when these negotiations will be completed. During
1995, the Company paid BMI and SESAC fees aggregating approximately $950,000
and $7,000, respectively. The Company's total fees for mechanical licenses and
original artist recording licenses and licensing agreements with record
companies have not been material.
The Digital Recordings Act of 1995 ("The Digital Recordings Act") was
enacted into law on November 1, 1995. The Digital Recordings Act amends U.S.
copyright law to provide sound recording owners with an exclusive performance
right in sound recordings that are performed through digital transmissions.
The legislation was drafted to protect performers and copyright owners
potentially disadvantaged by the emergence of digital subscription services.
The Digital Recordings Act provides a compulsory license for non-interactive
subscription services, but does not provide a compulsory license for
interactive services (where the listener selects a musical piece based upon a
menu or schedule). As music services to or within a business are specifically
exempted from the provisions of the Digital Recordings Act, the digital
performance right does not apply to the Company's traditional business music
services (whether analog or digital). However, to the extent the Company
provides digital music services to residential customers, via satellite or
other broadcast delivery or via the Internet or other digital means, the
Digital Recordings Act would require the payment of additional royalties.
GOVERNMENT REGULATION
The Company is subject to the regulatory authority of the United States
government and the governments of other countries in which it provides
services to subscribers. The business prospects of the Company could be
adversely affected by the adoption of new laws, policies or regulations that
modify the present regulatory environment. The Company currently provides
music services in a few areas in the United States through 928 to 960
megahertz radio broadcast frequencies, which are transmission facilities
licensed by the FCC. Additionally, the satellites on which the Company
transmits its DBS services in the United States are licensed by the FCC. If
the FCC authorizations for any of these satellites are revoked or are not
extended, the Company would be required to seek alternative satellite
facilities. Laws, regulations and policy, or changes therein, in other
countries could adversely affect the Company's existing services or restrict
the growth of the Company's business in these countries.
PROPERTIES
The Company's headquarters in Seattle, Washington, consisting of
approximately 43,300 square feet, its 35 local and two national sales offices,
which occupy an aggregate of approximately 150,000 square feet, as well as
office and satellite uplink facilities at Raleigh, North Carolina and
Cheyenne, Wyoming and two warehouses in Seattle, are leased. The Company's
total lease payments during 1995 were approximately $2.4 million. In addition,
the Company owns office and warehouse facilities, aggregating approximately
21,000 square feet, in
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Buffalo, New York, Irving, Texas and Peoria, Illinois. The Company considers
its facilities to be adequate to meet its current and reasonably foreseeable
needs.
EMPLOYEES
At June 30, 1996, the Company had 734 full-time and part-time employees, of
whom 211 held sales and marketing positions, 186 held administrative positions
and 337 held technical and service positions. A total of 78 of the Company's
technical and service personnel are covered by ten union contracts with the
International Brotherhood of Electrical Workers ("IBEW"). The IBEW contracts
have currently effective terms that expire on dates ranging from November 30,
1996 to May 31, 1999. All of the IBEW contracts provide for successive
automatic one-year renewals, unless a notice of renegotiation or termination
is given prior to the end of the then-effective term. The Company does not
have any pending renegotiations of any of the IBEW contracts, but anticipates
that some of the contracts may be renegotiated as their current terms expire.
The Company believes its relationships with its employees and the IBEW are
good.
LEGAL PROCEEDINGS
The Company is subject to various proceedings arising in the ordinary course
of business, none of which, individually or in the aggregate, is expected to
have a material adverse effect on the Company's financial condition, results
of operations or liquidity.
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MANAGEMENT
The Board of Directors of Music Holdings Corp. ("Music Holdings"), an
affiliate of Centre Partners and the general partner of MLP Acquisition L.P.
("MLP Acquisition"), the managing general partner of the Company, functions as
the governing body of the Company. Executive officers of the Company also act
as officers of Capital Corp., but do not receive additional compensation for
such services.
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SENIOR MANAGEMENT PERSONNEL
Certain information is set forth below concerning (i) executive officers and
other members of senior management of the Company and (ii) directors of Music
Holdings:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
Directors and Executive Officers:
<S> <C> <C>
John R. Jester.......... 55 President and Chief Executive Officer and a Director
James F. Harrison....... 49 Senior Vice President, Sales and Marketing
Kirk A. Collamer........ 43 Vice President and Chief Financial Officer
Thomas J. Gentry........ 60 Vice President and General Manager, DBS Division
John A. Neal............ 60 Vice President, Owned Operations
Paul F. Balser.......... 54 Director
William A. Boyd......... 55 Director
Mark E. Jennings........ 34 Director
Bruce G. Pollack........ 37 Director
Other Senior Management Personnel:
Wallace R. Borgeson..... 51 Vice President, Centralized Operations
Bruce B. Funkhouser..... 47 Vice President, Programming and Licensing
L. Dale Stewart......... 49 Vice President, Operations and Engineering
Jack D. Craig........... 61 Vice President, Affiliate Sales and Development
Richard Chaffee......... 52 Vice President, Owned Affiliate Operations
Roger C. Fairchild...... 47 Vice President, Owned Affiliate Sales and Market Development
J. Gary Henderson....... 42 President, In-Store Marketing Group
</TABLE>
John R. Jester has been a Director of Music Holdings, an affiliate of Centre
Partners and the general partner of MLP Acquisition, the managing general
partner of the Company, since September 1992, and has been President and Chief
Executive Officer of the Company and its predecessors since January 1988.
Prior to joining the Predecessor, Mr. Jester served from 1985 to 1987 as
President of US West Information Systems. From 1983 to 1985, Mr. Jester was
President of Executone Inc. Prior to that, Mr. Jester held various financial
and management positions with Contel Corporation, ITT Corporation and C & P of
Maryland, Inc. Mr. Jester currently serves as a director of Montana Power
Company.
James F. Harrison has been Senior Vice President for Sales and Marketing of
the Company and the Predecessor since March 1988. Prior to joining the
Predecessor, Mr. Harrison served from 1986 to 1987 as President of Telegence
Corporation, a start-up data communications manufacturer. From 1985 to 1986,
Mr. Harrison was Vice President of Marketing with US West Information Systems.
From 1983 to 1984, Mr. Harrison was Vice President of Business Market
Development for Contel Corporation's unregulated businesses. From 1981 to
1982, he was head of Communications Marketing Division at Wang Laboratories,
Inc., and from 1976 to 1980, Mr. Harrison was PBX Systems Engineering and
Development Supervisor and Member of the Technical Staff for Human Factors
Research with Bell Laboratories, Inc.
Kirk A. Collamer, a certified public accountant, has been Vice President of
Finance and Administration and Chief Financial Officer of the Company since
August 1995. Prior to joining the Company, Mr. Collamer served from July 1990
to July 1995 as Vice President of Finance at Ameritech Corporation for its
Enhanced Business Services division and Chief Financial Officer of its New
Zealand subsidiary. Prior to that time, Mr. Collamer held a variety of
financial and accounting positions with Jack Daniel Distillery/Brown-Forman
Corporation, Aladdin Industries, Inc. and Arthur Andersen LLP.
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Thomas J. Gentry has been Vice President and General Manager of the DBS
Division of the Company and the Predecessor since June 1988. Prior to joining
the Predecessor, Mr. Gentry served from 1985 to 1987 as President and Chief
Executive Officer of SkySwitch Satellite Communications. Mr. Gentry has over
30 years of experience in telecommunications and satellite communications with
Westinghouse Defense Group, COMSAT Corporation, Western Union and Contel
A.S.C.
John A. Neal has been Vice President, Owned Operations of the Company and
the Predecessor since January 1991. From October 1988 to December 1990, Mr.
Neal served as Vice President of National Sales for the Predecessor. From 1987
to 1988, Mr. Neal was Vice President and Chief Operating Officer of Executone
Telecommunications, Rochester, New York. From 1979 to 1987, he was Vice
President of Sales for Contel Executone, where he developed and managed
Executone's National Account program.
Paul F. Balser has been a Director of Music Holdings since September 1992.
Mr. Balser was a partner of Centre Partners from 1986 until August 1995. In
August 1995, Mr. Balser resigned as an officer of the managing general partner
of Centre Partners to become a founding partner of Generation Capital Partners
L.P., a newly organized private investment partnership. From 1982 to 1986, Mr.
Balser was a Managing Director and a member of the Board of Directors of J.
Henry Schroeder Corp. Mr. Balser currently serves as a director of Kansas City
Southern Industries, Inc. (NYSE), The Carbide/Graphite Group, Inc. (Nasdaq),
The Quarton Group--Publishers, Inc., Jungle Jim's Playlands, Inc., Scientific
Games Holdings Corp. (Nasdaq) and Victory Holdings Corp.
William A. Boyd has been a Director of Music Holdings since August 1996.
From September 1995 to August 1996, Mr. Boyd was a private investor. From 1982
to September 1995, Mr. Boyd was owner and president of the largest franchisee
of the Company. Mr. Boyd was President of the Independent Affiliate
Organization from 1994 to 1995 and from 1986 to 1987. Mr. Boyd was also
President of the Company's Owned Affiliate division in 1987. Prior to owning a
franchise, Mr. Boyd held various positions with the Predecessor.
Mark E. Jennings has been a Director of Music Holdings since September 1992.
Through August 1995, Mr. Jennings was a partner of Centre Partners where he
has been employed since 1987. In August 1995, Mr. Jennings resigned as an
officer of the managing general partner of Centre Partners to become a
founding partner of Generation Capital Partners L.P. From 1986 to 1987, Mr.
Jennings was employed at Goldman, Sachs & Co. in its Corporate Finance
Department. Mr. Jennings currently serves as a director of The
Carbide/Graphite Group, Inc. (Nasdaq), Jungle Jim's Playlands, Inc.,
Scientific Games Holdings Corp. (Nasdaq) and Johnny Rockets Group, Inc.
Bruce G. Pollack has been a Director of Music Holdings since September 1995.
Mr. Pollack is a partner of Centre Partners, which he joined in January 1991,
and is a Managing Director of Centre Partners Management LLC, which was formed
in December 1995 to manage investments on behalf of Centre Capital Investors
II, L.P. and affiliated entities. From 1988 to June 1991, Mr. Pollack was an
officer and director of RSG Partners, Inc. and its predecessors, and from 1985
to 1988, Mr. Pollack was an officer of TSG Holdings, Inc. Mr. Pollack
currently serves as a director of Johnny Rockets Group, Inc., The Quarton
Group--Publishers, Inc., Jungle Jim's Playlands, Inc. and Victory Holdings
Corp. On December 28, 1992, a petition under chapter 11 of the Federal
bankruptcy code was filed by SC Corporation and its operating subsidiaries, of
which Mr. Pollack served as a vice president until January 1991. Mr. Pollack
is also a director of, and prior to October 4, 1994 was a vice president of,
Victory Markets Inc. and New Almacs Inc., operating subsidiaries of Victory
Holdings Corp. that filed petitions under chapter 11 on September 20, 1995.
Wallace R. Borgeson has been Vice President of Centralized Operations of the
Company since August 1995. From April 1990 to August 1995, Mr. Borgeson served
as Vice President of Finance and Administration of the Company and the
Predecessor. From 1988 to 1990, Mr. Borgeson was the Chief Financial Officer
of Hickory Farms, Inc., and from 1971 to 1988, he served in various capacities
with Wurlitzer Company, most recently as Chief Financial Officer.
Bruce B. Funkhouser has been Vice President of Programming and Licensing of
the Company and the Predecessor since October 1987. From 1983 to 1987, Mr.
Funkhouser served as Programming and Production Manager for YesCo, Inc., which
was merged with a predecessor to the Predecessor in 1986. Prior to 1983, Mr.
Funkhouser was a record company owner and producer, former broadcasting
manager and on-air talent and Professor of Communications at Bellevue
Community College. He is a member of The American Federation of Television and
Radio Artists and The National Academy of Recording Arts and Sciences.
43
<PAGE>
L. Dale Stewart has been Vice President of Operations and Engineering of the
Company and the Predecessor since November 1987. From 1986 to 1987, Mr.
Stewart was Acting General Manager and Operations Manager at the Predecessor's
New York City office. From 1984 to 1986, Mr. Stewart was General Manager of
the Corpus Christi, Texas franchise, and prior to that he worked for the
franchisee in San Antonio, Texas.
Jack D. Craig has been Vice President, Affiliate Sales and Development of
the Company and the Predecessor since September 1988. From 1983 to 1988, Mr.
Craig was Vice President, Dealer Sales for AEI. From 1979 to 1983, Mr. Craig
was Marketing/Sales Manager for Aiphone Corporation, a leading intercom
manufacturer. Prior to joining Aiphone Corporation, Mr. Craig served as Vice
President/Account Supervisor for 11 years with J. Walter Thompson Advertising.
Richard Chaffee has been Vice President, Owned Affiliate Operations of the
Company and the Predecessor since July 1987. Since joining a predecessor to
the Predecessor in 1968, Mr. Chaffee has served in both local sales offices
and franchisee operations in New York, Boston, Chicago, Minneapolis and
Charlotte, primarily as Chief Engineer and Operations Manager.
Roger C. Fairchild has been Vice President, Owned Affiliate Sales and Market
Development of the Company since December 1993. From January 1991 to December
1993, Mr. Fairchild provided consulting services to the Company and the
Predecessor through Strategic Growth Advisory, a marketing and business
development consultancy. From 1989 to 1991, Mr. Fairchild was President of a
start-up voice processing equipment manufacturer. From 1988 to 1989, Mr.
Fairchild was Director of Marketing for ADC Telecommunications, Inc., a $175
million growth-stage telecommunications manufacturer. From 1983 to 1988, Mr.
Fairchild served as a vice president of operations and marketing for a US West
Information Systems subsidiary.
J. Gary Henderson has been President of the In-Store Marketing Group of the
Company since December 1993. From April 1991 to November 1993, Mr. Henderson
was a private investor. From 1986 to April 1991, Mr. Henderson was Executive
Vice President and Chief Marketing Officer of POP Radio Corporation. From 1982
to 1986, Mr. Henderson was Account Director for Actmedia, Inc.
There are no family relationships among the directors and executive officers
of the Company.
44
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and to each of the Company's four other
most highly compensated executive officers (together with the Chief Executive
Officer, the "Named Executive Officers") for services in all capacities
rendered to the Company and its subsidiaries in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION COMPENSATION(2)
<S> <C> <C> <C> <C>
John R. Jester, $213,725 -- -- $2,310
President and Chief Executive
Officer
James F. Harrison, $172,750 -- -- $2,310
Senior Vice President, Sales &
Marketing
John A. Neal, $155,000 -- -- $1,744
Vice President, Owned
Operations
Thomas J. Gentry, $152,000 -- -- $1,995
Vice President, DBS Division
Wallace R. Borgeson, $113,000 -- -- $1,624
Vice President, Centralized
Operations(3)
</TABLE>
- ---------------------
(1) Bonuses in respect of services rendered in 1994 were determined and paid
in 1995 ($20,000 for Mr. Harrison, $25,000 for Mr. Neal, $18,000 for Mr.
Gentry and $12,000 for Mr. Borgeson). No bonuses were awarded to Named
Executive Officers with respect to services rendered in 1995.
(2) Consists of contributions by the Company to a defined contribution 401(k)
plan.
(3) Mr. Borgeson served as an executive officer of the Partnership and the
Predecessor until August 1995.
No restricted partnership interest awards, appreciation rights or long-term
incentive plan awards were awarded to, earned by or paid to the Named
Executive Officers during the fiscal year ended December 31, 1995.
DIRECTORS' COMPENSATION
Directors of Music Holdings, the general partner of the managing partner of
the Company, who are also employees of the Company receive no remuneration for
services as members of the Board or any committee of the Board. Directors who
are not employed by the Company receive an annual retainer of $20,000 plus
$3,000 for each meeting of the Board attended, except in the case of the
Centre Partners designees, who receive an annual retainer of $50,000. See
"Certain Relationships and Related Transactions."
CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Effective August 31, 1992, the Company entered into five-year employment
agreements with each of John R. Jester, President and Chief Executive Officer
of the Company, and James F. Harrison, Senior Vice President of the Company.
Under his employment agreement, Mr. Jester currently receives an annual base
salary of $220,000, subject to cost of living adjustments. Under his
employment agreement, Mr. Harrison currently receives an annual base salary of
$178,000, subject to cost of living adjustments. Mr. Jester will receive a
bonus equal to 50% of his annual base salary if the Company achieves a
specified performance target for the 12 months ended December 31, 1996, which
target the Company believes will not be reached. If the target is not reached,
the Board of Directors may nonetheless award Mr. Jester a bonus in an amount
and on the terms determined by the Board of Directors (which amount shall not
exceed 50% of his annual base salary). Each of the agreements also provides
for a severance payment equal to the annual base salary and pro rata bonus in
the event of termination due to disability or death during the term of
employment. Both employment agreements also contain confidentiality covenants
and non-solicitation covenants which extend for five and two years,
respectively,
45
<PAGE>
beyond the term of the agreements. The Company can terminate either agreement
without further liability in case of the officer's fraud against, or
embezzlement from, the Company, indictment or conviction of a felony or
misdemeanor having a material adverse effect on the Company or material
failure to discharge his duties. In addition, the Company can terminate the
agreements if there is a material uncured default under the Company's credit
agreements or if the Company's cumulative performance level is less than 80%
of the cumulative target projected for any month; provided that in either such
case the Company is required to pay a severance payment equal to, in the case
of Mr. Jester, his annual base salary plus a pro-rated bonus, or, in the case
of Mr. Harrison, his annual base salary. The Company may otherwise terminate
the agreements for any reason during their terms by paying a severance payment
equal to the lesser of (i) two times the then-effective annual base salary and
(ii) the amount of compensation to which Mr. Jester or Mr. Harrison, as the
case may be, would be entitled to receive between the date of termination and
the fifth anniversary of the employment agreement had the agreement in
question not been terminated; but in no event less than one year's annual base
salary at the then effective rate. Mr. Jester would also be entitled to
receive a pro-rated bonus if cumulative performance targets exceed projections
for the twelve-month period preceding such termination.
Pursuant to a letter dated July 7, 1995, Kirk A. Collamer, Vice President
and Chief Financial Officer of the Company, was hired at an annual salary of
$160,000 and is eligible for discretionary bonuses. In addition, Mr. Collamer
was entitled to purchase up to 150,000 units of partnership interests, of
which 60,000 units were subscribed and paid for at $1.75 per unit and the
remainder forfeited. Mr. Collamer was granted options to purchase 150,000
additional units of partnership interests at $1.75 per unit, conditional upon
the performance of the Company. Mr. Collamer also received $120,000 relating
to the sale of his home in Chicago and his relocation to Seattle.
SENIOR MANAGEMENT INCENTIVE PLAN
In January 1996, the Company adopted the Senior Management Incentive Plan
(the "Incentive Plan"), to provide for annual incentive awards to senior
executives of the Company.
The Incentive Plan will be administered by the Compensation Committee.
Initially, there will be eleven participants in the Incentive Plan, including
Messrs. Jester, Harrison, Neal, Gentry and Borgeson.
Annual incentive awards under the Incentive Plan will be based on the
achievement by the Company of target levels of three distinct measures:
EBITDA, operating cash flow (as defined in the Incentive Plan) and revenue
growth in a calendar year. The annual incentives for participants may range
from no award (if minimum target levels are not reached) to a maximum of 43%
(if maximum target levels are reached) of base salary in effect at the end of
a plan year. No awards will be made under the Incentive Plan unless the
minimum target level for EBITDA is reached, regardless of the performance
levels for the other measurements. The Incentive Plan will first be effective
for the 1996 plan year.
If a participant's employment is terminated during a plan year, a pro-rated
bonus may be awarded at the discretion of the Compensation Committee.
Performance target levels may be modified, at the discretion of the
Compensation Committee, for significant transactions, such as acquisitions,
divestitures or development projects.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation decisions are made by the Board of Directors of the
general partner of the managing general partner of the Company, which consists
of Messrs. Balser, Jennings, Jester and Pollack.
Paul F. Balser and Mark E. Jennings are limited partners of MLP and prior to
August 1995 were officers of Park Road Corporation ("Park Road"), the managing
general partner of Centre Partners. Bruce G. Pollack, a director of the
Company, is a limited partner of MLP and is an officer and director of Park
Road.
Centre Partners was paid (i) $324,000 for its efforts in initiating,
structuring and consummating the Comcast Acquisition and (ii) $150,000 as
consideration for the guarantees by MLP and CCI of a $10.0 million unsecured
46
<PAGE>
loan made by UBS (the "UBS Loan"). In addition, the Company agreed to pay
Centre Partners $300,000 if any amounts were required to be paid under either
the MLP or CCI guarantee. Such guarantees have been discharged and no payments
were required to be made thereunder.
During each of 1992, 1993 and 1994, the Company paid to Centre Partners the
aggregate amount of $100,000 for the services of the Centre Partners designees
as directors of Music Holdings for the subsequent calendar year. In 1996, the
Company will pay to Centre Partners $162,500 for services provided by the
Centre Partners designees during 1995 and 1996.
BENEFIT PLAN
The Company maintains a 401(k) defined contribution savings and retirement
plan (the "Benefit Plan") that covers substantially all of the Company's
employees, including certain Named Executive Officers. Under the Benefit
Plan's savings portion, eligible employees may contribute from 2% to 14% of
their compensation per year, subject to certain tax law restrictions. The
Company may make a matching contribution of up to a maximum of 100% of the
first 2% and 50% of the next 4%, up to 6% of the total base salary contributed
by the employee each year. The Company's contributions under the retirement
portion of the Benefit Plan are determined annually by the Company, but may
not exceed 3% of the eligible employee's annual compensation. Benefit Plan
participants are immediately vested in their contributions as well as the
Company's contributions.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act (the
"RULPA") empowers a limited partnership to indemnify and hold harmless any
partner or other person from and against any and all claims and demands
whatsoever.
The Third Amended and Restated Agreement of Limited Partnership of the
Company, dated as of November 4, 1994, as amended (the "Partnership
Agreement"), provides that the general partners of the Company, their
respective affiliates and all officers, partners, directors, employees,
stockholders and agents of the general partners and their respective
affiliates and all officers, agents and employees of the Company who are
partners of the Company, shall not be liable to the Company, to limited
partners or any other person holding an interest in the Company for any losses
sustained or liabilities incurred, including monetary damages, as a result of
any act or omission of the general partners or any such other person if the
conduct of the general partners or such other person did not constitute fraud,
willful misconduct or criminal conduct.
The Partnership Agreement also provides that the Company shall, to the
fullest extent permitted by law, indemnify and hold harmless the general
partners of the Company, their respective affiliates, and the officers,
directors, employees and agents of the general partners and their respective
affiliates, from and against any and all liabilities and expenses which arise
by reason of any such person's management of the affairs of the Company or of
a general partner, or any such person's status as a general partner of the
Company or affiliate thereof, as a partner, director, officer, employee,
stockholder or agent thereof, or as a partner, director, officer, agent or
employee of the Company or a person serving at the request of such persons,
provided, that such liability or expense is not the result of the fraud,
willful misconduct or criminal conduct of the indemnitee.
In the event of the filing of a public offering of securities of the Company
pursuant to a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), the Partnership Agreement provides that the
Company shall indemnify and hold harmless holders of such securities
participating in such registration, the directors, officers, partners and
controlling persons of such holders, and partners of the Company for any
liability which arises from such filing under the Securities Act.
Pursuant to the provisions of the Delaware General Corporation Law (the
"DGCL"), Capital Corp. has adopted provisions in its Certificate of
Incorporation which provide that directors of Capital Corp. shall not be
personally liable for monetary damages to Capital Corp. or its stockholders
for a breach of fiduciary duty as a
47
<PAGE>
director, except for liability as a result of: (i) a breach of the director's
duty of loyalty to Capital Corp. or its stockholders; (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) an act related to the unlawful stock repurchase or
payment of a dividend under Section 174 of the DGCL; and (iv) transactions
from which the director derived an improper personal benefit. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Capital Corp.'s Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the fullest extent permitted under DGCL.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company or Capital Corp. as
to which indemnification is being sought, nor is the Company or Capital Corp.
aware of any pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1994, the Company purchased substantially all of the assets of
Comcast in the Comcast Acquisition for total consideration of approximately
$33.0 million, $28.0 million of which was paid in cash and the balance of
which was paid with a $5.0 million 7% preferred limited partnership interest
of the Partnership.
In order to finance the Comcast Acquisition, the Company's secured term loan
and revolving credit facility, in respect of which UBS acts as agent bank and
is a lender, was increased. In addition, the Company borrowed $10.0 million
under the UBS Loan. In November 1994, the UBS Loan was repaid in full with
proceeds from a subordinated financing involving the sale of $7.0 million in
additional preferred partnership interests to existing investors, including
MLP and certain of the Management Investors, with a pledge of the limited
partnership interests to the lenders under the term loan and revolving credit
facility, and an increase in a subordinated debt facility provided by Barclays
Bank PLC, New York Branch ("Barclays"), and Exeter Venture Lenders, L.P.
("Exeter"). Barclays and Exeter were also granted the right to purchase for
nominal consideration additional interests in the Company representing
approximately 2.8% of the Company's equity.
During the years ended December 31, 1993, 1994 and 1995, and six-month
periods ended June 30, 1995 and 1996, the Company incurred interest expense of
approximately $3.7 million, $6.9 million, $7.4 million, $3.7 million and $3.5
million, respectively, in connection with the UBS term loan and revolving
credit facility and the Barclays subordinated debt facility. In addition, in
1993, 1994 and 1995, the Company paid an aggregate of $250,000, $1.9 million
and $122,000, respectively, in fees to UBS and Barclays in connection with
increases in the Company's term loan and establishment of and increases in the
revolving credit facility and the subordinated debt facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
For additional information, see "Management--Compensation Committee
Interlocks and Insider Participation."
49
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company as of the date hereof, by (i) each
interestholder known by the Company to beneficially own more than five percent
of the Company, (ii) each director of the general partner of the managing
general partner of the Company, (iii) the Named Executive Officers and (iv)
all directors of the general partner of the managing general partner of the
Company and executive officers of the Company as a group. Except pursuant to
applicable community property laws or as otherwise noted below, each of the
owners identified in the table has sole voting and investment power with
respect to the partnership interests beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF
PARTNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER INTERESTS PERCENT
<S> <C> <C>
Centre Partners L.P.(1).............................. 12,668,493 62.9%
30 Rockefeller Plaza
Suite 5050
New York, NY 10020
UBS Capital LLC...................................... 1,803,569 9.0%
299 Park Avenue
34th Floor
New York, NY 10171
Comcast Corporation.................................. 1,420,868 7.1%
1500 Market Street
Philadelphia, PA 19102
Barclays Bank PLC.................................... 1,358,617 6.7%
600 Fifth Avenue
New York, NY 10023
John R. Jester....................................... 366,816 1.8%
James F. Harrison.................................... 217,985 1.1%
Thomas J. Gentry..................................... 158,602 0.8%
John A. Neal......................................... 173,637 0.9%
Wallace R. Borgeson.................................. 99,221 0.5%
Paul F. Balser....................................... -- (2) -- (2)
Mark E. Jennings..................................... -- (2) -- (2)
Bruce G. Pollack..................................... -- (3) -- (3)
All directors and executive officers as a group (8
persons)............................................ 1,016,261(4) 5.1%(4)
</TABLE>
- ---------------------
(1) Includes partnership interests held by MLP, of which Centre Partners is
the general partner. Centre Partners may be deemed to be indirectly
controlled, through Park Road, the managing general partner of Centre
Partners, by Lester Pollack, a Managing Director of Lazard Freres & Co.
LLC, an underwriter of this Offering, and the father of Bruce G. Pollack,
a director of the general partner of the managing general partner of the
Company.
(2) Excludes partnership interests held by Centre Partners and MLP. Messrs.
Balser and Jennings are limited partners of MLP and prior to August 1995
were officers of Park Road. Each disclaims beneficial ownership of such
partnership interests.
(3) Excludes partnership interests held by Centre Partners and MLP. Mr.
Pollack is a limited partner of MLP and is an officer and director of Park
Road. He disclaims beneficial ownership of such partnership interests.
(4) Excludes partnership interests held by Centre Partners and MLP.
50
<PAGE>
DESCRIPTION OF THE SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to an Indenture (the "Indenture")
among the Issuers, as joint and several obligors, and , as trustee
(the "Trustee"). The terms of the Senior Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior
Notes are subject to all such terms, and holders of Senior Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof. The
following summary of certain provisions of the Indenture does not purport to
be complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. A copy of the
proposed form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available as set forth
under "--Additional Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
The Senior Notes will represent unsecured senior obligations of the Issuers,
will rank senior in right of payment to all Subordinated Indebtedness of the
Issuers and will rank pari passu in right of payment with all senior
indebtedness of the Issuers. At June 30, 1996, on a pro forma basis after
giving effect to the Offering and the application of the estimated net
proceeds therefrom, the Issuers would have had approximately $1.1 million of
total indebtedness, other than the Senior Notes. The Senior Notes will be
guaranteed on a senior basis by all future Domestic Subsidiaries of the
Company (other than Capital Corp.). As of the date hereof, the Company has no
Subsidiaries other than Capital Corp. The Indenture will limit the ability of
the Issuers and their Subsidiaries to incur additional indebtedness; however,
the Issuers and their Subsidiaries will be permitted to incur certain
indebtedness, which may be secured. See "--Certain Covenants." Capital Corp.
has no substantial assets and no operations of any kind, and the Indenture
will limit Capital Corp.'s ability to acquire or hold any significant assets
or other properties or engage in any business activities. See "--Certain
Covenants--Limitation on Activities of Capital Corp."
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes will be limited in aggregate principal amount to $85.0
million and will mature on , 2003. Interest on the Senior Notes will
accrue at the rate of % per annum and will be payable in cash semi-
annually in arrears on and , commencing on ,
1997, to holders of record on the immediately preceding and
. Interest on the Senior Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. Principal, premium, if any, and
interest on the Senior Notes will be payable at the office or agency of the
Issuers maintained for such purpose within the City and State of New York or,
at the option of the Issuers, payment of interest may be made by check mailed
to the holders of the Senior Notes at their respective addresses set forth in
the register of holders of Senior Notes. Until otherwise designated by the
Issuers, the Issuers' office or agency in New York will be the office of the
Trustee maintained for such purpose. The Senior Notes will be issued in
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Senior Notes will be jointly and
severally guaranteed on a senior basis (the "Subsidiary Guarantees") by the
Guarantors. Each Subsidiary Guarantee will be a senior unsecured obligation of
the Guarantor issuing such Subsidiary Guarantee and will rank pari passu in
right of payment with all Guarantor Senior Indebtedness of such Guarantor. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited
so as not to constitute a fraudulent conveyance under applicable law. See
"Risk Factors--Fraudulent Conveyance."
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor,
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any
51
<PAGE>
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Senior Notes and
the Indenture, (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists and (iii) such Guarantor, or any Person
formed by or surviving any such consolidation or merger, would be permitted by
virtue of the Company's pro forma Fixed Charge Coverage Ratio to incur,
immediately after giving effect to such transaction, at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Equity Interests;" provided that the
foregoing provisions shall not apply to any Asset Sale subject to the
provisions described below under "Repurchase at the Option of Holders--Asset
Sales."
The Indenture will provide that, in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, such Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture described below
under "Repurchase at the Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Issuers' option prior to
, 2000. Thereafter, the Senior Notes will be subject to redemption
at the option of the Issuers, in whole or in part, upon not less than 30 nor
more than 60 days' notice, in cash at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000.............................................................. %
2001.............................................................. %
2002 and thereafter............................................... 100.00%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the date of
this Prospectus, the Issuers may on any one or more occasions redeem up to
35.0% of the initially outstanding aggregate principal amount of Senior Notes
at a redemption price equal to % of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the redemption date, with the
net proceeds of one or more equity offerings of the Issuers generating in each
case net proceeds of at least $15.0 million; provided that at least 65.0% of
the initially outstanding aggregate principal amount of Senior Notes remain
outstanding immediately after the occurrence of any such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of any such equity offering of the Issuers.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Senior Notes will
have the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Senior
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Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Issuers will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Senior Notes pursuant to the procedures required by the
Indenture and described in such notice. The Issuers will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes as a result
of a Change of Control.
On the payment date set forth in the Change of Control Offer (the "Change of
Control Payment Date"), the Issuers will, to the extent lawful, (i) accept for
payment all Senior Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to
the Change of Control Payment in respect of all Senior Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
the Senior Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Senior Notes or portions thereof being
purchased by the Issuers. The Paying Agent will promptly mail to each holder
of Senior Notes so tendered the Change of Control Payment for such Senior
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each holder a new Senior Note equal in principal
amount to any unpurchased portion of the Senior Notes surrendered, if any;
provided that each such new Senior Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Issuers will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principals or their Related Parties (as defined
below), (ii) the adoption of a plan relating to the liquidation or dissolution
of the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than a
majority of the voting Capital Interests of the Company, (iv) the first day on
which a majority of the members of the Board of Directors are not Continuing
Directors or (v) prior to the reorganization of the Company as a corporation,
the first day on which the Company ceases to own 100% of the outstanding
Equity Interests of Capital Corp. For purposes of this definition, any
transfer of an equity interest of an entity that was formed for the purpose of
acquiring voting Capital Interests of the Company will be deemed to be a
transfer of such portion of such voting Capital Interests as corresponds to
the portion of the equity of such entity that has been so transferred.
Notwithstanding the foregoing, the reorganization of the Company as a
corporation shall not be deemed to constitute a Change of Control, so long as
such reorganization does not result in any of the occurrences described above
under clauses (i) through (v).
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a holder of Senior Notes to
require the Issuers to repurchase such Senior Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the
assets of the Company and its Subsidiaries taken as a whole to another person
or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election
or elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Principals" means MLP Acquisition, MLP Holdings, Music Holdings, Centre
Partners and Park Road.
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"Related Party" with respect to any Principal means (a) any controlling
stockholder or general partner, 80% (or more) owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or (b)
any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (a), or (c) any Person
employed by the Company in a management capacity as of the date of the
Indenture.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Senior Notes to
require that the Issuers repurchase or redeem the Senior Notes in the event of
a takeover, recapitalization or similar restructuring.
Asset Sales
The Indenture will provide that the Company and Capital Corp. will not, and
will not permit any of their respective Subsidiaries to, engage in an Asset
Sale, unless (a) the Company or Capital Corp. (or the Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (b) at least 75%
of the consideration therefor received by the Company, Capital Corp. or such
Subsidiary is in the form of cash or Cash Equivalents; provided that the amount
of (i) any liabilities (as shown on the Company's, Capital Corp.'s or such
Subsidiary's most recent balance sheet or in the notes thereto), of the
Company, Capital Corp. or any Subsidiary (other than liabilities that are by
their terms subordinated to the Senior Notes or any guarantee thereof) that are
assumed by the transferee of any such assets and (ii) any notes or other
obligations received by the Company, Capital Corp. or any such Subsidiary from
such transferee that are promptly converted by the Company, Capital Corp. or
such Subsidiary into cash (to the extent of the cash received), shall be deemed
to be cash for purposes of this provision; and provided, further, that the
limitation in clause (b) above shall not apply to any Asset Sale in which the
cash portion of the consideration received therefor, determined in accordance
with foregoing proviso, is equal to or greater than what the after-tax net
proceeds would have been had such Asset Sale complied with the aforementioned
limitation.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the
Issuers may apply such Net Proceeds (a) to permanently reduce Pari Passu
Indebtedness, (b) to permanently reduce Indebtedness permitted to be incurred
pursuant to clause (i) of the second paragraph of the covenant described below
under "--Incurrence of Indebtedness and Issuance of Preferred Equity Interests"
or (c) an investment in another business, the making of a capital expenditure
or the acquisition of other tangible assets, in each case, in the same or a
similar or related line of business as the Issuers were engaged in on the date
of the Indenture. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Revolving Debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Issuers will be required to make an offer to all holders of Senior Notes
(an "Asset Sale Offer") to purchase the maximum principal amount of Senior
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 101% of the principal amount thereof, plus accrued
and unpaid interest thereon to the date of purchase (the "Asset Sale Offer
Price"), in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Senior Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Issuers may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Senior Notes surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Senior Notes to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if
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any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that no Senior Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Senior Notes to be redeemed at its registered address. If any Senior Note is to
be redeemed in part only, the notice of redemption that relates to such Senior
Note shall state the portion of the principal amount thereof to be redeemed. A
new Senior Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the holder thereof upon cancellation of the
original Senior Note. On and after the redemption date, interest ceases to
accrue on Senior Notes or portions of them called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company and Capital Corp. will not, and
will not permit any of their respective Subsidiaries to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on account
of the Company's, Capital Corp.'s or any of their respective Subsidiaries'
Equity Interests (including, without limitation, any such distribution by such
Persons in connection with any merger or consolidation involving the Company or
Capital Corp.)(other than dividends or distributions payable in Equity
Interests (other than Disqualified Interests) of the Company or dividends or
distributions payable to the Company or any Wholly Owned Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the
Company; (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Indebtedness, except at
final maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(A) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(B) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four fiscal quarters for which
financial statements are available, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under caption "--Incurrence of Indebtedness and Issuance of Preferred
Equity Interests;" and
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (ii),
(iii), (iv), (vi), (vii) and (viii) of the next succeeding paragraph), is
less than the sum of (1) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date of the Indenture to the end
of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (2) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale since the date of the
Indenture of Equity Interests of the Company or of debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Interests or debt securities that
have been converted into Disqualified Interests), plus (3) to the extent
that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (x) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (y) the initial
amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend or
distribution within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity
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Interests of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Interests);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (C)(2) of the preceding paragraph; (iii) the defeasance,
redemption or repurchase of Subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Interests); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (C)(2) of the preceding paragraph; (iv) quarterly distributions in
accordance with the Code in respect of partners' income tax liability in an
amount not to exceed the Tax Amount; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Indenture;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $500,000 in each twelve-
month period, plus the amount of any such amounts which remain unused at the
end of the two prior twelve-month periods but in no event in excess of $1.5
million in any such twelve-month period, plus the aggregate cash proceeds
received by the Company during such twelve-month period from any reissuance of
Equity Interests by the Company to members of management of the Company and its
Subsidiaries; and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (vi) the redemption, or
conversion to subordinated convertible Indebtedness in accordance with the
Partnership Agreement as in effect on the date of the Indenture, of the
Company's Class C Limited Partner Interest outstanding as of the date of the
Indenture and any repayment of such subordinated convertible Indebtedness into
which such Class C Limited Partner Interest is converted; (vii) prior to the
reorganization of the Company as a corporation, distributions or payments to
partners of the Company in an aggregate amount not to exceed $750,000 in any
fiscal year in respect of Administrative Expenses; and (viii) following the
reorganization of the Company as a corporation, (A) payments by the Company to
its parent pursuant to any tax sharing agreement between the Company and such
parent, (B) reimbursement payments by the Company to such parent in respect of
out-of-pocket insurance payments made by such parent on behalf of the Company
and its Subsidiaries and (C) payments by the Company to such parent in respect
of Administrative Expenses.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company,
Capital Corp. or such Subsidiary, as the case may be, pursuant to the
Restricted Payment. Not later than the date of making any Restricted Payment,
the Issuers shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
which calculations may be based upon the Issuers' latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Equity Interests
The Indenture will provide that the Company and Capital Corp. will not, and
will not permit any of their respective Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guaranty or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt) and that the Company and
Capital Corp. will not issue any Disqualified Interests and will not permit any
of their respective Subsidiaries to issue any shares of preferred stock or
preferred partnership interests; provided that the Company and any of its
Subsidiaries that is a Guarantor may incur Indebtedness (including Acquired
Debt) or issue Disqualified Interests, if the Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Interests is issued
would have been at least (a) 2.0 to 1, on or prior to December 31, 1998, and
(b) 2.25 to 1, thereafter, in each
case, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or the Disqualified Interests had been issued, as the case may be, at the
beginning of such four-quarter period.
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The foregoing provisions will not apply to:
(i) the incurrence by the Company and any of its Subsidiaries that is a
Guarantor of Senior Revolving Debt and letters of credit pursuant to any
Credit Facility for working capital purposes (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company thereunder) in an aggregate principal amount not to exceed
the amount of the Borrowing Base;
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness and the Company's Class C Limited Partner Interest outstanding
as of the date of the Indenture;
(iii) the incurrence by the Company and Capital Corp. of the Indebtedness
represented by the Senior Notes;
(iv) the incurrence by the Company and any of its Subsidiaries that is a
Guarantor of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, Indebtedness that was permitted by the Indenture to be incurred;
(v) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided that (A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than a Wholly Owned Subsidiary and (B) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(vi) the incurrence by the Company and any of its Subsidiaries that is a
Guarantor of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing up to all or any part of the purchase price or
cost of construction or improvement of property used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$2.0 million at any time outstanding;
(vii) the incurrence by the Company and any of its Subsidiaries that is a
Guarantor of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(viii) the incurrence by the Company and any of its Subsidiaries that is
a Guarantor of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course
of business;
(ix) the incurrence by the Foreign Subsidiaries of the Company of
Indebtedness in an aggregate amount not to exceed $3.0 million at any time
outstanding; and
(x) the incurrence by the Company and any of its Subsidiaries that is a
Guarantor of Indebtedness not otherwise permitted under the Indenture in an
aggregate amount not to exceed $5.0 million at any time outstanding, less
the aggregate principal amount of any Indebtedness incurred pursuant to
clause (ix) of this paragraph.
Liens
The Indenture will provide that the Company and Capital Corp. will not, and
will not permit any of their respective Subsidiaries to, create, incur, assume
or otherwise cause or suffer to exist or become effective any Lien of any kind
(other than Permitted Liens) upon any of their property or assets, now owned
or hereafter acquired, unless all payments due under the Indenture and the
Senior Notes and the Subsidiary Guarantees, if any, are secured on an equal
and ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company and Capital Corp. will not, and
will not permit any of their respective Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any Subsidiary to (a)(i) pay
dividends or make any other
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distributions to the Company, Capital Corp. or any of their respective
Subsidiaries (A) on their Capital Interests or (B) with respect to any other
interest or participation in, or measured by, its profits, or (ii) pay any
indebtedness owed to the Company, Capital Corp. or any of their respective
Subsidiaries, (b) make loans or advances to the Company, Capital Corp. or any
of their respective Subsidiaries or (c) transfer any of its properties or
assets to the Company, Capital Corp. or any of their respective Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
(i) Existing Indebtedness as in effect on the date of the Indenture, (ii) any
Credit Facility, provided that any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereto are no more restrictive with respect to such dividend and other
payment restrictions than those contained in such Credit Facility as in effect
on the date of its execution, (iii) the Indenture and the Senior Notes, (iv)
applicable law, (v) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (vi) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described
in clause (c) above on the property so acquired, (vii) existing with respect
to any Person or the property or assets of such Person acquired by the Company
or any of its Subsidiaries, at the time of such acquisition and not incurred
in contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than
such Person or the property or assets of such Person so acquired, or (viii)
Permitted Refinancing Indebtedness, provided that the restrictions contained
in the agreements governing such Permitted Refinancing Indebtedness are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture will provide that neither the Company nor Capital Corp. may
consolidate or merge with or into (whether or not the Company or Capital
Corp., as the case may be, is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions to, another
corporation, Person or entity, unless (i) the Company or Capital Corp., as the
case may be, is the surviving Person or the entity or the Person formed by or
surviving any such consolidation or merger (if other than the Company or
Capital Corp., as the case may be) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is
organized and existing under the laws of the United States, any state thereof
or the District of Columbia, provided that Capital Corp. may not consolidate
or merge with or into any entity other than a corporation satisfying such
requirements for so long as the Company remains a partnership; (ii) the entity
or Person formed by or surviving any such consolidation or merger (if other
than the Company or Capital Corp.) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Issuers under the Senior Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) the Company, Capital Corp. or the
entity or Person formed by or surviving any such consolidation or merger, or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated
Net Worth of the Company or Capital Corp. immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"Incurrence of Indebtedness and Issuance of Preferred Equity Interests."
Notwithstanding the foregoing, the Indenture will permit the Company to
reorganize as a corporation in accordance with the procedures established in
the Indenture provided that such reorganization is not materially adverse to
holders of the Senior Notes (it being recognized that such reorganization
shall not be considered materially adverse to the holders of Senior Notes
solely because (a) of the accrual of deferred tax liabilities resulting from
such reorganization or (b) the successor or surviving corporation (i) is
subject to income taxation as an entity or (ii) is considered to be an
"includible corporation" of an affiliated group of corporations within the
meaning of Section 1504(a)(1) of the Code or any similar state or local law)
and certain other conditions are satisfied.
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Transactions with Affiliates
The Indenture will provide that the Company and Capital Corp. will not, and
will not permit any of their respective Subsidiaries to, sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such
Affiliate Transaction is on terms that are no less favorable to the Company,
Capital Corp. or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company, Capital Corp. or such
Subsidiary with an unrelated Person and (b) the Company or Capital Corp., as
the case may be, delivers to the Trustee (i) with respect to any Affiliate
Transaction involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (ii) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $7.5
million, an opinion as to the fairness to the Company, Capital Corp. or such
Subsidiary of such Affiliate Transaction from a financial point of view issued
by a nationally-recognized investment banking firm; provided that (A) any
reasonable employment arrangement entered into by the Company, Capital Corp.
or any of their respective Subsidiaries in the ordinary course of business of
the Company, Capital Corp. or such Subsidiary, (B) transactions between or
among the Company, Capital Corp. and/or their respective Subsidiaries, (C)
following the reorganization of the Company as a corporation, the payment of
reasonable fees, expense reimbursement and customary indemnification and other
similar arrangements to directors of the Company, (D) reasonable loans or
advances to employees of the Company and its Subsidiaries in the ordinary
course of business and (E) transactions permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments," in each
case, shall not be deemed to be Affiliate Transactions.
Sale and Leaseback Transactions
The Indenture will provide that the Company and Capital Corp. will not, and
will not permit any of their respective Subsidiaries to, enter into any sale
and leaseback transaction; provided that the Company and any of its
Subsidiaries that is a Guarantor may enter into a sale and leaseback
transaction if (a) the Company or such Subsidiary could have (i) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Equity
Interests" and (ii) incurred a Lien to secure such Indebtedness pursuant to
the covenant described above under the caption "--Liens," (b) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property
that is the subject of such sale and leaseback transaction and (c) the
transfer of assets in such sale and leaseback transaction is permitted by, and
the Company or such Subsidiary applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--Asset
Sales."
Limitation on Issuances and Sales of Capital Interests of Wholly Owned
Subsidiaries
The Indenture will provide that the Company and Capital Corp. (a) will not,
and will not permit any Wholly Owned Subsidiary of the Company or Capital
Corp. to, transfer, convey, sell, lease or otherwise dispose of any Capital
Interests of any Wholly Owned Subsidiary of the Company or Capital Corp. to
any Person (other than the Company, Capital Corp. or a Wholly Owned Subsidiary
of the Company or Capital Corp.), unless (i) such transfer, conveyance, sale,
lease or other disposition is of all the Capital Interests of such Wholly
Owned Subsidiary and (ii) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
the covenant described above under the caption "--Asset Sales," and (b) will
not permit any Wholly Owned Subsidiary of the Company or Capital Corp. to
issue any of its Equity Interests (other than, if necessary, Capital Interests
constituting directors' qualifying shares or interests) to any Person other
than to the Company, Capital Corp. or a Wholly Owned Subsidiary of the Company
or Capital Corp.; provided that, notwithstanding the foregoing, Capital Corp.
shall, at all times prior to the reorganization of the Company as a
corporation, remain a Wholly Owned Subsidiary of the Company.
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Limitations on Issuances of Guarantees of Indebtedness
The Indenture will provide that the Company and Capital Corp. will not
permit any Subsidiary, directly or indirectly, to Guarantee or secure the
payment of any other Indebtedness, unless such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
the Guarantee of the payment of the Senior Notes by such Subsidiary, which
Guarantee shall be senior to or pari passu with such Subsidiary's Guarantee
of, or pledge to secure, such other Indebtedness. Notwithstanding the
foregoing, any such Guarantee by a Subsidiary of the Senior Notes shall
provide by its terms that it shall be automatically and unconditionally
released and discharged upon either (a) the release or discharge of such
Guarantee of such Indebtedness, except a discharge by or as a result of
payment under such Guarantee, or (b) any sale, exchange or transfer, to any
Person not an Affiliate of the Company or Capital Corp., of all of the
Company's or Capital Corp.'s Capital Interests in, or all or substantially all
the assets of, such Subsidiary, which sale, exchange or transfer is made in
compliance with the applicable provisions of the Indenture. The form of such
Guarantee will be attached as an exhibit to the Indenture.
Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Subsidiaries
shall, after the date of the Indenture, transfer or cause to be transferred,
in one or a series of transactions (whether or not related), any assets,
businesses, divisions, real property or equipment having an aggregate fair
market value (as determined in good faith by the Board of Directors) in excess
of $1.0 million to any Subsidiary that is not a Guarantor, or if the Company
or any of its Subsidiaries shall acquire another Subsidiary having total
assets with a fair market value (as determined in good faith by the Board of
Directors) in excess of $1.0 million, then such transferee or acquired
Subsidiary shall execute a Subsidiary Guarantee and a supplemental indenture
and deliver an opinion of counsel, in accordance with the terms of the
Indenture.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than such business activities as the Company or its
Subsidiaries are engaged in on the date of the Indenture and such business
activities similar or reasonably related thereto.
Limitation on Activities of Capital Corp.
In addition to the restrictions set forth under "--Incurrence of
Indebtedness and Issuance of Preferred Equity Interests," the Indenture will
provide that Capital Corp. may not incur any Indebtedness, unless (a) the
Company is a co-obligor or guarantor of such Indebtedness or (b) the net
proceeds of such Indebtedness are lent to the Company, used to acquire
outstanding debt securities issued by the Company or used directly or
indirectly to refinance or discharge Indebtedness permitted under the
limitations of this paragraph. The Indenture will also provide that Capital
Corp. may not acquire or hold any significant assets or other properties or
engage in any business activities, other than those business activities
related directly or indirectly to obtaining money or arranging financing for
the Company.
Payments for Consent
The Indenture will provide that neither the Company, Capital Corp. nor any
of their respective Subsidiaries will, directly or indirectly, pay or cause to
be paid any consideration, whether by way of interest, fee or otherwise, to
any holder of any Senior Notes for or as an inducement to any consent, waiver
or amendment of any of the terms or provisions of the Indenture or the Senior
Notes, unless such consideration is offered to be paid or agreed to be paid to
all holders of the Senior Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding,
the Issuers will furnish to the holders of Senior Notes (i) all quarterly
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and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Issuers were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Issuers' certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Issuers were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Issuers will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in the payment of all or any part of the principal,
or premium, if any, on the Senior Notes when and as the same becomes due and
payable at maturity, upon redemption, by acceleration, or otherwise,
including, without limitation, the payment of the Change of Control Payment or
the Asset Sale Offer Price, or otherwise; (iii) failure by any of the Issuers
or any of their respective Subsidiaries to observe or perform any other
covenant or agreement on the part of such Issuer or such Subsidiary contained
in the Senior Notes or the Indenture and, subject to certain exceptions, the
continuance of such failure for a period of 30 days after written notice is
given to the Issuers by the Trustee or to the Issuers and the Trustee by the
holders of at least 25% in aggregate principal amount of the Senior Notes then
outstanding, specifying such default and requiring that it be remedied; (iv)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company, Capital Corp. or any of their respective
Subsidiaries (or the payment of which is guaranteed by the Company, Capital
Corp. or any of their respective Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (A) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default") or (B) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (v) failure by
the Company, Capital Corp. or any of their respective Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (vi) except as permitted
by the Indenture, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or any Guarantor, or any Person acting on behalf of
any Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (vii) certain events of bankruptcy or insolvency with respect
to the Company, Capital Corp. or any of their respective Significant
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company,
Capital Corp., any Significant Subsidiary or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding
Senior Notes will become due and payable without further action or notice.
Holders of the Senior Notes may not enforce the Indenture or the Senior Notes
except as provided in the Indenture. Subject to certain limitations, holders
of a majority in principal amount of the then outstanding Senior Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Senior Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have
had to pay if the Issuers then had elected to redeem the Senior Notes pursuant
to the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted
by law upon the acceleration of the Senior Notes. If an Event of Default
occurs prior to , 2000 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of
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the Issuers with the intention of avoiding the prohibition on redemption of
the Senior Notes prior to , 2000, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Senior Notes.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Senior Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS AND
STOCKHOLDERS
No director, officer, employee, incorporator, partner or stockholder of any
Issuer, as such, shall have any liability for any obligations of such Issuer
under the Senior Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of Senior
Notes by accepting a Senior Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Senior
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Notes when such payments are due from the trust
referred to below, (ii) the Issuers' obligations with respect to the Senior
Notes concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuers' obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Issuers may, at their option and
at any time, elect to have the obligations of the Issuers released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Senior Notes.
In the event Covenant Defeasance occurs, certain events (not including non-
payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Senior Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Issuers must specify whether the
Senior Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Issuers shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Issuers have received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of the outstanding
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Issuers shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee
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confirming that the holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company, Capital Corp. or any of their respective
Subsidiaries is a party or by which the Company, Capital Corp. or any of their
respective Subsidiaries is bound; (vi) the Issuers must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, and assuming that prior to such 91st day no voluntary or
involuntary bankruptcy case has been commenced with respect to any Issuer,
such deposit will not constitute a preference as defined in Section 547 of the
U.S. Bankruptcy Code, and, assuming such a bankruptcy case is commenced on or
after such 91st day, the trust funds will not constitute property included
within the estate of the debtor; (vii) the Issuers must deliver to the Trustee
an Officers' Certificate stating that the deposit was not made by the Issuers
with the intent of preferring the holders of Senior Notes over the other
creditors of the Issuers with the intent of defeating, hindering, delaying or
defrauding creditors of the Issuers or others; and (viii) the Issuers must
deliver to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or
exchange any Senior Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Senior Note for a period of 15 days
before a selection of Senior Notes to be redeemed.
The registered holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Senior Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes), and any existing default or compliance with
any provision of the Indenture or the Senior Notes may be waived with the
consent of the holders of a majority in principal amount of the then
outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting holder) (i) reduce
the principal amount of Senior Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Senior Note or alter the provisions with respect to the
redemption of the Senior Notes, (iii) reduce the rate of or change the time
for payment of interest on any Senior Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Senior Notes (except a rescission of acceleration of the Senior Notes by the
holders of at least a majority in aggregate principal amount of the Senior
Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Senior Note payable in money other than that
stated in the Senior Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of holders of
Senior Notes to receive payments of principal of or premium, if any, or
interest on the Senior Notes, (vii) waive a redemption payment with respect to
any Senior Note or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Issuers and the Trustee may amend or supplement the Indenture or
the Senior Notes to cure any ambiguity, defect or
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inconsistency, to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes, to provide for the assumption of the
Issuers' obligations to holders of Senior Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of Senior Notes or that does not materially adversely
affect the legal rights under the Indenture of any such holder, to provide for
Subsidiary Guarantees of the Senior Notes or to comply with requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of any Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Senior Notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Muzak Limited Partnership, 2901 Third Avenue,
Suite 400, Seattle, Washington 98121, Attention: Chief Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Administrative Expenses" means, with respect to the General Partner, any
general partner of the Company or the parent of the Company (in the event that
the Company is reorganized as a corporation), ordinary operating expenses
(including reasonable professional fees and expenses) in connection with (a)
complying with reporting obligations pursuant to the federal securities laws
and obligations to prepare and distribute business records in the ordinary
course of business, (b) maintaining such Person's corporate or partnership
existence and franchise (including annual franchise taxes) and (c) the payment
of reasonable fees and expense reimbursements to directors thereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
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"Asset Sale" means (a) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary course of business consistent
with past practices (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company or
Capital Corp. and its Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption "--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (b) the issue or sale by the Company or Capital Corp. or any of
its Subsidiaries of Equity Interests of any of the Company's or Capital
Corp.'s Subsidiaries, in the case of either clause (a) or (b), whether in a
single transaction or a series of related transactions (i) that have a fair
market value in excess of $2.0 million or (ii) for net proceeds in excess of
$2.0 million. Notwithstanding the foregoing, (a) a transfer of assets by the
Company or Capital Corp. to a Wholly Owned Subsidiary or by a Wholly Owned
Subsidiary to the Company or Capital Corp. or to another Wholly Owned
Subsidiary, (b) an issuance of Equity Interests by a Wholly Owned Subsidiary
to the Company or Capital Corp. or to another Wholly Owned Subsidiary, (c) a
Restricted Payment that is permitted by the covenant described above under the
caption "--Restricted Payments" and (d) any sale and leaseback transaction
otherwise permitted pursuant to the covenant described above under "--Sale and
Leaseback Transactions" will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of the General Partner, on
behalf of the Company (or the Company, if the Company is reorganized as a
corporation), or of Capital Corp. or any authorized committee of the Board of
Directors.
"Borrowing Base" means, as of any date, an amount equal to (a) 80.0% of the
face amount of all accounts receivable owned by the Company and its
Subsidiaries as of such date that are not more than 90 days past due, plus (b)
60.0% of the book value (calculated on an average cost basis) of all inventory
owned by the Company and its Subsidiaries as of such date, minus (c) any
amount applied pursuant to the second paragraph of the covenant described
above under the caption "--Asset Sales" to permanently reduce Indebtedness
permitted to be incurred pursuant to clause (i) of the second paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Equity Interests," all calculated on a consolidated
basis and in accordance with GAAP. To the extent that information is not
available as to the amount of accounts receivable or inventory as of a
specific date, the Company may utilize the most recent available information
for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Interests" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits or demand deposits, in each case with any lender
party to any Credit Facility or with any domestic commercial bank having
capital and surplus in excess of $1.0 billion, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described
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in clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial
paper having the highest rating obtainable from Moody's Investors Service,
Inc. or Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc., and in each case maturing within six months after the date of
acquisition and (vi) investments in money market funds all of whose assets
comprise securities of the types described in clauses (i), (ii) and (iii)
above.
"Centre Partners" means Centre Partners L.P., a Delaware limited
partnership, the parent of Music Holdings and the general partner of MLP
Holdings.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent
that such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (iv) all items
classified as "depreciation" or "amortization" on such Person's statement of
operations and other non-cash charges (including non-cash equity-based
compensation charges but excluding any non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, plus (v) in the case of calculations
with respect to the Company, the amount of any Tax Distributions by the
Company to its partners, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for
taxes on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of the referent Person shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders or partners.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income
of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders or partners, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) in the
case of calculations with respect to the Company, Consolidated Net Income of
the Company shall be reduced by the amount of any Tax Distributions by the
Company to its partners, (v) the cumulative effect of a change in accounting
principles shall be excluded, (vi) Consolidated Net Income shall not include
any gain (but not loss), together with any related provision for taxes on such
gain (but not loss), realized in connection with (A) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (B) the
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disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries
and (vii) Consolidated Net Income shall not include any extraordinary or
nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"Consolidated Net Worth" means, (a) with respect to a partnership, the
common and preferred partnership interests of such partnership and its
consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP, and (b) with respect to any other Person, the sum of (i) the
consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
Person's most recent balance sheet with respect to any series of preferred
stock; provided that the preferred partnership interests or the preferred
stock, as the case may be, shall be included in Consolidated Net Worth only if
such preferred partnership interests or preferred stock (A) is not a
Disqualified Interest and (B) is not by its terms entitled to the payment of
dividends or distributions, unless such dividends or distributions may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred partnership interests or preferred
stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within twelve months after the acquisition of such business)
subsequent to the date of the most recently completed fiscal quarter in the
book value of any asset owned by such Person or a consolidated subsidiary of
such Person, (y) all investments in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, investments in marketable
securities), and (z) all unamortized debt discount and expense and unamortized
deferred financing charges, all of the foregoing determined in accordance with
GAAP.
"Credit Facility" means any credit facility entered into by and among the
Company, any of its Subsidiaries that is a Guarantor and the lending
institutions party thereto, including any credit agreement, related notes,
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced or refinanced from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Interests" means any Equity Interest which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the 91st day after the date on which the Senior Notes mature.
"Domestic Subsidiary" means any Subsidiary of the Company that is not a
Foreign Subsidiary.
"Equity Interests" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security
that is convertible into, or exchangeable for, Capital Interests).
"Existing Indebtedness" means the aggregate principal amount of Indebtedness
of the Company and its Subsidiaries in existence on the date of the Indenture,
until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations but
excluding amortization of deferred financing fees), (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized
during such period, (iii) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or one of its Subsidiaries or secured
by a Lien on assets of such Person or one of its Subsidiaries (whether or not
such Guarantee or Lien is called upon) and (iv) the amount of dividends or
distributions paid in respect of preferred stock or preferred partnership
interests of such Person, in each case, on a consolidated basis and in
accordance with GAAP.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that the Company or any of its
Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues preferred stock or preferred
partnership interests subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock or preferred partnership interests, as if the same had
occurred at the beginning of the applicable four-quarter reference period. For
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period, (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any direct or indirect Subsidiary of the Company
that is organized under the laws of any jurisdiction outside the United
States, any district or territoriality thereof and The Commonwealth of Puerto
Rico.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"General Partner" means Music Holdings Corp., as general partner of MLP
Acquisition, the general partner of the Company.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Domestic Subsidiary of the Company (other than Capital
Corp.) that executes a Subsidiary Guarantee in accordance with the provisions
of the Indenture, and their respective successors and assigns.
"Guarantor Senior Indebtedness" means any Indebtedness permitted to be
incurred by any Guarantor under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that
it is subordinated in right of payment to such Guarantor's Subsidiary
Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall
not include (i) any Obligation of such Guarantor to any Subsidiary of such
Guarantor, (ii) any liability for federal, state, local or other taxes owed or
owing by such Guarantor, (iii) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), (iv) any
Indebtedness, Guarantee or Obligation of the Guarantor that is contractually
subordinated or junior in any respect to any other Indebtedness, Guarantee or
Obligation of such Guarantor or (v) any Indebtedness incurred in violation of
the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed solely to protect such Person against fluctuations in
interest rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital
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Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations but
excluding advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person or its
Subsidiaries in accordance with GAAP), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP; provided that an acquisition of assets,
Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company shall not be deemed to
be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"MLP Acquisition" means MLP Acquisition L.P., a Delaware limited partnership
and the general partner of the Company.
"MLP Holdings" means MLP Holdings L.P., a Delaware limited partnership and a
limited partner of MLP Acquisition.
"Music Holdings" means Music Holdings Corp., a Delaware corporation, a
wholly owned subsidiary of Centre Partners and the general partner of MLP
Acquisition.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), amounts required to be applied to the repayment
of Indebtedness (other than Senior Revolving Debt) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means any Indebtedness which ranks pari passu in
right of payment with, and which is not expressly by its terms subordinated in
right of payment of principal, interest or premium, if any, to, the Senior
Notes.
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"Park Road" means Park Road Corporation, a Delaware corporation and the
managing general partner of Centre Partners.
"Partnership Agreement" means the Third Amended and Restated Agreement of
Limited Partnership of the Company, as amended, supplemented or otherwise
modified and as in effect from time to time.
"Permitted Investments" means (a) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company that is engaged in the same or a similar
or related line of business as the Company and its Subsidiaries were engaged in
on the date of the Indenture; (b) any Investments in Cash Equivalents; (c)
Investments by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company that is engaged in the same or a similar or related line of business
as the Company and its Subsidiaries were engaged in on the date of the Indenture
or (ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Subsidiary of the Company that is engaged in the
same or a similar or related line of business as the Company and its
Subsidiaries were engaged in on the date of the Indenture; (d) Restricted
Investments made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales;" (e) Investments in endorsements of negotiable instruments and similar
negotiable documents in the ordinary course of business; (f) Investments
existing on the date of the Indenture; (g) Investments in obligations of account
debtors to the Company or any of its Subsidiaries and stock or obligations
issued to the Company or any such Subsidiary by any Person, in each case, in
connection with the insolvency, bankruptcy, receivership or reorganization of
such Person or a composition or readjustment of such Person's Indebtedness and
(h) other Investments in any Person that do not exceed $5.0 million at any time
outstanding.
"Permitted Liens" means (i) Liens on accounts receivable and inventory
securing Indebtedness permitted to be incurred under clause (i) of the second
paragraph of the covenant described above under "--Incurrence of Indebtedness
and Issuance of Preferred Equity Interests;" (ii) Liens in favor of the
Company; (iii) Liens on property of a Person existing at the time such Person
is merged into, consolidated with or acquired by the Company or any Subsidiary
of the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness permitted by clause (vi) of the
second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Equity Interests" covering only the assets acquired with
such Indebtedness; (vii) Liens existing on the date of the Indenture; (viii)
Liens for taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (ix) Liens securing Permitted Refinancing
Indebtedness, provided that such Liens do not extend to or cover any assets or
property other than the collateral securing the Indebtedness to be refinanced;
(x) Liens arising by operation of law in connection with judgments, for a
period not resulting in an Event of Default with respect thereto; (xi)
easements, rights of way, zoning restrictions and other similar encumbrances
or title defects which do not materially detract from the value of the
property or the assets subject thereto or interfere with the ordinary conduct
of the business of the Company and its Subsidiaries, taken as a whole; (xii)
Liens securing Attributable Debt with respect to any sale and leaseback
transaction in an aggregate amount not to exceed the aggregate principal
amount of Attributable Debt permitted to be incurred pursuant to the covenant
described above under "--Incurrence of Indebtedness and Issuance of Preferred
Equity Interests," provided that such Liens do not extend to or cover any
assets or property other than the collateral securing such Attributable Debt;
(xiii) Liens on assets of any Foreign Subsidiary securing Indebtedness of such
Foreign Subsidiary incurred pursuant to clause
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(ix) of the second paragraph of the covenant described above under "--
Incurrence of Indebtedness and Issuance of Preferred Equity Interests;" and
(xiv) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that (A) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (B) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries; provided that (i) the principal
amount of such Permitted Refinancing Indebtedness does not exceed the principal
amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Senior
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to, the
Senior Notes on terms at least as favorable to the holders of Senior Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Senior Revolving Debt" means revolving credit borrowings under any Credit
Facility.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof; provided that each Guarantor shall be deemed a Significant Subsidiary.
"Subordinated Indebtedness" means any Indebtedness which is expressly by its
terms subordinated in right of payment of principal, interest or premium, if
any, to the Senior Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of Capital Interests entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (A) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (B) the only general partners of which are such Person or one or
more Subsidiaries of such Person (or any combination thereof).
"Tax Amount" means, with respect to any Person for any period, the aggregate
amount of tax distributions required to be made by the Company to its partners
under the Partnership Agreement as in effect on the date of the Indenture.
Notwithstanding anything to the contrary, Tax Amount shall not include taxes
resulting from such Person's reorganization as or change in the status to a
corporation.
"Tax Distribution" means a distribution in respect of taxes to the partners
of the Company pursuant to clause (iv) of the second paragraph of the covenant
described above under the caption "--Certain Covenants-- Restricted Payments."
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"Taxable Income" means, with respect to any Person for any period, the
taxable income or loss of such Person for such period for federal income tax
purposes; provided that (i) all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code
shall be included in taxable income or loss, (ii) any basis adjustment made in
connection with an election under Section 754 of the Code shall be disregarded
and (iii) such taxable income shall be increased or such taxable loss shall be
decreased by the amount of any interest expense incurred by such Person that
is not treated as deductible for federal income tax purposes by a partner or
member of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Interests or other ownership interests of which
(other than directors' qualifying shares or interests) shall at the time be
owned by such Person or by one or more Wholly Owned Subsidiaries of such
Person and one or more Wholly Owned Subsidiaries of such Person.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material federal income
tax consequences expected to result to holders of the Senior Notes. The
discussion is based on laws, regulations, rulings and judicial decisions now
in effect, all of which are subject to change, possibly on a retroactive
basis. The discussion does not cover all aspects of federal income taxation
that may be relevant to a particular holder in light of its individual
investment circumstances or to holders that may be subject to special tax
treatment (such as life insurance companies, financial institutions, tax-
exempt organizations (including qualified pension or profit sharing plans) and
foreign taxpayers), and no aspect of foreign, state or local taxation is
addressed. The discussion is limited to holders who hold their Senior Notes as
"capital assets" (generally, property held for investment) within the meaning
of Section 1221 of the Code.
EACH HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR FOR THE FEDERAL AND
STATE INCOME AND OTHER TAX CONSEQUENCES PECULIAR TO IT FROM HOLDING OR
DISPOSING OF THE SENIOR NOTES.
INTEREST
Holders of the Senior Notes will be required to report any interest earned
on the Senior Notes as ordinary interest income for federal income tax
purposes in accordance with their method of tax accounting.
MARKET DISCOUNT
Generally, a holder who purchases its Senior Note subsequent to original
issuance at a "market discount" (i.e., at a price below the stated redemption
price at maturity) must, unless the amount thereof is de minimis, treat gain
recognized on the disposition of such Senior Note as ordinary income to the
extent market discount accrued while the Senior Note was held by the holder.
Further, if a subsequent holder makes a gift of a Senior Note, accrued market
discount, if any, will be recognized by such holder as if such Senior Note had
been sold for its fair market value. In addition, the holder may be required
to defer, until the maturity of the Senior Note or its earlier disposition in
a taxable transaction, the deduction of a portion of the interest expense on
any indebtedness incurred or continued to purchase or carry such Senior Note.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the
Senior Note, unless the holder elects to accrue market discount under a
constant interest method. A holder also may elect to include market discount
in income currently as it accrues (under either a straight-line or constant
interest method), in which case the holder would increase its adjusted tax
basis in the Senior Note by the amount includible in income and would not be
subject to the rules described above regarding the recognition of gain as
ordinary income and the deferral of interest deductions. Such an election to
include market discount in income currently would apply to all market discount
obligations acquired on or after the first day of the first taxable year of
the holder to which the election applies and may be revoked only with the
consent of the Internal Revenue Service (the "IRS").
Holders who purchase Senior Notes subsequent to original issuance should
consult their own tax advisors regarding the treatment of any market discount
with respect to their Senior Notes.
AMORTIZABLE BOND PREMIUM
If the holder's initial tax basis in the Senior Notes at acquisition exceeds
the amount payable at maturity, the excess will be treated as "amortizable
bond premium." In such case, the Holder may elect under Section 171 of the
Code to amortize the bond premium annually under a constant yield method. The
holder's adjusted tax basis in the Senior Note would be decreased by the
amount of the allowable amortization. Because the Senior Notes have early call
provisions, holders must take such call provisions into account to determine
the amount of amortizable bond premium. Amortizable bond premium is treated as
an offset to interest received on the
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obligation rather than as an interest deduction, except as may be provided in
the Treasury regulations. An election to amortize bond premium would apply to
amortizable bond premium on all taxable bonds held at or acquired after the
beginning of the holder's taxable year as to which the election is made, and
may be revoked only with the consent of the IRS. Holders who acquire their
Senior Notes with amortizable bond premium should consult their own tax
advisor.
REORGANIZATION OF THE COMPANY
Any assumption of the Senior Notes by a corporate successor to the Company
upon its reorganization into a corporation, as is specifically permitted by
the Indenture, should not be a taxable event for federal income tax purposes.
As a result, holders should not recognize any gain or loss upon such
assumption of the Senior Notes. Instead, each holder should have a tax basis
in its new Senior Note of the corporate successor to the Company equal to its
basis in its old Senior Note immediately prior to the reorganization of the
Company as a corporation and its holding period in such new Senior Note should
include the period the old Senior Note was held.
SALE, REDEMPTION AND MATURITY OF THE SENIOR NOTES
A holder will recognize gain or loss, if any, on the sale, redemption or
maturity of a Senior Note equal to the difference between the fair market
value of all consideration received (excluding amounts received that are
attributable to accrued and unpaid interest, which amounts must be included as
ordinary interest income) upon such sale, redemption or maturity of the Senior
Note and the holder's adjusted tax basis in the Senior Note. Except to the
extent of any unrecognized accrued market discount, discussed above, such gain
or loss will be capital gain or loss and will be long-term if the holder has
held the Senior Notes for more than one year.
BACKUP WITHHOLDING
A holder of Senior Notes may be subject to backup withholding at the rate of
31% with respect to interest paid on or gross proceeds from the sale of the
Senior Notes, unless such holder (a) is a corporation or comes within certain
other exempt categories or (b) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding
rules. A holder of Senior Notes who does not provide the Company with its
correct taxpayer identification number may be subject to penalties imposed by
the IRS. Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against the holder's federal income tax
liability, provided that the required information is furnished to the IRS.
The Company will report to the holders of the Senior Notes and the IRS the
amount of any "reportable payments" (including any interest paid) and any
amount withheld with respect to the Senior Notes during the calendar year.
74
<PAGE>
DESCRIPTION OF THE PARTNERSHIP AGREEMENT
The Company was organized on February 18, 1992 as a limited partnership
under the RULPA. The following is a summary of certain provisions of the
Partnership Agreement. The rights and obligations of the General Partners and
of the Limited Partners (each as defined in the Partnership Agreement) are as
set forth in the Partnership Agreement. This summary does not constitute a
complete discussion of the Partnership Agreement and is qualified in its
entirety by reference to the Partnership Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
MANAGEMENT OF THE COMPANY
The Managing General Partner (as defined in the Partnership Agreement) is
responsible for the general management and operation of the Company. The
General Partners receive no compensation for the performance of their services
under the Partnership Agreement, provided that the Managing General Partner
and its affiliates are entitled to reimbursement for expenses incurred on
behalf of the Company and for certain directors' fees and expenses of the
general partner of the Managing General Partner. In addition, the General
Partners and their affiliates are entitled to the benefit of certain
exculpatory and indemnification provisions in the Partnership Agreement. See
"Management--Limitation of Liability and Indemnification."
DISSOLUTION OF THE COMPANY
The Company will be dissolved and its affairs wound up upon the occurrence
of any of the following events: (i) the expiration of the term of the Company
on December 31, 2020 (subject to extension with the consent of the General
Partners and a majority vote of the partners); (ii) certain events of
withdrawal or bankruptcy of a General Partner under the RULPA, subject to the
right of a remaining General Partner or a successor general partner to
continue the Company in accordance with terms of the Partnership Agreement;
(iii) the consent of the General Partners and the majority vote of the
partners to dissolve the Company; (iv) an incorporation of the Company in
accordance with the Partnership Agreement; (v) a sale of all or substantially
all of the assets of the Company in one transaction or a series of related
transactions; or (vi) the entry of a decree of dissolution under Section 17-
802 of the RULPA.
DISTRIBUTIONS
Distributions by the Company generally may be made at the discretion of the
Managing General Partner from cash on hand in excess of costs and expenses of
the Company, including reserves, subject to Section 17-607(a) of the RULPA or
other applicable law and subject to any applicable contractual restrictions on
such payments. In addition, the Managing General Partner is required to make
distributions from time to time for periods in which Company exists in the
form of a partnership to the holders of equity interests in the Company (other
than the Class C Limited Partner Interest) in an amount equal to the product
of (A) the taxable income of the Company for any taxable year for which the
Company reports taxable income for federal income tax purposes determined as
if the Company were a separately taxable entity and (B) the sum of (x) the
highest marginal federal income tax rate applicable to individuals in effect
for such year and (y) ten percentage points; provided that no such payments
shall be permitted if any amounts due in respect of the Class C Limited
Partner Interest shall not have been paid on the required retirement date
thereof as described below.
TRANSFERABILITY OF PARTNERSHIP INTERESTS
The Partnership Agreement contains significant restrictions on the
transferability of the equity interests in the Company.
Partnership interests held by management employees of the Company are
subject to purchase at the option of the Company upon termination of
employment for a termination price equal to either the fair market value or
cost of such interests, depending on the circumstances of the termination and
subject to certain vesting criteria set forth in the Partnership Agreement.
Upon any such purchase of partnership interests of a terminated
75
<PAGE>
employee, the remaining management holders are permitted to acquire such
interests for fair market value. In addition to the foregoing, certain
interests held by management are subject to additional restrictions on
transfer prior to September 4, 1997.
Subject to limited exceptions (including transfers upon death of a Limited
Partner to his estate, transfers to family members and related trusts, certain
transfers to other Limited Partners of the Company and other transfers to
affiliates), transfers of Limited Partner interests in the Company are subject
to rights of first refusal of the Company and certain other interestholders.
In addition to the rights of first refusal, in connection with certain
transfers of equity interests the transferring holder is required to offer the
other interestholders the right to sell a ratable portion of their respective
equity interests on the same terms and at the same price as the interests
proposed to be disposed of by the transferring holder.
PUT OPTION
At any time and from time to time after September 4, 1998, the Managing
General Partner, certain affiliates of MLP and certain other non-management
interestholders have the right to cause the Company to purchase the
partnership interests held by such persons at the fair market value thereof,
provided that such purchase would not result in a material adverse change in
the business of the Company or a breach of or default under any agreement or
instrument to which the Company is party or by which it or its assets is bound
and as to which a consent or waiver thereunder for such purpose (or any
related incurrence of indebtedness) has not been obtained after all best
efforts by the Company (including consideration of a sale of the Company) and
the Company provides appropriate notice thereof to the interestholder. In
connection with any such purchase, the Company is required to retire all of
the outstanding Class C Limited Partner Interest, Class C-1 Limited Partner
Interests (unless such interests have been converted into participating
partnership interests as described below) and Preferred Limited Partner
Interests.
REGISTRATION RIGHTS
The Managing General Partner and MLP have the right to require the Company
to use best efforts to register under the Securities Act the partnership
interests held by such persons. If the Company receives such a request or
otherwise determines to effect any such registration of equity securities, the
Company is required to offer to register the equity interests held by the
other Limited Partners (other than the Class C Limited Partner Interest). The
registration rights provisions contain additional customary rights and
obligations of the parties, including holdback, indemnification and cut-back
rights, subject to certain priorities of a non-management equity holder.
INCORPORATION
The Partnership Agreement permits the Managing General Partner to
incorporate the Company pursuant to specified procedures. In the event of an
incorporation, the Partnership Agreement provides that the partners shall
negotiate in good faith such arrangements as are reasonably required to
reflect substantially the same rights and restrictions that the equityholders
have pursuant to the Partnership Agreement. In the event of any such
incorporation, the Partnership Agreement further provides for the conversion
of the Preferred Limited Partner Interests into preferred stock of the
incorporated entity having substantially similar terms and provisions as the
applicable preferred interests.
CLASS C LIMITED PARTNER INTEREST
The Class C Limited Partner Interest is a non-participating preferred
limited partner interest having a liquidation preference of $8 million plus a
preferred return of 7% per annum compounding annually from August 1992. The
Company may convert the Class C Limited Partner Interest into a subordinated
note or retire the interest at any time. Until the retirement of the Class C
Limited Partner Interest, the Company is required to observe certain
covenants, including restrictions on dispositions of assets for less than fair
market value, certain affiliate party transactions and distributions in
respect of, or purchases or retirements of, equity interests in the
76
<PAGE>
Company, subject to limited exceptions specified in the Partnership Agreement.
The Company is required to retire the Class C Limited Partner Interest on the
91st day following August 31, 2002 or, if earlier, upon the occurrence of
certain specified change of control or sale transactions.
CLASS C-1 LIMITED PARTNER INTEREST
The Class C-1 Limited Partner Interest is a convertible preferred limited
partner interest having a liquidation preference of $5 million plus a preferred
return of 7% per annum compounded annually from November 1994, that may be
converted into 8% of the aggregate participating Limited Partner interests in
the Company at the election of the holder in connection with an equity
registration by the Company. The Class C-1 Limited Partner Interest may be
converted into a convertible subordinated note at the election of the Company
and may be redeemed for its liquidation preference in connection with a change
of control event, and may otherwise be redeemed for such amount subject to the
right of the holder to retain an equity purchase option to preserve its equity
conversion right until the date such interest would have been required to be
retired, unless the holder shall have had the right to convert into a
participating equity interest in connection with a proposed equity registration
by the Company but shall have elected to retain its liquidation preference.
Unless earlier converted into a participating equity interest, the Company is
obligated to retire the Class C-1 Limited Partner Interest on the earlier of
November 4, 2004 or the occurrence of certain specified change of control or
sale transactions. Until the conversion of such interest into a participating
equity security or the retirement thereof, the Company is required to observe
the same covenants as are applicable to the Class C Limited Partner Interest.
PREFERRED LIMITED PARTNER INTERESTS
The Preferred Limited Partner Interests are convertible senior preferred
limited partner interests having an aggregate liquidation preference of $8
million plus a preferred return of 8% per annum compounded annually from
November 1994, that currently may be converted into approximately an aggregate
23% of the participating limited partner interests in the Company. The
Preferred Limited Partner Interests may be redeemed by the Company in
connection with any registration of its equity securities, subject to the
right of the holders to exercise the equity conversion right specified above.
77
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") among the Issuers and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and Lazard Freres & Co. LLC ("Lazard," and
together with DLJ, the "Underwriters"), the Underwriters have agreed,
severally and not jointly, to purchase from the Issuers, and the Issuers have
agreed to sell to each of the Underwriters, the respective principal amount of
Senior Notes set forth opposite its name below, at the public offering price
set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
SENIOR
UNDERWRITER NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............
Lazard Freres & Co. LLC........................................
-----------
Total...................................................... $85,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent. The
Underwriting Agreement also provides that the Issuers will indemnify the
Underwriters and certain persons controlling the Underwriters against certain
liabilities and expenses, including liabilities under the Securities Act or
will contribute to payments the Underwriters are required to make in respect
thereof. The nature of the Underwriters' obligations under the Underwriting
Agreement is such that they are committed to purchase all of the Senior Notes
if any of the Senior Notes are purchased.
The Underwriters have advised the Issuers that they propose to offer the
Senior Notes directly to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Senior Notes. The Underwriters may allow, and such dealers may reallow, a
concession to certain other dealers not in excess of % of the principal
amount of the Senior Notes. After the initial public offering of the Senior
Notes, the public offering price, concession and reallowance may be changed by
the Underwriters.
Under Rule 2720 of the Conduct Rules ("Rule 2720") of the National
Association of Securities Dealers, Inc. (the "NASD"), the Company may be
considered an affiliate of Lazard because affiliates of Lazard beneficially
own voting securities of the Company. This Offering is being conducted in
accordance with Rule 2720, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's debt
securities, the yield to maturity can be no lower than that recommended by a
"qualified independent underwriter" meeting certain standards ("QIU"). In
accordance with this requirement, DLJ has assumed the responsibilities of
acting as QIU and will recommend a minimum yield to maturity in compliance
with the requirements of Rule 2720. In connection with the Offering, DLJ is
performing due diligence investigations and reviewing and participating in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. As compensation for the services of DLJ as QIU, the
Company has agreed to pay DLJ $5,000.
The Underwriters have informed the Company that they will not confirm sales
to any accounts over which they exercise discretionary authority without prior
written approval of such transactions by the customer.
78
<PAGE>
There is currently no public market for the Senior Notes, and the Issuers
have no present plan to list any of the Senior Notes on a national securities
exchange or to include any of the Senior Notes for quotation through an inter-
dealer quotation system. The Underwriters have advised the Issuers that they
currently intend to make a market in the Senior Notes, but are not obligated
to do so and may discontinue any such market-making at any time without
notice. Accordingly, there can be no assurance that an active public market
will develop for, or as to the liquidity of, the Senior Notes. See "Risk
Factors--Absence of Public Market; Illiquidity; Market Value."
LEGAL MATTERS
Certain legal matters in connection with the Senior Notes offered hereby
will be passed upon for the Issuers by Weil, Gotshal & Manges LLP, New York,
New York. Certain legal matters in connection with the offering of the Senior
Notes will be passed upon for the Underwriters by Latham & Watkins, New York,
New York.
EXPERTS
The financial statements of Muzak Limited Partnership included in this
Prospectus and the related financial statement schedules included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement. These financial statements and the
financial statement schedule have been included herein and elsewhere in the
Registration Statement in reliance upon the reports of said firm given upon
their authority as experts in accounting and auditing.
The financial statement of Muzak Capital Corporation included in this
Prospectus has been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and has been so included in reliance
upon the report of said firm given upon their authority as experts in
accounting and auditing.
The financial statements of Comcast Sound Communications, Inc. and
subsidiaries included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to allocated management fees and costs), and have been so
included in reliance upon the report of said firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") pursuant to the Securities Act, covering the Senior Notes offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
summaries of the material terms of such contract, agreement or document. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibits for a more
complete description of the matter involved. The Registration Statement
(including the exhibits and schedules thereto) filed with the Commission by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company is not subject to the informational requirements of the Exchange
Act. The Company intends to furnish to the Trustee and the holders of the
Senior Notes annual reports containing audited financial statements certified
by its independent auditors and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
79
<PAGE>
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
MUZAK LIMITED PARTNERSHIP
Independent Auditors' Report............................................ F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996....... F-3
Statements of Operations for the years ended December 31, 1993, 1994,
and 1995 and the six-month periods ended June 30, 1995 and 1996........ F-4
Statements of Partners' Capital (Deficit) for the years ended December
31, 1993, 1994, and 1995 and the six-month period ended June 30, 1996.. F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994,
and 1995
and the six-month periods ended June 30, 1995 and 1996................. F-6
Notes to Financial Statements........................................... F-7
MUZAK CAPITAL CORPORATION
Independent Auditors' Report............................................ F-18
Balance Sheet as of May 8, 1996......................................... F-19
Note to Financial Statement............................................. F-20
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-21
Consolidated Statement of Operations and Retained Earnings
for the year ended December 31, 1993................................... F-22
Consolidated Statement of Cash Flows for the year ended December 31,
1993................................................................... F-23
Notes to Consolidated Financial Statements.............................. F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
General and Limited Partners
Muzak Limited Partnership
Seattle, Washington
We have audited the accompanying balance sheets of Muzak Limited Partnership
(the "Company") as of December 31, 1995 and 1994, and the related statements
of operations, partners' capital (deficit), and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Muzak Limited Partnership as of December
31, 1995 and 1994, and the results of operations and its cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
March 6, 1996
(August 23, 1996, as to Note 10)
F-2
<PAGE>
MUZAK LIMITED PARTNERSHIP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 1,445 $ 1,115 $ 3,239
Accounts receivable, net of allowance for
doubtful accounts
of $736, $632 and $576........................ 15,868 15,534 14,630
Inventories.................................... 4,070 3,473 3,041
Prepaid expenses............................... 1,462 1,543 1,443
Other.......................................... 491 357 346
-------- ------- -------
Total current assets......................... 23,336 22,022 22,699
Property and equipment, net...................... 37,588 36,586 36,055
Deferred costs and intangible assets, net........ 41,435 36,706 35,357
Other............................................ 733 1,125 1,247
-------- ------- -------
Total assets................................. $103,092 $96,439 $95,358
======== ======= =======
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Revolving credit facility...................... $ 6,000 $ 9,300 $10,750
Accounts payable............................... 8,085 6,818 9,048
Advance billings............................... 4,337 4,533 4,641
Accrued expenses............................... 3,525 2,902 3,990
Current portion of long-term obligations....... 4,455 5,911 6,371
-------- ------- -------
Total current liabilities.................... 26,402 29,464 34,800
Long-term obligations, net of current portion.... 52,378 47,094 44,301
Unearned installation income..................... 1,676 2,786 3,192
Commitments and contingencies (Note 7)...........
Redeemable preferred partnership interests....... 14,693 15,722 16,265
PARTNERS' CAPITAL (DEFICIT):
Limited partners' interests.................... 7,368 5,637 4,328
General partners' interests (deficiencies)..... 575 (4,264) (7,528)
-------- ------- -------
Total partners' capital (deficit)............ 7,943 1,373 (3,200)
-------- ------- -------
Total liabilities and partners' capital (def-
icit)....................................... $103,092 $96,439 $95,358
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MUZAK LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-
MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Music and other business
services....................... $36,800 $50,410 $52,489 $25,916 $26,977
Equipment and related services.. 21,741 33,006 34,392 16,646 15,179
------- ------- ------- ------- -------
Total revenues................ 58,541 83,416 86,881 42,562 42,156
------- ------- ------- ------- -------
Cost of revenues:
Music and other business
services....................... 10,611 13,685 14,465 7,063 7,501
Equipment and related services.. 16,756 23,413 23,895 11,465 10,303
------- ------- ------- ------- -------
Total cost of revenues........ 27,367 37,098 38,360 18,528 17,804
------- ------- ------- ------- -------
Gross profit...................... 31,174 46,318 48,521 24,034 24,352
Selling, general and
administrative expenses.......... 19,603 28,699 28,496 14,628 15,107
Depreciation...................... 4,349 8,211 9,382 4,669 5,155
Amortization...................... 6,942 9,622 8,909 4,443 4,463
------- ------- ------- ------- -------
Operating income (loss)......... 280 (214) 1,734 294 (373)
Interest expense.................. 3,785 6,990 7,483 3,791 3,574
Other (income) expense, net....... (30) (21) (35) (42) 228
------- ------- ------- ------- -------
Net loss........................ (3,475) (7,183) (5,714) (3,455) (4,175)
Redeemable preferred returns.... (572) (933) (1,029) (506) (543)
------- ------- ------- ------- -------
Net loss attributable to general
and limited partners........... ($4,047) ($8,116) ($6,743) ($3,961) ($4,718)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MUZAK LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE UNAUDITED SIX-
MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL PARTNERS' CLASS B TOTAL LIMITED
INTERESTS CLASS A CLASS B LIMITED PREFERRED PARTNERS' INTERESTS
------------------- LIMITED CLASS A LIMITED PARTNERS' LIMITED ----------------------
NUMBER PARTNERS' PUT/CALL PARTNERS' SUBSCRIPTIONS PARTNERS' NUMBER
OF UNITS AMOUNT INTERESTS OPTIONS INTERESTS RECEIVABLE INTERESTS OF UNITS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
1, 1993......... 9,101 $ 8,921 $ 1,315 $ 927 $ 1,628 ($ 592) $ -- 4,376 $ 3,278
Net loss........ (2,422) (360) (255) (438) (1,053)
Payment of
foreign income
taxes.......... (56) (8) (6) (10) (24)
Preferred return
on redeemable
preferred
interests...... (399) (59) (42) (72) (173)
Redemption of
Class B limited
partnership
interest....... (50) 25 (50) (25)
------- --------- ------- ------ ------- ------ ------ -------- ----------
Balance, December
31, 1993........ 9,101 6,044 888 624 1,058 (567) -- 4,326 2,003
Net loss........ (4,802) (887) (561) (933) (2,381)
Payment of
foreign income
taxes.......... (43) (8) (5) (8) (21)
Preferred return
on redeemable
preferred
interests...... (624) (115) (73) (121) (309)
Contributions by
partners....... 967 175 (246) 7,000 4,663 7,896
Principal
payments on
subscriptions
receivable..... 180 180
------- --------- ------- ------ ------- ------ ------ -------- ----------
Balance, December
31, 1994........ 9,101 575 (122) 952 171 (633) 7,000 8,989 7,368
Net loss........ (3,690) (682) (621) (721) (2,024)
Payment of
foreign income
taxes.......... (51) (14) (9) (12) (35)
Preferred return
on redeemable
preferred
interests...... (665) (123) (112) (129) (364)
Preferred return
on preferred
limited
partners'
interests...... (433) (80) (73) (85) 671 433
Principal
payments on
subscriptions
receivable..... 259 259
------- --------- ------- ------ ------- ------ ------ -------- ----------
Balance, December
31, 1995........ 9,101 (4,264) (1,021) 137 (776) (374) 7,671 8,989 5,637
Net loss........ (2,697) (499) (453) (526) (1,478)
Payment of
foreign income
taxes.......... (17) (3) (3) (4) (10)
Preferred return
on redeemable
preferred
interests...... (351) (65) (59) (68) (192)
Preferred return
on preferred
limited
partners'
interests...... (199) (37) (33) (39) 308 199
Principal
payments on
subscriptions
receivable..... 67 67
Contribution by
Partner........ 105 60 105
------- --------- ------- ------ ------- ------ ------ -------- ----------
Balance, June 30,
1996
(unaudited)..... 9,101 ($7,528) ($1,625) ($ 411) ($1,308) ($ 307) $7,979 9,049 $ 4,328
======= ========= ======= ====== ======= ====== ====== ======== ==========
<CAPTION>
TOTAL
-----------------
NUMBER
OF UNITS AMOUNT
<S> <C> <C>
Balance, January
1, 1993......... 13,477 $12,199
Net loss........ (3,475)
Payment of
foreign income
taxes.......... (80)
Preferred return
on redeemable
preferred
interests...... (572)
Redemption of
Class B limited
partnership
interest....... (50) (25)
-------- --------
Balance, December
31, 1993........ 13,427 8,047
Net loss........ (7,183)
Payment of
foreign income
taxes.......... (64)
Preferred return
on redeemable
preferred
interests...... (933)
Contributions by
partners....... 4,663 7,896
Principal
payments on
subscriptions
receivable..... 180
-------- --------
Balance, December
31, 1994........ 18,090 7,943
Net loss........ (5,714)
Payment of
foreign income
taxes.......... (86)
Preferred return
on redeemable
preferred
interests...... (1,029)
Preferred return
on preferred
limited
partners'
interests...... --
Principal
payments on
subscriptions
receivable..... 259
-------- --------
Balance, December
31, 1995........ 18,090 1,373
Net loss........ (4,175)
Payment of
foreign income
taxes.......... (27)
Preferred return
on redeemable
preferred
interests...... (543)
Preferred return
on preferred
limited
partners'
interests...... --
Principal
payments on
subscriptions
receivable..... 67
Contribution by
Partner........ 60 105
-------- --------
Balance, June 30,
1996
(unaudited)..... 18,150 ($3,200)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MUZAK LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-
MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................ ($3,475) ($7,183) ($5,714) ($3,455) ($4,175)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Provision for doubtful
accounts..................... 464 610 810 299 225
Depreciation.................. 4,349 8,211 9,382 4,669 5,155
Amortization, net of deferred
financing costs.............. 6,942 9,622 8,909 4,443 4,463
Deferred financing cost
amortization................. 529 1,159 1,310 658 605
Loss in equity of joint
venture...................... -- -- -- -- 117
Changes in operating assets and
liabilities:
Accounts receivable........... (3,442) (1,890) (476) 1,988 750
Inventories................... (476) (259) 597 995 220
Accounts payable.............. 1,137 1,970 (1,267) (1,631) 1,531
Accrued expenses.............. (840) 1,198 (623) (362) 1,089
Advance billings.............. 507 1,200 194 27 107
Unearned installation income.. 577 1,099 1,110 558 406
Other, net.................... 154 (79) (35) (85) 70
------- ------- ------- ------- -------
Net cash provided by operating
activities................... 6,426 15,658 14,197 8,104 10,563
------- ------- ------- ------- -------
INVESTING ACTIVITIES
Additions to property and
equipment...................... (4,537) (9,531) (8,116) (3,675) (4,546)
Additions to deferred costs and
intangible assets.............. (3,698) (4,273) (4,641) (2,368) (2,870)
Acquisitions of businesses and
ventures, net of cash
acquired....................... -- (33,294) (557) -- --
Other, net...................... 42 52 3 -- 156
------- ------- ------- ------- -------
Net cash used in investing
activities................... (8,193) (47,046) (13,311) (6,043) (7,260)
------- ------- ------- ------- -------
FINANCING ACTIVITIES
Borrowings (repayment) under
revolving notes
payable, net................... 3,250 2,250 3,300 (400) 1,450
Borrowings on term debt......... -- 34,034 -- -- --
Principal payments on term
debt........................... (900) (11,500) (4,111) (1,622) (2,490)
Borrowing (payments) on other
long-term debt................. -- (986) (30) 47 (46)
Payments under capital leases... (484) (413) (432) (246) (213)
Contributions by partners....... -- 8,076 259 48 172
Other, net...................... (104) (64) (202) (21) (52)
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities......... 1,762 31,397 (1,216) (2,194) (1,179)
------- ------- ------- ------- -------
Net increase (decrease) in
cash and cash equivalents.... (5) 9 (330) (133) 2,124
CASH AND CASH EQUIVALENTS,
beginning of period.............. 1,441 1,436 1,445 1,445 1,115
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of
period........................... $ 1,436 $ 1,445 $ 1,115 $ 1,312 $ 3,239
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
1. THE COMPANY AND ITS BUSINESS:
Muzak Limited Partnership (the "Company") provides business music services
and also produces, markets and sells broadcast data delivery, video, audio
marketing and in-store advertising services through a network of domestic and
international franchises and owned operations. The franchisees are charged a
fee based on their revenues, as well as certain other fees, in exchange for
broadcast music, marketing, technical and administrative support. The Company
and its franchisees also sell, install and maintain electronic equipment
related to the Company's business.
The Company develops and uses proprietary techniques for blending music into
programs which have a measurable and predictable effect on listeners. The
Company's music is primarily sold for use in public areas, such as retail
establishments and restaurants, and work areas, such as business offices and
manufacturing facilities. Services are distributed through direct broadcast
satellite transmission, local broadcast transmissions and pre-recorded tapes
played on the customers' premises.
The Company is subject to certain business risks which could affect future
operations and financial performance. These risks include rapid technological
change, competitive pricing, concentrations in and dependence on satellite
delivery capabilities, and development of new services.
BUSINESS ACQUISITIONS
As of September 1, 1992, the Company commenced operations in its current
form (the "Partnership") through an acquisition (the "1992 Acquisition") of
substantially all of the assets, including the right to operate under its
current name, from a predecessor partnership (the "Seller"). The acquisition
was accounted for as a purchase with the purchase price allocated to the
individual assets, based on their estimated fair values at the date of
acquisition.
On January 31, 1994, the Company acquired substantially all the net assets
of Comcast Sound Communications, Inc. ("Comcast"), previously the Company's
largest franchisee. The net assets were acquired for approximately $33
million, including a $5 million redeemable preferred partnership interest
issued to Comcast and closing costs. The acquisition was financed through
additional bank borrowings and the contribution of certain assets by Comcast
in exchange for a redeemable preferred partnership interest. The transaction
was accounted for as a purchase with the purchase price allocated to the
individual assets based on the fair values at the date of acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial information, as of and for the six-month periods ended
June 30, 1995 and 1996, was prepared by the Company in a manner consistent
with the audited financial statements and pursuant to the rules and
requirements of the Securities and Exchange Commission. The unaudited
information, in management's opinion, reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results
of the periods presented. The results of operations for the six-month period
ended June 30, 1996, are not necessarily indicative of the results to be
expected for the entire year.
CASH EQUIVALENTS
Short-term investments with maturities at the date of purchase of ninety
days or less are considered cash equivalents. Their recorded amount
approximates fair value.
F-7
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
INVENTORIES
Inventories consist primarily of electronic equipment and are recorded at
the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment consist primarily of equipment provided to
subscribers and machinery and equipment, recorded at cost. Major renewals and
betterments are capitalized to the property accounts while replacements,
maintenance and repairs that do not improve or extend the lives of the
respective assets are expensed.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the related assets, ranging from five to forty
years. Assets acquired under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated useful
lives or the term of the related leases.
DEFERRED COSTS AND INTANGIBLE ASSETS
Income producing contracts, acquired through acquisitions, are being charged
to amortization expense on an accelerated method over their period of expected
benefit of eight years. Deferred financing costs are being charged to interest
expense on the effective interest method over the term of the related
agreements. Other deferred costs and intangible assets are recorded at cost
and are being charged to amortization expense over their estimated useful
lives or their period of expected benefit ranging from two and one-half to ten
years.
The carrying value of long lived assets is reviewed on a regular basis for
the existence of facts or circumstances that may indicate that the carrying
amount is not recoverable. To date, no impairment has been indicated. Should
there be an impairment in the future, the Company will measure the impairment
based on the discounted expected future cash flows from the impaired assets.
REVENUE RECOGNITION
Revenues are recognized in the month that the services are provided. Fees
from franchisees are recognized as music revenues in the month that the
franchisee generates its revenues. Equipment and related services revenues are
recorded in the period that the installation is completed.
ADVANCE BILLINGS
The Company bills certain customers in advance for contracted music and
other business services. Amounts billed in advance of the service period are
deferred when billed and recognized as revenue in the period earned.
UNEARNED INSTALLATION INCOME
The Company defers recognition of income from the installation of equipment
provided to subscribers and recognizes these amounts as revenue on a straight-
line basis over the average subscriber service period.
INCOME TAXES
The income tax effects of all earnings or losses of the Company are passed
directly to the partners. Payment of foreign income taxes is reflected as a
reduction to the partners' capital accounts. Thus, no provision or benefit for
federal, state, local or foreign income taxes is required.
F-8
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standard ("SFAS") Number 123, "Accounting
for Stock-Based Compensation" was recently issued and is effective for the
Company beginning January 1, 1996. SFAS Number 123 requires expanded
disclosures of equity-based compensation arrangements with employees and does
not require, but encourages compensation cost to be measured based on fair
value of the equity instrument when awarded. The Company, as allowed, intends
to continue to measure equity-based compensation using its current method of
accounting prescribed by Accounting Principles Board Opinion Number 25 that
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will be required to disclose certain
additional information related to its stock-based compensation; however,
management believes the impact to the financial statements, as a whole, will
not be material.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Equipment provided to subscribers............ $ 37,305 $ 42,847 $ 45,668
Machinery and equipment...................... 6,469 7,628 8,654
Vehicles..................................... 2,403 2,872 2,959
Furniture and fixtures....................... 1,948 2,133 2,205
Land and buildings........................... 1,001 858 858
Leasehold improvements....................... 710 833 850
-------- -------- --------
Total property and equipment............... 49,836 57,171 61,194
Less--accumulated depreciation and amortiza-
tion........................................ (12,248) (20,585) (25,139)
-------- -------- --------
$ 37,588 $ 36,586 $ 36,055
======== ======== ========
</TABLE>
F-9
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
4. DEFERRED COSTS AND INTANGIBLE ASSETS, NET:
Deferred costs and intangible assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Income producing contracts................... $ 39,676 $ 39,826 $ 39,828
Deferred subscriber acquisition costs........ 4,604 7,784 9,356
Master recording rights and deferred
production costs............................ 6,310 7,770 8,664
Deferred financing costs..................... 5,661 5,783 6,508
Organization costs........................... 4,202 4,454 4,836
Non-compete agreements....................... 846 846 846
Other........................................ 634 702 722
-------- -------- --------
Total deferred costs and intangible
assets.................................... 61,933 67,165 70,760
Less--accumulated amortization............... (20,498) (30,459) (35,403)
-------- -------- --------
$ 41,435 $ 36,706 $ 35,357
======== ======== ========
</TABLE>
5. LONG-TERM OBLIGATIONS:
Long-term obligations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Variable rate senior term loan................... $45,100 $40,989 $38,499
Fixed rate subordinated note, net of unamortized
discount
of $1,792, $1,536 and $1,412.................... 10,708 10,964 11,088
Capital lease obligations........................ 705 762 842
Other............................................ 320 290 243
------- ------- -------
Total long-term obligations.................... 56,833 53,005 50,672
Less--current portion............................ ( 4,455) ( 5,911) (6,371)
------- ------- -------
$52,378 $47,094 $44,301
======= ======= =======
</TABLE>
CREDIT AGREEMENTS
The variable rate senior term loan is a $46,600,000 term loan (the "Credit
Agreement") with a group of banks for which Union Bank of Switzerland (the
"Agent Bank"), an affiliate of a limited partner, is acting as agent. The
Credit Agreement also includes a $13,000,000 revolving credit facility. The
terms of the Credit Agreement, as amended, require the Company to meet certain
financial ratios and performance criteria and impose restrictions on capital
spending, the incurrence of additional debt, and distributions to partners,
among other things. Distributions to partners are limited to distributions
that offset tax liabilities to the partners resulting from the Company's
taxable income. Substantially all of the Company's assets and proceeds from
certain insurance policies are pledged as collateral under the Credit
Agreement.
The fixed rate subordinated note (the "Subordinated Note") was obtained from
a group of banks that were issued options to purchase Class A limited
partnership units (the "Put/Call Units") in connection with this credit
arrangement. The value of these Put/Call Units has been accounted for as debt
discount and amortized on the effective interest method over the term of this
note. The Subordinated Note requires the Company to maintain certain
performance criteria and covenants, similar to, but less restrictive than the
Credit Agreement. Substantially all of the Company's assets and proceeds from
certain insurance policies are pledged as collateral under this agreement.
F-10
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
5. LONG-TERM OBLIGATIONS, (CONTINUED)
INTEREST RATES AND PAYMENTS
Interest under the Credit Agreement is paid at an interest rate based on the
Agent Bank's prime rate or LIBOR in quarterly installments. During the years
ended December 31, 1993, 1994 and 1995 and for the six-month periods ended
June 30, 1995 and 1996, the effective weighted average interest rates on
borrowings under the Credit Agreement were 9.1%, 10.0%, 11.2%, 11.3% and
10.6%, respectively, including the effects of the interest rate swap agreement
described below. Interest under the Subordinated Note is paid in semi-annual
installments at a rate of 12.5%, an effective rate of 14.5%, after
amortization of the debt discount. The capital lease obligations require
monthly installments of interest at a weighted average interest rate of
approximately 10.0%. Total cash paid for interest on long-term obligations was
approximately $3,340,000, $5,460,000 and $5,760,000 for the years ended
December 31, 1993, 1994 and 1995, and for the six-month periods ended June 30,
1995 and 1996 were $3,214,000 and $3,025,000, respectively.
FUTURE MATURITIES
The variable rate senior term loan under the Credit Agreement requires semi-
annual principal installments through 2001. The Subordinated Note payable is
due in semi-annual installments in 2001 and 2002. The lease obligations are
due in monthly installments through 1999. The revolving credit facility
terminates and requires final payment on January 15, 2001. Total future
maturities of long-term obligations, for the five years following December 31,
1995 are: $5,911,000 in 1996; $7,323,000 in 1997; $8,139,000 in 1998;
$8,064,000 in 1999; and $8,297,000 in 2000.
INTEREST RATE HEDGING
The Company has entered into an interest rate swap agreement with the Agent
Bank that effectively fixed the rate on $10,000,000 of the debt under the
Credit Agreement at December 31, 1995 and June 30, 1996. Net settlements are
recorded in interest expense. The risk of credit loss in the event of non-
performance by the counterparty to the swap agreement is considered by
management to be minimal.
FINANCING COSTS PAID TO RELATED PARTIES
As of December 31, 1995 and June 30, 1996, the Agent Bank was an affiliate
of a Class A limited partner. In addition, the Subordinated Note holder held
the Put/Call Units. During the years ended December 31, 1993, 1994 and 1995,
and six-month periods ended June 30, 1995 and 1996, the Company incurred
interest expense related to these credit facilities of $3,670,000, $6,888,000,
$7,367,000, $3,736,000 and $3,514,000, respectively. Of these amounts,
$1,046,000, $1,336,000 and $1,252,000 are included in accrued expenses at
December 31, 1994 and 1995 and June 30, 1996, respectively. In addition, the
Company paid fees to the holders of the senior and subordinated notes payable
of $250,000, $1,943,000 and $122,000 in 1993, 1994 and 1995, respectively,
related to amendments to the Credit Agreement and the subordinated note
agreement. During the year ended December 31, 1994, the Company paid the
general partner $474,000 for its efforts related to obtaining the Company's
credit facilities and acquiring Comcast.
FAIR VALUE
The recorded amount of the Company's long-term debt and related deferred
financing costs approximate current market prices for the same or similar
issues available to the Company for debt with similar remaining maturities.
F-11
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
6. BENEFIT PLANS:
DEFINED CONTRIBUTION PLAN
The Company maintains a defined contribution savings and retirement plan
(the "Benefit Plan") that covers substantially all employees. Under the
savings portion of the Benefit Plan, eligible employees may contribute from 2%
to 14% of their compensation, subject to Internal Revenue Code limitations.
For the years ended 1993, 1994 and 1995 the Company, at its discretion, may
contribute a matching amount of up to 50% of the first 6% contributed by the
employee. Employees are 100% vested in their contribution at all times and
vest 100% in the Company portion at December 31 of the year of the
contribution. The Company recorded contribution expense for the savings
portion of the Benefit Plan of approximately $114,000, $170,000 and $181,000
for the years ended December 31, 1993, 1994 and 1995 and $90,000 and $202,000
for the six-month periods ended June 30, 1995 and 1996, respectively.
The retirement portion of the Benefit Plan is determined annually by the
Company at its discretion, but may not exceed 3% of the eligible employee's
compensation. The employees vest in the retirement portion of the Benefit Plan
ratably over five years, but become fully vested in the event of death,
disability or the attainment of the age of 65. The Company accrued $180,000,
$260,000 and $135,000 for the retirement portion of the Benefit Plan for the
years ended December 31, 1993 and 1994 and the six-month period ended June 30,
1995, respectively. No amounts were accrued for the year ending December 31,
1995, or the six-month period ended June 30, 1996.
MULTI-EMPLOYER DEFINED CONTRIBUTION PLANS
The Company participates in several multi-employer defined contribution
benefit plans that provide benefits to employees covered by certain labor
union contracts. The amount of expense related to contributions to these plans
was approximately $83,000, $110,000 and $108,000 for the years ended December
31, 1993, 1994 and 1995 and approximately $54,000 and $60,000 for the six-
month periods ended June 30, 1995 and 1996, respectively. These amounts were
determined by union contract and the Company does not administer or control
the funds.
7. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under both operating and
capital leases. In addition, the Company has entered into agreements to obtain
satellite channel capacity and subsidiary communication authorization rights
for the transmission of programs to the Company's customers. Total rental
expense under operating leases was approximately $5,590,000, $6,384,000 and
$7,698,000 for the years ended December 31, 1993, 1994 and 1995 and $3,833,000
and $3,148,000 for the six-month periods ended June 30, 1995 and 1996,
respectively.
F-12
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
7. COMMITMENTS AND CONTINGENCIES, (CONTINUED)
Future annual minimum lease payments under noncancelable leases for the
years ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1996................................................... $338 $ 6,011
1997................................................... 275 4,842
1998................................................... 147 3,955
1999................................................... 67 3,202
2000................................................... -- 2,765
Thereafter............................................. -- 6,208
---- -------
Total minimum lease payments........................... 827 $26,983
=======
Less amount representing interest...................... (65)
----
Present value of future minimum capital lease payments
included in long-term obligations..................... $762
====
</TABLE>
Assets acquired under capital leases were $135,000, $460,000 and $489,000
for the years ended December 31, 1993, 1994 and 1995, respectively. Assets
recorded under capital leases were $1,294,000, $1,141,000 and $1,412,000 with
accumulated amortization of $428,000, $307,000 and $439,000 as of December 31,
1994 and 1995 and June 30, 1996, respectively.
CONTINGENT PURCHASE CONSIDERATION
The 1992 Asset Purchase Agreement, as amended ("Purchase Agreement"),
provides for contingent payments to the Seller if certain performance levels
are achieved in the five years following the closing of the 1992 Acquisition.
If the performance levels are achieved the Company will owe the Seller
additional purchase price of $5 million to $24 million. Any such payments, if
earned, will be allocated to the assets acquired or, if applicable, recorded
as additional purchased assets. No amounts have been paid or accrued as of
December 31, 1995 or June 30, 1996 pursuant to this provision, as the
possibility of obtaining the required performance objectives has been deemed
remote by management.
TAXES
An assessment was made against the Seller resulting from an audit performed
by the Washington State Department of Revenue for sales and use and business
and occupation taxes paid for the period from 1987 through September 1992.
Under successor liability statutes in the state of Washington, the Company
could, if the Seller fails to pay its tax obligation, become liable for the
assessment outstanding against the Seller of approximately $1,700,000.
This assessment is under appeal by the Seller, who under the Purchase
Agreement is liable for the entire assessment. Under the terms of the Purchase
Agreement, the Company has the right to offset any future payments (including
any contingent purchase payments or any redemption of Class C redeemable
preferred partnership interests) from the Company to the Seller if the Seller
fails to pay its tax obligation. The Company's management does not believe
that the assessment will have an adverse effect on the Company's financial
condition or results of operations.
F-13
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
7. COMMITMENTS AND CONTINGENCIES, (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has five-year employment agreements with certain senior
executive officers. These five-year agreements, expiring August 31, 1997,
provide certain benefits to the officers if involuntarily terminated by the
Company. As of December 31, 1994 and 1995 and June 30, 1996 no amounts have
been accrued related to these agreements.
LEGAL PROCEEDINGS
The Company is subject to various legal proceedings which arise in the
ordinary course of business. Company management believes none of these
proceedings, individually or in the aggregate, will have a material adverse
effect on the financial condition or results of operations of the Company.
8. REDEEMABLE PREFERRED PARTNERSHIP INTERESTS:
The redeemable preferred partnership interests are comprised of a Class C
and a C-1 preferred partnership interest. Both are non-voting interests that
do not participate in the Company's profits or losses. A summary of these
interests and their accumulated returns by period are as follows (in
thousands):
<TABLE>
<CAPTION>
CLASS C CLASS C-1 TOTAL
<S> <C> <C> <C>
Balance, January 1, 1993.......................... $ 8,188 $ -- $ 8,188
Preferred return................................. 572 -- 572
------- ------ -------
Balance, December 31, 1993........................ 8,760 -- 8,760
Class C-1 contribution........................... -- 5,000 5,000
Preferred return................................. 613 320 933
------- ------ -------
Balance, December 31, 1994........................ 9,373 5,320 14,693
Preferred return................................. 657 372 1,029
------- ------ -------
Balance, December 31, 1995........................ 10,030 5,692 15,722
Preferred return................................. 344 199 543
------- ------ -------
Balance, June 30, 1996............................ $10,374 $5,891 $16,265
======= ====== =======
</TABLE>
CLASS C INTEREST
The Class C limited partner is entitled to receive the amount of its initial
contribution of $8,000,000, plus a return of 7% compounded annually, through
November 30, 2002, the date of redemption. The Class C limited partner is
entitled to a preference in liquidation equal to its contribution plus
accumulated return. A general partner may, at its sole discretion, require the
Class C limited partner to exchange its interest for a note equal its then
aggregate liquidation preference amount. If the Class C limited partnership
units remain outstanding on November 30, 2002 the Company is required to
redeem such units for an amount equal to the Class C contribution plus
accumulated return.
CLASS C-1 INTEREST
The Class C-1 limited partner is entitled to receive the amount of its
initial contribution of $5,000,000, plus a return of 7% compounded annually,
through January 31, 2004, the date of redemption. The Class C-1 limited
partner may become, at its option, a participating partner. Upon becoming a
participating partner, the Class C-1
F-14
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
8. REDEEMABLE PREFERRED PARTNERSHIP INTERESTS, (CONTINUED)
limited partner will forfeit any accrued portion of the return. If it has not
previously become a participating partner, the Class C-1 limited partner is
entitled to a preference in liquidation equal to its contribution plus
accumulated return. Unless the Class C-1 interest becomes a participating
interest, a general partner may, at its sole discretion, require the Class C-1
limited partner to exchange its interest for a note equal to its then
aggregate liquidation preference amount. If such exchange occurs prior to the
time the Class C-1 limited partner has the opportunity to obtain participation
status, the Class C-1 limited partner will also be issued an option to acquire
the participating interest on substantially the same terms as if such exchange
had not occurred. If the Class C-1 limited partner has not obtained
participation status, or has not exchanged such units for notes, on or prior
to January 31, 2004, the Company is required to redeem such units for an
amount equal to the Class C-1 contribution plus accumulated return.
9. PARTNERS' CAPITAL:
Partners' capital is comprised of two general partners ("General Partners'
Interests"); Class A limited partners and Class B limited partners ("Limited
Partners' Interests"); Put/Call Units, and; preferred limited partners'
interests.
PUT/CALL UNITS
In connection with obtaining the fixed rate subordinated note payable, the
Company issued a lender an option to purchase 1,529,898 units of Class A
limited partnership interests, for an aggregate exercise price of $10. These
units are currently exercisable. The estimated value of the Put/Call Units was
recorded as a debt discount and is being amortized as an adjustment to
interest expense over the life of the related debt obligation.
SUBSCRIPTIONS RECEIVABLE
Officers and key employees of the Company have acquired limited partnership
interests, a portion of which were financed with subscription notes. As of
December 31, 1994 and 1995 and June 30, 1996, the Class B limited partners'
capital accounts were reduced by subscription notes receivable. Interest
income on the subscriptions receivable totaled $51,000 and $49,000 for the
years ended December 31, 1994 and 1995, and $28,000 and $16,000 for the six-
month periods ended June 30, 1995 and 1996.
PREFERRED LIMITED PARTNERS' INTERESTS
The preferred limited partners' interests, which were issued on November 4,
1994, do not participate in the Company's profits or losses. Such limited
partners are entitled to receive an 8% return, compounded quarterly, on the
amount of their initial contribution and are generally entitled to a priority
on distributions from the Company. At December 31, 1995 and June 30, 1996, the
return was credited to the preferred limited partners. These limited partners
are also entitled to a preference in liquidation equal to their initial
contribution plus accumulated and unpaid return. Upon the occurrence of
certain events, the units may, at the option of the Company, be redeemed by
the Company for an amount equal to the then aggregate liquidation preference
amount. The units (and any accrued and unpaid return) may, at the option of
the holder, be converted into units of Class B limited partnership interest at
any time.
OPTION PLAN
Certain limited partners and key employees of the Company have the ability,
under certain conditions, as defined in the Management Option Plan (the
"Management Option Plan"), to exercise options to purchase partnership units.
These options vest at a rate of 20% per year, however, the scheduled vesting
rate of the options
F-15
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
9. PARTNERS' CAPITAL, (CONTINUED)
will be delayed and exercise precluded, if the Company fails to meet certain
performance standards, similar to those described in Note 7.
Activity under this plan and option price information is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
<S> <C> <C>
Balance, January 1, 1993............................... 1,704,545 $1.00
Options granted....................................... -- --
Options canceled...................................... (70,000) 1.00
--------- ------------
Balance, December 31, 1993............................. 1,634,545 1.00
Options granted....................................... 165,000 1.50 - 1.75
Options canceled...................................... (85,000) 1.00
--------- ------------
Balance, December 31, 1994............................. 1,714,545 1.00 - 1.75
Options granted....................................... 150,000 1.75
Options canceled...................................... (30,000) 1.00
--------- ------------
Balance, December 31, 1995............................. 1,834,545 1.00 - 1.75
--------- ------------
Options granted....................................... -- --
Options canceled...................................... -- --
--------- ------------
Balance, June 30, 1996................................. 1,834,545 $1.00 - 1.75
========= ============
</TABLE>
Non-cash compensation expense resulting from this plan, if any, will be
charged to operations over the periods subject to these conditions when
management determines that it is probable that these performance objectives
will occur. From the inception of the Management Option Plan through June 30,
1996, no options have become exercisable. As the possibility of obtaining the
required performance objectives has been deemed remote by management, no
compensation expense has been recorded.
PUT OPTION
After September 4, 1998, a general partner and certain of the Class A
limited partners can require the Company to purchase limited partnership units
held by them at fair market value. However, such right may not be exercised if
the purchase of units would have a material adverse effect on the Company or
would be in contravention of any then existing agreement to which the Company
is a party.
ALLOCATION OF PROFITS AND LOSSES
Losses are allocated among the general partners and Class A and B limited
partners based upon the total of the interests held by each individual,
including the Put/Call Units under option, as a percentage of the total of all
such interests.
10. SUBSEQUENT EVENTS:
JOINT VENTURE GUARANTEE
The Company and Alcas Holding B.V., 50/50 joint venture partners in Muzak
Europe B.V. ("Muzak Europe"), have agreed to make pro rata equity
contributions to Muzak Europe to the extent necessary to enable
F-16
<PAGE>
MUZAK LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
IS UNAUDITED.)
Muzak Europe to maintain minimum net worth requirements under its outstanding
credit facility. As of June 30, 1996, the amount outstanding under the credit
facility was $1.8 million.
PUBLIC OFFERING AND MUZAK CAPITAL CORPORATION
In May 1996, the Company organized Muzak Capital Corporation ("Capital
Corp.") (formerly Muzak, Inc.), a wholly-owned subsidiary of the Company. In
August 1996, the general and limited partners authorized a plan for the filing
of a registration statement for the underwritten public offering of the
Company's Senior Notes. In connection with this plan, Capital Corp. is being
utilized for the purpose of serving as a co-issuer of the Senior Notes in
order to facilitate the offering. The offering is expected to close in the
third quarter of 1996.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Muzak Capital Corporation
Seattle, Washington
We have audited the accompanying balance sheet of Muzak Capital Corporation
(the "Company") as of August 27, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statement presents fairly, in all material
respects, the financial position of Muzak Capital Corporation as of August 27,
1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
August 27, 1996
F-18
<PAGE>
MUZAK CAPITAL CORPORATION
BALANCE SHEET
AS OF INCEPTION MAY 8, 1996
<TABLE>
<S> <C>
ASSETS
Cash.................................................................. $ 1
====
STOCKHOLDER'S EQUITY
Preferred Stock--authorized 10,000,000 shares of $0.01 par value each;
no shares issued and outstanding..................................... $ --
Common Stock--authorized 30,000,000 shares of $0.01 par value each;
100 shares issued and outstanding.................................... 1
----
TOTAL............................................................... $ 1
====
</TABLE>
F-19
<PAGE>
NOTE TO FINANCIAL STATEMENT
Muzak Capital Corporation (the "Company") (formerly Muzak, Inc.), a wholly-
owned subsidiary of Muzak Limited Partnership ("MLP"), was formed on May 8,
1996. The Company intends, along with MLP, to file a registration statement
for the underwritten offering of senior notes of which the Company and MLP
will be co-issuers. The offering is expected to close in the third quarter of
1996.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Comcast Corporation
Philadelphia, Pennsylvania
General and Limited Partners
Muzak Limited Partnership
Seattle, Washington
We have audited the accompanying consolidated statements of operations and
retained earnings and cash flows of Comcast Sound Communications, Inc. (a
wholly owned subsidiary of Comcast Corporation) and subsidiaries (the
"Company") for the year ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Comcast Sound Communications, Inc. and subsidiaries for the year
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than
pensions effective January 1, 1993, to conform with Statement of Financial
Accounting Standards No. 106.
As discussed in Note 5 to the consolidated financial statements, Comcast
Corporation provided financing, allocated management fees and costs, and
conducted certain other business transactions with the Company. The
accompanying consolidated financial statements may not necessarily be
indicative of the conditions that would have existed or the results of
operations if Comcast Sound Communications, Inc. and subsidiaries had been
unaffiliated with Comcast Corporation.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 10, 1994
F-21
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
Revenues:
Music and other business services................................ $16,710,062
Equipment and related services................................... 9,410,707
-----------
Total revenue................................................... 26,120,769
Cost of revenues.................................................. 10,255,239
-----------
Gross profit.................................................... 15,865,530
Selling, general and administrative expenses...................... 12,338,877
Depreciation and amortization..................................... 3,078,293
-----------
Operating income................................................ 448,360
Interest expense.................................................. 443,201
Other income...................................................... (70,866)
-----------
Income before income taxes and cumulative effect of accounting
change......................................................... 76,025
Income taxes...................................................... (152,000)
-----------
Loss before cumulative effect of accounting change................ (75,975)
Cumulative effect of accounting change............................ (405,000)
-----------
Net loss........................................................ (480,975)
Retained earnings, beginning of year.............................. 9,060,949
-----------
Retained earnings, end of year.................................... $ 8,579,974
===========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss........................................................ ($ 480,975)
Noncash items included in net loss:
Cumulative effect of accounting change......................... 405,000
Depreciation and amortization.................................. 3,078,293
Deferred income taxes.......................................... 242,000
-----------
3,244,318
Adjustments to reconcile net income to net cash provided by op-
erating activities:
Increase in accounts receivable, inventories, and prepaid
charges and other assets...................................... (1,515,717)
Increase in accounts payable and accrued expenses, state income
and other taxes,
and deferred revenue.......................................... 327,118
-----------
Net cash provided by operating activities...................... 2,055,719
-----------
FINANCING ACTIVITIES
Repayment of long-term debt..................................... (11,929)
Proceeds from note payable...................................... 121,235
Net transactions with Comcast and affiliates.................... 1,668,899
-----------
Net cash provided by financing activities...................... 1,778,205
-----------
INVESTING ACTIVITIES
Additions to property and equipment............................. (4,389,710)
Deferred charges and other...................................... (221,938)
-----------
Net cash used in investing activities.......................... (4,611,648)
-----------
Net decrease in cash and cash equivalents...................... (777,724)
CASH AND CASH EQUIVALENTS, beginning of year...................... 1,397,347
-----------
CASH AND CASH EQUIVALENTS, end of year............................ $ 619,623
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid................................................... $ 445,000
Income taxes paid............................................... 483,000
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Comcast Sound
Communications, Inc. and its subsidiaries (the "Company"). The Company
provides sound communication services in the following states: California,
Colorado, Connecticut, Florida, Illinois, Indiana, Michigan, New York,
Pennsylvania and Texas. All significant intercompany accounts and transactions
among the consolidated entities have been eliminated. Through January 31,
1994, the Company was a wholly owned subsidiary of Comcast Corporation
("Comcast") (See Note 6).
Cash and cash equivalents includes cash on deposit and overnight investments
at a financial institution.
Depreciation of property and equipment is provided by the straight-line
method over estimated useful lives of 3-25 years.
Deferred charges and other assets include contract acquisition costs and
non-compete covenants and are being amortized over estimated useful lives
ranging from 5-10 years.
Excess of costs over net assets acquired is being amortized over 40 years
except for costs arising prior to November 1, 1970 of approximately $441,000,
which are not being amortized.
Revenues from the sale, service and installation of equipment are recognized
at the time the customer receives the product or service. Revenue for audio
services to customers under five-year contracts is recognized over the
contract period when earned.
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 2), and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (see Note 5).
2. INCOME TAXES
The Company joins with Comcast in filing a consolidated federal income tax
return. Effective January 1, 1993, Comcast and the Company adopted SFAS No.
109. SFAS No. 109 generally provides that deferred tax assets and liabilities
be recognized for temporary differences between the financial reporting basis
and the tax basis of the Company's assets and liabilities and expected
benefits utilizing net operating loss ("NOL") carryforwards. The impact on
deferred taxes of changes in tax rates and laws, if any, applied to the years
during which temporary differences are expected to be settled is reflected in
the financial statements in the period of enactment.
Pursuant to the deferred method under Accounting Principles Board Opinion
No. 11, "Accounting for Income Taxes," which was applied in 1992 and prior
years, deferred income taxes were recognized for income and expense items that
were reported in different years for financial reporting purposes and income
tax purposes using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.
In 1992 and prior years, under a tax sharing arrangement between the Company
and Comcast, income taxes were computed based upon book income and were
recorded as due to Comcast and affiliates. This tax sharing arrangement was
amended with the adoption of SFAS No. 109 to require the Company to pay to
Comcast taxes currently payable as if the Company was filing separate tax
returns.
F-24
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined the amount of its deferred tax liability balance
at January 1, 1993, computed on a separate return basis, using Comcast's
effective tax rate, and has adjusted the due to Comcast and affiliate to
separately report this amount as a deferred tax liability, computed under SFAS
No. 109. The cumulative effect of adopting SFAS No. 109 is not material to the
Company's results of operations. Income tax expense consists of the following
components:
<TABLE>
<CAPTION>
1993
<S> <C>
Current expense (benefit):
Federal......................................................... ($174,000)
State........................................................... 84,000
---------
(90,000)
---------
Deferred expense:
Federal......................................................... 222,000
State........................................................... 20,000
---------
242,000
---------
Income tax expense............................................... $152,000
=========
The effective income tax expense of the Company differs from the statutory
amount because of the effect of the following items:
<CAPTION>
1993
<S> <C>
Federal tax at statutory rate ................................... $ 26,600
State income taxes, (net federal benefit)........................ 67,600
Increase in corporate federal income tax rate from 34% to 35%.... 43,000
Other............................................................ 14,800
---------
Income tax expense............................................... $152,000
=========
</TABLE>
3. COMMITMENTS
The Company and its subsidiaries lease office, warehouse and distribution
space and other equipment under various noncancellable operating leases.
Certain of the lease agreements contain renewal options.
At December 31, 1993, minimum annual commitments for rentals under
noncancellable leases are:
<TABLE>
<S> <C>
1994.............................................................. $1,066,779
1995.............................................................. 853,741
1996.............................................................. 651,311
1997.............................................................. 469,926
1998.............................................................. 303,615
Thereafter........................................................ 488,176
----------
$3,833,548
==========
</TABLE>
Rental expense (including amounts charged by Comcast) was approximately
$1,399,000 in 1993.
4. RELATED PARTY TRANSACTIONS
Management fees are charged by Comcast based on the Company's recurring and
nonrecurring revenues in 1993. Under these policies, management fees of
approximately $2,601,000 were charged to the Company and recorded in selling,
general and administrative expense in 1993. The 1993 management fee included
charges to
F-25
<PAGE>
COMCAST SOUND COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Company of approximately $2,000,000 for salary continuation, closing
bonuses and legal fees associated with, but not contingent upon, the
subsequent sale of certain assets and liabilities of the Company (see Note 6).
The Company has entered into cost sharing arrangements with Comcast for
certain services, including insurance, rent and employee benefits. Under these
arrangements, the Company was charged approximately $1,682,000 in 1993.
The Company incurred $428,000 of interest expense related to a note payable
of $9,500,000, bearing an interest rate of 4.5%, to an affiliate (see Note 6).
See Note 2--Income Taxes.
See Note 3--Commitments
See Note 5--Postretirement Benefits Other than Pensions.
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain employees of the Company are participants in Comcast's
postretirement benefit plans other than pensions. Effective January 1, 1993,
the Company adopted SFAS No. 106. This statement requires the Company to
accrue the estimated cost of retiree benefits earned during the years the
employee provides services. The Company previously expensed the cost of these
benefits as claims were incurred.
The Company's allocation from Comcast for the cumulative effect as of
January 1, 1993 of the adoption of SFAS No. 106 was to increase the Company's
amount due to Comcast and affiliate by approximately $675,000 and net loss by
approximately $405,000 (net of tax). The effect of SFAS No. 106 on loss before
the cumulative effect of accounting change was not significant to the
Company's 1993 results of operations.
6. SUBSEQUENT EVENT
On January 31, 1994, Comcast sold substantially all of the Company's assets
and liabilities to Muzak Limited Partnership. In connection with this sale,
the Company's $9.5 million long-term debt payable to an affiliate of Comcast
has been forgiven.
F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROS-
PECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY OF THE UNDERWRIT-
ERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SENIOR NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
The Issuers.............................................................. 14
Use of Proceeds.......................................................... 14
Capitalization........................................................... 15
Unaudited Pro Forma Financial Information................................ 16
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 28
Management............................................................... 42
Certain Relationships and Related Transactions........................... 49
Security Ownership of Certain Beneficial Owners.......................... 50
Description of the Senior Notes.......................................... 51
Federal Income Tax Consequences.......................................... 73
Description of the Partnership Agreement................................. 75
Underwriting............................................................. 78
Legal Matters............................................................ 79
Experts.................................................................. 79
Available Information.................................................... 79
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SENIOR NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$85,000,000
LOGO
Muzak Limited Partnership
Muzak Capital Corporation
% SENIOR NOTES DUE 2003
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LAZARD FRERES & CO. LLC
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrants' estimated expenses in
connection with the issuance of the securities being registered, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $29,310
NASD Filing Fee............................................... 9,000
Printing and Engraving Expenses............................... *
Counsel Fees and Expenses..................................... *
Financial Advisory Fee........................................ *
Accountants' Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................... *
Trustee Fees.................................................. *
Rating Agency Fees............................................ *
Miscellaneous................................................. *
-------
Total....................................................... $38,310
=======
</TABLE>
- ---------------------
* To be filed by amendment
All such fees and expenses have been or will be paid by the Registrants.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
empowers a limited partnership to indemnify and hold harmless any partner or
other person from and against any and all claims and demands whatsoever.
The Third Amended and Restated Agreement of Limited Partnership of Muzak
Limited Partnership (the "Company"), dated as of November 4, 1994, as amended
(the "Partnership Agreement"), provides that the general partners of the
Company, their respective affiliates and all officers, partners, directors,
employees, stockholders and agents of the general partners and their
respective affiliates and all officers, agents and employees of the Company
who are partners of the Company shall not be liable to the Company, to limited
partners or any other person holding an interest in the Company for any losses
sustained or liabilities incurred, including monetary damages, as a result of
any act or omission of the general partners or any such other person if the
conduct of the general partners or such other person did not constitute fraud,
willful misconduct or criminal conduct.
The Partnership Agreement also provides that the Company shall, to the
fullest extent permitted by law, indemnify and hold harmless the general
partners of the Company, their respective affiliates, and the officers,
directors, employees and agents of the general partners and their respective
affiliates, from and against any and all liabilities and expenses which arise
by reason of any such person's management of the affairs of the Company or of
a general partner, or any such person's status as a general partner of the
Company or affiliate thereof, as a partner, director, officer, employee,
stockholder or agent thereof, or as a partner, director, officer, agent or
employee of the Company or a person serving at the request of such persons,
provided, that such liability or expense is not the result of the fraud,
willful misconduct or criminal conduct of the indemnitee.
In the event of the filing of a public offering of securities of the Company
pursuant to a registration statement under the Securities Act, the Partnership
Agreement provides that the Company shall indemnify and hold harmless holders
of such securities participating in such registration, the directors,
officers, partners and controlling persons of such holders, and partners of
the Company for any liability which arises from such filing under the
Securities Act.
II-1
<PAGE>
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), the law of the state in which Muzak Capital Corporation ("Capital
Corp.") is incorporated, empowers a corporation within certain limitations to
indemnify a director, officer, employee or agent of the corporation and
certain other persons serving at the request of the corporation in related
capacities against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonable incurred by him in
connection with any action, suit or proceeding to which he is or was
threatened to be a party (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, as long as
he acted in good faith and in a manner which he reasonably believed to be in,
or not opposed to, the best interests of the corporation. With respect to any
criminal proceeding, he must have had no reasonable cause to believe his
conduct was unlawful. No such indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the Court in which such action or suit
was brought shall determine upon application that despite the adjudication of
liability but in view of all of the circumstances of the case such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery of the State of Delaware or such other court shall deem proper.
The Certificate of Incorporation of Capital Corp. provides that any person
may be indemnified against all expenses and liabilities to the fullest extent
permitted by the DGCL. The By-Laws of Capital Corp. allow Capital Corp. to
advance or reimburse litigation expenses upon submission by the director,
officer or employee of an undertaking to repay such advances or reimbursements
if it is ultimately determined that indemnification is not available to such
director, officer or employee and allow Capital Corp. to purchase and maintain
insurance for its directors and officers against liability asserted against
them in such capacity whether or not Capital Corp. would have the power to
indemnify them against such liability.
As permitted by Section 102 of the DGCL, the Certificate of Incorporation of
Capital Corp. provides that no director shall be liable to Capital Corp. or
its stockholders for monetary damages for breach of fiduciary duty as a
director other than (i) for breaches of the director's duty of loyalty to
Capital Corp. and its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for the unlawful payment of dividends or unlawful stock purchases or
redemptions under Section 174 of the DGCL and (iv) for any transaction from
which the director derived an improper personal benefit.
The Underwriting Agreement being filed as Exhibit 1 hereto provides for
indemnification of directors and officers of the Registrants under certain
circumstances, including for liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the closing of the acquisition of the franchises of
Comcast Sound Communications, Inc. ("Comcast"), on January 31, 1994, the
Registrant issued a $5.0 million 7% preferred limited partnership interest of
the Partnership to Comcast. This transaction was exempt from registration
under Section 4(2) of the Securities Act as not involving a public offering.
No underwriter was involved in the transaction.
In November 1994, the Registrant amended its senior credit facility whereby
the Company's $10.0 million loan from Union Bank of Switzerland, New York
Branch, was repaid in full with proceeds from a subordinated financing
involving the sale of $7.0 million additional preferred partnership interests
to certain existing investors, identified below, with a pledge of the limited
partnership interests to the lenders under the senior credit facility and an
increase in the number of units subject to the option agreement of Barclays
Bank PLC, New York Branch. This transaction was exempt from registration under
Section 4(2) of the Securities Act as not involving a public offering. No
underwriter was involved in the transaction. The purchasers of the preferred
partnership interests were MLP Holdings L.P., MLP Acquisition L.P., UBS
Capital Corp., Barclays Bank PLC, John A. Hawkins, John R. Jester, James F.
Harrison, Thomas J. Gentry, Jack D. Craig, Richard Chaffe, Bruce B.
Funkhouser, L. Dale Stewart, Dino J. DeRose, J. Gary Henderson and Susan P.
Chetwin.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Registration Statement:
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 1 --Form of Underwriting Agreement
** 3.1 --Certificate of Incorporation of Capital Corp.
** 3.2 --By-Laws of Capital Corp.
* 3.3 --Certificate of Amendment to the Certificate of Incorporation of
Capital Corp.
* 3.4 --Third Amended and Restated Agreement of Limited Certificate of
Limited Partnership Partnership of Muzak Limited Partnership
(formerly, MLP Operating, L.P.), dated as of November 4, 1994, as
amended
* 4.1 --Form of Indenture, dated as of , 1996, among the Registrants
and , as trustee, in respect of the Registrants' % Senior Notes
due 2003
* 4.2 --Form of Senior Note (included in the form of Indenture to be filed
as Exhibit 4.2 to this Registration Statement)
* 5 --Opinion of Weil, Gotshal & Manges LLP
10.1 --Asset Purchase Agreement dated as of March 11, 1992, among Muzak
Limited Partnership, Field/Muzak Inc., The Field Corporation and MLP
Operating, L.P., as amended by Muzak Limited Partnership's letters
dated April 22, 1992, August 6, 1992 and August 20, 1992, Amendment
No. 1 dated as of June 26, 1992, Amendment No. 2, dated July 31,
1992 and Amendment No. 3, dated as of August 26, 1992
**10.2 --Asset Purchase Agreement and Contribution Agreement dated as of
November 24, 1993 among Comcast Corporation, et al. and Muzak
Limited Partnership
**10.3 --Amended and Restated Credit Agreement dated as of September 4,
1992, as amended as of October 22, 1992 and as of December 15, 1993;
and as amended and restated as of January 31, 1994 among Muzak
Limited Partnership, Union Bank of Switzerland, New York Branch,
Internationale Nederlanden (U.S.) Capital Corporation and the other
Lenders parties thereto and Union Bank of Switzerland, New York
Branch, as Agent; as amended by Waiver and Agreement dated as of
February 10, 1994; Waiver and Amendment No. 1 dated as of October
31, 1994; Waiver and Amendment No. 2 dated as of November 2, 1994;
Amendment No. 3 and Consent dated as of November 4, 1994; Amendment
No. 4 to Amended and Restated Credit Agreement dated as of November
17, 1994; Waiver dated January 10, 1995; Waiver dated as of July 31,
1995; Amendment No. 5 to Amended and Restated Credit Agreement dated
as of November 7, 1995; and Waiver dated as of April 1, 1996
**10.4 --Amended and Restated Term Notes issued as of September 4, 1992,
amended and restated as of January 31, 1994
**10.5 --Subordinated Loan Agreement dated as of September 4, 1992, as
amended, between Muzak Limited Partnership and Barclays Bank PLC,
New York Branch
**10.6 --Option Agreement dated as of September 4, 1992 between Muzak
Limited Partnership and Barclays Bank PLC, New York Branch
+10.7 --Uplink Facility Agreement dated as of December 28, 1995 between
EchoStar Satellite Corporation and Muzak Limited Partnership
+10.8 --DBS Programming Affiliation Agreement dated as of December 28, 1995
between EchoStar Satellite Corporation and Muzak Limited Partnership
**+10.9 --Video Programming Sales Agent Agreement dated as of December 28,
1995 between EchoStar Satellite Corporation and Muzak Limited
Partnership
+10.10 --Form of Muzak(R) Participating Affiliate Agreement
**10.11 --Third and Broad Office Lease dated June 8, 1994, between Martin
Selig and Muzak Limited Partnership
**10.12 --ASCAP License
**10.13 --Joint Venture Agreement dated August 2, 1995 between Muzak Limited
Partnership and Alcas Holdings B.V.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
**10.14 --Muzak(R) Master Affiliate Agreement (Mexico) dated March 1, 1992
between Muzak Limited Partnership and Audioplan S.A.
**10.15 --Muzak(R) Master Affiliate Agreement (Canada) dated August 30, 1990
between Muzak Limited Partnership and Chum Limited, as amended--Form
of Underwriting Agreement
**10.16 --FCC Licenses
**10.17 --Form of License Agreement (New Franchise Agreement), as amended
**10.18 --Form of Music Services Agreement
**10.19 --Form of Multi-Territory Account Service Agreement
**10.20 --Form of Sales of Adjunct Services and Form of Muzak Adjunct
Services Subscriber Agreement
+10.21 --Transponder Lease Agreement dated December 9, 1993 between
Microspace Communications Corporation and Muzak Limited Partnership
+10.22 --Transmission Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited Partnership
+10.23 --Transponder Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited Partnership
+10.24 --Transponder Lease Agreement dated April 27, 1995 between Microspace
Communications Corporation and Muzak Limited Partnership
+10.25 --Transponder Lease Agreement dated July 5, 1995 between Microspace
Communications Corporation and Muzak Limited Partnership
+10.26 --Transponder Lease Agreement dated April 29, 1996 between Microspace
Communications Corporation and Muzak Limited Partnership
**+10.27 --Agreement to Provide Telecommunications Service dated August 8 and
9, 1995 between Keystone Communications Corporation and Muzak
Limited Partnership
+10.28 --Sales Agreement and License dated September 28, 1995 between
Mainstream Data, Inc. and Muzak Limited Partnership
**10.29 --Muzak Limited Partnership Tempo Savings and Retirement Plan
**10.30 --Muzak Limited Partnership Tempo Savings and Retirement Trust
**10.31 --Muzak Limited Partnership Management Incentive Plan
**10.32 --Muzak Limited Partnership Management Option Plan
**10.35 --Employment Agreement dated August 31, 1992 of John R. Jester
**10.36 --Employment Agreement dated August 31, 1992 of James F. Harrison
**10.37 --Employment Letter dated July 7, 1995 of Kirk A. Collamer
12 --Statement of Computations of Ratios of Earnings to Fixed Charges
21 --List of Subsidiaries of the Registrants
23.1 --Consent of Deloitte & Touche LLP and Report on Financial Statement
Schedule of Muzak Limited Partnership
23.2 --Consent of Deloitte & Touche LLP
23.3 --Consent of Deloitte & Touche LLP
*23.4 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5)
**24 --Power of Attorney (included on the signature page to this
Registration Statement)
*25 --Statement of Eligibility and Qualification of , as Trustee, on
Form T-1 with respect to the % Senior Notes due 2003.
**27 --Financial Data Schedules
</TABLE>
- ---------------------
* To be filed by amendment
** Previously filed
+ Confidential treatment requested
II-4
<PAGE>
<TABLE>
<C> <S>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves
</TABLE>
All other Schedules have been omitted because the information is not
applicable or is presented in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrants hereby undertake to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrants under the General Corporation Law of
the State of Delaware or under the Delaware Revised Uniform Limited
Partnership Act or pursuant to Capital Corp.'s Certificate of Incorporation or
By-Laws or the Company's Partnership Agreement, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Registration Statement to be signed on their behalf by
the undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington, on August 28, 1996.
MUZAK LIMITED PARTNERSHIP
(Registrant)
MLP Acquisition L.P.,
By _____________________________
Managing General Partner
Music Holdings Corp.,
By _____________________________
General Partner
/s/ John R. Jester
By _____________________________
John R. Jester
President
MUZAK CAPITAL CORPORATION
(Registrant)
/s/ John R. Jester
By __________________________________
John R. Jester
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ John R. Jester
_____________________________________ President and Chief August 28, 1996
JOHN R. JESTER Executive Officer
(Principal Executive
Officer) of the Company
and Capital Corp. and
Director of Music
Holdings and Capital
Corp.
/s/ Kirk A. Collamer
_____________________________________ Vice President and Chief August 28, 1996
KIRK A. COLLAMER Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer) of
the Company and Capital
Corp.
*
_____________________________________ Director of Music August 28, 1996
BRUCE G. POLLACK Holdings and Capital
Corp.
*
_____________________________________ Director of Music August 28, 1996
PAUL F. BALSER Holdings and Capital
Corp.
</TABLE>
II-6
<PAGE>
*
_____________________________________ Director of Music August 28, 1996
MARK E. JENNINGS Holdings and Capital
Corp.
/s/ Kirk A. Collamer
By___________________________________
Kirk A. Collamer Attorney-in-fact
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of John R. Jester and Kirk A. Collamer, or
any of them, each acting alone, his true and lawful attorney-in-fact and agent
with full powers of substitution and resubstitution, for such person and in
his name, place and stead, in any and all capacities, in connection with the
Registrant's Registration Statement on Form S-1 under the Securities Act of
1933, including to sign the Registration Statement and any and all amendments
or supplements to the Registration Statement, including any and all stickers
and post-effective amendments to the Registration Statement and to sign any
and all additional registration statements relating to the same offering of
securities as those that are covered by the Registration Statement that are
filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any applicable
securities exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully, to all intents and purposes, as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ William A. Boyd Director of Music August 28, 1996
Holdings and Capital
_________________________________ Corp.
WILLIAM A. BOYD
II-7
<PAGE>
MUZAK LIMITED PARTNERSHIP
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II (REG 210.12-09)
<TABLE>
<CAPTION>
ADDITIONS
--------------------- DEDUCTIONS,
BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS, BALANCE
BEGINNING COSTS AND OTHER NET OF AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Allowance for Doubtful
Accounts............... $736,000 $810,000 ($914,000) $632,000
======== ======== ========= ========
YEAR ENDED DECEMBER 31,
1994
Allowance for Doubtful
Accounts............... $558,000 $610,000 $359,000(a) ($791,000) $736,000
======== ======== ======== ========= ========
YEAR ENDED DECEMBER 31,
1993
Allowance for Doubtful
Accounts............... $648,000 $464,000 ($554,000) $558,000
======== ======== ========= ========
</TABLE>
- ---------------------
(a) Comcast Sound Communications, Inc. acquisition as of January 31, 1994.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
* 1 --Form of Underwriting Agreement
** 3.1 --Certificate of Incorporation of Capital Corp.
** 3.2 --By-Laws of Capital Corp.
* 3.3 --Certificate of Amendment to the Certificate of Incorporation of
Capital Corp.
* 3.4 --Third Amended Restated Agreement of Limited Partnership of Muzak
Limited Partnership (formerly, MLP Operating, L.P.), dated as of
November 4, 1994, as amended.
* 4.1 --Form of Indenture, dated as of , 1996, among the
Registrant and , as trustee, in respect of the Registrants'
% Senior Notes due 2003.
* 4.2 --Form of Senior Note (included in the form of Indenture to be
filed as Exhibit 4.2 to this Registration Statement)
* 5 --Opinion of Weil, Gotshal & Manges LLP
10.1 --Asset Purchase Agreement dated as of March 11, 1992, among
Muzak Limited Partnership, Field/Muzak Inc., The Field
Corporation and MLP Operating, L.P., as amended by Muzak
Limited Partnership's letters dated April 22, 1992, August 6,
1992 and August 20, 1992, Amendment No. 1 dated as of June 26,
1992, Amendment No. 2, dated July 31, 1992 and Amendment No.
3, dated as of August 26, 1992
**10.2 --Asset Purchase Agreement and Contribution Agreement dated as
of November 24, 1993 among Comcast Corporation, et al. and
Muzak Limited Partnership
**10.3 --Amended and Restated Credit Agreement dated as of September
4, 1992, as amended as of October 22, 1992 and as of December
15, 1993; and as amended and restated as of January 31, 1994
among Muzak Limited Partnership, Union Bank of Switzerland,
New York Branch, Internationale Nederlanden (U.S.) Capital
Corporation and the other Lenders parties thereto and Union
Bank of Switzerland, New York Branch, as Agent; as amended by
Waiver and Agreement dated as of February 10, 1994; Waiver and
Amendment No. 1 dated as of October 31, 1994; Waiver and
Amendment No. 2 dated as of November 2, 1994; Amendment No. 3
and Consent dated as of November 4, 1994; Amendment No. 4 to
Amended and Restated Credit Agreement dated as of November 17,
1994; Waiver dated January 10, 1995; Waiver dated as of July
31, 1995; Amendment No. 5 to Amended and Restated Credit
Agreement dated as of November 7, 1995; and Waiver dated as of
April 1, 1996
**10.4 --Amended and Restated Term Notes issued as of September 4,
1992, amended and restated as of January 31, 1994
**10.5 --Subordinated Loan Agreement dated as of September 4, 1992, as
amended, between Muzak Limited Partnership and Barclays Bank
PLC, New York Branch
**10.6 --Option Agreement dated as of September 4, 1992 between Muzak
Limited Partnership and Barclays Bank PLC, New York Branch
+10.7 --Uplink Facility Agreement dated as of December 28, 1995
between EchoStar Satellite Corporation and Muzak Limited
Partnership
+10.8 --DBS Programming Affiliation Agreement dated as of December
28, 1995 between EchoStar Satellite Corporation and Muzak
Limited Partnership
**+10.9 --Video Programming Sales Agent Agreement dated as of December
28, 1995 between EchoStar Satellite Corporation and Muzak
Limited Partnership
+10.10 --Form of Muzak(R) Participating Affiliate Agreement
**10.11 --Third and Broad Office Lease dated June 8, 1994, between
Martin Selig and Muzak Limited Partnership
**10.12 --ASCAP License
**10.13 --Joint Venture Agreement dated August 2, 1995 between Muzak
Limited Partnership and Alcas Holdings B.V.
**10.14 --Muzak(R) Master Affiliate Agreement (Mexico) dated March 1,
1992 between Muzak Limited Partnership and Audioplan S.A.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
**10.15 --Muzak(R) Master Affiliate Agreement (Canada) dated August 30,
1990 between Muzak Limited Partnership and Chum Limited, as
amended--Form of Underwriting Agreement
**10.16 --FCC Licenses
**10.17 --Form of License Agreement (New Franchise Agreement), as
amended
**10.18 --Form of Music Services Agreement
**10.19 --Form of Multi-Territory Account Service Agreement
**10.20 --Form of Sales of Adjunct Services and Form of Muzak Adjunct
Services Subscriber Agreement
+10.21 --Transponder Lease Agreement dated December 9, 1993 between
Microspace Communications Corporation and Muzak Limited
Partnership
+10.22 --Transmission Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
+10.23 --Transponder Lease Agreement dated January 31, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
+10.24 --Transponder Lease Agreement dated April 27, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
+10.25 --Transponder Lease Agreement dated July 5, 1995 between
Microspace Communications Corporation and Muzak Limited
Partnership
+10.26 --Transponder Lease Agreement dated April 29, 1996 between
Microspace Communications Corporation and Muzak Limited
Partnership
**+10.27 --Agreement to Provide Telecommunications Service dated August
8 and 9, 1995 between Keystone Communications Corporation and
Muzak Limited Partnership
+10.28 --Sales Agreement and License dated September 28, 1995 between
Mainstream Data, Inc. and Muzak Limited Partnership
**10.29 --Muzak Limited Partnership Tempo Savings and Retirement Plan
**10.30 --Muzak Limited Partnership Tempo Savings and Retirement Trust
**10.31 --Muzak Limited Partnership Management Incentive Plan
**10.32 --Muzak Limited Partnership Management Option Plan
**10.35 --Employment Agreement dated August 31, 1992 of John R. Jester
**10.36 --Employment Agreement dated August 31, 1992 of James F.
Harrison
**10.37 --Employment Letter dated July 7, 1995 of Kirk A. Collamer
12 --Statement of Computations of Ratios of Earnings to Fixed
Charges
21 --List of Subsidiaries of the Registrants
23.1 --Consent of Deloitte & Touche LLP and Report on Financial
Statement Schedule of Muzak Limited Partnership
23.2 --Consent of Deloitte & Touche LLP
23.3 --Consent of Deloitte & Touche LLP
*23.4 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5)
**24 --Power of Attorney (included on the signature page to this
Registration Statement)
*25 --Statement of Eligibility and Qualification of , as
Trustee, on Form T-1 with respect to the % Senior Notes due
2003
**27 --Financial Data Schedules
</TABLE>
- -------------------
* To be filed by amendment
** Previously filed
+ Confidential treatment requested
<PAGE>
Exhibit 10.1
<PAGE>
ASSET PURCHASE AGREEMENT
dated as of March 11, 1992
among
MUZAK LIMITED PARTNERSHIP
FIELD/MUZAK, INC.
THE FIELD CORPORATION
and
MLP OPERATING, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I PURCHASE AND SALE............................ 1
1.1. Purchased Assets.......................... 1
1.2. Excluded Assets........................... 4
1.3. Assumed Liabilities....................... 5
1.4. Excluded Liabilities...................... 6
1.5. Transfer of Purchased Assets.............. 7
1.6. Conveyance and Transfer................... 7
1.7. Sales, Transfer and Related Taxes
and Charges............................... 8
1.8. Proration................................. 8
ARTICLE II PURCHASE PRICE............................... 9
2.1. Purchase Price............................ 9
2.2. Allocation of Purchase Price.............. 9
2.3. Purchase Price Adjustment................. 10
2.4. Calculation of Closing Payment and
Payment of Purchase Price................. 12
2.5. Earn-Out.................................. 14
ARTICLE III CLOSING...................................... 22
3.1. Closing Date.............................. 22
3.2. Seller's Closing Deliveries............... 22
3.3. Buyer's Closing Deliveries................ 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER
AND TFC...................................... 25
4.1. Organization of Seller, General Partner
and TFC................................... 25
4.2. Subsidiaries and Investments.............. 25
4.3. Authority of Seller, General Partner
and TFC; Non-Contravention................ 25
4.4. Financial Statements...................... 28
4.5. Absence of Changes........................ 29
4.6. No Undisclosed Liabilities................ 30
4.7. Taxes..................................... 31
4.8. Condition of Assets; Ownership of Assets.. 31
4.9. Governmental Permits...................... 32
4.10. Real Property............................. 32
4.11. Real Property Leases...................... 32
4.12. Condemnation.............................. 32
4.13. Personal Property; Sufficiency of Assets.. 33
4.14. Personal Property Leases.................. 33
4.15. Intellectual Property..................... 33
4.16. Accounts Receivable....................... 34
4.17. Environmental Matters..................... 34
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
4.18. Employees and Related Agreements; ERISA... 35
4.19. Contracts................................. 40
4.20. Music Services Contracts.................. 42
4.21. Status of Contracts....................... 43
4.22. No Violation, Litigation or Regulatory
Action.................................... 44
4.23. Insurance................................. 44
4.24. Organization, Capitalization and Financial
Statements of the German Licensee......... 44
4.25. Transactions with Affiliates and Trusts... 45
4.26. Investment Canada......................... 45
4.27. Personnel................................. 45
4.28. Inventory................................. 45
4.29. Customers and Suppliers................... 46
4.30. FCC Compliance............................ 46
4.31. Torrance Note............................. 47
4.32. No Finder................................. 47
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER...... 47
5.1. Organization of Buyer..................... 47
5.2. Authority of Buyer; Non-Contravention..... 48
5.3. Priority Partnership Interest;
Exchange Notes............................ 49
5.4. No Prior Activities; No Subsidiaries...... 49
5.5. Capitalization; Financing................. 49
5.6. Financial Ability......................... 50
5.7 Buyer Sales............................... 50
5.8 No Finder................................. 50
ARTICLE VI ACTION PRIOR TO THE CLOSING DATE............. 50
6.1. Investigation of Seller by Buyer;
Environmental Audit....................... 50
6.2. Notices................................... 51
6.3. Other Action; Consents of Third Parties;
Governmental Approvals.................... 52
6.4. Conduct of the Business Prior to
the Closing............................... 52
6.5. Antitrust Compliance, etc................. 54
6.6. FCC Compliance............................ 54
6.7. Exon-Florio............................... 55
6.8. Seller's Disclosure....................... 55
6.9 Taxes..................................... 56
6.10 Proprietary Rights........................ 56
ARTICLE VII ADDITIONAL COVENANTS OF THE PARTIES.......... 56
7.1. Covenant Not to Compete................... 56
7.2. Expenses.................................. 56
7.3. Publicity................................. 57
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
7.4. Employment Matters........................ 57
7.5. W-2 Matters............................... 62
7.6. Post-Closing Remittances.................. 62
7.7. Change in Name............................ 63
7.8. Access to Records After Closing........... 63
7.9. Cooperation in Litigation, Taxes
and Licensing Matters..................... 64
7.10. Modification and Performance of
POP Agreement............................. 64
7.11. FIRPTA.................................... 64
7.12. Intellectual Property Assignments......... 65
7.13. Confidentiality........................... 65
7.14. Priority Partnership Interest............. 65
7.15. Further Assurances........................ 66
7.16. Cash Available for Checks; Right of
Endorsement; Power of Attorney............ 66
7.17. Bulk Sales; Location of Inventory......... 67
7.18. Purchase Price Escrow..................... 67
7.19. Environmental Matters..................... 67
7.20. Permitted Payments........................ 68
7.21. Amended Partnership Agreement............. 68
7.22. Non-Solicitation.......................... 69
7.23. Employees................................. 69
7.24. No Contest................................ 70
7.25. Discharge of Certain Seller Obligations... 70
7.26. Management Agreements..................... 71
7.27. Subordination Agreements.................. 71
7.28. Continuing Existence of Seller............ 71
7.29. FCC Compliance............................ 71
7.30. German Licensee Shares.................... 71
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS
OF BUYER..................................... 72
8.1. No Misrepresentations or Breach
of Covenants.............................. 72
8.2. No Material Adverse Change................ 72
8.3. Authorizing Action........................ 72
8.4. No Governmental Proceeding or Litigation.. 72
8.5. No Injunction............................. 73
8.6. Necessary Governmental Approvals.......... 73
8.7. Release of Encumbrances................... 73
8.8. Consents.................................. 73
8.9. Seller Deliveries......................... 73
8.10. Financing................................. 73
8.11. [Reserved]................................ 73
8.12. Certificates.............................. 73
8.13. Opinions of Counsel....................... 73
8.14. Subordination Agreements.................. 74
8.15. Taxes..................................... 74
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS
OF SELLER.................................... 74
9.1. No Misrepresentation or Breach
of Covenants.............................. 74
9.2. Authorizing Action........................ 74
9.3. No Governmental Proceeding or Litigation.. 74
9.4. No Injunction............................. 75
9.5. Buyer Deliveries.......................... 75
9.6. Necessary Governmental Approvals.......... 75
9.7. Certificates.............................. 75
9.8. Opinion of Counsel........................ 75
9.9. Solvency.................................. 75
9.10. Terms of Debt Financing................... 76
9.11. Management Plans.......................... 76
9.12. Releases.................................. 76
ARTICLE X INDEMNIFICATION.............................. 76
10.1. Survival of Indemnification............... 76
10.2. Indemnification by Seller................. 77
10.3. Indemnification by Buyer.................. 78
10.4. Limitation on Amount of Indemnification... 78
10.5. Notice of Claims.......................... 79
10.6. Third Party Claims........................ 79
10.7. Certain Adjustments....................... 80
10.8. Exclusive Remedy.......................... 80
ARTICLE XI TERMINATION.................................. 80
11.1. Termination............................... 80
11.2. Effect of Termination..................... 81
ARTICLE XII GENERAL PROVISIONS........................... 81
12.1. Successors and Assigns, Parties, etc...... 81
12.2. Entire Agreement; Amendments.............. 83
12.3. Waivers................................... 83
12.4. Notices................................... 83
12.5. Partial Invalidity........................ 84
12.6. Execution in Counterparts................. 85
12.7. Governing Law............................. 85
12.8. Exclusivity............................... 85
ARTICLE XIII DEFINITIONS AND INTERPRETATION............... 85
13.1. Definitions............................... 85
13.2. Interpretation............................ 99
</TABLE>
iv
<PAGE>
EXHIBITS
--------
Exhibit A Form of Earn-Out Notes
Exhibit B Form of Non-Competition Agreement
Exhibit C [RESERVED]
Exhibit D Form of Escrow Agreement
Exhibit E Form of Amended Partnership Agreement
Exhibits F1 - F2 Form of Agreements of Subordination
Exhibit G Form of Certificates of Management
Exhibit H Form of Assumption Agreement
Exhibit I [RESERVED]
v
<PAGE>
SCHEDULES
---------
Schedule 1.1 (XVI) Insurance
Schedule 2.3(b) Exceptions to Seller's Accounting
Principles
Schedule 2.5(a) EBITDA Target Chart
Schedule 4.1(a) List of States where Seller is Qualified
To Transact Business
Schedule 4.1(b) List of States where General Partner is
Qualified to Transact Business
Schedule 4.3 Non-Contravention
Schedule 4.4 Financial Statements
Schedule 4.5(a) Material Adverse Changes
Schedule 4.5(b) Operation of Business Since October
Balance Sheet Date
Schedule 4.6 Undisclosed Liabilities
Schedule 4.7 Taxes
Schedule 4.8 Condition of Assets
Schedule 4.9(b) Governmental Permits
Schedule 4.11 Real Property Leases
Schedule 4.13 Personal Property
Schedule 4.14 Personal Property Leases
Schedules 4.15 Intellectual Property
Schedule 4.17 Environmental Matters
Schedule 4.18 Employees and Related Agreements; ERISA
Schedule 4.19(a) Contracts
Schedule 4.19(a)(vii) Standard Form of Salesman Contract
Schedule 4.19(b) Licensee Agreements
Schedule 4.20 Music Service Contracts
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Schedule 4.21 Status of Contracts
Schedule 4.22 Violations, Litigation and Regulatory
Matters
Schedule 4.23 Insurance
Schedule 4.24 Financial Statements of German Licensee
Schedule 4.25 Transactions with Affiliates and Trusts
Schedule 4.27 Personnel
Schedule 4.28 Inventory
Schedule 4.29 Customer and Supplier Terminations
Schedule 4.30 FCC
Schedule 5.5 Financing Documents
Schedule 7.4(a) Auditor's Report
Schedule 7.15 Estoppel Certificates
Schedule 7.23 Employees
Schedule 8.8 Consents Required for Closing
Schedule 13.11 October Statement
vii
<PAGE>
ASSET PURCHASE AGREEMENT ("Agreement") dated as of March 11, 1992,
among Muzak Limited Partnership, a Delaware limited partnership ("Seller"),
Field/Muzak, Inc., a Delaware corporation ("General Partner"), The Field
Corporation, a Delaware corporation ("TFC"), and MLP Operating, L.P., a Delaware
limited partnership ("Buyer").
WHEREAS, Seller is engaged in the business of on-location and
broadcast business services, which include without limitation producing,
marketing and distributing programmed music, music video services, data
communications services, electronic publication and information distribution
services, video communications services, in-store advertising and promotion
services, related equipment and ancillary communications and related services
(collectively, the "Business");
WHEREAS, Seller conducts the Business through certain divisions of
Seller and in association with licensees ("Licensees"), including "Funktionelle
Musik" Musikverbreitungs gesellschaft mit beschrankter Haftung, a German limited
liability company ("German Licensee") in which Seller owns 199,500 shares of
stock with a nominal value of 1 DM each (the "German Licensee Shares"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, on a going concern basis, substantially all the non-cash
assets and properties of Seller, and Buyer is willing to assume certain
liabilities in connection therewith, all on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, Seller, Buyer, General Partner and TFC hereby
agree as follows:
ARTICLE I
PURCHASE AND SALE
-----------------
1.1. PURCHASED ASSETS. Upon the terms and subject to the
----------------
conditions of this Agreement, at the Closing (except for such of the following
as are to be Transferred, purchased and acquired at a time thereafter pursuant
to the terms hereof, in which case, at such time), Seller shall Transfer to
Buyer, and Buyer shall purchase and acquire from Seller, on a going concern
basis, free and clear of all Encumbrances (except for Permitted Encumbrances),
all of Seller's rights, title and interest in and to all the assets, properties,
interests, contracts and claims of every kind and description, wherever located,
owned, used or held by Seller, real, personal or mixed, tangible or intangible,
with such changes, deletions or additions thereto as may occur from the date of
this Agreement to the Closing and consistent with the terms and conditions of
this Agreement, including but not limited
<PAGE>
to Seller's rights, title and interest in and to the following, but in all cases
excluding any Excluded Assets ("Purchased Assets"):
(i) all accounts and notes receivable and other receivables;
(ii) all raw materials, supplies, work-in-process, finished
goods, goods on consignment and other materials;
(iii) all Governmental Permits, including without limitation the
Governmental Permits listed in Schedule 4.9(b);
(iv) all real property (including all buildings, improvements and
structures located thereon and all appurtenances thereto) and real property
interests (including without limitation all claims and rights of every kind
related to real property leases, options, contract rights, rights of way
and easements), including without limitation the properties and interests
identified in Schedule 4.11;
(v) all machinery, equipment, vehicles, furniture, leasehold
improvements and fixtures and other fixed assets and personal property,
including without limitation the fixed assets and personal property listed
or referred to in Schedule 4.13;
(vi) all intellectual property rights ("Proprietary Rights"),
including without limitation: (a) all United States and foreign patents and
patent applications, all United States and foreign copyrights and any
renewals, extensions and continuations thereof, United States, state, and
foreign trade names, trademarks and service marks, applications for
registrations of trademarks and service marks and trademark and service
mark registrations, including without limitation all trade names,
trademarks and service marks containing the words "Muzak", "Yesco" or
"Stimulus Progression" and all derivations thereof, as well as all
registered, assumed or fictitious names under which Seller is conducting
the Business or has conducted the Business ("Patent, Trademark and
Intellectual Property Rights"); (b) all software ("Software"), including
without limitation source code, software programs and all documentation and
materials relating thereto, whether patentable and/or copyrightable or not;
(c) all processes, concepts, discoveries, know-how, improvements or ideas
("Inventions"), whether patentable or not; (d) all useful information
relating to Inventions and/or Patent, Trademark and Intellectual Property
Rights ("Technical Information"), including know-how, technology,
engineering drawings,
2
<PAGE>
reports, design information, trade secrets, practices, laboratory
notebooks, specifications, test procedures and maintenance manuals; (e) all
patent, trademark and/or copyright licenses and/or other licenses to use
Patent, Trademark and Intellectual Property Rights, and/or Software and/or
Inventions and/or Technical Information of others ("Proprietary Rights
Licenses"); and (f) the Proprietary Rights listed in Schedule 4.15;
(vii) the Business as a going concern;
(viii) all phonograph record albums, phonograph records, compact
disks, master tapes and customer tapes;
(ix) all recordings and tape libraries;
(x) all claims and rights of every kind arising out of or
related to contracts, agreements, understandings, arrangements or
commitments of any kind, in all cases whether written or oral
(collectively, the "Contracts"), including without limitation joint venture
agreements, partnership agreements, leases (including real and personal
property leases), and licenses that allow Seller to program, arrange,
produce, reproduce and distribute to its licensees and dealers its music
programs, music video services, data messaging services, in-store
advertising services and video communications services in the manner now
carried out, as well as those that allow the performance of Seller's music
programs, music video services, data messaging services, in-store
advertising services and video communications services at the premises of
Seller's subscribers, including without limitation all Contracts listed or
described in Schedules 4.11, 4.14, 4.19(a), 4.19(b), 4.20(a), 4.20(b),
4.20(c), 4.20(d), 4.20(f) or 4.20(g)(i);
(xi) all mailing lists, customer lists, subscriber lists and
processes, including related procedures, files and manuals and all source
and object codes and documentation related thereto;
(xii) all rights, claims and causes of action against third
parties arising under warranties from vendors and other third parties in
connection with the Purchased Assets;
(xiii) all books and records (including all data and other
information stored on disks, tapes or other media);
(xiv) all prepaid charges, sums and fees, and all security and
similar deposits, in each case paid by or on behalf of Seller in connection
with Contracts, Proprietary Rights, Governmental Permits and other rights
sold to Buyer pursuant hereto;
3
<PAGE>
(xv) all letters of credit with respect to which Seller is a
beneficiary;
(xvi) all contracts and policies of insurance set forth in
Schedule 1.1(xvi), and all claims and rights thereunder;
(xvii) the German Licensee Shares;
(xviii) all confidentiality agreements covering confidential
information concerning the Business and all non-compete or similar
agreements in favor of Seller restricting activities competitive with those
of the Business;
(xix) all assets reflected on the Closing Date Balance Sheet (as
hereinafter defined);
(xx) all payments received under or in respect of the POP
Agreement in the ordinary course of business; and
(xxi) all other properties and assets owned or held by Seller,
whether or not of a type falling within any of the categories of assets or
properties described in Section 1.1 (i)-(xx).
1.2. EXCLUDED ASSETS. "Excluded Assets" means:
---------------
(i) all cash, cash equivalents, bank deposits and Marketable
Securities;
(ii) all assets reflected on the October Balance Sheet disposed
of or converted into cash after the October Balance Sheet Date in the ordinary
course of business;
(iii) the name "Field" or any related or similar trade names,
trademarks, service marks or logos containing, or referring to or based on, the
name "Field";
(iv) all contracts and policies of insurance, except those listed
in Schedule 1.1(xvi), and all claims and rights thereunder;
(v) all notes and accounts receivable of, and other evidence of
indebtedness to and rights to receive payment of, Seller owing to Seller from
any of its Affiliates (other than from any such Affiliate in its capacity as a
subscriber or similar customer of the Business or in its capacity as a Licensee
of the Business) not included on the October Balance Sheet;
(vi) all refunds, and rights to receive any refund, of any Tax
paid by Seller or its Affiliates or the Trusts for
4
<PAGE>
periods prior to the Closing Date;
(vii) the POP Sale Documents, all rights of Seller to receive
money under or in respect of any of the POP Sale Documents and all rights of
Seller to receive payment under the POP Agreement for the sale of the POP
Assets;
(viii) all minute books and income tax returns of Seller and its
Affiliates and the Trusts; and
(ix) all claims and rights of every kind arising out of or
related to the Contracts, or any other contractual or other rights, if the
liabilities and obligations arising or accruing thereunder are not to be assumed
by Buyer pursuant hereto.
1.3. ASSUMED LIABILITIES. Upon the terms and subject to the
-------------------
conditions of this Agreement, upon the Transfer of the Purchased Assets required
to be Transferred at the Closing, Buyer shall assume and agree to pay, perform
and discharge only the following liabilities and obligations of Seller (the
"Assumed Liabilities"):
(i) liabilities and obligations arising or accruing under the
Contracts (other than (x) those Contracts that are not Transferred at the
Closing, subject to the last sentence of Section 1.5, (y) any Contract that
should have been listed on Schedules 4.11, 4.14, 4.19(a), 4.19(b), 4.20(a),
4.20(b), 4.20(c), 4.20(d), 4.20(f) or 4.20(g)(i) but was not listed (except
to the extent that Buyer shall knowingly elect to accept performance
thereunder by any counterparty thereto, such acceptance to be deemed
effective as of the Closing Date) and (z) Contracts which are Excluded
Assets) with respect to events occurring on or after the Closing, and in
any case liabilities and obligations under the Non-Competition and
Confidentiality Agreement dated August 10, 1987 by and between Seller and
Melvin Bernstein;
(ii) liabilities and obligations of Seller as of the Closing Date
in the category referred to as Other Notes Payable on the October
Statement, and in any case the Torrance Note;
(iii) liabilities and obligations of Seller as of the Closing Date
in the category referred to as Capital Lease Obligations on the October
Statement;
(iv) liabilities and obligations of Seller as of the Closing Date
in the category referred to as Accounts Payable (other than A/R Refunds
Payable (0000-1999)) on the October Statement;
(v) liabilities and obligations of Seller as of the
5
<PAGE>
Closing Date in the category referred to as Business and P/R Taxes on the
October Statement;
(vi) liabilities and obligations of Seller as of the Closing Date
in the category referred to as Accrued License Fees on the October
Statement;
(vii) liabilities and obligations of Seller as of the Closing Date
in the category referred to as Other Accrued Liabilities (other than (1)
Payable to TFC (0000-2252); (2) Free Rent (0XXX-2270); (3) Presidents
Discretionary Accrual; (4) Sidley & Austin (0000-2270); and (5) Portion of
Acct for Interest Rate Cap (0110-2270)) on the October Statement;
(viii) liabilities and obligations of Seller as of the Closing Date
in the category referred to as Deferred Income on the October Statement;
and
(ix) all liabilities and obligations which accrue from and after
the Closing Date under the plans, agreements or arrangements referred to in
Section 7.4, other than any Multiemployer Plan, the Management Investment
Plan and any plan, agreement or arrangement listed in Schedule 4.18(g).
1.4. EXCLUDED LIABILITIES. Any liabilities and obligations,
--------------------
known and unknown, liquidated or unliquidated, contingent or fixed, of Seller
which are not among the Assumed Liabilities (collectively, the "Excluded
Liabilities"), whether or not disclosed in this Agreement or on any Schedule or
Exhibit hereto, shall remain the liabilities and obligations of Seller,
including but not limited to the following liabilities and obligations (it being
understood that Seller shall have no liability or obligation with respect to the
operation of the Business by Buyer from and after the Closing, except as may be
specifically stated herein):
(i) liabilities and obligations in the categories referred to on
the October Statement as (A) Accrued Interest; (B) Payable to TFC (0000-
2252); (C) Free Rent (0XXX-2270); (D) Presidents Discretionary Accrual; (E)
Sidley & Austin (0000-2270); (F) Portion of Acct for Interest Rate Cap
(0110-2270); and (G) Notes Payable Bank;
(ii) liabilities and obligations to pay any Taxes which are due
or shall become due: (x) as a result of the operations of the Business
(including the German Licensee), through and including the Closing Date
(other than those as of the Closing Date in the category referred to as
Business and P/R Taxes on the October Statement or any other category on
the October Statement which is explicitly set forth as an Assumed Liability
pursuant to Section 1.3), (y) by reason of the Transfers made at Closing,
including, without
6
<PAGE>
limitation, Taxes payable by Seller pursuant to Section 1.7 (but without
derogating Buyer's obligations under Section 1.7) or (z) by reason of any
amounts payable to Seller under or in respect of the POP Sale Documents
and/or the POP Agreement;
(iii) liabilities and obligations arising under Environmental Laws
as in effect prior to the Closing Date with respect to events occurring
prior to the Closing Date which were the immediate cause of such
liabilities and obligations;
(iv) liabilities and obligations relating to employees employed
in the Business arising out of events occurring prior to the Closing Date
except as stated in Section 1.3(v);
(v) liabilities and obligations which accrue as a result of the
rendering of services prior to the Closing Date arising out of any Plan (as
defined in Section 4.18(a)); and
(vi) liabilities and obligations arising out of the violation
prior to the Closing Date of any Governmental Rule.
1.5. TRANSFER OF PURCHASED ASSETS. Seller and Buyer shall comply
----------------------------
with Section 6.3 in obtaining all required approvals, consents or waivers in
respect of the Transfer of the Purchased Assets, including without limitation
the Contracts, the Proprietary Rights, the Governmental Permits and any other
right or asset. To the extent that any such required approval, consent or
waiver with respect to any Purchased Asset is not obtained prior to the Closing,
this Agreement shall not constitute a Transfer of such Purchased Asset, or an
attempted Transfer of such Purchased Asset, and Buyer and Seller, to the extent
commercially reasonable, will, on or before the Closing, enter into other
arrangements (which shall not, however, obligate Seller to make any payment to
effectuate any such arrangement except as provided in Section 6.3(c)) with
respect to any such Purchased Asset so that Buyer and Seller will be in
substantially the same economic position, including as to the assumption of
corresponding liabilities and obligations, as if such approval, consent or
waiver had been obtained and the Transfer effected on the Closing.
1.6. CONVEYANCE AND TRANSFER. Seller and Buyer agree that the
-----------------------
Transfer of the Purchased Assets will be effected by bills of sale,
endorsements, assignments and other instruments of transfer, all in such form as
Buyer reasonably requests, vesting in Buyer ownership of the Purchased Assets,
free and clear of all Encumbrances other than Permitted Encumbrances.
7
<PAGE>
1.7. SALES, TRANSFER AND RELATED TAXES AND CHARGES. Seller, on
---------------------------------------------
the one hand, and Buyer, on the other hand, shall each be responsible for one-
half (1/2) of the aggregate of all sales, use, gross receipts, transfer,
recordation, gains or other Taxes (including without limitation all applicable
foreign Taxes), together with any notarial fees or other charges, imposed on the
Transfer of the Purchased Assets. At the Closing (i) whichever party is
primarily responsible for such Taxes (or other charges) under applicable law
(the "Responsible Party") shall prepare and file the appropriate Tax Returns (or
other filings) relating to such Taxes (or other charges) based on the Buyer's
schedule of the tentative allocations prepared pursuant to Section 2.2(a), shall
deliver copies of such Tax Returns (or other filings) to the other party, and
shall notify in writing the other party (the "Notice Party") of its payment
obligations pursuant to this Section 1.7, and (ii) the Notice Party shall pay or
reimburse the Responsible Party for its share of any Taxes (or other charges)
due with respect to such Tax Returns (or other filings). In the event the amount
of such Taxes (or other charges) increases as a result of an adjustment to the
Purchase Price hereunder, or as a result of a determination of a Governmental
Body, then (i) the Responsible Party shall prepare and timely file the
appropriate Tax Returns (or other filings) relating to such additional Taxes (or
other charges), shall deliver copies of such Tax Returns to the Notice Party and
shall notify in writing the Notice Party of its payment obligations pursuant to
this Section 1.7, and (ii) the Notice Party shall timely pay or reimburse the
Responsible Party for its share of any such additional Taxes (or other charges).
Notwithstanding the foregoing, if, under the laws of a particular jurisdiction,
the Responsible Party is not able to transfer to the Notice Party the burden of
its share of any such Taxes (or other charges), then the Notice Party shall pay
a greater share of any such Taxes (or other charges) payable to a jurisdiction
that permits (or requires) such Taxes (or other charges) to be borne by the
Notice Party or shall take such other actions as may be reasonably requested by
the Responsible Party to effectuate the division of the costs of any such Taxes
(or other charges) in accordance with the first sentence of this Section 1.7.
The Seller, on the one hand, and the Buyer, on the other hand, also agree that
each shall share one-half of all refunds of any such Taxes (or other charges).
With respect to any such Taxes requiring filing of questionnaires, affidavits or
other information or documents in addition to or in lieu of any Tax Return
(including without limitation Article 31-B of the New York Tax Law with respect
to assignment of leases of real property), Seller and Buyer agree to comply in a
timely manner with all requirements for such filings prior to and subsequent to
the Closing.
1.8. PRORATION. Ad valorem, property and other similar Taxes due
---------
with respect to the Purchased Assets for any
8
<PAGE>
taxable year (or period) beginning before the Closing Date and ending after the
Closing Date shall be pro-rated as of the Closing Date; provided, however, that
-------- -------
if and to the extent that such Taxes are reflected in the liabilities on the
Closing Date Balance Sheet, such Taxes shall be paid by Buyer.
ARTICLE II
PURCHASE PRICE
--------------
2.1. PURCHASE PRICE. The aggregate purchase price for the
--------------
Purchased Assets (the "Purchase Price") shall be (i) $54,950,000, plus (ii) the
----
Class C Limited Partner Interest referred to in the Amended Partnership
Agreement (the "Priority Partnership Interest", which defined term shall
include, where applicable, preferred stock of a corporation issued pursuant to
Section 3.03 or 16.01, or any successor provision, of the Amended Partnership
Agreement). The terms and conditions of the Priority Partnership Interest and of
the notes into which it shall be exchangeable (the "Exchange Notes") are set
forth in the Amended Partnership Agreement. Any payment to which Buyer shall be
entitled pursuant to Article X may at Buyer's option be setoff (x) against any
amounts distributable in respect of the Priority Partnership Interest and/or (y)
against the amount of any principal or interest payable on the Exchange Notes,
in each case (x) and (y), pursuant to the Setoff Procedure. The Purchase Price
shall be payable as provided in Section 2.4, shall be allocated among the Assets
as provided in Section 2.2 and shall be adjusted as provided in this Agreement.
2.2. ALLOCATION OF PURCHASE PRICE. (a) The Purchase Price
----------------------------
(together with the amount of the Assumed Liabilities) shall be allocated by
Buyer among the Purchased Assets consistent with the appraisals and valuations
of the Purchased Assets prepared by Arthur Andersen & Co. (collectively, the
"Appraisal"). The amounts set forth in the Appraisal will represent the agreed
upon values of the Purchased Assets. Buyer shall provide Seller with a schedule
of such tentative allocations based on the Appraisal and consistent with the
principles of Section 1060 of the Code at least five days prior to the Closing
Date. It is understood that the amounts of such asset values are likely to
change between the date the schedule is delivered and the determination of the
adjustment to the Purchase Price as provided in Section 2.3. The schedule of
allocations provided by Buyer shall be adjusted accordingly. Buyer shall
provide such revised schedule of allocations to Seller within thirty (30) days
after such determination, and, unless and until the Purchase Price is increased
as a result of the Earn-Out Payment (as hereinafter defined), such revised
schedule shall be final and binding on all the parties, absent manifest error.
Subject to the provisions of Section 2.2(b), such revised allocation schedule
shall be used by the parties in
9
<PAGE>
preparing and filing all relevant Tax Returns, and the parties agree to
cooperate with each other in good faith in preparing any such Tax Returns,
including IRS Form 8594 and any required exhibits thereto (or other forms
required pursuant to Section 1060 of the Code, or other applicable tax laws);
provided, however, that in determining the adjusted basis of Buyer with respect
- -------- -------
to any of the Purchased Assets, Buyer may increase the amount allocated to any
of the Purchased Assets to the extent permissible under applicable tax laws for
Buyer's additional costs and expenses that are neither actually received nor
treated as received by Seller pursuant to such tax laws. The costs of obtaining
the Appraisal shall be borne by Buyer.
(b) When determined, the amount of the Earn-Out Payment, if any,
reduced by the portion thereof representing imputed interest, shall be added to
the Purchase Price, and such recomputed Purchase Price shall be allocated by
Buyer among the Purchased Assets by recomputing the allocations previously
determined pursuant to Section 2.2(a). Buyer shall provide the Seller with a
schedule of such revised allocations as soon as practicable after the amount of
the Earn-Out Payment, if any, is determined, and such revised schedule shall be
final and binding on all the parties. The parties agree to prepare and file all
relevant Tax Returns, including an amended IRS Form 8594 and any required
exhibits thereto (or other forms required pursuant to Section 1060 of the Code,
or other applicable tax laws), consistent with such revised schedule.
2.3. PURCHASE PRICE ADJUSTMENT. (a) The cash portion of the
-------------------------
Purchase Price will be adjusted as soon as practicable following the Closing in
accordance with this Section 2.3.
(b) As soon as practicable (but in no event later than sixty
(60) days after the Closing Date) Buyer shall prepare a statement of the assets
and liabilities of Seller included on the October Statement as of the Closing
Date (the "Closing Date Balance Sheet") applying the same accounting principles,
practices, methods and adjustments, except as set forth in Schedule 2.3(b),
which were applied in the preparation of the October Statement; provided, that,
-------- ----
any Excluded Liabilities shall not be reflected as liabilities on the Closing
Date Balance Sheet.
(c) If the Net Assets (as reflected on the Closing Date Balance
Sheet) (the "Net Assets") are less than $2,865,000, the Purchase Price shall be
reduced to the extent of the difference between $2,865,000 and the Net Assets.
If the Net Assets are more than $2,865,000, the Purchase Price shall be
increased to the extent of the difference between the Net Assets and $2,865,000.
If Seller is unable to Transfer all the German Licensee Shares to Buyer at the
Closing because the restrictions
10
<PAGE>
prohibiting the Transfer of the German Licensee Shares have not been removed
prior to the Closing, (i) the Purchase Price shall be reduced by $720,000 and
(ii) if and to the extent that the German Licensee Shares were included as Net
Assets on the October Statement, they shall be deemed to be excluded from the
October Statement for purposes of calculating Net Assets.
(d) The term "Net Capital Expenditures" shall mean the amount,
if any, by which (x) aggregate capital expenditures of Seller (determined on a
basis consistent with Seller's previous financial statements) from November 1,
1991 to the Closing Date exceed (y) aggregate net proceeds realized by Seller
from any Transfer of property, plant and equipment of Seller (other than the
aggregate proceeds realized by Seller from any sales of equipment pursuant to
the POP Agreement) from the period from November 1, 1991 to the Closing Date.
The term "Projected Capital Expenditures" (which does not actually constitute or
refer to a projection made by Seller) shall mean an amount equal to $376,000 per
month from the period from November 1, 1991 to the Closing Date. For purposes of
calculating Projected Capital Expenditures, if the Closing Date occurs on a date
other than the last day of any month, it shall be assumed that Net Capital
Expenditures for such month shall equal the product of (i) $376,000 and (ii) a
fraction, the numerator of which is the number of days which have expired in the
month during which the Closing occurs, through and including the Closing Date,
and the denominator of which is the number of days in the month during which the
Closing occurs. If the Net Capital Expenditures are less than the Projected
Capital Expenditures, the Purchase Price shall be reduced to the extent of such
difference. If the Net Capital Expenditures are more than the Projected Capital
Expenditures, the Purchase Price shall be increased to the extent of such
difference.
(e) As soon as practicable (but not later than sixty (60) days)
after the Closing Date, Buyer will deliver to Seller and Seller's accountants
and attorneys the Closing Date Balance Sheet and calculation of the adjustments
to the Purchase Price in accordance with Sections 2.3(c) and 2.3(d)
(collectively, the "Adjustment"). Buyer shall provide Seller and Seller's
accountants and attorneys with copies of all work papers, documents, receipts,
invoices and other materials and access to Buyer's personnel during regular
business hours as may be necessary or reasonably requested by Seller in its
review of the Closing Date Balance Sheet and the Adjustment. If Seller does not
timely deliver a "Contest Notice" (as hereinafter defined) in accordance with
Section 2.3(f), the Closing Date Balance Sheet and the Adjustment will be final
and binding on all the parties, absent manifest error.
(f) In the event that Seller contests any part of the revised
Purchase Price, if any, and the Adjustment, if any,
11
<PAGE>
as set forth above, Seller shall give written notice of its objections thereto
(a "Contest Notice") within thirty (30) business days following the delivery of
the Closing Date Balance Sheet and the Adjustment. Any such Contest Notice shall
specify in reasonable detail the nature of any disagreement asserted and the
amount claimed by Seller.
(g) During the period of thirty (30) business days following the
timely delivery of any such Contest Notice, Buyer and Seller shall attempt to
resolve any differences which Buyer and Seller may have with respect to any
matter specified in the Contest Notice (which resolution, if any, shall be final
and binding on all the parties, absent manifest error). If, at the end of such
thirty (30) business day period, Buyer and Seller shall fail to reach written
agreement with respect to all of such matters, then all such matters specified
in any Contest Notice with respect to which such written agreement has not been
reached (the "Disputed Matters"), shall be submitted to an independent certified
public accounting firm selected by Buyer ("Buyer's Accountant") and an
independent certified public accounting firm selected by Seller ("Seller's
Accountant") who shall attempt to resolve the Disputed Matters within the
immediately succeeding thirty (30) business day period (which resolution, if
any, shall be final and binding on all the parties). If Buyer's Accountant and
Seller's Accountant shall fail to reach written agreement with respect to the
Disputed Matters within such thirty (30) business day period, the Disputed
Matters shall be submitted to and arbitrated by a third independent certified
public accounting firm (the "Arbitrator") selected by Buyer's Accountant and
Seller's Accountant, respectively. The Arbitrator shall consider only the
Disputed Matters. The Arbitrator shall act promptly, and the Arbitrator's
decision with respect to all Disputed Matters shall be final and binding upon
the parties hereto.
(h) Buyer shall pay the fees and expenses of Buyer's Accountant,
and Seller shall pay the fees and expenses of Seller's Accountant. The fees and
expenses of the Arbitrator incurred in connection with its review and
determination of any Disputed Matters shall be borne one-half (1/2) by Buyer and
one-half (1/2) by Seller.
2.4. CALCULATION OF CLOSING PAYMENT AND PAYMENT OF PURCHASE
------------------------------------------------------
PRICE. (a) No more than five (5) business days prior to the Closing Date,
- -----
Seller, in consultation with the senior management of Seller, shall prepare an
estimated unaudited statement of the assets and liabilities of Seller included
on the October Statement as of the Closing Date (the "Estimated Balance Sheet")
applying the same accounting principles, practices, methods and adjustments,
except as set forth in Schedule 2.3(b), which were applied in the preparation of
the October Statement; provided, that, any Excluded Liabilities shall not be
-------- ----
reflected as liabilities on the Estimated Balance Sheet.
12
<PAGE>
(b) At the Closing, Buyer shall pay to Seller, by wire transfer
of immediately available funds to an account to be designated in writing by
Seller at least five (5) business days prior to the Closing Date, an amount (the
"Closing Payment") equal to $54,950,000 as increased or decreased by the amount,
if any, of the Estimated Balance Sheet Adjustment (as hereinafter defined). The
"Estimated Balance Sheet Adjustment" shall be calculated based on the same
principles as the calculation of the Adjustment (as to Net Assets and as to
capital expenditures of Seller pursuant to Sections 2.3(c) and 2.3(d)), except
that (i) with regard to the calculation of Net Assets, all balance sheet
references shall be to the Estimated Balance Sheet and (ii) with regard to the
calculations of Net Capital Expenditures and Projected Capital Expenditures all
references to the Closing or the Closing Date shall be to the date of the
Estimated Balance Sheet. In addition, the Closing Payment shall be decreased by
$720,000 if Seller is unable to Transfer the German Licensee Shares to Buyer at
the Closing.
(c) If the cash portion of the Purchase Price as adjusted
pursuant to Section 2.3 exceeds the Closing Payment, then Buyer shall pay to
Seller the amount of such excess, together with interest thereon from and
including the Closing Date to but excluding the date of payment at the prime
rate, by wire transfer of immediately available funds within two business days
of (i) the last day for Seller to deliver a Contest Notice, if no such Contest
Notice is delivered, or (ii) the date of the Arbitrator's determination with
respect to the Disputed Matters, the date on which Buyer's Accountant and
Seller's Accountant mutually resolve the Disputed Matters or the date on which
Buyer and Seller mutually resolve any differences contained in a Contest Notice,
as the case may be, if a Contest Notice is delivered by Seller. Such prime rate
shall be the prime rate reported (or, if more than one rate is reported, the
mean of those reported) under "Money Rates" in The Wall Street Journal or, if
-----------------------
not then so reported, as reported in another published source agreeable to Buyer
and Seller, on the business day preceding each relevant calculation date, and
interest shall be calculated on the basis of the actual number of days elapsed
over a year of 365 or 366 days, as the case may be.
(d) If the Closing Payment shall have exceeded the cash portion
of the Purchase Price as adjusted pursuant to Section 2.3, then Seller shall pay
to Buyer the amount of such excess, together with interest thereon from and
including the Closing Date to but excluding the date of payment at the prime
rate (determined as provided in Section 2.4(c)), by wire transfer within two
business days of (i) the last day for Seller to deliver a Contest Notice, if no
such Contest Notice is delivered, or (ii) the date of the Arbitrator's
determination with respect to the Disputed Matters, the date on which Buyer's
Accountant and
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<PAGE>
Seller's Accountant mutually resolve the Disputed Matters or the date on which
Buyer and Seller mutually resolve any differences contained in a Contest Notice,
as the case may be, if a Contest Notice is delivered by Seller.
2.5. EARN-OUT. (a) If (x) cumulative "EBITDA" (as hereinafter
--------
defined) for the period (the "Base Period") commencing on the Closing Date and
ending on the fifth anniversary of the Closing Date (the "Determination Date")
is equal to or greater than the aggregate amount set forth in column I of
Schedule 2.5(a) or (y) on the occurrence of a Transfer Event (also, a
"Determination Date"), cumulative EBITDA is "On Plan" (as hereinafter defined),
Buyer shall make a payment to Seller (the "Earn-Out Payment") in an amount equal
to the sum (the "Sum") of (A) $6,670,000, plus (B) an amount equal to the
----
product of (1) $13,330,000 and (2) a fraction, the numerator of which shall be
the amount, if any, by which cumulative EBITDA for the period from the Closing
Date until the Determination Date exceeds the aggregate amounts in column I of
Schedule 2.5(a) for such period, and the denominator of which shall be the
difference between the aggregate amounts in column I and column II of Schedule
2.5(a) for the period from the Closing Date until the Determination Date, which
Sum shall be discounted at the rate of 25% per annum for the number of months
(including the month of the Determination Date) then remaining in the Base
Period; provided, that, the Earn-Out Payment shall in no event exceed
-------- ----
$20,000,000.
(b) The Earn-Out Payment shall be made on the date set forth in
Section 2.5(f)(vi); provided, however, that at the option of Buyer, the Earn-Out
-------- -------
Payment may be paid in whole or in part by delivery of one or more subordinated
notes, substantially in the form of Exhibit A (the "Earn-Out Notes"), all such
notes in the aggregate having a total original principal amount equal to the
amount of the Earn-Out Payment.
(c) For purposes of this Section 2.5:
(1) "EBITDA" shall mean, with respect to any period, the following,
which shall be determined in accordance with GAAP (including accounting
methods and practices) as applied by Seller as of the Closing Date:
Buyer's earnings before interest, income taxes, depreciation and
amortization, plus:
----
(x) the sum of:
(i) the fees referred to in Section 2.5(d)(ii)(x) and any
other management or other fees paid, directly or indirectly, by Buyer to any
Affiliate of Buyer during such period (to the extent deducted from earnings);
14
<PAGE>
(ii) any accrued long-term management incentive
compensation expenses (to the extent deducted from earnings);
(iii) any losses on extraordinary asset sales (to the
extent such losses were deducted from earnings); and
(iv) an amount (the "Operating Lease Adjustment") that
shall be added only if (I) through the month prior to any Determination Date
Buyer shall have made cumulative average capital expenditures of less than
$366,667 per month and (II) Buyer shall have utilized operating leases and
incurred operating lease expenses with respect to assets not financed with
operating leases by Seller under Seller's accounting practices prior to Closing,
in which case the Operating Lease Adjustment shall equal the actual amount of
such operating lease expenses for each month from the Closing Date through the
Determination Date; provided, however, that the Operating Lease Adjustment shall
-------- -------
not exceed an amount equal to the product of (A) the absolute value of the
difference between (x) cumulative actual capital expenditures from the month
following the Closing Date through and including the month of the Determination
Date and (y) the product of $366,667 multiplied by the number of months from the
month following the Closing Date through and including the month of the
Determination Date and (B) the "Weighted Average Annual Lease Rate" divided by
twelve multiplied by the number of months from the month following the Closing
Date through and including the month of the Determination Date (for this
purpose, the "Weighted Average Annual Lease Rate" shall be calculated by Buyer's
independent certified public accountants and shall be equal to the weighted
average of all individual operating lease payments divided by the original cost
of assets underlying each individual operating lease); and provided further,
-------- -------
however, that, if Buyer shall adopt any incentive plan for management employees
- -------
of Buyer to own or purchase any interests in Buyer or to receive any incentive,
performance-based, equity-linked or similar payments, or shall amend any
existing such plan (including the plan for management employees attached in
Schedule 5.5), which incentivizes performance based in whole or in part on
EBITDA-type calculations, and such plan as so adopted or amended shall provide
terms thereunder more favorable to the beneficiaries of such plan with respect
to add back-type provisions in respect of the treatment of operating leases for
purposes of such EBITDA-type calculations than those provided to Seller in the
foregoing Operating Lease Adjustment (as previously amended, if applicable),
then the foregoing Operating Lease Adjustment (as previously amended, if
applicable) shall be amended to provide for such more favorable terms, mutatis
-------
mutandis, effective as of the effective date of such terms; less
- -------- ----
(y) any gain on extraordinary asset sales (to the extent such gains
were included in earnings);
15
<PAGE>
(2) the amount of any cash bonus payments to members of senior
management of the Business which are unreasonable and significantly in
excess (but only to the extent of such excess) of such amount that would be
consistent with past practice of the Business prior to the Closing (after
giving effect to the actual operating results of Buyer), shall not be
deducted in calculating EBITDA;
(3) cumulative EBITDA shall be deemed to be "On Plan" at any date if
cumulative EBITDA as of such date shall equal or exceed the aggregate
amounts set forth in column I of Schedule 2.5(a) for the period from the
Closing Date to the end of the month prior to such date; and
(4) EBITDA shall be further increased or decreased by the positive or
negative EBITDA of any EBITDA Contributor, as the case may be, but only to
the extent of Buyer's pro rata share of the EBITDA of such EBITDA
Contributor calculated based on the application of the equity method of
accounting to Buyer's percentage equity interest in such EBITDA
Contributor, without giving effect to any factor, including level of
ownership and/or voting power, that would otherwise preclude the
application of the equity method of accounting; if Buyer or any Subsidiary
acquires any equity interest in an EBITDA Contributor with respect to which
Buyer is not able to make the foregoing determination, the EBITDA
attributable to such EBITDA Contributor shall be determined on a basis
consistent with the foregoing, to the extent practicable, and otherwise as
determined reasonably and in good faith by Buyer.
(d) Between the Closing Date and the earlier of (i) the
expiration of the Base Period or (ii) the occurrence of a Transfer Event, and,
in the case of paragraph (v) below, at all times until the Earn-Out Payment is
made unless following the Determination Date the Earn-Out Payment shall not be
------
payable in accordance with the terms of this Agreement:
(i) Buyer shall not, and shall not permit any Subsidiary to,
Transfer any of its assets, other than in the ordinary course of business,
for aggregate consideration having a value of less than the then fair
market value of the assets Transferred.
(ii) Buyer shall not, and shall not permit any Subsidiary to,
enter into any transaction with any Affiliate of Buyer unless Buyer or such
Subsidiary would have entered into such transaction with a Person not an
Affiliate of Buyer and the terms thereof are at least as favorable to Buyer
or such
16
<PAGE>
Subsidiary as those that Buyer or such Subsidiary would have obtained in a
transaction on an arm's-length basis with a Person not an Affiliate of
Buyer, except that the foregoing shall not restrict the ability of Buyer to
(w) adopt and comply with the management bonus plan and/or the Management
Option Plan (as defined in the Amended Partnership Agreement), the terms of
which are set forth in Schedule 5.5, (x) reimburse the Administrative
General Partner (as defined in the Amended Partnership Agreement) of Buyer
and MLP Acquisition (or its successor as managing general partner of Buyer)
for reasonable out-of-pocket expenses and MLP Acquisition (or its successor
as managing general partner of Buyer) for directors' fees paid to the
members of the board of directors of its managing general partner,
provided, that, such payments for directors' fees shall not exceed $100,000
-------- ----
annually in the aggregate (subject to reasonable cost of living adjustments
based on published sources and not to exceed 5% per annum), (y) enter into
and comply with any employment agreements with members of Buyer's
management or (z) pay a non-recurring fee of $600,000 to CCI in connection
with the consummation of the transactions contemplated by this Agreement.
(iii) Buyer and the Subsidiaries collectively shall continue to
engage in the business of the same general type as the Business.
(iv) Buyer shall give Seller notice of a Transfer Event and any
Significant Asset Sale (as hereinafter defined) or any Significant Asset
Purchase (as hereinafter defined) ("Event") upon the earlier of (x)
entering into a binding agreement providing for such Event or (y) the
giving of notice of such Event to the limited partners of Buyer; provided,
--------
that, such notice to Seller shall not in any event be given less than ten
----
(10) days prior to such Event.
(v) Buyer shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any distribution of cash, securities or other
assets in respect of, or purchase or retire, any equity interests in Buyer
or options or warrants to purchase such interests, in each case outstanding
on the Closing Date (or equity interests, options or warrants issued in
respect of or upon Transfer of equity interests, options or warrants
outstanding on the Closing Date), except (x) in connection with the
termination of employment of an employee of Buyer, the repurchase of such
employee's equity interest and options under the Management Option Plan in
Buyer, provided, that, if Buyer is then in default with respect to the
-------- ----
payment of the Earn-Out Payment or the Earn-Out Notes for any reason,
whether voluntary or involuntary (including without limitation by reason of
a prohibition arising out of a default or an event of default in a
financing agreement), Buyer may only effect
17
<PAGE>
such repurchase by delivering to such employees Permitted Securities (as
defined below) and (y) cash distributions (but only for such periods as
Buyer exists in the form of a partnership) to the holders of equity
interests in Buyer in an amount equal to the lower of (A) the product of
(i) the taxable income of Buyer for any fiscal year for which Buyer reports
taxable income for Federal income tax purposes determined as if Buyer were
a separately taxable entity and (ii) a percentage equal to the sum of (1)
the highest marginal Federal income tax rate applicable to individuals in
effect for such year and (2) ten percentage points or (B) the maximum
amount of distributions for taxes Buyer is permitted to make under the
agreements entered into pursuant to the commitments for senior debt
financing set forth in Schedule 5.5 or any refinancing thereof, provided,
--------
that, if Buyer is then in default with respect to the payment of
----
any of the Earn-Out Payment, the Earn-Out Notes, the Priority Partnership
Interest or the Exchange Notes, for any reason, whether voluntary or
involuntary (including without limitation by reason of a prohibition
arising out of a default or an event of default in a financing agreement),
Buyer may not make the cash distributions described in this clause (y). For
purposes of the preceding sentence, Buyer shall not be prohibited from
delivering (x) securities issued or issuable to employees pursuant to the
Management Option Plan, (y) unless Buyer is then in default with respect to
the payment of the Earn-Out Payment or the Earn-Out Notes, cash payments in
connection with the cash settlement of such securities pursuant to the
Management Option Plan; provided, that, if there is in effect any such
--------------
payment default, Buyer may effect such cash settlement only by delivering
to such employees Permitted Securities, and/or (z) securities issued or
issuable pursuant to the exercise of warrants or options issued to the
holders of the debt financing referred to in Section 5.5 in accordance with
their terms or any refinancing thereof. "Permitted Securities" means (i)
with respect to such a default under any Priority Partnership Interests or
Exchange Notes, notes of Buyer having a ranking chosen by Buyer (which
ranking shall be senior to the Exchange Notes) and (ii) with respect to
such a default under the Earn-Out Payment or the Earn-Out Notes, notes of
Buyer pari passu with the Earn-Out Notes (whether or not then issued) in
terms of ranking and restrictions on terms of payment.
(vi) Buyer shall provide to Seller (x) as soon as available after
the end of the first three quarters of each fiscal year of Buyer the
unaudited quarterly financial statements of Buyer for such fiscal quarter,
(y) as soon as available after the end of each fiscal year of Buyer, the
audited annual financial statements of Buyer for such fiscal year and (z)
any notice of an occurrence of an event of
18
<PAGE>
default (or of an event that, with notice or lapse of time or both would
constitute an event of default) received by Buyer from its lenders or
delivered to such lenders by Buyer and any amendments to the financing
documents among Buyer and its lenders. If Buyer has any consolidated
subsidiaries, the financial statements referred to in clauses (x) and (y)
shall be consolidated and consolidating financial statements; in any case,
such financial statements shall be prepared in accordance with GAAP on a
consistent basis and shall fairly present the financial condition, results
of operation and cash flows of Buyer for the dates and periods covered
thereby, subject, in the case of interim financial statements, to normal
year-end adjustments and to the absence of footnotes.
(vii) Buyer (x) shall not permit any member of its operating
management to be employed by Centre Partners or CCI, directly or
indirectly, other than through employment by Buyer and (y) shall require
that each member of its operating management devote substantially all of
his or her business time to the Business.
(e)(i) In the event that, during the Base Period and prior to the
time of a Transfer Event, Buyer or any Subsidiary Transfers or acquires, in one
transaction or a related series of transactions (other than in the ordinary
course of business), any business segment or any asset or related group of
assets ("Significant Assets") that if Transferred or acquired with associated
goodwill and other intangibles would constitute a business segment (a
"Significant Asset Sale" or a "Significant Asset Purchase", as the case may be),
the amounts set forth in columns I and II of Schedule 2.5(a) shall be adjusted
as follows:
(A) In the event of a Significant Asset Sale, the amounts set
forth in columns I and II of Schedule 2.5(a) for each month after the month
in which the Significant Asset Sale occurs shall be adjusted by multiplying
each such amount by a fraction (x) the numerator of which is EBITDA for the
twelve month period preceding the month in which the Significant Asset Sale
occurs, less the EBITDA attributable to the applicable Significant Assets
----
Transferred for the twelve month period preceding the month in which the
Significant Asset Sale occurs and (y) the denominator of which is EBITDA
for the twelve month period preceding the month of the Significant Asset
Sale, all as determined reasonably and in good faith by Buyer.
(B) In the event of a Significant Asset Purchase, the amounts
set forth in columns I and II of Schedule 2.5(a) for each month after the
month in which the Significant Asset Purchase occurs shall be adjusted by
multiplying each such amount by a fraction (x) the numerator of which is
19
<PAGE>
EBITDA for the twelve month period preceding the month in which the
Significant Asset Purchase occurs, plus the estimated EBITDA
----
which would have been attributable to the applicable Significant Assets
acquired for the twelve months preceding the month in which the Significant
Asset Purchase occurs and (y) the denominator of which is EBITDA for the
twelve month period preceding the month in which the Significant Asset
Purchase occurs, all as determined reasonably and in good faith by Buyer.
(C) Without limiting the generality of the foregoing, (i) a
Significant Asset Sale shall be deemed to occur upon (x) the Transfer of
Significant Assets to a Person that is an EBITDA Contributor immediately
after such Transfer and/or (y) the Transfer of an equity interest in an
EBITDA Contributor, (ii) a Significant Asset Purchase shall be deemed to
occur upon the acquisition of an equity interest in a Person that is an
EBITDA Contributor immediately after such acquisition and (iii) a single
transaction which involves both a deemed Significant Asset Sale and a
deemed Significant Asset Purchase shall be treated as involving separate
transactions. In any such case, the calculations relating to any
transaction contemplated by this Section 2.5(e)(i) shall appropriately
reflect any changes in the equity interest owned by Buyer or a Subsidiary
in an EBITDA Contributor during the applicable twelve (12) month measuring
period.
(ii) Buyer shall give Seller notice of its determination of
EBITDA attributable to the Significant Assets involved in a Significant Asset
Sale or a Significant Asset Purchase at least five (5) business days prior to
such Event. Such notice shall include sufficient information as may be
reasonably necessary for Seller to review the determination of Buyer of EBITDA
attributable to such Significant Assets. Within thirty (30) days of the receipt
of such notice, Seller must give Buyer notice of any objection to such
determination. If a timely notice is given by Seller to Buyer, Seller may
include such objection as part of an Earn-Out Contest Notice (as hereinafter
defined) in connection with the procedure set forth in Section 2.5(f). If
Buyer's notice complied with the standard set forth in the second sentence of
this Section 2.5(e)(ii) and Seller fails to timely give Buyer such notice of
objection, Seller shall be precluded from including such an objection as part of
an Earn-Out Contest Notice.
(f)(i) As soon as practicable after a Determination Date (but in no
event later than forty-five (45) days after a Determination Date) Buyer shall
prepare and deliver to Seller a certificate of Buyer stating cumulative EBITDA
from the Closing Date until such date, including any adjustments to the amounts
set forth in columns I and II of Schedule 2.5(a), if any,
20
<PAGE>
pursuant to Sections 2.5(e)(i)(A), (B) and (C), and the amount of the Earn-Out
Payment, each as set forth therein, have been determined in accordance herewith
(the "Earn-Out Certificate").
(ii) Buyer shall provide Seller with copies of all work papers,
documents, receipts, invoices and other materials and access to Buyer's
personnel during regular business hours as may be necessary or reasonably
requested by Seller in its review of the Earn-Out Certificate. If Seller
does not timely deliver an Earn-Out Contest Notice (as hereinafter defined)
in accordance with clause (iii) below, the Earn-Out Certificate will be
final and binding on all the parties.
(iii) In the event that Seller contests any part of the
calculation of cumulative EBITDA, including any objection as to the
determination of the adjustments to the amounts set forth in columns I and
II of Schedule 2.5(a), if any, pursuant to Sections 2.5(e)(i)(A), (B) and
(C), and/or the amount of the Earn-Out Payment each as set forth in the
Earn-Out Certificate, Seller shall give written notice of its objections
thereto (an "Earn-Out Contest Notice") within thirty (30) days following
the delivery of the Earn-Out Certificate.
(iv) During the period of thirty (30) days following the timely
delivery of any such Earn-Out Contest Notice, Buyer and Seller shall
attempt to resolve in writing any differences which Buyer and Seller may
have with respect to any matter specified in the Earn-Out Contest Notice
(which resolution, if any, shall be final and binding on all the parties).
If at the end of such thirty (30) day period, Buyer and Seller shall fail
to reach written agreement with respect to all of such matters, then all
such matters specified in any Earn-Out Contest Notice with respect to which
such written agreement has not been reached (the "Earn-Out Disputed
Matters") shall be submitted to and arbitrated by an investment bank of
recognized standing with substantial experience in the media business (the
"Earn-Out Arbitrator") selected by an investment bank selected by Buyer and
an investment bank selected by Seller. The Earn-Out Arbitrator shall
consider only the Earn-Out Disputed Matters. The Earn-Out Arbitrator shall
act promptly, and the Earn-Out Arbitrator's decision with respect to all
Earn-Out Disputed Matters shall be final and binding upon the parties
hereto.
(v) The fees and expenses of the Earn-Out Arbitrator incurred in
connection with its review and determination of the Earn-Out Disputed
Matters shall be borne one-half (1/2) by Buyer and one-half (1/2) by
Seller.
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<PAGE>
(vi) Buyer shall pay to Seller the Earn-Out Payment plus interest
----
on the amount of the Earn-Out Payment from the Determination Date to the
date of the payment of the Earn-Out Payment (determined as provided in
Section 2.4(c)) within ten (10) days of (x) the last day for Seller to
deliver an Earn-Out Contest Notice, if no such Earn-Out Contest Notice is
delivered, or (y) the date of the determination of the Earn-Out Disputed
Matters by the Earn-Out Arbitrator or the date that Buyer and Seller
mutually resolve the differences set forth in the Earn-Out Contest Notice,
as the case may be, if an Earn-Out Contest Notice is delivered by Seller.
(g) Any payment to which Buyer shall be entitled pursuant to
Article X may at Buyer's option be setoff against the amount of any Earn-Out
Payment in accordance with the Setoff Procedure.
ARTICLE III
CLOSING
-------
3.1. CLOSING DATE. The Closing shall be consummated at 10:00
------------
A.M., local time, on the last business day of the month during which all the
conditions to each party's obligation to Close have been satisfied or waived, at
the offices of Rosenman & Colin, 575 Madison Avenue, New York, New York 10022 or
at such other place or time as shall be agreed upon by the parties hereto. The
time and date on which the Closing is actually held is referred to herein as the
"Closing Date".
3.2. SELLER'S CLOSING DELIVERIES. Subject to fulfillment or
---------------------------
waiver of the conditions set forth in Article IX, at the Closing, Seller shall
deliver, or caused to be delivered, to Buyer all the following:
(a) copies of Seller's certificate of limited partnership
certified as of a recent date by the Secretary of State of Delaware;
(b) certified copies of the resolutions of the General Partner's
board of directors and sole stockholder, together with any required approvals of
the Limited Partner, in connection with the transactions contemplated hereby;
(c) certified copies of the resolutions of TFC's board of
directors in connection with the transactions contemplated hereby;
(d) certificates of legal existence, good standing and tax good
standing of Seller and the General Partner issued as of a recent date by the
Secretary of State of the State of
22
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Delaware and certificates of good standing and tax good standing of each
jurisdiction in which Seller and/or the General Partner is qualified to transact
business; and a certificate of legal existence, good standing and tax good
standing of TFC issued as of a recent date by the Secretary of State of the
State of Delaware;
(e) incumbency and specimen signature certificates dated the
Closing Date with respect to the officers of the General Partner executing this
Agreement and any Seller Ancillary Agreement on behalf of itself and on behalf
of Seller;
(f) incumbency and specimen signature certificates dated the
Closing Date with respect to the officers of TFC executing this Agreement;
(g) opinions of counsel to Seller and TFC referred to in Section
8.13;
(h) Instruments of Assignment duly executed by Seller;
(i) to the extent then deliverable, certificates of title or
origin (or like documents) with respect to any vehicles or other equipment
included in the Purchased Assets for which a certificate of title or origin is
required in order to transfer title;
(j) all consents, waivers or approvals, including those relating
to the Proprietary Rights, the Contracts and the Governmental Permits obtained
by Seller with respect to the Transfer of the Purchased Assets or the
consummation of the transactions contemplated hereby;
(k) the certificates contemplated by Sections 8.1 and 8.2;
(l) subject to the terms of this Agreement, such other bills of
sale, assignments and other instruments of Transfer as Buyer may reasonably
request or as may be otherwise necessary to evidence and effect the Transfer of
the Purchased Assets to Buyer;
(m) each other document then required to be delivered by Seller
pursuant to Article VII or VIII;
(n) the Non-Competition Agreement duly executed by Seller,
General Partner, TFC, Marshall Field V and the Trusts;
(o) the Intellectual Property Assignment (as hereinafter
defined);
23
<PAGE>
(p) the Amended Partnership Agreement executed by Seller;
(q) the affidavit referred to in Section 7.11;
(r) the certificate referred to in Section 7.17; and
(s) the notarial form of instrument of Transfer of the German
Licensee Shares.
3.3. BUYER'S CLOSING DELIVERIES. Subject to fulfillment or
--------------------------
waiver of the conditions set forth in Article VIII, at the Closing Buyer shall
deliver, or cause to be delivered, to Seller all the following:
(a) copies of Buyer's certificate of limited partnership
certified as of a recent date by the Secretary of State of Delaware;
(b) a certificate of good standing of Buyer issued as of a
recent date by the Secretary of State of Delaware;
(c) certified resolutions of the general partner of MLP
Acquisition with respect to the transactions contemplated hereby and incumbency
and specimen signature certificates dated the Closing Date with respect to the
officers of the general partner of MLP Acquisition executing this Agreement and
any Buyer Ancillary Agreement;
(d) opinion of counsel to Buyer referred to in Section 9.8;
(e) Instruments of Assumption duly executed by Buyer;
(f) the certificate contemplated by Section 9.1;
(g) each other document required to be delivered by Buyer
pursuant to Article IX;
(h) the Non-Competition Agreement duly executed by Buyer; and
(i) the Amended Partnership Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AND TFC
------------------------------------------------
Seller, General Partner and TFC, jointly and severally, represent and
warrant to Buyer as follows:
4.1. ORGANIZATION OF SELLER, GENERAL PARTNER AND TFC. (a) Seller
-----------------------------------------------
is a limited partnership duly organized, validly existing and in good standing
under the laws of the State of Delaware. Seller is duly qualified to transact
business as a foreign limited partnership and is in good standing in each
jurisdiction in which Seller has reasonably determined that it is required to
qualify as set forth in Schedule 4.1(a). Seller has the partnership power and
authority to own or lease and to operate and use the Purchased Assets and to
carry on the Business as now conducted.
(b) General Partner is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. General
Partner is duly qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which General Partner has reasonably
determined that it is required to qualify as set forth in Schedule 4.1(b).
(c) TFC is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
4.2. SUBSIDIARIES AND INVESTMENTS. Except for Marketable
----------------------------
Securities and the German Licensee Shares, Seller does not, directly or
indirectly, own, of record or beneficially, any outstanding voting securities or
other equity interests in any corporation, partnership, joint venture or other
entity.
4.3. AUTHORITY OF SELLER, GENERAL PARTNER AND TFC; NON-
-------------------------------------------------
CONTRAVENTION. (a) Seller has the partnership power and authority to execute,
- -------------
deliver and perform this Agreement and all the Seller Ancillary Agreements.
(b) The execution, delivery and performance hereof and of the
Seller Ancillary Agreements by Seller have been duly authorized and approved by
all requisite partnership action. This Agreement has been duly authorized,
executed and delivered by Seller and is the legal, valid and binding obligation
of Seller enforceable in accordance with its terms, and each of the Seller
Ancillary Agreements has been duly authorized by Seller, and upon execution and
delivery by Seller will be a legal, valid and binding obligation of Seller
enforceable in accordance with its terms.
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(c) Except as set forth in Schedule 4.3 (and, as to the German
Licensee Shares, assuming the accuracy of Buyer's representation and warranty
set forth in Section 5.7 and the lifting of, or the compliance with, the
restrictions on Transfer of the German Licensee Shares), neither the execution
and delivery hereof or of any of the Seller Ancillary Agreements nor the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof will, with or without notice and/or the lapse of time:
(i) conflict with, result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights, or result in the creation or imposition of any Encumbrance upon any
of the Purchased Assets under, (A) the certificate or agreement of limited
partnership of Seller, (B) any Seller Agreement, (C) any other material
note, instrument, agreement, mortgage, lease, license, franchise, permit or
other authorization, right, restriction or obligation to which Seller is a
party or any of the Purchased Assets is subject or by which Seller is
bound, (D) any Governmental Rule to which Seller is a party or any of its
assets is subject or by which Seller is bound or (E) any Governmental Rule
affecting Seller or its assets; or
(ii) require the approval, consent, authorization or act of, or
the making by Seller of any declaration, filing or registration with, (A)
any Governmental Body, except for required filings with the Federal Trade
Commission and the Department of Justice pursuant to HSR, or (B) any third
party, as to (x) any Contract or Proprietary Rights reasonably anticipated
to involve payments in excess of $10,000 over the twelve (12) month period
from the date of this Agreement or (y) any Seller Agreement.
(d) General Partner has all necessary power and authority to
execute, deliver and perform this Agreement on behalf of Seller and itself, all
the Seller Ancillary Agreements on behalf of Seller and all the Seller Ancillary
Agreements to which it is a party on behalf of itself.
(e) The execution, delivery and performance hereof and of the
Seller Ancillary Agreements by General Partner have been duly authorized and
approved by all requisite corporate action. This Agreement has been duly
authorized, executed and delivered by General Partner on behalf of itself and
Seller and is the legal, valid and binding obligation of General Partner
enforceable in accordance with its terms, and each of the Seller Ancillary
Agreements to which General Partner is a party has been duly authorized by
General Partner, and upon execution and
26
<PAGE>
delivery by General Partner will be a legal, valid and binding obligation of
General Partner enforceable in accordance with its terms.
(f) Except as set forth in Schedule 4.3 (and, as to the German
Licensee Shares, assuming the accuracy of Buyer's representation and warranty
set forth in Section 5.7 and the lifting of, or the compliance with, the
restrictions on Transfer of the German Licensee Shares), neither the execution
and delivery hereof or the consummation of any of the transactions contemplated
hereby nor compliance with or fulfillment of the terms, conditions and
provisions hereof will, with or without notice and/or the lapse of time:
(i) conflict with, result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, (A) the certificate of incorporation or by-laws of General
Partner, (B) any other note, instrument, agreement, mortgage, lease,
license, franchise, permit or other authorization, right, restriction or
obligation to which General Partner is a party or by which General Partner
is bound, (C) any Governmental Rule to which General Partner is a party or
by which General Partner is bound or (D) any Governmental Rule affecting
General Partner; or
(ii) as to General Partner, require the approval, consent,
authorization or act of, or the making by General Partner of any
declaration, filing or registration with, (A) any Governmental Body, except
for required filings with the Federal Trade Commission and the Department
of Justice pursuant to HSR, or (B) any third party.
(g) TFC has the corporate power and authority to execute,
deliver and perform this Agreement.
(h) The execution, delivery and performance hereof by TFC has
been duly authorized and approved by all requisite corporate action. This
Agreement has been duly authorized, executed and delivered by TFC and is the
legal, valid and binding obligation of TFC enforceable in accordance with its
terms.
(i) Except as set forth in Schedule 4.3 (and, as to the German
Licensee Shares, assuming the accuracy of Buyer's representation and warranty
set forth in Section 5.7 and the lifting of, or the compliance with, the
restrictions on Transfer of the German Licensee Shares), neither the execution
and delivery hereof or the consummation of any of the transactions contemplated
hereby nor compliance with or fulfillment of the terms, conditions and
provisions hereof will, with or without notice and/or the lapse of time:
27
<PAGE>
(i) conflict with, result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, (A) the certificate of incorporation or by-laws of TFC, (B)
any other note, instrument, agreement, mortgage, lease, license, franchise,
permit or other authorization, right, restriction or obligation to which
TFC is a party or by which TFC is bound, (C) any Governmental Rule to which
TFC is a party or by which TFC is bound, or (D) any Governmental Rule
affecting TFC; or
(ii) as to TFC, require the approval, consent, authorization or
act of, or the making by TFC of any declaration, filing or registration
with, (A) any Governmental Body, except for required filings with the
Federal Trade Commission and the Department of Justice pursuant to HSR, or
(B) any third party.
4.4. FINANCIAL STATEMENTS. (a) Schedule 4.4 contains the audited
--------------------
balance sheets of Seller as of December 31, 1990, 1989 and 1988 and related
statements of operations, cash flows and partners' investment for each of the
three years ended December 31, 1990, including the notes thereto, all of which
have been delivered to Buyer, certified by the Accountants, and the unaudited
balance sheet of Seller as of the October Balance Sheet Date and the related
financial statements (including related statements of operations, cash flows and
partners' investment for the ten month period ended the October Balance Sheet
Date), all of which have been delivered to Buyer. Such financial statements
present fairly, in all material respects, the financial position of Seller as of
December 31, 1990, 1989 and 1988 and the October Balance Sheet Date,
respectively, and the results of Seller's operations cash flows, and partners'
investment for each of the three years in the period ended December 31, 1990 and
the ten month period ended the October Balance Sheet Date, all in conformity
with GAAP on a consistent basis, subject, in the case of the October Balance
Sheet and the related statements of operations, cash flows and partners'
investment, to normal year end adjustments and the absence of footnotes.
(b) The amounts set forth in the first column of the October
Statement have been accurately derived from the October Balance Sheet.
(c) The "Management Profit Reconciliation" included in Schedule
4.4 accurately and correctly reconciles (i) the net loss in the statement of
operations for the ten month period ended the October Balance Sheet Date
referred to in Section 4.4(a) with (ii) the management profit in the monthly
management report for such period previously supplied to Buyer.
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<PAGE>
4.5. ABSENCE OF CHANGES. (a) Except as set forth in Schedule
------------------
4.5(a) and except for changes in general economic conditions, since the October
Balance Sheet Date there has been no material adverse change in the Purchased
Assets taken as a whole, the Business or the operations or financial condition
of Seller; provided, however, that with respect to the German Licensee, the
-------- -------
foregoing representation and warranty is made only to the knowledge of Seller.
(b) Except as set forth in Schedule 4.5(b), since the October
Balance Sheet Date Seller has conducted the Business only in the ordinary
course. Without limiting the generality of the foregoing, since the October
Balance Sheet Date, except as set forth in such Schedule, Seller has not with
respect to the Business:
(i) Sustained any material damage, or any destruction, damage by
fire, accident or other casualty of or to any of the Purchased Assets,
whether or not covered by insurance;
(ii) Paid, discharged or satisfied any material claims,
liabilities or obligations (absolute, accrued, contingent or otherwise) in
connection with, relating to or affecting in any way the Purchased Assets
or the Business, other than the payment, discharge or satisfaction of such
claims, liabilities or obligations in the ordinary course of business;
(iii) Cancelled or compromised any material debts without fair
consideration therefor, or waived any material claims or rights of
substantial value in connection with, relating to or affecting in any way
the Business;
(iv) Sold, transferred, assigned, leased, abandoned or otherwise
disposed of any of its properties or assets (real, personal or mixed,
tangible or intangible) in an amount in excess of $25,000, except for raw
materials, inventory or equipment disposed of in the ordinary course of
business;
(v) Granted any increase (including any increase pursuant to any
bonus, pension, profit sharing or other plan or commitment) in the
compensation payable or to become payable to any employee of Seller whose
annual compensation is at least $50,000 (other than any such increase
pursuant to collective bargaining agreements);
(vi) Entered into any contract, arrangement or lease in an amount
in excess of $25,000, except (i) trade or business contracts or
arrangements entered into in the
29
<PAGE>
ordinary course of business or (ii) any contract or arrangement set forth
in any Schedule to this Agreement;
(vii) Waived or released any material right under or amended or
terminated in any material respect any material agreement of the type
required to be set forth in any Schedule to this Agreement;
(viii) Made any change in its accounting methods or practices;
(ix) Materially changed any of its significant business policies;
(x) Terminated or failed to exercise any option to renew any
agreement that is or was material to the Business;
(xi) Made or entered into any contracts or commitments to make
any capital expenditures in excess of $100,000 individually;
(xii) Made any distribution of assets other than cash to any
Seller Group Member or Affiliate of Seller;
(xiii) Incurred any lockouts or strikes or, to the knowledge of
Seller, any dispute (other than routine individual grievances) or any
activity or proceeding by a labor union or representative thereof to
organize any employees of Seller not already subject to a collective
bargaining agreement, material slowdowns, work stoppages or, to the
knowledge of Seller, threats thereof by or with respect to such employees;
(xiv) Disposed of or permitted to lapse any Proprietary Rights
comprising a material part of the Purchased Assets or used by or in the
Business, or other than as contemplated by this Agreement (or otherwise in
connection with the potential sale of the Business as an entirety pursuant
to the auction process in which CCI participated) disclosed to any Person,
except as may be required by law or to governmental agencies, or affiliates
or representatives of Seller, any Proprietary Rights comprising part of the
Purchased Assets or used by or in the Business not theretofore a matter of
public knowledge; or
(xv) Agreed, whether in writing or otherwise, to take any action
described in this Section 4.5.
4.6. NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule
--------------------------
4.6, there are no material liabilities or obligations of Seller (whether known,
accrued, absolute, contingent or otherwise and whether due or to become due) of
a type
30
<PAGE>
normally reflected on a balance sheet prepared in accordance with the same
accounting principles, adjustments, methods and practices which were applied in
the preparation of the October Balance Sheet which are not shown on the October
Balance Sheet.
4.7. TAXES. (a) Except as set forth in Schedule 4.7, with
-----
respect to the Business, each of Seller and, to the knowledge of Seller, the
German Licensee has timely filed with the appropriate Governmental Bodies all
Tax Returns which are required to be filed, and has duly paid to the appropriate
Governmental Bodies all Taxes which are required to be paid, including, without
limitation, all Taxes withheld from employees' wages and all other Taxes due or
claimed to be due by any Governmental Body. Such Tax Returns properly reflect
the Taxes payable for the periods covered thereby. All such Taxes due for all
taxable periods ending on or prior to the Closing Date have been, or will be,
timely paid by Seller or, to the knowledge of Seller, the German Licensee, as
the case may be, or (in the case of Taxes not yet due and payable) will be
properly accrued and fully provided for in accordance with GAAP as applied by
Seller in preparation of the October Balance Sheet as part of the liabilities
shown on the Closing Date Balance Sheet. Neither Seller nor, to the knowledge of
Seller, the German Licensee has waived the statute of limitations on the right
of any Governmental Body to assess any additional Taxes or to contest the items
reported on any such Tax Returns.
(b) Seller at all times has been treated as a partnership, and
not as an association taxable as a corporation, for U.S. Federal income tax
purposes.
(c) Seller has provided Buyer with true and complete copies of
all Tax Returns filed by Seller for each of the past three (3) taxable years.
4.8. CONDITION OF ASSETS; OWNERSHIP OF ASSETS. (a) Except as set
----------------------------------------
forth in Schedule 4.8 and except for the Excluded Assets, the material tangible
Purchased Assets are serviceable or in working order and, in either such case,
suitable for use in accordance with the past practices of Seller. Seller has
adopted and follows reasonable maintenance policies with respect to material
tangible assets owned by Seller. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
SPECIFICALLY SET FORTH HEREIN, ALL THE ASSETS SOLD HEREUNDER ARE SOLD TO BUYER
WITHOUT IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR INTENDED USE OR
OTHERWISE.
(b) Neither the General Partner nor TFC owns or holds any
properties or assets that are used in the Business (other than the insurance
policies listed in Schedule 4.23).
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4.9. GOVERNMENTAL PERMITS. (a) Seller owns, holds or possesses
--------------------
all licenses, franchises, permits, privileges, immunities, approvals and other
authorizations from a Governmental Body which are necessary to entitle it to own
or lease, operate and use the Purchased Assets and to carry on and conduct the
Business substantially as currently conducted ("Governmental Permits") except
for such Governmental Permits as to which the failure to so own, hold or possess
would not have a material adverse effect on the Purchased Assets, the Business
or the operations or financial condition of Seller.
(b) Schedule 4.9(b) sets forth a list and brief description of
each Governmental Permit held by Seller as of the date hereof, except for such
incidental licenses, permits and other authorizations which would be obtainable
in due course by any qualified applicant without any undue burden in the event
of any lapse, termination, cancellation or forfeiture thereof. Except as set
forth in Schedule 4.9(b), (i) Seller has fulfilled and performed in all material
respects its obligations under each of the Governmental Permits listed on
Schedule 4.9(b), and no event has occurred or condition or state of facts exists
which constitutes or, after notice or lapse of time or both, would constitute a
material breach or default by Seller under any such Governmental Permit or which
permits or, after notice or lapse of time or both, would permit revocation or
termination of any such Governmental Permit; and (ii) no notice of cancellation,
of default or of any material dispute concerning any Governmental Permit, or of
any event, condition or state of facts described in the preceding clause, has
been received by Seller.
4.10. REAL PROPERTY. Seller owns no real property or any
-------------
options to acquire any real property.
4.11. REAL PROPERTY LEASES. Schedule 4.11 sets forth a list and
--------------------
brief description of each lease or similar agreement (showing the parties,
annual rental, expiration date, renewal and purchase options, if any, the uses
being made thereof and the location) under which Seller is lessee of, or holds
or operates, any real property owned by any Person other than Seller. All leases
are in full force and effect, free of subtenancies, except as set forth in
Schedule 4.11, or other occupancy rights. True and complete copies of the leases
and other agreements listed in Schedule 4.11 have been delivered or made
available to Buyer.
4.12. CONDEMNATION. As of the date hereof, to the knowledge of
------------
Seller, (a) neither the whole nor any part of any of the real property listed or
described in Schedule 4.11 is subject to any pending suit for condemnation or
other taking by any Governmental Body, and (b) no such condemnation or other
taking is threatened or contemplated.
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<PAGE>
4.13. PERSONAL PROPERTY; SUFFICIENCY OF ASSETS. Schedule 4.13
----------------------------------------
contains a list of the aggregate net book values by category of the tangible
personal property owned by Seller in such detail as is reasonably determinable
by Seller. Except as set forth on Schedule 4.13, the Purchased Assets are free
and clear of all Encumbrances other than Permitted Encumbrances; provided, that,
-------- ----
for purposes of this Section 4.13, Permitted Encumbrances shall not include any
mechanics', materialmen's and similar liens.
4.14. PERSONAL PROPERTY LEASES. Schedule 4.14 contains a brief
------------------------
description of each lease, license or other agreement (including in each case
the annual rental, the expiration date thereof and a brief description of the
property covered) under which Seller is lessee of, or holds or operates for its
own use, any machinery, equipment, vehicle or other tangible personal property
owned by a Person other than Seller, except any such lease, license or other
agreement providing for base payments aggregating less than $25,000 over its
term (excluding renewal options) or which is terminable without penalty on sixty
(60) days' or less notice. Except as set forth on Schedule 4.14, the interests
of Seller in such property are free and clear of all Encumbrances other than
Permitted Encumbrances. True and complete copies of the leases, licenses and
other agreements listed in Schedule 4.14 have been delivered or made available
to Buyer.
4.15. INTELLECTUAL PROPERTY. (a) Schedule 4.15 contains a list
---------------------
of the following Proprietary Rights showing for each country in which the
Business is conducted, in each case as of the date hereof:
(i) For each patent, the patent number and date, a description
of the Invention, and the expiration date;
(ii) For each trademark, the name, registration number and date,
and goods and/or services in connection with which the trademark is used;
(iii) For each tradename, the mark, the date first used, and the
goods and/or services in connection with which the tradename is used;
(iv) For each trade secret, if any, a general description, the
place where such trade secret is stored, and the efforts made to prevent
disclosure thereof;
(v) For each copyright, if registered, the registration number
and date; and
(vi) If any registrations or applications for any of the
foregoing are in process, a description of the status
33
<PAGE>
thereof.
(b) Except as set forth in Schedule 4.15, Seller either:
(i) is the sole and exclusive owner of all rights obtainable in
the Proprietary Rights or such rights, to the extent not owned by Seller in
any country in which the Business is conducted by Seller, directly or
indirectly, including through any Licensee, are so obtainable, provided
that the foregoing representation is made only to the knowledge of Seller
with respect to any country other than the United States or Canada; or
(ii) possesses adequate rights to use all of such Proprietary
Rights in connection with the Business as presently conducted.
(c) To the knowledge of Seller, no Proprietary Right violates or
infringes the personal or property rights of any person, firm or corporation
and, except as set forth in Schedule 4.15, no claims of any such violation or
infringement are pending or threatened.
(d) To the knowledge of Seller, except as set forth in Schedule
4.15, there is not now pending or threatened any action, suit, claim, assessment
or proceeding, to challenge the validity, ownership or use of any of the
Proprietary Rights, or to revoke, cancel, rescind, modify or refuse to renew in
the ordinary course of business any of such Proprietary Rights as may have been
registered by Seller.
(e) Seller has maintained the policy of deterring potential
infringers or unauthorized users thereof to the extent necessary to protect any
Proprietary Rights that are material to Seller. Without derogating from the
preceding sentence, Schedule 4.15(e) sets forth a list of certain unauthorized
uses of Proprietary Rights.
4.16. ACCOUNTS RECEIVABLE. All accounts receivable of Seller have
-------------------
arisen from bona fide transactions by Seller in the ordinary course of the
Business.
4.17. ENVIRONMENTAL MATTERS.
---------------------
(a) Except as set forth in Schedule 4.17, Seller has obtained
and continues to maintain property and permits, licenses, consents and approvals
necessary for conducting the Business which are required under Environmental
Laws ("Environmental Approvals"), and Seller has not operated the Business in
violation of any Environmental Law or the terms of any Environmental Approval.
34
<PAGE>
(b) Except as set forth in Schedule 4.17:
(i) Seller has not used, stored, generated, discharged, emitted,
transported, disposed of or treated Hazardous Substances except in a manner
which complies with Environmental Laws.
(ii) To the knowledge of Seller, no prior owner, occupant, tenant
or user of any Facility has ever used, stored, generated, discharged,
emitted, transported, disposed of or treated Hazardous Substances, at, on
or from any Facility except in compliance with all Environmental Laws.
(iii) To the knowledge of Seller, there is not, and there has not
been, any Environmental Condition or release, or threat of release (as
those terms are defined in Section 101 of CERCLA) of Hazardous Substances
at, on, or from any Facility.
(c) Except as set forth in Schedule 4.17, all Environmental
Approvals may be Transferred to Buyer.
(d) Except as set forth in Schedule 4.17, Seller has not
received written notice of any pending or threatened investigation, claims,
enforcement proceedings, cleanup orders, citizen suits or other actions
instituted by any private party, employee or Governmental Body arising out of
the conduct or the operations of the Business, in connection with any
Environmental Laws, or as a result of any Environmental Condition at any
Facility.
4.18. EMPLOYEES AND RELATED AGREEMENTS; ERISA.
---------------------------------------
(a) For the purposes of Sections 4.18 and 7.4:
(i) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(ii) "ERISA Affiliate" shall mean all members of a controlled
group of corporations and all trades and businesses (whether or not
incorporated) under common control and all other entities which, together
with Seller, are treated as a single employer under any or all of Sections
414(b), (c), (m) or (o) of the Code on either the date of this Agreement or
the Closing Date.
(iii) "Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA.
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<PAGE>
(iv) "PBGC" shall mean the Pension Benefit Guaranty Corporation
or any person succeeding to the functions thereof.
(v) "Plan" shall mean any plan, program, arrangement, agreement
or commitment which is a pension, profit sharing, savings, thrift or other
retirement plan (including without limitation any "employee pension benefit
plan" as defined in Section 3(2) of ERISA), deferred compensation, health
or welfare plan (including without limitation any "employee welfare benefit
plan" as defined in Section 3(1) of ERISA), stock purchase, stock option,
performance share, bonus or other incentive or severance pay plan, policy
or procedure, or vacation or other employee benefit plan, program,
arrangement, agreement or commitment, whether or not written.
(vi) "Single Employer Defined Benefit Plan" shall mean a Plan
subject to Subtitle B of Title IV of ERISA which is not a Multiemployer
Plan.
(b) Except as set forth in Schedule 4.18(b) or 4.18(l), Seller
does not maintain or contribute to, or have any obligation to contribute to, and
Seller has no liability (including without limitation a liability arising out
of an indemnification, guarantee, hold harmless or similar agreement) or obliga-
tion with respect to, any Plan. Except as set forth in Schedule 4.18(b) or
4.18(l), no severance pay policy or procedure is maintained by Seller which does
or could apply to employees of Seller in any form whether written or unwritten
and whether or not disclosed to one or more employees. Seller neither maintains,
contributes to or is obligated to contribute to any Single Employer Defined
Benefit Plan and, except as set forth in Schedule 4.18(b), Seller neither
maintains, contributes to or is obligated to contribute to any Multiemployer
Plan which is subject to Subtitle B of Title IV of ERISA. Notwithstanding
anything to the contrary stated in this Section 4.18, no representation or
warranty is made with respect to severance pay obligations arising under
collective bargaining agreements.
(c) No event has occurred in connection with which Seller or any
Plan (other than a Multiemployer Plan) identified in Schedule 4.18(b) or any
"plan administrator" (as defined in Section 3(16) of ERISA) thereof, directly or
indirectly, is or could be subject to liability, other than for routine claims
for benefits, contingent or otherwise, or any lien, whether or not perfected,
under the terms of any Plan or under ERISA, the Code or any other law,
regulation or governmental order applicable to any Plan at any time maintained
or contributed to by Seller or any ERISA Affiliate, including, without
limitation, Sections 302(f), 404, 406, 409, 502(c)(1), 502(c)(3), 502(g),
502(i), 502(l), 4062, 4063, 4064, 4068, 4069, 4071 or 4201 of ERISA, or
36
<PAGE>
Sections 412(n), 4971, 4975, 4976, 4980B or 5000 of the Code, or under any
agreement, instrument, statute, rule of law or regulation pursuant to or under
which Seller has agreed to indemnify or is required to indemnify any person
against liability incurred under, or for a violation or failure to satisfy the
requirements of, any such statute, regulation or order. No Plan listed in
Schedule 4.18(b) which is not a Multiemployer Plan is subject to Section 302 of
ERISA or Section 412 of the Code.
(d) With respect to the Savings Plan (as hereinafter defined),
the Health and Welfare Benefit Program (as hereinafter defined) and any
Multiemployer Plan identified in Schedule 4.18(b), the aggregate of the annual
employer contributions and other direct expenses paid in connection with such
Plan by Seller for each of the last three plan years of each such Plan are set
forth in Schedule 4.18(d).
(e) With respect to each Multiemployer Plan identified in
Schedule 4.18(b) which is subject to the provisions of Subtitle B of Title IV of
ERISA, to the knowledge of Seller, (a) the trustees of each such Plan have not
instituted proceedings to terminate, reorganize or merge any such Multiemployer
Plan; (b) no condition or event exists or has occurred which presents a material
risk of the termination, reorganization or merger of any such Multiemployer Plan
which could result in the imposition on Seller of any liability under Title IV
or ERISA or otherwise, whether to the PBGC or otherwise, including without
limitation termination liability, withdrawal liability or partial withdrawal
liability; (c) no such Multiemployer Plan has filed an application for financial
assistance pursuant to the provisions of Section 4245(f) or 4281(d) of ERISA;
(d) no contribution to any such Multiemployer Plan required of Seller pursuant
to the terms thereof or of any collective bargaining agreement is nondeductible
by reason of any provision of Section 412 of the Code; (e) no liability under
Sections 4201 of ERISA or otherwise under Title IV of ERISA would exist if
Seller withdrew from or ceased to be an employer under any Multiemployer Plan;
and (f) there are no unfunded vested benefits as determined under Section 4211
of ERISA with respect to any such Multiemployer Plan allocable to Seller.
(f) All payments and contributions due from Seller under each
Plan identified in Schedule 4.18(b) have been made and all amounts properly
accrued to date as liabilities of Seller which have not been paid have been or
will or will prior to the Closing Date have been properly recorded on the books
of Seller and, to the extent not theretofore paid, will be reflected as a
liability on the Closing Date Balance Sheet.
(g) Except as provided in Schedule 4.18(g), no "employee welfare
benefit plan" as defined in Section 3(1) of ERISA or "multiple employer welfare
arrangement" as defined in
37
<PAGE>
Section 3(40) of ERISA provides benefits, including without limitation death or
medical benefits (whether or not insured) with respect to any current or former
employee of Seller beyond their retirement or other termination of service other
than (i) coverage mandated by applicable law or (ii) disability benefits that
have been fully provided for by insurance or otherwise.
(h) The transactions contemplated by this Agreement will not
result in any payment or series of payments by Buyer under any Plan established
by Seller to any person of a parachute payment within the meaning of Section
280G of the Code.
(i) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any employee or former employee of Seller to
severance pay, unemployment compensation or any other payment except as
expressly provided in this Agreement or (ii) result in any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code for
which an exemption is not available.
(j) Other than as set forth in Schedule 4.18(q), there has been
delivered to Buyer with respect to each Plan (other than a Multiemployer Plan)
identified in Schedule 4.18(b):
(i) A copy of the annual report (with accompanying schedules and
exhibits), if required under ERISA, which has been filed with respect to
such Plan for the two most recently completed plan years. The information
contained in such report (including such schedules and exhibits) is correct
and complete and there has been no material adverse change in the condition
of such Plan, financial or otherwise, since the date thereof;
(ii) A copy of the actuarial report, if any, with respect to each
such Plan for the last two years. The information contained therein, and
the information furnished by the administrator of such Plan or by Seller or
any ERISA Affiliate in connection with the preparation thereof, is correct
and complete and there has been no material adverse change therein since
the date thereof;
(iii) A copy of the most recent summary plan description,
together with each Summary of Material Modifications with respect thereto,
required under ERISA with respect to such Plan, all material employee
communications relating to such Plan, distributed within the last twelve
(12) months and, a true and complete copy of such Plan;
(iv) If such Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding vehicle and the
latest financial statements thereof; and
38
<PAGE>
(v) The most recent determination letter received from the
Internal Revenue Service with respect to each Plan that is intended to
qualify under Section 401 of the Code.
(k) Neither Seller nor any ERISA Affiliate has made any
agreement, understanding or promise, whether written or oral, to create,
establish, sponsor, maintain or contribute, directly or indirectly, to or under
any additional Plan for the benefit of current or former employees of Seller
nor, except as set forth in Schedule 4.18(k), to amend or modify any existing
Plan identified in Schedule 4.18(b) in any manner not reflected in the plan
documents of such Plan delivered to Buyer on or before the date hereof.
(l) Except as set forth in Schedule 4.18(l), Seller is not a
party to any collective bargaining agreements, whether or not expired. With the
exception of representation pursuant to such agreements, there are no labor
unions or other organizations representing or to the knowledge of Seller
purporting to repre sent or attempting to represent any employee of Seller. All
employee benefit plans (as defined in Section 3(3) of ERISA) which are
specifically referred to in any collective bargaining agreement are listed in
Schedule 4.18(l) and are defined as such in Schedule 4.18(l).
(m) Seller has not violated any provision of Federal or state
law or any governmental rule or regulation, or any order, ruling, decree,
judgment or arbitration award of any court, arbitrator or any government agency
regarding the terms and conditions of employment of employees, former employees
or prospective employees or other labor related matters, including, without
limitation, laws, rules, regulations, orders, rulings, decrees, judgments and
awards relating to discrimination (including without limitation discrimination
on the basis of age, sex, race or religion), fair labor standards and
occupational health and safety, wrongful discharge or violation of the personal
rights of employees, former employees or prospective employees or state
temporary disability laws, rules or regulations.
(n) There is no unfair labor practice charge or complaint
pending or, to the knowledge of Seller, threatened against Seller before the
National Labor Relations Board or any State Labor Relations Board. There are no
claims of discrimination of any kind pending or, to the knowledge of Seller,
threatened against Seller before any Governmental Body, except as set forth in
Schedule 4.18(n).
(o) There is no labor strike or, to the knowledge of Seller,
dispute, material slowdown, material work stoppage or lockout actually pending
or, to the knowledge of Seller,
39
<PAGE>
threatened against Seller.
(p) Each Plan to which Seller contributes or has any obligation
to contribute (other than any Multiemployer Plan) and, to the knowledge of
Seller, each Multiemployer Plan to which Seller contributes or has any
obligation to contribute which is intended to be qualified under Section 401 of
the Code, has received a favorable determination letter from the Internal
Revenue Service with respect to such qualification and with respect to the
exemption from tax of the trusts created thereunder under Section 501(a) of the
Code, and nothing has occurred that has affected or is likely to adversely
affect such qualification or exemption since the date of such letter with
respect to each Plan (other than a Multiemployer Plan) and, to the knowledge of
Seller, with respect to each Multiemployer Plan.
(q) Except as set forth in Schedule 4.18(q), all reports and
other information required under ERISA or any other applicable law or regulation
to be filed by Seller in respect of any Plan identified in Schedule 4.18(b), or,
with respect to such a Plan other than a Multiemployer Plan, the administrator
thereof, on or prior to the date hereof with the relevant governmental
authority and/or distributed or made available to any Plan participant and
beneficiary (including "alternate payees", as such term is defined in Section
206(d)(3)(K) of ERISA), as the case may be, have been filed, distributed or made
available in accordance with ERISA or such other applicable law or regulation,
as the case may be, and all such reports and other information are true and
correct in all material respects as of the date given.
(r) Seller has not entered into any agreement, written or
otherwise, relating to its Medical Care/Dental Care/Basic Life/AD&D/Vision Care
Plan, obligating Seller or its successor in interest to make any supplemental or
retrospective premium payments for the current or any prior contract period in
the event of adverse experience, termination of the minimum premium arrangement,
or termination of an insurance contract, relating to such Plan, except as
otherwise expressly stated in the written contract effective January 1, 1990
setting forth the minimum premium arrangement under such plan.
4.19. CONTRACTS. (a) Except as set forth on Schedule 4.19(a) or
---------
4.19(b) (or, in the case of Section 4.19(a)(vii), except as set forth in any
other Schedule hereto or except as would be required to be disclosed in any
other Schedule hereto but for the dollar limitation or any materiality
limitation contained herein):
(i) There are no binding contracts, commitments or agreements
for the purchase of any equipment, materials or supplies that individually
(or in a series of related
40
<PAGE>
transactions) involve an expenditure by Seller in excess of $100,000 over
the remaining term of each such contract, commitment or agreement;
(ii) There are no government contracts or other agreements,
contracts or commitments with customers that individually (or in a series
of related transactions other than a relation that exists solely as a
result of coordination of agreements, contracts or commitments among
locations of individual national accounts which are not the subject of a
master national accounts contract) involve a payment to Seller in excess of
$50,000 per annum;
(iii) There are no written contracts for the employment or
compensation of any employee individually in excess of $50,000 per annum or
which are not terminable on sixty (60) days' or less notice;
(iv) There are no partnership or joint venture contracts or
arrangements or any other agreements involving a sharing of revenues or
profits material to the Purchased Assets or the Business to which Seller is
a party or by which Seller is bound;
(v) Except as described in Section 4.15, 4.20 or a Schedule
thereto, except for licenses that would be required to be described in such
a Schedule but for the limitations contained in Section 4.15 and except for
ordinary course commercial software, there are no licenses to which Seller
is a party or by which it is bound relating to the use of personal or
property rights of others, there are no licenses granted to others to use
the Proprietary Rights, and there are no royalty contracts to which Seller
is a party or by which it is bound individually (or in a series of related
transactions) involving annual payments in excess of $50,000;
(vi) There are no contracts or agreements for the sale of any of
the Purchased Assets (other than inventory sales in the ordinary course of
business) or the grant of any rights to purchase any of the Purchased
Assets;
(vii) There are no contracts or agreements with consultants,
advisors, salespeople, sales representatives, distributors, lobbyists,
dealers or independent contractors to which Seller is a party or by which
Seller is bound other than those that Seller enters into with salespeople
in the ordinary course of business, the standard form of which (from which
there are no material deviations) is set forth in Schedule 4.19(b)(vii);
and
(viii) There are no contracts or agreements to which
41
<PAGE>
Seller is a party or by which Seller is bound restricting Seller from
carrying on the Business in its entirety in any jurisdiction other than
contracts or agreements with Licensees.
(b) Schedule 4.19(b) sets forth a list of each contract or
other agreement between Seller and a Licensee establishing the licensing
arrangement between them, including its effectiveness date, its termination
date and the date of any amendments, modifications or material written waivers
thereto.
(c) True and complete copies of the contracts, agreements,
commitments, leases and other instruments listed in Schedules 4.19(a) and
4.19(b) have been delivered or made available to Buyer.
4.20. MUSIC SERVICES CONTRACTS.
------------------------
(a) Schedule 4.20(a) contains a list of all agreements between
Seller and a performing rights society. To the extent any such agreement has
expired, Schedule 4.20(a) lists the agreements or consent decree, if any, which
contain the mechanism or procedure for determining the basis on which
Participations are to be calculated and paid in connection with amendments or
extensions of such agreements past the expiration date thereof.
(b) Schedule 4.20(b) contains a list of all musical
compositions, the copyrights of which are owned by Seller. All of Seller's
rights in such compositions have been acquired pursuant to agreements, forms of
which are included in Schedule 4.20(b). There are no material deviations from
such forms.
(c) Substantially all of Seller's rights in the tapes and other
reproductions of recordings with respect to Background Music Services were
acquired pursuant to Contracts with either producers or exclusive publishers. A
list of the contracting parties for such Contracts is included in Schedule
4.20(c). With respect to such Contracts, there are no Participations except to
the extent Seller is required to pay the publishers of such recordings a
mechanical license fee.
(d) Substantially all of Seller's rights in the tapes and other
reproductions of recordings with respect to Foreground Music Services were
acquired pursuant to Contracts, a list of which is contained in Schedule
4.20(d).
(e) Substantially all tapes of music embodied in sound recording
relating to Background Music Services or Foreground Music Services are either on
the premises of a subscriber or Licensee, in transit or in those duplicating or
storage facilities listed in Schedule 4.20(e).
42
<PAGE>
(f) Substantially all of the rights to make arrangements and
mechanically reproduce musical compositions for the purpose of making the
recordings referred to in paragraphs (c), (d) and (e) of this Section 4.20 were
acquired either pursuant to the Contracts listed in Schedule 4.20(f) or pursuant
to an agreement between Seller and the Harry Fox Agency, Inc., dated January 1,
1991, which is listed in Schedule 4.20(f).
(g) With respect to all Music Services Contracts:
(i) Other than in connection with those agreements set forth in
Schedule 4.20(a), 4.20(b), 4.20(c), 4.20(d), 4.20(f), or 4.20(g)(i), there
are no provisions requiring Seller to pay Participations;
(ii) Since December 31, 1986, no audits have been conducted by
the contracting parties in connection with Music Services Contracts set
forth in Schedule 4.20(a), 4.20(b), 4.20(c), 4.20(d) or 4.20(f), except to
the extent itemized in Schedule 4.20(g)(ii). Seller has paid the amounts
set forth in Schedule 4.20(g)(ii) under such completed audits, if any. No
audit is, to the knowledge of Seller, threatened or continuing except as
set forth in Schedule 4.20(g)(ii); and
(iii) Seller's books and records, as currently constituted, are
sufficient in all material respects to calculate all Participations and
furnish to third parties all information required to be furnished under
Music Services Contracts as and when required.
4.21. STATUS OF CONTRACTS. Except as set forth in Schedule 4.21,
-------------------
each of the leases, licenses, contracts and other agreements listed in Schedule
4.11, 4.14, 4.15, 4.18(b), 4.19(a), 4.19(b), 4.20(a), 4.20(b), 4.20(d), 4.20(f)
or 4.20(g)(i) ("Seller Agreements") constitutes a valid and binding obligation
of Seller (subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general application relating to or affecting creditors' rights
and to general equity principles) and is in full force and effect; provided,
--------
however, that the foregoing representation and warranty shall not be deemed to
- -------
have been breached with respect to any licensing agreement between Seller (as
successor licensor) and any Licensee which Seller acquired from a third party
transferor ("Predecessor Licensing Agreements") solely to the extent such
validity, binding effect or status may be affected by the failure of such third
party transferor to comply with applicable franchise or licensing laws. Except
as set forth in Schedule 4.3 and except for Seller Agreements which by their
terms will expire prior to the Closing Date or otherwise terminate prior to the
Closing Date in accordance with the provisions hereof or that constitute
Excluded Assets,
43
<PAGE>
the Seller Agreements may be Transferred to Buyer pursuant to this Agreement
without breaching the terms thereof or resulting in the forfeiture or impairment
of any rights thereunder and without the consent, approval or act of, or the
making of any filing with, any other party. Other than defaults under the
Predecessor Licensing Agreements solely attributable to the failure of a third
party transferor (as described in the proviso above) to comply with applicable
franchise or licensing laws or the failure to comply with any provision of a
Predecessor Licensing Agreement specifically requiring compliance with such
laws, Seller is not in material default under any of the Seller Agreements and
no event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both, would constitute such a default
by Seller. To the knowledge of Seller, no other party to any of the Seller
Agreements is in material default thereunder. Seller has not received any
written claim that it is in default under any of the Predecessor Licensing
Agreements.
4.22. NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as set
---------------------------------------------
forth in Schedule 4.22:
(a) Seller is in compliance in all material respects with all
Governmental Rules which are applicable to the Purchased Assets or the Business,
except that no such representation or warranty is made as to compliance with
franchising laws and related Governmental Rules solely applicable to the
Predecessor Licensing Agreements;
(b) There are no lawsuits, claims, suits, audits, proceedings
or, to the knowledge of Seller, investigations pending or threatened against
Seller; and
(c) There is no action, suit or proceeding pending or, to the
knowledge of Seller, threatened which questions the legality, propriety or
validity of the transactions contemplated hereby.
4.23. INSURANCE. Seller or its Affiliates maintain, with
---------
respect to the Business and the Purchased Assets, policies of fire and extended
coverage and casualty, liability and other forms of insurance, which such
policies are set forth in Schedule 4.23, in such amounts and against such risks
and losses as are prudent for the operation of the Business and shall use
reasonable efforts (including without limitation payment of all premiums and
giving of all requisite notices required by such policies) to maintain such
insurance or comparable insurance in full force and effect immediately prior to
the Closing Date.
4.24. ORGANIZATION, CAPITALIZATION AND FINANCIAL STATEMENTS OF THE
------------------------------------------------------------
GERMAN LICENSEE. (a) To the knowledge of Seller, the German Licensee is a
- ---------------
limited liability company duly
44
<PAGE>
organized and validly existing under the laws of the Federal Republic of
Germany; (b) the copy of the Articles of Association (Gesellschaftvertrag) of
the German Licensee heretofore delivered by Seller to Buyer is a true and
correct copy of the copy thereof most recently furnished to Seller; (c) Seller
owns the German Licensee Shares free and clear of all Encumbrances other than
Permitted Encumbrances and other than the associated rights of first refusal and
(d) to the knowledge of Seller, the German Licensee Shares represent no less
than 35% of the outstanding shares of stock of the German Licensee. Upon
delivery to the Buyer on the Closing Date or pursuant to Section 7.30, as the
case may be, of the instruments of conveyance and Transfer contemplated hereby,
Seller will Transfer valid title to the German Licensee Shares free and clear of
all Encumbrances (other than Permitted Encumbrances). Schedule 4.24 contains
true and correct copies of the most recent financial statements of the German
Licensee most recently made available to Seller by the German Licensee, as to
which financial statements no other representation or warranty is made.
4.25. TRANSACTIONS WITH AFFILIATES AND TRUSTS. Except as
---------------------------------------
described in Schedule 4.25, since December 31, 1987 there have been no
intercompany services or products being provided by (a) the Business to any of
Seller's Affiliates or any of the Trusts or (b) any of Seller's Affiliates or
any of the Trusts to the Business, and there have been no contracts between
Seller, on the one hand, and any of its Affiliates or any of the Trusts, on the
other.
4.26. INVESTMENT CANADA. No part of the Business as currently
-----------------
conducted by Seller is a "Canadian Business" within the meaning of Section 3 of
the Investment Canada Act.
4.27. PERSONNEL. Schedule 4.27 sets forth the names and position
---------
titles of each employee of the Business whose annual compensation is in excess
of $50,000 and, as of the date of this Agreement, each such employee's current
annual salary and other compensation. As of the date of this Agreement, Seller
has not received notice from any employee listed in Schedule 4.27 of his or her
intention to resign or retire from employment.
4.28. INVENTORY. Except as set forth in Schedule 4.28, all
---------
inventory of Seller is of a quality usable and salable in the ordinary course of
business, except for items of obsolete materials and materials of below-standard
quality (all of which have been written down in the October Balance Sheet to
realizable market value or for which adequate reserves have been provided
therein, in each case to the extent required by GAAP as applied by Seller
(including methods and practices) in the preparation of the October Balance
Sheet), or which have become obsolete in the ordinary course of business since
the October Balance Sheet Date.
45
<PAGE>
4.29. CUSTOMERS AND SUPPLIERS. Except as set forth in Schedule
-----------------------
4.29, Seller has not received any written notice of any termination or
cancellation of (or of any intent to terminate or cancel) the business
relationship of the Business with (y) any single customer or any group of
affiliated customers who represented one percent (1%) or more of the
consolidated revenues of the Business during the twelve month period ended
December 31, 1991, or (z) any single supplier or group of affiliated suppliers
who provided one percent (1%) or more of the requirements of the Business during
the twelve month period ended December 31, 1991.
4.30. FCC COMPLIANCE. (a) Except as set forth in Schedule 4.30,
--------------
Seller has obtained all necessary Governmental Permits from the FCC to own and
operate all multiple address system ("MAS") microwave radio stations that Seller
currently owns and operates, and all such Governmental Permits are in full force
and effect. All such Governmental Permits and all applications by Seller for
Governmental Permits from the FCC are set forth in Schedule 4.30.
(b) Except as set forth in Schedule 4.30, all of Seller's MAS
microwave radio stations are operated in compliance in all material respects
with all terms and conditions of their respective Governmental Permits issued by
the FCC and all applicable Governmental Rules. Except as set forth in Schedule
4.22(a), all other personal property of Seller that transmits or receives radio
frequency waves is operated by Seller in compliance in all material respects
with applicable Governmental Rules.
(c) There is not now pending or, to the knowledge of Seller,
threatened any action by or before the FCC to revoke, cancel, rescind, modify or
refuse to renew in the ordinary course any of the Governmental Permits issued to
Seller by the FCC. There is not now pending, issued or, to the knowledge of
Seller, threatened any order to show cause, notice to Seller of violation or
notice to Seller of apparent liability or forfeiture by or before the FCC, nor
are there any complaints against Seller pending before the FCC. Except as set
forth in Schedule 4.30, Seller has no reason to believe that any basis exists
for the loss or modification of any of the Governmental Permits issued to Seller
by the FCC, or for any fine, forfeiture or other penalty to be levied against
Seller by the FCC in connection with its operation of MAS microwave radio
stations.
(d) To the knowledge of Seller, MicroSpace is licensed by the
FCC for interim operation of a DBS Facility and Seller has no knowledge of any
reason for MicroSpace's authorization not being renewed in the ordinary course.
(e) To the knowledge of Seller, the SCA Lessors are licensed by
the FCC to conduct FM broadcast operations in the
46
<PAGE>
communities in which they are broadcasting, and are operating their stations in
conformity in all material respects with the Communications Act of 1934, as
amended (the "Communications Act"), and the FCC Rules. To the knowledge of
Seller, each SCA Lessor is licensed for a term expiring on the date next to its
call sign set forth in Schedule 4.30. Seller knows of no reason each such
license should not be renewed in the ordinary course.
(f) Except as described in Schedule 4.30, to the knowledge of
Seller, none of MicroSpace or any of the SCA Lessors is a subject of any
investigation, notice of violation, order or complaint issued by or before any
Governmental Body, including the FCC, or of any other proceedings which could
threaten or adversely affect the validity or the continued effectiveness of the
FM radio station licenses held by the SCA Lessors or the leases of MicroSpace
for satellite transponder capacity.
(g) Schedule 4.30 lists all of the material lease agreements
between Seller and any Person relating to the location of all towers, antennas,
transmitters, satellite transmit dishes, satellite receivers and translators
(collectively, the "Tower Site Leases") used in connection with the operation of
Seller's business and such Tower Site Leases constitute the only Tower Site
Leases necessary in connection with the business of Seller as now conducted.
4.31. TORRANCE NOTE. At February 29, 1992 the Torrance Note
-------------
had an outstanding principal amount of $550,000 and accrued and unpaid interest
of $861,779.32.
4.32. NO FINDER. Neither Seller nor any party acting on its
---------
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated hereby
other than to Veronis, Suhler & Associates Inc., whose fees and expenses, to the
extent payable, shall be paid by Seller or its Affiliates.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller that:
5.1. ORGANIZATION OF BUYER. (a) Buyer is a limited partnership
---------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to own or lease and to
operate and use its properties and assets and to carry on its business as now
conducted.
(b) MLP Acquisition, L.P., a Delaware limited partnership ("MLP
Acquisition"), is a limited partnership duly organized, validly existing and in
good standing under the laws
47
<PAGE>
of the State of Delaware.
5.2. AUTHORITY OF BUYER; NON-CONTRAVENTION. (a) Buyer has full
-------------------------------------
power and authority to execute, deliver and perform this Agreement and all the
Buyer Ancillary Agreements.
(b) The execution, delivery and performance hereof and the Buyer
Ancillary Agreements by Buyer have been duly authorized and approved by all
requisite partnership action. This Agreement has been duly authorized, executed
and delivered by Buyer and is the legal, valid and binding agreement of Buyer
enforceable in accordance with its terms, and each of the Buyer Ancillary
Agreements has been duly authorized by Buyer and upon execution and delivery by
Buyer will be a legal, valid and binding obligation of Buyer enforceable in
accordance with its terms.
(c) Neither the execution and delivery hereof or any of the
Buyer Ancillary Agreements nor the consummation of any of the transactions
contemplated hereby or thereby nor compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof will, with or without notice and/or
the lapse of time:
(i) conflict with, result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under (A) the certificate or agreement of limited partnership of
Buyer, (B) any note, instrument, agreement, mortgage, lease, license,
franchise, permit or other authorization, right, restriction or obligation
to which Buyer is a party or any of its properties is subject or by which
Buyer is bound, (C) any Governmental Rule to which Buyer is a party or by
which it is bound or (D) any Governmental Rule affecting Buyer; or
(ii) require the approval, consent, authorization or act of, or
the making by Buyer of any declaration, filing or registration with, (A)
any Governmental Body, except for required filings with the Federal Trade
Commission and the Department of Justice pursuant to HSR, or (B) any third
party.
(d) MLP Acquisition has full power and authority to execute,
deliver and perform this Agreement on behalf of Buyer and all the Buyer
Ancillary Agreements on behalf of Buyer.
(e) The execution and delivery hereof by MLP Acquisition on
behalf of Buyer have been duly authorized and approved by all requisite
partnership action.
(f) Neither the execution and delivery hereof or
48
<PAGE>
any of the Buyer Ancillary Agreements nor the consummation of any of the
transactions contemplated hereby or thereby nor compliance with or fulfillment
of the terms, conditions and provisions hereof or thereof will, with or without
notice and/or the lapse of time:
(i) conflict with, result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, (A) the certificate or agreement of limited partnership of
MLP Acquisition, (B) any note, instrument, agreement, mortgage, lease,
license, franchise, permit or other authorization, right, restriction or
obligation to which MLP Acquisition is a party or any of its properties is
subject or by which MLP Acquisition is bound, (C) any Governmental Rule to
which MLP Acquisition is a party or by which it is bound or (D) any
Governmental Rule affecting MLP Acquisition; or
(ii) require the approval, consent, authorization or act of, or
the making by MLP Acquisition of any declaration, filing or registration
with, any Governmental Body, except for required filings with the Federal
Trade Commission and the Department of Justice pursuant to HSR, or any
third party.
5.3. PRIORITY PARTNERSHIP INTEREST; EXCHANGE NOTES. When issued,
---------------------------------------------
the Priority Partnership Interest shall be duly authorized, validly issued and
non-assessable. Should the Exchange Notes be issued upon exchange of the
Priority Partnership Interest, the Exchange Notes will have been duly authorized
and will be a valid and binding obligation of Buyer enforceable in accordance
with their terms.
5.4. NO PRIOR ACTIVITIES; NO SUBSIDIARIES. Buyer has not (a)
------------------------------------
incurred, nor will it incur prior to the Closing Date, directly or indirectly,
any liabilities or obligations, or (b) engaged in any business activity or
transaction, or (c) entered into any agreement or arrangement with any Person,
except, in any such case, in connection with its organization or with the
negotiation of this Agreement, the financing for the transactions contemplated
by this Agreement and the performance hereof and thereof and the consummation of
the transactions contemplated hereby and thereby. Buyer has not formed or
Transferred any assets to any Subsidiaries.
5.5. CAPITALIZATION; FINANCING. Buyer has received a commitment to
-------------------------
subscribe for at least $15,000,000 of its equity interests, such commitments
being set forth in Schedule 5.5. Buyer has received a commitment to purchase at
least $10,000,000 of its senior subordinated notes from Barclays Bank PLC, such
49
<PAGE>
commitment being set forth in Schedule 5.5. The terms of such equity interests
(to the extent not set forth in the Amended Partnership Agreement), and any
management or other incentive plan for management employees of Buyer to own or
purchase any interests in Buyer or to receive any incentive, performance-based,
equity-linked or similar payments (other than under the management option plan
set forth in Schedule 5.5) are described in Schedule 5.5. Set forth on Schedule
5.5 is a true and correct copy of the Commitment Letter from Union Bank of
Switzerland with respect to up to $40,000,000 of senior bank financing. As of
the date of this Agreement, nothing has come to the attention of Buyer which
would lead Buyer to believe that on the Closing Date Buyer will not receive the
proceeds of the financing described in this Section 5.5 in order to enable Buyer
to consummate the transactions contemplated by this Agreement, it being
expressly acknowledged by Seller that such commitments contain numerous closing
conditions and no assurance can be given that such conditions will be waived or
satisfied on or prior to the Closing Date.
5.6. FINANCIAL ABILITY. Assuming performance by the parties
-----------------
providing financing under the commitments referred to in Section 5.5, Buyer has
the financial ability to consummate the transactions contemplated hereby.
5.7 BUYER SALES. The aggregate sales of Buyer and CCI and all
-----------
corporations and partnerships in which CCI is the majority equity owner or is
capable of exercising control over for the year ended December 31, 1991 did not
exceed DM 2,000,000,000.
5.8 NO FINDER. Neither Buyer nor any party acting on its behalf
---------
has paid or become obligated to pay any fee or commission to any broker, finder
or intermediary for or on account of the transactions contemplated hereby other
than to CCI whose fees and expenses, to the extent payable, shall be paid by
Buyer.
ARTICLE VI
ACTION PRIOR TO THE CLOSING DATE
--------------------------------
Between the date of this Agreement and the Closing Date:
6.1. INVESTIGATION OF SELLER BY BUYER; ENVIRONMENTAL AUDIT. (a)
-----------------------------------------------------
Seller shall afford to the officers, employees and authorized representatives of
Buyer (including independent public accountants, lenders (and their attorneys),
appraisers, attorneys, underwriters and other agents and representatives)
access, during normal business hours, to the offices, properties, employees,
books and business and financial records
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(including computer files, retrieval programs and similar documentation) of
Seller to the extent Buyer deems desirable and shall furnish to Buyer or its
authorized representatives such additional information concerning the Purchased
Assets and the Business as shall be requested, including all such information to
enable Buyer or such representatives to verify the accuracy of the
representations and warranties of Seller contained herein, to verify that the
covenants of Seller contained herein have been complied with and to determine
whether the conditions set forth in Article VIII have been satisfied. Seller
shall provide Buyer with copies of all documents, correspondence, and other
materials relating to the testing, removal and disposal of Hazardous Substances
at the property leased by Seller located at 1000 Shames Drive, Westbury, New
York, including without limitation all documents, correspondence and other
materials between Seller and any Governmental Bodies relating thereto. Buyer
agrees to hold such information in confidence in a manner consistent with the
Confidentiality Agreement.
(b) Buyer shall have the right to cause an independent
environmental consultant chosen by Buyer at its sole discretion (the
"Environmental Consultant"), to inspect and audit, any or all Facilities for the
existence of any and all violations of Environmental Laws (the "Phase I Audit")
and to deliver a report in a form reasonably acceptable to Buyer and its lenders
describing the findings and conclusions of the Phase I Audit. If (a) any of
Buyer's lenders requests the Buyer to conduct testing, sampling, analyses or
other processes at any or all Facilities (the "Phase II Audit"), or (b) the
Phase I Audit reveals that a Phase II Audit is reasonably necessary to ascertain
the presence or existence of Hazardous Substances at, on or under any Facility
or Facilities or of any violation of an Environmental Law, Buyer shall have the
right to cause the Environmental Consultant to conduct the Phase II Audit and to
deliver a report, a copy of which shall be delivered to Seller, in a form
reasonably acceptable to Buyer and its lenders describing the findings and
conclusions of the Phase II Audit. Access to conduct such Phase I and Phase II
Audits shall be afforded to Buyer and the Environmental Consultant by Seller
upon receipt of reasonable advance notice and during normal business hours and
shall be had or done in such a manner so as not to interfere with the normal
conduct of business of Seller. Subject to the foregoing, the scope, sequence and
timing of the Phase I and Phase II Audits shall be at the sole discretion of
Buyer and its lenders. The cost and expenses of the Phase I and Phase II Audits
shall be borne by Buyer.
6.2. NOTICES. Each party shall promptly notify the other of any
-------
action, suit or proceeding that shall be instituted or threatened against such
party to restrain, prohibit or otherwise challenge the legality of any
transaction contemplated hereby. Seller shall promptly notify Buyer of any
action, audit,
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lawsuit, claim, proceeding or investigation that may be threatened, brought,
asserted or commenced against Seller which would have been listed in Schedule
4.22 if such action, audit, lawsuit, claim, proceeding or investigation had
arisen prior to the date hereof.
6.3. OTHER ACTION; CONSENTS OF THIRD PARTIES; GOVERNMENTAL
-----------------------------------------------------
APPROVALS. (a) Seller shall use its best efforts, subject to paragraph (c) of
- ---------
this Section 6.3, and Buyer shall cooperate, promptly to (i) cause the
fulfillment at the earliest practicable date of all the conditions to their
respective obligations to consummate the sale and purchase of the Purchased
Assets under this Agreement and the other transactions contemplated hereby, (ii)
obtain all consents, amendments or permits from third parties, including
Governmental Bodies, which are required by the terms thereof, hereby or
otherwise for due and punctual consummation by Buyer and Seller of the
transactions contemplated hereby, (iii) obtain the Transfer of Environmental
Approvals to Buyer and to obtain all Environmental Approvals necessary for the
consummation of the transaction contemplated hereby, and (iv) obtain the release
of Seller from liability in respect of the Assumed Liabilities as to which
Seller elects to seek such release.
(b) Seller and Buyer shall act diligently and reasonably, and
shall cooperate with each other, subject to paragraph (c) of this Section 6.3,
to secure any consents and approvals of any Governmental Body required to be
obtained by them in order to Transfer any Governmental Permits to Buyer.
(c) Seller agrees to expend such amounts of money, if any, as it
shall reasonably determine to be necessary in its discretion in order to take
the actions described in Section 1.5 and this Section 6.3.
6.4. CONDUCT OF THE BUSINESS PRIOR TO THE CLOSING.
--------------------------------------------
(a) Seller shall operate and carry on the Business only in the
ordinary course as currently operated. Consistent with the foregoing unless
consented to in writing by Buyer which consent shall not be unreasonably
withheld, Seller shall comply with the provisions set forth below:
(i) Seller shall not enter into any contract, commitment or
other agreement providing for payments by Seller in excess of $100,000 over
the term thereof;
(ii) Seller shall not, nor shall it attempt to, sell or agree to
sell or Transfer, or encumber, any interest in the Business or the
Purchased Assets, except in the ordinary course of business;
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<PAGE>
(iii) Seller shall promptly notify Buyer in writing of, and
furnish to Buyer any information Buyer may request with respect to, the
occurrence of any event or the existence of any state of facts known to
Seller that would result in Seller's representations and warranties not
being true in all material respects if they were made at any time during
the period from the date hereof to the Closing;
(iv) Seller shall use its best efforts to maintain and preserve
the organization of the Business intact, to retain the employees presently
engaged in the Business so that they will be available to Buyer after the
Closing (provided, however, that nothing herein shall change at will
-------- -------
relationships or preclude the employer's rights thereunder) and to maintain
its relationships in all material respects with customers, suppliers and
others so that those relationships will be preserved through the Closing;
(v) Seller shall not grant or agree to grant any general
increase in the rates of salaries or comparable compensation (other than
pursuant to collective bargaining agreements in effect as of the date of
this Agreement) of its employees or agents of the Business whose annual
compensation in either case is at least $50,000;
(vi) Seller shall maintain the Purchased Assets in serviceable
condition or in working order and, in either case, suitable for use in
accordance with the past practices of Seller;
(vii) Seller shall not make any capital expenditures or
commitments therefor, additions or capital improvements in connection with
the Business in excess of $100,000 individually;
(viii) Seller shall pay all trade and other payables consistent
with past practice;
(ix) Seller shall not make any distribution of its assets other
than cash to any Seller Group Member or Affiliate of Seller;
(x) Seller shall not enter into or amend any lease or similar
agreement under which Seller shall be lessee of, or hold or operate, any
real property owned by any Person other than Seller; and
(xi) Seller shall diligently continue to attempt to obtain
indemnification agreements relating to sales made by Licensees to customers
in connection with Seller's nationally and centrally billed accounts.
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(b) Except as expressly contemplated hereby, Seller shall not
other than in the ordinary course:
(i) enter into any contract, agreement, undertaking or
commitment which, if in effect on the date hereof, would have been required
to be set forth in Schedules 4.19(a), 4.19(b), 4.20(a), 4.20(b), 4.20(c),
4.20(d), 4.20(f) or 4.20(g)(i); or
(ii) take any action described in Sections 4.5(b)(i) through (xv)
which, if taken between the October Balance Sheet Date and the date of this
Agreement, would have been required to be disclosed in Schedule 4.5(b)
pursuant to the terms of Section 4.5(b).
6.5. ANTITRUST COMPLIANCE, ETC. As promptly as practicable after
--------------------------
the date of this Agreement, Buyer and Seller (or their ultimate parent entities)
shall file with the Federal Trade Commission and the Antitrust Division of the
Department of Justice the notifications and other information required to be
filed under HSR with respect to the transactions contemplated hereby. Each of
Buyer and Seller (or their ultimate parent entities) shall file as promptly as
practicable such additional information as may be requested. Each of Buyer and
Seller shall make available to the other such information in its possession as
may be necessary for the completion of the notifications and other information
to be filed by or on behalf of the other (or their ultimate parent entities).
6.6. FCC COMPLIANCE. (a) Subject to the possible continuance of
--------------
the events referred to in Schedule 4.30, Seller shall maintain all of the
personal property of Seller which transmits or receives radio frequency waves in
conformity in all material respects with all applicable Governmental Rules,
including the FCC Rules. Upon Buyer's request therefor, Seller shall deliver to
Buyer copies of certificates, if any, issued by the FCC to Seller evidencing
Seller's compliance with the FCC Rules.
(b) Seller shall promptly notify Buyer if Seller receives
written notice of (i) any action by or pending before the FCC to revoke, cancel,
rescind or materially modify any Governmental Permits issued by the FCC to
Seller, any of the SCA Lessors or MicroSpace or (ii) any FCC order to show
cause, notice of apparent liability or forfeiture, any complaint against Seller
filed with the FCC, or any written threat thereof. Seller shall use reasonable
efforts to timely protest or seek rescission or withdrawal, in good faith, of
any such action, order, notice or complaint relating to any Governmental Permit
issued to Seller by the FCC. If any of Seller's MAS microwave stations are
operating in a manner that violates FCC Rules, Seller shall use its best efforts
to bring the operation of such stations into compliance
54
<PAGE>
with FCC Rules, provided, that if Seller does not effect such compliance on or
-------- ----
prior to the Closing Date, Seller shall arrange (and Buyer shall cooperate, at
no cost to Buyer, in Seller's arranging) on or prior to the Closing Date for
alternative means to deliver existing services to subscribers who now receive
services via any such non-complying MAS Microwave Stations (the "Alternative"),
provided, that, no such Alternative shall economically adversely affect Buyer
- -------- ----
and/or involve expenses to Buyer greater than those incurred by Seller in
providing such services through any such non-complying MAS Microwave Stations
for which Buyer is not reimbursed or otherwise economically made whole by Seller
on terms reasonably satisfactory to Buyer, which reimbursement and/or making
whole Seller hereby agrees to perform.
(c) Seller shall promptly notify Buyer if Seller receives
written notice (i) that any SCA Lessor operates stations not in conformity with
the Communication Act and the FCC Rules, (ii) of the assignment or license or
transfer of control of the licenses of any of the SCA Lessors, (iii) of any
investigation, notice of violation, order or complaint issued by or before any
Governmental Body, including the FCC, with respect to the SCA Lessors and (iv)
of any other proceedings that could materially or adversely affect the validity
or the continued effectiveness of the FM radio station licenses held by the SCA
Lessors or the leases of MicroSpace for satellite transponder capacity.
(d) As soon as practicable, but in any event no later than seven
(7) business days after the date of this Agreement, Seller and Buyer shall
execute applications (FCC Forms 402 and 1046) (the "FCC Applications") and all
other documents necessary to obtain the consent of the FCC to the assignment of
licenses of the microwave radio stations listed in Schedule 4.30 from Seller to
Buyer (the "FCC Consents").
6.7. EXON-FLORIO. None of the parties shall make a voluntary
-----------
filing under Section 721 of the Defense Production Act of 1950 with respect to
the transactions contemplated hereby without the consent of Seller, in the case
of Buyer, or Buyer, in the case of Seller, TFC or General Partner.
6.8. SELLER'S DISCLOSURE. Seller may from time to time prior to
-------------------
the Closing, by notice in accordance with this Agreement, (x) supplement or
amend any Schedule to this Agreement to correct any representation and warranty
herein contained that was not true when made or (y) otherwise correct any such
representation and warranty that is not made by reference to a Schedule hereto
(any such supplementation or amendment pursuant to clause (x) or correction
pursuant to clause (y) being referred to as a "Disclosure"); provided, that, if
-------- ----
any Disclosure is delivered to Buyer within seven (7) business days of the then
scheduled Closing Date, notwithstanding anything to the contrary
55
<PAGE>
stated in Section 11.1, the Closing Date and, if necessary, the Termination Date
shall be extended for a period of seven (7) business days after the date of such
delivery. To the extent that a Disclosure relates to a matter that occurred or
existed at or prior to the date of this Agreement, no such Disclosure shall be
deemed to correct or to cure any breach of such representation or warranty for
purposes of Article VIII or XI unless such incorrectness or breach is not
material, and Buyer shall be entitled to terminate this Agreement pursuant to
Section 11.1(b)(ii), but Buyer shall only be entitled to the remedy set forth in
Section 11.2(b). To the extent that a Disclosure relates to a matter which
occurs after the date of this Agreement, Buyer shall be entitled to terminate
this Agreement pursuant to Section 11.1(c), but Buyer shall not be entitled to
exercise any of its other rights and remedies hereunder. If the Closing occurs,
any such Disclosure will be effective to cure and correct for all purposes any
incorrectness or breach of any representation or warranty (whether or not
material) which would have existed by reason of Seller's not having made such
Disclosure.
6.9 TAXES. Promptly after the date of this Agreement, but, in
-----
any event, no later than twenty (20) days after the date of this Agreement,
Seller shall deliver to Buyer a statement which shall set forth Seller's
approximate estimated aggregate adjusted tax basis, for U.S. Federal income tax
purposes, in the Purchased Assets as of April 30, 1992.
6.10 PROPRIETARY RIGHTS. As soon as practicable after the date
------------------
of this Agreement, Seller shall deliver letters, reasonably satisfactory to
Buyer, (a) to each Licensee which uses the word "Muzak" as part of its corporate
name instructing such Licensee to cease such use of the word "Muzak" and (b) to
each Licensee which has been using Proprietary Rights without written
authorization stating that such Licensee is, and has at all times been,
authorized to use such Proprietary Rights pursuant to the terms of such
Licensee's License Agreement. Seller agrees to use its reasonable efforts to
cause each such Licensee, prior to the Closing, to acknowledge and agree to the
terms of the letter(s) addressed to it pursuant to this Section 6.10.
ARTICLE VII
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
7.1. COVENANT NOT TO COMPETE. At the Closing Seller, General
-----------------------
Partner, TFC, Marshall Field V and the Trusts shall enter into the Non-
Competition Agreement in the form attached as Exhibit B.
7.2. EXPENSES. Except as otherwise specifically
--------
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<PAGE>
provided in this Agreement, (a) Buyer and Seller shall bear their own respective
expenses incurred in connection with this Agreement and in connection with all
obligations required to be performed by each of them under this Agreement and
(b) Seller's expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereunder shall not be a liability
on the Closing Date Balance Sheet.
7.3. PUBLICITY. Prior to the Closing, neither Buyer nor Seller
---------
shall publicize, advertise, announce or describe to any Governmental Body or
other third person the terms of this Agreement, the parties hereto or the
transactions contemplated hereby, except as may be required by law or as
required or permitted pursuant to this Agreement in order to obtain the consent
of any such third person or Governmental Body or to Buyer's lenders and their
advisors or to any third party to enable Buyer or Seller to consummate the
transactions contemplated hereunder. No press release or other public
announcement of any kind concerning the transactions contemplated by this
Agreement shall be made by Buyer or Seller except as counsel for any party
advises is required by law or upon prior written approval (as to form and
content) of the other party, and except that TFC may make such press releases as
it believes are appropriate, subject to prior notice to, and consultation with,
Buyer.
7.4. EMPLOYMENT MATTERS. (a)(i) As of the Closing Date, Buyer
------------------
shall adopt, assume and be solely responsible for the Muzak Limited Partnership
Tempo Savings and Retirement Plan described in Schedule 4.18(b) (the "Savings
Plan") and the liabilities thereunder which accrue from and after the Closing
Date. As of the Closing Date, Buyer will be substituted for Seller as the plan
sponsor under the Savings Plan with full authority to maintain, amend or
terminate the Savings Plan to the extent allowed by law.
(ii) As of the Closing Date, Seller shall assign to Buyer and
Buyer shall assume all of Seller's rights, obligations, title and interest in
the trust fund (the "Trust Fund") and trust agreement (the "Trust Agreement") of
the Savings Plan. At the Closing, Buyer shall be substituted as "employer" under
the Trust Agreement.
(iii) At the Closing, Buyer and Seller shall execute an agreement
of assumption of sponsorship of the Savings Plan and Trust Agreement in such
form as is reasonably satisfactory to the parties hereto.
(iv) Seller shall promptly, after the Closing, supply Buyer with
(A) all records in the possession or control of Seller or its agents, concerning
participation, vesting, accrual of benefits, payment of benefits and elective
forms of benefits
57
<PAGE>
under the Savings Plan and (B) any other information in the possession or
control of Seller or its agents reasonably requested by Buyer that is necessary
or appropriate for the administration of the Savings Plan.
(v) Buyer shall file on behalf of Seller with the IRS on a
timely basis the annual report on Form 5500 for the Savings Plan for the plan
year ending December 31, 1991. Any reasonable out-of-pocket costs incurred in
connection with such filing shall be borne by Seller. Buyer shall file with the
IRS on a timely basis the annual report on Form 5500 for the Savings Plan for
the plan year beginning immediately prior to the Closing Date. Seller and Buyer
shall cooperate in the preparation and filing of said annual report.
(vi) The audited financial statements of the Savings Plan for the
most recent three (3) fiscal years for which such statements have been
completed, attached in Schedule 7.4(a), and certified by Arthur Andersen & Co.,
auditors for the Savings Plan, have been prepared in accordance with GAAP
consistently followed by the Trust Fund throughout the periods indicated and
fairly present the financial position of the Trust Fund as of the respective
dates, the net assets available for benefits, the accumulated plan benefits, the
changes in net assets available for benefits and the changes in accumulated plan
benefits.
(vii) On the Closing Date, Seller shall deliver to Buyer a
certificate dated as of the Closing Date in form and substance reasonably
satisfactory to Buyer's counsel, executed by the proper officers of the trustee
of the Trust Fund (the "Trustee") to the effect that (A) the amount of assets
held by the Trustee to fund benefits under the Savings Plan as of January 31,
1992, as reported by the Trustee of the Savings Plan, was $2,989,014.36; and (B)
such amount has not been withdrawn from the Trust Fund since January 31, 1992
other than for purposes of ordinary benefit payments, participant withdrawals
permitted under the terms of the Savings Plan; payments of lump sum benefits to
employees terminating their employment with Seller and the payment of expenses
permitted under the Plan.
(viii) Prior to the Closing, Seller shall amend and restate the
Savings Plan to conform to all applicable provisions of the requirements of the
Tax Reform Act of 1986 and all subsequent legislation effective before the
Closing and to make changes disclosed in Schedule 4.18(k). Buyer shall be
responsible for filing the amended and restated Savings Plan with the IRS within
the applicable remedial amendment period permitted by applicable Governmental
Rule, and Buyer shall be permitted to make amendments required to receive IRS
approval of the application filed in respect of the Savings Plan, provided that
it shall not be permitted to make any amendments that would increase Seller's
liabilities in respect of the Savings Plan without
58
<PAGE>
Seller's written consent (which shall not be unreasonably withheld) and Seller
shall cooperate in preparation of the application to be filed with the IRS.
(b)(i) As of the Closing Date, Buyer shall adopt, assume and be
solely responsible for all responsibilities and liabilities which accrue as a
result of the rendering of services from and after the Closing Date (including
all continuation coverage elected before, on or after the Closing Date by any
individual pursuant to Section 4908B of the Code and 601 through 608 of ERISA or
other applicable Governmental Rule as a result of an event occurring on or prior
to the Closing Date) under Seller's combined Medical Care/Dental Care/Basic
Life/AD&D Plan/Vision Care Plan, Long Term Disability Plan, its contracts or
agreements with the Harvard Community Health Plan, the Kaiser Foundation Health
Plan, Inc. - Northern Region and the Virginia Mason Health Plan; and the
Business Travel Accident Insurance Plan, the Voluntary Personal Accident Plan,
the Pre-tax Premium Plan, the Group Universal Life Plan, and the Employee
Assistance Program (all of which are referred to collectively as "Health and
Welfare Benefit Program").
(ii) As of the Closing Date, Buyer shall be substituted as the
plan sponsor of the Health and Welfare Benefit Program with full authority to
maintain, amend or terminate the Health and Welfare Benefit Program or any
component part thereof to the extent allowed by law. At the Closing Buyer and
Seller shall execute an agreement of assumption of plan sponsorship in such form
as is reasonably satisfactory to Buyer and Seller. Seller shall promptly after
the Closing Date supply Buyer with (A) all records in the possession or control
of Seller concerning claims and payment of benefits under the Health and Welfare
Program or any component part thereof and (B) any other information in the
possession or control of Seller or its agent that is necessary or appropriate
for the administration of the Health and Welfare Benefit Program or any
component part thereof.
(iii) Seller shall keep, or cause to be kept, all insurance and
HMO coverage listed in Schedule 7.4(b) or which otherwise is used in connection
with the Health and Welfare Benefit Program in full force and effect through the
close of business on the Closing Date. Seller shall provide Buyer with
information and data and the services of its personnel to facilitate and enable
Buyer to arrange for the continuance subsequent to the Closing Date, without
interruption, of all such contracts and insurance coverage presently maintained
by Seller under master group or other policies for or on behalf of the Seller
and/or its employees and, in connection therewith, Seller shall use its best
efforts to assist Buyer in obtaining an assignment of all such existing HMO
contracts and insurance contracts (or if such assignment is unavailable, Seller
shall use its best efforts to assist Buyer in obtaining coverage comparable to
the coverage
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<PAGE>
presently in effect) with (x) no increase in premiums and no adverse impact on
other financial arrangements relating to such coverage, (y) grandfather
provisions for all individuals (including disabled employees, employees on
disability waiver of premium and individuals entitled to COBRA continuation of
health coverage) who have fully or partially satisfied any eligibility, pre-
existing condition, actively at work, deductible, or other conditions and
limitations with respect to any benefit or right under the Health and Welfare
Benefit Program as in effect on the Closing Date, and (z) if a new contract
rather than an assignment is obtained, responsibility, if necessary, on the part
of the new insurer for administering payment of all outstanding reported and
unreported claims under the prior contract. If Buyer is unable to arrange for
such assignment or comparable coverage prior to the Closing Date, Seller shall
maintain, at the expense of Buyer, the presently existing coverage in effect to
the extent permitted by the pertinent policies and contracts and, if not
permitted, seek appropriate endorsements to allow for continuance of such
coverage. Effective upon the Closing, Seller shall relinquish all right, title,
and interest under any such insurance contracts, whether or not assigned to
Buyer, to any reserves for claims incurred prior to the Closing Date (including
unreported claims), or any experience credits or refunds, attributable to, or
relating to, any contributions made by Seller during the period prior to the
Closing Date.
(iv) As soon as practicable, and in any event prior to the
Closing Date, Seller shall (A) file an amended annual report on Form 5500 for
1988 and 1989 for plan number 501 reflecting its Business Travel Accident
Insurance Plan and its Employee Assistance Program and (B) file an amended
annual report on Form 5500 for 1990 for plan number 501 reflecting its Business
Travel Accident Insurance Plan, Employee Assistance Program, Voluntary Personal
Accident Insurance Plan, health maintenance organization, and Pre-Tax Premium
Plan. Seller shall be liable for any penalty imposed by the U.S. Department of
Labor, the U.S. Department of the Treasury and/or the Internal Revenue Service
for failure to have filed a timely or complete Form 5500 annual report due prior
to the Closing Date for its Medical Care/Dental Care/Basic Life/AD&D/Vision Care
Plan, health maintenance organizations, Long-Term Disability Plan, Business
Travel Accident Insurance Plan, Voluntary Personal Accident Insurance Plan,
Group Universal Life Plan, Pre-Tax Premium Plan, Employee Assistance Program,
Vision Care Plan, or any other employee benefit plan offered to its employees.
Seller shall amend page J-3 of its Employee Handbook to list separate plan
numbers for its Group Universal Life Insurance Plan and its Long-Term Disability
Plan.
(v) Buyer shall file on behalf of Seller on a timely basis the
annual report on Form 5500 for the Health and Welfare Benefit Program for the
plan year(s) beginning in 1991
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and ending prior to the Closing Date. Any reasonable out-of-pocket costs
incurred in connection with such filing shall be borne by Seller. Buyer shall
file on a timely basis the annual report on Form 5500 for the Health and Welfare
Benefit Program for the Plan year beginning prior to the Closing Date and ending
on or after the Closing Date. Seller and Buyer shall cooperate in the
preparation and filing of such annual reports.
(c) On or prior to the Closing Date, Seller shall pay to members
of senior management of Seller any and all amounts due and owing through the
Closing Date as reflected in the Management Investment Plan attached hereto as
Schedule 7.4(c) which shall be terminated as of the Closing.
(d) As of the Closing Date, Buyer shall adopt, assume and be
solely responsible for each Plan identified in Schedule 4.18(b), and related
funding vehicles, which accrue from and after the Closing Date. As of the
Closing Date, Buyer shall be substituted as the plan sponsor of each such Plan
with the full authority to maintain and amend such Plan to the extent allowed by
law, and at the Closing the parties shall execute an agreement of assumption of
plan sponsorship in such form as is reasonably satisfactory to Seller. Buyer
shall file on behalf of Seller on a timely basis the annual report on Form 5500
required to be filed for any such Plan for the plan year(s) beginning in 1991
and ending prior to the Closing Date. Any reasonable out-of-pocket costs
incurred in connection with any such filing shall be borne by Seller. Buyer
shall file on a timely basis the annual report on Form 5500 required for any
plan, agreement or such Plan for the plan years beginning prior to the Closing
Date and ending on or after the Closing Date. Seller and Buyer shall cooperate
in the preparation and filing of such annual reports. The foregoing provisions
of this subsection (d) shall not apply to any Plan referred to in Section 7.4(a)
or 7.4(b) (which such Plans are specifically adopted and assumed by Buyer in
accordance with such Sections), or any Multiemployer Plan, the Management
Investment Plan or any plan, agreement or arrangement listed in Schedule
4.18(g); provided, however, that, with respect to any individual named on
-------- -------
Schedule 4.18(g) who was employed by Seller on or after January 1, 1992, but
whose employment by Seller was terminated prior to the date hereof: (i) Buyer
shall, from and after the Closing Date, pay to each such individual any
remaining payments of salary continuation in the amount set forth in the
agreement or arrangement attached to Schedule 4.18(g) between such individual
and Seller as and when such payment shall be due in accordance with the terms of
such agreement or arrangement reduced by the amount of any applicable Federal,
state and local withholding taxes; provided, that, Buyer shall have no
-------- ----
obligation to make any such payment unless Buyer shall have received payment
from Seller in the amount of the sum of (x) the gross amount to be paid to such
individual (before withholding) and (y) any amounts which Buyer is required to
---
pay as the employer's portion
61
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of any applicable Federal, state and local payroll-based taxes, including
without limitation FICA, FUTA and SUTA, no later than ten days prior to the date
on which any such payment shall be due and Buyer and Seller acknowledge that
such individuals shall only have the right to seek such payments directly from
Buyer if Seller has made such payments to Buyer; and (ii) if any such individual
shall have elected to continue coverage under any "group health plan" (as
defined in Section 4980B(g) of the Code) of Seller named in such agreement then,
for so long as shall be provided under such agreement, Buyer shall pay on behalf
of such individual the amount of premiums agreed upon pursuant to such agreement
and Seller shall reimburse Buyer for the same immediately upon demand therefor.
7.5. W-2 MATTERS. Seller and Buyer agree that, pursuant to the
-----------
"Alternative Procedure" provided in Section 5 of Revenue Procedure 84-77, 1984-2
Cumulative Bulletin 753, with respect to filing and furnishing IRS Forms W-2, W-
3, W-4, W-5 and 941, (a) Seller shall report, and Buyer shall report, on a
"predecessor-successor" basis as set forth therein, (b) Seller shall be relieved
from furnishing Forms W-2 to the employees of Buyer, and (c) Buyer shall assume
the obligations of Seller to furnish Forms W-2 to such employees for the full
1992 calendar year.
7.6. POST-CLOSING REMITTANCES. If, after the Closing Date, (a)
------------------------
Seller or its Affiliates shall receive any remittance from any account debtor
with respect to any accounts or notes receivables included in the Purchased
Assets, Seller or its Affiliates, as applicable, shall endorse such remittance
to the order of Buyer and forward it to Buyer promptly following receipt
thereof, (b) Buyer or its Affiliates shall receive any remittance from any
account debtor not in payment of any accounts or notes receivables included in
the Purchased Assets, or not otherwise payable to Buyer or its Affiliates, then
Buyer or its Affiliates, as applicable, shall endorse such remittance to the
order of Seller and forward it to Seller promptly following receipt thereof, or
(c) Buyer shall receive any amount on account of the German Licensee Shares,
Buyer shall forward to Seller promptly following receipt thereof an amount equal
to the pro rata portion of such amount to which Seller is entitled based on the
portion of the related distribution period during which Seller owned the German
Licensee Shares, subject (upon presentation to Seller of a reasonable statement
thereof) to reduction of such amount by the net amount of Taxes, if any, imposed
on any Buyer Group Member on account of Buyer's receipt thereof; if any Buyer
Group Member thereafter receives a refund of any such Taxes, Buyer shall forward
to Seller the net amount of such refund, provided that the aggregate of such net
amounts so forwarded shall not exceed the amount of the foregoing reduction.
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7.7. CHANGE IN NAME. Seller agrees that on the Closing Date the
--------------
names of Seller, the General Partner and the Limited Partner shall be changed to
a name that does not include the word "Muzak" or any derivations thereof.
7.8. ACCESS TO RECORDS AFTER CLOSING. (a) For a period of three
-------------------------------
years after the Closing Date, Seller and its Affiliates (in such case to the
extent that Seller is able to cause the Affiliate to do so) shall afford Buyer
and its representatives reasonable access to all the books and records relating
to the Purchased Assets or the Business which Seller or any of its Affiliates
are permitted to retain after the Closing Date. Such access shall be afforded by
Seller and its Affiliates upon receipt of reasonable advance notice and during
normal business hours and shall be had or done in such a manner so as not to
interfere with the normal conduct of business of Seller. Buyer shall have the
right, at its own expense, to make copies of such records. Buyer shall be
responsible for any costs and expenses reasonably incurred by Seller or any
Affiliate thereof in retrieving such books and records at Buyer's request.
However, if Seller or any of its Affiliates shall desire to dispose of any such
books and records prior to the expiration of such three year period, Seller
shall, prior to such disposition, give ninety (90) days' written notice to
Buyer, and Buyer shall have the right at its option and expense to segregate and
remove such books and records as Buyer may elect from those Seller desires to
dispose of within 180 days after the receipt of such notice.
(b) For a period of three years after the Closing Date, Seller
shall make available to Buyer, upon Buyer's written request, (i) Seller's
personnel to assist Buyer in locating and obtaining any undelivered records
which relate, in whole or in part, to the Business maintained by Seller, and
(ii) any of Seller's personnel whose assistance, cooperation or participation is
reasonably required by Buyer for any reason, including, but not limited to, in
connection with the preparation of any tax returns, amended tax returns, refund
claims or similar filings or in connection with the handling of any pending or
threatened tax audits or assessments.
(c) For a period of three years after the Closing Date, Buyer shall
afford Seller and its representatives reasonable access to all the books and
records relating to the Purchased Assets which Buyer or any of its Affiliates
may retain after the Closing Date for matters directly related to (i) a tax
investigation or audit of Seller or (ii) a Claim against Seller as described in
Article X. Such access shall be afforded by Buyer and its Affiliates upon
receipt of reasonable advance notice and during normal business hours and shall
be had or done in such a manner so as not to interfere with the normal conduct
of business of Buyer. Seller shall be responsible for any costs
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and expenses reasonably incurred by Buyer in retrieving and copying such books
and records at Seller's request. However, if Buyer or any of its Affiliates
shall desire to dispose of any of such books and records prior to the expiration
of such three-year period, Buyer shall, prior to such disposition, give ninety
(90) days' written notice to Seller, and Seller shall have the right at its
option and expense to segregate and remove such books and records as Seller may
select from those Buyer desires to dispose of within 180 days after the receipt
of such notice.
7.9. COOPERATION IN LITIGATION, TAXES AND LICENSING MATTERS.
------------------------------------------------------
Subject to any more specific provisions in Article X, each party shall provide
the other with such cooperation as may reasonably be requested, at the expense
of the requesting party, in connection with (a) the defense of any litigation
relating to the Business whether existing on the Closing Date or arising
thereafter out of, or relating to, an occurrence or event happening before the
Closing Date, (b) Taxes relating to the Business, including Taxes referred to in
Section 7.6(c) and (c) any audit requested by any Licensee conducting or
requesting the same pursuant to any Seller Agreement. Without limiting the
generality of the foregoing, if Seller shall require the benefit of any right,
claim or cause of action referred to in Section 1.1(xii) in order to defend any
Claim pursuant to Section 10.6 or otherwise, Buyer shall Transfer it to Seller
on terms reasonably acceptable to Buyer and Seller or shall enforce it for
Seller's benefit, in each case to the extent reasonably possible. If Buyer
enforces such Claim for the benefit of Seller, Buyer shall be reimbursed by
Seller for its reasonable out-of-pocket expenses in connection therewith.
7.10. MODIFICATION AND PERFORMANCE OF POP AGREEMENT. Until Seller
---------------------------------------------
has received all amounts of money from POP or its Affiliates in consideration of
the sale of the POP Assets pursuant to the POP Agreement and under the POP Sales
Documents, Buyer (x) shall not and shall not agree to (a) cancel or otherwise
modify the amount or timing of receipt of any such amounts by Seller without
Seller's consent, which consent of Seller shall not be unreasonably withheld, or
(b) amend, waive or otherwise modify in any material respect or take or omit to
take any material action under or in respect of any other provision of the POP
Agreement which may affect Seller's rights in respect of the POP Agreement or
the POP Sale Documents without Seller's consent, which consent of Seller shall
not be unreasonably withheld and (y) shall forward promptly to Seller a copy of
each notice under the POP Agreement that relates or potentially relates to any
such amount or right.
7.11. FIRPTA. Seller, General Partner and TFC hereby, jointly and
------
severally, represent that Seller is not a foreign person within the meaning of
Section 1445(b)(2) of the Code, and at the Closing Seller and TFC shall deliver
to Buyer a
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duly sworn affidavit affirming such representation and setting forth the
Seller's taxpayer identification number and such other information required by
Section 1445(b)(2) of the Code and the regulations thereunder.
7.12. INTELLECTUAL PROPERTY ASSIGNMENTS. At the Closing, Seller
---------------------------------
agrees to execute the assignments to Buyer of Seller's Proprietary Rights (the
"Intellectual Property Assignment") in form and substance reasonably
satisfactory to Buyer and Seller and for a period of six (6) months thereafter
(and for an additional period of three (3) years thereafter at Buyer's expense)
to execute thereafter such confirmatory assignments as may be needed to record
in the United States Patent, Trademark and Copyright Offices and in the foreign
countries in which Seller conducts the Business the Transfer to Buyer of
Seller's rights and licenses in and to the Proprietary Rights.
7.13. CONFIDENTIALITY. Except as permitted or contemplated by this
---------------
Agreement or as required by law, Seller shall and shall cause each Seller Group
Member to treat and safeguard as confidential and secret all Protected
Information (as hereinafter defined) and Seller shall not nor shall it permit
any of its Affiliates to use or disclose, furnish or make accessible to any
person any Protected Information, except as required by law or as permitted
under this Agreement. For purposes of this Section 7.13, the term "Protected
Information" shall mean trade secrets, confidential or proprietary information,
knowledge, or know-how pertaining primarily to the Business or any confidential
or proprietary information concerning any customer, including, without
limitation, customer lists, research and development information and materials,
inventions, formulas, methods, techniques, processes, plans procedures,
contracts, financial information and computer models. For purposes of this
Section 7.13, confidential information shall not include any information which
is at the time of its disclosure by Seller in the public domain other than as a
result of any breach by Seller of this Section 7.13.
7.14. PRIORITY PARTNERSHIP INTEREST. With respect to Seller's receipt
-----------------------------
of the Priority Partnership Interest, the parties hereto agree that: (a)
Seller's capital account with respect to such interest shall be credited with
the sum of $5,000,000, representing the agreed-upon fair market value of the
assets transferred to Buyer in consideration therefor; (b) to the extent of any
book-tax disparity resulting therefrom, the partnership agreement of Buyer shall
provide for Code Section 704(c)-type allocations of items of income, gain, loss
and deduction so as to eliminate such book-tax disparity as quickly as possible;
(c) an amount equal to any increase in the liquidation preference of the
Priority Partnership Interest pursuant to the Amended Partnership Agreement
shall be accrued and deducted by Buyer, and shall be included in income by
Seller,
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as a guaranteed payment for the use of capital under Section 707(c) of the Code;
(d) the Priority Partnership Interest shall not constitute an interest in
partnership profits, and Seller shall not be allocated any profits or losses of
Buyer; and (e) payments made to redeem the Priority Partnership Interest shall
be treated as payments described in Section 736(b) of the Code to the extent not
in excess of $5,000,000, and as guaranteed payments for the use of capital as to
any excess.
7.15. FURTHER ASSURANCES. Subject to Section 1.5 and 6.3 and any
------------------
other provision hereof dealing more specifically with the Transfer of the
Purchased Assets, (a) on the Closing Date Seller shall (i) deliver to Buyer such
other bills of sale, deeds, endorsements, assignments and other good and
sufficient instruments of conveyance and transfer, in form reasonably
satisfactory to Buyer and its counsel, as Buyer may reasonably request or as may
be otherwise reasonably necessary to vest in Buyer all the right, title and
interest of Seller in, to or under any or all the Purchased Assets (including
without limitation as to each of the leases or similar agreements listed in
Schedule 7.15 under which Seller is lessee of, or holds or operates, any real
property owned by any Person other than Seller the following (which Seller shall
use its best efforts to obtain, provided that Seller shall not be obligated to
spend any money other than miscellaneous and minor administrative expenses to
provide the following): (x) an estoppel certificate identifying the lease and
stating that such lease is in full force and effect, that Seller is current in
all its obligations under such lease and that the lessor is not aware of any
default by Seller under such lease and (y) an agreement from the lessor that it
will pay to Buyer any deposit made pursuant to the lease in accordance with the
terms and conditions of the lease) and (ii) take all steps as may be necessary
to put Buyer in actual possession and control of all such Purchased Assets
required to be Transferred to Buyer, and (b) from time to time following the
Closing until the sixth anniversary thereof, Seller shall execute and deliver,
or cause to be executed and delivered, to Buyer such other instruments of
Transfer as Buyer may request or as may be otherwise necessary to more
effectively Transfer to, and vest in, Buyer and put Buyer in possession of, any
part of such Purchased Assets.
7.16. CASH AVAILABLE FOR CHECKS; RIGHT OF ENDORSEMENT; POWER OF
---------------------------------------------------------
ATTORNEY. From and after the Closing, Seller shall retain sufficient cash in
- --------
its checking accounts to cover any obligations of Seller pursuant to checks
written by Seller prior to the Closing in respect of the Purchased Assets. After
the Closing, Buyer shall have the right and authority to endorse, without
recourse, the name of Seller on any check or any other evidence of indebtedness
received by Buyer on account of any Purchased Asset, and Seller shall deliver to
Buyer at the Closing copies of such documents, certified by Seller, sufficient
to permit Buyer to deposit such checks or other evidences of
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indebtedness in bank accounts in the name of Buyer. In addition, Seller shall
constitute and appoint Buyer the true and lawful attorney of Seller, with full
power of substitution, in the name of Seller or in the name of Buyer, at the
expense of Seller (but only to the extent such expenses are reasonable) but for
the benefit of Buyer, to collect, assert or enforce any claim, right or title of
any kind in or to the Purchased Assets, to institute and prosecute all actions,
suits and proceedings which Buyer may deem proper in order to collect, assert or
enforce any such claim, right or title, to defend and compromise all actions,
suits and proceedings in respect of any of the Purchased Assets, and to do all
such acts and things in relation thereto as Buyer shall deem advisable (in each
case subject to any other specifically applicable provision hereof). Seller
acknowledges that (subject as aforesaid) such powers are coupled with an
interest and shall not be revocable by it in any manner or for any reason,
including, without limitation, the liquidation or dissolution of Seller, and
that Buyer shall be entitled to retain for its own account any amounts collected
pursuant to such powers, including any amounts payable as interest in respect
thereof. Such powers shall be granted by such powers of attorney and other
instruments as shall be reasonably requested by Buyer.
7.17. BULK SALES; LOCATION OF INVENTORY. Seller shall execute and
----------------------------------
deliver such documents and information as shall be necessary, and will otherwise
cooperate with and assist Buyer, to comply with such applicable laws and
procedures regarding bulk transfers as Buyer shall request at the expense of
Buyer. At the Closing Seller shall certify to Buyer that Seller does not own or
hold any inventory in any states other than the states that shall be set forth
in a prior certificate, which certificate shall be delivered by Seller to Buyer
no later than seven business days after the date hereof and which shall state
that the information set forth therein constitutes a representation and warranty
hereunder.
7.18. PURCHASE PRICE ESCROW. At the Closing, Seller and Buyer shall
---------------------
enter into an escrow agreement in the form attached hereto as Exhibit D with an
escrow agent reasonably acceptable to each of Buyer and Seller, and Seller shall
deposit $250,000 of the Purchase Price with the escrow agent pursuant thereto.
7.19. ENVIRONMENTAL MATTERS. If, after the Closing Date, Buyer
---------------------
becomes aware of any violation of Environmental Laws in respect of the Purchased
Assets which arises from events which occurred prior to the Closing Date, Buyer
shall give notice to Seller of such violation promptly after Buyer becomes aware
of such violation. Buyer shall afford Seller and its representatives reasonable
access to the Facility or Facilities where such violation has occurred to permit
Seller at Seller's election to attempt to remedy such violation at the sole
expense
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of Seller. Seller may request that Buyer remedy such violation on behalf of
Seller at Seller's expense; provided, however, that Buyer shall not be required
-------- -------
to take any action that it reasonably believes will expose it to liability for
which it is not adequately indemnified (and Buyer may request an indemnity in
form and substance satisfactory to the Buyer relating to Buyer's effort to
remedy such violation on behalf of Buyer). Such access shall be afforded by
Buyer upon reasonable advance notice and during normal business hours and shall
be had or done in such a manner so as not to interfere with the normal conduct
of business of Buyer.
7.20. PERMITTED PAYMENTS. So long as any Permitted Payments (as
------------------
defined below) are payable, Buyer shall not enter into any agreement or other
obligation (or any amendment of an existing agreement or other obligation) that
expressly prohibits (as described below) the redemption of the Priority
Partnership Interest (in accordance with the terms of the Amended Partnership
Agreement), the payment of the Earn-Out Payment (in accordance with the terms of
this Agreement) or the repayment of the Exchange Notes or the Earn-Out Notes (in
accordance with their terms) (collectively, the "Permitted Payments"); provided,
--------
that nothing contained in this Section 7.20 shall be construed as prohibiting
Buyer from: (a) entering into agreements pursuant to the commitments for debt
financing set forth in Schedule 5.5; (b) entering into agreements or other
obligations, including agreements providing for the refinancing of the debt
financing referred to in clause (a), prohibiting a Permitted Payment prior to
stated maturity or prohibiting a Permitted Payment at or after stated maturity
if the prohibition is triggered by (i) the existence of a default or an event of
default under the agreement or (ii) the fact that a default or an event of
default would exist or be declarable under such agreement after giving effect to
such Permitted Payment (other than any such default or event of default that
solely arises out of a breach of a covenant that expressly prohibits the
Permitted Payment); or (c) issuing and thereafter redeeming, repurchasing or
retiring securities senior to the Priority Partnership Interest, the Exchange
Notes, the Earn-Out Payment or the Earn-Out Notes (but otherwise complying with
this Section 7.20).
7.21. AMENDED PARTNERSHIP AGREEMENT. At the Closing Seller shall
-----------------------------
enter into, and Buyer shall cause MLP Acquisition to enter into, an amended and
restated partnership agreement of Buyer (the "Amended Partnership Agreement") in
the form of Exhibit E with such changes as Buyer reasonably shall request,
provided, that, such changes shall not in any respect adversely affect the
- -------- ----
rights of Seller thereunder other than as contemplated by the agreements to be
entered into pursuant to the commitments for debt financing set forth in
Schedule 5.5.
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7.22. NON-SOLICITATION. If the Closing does not occur, neither
----------------
Buyer nor any of its Affiliates shall, for a period of two years after the date
of this Agreement, without the prior written approval of Seller, directly or
indirectly solicit, induce or attempt to persuade any Person who is an employee
of Seller or any of its Affiliates on the date of this Agreement or at any time
hereafter prior to the end of such two-year period, to terminate his or her
employment with Seller or its Affiliates. Without limiting the right of Seller
to pursue all other legal and equitable rights available for a violation of this
Section 7.22 by Buyer or its Affiliates, it is agreed that other remedies cannot
fully compensate Seller for such a violation and that Seller shall be entitled
to injunctive relief to prevent a violation or continuing violation hereof. It
is the intent and understanding of each party hereto that if, in any action
before any court or agency legally empowered to enforce this Section 7.22, any
term, restriction, covenant or promise in this Section 7.22 is found to be
unreasonable and for that reason unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency.
7.23. EMPLOYEES. Effective on the Closing Date, Buyer shall offer to
---------
each employee employed in the Business (whether or not on leave) employment with
Buyer in substantially the same capacity in which such employees had been
employed, and with substantially the same base compensation as such employees
had received immediately prior to the Closing Date; provided, however, that
-------- -------
nothing herein shall change at will relationships to any other type of
relationship or preclude the employer's rights thereunder.
If Buyer shall terminate the employment of any individual named in Schedule
7.23 for any reason other than cause within ninety (90) days after the Closing
Date, Buyer shall notify Seller of such termination in writing within ten (10)
days following such termination, which notice shall state the determination of
the President of Buyer as to whether such termination was for any reason other
than cause (as defined below). If such notice states that such termination was
for any reason other than cause, Buyer shall pay to such terminated individual,
as of the last business day of each month beginning in the month following such
termination, but only for the number of months set forth in Schedule 7.23 with
respect to such individual, an amount equal to any amount Buyer shall have
received from Seller not later than ten (10) days prior to such date with
respect to such individual; provided, that, any payment by Buyer to any such
-------- ----
terminated individual shall be reduced by the amount of any applicable Federal,
state and local withholding taxes and shall be further reduced by any amounts
which Buyer is required to pay as the employer's portion of any applicable
Federal, state and local payroll-based taxes, including without
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limitation FICA, FUTA and SUTA, and Buyer and Seller acknowledge that such
individuals shall only have the right to seek such payments directly from Buyer
if Seller has made such payments to Buyer. If such notice states that such
termination was for any reason other than cause and if any such individual shall
elect to continue coverage under any "group health plan" (as defined in Section
4980B(g) of the Code) of Buyer, then, for so long as such individual shall be
entitled to coverage under such group health plan pursuant to Section 4980B of
the Code and Sections 601 through 608 of ERISA (but in no event for a period of
months following Buyer's termination of such individual's employment which is
greater than the period of months set forth in Schedule 7.23), Buyer shall pay
on behalf of such individual the portion of the premium that represents the
employer contributions applicable to such coverage, and Seller shall reimburse
Buyer for the same immediately upon demand therefor accompanied by reasonable
documentation. If such notice states that such termination was for any reason
other than cause and if any such individual shall elect to continue coverage
under Buyer's Basic Life/Accidental Death and Dismemberment Plan as then in
effect, and if the terms of such Plan shall permit such election, then, for the
number of months following Buyer's termination of such individual's employment
as is set forth in Schedule 7.23, Buyer shall pay on behalf of such individual
the portion of the premium that represents the employer contributions applicable
to coverage under such Plan, and Seller shall reimburse Buyer for the same
immediately upon demand therefor. For the purposes of this Section 7.23, the
term "cause" shall have the meaning ascribed thereto in Section 9(c) of the
Management Option Plan. The determination of the President of Buyer that the
termination of employment of an individual named in Schedule 7.23 was or was not
for any reason other than cause shall be made in the sole and absolute
discretion of such President and shall be binding on Seller for purposes of this
Section 7.23.
7.24. NO CONTEST. On and after the Closing Date, Seller shall not
----------
directly or indirectly test the validity of any Patent, Trademark and
Intellectual Property Right or disclose to any third party any Technical
Information which is proprietary in the form of a trade secret, except such
disclosure as may be required by Governmental Rule or as may be necessary to
comply with any obligations or enforce any rights under Article X.
7.25. DISCHARGE OF CERTAIN SELLER OBLIGATIONS. At the Closing
---------------------------------------
Seller shall pay or otherwise discharge all of its indebtedness and liabilities
(including without limitation indebtedness and liabilities to any Seller Group
Member) other than (i) Assumed Liabilities and (ii) liabilities which are
contingent or the amount of which is not then fixed or calculable; provided,
--------
however, that the obligation of Seller set forth in this Section 7.25 shall not
- -------
apply to any contractual obligation arising after the Closing which is not an
Assumed
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Liability solely by reason of the provisions of Section 1.5.
7.26. MANAGEMENT AGREEMENTS. At the Closing Seller shall cause the
---------------------
termination of all management contracts or agreements for intercompany services
being provided by, or to, Seller.
7.27. SUBORDINATION AGREEMENTS. At the Closing Buyer and Seller
------------------------
shall execute and deliver to Buyer's lenders party thereto agreements of
subordination substantially in the forms of Exhibits F-1 and F-2.
7.28. CONTINUING EXISTENCE OF SELLER. From the Closing Date until
------------------------------
the second anniversary of the Closing Date, Seller shall not wind-up, dissolve
or otherwise terminate its existence.
7.29. FCC COMPLIANCE. If the FCC Consents have not been issued by
--------------
the Closing Date, then, consistent with Section 94.17 of the FCC Rules, at the
Closing, Seller and Buyer shall execute long term leases for each of the
licensed microwave radio stations listed in Schedule 4.30 for which FCC Consents
have not been issued. Each such lease shall be in form and substance reasonably
satisfactory to Buyer and Seller and shall provide (i) for rental payments of $1
per month from Buyer to Seller and (ii) the purchase by Buyer of the licensed
microwave radio station covered by such lease for the purchase price of $1 upon
the issuance of such FCC Consent.
7.30. GERMAN LICENSEE SHARES. If the German Licensee Shares were
----------------------
not Transferred by Seller to Buyer at the Closing, Buyer shall purchase the
German Licensee Shares from Seller for a purchase price of $720,000 as soon as
practicable after the restrictions on the Transfer of the German Licensee Shares
have been removed, provided, that, (i) Buyer is provided with appropriate
-------- ----
evidence that such restrictions have been removed, (ii) Buyer shall receive from
Seller a certificate representing that each of the representations and
warranties of Seller contained in this Agreement relating to the German Licensee
Shares is true and correct on the date of such purchase as though made on the
date of such purchase and (iii) appropriate notarial forms of Transfer of the
German Licensee Shares are delivered to Buyer. If neither the Transfer nor the
purchase referred to in the preceding sentence occurs and the restrictions on
the Transfer of the German Licensee Shares result in the Transfer of the German
Licensee Shares to one or more other stockholders of the German Licensee ("ROFR
Transfer") for an amount of consideration ("ROFR Consideration") less than
$720,000, then Buyer shall pay to Seller, promptly upon demand therefor
accompanied by reasonable documentation, the lesser of (x) $720,000 minus the
ROFR Consideration and (y) $220,000; provided, however, that it shall be a
-------- -------
condition to Buyer's obligation to
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pay such amount that Buyer shall have consented to the consummation of the ROFR
Transfer in light of the amount of the ROFR Consideration, such consent not to
be unreasonably withheld or delayed.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer to consummate the transactions contemplated
hereby shall be subject to the satisfaction, on or prior to the Closing Date of
the following conditions (any or all of which may be waived by Buyer):
8.1. NO MISREPRESENTATIONS OR BREACH OF COVENANTS. There shall
--------------------------------------------
have been no material breach by Seller in the performance of any of its
covenants and agreements herein required to be performed by Seller in whole or
in part on or prior to the Closing Date which shall not have been remedied or
cured prior to the Closing Date; each of the representations and warranties of
Seller, General Partner and TFC contained herein shall in all material respects
be true and correct on the Closing Date as though made on the Closing Date
(subject to Section 6.8 and except (i) to the extent that they expressly relate
to an earlier date or (ii) as expressly contemplated by or for changes permitted
by this Agreement); and there shall have been delivered to Buyer certificates to
such effect, dated the Closing Date, signed by the President or any Vice
President of the General Partner on behalf of Seller and itself and by the
President or Vice President of TFC on behalf of TFC.
8.2. NO MATERIAL ADVERSE CHANGE. Between the date of this
--------------------------
Agreement and the Closing Date, except for any change in general economic
conditions, there shall have been no material adverse change in the Purchased
Assets taken as a whole, the Business or the operations or financial condition
of Seller; and there shall have been delivered to Buyer certificates to such
effect, dated the Closing Date, signed by the President and itself or any Vice
President of the General Partner on behalf of Seller and by the President or
Vice President of TFC on behalf of TFC.
8.3. AUTHORIZING ACTION. Seller shall have taken all partnership
------------------
action necessary to approve the transactions contemplated hereby. General
Partner and TFC shall have taken all corporate action necessary to approve the
transactions contemplated hereby.
8.4. NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
----------------------------------------
investigation or inquiry or other proceeding by any Governmental Body shall have
been instituted and be pending, or Governmental Rule issued, preventing the
consummation of the
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transactions contemplated by this Agreement or which materially and adversely
affects this Agreement or the rights of the parties hereunder or which questions
the validity or legality of the transactions contemplated hereby.
8.5. NO INJUNCTION. There shall be no effective injunction, writ,
-------------
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as so provided.
8.6. NECESSARY GOVERNMENTAL APPROVALS. Buyer shall have received
--------------------------------
all approvals and actions of or by all Governmental Bodies which are necessary
to consummate the transactions contemplated hereby (including expiration or
termination of the applicable waiting period under HSR).
8.7. RELEASE OF ENCUMBRANCES. Any and all documents necessary to
-----------------------
procure the release of any Encumbrance (other than Permitted Encumbrances) on
the Purchased Assets, including the Encumbrances securing Seller's obligations
for borrowed money, shall have been delivered to Buyer.
8.8. CONSENTS. Seller shall have delivered, or caused to be
--------
delivered, all consents, waivers or approvals relating to the Transfer to Buyer
of (a) the Contracts and the Proprietary Rights which are specified in Schedule
8.8 and (b) the Governmental Permits which are specified in Schedule 8.8.
8.9. SELLER DELIVERIES. Seller shall have executed and delivered
-----------------
to Buyer (i) instruments of transfer, Transferring to Buyer all of the Purchased
Assets to be Transferred at the Closing in accordance with the applicable
provisions of this Agreement, (ii) the Non-Competition Agreement and (iii) the
Amended Partnership Agreement and all other documents required hereby to be
delivered by Seller on or before the Closing Date.
8.10. FINANCING. Buyer shall have received the proceeds of loans on
---------
terms satisfactory to it sufficient to consummate the transactions contemplated
hereby.
8.11. [RESERVED]
8.12. CERTIFICATES. Seller shall have furnished Buyer with such
------------
certificates of the officers of General Partner, TFC and others to evidence
compliance with the conditions set forth in this Article VIII.
8.13. OPINIONS OF COUNSEL. Buyer shall have been furnished with
-------------------
opinions of Sidley & Austin (which may rely as to matters of Delaware law on an
opinion of Potter Anderson &
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Corroon) and Heller, Ehrman, White & McAuliffe, all of which opinions shall
state that they may be relied on by any of Buyer's bank lenders if requested by
such lenders, in such forms as shall be reasonably acceptable to Buyer.
8.14. SUBORDINATION AGREEMENTS. Seller shall have executed and
------------------------
delivered to Buyer's lenders party thereto an agreement of subordination
substantially in the form of Exhibits F-1 and F-2.
8.15. TAXES. The dollar amount projected by Arthur Andersen & Co.
-----
to be the aggregate estimated adjusted tax basis, for U.S. income tax purposes,
of Seller in the Purchased Assets as of April 30, 1992, as reflected in the
statement referred to in Section 6.9, shall be not less than $60,000,000.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
---------------------------------------------
The obligations of Seller to consummate the transactions contemplated
hereby shall, at the option of Seller, be subject to the satisfaction, on or
prior to the Closing Date of the following conditions (any or all of which may
be waived by Seller):
9.1. NO MISREPRESENTATION OR BREACH OF COVENANTS. There shall have
-------------------------------------------
been no breach by Buyer in the performance in any material respect of any of its
covenants and agreements herein required to be performed by Buyer in whole or in
part on or prior to the Closing Date which shall not have been remedied or cured
prior to the Closing Date; each of the representations and warranties of Buyer
contained herein shall in all material respects be true and correct on the
Closing Date as though made on the Closing Date (except (i) to the extent that
they expressly relate to an earlier date or (ii) as expressly contemplated by or
for changes permitted by this Agreement); and there shall have been delivered to
Seller a certificate to such effect, dated the Closing Date and signed on behalf
of Buyer by MLP Acquisition.
9.2. AUTHORIZING ACTION. Buyer shall have taken all partnership
------------------
action necessary to approve the transactions contemplated hereby.
9.3. NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any Governmental Body shall have
been instituted and be pending, or Governmental Rule issued, preventing the
consummation of the transactions contemplated by this Agreement or which
materially and adversely affects this Agreement or the rights of the parties
hereunder or which questions the validity or legality of the transactions
contemplated hereby.
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9.4. NO INJUNCTION. There shall be no effective injunction, writ,
-------------
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as so provided.
9.5. BUYER DELIVERIES. Buyer shall have executed and delivered to
----------------
Seller the Assumption Agreement, all other documents required hereby to be
delivered by Buyer on or before the Closing Date and a certificate of limited
partnership reflecting the Amended Partnership Agreement.
9.6. NECESSARY GOVERNMENTAL APPROVALS. Seller shall have received
--------------------------------
all approvals and actions of or by all Governmental Bodies which are necessary
to consummate the transactions contem plated hereby (including expiration or
termination of the applicable waiting period under HSR).
9.7. CERTIFICATES. (a) Buyer shall have furnished Seller with such
------------
certificates of MLP Acquisition and others to evidence compliance with the
conditions set forth in this Article IX.
(b) Seller shall have been delivered certificates substantially in
the form of Exhibit G from each of Wally Borgeson, Dick Chaffee, Jack Craig, Bob
Crowe, Bruce Funkhouser, Tom Gentry, Jim Harrison, John Jester, Mike Murray,
John Neal and Dale Stewart, confirming the continued accuracy of the
certificates delivered by them in connection with the execution of this
Agreement.
9.8. OPINION OF COUNSEL. Seller shall have been furnished with an
------------------
opinion of Rosenman & Colin, in such form as shall be reasonably acceptable to
Seller.
9.9. SOLVENCY. Seller shall have received a copy of any solvency
--------
certificate provided to Buyer's lenders in connection with the transactions
contemplated by this Agreement; provided, that, if no such certificate is
-------- ----
provided to Buyer's lenders, Seller shall have received a certificate of the
Chief Financial Officer of Buyer (which shall be without recourse or liability
to such Chief Financial Officer) stating that, immediately after the Closing
Date and after giving effect to the transactions contemplated by this Agreement,
Buyer will not (a) be insolvent (because its financial condition is such that
the sum of its debts is greater than the fair value of its assets), (b) have
unreasonably small capital with which to engage in its business or (c) have
incurred debts beyond its ability to pay as they become due.
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9.10. TERMS OF DEBT FINANCING. The terms of the definitive
-----------------------
agreements providing for the senior bank financing and the senior subordinated
financing for the transactions contemplated by this Agreement shall be in
compliance with the commitments for such financing referred to in Section 5.5 of
this Agreement with respect to the rights of Seller in respect of the Earn-Out
Payment, the Earn-Out Notes, the Priority Partnership Interest and the Exchange
Notes.
9.11. MANAGEMENT PLANS. The terms of any definitive management or
----------------
other incentive plan for management employees of Buyer to own or purchase any
interests in Buyer or to receive any incentive, performance-based, equity-linked
or similar payments shall be in compliance with the terms for any such plan
described in Schedule 5.5 with respect to the rights of Seller in respect of, or
in relation to the payment of, the Earn-Out Payment, the Earn-Out Notes, the
Priority Partnership Interest and the Exchange Notes.
9.12. RELEASES. Seller shall have received a release of liability
--------
in respect of prior compensation in form and substance reasonably satisfactory
to Seller from each officer referred to in Section 9.7(b).
ARTICLE X
INDEMNIFICATION
---------------
10.1. SURVIVAL OF INDEMNIFICATION. The indemnification provided for
---------------------------
in Sections 10.2 and 10.3 shall terminate two years after the Closing Date (and
no claims shall be made by any Indemnitee thereafter) except that the
indemnification shall continue as to:
(a)(i) the representations and warranties contained in Sections 4.1,
4.3, 5.1 and 5.2 and the second sentence of Section 4.13 without limitation
and (ii) the representations and warranties contained in Sections 4.7 and
4.17 for the applicable statute of limitations period;
(b) each covenant of any party hereto (other than any relating to a
representation or warranty of such party) set forth herein or in any Buyer
Ancillary Agreement or Seller Ancillary Agreement, until the earliest to
occur of (A) thirty (30) days after the expiration of the time period
during which such covenant or agreement is by its terms performable by the
party obligated by such covenant or agreement, (B) the sixth anniversary of
the Closing Date and (C) the expiration of any applicable statute of
limitations;
(c)(i) the failure of Seller to pay, perform or discharge any of the
Excluded Liabilities in accordance with
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the terms thereof or the failure of Buyer to pay, perform or discharge any
of the Assumed Liabilities in accordance with the terms thereof, as the
case may be, until the expiration of any applicable statute of limitations,
and (ii) any claim referred to in Section 10.2(d) until none of the Earn-
Out Payment, the Earn-Out Notes, the Priority Partnership Interest or the
Exchange Notes are outstanding; and
(d) any claim for indemnification as to which an Indemnitee (as
hereinafter defined) has given notice to an Indemnitor (as hereinafter
defined) in accordance with this Article X on or prior to the date on which
the period for indemnification would otherwise terminate in accordance with
this Section 10.1 until the liability of the Indemnitor shall have been
determined pursuant to this Article X and the Indemnitor shall have
reimbursed all Indemnitees the full amount required to be indemnified
pursuant to this Article X.
10.2. INDEMNIFICATION BY SELLER. Seller, General Partner and TFC,
-------------------------
jointly and severally, shall indemnify and hold harmless each Buyer Group Member
from and against any and all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies and
reasonable expenses and costs, including reasonable attorneys' fees (and any
reasonable expert's fees) and court costs (collectively, "Damages"; provided,
--------
that, in calculating Damages, there shall be deducted any insurance recovery in
- ----
respect thereof (and the Indemnitee shall in good faith use reasonable efforts
to obtain such recovery) and no right of subrogation shall be permitted to
accrue hereunder to any insurer) incurred by such Buyer Group Member arising
from:
(a) any breach, or failure to perform, by Seller, General Partner
or TFC of any of its covenants or other obligations herein or in any Seller
Ancillary Agreement;
(b) any breach of any representation or warranty of Seller, General
Partner or TFC, contained or referred to herein or any schedule,
certificate, exhibit or other instrument delivered by or on behalf of
Seller pursuant hereto;
(c) any failure of Seller to pay, perform or discharge any of (i)
the Excluded Liabilities in accordance with the terms thereof or (ii) the
obligations of Seller under the contracts or other agreements relating to
such Excluded Liabilities, whether or not disclosed in this Agreement or in
any Schedule or Exhibit hereto; or
(d) any claim by a Holder (as defined herein, in Section 16.03 of
the Amended Partnership Agreement, in
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paragraph 9 of the Earn-Out Notes or in paragraph 8 of the Exchange Notes)
for non payment of any such "Interest" (as defined in such instrument) in
circumstances in which the related payment was properly delivered to a
Designee (as so defined) and was not delivered to and/or properly applied
by the Designee as among the Holders.
10.3. INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold
------------------------
harmless each Seller Group Member from and against any and all Damages (subject
to the proviso to the definition thereof) incurred by such Seller Group Member
arising from:
(a) any breach, or failure to perform, by Buyer of any of its
covenants or other obligations herein or in any Buyer Ancillary Agreement;
(b) any breach of any representation or warranty of Buyer contained
or referred to herein or in any schedule, certificate, exhibit or other
instrument delivered by or on behalf of Buyer pursuant hereto;
(c) any failure of Buyer to pay, perform or discharge any of (i)
the Assumed Liabilities in accordance with the terms thereof or (ii) the
obligations of Buyer under the contracts or other agreements relating to
such Assumed Liabilities; or
(d) any action of Buyer that causes liability under, or associated
with, the Warn Act to be assessed or otherwise imputed to Seller.
10.4. LIMITATION ON AMOUNT OF INDEMNIFICATION. Notwithstanding
---------------------------------------
anything to the contrary set forth in this Article X, (a) other than Damages
arising from (i) a breach, or failure to perform, by Seller of any of its
covenants pursuant to Sections 1.7, 6.6, 7.4 or 7.29, (ii) the breach of any
representation or warranty of Seller contained in Sections 4.3(a), 4.3(b),
4.3(d), 4.3(e), 4.3(g), 4.3(h), 4.7(a), 4.17, 4.18 or 4.30, the proviso
contained in the second sentence of Section 4.13, (iii) claims referred to in
Section 10.2(d) or (iv) the failure of Seller to pay, perform and discharge any
of the Excluded Liabilities, no Buyer Group Member shall be entitled to
indemnification until the aggregate amount of Damages payable to Buyer Group
Members (without giving effect to this limitation) exceeds $550,000; provided,
--------
that, if the aggregate amount of such Damages exceeds $550,000, indemnification
- ----
shall be made to the full extent of any such Damages in excess of $275,000,
including any such Damages that arose prior to the time that the aggregate of
such Damages exceeded $275,000, and (b) no Buyer Group Member shall be entitled
to indemnification to the extent that the amount of such indemnification,
together with the amounts of indemnification theretofore and concurrently made
to all Buyer Group Members in the aggregate, would exceed $17,000,000;
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provided, that, this limitation shall not apply to claims referred to in Section
- -------- ----
10.2(d). Any amounts paid to Buyer pursuant to the escrow agreement described
in Section 7.18 (but only to the extent of amounts paid to Buyer in respect of
Damages) or the Setoff Procedure shall be deemed to be Damages for purposes of
the limitations on indemnification set forth in this Section 10.4.
10.5. NOTICE OF CLAIMS. Any Buyer Group Member or Seller Group
----------------
Member ("Indemnitee") seeking indemnification hereunder shall give to the party
or parties obligated to provide indemnification to such Indemnitee
("Indemnitor") a notice ("Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based.
10.6. THIRD PARTY CLAIMS. In the event of any third party claim,
------------------
deficiency or demand asserted or any action commenced or notice given of any
audit, administrative or other proceeding against an Indemnitee ("Claim") as to
which indemnification may be sought from an Indemnitor, the Indemnitee shall
promptly deliver a Claim Notice to the Indemnitor; provided, however, that the
-------- -------
failure by the Indemnitee to give such prompt notice shall not release the
Indemnitor of its indemnification obligations hereunder, except to the extent
such failure prejudices the Indemnitor. The Indemnitor shall be entitled to
participate in and assume the defense of any Claim if the Indemnitor shall agree
in writing within 15 days after receipt of such Claim Notice that it is
required, pursuant to this Article X, to indemnify the Indemnitee for the full
amount of such Claim (the "Claim Acknowledgement Procedure"), provided, that,
-------- ----
Indemnitor's compliance with the Claim Acknowledgement Procedure shall not
preclude the Indemnitor from exercising any right it may otherwise have
hereunder or under any Buyer Ancillary Agreement or Seller Ancillary Agreement
against the Indemnitee. If the Indemnitor assumes the defense of any such Claim,
the Indemnitee shall cooperate with the Indemnitor in connection therewith, and
the Indemnitee shall be kept informed with respect to, and shall have the right
to participate in, the contest, defense, settlement or compromise of any such
Claim. If the Indemnitor does not assume the defense of any such Claim or does
not comply with the Claim Acknowledgement Procedure, the Indemnitee shall be
entitled to conduct the defense of such Claim at Indemnitor's expense. In any
case, neither the Indemnitor nor the Indemnitee shall settle or compromise any
such Claim without the prior written consent of the other party or parties, as
the case may be, which consent shall not be unreasonably withheld or delayed.
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10.7. CERTAIN ADJUSTMENTS. Any payment required to be made by an
-------------------
Indemnitor pursuant to Section 10.2 or 10.3 or the last sentence of Section 10.4
shall be deemed to be, and shall be treated by the parties for all purposes as,
an adjustment to the Purchase Price.
10.8. EXCLUSIVE REMEDY. Except as provided in Section 7.22 or for
----------------
the availability of injunctive relief, if the Closing occurs, this Article X
shall be the exclusive remedy for breach or failure of any party referred to in
Sections 10.2 or 10.3, and no party shall make any claim hereunder other than
pursuant to the terms of this Article X.
ARTICLE XI
TERMINATION
-----------
11.1. TERMINATION. This Agreement may be terminated at any time
-----------
prior to the Closing Date only: (a) by the mutual consent of Buyer, Seller, TFC
and General Partner; (b) by either Buyer, if any of its conditions to Closing
contained in Article VIII, or by Seller, if any of its conditions to Closing
contained in Article IX, respectively, have not been fulfilled or waived on or
before April 30, 1992 (the "Termination Date"), which Termination Date may be
extended (i) until June 30, 1992 by Buyer, on the one hand, or Seller on the
other hand, if such party shall give the other notice that such party is taking
action in good faith to cause fulfillment of the conditions to Closing,
provided, that, (x) if neither party shall give the other such a notice on or
- -------- ----
prior to April 30, 1992, this Agreement shall terminate as of April 30, 1992 and
(y) if either Buyer or Seller shall give the other notice subsequent to such
notice extending the Termination Date that such party has abandoned its good
faith efforts to cause fulfillment of the conditions to Closing (which notice
either such party shall give if it has so abandoned), the recipient of such
subsequent notice shall then have the right to terminate this Agreement or (ii)
pursuant to Section 6.8, but, in any case, the Termination Date shall be no
later than June 30, 1992, unless otherwise agreed to by the parties; (c) by
Buyer, if there has been a material misrepresentation or breach of warranty in
the representations and warranties of Seller, TFC or General Partner or a
material breach by Seller of any of its covenants or agreements contained herein
which shall not have been remedied or cured prior to the Closing Date; or (d) by
Seller, if there has been a material misrepresentation or breach of warranty in
the representations and warranties of Buyer or a material breach by Buyer of any
of its covenants or agreements contained herein which shall not have been
remedied or cured prior to the Closing Date.
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11.2. EFFECT OF TERMINATION. (a) If this Agreement shall be
---------------------
terminated pursuant to Section 11.1 or otherwise pursuant to law, then in
addition to the rights under Section 12.8, the parties shall have all rights
which they may have under law or in equity.
(b) Notwithstanding the provisions of paragraph (a) above, in the
event that Buyer terminates this Agreement as a result of a Disclosure relating
to a matter that occurred or existed on or prior to the date of this Agreement
(as provided in Section 6.8), the sole right of Buyer shall be to pursue its
remedies at law against Seller, General Partner and TFC for breach of the
representations and warranties to which Disclosure relates, provided, that, the
-------- ----
aggregate damages recoverable from all of Seller, General Partner and TFC
pursuant to this Section 11.2(b) shall not exceed $1,250,000, except that Buyer
------
shall in any event retain all of its rights pursuant to Section 12.8.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1. SUCCESSORS AND ASSIGNS, PARTIES, ETC. (a) Subject to Section
-------------------------------------
12.1(c), no assignment of this Agreement or of any rights or obligations
hereunder may be made by any party (by operation of law or otherwise) without
the prior written consent of the others and any attempted assignment without the
required consent shall be void; provided, however, that Buyer may assign its
-------- -------
rights under this Agreement to any of its lenders, it being agreed and
acknowledged by the parties that no such assignment shall have the effect of
increasing the obligations of Seller, TFC or General Partner pursuant to this
Agreement or giving any assignee any rights or claims against Seller, TFC or
General Partner which would be more favorable than any Buyer Group Member would
have had against Seller, TFC or General Partner had the corresponding assignment
not taken place.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their successors and permitted assigns. Nothing
herein, expressed or implied, is intended or shall be construed to confer upon
any Person, including any employee or dependent thereof, other than the parties
and successors and assigns permitted by this Section 12.1 and the other Buyer
Group Members and Seller Group Members as stated herein, any right, remedy or
claim under or by reason hereof.
(c) Nothing contained herein or in any Seller Ancillary Agreement
shall be construed to prohibit, restrict or impair the assignment (by way of
transfer or participation), in whole or in part, of Seller's interest in the
Earn-Out Payment or the Earn-Out Notes; provided, that, there shall always be,
-------- ----
to the extent permitted by law, one Person (the "Designee") (which
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Person shall initially be Seller, and Seller shall use good faith efforts to
designate a substitute Designee prior to Closing) from time to time designated
by, or pursuant to procedures approved by, the holders (the "Holders") of all
interests in the Earn-Out Payment and the Earn-Out Note (the "Interests") (i) to
make all decisions, (ii) to receive and distribute all notices and other
communications, (iii) to receive and distribute all payments and (iv) otherwise
generally to act for and on behalf of the Holders in respect of the Interests
(including the resolution of all disputes with respect to the Earn-Out Payment,
the Earn-Out Notes and the Interests). Each Holder shall, by holding an
Interest, automatically have consented to the appointment of the Designee and
the Designee's authority as described above, including without limitation
Buyer's right to treat the Designee as the payee of the Earn-Out Payment and the
Earn-Out Notes for all purposes as contemplated by this Section 12.1(c). Such
authority shall be exercised so that (i) such decisions shall be made within the
period required by the relevant documents governing the Earn-Out Payment, the
Earn-Out Notes and the Interests (and in that connection the Designee may act
upon the instructions of the Holders, in such numbers as they may agree,
provided that the Designee shall have full authority to act in the absence of
receipt of timely instructions), (ii) such notices and other communications need
not be sent to the Holders (and such notices and other communications shall not
be forwarded by the Designee to the Holders unless the Holders have executed
reasonable confidentiality agreements in a form to be agreed upon by the parties
hereto on or before the Closing Date), (iii) such payments shall be made
directly to the Designee (and in that connection, Buyer shall have no duty to
see that such payments are delivered to and/or properly applied as among the
Holders, and any such payment properly made to the Designee shall release and
discharge Buyer of its obligation otherwise to make such payment and/or
application to the Holders) and (iv) such Holders shall not otherwise attempt to
exercise authority in lieu of the Designee. Any certificates evidencing
Interests shall, if desired by Buyer, be appropriately legended to reflect the
foregoing provisions relating to the Designee. The Designee shall provide Buyer
with evidence of its authority to exercise such authority.
(d) Notwithstanding the foregoing, no such assignment shall be made
that (i) would violate the then applicable Federal and state securities laws or
rules and regulations of the Securities and Exchange Commission, any state
securities commission or any other governmental authority with jurisdiction over
such transfer, (ii) would affect Buyer's existence or qualification as a limited
partnership under Delaware law, (iii) would cause Buyer to be treated as an
association taxable as a corporation for U.S. Federal income tax purposes, (iv)
would be to a Person that is not a "United States Person" (as defined in Section
7701(a)(30) of the Code) or that
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is subject to U.S. backup withholding under Section 3406 of the Code, or (v)
would result in Buyer having to issue Tax Returns to more than three (3) such
Holders.
12.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits
----------------------------
and Schedules referred to herein and the documents delivered pursuant hereto
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein, and supersede all prior agreements,
understandings or letters of intent between or among any of the parties
hereto, including the letter of intent (the "Letter of Intent") dated December
20, 1991 among Seller, TFC and CCI, as amended, the Confidentiality Agreement
(which shall survive any termination of this Agreement) and any disclosure made
or omitted pursuant to the Private and Confidential Muzak Limited Partnership
Review Document dated July 1991 delivered to Buyer with respect to the Business,
as to which no representation or warranty is made. This Agreement shall not be
amended, modified or supplemented except by a written instrument signed by an
authorized representative of each of the parties hereto.
12.3. WAIVERS. Any term or provision hereof may be waived, or the
-------
time for its performance may be extended, by the party or parties entitled to
the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes hereof if, as to any party, it is authorized in
writing by an authorized representative of such party. The failure of any party
hereto to enforce at any time any provision hereof shall not be construed to be
a waiver of such provision, nor in any way to affect the validity hereof or any
part hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach hereof shall be held to constitute a waiver
of any other or subsequent breach.
12.4. NOTICES. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be deemed given or delivered
(i) when delivered personally or by private courier, (ii) when actually
delivered by registered or certified United States mail or (iii) when sent by
telecopy (provided, that, it is confirmed by a means specified in clause (i) or
(ii), addressed as follows:
If to Buyer, to:
MLP Operating, L.P.
c/o Centre Partners, L.P.
One Rockefeller Plaza
New York, New York 10020
Attention: Lester Pollack
Telecopier: (212) 632-4846
Telephone Confirmation: (212) 632-4829
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With a copy after the Closing to:
Muzak Limited Partnership
400 North 34th Street
Suite 200
Seattle, Washington
Attention: John R. Jester
Telecopier: (206) 633-6210
Telephone Confirmation: (206) 633-3000
With a copy to:
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Attention: Michael Roth, Esq.
Telecopier: (212) 940-8776
Telephone Confirmation (212) 940-8800
If to Seller, to:
c/o The Field Corporation
333 West Wacker Drive
Chicago, Illinois 60606
Attention: President
Telecopier: (312) 917-1822
Telephone Confirmation: (312) 917-1860
With a copy to:
Sidley & Austin
875 Third Avenue
New York, New York 10022
Attention: Myles C. Pollin, Esq.
Telecopier: (212) 906-2021
Telephone Confirmation: (212) 906-2000
or to such other address as such party may indicate by a notice delivered to the
other party hereto.
12.5. PARTIAL INVALIDITY. Wherever possible, each provision hereof
------------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
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12.6. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
-------------------------
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of Seller and Buyer.
12.7. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of New York.
12.8. EXCLUSIVITY. Prior to the Termination Date, Seller, General
-----------
Partner and TFC shall not, and shall not permit any of their respective
directors, officers, employees, representatives, agents or Affiliates to (x)
initiate contact with, solicit or actively encourage any inquiries, proposals or
offers by, or (y) participate actively in any discussions or negotiations with,
or disclose any information concerning Seller to, any Person other than Buyer in
connection with any possible proposal regarding the sale of the Purchased Assets
or the Business. In the event that Seller or TFC breaches any of its obligations
pursuant to this Section 12.8, Seller and TFC, jointly and severally, agree, in
addition to any other remedies that Buyer and CCI may have in law or equity, to
promptly upon such breach reimburse Buyer and CCI for all of their respective
reasonable out-of-pocket expenses and fees actually and reasonably incurred in
connection with the transactions contemplated by this Agreement, including but
not limited to fees paid or owed to potential financing sources or other third
parties (other than fees paid to Affiliates of Buyer), and attorneys' fees, up
to a maximum of $3,400,000; provided, that Buyer and CCI shall not in any event
-------- ----
be entitled to any such reimbursement if the Closing occurs.
ARTICLE XIII
DEFINITIONS AND INTERPRETATION
------------------------------
13.1. DEFINITIONS. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 13.1 and shall be equally
applicable to both the singular and plural forms.
"ACCOUNTANTS" means Arthur Andersen & Co., independent public
-----------
accountants with respect to Seller.
"ADJUSTMENT" has the meaning specified in Section 2.3(e).
----------
85
<PAGE>
"ADMINISTRATIVE GENERAL PARTNER" has the meaning specified in Section
------------------------------
2.5(d)(ii).
"AFFILIATE" means, with respect to any Person, any other Person which
---------
directly or indirectly controls, is controlled by or is under common control
with such Person. A Licensee shall not be deemed an Affiliate solely by virtue
of the licensing arrangements between it and Seller, and neither the German
Licensee nor any of the Trusts shall be deemed to be an Affiliate of Seller.
"ALTERNATIVE" has the meaning specified in Section 6.6(b).
-----------
"AMENDED PARTNERSHIP AGREEMENT" has the meaning specified in Section
-----------------------------
7.21.
"APPRAISAL" has the meaning specified in Section 2.2(a).
---------
"ARBITRATOR" has the meaning specified in Section 2.3(g).
----------
"ASSUMED LIABILITIES" has the meaning specified in Section 1.3.
-------------------
"ASSUMPTION AGREEMENT" means the Undertaking and Assumption in the
--------------------
form of Exhibit H.
"BACKGROUND MUSIC SERVICES" means providing subscribers or other
-------------------------
licensees with music embodied in sound recordings created especially for the
Business.
"BASE PERIOD" has the meaning specified in Section 2.5(a).
-----------
"BILL OF SALE" means the bill of sale to be executed by Seller at
------------
Closing in form and substance reasonably satisfactory to Buyer and Seller.
"BUSINESS" has the meaning specified in the first recital hereof.
--------
"BUYER" has the meaning specified in the first paragraph hereof.
-----
"BUYER ANCILLARY AGREEMENTS" means all agreements, instruments and
--------------------------
documents being or to be executed and delivered by Buyer hereunder or pursuant
hereto. Without limiting the generality of the foregoing, each of the Earn-Out
Note and the Exchange Note will, if issued, be a Buyer Ancillary Agreement.
86
<PAGE>
"BUYER GROUP MEMBER" means Buyer, its partners, its partners' partners
------------------
and their Affiliates and their directors, officers, employees agents, attorneys
and consultants and their respective successors and assigns; provided, that,
-------- ----
only one claim for indemnification pursuant to Article X may be made by all the
Buyer Group Members for each related claim for such indemnification except to
the extent that there is a conflict of interest among the Buyer Group Members
with respect to such claim.
"BUYER'S ACCOUNTANT" has the meaning specified in Section 2.3(g).
------------------
"CASH EQUIVALENT" means a cash equivalent or any security for which a
---------------
current fair value can be readily determined by reference to current quotations
on an established trading market, as determined reasonably and in good faith by
Buyer.
"CCI" means Centre Capital Investors L.P., a Delaware limited
---
partnership.
"CENTRE PARTNERS" means Centre Partners L.P., a Delaware limited
---------------
partnership.
"CERCLA" has the meaning specified in the definition of "Hazardous
------
Substances".
"CLAIM" has the meaning specified in Section 10.6.
-----
"CLAIM ACKNOWLEDGEMENT PROCEDURE" has the meaning specified in Section
-------------------------------
10.6.
"CLAIM NOTICE" has the meaning specified in Section 10.5.
------------
"CLOSING" means the closing of the Transfer of the Purchased Assets
-------
from Seller to Buyer and the payment of the Purchase Price from Buyer to Seller,
and "CLOSE" has a comparable meaning.
-----
"CLOSING DATE" has the meaning specified in Section 3.1.
------------
"CLOSING DATE BALANCE SHEET" has the meaning specified in Section
--------------------------
2.3(b).
"CLOSING PAYMENT" has the meaning specified in Section 2.4(b).
---------------
"CODE" means the Internal Revenue Code of 1986, as amended.
----
87
<PAGE>
"COMMUNICATIONS ACT" has the meaning specified in Section 4.30.
------------------
"CONFIDENTIALITY AGREEMENT" means the Confidentiality
-------------------------
Agreement dated July 24, 1991, between Centre Partners and Veronis, Suhler &
Associates Inc., as amended by the Letter of Intent.
"CONTEST NOTICE" has the meaning specified in Section 2.3(f).
--------------
"CONTRACTS" has the meaning specified in Section 1.1(x).
---------
"COPYRIGHT ACT" means Title 17 of the United States Code Annotated,
-------------
Sections 101 et seq., currently in effect.
"DAMAGES" has the meaning specified in Section 10.2.
-------
"DESIGNEE" has the meaning specified in Section 12.1(c).
--------
"DETERMINATION DATE" has the meaning specified in Section 2.5(a).
------------------
"DISCLOSURE" has the meaning specified in Section 6.8.
----------
"DISPUTED MATTERS" has the meaning specified in Section 2.3(g).
----------------
"EARN-OUT ARBITRATOR" has the meaning specified in Section 2.5(f).
-------------------
"EARN-OUT CERTIFICATE" has the meaning specified in Section 2.5(f).
--------------------
"EARN-OUT CONTEST NOTICE" has the meaning specified in Section 2.5(f).
-----------------------
"EARN-OUT DISPUTED MATTERS" has the meaning specified in Section
-------------------------
2.5(f).
"EARN-OUT NOTES" has the meaning specified in Section 2.5(b).
--------------
"EARN-OUT PAYMENT" has the meaning specified in Section 2.5(a).
----------------
"EBITDA" has the meaning specified in Section 2.5(c).
------
"EBITDA CONTRIBUTOR" means a Subsidiary or any other Person in which
------------------
Buyer has any direct or indirect equity interest other than Cash Equivalents.
88
<PAGE>
"ENCUMBRANCE" means any mortgage, pledge, security interest, lien,
-----------
restriction on use or transfer, voting agreement, adverse claim or encumbrance
or charge of any kind (including any agreement to give any of the foregoing),
any conditional sale or other title retention agreement, and the filing of, or
any agreement to give, any financing statement under the Uniform Commercial
Code or similar law of any jurisdiction.
"ENVIRONMENT" shall mean soil, surface waters, ground waters, land,
-----------
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL APPROVALS" has the meaning specified in Section
-----------------------
4.17(a).
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
-----------------------
Environment on any facility which is now or has heretofore been owned or used in
connection with the Business ("Facility"), whether or not yet discovered, which
could nor does result in any Damages, including any condition resulting from the
operation of the Business or the operation of the Business of any subtenant or
occupant of any Facility.
"ENVIRONMENTAL CONSULTANT" has the meaning specified in Section
------------------------
6.1(b).
"ENVIRONMENTAL LAWS" shall mean all Governmental Rules relating to
------------------
injury to, or the protection of, real or personal property or human health or
the Environment as in effect prior to the Closing Date, including, without
limitation, all valid and lawful requirements of courts and other Governmental
Bodies pertaining to reporting, licensing, permitting, investigation,
remediation and removal of, emissions, discharges, releases or threatened
releases of Hazardous Substances (as defined herein), chemical substances,
pesticides, petroleum or petroleum products, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the Environment, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature.
"ERISA" has the meaning specified in Section 4.18(a)(i).
-----
"ERISA AFFILIATE" has the meaning specified in Section 4.18(a)(ii).
---------------
"ESTIMATED BALANCE SHEET" has the meaning specified in Section 2.4(a).
-----------------------
89
<PAGE>
"EVENT" has the meaning specified in Section 2.5(d).
-----
"EXCHANGE NOTES" has the meaning specified in Section 2.1.
--------------
"EXCLUDED CONTRACT" means any contract or other agreement not
-----------------
Transferred to the Buyer pursuant hereto by reason of a consent, approval or
modification of a third party required to Transfer any such contract or
agreement not being obtained.
"EXCLUDED LIABILITIES" has the meaning specified in Section 1.4.
--------------------
"FACILITY" has the meaning specified in the definition of
--------
"Environmental Condition".
"FCC" means the Federal Communications Commission.
---
"FCC APPLICATIONS" has the meaning specified in Section 6.6(d).
----------------
"FCC CONSENTS" has the meaning specified in Section 6.6(d).
------------
"FCC RULES" means Title 47 of the Code of Federal Regulations.
---------
"FIELD PERSON" means Marshall Field V or any of his Affiliates.
------------
"FOREGROUND MUSIC SERVICES" means providing subscribers or other
-------------------------
licensees with music embodied in sound recordings previously issued to the
public on phonorecords in connection with the Business.
"GAAP" means United States generally accepted accounting principles.
----
"GENERAL PARTNER" has the meaning specified in the first paragraph
---------------
hereof.
"GERMAN LICENSEE" has the meaning specified in the second recital
---------------
hereof.
"GERMAN LICENSEE SHARES" has the meaning specified in the second
----------------------
recital hereof.
"GOVERNMENTAL BODY" means any Federal, state, local or foreign
-----------------
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof (including, without limitation, environmental protection,
planning and
90
<PAGE>
zoning), or any quasi-governmental or private body exercising any regulatory
authority thereunder and any Person directly or indirectly owned by and subject
to the control of any of the foregoing, or any court, arbitrator or other
judicial or quasi-judicial tribunal.
"GOVERNMENTAL PERMITS" has the meaning specified in Section 4.9.
--------------------
"GOVERNMENTAL RULE" means any statute, law, treaty, rule, code,
-----------------
ordinance, regulation, permit, certificate or order of any Governmental Body or
any judgment, decree, injunction, writ, order or like action of any Governmental
Body.
"HAZARDOUS SUBSTANCES" shall mean any substance:
--------------------
(a) the presence of which requires notification, investigation, or
remediation under any Environmental Law as in effect prior to the Closing Date;
or
(b) which prior to the Closing Date is or becomes defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or "pollutant"
or "contaminant" under any present or future Environmental Law or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the
-- ---
Resource Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 et
--
seq.), the Clean Air Act, 42 U.S.C. (S)7401 et seq. and any Environmental Law
- --- -- ---
applicable to any jurisdiction in which or from which Seller conducts or has
conducted the Business; or
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any Governmental Body under Environmental Laws prior to the Closing
Date; or
(d) without limitation, which contains gasoline, diesel fuel or other
petroleum hydrocarbons or volatile organic compounds; or
(e) without limitation, which contains polychlorinated byphenyls
(PCBs) or asbestos or urea formaldehyde foam insulation; or
(f) without limitation, which contains or emits radioactive
particles, waves or materials, including radon gas.
"HEALTH AND WELFARE BENEFIT PROGRAM" has the meaning specified in
----------------------------------
Section 7.4.
91
<PAGE>
"HMC" means Heritage Media Corporation, an Iowa corporation.
---
"HOLDER" has the meaning specified in Section 12.1(c).
------
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976
---
and regulations thereunder.
"INDEMNITEE" has the meaning specified in Section 10.5(a).
----------
"INDEMNITOR" has the meaning specified in Section 10.5(a).
----------
"INSTRUMENTS OF ASSIGNMENT" means the Bill of Sale, intellectual
-------------------------
property assignments and other appropriate instruments to effect the Transfer of
the Purchased Assets.
"INSTRUMENTS OF ASSUMPTION" means the Assumption Agreement and such
-------------------------
other appropriate instruments to effect Buyer's assumption of the Assumed
Liabilities, including an instrument relating to the Torrance Note.
"INTELLECTUAL PROPERTY ASSIGNMENT" has the meaning specified in
--------------------------------
Section 7.12.
"INTERESTS" has the meaning specified in Section 12.1(c).
---------
"INVENTIONS" has the meaning specified in Section 1.1(vi).
----------
"IRS" means the Internal Revenue Service.
---
"LETTER OF INTENT" has the meaning specified in Section 12.2.
----------------
"LICENSEE" has the meaning specified in the second recital hereof.
--------
"LIMITED PARTNER" means Muzak Investment Partners, L.P., a Delaware
---------------
limited partnership.
"MANAGEMENT INVESTMENT PLAN" means the management investment plan of
--------------------------
Seller dated January 1, 1988.
"MANAGEMENT OPTION PLAN" has the meaning specified in Section
----------------------
2.5(d)(ii).
"MARKETABLE SECURITIES" means all marketable and similar securities
---------------------
owned, beneficially or of record, by Seller, including all money market funds,
stocks, bonds, commercial
92
<PAGE>
paper, certificates of deposit or other time deposits of Seller, excluding the
Quota.
"MAS" has the meaning specified in Section 4.30.
---
"MICROSPACE" means MicroSpace Communications Corporation, a North
----------
Carolina corporation.
"MLP ACQUISITION" has the meaning specified in Section 5.1(b).
---------------
"MULTIEMPLOYER PLAN" has the meaning specified in Section
------------------
4.18(a)(iii).
"MUSIC SERVICES" means, collectively, Background Music Services and
--------------
Foreground Music Services.
"MUSIC SERVICES CONTRACTS" means contracts to arrange, produce,
------------------------
record, copy and disseminate the Music Services, excluding contracts relating to
subscriptions with Licensees.
"NET ASSETS" has the meaning specified in Section 2.3(c).
----------
"NET CAPITAL EXPENDITURES" has the meaning specified in Section
------------------------
2.3(d).
"NON-COMPETITION AGREEMENT" means the Non-Competition Agreement dated
-------------------------
the Closing Date among Seller, General Partner, TFC, Marshall Field V, the
Trusts and Buyer in the form attached as Exhibit B.
"NOTICE PARTY" has the meaning specified in Section 1.7.
------------
"OCTOBER STATEMENT" means the statement of assets and liabilities of
-----------------
Seller attached as Schedule 13.1.
"OCTOBER BALANCE SHEET" means the balance sheet of Seller as of
---------------------
October 31, 1991 contained in Schedule 4.4.
"OCTOBER BALANCE SHEET DATE" means October 31, 1991.
--------------------------
"ON PLAN" has the meaning specified in Section 2.5(c).
-------
"OPERATING LEASE ADJUSTMENT" has the meaning specified in Section
--------------------------
2.5(c).
"PATENT, TRADEMARK AND INTELLECTUAL PROPERTY RIGHTS" has the meaning
--------------------------------------------------
specified in Section 1.1(vi).
93
<PAGE>
"PARTICIPATIONS" means royalties or other contingent payments payable
--------------
pursuant to written contractual provisions to third parties by Seller in
connection with Music Services Contracts.
"PAYEE" has the meaning specified in the definition of Setoff
-----
Procedure.
"PAYEE PAYMENT" has the meaning specified in the definition of Setoff
-------------
Procedure.
"PAYOR" has the meaning specified in the definition of Setoff
-----
Procedure.
"PAYOR PAYMENT" has the meaning specified in the definition of Setoff
-------------
Procedure.
"PBGC" has the meaning specified in Section 4.18(a)(iv).
----
"PERMITTED ENCUMBRANCES" means liens for taxes and other governmental
----------------------
charges and assessments which are not yet due and payable and immaterial
mechanics', materialmen's and similar liens.
"PERMITTED SECURITIES" has the meaning specified in Section 2.5(d)(v).
--------------------
"PERSON" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
Governmental Body.
"PHASE I AUDIT" has the meaning specified in Section 6.1(b).
-------------
"PHASE II AUDIT" has the meaning specified in Section 6.1(b).
--------------
"PLAN" has the meaning specified in Section 4.18(a)(v).
----
"POP" means POP Radio Corporation, a New York corporation.
---
"POP AGREEMENT" means the joint operating agreement, dated as of
-------------
September 30, 1987, between Seller and POP, as amended from time to time.
"POP ASSETS" means the "Purchased Assets" referred to in the POP
----------
Agreement.
"POP GUARANTY" means the "Guaranty Agreement" referred to in Section
------------
3.01 of the POP Agreement.
94
<PAGE>
"POP NOTE" means the "Note" referred to in the POP Agreement.
--------
"POP SALE DOCUMENTS" means (a) (i) the note of HMC delivered as part
------------------
of the consideration for the sale of the POP Assets and (ii) the security
agreement of HMC securing such note and the note referred to in clause (b)(ii)
below and (b) (i) the securities purchase agreement between HMC and Field
Investments Partnership providing for the sale to HMC of certain settlement
rights relating to the value of the stock of Actmedia, Inc. to HMC and (ii) the
note of HMC delivered as consideration therefor.
"PREDECESSOR LICENSING AGREEMENTS" has the meaning specified in
--------------------------------
Section 4.21.
"PRIORITY PARTNERSHIP INTEREST" has the meaning specified in Section
-----------------------------
2.1.
"PROJECTED CAPITAL EXPENDITURES" has the meaning specified in Section
------------------------------
2.3(d).
"PROPRIETARY RIGHTS" has the meaning specified in Section 1.1(vi).
------------------
"PROPRIETARY RIGHTS LICENSES" has the meaning specified in Section
---------------------------
1.1(vi).
"PROTECTED INFORMATION" has the meaning specified in Section 7.13.
---------------------
"PURCHASE PRICE" has the meaning specified in Section 2.1.
--------------
"PURCHASED ASSETS" has the meaning specified in Section 1.1.
----------------
"RCRA" has the meaning specified in the definition of "Hazardous
----
Substances".
"ROFR CONSIDERATION" has the meaning specified in Section 7.30.
------------------
"ROFR TRANSFER" has the meaning specified in Section 7.30.
-------------
"RESPONSIBLE PARTY" has the meaning specified in Section 1.7.
-----------------
"SAVINGS PLAN" has the meaning specified in Section 7.4.
------------
95
<PAGE>
"SCA LESSORS" means those FM broadcast stations from which Seller
-----------
leases a sub-carrier channel.
"SELLER" has the meaning specified in the first paragraph hereof.
------
"SELLER AGREEMENTS" has the meaning specified in Section 4.21.
-----------------
"SELLER ANCILLARY AGREEMENTS" means all agreements, instruments and
---------------------------
documents being or to be executed and delivered by Seller hereunder or pursuant
hereto.
"SELLER DEBT" means the Credit Agreement among Seller, the financial
-----------
institutions named therein and the First National Bank of Chicago, as agent for
such financial institutions, dated as of March 9, 1989.
"SELLER GROUP MEMBER" means Seller, TFC, General Partner, their
-------------------
partners, their partners' partners, the Trusts and their Affiliates, trustees,
beneficiaries and their directors, officers, employees, agents, attorneys and
consultants and their respective successors and assigns.
"SELLER'S ACCOUNTANT" has the meaning specified in Section 2.3(g).
-------------------
"SETOFF PROCEDURE" means the following procedure to be followed with
----------------
respect to the right of a payor ("Payor") to setoff, against the amount of a
payment ("Payor Payment") otherwise to be made by the Payor to a payee entitled
thereto ("Payee"), an amount of a payment otherwise to be made by a Payee to the
Payor ("Payee Payment"): (i) the amount and time of the Payee Payment shall have
been fixed by agreement between the Payor and the Payee or its representative or
by a final non-appealable order of a court of competent jurisdiction, (ii) the
amount of the setoff shall be limited to the extent of any actual shortfall in
the Payee Payment plus interest on such amount (at the rate of interest or other
----
rate of return set forth in the instrument creating the Payor Payment against
which the setoff is being made) from the date of the determination of the amount
of the setoff until the date that the Payor Payment would otherwise be made by
Payor, (iii) notice must be given to the Payee, which shall be made on the date
on which the Payor Payment was required to be made and which shall be reasonable
under the circumstances and (iv) the amount of the setoff shall be pro rata (to
the extent practicable) to the Payees entitled to share a Payor Payment.
"SIGNIFICANT ASSETS" has the meaning specified in Section 2.5(e)(i).
------------------
96
<PAGE>
"SIGNIFICANT ASSET PURCHASE" has the meaning specified in Section
--------------------------
2.5(e)(i).
"SIGNIFICANT ASSET SALE" has the meaning specified in Section
----------------------
2.5(e)(i).
"SINGLE EMPLOYER DEFINED BENEFIT PLAN" has the meaning specified in
------------------------------------
Section 4.18(a)(vi).
"SOFTWARE" has the meaning specified in Section 1.1(a)(vi).
--------
"SUBSIDIARY" means a Person in which Buyer has a direct or indirect
----------
ownership interest that either (i) entitles Buyer directly or indirectly to cast
a majority of the votes, consents or other approvals cast by holders of
ownership interests in such Person generally or (ii) entitles Buyer directly or
indirectly to exercise control over the management or policies of such Person.
"SUM" has the meaning specified in Section 2.5(a).
---
"TAX" means all foreign, and all U.S. Federal, state, and local,
---
income, gross receipts, import, ad valorem, VAT, license, stamp, documentary,
estimated or interim, employment, payroll, withholding, minimum, franchise,
profits, sales, transfer, use, gains, recordation, property, occupancy, excise
or other taxes, together with all assessments, interest, penalties,
deficiencies, fees, additions to tax and other governmental charges or
impositions relating thereto, imposed by any Governmental Body.
"TAX RETURN" means any return, report, document, statement or form
----------
required to be filed (whether on a consolidated, combined, separate or unitary
basis) with respect to any Taxes (including any schedules required to be
attached thereto), including, without limitation, information returns, claims
for refund, amended returns, and declarations of estimated Tax.
"TECHNICAL INFORMATION" has the meaning specified in Section
---------------------
1.1(a)(vi).
"TERMINATION DATE" has the meaning specified in Section 11.1.
----------------
"TFC" has the meaning specified in the first paragraph hereof.
---
"TORRANCE NOTE" means the Subordinated Note of Seller payable to Mark
-------------
Torrance made on December 31, 1986, as modified by the Note Modification
Agreements dated as of January 21, 1987 and July 10, 1989.
97
<PAGE>
"TOWER SITE LEASE" has the meaning specified in Section 4.30(g).
----------------
"TRANSFER" means sell, transfer, assign, convey, lease and/or deliver
--------
(other tenses of the term have similar meaning) or sale, transfer, assignment,
conveyance, lease and/or delivery, as indicated by the context.
"TRANSFER EVENT" means (i) a Transfer of substantially all of the
--------------
assets of Buyer, (ii) a change in control of the board of directors of the
general partner of MLP Acquisition (or if Buyer is a corporation, of the Board
of Directors of Buyer) pursuant to which any single Person other than an
Affiliate of Buyer on the date hereof acquires control of such board of
directors or (iii) the Transfer of at least 51% or more of the voting equity
interests in Buyer (or any parent of Buyer), whether by sale, merger or
consolidation, to any single Person or two or more Affiliated Persons (provided
that such two or more Affiliated Persons would be considered to be acting in
concert as a "group" for purposes of Section 13(d) of the Securities Exchange
Act of 1934, for purposes hereof treating such voting equity interests as if
such voting equity interests were equity securities in respect of which a
Schedule 13D would be required to be filed with the Securities and Exchange
Commission as if the requisite percentage and other threshold conditions to such
filing were satisfied) (other than a pledge of the voting equity interests in
Buyer to the holders of the debt financing referred to in Section 5.5 or any
refinancing thereof); provided, however, that a "Transfer Event" shall not
-------- -------
include (i) a change of control of CCI or Centre Partners or their successors
(unless at the time of such change of control, substantially all the operating
assets of CCI or Centre Partners directly or indirectly, are assets of Buyer),
(ii) any Transfer of the voting equity interests in Buyer of CCI or MLP
Acquisition to each other and/or to an affiliate or one or more partners of CCI,
MLP Acquisition or Centre Partners, or (iii) a Transfer of substantially all of
the assets of Buyer in connection with an incorporation of Buyer and its
business and assets in accordance with the provisions of the Amended Partnership
Agreement.
"TRUSTEE" has the meaning specified in Section 7.4.
-------
"TRUST AGREEMENT" has the meaning specified in Section 7.4.
---------------
"TRUST FUND" has the meaning specified in Section 7.4.
----------
"TRUSTS" means the trusts that are limited partners of the Limited
------
Partner.
"UNION" means each collective bargaining unit or union with which
-----
Seller has a collective bargaining or similar agree-
98
<PAGE>
ment.
"UNION AGREEMENT" means each collective bargaining or similar
---------------
agreement between Seller and a Union.
"WARN ACT" means the Worker Adjustment and Retraining Notification
--------
Act.
"WEIGHTED AVERAGE ANNUAL LEASE RATE" has the meaning specified in
----------------------------------
Section 2.5(c).
13.2. INTERPRETATION. As used herein, (a) "include", "includes" and
--------------
"including" are deemed to be followed by "without limitation" whether or not
they are in fact followed by such word or words of like import, (b) references
to any agreement or other document or Governmental Rule are to it as amended and
supplemented from time to time (and, in the case of a Governmental Rule, to any
successor provision in the absence of an explicit contrary specification set
forth in this Agreement), (c) references to "Article", "Section" or another
subdivision or to an attachment, "Exhibit" or "Schedule" are to an article,
section or subdivision hereof or an attachment, "Exhibit" or "Schedule" hereto,
and (d) "hereof ", "herein", "hereunder" and comparable terms refer to the
entirety hereof and not to any particular article, section or other subdivision
hereof or attachment hereto. Article titles and headings to sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation hereof. The Schedules and Exhibits
referred to herein shall be construed with and as an integral part hereof to the
same extent as if they were set forth verbatim herein. The specification of any
dollar amount in the representations or warranties contained herein or the
inclusion of any specific item in any Schedules hereto is not intended to imply
that such amounts, or higher or lower amounts, or the items so included or other
items, are or are not material, and neither party shall use the fact of the
setting of such amounts or the inclusion of any such item in any
99
<PAGE>
dispute or controversy between the parties as to whether any obligation, item or
matter not described herein or included in a Schedule is or is not material for
purposes hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
MLP OPERATING, L.P.
By: MLP ACQUISITION, L.P.
Managing General Partner
By: MUSIC HOLDINGS CORP.
General Partner
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: Vice President
MUZAK LIMITED PARTNERSHIP
By: FIELD/MUZAK, INC.
General Partner
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: Vice President
FIELD/MUZAK, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: Vice President
THE FIELD CORPORATION
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: Vice President
<PAGE>
MUZAK LIMITED PARTNERSHIP
April 22, 1992
MLP Operating, L.P.
c/o Centre Partners, L.P.
One Rockefeller Plaza
New York, New York 10020
Attention: Messrs. Lester Pollack
Mark Jennings
Dear Sirs:
Pursuant to Section 6.8 of the Asset Purchase Agreement ("Agreement"),
dated as of March 11, 1991, between Muzak Limited Partnership ("Seller"), The
Field Corporation and Field/Muzak, Inc. and MLP Operating, L.P., Seller hereby
makes the following Disclosures:
(A) Schedule 4.6 is amended by inserting, after the text in entry
number 2, the following:
"3. Reference is hereby made to the disclosure made in Schedule
4.7, and such disclosure is incorporated herein.
4. Reference is hereby made to the disclosure made in Schedule
4.22(b), paragraph 12, and such disclosure is incorporated herein."
(B) Schedule 4.7 is amended by deleting the phrase "[Intentionally
Left Blank]" and inserting, in lieu thereof, the following:
"Seller's excise tax returns for the years 1987 to September 1991
filed with Washington are currently under examination by that State's
Department of Revenue. Based upon preliminary conversations with
representatives of the Department, the State might assert that
Seller's tax base should be increased significantly, which would
increase its tax liability. Seller does not know whether the State
will assert that an increase is due or, if so, what the potential
amount of such an increase would be, Discussions with the State
Department of Revenue are ongoing. Seller believes that it has several
avenues, for pursuing a remedy should the State's determination be
unfavorable."
<PAGE>
(C) Schedule 4.19(b) is amended by inserting on page three thereof,
in the far right column horizontally across from the words "Texas Wired Music,
Inc.", the following:
"01-01-87 10% discount on royalty
fees for music services
for on-premise accounts for San
Antonio, Austin and Corpus
Christi
04 08 92 letter confirming
discount not applicable to
El Paso"
(D) Schedule 4.22 is amended by inserting under the heading "4.22
----
(b)", after the text in entry number 10 thereof, the following:
- ---
"11. In a letter dated March 4, 1992, Karr Tuttle Campbell
("KTC"), attorneys for Sight & Sound Entertainment, Inc. ("S&S"),
alleged a breach of the Termination Agreement between S&S and Seller
dated July 12, 1991, relating to the Madigans' account which S&S had
purchased from Seller. KTC and Heller, Ehrman, White & McAuliffe
("HEW&M"), attorneys for Seller, exchanged letters relating to the
matter on behalf of their clients. KTC's letters are dated March 13
and March 19, 1992. HEW&M's letters are dated March 10, March 17 and
April 6, 1992. HEW&M's April 6 letter has a settlement agreement
attached thereto for S&S's signature. Copies of the referenced letters
and attachments, the Madigans' letter dated January 31, 1992
terminating S&S and Seller's agreement with the Madigans dated January
29, 1992 have been previously delivered to Buyer.
12. On March 16, 1991 Mr. John P. Cardosi of Popelka, Allard,
McCowan & Jones ("PAM&J"), attorneys for Melvin Simon & Associates
("MS&A"), informed HEW&M on behalf of Seller, of a lawsuit relating to
an injury which took place on MS&A's property. According to Mr.
Cardosi, a Mr. Cammarata was working on the roof of his client's
property carrying hot tar when he tripped over a wire attached to an
antennae which may have been owned by Seller. Mr. Cammarata suffered
burns resulting from such trip and is suing MS&A, among others, for
damages resulting from his accident. Seller believes that it did not
install the subject wires, but that it installed its antennae using
brackets (not wires). Seller believes that someone who installed
equipment subsequent to Seller's installation of its antennae at the
same site installed the subject wires. Seller has not been named in
Mr. Cammarata's law suit. A March 17, 1992 letter of PAM&J delivered
to HEW&M has been previously delivered to Buyer."
<PAGE>
(E) Pursuant to Section 6.8 of the Agreement, if the Closing occurs,
the Disclosures made herein will be effective to cure and correct for all
purposes any incorrectness or breach of any representation or warranty (whether
or not material) which would have existed by reason of Seller's not having made
any such Disclosure.
<PAGE>
Capitalized terms used herein but not defined herein have the meanings
ascribed to them in the Agreement.
Sincerely,
MUZAK LIMITED PARTNERSHIP
By Field/Muzak, Inc.
By: [SIGNATURE ILLEGIBLE]
----------------------------------
Title: President
cc: Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Attention: Messrs. Michael Roth
Eric Lerner
<PAGE>
MUZAK LIMITED PARTNERSHIP
August 6, 1992
MLP Operating, L.P.
c/o Centre Partners, L.P.
One Rockefeller Plaza
New York, NY 10020
Attention: Messrs. Lester Pollack
Mark Jennings
Dear Sirs:
In connection with the Asset Purchase Agreement ("Agreement"), dated
as of March 11, 1992, between Muzak Limited Partnership ("Seller", The Field
Corporation and Field/Muzak, Inc. and MLP Operating, L.P. ("Buyer"), as amended
by Seller's Letter to Buyer, dated April 22, 1992, Amendment No. 1, dated as of
June 26, 1992, among the parties to the Agreement and Amendment No. 2, dated as
of July 31, 1992, among the parties to the Agreement, Seller hereby notifies you
of the following items without making any representation or warranty as to
whether such notification as to any item alone or together with any other item
or items is required to be disclosed pursuant to Section 6.4(a)(iii) of the
Agreement:
1. Seller has received and paid a commercial rent tax audit
assessment from the City of New York in the amount of $41,150.08. The tax
assessment relating to the commercial rent tax audit is attached hereto as
Exhibit A.
2. On Tuesday, May 19, 1992, Seller, through its registered agent,
was served with a summons and complaint captioned Charles F. Cammarata v. The
---------------------------
Fairmont Hotel and Pavilion of San Jose, et al., including Seller as Doe Six.
- -----------------------------------------------
Mr. Cammarata seeks damages of $2,665,000. On July 2, 1992, Seller filed a
General Denial. Copies of the Summons and Complaint and General Denial are
attached hereto as Exhibit B.
<PAGE>
MLP Operating, L.P.
August 6, 1992
Page 2
3. On May 31, 1992, James Boggins, Vice President - Western Region
of Seller, left the employment of Seller. Seller has executed a severance
arrangement with Mr. Boggins and has obtained a release from Mr. Boggins
relating to claims arising from his severance.
4. On April 2, 1992, Bahia Murdoch, an account executive in Seller's
Tustin office, was terminated for insubordination. Through counsel, Ms. Murdoch
has submitted a demand letter to Seller, claiming breach of contract and race
discrimination. Seller has responded to Ms. Murdoch's demand by letter dated
July 6, 1992. Copies of these letters are attached hereto as Exhibit C. Ms.
Murdoch also submitted a claim to the Labor Commissioner of the State of
California claiming that commissions due her on certain sales she made while
employed by Seller were not paid. Seller believes the subject commissions are
not yet payable because the sales relating thereto have not been consummated.
Ms. Murdoch's claim was denied and she appealed such denial.
5. On June 23, 1992, Seller notified its Milwaukee Licensee,
Wisconsin Music Network, Inc. ("WMNI"), of its intention to terminate their
relationship if WMNI does not execute Seller's new form of license agreement
within 60 days. Discussions are continuing between Seller and WMNI.
6. Seller is in the final stages of discussions with Music, Inc.,
its Washington D.C. Licensee, relating to its execution of the new form of Muzak
license agreement. If Seller's differences wit Music, Inc. are not
satisfactorily resolved, Seller will terminate its relationship with Music, Inc.
7. On May 15, 1992, James Wilson, General Manager of Seller's
Portland office, left the employment of Seller.
8. On June 25, 1992, Seller renewed its sub-carrier agreement with
the University of Washington, KUOW Radio.
9. Seller has elected not to renew its lease for premises at 125 N.
Acacia Avenue in San Diego, California, effective as of July 31, 1992.
10. Seller has terminated its month-to-month lease for premises in
Anaheim, California as of March, 1992.
11. Seller has awarded salary increases in the ordinary course of
business to certain employees whose annual compensation is $50,000 or more.
<PAGE>
MLP Operating, L.P.
August 6, 1992
Page 3
12. In June, 1992, the United States District Court for the Southern
District of New York ruled on the motion of the American Society of Composers,
Authors and Publishers ("ASCAP") for an order fixing interim fees to be paid by
Seller pending negotiation of a new license agreement. The Court ordered that
the current fees paid by Seller to ASCAP be continued on an interim basis. The
Court's opinion and order is attached hereto as Exhibit D.
13. Seller has been advised the remediation of the cesspool at the
Westbury, New York facility is not required. A copy of a letter from Nassau
County Department of Health with respect to this matter is attached hereto as
Exhibit E.
14. A $550,000 payment of principal was made on the Torrance Note on
June 30, 1992. $874,831.66 of accrued interest remains outstanding under the
Torrance Note.
15. Seller believes that it will be in default of certain financial
covenants in the Seller Debt upon issuance of its June financial statements and
receipt of a notice of an event of default from the financial institutions party
to such Seller Debt.
16. Each Licensee listed on the attached Exhibit F has not signed a
consent relating to the amendment to the POP Agreement dated as of February 28,
1992.
17. Seller may not be in compliance with several states' franchising
laws as a result of Seller's potential default referenced in Item 15 of this
letter.
18. GTE Corp has developed a digital satellite transmission system
capable of delivering products competitive with Seller's products at reduced
cost which could lower the cost of doing business for competitors or potential
competitors of Seller.
19. The Anderson Little account referenced in Schedule 4.19(a)(ii)
has been cancelled. Seller has entered into the following contracts (on the
dates indicated) which involve payment to Seller in excess of $50,000 per annum:
(a) Walgreen, March 3, 1992, (b) Affiliated Foods Cooperative, Inc., May 6,
1992, (c) Dayton Hudson, June 16, 1992, (d) Carter Hawley Hale, June 30, 1992
and (e) GH Bass & Co., July 8, 1992.
<PAGE>
MLP Operating, L.P.
August 6, 1992
Page 4
20. The Fleet National Bank account referenced in such Schedule 4.3
will be cancelled shortly and a new contract will be executed.
21. Sight & Sound Entertainment, Inc. ("S&S") has alleged a breach of
the Termination Agreement between S&S and Seller dated July 12, 1991 and
discussions between S&S and Seller are continuing.
22. Track Records, which is listed on Schedules 4.19(a)(viii) and
4.20(d), no longer exists.
23. Seller is the subject of sales and use tax audits being conducted
by the Illinois Department of Revenue and New York Department of Finance and
personal property tax audits being conducted by each of the County of Sacramento
(California) and Clallam County (Washington).
<PAGE>
MLP Operating, L.P.
August 6, 1992
Page 5
Capitalized terms used herein but not defined herein have the meanings
ascribed to them in the Agreement.
Sincerely,
MUZAK LIMITED PARTNERSHIP
By: FIELD/MUZAK, INC.
general partner
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: Vice President
-----------------------------
cc: Rosenman & Celin
575 Madison Avenue
New York, New York 10022
Attention: Messrs. Michael Roth
Eric Lerner
<PAGE>
MUZAK LIMITED PARTNERSHIP
August 20, 1992
MLP Operating, L.P.
c/o Centre Partners, L.P.
One Rockefeller Plaza
New York, New York 10020
Attention: Messrs. Lester Pollack
Mark Jennings
Dear Sirs:
Pursuant to Section 6.8 of the Asset Purchase Agreement, dated as of
March 11, 1992, between Muzak Limited Partnership ("Seller"), The Field
Corporation and Field/Muzak, Inc. and MLP Operating, L.P., as amended pursuant
to Seller's letter dated April 22, 1992 ("First Disclosure Letter") , Amendment
No. 1, dated as of June 26, 1992 and Amendment No. 2, dated as of July 31, 1992
("Agreement"), Seller hereby makes the following Disclosures:
(A) (1) Schedule 4.3 is amended by deleting, under the heading
"A.1", the following:
"(4) Winn-Dixie Stores, Inc. undated",
"-- Macy's Mall of America", and
"(11) San Francisco -- Walgreen Drug Company (Alameda), 6/11/75"
(2) Schedule 4.3 is further amended by inserting, under the
heading "'A.7", the following:
"WNTL507 77127 006331-000 MN"
(B) (1) Schedule 4.5(a) is amended by inserting, after the text in
item 5, the following:
"6. GTE Corp has developed a digital satellite transmission system
capable of delivering products competitive with Seller's products
at reduced cost which could lower the cost of doing business for
competitors or potential competitors of Seller."
(2) Schedule 4.5(b) is amended by deleting item (i) and
inserting, in lieu thereof, the following:
"(i) On Monday, August 17, 1992, at Seller's facility located at 25-34
Jackson Avenue, Long Island City, New York 11101, approximately
400 square feet of roof collapsed causing damage to, among other
things, tuners, amplifiers, racks, tools, test
<PAGE>
equipment, invoices and files. Seller believes damage will
exceed the $25,000 deductible under the insurance which may cover
the losses incurred."
(3) Schedule 4.5(b) is amended by inserting, after the phrase
next to item (v), the following:
"Seller has awarded salary increases in the ordinary course of
business to certain employees whose annual compensation is $50,000 or
more."
(4) Attachment A to Schedule 4.5(b) is amended by deleting the
following:
"Boggins, James 01/01/92 $4,900 4.3% $119,400
Wilson, James 01/01/92 $3,500 5.0% $73,500"
(C) Schedule 4.6 is amended by inserting, after item 4 inserted in
such Schedule pursuant to the First Disclosure Letter, the following:
"5. Reference is hereby made to the disclosure made in Schedule
4.22(b), paragraph 15, and such disclosure is incorporated
herein."
(D) Schedule 4.7 is amended by inserting, after the paragraph
inserted in such Schedule pursuant to the First Disclosure Letter, the
following:
"Seller has received and paid a commercial rent tax audit
assessment from the City of New York in the amount of $41,150.08."
(E) Schedule 4.9(b) is amended by inserting, under the heading "A.1",
the following:
"WNTL507 77127 006331-000 MN"
(F) Schedule 4.11 is amended by deleting items 10, 17, 18 and 32 and
inserting, in lieu of item 32, the following:
"32. Lease with respect to the rental of real property in
Tacoma, Washington.
Parties: Seller and Fred Roberson
Term: April 1, 1992, month to month
Rent: $200/mo.
Renewal Option: N/A
Purchase Option: None."
(G) Schedule 4.17 is amended by inserting, after the text in item
(i), the following:
"Seller has been advised that remediation of the cesspool at the
Westbury, New York facility is not required. A copy of a letter from
Nassau County
<PAGE>
Department of Health with respect to this matter was attached to the
Seller's letter to Buyer dated August 6, 1992 ("Notice Letter")."
(H) Schedule 4.18(g) is amended by inserting, after the text in item
1, the following:
"J. Boggins"
(I) (1) Schedule 4.19(a)(ii)1 is amended by deleting the reference
to the Anderson Little account and inserting the following:
"Walgreen dated March 3, 1992
Affiliated Foods Cooperative, Inc. dated May 6, 1992
Dayton Hudson dated June 16, 1992
Carter Hawley Hale dated June 30, 1992
GH Bass & Co. dated July 8, 1992
(2) Schedule 4.19 (a)(viii) is amended by deleting the reference
to Track Records.
(3) Schedule 4.19(b)C is amended by deleting all the text in the
right column of item 1, and inserting, in lieu thereof, the following:
"Soundcom TTY LTV
Australia
June 1, 1992"
(J) (1) Schedule 4.20(a) is amended by deleting item 1, and
inserting, in lieu thereof, the following:
"1. In June, 1992, the United States District Court for the Southern
District of New York ruled on the motion of the American Society
of Composers, Authors and Publishers ("ASCAP") for an order
fixing interim fees to be paid by Seller pending negotiation of a
new license agreement. The Court ordered that the current fees
paid by Seller to ASCAP be continued on an interim basis. The
Court's opinion and order was attached to the Notice Letter."
(2) Schedule 4.20(d) is amended by deleting the reference to
Track Records.
(K) Schedule 4.21 is amended by deleting item 20 and inserting, in
lieu thereof, the following:
"2O. See item 1 of Schedule 4.20(a).
21. Seller gave notice pursuant to the Seller Debt on August 14, 1992
that it had breach a financial covenant in the Seller Debt and, upon
receipt of a notice of an event of default from the financial
institutions party
<PAGE>
to such Seller Debt, would be in default under such debt."
(L) (1) Schedule 4.22 is amended by inserting, at the end of the
text in item 1 under the heading "4.22(a)", the following:
-------
"2. Seller may not be in compliance with several states,
franchising laws as a result of Seller's potential default referenced
in item 21 of Schedule 4.2l."
(2) Schedule 4.22 is amended by inserting, at the end of the
text in item 1 under the heading "4.22(b)", the following:
-------
"Illinois Department of Revenue - Sales/Use Tax
New York Department of Finance - Sales/Use Tax
County of Sacramento (California) - Personal Property Tax
Clallam County (Washington) - Personal Property Tax"
(3) Schedule 4.22 is further amended by deleting item 12, which
was inserted pursuant to the First Disclosure Letter, under the heading
"4.22(b)" and inserting, in lieu thereof, the following:
-------
"12. On Tuesday, May 19, 1992, Seller, through its registered
agent, was served with a summons and complaint captioned Charles F.
----------
Cammarata v. The Fairmont Hotel and Pavilion of San Jose. et al.,
----------------------------------------------------------------
including Seller as Doe Six. Mr. Cammarata seeks damages of
$2,665,000. On July 2, 1992, Seller filed a General Denial. Copies
of the Summons and Complaint and General Denial were attached to the
Notice Letter. Defense of the claim is continuing."
13. On April 2, 1992, Bahia Murdoch, an account executive in
Seller's Tustin office, was terminated for insubordination. Through
counsel, Ms. Murdoch has submitted a demand letter to Seller, claiming
breach of contract and race discrimination. Seller has responded to
Ms. Murdoch's demand by letter dated July 6, 1992. Copies of these
letters were attached to the Notice Letter. Ms. Murdoch also
submitted a claim to the Labor Commissioner of the State of California
claiming that commissions due her on certain sales she made
while employed by Seller were not paid. Seller believes the subject
commissions are not yet payable because the sales relating thereto
have not been consummated. Ms. Murdoch's claim was denied. She
appealed such denial and, on August 18, 1992, the
<PAGE>
commission advised that even if she was entitled to the commissions
they were, in any case, not yet payable.
14. S&S has alleged a breach of the Termination Agreement
between S&S and Seller dated July 12, 1991 and discussions between S&S
and Seller are continuing.
15. On August 17, 1992, Seller was served with Summons and
Complaint captioned Wisconsin Music Network, Inc, v. Muzak Limited
-----------------------------------------------
Partnership and certain related court filings. Certain of these
-----------
documents are attached hereto as Exhibit A to this Schedule 4.22."
(4) Schedule 4.22 is amended by inserting Exhibit A hereto as
Exhibit A to Schedule 4.22.
(L) Schedule 4.24 is amended by deleting the attachment thereto, in
its entirety, and substituting Exhibit B hereto therefor.
Pursuant to Section 6.8 of the Agreement, if the Closing occurs, the
Disclosures made herein will be effective to cure and correct for all purposes
any incorrectness or breach of any representation or warranty (whether or not
material) which would have existed by reason of Seller's not having made any
such Disclosure.
<PAGE>
Capitalized terms used herein but not defined herein have the meanings
ascribed to them in the Agreement.
Sincerely,
MUZAK LIMITED PARTNERSHIP
[SIGNATURE ILLEGIBLE]
By: /s/ Stephen J. Shumate
------------------------
Title: VICE PRESIDENT
cc: Roseman & Colin
575 Madison Avenue
New York, New York 10022
Attention: Messrs. Michael Roth
Eric Lerner
<PAGE>
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
-------------------------------------------
AMENDMENT NO. 1 ("Amendment") dated as of June 26, 1992, to the Asset
Purchase Agreement ("Purchase Agreement"), dated as of March 11, 1992, among
MUZAK LIMITED PARTNERSHIP, a Delaware limited partnership ("Seller"),
FIELD/MUZAK, INC., a Delaware corporation ("General Partner"), THE FIELD
CORPORATION, a Delaware corporation ("TFC"), and MLP OPERATING, L.P., a Delaware
limited partnership ("Buyer"), as amended pursuant to Section 6.8 thereof by
Seller's letter dated April 22, 1992.
WHEREAS, Seller, General Partner, TFC and Buyer (collectively, the
"Parties") have entered into the Purchase Agreement, pursuant to which Buyer
agreed to purchase substantially all the non-cash assets of Seller and to assume
certain liabilities in connection therewith;
WHEREAS, the Parties have agreed to reduce the cash portion of the Purchase
Price, as set forth in Section 2.1 of the Purchase Agreement, from $54,950,000
to $44,950,000;
WHEREAS, in connection with such reduction of the cash portion of the
Purchase Price, the Parties have agreed that the fair market value of the assets
to be transferred to Buyer in consideration of the Priority Partnership Interest
is $10,000,000 rather than $5,000,000;
WHEREAS, the Parties have agreed, in connection with such reduction of the
cash portion of the Purchase Price, to amend the provisions of Section 2.5 of
the Purchase Agreement relating to the Earn-Out Payment, so as to increase the
maximum amount of such Earn-Out Payment from $20,000,000 to $25,000,000 and to
make certain changes in the manner in which such Earn-Out Payment is to be
calculated, as more fully set forth below;
WHEREAS, the Parties have agreed that the requirement set forth in Section
5.5 of the Purchase Agreement that Buyer shall have received commitments to
subscribe for at least $15,000,000 of its equity interests be reduced to a
requirement that Buyer shall have received commitments to subscribe for at least
$12,000,000 of its equity interests;
WHEREAS, the Parties have agreed to modify certain limitations applicable
to Seller's obligations to indemnify Buyer Group Members as set forth in Section
10.2 of the Purchase Agreement; and
WHEREAS, the Parties have agreed to extend the deadline dates set forth in
Section 11.1 of the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, Seller, General Partner, TFC and Buyer hereby agree as
follows:
<PAGE>
1. Unless otherwise provided herein, capitalized terms used herein
shall have the meanings ascribed thereto in the Purchase Agreement, and Article,
Section and clause references refer to the Articles, Sections and clauses of the
Purchase Agreement.
2. The Parties hereby agree to amend the Purchase Agreement as
follows:
A. Purchase Price. The first sentence of Section 2.1 is hereby
--------------
amended to delete the amount "$54,950,000" appearing in the third line
thereof and to insert in lieu thereof the amount "$44,950,000", and the
first sentence of Section 2.4(b) is hereby amended to delete the amount
"$54,950,000" appearing in the fifth line thereof and to insert in lieu
thereof the amount "$44,950,000".
B. Earn-Out Payment. (i) Section 2.5(a) is hereby amended to read in
----------------
its entirety as follows:
"2.5. Earn-Out. (a) If (x) cumulative "EBITDA" (as
--------
hereinafter defined) for the period (the "Base Period")
commencing on the Closing Date and ending on the fifth
anniversary of the Closing Date (the "Determination Date")
is equal to or greater than the aggregate of the amounts set
forth in Schedule 2.5(a)(1) but is less than the aggregate
of the amounts set forth in Column I of Schedule 2.5(a) or
(y) on the occurrence of a Transfer Event (also a
"Determination Date") cumulative EBITDA is "On Plan" (as
hereinafter defined) as calculated pursuant to Schedule
2.5(a)(1) hereto but is not On Plan as calculated pursuant
to Schedule 2.5(a) hereto, Buyer shall make a payment to
Seller in the amount of FIVE MILLION DOLLARS ($5,000,000)
(such payment, or such other payment as is contemplated by
the next sentence of this Section 2.5(a), is hereinafter
referred to, as applicable, as the "Earn-Out Payment"),
which payment shall be discounted at the rate of 10% per
annum for the number of months (including the month of the
Determination Date) then remaining in the Base Period. If
(x) cumulative EBITDA for the Base Period is equal to or
greater than the aggregate of the amounts set forth in
column I of Schedule 2.5(a), or (y) on the occurrence of a
Transfer Event, cumulative EBITDA is On Plan as calculated
pursuant to Schedule 2.5(a)
2
<PAGE>
hereto, Buyer shall not be required to make the payment
referred to in the first sentence of this Section 2.5(a),
but rather Buyer shall make an Earn-Out Payment to Seller in
an amount equal to the sum (the "Sum") of (A) $11,670,000,
plus (B) an amount equal to the product of (1) $13,330,000
----
and (2) a fraction, the numerator of which shall be the
amount, if any, by which cumulative EBITDA for the period
from the Closing Date until the Determination Date exceeds
the aggregate of the amounts in column I of Schedule 2.5(a)
for such period, and the denominator of which shall be the
difference between the aggregate of the amounts in column I
and column II of Schedule 2.5(a) for the period from the
Closing Date until the Determination Date, which Sum shall
be discounted with respect to the first $5,000,000 thereof
at the rate of 10% per annum for the number of months
(including the month of the Determination Date) then
remaining in the Base Period and which Sum shall be
discounted with respect to the balance thereof in excess of
said $5,000,000 at the rate of 25% per annum for the number
of months (including the month of the Determination Date)
then remaining in the Base Period; provided, that, the Earn-
-------- ----
Out Payment shall in no event exceed $25,000,000;"
(ii) Section 2.5(c)(3) is hereby amended to read in its entirety
as follows:
"(3) cumulative EBITDA shall be deemed to be "On Plan"
at any date if cumulative EBITDA as of such date shall equal
or exceed the aggregate of the amounts set forth (i) in
Schedule 2.5(a)(1) for purposes of the calculations
contemplated by the first sentence of Section 2.5(a) for the
period from the Closing Date to the end of the month prior
to such date and (ii) in Column I of Schedule 2.5(a) for
purposes of the calculations contemplated by the second
sentence of Section 2.5(a) for the period from the Closing
Date to the end of the month prior to such date; provided,
--------
that for purposes of this Section 2.5, if cumulative EBITDA
at any date following the Closing Date shall be On Plan as
calculated pursuant to both Schedule 2.5(a)(1) and Schedule
2.5(a), the provisions of the second sentence of Section
2.5(a) shall
3
<PAGE>
control for purposes of calculating the Earn-Out Payment,
and the parties hereby acknowledge and agree that under no
circumstances will the Earn Out Payment be calculated under
both the first and second sentences of Section 2.5(a); and"
C. Schedules 2.5(a)(1) and 2.5(a). A new Schedule 2.5(a)(1) is
------------------------------
hereby added to the Purchase Agreement to read in its entirety as set forth
in Exhibit 1 hereto. Schedule 2.5(a) to the Purchase Agreement is hereby
deleted therefrom and a new Schedule 2.5(a) is hereby added to the Purchase
Agreement to read in its entirety as set forth in Exhibit 2 hereto.
D. Priority Partnership Interest. The first sentence of Section
-----------------------------
7.14 is hereby amended to delete the amount "$5,000,000" appearing in the
fifth and 21st lines thereof and to insert in lieu thereof in each case the
amount "$10,000,000". The form of the Amended Partnership Agreement annexed
as Exhibit E to the Purchase Agreement, as referred to in Section 7.21, is
hereby amended as follows:
(i) the definition of "Agreed Value" set forth in
Article I is hereby amended to delete the phrase "Five Million
Dollars ($5,000,000)" appearing in the eighth line thereof and to
insert in lieu thereof the phrase "Ten Million Dollars
($10,000,000)";
(ii) the definition of "Class C Liquidation Preference" set forth
in Article I is hereby amended to delete the phrase "Five Million Dollars
($5,000,000)" appearing in the third line thereof and to insert in lieu
thereof the phrase "Ten Million Dollars ($10,000,000)"; and
(iii) the definition of "Net Agreed Value" set forth
in Article I is hereby amended to delete the phrase "Five Million
Dollars ($5,000,000)" in the fifth line thereof and to insert in
lieu thereof the phrase "Ten Million Dollars ($10,000,000)".
E. Buyer Equity Commitment. The first sentence of Section
-----------------------
5.5 is hereby amended to delete the amount "$15,000,000"
appearing in the second line thereof and to insert in lieu
thereof the amount "$12,000,000".
F. Indemnification. The first sentence of Section 10.4 is
---------------
hereby amended to delete the amount "$17,000,000" appearing in
the 21st line thereof and to insert in lieu thereof the amount
"$7,000,000".
4
<PAGE>
G. Closing Date. The first sentence of Section 11.1 is
------------
hereby amended (i) to delete the phrase "April 30, 1992"
appearing in the 7th, 13th and 14th lines of said Section 11.1
and to insert in lieu thereof in each case the phrase "June 30,
1992", (ii) to delete the phrase "June 30, 1992" appearing in the
8th and 22nd lines of said Section 11.1 and to insert in lieu
thereof the phrase "July 31, 1992" and (iii) to insert the
following phrase after the word "parties" in the 22nd line
thereof: "provided, that, following an extension of the
-------- ----
Termination Date to July 31, 1992, Buyer may further extend such
Termination Date to August 31, 1992 by delivering to Seller on or
prior to July 31, 1992 (but not earlier than July 24, 1992) the
following certificates, each of which shall be dated not earlier
than July 24, 1992: (A) a certificate signed on behalf of Buyer
by a duly authorized officer of MLP Acquisition notifying Seller
that Buyer has elected to extend the Termination Date to August
31, 1992 and setting forth the following: (1) a statement that
Buyer is continuing to take action in good faith to cause
fulfillment of the conditions to Closing as soon as practicable,
(2) a statement to the effect that Buyer has reason to believe
that one or more of the conditions to Closing set forth in
Article VIII is not likely to be met as of July 31, 1992 and
identifying such condition(s) and (3) a statement to the effect
that, as of the date of such certificate, Buyer is not aware of
any facts or circumstances that would cause the nonfulfillment as
of such date of the condition set forth in Section 8.2 if such
date were the Closing Date (or, if Buyer is aware of any such
facts or circumstances, describing same in reasonable detail and
setting forth Buyer's agreement to waive any nonfulfillment as of
the actual Closing Date of any condition set forth in Section 8.2
based on the existence of such facts or circumstances or based on
any related qualification of the officer's certificates required
to be delivered by Seller pursuant to such Section, as well as a
waiver of the right of Buyer to terminate the Agreement pursuant
to Section 11.1(c) based on such facts or circumstances); and (B)
a separate certificate from each of Centre Partners L.P., Music
Holdings Corp., MLP Acquisition, Centre Capital Investors L.P.,
Barclays Bank PLC ("Barclays") and Union Bank of Switzerland
("UBS") (each a "Financing Person"), signed by a duly authorized
officer of such Financing Person, setting forth: (1) a statement
to the effect that the termination date for such Financing
Person's financing commitment(s) described in Section 5.5 has
been extended to at least August 31, 1992, and, (2) a statement
to the effect that, as of the date of such certificate, such
5
<PAGE>
Financing Person is not aware of any facts or circumstances
relating to the progress of the Seller's in-store marketing
program developed on behalf of The Fleming Companies Inc. and
such Financing Person (other than UBS and Barclays) is not aware,
and in the case of UBS and Barclays, without independent inquiry
is not aware, of any facts and circumstances that would cause the
nonfulfillment as of such date of the conditions set forth in
Section 8.2 if such date were the Closing Date, in each case that
would cause the nonfulfillment as of such date of any of the
conditions to the financing obligations of such Financing Person
if such date were the Closing Date (or, if such Financing Person
is aware of any such facts or circumstances, describing same in
reasonable detail and agreeing to waive any nonfulfillment as of
the actual Closing Date of any such condition based on the
existence of such facts or circumstances), and in such event the
Termination Date shall be no later than August 31, 1992 unless
otherwise agreed by the parties;".
3. Seller Authority; Enforceability. Each of Seller, General Partner (on
--------------------------------
behalf of Seller and itself) and TFC has the partnership power and authority to
execute, deliver and perform this Amendment. The execution, delivery and
performance of this Amendment by each of Seller, General Partner (on behalf of
Seller and itself) and TFC has been duly authorized and approved by all
requisite corporate and partnership action, as applicable. This Amendment has
been duly authorized, executed and delivered by each of Seller, General Partner
(on behalf of Seller and itself) and TFC and is the legal, valid and binding
obligation of each of Seller, General Partner and TFC, enforceable in accordance
with its terms.
4. Buyer Authority; Enforceability. Buyer has full power and authority to
-------------------------------
execute, deliver and perform this Amendment. The execution, delivery and
performance of this Amendment by Buyer has been duly authorized and approved by
all requisite partnership action. This Amendment has been duly authorized,
executed and delivered by Buyer and is the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms.
5. Purchase Agreement. Except as specifically set forth herein, the
------------------
Purchase Agreement shall remain in full force and effect. On and after the date
hereof, each reference in the Purchase Agreement to "this Agreement", "the
Purchase Agreement", "hereunder", "hereof", or words of like import referring to
the Purchase Agreement, and each reference in every other Seller Ancillary
Agreement or Buyer Ancillary Agreement to the "Purchase Agreement",
"thereunder", "thereof", or other words of like import referring to the Purchase
Agreement, shall mean the Purchase Agreement as amended by this Amendment.
Notwithstanding this Amendment, each reference in the Purchase Agreement to "the
date hereof" or to "the date of this Agreement" shall be deemed to refer to
March 11, 1992 and not to the date of this Amendment.
6
<PAGE>
6. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
7. Entire Agreement; Amendments. This Amendment and the Exhibit referred
----------------------------
to herein, together with the Purchase Agreement, contain the entire
understanding of the parties hereto with regard to the subject matter contained
herein or therein, and supersede all prior agreements or understandings between
or among any of the parties hereto, including the letter of intent (the "Letter
of Intent") dated December 20, 1991 among Seller, TFC and CCI, as amended, the
Confidentiality Agreement (which shall survive any termination of this
Agreement) and any disclosure made or omitted pursuant to the Private and
Confidential Muzak Limited Partnership Review Document dated July 1991 delivered
to Buyer with respect to the Business, as to which no representation or warranty
is made. This Amendment shall not be amended, modified or supplemented except
by a written instrument signed by an authorized representative of each of the
Parties.
8. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MUZAK LIMITED PARTNERSHIP MLP OPERATING, L.P.
By: FIELD/MUZAK, INC. By: MLP ACQUISITION, L.P.
General Partner Managing General Partner
By: MUSIC HOLDINGS CORP.
By: [SIGNATURE ILLEGIBLE] General Partner
-----------------------
Title: Vice President
and Treasurer
By: [SIGNATURE ILLIGIBLE]
--------------------------
FIELD/MUZAK, INC. Title:
By: [SIGNATURE ILLEGIBLE]
---------------------------
Title: Vice President
and Treasurer
THE FIELD CORPORATION
By: [SIGNATURE ILLEGIBLE]
---------------------------
Title: Vice President
and Treasurer
7
<PAGE>
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
-------------------------------------------
AMENDMENT NO. 2 ("Amendment") dated July 31, 1992, to the Asset Purchase
Agreement, dated as of March 11, 1992, among MUZAK LIMITED PARTNERSHIP, a
Delaware limited partnership ("Seller"), FIELD/MUZAK, INC., a Delaware
corporation ("General Partner"), THE FIELD CORPORATION, a Delaware corporation
("TFC"), and MLP OPERATING, L.P., a Delaware limited partnership ("Buyer"), as
amended pursuant to Section 6.8 thereof by Seller's letter dated April 22, 1992,
and as further amended by Amendment No. 1 thereto, dated as of June 26, 1992
("Purchase Agreement").
WHEREAS, Seller, General Partner, TFC and Buyer (collectively, the
"Parties") have entered into the Purchase Agreement, pursuant to which Buyer
agreed to purchase substantially all the non-cash assets of Seller and to assume
certain liabilities in connection therewith;
WHEREAS, the Parties have agreed to reduce the cash portion of the Purchase
Price, as set forth in Section 2.1 of the Purchase Agreement, from $44,950,000
to $43,450,000;
WHEREAS, in connection with such reduction of the cash portion of the
Purchase Price, the Parties have agreed that the fair market value of the assets
to be transferred to Buyer in consideration of the Priority Partnership Interest
is $8,000,000 rather than $10,000,000;
WHEREAS, the Parties have agreed, in connection with such reduction of the
cash portion of the Purchase Price, to amend the provisions of Section 2.5 of
the Purchase Agreement relating to the Earn-Out Payment to make certain changes
in the manner in which such Earn-Out Payment is to be calculated, as more fully
set forth below, and to limit the maximum amount of such Earn-Out Payment to
$24,000,000;
WHEREAS, concurrently with the execution hereof Buyer has delivered to
Seller Buyer's notification of the extension of the Termination Date pursuant to
Section 11.1 of the Purchase Agreement (as modified by Section 2.E. hereof) to
August 31, 1992;
WHEREAS, the Parties have agreed to (i) amend the definition of "Assumed
Liabilities" as set forth in Section 1.3 of the Purchase Agreement so as to
exclude therefrom Buyer's assumption of Seller's liability and obligation for
the June 30, 1992 payment made by Seller in respect of the Torrance Note and
(ii) amend the definition of "Excluded Liabilities" as set forth in Section 1.4
of the Purchase Agreement so as to include therein Seller's retention of the
liabilities and obligations for the June 30, 1992 payment made by Seller in
respect of the Torrance Note; and
<PAGE>
WHEREAS, the Parties have agreed to modify certain limitations applicable
to Seller's obligations to indemnify Buyer Group members as set forth in Section
10.2 of the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, Seller, General Partner, TFC and Buyer hereby agree as
follows:
1. Unless otherwise provided herein, capitalized terms used herein
shall have the meanings ascribed thereto in the Purchase Agreement, and Article,
Section and clause references refer to the Articles, Sections and clauses of the
Purchase Agreement.
2. The Parties hereby agree to amend the Purchase Agreement as
follows:
A. Purchase Price. The first sentence of Section 2.1 is
--------------
hereby amended to delete the amount "$44,950,000" appearing in
the third line thereof and to insert in lieu thereof the amount
"$43,450,000", and the first sentence of Section 2.4(b) is hereby
amended to delete the amount "$44,950,000" appearing in the fifth
line thereof and to insert in lieu thereof the amount
"$43,450,000".
B. Torrance Note. (i) Section 1.3(ii) is hereby amended
-------------
to add the following phrase after the word "Note" appearing in
the fourth line thereof:
"(other than Seller's liabilities and obligations
for the payment of the $550,000 June 30, 1992
installment (the "Excluded Installment") in
respect of the Torrance Note);
(ii) Section 1.4 is hereby amended to delete the word
"and" at the end of subsection (v) thereof, to add the word "and"
at the end of subsection (vi) thereof, and to add a new
subsection "(vii)" thereto to read in its entirety as follows:
"(vii) liabilities and obligations relating solely to
payment of the Excluded Installment."
(iii) Section 2.3(c) is hereby amended to delete the
amount "2,865,000" from the second, fourth, fifth and seventh
lines thereof, and to insert in lieu thereof the amount
"3,415,000".
C. Earn-Out Payment. The second sentence of Section 2.5(a)
is hereby amended to (i) delete the amount "$11,670,000"
appearing in the twelfth line thereof and
2
<PAGE>
to insert in lieu thereof the amount "$12,000,000", (ii) delete
the amount "$13,330,000" appearing in the thirteenth line thereof
and to insert in lieu thereof the amount "$12,000,000", and (iii)
delete the amount "$25,000,000" appearing in the last line
thereof and to insert in lieu thereof the amount "$24,000,000".
D. Indemnification. The first sentence of Section 10.4 is
---------------
hereby amended to delete the amount "$7,000,000" appearing in the
21st line thereof and to insert in lieu thereof the amount
"$5,500,000".
E. Termination Date. The Parties acknowledge and agree
----------------
that notwithstanding anything to the contrary set forth in
Section 11.1 of the Purchase Agreement, pursuant to Buyer's
notification delivered to Seller concurrently with the execution
hereof (which notification is attached as Exhibit 1 hereto),
accompanied by the letters of Union Bank of Switzerland, New York
Branch, and of Barclays Bank PLC delivered to Seller concurrently
with the execution hereof (which letters are attached as Exhibit
2 hereto), the Termination Date has been extended to August 31,
1992 and Seller, General Partner and TFC hereby waive the
requirements of subclauses (A) and (B) of the second proviso to
the first sentence of Section 11.1
F. Priority Partnership Interest. The first sentence of Section 7.14
-----------------------------
is hereby amended to delete the amount "$10,000,000" appearing in the fifth
and 21st lines thereof and to insert in lieu thereof in each case the
amount "$8,000,000". The form of the Amended Partnership Agreement annexed
as Exhibit E to the Purchase Agreement, as referred to in Section 7.21, is
hereby amended as follows:
(i) the definition of "Agreed Value" set forth in
Article I is hereby amended to delete the phrase "Ten Million
Dollars ($10,000,000)" appearing in the eighth line thereof and
to insert in lieu thereof the phrase "Eight Million Dollars
($8,000,000)";
(ii) the definition of "Class C Liquidation Preference" set forth
in Article I is hereby amended to delete the phrase "Ten Million Dollars
($10,000,000)" appearing in the third line thereof and to insert in lieu
thereof the phrase "Eight Million Dollars ($8,000,000)"; and
(iii) the definition of "Net Agreed Value" set forth
in Article I is hereby amended to delete the phrase "Ten Million
Dollars ($10,000,000)" in the fifth line
3
<PAGE>
thereof and to insert in lieu thereof the phrase "Eight Million
Dollars ($8,000,000)".
G. Non Compete. The Parties agree that the aggregate consideration
-----------
to be reflected on Schedule 1 to the Non-Competition Agreement shall be
$50,000.00.
H. Additional Covenant. A new Section 7.31 shall be added to Article
-------------------
VII of the Agreement to read in its entirety as follows:
"7.31 Tax Matters. The Parties have heretofore discussed and
-----------
considered Seller's contributing certain assets located in the States of
California, New York and Washington to one or more subsidiary partnerships
to be owned by Seller and/or an Affiliate of Seller and transferring 100
percent of the partnership interests in such partnerships and the equity of
such Affiliate to Buyer and/or its designee as part of the Closing. The
Parties shall negotiate in good faith a reasonable resolution of the issues
relating to the implementation of the foregoing transactions prior to
Closing, provided however that Seller shall not be entitled to refuse to
-------- -------
Close and/or terminate this Agreement as a result of failure by the Parties
to reach such resolution as a result of disputes relating to the
reasonableness of the tax reporting position to be taken in any such state
with respect to such transactions unless (i) Seller shall have delivered to
------
Buyer letters from each of Arthur Andersen & Co. and Sidley & Austin (or
other counsel reasonably acceptable to Buyer) with respect to each such
state to the effect that the tax reporting position to be taken in each
such state regarding such transactions is reasonable and (ii)
---
notwithstanding receipt of such letters, Buyer nevertheless refuses to
implement such transactions in such state or Buyer otherwise does not agree
to make Seller economically whole at Closing for the tax effect that would
have been realized had such transactions been effected in such state.
Buyer and Seller agree to share equally the costs of obtaining such
letters."
3. Seller Authority; Enforceability. Each of Seller, General Partner (on
--------------------------------
behalf of Seller and itself) and TFC has the partnership power and authority to
execute, deliver and perform this Amendment. The execution, delivery and
performance of this Amendment by each of Seller, General Partner (on behalf of
Seller and itself) and TFC has been duly authorized and approved by all
requisite corporate and partnership action, as applicable. This Amendment has
been duly authorized, executed and delivered by each of Seller, General Partner
(on behalf of Seller and itself) and TFC and is the legal, valid and binding
obligation of each of Seller, General Partner and TFC, enforceable in accordance
with its terms.
4
<PAGE>
4. Buyer Authority; Enforceability. Buyer has full power and authority to
-------------------------------
execute, deliver and perform this Amendment. The execution, delivery and
performance of this Amendment by Buyer has been duly authorized and approved by
all requisite partnership action. This Amendment has been duly authorized,
executed and delivered by Buyer and is the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms.
5. Purchase Agreement. Except as specifically set forth herein, the
------------------
Purchase Agreement shall remain in full force and effect. On and after the date
hereof, each reference in the Purchase Agreement to "this Agreement", "the
Purchase Agreement", "hereunder", "hereof", or words of like import referring to
the Purchase Agreement, and each reference in every other Seller Ancillary
Agreement or Buyer Ancillary Agreement to the "Purchase Agreement",
"thereunder", "thereof", or other words of like import referring to the Purchase
Agreement, shall mean the Purchase Agreement as amended by this Amendment.
Notwithstanding this Amendment, each reference in the Purchase Agreement to "the
date hereof" or to "the date of this Agreement" shall be deemed to refer to
March 11, 1992 and not to the date of this Amendment.
6. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
7. Entire Agreement; Amendments. This Amendment and the Exhibit referred
----------------------------
to herein, together with the Purchase Agreement, contain the entire
understanding of the parties hereto with regard to the subject matter contained
herein or therein, and supersede all prior agreements or understandings between
or among any of the parties hereto, including the letter of intent (the "Letter
of Intent") dated December 20, 1991 among Seller, TFC and CCI, as amended, the
Confidentiality Agreement (which shall survive any termination of this
Agreement) and any disclosure made or omitted pursuant to the Private and
Confidential Muzak Limited Partnership Review Document dated July 1991 delivered
to Buyer with respect to the Business, as to which no representation or warranty
is made.
5
<PAGE>
This Amendment shall not be amended, modified or supplemented except by a
written instrument signed by an authorized representative of each of the
Parties.
8. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MUZAK LIMITED PARTNERSHIP MLP OPERATING, L.P.
By: FIELD/MUZAK, INC. By: MLP ACQUISITION, L.P.
General Partner Managing General Partner
By: MUSIC HOLDINGS CORP.
By:_________________________ General Partner
Title:
/s/ Mark E. Jennings
By:---------------------------
FIELD/MUZAK, INC. Title: Vice President
By:_________________________
Title:
THE FIELD CORPORATION
By:_________________________
Title:
6
<PAGE>
This Amendment shall not be amended, modified or supplemented except by a
written instrument signed by an authorized representative of each of the
Parties.
8. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of New York.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MUZAK LIMITED PARTNERSHIP MLP OPERATING, L.P.
By: FIELD/MUZAK, INC. By: MLP ACQUISITION, L.P.
General Partner Managing General Partner
/s/ Ronald J. Smith By: MUSIC HOLDINGS CORP.
By:------------------------- General Partner
Title: Vice President
By:___________________________
FIELD/MUZAK, INC. Title:
/s/ Ronald J. Smith
By:-------------------------
Title: Vice President
THE FIELD CORPORATION
/s/ Ronald J. Smith
By:-------------------------
Title: Vice President
6
<PAGE>
Amendment No. 3 To Asset Purchase Agreement
-------------------------------------------
AMENDMENT NO. 3 ("Amendment") dated as of August 26, 1992, to the Asset
Purchase Agreement ("Purchase Agreement") dated as of March 11, 1992, among
Muzak Limited Partnership, a Delaware limited partnership ("Seller"),
Field/Muzak, Inc., a Delaware corporation ("General Partner"), The Field
Corporation, a Delaware corporation ("TFC"), and MLP Operating, L.P., a Delaware
limited partnership ("Buyer"), as amended pursuant to Section 6.8 thereof by
Seller's letters dated April 22, 1992 and August 20, 1992, and as further
amended by Amendment No. 1 thereto dated as of June 26, 1992 and Amendment No. 2
thereto dated July 31, 1992 ("Purchase Agreement"), and solely for the purposes
of Sections 2.A, 2.G(a) and 2.V of this Amendment, Muzak Investment Partners,
L.P., a limited partnership organized under the laws of Delaware ("MIP"), and
solely for the purposes of Sections 2.U and 3 of this Amendment, MLP
Communications Company, a general partnership formed under the laws of the State
of Washington (the "FCC Partnership").
WHEREAS, Seller, General Partner, TFC and Buyer (collectively, the
"Parties") have entered into the Purchase Agreement, pursuant to which Buyer
agreed to purchase substantially all the non-cash assets of Seller and to assume
certain liabilities in connection therewith;
WHEREAS, in order to facilitate the transactions contemplated by the
Purchase Agreement, the Parties desire to amend the Purchase Agreement to
reflect, among other things, (i) the Transfer of certain of the Purchased Assets
from Seller to certain general partnerships owned by Seller and Melody, Inc. of
Delaware ("Corporate Partner"), a Delaware corporation and a wholly owned
subsidiary of Seller; particularly, concurrently with the execution hereof
Seller is Transferring the Purchased Assets identified in Exhibit A hereto (the
"Specified Assets") to the respective partnerships set forth in Exhibit A hereto
(the "Subsidiary Partnerships") pursuant to the respective Transfer Agreements
referenced in Item 2 of Exhibit A hereto (the "Transfer Agreements") and (ii)
the Transfer by Seller to MIP of Seller's general partnership interests (the
"California GP Interests") in Melody California Partnership and the subsequent
Transfer at Closing by MIP to Buyer of the California GP Interests pursuant to
the transfer agreement referenced in Item 3 of Exhibit A hereto (the "GP
Transfer Agreement");
WHEREAS, Seller owns all of the outstanding shares (the "Shares") of common
stock, par value $.01 per share, of the Corporate Partner;
WHEREAS, Seller and Corporate Partner own all of the general partner
interests (the "GP Interests") in each of the Subsidiary Partnerships, in the
respective percentages set forth in Exhibit A hereto and for the capital
contributions set forth in said
<PAGE>
Exhibit A (being the Specified Assets in the case of Seller and being cash in
the case of the Corporate Partner) and pursuant to the respective Partnership
Agreements of each Subsidiary Partnership referenced in Exhibit A hereto;
WHEREAS, in connection with the foregoing Transfer of Specified Assets to
the Subsidiary Partnerships, Seller desires to Transfer to Buyer, and Buyer
desires to purchase from Seller, the GP Interests and the Shares owned by Seller
and to purchase from MIP the California GP Interests to be owned by MIP;
WHEREAS, the Parties further desire to amend the Purchase Agreement to
reflect the Transfer by Seller to the FCC Partnership, all of the general
partner interests of which are owned by MLP Acquisition and the Administrative
General Partner in the respective percentages set forth in Exhibit B hereto, of
the Purchased Assets set forth in Exhibit B hereto (the "FCC Assets"), other
than the "Applications" identified in Section C. of said Exhibit B;
WHEREAS, the Parties desire to amend the Purchase Agreement to replace the
form of Management Option Plan set forth in Schedule 5.5 to the Purchase
Agreement with the form of Management Option Plan attached as Exhibit E hereto
and to supplement, amend and modify certain of the other items included in said
Schedule 5.5; and
WHEREAS, the Parties desire to implement certain modifications to clarify
the methodology for the calculation of the Closing Payment, the Earn-Out Payment
and certain other payments to be made to Seller and/or Buyer so as to
accommodate the Closing occurring on September 4, 1992.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Parties hereby agree as follows:
1. Unless otherwise defined herein, all capitalized terms used herein
shall have the meanings ascribed to them in the Purchase Agreement, and Article,
Section and clause references refer to the Articles, Sections and clauses of the
Purchase Agreement.
2. The Parties hereby agree to amend the Purchase Agreement as follows:
A. The GP Interests and the Shares owned by Seller and the California
GP Interests to be owned by MIP shall be included as "Purchased Assets" for all
purposes of the Purchase Agreement and the term "Business" shall for all
purposes include the Specified Assets, cash and operations of the Subsidiary
Partnerships and Corporate Partner (it being understood that such Specified
Assets and cash are not being directly Transferred to Buyer by Seller, and it
being further understood that nothing herein shall derogate from Buyer's and
Seller's respective obligations under Section 1.7 of the Purchase Agreement). In
this regard, but not in limitation of the foregoing, (i) the first "WHEREAS"
clause of the Purchase Agreement is hereby amended to add the phrase "directly
and indirectly through the Subsidiary Partnerships" after the word "Seller" in
the first line thereof;
2
<PAGE>
(ii) Section 1.1 of the Purchase Agreement is hereby amended as follows: the
phrase ", and in the case of the California GP Interests, MIP shall Transfer to
Buyer, and Buyer shall purchase and acquire from MIP the California GP
Interests" shall be added after the word "Seller" in the sixth line of said
Section 1.1; (iii) the phrase ", and in the case of the California GP Interests,
all of MIP's right, title and interest," shall be added after the word
"Seller's" in the eighth and fifteenth lines of said Section 1.1; (iv) the
phrase "and in the case of the California GP Interests by MIP" shall be added
after the word "Seller" in the eleventh line of said Section 1.1; and (v) the
word "and" at the end of clause (xx) shall be deleted, a new clause (xxi) shall
be added to read in its entirety as follows: "the GP Interests and the Shares
owned by Seller and the California GP Interests to be owned by MIP, and", clause
"(xxi)" shall be renumbered as clause "(xxii)" and "(xxi)" shall be substituted
for the last roman numeral (i.e., "(xx)") in such clause.
----
B. For all intents and purposes of the Purchase Agreement, all
references to the Transfer of Purchased Assets to Buyer shall, to the extent
applicable to the FCC Assets, mean the transfer thereof to the FCC Partnership,
and all references to Assumed Liabilities to be assumed by Buyer shall, to the
extent applicable to the FCC Assets, mean assumption thereof by the FCC
Partnership. In this regard, but not in limitation of the foregoing, the phrase
"or, in the case of the "FCC Assets" (as defined in Schedule 7.29 hereto), to
the FCC Partnership" shall be added after the word "Buyer" in the fifth line of
Section 1.1 of the Purchase Agreement, and the phrase ", or in the case of the
FCC Assets, the FCC Partnership" shall be added after the word "Buyer" in the
sixth line of said Section 1.1.
C. Section 2.5(d)(i) is hereby amended to add the phrase "or to
secure the "Specified Debt" (as such term is defined in the Amended Partnership
Agreement)" after the word "business" in the third line thereof. Section
2.5(d)(v) is hereby amended (i) to add the phrase "Unless Seller or the holders
of the Earn-Out Note consent thereto," before the word "Buyer" in the first line
thereof, (ii) to add the phrase "(which for purposes of this sentence only shall
include the "Put/Call Units", as such term is defined in the Amended Partnership
Agreement)" after the word "interests" in the fourth line thereof, (iii) to add
the phrase ", including for these purposes options issuable under the Management
Option Plan" after the word "Date" in the ninth line thereof, (iv) to add the
phrase "and (z) distributions by any Subsidiary to the Buyer" after the
reference "(y)" in the last line of said first sentence, and (v) to add the
phrase "(or their Affiliates)" after the word "financing" in the 13th line of
the second sentence thereof and to add the phrase ", including without
limitation the Put/Call Units and/or securities contemplated by Section 11.01
(f) of the Amended Partnership Agreement pursuant to the conversion and
3
<PAGE>
issuance provisions thereof" after the word "thereof" in the last line of the
second sentence thereof.
D. Section 1.3 is hereby amended to delete the word "and" at the end
of clause (viii) thereof, to renumber existing clause "(ix)" as clause "(x)",
and to add a new clause (ix) to read in its entirety as follows: "(ix)
liabilities and obligations of the Subsidiary Partnerships and/or of the
Corporate Partner arising or accruing from and after the Closing Date other than
sales, use or other similar Taxes to the extent provided in Section 1.7."
E. Section 1.4 is hereby amended to delete the word "and" at the end
of clause (v) thereof, to renumber existing clause "(vi)" as clause "(vii)", and
to add a new clause (vi) to read in its entirety as follows: "(vi) liabilities
and obligations of the Subsidiary Partnerships and/or of the Corporate Partner
arising or accruing prior to the Closing Date other than sales, use or other
similar Taxes to the extent provided in Section 1.7."
F. (a) The phrase "and, if applicable to the FCC Assets, the FCC
Partnership" shall be added after the word "Buyer" in the fourth line of Section
1.3, and in each place such word appears in Sections 1.5 and 1.6.
(b) Section 1.7 is hereby amended (i) to add the word "similar"
after the word "other" in the third line thereof and (ii) to add the following
sentence after the first sentence thereof: "Seller, on the one hand, and Buyer,
on the other hand, also shall each be responsible for one-half (1/2) of all
sales, use or other similar Taxes imposed on the Seller's contribution of the
Specified Assets to the respective Subsidiary Partnerships or on a liquidating
distribution of the Specified Assets by the respective Subsidiary Partnerships
to the partners therein."
G. (a) Seller and MIP hereby request, and Buyer hereby agrees, that
the portion of the Purchase Price allocable pursuant to Section 2.2. to the
California GP Interests (which portion shall be equal to the amount of the
capital contribution made by Seller therefor as set forth in Exhibit A hereto)
payable to MIP as consideration for MIP's Transfer thereof to Buyer shall be
paid by Buyer directly to Seller's account as designated in the wire transfer
instructions delivered to Buyer by Seller pursuant hereto and Seller hereby
agrees to promptly deliver such portion of the Purchase Price to MIP.
(b) For all purposes of Sections 2.3 and 2.4 of the Purchase
Agreement, all calculations made pursuant to said sections will be prepared on a
consolidated basis (i) prior to the Closing Date, treating the Specified Assets
and cash of the Corporate Partner and the Subsidiary Partnerships as if directly
owned by Seller, and as of and following the Closing Date, treating the
Specified Assets and cash of the Corporate Partner and the
4
<PAGE>
Subsidiary Partnerships as if directly owned by Buyer, and (ii) as of and
following the Closing Date, treating the FCC Partnership as if wholly owned by
Buyer and the FCC Assets as if directly wholly owned by Buyer, in each case
contemplated by this clause (ii) without regard to the interests therein of MLP
Acquisition and the Administrative General Partner.
(c) Notwithstanding anything in the Agreement to the contrary,
the Purchase Price shall be increased by an amount equal to all cash of the
Corporate Partner and the Subsidiary Partnerships owned by such entities at the
Closing. In this regard, (i) Section 2.3(b) is hereby amended to add the phrase
"and any cash of the Corporate Partner and the Subsidiary Partnerships owned by
such entities at the Closing shall be reflected as assets on the Closing Date
Balance Sheet" after the word "Sheet" appearing in the last line of said Section
2.3(b) and (ii) Section 2.4(a) is hereby amended to add the phrase "and any cash
of the Corporate Partner and the Subsidiary Partnerships owned by such entities
at the Closing shall be reflected as assets on the Estimated Balance Sheet"
after the word "Sheet" appearing in the last line of said Section 2.4(a).
H. Section 3.2 is hereby amended as follows:
a. The word "and" shall be deleted from the end of clause (r) and
a new clause (t) shall be added as follows: "(t) documentation evidencing the
Transfer to Buyer of all of the GP Interests (including, without limitation, the
California GP Interests), and stock certificates evidencing the Shares together
with stock transfer powers executed in blank";
b. A new clause "(u)" shall be added as follows: "(u) certified
copies of the resolutions of the Board of Directors of Corporate Partner in
connection with the matters contemplated hereby to be performed by it, a
certificate of legal existence, good standing and tax good standing of the
Corporate Partner issued as of a recent date by the Secretary of State of the
State of Delaware, certificates of good standing and tax good standing of each
jurisdiction in which Corporate Partner is qualified to transact business, and
incumbency and specimen signature certificates dated the Closing Date with
respect to the officers of Corporate Partner executing any agreement
contemplated hereby to be executed by it"; and
c. A new clause "(v)" shall be added as follows: "(v) official
evidence of legal existence and related matters of each Subsidiary Partnership
issued as of a recent date with respect to each respective jurisdiction of
formation of each Subsidiary Partnership; executed copies of the Partnership
Agreement of each Subsidiary Partnership and the Transfer Agreement relating to
the Transfer of Specified Assets to each Subsidiary Partnership and the Transfer
Agreement relating to the Transfer of the California GP
5
<PAGE>
Interests to MIP in each case certified by the President or Vice President of
General Partner on behalf of Seller as being a true, correct and complete copy
of the applicable agreement, and stating that each such agreement is in full
force and effect as at the Closing and that there are no other agreements or
arrangements relating to the Subsidiary Partnership and/or the Specified Assets
and/or the California GP Interests to which Seller, MIP, Corporate Partner or
any of the Subsidiary Partnerships are party or by which any of their assets are
bound that have not been previously disclosed to Buyer."
I. Section 3.3 is hereby amended as follows:
a. The word "and" shall be deleted from the end of clause (h),
clause (i) shall be renumbered as clause "(k)" and new clauses "(i)" and "(j)"
shall be added as follows:
"(i) certified copies of the resolutions of the Board
of Directors of the Administrative General Partner in connection
with the matters contemplated hereby to be performed by it, a
certificate of legal existence, good standing and tax good
standing of the Administrative General Partner issued as of a
recent date by the Secretary of State of the State of Delaware
and incumbency and specimen signature certificates dated the
Closing Date with respect to the officers of Administrative
General Partner executing any agreement contemplated hereby to be
executed by it."
"(j) official evidence of legal existence and related
matters of the FCC Partnership issued as of a recent date with
respect to the jurisdiction of formation of the FCC Partnership
and certificates of good standing and tax good standing of each
jurisdiction in which the FCC Partnership is qualified to
transact business and incumbency and specimen signature
certificates dated the Closing Date with respect to the officers
and/or partners of the FCC Partnership executing any agreement
contemplated hereby to be executed by it."
J. Section 4.2 is hereby amended and restated in its entirety to
provide as follows:
"4.2. SUBSIDIARIES AND INVESTMENTS. Except for Marketable
----------------------------
Securities, the German Licensee Shares, the GP Interests owned by
Seller as set forth in Schedule 4.36 hereto and the Shares,
Seller does not own, directly or indirectly, of record or
beneficially, any outstanding voting securities or other equity
interests in any corporation, partnership, joint venture or other
entity."
6
<PAGE>
K. The first sentence of paragraph (b) of Section 4.5 is hereby
amended and restated in its entirety to provide as follows: "Except (x) as set
forth in Schedule 4.5(b), (y) for the Transfer of the Specified Assets to the
Subsidiary Partnerships as set forth in Schedule 4.36 and (z) the subscription
for and additional contributions in respect of the Shares, since the October
Balance Sheet Date Seller has conducted the Business only in the ordinary
course."
L. For all intents and purposes of Sections 4.5(b), 4.13 and 4.19,
all references to the "Business" and/or the "Purchased Assets", shall, to the
extent applicable to the Specified Assets, also mean and include the Specified
Assets. In this regard, but not in limitation of the foregoing, the phrase
"and, in the case of the Specified Assets, the applicable Subsidiary
Partnership" shall be added after the word "Seller" (i) in the second sentence
of Section 4.5(b), (ii) in the second line of Section 4.13 and (iii) in each
place such word appears in Section 4.19.
M. The first sentence of paragraph (a) of Section 4.19 is hereby
amended to add the following clause after the parentheses in the sixth line
thereof: "and for matters related to the Transfer of the Specified Assets to
the Subsidiary Partnerships as set forth in Schedule 4.36 hereto and the
Transfer of the California GP Interests to MIP".
N. The first line of Section 4.25 is hereby amended to add the
following clause after the words "Schedule 4.25" therein: "and for matters
related to the Transfer of the Specified Assets to the Subsidiary Partnerships
as set forth in Schedule 4.36 hereto and the Transfer of the California GP
Interests to MIP".
O. Article IV of the Purchase Agreement is hereby amended by adding
the following representations and warranties:
a. "4.33. ORGANIZATION OF SUBSIDIARY PARTNERSHIPS, CORPORATE
--------------------------------------------------
PARTNER AND MIP. Each of the Subsidiary Partnerships is a partnership duly
- ---------------
formed by Seller and the Corporate Partner pursuant to the laws of the state in
which it is formed as set forth in Schedule 4.36 hereto and has full power and
authority to own or lease and to operate and use its properties and assets and
to carry on its business as now conducted. The Corporate Partner is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Corporate Partner is duly qualified to transact
business as a foreign corporation and is in good standing in each of the states
of California, New York and Washington. MIP is a limited partnership duly formed
pursuant to the laws of Delaware and has full power and authority to acquire,
own and Transfer the California GP Interests. MIP has never made retail sales in
the State of California and is not required to hold and does not hold a retail
seller's permit under Section 6006.5 of the California Sales and Use Tax Law."
7
<PAGE>
b. "4.34. SUBSIDIARY PARTNERSHIP INTERESTS AND SHARES. The
-------------------------------------------
Shares are duly authorized, validly issued and outstanding and fully paid and
non-assessable and are not subject to preemptive rights. The Corporate Partner
has the power and authority to own the GP Interests owned by it."
c. "4.35. NO PRIOR ACTIVITIES; NO SUBSIDIARIES. Neither any of
------------------------------------
the Subsidiary Partnerships nor the Corporate Partner has (a) incurred, nor will
it incur prior to the Closing, directly or indirectly, any liabilities or
obligations, and there are no lawsuits, claims, suits, audits, proceedings or,
to the knowledge of Seller, investigations pending or threatened, against any of
the Subsidiary Partnerships or the Corporate Partner, (b) any employees, (c)
engaged in any business activity or transaction, or (d) entered into any
agreement or arrangement with any Person, except, (x) in connecti on with its
------
organization and the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby to be performed by it and
(y) in the case of clauses (c) and (d) of this Section 4.35, for ownership of
the Specified Assets owned, held, used or disposed of by such Subsidiary
Partnership as contemplated hereby (and in the case of the Corporate Partner,
ownership of its GP Interests in each of the Subsidiary Partnerships) and the
making available to Seller of such Specified Assets for use in the Business.
Neither any of the Subsidiary Partnerships nor the Corporate Partner owns,
directly or indirectly, of record or beneficially, any outstanding voting
securities or other equity interests in any corporation, partnership, joint
venture or other entity (other than in the case of the Corporate Partner, its GP
Interests in the Subsidiary Partnerships) or has Transferred any Specified
Assets to any other Person other than in the ordinary course of business."
d. "4.36. CAPITALIZATION OF THE SUBSIDIARY PARTNERSHIPS AND
-------------------------------------------------
CORPORATE PARTNER. The GP Interests constitute all of the outstanding equity
- -----------------
interests in the Subsidiary Partnerships and the Shares constitute all of the
outstanding equity interests of the Corporate Partner. There are no outstanding
options, warrants, preemptive rights or other rights convertible into equity
interests or to subscribe for equity interests in any of the Subsidiary
Partnerships or the Corporate Partner, or any agreements, commitments or
understandings with respect to the foregoing, other than as contemplated hereby.
Each of Seller and Corporate Partner owns the GP Interests owned by it as set
forth in Schedule 4.36, and Seller owns the Shares, free and clear of all
Encumbrances other than Permitted Encumbrances (provided that, for purposes of
this Section 4.36, Permitted Encumbrances shall not include any mechanics',
materialmen's and similar liens) or as otherwise set forth on Schedule 4.36
hereto. The Seller has transferred the Specified Assets to each of the
respective Subsidiary Partnerships and the Corporate Partner has made the cash
capital contribution in each case as set forth in
8
<PAGE>
Exhibit A hereto, and each of the Subsidiary Partnerships owns the Specified
Assets owned by it as set forth in Schedule 4.36 hereto, free and clear of all
Encumbrances except Permitted Encumbrances (provided that, for purposes of this
Section 4.36, Permitted Encumbrances shall not include any mechanics',
materialmen's and similar liens); in this regard, all parties who prior to the
Transfer of the Specified Assets to the Subsidiary Partnerships had any security
interest in respect of the Specified Assets have released said security interest
and have waived until the earlier of the Closing or a date which is not later
than 8 days after such Transfer any "Default" or "Potential Default" relating to
such Transfer of the Specified Assets arising under the loan and/or security
documentation (as each such term is defined therein) with respect to which such
security interest was created."
e. "4.37. AUTHORITY OF SELLER, CORPORATE PARTNER, MIP AND
-----------------------------------------------
SUBSIDIARY PARTNERSHIPS. The execution, delivery and performance by Seller,
- -----------------------
Corporate Partner, MIP and each Subsidiary Partnership of all agreements
relating to or in connection with (i) in the case of the Seller, MIP and/or the
Corporate Partner, its respective ownership of the GP Interests owned by it, or
in the case of MIP to be owned by it, as set forth in Schedule 4.36 hereto
including, without limitation, the Partnership Agreement of each Subsidiary
Partnership, and (ii) in the case of the Seller and each of the Subsidiary
Partnerships, the respective Transfer and ownership of the Specified Assets
owned by each Subsidiary Partnership as set forth in Schedule 4.36 hereto,
including, without limitation, the Transfer Agreement between Seller and each
Subsidiary Partnership relating to the Specified Assets owned by such Subsidiary
Partnership, and (iii) in the case of Seller and MIP, the Transfer to MIP of the
California GP Interests, including, without limitation, the GP Transfer
Agreement have been duly authorized and approved by all requisite corporate or
partner actions, as applicable. The Partnership Agreement of each Subsidiary
Partnership has been duly authorized, executed and delivered by each of Seller
and the Corporate Partner (and, in the case of Melody California Partnership, by
MIP effective as of August 29, 1992), the Transfer Agreement relating to the
Transfer of Specified Assets owned by each Subsidiary Partnership has been duly
authorized, executed and delivered by Seller and the applicable Subsidiary
Partnership, and the GP Transfer Agreement has been duly authorized, executed
and delivered by Seller and MIP, and each such Partnership Agreement, Transfer
Agreement and GP Transfer Agreement is in full force and effect, is the legal,
valid and binding obligation of Seller, of MIP, of Corporate Partner and each
Subsidiary Partnership, as applicable to the extent they are each parties
thereto, enforceable in accordance with its terms."
P. Except as otherwise set forth herein, each of the representations
and warranties set forth in Article IV of the Purchase Agreement in respect of
any of the Purchased Assets previously owned by Seller prior to the Transfer
thereof to the
9
<PAGE>
Subsidiary Partnerships as contemplated hereby and thereafter constituting the
Specified Assets shall apply to such Specified Assets after such Transfer as if
such Specified Assets continued to be Purchased Assets owned directly by the
Seller.
Q. Article V of the Purchase Agreement is hereby amended by adding
the following representations and warranties:
"5.9. ORGANIZATION AND OWNERSHIP OF FCC PARTNERSHIP. The
---------------------------------------------
FCC Partnership is a partnership duly formed by MLP Acquisition
and the Administrative General Partner under the laws of Delaware
and has full power and authority to own and lease and operate and
use the FCC Assets and to carry on its business as proposed to be
conducted. The FCC Partnership is duly qualified to transact
business in each of Washington, Oregon, Massachusetts and
Minnesota.
"5.10. NO PRIOR ACTIVITIES; NO SUBSIDIARIES. The FCC
------------------------------------
Partnership has not (a) incurred, nor will it incur prior to the
Closing Date, directly or indirectly, any liabilities or
obligations, (b) engaged in any business activity or transaction,
or (c) entered into any agreement or arrangement with any Person,
except, in any such case, in connection with its organization and
the performance of its obligations hereunder and the consummation
of the transactions contemplated hereby to be performed by it."
R. Article VI of the Purchase Agreement is hereby amended to add
thereto a new Section 6.11, to read in its entirety as follows:
"6.11 ACQUISITION, DISPOSITION AND USE OF SPECIFIED ASSETS.
----------------------------------------------------
(i) If at any time following the date hereof and prior to the
Closing Date Seller shall acquire any tangible personal property
of a nature comparable to a Specified Asset and which is located
in any of California, New York or Washington, and such
acquisition is otherwise permitted pursuant to the Purchase
Agreement, Seller may contribute such asset to such Subsidiary
Partnership as is located in the state in which such asset is
located, and Schedule 4.36 hereto shall be appropriately amended
to reflect the contribution of such asset and the adjustment of
Seller's and Corporate Partner's respective GP Interests in such
Subsidiary Partnerships.
(ii) If after the date hereof and prior to the Closing
Date any of the Subsidiary Partnerships disposes of any asset
owned by such Subsidiary Partnership, provided, that such
--------
disposition is otherwise permitted
10
<PAGE>
pursuant to the Purchase Agreement (for this purpose, treating
such asset as if such asset were then directly owned by Seller),
such Subsidiary Partnership may distribute the proceeds of such
disposition to Seller and the Corporate Partner in accordance
with their respective GP Interests in such Subsidiary Partnership
as reflected on Schedule 4.36 hereto. Any such asset so disposed
of shall no longer constitute a Specified Asset.
(iii) Seller shall cause the Corporate Partner and each
of the Subsidiary Partnerships to make their respective Specified
Assets available without charge to Seller for use in the Business
from the date hereof through and including the Closing Date and
shall execute such documentation as is reasonably satisfactory to
Buyer to evidence the foregoing. Seller has obtained insurance
coverage for the Subsidiary Partnerships, at Seller's expense, if
any, in form, coverage and substance meeting the standard
established by Section 4.23."
S. a. Clause (ii) of paragraph (a) of Section 6.4 is hereby amended
and restated in its entirety to provide as follows: "(ii) Seller shall not, nor
shall it attempt to, nor shall Seller cause or permit any of the Subsidiary
Partnerships to, sell, attempt to sell, agree to sell or Transfer, encumber, or
agree or attempt to encumber, any interest in the Business or the Purchased
Assets and/or the Specified Assets, except (x) in the ordinary course of
business, (y) as otherwise permitted pursuant hereto and (z) for the Transfer of
the Specified Assets to the Subsidiary Partnerships;".
b. Clause (ix) of Section 6.4 is hereby amended to add the
following clause after the word "Seller" in the third line thereof: ", other
than in connection with the Transfer of the Specified Assets in connection with
the capitalization of the Subsidiary Partnerships as contemplated hereby and the
Transfer of the California GP Interests to MIP".
T. Section 7.25 of the Agreement is hereby amended to add the
following phrase before the word "At" in the first line thereof: "Except for
arrangements expressly disclosed in writing to Buyer prior to the Closing and on
terms satisfactory to Buyer,".
U. Pursuant to that certain letter agreement dated March 11, 1992
among the Parties, as renewed pursuant to the Letter Agreement dated July 31,
1992 among the Parties (the "FCC Letter"), Seller and Buyer have arranged for
certain matters relating to the construction and operation of certain radio
station facilities ("Facilities") relating to the "Applications" (as defined in
the FCC Letter and as set forth in Exhibit B hereto). Notwithstanding the FCC
Letter, the parties hereto agree that paragraph 3 of the FCC Letter shall read
in its entirety as follows:
11
<PAGE>
"Upon completion of a Facility, Seller, Buyer and the FCC
Partnership shall (i) execute an FCC Application and all other
documents necessary to obtain the consent of the FCC to the
assignment to the FCC Partnership of the channel capacity under
the License relating to such Facility and (ii) execute a long
term lease for the channel capacity under the License and the
Facility relating to such License. Each such lease shall be in
form and substance reasonably satisfactory to Buyer and Seller
and shall provide for (a) rental payments of $1 per month from
the FCC Partnership to Seller, (b) the purchase by the FCC
Partnership of the License and Facility covered by such lease for
the purchase price of $1 at any time during the term of the lease
and in conformity with applicable law, and (c) the purchase by
Buyer of the License and Facility covered by such lease for the
purchase price of $1 upon the terms provided in such lease."
Capitalized terms used in this Section U. and not otherwise defined shall have
the meaning ascribed thereto in the FCC Letter.
V. A new Section 7.32 is hereby added to Article VII to read in its
entirety as follows:
"7.32 TRANSFER OF LIMITED PARTNERSHIP INTEREST IN MELODY
--------------------------------------------------
CALIFORNIA PARTNERSHIP. Not later than August 29, 1992, Seller
----------------------
shall distribute to MIP all of the California GP Interests,
pursuant to the terms of the Transfer Agreement relating thereto
set forth on Exhibit A hereto. At Closing, MIP shall Transfer to
Buyer all of such California GP Interests, free and clear of all
Encumbrances other than Permitted Encumbrances (provided that for
purposes of this Section 7.32, Permitted Encumbrances shall not
include any mechanics', materialmen's and similar liens)."
W. Except as otherwise set forth in this Amendment, each of the
covenants and agreements of Seller set forth in Articles VI and VII of the
Purchase Agreement shall apply to the Subsidiary Partnerships and Corporate
Partner to the extent applicable to the Specified Assets, and any such covenant
and agreement made in respect of any of the Purchased Assets previously owned by
Seller prior to the Transfer thereof to the Subsidiary Partnerships as
contemplated hereby and thereafter constituting the Specified Assets shall apply
to such Specified Assets as if such Specified Assets continued to be Purchased
Assets directly owned by Seller.
X. Section 8.11 of the Purchase Agreement is hereby amended to read
in its entirety as follows:
12
<PAGE>
"8.11 RESIGNATIONS AND RELEASES. Seller shall have executed and
-------------------------
delivered, and/or caused to be executed and delivered, to Buyer (i)
resignations of and releases of liability (for the benefit of Corporate
Partner and other parties specified in such release) from each of the
officers, directors and shareholders of Corporate Partner and (ii) releases
of liability (for the benefit of Corporate Partner, the Subsidiary
Partnerships and other parties specified in such release) from each of
Seller and MIP regarding their respective partnership interests in any of
the Subsidiary Partnerships."
Y. Section 10.1(a)(i) is hereby amended to add the phrase "4.33, the
second and third sentences of Section 4.36, 4.37" after the reference "4.3" in
the second line thereof and to add the reference "5.9" after the reference "5.2"
in the second line thereof.
Z. A new Schedule 4.36 is hereby added to the Purchase Agreement, to
read in its entirety as set forth in Exhibit A hereto. A new Schedule 7.29 is
hereby added to the Purchase Agreement, to read in its entirety as set forth in
Exhibit B hereto. The form of Management Option Plan set forth in Schedule 5.5
is hereby deleted and replaced in its entirety by Exhibit D hereto. The equity
commitments set forth in Schedule 5.5 contemplated by the first sentence of
Section 5.5 are hereby deleted and replaced in their entirety by the equity
commitments set forth as Exhibit E hereto. The commitment of Barclays Bank PLC
set forth in Schedule 5.5 contemplated by the second sentence of Section 5.5 is
hereby amended, supplemented, and modified by the terms of the commitment of
Barclay's Bank PLC attached as Exhibit F hereto, which Exhibit F is hereby added
to Schedule 5.5, and in this regard the number "$10,000,000" appearing in the
fourth line of Section 5.5 is hereby changed to "$7,500,000". Schedule 5.5 is
hereby further amended to add thereto (i) the Barclays Put/Call Option Agreement
and (ii) the Barclays Registration Rights Letter Agreement, in the respective
forms thereof attached as Exhibit G hereto. The Commitment Letter from Union
Bank of Switzerland ("UBS") set forth in Schedule 5.5 contemplated by the fourth
sentence of Section 5.5 is hereby amended, supplemented and modified by the
terms of the commitment of UBS set forth as Exhibit H hereto, which Exhibit H is
hereby added to Schedule 5.5, and in this regard the number "$40,000,000"
appearing in the fifteenth line of said Section 5.5 is hereby changed to
$33,500,000". The form of Amended Partnership Agreement attached as Exhibit E
to the Agreement is hereby deleted and replaced in its entirety by Exhibit I
hereto. The Parties hereby agree that the form of confidentiality agreement
agreed upon pursuant to Section 12.1(c) of the Purchase Agreement and Section
16.03 of the Amended Partnership Agreement shall be as set forth in Exhibit B to
the Amended Partnership Agreement. The form of Earn-Out Note attached
13
<PAGE>
as Exhibit A to the Purchase Agreement is hereby deleted and replaced in its
entirety by Exhibit J hereto.
AA. The Parties hereby agree to amend the definition of "Transfer
Event" in the Purchase Agreement to add the phrase: "(x) the Buyer to secure
any indebtedness of the holder of such partnership interest to the Buyer
incurred in connection with the purchase of such partnership interest and (y)"
after the word "to" in the nineteenth line of such definition.
BB. The Parties have further determined to extend the Termination Date
and to make certain other modifications and amendments to the Agreement as set
forth below:
1. The Termination Date is hereby extended to be, and hereby is
established as, September 4, 1992.
2. The Parties acknowledge that, notwithstanding Section 3.1, the
Closing Date is anticipated to be the earlier of September 4, 1992 or such other
date prior thereto as the Parties shall mutually agree, but that notwithstanding
anything to the contrary in the Agreement, the Parties intend for August 31,
1992 to be the date as of which calculations are to be made and measuring
periods to commence for purposes of calculating the Closing Payment and
adjustments thereto and the calculations to be made in respect of the Earn-Out
Payment (collectively, the "Economic Calculations"). In this regard, the
Parties hereby agree that each and every reference in Sections 2.3, 2.4 and 2.5
of the Agreement to the "Closing Date" and/or any defined term in said sections
referencing the phrase "Closing Date" as used in such term shall be interpreted
to reference August 31, 1992 (i.e., for purposes of the above referenced
----
sections "Closing Date" means "August 31, 1992"), provided, that the
modification described in this paragraph BB. 2. shall not apply to Section
2.5(d).
Notwithstanding the foregoing, interest, if any, on the
amounts determined pursuant to paragraph BB. 5. hereof (including the interest
components thereof) shall for purposes of Section 2.4 accrue from September 4,
1992.
3. Notwithstanding paragraph BB. 2 above, the Parties
acknowledge that the Economic Calculations shall in no way derogate from the
obligations of (i) Seller to deliver all Seller's right, title and interest in
and to the Purchased Assets as at the Closing Date and to retain all the
Excluded Liabilities as at the Closing Date and (ii) Buyer to purchase all
Seller's right, title and interest in and to the Purchased Assets as at the
Closing Date and to assume all the Assumed Liabilities as of the Closing Date.
In this regard, Seller agrees to promptly deliver to Buyer any proceeds received
by Seller under any insurance policy contemplated by Section 4.23 regarding any
event contemplated by Section 4.23 occurring during the "Holding Period" (as
defined below) with
14
<PAGE>
respect to the Purchased Assets other than proceeds received relating to
Excluded Liabilities.
4. (a) Notwithstanding anything to the contrary set forth
herein, at Closing Seller shall be entitled to retain as an Excluded Asset its
cash, cash equivalents, bank deposits (including deposited but uncleared funds)
and Marketable Securities (collectively, "Cash"), otherwise than as expressly
provided for in this Amendment in respect of the Subsidiary Partnerships and the
Corporate Partner, in an amount (the "August Base Amount") equal to Seller's
Cash as at the close of business on August 31, 1992 determined in accordance
with GAAP applying the same accounting principles, practices, methods and
adjustments as were used by Seller in the preparation of the October Balance
Sheet. At Closing, Seller, in consultation with the senior management of Seller,
shall prepare and deliver to Buyer a schedule setting forth Seller's estimate of
the August Base Amount, determined as aforesaid (the "Estimated August Base
Amount"), and Seller's estimate of Seller's Cash as at the close of business on
the day before the Closing Date (the "Estimated Closing Date Cash Amount").
(b) At the Closing (i) if the Estimated Closing Date Cash
Amount exceeds the Estimated August Base Amount, Buyer shall be entitled to
reduce the Closing Payment (as otherwise calculated pursuant to Section 2.4(b))
by the amount of the difference between the Estimated Closing Date Cash Amount
and the Estimated August Base Amount and (ii) if the Estimated Closing Date Cash
Amount is less than the Estimated August Base Amount, the Closing Payment (as
otherwise calculated pursuant to Section 2.4(b)) shall be increased by an amount
equal to the difference between the Estimated Closing Date Cash Amount and the
Estimated August Base Amount. The amount of any such difference is herein
referred to as the "Estimated Cash Adjustment Amount".
(c) Concurrently with the delivery of the Closing Date
Balance Sheet, Buyer shall prepare, and shall deliver to Seller, a schedule
setting forth Buyer's audited calculation of the August Base Amount and Cash as
at the close of business on the day before the Closing Date, determined in
accordance with GAAP applying the same accounting principles, practices, methods
and adjustments as were used by Seller in the preparation of the October Balance
Sheet (the "Closing Date Cash Amount") and setting forth the difference between
the August Base Amount and the Closing Date Cash Amount (the "Cash Adjustment
Amount"). If the Closing Payment as determined at the Closing using the
Estimated Cash Adjustment Amount exceeds the amount the Closing Payment would
have been had the Closing Payment been determined at Closing using the Cash
Adjustment Amount instead of the Estimated Cash Adjustment Amount, (i) Buyer
shall be entitled to further reduce the Closing Payment (as otherwise calculated
pursuant to Section 2.4) by the amount of such excess or (ii) Seller shall
promptly repay to Buyer the amount of such excess, as applicable. If the Closing
Payment
15
<PAGE>
as determined at the Closing using the Estimated Cash Adjustment Amount is less
than the amount the Closing Payment would have been had the Closing Payment been
determined at Closing using the Cash Adjustment Amount instead of the Estimated
Cash Adjustment Amount, the Closing Payment (as otherwise calculated pursuant to
Section 2.4) shall be increased by an amount equal to such difference in the
calculation of the Closing Payment. The amount of such change in the Closing
Payment as calculated in the circumstances contemplated by the two preceding
sentences is herein referred to as the "Final Cash Adjustment Amount".
5. (a) On the Closing Date, Seller, in consultation with the
senior management of Seller, shall prepare and deliver to Buyer a schedule
setting forth the amount of any deposit, draw made under the Seller Debt or
capital contribution (the "Cash Infusions") made by or to Seller in compliance
with the terms hereof after the close of business on August 31, 1992 and through
the end of the remaining portion of the Holding Period (and not included in the
August Base Amount), including, without limitation, the deposit made in respect
of the September 1, 1992 payroll payments (the "Payroll") of the Business, other
than any Cash Infusion made with respect to the payment contemplated by Section
7.4(c) and any Cash Infusion made in respect of satisfying, paying or
discharging any other Excluded Liability.
(b) At Closing, Buyer shall pay to Seller an amount equal to
the Cash Infusions minus any such portion of the Cash Infusions as shall have
-----
been repaid by Seller during the Holding Period (the "Adjusted Cash Infusion
Amount"). In addition, at Closing Buyer shall pay to Seller interest on the
Closing Payment, the August Base Amount and the Adjusted Cash Infusion Amount at
the rate of 6.75% per annum (based on a 360 day year) for the number of days
elapsed during the Holding Period (but excluding the last day of the Holding
Period).
(c) At the time of making the final payments in respect of
the Closing Payment adjustments pursuant to Section 2.4, Buyer shall pay to
Seller, or Seller shall pay to Buyer, as applicable, interest on the Final Cash
Adjustment Amount as calculated in the manner set forth in Section 2.4.
6. The Parties agree that, notwithstanding paragraphs BB. 2, 4
and 5 above, any disputes arising with respect to the calculations made pursuant
to said paragraphs shall be resolved by following as nearly as practicable the
dispute resolution procedures set forth in Section 2.3(e), (f) and (g).
7. Seller hereby covenants and agrees that, for the period from
and including August 31, 1992 through and including the Closing Date (the
"Holding Period"), in no event shall Seller, other than in consultation with
Buyer, make any business decision or enter into any transaction during the
Holding Period which may
16
<PAGE>
have a significant financial or operational effect on the Business. Without
limiting the foregoing, under no circumstances shall Seller make any payment or
distribution of cash or other current assets other than repayment of a Cash
Infusion (i) under or in respect of the Seller Debt Credit Agreement dated March
9, 1989 during the Holding Period, (ii) to any Seller Group Member or Affiliate
of Seller during the Holding Period and/or (iii) in respect of the items
contemplated by paragraph DD. below during the Holding Period.
8. (a) Buyer covenants and agrees that (i) it will not, under
any circumstances, without the prior written consent of Seller, in any way
access, withdraw, transfer or otherwise dispose of funds in the accounts
maintained by and/or in the name of Buyer (other than any account established in
connection with Buyer's financing of the purchase of the Purchased Assets at
Union Bank of Switzerland, New York Branch, including, without limitation, the
MLP Operating L.P. account at Bank of New York that was so established) (the
"Buyer Accounts") in respect of the operation of the Business during the Holding
Period and thereafter, other than to pay the Payroll and (ii) Buyer is operating
such Buyer Accounts in trust for the benefit of Seller during the Holding
Period, and Buyer acknowledges that Seller shall have beneficial ownership of
the Buyer Accounts until the Closing Date.
(b) Buyer covenants and agrees that if the Agreement expires
or terminates for any reason without the Closing having occurred, Buyer will
remit to Seller all amounts actually in the Buyer Accounts.
CC. If any sales, use or other similar Tax Returns for which Seller is
the Responsible Party under Section 1.7 would, but for the provisions of Section
1.7, have a due date for the filing thereof that is subsequent to the Closing
Date, then, notwithstanding the provisions of Section 1.7, Seller need not file
such Tax Returns on the Closing Date, but rather shall prepare and file such Tax
Returns by the due date provided under applicable law. In this regard, Buyer
shall cooperate with Seller in the preparation of such Tax Returns, and Seller
shall provide a copy of such Tax Returns to Buyer not later than 7 business days
before the due date for the filing thereof so that Buyer shall have a reasonable
opportunity to review and comment on them, provided, that such Tax Returns shall
--------
in all events be filed by the due date thereof. On or before the due date
thereof, Buyer shall remit to Seller the portion of the Taxes set forth in such
Tax Returns for which Buyer is responsible as provided in Section 1.7.
DD. Seller hereby represents and warrants that, following the Closing
and after giving effect to Section 7.25 and Seller's obligations thereunder,
Seller will have on hand unencumbered cash proceeds and/or other liquid assets
from the Closing Payment, from existing resources and/or from other sources in
an amount
17
<PAGE>
sufficient to pay or provide for the amount (in its good faith estimate) of the
fees and expenses of its professional advisers (including, without limitation,
legal, accounting and non-contingent financial adviser fees and expenses) and
other transaction costs incurred in connection with the transactions
contemplated hereby, plus $500,000.
3. Seller, Buyer and the FCC Partnership acknowledge and agree that, for
all tax, accounting and financial reporting purposes, each FCC Lease is
intended, and is considered by them, to constitute a sale by Seller to Buyer on
the Closing Date, of all the FCC Assets covered thereby, and will be so
reflected by them on their respective tax returns and financial reports.
Seller, Buyer and the FCC Partnership further agree that they will not take any
position for tax, accounting or financial reporting purposes that is
inconsistent with Buyer's ownership of such property from and after the Closing
Date.
4. Each of Seller, General Partner (on behalf of Seller and itself), MIP
and TFC has the partnership power and authority to execute, deliver and perform
this Amendment. The execution, delivery and performance of this Amendment by
each of Seller, General Partner (on behalf of Seller and itself), MIP and TFC
has been duly authorized and approved by all requisite corporate and partnership
action, as applicable. This Amendment has been duly authorized, executed and
delivered by each of Seller, General Partner (on behalf of Seller and itself),
MIP and TFC and is the legal, valid and binding obligation of Seller, General
Partner, MIP and TFC, enforceable in accordance with its terms.
5. Each of Buyer and the FCC Partnership has full power and authority to
execute, deliver and perform this Amendment. The execution, delivery and
performance of this Amendment by each of Buyer and the FCC Partnership have been
duly authorized and approved by all requisite partnership action. This
Amendment has been duly authorized, executed and delivered by each of Buyer and
the FCC Partnership and is the legal, valid and binding obligation of each of
Buyer and the FCC Partnership, enforceable in accordance with its terms.
6. The Parties agree that the FCC Partnership, notwithstanding its
execution of this Amendment, is not to be treated as a party to the Agreement
other than in connection with the matters contemplated by Sections 2.U. and 3
hereof. The Parties agree that MIP, notwithstanding its execution of this
Amendment, is not to be treated as a party to the Agreement other than in
connection with the matters contemplated by Sections 2.A. and 2.V. hereof
7. Except as specifically set forth herein, the Purchase Agreement shall
remain in full force and effect. It is agreed by the Parties that the Exhibits
hereto and the addition of new
18
<PAGE>
Schedules to the Agreement pursuant hereto do not constitute Disclosure pursuant
to Section 6.8 of the Agreement.
8. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
9. On and after the date hereof, each reference in the Purchase Agreement
to "this Agreement", "the Purchase Agreement", "hereunder", "hereof", or words
of like import referring to the Purchase Agreement, and each reference in every
other Seller Ancillary Agreement or Buyer Ancillary Agreement to the "Purchase
Agreement", "thereunder", "thereof", or other words of like import referring to
the Purchase Agreement, shall mean the Purchase Agreement as amended by this
Amendment. For purposes of this Amendment, the representations and warranties
of Seller set forth in Section 2 hereof and the representations and warranties
of Buyer set forth in Section 2 hereof are not made prior to the date of this
Amendment.
10. This Amendment and the Exhibits and Schedules referred to herein and
the documents delivered pursuant hereto together with the Purchase Agreement
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein, and supersede all prior agreements
or understandings between or among any of the parties hereto, including the
letter of intent (the "Letter of Intent") dated December 20, 1991 among Seller,
TFC and CCI, as amended, the Confidentiality Agreement (which shall survive any
termination of this Agreement) and any disclosure made or omitted pursuant to
the Private and Confidential Muzak Limited Partnership Review Document dated
July 1991 delivered to Buyer with respect to the Business, as to which no
representation or warranty is made, other than (i) that certain letter agreement
dated July 31, 1992 among the Parties with respect to the March 11, 1992 letter
agreement among the Parties, as modified by Section 2.U. hereof, and (ii)
Section 7.31 of the Purchase Agreement added pursuant to Section 2.H. of
Amendment No. 2 to the Purchase Agreement (in this regard, Buyer hereby
acknowledges receipt of the letters from each of Arthur Andersen & Co. and
Sidley & Austin referred to in said Section 7.31, and confirms that such letters
are to the effect required of them by said Section 7.31 and that Buyer shall not
require the delivery of any further letters (other than the opinions
contemplated by Article VIII hereof, which opinions shall not be required to
address state sales tax matters) as a condition to proceeding with the
transactions described in such letters). This Amendment shall not be amended,
modified or supplemented except by a written instrument signed by an authorized
representative of each of the parties hereto.
19
<PAGE>
11. This Amendment shall be governed by and construed in accordance with
the internal laws (as opposed to the conflicts of law provisions) of the State
of New York.
12. Any term or provision hereof may be waived, or the time for its
performance may be extended, by the party or parties entitled to the benefit
thereof. Any such waiver shall be validly and sufficiently authorized for the
purposes hereof if, as to any party, it is authorized in writing by an
authorized representative of such party. The failure of any party hereto to
enforce at any time any provision hereof shall not be construed to be a waiver
of such provision, nor in any way to affect the validity hereof or any part
hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach hereof shall be held to constitute a waiver
of any other or subsequent breach.
20
<PAGE>
Annex X to Amendment No. 3 to
-----------------------------
Asset Purchase Agreement
------------------------
AX-1. The statement of assets and liabilities of Seller attached to this
Annex X shall be the "Estimated Balance Sheet" for all purposes of the
Agreement, notwithstanding the delivery of any other such statement for such
purpose.
AX-2. Notwithstanding anything in the Agreement to the contrary:
(a) the allowance for bad debts on the Closing Date Balance Sheet
shall equal the lesser of (i) $764,500 and (ii) 8.45% of the accounts receivable
on the Closing Date Balance Sheet, but on the Closing Date Balance Sheet there
shall be no variation from the principles, practices, methods and adjustments
relating to such accounts receivable required by the Agreement, other than as
aforesaid;
(b) the $32,500 adjustment in respect of the Johnson Electronics
(drive-through) inventory reflected on the Estimated Balance Sheet shall be
correspondingly reflected on the Closing Date Balance Sheet, but no other
adjustment in respect of such inventory (or any sale thereof) shall be reflected
on the Closing Date Balance Sheet or otherwise in respect of the Purchase Price;
(c) the $115,000 adjustment in respect of the payroll tax accrual
reflected on the Estimated Balance Sheet shall be correspondingly reflected on
the Closing Date Balance Sheet, and there shall be no variation on the Closing
Date Balance Sheet from the principles, practices, methods and adjustments
relating to such accrual (i.e., normal recognition on a straight-line basis
----
corresponding to the recognition of salary expense); and
(d) the Closing Date Balance Sheet shall reflect the following items
consistently with the reflection thereof on the Estimated Balance Sheet: (i)
prepaid insurance reflected on the Estimated Balance Sheet as $200,000
(estimated) of prepaid expense, (ii) Seller's cash actually used before August
31, 1992 to fund Buyer's operating accounts reflected on the Estimated Balance
Sheet as an asset and (iii) petty cash retained by Buyer reflected on the
Estimated Balance Sheet in the amount of $15,000.
AX-3. It is contemplated that (a) certain ________ otherwise payable by
Seller to certain of its employees ______________________________ Management
Investment Plan shall be paid through ______________________ amount of the
Closing Payment actually paid to ________________________ instead of being paid
to Seller, such amounts _____________________ for the benefit of such employees
via (i) cont_____ _________________
x-1
<PAGE>
capital of Buyer in consideration of the issuance of partnership interests in
Buyer to such employees and/or payments to such employees and (ii) withholding
the balance thereof in compliance with tax requirements) (such reduction shall
be effected for convenience only and not as a reduction of the Purchase Price,
and Seller's constructive receipt of the aggregate amount of such reduction
shall be treated for all purposes, as between Buyer and Seller, as Seller's
actual receipt thereof) and (b) to the extent agreed to by Buyer and Seller
before the Closing Date, Buyer shall pay certain prorated annual bonuses to
certain current employees of Seller if such bonuses are paid after August 31,
1992 (in which case such payment shall be treated as a repayment of a Cash
Infusion to the extent of such payment if the obligation to make such payment is
not reflected as a liability on the Closing Date Balance Sheet). In either case
(a) or (b), Buyer acknowledges that it shall have, or shall cause its agent to
have, responsibility for withholding and paying over such employees' taxes (but
not the employer's portion thereof, it being understood that $308.24 of
employer's portion will be paid over by Buyer in respect of one employee as a
reduction to the Purchase Price) in respect of such amounts, as well as related
reporting obligations. Seller shall cooperate with Buyer in respect of the
foregoing.
x-2
<PAGE>
Exhibit 10.7
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been
separately filed with the Commission.
UPLINK FACILITY AGREEMENT
UPLINK FACILITY AGREEMENT (the "Agreement"), made as of this 28th day of
----
Dec. , 1995, between EchoStar Satellite Corporation, a Colorado
----
corporation ("EchoStar"), with offices at 90 Inverness Circle East, Englewood,
Colorado 80112, and Muzak Limited Partnership, a Delaware limited partnership
("Muzak"), with offices at 2901 Third Avenue, Suite 400, Seattle, Washington
98121.
RECITALS
A. EchoStar and Muzak, contemporaneous with the execution of this
Agreement, have entered into a DBS Programming Affiliation Agreement (the "DBS
Affiliation Agreement") and a Video Programming Sales Agent Agreement (the
"Video Agreement"), which DBS Affiliation Agreement and Video Agreement
contemplated the execution of this Agreement contemporaneous therewith; and
B. EchoStar is engaged in the business of, among other things, providing
direct broadcast satellite-delivered, multi-channel, digital video, audio and
data services to commercial and residential subscribers, itself and through its
authorized EchoStar Sales Agents (as hereinafter defined); and
C. Muzak is engaged in the business of, among other things, producing and
distributing subscription music, video, data and other services to commercial
subscribers, through its owned and independent affiliates; and
D. Muzak desires to utilize, and EchoStar desires to permit Muzak to use,
EchoStar's Uplink Facility (as hereinafter defined), so that Muzak may deliver
via the EchoStar System (as hereinafter defined) certain Muzak Services (as
hereinafter defined) for distribution by Muzak and Muzak Affiliates (as
hereinafter defined) and so that EchoStar may deliver via the EchoStar System
certain Muzak Services for distribution by EchoStar and EchoStar Sales Agents,
all subject to the terms and conditions more fully set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
SECTION 1. DEFINITIONS
In addition to the terms defined above or elsewhere in this Agreement, the
following capitalized terms shall have the meanings ascribed to them in this
Section 1. (It is the intent of the parties that the definitions used in this
Agreement be consistent with the definitions used in the DBS Affiliation
Agreement and the Video Agreement. To the extent of any conflict between a
defined term in this Agreement and a defined term in the DBS Affiliation
Agreement or the
1
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
Video Agreement, it is the parties' intent that the two terms be interpreted in
the most reasonable manner so as to give the same or as reasonably similar an
interpretation to such defined term as is possible.)
1.1 "Affected Party" shall have the meaning given to such term in Section
10.2 of this Agreement.
1.2 "Affiliate Consent" shall have the meaning given to such term in
Section 10.4 of this Agreement.
1.3 "Affiliated Entities" shall mean, with respect to any person or
entity, any other person or entity directly or indirectly controlling,
controlled by or under common control (i.e., the power to direct affairs by
reason of ownership of voting stock, by contract or otherwise) with, such person
or entity, any partner of such person or entity, and any member, director,
officer or employee of such person or entity.
1.4 "Combined Access Fee" shall have the meaning given to such term in
Section 4.2 of this Agreement.
1.5 "Commercial Music Channels" shall mean the Music Channels programmed
by Muzak, which are predominantly targeted for Commercial Music Subscribers.
1.6 "Commercial Music Subscriber" shall mean a Subscriber to the Music
Channels and/or Exclusive Muzak Channels at retail, business, office or other
commercial locations.
1.7 "EchoStar Indemnities" shall mean EchoStar, its Affiliated Entities,
its EchoStar Sales Agents, its contractors, subcontractors, authorized
distributors, agents and programming suppliers, and the partners, directors,
officers, employees and agents of EchoStar, its Affiliated Entities, its
EchoStar Sales Agents, its contractors, subcontractors, distributors, agents and
programming suppliers.
1.8 "EchoStar Sales Agents" shall mean those persons or entities
authorized by EchoStar to act as agents of EchoStar to solicit orders for
certain audio, video and data programming services delivered via the EchoStar
System, with the exception of Participating Muzak Affiliates.
1.9 "EchoStar System" shall mean the direct broadcast satellite delivery
system utilized by EchoStar and located at a 119 degrees orbital slot assignment
with 12.2 to 12.7 GHz downlink frequencies, and authorized by the Federal
Communications Commission ("FCC") for delivery of multi-channel digital audio,
video and data services.
2
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
1.10 "EchoStar's Uplink Facility" shall mean EchoStar's satellite uplink
and broadcast center located in Cheyenne, Wyoming that serves the function of
uplinking satellite signals to the EchoStar System.
1.11 "Exclusive Muzak Channels" shall mean the three channels described in
Section 2.1(a) of this Agreement until the Second Satellite Launch, and, upon
the Second Satellite Launch such number of channels as the 2.4 megahertz of
transponder capacity referred to in Section 2.1(b) will carry, which may be used
for music, advertising or data transmissions, or for any other purpose that does
not duplicate the video programming provided by EchoStar on the EchoStar System,
or that does not otherwise conflict with the terms hereof. The Exclusive Muzak
Channels may be in mono or stereo sound, as determined by Muzak in its sole
discretion.
1.12 "Exclusive Muzak Territories" shall have the meaning given to such
term in Section 10.4 of this Agreement.
1.13 "Force Majeure" shall mean an event described in Section 11.8 of this
Agreement.
1.14 "Indemnified Party" shall mean a party seeking indemnification
pursuant to Section 9.3 of this Agreement.
1.15 "Indemnifying Party" shall mean a party from whom indemnification is
sought pursuant to Section 9.3 of this Agreement.
1.16 "Monthly Facility Lease Rate" shall have the meaning given to such
term in Section 2.3 of this Agreement.
1.17 "Monthly Muzak Subscriber Number" shall have the meaning given to such
term in Section 4.2 of this Agreement.
1.18 "Music Channels" shall mean Residential Music Channels and Commercial
Music Channels, and shall not include the Exclusive Muzak Channels.
1.19 "Muzak" shall have the meaning given to such term in the introductory
paragraph of this Agreement, and shall be deemed to include owned Muzak
Affiliates, except where circumstances otherwise require or where it would not
be logical to infer such inclusion.
1.20 "Muzak Affiliates" shall mean those existing owned and independent
operators at the effective date of this Agreement, and their successors,
assignees or transferees as permitted by Muzak, that have the exclusive right to
use the existing Muzak(R) trademark and certain other trademarks of Muzak, and
to distribute subscription music services, adjunct services related to the
sequencing, changing and switching of music-program communications,
3
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
and certain adjunct services related to the delivery of advertising, data and
video communications in Exclusive Muzak Territories.
1.21 "Muzak Affiliation Agreement" shall mean collectively the franchise
agreement and the Participating Affiliate Agreement between Muzak and an
independent Muzak Affiliate.
1.22 "Muzak Indemnities" shall mean Muzak, Muzak Affiliates, its Affiliated
Entities, its contractors, subcontractors and authorized distributors and
agents, and the partners, directors, officers, employees and agents of Muzak,
Muzak Affiliates, such Affiliated Entities, contractors, subcontractors,
distributors and agents.
1.23 "Muzak Royalties" shall mean the royalty paid by Muzak Affiliates to
Muzak pursuant to their Muzak Affiliation Agreements with Muzak in consideration
of the right to distribute music services. Muzak Royalties are currently eleven
percent (11%) of the "gross billings" (as defined in the Muzak Affiliation
Agreement) per Muzak Service subscriber and for the purpose of this Agreement
shall in no event increase in excess of fifteen percent (15%) of the "gross
billings" (as defined in the Muzak Affiliation Agreement) per Muzak Service
subscriber.
1.24 "Muzak Services" shall mean the Music Channels and the Exclusive Muzak
Channels, which EchoStar uplinks for Muzak under this Agreement.
1.25 "Muzak Subscriber" shall mean any Residential Music Subscriber or
Commercial Music Subscriber which is activated by EchoStar on behalf of Muzak or
a Participating Muzak Affiliate.
1.26 "Other Party" shall have the meaning given to such term in Section
10.2 of this Agreement.
1.27 "Participating Muzak Affiliate" shall mean an independent Muzak
Affiliate that executes a Participating Affiliate Agreement with Muzak, which
thereby shall become a part of the Muzak Affiliation Agreement.
1.28 "Participating Affiliate Agreement" shall mean the agreement between
Muzak and an independent Muzak Affiliate pursuant to which Muzak obtains
Affiliate Consent and which agreement requires Participating Muzak Affiliates to
comply with all terms and conditions in this Agreement, the Video Agreement and
the DBS Affiliation Agreement, applicable to Participating Muzak Affiliates.
1.29 "Performance Right Fees" shall have the meaning given to such term in
Section 2.3 of this Agreement.
4
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
1.30 "Residential Music Channels" shall mean the Music Channels programmed
by Muzak, which are predominantly targeted for Residential Music Subscribers.
1.31 "Residential Music Subscriber" shall mean a Subscriber to the Music
Services and/or the Exclusive Muzak Channels at a residential location and for a
residential purpose.
1.32 "Royalty Fees" shall have the meaning given to such term in Section
4.2(a) of this Agreement.
1.33 "Second Satellite Launch" shall mean the initial date on which
EchoStar commences transmission of the Video Services or Muzak Services on a
second EchoStar System satellite, which date shall in no event be later than
December 31, 1997.
1.34 "Service Launch" shall mean the initial date on which EchoStar
commences transmission of any Muzak Services for revenue generating purposes,
which date shall in no event be later than October 31, 1996.
1.35 "Subscribers" shall mean any party which is activated by EchoStar to
receive one or more of the Muzak Services via the EchoStar System, including
Commercial Music Subscribers and Residential Music Subscribers.
1.36 "Term" shall mean the duration of this Agreement, as set forth in
Section 10.1 hereof.
1.37 "Territory" shall mean the footprint of the EchoStar System, subject
to any international, foreign, Federal, state, local or municipal, conventions,
treaties, laws, statutes, regulations, rules, ordinances or codes, or
prohibitions contained in programming agreements, which otherwise limit or
restrict EchoStar's right or ability to deliver any audio, video or data
programming services via the EchoStar System for receipt in any given
jurisdiction.
1.38 "Third Party Claim" shall mean any claim, assessment, action, suit,
audit or proceeding by a third party in respect of which indemnity may be sought
pursuant to Section 9. of this Agreement.
1.39 "Uplink Fees" shall have the meaning given to such term in Section 4.1
of this Agreement.
SECTION 2. MUZAK SERVICES
2.1 Uplink of Muzak Services. EchoStar will uplink to, and transmit from,
------------------------
the EchoStar System, the following Muzak Services in accordance with the
following schedule:
5
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
(a) Effective upon Service Launch, and until the Second Satellite
Launch, EchoStar will transmit the following channels: three (3) Exclusive
Muzak Channels, being Muzak's Environmental(R) Channel (east and west coast
feeds) and Muzak's FM-One(R) channel; fourteen (14) Residential Music Channels;
and thirteen (13) Commercial Music Channels (a total of twenty-seven (27) Music
Channels).
(b) Effective upon the Second Satellite Launch, EchoStar will
transmit thirty (30) Music Channels (which shall include the 27 Music Channels
referred to in paragraph (a) above (subject to modifications as requested by
EchoStar in accordance with the DBS Affiliation Agreement), plus three
additional Music Channels). Effective upon the Second Satellite Launch, EchoStar
will also allocate for the exclusive use of Muzak and Participating Muzak
Affiliates (subject to Section 2.8 below) 2.4 megahertz of transponder capacity
on the EchoStar System (which may be provided on the first or second EchoStar
System satellite, as determined in EchoStar's sole discretion), and will
transmit such number of Exclusive Muzak Channels as such transponder capacity
will carry (which shall include the three Exclusive Muzak Channels referred to
in paragraph (a) above). The content of the Exclusive Muzak Channels shall be
determined by Muzak in its sole discretion; provided, however, that the content
thereof shall meet Muzak's representations, warranties and covenants in Section
7.2(a). The parties acknowledge that Muzak's ability to use all 2.4 megahertz of
transponder capacity will be subject to EchoStar's allocation of adequate space
for Muzak's equipment at its Uplink Facility, which space is described in
Section 2.5 below.
(c) EchoStar agrees to (i) transmit the signal of the Exclusive Muzak
Channels in a digitally compressed, encrypted format, via the Echostar System;
and (ii) activate and deactivate equipment (IRDs) for exhibition of the
Exclusive Muzak Channels as transmitted via the EchoStar System.
(d) If EchoStar exercises its right pursuant to the DBS Affiliation
Agreement to discontinue distribution of Music Channels, EchoStar, upon thirty
(30) days prior written notice to Muzak, may further elect to discontinue to
uplink the Music Channels under this Agreement. If EchoStar discontinues uplink
of the Music Channels, EchoStar will, however, uplink for Muzak and Muzak
Affiliates, in accordance with the terms of this Agreement, the Exclusive Muzak
Channels (on either the first EchoStar System satellite or the second EchoStar
System satellite, as determined in EchoStar's sole discretion).
2.2 Ownership of Muzak Services. All ownership, right, title and interest
---------------------------
of any nature in and to all or any part of the Muzak Services, and any
programming contained therein, is vested exclusively in Muzak, and EchoStar
shall have no right, title or interest in or to all or any part of the Muzak
Services or any programming contained therein.
6
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
2.3 Cost of Muzak Services and Performance Right Fees.
-------------------------------------------------
(a) Muzak shall be responsible for all costs of programming,
production, playback and transmission of the Muzak Services to EchoStar's Uplink
Facility. Subject to Section 2.1(f) and 2.3(a) of the DBS Affiliation
Agreement, and Section 2.3(b) below, Muzak shall be responsible for the costs
of copyright, royalty or other performance rights payments through to the
viewer, including, without limitation, payments to ASCAP, BMI, SESAC and any
other applicable music performance society or other applicable entity
(collectively referred to as "Performance Right Fees") with respect to the sale
of all Music Channels to any Residential Music Subscribers. Muzak and
Participating Muzak Affiliates, as applicable, shall be responsible for all
costs associated with Performance Right Fees, with respect to the sale by Muzak
or Participating Muzak Affiliates, as applicable, of Muzak Services to
Commercial Music Subscribers. EchoStar and the EchoStar Sales Agents shall be
independently responsible for all costs associated with Performance Right Fees
with respect to the sale of any Muzak Services to a Commercial Music Subscriber
by EchoStar or EchoStar Sales Agents, and EchoStar acknowledges that Muzak has
no responsibility for such Performance Rights Fees. In the event that the sale
of any Exclusive Muzak Channel to a Residential Music Subscriber by EchoStar or
EchoStar Sales Agents results in an increase in the Performance Right Fees
payable by Muzak with respect to such Exclusive Muzak Channels or the Music
Channels, EchoStar shall pay the portion of such increase allocable to
Residential Music Subscribers sold by EchoStar or EchoStar Sales Agents.
(b) The parties acknowledge that each Music Channel shall be deemed
to have a value of [**]. If for any reason EchoStar prices any Music Channels
at a higher rate, resulting in an increase in Performance Rights Fees payable by
Muzak hereunder as of the date this Agreement is executed, EchoStar shall pay
such increase.
2.4 Additional Equipment. Muzak shall be responsible for any equipment
--------------------
(including the Mpeg Audio Encoder Boards) necessary for EchoStar to receive and
uplink the Muzak Services at the point the Muzak Services exit the Mpeg Audio
Encoder Boards, other than equipment which EchoStar currently utilizes for
receiving and uplinking signals to the EchoStar System.
2.5 Cost of Transmission and Monthly Facility Use Fee. Except as provided
-------------------------------------------------
to the contrary in Section 2.4 above and subject to this Section 2.5, EchoStar
shall be responsible for all costs of transmission of the Muzak Services from
EchoStar's Uplink Facility to the EchoStar System and to Subscribers to the
Muzak Services. Muzak shall pay to EchoStar a monthly facility use fee of (i)
[**] from the date of Service Launch until the date of the Second Satellite
Launch; and (ii) [**] for the remainder of the Term, in each case subject
to the CPI increases described below, for the use of approximately 900 square
feet of space until the Second Satellite Launch, and 1800 square feet of space
thereafter, and equipment, at EchoStar's
7
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UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
Uplink Facility (the "Monthly Facility Use Fee"). For each twelve (12) month
period after the first twenty-four (24) months of the Term, the Monthly Facility
Use Fee shall increase based on the percentage increase in the consumer price
index for all urban consumers ("CPI") in the preceding twelve (12) month period.
Such CPI increase shall take effect on the first day of each succeeding twelve
(12) month period. Muzak shall be responsible for all Muzak equipment operation
and maintenance at EchoStar's Uplink Facility.
2.6 Technical Specifications for Muzak Services. Muzak shall provide to
-------------------------------------------
EchoStar signals for the Muzak Services with the technical specifications set
forth on Schedule 1 hereto.
2.7 Muzak and Muzak Affiliate Distribution Rights. Subject to the terms
---------------------------------------------
and conditions of this Agreement, Muzak and Participating Muzak Affiliates may
sell subscriptions to the Muzak Services to Commercial Music Subscribers, and
EchoStar will activate such Muzak Services for such Muzak Subscribers via the
EchoStar System. Muzak and Participating Muzak Affiliates may sell
subscriptions to the Muzak Services to Residential Music Subscribers on the
terms set forth in the Video Agreement, and will not sell the Muzak Services to
Residential Music Subscribers except pursuant to the Video Agreement and the
EchoStar Dealer Agreement (as defined in the Video Agreement).
2.8 EchoStar and EchoStar Sales Agents Distribution Rights. Pursuant to
------------------------------------------------------
the terms and conditions of the DBS Affiliation Agreement, EchoStar shall have
the right to sell, itself and through EchoStar Sales Agents, the Music Channels
to Commercial Music Subscribers and Residential Music Subscribers. In addition,
subject to the terms and conditions of this Agreement, EchoStar shall have the
right to sell (at no cost, other than Performance Right Fees as described in
Section 2.3(a) above), itself and through EchoStar Sales Agents, the Exclusive
Muzak Channels (except the Environmental(R) and FM-One(R) channels) to
Residential Subscribers.
2.9 Control Over System. Notwithstanding anything to the contrary in this
-------------------
Agreement, EchoStar shall always be entitled to exercise control over all
aspects of the EchoStar System, including any programming or other material
provided by Muzak, but only to the minimum extent EchoStar is required to do so
by Federal Communications Commission or similar law, rule or regulation.
SECTION 3. VIDEO AGREEMENT AND DBS AFFILIATION AGREEMENT
3.1 Video Agreement. Contemporaneous with the execution of this
---------------
Agreement, the parties have executed the Video Agreement, which permits Muzak
and Participating Muzak Affiliates to solicit orders for, as agents of EchoStar,
certain video programming packages determined by EchoStar and delivered via the
EchoStar System.
8
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
3.2 DBS Affiliation Agreement. Contemporaneous with the execution of this
--------------------------
Agreement, the parties have executed the DBS Affiliation Agreement, pursuant to
which EchoStar shall distribute certain Muzak Services, itself and through
EchoStar Sales Agents, via the EchoStar System.
SECTION 4. FEES
4.1 Uplink Fees. Effective upon Service Launch and until the Second
-----------
Satellite Launch, Muzak shall pay EchoStar on a monthly basis [**] for
carriage of the Exclusive Muzak Channels, and, effective upon the Second
Satellite Launch, Muzak shall pay EchoStar on a monthly basis [**] for
carriage of the Exclusive Muzak Channels (collectively, the "Uplink Fees").
4.2 Royalty Fee.
-----------
(a) Subject to the following sentence, for so long as Muzak is
providing the Music Channels to EchoStar in accordance with the DBS Programming
Agreement, Muzak and the Participating Muzak Affiliates will each pay to
EchoStar each month a fee per Commercial Music Subscriber in an amount equal to
[**] of Commercial Muzak Collections for any sales of any Muzak Services by
Muzak or such Participating Muzak Affiliate ("Royalty Fees"). If the Second
Satellite Launch is not accomplished by October 31, 1996, Muzak's and the
Participating Muzak Affiliates' obligations to pay Royalty Fees hereunder shall
be suspended until such time as the Second Satellite Launch is accomplished,
unless, at EchoStar's option, it then allocates 2.4 megahertz of transponder
capacity on the first EchoStar System satellite for distribution of the
Exclusive Muzak Channels.
(b) "Commercial Muzak Collections" means the recurring monthly
charges collected from a Commercial Music Subscriber for the provision of Muzak
Services on the EchoStar System, but shall not include: (i) any reasonable
amounts collected from a Muzak Subscriber for the lease, purchase or
installation of any equipment used to receive or distribute the Muzak Services
in accordance with Muzak's and the Participating Muzak Affiliates' historical
practices and, to the extent applicable, Generally Accepted Accounting
Principles; (ii) any reasonable amounts collected from Muzak Subscribers for
sound system or video equipment lease, purchase, installation or maintenance in
accordance with Muzak's and the Participating Muzak Affiliates' historical
practices and, to the extent applicable, Generally Accepted Accounting
Principles; (iii) Performance Right Fees; and (iv) applicable sales, use or
other excise taxes with respect to the Muzak Services. Muzak and Participating
Muzak Affiliates may deduct Muzak Royalties from Commercial Muzak Collections.
It is further understood that Muzak and Participating Muzak Affiliates may offer
previews or free trials of the Muzak Services in keeping with their normal
practices, which free previews or trials shall be excluded from the payment
calculations pursuant to this Section 4.2.
9
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
4.3 Combined Access Fees. In consideration for access to the EchoStar
--------------------
System for the purpose of authorizing Commercial Music Subscribers to receive
the Muzak Services, Muzak, or, as appropriate, the Participating Muzak Affiliate
also shall pay to EchoStar each month, a combined conditional access fee and
smart card contingent replacement fee of [**] (the "Combined Access Fee") for
each and every Commercial Music Subscriber sold by Muzak or such Participating
Muzak Affiliate and activated to receive the Muzak Services via the EchoStar
System (the "Monthly Muzak Subscriber Number"), whether or not such Commercial
Music Subscribers are also receiving EchoStar Video Services. The Monthly Muzak
Subscriber Number shall be calculated by adding the number of authorized Muzak
Subscribers for Muzak and each Participating Muzak Affiliate on the first day of
the reporting month to the number of authorized Muzak Subscribers for Muzak and
each Participating Muzak Affiliate on the last day of the reporting month and
dividing that number by two (2).
4.4 Re-Connect Fees. Muzak and each Participating Muzak Affiliate shall
---------------
pay to EchoStar "re-connect" and "re-disconnect" fees for re-connecting and/or
re-disconnecting Commercial Music Subscribers at the request of Muzak or such
Participating Muzak Affiliate in the amount of [**] per reconnection or re-
disconnection ("Re-Connect Fees"). Re-Connect Fees shall not apply to any
initial subscriber activation or disconnection, and shall not apply to any
reconnection more than 180 days after disconnection of such subscriber (an
"Exempt Re-Connection") or the next disconnection following an Exempt Re-
Connection.
SECTION 5. PAYMENTS
5.1 Monthly Facility Use Fee. In advance on the first day of each month
------------------------
during the Term following the Service Launch and without notice from or demand
by EchoStar, Muzak shall pay to EchoStar the Monthly Facility Use Fee. If the
Service Launch or the Second Satellite Launch occurs other than on the first day
of the month, the Monthly Facility Use Fee for such month shall be adjusted on a
pro rata basis, and payable within five (5) days after Service Launch or the
Second Satellite Launch, as the case may be.
5.2 Uplink Fees. EchoStar will invoice Muzak on a monthly basis for the
-----------
Uplink Fees. Payment by Muzak for Uplink Fees shall be made within forty five
(45) days following the end of the month in which such Uplink Fees were
incurred. If the Service Launch or the Second Satellite Launch occurs other
than on the first day of the month, the Uplink Fee for such month shall be
adjusted on a pro rata basis.
5.3 Combined Access Fees and Re-Connect Fees. EchoStar will invoice Muzak
----------------------------------------
and each Participating Muzak Affiliate on a monthly basis for the Combined
Access Fees and Re-Connect Fees. Muzak and each Participating Muzak Affiliate
shall pay to EchoStar the Combined Access Fees and Re-Connect Fees billed by
EchoStar within forty-five (45) days following the end of the month in which
such Fees were incurred.
10
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
5.4 Royalty Fees. All monthly Royalty Fees required to be made by Muzak
------------
and the Participating Muzak Affiliates shall be paid within forty-five (45) days
of the end of each month.
5.5 Late Payments. In the event that any overdue balances are ever owed
-------------
by Muzak or a Participating Muzak Affiliate to EchoStar, late charges shall be
assessed on a monthly basis at the rate of 1.5% of the outstanding balance per
month or the maximum amount allowed by law, whichever is lower. Notwithstanding
the above, Muzak and each Participating Muzak Affiliate shall each have one (1)
late payment of no more than ten (10) days following the date upon which such
amount was due in any calendar year without incurring late payment charges with
respect to such payment due.
5.6 Deactivation of Muzak Subscribers. Muzak or the applicable
---------------------------------
Participating Muzak Affiliate shall detail the reason for deactivation (e.g.,
non-payment or other reason) in connection with any request for deactivation of
a Muzak Subscriber. In the event Muzak or a Participating Muzak Affiliate fails
to pay EchoStar any fees payable hereunder in full when due as a result of non-
payment by a Muzak Subscriber, whether due to a bona fide billing dispute or
otherwise, Muzak or the applicable Participating Muzak Affiliate shall so inform
EchoStar in writing thereof at the time of payment of the applicable fees and
shall have sixty (60) days to obtain payment or otherwise resolve such dispute.
EchoStar shall cooperate with Muzak or the applicable Participating Muzak
Affiliate in the resolution of any bona fide billing dispute with a Muzak
Subscriber. If payment is not obtained or the dispute is not otherwise resolved
within such sixty (60) day period, EchoStar may deactivate the non-paying Muzak
Subscriber.
5.7 Subscriber Cancellations. EchoStar understands that any Muzak
------------------------
Services which are cancelled by a Subscriber, or for which a credit is issued,
shall effect a pro rata reduction in Royalty Fees paid or payable to EchoStar,
to be assessed as a charge back to EchoStar, which charge back may be offset
against any money due to EchoStar from Muzak or the applicable Participating
Muzak Affiliate or otherwise to be reimbursed by EchoStar, as applicable, to
Muzak or the applicable Participating Muzak Affiliate.
5.8 Multi-Month Payments. In the case of multi-month subscriptions,
--------------------
Royalty Fees will be paid monthly as the Muzak Services are provided, even if a
multi-month payment is received by Muzak or a Participating Muzak Affiliate.
SECTION 6. REPORTS, BOOKS AND RECORDS; RIGHT TO AUDIT
6.1 Reports.
-------
Within forty five (45) days after the end of each month, Muzak and each
Participating Muzak Affiliate shall supply to EchoStar with respect to all Muzak
Subscribers such information as is requested by EchoStar to verify the payments
owed by Muzak and each Participating
11
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
Muzak Affiliate under this Agreement, including, without limitation, the total
number of Muzak Subscribers authorized to receive one or more of the Muzak
Services during the current reporting month, the classification of such Muzak
Subscribers as Commercial Music Subscribers or Residential Music Subscribers,
the Muzak Services ordered by each Muzak Subscriber, the Commercial Muzak
Collections (including itemization) for each Muzak Subscriber, and the Muzak
Royalties deducted from such Commercial Muzak Collections.
6.2 EchoStar Audit Rights.
---------------------
(a) Muzak and Participating Muzak Affiliates shall keep complete and
accurate books and records of all Muzak Commercial Music Subscriber accounts,
including, without limitation, accounts and records related to the payment by
Muzak and Participating Muzak Affiliates of Performance Right Fees related to
the Muzak Services, Muzak Royalties and Commercial Muzak Collections. During
the Term and for a period of one (1) year thereafter, EchoStar or its designated
representative may, in its reasonable discretion, on at least ten (10) days'
advance written notice, not more than once in any twelve (12) month period, at
Muzak's or at the Participating Muzak Affiliates' offices, at reasonable times
within regular business hours approved by Muzak or the Participating Muzak
Affiliate, as applicable, which approval shall not be unreasonably withheld, and
at EchoStar's sole cost and expense, inspect and audit such books and records,
provided that such inspection and audit shall be no more extensive than is
required to verify that Muzak's and/or the Participating Muzak Affiliate's
payments to EchoStar have been properly computed in accordance with the terms of
this Agreement. EchoStar shall not assess Muzak or any Participating Muzak
Affiliate for amounts found, as a result of such audit, to be owing thereafter
if such amounts relate to a reporting period that ended more than two (2) years
prior to the date such audit commenced. In the event that any audit undertaken
by EchoStar results in a determination that there has been either an
underpayment or overpayment of the amounts due EchoStar hereunder, then within
thirty (30) days after such determination, Muzak and/or the applicable
Participating Muzak Affiliate, or EchoStar, as the case may be, shall pay to the
other the amount of such underpayment or overpayment, plus simple interest
accrued on a daily basis from the date payment was due to the date of payment,
at the prime rate of the Union Bank of Switzerland, New York Branch, in effect
at the time of payment. EchoStar shall bear all costs related to an audit
pursuant to this Section 6.2, except if such audit reveals an underpayment in
excess of five percent (5%) for all payments in the aggregate in the applicable
period audited, in which case Muzak or the applicable Participating Muzak
Affiliate, as the case may be, shall pay EchoStar's reasonable expenses related
to the audit.
(b) During any audit hereunder, EchoStar or its designated
representative (at EchoStar's cost and expense) may make copies of only those
books and records relating to Muzak Subscriber accounts of Muzak or
Participating Muzak Affiliates that are necessary for the verification of
statements and accountings to EchoStar and that were physically examined as
12
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
part of the audit. EchoStar shall provide Muzak, or the Participating Muzak
Affiliate which has been audited (if applicable), with a copy of the audit
report so Muzak, or the Participating Muzak Affiliate (as applicable), can
verify the results of the audit. EchoStar shall take reasonable precautions to
safeguard the confidentiality of all such information, including, without
limitation, any copies thereof (and in any event EchoStar shall exercise the
same precautions it uses to safeguard its own confidential and proprietary
information) and shall destroy any such copies upon the mutually-confirmed
completion of the audit and payment in full of any fees and other charges
determined to be owing to EchoStar or Muzak and/or the Participating Muzak
Affiliate, as the case may be, as a result of such audit. EchoStar shall not,
during the Term or at any time thereafter, use any information disclosed or made
available by Muzak or a Participating Muzak Affiliate in the course of an audit
by EchoStar for any purpose whatsoever except to verify that Muzak's and the
Participating Muzak Affiliates' payments to EchoStar have been properly computed
in accordance with the terms of this Agreement.
(c) In the event that a party disputes the results of an audit, the
parties shall attempt to resolve the matter by conducting a new audit under the
joint supervision of their respective independent certified public accountants.
In the event that such new audit resolves the dispute, the cost of each party's
independent certified public accountants shall be borne by such party. In the
event that such new audit fails to resolve the dispute, the matter shall be
resolved by binding arbitration in Denver, Colorado under the then applicable
rules of the American Arbitration Association and the prevailing party shall be
reimbursed by the other party for all of its costs of the second audit, and for
its reasonable attorneys fees.
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 Mutual Representations, Warranties and Covenants.
------------------------------------------------
Each of the parties represents, warrants and covenants to the
other that: (i) it has full power and authority to enter into and fully perform
its obligations under this Agreement (with respect to Muzak, however, subject to
Affiliate Consent required pursuant to Section 10.4 below); (ii) it has not and
will not during the Term enter into any agreement or arrangement which limits
the full performance of its obligations hereunder; (iii) it is and will remain
in full compliance with all applicable local, state and Federal laws and
regulations, including but not limited to such statutes, laws, rules,
regulations and orders enforced, administered, promulgated or pronounced by the
FCC; (iv) the execution of this Agreement by it will not: (a) result in any
breach of, or constitute a default under, any contract, agreement, corporate
charter, bylaw, or other instrument or agreement to which it is a party or by
which it or its property may be bound or affected, or (b) require the consent of
any third party (with respect to Muzak, however, subject to Affiliate Consent
required pursuant to Section 10.4 below); (v) it has obtained, and shall
maintain in full force during the Term, such Federal, state and local
authorizations as are necessary to operate the business it is conducting in
connection with its rights and obligations
13
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
under this Agreement; (vi) it is under no obligation and will not become subject
to any obligation that might interfere with its performance of this Agreement
(with respect to Muzak, however, subject to Affiliate Consent required pursuant
to Section 10.4 below); and (vii) it will comply with all of its
representations, warranties, obligations, covenants and responsibilities herein
contained. All representations, warranties and covenants made hereunder shall
survive the execution of this Agreement.
7.2 Additional Muzak Representations, Warranties and Covenants.
----------------------------------------------------------
(a) Except to the extent that such material is designated by
EchoStar, Muzak warrants and covenants that the Muzak Services will not be
defamatory or obscene and will not contain any material which violates any
copyright, right of privacy or literary or dramatic right of any person or
entity. Muzak warrants that it shall secure and maintain any and all necessary
performing rights licenses required and that all applicable payments for
Performance Right Fees will be paid by Muzak during the Term, with respect to
the sale of all Muzak Services to all Residential Music Subscribers (except (i)
with respect to the sale of the Exclusive Muzak Channels to Residential
Subscribers by EchoStar or EchoStar Sales Agents, (ii) as provided in Section
2.1(f) and 2.3(a) of the DBS Affiliation Agreement, and (iii) as provided in
Section 2.3(b) above) and with respect to the sale by Muzak or Participating
Muzak Affiliates, as applicable, of Muzak Services to Commercial Music
Subscribers. Muzak and the Participating Muzak Affiliates shall secure and
maintain any and all necessary performing rights licenses and shall be
responsible for all applicable payments for Performance Rights Fees during the
Term, with respect to the sale of Muzak Services to their respective Commercial
Music Subscribers.
(b) Muzak, at its sole expense, and Participating Muzak
Affiliates, at their sole expense, shall obtain all permits and licenses which
may be required under any applicable Federal, state or local law, ordinance,
rule or regulation by virtue of any acts performed by Muzak or Participating
Muzak Affiliates in the performance of this Agreement, and promptly upon request
provide such permits or licenses to EchoStar for inspection. Muzak and
Participating Muzak Affiliates shall in the conduct of said business and in the
performance of this Agreement and the Muzak Affiliation Agreements, as
applicable, comply fully with all applicable Federal, state and local laws,
ordinances, rules and regulations, including, without limiting the foregoing,
all rules and regulations of the FCC or the Federal Trade Commission.
(c) Muzak and Participating Muzak Affiliates agree to comply
with all laws relating to signal piracy, which includes, but is not limited to,
unauthorized receipt, interception, publication, and/or distribution of and/or
interference with, privately-owned transmission of information.
14
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UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
(d) EchoStar warrants that it or the EchoStar Sales Agents shall
secure and maintain any and all necessary performing rights licenses required
and that all applicable payments for Performance Right Fees will be paid by
EchoStar or EchoStar Sales Agents, with respect to the sale of all Muzak
Services to all Commercial Music Subscribers by EchoStar or EchoStar Sales
Agents.
SECTION 8. NONCOMPETITION
8.1 Muzak Competitors. During the Term, EchoStar shall not, directly or
indirectly, within the Territory: (i) provide transponder space to; (ii) enter
into or maintain distributor agreements or relationships with; or (iii) enter
into any agreement for the programming or delivery of any audio services via DBS
frequencies (12.2 ghz. to 12.7 ghz.) with, the following competitors of Muzak in
the sale of commercial music services: Audio Environments, Inc., DMX Inc., 3M
Sound Products, Inc. and Digital Cable Radio Associates, L.P., and their
affiliates, successors and assigns. Muzak acknowledges and understands that an
Affiliated Entity of EchoStar currently has an agreement with DMX Inc. for the
distribution of audio services via frequencies outside of the 12.2 ghz. to 12.7
ghz. bandwidth, and further acknowledges and agrees that such relationship is
not a violation of this Section 8.1.
8.2 EchoStar Competitors. During the Term, Muzak shall not, directly or
--------------------
indirectly, within the Territory: (i) secure transponder space for; (ii) enter
into or maintain distribution agreements or relationships with or (iii) enter
into any agreement for the programming or delivery of any Muzak Services with
(A) any entity which delivers video, audio and/or data via DBS frequencies (12.2
ghz. to 12.7 ghz.) or any affiliate, successor or assign of any such entity, or
(B) PrimeStar, Alphastar or any affilate, successor or assign of PrimeStar or
Alphastar via K-band frequencies.
SECTION 9. INDEMNIFICATION
9.1 Indemnification by EchoStar. EchoStar shall indemnify and hold
---------------------------
harmless the Muzak Indemnities from, against and with respect to any and all
claims, damages, liabilities, costs and expenses (including reasonable
attorneys' and expert's fees) (collectively "Damages") incurred in connection
with any claim against any of the Muzak Indemnities arising out of: (i)
EchoStar's breach of any provision of this Agreement; and (ii) EchoStar's
advertising and marketing of the Muzak Services (except for advertising and
marketing materials supplied by or approved in writing by Muzak). In addition,
EchoStar shall pay and hold the Muzak Indemnities harmless from any Federal,
state or local taxes or fees that are based upon revenues derived by, or the
operations of, EchoStar. Notwithstanding anything to the contrary herein or
otherwise, in no event shall EchoStar have any liability to Muzak, the Muzak
Indemnities or any other person or entity arising out of, relating to or
resulting from the acts or omissions of the EchoStar Sales Agents.
15
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UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
9.2 Indemnification by Muzak. Muzak shall indemnify and hold
------------------------
harmless the EchoStar Indemnities from, against and with respect to any and all
Damages incurred in connection with any claim against any of the EchoStar
Indemnities arising out of: (i) Muzak's breach of any provision of this
Agreement; (ii) material or programming contained in the Muzak Services to the
extent that EchoStar has not modified, altered or edited such Muzak Services, or
interrupted the distribution of such Muzak Services without Muzak's prior
written consent; (iii) Muzak's sale, promotion, distribution, advertising and
marketing of the Muzak Services; (iv) the distribution or cablecast of any
programming on the Muzak Services which violates any right of privacy or which
is defamatory or obscene in nature, or requires payment for any Performance
Right Fees, to the extent the payment of such Performance Right Fees are the
responsibility of Muzak hereunder; and/or (v) the deactivation by EchoStar of
any Muzak Subscriber at Muzak's instruction, or, in the absence of a bona fide
billing dispute pursuant to Section 5.6 above, deactivation by EchoStar of any
Muzak Subscriber if Muzak fails to instruct EchoStar to deactivate Muzak
Subscribers due to Muzak's failure to pay EchoStar any amounts due and payable
to EchoStar under this Agreement. In addition, Muzak shall pay and hold the
EchoStar Indemnities harmless from any Federal, state or local taxes or fees
that are based upon revenues derived by, or the operations of, Muzak.
Notwithstanding anything to the contrary herein or otherwise, in no event shall
Muzak have any liability to EchoStar, the EchoStar Indemnities or any other
person or entity arising out of, relating to or resulting from the acts or
omissions of Muzak's independent Muzak Affiliates, under this Agreement.
9.3 Indemnification Procedures. Should either party wish to assert a
--------------------------
claim for indemnification (a "Third Party Claim"), such party (the "Indemnified
Party") shall do so by promptly notifying the other party (the "Indemnifying
Party") in writing of such claim. The Indemnifying Party shall undertake the
defense of any Third Party Claim and permit the Indemnified Party to participate
therein at the Indemnified Party's expense. The settlement of any Third Party
Claim by an Indemnified Party, without the Indemnifying Party's prior written
consent, shall release the Indemnified Party from its obligations hereunder with
respect to such Third Party Claim so settled.
SECTION 10. TERM AND TERMINATION
10.1 Term. This Agreement shall commence on the date of execution by
----
both EchoStar and Muzak and shall continue until the expiration of the useful
life of the second EchoStar System satellite on which EchoStar has allocated 2.4
megahertz of transponder capacity to Muzak for carriage of the Exclusive Muzak
Channels, unless this Agreement is terminated as provided in this Section 10.
10.2 Termination Upon Default. This Agreement may be terminated by a
------------------------
party (the "Affected Party"), in accordance with the procedures set forth in
Section 10.3, upon the occurrence of any of the following with respect to the
other party (the "Other Party"):
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MUZAK/ECHOSTAR
________________________________________________________________________________
(a) The Other Party loses any Federal Communications Commission,
broadcast, performance or similar license rights necessary to deliver the
services to be provided to the Affected Party under the terms of this Agreement,
and such default is not cured within sixty (60) days of receipt of written
notice from the Affected Party (or if such default cannot reasonably be cured by
the Other Party within such sixty (60) days, if such cure has been initiated by
the Other Party and the Other Party is diligently continuing to cure within that
time, the Other Party's opportunity to cure such default shall be extended for a
period of time not to exceed an additional thirty (30) days).
(b) The Other Party (which for purposes of this Section 10.2(b)
shall mean Muzak alone) commits a payment default which is not: (i) cured within
sixty (60) days of receipt of written notice from the Affected Party; or (ii)
reserved against in accordance with the escrow procedures outlined in Section
10.3 below.
(c) The Other Party (which, for purposes of this Section 10.2(c)
shall mean EchoStar alone) (i) is unable to launch the Muzak Services, as
applicable, on a first EchoStar System satellite by October 31, 1996 or (ii) is
unable to launch a second EchoStar System satellite by December 31, 1997 (unless
EchoStar then allocates, or has allocated, 2.4 megahertz of transponder capacity
to Muzak for carriage of the Exclusive Muzak Channels on the first EchoStar
System satellite), in each case, including without limitation due to the failure
to accomplish Service Launch or due to satellite failures, and such default is
not cured within sixty (60) days of receipt of written notice from the Affected
Party (or if such default cannot reasonably be cured by the Other Party within
such sixty (60) days, if such cure has been initiated by the Other Party and the
Other Party is diligently continuing to cure within that time, the Other Party's
opportunity to cure such default shall be extended for a period of time not to
exceed an additional thirty (30) days).
(d) The Other Party defaults on a material obligation or
breaches a material representation or warranty in this Agreement, the DBS
Affiliation Agreement, the Video Agreement, or the Trademark License Agreement
referred to in Section 8.1(a) of the Video Agreement, and such default or breach
is not cured within sixty (60) days of receipt of written notice from the
Affected Party (or if such default or breach cannot be reasonably cured by the
Other Party within sixty (60) days, if such cure has been initiated by the Other
Party and the Other Party is diligently continuing to cure within that time, the
Other Party's opportunity to cure such default or breach shall be extended for a
period of time not to exceed an additional thirty (30) days). A default or
breach under this Agreement shall also give rise to a default under the DBS
Affiliation Agreement and the Video Agreement.
(e) If the Other Party files bankruptcy, has an involuntary
petition in bankruptcy filed against it (which petition is not dismissed within
forty five (45) days after
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UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
filing), is insolvent, makes an assignment for the benefit of creditors or has a
trustee appointed to manage the affairs of the Other Party.
10.3 Termination Procedure. The Affected Party may exercise its
---------------------
termination rights pursuant to Section 10.2 above only by giving the Other Party
a notice of termination delivered in conformance with Section 11.1 of this
Agreement. Such notice shall specify the basis of termination, and shall
specify the applicable cure period. In the event of a payment default, the Other
Party may, within the sixty (60) day cure period referred to in Section 10.2(b)
above, escrow the disputed amount with an escrow agent acceptable to the
Affected Party, and notify the Affected Party (in conformance with Section 11.1
of this Agreement) that is has done so. If such disputed amount is deposited in
escrow in accordance with the prior sentence, the parties shall seek to promptly
resolve such dispute in the manner set forth in Section 11.9, and the escrow
agent shall be instructed to disburse the disputed amount only upon the receipt
of written instructions signed by both Muzak and EchoStar. Deposit of the
disputed amount in escrow will stay termination of this Agreement until the
dispute is resolved by the parties in the manner set forth in Section 11.9 or
the parties determine that the dispute cannot be resolved in accordance with
Section 11.9. Any dispute regarding whether a termination is effective shall be
resolved in the manner set forth in Section 11.9.
10.4 Consent of Muzak Affiliates. Nothing in this Agreement shall be
---------------------------
binding on any Muzak Affiliate until such time as such Muzak Affiliate executes
the Participating Affiliate Agreement and the EchoStar Dealer Agreement (as
defined in the Video Agreement), and then only to the extent set forth in such
Participating Affiliate Agreement and the EchoStar Dealer Agreement. The
parties hereby acknowledge that Muzak Affiliates have certain exclusive rights
to distribute certain Muzak Services in their respective areas (the "Exclusive
Muzak Territories"), and that the provision of the Muzak Service under the terms
of this Agreement and the grant of certain rights to EchoStar to distribute
certain of the Muzak Services may conflict with those exclusive rights.
Accordingly, the performance of this Agreement by Muzak is hereby conditioned
upon the prior written consent of all Muzak Affiliates ("Affiliate Consent"),
which consent will be solicited by Muzak promptly upon execution of this
Agreement. If Muzak fails to obtain Affiliate Consent within thirty (30) days
after the execution of this Agreement, Muzak may terminate this Agreement within
ten (10) days thereafter by providing written notice to EchoStar, and the DBS
Affiliation Agreement and the Video Agreement shall also automatically terminate
as of the effective date of termination of this Agreement. If Muzak elects not
to terminate this Agreement, notwithstanding that Muzak fails to obtain
Affiliate Consent, Muzak hereby agrees to indemnify and hold harmless the
EchoStar Indemnities from, against and with respect to any and all Damages
incurred in connection with any claim by any Muzak Affiliate against any of the
EchoStar Indemnities arising out of Muzak's failure to obtain Affiliate Consent.
18
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
10.5 Post-Termination Service.
------------------------
(a) Upon termination of this Agreement, all subscription
agreements to the Muzak Services sold to Commercial Music Subscribers by Muzak
or Participating Muzak Affiliates shall remain the exclusive property of Muzak
or such Participating Muzak Affiliates, as the case may be. Muzak acknowledges
and agrees that EchoStar has the sole and exclusive ownership, right, title and
interest of any nature in and to any video programming purchased by Subscribers.
(b) Upon termination of this Agreement by EchoStar pursuant to
Section 10.2(a), (d) or (e), Muzak may request, and EchoStar shall continue to
provide (subject to restrictions by law), the Muzak Services to Muzak
Subscribers for a period of six (6) months, at the same level that such Muzak
Services were provided prior to termination. EchoStar shall be entitled to
receive the Monthly Facility Use Fee, the Combined Access Fees, the Uplink Fees
and Royalty Fees in accordance with the provisions of Section 5, as if this
Agreement was in full force and effect. Muzak further may request and EchoStar
shall continue to provide (subject to restrictions by law) the Muzak Services to
Muzak Subscribers for an additional period of three (3) months, at the same
level that such Muzak Services were provided prior to termination. During such
additional three (3) month period, EchoStar shall be entitled to receive [**]
the compensation EchoStar would have been entitled to receive if this
Agreement was in full force and effect absent termination of this Agreement.
(c) Upon expiration or termination of this Agreement by Muzak
pursuant to Section 10.1, 10.2(a), (d) or (e), Muzak may request, and EchoStar
shall continue to provide (subject to restrictions by law), the Muzak Services
to Muzak Subscribers for a period of twelve (12) months, at the same level that
such Muzak Services were provided prior to termination (subject to Section
2.1(d)). EchoStar shall be entitled to receive the Monthly Facility Use Fee, the
Combined Access Fees, the Uplink Fees and the Royalty Fees in accordance with
the provisions of Section 5, as if this Agreement was in full force and effect.
(d) During the transition periods set forth in Sections 10.6(b)
or (c) above, and at any time after termination or expiration of this Agreement,
either party may negotiate and/or enter into agreements with any of the parties
listed in Section 8, as applicable, which it otherwise would be restricted from
doing so pursuant to Section 8 above.
(e) Muzak acknowledges and agrees that:
(i) all Residential Music Subscriber information
(regardless of whether the Subscriber has purchased Muzak Services); and
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UNLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
(ii) all Commercial Music Subscriber information to the
extent neither Muzak nor any Participating Muzak Affiliate has sold Muzak
Services to such Commercial Music Subscriber,
including but not limited to names, addresses and profiles, are proprietary to,
and the exclusive property of, EchoStar. During the term of this Agreement
Muzak and the Participating Muzak Affiliates shall use that information only to
the extent required for their performance of this Agreement, or as specifically
permitted pursuant to this Agreement. Following expiration of the Agreement
neither Muzak nor any Participating Muzak Affiliate shall use any such
information for any reason, except to the extent specifically permitted above,
and for example but not by limitation, at no time either during the term of this
Agreement or following expiration thereof, shall Muzak or any Participating
Muzak Affiliate sell or otherwise provide that information to any third parties,
or use that information to solicit subscribers to subscribe to any other
programming service.
(f) EchoStar acknowledges and agrees that with respect to
Commercial Music Subscribers which have been sold Muzak Services by either Muzak
or a Participating Muzak Affiliate, all Commercial Subscriber information,
including but not limited to names, addresses and profiles, are proprietary to,
and the exclusive property of, Muzak or the applicable Participating Muzak
Affiliate. During the term of this Agreement EchoStar and EchoStar Sales Agents
shall use that information only to the extent required for their performance of
this Agreement, or as specifically permitted pursuant to this Agreement.
Following expiration of this Agreement EchoStar and EchoStar Sales Agents shall
not use any such information for any reason, except to the extent specifically
permitted above, and for example but not by limitation, at no time during the
term of this Agreement shall EchoStar or EchoStar Sales Agents sell or otherwise
provide that information to any third parties, and at no time either during the
term of this Agreement or following termination shall EchoStar or EchoStar Sales
Agents use that information to solicit subscribers to subscribe to any other
programming service.
EchoStar, Muzak and the Participating Muzak Affiliates agree that
with respect to any Commercial Music Subscriber not falling into one of the
above categories, upon, and at any time after, expiration of this Agreement,
either party may solicit the Commercial Music Subscriber to purchase any
services, subject to a party's rights in existing contracts.
The solicitation or sale of any services to any subscriber by
Muzak or a Participating Muzak Affiliate, on the one hand, or EchoStar or an
EchoStar Sales Agent, on the other hand, shall not be deemed to violate this
Section if proprietary subscriber information of the other party (as described
in this Section) is not used in connection with such solicitation or sale.
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MUZAK/ECHOSTAR
________________________________________________________________________________
(g) The parties acknowledge that, in the event of any actual or
threatened breach of paragraph (e) or (f) above, EchoStar, in the case of
paragraph (e) and Muzak and Participating Muzak Affiliates, in the case of
paragraph (f), will suffer irreparable and ongoing harm which, while
substantial, will not be fully compensable by damages. As a consequence, in the
event of any actual or threatened breach of such provisions, the non-breaching
party may, in addition and supplementary to any and all other rights and
remedies existing in its favor, obtain immediate and ongoing injunctive relief,
enjoining or restraining whatever violation may have occurred or be occurring or
may have been threatened. This injunctive relief shall be in the form of a
temporary restraining order, preliminary injunction or similar relief, and a
permanent injunction, as may be sought by the non-breaching party.
10.6 Limitation of Liability.
-----------------------
(a) Upon expiration or in the event this Agreement terminates or
is terminated for any reason set forth herein, if EchoStar is not in breach of
this Agreement, then EchoStar and its Affiliated Entities shall have no
liability or obligation to Muzak whatsoever, and for example, but not by way of
limitation, Muzak shall have no right to require EchoStar to continue to uplink
the Muzak Services (except as required pursuant to Section 10.5 above). Muzak
agrees that upon expiration or in the event of termination of this Agreement for
any reason, if EchoStar is not in breach of this Agreement, no amounts spent in
its fulfillment will be recoverable by Muzak from EchoStar or any of its
Affiliated Entities.
(b) Upon expiration or in the event this Agreement terminates or
is terminated for any reason set forth herein, if Muzak is not in breach of this
Agreement, then Muzak and its Affiliated Entities shall have no liability or
obligation to EchoStar whatsoever, and for example, but not by way of
limitation, EchoStar shall have no right to require Muzak to continue to permit
EchoStar to uplink the Muzak Services (except as required pursuant to Section
10.5 above). EchoStar agrees that upon expiration or in the event of termination
of this Agreement for any reason, if Muzak is not in breach of this Agreement,
no amounts spent in its fulfillment will be recoverable by EchoStar from Muzak
or any of its Affiliated Entities.
(c) Notwithstanding any provision in this Agreement to the
contrary, under no circumstances shall either party be liable to the other party
for exemplary, special, incidental or consequential damages, including, without
limitation, for any payment for lost business, future profits, loss of goodwill,
reimbursement for expenditures or investments made or commitments entered into,
creation of clientele, advertising costs, termination of employees or employees'
salaries, or overhead or facilities incurred or acquired based upon the business
derived or anticipated under this Agreement.
10.7 Survival of Terms. The rights and obligations pursuant to
-----------------
Sections 5, 6, 7, 9, 10.5, 10.6, 10.7, 11.4 and 11.11 shall survive expiration
or termination of this Agreement.
21
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
Any obligations of the parties arising prior to termination shall survive
termination of this Agreement and continue in full force and effect until the
same have been completely discharged.
SECTION 11. MISCELLANEOUS
11.1 Notices. Except as set forth below, all notices hereunder shall be
-------
in writing and delivered by hand or sent by certified mail, return receipt
requested, overnight delivery service or by facsimile to the receiving party at
its address or facsimile number set forth below or as otherwise designated by
written notice. Notice to EchoStar shall be provided as follows:
EchoStar Satellite Corporation
90 Inverness Circle East
Englewood, Colorado 80112
Attention: Carl E. Vogel, Executive Vice President
and Chief Operating Officer
Fax: (303) 799-0354
with copy to: EchoStar Satellite Corporation
90 Inverness Circle East
Englewood, Colorado 80112
Attention: David K. Moskowitz, Vice President
and General Counsel
Fax: (303) 799-0354
Notice to Muzak shall be provided as follows:
Muzak Limited Partnership
2901 Third Avenue, Suite 400
Suite 400
Seattle, WA 98121
Attention: President
Fax: (203) 623-6210
Notice given by mail shall be considered to have been given five (5) days after
the date of mailing, postage prepaid certified or registered mail. Notice given
by an overnight delivery service shall be considered to have been given on the
next business day. Notice given by facsimile shall be considered to have been
given on the date receipt thereof is confirmed during normal business hours,
with a hard copy to be mailed promptly thereafter.
11.2 Waiver. The failure of any party to insist upon strict
------
performance of any provision of this Agreement shall not be construed as a
waiver of any subsequent breach of the
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MUZAK/ECHOSTAR
________________________________________________________________________________
same or similar nature. All rights and remedies reserved to either party shall
be cumulative and shall not be in limitation of any other right or remedy which
such party may have at law or in equity.
11.3 Binding Agreement; Assignment. This Agreement shall be binding upon
-----------------------------
the parties hereto and their respective successors and assigns, except that it
may not be assigned (by transfer or by operation of law) by either party without
the prior written consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that either party may assign this
Agreement without the prior written consent of the other party in connection
with the sale of all or substantially all of its assets or equity interests
(including any sale of equity interests effected through a merger.
Notwithstanding the above, upon thirty (30) days prior written notice, either
party may assign this Agreement without the other party's consent to an
Affiliated Entity.
11.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Colorado applicable to contracts
made and fully performed therein by parties domiciled therein, without regard to
the conflicts of laws provisions thereof, except to the extent that the parties'
respective rights and obligations are subject to mandatory local, state and
federal laws or regulations.
11.5 Entire Agreement and Section Headings. This Agreement sets forth
-------------------------------------
the entire agreement and understanding of the parties relating to the subject
matter hereof. This Agreement shall not be modified other than in a writing,
signed by each of the parties hereto. The Section headings hereof are for the
convenience of the parties only and shall not be given any legal effect or
otherwise affect the interpretation of this Agreement.
11.6 Severability. The parties agree that each provision of this
------------
Agreement shall be construed as separable and divisible from every other
provision and that the enforceability of any one provision shall not limit the
enforceability, in whole or in part, of any other provision hereof. In the
event that a court of competent jurisdiction determines that a restriction
contained in this Agreement shall be unenforceable because of the extent of time
or geography, such restriction shall be deemed amended to conform to such extent
of time and/or geography as such court shall deem reasonable.
11.7 Confidentiality; Press Release.
------------------------------
(a) At all times during the Term and for a period of three (3)
years thereafter, the parties and their employees (and with respect to Muzak,
all Participating Muzak Affiliates must agree in writing (through the Muzak
Affiliation Agreement or otherwise) to comply fully with all of the
confidentiality provisions of this Agreement prior to disclosure by Muzak of any
information regarding EchoStar, this Agreement and any other agreements
23
<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
between the parties in any way related to this Agreement) will maintain, in
confidence, the terms and provisions of this Agreement, as well as all data,
summaries, reports or information of all kinds, whether oral or written,
acquired or devised or developed in any manner from the other party's personnel
or files, and that they have not and will not reveal the same to any persons not
employed by the other party (with the exception of Muzak Affiliates, but solely
for the purpose of seeking Affiliate Consent, and to perform if Affiliate
Consent is received) except: (i) at the written direction of such party; (ii) to
the extent necessary to comply with law, the valid order of a court of competent
jurisdiction or the valid order or requirement of the Securities and Exchange
Commission or any successor agency thereto, in which event the disclosing party
shall so notify the other party as promptly as practicable (and, if possible,
prior to making any disclosure) and shall seek confidential treatment of such
information; (iii) as part of its normal reporting or review procedure to its
parent company, its auditors and its attorneys, and such parent company,
auditors and attorneys agree to be bound by the provisions of this Section 11.7;
(iv) in order to enforce any of its rights pursuant to this Agreement; (v) to
Affiliated Entities, potential investors, insurers and financing entities, and
such Affiliated Entities, potential investors, insurers and financing entities
agree to be bound by the provisions of this Section 11.7; and (vi) to the extent
necessary to permit the performance of its obligations under this Agreement.
EchoStar will be a named third party beneficiary of the agreements of
Participating Muzak Affiliates to comply with the terms of this provision.
(b) Promptly after the date of execution of this Agreement, the
parties shall use their reasonable best efforts to agree upon a mutually
acceptable press release with respect to the parties' general business
relationship under this Agreement and to jointly issue and release such press
release at a date and time mutually agreed upon.
11.8 Force Majeure.
-------------
(a) Neither EchoStar nor Muzak shall be responsible for any
failure or delay in the performance of any of their respective obligations under
this Agreement due to wars, riots, public disorders, acts of God, labor dispute,
natural disaster, technical failure (including the failure of all or part of the
domestic communications satellite, or transponders on which the Muzak Services
are delivered by EchoStar to Subscribers, or of the related uplinking or other
equipment) or any other reason beyond the reasonable control of the party whose
performance is prevented during the period of such occurrence (any such event a
"Force Majeure"). The Term shall be suspended during the period when a party is
unable to fulfill its obligations hereunder by reason of such occurrence.
(b) If after launch of EchoStar's first DBS satellite a Force
Majeure event decreases the number of available operating transponders on the
EchoStar System, after allocating transponder space to video programming
suppliers to which EchoStar is contractually obligated to allocate a specified
number of channels, EchoStar will then allocate remaining
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<PAGE>
UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
operating transponder space to Muzak on a pro rata basis, taking into
consideration the amount of bandwidth utilized to deliver the Muzak Services
prior to such decrease in available operating transponders as a percentage of
all available bandwidth utilized to deliver all other programming services
(excluding those video programming suppliers to which EchoStar is contractually
obligated to allocate a specified number of channels).
11.9 Dispute Resolution.
------------------
(a) Initial Dispute Resolution Procedures. Any dispute or
-------------------------------------
disagreement between EchoStar and Muzak arising out of this Agreement shall be
resolved according to the following dispute resolution procedure. First, such
dispute shall be addressed to each party's project manager (or equivalent level
manager) for discussion and attempted resolution. If any such dispute cannot be
resolved by such project managers within five (5) business days after the date
that either party gives notice that such dispute or disagreement exists, then
such dispute shall be immediately referred to the respective presidents for
discussion and attempted resolution.
(b) Subsequent Dispute Resolution Procedures. If a dispute
----------------------------------------
cannot be resolved to the mutual satisfaction of both parties within five (5)
business days (or such longer period as may be mutually agreed upon) after the
second-tier referral described in Section 11.9(a) above, then such dispute shall
be submitted to binding arbitration in Denver, Colorado pursuant to the then
applicable rules of the American Arbitration Association.
11.10 Independent Contractors. The parties hereto acknowledge and agree
-----------------------
that the relationship established under the Agreement shall be that of
independent contractors. EchoStar and Muzak shall not be deemed partners or
joint venturers for one another for any purpose whatsoever.
11.11 Taxes, Fees, etc. Each party, at its expense, shall pay and
----------------
discharge all license fees, business, use, sales, gross receipts, income,
property or other similar taxes or assessments which may be charged or levied
upon such party.
11.12 No Franchise Relationship. Muzak acknowledges that EchoStar has
-------------------------
not required Muzak or any Muzak Affiliate to pay any franchise fee or other
payment or to commit to pay any such fee or other payment as a condition of the
execution of this Agreement. Muzak represents and warrants to EchoStar that
Muzak does not and shall not deem or claim itself to be a franchisee of
EchoStar, either in relation to this Agreement, or for any purpose, or under any
applicable law. Muzak shall have sole responsibility for compliance with any law
relating to franchising with regard to its relationships with Muzak Affiliates.
11.13 Compliance with Law. The parties shall comply with, and agree
-------------------
that this Agreement is subject to, all applicable Federal, state and local laws,
rules and regulations,
25
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UPLINK FACILITY AGREEMENT
MUZAK/ECHOSTAR
________________________________________________________________________________
including, without limitation, all of the provisions of the Communications Act
of 1934 and all amendments thereto, now enacted or hereafter promulgated in
force during the Term.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
ECHOSTAR SATELLITE CORPORATION
By:[SIGNATURE ILLEGIBLE]
--------------------------
Name:
Title:
MUZAK LIMITED PARTNERSHIP
By:/s/ John R. Jester
---------------------------
Name: John R. Jester
Title: President
26
<PAGE>
Exhibit 10.8
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
DBS PROGRAMMING AFFILIATION AGREEMENT
DBS PROGRAMMING AFFILIATION AGREEMENT (the "Agreement"), made as of
this 28th day of Dec , 1995, between EchoStar Satellite Corporation, a
------ -----
Colorado corporation ("EchoStar"), with offices at 90 Inverness Circle East,
Englewood, Colorado 80112, and Muzak Limited Partnership, a Delaware limited
partnership ("Muzak"), with offices at 2901 Third Avenue, Suite 400, Seattle,
Washington 98121.
RECITALS
A. EchoStar and Muzak, contemporaneous with the execution of this
Agreement, have entered into a Video Programming Sales Agent Agreement (the
"Video Agreement") and an Uplink Facility Agreement (the "Uplink Agreement"),
which Video Agreement and Uplink Agreement contemplated the execution of this
Agreement contemporaneous therewith; and
B. EchoStar is engaged in the business of, among other things, providing
direct broadcast satellite-delivered, multi-channel, digital audio, video and
data services to commercial and residential subscribers, itself and through its
authorized EchoStar Sales Agents (as hereinafter defined); and
C. Muzak is engaged in the business of, among other things, producing and
distributing subscription music, video, data and other services to commercial
subscribers, through its owned and independent Muzak Affiliates (as hereinafter
defined); and
D. EchoStar desires to deliver via the EchoStar System (as hereinafter
defined) Music Channels (as hereinafter defined) for distribution by EchoStar
and EchoStar Sales Agents to residential and commercial consumers; and
E. Subject to the terms and conditions set forth below, Muzak agrees to
allow EchoStar to deliver Music Channels via the EchoStar System and offer
subscriptions thereto.
NOW, THEREFORE, in consideration of the mutual promises and the covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, Muzak and EchoStar agree as follows:
SECTION 1. DEFINITIONS
In addition to the terms defined above or elsewhere in this Agreement, the
following capitalized terms shall have the meanings ascribed to them in this
Section 1 (It is the intent of the parties that the definitions used in this
Agreement be consistent with the definitions used in the Uplink Agreement and
the Video Agreement. To the extent of any conflict between a defined term in
this Agreement and a defined term in the Uplink Agreement or the Video
Agreement, it is the parties' intent that the two terms be interpreted in the
most reasonable manner so as to give the same or as reasonably similar an
interpretation to such defined term as is possible.)
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 2
________________________________________________________________________________
1.1 "Affected Party" shall have the meaning given to such term in
Section 9.2 of this Agreement.
1.2 "Affiliate Consent" shall have the meaning given to such term in
Section 9.4 of this Agreement.
1.3 "Affiliated Entities" shall mean, with respect to any person or
entity, any other person or entity directly or indirectly controlling,
controlled by or under common control (i.e., the power to direct affairs by
reason of ownership of voting stock, by contract or otherwise) with, such person
or entity, any partner of such person or entity, and any member, director,
officer or employee of such person or entity.
1.4 "Commercial Music Channels" shall mean the Music Channels
programmed by Muzak which are predominantly targeted for Commercial Subscribers.
1.5 "Commercial Subscribers" shall mean those EchoStar Subscribers
who are activated by EchoStar to receive Music Channels at retail, business,
office or other commercial locations.
1.6 "Commercial Subscriber Fees" shall have the meaning given to such
term in Section 2.7(a) of this Agreement.
1.7 "EchoStar Indemnities" shall mean EchoStar, its Affiliated
Entities, its EchoStar Sales Agents, its contractors, subcontractors and
authorized distributors, agents and programming suppliers, and the partners,
directors, officers, employees and agents of EchoStar, its Affiliated Entities,
its EchoStar Sales Agents, its subcontractors, distributors, agents and
programming suppliers.
1.8 "EchoStar Sales Agents" shall mean those persons or entities
authorized by EchoStar to solicit video, audio and data programming services
delivered via the EchoStar System, with the exception of Muzak and the
Participating Muzak Affiliates.
1.9 "EchoStar Subscriber" shall mean a commercial or residential
subscriber activated by EchoStar to receive audio, video and/or data programming
services via the EchoStar System.
1.10 "EchoStar System" shall mean the direct broadcast satellite
delivery system utilized by EchoStar and located at a 119 degrees orbital slot
assignment with 12.2 to 12.7 GHz downlink frequencies, and authorized by the
Federal Communications Commission ("FCC") for delivery of multi-channel digital
audio, video and data services.
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 3
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1.11 "EchoStar's Uplink Facility" shall mean EchoStar's satellite
uplink and broadcast center located in Cheyenne, Wyoming that serves the
function of uplinking satellite signals to the EchoStar System.
1.12 "Exclusive Muzak Territories" shall have the meaning given to
such term in Section 9.4 of this Agreement.
1.13 "Force Majeure" shall mean an event described in Section 10.8 of
this Agreement.
1.14 "Indemnified Party" shall mean a party seeking indemnification
pursuant to Section 8.3 of this Agreement.
1.15 "Indemnifying Party" shall mean a party from whom indemnification
is sought pursuant to Section 8.3 of this Agreement.
1.16 "Music Channels" shall mean Commercial Music Channels and
Residential Music Channels, as more fully described in Section 2.1, which in any
event shall exclude the Exclusive Muzak Channels (as defined in the Uplink
Agreement). The Music Channels may be in mono or stereo sound, as determined by
EchoStar in its sole discretion.
1.17 "Music Subscribers" shall mean Residential Subscribers and
Commercial Subscribers.
1.18 "Muzak" shall have the meaning given to such term in the
introductory paragraph of this Agreement, and shall be deemed to include owned
Muzak Affiliates, except where circumstances otherwise require or where it would
not be logical to infer such inclusion.
1.19 "Muzak Affiliates" shall mean those existing owned and
independent operators at the effective date of this Agreement, their successors,
assignees and transferees as permitted by Muzak, that have the exclusive right
to use the existing Muzak(R) trademark and certain other existing trademarks of
Muzak, and to distribute subscription music services, adjunct services related
to the sequencing, changing and switching of music-program communications, and
certain adjunct services related to the delivery of advertising, data and video
communications, in Exclusive Muzak Territories.
1.20 "Muzak Affiliation Agreement" shall mean collectively the
franchise agreement and the Participating Affiliate Agreement between Muzak and
an independent Muzak Affiliate.
1.21 "Muzak Indemnities" shall mean Muzak, the Participating Muzak
Affiliates, its Affiliated Entities, its contractors, subcontractors and
authorized distributors and agents, and
<PAGE>
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PAGE 4
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the partners, directors, officers, employees and agents of Muzak, the
Participating Muzak Affiliates, such Affiliated Entities, subcontractors,
distributors and agents.
1.22 "Muzak Services" shall mean the Music Channels and the Exclusive
Muzak Channels (as defined in the Uplink Agreement).
1.23 "Other Party" shall have the meaning given to such term in
Section 9.2 of this Agreement.
1.24 "Participating Muzak Affiliate" shall mean a Muzak Affiliate that
executes a Participating Affiliate Agreement with Muzak, which thereby shall
become a part of the Muzak Affiliation Agreement.
1.25 "Participating Affiliate Agreement" shall mean the agreement
between Muzak and an independent Muzak Affiliate pursuant to which Muzak obtains
Affiliate Consent and which agreement shall require Participating Muzak
Affiliates to comply with all terms and conditions in this Agreement, the Video
Agreement and the Uplink Agreement, applicable to Participating Muzak
Affiliates.
1.26 "Performance Right Fees" shall have the meaning given to such
term in Section 2.3(a) of this Agreement.
1.27 "Residential Music Channels" shall mean the Music Channels
programmed by Muzak which are predominantly targeted for Residential
Subscribers.
1.28 "Residential Subscriber Fee" shall have the meaning given to such
term in Section 2.2 of this Agreement.
1.29 "Residential Subscribers" shall mean EchoStar Subscribers who are
activated by EchoStar to receive Music Channels at their homes.
1.30 "Second Satellite Launch" shall mean the initial date on which
EchoStar commences transmission of the Video Services or Muzak Services on a
second EchoStar System satellite, which date shall in no event be later than
December 31, 1997.
1.31 "Service Launch" shall mean the initial date on which EchoStar
commences transmission of the Music Channels for revenue-generating purposes,
which date shall in no event be later than October 31, 1996.
1.32 "Subscriber Fees" shall mean Residential Subscriber Fees and
Commercial Subscriber Fees.
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PAGE 5
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1.33 "Term" shall mean the duration of this Agreement, as set forth in
Section 9.1 hereof.
1.34 "Territory" shall mean the footprint of the EchoStar System,
subject to any international, foreign, Federal, state, local or municipal,
conventions, treaties, laws, statutes, regulations, rules, ordinances or codes,
or prohibitions contained in programming agreements, which otherwise limit or
restrict EchoStar's right or ability to deliver any audio, video or data
programming services via the EchoStar System for receipt in any given
jurisdiction.
1.35 "Third Party Claim" shall mean any claim, assessment, action,
suit, audit or proceeding by a third party in respect of which indemnity may be
sought pursuant to Section 8 of this Agreement.
SECTION 2. PROGRAMMING AND TRANSMISSION OF MUSIC CHANNELS
2.1 Music Channels.
--------------
(a) Muzak will provide EchoStar with a multi-channel, digital,
music service as described in 2.1(b) for distribution over the EchoStar System
(the "Music Channels"). Subject to the terms and conditions of this Agreement
(including Affiliate Consent required pursuant to Section 9.4) and the on-going
rights of Muzak and Muzak Affiliates to distribute the Music Channels, Muzak
hereby grants to EchoStar the exclusive right and license to: (i) receive the
Music Channels from Muzak; (ii) transmit the signal of the Music Channels in a
digitally compressed, encrypted format, in mono or stereo sound as determined in
EchoStar's discretion, via the EchoStar System; (iii) activate and deactivate
consumer equipment (IRDs) for exhibition of the Music Channels as transmitted
via the EchoStar System to Residential Subscribers and Commercial Subscribers;
(iv) brand the Music Channels as EchoStar deems appropriate in its sole
discretion; and (v) offer and sell subscriptions to the Music Channels and
conduct customer service functions. Muzak represents and warrants (subject to
Affiliate Consent required pursuant to Section 9.4 below) that it has all rights
necessary to grant EchoStar the right to transmit the Music Channels to
Residential Subscribers and Commercial Subscribers.
(b) Effective upon Service Launch, and until the Second
Satellite Launch, the Music Channels will consist of thirteen (13) Commercial
Music Channels and fourteen (14) Residential Music Channels. Effective upon the
Second Satellite Launch, the Music Channels will consist of thirty (30) Music
Channels.
(c) The Music Channels shall not include the Environmental (R)
or FM-One(R) channels. Subject to Section 2.1(b), Muzak shall, in the exercise
of its sole discretion, be solely responsible for the programming and format of
the Music Channels; provided, however, that (i) EchoStar will have the right to
propose and to approve the format of each new
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 6
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Music Channel prior to its inclusion in the Music Channels, and (ii) EchoStar
may require Muzak to change the format of any Music Channel, and Muzak shall
effect any such change at no charge to EchoStar prior to the Second Satellite
Launch and for a fee of [**] per change after the Second Satellite Launch.
Notwithstanding the exclusivity of the Exclusive Muzak Channels, the Music
Channels may include channels with a similar tone or content as, but not
identical to, any of the Exclusive Muzak Channels, with the exception of the
Environmental(R) Channel. Such similar channels shall in no event utilize or
duplicate Muzak's proprietary Stimulus Progression(R) or Quantum Modulation(R)
techniques.
(d) All ownership, right, title and interest of any nature in
and to all or any part of the Music Channels and the programming contained
therein is vested exclusively in Muzak and neither EchoStar nor any EchoStar
Sales Agents shall have any right, title or interest in or to all or any part of
the Music Channels or the programming contained therein, except as specifically
licensed under this Agreement.
(e) EchoStar shall be entitled to package and brand the Music
Channels in any manner it chooses for distribution to Residential Subscribers
and Commercial Subscribers.
(f) The parties acknowledge that each Music Channel shall be
deemed to have a value of [**]. If for any reason EchoStar prices the Music
Channels at a higher rate, resulting in an increase in the Performance Right
Fees payable by Muzak hereunder as of the date this Agreement is executed,
EchoStar shall pay such increase.
2.2 Subscriber Fees for Residential Subscribers. EchoStar shall pay
-------------------------------------------
to Muzak a monthly programming fee of [**] per Music Channel per Residential
Subscriber (the "Residential Subscriber Fee"). The Residential Subscriber Fee is
only payable after EchoStar collects payment for the Music Channels from the
applicable Residential Subscriber for the applicable month.
2.3 Delivery of the Music Channels.
------------------------------
(a) Muzak shall be responsible for all costs of programming,
production, playback and transmission of the Music Channels to EchoStar's Uplink
Facility. Except as provided herein in Section 2.1(f) above and in Section 2.3
of the Uplink Agreement, Muzak shall be responsible for the cost of copyright,
royalty or other performance rights payments through to the viewer, including,
without limitation, payments to ASCAP, BMI, SESAC and any other applicable music
performance society or other applicable entity (collectively referred to as
"Performance Right Fees") with respect to the sale of all Music Channels to any
Residential Subscribers; provided, however, that in the event that at any time
during the term of this Agreement, Performance Right Fees exceed the Residential
Subscriber Fee, EchoStar shall pay such excess. EchoStar and the EchoStar Sales
Agents shall be independently responsible for
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 7
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collecting and remitting all Performance Right Fees, with respect to the sale of
any Music Channels to a Commercial Subscriber by EchoStar or EchoStar Sales
Agents, and EchoStar acknowledges that Muzak has no responsibility for such
Performance Rights Fees.
2.4 Additional Equipment. Muzak shall be responsible for any
--------------------
equipment (including the Mpeg Audio Encoder Boards) necessary for EchoStar to
receive and uplink the Music Channels at the point the Music Channels exit the
Mpeg Audio Encoder Boards, other than equipment which EchoStar currently
utilizes for receiving and uplinking signals to the EchoStar System.
2.5 Cost of Transmission. Except as provided to the contrary in
--------------------
Section 2.4 above, EchoStar shall be responsible for all costs of transmission
of the Music Channels from EchoStar's Uplink Facility to the EchoStar System and
to EchoStar Subscribers.
2.6 Rate Cards. EchoStar shall be responsible for setting rate cards
----------
for the sale of the Music Channels to EchoStar Subscribers by EchoStar Sales
Agents, and EchoStar shall be responsible for enforcing rate cards applicable to
sales of the Music Channels to EchoStar Subscribers by EchoStar Sales Agents.
The packaging and pricing of the Music Channels by EchoStar and EchoStar Sales
Agents to EchoStar Subscribers will be decided by EchoStar, in its sole
discretion.
2.7 Distribution of the Music Channels by EchoStar or EchoStar Sales
----------------------------------------------------------------
Agents to Commercial Subscribers.
- --------------------------------
(a) EchoStar will pay to Muzak and Participating Muzak
Affiliates, as applicable, each month a fee per each Commercial Subscriber in an
amount equal to [**] of Commercial EchoStar Collections (the "Commercial
Subscriber Fee") for any sales of the Music Channels to Commercial Subscribers
by EchoStar or EchoStar Sales Agents in such entity's Exclusive Muzak Territory.
(b) "Commercial EchoStar Collections" means the recurring
monthly charges collected from a Commercial Subscriber for the provision of the
Music Channels on the EchoStar System by EchoStar or EchoStar Agents.
"Commercial EchoStar Collections" shall not include any amounts collected from
Commercial Subscribers: (i) for sound system or video equipment lease, purchase,
installation or maintenance; (ii) for Performance Right Fees with respect to the
Music Channels; and (iii) any applicable sales, use or excise taxes with respect
to the Music Channels.
2.8 Discontinuation of Music Channels. EchoStar may, at any time, by
---------------------------------
giving sixty (60) days' prior written notice to Muzak, discontinue the uplink
and distribution of the Music Channels. Upon such discontinuation, EchoStar
shall purchase the equipment referred
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 8
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to in Section 2.4 above by payment to Muzak of the depreciated book value of
such equipment (which the parties agree to have a deemed value of [**],
allocating depreciation on a straight-line basis over five years.
2.9 Control Over System. Notwithstanding anything to the contrary in
-------------------
this Agreement, EchoStar shall always be entitled to exercise control over all
aspects of the EchoStar System, including any programming or other material
provided by Muzak, but only to the minimum extent EchoStar is required to do so
by Federal Communications Commission or similar law, rule or regulation.
SECTION 3. VIDEO AGREEMENT AND UPLINK AGREEMENT
3.1 Video Agreement. Contemporaneous with the execution of this
---------------
Agreement, the parties have executed the Video Agreement, which permits Muzak
and Participating Muzak Affiliates to solicit orders for, as an agent of
EchoStar, certain video programming packages at prices determined by EchoStar
and delivered via the EchoStar System.
3.2 Uplink Agreement. Contemporaneous with the execution of this
-----------------
Agreement, the parties have executed the Uplink Agreement, pursuant to which
EchoStar shall uplink and deliver the Muzak Services.
SECTION 4. PAYMENT TERMS, REPORTS AND AUDITS
4.1 Payment Schedule. All monthly Subscriber Fee payments required to
----------------
be made by EchoStar pursuant to Sections 2.2 and 2.7 shall be paid within forty
five (45) days of the end of each month during the term of this Agreement.
4.2 Reports. Together with the monthly Subscriber Fee payments
-------
required under Section 4.1 above, EchoStar shall submit to Muzak a report, which
reasonably details the amounts payable to Muzak and the Participating Muzak
Affiliates pursuant to this Agreement. Such reports shall include for each
applicable month: (i) the total number of Music Subscribers; (ii) the total
number of Residential Subscribers and Commercial Subscribers; (iii) the total
number of EchoStar Subscribers; (iv) the total number of Residential Subscribers
and Commercial Subscribers receiving free trial subscriptions to the Music
Channels; (v) the Music Channels ordered by such subscribers; and (vi) the
Commercial EchoStar Collections (including itemization) for each Commercial
Subscriber. The report shall reflect all Commercial EchoStar Collections during
the periods to which such payments pertain. In any event such report shall
contain such information as is required by the applicable performance rights
societies and other applicable entities. Muzak acknowledges and agrees that all
information provided by EchoStar to Muzak under this Section 4.2 is deemed
proprietary to EchoStar, and Muzak represents and
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 9
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agrees that it will treat all such information confidential as required by
Section 10.7(a) of this Agreement.
4.3 Collection of Billings. EchoStar shall be solely responsible for
----------------------
all billing and collection of: (i) fees charged to Residential Subscribers for
Music Channels distributed by EchoStar or EchoStar Sales Agents; and (ii) fees
charged to Commercial Subscribers for Music Channels distributed by EchoStar or
EchoStar Sales Agents, and EchoStar shall undertake such billing and collection
activities in accordance with its customary prevailing practices and in the
exercise of reasonable and prudent business judgment. Notwithstanding anything
to the contrary herein, EchoStar may offer free trials of the Music Channels for
periods of up to thirty (30) days or such other trial period as mutually agreed
to by Muzak and EchoStar from time to time, which free trials shall be excluded
from the payment calculation in Section 2.7 above.
4.4 Late Payments. In the event that any overdue balances are ever
-------------
owed by EchoStar to Muzak, late charges shall be assessed on a monthly basis at
the rate of 1.5% of the outstanding balance per month or the maximum amount
allowed by law, whichever is lower. Notwithstanding the above, EchoStar shall
have one (1) late payment of no more than ten (10) days following the date upon
which such amount was due in any calendar year without incurring late payment
charges with respect to such payment due.
4.5 Subscriber Cancellations. Muzak understands that any Music
------------------------
Channels which are cancelled by a subscriber, or for which a credit is issued,
shall effect a pro rata reduction in Subscriber Fees paid or payable to Muzak
and/or the applicable Participating Muzak Affiliate, to be assessed as a charge
back to Muzak and/or the applicable Participating Muzak Affiliate, which charge
back may be offset against any money due to Muzak and/or the applicable
Participating Muzak Affiliate from EchoStar or otherwise to be reimbursed by
Muzak and/or the applicable Participating Muzak Affiliate, as applicable, to
EchoStar.
4.6 Multi-Month Payments. In the case of multi-month subscriptions,
--------------------
Subscriber Fees will be paid monthly as the Music Channels are provided, even if
a multi-month payment is received by EchoStar.
4.7 Muzak Audit Rights.
------------------
(a) EchoStar shall keep complete and accurate books and records
of all EchoStar Subscriber accounts. During the term of this Agreement and for a
period of one (1) year thereafter, Muzak or its designated representative may,
in its reasonable discretion, on at least ten (10) days' advance written notice,
not more than once in any twelve (12) month period, at EchoStar's offices, at
reasonable times within regular business hours approved by EchoStar, which
approval shall not be unreasonably withheld, and at Muzak's sole cost and
expense, inspect and audit such books and records, provided that such inspection
and audit shall be no
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 10
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more extensive than is required to verify that EchoStar's payments to Muzak and
the Participating Muzak Affiliates have been properly computed in accordance
with the terms of this Agreement. Muzak shall not assess EchoStar for amounts
found, as a result of such audit, to be owing thereafter if such amounts relate
to a reporting period that ended more than two (2) years prior to the date such
audit commenced. In the event that any audit undertaken by Muzak results in a
determination that there has been either an underpayment or overpayment of the
amounts due Muzak or any Participating Muzak Affiliate hereunder, then within
thirty (30) days after such determination, Muzak and/or the Participating Muzak
Affiliate, or EchoStar, as the case may be, shall pay to the other the amount of
such underpayment or overpayment, plus simple interest accrued on a daily basis
from the date payment was due to the date of payment, at the prime rate of the
Union Bank of Switzerland, New York Branch, in effect at the time of payment.
Muzak shall bear all costs related to an audit of EchoStar's books and records,
except if such audit reveals an underpayment in excess of five percent (5%) for
all payments in the aggregate in the applicable period audited, in which case
EchoStar shall pay Muzak's reasonable expenses related to the audit.
(b) During any audit hereunder, Muzak or its designated
representative (at Muzak's cost and expense) may make copies of only those books
and records relating to Subscriber accounts of EchoStar that are necessary for
the verification of statements and accountings to Muzak and Participating Muzak
Affiliates and that were physically examined as part of the audit. Muzak shall
provide EchoStar with a copy of the audit report so EchoStar can verify the
results of the audit. Muzak acknowledges and agrees that all information
disclosed or made available by EchoStar during the course of an audit by Muzak
is proprietary to EchoStar. Muzak shall take reasonable precautions to
safeguard the confidentiality of all such information, including, without
limitation, any copies thereof (and in any event Muzak shall exercise the same
precautions it uses to safeguard its own confidential and proprietary
information) and shall destroy any such copies upon the mutually-confirmed
completion of the audit and payment in full of any fees and other charges
determined to be owing as a result of such audit. Muzak shall not, during the
Term or at any time thereafter, use any information disclosed or made available
by EchoStar in the course of an audit by Muzak for any purpose whatsoever except
to verify that EchoStar's payments have been properly computed in accordance
with the terms of this Agreement.
(c) In the event that a party disputes the results of an audit,
the parties shall attempt to resolve the matter by conducting a new audit under
the joint supervision of their respective independent certified public
accountants. In the event that such new audit resolves the dispute, the cost of
each party's independent certified public accountants shall be borne by such
party. In the event that such new audit fails to resolve the dispute, the matter
shall be resolved by binding arbitration in Denver, Colorado under the then
applicable rules of the American Arbitration Association and the prevailing
party shall be reimbursed by the other party for all of its costs of the second
audit and for its reasonable attorneys fees.
<PAGE>
DBS PROGRAMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 11
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SECTION 5. MUZAK'S TRADEMARKS
5.1 EchoStar and EchoStar Sales Agents shall not use any of Muzak's
trademarks, trade names or service marks without the prior written consent of
Muzak (which consent shall be subject to the exclusive rights of Muzak
Affiliates to any such trademark, trade name or service mark). All rights to
Muzak's trademarks, trade names or service marks shall remain vested in Muzak
following any termination of this Agreement, and EchoStar acknowledges that
neither it nor any of the EchoStar Sales Agents shall have any rights therein.
If consent has been granted by Muzak for EchoStar to use a Muzak Trademark, and
if EchoStar submits an example of its intended use of a Muzak trademark, Muzak
shall approve or reject such example within five (5) days, otherwise the example
shall be deemed approved for use by EchoStar.
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Mutual Representations, Warranties and Covenants.
------------------------------------------------
Each of the parties represents, warrants and covenants to the other that:
(i) it has full power and authority to enter into and fully perform its
obligations under this Agreement (with respect to Muzak, however, subject to
Affiliate Consent required pursuant to Section 9.4 below); (ii) it has not and
will not during the Term enter into an agreement or arrangement which limits the
full performance of its obligations hereunder; (iii) it is and will remain in
full compliance with all applicable local, state and Federal laws and
regulations, including but not limited to such statutes, laws, rules,
regulations and orders enforced, administered, promulgated or pronounced by the
FCC; (iv) the execution of this Agreement by it will not: (a) result in any
breach of, or constitute a default under, any contract, agreement, corporate
charter, bylaw, or other instrument or agreement to which it is a party or by
which it or its property may be bound or affected, or (b) require the consent of
any third party (with respect to Muzak, however, subject to Affiliate Consent
required pursuant to Section 9.4 below); (v) it has obtained, and shall maintain
in full force during the Term, such Federal, state and local authorizations as
are necessary to operate the business it is conducting in connection with its
rights and obligations under this Agreement; (vi) it is under no obligation and
will not become subject to any obligation that might interfere with its
performance of this Agreement (with respect to Muzak, however, subject to
Affiliate Consent required pursuant to Section 9.4 below); and (vii) it will
comply with all of its representations, warranties, obligations, covenants and
responsibilities herein contained. All representations, warranties and
covenants made hereunder shall survive the execution of this Agreement.
6.2 Muzak Content Warranties and Covenants. Muzak warrants and
--------------------------------------
covenants that the Music Channels will not be defamatory or obscene and they
will not contain any material which violates any copyright, right of privacy or
literary or dramatic right of any person or entity. Subject to EchoStar's
obligations under Sections 2.1(e) and 2.3 hereof, Muzak warrants
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 12
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that all applicable payments for Performance Right Fees will be paid by Muzak
during the Term, with respect to the sale of all Music Channels to any
Residential Subscribers.
SECTION 7. NONCOMPETITION
7.1 Muzak Competitors. During the Term, EchoStar shall not, directly
-----------------
or indirectly, within the Territory: (i) provide transponder space to; (ii)
enter into or maintain distributor agreements or relationships with; or (iii)
enter into any agreement for the programming or delivery of any audio services
via DBS frequencies (12.2 ghz. to 12.7 ghz.) with, the following competitors of
Muzak in the sale of commercial music services: Audio Environments, Inc., DMX
Inc., 3M Sound Products, Inc. and Digital Cable Radio Associates, L.P., and
their affiliates, successors and assigns. Muzak acknowledges and understands
that an Affiliated Entity of EchoStar currently has an agreement with DMX Inc.
for the distribution of audio services via frequencies outside of the 12.2 ghz.
to 12.7 ghz. bandwidth, and further acknowledges and agrees that such
relationship is not a violation of this Section 7.1.
7.2 EchoStar Competitors. During the Term, Muzak shall not, directly,
--------------------
or indirectly, within the Territory: (i) secure transponder space for; (ii)
enter into or maintain distribution agreements or relationships with; or (iii)
enter into any agreement for the programming or delivery of any Muzak Services
with (A) any entity which delivers video, audio and/or data via DBS frequencies
(12.2 ghz. to 12.7 ghz.) or any affiliate, successor or assign of any such
entity; or (B) PrimeStar, Alphastar or any affiliate, successor or assign of
PrimeStar or Alphastar via K-band frequencies.
SECTION 8. INDEMNIFICATION
8.1 Indemnification by Muzak. Muzak shall indemnify and hold
------------------------
harmless the EchoStar Indemnities from, against and with respect to any and all
claims, damages, liabilities, costs and expenses (including reasonable
attorneys' and expert's fees) (collectively "Damages") incurred in connection
with any claim against any of the EchoStar Indemnities arising out of: (i)
Muzak's breach of any provision of this Agreement; (ii) material (including
advertising or promotional copy) or programming supplied by Muzak pursuant to
this Agreement to the extent that EchoStar Indemnities have not modified,
altered or edited such material or programming, or interrupted the distribution
of such material or programming without Muzak's prior written consent; (iii) the
distribution or cablecast of any programming included in the Music Channels
which violates any right of privacy or which is defamatory or obscene in nature,
or requires payment for any Performance Right Fees, to the extent the payment of
such Performance Right Fees are the responsibility of Muzak hereunder; and/or
(iv) Muzak's advertising and marketing of the Music Channels. In addition, Muzak
shall indemnify and hold the EchoStar Indemnities harmless from any Federal,
state or local taxes or fees that are based upon revenues derived by, or the
operations of, Muzak. Notwithstanding anything to the contrary herein or
otherwise, in
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 13
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no event shall Muzak have any liability to EchoStar, the EchoStar Indemnities or
any other person or entity arising out of, relating to or resulting from the
acts or omissions of Muzak's independent Muzak Affiliates, under this Agreement.
8.2 Indemnification by EchoStar. EchoStar shall indemnify and hold
---------------------------
harmless the Muzak Indemnities from, against and with respect to any and all
Damages incurred in connection with any claim against any of the Muzak
Indemnities arising out of: (i) EchoStar's breach of any provision of this
Agreement; (ii) EchoStar's advertising and marketing of the Music Channels
(except for advertising and marketing materials supplied by or approved in
writing by Muzak); and (iii) Performance Right Fees with respect to the sale of
the Music Channels to Commercial Music Subscribers by EchoStar or by EchoStar
Sales Agents or which are otherwise the responsibility of EchoStar hereunder.
In addition, EchoStar shall pay and hold the Muzak Indemnities harmless from any
Federal, state or local taxes or fees that are based upon revenues derived by,
or the operation of, EchoStar. Notwithstanding anything to the contrary herein
or otherwise, in no event shall EchoStar have any liability to Muzak, the Muzak
Indemnities or any other person or entity arising out of, relating to or
resulting from the acts or omissions of the EchoStar Sales Agents.
8.3 Indemnification Procedures. Should either party wish to assert a
--------------------------
claim for indemnification (a "Third Party Claim"), such party (the "Indemnified
Party") shall do so by promptly notifying the other party (the "Indemnifying
Party") in writing of such claim. The Indemnifying Party shall undertake the
defense of any Third Party Claim and permit the Indemnified Party to participate
therein at the Indemnified Party's expense. The settlement of any Third Party
Claim by an Indemnified Party, without the Indemnifying Party's prior written
consent, shall release the Indemnified Party from its obligations hereunder with
respect to such Third Party Claim so settled.
SECTION 9. TERM AND TERMINATION
9.1 Term. This Agreement shall commence on the date of execution by
----
both EchoStar and Muzak and shall continue until the expiration of the useful
life of the EchoStar System satellite on which EchoStar has allocated 2.4
megahertz of transponder capacity to Muzak for carriage of the Exclusive Muzak
Channels, unless and until this Agreement is terminated as provided in this
Section 9.
9.2 Termination Upon Default. This Agreement may be terminated by a
------------------------
party (the "Affected Party"), in accordance with the procedures set forth in
Section 9.3 below, upon the occurrence of any of the following with respect to
the other party (the "Other Party"):
(a) The Other Party loses any Federal Communications Commission,
broadcast, performance or other similar license rights necessary to deliver the
services to be
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 14
________________________________________________________________________________
provided to the Affected Party under the terms of this Agreement, and such
default is not cured within sixty (60) days of receipt of written notice from
the Affected Party (or if such default cannot reasonably be cured by the Other
Party within such sixty (60) days, if such cure has been initiated by the Other
Party and the Other Party is diligently continuing to cure within that time, the
Other Party's opportunity to cure such default shall be extended for a period
not to exceed an additional thirty (30) days).
(b) The Other Party (which for purposes of this Section 9.2(b)
shall mean EchoStar alone) commits a payment default which is not: (i) cured
within sixty (60) days of receipt of written notice from the Affected Party; or
(ii) reserved against in accordance with the escrow procedures outlined in
Section 9.3 below.
(c) The Other Party (which, for purposes of this Section 9.2(c)
shall mean EchoStar alone) (i) is unable to launch the Muzak Services on the
first EchoStar System satellite by October 31, 1996 or (ii) is unable to launch
a second EchoStar System satellite by December 31, 1997 (unless EchoStar then
allocates, or has allocated, 2.4 megahertz of transponder capacity to Muzak for
carriage of the Exclusive Muzak Channels on the first EchoStar System
satellite), in each case, including without limitation due to the failure to
accomplish Service Launch or due to satellite failures, and such default is not
cured within sixty (60) days of receipt of written notice from the Affected
Party (or if such default cannot reasonably be cured by the Other Party within
such sixty (60) days, if such cure has been initiated by the Other Party and the
Other Party is diligently continuing to cure within that time, the Other Party's
opportunity to cure such default shall be extended for a period not to exceed an
additional thirty (30) days).
(d) The Other Party defaults on a material obligation or
breaches a material representation or warranty in this Agreement or in the Video
Agreement, the Uplink Agreement, or the Trademark License Agreement referred to
in Section 8.1(a) of the Video Agreement, and such default or breach is not
cured within sixty (60) days of receipt of written notice from the Affected
Party (or if such default or breach cannot be reasonably cured by the Other
Party within sixty (60) days, if such cure has been initiated by the Other Party
and the Other Party is diligently continuing to cure within that time, the Other
Party's opportunity to cure such default or breach shall be extended for a
period of time not to exceed an additional thirty (30) days. A default or breach
under this Agreement shall also give rise to a default under the Video Agreement
and the Uplink Agreement.
(e) If the Other Party files bankruptcy, has an involuntary
petition in bankruptcy filed against it (which petition is not dismissed within
forty five (45) days after filing), is insolvent, makes an assignment for the
benefit of creditors or has a trustee appointed to manage the affairs of the
Other Party.
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 15
________________________________________________________________________________
9.3 Termination Procedure. The Affected Party may exercise its
---------------------
termination rights pursuant to Section 9.2 only by giving the Other Party a
notice of termination delivered in conformance with Section 10.1 of this
Agreement. Such notice shall specify the basis of termination, and shall
specify the applicable cure period. In the event of a payment default, the
Other Party may, within the sixty (60) days cure period referred to in Section
9.2(b) above, escrow the disputed amount with an escrow agent acceptable to the
Affected Party, and notify the Affected Party (in conformance with Section 10.1
of this Agreement) that it has done so. If such disputed amount is deposited in
escrow in accordance with the prior sentence, the parties shall seek to promptly
resolve such dispute in the manner set forth in Section 10.9 and the escrow
agent shall be instructed to disburse the disputed amount only upon receipt of
written instructions signed by both Muzak and EchoStar. Deposit of the disputed
amount in escrow will stay termination of this Agreement until the dispute is
resolved by the parties in the manner set forth in Section 10.9 or the parties
determine that the dispute cannot be resolved in accordance with Section 10.9.
Any dispute regarding whether a termination is effective shall be resolved in
the manner set forth in Section 10.9.
9.4 Consent of Muzak Affiliates. Nothing in this Agreement shall be
---------------------------
binding on any Muzak Affiliate until such time as such Muzak Affiliate executes
the Participating Affiliate Agreement and the EchoStar Dealer Agreement (as
defined in the Video Agreement), and then only to the extent set forth in such
Participating Affiliate Agreement and the EchoStar Dealer Agreement. The
parties hereby acknowledge that Muzak Affiliates have certain exclusive rights
to distribute certain Muzak Services in their respective areas (the "Exclusive
Muzak Territories"), and that the provision of the Music Channels under the
terms of this Agreement and the grant of certain rights to EchoStar to
distribute certain of the Muzak Services may conflict with those exclusive
rights. Accordingly, the performance of this Agreement by Muzak is hereby
conditioned upon the prior written consent of all Muzak Affiliates ("Affiliate
Consent"), which consent will be solicited by Muzak promptly upon execution of
this Agreement. If Muzak fails to obtain Affiliate Consent within thirty (30)
days after the execution of this Agreement, Muzak may terminate this Agreement
within ten (10) days thereafter by providing written notice to EchoStar, and the
Video Agreement and the Uplink Agreement shall also automatically terminate as
of the effective date of termination of this Agreement. If Muzak elects not to
terminate this Agreement, notwithstanding that Muzak fails to obtain Affiliate
Consent, Muzak hereby agrees to indemnify and hold harmless the EchoStar
Indemnities from, against and with respect to any and all Damages incurred in
connection with any claim by any Muzak Affiliate against any of the EchoStar
Indemnities arising out of Muzak's failure to obtain Affiliate Consent.
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 16
________________________________________________________________________________
9.5 Post-Termination Service.
------------------------
(a) Upon any termination of this Agreement, all subscription
agreements to the Music Channels sold by EchoStar or EchoStar Sales Agents shall
remain the exclusive property of EchoStar.
(b) Upon termination of this Agreement by Muzak pursuant to
Section 9.2(a), (d) or (e), EchoStar may request, and Muzak shall continue to
provide (subject to restrictions by law), the Music Channels to EchoStar
Subscribers for a period of six (6) months, at the same level that such Music
Channels were provided prior to termination. During such period, Muzak and the
Participating Muzak Affiliates (as applicable) shall be entitled to receive the
Commercial Subscriber Fees and the Residential Subscriber Fees, in accordance
with Section 4, as if this Agreement was in full force and effect. EchoStar
further may request and Muzak shall continue to provide (subject to restrictions
by law) the Music Channels to EchoStar Subscribers for an additional period of
three (3) months, at the same level that such Music Channels to were provided
prior to termination. During such additional three (3) month period, Muzak and
the Participating Muzak Affiliates (as applicable) shall be entitled to receive
[**] the compensation they would have been entitled to receive if this
Agreement was in full force and effect absent termination of this Agreement.
(c) Upon expiration or termination of this Agreement by EchoStar
pursuant to Section 9.1, 9.2(a), (d) or (e), EchoStar may request, and Muzak
shall continue to provide (subject to restrictions by law), the Music Channels
to EchoStar Subscribers for a period of twelve (12) months, at the same level
that such Music Channels were provided prior to termination or expiration.
Muzak and the Participating Muzak Affiliates, as applicable, shall be entitled
to receive the Commercial Subscriber Fees and Residential Subscriber Fees in
accordance with the provisions of Section 4, as if this Agreement was in full
force and effect.
(d) During the transition period set forth in Section 9.5(b)
above, and at any time after termination or expiration of this Agreement, either
party may negotiate and/or enter into agreements with any of the parties listed
in Section 7, as applicable, which it otherwise would be restricted from doing
so pursuant to Section 7 above.
(e) Muzak acknowledges and agrees that:
(i) all Residential Subscriber information (regardless of
whether the Subscriber has purchased Muzak Services); and
(ii) all Commercial Subscriber information to the extent
neither Muzak nor any Participating Muzak Affiliate has sold Muzak Services to
such Commercial Subscriber,
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 17
________________________________________________________________________________
including but not limited to names, addresses and profiles, are proprietary to,
and the exclusive property of, EchoStar. During the term of this Agreement
Muzak and the Participating Muzak Affiliates shall use that information only to
the extent required for their performance of this Agreement, or as specifically
permitted pursuant to this Agreement. Following expiration of the Agreement
neither Muzak nor any Participating Muzak Affiliate shall use any such
information for any reason, except to the extent specifically permitted above,
and for example but not by limitation, at no time either during the term of this
Agreement or following expiration thereof, shall Muzak or any Participating
Muzak Affiliate sell or otherwise provide that information to any third parties,
or use that information to solicit subscribers to subscribe to any other
programming service.
(f) EchoStar acknowledges and agrees that with respect to
Commercial Subscribers which have been sold Muzak Services by either Muzak or a
Participating Muzak Affiliate, all Commercial Subscriber information, including
but not limited to names, addresses and profiles, are proprietary to, and the
exclusive property of, Muzak or the applicable Participating Muzak Affiliate.
During the term of this Agreement EchoStar and EchoStar Sales Agents shall use
that information only to the extent required for their performance of this
Agreement, or as specifically permitted pursuant to this Agreement. Following
expiration of this Agreement EchoStar and EchoStar Sales Agents shall not use
any such information for any reason, except to the extent specifically permitted
above, and for example but not by limitation, at no time during the term of this
Agreement shall EchoStar or EchoStar Sales Agents sell or otherwise provide that
information to any third parties, and at no time either during the term of this
Agreement or following termination shall EchoStar or EchoStar Sales Agents use
that information to solicit subscribers to subscribe to any other programming
service.
EchoStar, Muzak and the Muzak Affiliates agree that with respect to any
Commercial Subscriber not falling into one of the above categories, upon, and at
any time after, expiration of this Agreement, either party may solicit the
Commercial Subscriber to purchase any services, subject to a party's rights in
existing contracts.
The solicitation or sale of any services to any subscriber by Muzak or a
Participating Muzak Affiliate, on the one hand, or EchoStar or an EchoStar Sales
Agent, on the other hand, shall not be deemed to violate this Section if
proprietary subscriber information of the other party (as described in this
Section) is not used in connection with such solicitation or sale.
(g) The parties acknowledge that, in the event of any actual or
threatened breach of paragraph (e) or (f) above, EchoStar, in the case of
paragraph (e) and Muzak and Participating Muzak Affiliates, in the case of
paragraph (f), will suffer irreparable and ongoing harm which, while
substantial, will not be fully compensable by damages. As a consequence, in the
event of any actual or threatened breach of such provisions, the non-breaching
party may, in addition and supplementary to any and all other rights and
remedies existing in its favor,
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 18
________________________________________________________________________________
obtain immediate and ongoing injunctive relief, enjoining or restraining
whatever violation may have occurred or be occurring or may have been
threatened. This injunctive relief shall be in the form of a temporary
restraining order, preliminary injunction or similar relief, and a permanent
injunction, as may be sought by the non-breaching party.
9.6 Limitation of Liability.
-----------------------
(a) Upon expiration or in the event this Agreement terminates or
is terminated for any reason set forth herein, if EchoStar is not in breach of
this Agreement, then EchoStar and its Affiliated Entities shall have no
liability or obligation to Muzak whatsoever, and for example, but not by way of
limitation, Muzak shall have no right to require EchoStar to continue to
distribute the Music Channels. Muzak agrees that upon expiration or in the event
of termination of this Agreement for any reason, if EchoStar is not in breach of
this Agreement, no amounts spent in its fulfillment will be recoverable by Muzak
from EchoStar or any of its Affiliated Entities.
(b) Upon expiration or in the event this Agreement terminates or
is terminated for any reason set forth herein, if Muzak is not in breach of this
Agreement, then Muzak and its Affiliated Entities shall have no liability or
obligation to EchoStar whatsoever, and for example, but not by way of
limitation, EchoStar shall have no right to require Muzak to continue to permit
EchoStar to distribute the Music Channels (except as required pursuant to
Section 9.5 above). EchoStar agrees that upon expiration or in the event of
termination of this Agreement for any reason, if Muzak is not in breach of this
Agreement, no amounts spent in its fulfillment will be recoverable by EchoStar
from Muzak or any of its Affiliated Entities.
(c) Notwithstanding any provision in this Agreement to the contrary,
under no circumstances shall either party be liable to the other party for
exemplary, special, incidental or consequential damages, including, without
limitation, any payment for lost business, future profits, loss of goodwill,
reimbursement for expenditures or investments made or commitments entered into,
creation of clientele, advertising costs, termination of employees or employees'
salaries, or overhead or facilities incurred or acquired based upon the business
derived or anticipated under this Agreement.
9.7 Survival of Terms. The rights and obligations pursuant to
-----------------
Sections 4, 5, 6, 8, 9.5, 9.6, 9.7, 10.4 and 10.7 shall survive expiration or
termination of this Agreement. Any obligations of the parties arising prior to
termination shall survive termination of this Agreement and continue in full
force and effect until the same have been completely discharged.
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 19
________________________________________________________________________________
SECTION 10. MISCELLANEOUS
10.1 Notices. Except as set forth below, all notices hereunder shall
-------
be in writing and delivered by hand or sent by certified mail, return receipt
requested, overnight delivery service or by facsimile to the receiving party at
its address or facsimile number set forth below or as otherwise designated by
written notice. Notice to EchoStar shall be provided as follows:
EchoStar Satellite Corporation
90 Inverness Circle East
Englewood, Colorado 80112
Attention: Carl E. Vogel, Executive Vice President
and Chief Operating Officer
Fax: (303) 799-0354
with copy to: EchoStar Satellite Corporation
90 Inverness Circle East
Englewood, Colorado 80112
Attention: David K. Moskowitz, Vice President
and General Counsel
Fax: (303) 799-0354
Notice to Muzak shall be provided as follows:
Muzak Limited Partnership
2901 Third Avenue, Suite 400
Suite 400
Seattle, WA 98121
Attention: President
Fax: (203) 623-6210
Notice given by mail shall be considered to have been given five (5) days after
the date of mailing, postage prepaid certified or registered mail. Notice given
by an overnight delivery service shall be considered to have been given on the
next business day. Notice given by facsimile shall be considered to have been
given on the date receipt thereof is confirmed during normal business hours,
with a hard copy to be mailed promptly thereafter.
10.2 Waiver. The failure of any party to insist upon strict
------
performance of any provision of this Agreement shall not be construed as a
waiver of any subsequent breach of the same or similar nature. All rights and
remedies reserved to either party shall be cumulative and shall not be in
limitation of any other right or remedy which such party may have at law or in
equity.
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 20
________________________________________________________________________________
10.3 Binding Agreement; Assignment. This Agreement shall be binding
-----------------------------
upon the parties hereto and their respective successors and assigns, except that
it may not be assigned (by transfer or by operation of law) by either party
without the prior written consent of the other party, which consent shall not be
unreasonably withheld; provided, however, that either party may assign this
Agreement without the prior written consent of the other party in connection
with the sale of all or substantially all of its assets or equity interests
(including any sale of equity interests effected through a merger).
Notwithstanding the above, upon thirty (30) days prior written notice, either
party may assign this Agreement without the other party's consent to an
Affiliated Entity.
10.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Colorado applicable to contracts
made and fully performed therein by parties domiciled therein, without regard to
the conflicts of laws provisions thereof, except to the extent that the parties'
respective rights and obligations are subject to mandatory local, state and
federal laws or regulations.
10.5 Entire Agreement and Section Headings. This Agreement sets forth
-------------------------------------
the entire agreement and understanding of the parties relating to the subject
matter hereof. This Agreement shall not be modified other than in a writing,
signed by each of the parties hereto. The Section headings hereof are for the
convenience of the parties only and shall not be given any legal effect or
otherwise affect the interpretation of this Agreement.
10.6 Severability. The parties agree that each provision of this
------------
Agreement shall be construed as separable and divisible from every other
provision and that the enforceability of any one provision shall not limit the
enforceability, in whole or in part, of any other provision hereof. In the
event that a court of competent jurisdiction determines that a restriction
contained in this Agreement shall be unenforceable because of the extent of time
or geography, such restriction shall be deemed amended to conform to such extent
of time and/or geography as such court shall deem reasonable.
10.7 Confidentiality; Press Release.
------------------------------
(a) At all times during the Term and for a period of three (3)
years thereafter, the parties and their employees (and with respect to Muzak,
all Muzak Affiliates must agree in writing (through the Muzak Affiliation
Agreement or otherwise) to comply fully with all of the confidentiality
provisions of this Agreement prior to disclosure by Muzak of any information
regarding EchoStar, this Agreement and any other agreements between the parties
in any way related to this Agreement) will maintain, in confidence, the terms
and provisions of this Agreement, as well as all data, summaries, reports or
information of all kinds, whether oral or written, acquired or devised or
developed in any manner from the other party's personnel or files, and that they
have not and will not reveal the same to any persons not employed by the
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 21
________________________________________________________________________________
other party (with the exception of Muzak Affiliates, but solely for the purpose
of seeking Affiliate Consent, and to perform if Affiliate Consent is received)
except: (i) at the written direction of such party; (ii) to the extent necessary
to comply with law, the valid order of a court of competent jurisdiction or the
valid order or requirement of the Securities and Exchange Commission or any
successor agency thereto, in which event the disclosing party shall so notify
the other party as promptly as practicable (and, if possible, prior to making
any disclosure) and shall seek confidential treatment of such information; (iii)
as part of its normal reporting or review procedure to its parent company, its
auditors and its attorneys, and such parent company, auditors and attorneys
agree to be bound by the provisions of this Section 10.7; (iv) in order to
enforce any of its rights pursuant to this Agreement; (v) to Affiliated
Entities, potential investors, insurers and financing entities, and such
Affiliated Entities, potential investors, insurers and financing entities agree
to be bound by the provisions of this Section 10.7; and (vi) to the extent
necessary to permit the performance of obligations under this Agreement. At all
times during the term of this Agreement, EchoStar shall, and shall cause the
EchoStar Agents to, disclose the identity of Muzak as the source of the
Residential Services only with the prior written consent of Muzak, subject to
exceptions identified in the prior sentence. EchoStar will be a named third
party beneficiary of the agreements of Participating Muzak Affiliates to comply
with the terms of this provision.
(b) Promptly after the date of execution of this Agreement, the
parties shall use their reasonable best efforts to agree upon a mutually
acceptable press release with respect to the parties' general business
relationship under this Agreement and to jointly issue and release such press
release at a date and time mutually agreed upon.
10.8 Force Majeure.
-------------
(a) Neither EchoStar nor Muzak shall be responsible for any
failure or delay in the performance of any of their respective obligations under
this Agreement due to labor disputes, wars, riots, public disorders, acts of
God, labor dispute, natural disaster, technical failure (including the failure
of all or part of the domestic communications satellite, or transponders on
which the Muzak Channels are delivered by Muzak to EchoStar or by EchoStar to
EchoStar Subscribers, or of the related uplinking or other equipment) or any
other reason beyond the reasonable control of the party whose performance is
prevented during the period of such occurrence (any such event a "Force
Majeure"). The Term shall be suspended during the period when a party is unable
to fulfill its obligations hereunder by reason of such occurrence. In addition,
the Programming Fees payable by EchoStar shall be reduced on a prorated basis
if, by reason of Force Majeure, an EchoStar Subscriber receives the Residential
Service for less than a full month.
(b) If after launch of EchoStar's first DBS satellite a Force
Majeure event decreases the number of available operating transponders on the
EchoStar System, after
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHOSTAR
PAGE 22
________________________________________________________________________________
allocating transponder space to video programming suppliers to which EchoStar is
contractually obligated to allocate a specified number of channels, EchoStar
will then allocate remaining operating transponder space to Muzak on a pro rata
basis, taking into consideration the amount of bandwidth utilized to deliver the
Muzak Channels prior to such decrease in available operating transponders as a
percentage of all available bandwidth utilized to deliver all other programming
services (excluding those video programming suppliers to which EchoStar is
contractually obligated to allocate a specified number of channels).
10.9 Dispute Resolution.
------------------
(a) Initial Dispute Resolution Procedures. Any dispute or
-------------------------------------
disagreement between EchoStar and Muzak arising out of this Agreement shall be
resolved according to the following dispute resolution procedure. First, such
dispute shall be addressed to each party's project manager (or equivalent level
manager) for discussion and attempted resolution. If any such dispute cannot be
resolved by such project managers within five (5) business days after the date
that either party gives notice that such dispute or disagreement exists, then
such dispute shall be immediately referred to the respective presidents for
discussion and attempted resolution.
(b) Subsequent Dispute Resolution Procedures. If a dispute
----------------------------------------
cannot be resolved to the mutual satisfaction of both parties within five (5)
business days (or such longer period as may be mutually agreed upon) after the
second-tier referral described in Section 10.9(a) above, then such dispute shall
be submitted to binding arbitration in Seattle, Washington pursuant to the then
applicable rules of the American Arbitration Association.
10.10 Independent Contractors. The parties hereto acknowledge and agree
-----------------------
that the relationship established under the Agreement shall be that of
independent contractors. EchoStar and Muzak shall not be deemed partners or
joint venturers for one another for any purpose whatsoever.
10.11 Compliance with Law. The parties shall comply with, and agree
-------------------
that this Agreement is subject to, all applicable Federal, state and local laws,
rules and regulations, including, without limitation, all of the provisions of
the Communications Act of 1934 and all amendments thereto, now enacted or
hereafter promulgated in force during the term of this Agreement.
<PAGE>
DBS PROGRAMMING AFFILIATION AGREEMENT
MUZAK/ECHSOTAR
PAGE 23
________________________________________________________________________________
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
ECHOSTAR SATELLITE CORPORATION
By:__________________________________
Name:
Title:
MUZAK LIMITED PARTNERSHIP
By:/s/ John R. Jester
----------------------------------
Name: John R. Jester
Title: President
<PAGE>
Exhibit 10.10
<PAGE>
[Execution Copy]
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been
separately filed with the Commission.
MUZAK(R)
PARTICIPATING AFFILIATE AGREEMENT
This MUZAK(R) PARTICIPATING AFFILIATE AGREEMENT is made as of this __ day
of January, 1996 between Muzak Limited Partnership, a Delaware limited
partnership ("Muzak") and ______________________ ("Affiliate").
WHEREAS:
A. Muzak has entered into (i) an Uplink Facility Agreement (the "Uplink
Agreement"), (ii) a DBS Programming Affiliation Agreement (the "Programming
Agreement"), and (iii) a Video Programming Sales Agent Agreement (the "Video
Agreement", and collectively with the Uplink Agreement and the Programming
Agreement, the "EchoStar Agreements") dated December 28, 1995, with EchoStar
Satellite Corporation ("EchoStar"), copies of which are attached hereto as
Exhibits A-1, A-2 and A-3.
- -------------------------
B. Under the terms of the EchoStar Agreements, Muzak will provide certain
programming services to EchoStar, EchoStar will permit Muzak to use certain
programming uplink facilities, and EchoStar will grant to Affiliate and other
participating Muzak affiliates certain distribution rights with respect to
certain audio and video services distributed via EchoStar's direct broadcast
satellite system.
C. Pursuant to the terms of a Muzak(R) License Agreement Between Muzak
and Affiliate (the "License Agreement"), Affiliate, as licensee thereunder, has
the exclusive right to distribute certain music services and adjunct services
within a specific geographic area, as defined in the License Agreement (the
"Territory").
D. Muzak's performance under the EchoStar Agreements is conditioned upon
Affiliate's waiver of certain of its exclusive rights under the License
Agreement, and Affiliate's participation in the distribution of services over
EchoStar's direct broadcast satellite system is conditioned upon Affiliate's
execution of this Agreement.
E. In consideration of Affiliate's participation in the distribution of
services over EchoStar's direct broadcast satellite system, Muzak and Affiliate
desire to amend certain provisions of the License Agreement.
NOW, THEREFORE, the parties agree as follows:
1
<PAGE>
1. Definitions. The following capitalized terms shall have the meanings
-----------
ascribed to them in this Section 1. Terms used in this Agreement and not herein
defined are used with the meanings given such terms in the EchoStar Agreements.
"Combined Access Fees" shall mean the fees paid to EchoStar by each
Participating Muzak Affiliate for access to the EchoStar System to authorize
Commercial Subscribers to receive the Music Channels and the Exclusive Muzak
Channels, as more fully described in Section 4.3 of the Uplink Agreement.
"Commercial Subscribers" shall mean customers subscribing to an audio
and/or video service provided over the EchoStar System at retail, business,
office or other commercial locations.
"Commercial Subscriber Fee" shall mean the fee paid by EchoStar to each
Participating Muzak Affiliate for sales by EchoStar or EchoStar Dealers of the
Music Channels to Commercial Subscribers within such Participating Muzak
Affiliate's Territory, as more fully described in Section 2.7(a) of the
Programming Agreement.
"Commissions" shall mean the commissions paid by EchoStar to each
Participating Muzak Affiliate on sales of the Video Services, as more fully
described in Sections 6.1 and 6.2 of the Video Agreement.
"EchoStar Dealers" shall mean those persons or entities authorized by
EchoStar to act as agents of EchoStar to solicit orders for certain audio, video
and data programming services delivered Services via the EchoStar System, other
than the Participating Muzak Affiliates.
"Exclusive Muzak Channels" shall mean initially, the Environmental(R)
channel (east and west coast feed) and the FM-One(R) channel, and, upon
EchoStar's Second Satellite Launch, 2.4 megahertz of transponder capacity, on
the EchoStar System for exclusive commercial use by Muzak Affiliates, as more
fully described in Section 2.1 of the Uplink Agreement. The Exclusive Muzak
Channels shall at all times include the Environmental(R) channel and the FM-
One(R) channel and, after the Second Satellite Launch, any music channels
transmitted by Muzak on the Galaxy-4 satellite. Quantum Modulation(R) and
Stimulus Progression(R) will be incorporated into the Exclusive Muzak Channels
to the extent required under the License Agreement. The Exclusive Muzak Channels
shall predominantly consist of commercial music services.
"Music Channels" shall mean up to thirty (30) Commercial Music Channels and
Residential Music Channels programmed by Muzak for distribution over the
EchoStar System, as more fully described in Section 2.1 of the Programming
Agreement, and shall not include the Exclusive Muzak Channels.
2
<PAGE>
"New Product" shall have the meaning given to such term in Section 4 of
this Agreement.
"Participating Affiliate Dealer Agreement" shall have the meaning given to
such term in Section 3(d) of this Agreement.
"Participating Muzak Affiliates" shall mean the independent Muzak
affiliates that execute this Participating Affiliate Agreement.
"Residential Subscribers" shall mean customers subscribing to an audio
and/or video service provided over the EchoStar System at their homes.
"Uplink Fees" shall mean the fee paid to EchoStar by Muzak on behalf of
itself and all Participating Muzak Affiliates for the right to distribute the
Music Channels and the Exclusive Muzak Channels, as more fully described in
Section 4.1 of the Uplink Agreement.
"Video Service" shall mean the multi-channel commercial video service
distributed over the EchoStar System, as more fully described in Section 4 of
the Video Agreement.
2. Provision of Music Channels to EchoStar and EchoStar Dealers.
------------------------------------------------------------
Affiliate hereby acknowledges and agrees that, in accordance with the terms of
the EchoStar Agreements, Muzak will provide the Music Channels to EchoStar for
distribution by EchoStar or EchoStar Dealers to Commercial and Residential
Subscribers, and Muzak will provide the Exclusive Muzak Channels (except the FM-
One(R) and Environmental(R) channels) to EchoStar for distribution by EchoStar
or EchoStar Dealers only to Residential Subscribers. Affiliate hereby waives the
terms of Section 1.1 and clause (i) of Section 4.1 of the License Agreement with
respect to Music Services (as defined in the License Agreement) only to the
extent necessary to permit EchoStar Dealers to distribute the Music Channels to
Commercial and Residential Subscribers and the Exclusive Muzak Channels (except
the FM-One(R) and Environmental(R) channels) to Residential Subscribers in
accordance with the terms of the EchoStar Agreements. The foregoing waiver shall
only apply to EchoStar Dealers that are authorized by EchoStar to distribute the
Music Channels in the Territory, and (except with respect to EchoStar's post-
termination rights under the EchoStar Agreements) shall only apply for so long
as Affiliate is authorized to distribute the Music Channels and the Exclusive
Muzak Channels to Commercial Subscribers in the Territory. The foregoing waiver
shall not apply to distribution of the Music Channels by Muzak acting as an
EchoStar Dealer in the Territory, and Muzak will not distribute the Music
Channels, Exclusive Muzak Channels or Video Service in the Territory, except in
connection with the Muzak Multi-Territory Accounts Program or Section 7(d)
below.
3
<PAGE>
3. Distribution of EchoStar Services by Affiliate.
----------------------------------------------
(a) Affiliate shall be entitled to market and sell the Music
Channels to Commercial Subscribers and Residential Subscribers in the Territory,
and agrees to comply with all of the terms and provisions in the EchoStar
Agreements applicable to Affiliate and its distribution of such services.
(b) Affiliate shall be entitled to market and sell the Video Service
to Commercial and Residential Subscribers in the Territory, and agrees to comply
with all of the terms and provisions in the EchoStar Agreements applicable to
Affiliate and its distribution of such services.
(c) Affiliate shall have the exclusive right to distribute the
Exclusive Muzak Channels to Commercial Subscribers in the Territory in
accordance with the terms of the License Agreement, the exclusive right to
distribute the FM-One(R) and Environmental(R) channels to Residential
Subscribers in the Territory, and the nonexclusive right to distribute the
Exclusive Muzak Channels (other than the FM-One(R) and Environmental(R)
channels) to Residential Subscribers in the Territory in accordance with the
terms of the License Agreement.
(d) Affiliate's right to distribute the Video Service, and
Affiliate's right to distribute the Music Channels and the Exclusive Muzak
Channels (other than the FM-One(R) and Environmental(R) channels) to Residential
Subscribers, is conditioned upon Affiliate's execution of a Participating
Affiliate Dealer Agreement with EchoStar in substantially the form attached
hereto as Exhibit B (the "Participating Affiliate Dealer Agreement").
---------
(e) Affiliate shall not distribute the Music Channels, the Exclusive
Muzak Channels or the Video Service outside of the Territory. If Affiliate at
any time fails to comply with the terms or conditions of the EchoStar Agreements
applicable to it, or the Participating Affiliate Dealer Agreement, or materially
fails to comply with any material aspect of EchoStar's Policies and Procedures
Guidelines relating to the distribution of Video Services, Affiliate's right to
distribute Video Services shall terminate following notice and opportunity to
cure as provided in the Video Agreement.
(f) Muzak hereby waives the terms of Section 4.3(a) of the License
Agreement only to the extent necessary to permit Affiliate to distribute the
Video Service and the Music Channels to Commercial Subscribers and Residential
Subscribers in accordance with the terms of the EchoStar Agreements.
4. Right of First Refusal. In the event Muzak develops or introduces any
----------------------
product or service other than the Music Services and Adjunct Services (as
defined in the License Agreement) (a "New Product") for distribution by means of
the EchoStar System,
4
<PAGE>
The information below marked by [**] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
Affiliate's right, if any, to distribute such New Product shall be determined as
follows: If such New Product has been or will be made available for distribution
by any of Muzak's owned affiliates or any third party then Muzak shall in good
faith extend to Affiliate a bona fide right of first refusal to distribute such
product on the same terms as available to Muzak's owned affiliates or such third
party. Affiliate shall accept or reject such offer within 30 days of its
receipt. If Affiliate does not accept such offer within such thirty day period,
Muzak shall be free to distribute the New Product in the Territory directly
through its owned affiliates or through any third party.
5. Royalty Fee.
-----------
(a) Section 6.3 of the License Agreement is hereby amended to read
in its entirety as follows:
"(a) Licensee shall pay to Muzak each month a royalty fee in the
amount of ten percent (10%) of Licensee's Gross Billings, as defined in
Section 6.8 below.
(b) In consideration of Muzak's development and implementation of
services for delivery over the EchoStar satellite system, Licensee shall
pay Muzak each month a surcharge (the "EchoStar Surcharge") equal to the
percentage of Licensee's Gross Billings as described in this paragraph (b).
The EchoStar Surcharge shall be effective as of first day of the first full
month after the date of Service Launch (the "Effective Date"). The EchoStar
Surcharge shall continue in effect until the earlier of such time as (x)
Licensor is no longer paying Uplink Fees, (y) the EchoStar Residential
Revenue (as hereinafter defined) is equal to or greater than [**],
or (z) after the fifth anniversary of the Effective Date, Licensor is
either (i) no longer transmitting services on the Galaxy-4 satellite (or
its replacement) or (ii) closes its Direct Broadcast Satellite facility
currently located at Raleigh, North Carolina and does not replace such
facility with a comparable facility other than the facility located at
Cheyenne, Wyoming. "EchoStar Residential Revenue" shall mean Licensor's
annualized revenue from Residential Subscriber Fees paid by EchoStar for
the immediately preceding calendar month, as shown on Licensor's unaudited
financial statements for such calendar month. Licensor shall provide an
annual report of EchoStar Residential Revenue on each anniversary of the
Effective Date to the President of the International Planned Music
Association (or its successor, the "IPMA"), and the President of the IPMA
shall have the right to review, upon thirty (30) days' prior written
notice, any documentation provided by EchoStar as is necessary to
5
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
confirm the EchoStar Residential Revenue. The President of the IPMA may
request such a review at any time, but not more often than once in any
twelve-month period. The EchoStar Surcharge shall be in the following
amounts:
(i) The EchoStar Surcharge shall be in the amount of [**] percent ([**]%)
for a period of five years from the Effective Date.
(ii) Subject to clause (iii) below, the EchoStar Surcharge shall be in the
amount of [**] percent ([**]%) after the the fifth anniversary of the
Effective Date.
(iii) On the fifth anniversary of the Effective Date and each anniversary
following the fifth anniversary of the Effective Date, the EchoStar
Surcharge will be reduced as follows:
(A) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(B) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(C) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(D) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(E) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(F) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(G) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(H) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
(I) by [**] percent ([**]%), if the EchoStar Residential Revenue is then
greater than [**] and less than or equal to [**].
6
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. the omitted portion has been separately filed with
the Commission.
(J) by [**] percent ([**]%), if the EchoStar Residential Revenue is
then greater than [**].
If EchoStar at any time elects to discontinue the Music Channels in
accordance with the EchoStar Agreements, the EchoStar Surcharge will be
increased by such amount as Licensor then incurs to distribute the
Exclusive Music Channels over the EchoStar System (including without
limitation, Uplink Fees, rent and operations expenses at EchoStar's Uplink
Facility, and all other direct costs associated with the provision of the
Exclusive Muzak Channels) prorated based on Licensee's percentage of total
royalty fees to Licensor from all Muzak affiliates, including owned
affiliates (which for purposes of this section shall be deemed to pay
royalty fees on the same basis as independent affiliates). Capitalized
terms used in this Section 6.3 and not herein defined are used with the
meanings given to such terms in the Uplink Facility Agreement, DBS
Programming Affiliation Agreement and Video Programming Sales Agent
Agreement, each dated as of December 28, 1995 between Licensor and EchoStar
Communications Corporation (the "EchoStar Agreements")."
(b) Section 6.8 of the License Agreement is hereby amended to read in
its entirety as follows:
"6.8 Gross Billings. "Gross Billings" means all amounts billed
--------------
or otherwise charged to a Subscriber by Licensee in connection with (1) the
provision of any Music Service, (2) the provision to Commercial Subscribers
of the Music Channels or the Exclusive Muzak Channels, (3) the lease or
rental (but not the sale) of Service Delivery Equipment and other equipment
used to receive and distribute such Music Service, Music Channels or
Exclusive Muzak Channels, including equipment used to receive the Music
Channels or Exclusive Muzak Channels in combination with the Video Service
distributed over the EchoStar System, but excluding equipment that is not
used primarily in the provision or reception of a Music Service. "Gross
Billings" shall also include the Commercial Subscriber Fees received by
Licensee for the sale of Music Channels to Commercial Subscribers by
EchoStar or EchoStar Dealers. Notwithstanding the foregoing, "Gross
Billings" shall not include:
(a) any amount billed or otherwise charged to a Subscriber by
Licensee for (i) the provision of any Music Service on Recorded
Media, (ii) Music-Related Adjunct Services, or (iii) the lease or
rental of any Service Delivery Equipment used with Recorded Media.
7
<PAGE>
(b) income to Affiliate from the sale or lease of any video
equipment (except for the lease of combined audio/video reception
equipment) to Commercial Subscribers or income to Affiliate from the
sale of any Music Channels to Residential Subscribers.
(c) any amounts billed to Subscribers as (and separately stated
on the billings or otherwise separately determinable as) sales or
similar excise taxes.
(d) one-time installation charges billed not later than ninety
(90) days following completion of such installation.
(e) charges for service of Subscriber-owned equipment, provided
that such charges are separately determinable.
(f) ad hoc (i.e., extraordinary) charges for service actually
----
performed on Subscriber-leased or Subscriber-owned equipment.
(g) late-payment penalties or interest charges imposed by
Licensee, provided that such penalties and charges do not exceed
standard industry practice.
Licensee may deduct from its Gross Billings (i) amounts paid by Licensee as
performing rights fees to ASCAP, BMI, or similar performing rights
organizations with respect to the Music Services (other than those
distributed by Recorded Media), the Music Channels, or Exclusive Muzak
Channels, and (ii) the amount of any billings that were previously reported
to Muzak as part of Licensee's Gross Billings but which, in the month of
the deduction, were written off by Licensee as uncollectible in accordance
with federal income tax standards of uncollectibility.
Capitalized terms used in this Section 6.8 and not herein defined are used
with the meanings given to such terms in the EchoStar Agreements."
6. Other Agreements.
----------------
(a) Muzak will not create, produce or assist in the creation or
production of any sales, marketing or advertising material for use by EchoStar
or EchoStar Dealers in the commercial marketplace.
8
<PAGE>
(b) Muzak will provide no sales training or sales incentives related
to the Music Channels for use by EchoStar or EchoStar Dealers in the commercial
marketplace.
(c) Muzak shall neither participate in or create any national or
regional sales program or assistance related to the Music Channels for use by
EchoStar or EchoStar Dealers in the commercial marketplace.
(d) In exercising its right to audit EchoStar under the EchoStar
Agreements, Muzak will act on behalf of itself and its owned and independent
affiliates as a whole.
(e) The parties acknowledge that the Video Agreement provides that
the terms and wholesale prices at which Affiliate and Muzak shall be entitled to
purchase the equipment identified on Schedule 9.1(a) thereto shall be no less
favorable than the terms and wholesale prices then available to distributors
which perform the same marketing, economic and promotional functions and which
purchases like quantities of equipment from EchoStar.
(f) Muzak represents to Affiliate that, under the terms of the
EchoStar Agreements, Muzak will provide EchoStar with between twenty-seven and
thirty Music Channels, and EchoStar will transmit the Exclusive Muzak Channels
in accordance with the terms of the EchoStar Agreements, subject to any
amendment of the EchoStar Agreements (which amendment may be subject to
Affiliate's consent in accordance with Section 7(a) below).
(g) Muzak shall not utilize EchoStar Dealers to provide any Music
Service or Adjunct Service to any National Account, except to the extent that
Muzak may utilize an EchoStar Dealer as a subcontractor in accordance with
Muzak's Multi-Territory Account Program (as set forth in Exhibit G to the
License Agreement) or Section 7(d) below. Muzak shall not refer any commercial
subscriber account for Music Service or Adjunct Service (as defined in the
License Agreements) to EchoStar or any EchoStar Dealer.
(h) Muzak shall provide a list of EchoStar Dealers in the Territory
to Affiliate, if and when such a list is provided to Muzak by EchoStar.
(i) If a termination event described in Section 12.2(c) of the Video
Agreement, Section 10.2(c) of the Uplink Agreement and Section 9.2(c) of the
Programming Agreement occurs, but Muzak does not elect to terminate the EchoStar
Agreements, the International Planned Music Association (or its successor
organization), acting through its board of directors, may by written notice to
Muzak, require Muzak to terminate the EchoStar Agreements in accordance with the
procedures set forth therein.
9
<PAGE>
7. EchoStar Agreements.
-------------------
(a) Affiliate represents and warrants that, in performing its
obligations hereunder and under the Participating Affiliate Dealer Agreement, it
shall not knowingly and intentionally act in a manner that will cause Muzak to
breach the terms of the EchoStar Agreements as they now exist or are hereafter
amended. Muzak shall obtain Affiliate's prior written consent to any amendments
to the EchoStar Agreements that will affect the rights, duties, or obligations
of, or benefits received by, Affiliate, and will promptly notify Affiliate in
writing (or electronically) of any amendments or modifications to the EchoStar
Agreements, whether or not affecting the rights, duties or obligations of, or
benefits received by, Affiliate. Except to the extent set forth in this
Agreement, Affiliate shall have no liability to Muzak under the EchoStar
Agreements. Muzak will promptly disclose to Affiliate in writing (or
electronically) the terms of any other agreements between Muzak and EchoStar or
any third party relating to the distribution on the EchoStar System of the Music
Channels, the Exclusive Muzak Channels, or the Video Service, or the purchase of
equipment for the reception or distribution of such services, if such
agreements, or the terms of such agreements are different than those offered to
Affiliate. Affiliate will promptly disclose to Muzak in writing the terms of any
other agreements between Affiliate and EchoStar or any third party relating to
the distribution on the EchoStar System of the Music Channels, the Exclusive
Muzak Channels, or the Video Service, or the purchase of equipment for the
reception or distribution of such services, if such agreements, or the terms of
such agreements, are different than those offered to Muzak.
(b) Affiliate shall indemnify and hold harmless Muzak and the
EchoStar Indemnities from, against and with respect to any and all claims,
damages, liabilities, costs and expenses (including reasonable attorneys' and
experts' fees) (collectively, "Damages") incurred in connection with any claim
against any of the EchoStar Indemnities arising out of: (i) Affiliate's breach
of any provision of this Agreement, (ii) Affiliate's marketing and distribution
of the Music Channels, the Exclusive Muzak Channels or the Video Service, (iii)
any performance rights fees payable in connection with Affiliate's distribution
of the Music Channels or the Exclusive Muzak Channels to Commercial Subscribers,
or (iv) Affiliate's failure to perform any of the obligations applicable to it
under the EchoStar Agreements. In addition, Affiliate shall pay and hold the
EchoStar Indemnities and Muzak harmless from any federal, state or local taxes
or fees that are based upon revenues derived by, or the operations of,
Affiliate.
(c) Affiliate shall comply with and perform all obligations,
covenants, representations and warranties applicable to Participating Muzak
Affiliates under the EchoStar Agreements. EchoStar is a third party beneficiary
with respect to Affiliate's obligations under this paragraph (c).
10
<PAGE>
(d) In the event that Affiliate fails to perform its obligations
hereunder in the manner provided herein, and EchoStar notifies Muzak in writing
that, as a result thereof (either alone or in combination with other breaches by
other Muzak Affiliates), Muzak is in material breach of one or more of the
EchoStar Agreements, Muzak shall give Affiliate written notice specifying the
nature of Affiliate's failure to perform. If Affiliate does not cure such
failure within seventy-two (72) hours after the date of delivery or mailing of
such notice (or such shorter period as may be required by the EchoStar
Agreements), Muzak (directly or through a subcontractor) shall have the option,
exercisable immediately upon notice to Affiliate, to perform the obligations and
exercise the rights (including the rights to receive payments with respect to
any affected subscriber account) of Affiliate hereunder, and Affiliate shall
reimburse Muzak for the costs associated therewith.
8. Term. This Agreement shall commence as of the date hereof and shall
----
terminate at the earlier of (i) the termination of the EchoStar Agreements (it
being understood that Affiliate enjoys the same post-termination rights as Muzak
under the EchoStar Agreements) or (ii) the termination of the License Agreement.
9. Miscellaneous.
-------------
(a) If and to the extent that war, government restrictions
(excluding the imposition of wage and price controls by any governmental
agency), embargoes, civil commotion, strikes, labor unrest, fires, breakdown,
failure or shortage of materials or equipment, acts of God or any other similar
conditions beyond the control of a party shall prevent such party from
performing its obligations under this Agreement or under any other agreement or
instrument specifically referred to herein, such party (and the other party to
the extent that the other party's performance is dependent upon the performance
so prevented) shall be excused from such performance during the existence of any
such conditions.
(b) Each party hereby agrees to indemnify, defend and hold harmless
the other party from all third-party claims directly or indirectly resulting
from or arising out of any act or omission by such party or such party's
officers, directors, employees, assignees, or agents pursuant to or in
connection with this Agreement.
(c) At all times during the term of the EchoStar Agreements and for
a period of three (3) years thereafter, Affiliate and its employees will
maintain, in confidence, the terms and provisions of this Agreement and the
EchoStar Agreements, and will not reveal the same to any persons except (i) at
the written direction of Muzak; (ii) to the extent necessary to comply with law
or the order of a court of competent jurisdiction, in which event Affiliate
shall notify Muzak as promptly as practical (and, if possible, prior to making
any disclosure) and shall seek
11
<PAGE>
confidential treatment of such information; (iii) as part of its normal
reporting or review procedure to its parent company, its auditors and its
attorneys, and such parent company, auditors and attorneys agree to be bound by
the provisions of this Section 10(c); (iv) in order to enforce any of its rights
pursuant to this Agreement; (v) to affiliates, potential investors, insurers and
financial entities; (vi) to the extent necessary to permit the performance of
obligations under this Agreement; and (vii) to the extent readily available in
public records or documents.
(d) This Agreement constitutes the entire agreement and understanding
of the parties hereto with respect to the subject matter hereof and supersedes
all other prior agreements, understandings, discussions, projections, and
presentations, written or oral, between the parties hereto with respect to the
subject matter hereof, and this Agreement may be amended, modified or
supplemented only by a written instrument signed by each of the parties hereto.
Muzak makes no warranties or representations as to the costs or benefits to
Affiliate of entering into this Agreement.
(e) No waiver of any term or condition contained in this Agreement
shall be effective unless it is signed by the party claimed to be bound by the
waiver. The waiver of any term or condition of this Agreement by any party shall
not be construed as a waiver of any subsequent breach or failure of the same
term or condition, or as a waiver of any other term or condition of this
Agreement.
(f) In case any one or more of the provisions contained herein shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or the remainder of such provision or provisions,
but such provision or provisions shall be ineffective only to the extent of such
invalidity, illegality or unenforceability, without invalidating the remainder
of such provision or provisions or the remaining provisions of this Agreement,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein, unless
the deletion of such provision or provisions would substantially deny a party
the benefit of the bargain negotiated.
(g) This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties hereto and is not intended
to confer upon any other person any rights or remedies hereunder. Muzak shall
not assign this Agreement separate from an assignment of the License Agreement.
Affiliate shall not assign its rights or delegate its obligations under this
Agreement without the prior written consent of Muzak, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, Affiliate may assign its
rights and delegate its duties hereunder to any person who shall have been
approved by Muzak as the assignee and delegee of Affiliate's rights and duties
under the License
12
<PAGE>
agreement. Without limiting the foregoing, all references in this Agreement to
the License Agreement between Muzak and Affiliate shall mean the License
Agreement in effect as of the date hereof or any successor License Agreement
between Muzak and Affiliate (or their respective successors-in-interest with
respect to any such License Agreement).
(h) Any notices or other communications provided for hereunder shall,
unless otherwise stated herein, be in writing and hand-delivered or sent by
certified mail, postage prepaid, or sent by express overnight mail, postage
prepaid, to each party, at its address set forth below (or at such other address
as shall be designated for such purpose by such party in a written notice to the
other party hereto):
(i) If to Muzak, at:
2901 Third Avenue, Suite 400
Seattle, WA 98121
Attention: John R. Jester
(ii) If to Affiliate, at:
_____________________________
_____________________________
Attention: __________________
(i) This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each of the
parties hereto and delivered to the other party hereto.
(j) Titles and headings to Sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
(k) All disputes of any kind, nature or description arising in
connection with the terms and conditions of this Agreement shall be submitted to
the American Arbitration Association, in the city and state in which Affiliate's
principal place of business is located, for arbitration under its prevailing
rules. The arbitrator(s) will be selected as follows. The parties shall attempt
to agree upon a single arbitrator. If the parties are not able to so agree, each
of the parties shall, by written notice to the other, have the right to appoint
one arbitrator. If, within ten (10) days following the giving of notice by one
party, the other party shall not, by written notice, appoint another arbitrator,
the first arbitrator shall be the sole arbitrator. If two arbitrators are so
appointed, they shall appoint a third arbitrator. If the two arbitrators are
unable to agree upon the third arbitrator within ten (10) days after the
appointment of the second arbitrator, the third arbitrator will be appointed by
the
13
<PAGE>
American Arbitration Association. The arbitration decision shall be binding and
conclusive on the parties and the judgment may be, but is not required to be,
entered in the court having jurisdiction. The prevailing party in such
arbitration shall be entitled to receive its costs, expenses and reasonable
attorneys' fees in an amount to be determined by the arbitrator(s).
(l) Except as specifically amended herein, the License Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
Affiliate's right to distribute the Music Services and Adjunct Services (as
defined in the License Agreement) by means other than the EchoStar System is
unaffected by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MUZAK LIMITED PARTNERSHIP
By: __________________________
Its: _________________________
AFFILIATE:
______________________________
By: __________________________
Its: _________________________
14
<PAGE>
Exhibit 10.21
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
TRANSPONDER LEASE AGREEMENT
---------------------------
THIS AGREEMENT, made and entered into this 9th day of December, 1993, by
and between Microspace Communications Corporation, a North Carolina corporation
("Microspace"), and Muzak Limited Partnership, a limited partnership with
principal offices in Seattle, Washington ("Customer").
WITNESSETH:
WHEREAS, Microspace and Customer entered into an agreement on May 6, 1988
for leased transponder capacity on Ku-2, a Ku-band domestic communications
satellite system operated by GE Americom Communications, Inc; and
WHEREAS, Microspace and Customer entered into an agreement on November 19,
1991 for leased transponder capacity on SBS-6/Galaxy IV/Ground Spare Ku-band
domestic communications satellites operated or to be operated by Hughes
Communications Galaxy, Inc; and
WHEREAS, it is the intention of Microspace and Customer that all of
Customer's Service shall be provided on Galaxy IV no later than February 1,
1996; and
WHEREAS, Microspace has leased transponder capacity on the Galaxy IV Ku-
band domestic communications satellite operated or to be operated by Hughes
Communications Galaxy Inc. (Hughes); and
WHEREAS, Customer desires to use part of the transponder capacity leased by
Microspace for the purpose of subcarrier transmission; and
WHEREAS, Microspace desires to provide such capacity to Customer pursuant
to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein made, the Parties, intending to be legally bound, hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.01 "Agreement" means this Agreement;
1.02 "The Satellite" means the domestic communications satellite designed
to operate in the Ku-band, positioned at the 99 degrees W.L. orbital position
and labeled by Hughes as Galaxy IV;
<PAGE>
2
1.03 "Satellite Commencement Date" shall mean the date, if any, on which
transponder service at the 99 degrees W.L. orbital location has commenced or
commences on the Galaxy IV satellite as determined by Hughes.
1.04 "Service" means the Transponder capacity leased by Customer from
Microspace;
1.05 "Microspace's Transponder" means that portion of a transponder or
transponders on The Satellite leased from Hughes by Microspace;
1.06 "Parties" means the signatories to this Agreement and a "Party" means
one of such signatories;
1.07 "Transponder" or "Transponders" means Microspace's Transponder;
1.08 "Transponder Failure" means with respect to Microspace's Transponder,
any of the following events:
(a) Twenty (20) or more "outage units" shall occur within any thirty
(30) consecutive days (an outage unit being an interruption of Microspace's
Transponder such that a credit allowance is due under Article V of this
Agreement); or
(b) Microspace's Transponder shall fail to meet Transponder
Performance Specifications for twelve (12) consecutive days.
1.09 "Transponder Performance Specifications" means those specifications
for the design and performance of the The Satellite Transponders contained in
Exhibit A and Exhibit B;
1.10 "Transponder Spares" means certain redundant transponder equipment
units which are designed as substitutes for equipment component units, the
failure of which could cause a transponder to fail to meet the Transponder
Performance Specifications.
1.11 "Interruption of Service" shall mean any time the Transponder used by
Customer fails to meet any of the Transponder Performance Specifications.
1.12 "Customer's Signal" means the complete intelligence to be transmitted
to Microspace's Transponder on behalf of Customer pursuant to this Agreement.
<PAGE>
3
ARTICLE II
SERVICE
-------
2.01 Transponder Service. Microspace shall provide transponder service to
-------------------
Customer as follows:
(a) Service Under Pre-Existing Agreements.
-------------------------------------
(i) Ku-2 Service; Termination of Ku-2 Lease Agreement.
-------------------------------------------------
Microspace shall continue to provide full-time (i.e., 24 hours per day, 7 days
per week) Service (as defined in the Transponder Lease Agreement between
Microspace and Customer dated May 6, 1988 as amended by Addendum to Transponder
Lease Agreement dated January 3, 1989, Amendment to Transponder Lease Agreement
dated January 4, 1989, and Second Addendum to Transponder Lease Agreement dated
January 23, 1991) (the "Ku-2 Lease Agreement") through January 31, 1996, at
which time the Ku-2 Lease Agreement shall be deemed to be terminated.
(ii) SBS-6/Galaxy IV/Ground Spare Service; Termination of SBS-
--------------------------------------------------------
6/Galaxy IV/Ground Spare Lease Agreement. Microspace shall continue to provide
- ----------------------------------------
full-time (i.e., 24 hours per day, 7 days per week) Service (as defined in the
Transponder Lease Agreement between Microspace and Customer dated November 19,
1991 (the "SBS-6/Galaxy IV/Ground Spare Lease Agreement") through March 31,
1994, at which time the SBS-6/Galaxy IV/Ground spare Lease Agreement shall be
deemed to be terminated.
(b) Galaxy IV Service. In addition to providing the service
-----------------
described in Subsection 2.01 (a) above, Microspace shall provide full-time
(i.e., 24 hours per day, 7 days per week) Service (as defined in Exhibit B to
this Agreement, commencing on February 1, 1994.
2.02 Orbital Location. Customer's Service shall be provided from 99
----------------
degress W. L. Orbital location.
2.03 Uplink Facilities. Microspace shall provide, within thirty (30) days
-----------------
after execution of this Agreement, transmitting equipment and related facilities
(hereinafter "Uplink Facilities") sufficient to transmit Customer's Signals from
the ground to Microspace's Transponder, subject to the following conditions:
(a) The Uplink Facilities shall be located in or near Raleigh, North
Carolina.
(b) Microspace will provide, operate and maintain transmitting
equipment which will be capable of sending Customer's
<PAGE>
4
Signal to Mircospace's Trasponder if Customer's Signal is configured so that it
is technically compatible with the transmitting equipment provided by
Microspace.
(c) Microspace will operate the Uplink Facilities in a reasonable
manner consistent with the type of equipment located thereon. Unless Microspace
commits an intentional breach, it will not be liable for consequential damages
for breach of this provision. As used herein, "consequential damages" includes
revenues lost to Customer as a result of the inability of Customer to transmit
Customer's Signal but does not mean the costs incurred by Customer in replacing
damaged property or in securing replacement facilities or replacement
transponder capacity.
(d) Customer will adhere to all reasonable rules and regulations
established by Microspace for the Uplink Facilities, including, but not limited
to, access by third persons.
(e) The Uplink Facilities provided by Microspace shall include
facilities to allow for the downlink of Customer's Signal from other satellites,
including those operating in C-band, for re-transmission to Microspace's
Transponder.
(f) Microspace will provide Customer space within a building at the
Uplink Facilities sufficient to accommodate standard wegener or equivalent
modulation equipment required for transmission of Customer's channels as defined
in the Exhibits of this Agreement. Customer will pay no rent for said space.
Additional rack space will be leased to Customer, if requested, at rates to be
agreed upon, subject to space available.
(i) All taxes or assessments which are incurred as the result
of the installation and operation of Customer's equipment will be paid by
Customer in a timely manner.
(ii) Microspace will provide electric power and temporary
emergency backup electrical power for the operation of Customer's equipment
without charge. Microspace will use all reasonable efforts to maintain a
suitable environment within the building to support the operation of standard
electrical devices typically installed in Uplink Facilities.
(iii) Microspace will not be responsible for damage to or
destruction of Customer's equipment located at the Uplink facilities unless the
damage or destruction is caused by Microspace's gross negligence or willful
misconduct.
<PAGE>
5
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
ARTICLE III
COMMENCEMENT OF SERVICE TERM
----------------------------
3.01 Term. This Transponder Lease Agreement, including Transponder
----
Service as defined in Section 2.01, shall begin December 9, 1993 and end on
---------------------
the "Expiration Date," meaning the earliest to occur of:
(a) The date that Hughes determines that Galaxy IV should be taken
out of service because there is insufficient fuel for continued operations;
(b) The termination or cancellation of this Agreement as provided in
Article X of this Agreement.
ARTICLE IV
MONTHLY CHARGE AND METHOD OF PAYMENT
------------------------------------
4.01 Monthly Charge. Customer shall pay to Microspace monthly, in
--------------
advance, the following amounts for Service during the following periods:
(a) Existing Ku-2 Service. For the period February 1, 1994 through
---------------------
January 31, 1996, Customer shall pay to Microspace monthly, in advance, the
amount as outlined in Article IV, Section 4.01 of the existing Ku-2 agreement
dated May 6, 1988 and amended by the addendum dated January 3, 1989, and the
second amendment dated January 23, 1991; and
(b) Existing SBS-6/Galaxy IV/Ground Spare Service. For the period
---------------------------------------------
February 1, 1994 through January 31, 1996, Customer shall pay to Microspace
monthly, in advance, the amount as outlined in Article IV, Section 4.01 of the
existing SBS-6/Galaxy IV/Ground Spare agreement dated November 1991; and
(c) Galaxy IV Service. Beginning February 1, 1996, Customer shall
-----------------
begin paying to Microspace, monthly, in advance, the amount of [**] through the
end of the term of this Agreement.
These charges constitute all charges for Service to be provided by
Microspace to Muzak during such periods under the Existing Ku-2 Agreement,
Existing SBS-6/Galaxy IV/Ground Spare Agreement and this Agreement, and in lieu
of all charges that would otherwise be payable under the Existing Ku-2 and SBS-
6/Galaxy IV/Ground Spare Agreements.
<PAGE>
6
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
Customer warrants that it will, as necessary, repoint and/or retrofit its
existing earth stations at its sole expense to operate to the specifications
contained in Exhibit B of this Agreement. In consideration of this expense,
Microspace shall provide a Ku-2 and Galaxy IV simulcast at no additional charge
to Customer for the period [February 1, 1994 through January 31, 1996].
If the term should not commence on the first day of a month or end on the
last day of a month, the monthly charge for the fractional part of the month
shall be calculated at a daily rate of one-thirtieth of the monthly charge
specified in Paragraph 4.01. All payments shall be made to Microspace at its
address as designated in Section 13.08 and shall be deemed to be made upon
receipt thereof by Microspace. Microspace will assess a late payment charge of
one and one-half percent (1.5%) compounded monthly on payments received after
the due date.
4.02 [**] Microspace will not [**] to any other person or entity [**]
than those applicable to [**] hereunder. Should Microspace provide [**],
this Agreement shall be amended to provide Customer with [**] for the remainder
of the term of the Agreement; provided, however, that this provision will not
apply with respect to [**] Capital Broadcasting Company or any subsidiary
thereof.
ARTICLE V
INTERRUPTION OF TRANSMISSION OVER TRANSPONDER
---------------------------------------------
5.01 Outage Allowance. If applicable, Microspace shall grant Customer an
----------------
Outage Allowance, as follows:
If a "Creditable Interruption of Service" (as defined below) occurs, then
for each full hour (i.e., 60 minutes) of such Creditable Interruption of Service
Microspace shall grant Customer a pro rata Outage Allowance, as defined below.
The Outage Allowance shall be based upon the monthly charge for Customer's
Service and the length of the Creditable Interruption of Service, calculated
pursuant to the equation below. Creditable interruptions shall be acknowledged
by Microspace through the issuance of credit memoranda. Such memoranda shall be
issued within fifteen (15) days of the close of each calendar month and shall
reflect all credit allowances accumulated by Customer during such month.
Customer may deduct from its next monthly payment the amount specified in the
credit memorandum received in the preceding month. As used herein, "Creditable
interruption of Service" shall mean the aggregate period (in hours) -- only
where such aggregation
<PAGE>
7
exceeds a total of (whether or not consecutive) twelve (12) hours during any
consecutive thirty (30) day period -- during which an Interruption of Service
occurs. For purposes of this Agreement, Creditable Interruption of Service shall
include such initial twelve (12) hour period and shall be measured from the time
Microspace receives notice from Customer of the Interruption of Service until
the time the Transponder has been restored to operation, but shall not begin in
any event until Customer ceases to use the Service.
Outage Allowance = Interruption of Service (in hours) X Monthly Lease Payment
----------------------------------------------------------
720 hours/month
In no case shall an Outage Allowance be made for any Interruption of
Service related to: (i) any failure on the part of Customer to perform its
transmission or other material or operational obligations pursuant to this
Agreement, (ii) failure of facilities provided by Customer, (iii) reasonable
periodic maintenance by Hughes, (iv) interference from third party transmissions
or usage, (v) cooperative testing between Customer and Microspace, except where
trouble or fault is found in the Transponder.
5.02 Resolution of Credit Disputes. In the event that Microspace and
-----------------------------
Customer cannot agree on the amount of credit due Customer following an
interruption, Customer may withhold payment of the disputed amount until
Microspace and Customer resolve the dispute; provided, however, that should a
credit dispute or disputes arise totalling two months service fees or more in
the aggregate, Microspace or Customer may cancel this Agreement on thirty (30)
days written notice and pursue all legal remedies available to resolve the
dispute, including claims of breach for wrongful termination.
ARTICLE VI
TRANSPONDER PROTECTION
----------------------
6.01 Restoration of Service. If Microspace's Transponder suffers a
----------------------
Transponder Failure, Customer will remain bound by this Agreement if
Microspace's Transponder is restored within 240 hours using a Transponder Spare
or unused transponder per the underlying lease agreement between Microspace and
Hughes as excerpted below:
"B. Provision of Continuing Service. In the event of a
-------------------------------
Transponder Capacity Failure, Hughes shall provide Customer's
Transponder Capacity using a spare component(s) of a Transponder on
the Leased Satellite (including a spare traveling wave tube(s)), if
available, or if such spare component(s) is unavailable, then by using
an alternate Transponder(s) on the Leased Satellite, if available. The
availability of such spare components(s) or alternate Transponder(s)
on the Leased Satellite, on a permanent or temporary basis, shall be
determined by Hughes in its sole discretion. The foregoing
notwithstanding, Customer's sole remedies for any preemption or
interruption of Use under this Article III, shall be the recovery of
an Outage Allowance pursuant to Article V, if applicable, or the
termination of this Agreement pursuant to Article VIII."
<PAGE>
8
If it is not so restored, Customer may terminate this Agreement immediately
and without any notice to Microspace. In the event that Satellite is
prematurely removed from service by Hughes and if Microspace has, pursuant to
the Hughes lease, preferential rights to replacement transponder capacity on a
successor satellite, Customer shall have the corresponding right to sublease
transponder service from Microspace on such successor satellite."
ARTICLE VII
TRACKING, TELEMETRY AND CONTROL
-------------------------------
7.01 Throughout the term of this Agreement, Hughes shall be responsible
for all the functions of Tracking, Telemetry and Control ("TT&C") including,
without limitation, stationkeeping, attitude control, and other satellite
maintenance and switching functions.
ARTICLE VIII
REPORTS AND COMMUNICATIONS
--------------------------
Microspace will provide Customer with the following reports regarding the
operation of the satellite and the associated TT&C facilities:
8.01 Anomalous Operation Notification. Microspace shall notify Customer
--------------------------------
as soon as possible by telephone with prompt written confirmation of any
significant incidents that have been brought to its attention by Hughes which
have a material effect on Microspace's Transponder. Microspace also shall notify
Customer promptly of any circumstances that Hughes has brought to its attention
which make it clearly ascertainable or predictable that any of the incidents
described in this section will occur.
8.02 Maneuver Notification. Microspace shall notify Customer of all non-
---------------------
emergency maneuvers of The Satellite which would result in a change in the
orbital location of The Satellite within two (2) days of receiving notification
of the same from Hughes.
ARTICLE IX
USE OF TRANSPONDERS
-------------------
9.01 Use of and Right to Transponders. Customer shall have the right to
--------------------------------
use the Service, including transponder channels, provided hereunder for any
lawful purpose.
<PAGE>
9
ARTICLE X
TERMINATION
-----------
10.01 Termination by Customer. Anything set forth herein to the contrary
-----------------------
notwithstanding, upon the occurrence of any of the following events Customer may
terminate this Agreement within ninety (90) days of actual knowledge of the
events giving rise to the right to termination:
(a) Breach or Default. If Microspace commits a material breach or
-----------------
default of any of the provisions of this Agreement and such breach or default
has not been cured within thirty (30) days after receipt by Microspace of
Customer's notice of such breach or default; provided, however, that Customer
may terminate this Agreement immediately in the event that a Transponder Failure
is not corrected within two hundred forty (240) hours (as provided in Article
VI).
(b) Government Restrictions. If the performance of this Agreement
-----------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and Service has been interrupted for a
period of two hundred forty (240) hours or more as a result.
10.02 Termination by Microspace with Notice. Anything set forth herein to
-------------------------------------
the contrary notwithstanding, upon the occurrence of any of the following events
Microspace may terminate this Agreement upon ten (10) days prior notice of
intent to terminate to Customer:
(a) Breach or Default. If Customer commits a material breach or
-----------------
default of any of the provisions of this Agreement, including, but not limited
to a failure to pay timely the monthly charge due under Article IV, and such
breach or default has not been cured within thirty (30) days after receipt by
Customer of Microspace's notice of such breach or default;
(b) Governmental Restriction. If performance of this Agreement
------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and performance by Customer has been
interrupted for a period of Two Hundred Forty (240) hours or more as a result.
10.03 Termination by Microspace Without Notice. Microspace can terminate
----------------------------------------
this Agreement immediately if the underlying transponder lease between
Microspace and Hughes (the Hughes lease) terminates for reasons beyond the
control of Microspace. Termination of the Hughes lease shall not be deemed to be
beyond the control of Microspace if it results from a default of said lease by
Microspace and
<PAGE>
10
said default has been acknowledged as such in writing by Microspace or
judicially determined to be such.
10.04 Damages. A termination of this Agreement under Sections 10.01(a) and
-------
10.02(a) shall not limit a Party's right or ability to recover damages
occasioned to such Party as a result of the other Party's breach of this
Agreement.
ARTICLE XI
DEPOSIT
-------
11.01 Deposit. No deposit required.
-------
ARTICLE XII
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
12.01 Limitation of Liability.
-----------------------
(a) Neither Party shall be liable for any failure of performance
hereunder due to causes beyond its control, including but not limited to acts of
God, fire, flood or other catastrophes; any law, order, regulation, direction,
action or request of the United States government, or of any other government,
including state and local governments having jurisdiction over such Party, or of
any department, agency, commission, bureau, corporation or other instrumentality
of any one or more said governments, or of any civil or military authority,
national emergencies, insurrections; riots, wars, or strikes, lockouts, work
stoppages or other labor difficulties;
(b) Except with respect to an intentional breach by Microspace of
Section 2.02 or Section 13.15, the liability of Microspace for damages or losses
of any kind arising out of its furnishing Service to the Customer hereunder
shall not include consequential damages, as defined in Section 2.02 above.
(c) Microspace shall not be liable for any act or omission of any
other entity furnishing to the Customer facilities or equipment used with the
Service nor shall Microspace be liable for any damages or losses due to the
fault or negligence of the Customer or to the failure of Customer-provided
equipment or facilities.
12.02 Indemnification by Customer. Customer shall indemnify and hold
---------------------------
Microspace and its affiliates, its and their officers, employees or agents, or
any of them, whether acting through Microspace or otherwise, harmless from and
against:
<PAGE>
11
(a) Use by Customer. All loss, liability, damage and expense,
---------------
including reasonable counsel fees due to claims for libel, slander, infringement
of copyright arising from the material transmitted by Customer over Microspace's
facilities; and any other claim resulting from any negligent or wrongful act or
omission of Customer or patrons of Customer and relating to the Service
furnished by Microspace;
(b) Misrepresentation, Breach, etc. Any and all damages occasioned
------------------------------
by, arising out of or resulting from any material misrepresentation, intentional
breach of warranty or covenant, or intentional default or intentional
nonfulfillment of any agreement on the part of Customer under this Agreement or
under any certificate, agreement, exhibit, schedule or other instrument
furnished to Microspace pursuant to this Agreement or in connection with any of
the transactions contemplated hereby;
(c) Defense of Third Party Claims. Microspace shall notify Customer
-----------------------------
within ten (10) days of its being served with a lawsuit, and otherwise within
thirty (30) days of its actual knowledge of the occurrence of any event or of
its discovery of any facts, which in its opinion entitle or may entitle it to
indemnification from a third party claim under this Article. Microspace's
failure to do so shall preclude it from seeking indemnification hereunder unless
such failure has not prejudiced the Customer's ability to defend such claim.
Customer shall promptly defend such claim by counsel of its own choosing at its
own cost and expense and Microspace shall cooperate with Customer in the defense
of such claim including the settlement of the matter on the basis stipulated by
Customer (with Customer being responsible for all costs and expenses of such
settlement). If Customer within reasonable time after notice of a claim fails
to defend Microspace, Microspace shall be entitled to undertake the defense,
compromise or settlement of such claim at the expense of and for the account and
risk of Customer.
(d) Right to Defend. If there is a reasonable probability that
---------------
resolution of a claim in the manner provided in paragraph (c) above will
materially and adversely affect Microspace, Microspace shall have the right, at
its own cost and expense, to defend, compromise or settle such claim against it.
(e) Claim Against Third Party. If the facts giving rise to
-------------------------
indemnification hereunder shall involve a possible claim by Microspace against a
third party, Microspace shall have the right, at its own costs and expense, to
undertake the prosecution, compromise and settlement of such claim;
(f) Release. Customer will not, without Microspace's consent, settle
-------
or compromise any claim or consent to any entry of judgment which does not
include as a term thereof an unconditional
<PAGE>
12
release by the claimant or plaintiff of Microspace from all liability with
respect to such claim.
ARTICLE XIII
MISCELLANEOUS
-------------
13.01 Public Notice, Confidentiality and Proprietary Information.
----------------------------------------------------------
Notwithstanding any termination of this Agreement, Microspace and Customer shall
hold in confidence the information contained in this Agreement, and Microspace
and Customer hereby acknowledge that all information related to this Agreement
is confidential and proprietary and is not to be disclosed to third persons,
without the prior consent of both Microspace and Customer. Neither Microspace
nor Customer shall disclose to any third party (other than Hughes), the
existence of, or any of the terms and provisions of, this Agreement except as
provided in this section 13.01. Neither Party shall issue a public notice or a
news release concerning this Agreement and the transactions contemplated hereby
without the prior approval of the other Party, which approval shall include the
right to approve the form, content and timing of any such release. To the extent
that either Party discloses additional information which it considers
proprietary, it shall identify such information as proprietary when disclosing
it to the other Party by marking it clearly and conspicuously as proprietary
information; provided, however, that Microspace understands and agrees that the
names and locations of Customer's patrons and affiliates are confidential and
proprietary and need not be identified as such at the time of disclosure to
Microspace. Any proprietary disclosure to either party, if made orally, shall be
promptly confirmed in writing and identified as proprietary information, if the
disclosing party wishes to keep such information proprietary under this
Agreement. Any such information disclosed under this Agreement shall be used by
the recipient thereof only in its performance under this Agreement.
Notwithstanding the foregoing, neither Party shall be liable for disclosure or
use of such proprietary information (but shall notify the other Party prior to
such disclosure or use) which is:
(a) Applicable Law. Required to be disclosed to the extent necessary
--------------
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction;
(b) Internal Business Matter. Disclosed as part of its normal
------------------------
procedures to its officers, directors, parent company, auditors and attorneys,
each of whom shall agree to be bound by the provisions and spirit of this
Section;
(c) Enforcement of Rights. Disclosed in order to enforce its rights
---------------------
and perform its obligations pursuant to this Agreement;
<PAGE>
13
(d) Financing and Disposition. Disclosed to the extent necessary as
-------------------------
part of a sale, lease or financing arrangement, to its purchasers, lessees,
investment bankers, independent auditors or legal counsel and their agents,
representatives or independent contractors or any financial institution;
provided, however, that such parties shall agree in writing to be bound by the
provisions and spirit of this Section;
(e) Public Information. Available or becomes available to the public
------------------
from a source other than the receiving Party before or during the period of this
Agreement, is lawfully obtained by the receiving Party from a third party or
parties, or is known by the receiving Party prior to such disclosure;
(f) Release. Released without restrictions in writing by the
-------
disclosing Party; or
(g) Independent Development. At any time developed by the receiving
-----------------------
Party completely independent of and prior to any such disclosure or disclosures
from the disclosing Party when such development can be documented to have
occurred prior to a disclosure. No license to the other Party, under any
patents, is granted or implied by conveying proprietary information or other
information to that Party.
Notwithstanding the foregoing, the existence (but note the material terms)
of this Agreement may be disclosed to the patrons and affiliates of Customer to
the extent necessary to establish proper transmission of music and other
communications services to such individuals and entities through the leased
transponder channels.
13.02 Not Fiduciaries. Nothing contained in this Agreement shall be deemed
---------------
or construed by the Parties hereto or by any third party to create any rights,
obligations or interests in third parties; to create the relationship of
principal and agent, partnership or joint venture or of any other fiduciary
relationship or association between the Parties.
13.03 Waiver. No failure on the part of either Party to notify the other
------
Party of any noncompliance hereunder, and no failure on the part of either Party
to exercise its rights hereunder shall prejudice any remedy for any subsequent
noncompliance, and any waiver by either Party of any breach or noncompliance
with any term or condition of this Agreement shall be limited to the particular
instance and shall not operate or be deemed to waive any future breaches or
noncompliance with any term or condition. All remedies and rights hereunder and
those available in law or in equity shall be cumulative and the exercise by a
Party of any such right or remedy shall not preclude the exercise of any other
right or remedy available under this Agreement in law or in equity.
<PAGE>
14
13.04 Assignment and Binding Effect. This Agreement may be assigned by
-----------------------------
either Party to a third party during the term of this Agreement without the
written consent of the other Party.
13.05 Taxes. Customer shall not be responsible for any taxes and similar
-----
liabilities, including sales, use, income and personal property taxes, which may
be required under any federal, state or local laws with respect to the
Transponders used by Customer hereunder.
13.06 Expenses. Except as otherwise provided herein, each Party hereto
--------
shall bear its own expenses incurred in connection with the transactions
pursuant to this Agreement.
13.07 Construction, Etc. This Agreement shall be construed and enforced
-----------------
in accordance with the internal substantive laws of the State of North Carolina
except for conflicts of laws. The Parties hereby consent and submit to the
jurisdiction of the federal and state courts located in the State of North
Carolina, and any action or suit under this Agreement may be brought by the
Parties in any federal or state court with appropriate jurisdiction over the
subject matter established or sitting in the State of North Carolina. The
Parties shall not raise in connection therewith, and hereby waive, any defenses
based upon the venue, the inconvenience of the forum, the lack of personal
jurisdiction, the sufficiency of service of process or the like in any such
action or suit brought in the State of North Carolina. If any action or
proceeding is brought for the enforcement of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in the action or proceeding, in addition to any
other relief to which it or they may be entitled.
13.08 Notices. All necessary notices, demands, reports, orders and
-------
requests required or permitted hereunder shall be deemed to be duly given only
if and on the date mailed by certified or registered United States mail, postage
prepaid, or delivered by hand and addressed as follows:
(a) If to be given to Microspace:
Mr. Keith N. Smith
Microspace Communications Corporation
3100 Highwoods Blvd.
Raleigh, NC 27604
and
<PAGE>
15
Mr. James F. Goodmon
Capitol Broadcasting Company
711 Hillsborough Street
Box 12800, Raleigh, NC 27605
(b) If to be given to Customer:
Mr. John R. Jester
Muzak Limited Partnership
400 North 34th Street, Suite 200
Seattle, WA 98103
or to such other addresses as the Parties may specify in writing.
13.09 Headings. The headings of the Articles, Sections, Paragraphs and
--------
Subparagraphs of this Agreement are inserted as a matter of convenience and for
reference purposes only, are of no binding effect, and in no respect define,
limit or describe the scope of this Agreement or the intent of any provision
hereof.
13.10 Exhibits. All Exhibits attached to this Agreement shall be deemed
--------
part of this Agreement and incorporated herein as if fully set forth herein, and
in the event of a variation or an inconsistency between this Agreement and the
Exhibits attached hereto, the Agreement shall govern.
13.11 Ambiguities. This Agreement and the Exhibits hereto have been
-----------
drafted jointly by the Parties and in the event of any ambiguities in the
language hereof, there shall be no inference drawn in favor of either Party.
13.12 Entire Agreement. This Agreement, including the "WHEREAS" clauses on
----------------
Page 1, and all Exhibits hereto, represent the entire understanding and
agreement between the Parties hereto with respect to the subject matter hereof,
supersede all prior negotiations between such Parties with respect to such
subject matter, and can be amended, supplemented or changed only by an agreement
in writing which makes specific reference to this Agreement and which is signed
by both Parties.
13.13 Counterparts. This agreement may be signed in counterpart and in
------------
multiple copies, and each such copy having all signatures attached thereto shall
constitute an original hereof.
13.14 Technical Support. During the term of this Agreement, Microspace
-----------------
will provide technical and operational support to Customer with respect to
transmission frequency planning and equipment
<PAGE>
16
modulation configuration, transmit channel additions, software interface
requirements and headend equipment interface standards.
13.15 Hughes Communications Lease. Microspace hereby affirms and agrees
---------------------------
that it will use its best efforts properly to perform its obligations and
exercise its rights under the Hughes lease for the benefit of Customer as well
as itself and that, as afforded by the Hughes lease, in the event of its default
under such lease, Customer shall have the right (contingent on approval by
Hughes) to assume Microspace's rights and obligations under said lease to the
extent necessary to provide continued access to the transponder channels leased
by Customer under this Agreement. In the event of default, Microspace will use
its reasonable best efforts to seek Hughes' consent to assignment of the
transponder lease to Customer. Unless Microspace's breach of this Section 13.15
is intentional, Microspace will not be liable to Customer for consequential
damages, as defined in Section 2.02, for such breach. For purposes of this
provision, Microspace shall be deemed to be in default of the Hughes lease if
such default is acknowledged by it in writing or is judicially determined.
13.16 Representations and Warranties. Microspace represents and warrants
-------------------------------
that, as of the date hereof, its lease with Hughes is a valid and binding lease
of the Transponder channels that are the subject of this Agreement, it has
performed its obligations and is in good standing under the Hughes lease, and it
knows of no breach or default by Hughes of the Hughes lease. Each of the Parties
hereto further represents and warrants to the other that, as of the date hereof,
(i) it has all necessary rights and powers to enter into and fully perform this
Agreement, (ii) this Agreement constitutes a valid and binding obligation of
such Party, (iii) it has no knowledge of any agreement or arrangement which
conflict with this Agreement or which limit or could reasonably be expected to
limit the performance of its obligations under this Agreement, and (iv) it is in
full compliance with all local, state, and federal laws, rules, and regulations
applicable to its performance of this Agreement. In the event of a material
breach of the foregoing representation and warranties, Customer (if the
breaching Party) shall indemnify and hold harmless Microspace and its
affiliates, its and their officers, employees or agents, or any of them, as
provided in Section 12.02, and Microspace (if the breaching Party) shall
indemnify and hold harmless Customer and its affiliates, its and their officers,
employees or agents, or any of them, from and against any and all damages
occasioned by, arising out of or resulting from such breach.
<PAGE>
17
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
MICROSPACE COMMUNICATIONS CORPORATION
By: /s/ Keith N. Smith
-----------------------------------
Keith N. Smith
Vice President and General Manager
Attest: /s/ Susan A. Keith
-------------------------------
MUZAK LIMITED PARTNERSHIP
By: /s/ Thomas J. Gentry
-----------------------------------
Thomas J. Gentry
Vice President/General Manager
Attest: /s/ Susan A. Keith
-------------------------------
<PAGE>
EXHIBIT 10.22
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been
separately filed with the Commission.
TRANSMISSION LEASE AGREEMENT
----------------------------
THIS AGREEMENT, made and entered into this 31st day of January, 1995, by
------
and between Microspace Communications Corporation, a North Carolina corporation
("Microspace"), and Muzak Limited Partnership, a limited partnership with
principal offices in Seattle, Washington ("Customer").
WITNESSETH:
WHEREAS, Microspace offers SCPC satellite transmission services; and
WHEREAS, Customer desires Microspace to provide such services; and
WHEREAS, Microspace desires to provide such services to Customer pursuant
to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein made, the Parties, intending to be legally bound, hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.01 "Agreement" means this Agreement;
1.02 "Parties" means the signatories to this Agreement and a "Party" means
one of such signatories;
1.03 "Transmission Specifications" means those specifications for
transmission as defined in Exhibit A;
1.04 "Interruption of Service" shall mean any time the transmission fails
to meet any of the Transmission Specifications.
1.05 "Customer's Signal" means the complete intelligence to be transmitted
to Customer's Transponder on behalf of Customer pursuant to this Agreement.
<PAGE>
ARTICLE II
SERVICE
-------
2.01 Transmission Service. Beginning March 1, 1994, Customer shall take
--------------------
full-time (i.e., 24 hours per day, 7 days a week) transmission service from
Microspace.
2.02 Uplink Facilities. Microspace shall provide transmitting equipment
-----------------
and related facilities (hereinafter "Uplink Facilities") sufficient to transmit
Customer's Signals from the ground to Microspace's Transponder subject to the
following conditions:
(a) The Uplink Facilities shall be located in or near Raleigh, North
Carolina;
(b) Microspace will provide, operate and maintain transmitting
equipment which will be capable of sending Customer's Signal to Microspace's
Transponder if Customer's Signal is configured so that it is technically
compatible with the transmitting equipment provided by Microspace;
(c) Microspace will operate the Uplink Facilities in a reasonable
manner consistent with the type of equipment located thereon. Unless Microspace
commits an intentional breach, it will not be liable for consequential damages
for breach of this provision. As used herein, "consequential damages" includes
revenues lost to Customer as a result of the inability of Customer to transmit
Customers Signal but does not mean the costs incurred by Customer in replacing
damaged property or in securing replacement facilities or replacement
transponder capacity;
(d) Customer will adhere to all reasonable rules and regulations
established by Microspace for the Uplink Facilities, including, but not limited
to, access by third persons;
(e) The Uplink Facilities provided by Microspace shall include
facilities to allow for the downlink of Customer's Signal from other satellites,
including those operating in C-band, for re-transmission to Microspace's
Transponder;
(f) Microspace will provide Customer space within a building at the
Uplink Facilities sufficient to accommodate standard Wegener or equivalent
modulation equipment required for transmission of Customer's channels as defined
in the Exhibits of this Agreement. Customer will pay no rent for said space.
Additional rack space will be leased to Customer, if requested, at rates to be
agreed upon, subject to space available:
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
(i) All taxes or assessments which are incurred as the result of the
installation and operation of Customer's equipment will be paid by Customer in a
timely manner;
(ii) Microspace will provide electric power and temporary emergency
backup electrical power for the operation of Customer's equipment without
charge. Microspace will use all reasonable efforts to maintain a suitable
environment within the building to support the operation of standard electrical
devices typically installed in Uplink Facilities;
(iii) Microspace will not be responsible for damage to or destruction
of Customer's equipment located at the Uplink Facilities unless the damage or
destruction is caused by Microspace's gross negligence or willful misconduct.
2.03 Option to Add Additional Channels. Customer shall have the option to
---------------------------------
add two (2) additional channels during the term of this Agreement.
ARTICLE III
SERVICE TERM
------------
3.01 Term. Customer shall begin taking service as provided herein for a
----
term commencing on March 1, 1994, and ending Sixty (60) months after the start
date of this Agreement. Customer may terminate this Agreement during the first
eighteen (18) months of the Agreement term upon thirty (30) days written notice
to Microspace.
ARTICLE IV
MONTHLY CHARGE AND METHOD OF PAYMENT
------------------------------------
4.01 Monthly Charge. Customer shall pay to Microspace monthly, in
--------------
advance, the sum of [**]
Customer shall have the option to add up to two (2) additional
channels, each at an additional [**] per month.
If the term should not commence on the first day of a month or end on
the last day of a month, the monthly charge for the fractional part of the month
shall be calculated at a daily rate of one-thirtieth of the monthly charge
specified in Paragraph 4.01.
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commmission.
All payments shall be made to Microspace at its address as designated
in Section 8.06 and shall be deemed to be made upon receipt thereof by
Microspace.
4.02 [**] Microspace will not [**] to any other person or entity [**] than
those applicable to [**] hereunder. Should Microspace provide [**], this
Agreement shall be amended to provide Customer with [**] for the remainder of
the term of the Agreement; provided, however, that this provision will not apply
with respect to [**] Capital Broadcasting Company or any subsidiary thereof.
ARTICLE V
INTERRUPTION OF TRANSMISSIONS
-----------------------------
5.01 Outage Allowance. If applicable, Microspace shall grant Customer an
----------------
Outage Allowance, as follows:
If an Interruption of Service occurs, then for each full hour of such
Interruption of Service, Microspace shall grant Customer a pro rata Outage
Allowance based on the monthly charge for Customer's Transmission Service and
the length of the Interruption of Service, calculated pursuant to the equation
below. Any such outage allowance shall be applied to the next succeeding
monthly billing to Customer and shall not in any case exceed one (1) month's
standard billing. As used herein, "Interruption of Service" shall mean the
aggregate period (in minutes) -- only where such aggregation exceeds thirty (30)
minutes in any consecutive thirty (30) day period -- during which an
Interruption of Service occurs. For purposes of this Agreement, an Interruption
of Service shall be measured from the time Microspace receives notice from
Customer of the Interruption of Service until the time transmission has been
restored.
Outage Allowance = Interruption of Service (in Minutes) X Monthly Lease
Payment
----------------------------------------------------
43,200 Minutes/Month
In no case shall an Outage Allowance be made for any Interruption of
Service related to: (i) any failure on the part of Customer to perform its
transmission or other material or operational obligations pursuant to this
Agreement, (ii) failure of facilities provided by Customer, (iii) reasonable
periodic maintenance, (iv) interference from third party transmission or usage,
(v) cooperative testing or (vi) any other act or failure to act by Customer.
<PAGE>
(c) An allowance will not be made where the interruption is a result
of, or attributable in whole or in part, to:
(1) The Customer's negligence or willful acts, or the negligence
or willful acts of its officers, directors, agents, employees, subsidiaries,
affiliates, customers, or any of them;
(2) The failure of the Signal provided by Customer or by carriers
other than Microspace in accordance with the Customer's instructions or the
failure of transmission lines or equipment provided by the Customer, its
customers, or any of them; or
(3) The failure or nonperformance of any earth station not
provided by Microspace.
5.03 Credit Memoranda. Creditable interruptions shall be acknowledged by
----------------
Microspace through the issuance of credit memoranda. Such memoranda shall be
issued within fifteen (15) days of the close of each calendar month and shall
reflect all credit allowances accumulated by Customer during such month.
Customer may deduct from its next monthly payment the amount specified in the
credit memorandum received in the preceding month.
5.04 Resolution of Credit Disputes. In the event that Microspace and
-----------------------------
Customer cannot agree on the amount of credit due Customer following an
interruption, Customer may withhold payment of the disputed amount until
Microspace and Customer resolve the dispute; provided, however, that should a
credit dispute or disputes arise totalling two months service fees or more in
the aggregate, Microspace or Customer may cancel this Agreement on thirty (30)
days written notice and pursue all legal remedies available to resolve the
dispute, including claims of breach for wrongful termination.
ARTICLE VI
TERMINATION
-----------
6.01 Termination by Customer. Anything set forth herein to the contrary
-----------------------
notwithstanding, upon the occurrence of any of the following events Customer may
terminate this Agreement within ninety (90) days of actual knowledge of the
events giving rise to the right to termination:
(a) Breach or Default. If Microspace commits a material breach or
-----------------
default of any of the provisions of this Agreement and such breach or default
has not been cured within thirty (30) days after receipt by Microspace of
Customer's notice of such breach or default;
<PAGE>
(b) Government Restrictions. If the performance of this Agreement
-----------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and service has been interrupted for a
period of two hundred forty (240) hours or more as a result.
6.02 Termination by Microspace with Notice. Anything set forth herein to
-------------------------------------
the contrary notwithstanding, upon the occurrence of any of the following events
Microspace may terminate this Agreement upon ten (10) days prior notice of
intent to terminate to Customer:
(a) Breach or Default. If Customer commits a material breach or
-----------------
default of any of the provisions of this Agreement, including, but not limited
to a failure to pay timely the monthly charge due under Article IV, and such
breach or default has not been cured within ten (10) days after receipt by
Customer of Microspace's notice of such breach or default;
(b) Governmental Restriction. If performance of this Agreement
------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and performance by Customer has been
interrupted for a period of two hundred forty (240) hours or more as a result.
ARTICLE VII
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
7.01 Limitation of Liability.
-----------------------
(a) Neither Party shall not be liable for any failure of performance
hereunder due to causes beyond its control, including but not limited to acts of
God; fire, flood or other catastrophes; any law, order, regulation, direction,
action or request of the United States government, or of any other government,
including state and local governments having jurisdiction over such Party, or of
any department, agency, commission, bureau, corporation or other instrumentality
of any one or more said governments, or of any civil or military authority,
national emergencies, insurrections; riots, wars, or strikes, lockouts, work
stoppages or other labor difficulties;
(b) The liability of Microspace for damages or losses of any kind
arising out of its furnishing service to the Customer and caused by Microspace
shall in no event exceed an amount equal to the proportionate part of its fixed
monthly charge allocable to the faulty service as specified in Section 5.01;
(c) Microspace shall not be liable for any act or omission of any
other entity furnishing to the Customer facilities or equipment used
<PAGE>
with the service nor shall Microspace be liable for any damages or losses due to
the fault or negligence of the Customer or to the failure of Customer-provided
equipment or facilities.
(d) Except with respect to an intentional breach by Microspace of
Section 2.02, the liability of Microspace for damages or losses of any kind
arising out of its furnishing Service to the Customer hereunder shall not
include consequential damages, as defined in Section 2.02 above;
7.02 Indemnification by Customer. Customer shall indemnity and hold
---------------------------
Microspace and its affiliates, its and their officers, employees or agents, or
any of them, whether acting through Microspace or otherwise, harmless from and
against:
(a) Use by Customer. All loss, liability, damage and expense,
---------------
including reasonable counsel fees due to claims for libel, slander, infringement
of copyright arising from the material transmitted by Customer over Microspace's
facilities; and any other claim resulting from any negligent or wrongful act or
omission of Customer or patrons of Customer and relating to the Service
furnished by Microspace;
(b) Misrepresentation, Breach, etc. Any and all damages occasioned
-------------------------------
by, arising out of or resulting from any material misrepresentation, intentional
breach of warranty or covenant, or intentional default or intentional
nonfulfillment of any agreement on the part of Customer under this Agreement or
under any certificate, agreement, exhibit, schedule or other instrument
furnished to Microspace pursuant to this Agreement or in connection with any of
the transactions contemplated hereby;
(c) Defense of Third Party Claims. Microspace shall notify Customer
-----------------------------
within ten (10) days of its being served with a lawsuit, and otherwise within
thirty (30) days of its actual knowledge of the occurrence of any event, or of
its discovery of any facts, which in its opinion entitle or may entitle it to
indemnification from a third party claim under this Article. Microspace's
failure to do so shall preclude it from seeking indemnification hereunder unless
such failure has not prejudiced the Customer's ability to defend such claim.
Customer shall promptly defend such claim by counsel of its own choosing at its
own cost and expense and Microspace shall cooperate with Customer in the defense
of such claim including the settlement of the matter on the basis stipulated by
Customer (with Customer being responsible for all costs and expenses of such
settlement). If Customer within reasonable time after notice of a claim fails to
defend Microspace, Microspace shall be entitled to undertake the defense,
compromise or settlement of such claim at the expense of and for the account and
risk of Customer;
<PAGE>
(d) Right to Defend. If there is a reasonable probability that
---------------
resolution of a claim in the manner provided in paragraph (c) above will
materially and adversely affect Microspace, Microspace shall have the right, at
its own cost and expense, to defend, compromise or settle such claim against it;
(e) Claim Against Third Party. If the facts giving rise to
-------------------------
indemnification hereunder shall involve a possible claim by Microspace against a
third party, Microspace shall have the right, at its own costs and expense, to
undertake the prosecution, compromise and settlement of such claim;
(f) Release. Customer shall not, without Microspace's consent, settle
-------
or compromise any claim or consent to any entry of judgment which does not
include as a term thereof an unconditional release by the claimant or plaintiff
of Microspace from all liability with respect to such claim.
ARTICLE VIII
MISCELLANEOUS
-------------
8.01 Not Fiduciaries. Nothing contained in this Agreement shall be deemed
---------------
or construed by the Parties hereto or by any third party to create any rights,
obligations or interests in third parties; to create the relationship of
principal and agent, partnership or joint venture or of any other fiduciary
relationship or association between the Parties.
8.02 Waiver. No failure on the part of either Party to notify the other
------
Party of any noncompliance hereunder, and no failure on the part of either Party
to exercise its rights hereunder shall prejudice any remedy for any subsequent
noncompliance, and any waiver by either Party of any breach or noncompliance
with any term or condition of this Agreement shall be limited to the particular
instance and shall not operate or be deemed to waive any future breaches or
noncompliance with any term or condition. All remedies and rights hereunder and
those available in law or in equity shall be cumulative and the exercise by a
Party of any such right or remedy shall not preclude the exercise of any other
right or remedy available under this Agreement in law or in equity.
8.03 Assignment and Binding Effect. This Agreement may be assigned by
-----------------------------
either Party to a third party during the term of this Agreement without the
written consent of the other Party.
8.04 Expenses. Except as otherwise provided herein, each Party hereto
--------
shall bear its own expenses incurred in connection with the transactions
pursuant to this Agreement.
<PAGE>
8.05 Construction. This Agreement shall be construed and enforced in
------------
accordance with the internal substantive laws of the State of North Carolina
except for conflicts of laws. The Parties hereby consent and submit to the
jurisdiction of the federal and state courts located in the State of North
Carolina, and any action or suit under this Agreement may be brought by the
Parties in any federal or state court with appropriate jurisdiction over the
subject matter established or sitting in the State of North Carolina. The
Parties shall not raise in connection therewith, and hereby waive, any defenses
based upon the venue, the inconvenience of the forum, the lack of personal
jurisdiction, the sufficiency of service of process or the like in any such
action or suit brought in the State of North Carolina. If any action or
proceeding is brought for the enforcement of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in the action or proceeding, in addition to any
other relief to which it or they may be entitled.
8.06 Notices. All necessary notices, demands, reports, orders and
-------
requests required or permitted hereunder shall be deemed to be duly given only
if and on the date mailed by certified or registered United States mail, postage
prepaid, or delivered by hand and addressed as follows:
(a) If to be given to Microspace:
Mr. Keith N. Smith
Microspace Communications Corporation
3100 Highwoods Blvd., Suite 120
Raleigh, NC 27604
and
<PAGE>
Mr. James F. Goodmon
Capitol Broadcasting Company
711 Hillsborough Street
Box 12800, Raleigh, NC 27605
(b) If to be given to Customer:
Mr. Thomas J. Gentry
Muzak DBS Division
3100 Highwoods Blvd.
Raleigh, NC 27604
and
Mr. John R. Jester
Muzak Limited Partnership
400 North 34th Street
Suite 200
Seattle, WA 98103
or to such other addresses as the Parties may specify in writing.
8.07 Headings. The headings of the Articles, Sections, Paragraphs and
--------
Subparagraphs of this Agreement are inserted as a matter of convenience and for
reference purposes only, are of no binding effect, and in no respect define,
limit or describe the scope of this Agreement or the intent of any provision
hereof.
8.08 Exhibits. All Exhibits attached to this Agreement shall be deemed
--------
part of this Agreement and incorporated herein as if fully set forth therein,
and in the event of a variation or an inconsistency between this Agreement and
the Exhibits attached hereto, the Agreement shall govern.
8.09 Ambiguities. This Agreement and the Exhibits hereto have been
-----------
drafted jointly by the Parties and in the event of any ambiguities in the
language hereof, there shall be no inference drawn in favor of either Party.
8.10 Entire Agreement. This Agreement, including the "WHEREAS" clauses on
----------------
Page 1, and all Exhibits hereto, represent the entire understanding and
agreement between the Parties hereto with respect to the subject matter hereof,
supersede all prior negotiations between such Parties, and can be amended,
supplemented or changed only by an agreement in writing which makes specific
reference to this Agreement and which is signed by both Parties.
<PAGE>
8.11 Counterparts. This Agreement may be signed in counterpart and in
------------
multiple copies, and each such copy having all signatures attached thereto shall
constitute an original hereof.
8.12 Public Notice, Confidentiality and Proprietary Information.
----------------------------------------------------------
Notwithstanding any termination of this Agreement, Microspace and Customer shall
hold in confidence the information contained in this Agreement, and Microspace
and Customer hereby acknowledge that all information related to this Agreement
is confidential and proprietary and is not to be disclosed to third persons,
without the prior consent of both Microspace and Customer. Neither Microspace
nor Customer shall disclose to any third party the existence of, or any of the
terms and provisions of, this Agreement except as provided in this Section 8.12.
Neither Party shall issue a public notice or a news release concerning this
Agreement and the transactions contemplated hereby without the prior approval of
the other Party, which approval shall include the right to approve the form,
content and timing of any such release. To the extent that either Party
discloses additional information which it considers proprietary, it shall
identify such information as proprietary when disclosing it to the other Party
by marking it clearly and conspicuously as proprietary information; provided,
however, that Microspace understands and agrees that the names and locations of
Customer's patrons and affiliates are confidential and proprietary and need not
be identified as such at the time of disclosure to Microspace. Any proprietary
disclosure to either Party, if made orally, shall be promptly confirmed in
writing and identified as proprietary information, if the disclosing Party
wishes to keep such information proprietary under this Agreement. Any such
information disclosed under this Agreement shall be used by the recipient
thereof only in its performance under this Agreement. Notwithstanding the
foregoing, neither Party shall be liable for disclosure or use of such
proprietary information (but shall notify the other Party prior to such
disclosure or use) which is:
(a) Applicable Law. Required to be disclosed to the extent necessary
--------------
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction;
(b) Internal Business Matter. Disclosed as part of its normal
------------------------
procedures to its officers, directors, parent company, auditors and attorneys,
each of whom shall agree to be bound by the provisions and spirit of this
Section;
(c) Enforcement of Rights. Disclosed in order to enforce its rights
---------------------
and perform its obligations pursuant to this Agreement;
(d) Financing and Disposition. Disclosed to the extent necessary as
-------------------------
part of a sale, lease or financing arrangement, to its purchasers, lessees,
investment bankers, independent auditors or legal counsel and their agents,
representatives or independent contractors or
<PAGE>
any financial institution; provided, however, that such parties shall agree in
writing to be bound by the provisions and spirit of this Section;
(e) Public Information. Available or becomes available to the public
------------------
from a source other than the receiving Party before or during the period of this
Agreement, is lawfully obtained by the receiving Party from a third party or
parties, or is known by the receiving Party prior to such disclosure;
(f) Release. Released without restrictions in writing by the
-------
disclosing Party; or
(g) Independent Development. At any time developed by the receiving
-----------------------
Party completely independently of and prior to any such disclosure or
disclosures from the disclosing Party when such development can be documented to
have occurred prior to a disclosure. No license to the other Party, under any
patents, is granted or implied by conveying proprietary information or other
information to that Party.
Notwithstanding the foregoing, the existence (but not the material
terms) of this Agreement may be disclosed to the patrons and affiliates of
Customer to the extent necessary to establish proper transmission of music and
other communications services to such individuals and entities through the
leased transponder channels.
8.13 Taxes. Customer shall not be responsible for any taxes and similar
-----
liabilities, including sales, use, income and personal property taxes, which may
be required under any federal, state or local laws with respect to the
Transponders used by Customer hereunder.
8.14 Expenses. Except as otherwise provided herein, each Party hereto
--------
shall bear its own expenses incurred in connection with the transactions
pursuant to this Agreement.
8.15 Technical Support. During the term of this Agreement, Microspace
-----------------
will provide technical and operational support to Customer with respect to
transmission frequency planning and equipment modulation configuration, transmit
channel additions, software interface requirements and headend equipment
interface standards.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
MICROSPACE COMMUNICATIONS CORPORATION
By: /s/ Keith N. Smith
-----------------------------------
Keith N. Smith
Vice President and General Manager
Attest: [SIGNATURE ILLEGIBLE]
--------------------------------
MUZAK LIMITED PARTNERSHIP
By: /s/ Thomas J. Gentry
-----------------------------------
Thomas J. Gentry
Vice President and General Manager
Muzak DBS Division
Attest: /s/ Susan A. Keith
-------------------------------
<PAGE>
Exhibit 10.23
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been
separately filed with the Commission.
TRANSPONDER LEASE AGREEMENT
---------------------------
THIS AGREEMENT, made and entered into this 31st day of January, 1995, by
----
and between Microspace Communications Corporation, a North Carolina corporation
("Microspace"), and Muzak Limited Partnership, a limited partnership with
principal offices in Seattle, Washington ("Customer").
WITNESSETH:
WHEREAS, Microspace has leased transponder capacity on the Galaxy VII Ku-
band domestic communications satellite operated by Hughes Communications Galaxy
Inc. (Hughes); and
WHEREAS, Customer desires to use part of the transponder capacity leased by
Microspace for the purpose of SCPC transmission; and
WHEREAS, Microspace desires to provide such Service to Customer pursuant to
the terms and conditions hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein made, the Parties, intending to be legally bound, hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.01 "Agreement" means this Agreement.
1.02 "Galaxy VII" means the domestic communications satellite designed to
operate in the Ku-band, positioned at the 91 degrees W.L. orbital position.
1.03 "Microspace's Transponder" means that portion of a transponder or
transponders on Galaxy VII leased from Hughes by Microspace.
1.04 "Parties" means the signatories to this Agreement and a "Party" means
one of such signatories.
1.05 "Transponder" or "Transponders" means Microspace's Transponder.
Page 1
<PAGE>
1.06 "Transponder Failure" means with respect to Microspace's Transponder,
any of the following events:
(a) Twenty (20) or more "outage units" shall occur within any thirty
(30) consecutive days (an outage unit being an interruption of Microspace's
Transponder such that an Outage Allowance is due under Article V of this
Agreement);
(b) Microspace's Transponder shall fail to meet Transponder
Performance Specifications for twelve (12) consecutive days.
1.07 "Transponder Performance Specifications" means those specifications
for the design and performance of the Galaxy VII Transponders contained in
Exhibit A.
1.08 "Transponder Spares" means certain redundant transponder equipment
units which are designed as substitutes for equipment component units, the
failure of which could cause a transponder to fail to meet the Transponder
Performance Specifications.
1.09 "Customer"s Signal" means the complete intelligence to be transmitted
to Microspace's Transponder on behalf of Customer pursuant to this Agreement.
1.10 "Service" means the Transponder Capacity leased by Customer from
Microspace.
ARTICLE II
SERVICE
-------
2.01 Transponder Service. Beginning June 1, 1994, Customer shall take
-------------------
full-time Service from Microspace as specified in Exhibit B, "Technical
Specifications", Part 1, "Individual Subcarrier Specifications". During the
term of this Agreement, Microspace shall provide transponder capacity to
Customer, subject and according to the terms hereof, on a full-time (24 hours a
day, 7 days a week) basis.
2.02 Orbital Location. Customer's Transponder Capacity shall be provided
----------------
from the 91 degrees W.L. orbital location.
2.03 Uplink Facilities. Microspace shall provide transmitting equipment
-----------------
and related facilities (hereinafter "Uplink Facilities") sufficient to transmit
Customer's Signals from the ground to Microspace's Transponder subject to the
following conditions:
Page 2
<PAGE>
(a) The Uplink Facilities shall be located in or near Raleigh, North
Carolina;
(b) Microspace will provide, operate and maintain transmitting
equipment which will be capable of sending Customer's Signal to Microspace's
Transponder if Customer's Signal is configured so that it is technically
compatible with the transmitting equipment provided by Microspace;
(c) Microspace will operate the Uplink Facilities in a reasonable
manner consistent with the type of equipment located thereon. Unless Microspace
commits an intentional breach, it will not be liable for consequential damages
for breach of this provision. As used herein, "consequential damages" includes
revenues lost to Customer as a result of the inability of Customer to transmit
Customer's Signal but does not mean the costs incurred by Customer in replacing
damaged property or in securing replacement facilities or replacement
transponder capacity;
(d) Customer will adhere to all reasonable rules and regulations
established by Microspace for the Uplink Facilities, including, but not limited
to, access by third persons;
(e) The Uplink Facilities provided by Microspace shall include
facilities to allow for the downlink of Customer's Signal from other satellites,
including those operating in C-band, for re-transmission to Microspace's
Transponder;
(f) Microspace will provide Customer space within a building at the
Uplink Facilities sufficient to accommodate standard Wegener or equivalent
modulation equipment required for transmission of Customer's channels as defined
in the Exhibits of this Agreement. Customer will pay no rent for said space.
Additional rack space will be leased to Customer, if requested, at rates to be
agreed upon, subject to space available:
(i) All taxes or assessments which are incurred as the result of
the installation and operation of Customer's equipment will be paid by Customer
in a timely manner;
(ii) Microspace will provide electric power and temporary
emergency backup electrical power for the operation of Customer's equipment
without charge. Microspace will use all reasonable efforts to maintain a
suitable environment within the building to support the operation of standard
electrical devices typically installed in Uplink Facilities;
Page 3
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
(iii) Microspace will not be responsible for damage to or
destruction of Customer's equipment located at the Uplink Facilities unless the
damage or destruction is caused by Microspace's gross negligence or willful
misconduct.
ARTICLE III
SERVICE TERM
------------
3.01 Term. Customer shall begin taking Service as provided herein
----
for a term commencing June 1, 1994, and continuing until the Expiration Date, as
defined below:
"Expiration Date": Upon the earlier to occur:
(a) May 31, 1999; or
(b) The termination or cancellation of this Agreement as provided in
Article X of this Agreement.
ARTICLE IV
MONTHLY CHARGE AND METHOD OF PAYMENT
------------------------------------
4.01 Monthly Charge. Customer shall pay to Microspace monthly, in advance,
--------------
the sum of [**].
If the term should not commence on the first day of a month or end on
the last day of a month, the monthly charge for the fractional part of the month
shall be calculated at a daily rate of one-thirtieth of the monthly charge
specified in Paragraph 4.01.
All payments shall be made to Microspace at its address as designated
in Paragraph 13.08 and shall be deemed to be made upon receipt thereof by
Microspace. Microspace shall assess a late payment charge of one and one-half
percent (1.5%) compounded monthly on payments received after the due date.
Page 4
<PAGE>
The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
4.02 [**] Microspace will not [**] to any other person or entity [**]
than those applicable to [**] hereunder. Should Microspace provide [**],
this Agreement shall be amended to provide Customer with [**] for the remainder
of the term of the Agreement; provided, however, that this provision will not
apply with respect to [**] Capital Broadcasting Company or any subsidiary
thereof.
ARTICLE V
INTERRUPTION OF TRANSMISSIONS OVER TRANSPONDERS
-----------------------------------------------
5.01 Outage Allowance. If applicable, Microspace shall grant Customer an
----------------
Outage Allowance, as follows:
If an "Outage Allowance Failure Period" (as defined below) occurs,
then for each full hour of such Outage Allowance Failure Period Microspace shall
grant Customer a pro rata Outage Allowance based upon the monthly charge for
Customer's Transponder Capacity and the length of the Outage Allowance Failure
Period, calculated pursuant to the equation below. Any such Outage Allowance
shall be applied to the next succeeding monthly billing to Customer and shall
not in any case exceed one month's standard billing. As used herein, "Outage
Allowance Failure Period" shall mean the aggregate period (in hours) -- only
where such aggregation exceeds twelve (12) hours during any consecutive thirty
(30) day period -- during which a Transponder Capacity Failure(s) occurs. For
purposes of this Agreement, A Transponder Capacity Failure shall be measured
from the time Microspace receives notice from Customer of the Transponder
Capacity Failure until the time the Transponder has been restored to operation,
but shall not begin in any event until Customer ceases to use Customer's
Transponder Capacity.
Outage Allowance = Outage Allowance Failure Period (In Hours) X Monthly
-----------------------------------------------------------------------
Lease Payment
-------------
720 Hours/Month
In no case shall an Outage Allowance be made for any Transponder
Capacity Failure related to: (i) any failure on the part of Customer to perform
its transmission or other material or operational obligations pursuant to this
Agreement, (ii) failure of facilities provided by Customer, (iii) reasonable
periodic maintenance, (iv) interference from third party transmissions or usage,
(v) cooperative testing, except where trouble or fault is found in the
Transponder or (vi) any other act or failure to act by Customer.
Page 5
<PAGE>
5.02 Resolution of Credit Disputes. In the event that Microspace and
-----------------------------
Customer cannot agree on the amount of credit due Customer following an
interruption, Customer may withhold payment of the disputed amount until
Microspace and Customer resolve the dispute; provided, however, that should a
credit dispute or disputes arise totalling two months Service fees or more in
the aggregate, Microspace or Customer may cancel this Agreement on thirty (30)
days written notice and pursue all legal remedies available to resolve the
dispute, including claims of breach for wrongful termination.
ARTICLE VI
TRANSPONDER PROTECTION
----------------------
6.01 Restoration of Service. If Microspace's Transponder suffers a
----------------------
Transponder Failure, Customer shall remain bound by this Agreement if
Microspace's Transponder is restored within two hundred forty (240) hours using
a Transponder Spare or unused transponder per the underlying lease agreement
between Microspace and Hughes as excerpted below:
"B. Provision of Continuing Service. In the event of a
-------------------------------
Transponder Capacity Failure, Hughes shall provide Customers
Transponder Capacity using a spare component(s) of a Transponder on
the Leased Satellite (including a spare traveling wave tube(s)), if
available, or if such spare component(s) is unavailable, then by using
an alternate Transponder(s) on the Leased Satellite, if available. The
availability of such spare component(s) or alternate Transponder(s) on
the Leased Satellite, on a permanent or temporary basis, shall be
determined by Hughes in its sole discretion. The foregoing
notwithstanding, Customer's sole remedies for any preemption or
interruption of use under this Article III, shall be the recovery of
an Outage Allowance pursuant to Article V, if applicable, or the
termination of this Agreement pursuant to Article VIII."
If it is not so restored, Customer may terminate this Agreement
immediately and without any notice to Microspace. In the event that the
Satellite is prematurely removed from service by Hughes and if Microspace has,
pursuant to the Hughes lease, preferential rights to replacement transponder
capacity on a successor satellite, Customer shall have the corresponding right
to sublease transponder service from Microspace on such successor satellite.
ARTICLE VII
TRACKING, TELEMETRY AND CONTROL
-------------------------------
7.01 Throughout the term of this Agreement, Hughes shall be responsible for
all the functions of Tracking, Telemetry and Control ("TT&C") including, without
limitation, stationkeeping, attitude control, and other satellite maintenance
and switching functions.
Page 6
<PAGE>
ARTICLE VIII
REPORTS AND COMMUNICATIONS
--------------------------
Microspace shall provide Customer with the following reports regarding the
operation of the satellite and the associated TT&C facilities:
8.01 Anomalous Operation Notification. Microspace shall notify Customer
--------------------------------
as soon as possible by telephone with prompt written confirmation of any
significant incidents that have been brought to its attention by Hughes which
have a material effect on Microspace's Transponder. Microspace also shall notify
Customer promptly of any circumstances that are brought to its attention which
make it clearly ascertainable or predictable that any of the incidents described
in this section will occur.
8.02 Maneuver Notification. Microspace shall notify Customer of all
---------------------
non-emergency maneuvers of The Satellite which would result in a change in the
orbital location of The Satellite within two (2) days of receiving notification
of the same from Hughes.
ARTICLE IX
USE OF TRANSPONDERS
-------------------
9.01 Use of and Right to Transponder. Customer shall have the right
-------------------------------
to use the Service, including transponder channels, provided hereunder for any
lawful purpose.
ARTICLE X
TERMINATION
-----------
10.01 Termination by Customer. Anything set forth herein to the
-----------------------
contrary notwithstanding, upon the occurrence of any of the following events
Customer may terminate this Agreement within ninety (90) days of actual
knowledge of the events giving rise to the right to termination:
(a) Breach or Default. If Microspace commits a material breach or
-----------------
default of any of the provisions of this Agreement and such breach or default
has not been cured within thirty (30) days after receipt by Microspace of
Customer's notice of such breach or default;
(b) Governmental Restrictions. If the performance of this Agreement
-------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and Service has been interrupted for a
period of two hundred forty (240) hours or more as a result.
Page 7
<PAGE>
10.02 Termination by Microspace with Notice. Anything set forth herein to
-------------------------------------
the contrary notwithstanding, upon the occurrence of any of the following events
Microspace may terminate this Agreement upon ten (10) days prior notice of
intent to terminate to Customer:
(a) Breach or Default. If Customer commits a material breach or
-----------------
default of any of the provisions of this Agreement, including, but not limited
to a failure to pay timely the monthly charge due under Article IV, and such
breach or default has not been cured within thirty (30) days after receipt by
Customer of Microspace's notice of such breach or default;
(b) Governmental Restrictions. If performance of this Agreement
-------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and performance by Customer has been
interrupted for a period of two hundred forty (240) hours or more as a result.
10.03 Termination by Microspace Without Notice. Microspace can
----------------------------------------
terminate this Agreement immediately if the underlying transponder lease between
Microspace and Hughes (the Hughes lease) terminates for reasons beyond the
control of Microspace. Termination of the Hughes lease shall not be deemed to
be beyond the control of Microspace if it results from a default of said lease
by Microspace and said default has been acknowledged as such in writing by
Microspace or judicially determined to be such.
10.04 Damages. A termination of this Agreement under Sections
-------
10.01(a) and 10.02(a) shall not limit a Party's right or ability to recover
damages occasioned to such Party as a result of the other Party's breach of this
Agreement.
ARTICLE XI
DEPOSIT
-------
11.01 Deposit. No deposit required.
-------
ARTICLE XII
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
12.01 Limitation of Liability.
-----------------------
(a) Neither Party shall not be liable for any failure of performance
hereunder due to causes beyond its control, including but not limited to acts of
God; fire, flood or other catastrophes; any law, order, regulation, direction,
action or request of the United States
Page 8
<PAGE>
government, or of any other government, including state and local governments
having jurisdiction over such Party, or of any department, agency, commission,
bureau, corporation or other instrumentality of any one or more said
governments, or of any civil or military authority, national emergencies,
insurrections; riots, wars, or strikes, lockouts, work stoppages or other labor
difficulties;
(b) Except with respect to an intentional breach by Microspace of
Section 2.02 or Section 13.15, the liability of Microspace for damages or losses
of any kind arising out of its furnishing Service to the Customer hereunder
shall not include consequential damages, as defined in Section 2.02 above;
(c) Microspace shall not be liable for any act or omission of any
other entity furnishing to the Customer facilities or equipment used with the
Service nor shall Microspace be liable for any damages or losses due to the
fault or negligence of the Customer or to the failure of Customer-provided
equipment or facilities.
12.02 Indemnification by Customer. Customer shall indemnify and hold
---------------------------
Microspace and its affiliates, its and their officers, employees or agents, or
any of them, whether acting through Microspace or otherwise, harmless from and
against:
(a) Use by Customer. All loss, liability, damage and expense,
---------------
including reasonable counsel fees due to claims for libel, slander, infringement
of copyright arising from the material transmitted by Customer over Microspace's
facilities; and any other claim resulting from any negligent or wrongful act or
omission of Customer or patrons of Customer and relating to the Service
furnished by Microspace;
(b) Misrepresentation, Breach, etc. Any and all damages occasioned
------------------------------
by, arising out of or resulting from any material misrepresentation, intentional
breach of warranty or covenant, or intentional default or intentional
nonfulfillment of any agreement on the part of Customer under this Agreement or
under any certificate, agreement, exhibit, schedule or other instrument
furnished to Microspace pursuant to this Agreement or in connection with any of
the transactions contemplated hereby;
(c) Defense of Third Party Claims. Microspace shall notify Customer
-----------------------------
within ten (10) days of its being served with a lawsuit, and otherwise within
thirty (30) days of its actual knowledge of the occurrence of any event, or of
its discovery of any facts, which in its opinion entitle or may entitle it to
indemnification from a third party claim under this Article. Microspace's
failure to do so shall preclude it from seeking indemnification hereunder unless
such failure has not prejudiced the Customer's ability to defend such claim.
Customer shall promptly defend such claim by counsel of its own choosing at its
own
Page 9
<PAGE>
cost and expense and Microspace shall cooperate with Customer in the defense of
such claim including the settlement of the matter on the basis stipulated by
Customer (with Customer being responsible for all costs and expenses of such
settlement). If Customer within reasonable time after notice of a claim fails to
defend Microspace, Microspace shall be entitled to undertake the defense,
compromise or settlement of such claim at the expense of and for the account and
risk of Customer;
(d) Right to Defend. If there is a reasonable probability that
---------------
resolution of a claim in the manner provided in paragraph (c) above will
materially and adversely affect Microspace, Microspace shall have the right, at
its own cost and expense, to defend, compromise or settle such claim against it;
(e) Claim Against Third Party. If the facts giving rise to
-------------------------
indemnification hereunder shall involve a possible claim by Microspace against a
third party, Microspace shall have the right, at its own costs and expense, to
undertake the prosecution, compromise and settlement of such claim;
(f) Release. Customer shall not, without Microspace's consent,
-------
settle or compromise any claim or consent to any entry of judgment which does
not include as a term thereof an unconditional release by the claimant or
plaintiff of Microspace from all liability with respect to such claim.
ARTICLE XIII
MISCELLANEOUS
-------------
13.01 Public Notice, Confidentiality and Proprietary Information.
----------------------------------------------------------
Notwithstanding any termination of this Agreement, Microspace and Customer shall
hold in confidence the information contained in this Agreement, and Microspace
and Customer hereby acknowledge that all information related to this Agreement
is confidential and proprietary and is not to be disclosed to third persons,
without the prior consent of both Microspace and Customer. Neither Microspace
nor Customer shall disclose to any third party (other than Hughes) the existence
of, or any of the terms and provisions of, this Agreement except as provided in
this Section 13.01. Neither Party shall issue a public notice or a news release
concerning this Agreement and the transactions contemplated hereby without the
prior approval of the other Party, which approval shall include the right to
approve the form, content and timing of any such release. To the extent that
either Party discloses additional information which it considers proprietary, it
shall identify such information as proprietary when disclosing it to the other
Party by marking it clearly and conspicuously as proprietary information;
provided, however, that Microspace understands and agrees that the names and
locations of Customer's patrons and affiliates are
Page 10
<PAGE>
confidential and proprietary and need not be identified as such at the time of
disclosure to Microspace. Any proprietary disclosure to either Party, if made
orally, shall be promptly confirmed in writing and identified as proprietary
information, if the disclosing Party wishes to keep such information proprietary
under this Agreement. Any such information disclosed under this Agreement shall
be used by the recipient thereof only in its performance under this Agreement.
Notwithstanding the foregoing, neither Party shall be liable for disclosure or
use of such proprietary information (but shall notify the other Party prior to
such disclosure or use) which is:
(a) Applicable Law. Required to be disclosed to the extent necessary
--------------
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction;
(b) Internal Business Matter. Disclosed as part of its normal
------------------------
procedures to its officers, directors, parent company, auditors and attorneys,
each of whom shall agree to be bound by the provisions and spirit of this
Section;
(c) Enforcement of Rights. Disclosed in order to enforce its rights
---------------------
and perform its obligations pursuant to this Agreement;
(d) Financing and Disposition. Disclosed to the extent necessary as
-------------------------
part of a sale, lease or financing arrangement, to its purchasers, lessees,
investment bankers, independent auditors or legal counsel and their agents,
representatives or independent contractors or any financial institution;
provided, however, that such parties shall agree in writing to be bound by the
provisions and spirit of this Section;
(e) Public Information. Available or becomes available to the public
------------------
from a source other than the receiving Party before or during the period of this
Agreement, is lawfully obtained by the receiving Party from a third party or
parties, or is known by the receiving Party prior to such disclosure;
(f) Release. Released without restrictions in writing by the
-------
disclosing Party; or
(g) Independent Development. At any time developed by the receiving
-----------------------
Party completely independently of and prior to any such disclosure or
disclosures from the disclosing Party when such development can be documented to
have occurred prior to a disclosure. No license to the other Party, under any
patents, is granted or implied by conveying proprietary information or other
information to that Party.
Notwithstanding the foregoing, the existence (but not the material
terms) of this Agreement may be disclosed to the patrons and
Page 11
<PAGE>
affiliates of Customer to the extent necessary to establish proper transmission
of music and other communications services to such individuals and entities
through the leased transponder channels.
13.02 Not Fiduciaries. Nothing contained in this Agreement shall be
---------------
deemed or construed by the Parties hereto or by any third party to create any
rights, obligations or interests in third parties; to create the relationship of
principal and agent, partnership or joint venture or of any other fiduciary
relationship or association between the Parties.
13.03 Waiver. No failure on the part of either Party to notify the
------
other Party of any noncompliance hereunder, and no failure on the part of either
Party to exercise its rights hereunder shall prejudice any remedy for any
subsequent noncompliance, and any waiver by either Party of any breach or
noncompliance with any term or condition of this Agreement shall be limited to
the particular instance and shall not operate or be deemed to waive any future
breaches or noncompliance with any term or condition. All remedies and rights
hereunder and those available in law or in equity shall be cumulative and the
exercise by a Party of any such right or remedy shall not preclude the exercise
of any other right or remedy available under this Agreement in law or in equity.
13.04 Assignment and Binding Effect. This Agreement may be assigned
-----------------------------
by either Party to a third party during the term of this Agreement without the
written consent of the other Party.
13.05 Taxes. Customer shall not be responsible for any taxes and
-----
similar liabilities, including sales, use, income and personal property taxes,
which may be required under any federal, state or local laws with respect to the
Transponders used by Customer hereunder.
13.06 Expenses. Except as otherwise provided herein, each Party
--------
hereto shall bear its own expenses incurred in connection with the transactions
pursuant to this Agreement.
13.07 Construction. This Agreement shall be construed and enforced
------------
in accordance with the internal substantive laws of the State of North Carolina
except for conflicts of laws. The Parties hereby consent and submit to the
jurisdiction of the federal and state courts located in the State of North
Carolina, and any action or suit under this Agreement may be brought by the
Parties in any federal or state court with appropriate jurisdiction over the
subject matter established or sitting in the State of North Carolina. The
Parties shall not raise in connection therewith, and hereby waive, any defenses
based upon the venue, the inconvenience of the forum, the lack of personal
jurisdiction, the sufficiency of Service of process or the like in any such
action or suit brought in the State of North Carolina. If any action or
proceeding is brought for the enforcement of this Agreement, the successful or
Page 12
<PAGE>
prevailing party or parties shall be entitled to recover reasonable attorney's
fees and other costs incurred in the action or proceeding, in addition to any
other relief to which it or they may be entitled.
13.08 Notices. All necessary notices, demands, reports, orders and
-------
requests required or permitted hereunder shall be deemed to be duly given only
if and on the date sent by Federal Express, Express Mail, or other means of
overnight courier services requiring a signature upon delivery, mailed by
certified or registered United States mail, postage prepaid, return receipt
requested, or delivered by hand and addressed as follows:
(a) If to be given to Microspace:
Mr. Keith N. Smith
Microspace Communications Corporation
3100 Highwoods Boulevard
Raleigh, NC 27604
and
Mr. James F. Goodmon
Capitol Broadcasting Company
711 Hillsborough Street
Box 12800
Raleigh, NC 27605
(b) If to be given to Customer:
Mr. Thomas J. Gentry
Muzak DBS Division
3100 Highwoods Boulevard
Raleigh, NC 27604
and
Mr. John R. Jester
Muzak Limited Partnership
400 North 34th Street, Suite 200
Seattle, WA 98103
or to such other addresses as the Parties may specify in writing.
13.09 Headings. The headings of the Articles, Sections, Paragraphs and
--------
Subparagraphs of this Agreement are inserted as a matter of convenience and for
reference purposes only, are of no binding effect, and in no respect define,
limit or describe the scope of this Agreement or the intent of any provision
hereof.
Page 13
<PAGE>
13.10 Exhibits. All Exhibits attached to this Agreement shall be deemed
--------
part of this Agreement and incorporated herein as if fully set forth herein, and
in the event of a variation or an inconsistency between this Agreement and the
Exhibits attached hereto, the Agreement shall govern.
13.11 Ambiguities. This Agreement and the Exhibits hereto have been drafted
-----------
jointly by the Parties and in the event of any ambiguities in the language
hereof, there shall be no inference drawn in favor of either Party.
13.12 Entire Agreement. This Agreement, including the "WHEREAS" clauses on
----------------
Page 1, and all Exhibits hereto, represent the entire understanding and
agreement between the Parties hereto with respect to the subject matter hereof,
supersede all prior negotiations between such Parties, and can be amended,
supplemented or changed only by an agreement in writing which makes specific
reference to this Agreement and which is signed by both Parties.
13.13 Counterparts. This Agreement may be signed in counterpart and in
------------
multiple copies, and each such copy having all signatures attached thereto shall
constitute an original hereof.
13.14 Technical Support. During the term of this Agreement, Microspace
-----------------
will provide technical and operational support to Customer with respect to
transmission frequency planning and equipment modulation configuration, transmit
channel additions, software interface requirements and headend equipment
interface standards.
13.15 Hughes Communications Lease. Microspace hereby affirms and agrees
---------------------------
that it will use its best efforts properly to perform its obligations and
exercise its rights under the Hughes lease for the benefit of Customer as well
as itself and that, as afforded by the Hughes lease, in the event of its default
under such lease, Customer shall have the right (contingent on approval by
Hughes) to assume Microspace's rights and obligations under said lease to the
extent necessary to provide continued access to the transponder channels leased
by Customer under this Agreement. In the event of default, Microspace will use
its reasonable best efforts to seek Hughes' consent to assignment of the
transponder lease to Customer. Unless Microspace's breach of this Section 13.15
is intentional, Microspace will not be liable to Customer for consequential
damages, as defined in Section 2.02, for such breach. For purposes of this
provision, Microspace shall be deemed to be in default of the Hughes lease if
such default is acknowledged by it in writing or is judicially determined.
13.16 Representations and Warranties. Microspace represents and warrants
------------------------------
that, as of the date hereof, its lease with Hughes is a valid and binding lease
of the Transponder channels that are the subject of
Page 14
<PAGE>
this Agreement, it has performed its obligations and is in good standing under
the Hughes lease, and it knows of no breach or default by Hughes of the Hughes
lease. Each of the Parties hereto further represents and warrants to the other
that, as of the date hereof, (i) it has all necessary rights and powers to enter
into and fully perform this Agreement, (ii) this Agreement constitutes a valid
and binding obligation of such Party, (iii) it has no knowledge of any agreement
or arrangement which conflict with this Agreement or which limit or could
reasonably be expected to limit the performance of its obligations under this
Agreement, and (iv) it is in full compliance with all local, state, and federal
laws, rules, and regulations applicable to its performance of this Agreement. In
the event of a material breach of the foregoing representation and warranties,
Customer (if the breaching Party) shall indemnify and hold harmless Microspace
and its affiliates, its and their officers, employees or agents, or any of them,
as provided in Section 12.02, and Microspace (if the breaching Party) shall
indemnify and hold harmless Customer and its affiliates, its and their officers,
employees or agents, or any of them, from and against any and all damages
occasioned by, arising out of or resulting from such breach.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
MICROSPACE COMMUNICATIONS CORPORATION
By:/s/ Keith N. Smith
---------------------------------------
Keith N. Smith
Vice President and General Manager
Attest:[SIGNATURE ILLEGIBLE]
-----------------------------------
MUZAK LIMITED PARTNERSHIP
By:/s/ Thomas J. Gentry
---------------------------------------
Thomas J. Gentry
Vice President and General Manager
Attest: /s/ Susan A. Keith
----------------------------------
Page 15
<PAGE>
Exhibit 10.24
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been
separately filed with the Commission.
TRANSPONDER LEASE AGREEMENT
---------------------------
THIS AGREEMENT, made and entered into this 27th day of April, 1995, by
------
and between Microspace Communications Corporation, a North Carolina corporation
("Microspace") and Muzak Limited Partnership, a limited partnership with
principal offices in Seattle, Washington ("Customer").
WITNESSETH:
WHEREAS, Microspace has leased Ku-band transponder capacity from GTE
Spacenet Satellite Services Corporation ("GTE"); and
WHEREAS, Customer desires to use part of the transponder capacity leased by
Microspace for the purpose of SCPC transmission; and
WHEREAS, Microspace desires to provide such Service to Customer pursuant to
the terms and conditions hereof:
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein made, the Parties, intending to be legally bound, hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.01 "Agreement" means this Agreement.
1.02 "GSTAR IV" means the domestic communications satellite designed to
operate in the Ku-band, positioned at the 105 degrees W.L. orbital position.
1.03 "Microspace's Transponder" means that portion of a transponder or
transponders on GSTAR IV leased from GTE by Microspace.
1.04 "Parties" means the signatories to this Agreement and a "Party" means
one of such signatories.
1.05 "Transponder" or "Transponders" means Microspace's Transponder.
1.06 "Transponder Failure" means with respect to Microspace's Transponder,
any of the events as described in Paragraph 5.02.
1.07 "Transponder Performance Specifications" means those specifications
for the design and performance of the GSTAR IV Transponders contained in Exhibit
A.
1.08 "Spare Components" means certain redundant transponder equipment
units which are designed as substitutes for equipment component
1
<PAGE>
units, the failure of which could cause a transponder to fail to meet the
Transponder Performance Specifications.
1.09 "Service" means the Transponder Capacity leased by Customer from
Microspace.
ARTICLE II
SERVICE
-------
2.01 Beginning March 1, 1994, Customer shall take full-time Service from
Microspace as specified in Exhibit B, "Technical Specifications", "Individual
Subcarrier Specifications". During the term of this Agreement, Microspace shall
provide transponder capacity to Customer, subject and according to the terms
hereof, on a full-time (24 hours a day, 7 days a week) basis.
2.02 Orbital Location. Customer's Transponder Capacity shall be provided
----------------
on GTE's GSTAR IV satellite from the 105 degrees W. L. orbital location, except
as provided in Paragraph 12.02 below.
2.03 Uplink Facilities. Microspace shall provide transmitting equipment
-----------------
and related facilities (hereinafter "Uplink Facilities") sufficient to transmit
Customer's Signals from the ground to Microspace's Transponder subject to the
following conditions:
(a) The Uplink Facilities shall be located in or near Raleigh, North
Carolina;
(b) Microspace will provide, operate and maintain transmitting
equipment which will be capable of sending Customer's Signal to Microspace's
Transponder if Customer's Signal is configured so that it is technically
compatible with the transmitting equipment provided by Microspace;
(c) Microspace will operate the Uplink Facilities in a reasonable
manner consistent with the type of equipment located thereon. Unless Microspace
commits an intentional breach, it will not be liable for consequential damages
for breach of this provision. As used herein, "consequential damages" includes
revenues lost to Customer as a result of the inability of Customer to transmit
Customer's Signal but does not mean the costs incurred by Customer in replacing
damaged property or in securing replacement facilities or replacement
transponder capacity;
(d) Customer will adhere to all reasonable rules and regulations
established by Microspace for the Uplink Facilities, including, but not limited
to, access by third persons;
(e) The Uplink Facilities provided by Microspace shall include
facilities to allow for the downlink of Customer's Signal from other satellites,
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including those operating in C-band, for re-transmission to Microspace's
Transponder;
(f) Microspace will provide Customer space within a building at the
Uplink Facilities sufficient to accommodate standard Wegener or equivalent
modulation equipment required for transmission of Customer's channels as defined
in the Exhibits of this Agreement. Customer will pay no rent for said space.
Additional rack space will be leased to Customer, if requested, at rates to be
agreed upon, subject to space available:
(i) All taxes or assessments which are incurred as the result of
the installation and operation of Customer's equipment will be paid by Customer
in a timely manner;
(ii) Microspace will provide electric power and temporary
emergency backup electrical power for the operation of Customer's equipment
without charge. Microspace will use all reasonable efforts to maintain a
suitable environment within the building to support the operation of standard
electrical devices typically installed in Uplink Facilities;
(iii) Microspace will not be responsible for damage to or
destruction of Customer's equipment located at the Uplink Facilities unless the
damage or destruction is caused by Microspace's gross negligence or willful
misconduct.
ARTICLE III
TERM
----
3.01 Customer shall begin taking Service as provided herein for a term
commencing March 1, 1994 and continuing until the "Expiration Date," meaning the
earliest to occur of:
(a) February 28, 1999; or
(b) The termination or cancellation of this Agreement as
provided in Article X of this Agreement.
ARTICLE IV
----------
SERVICE PERFORMANCE; CREDITS
----------------------------
4.01 Microspace will provide Service on the Serving Transponder that meets
the Minimum Performance Standards set forth in Exhibit(s) A and B as measured on
equipment meeting all technical requirements of the FCC or other government
agency for satellite earth stations. For any period during which a Serving
Transponder fails to meet the Minimum Performance Standards set forth in
Exhibit(s) B and during which time Customer ceases to use the Service on that
Transponder (such period is a "Service Interruption"), Microspace will
3
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give Customer a credit allowance as described below. Failure of a Serving
Transponder to meet the Minimum Performance Standards does not constitute a
Service Interruption when due to any of the following causes:
(a) The failure or non-performance of any Customer-provided earth
stations, facilities or equipment;
(b) The fault, negligent act, or failure to act of Customer, its
employees, or agents;
(c) Sun outages, rain fade, or externally caused interference, other
than interference caused by GTE, or by its other customers, in
their use of GTE Satellite facilities;
(d) Suspensions or terminations of Service made in accordance with
this Agreement.
4.02 The duration of a Service Interruption is measured from the earlier
of the time that Microspace is Notified by Customer of a suspected Service
Interruption or Microspace otherwise becomes aware of a Service Interruption,
until the time the affected Serving Transponder again meets the Minimum
Performance Standards, or until the Service is otherwise restored on a
Transponder Meeting Minimum Performance Standards. Customer shall give
Microspace notice of any Service Interruption as is reasonably possible, along
with all relevant facts of which Customer is aware concerning such Interruption.
Any such notice may be given to Microspace verbally pursuant to Paragraph 16.08,
"Notices".
4.03 Microspace will give Customer a credit allowance for every minute of
Service Interruption in excess of a cumulative total of five (5) minutes of
Service Interruption in any calendar month. Any credit allowance granted under
this Agreement will be determined by Microspace as follows:
CREDIT ALLOWANCE = T x (M/Q)
Where - "T" is the number of minutes for which credits are to be calculated
pursuant to this Agreement; and
"M" is the Service Charge applicable to the affected Service as provided in
Exhibit(s) B; and
"Q" is the number of minutes in a month. For the purpose of this
Agreement, Q = 43,200.
Credits will be provided within ninety (90) days of the event giving rise
to the right to such credit. If, after the expiration of this Agreement,
Customer has not utilized credits granted pursuant to this Section, and
subject to payment of all sums due Microspace under this Agreement and all
other agreements between Customer and Microspace, Microspace will refund to
Customer the balance of such credits.
4.04 Microspace will grant Customer a credit in accordance with Paragraph
4.03 above for the period of time when Customer's use of the
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Serving Transponder is interrupted due to Service Testing or Emergency Testing
as described in Paragraph 5.03.
ARTICLE V
SERVICE OUTAGE AND FAILURE
--------------------------
5.01 A "Service Outage" shall be deemed to have occurred if (i) one or
more Service Interruptions of one (1) minute or more in duration occur on the
affected Serving Transponder during any consecutive seven hundred twenty (720)
hour period, and (ii) the aggregate of all such Service Interruptions on the
affected Serving Transponder during such period exceeds one hundred twenty (120)
minutes.
5.02 Except as provided in Paragraph 5.03 below, a Serving Transponder
shall be deemed to have failed (a "Service Failure") if:
(a) GTE fails to restore the affected Serving Transponder to meet the
Minimum Performance Standards within 24 hours of the occurrence
of a Service Outage; or
(b) GTE determines that the affected Serving Transponder cannot be
restored to meet the Minimum Performance Standards within 24
hours of the occurrence of a Service Outage; or
(c) the affected Serving Transponder is restored to meet the Minimum
Performance Standards within 24 hours of the occurrence of a
Service Outage and during the 720 hour period following any such
restoration, the affected Serving Transponder again experiences a
Service Outage.
5.03 The following shall not constitute a Service Failure:
(a) Service Testing. Service Testing may be performed only after a
minimum of 24 hours prior notice to Customer and after reasonable
efforts to coordinate such testing with Customer to minimize
disruption of its use of the Service. Such testing shall be
limited to circumstances in which testing is necessary to
maintain or initiate new service on the Serving Satellite, to
properly coordinate with other satellite users or operators, or
to otherwise prudently manage the Satellite while minimizing
Service Testing to the greatest extent possible.
(b) Emergency Testing. Emergency Testing may be performed only for
the purpose of restoring, or determining the cause of, a failure
of a component or subsystem on the Serving Satellite, or in
response to an order of a court or the FCC, or to determine the
cause or source of interference.
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(c) A Service Interruption that would otherwise qualify as a Service
Failure but for the fact that such Service Interruption resulted
from a Force Majeure as defined in Article VII.
(d) A Control Outage as defined in Article VI.
ARTICLE VI
CONTROL OUTAGE
--------------
6.01 If a Service Interruption occurs due to loss of control of the
Serving Satellite and the Service is not restored within a period of less than
one hundred twenty (120) hours from the start of such Service Interruption, a
"Control Outage" shall be deemed to have occurred, and this Agreement may be
terminated in accordance with Article X, "Termination and Suspension". During
the period of such Service Interruption that Service is not available and until
any Control Outage is deemed to have occurred, Microspace's obligation to
provide Service and Customer's obligation to pay for Service not yet provided on
the affected Serving Transponder(s) shall be suspended. Microspace will provide
to Customer a credit allowance in accordance with Paragraph 4.03 for any
payments received by Microspace for Service that is not provided during such
suspension.
ARTICLE VII
FORCE MAJEURE
-------------
7.01 Except as provided in Paragraph 7.02 below, Microspace shall not be
liable for: (i) the unavailability of the Service; or (ii) Service
Interruptions (other than for the granting of credits pursuant to Article IV,
"Service Performance; Credits") resulting from causes beyond its commercially
reasonable control, including, but not in any way limited to, the order of a
court or other government agency, or by operation of any law or regulation. Each
such event shall constitute a Force Majeure.
7.02 In the event of:
(a) The unavailability of the Service due to an event of Force
Majeure; or
(b) The failure of a Transponder to meet the Minimum Performance
Standards that would otherwise qualify as a Service Failure but
for the fact that such failure resulted from a Force Majeure.
Microspace's obligation to provide Service and Customer's obligation
to pay for Service not yet provided on the affected Serving Transponder will be
suspended until (i) the Service is available or is restored; (ii) Microspace
offers to provide Service on the same Serving Satellite on a
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Transponder of the same Transponder Class meeting the Minimum Performance
Standards ("Alternative Service"); or (iii) five (5) days have elapsed,
whichever first occurs. If within such five (5) day period, the Service is
available or the affected Serving Transponder is restored to meet the Minimum
Performance Standards or Microspace offers Alternative Service, the Parties'
obligations with respect to the affected Serving Transponder under this
Agreement shall be reinstated for the remainder of the Term of this Agreement.
If, within such five (5) day period, the Service is not available, the affected
Serving Transponder is not restored to meet the Minimum Performance Standards,
or Microspace does not offer Alternative Service, the affected Service may be
terminated by either Party as provided in Article X, "Termination and
Suspension". Microspace will provide to Customer a Credit allowance in
accordance with Paragraph 4.03 for any payments received for Service by
Microspace that is not provided during such suspension.
7.03 For the purpose of this Article VII, an irreparable satellite
component failure shall not be deemed a Force Majeure, regardless of the cause
of such failure, if the failure is of a type and mode that would have been
correctable through the use of the Spare Components on the Serving Satellite as
such components existed at the time of launch of the Satellite.
ARTICLE VIII
SERVICE PROTECTION
------------------
8.01 The Service Protection level provided by Microspace is a Protected
Service.
(a) "Protected Service" means service that entitles Customer to
restoration (subject to payment of all sums due Microspace for
Service rendered) of the affected service within 24 hours of the
occurrence of a Service Failure through the use of the Serving
Satellite's available Spare Components, unassigned Transponders,
or Transponders used to provide Preemptible Service (but not
those Transponders specifically reserved for restoration of
service of a particular customer or customers) of the same
Transponder Class as the Transponder on which the Service Failure
has occurred for so long as there remain available Spare
Components, unassigned Transponder, or Transponders used to
provide Preemptible Service on the Serving Satellite. Protected
Service will not be preempted except as provided in Paragraph
12.03 below.
(b) Restoration is provided to customers taking Protected Service
(and those who have otherwise contracted for restoration of
service) on the basis that the customer who first requires
restoration shall be first restored utilizing the then-available
complement of Spare Components, unassigned Transponders or
Transponders used to provide Preemptible
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The information below marked by [**] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.
Service of the same Transponder Class as the Transponder on which
the Service Failure has occurred. The number of available Spare
Components, unassigned Transponder, and Transponders used to
provide Preemptible Service may be insufficient to guarantee one-
for-one restoration for each customer entitled to restoration and
is subject to change as a result of Satellite equipment failure,
or in the case of unassigned Transponders and Transponders used
to provide Preemptible Service, prior assignment, reservation, or
sale to another customer, making such Transponders unavailable to
Customer for restoration. The decision to the particular means of
restoration shall be exclusively GTE'S, and both Microspace and
Customer must comply with their decision. Any customer taking
Protected Service or that has otherwise contracted for
restoration may be determined by GTE, in GTE's sole discretion,
to require restoration within the meaning of this Article VIII
and in accordance with Article V, "Service Outage and Failure"
ARTICLE IX
CHARGES AND PAYMENT
-------------------
9.01 Customer shall pay to Microspace monthly, in advance, the sum of
[**].
If the term should not commence on the first day of a month or end on
the last day of a month, the monthly charge for the fractional part of the month
shall be calculated at a daily rate of one-thirtieth of the monthly charge
specified in the above paragraph.
All payments shall be made to Microspace at its address as designated
in Paragraph 16.08 and shall be deemed to be made upon receipt thereof by
Microspace. Microspace shall assess a late payment charge of one and one-half
percent (1.5%) compounded monthly on payments received after the due date.
9.02 Deposit. No deposit is required.
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9.03 [**] Microspace will not [**] to any other person or entity [**]
than those applicable to [**] hereunder. Should Microspace provide [**],
this Agreement shall be amended to provide Customer with [**] for the remainder
of the term of the Agreement; provided, however, that this provision will not
apply with respect to [**] Capitol Broadcasting Company or any subsidiary
thereof.
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ARTICLE X
TERMINATION AND SUSPENSION
--------------------------
10.01 Termination by Customer. Anything set forth herein to the contrary
notwithstanding, upon the occurrence of any of the following events Customer may
terminate this Agreement within ninety (90) days of actual knowledge of the
events giving rise to the right to termination:
(a) Breach or Default. If Microspace commits a material breach or
default of any of the provisions of this Agreement and such
breach or default has not been cured within thirty (30) days
after receipt by Microspace of Customer's notice of such breach
or default; provided, however, that Customer may terminate this
Agreement immediately in the event that a Transponder Failure is
not corrected within one hundred twenty (120) hours as provided
in Paragraph 7.02 above.
(b) Government Restrictions. If the performance of this Agreement
pursuant to the terms hereof has been prohibited by any federal,
state or local court, governmental or regulatory body, and
Service has been interrupted for a period of one hundred twenty
(120) hours or more as a result.
10.02 Termination by Microspace with Notice. Anything set forth herein to
the contrary notwithstanding, upon the occurrence of any of the following events
Microspace may terminate this Agreement upon ten (10) days prior notice of
intent to terminate to Customer:
(a) Breach or Default. If Customer commits a material breach or
default of any of the provisions of this Agreement, including,
but not limited to a failure to pay timely the monthly charge due
under Article IX, and such breach or default has not been cured
within thirty (30) days after receipt by Customer of Microspace's
notice of such breach or default;
(b) Governmental Restriction. If performance of this Agreement
pursuant to the terms hereof has been prohibited by an federal,
state or local court, governmental or regulatory body, and
performance by Customer has been interrupted for a period of one
hundred twenty (120) hours or more as a result.
10.03 Termination by Microspace without Notice. Microspace can terminate
this Agreement immediately if the underlying transponder lease between
Microspace and GTE terminates for reasons beyond the control of Microspace.
Termination of the GTE lease shall not be deemed to be beyond the control of
Microspace if it results from a default of said lease by Microspace and said
default has been acknowledged as such in writing by Microspace or judicially
determined to be such.
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10.04 Either Party may terminate this Agreement:
(a) on written notice to the other Party with respect to Service on
an affected Transponder in the event of: (a) a Service Failure on
a Transponder providing Protected Service which cannot be
restored by GTE in accordance with Article VIII; or (b) a Service
Interruption that would otherwise qualify as a Service Failure
but for the fact that such Service Interruption resulted from a
Force Majeure for which Alternative Service is not offered by
Microspace within the five-day period specified in Paragraph
7.02; or
(b) on written notice to the other Party with respect to a Serving
Satellite in the event of (a) a Control Outage as defined in
Article VI; or (b) retirement of the Serving Satellite in
accordance with the following:
(i) Fifty percent (50%) or more of the Transponders on the
Satellite have failed or are unusable for any reason; or
(ii) In the event that the Satellite's station-keeping fuel
becomes depleted to a level sufficient only to ensure
removal of the Satellite from its assigned orbital
position; or
(iii) If required to do so by any governmental authority; or
(iv) If special circumstances require retirement, and such FCC
authority as is required for retirement is obtained.
Microspace will use its best efforts to provide Customer
written notice of any final decision to retire the Serving
Satellite effective prior to the expiration of this
Agreement as far in advance of the date of retirement as
the circumstances allow. Upon retirement of the Serving
Satellite, all future performance obligations under this
Agreement hereunder shall terminate.
(c) in the event of a material breach by the other Party for which no
cure period is specified herein if such breach continues for a
period of thirty (30) days after notice of intention to terminate
is given by the non-breaching Party.
10.05 In addition to its rights under Paragraph 10.02 above, Microspace may
terminate this Agreement on written notice of:
(a) Customer's non-payment of sums due Microspace; or
(b) use of the Service in a manner which violates any applicable law,
rule, or regulation; or
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(c) if the event giving rise to the notice of termination is not
cured within five (5) days following the date of such notice.
10.06 In addition to its rights under Paragraph 10.01 above, Customer may
on written notice to Microspace terminate this Agreement within fifteen (15)
days of the date of receipt of notice from Microspace that the Serving Satellite
is to be relocated as provided in Paragraph 12.02 below if, as a result of such
relocation, the Serving Transponder will not meet the Minimum Performance
Standards.
10.07 In the event this Agreement is terminated by either Party, Customer
shall cease using the Service provided pursuant to this Agreement and shall pay
(i) all charges and/or fees due Microspace (including late payment charges) up
to the date of termination; plus (ii) any sums due Microspace pursuant to
Article IX and Article XI; less (iii) any payments made to Microspace by
Customer for Service not yet provided, including any remaining Security Deposit
or Advance Payment which has not otherwise been applied by Microspace to payment
of sums due Microspace, or any unused credit allowances due Customer, whereupon
all future performance obligations under this Agreement of the Parties hereunder
shall terminate.
10.08 Damages. A termination of this Agreement under Sections 10.01(a) and
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10.02(a) shall not limit a Party's right or ability to recover damages
occasioned to such Party as a result of the other Party's breach of this
Agreement.
ARTICLE XI
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
11.01 Limitation of Liability.
-----------------------
(a) Neither Party shall be liable for any failure of performance
hereunder due to causes beyond its control, including but not limited to acts
of God; fire, flood or other catastrophes; any law, order, regulation,
direction, action or request of the United States government, or of any other
government, including state and local governments having jurisdiction over
such Party, or of any department, agency, commission, bureau, corporation or
other instrumentality of any one or more said governments, or of any civil or
military authority, national emergencies, insurrections; riots, wars, or
strikes, lockouts, work stoppages or other labor difficulties;
(b) Except with respect to an intentional breach by Microspace of
Section 2.02, the liability of Microspace for damages or losses of any kind
arising out of its furnishing Service to the Customer hereunder shall not
include consequential damages, as defined in Section 2.02 above;
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(c) Microspace shall not be liable for any act or omission of any
other entity furnishing to the Customer facilities or equipment used with the
Service nor shall Microspace be liable for any damages or losses due to the
fault or negligence of the Customer or to the failure of Customer-provided
equipment or facilities.
11.02 Indemnification by Customer. Customer shall indemnify and hold
---------------------------
Microspace and its affiliates, its and their officers, employees or agents, or
any of them, whether acting through Microspace or otherwise, harmless from and
against:
(a) Use by Customer. All loss, liability, damage and expense,
---------------
including reasonable counsel fees due to claims for libel, slander,
infringement of copyright arising from the material transmitted by Customer
over Microspace's facilities; and any other claim resulting from any negligent
or wrongful act or omission of Customer or patrons of Customer and relating to
the Service furnished by Microspace;
(b) Misrepresentation, Breach, etc. Any and all damages occasioned
-------------------------------
by, arising out of or resulting from any material misrepresentation,
intentional breach of warranty or covenant, or intentional default or
intentional nonfulfillment of any agreement on the part of Customer under this
Agreement or under any certificate, agreement, exhibit, schedule or other
instrument furnished to Microspace pursuant to this Agreement or in connection
with any of the transactions contemplated hereby;
(c) Defense of Third Party Claims. Microspace shall notify Customer
-----------------------------
within ten (10) days of its being served with a lawsuit, and otherwise within
thirty (30) days of its actual knowledge of the occurrence of any event, or of
its discovery of any facts, which in its opinion entitle or may entitle it to
indemnification from a third party claim under this Article. Microspace's
failure to do so shall preclude it from seeking indemnification hereunder
unless such failure has not prejudiced the Customer's ability to defend such
claim. Customer shall promptly defend such claim by counsel of its own
choosing at its own cost and expense and Microspace shall cooperate with
Customer in the defense of such claim including the settlement of the matter
on the basis stipulated by Customer (with Customer being responsible for all
costs and expenses of such settlement). If Customer within reasonable time
after notice of a claim fails to defend Microspace, Microspace shall be
entitled to undertake the defense, compromise or settlement of such claim at
the expense of and for the account and risk of Customer;
(d) Right to Defend. If there is a reasonable probability that
---------------
resolution of a claim in the manner provided in paragraph (c) above will
materially and adversely affect Microspace, Microspace shall have the
12
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right, at its own cost and expense, to defend, compromise or settle such claim
against it;
(e) Claim Against Third Party. If the facts giving rise to
-------------------------
indemnification hereunder shall involve a possible claim by Microspace against
a third party, Microspace shall have the right, at its own costs and expense,
to undertake the prosecution, compromise and settlement of such claim;
(f) Release. Customer shall not, without Microspace's consent,
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settle or compromise any claim or consent to any entry of judgment which does
not include as a term thereof an unconditional release by the claimant or
plaintiff of Microspace from all liability with respect to such claim.
ARTICLE XII
-----------
SATELLITE OPERATIONS
--------------------
12.01 Nothing in this Agreement shall be construed to prevent GTE from
taking any action necessary to protect its Satellite(s) or to implement its
obligations under Article VIII hereof on a non-discriminatory basis to all
Protected Service customers or those customers otherwise contracting for
restoration, or to act in accordance with the Operations Procedures.
12.02 GTE reserves the right to relocate the Serving Satellite in
accordance with applicable regulations of the FCC or other governmental agencies
having jurisdiction. Prior to any such relocation of the Serving Satellite, GTE
will give Microspace, and Microspace will give Customer, notice of the
Satellite's new location, a schedule for such relocation, and whether the
Serving Transponder(s) will continue to meet the Minimum Performance Standards.
Thereafter, unless this Agreement is Terminated in accordance with Article X,
the rights and obligations of the Parties under this Agreement shall continue.
During the period that Service is not available and until any relocation is
completed, GTE's obligation to provide Service shall be suspended, and
Microspace will provide to Customer a credit allowance in accordance with
Paragraph 4.03 for any payments received by Microspace for the Service that was
unavailable due to the relocation; provided, however, that if Alternative
Service is offered by Microspace and accepted by Customer for this period, a
credit allowance will not apply.
12.03 Customer acknowledges and agrees that it may be necessary in unusual
or abnormal situations or conditions for Microspace to deliberately interrupt
Customer's use of the Serving Transponder in order to protect the overall
performance of the Serving Satellite, which situations may include, without
limitation, telemetry indications of spacecraft system malfunctions during or
near periods of eclipse, indications of attitude control or maneuver
malfunctions, or power subsystem anomalies. Such decision shall be made by
Microspace in its sole discretion. To the extent technically feasible,
Microspace
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<PAGE>
shall give Customer as much prior notice of such interruption as is practicable
and Microspace will use its best efforts to consult with Customer and to
schedule and conduct its activities during periods of such interruption so as to
minimize the disruption of Customer's use of the Serving Transponder. Customer
agrees that the interruption, for reasons stated in this paragraph, of
Customer's use of the Transponder on which Service is being provided shall not
be deemed a Service Failure, and Microspace's sole liability for any such
interruption shall be the issuance of credits as described in Article IV.
ARTICLE XIII
------------
SEVERABILITY
------------
13.01 In the event any one or more of the provisions of this Agreement
shall for any reason be held to be invalid or unenforceable, the remaining
provisions of this Agreement shall be unimpaired, and the invalid or
unenforceable provision shall be replaced by a provision which, being valid and
enforceable, accurately reflects the intention of the Parties underlying the
invalid or unenforceable provisions.
ARTICLE XIV
-----------
CLAIMS
------
14.01 The failure of either Party to insist upon strict adherence to any
provision of this Agreement on any occasion shall not be considered a waiver of
any right thereafter to insist upon strict adherence to that provision or any
other provision of this Agreement. Any and all claims arising under this
Agreement, except claims for non-payment of sums due, shall be brought within
one (1) year of the date that the circumstances giving rise to such claim first
occurred.
ARTICLE XV
----------
SURVIVAL
--------
15.01 Termination of this Agreement by either Party for whatever cause
shall not affect any provision of this Agreement which, by its nature, is
intended to survive or operate in the event of termination and shall not
prejudice or affect the rights of either Party against the other with respect to
any breach of this Agreement which may have been committed prior to the date of
any such termination. Subject only to the foregoing sentence, both Parties
shall in the event of any such termination be discharged from all of their
respective obligations under this Agreement which were due to have been
performed after the date of any such termination.
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ARTICLE XVI
MISCELLANEOUS
-------------
16.01 Public Notice, Confidentiality and Proprietary Information.
----------------------------------------------------------
Notwithstanding any termination of this Agreement, Microspace and Customer shall
hold in confidence the information contained in this Agreement, and Microspace
and Customer hereby acknowledge that all information related to this Agreement
is confidential and proprietary and is not to be disclosed to third persons,
without the prior consent of both Microspace and Customer. Neither Microspace
nor Customer shall disclose to any third party (other than GTE) the existence
of, or any of the terms and provisions of, this Agreement except as provided in
this Section 16.01. Neither Party shall issue a public notice or a news release
concerning this Agreement and the transactions contemplated hereby without the
prior approval of the other Party, which approval shall include the right to
approve the form, content and timing of any such release. To the extent that
either Party discloses additional information which it considers proprietary, it
shall identify such information as proprietary when disclosing it to the other
Party by marking it clearly and conspicuously as proprietary information;
provided, however, that Microspace understands and agrees that the names and
locations of Customer's patrons and affiliates are confidential and proprietary
and need not be identified as such at the time of disclosure to Microspace. Any
proprietary disclosure to either Party, if made orally, shall be promptly
confirmed in writing and identified as proprietary information, if the
disclosing Party wishes to keep such information proprietary under this
Agreement. Any such information disclosed under this Agreement shall be used by
the recipient thereof only in its performance under this Agreement.
Notwithstanding the foregoing, neither Party shall be liable for disclosure or
use of such proprietary information (but shall notify the other Party prior to
such disclosure or use) which is:
(a) Applicable Law. Required to be disclosed to the extent necessary
--------------
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction;
(b) Internal Business Matter. Disclosed as part of its normal
------------------------
procedures to its officers, directors, parent company, auditors and attorneys,
each of whom shall agree to be bound by the provisions and spirit of this
Section;
(c) Enforcement of Rights. Disclosed in order to enforce its rights
---------------------
and perform its obligations pursuant to this Agreement;
(d) Financing and Disposition. Disclosed to the extent necessary as
-------------------------
part of a sale, lease or financing arrangement, to its purchasers, lessees,
investment bankers, independent auditors or legal
15
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counsel and their agents, representatives or independent contractors or any
financial institution; provided, however, that such parties shall agree in
writing to be bound by the provisions and spirit of this Section;
(e) Public Information. Available or becomes available to the public
------------------
from a source other than the receiving Party before or during the period of this
Agreement, is lawfully obtained by the receiving Party from a third party or
parties, or is known by the receiving Party prior to such disclosure;
(f) Release. Released without restrictions in writing by the
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disclosing Party; or
(g) Independent Development. At any time developed by the receiving
-----------------------
Party completely independently of and prior to any such disclosure or
disclosures from the disclosing Party when such development can be documented to
have occurred prior to a disclosure. No license to the other Party, under any
patents, is granted or implied by conveying proprietary information or other
information to that Party.
Notwithstanding the foregoing, the existence (but not the material
terms) of this Agreement may be disclosed to the patrons and affiliates of
Customer to the extent necessary to establish proper transmission of music and
other communications services to such individuals and entities through the
leased transponder channels.
16.02 Not Fiduciaries. Nothing contained in this Agreement shall be deemed
---------------
or construed by the Parties hereto or by any third party to create any rights,
obligations or interests in third parties; to create the relationship of
principal and agent, partnership or joint venture or of any other fiduciary
relationship or association between the Parties.
16.03 Waiver. No failure on the part of either Party to notify the other
------
Party of any noncompliance hereunder, and no failure on the part of either Party
to exercise its rights hereunder shall prejudice any remedy for any subsequent
noncompliance, and any waiver by either Party of any breach or noncompliance
with any term or condition of this Agreement shall be limited to the particular
instance and shall not operate or be deemed to waive any future breaches or
noncompliance with any term or condition. All remedies and rights hereunder and
those available in law or in equity shall be cumulative and the exercise by a
Party of any such right or remedy shall not preclude the exercise of any other
right or remedy available under this Agreement in law or in equity.
16.04 Assignment and Binding Effect. This Agreement may be assigned by
-----------------------------
either Party to a third party during the term of this Agreement without the
written consent of the other Party.
16
<PAGE>
16.05 Taxes. Customer shall not be responsible for any taxes and similar
-----
liabilities, including sales, use, income and personal property taxes, which may
be required under any federal, state or local laws with respect to the
Transponders used by Customer hereunder.
16.06 Expenses. Except as otherwise provided herein, each Party hereto
--------
shall bear its own expenses incurred in connection with the transactions
pursuant to this Agreement.
16.07 Construction. This Agreement shall be construed and enforced in
------------
accordance with the internal substantive laws of the State of North Carolina
except for conflicts of laws. The Parties hereby consent and submit to the
jurisdiction of the federal and state courts located in the State of North
Carolina, and any action or suit under this Agreement may be brought by the
Parties in any federal or state court with appropriate jurisdiction over the
subject matter established or sitting in the State of North Carolina. The
Parties shall not raise in connection therewith, and hereby waive, any defenses
based upon the venue, the inconvenience of the forum, the lack of personal
jurisdiction, the sufficiency of Service of process or the like in any such
action or suit brought in the State of North Carolina. If any action or
proceeding is brought for the enforcement of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorney's
fees and other costs incurred in the action or proceeding, in addition to any
other relief to which it or they may be entitled.
16.08 Notices. All necessary notices, demands, reports, orders and
-------
requests required or permitted hereunder shall be deemed to be duly given only
if and on the date sent by Federal Express, Express Mail, or other means of
overnight courier services requiring a signature upon delivery, mailed by
certified or registered United States mail, postage prepaid, return receipt
requested, or delivered by hand and addressed as follows:
(a) If to be given to Microspace:
Mr. Keith N. Smith
Microspace Communications Corporation
3100 Highwoods Boulevard
Raleigh, NC 27604
and
17
<PAGE>
Mr. James F. Goodmon
Capitol Broadcasting Company
711 Hillsborough Street
Box 12800
Raleigh, NC 27605
(b) If to be given to Customer:
Mr. Thomas J. Gentry
Muzak DBS Division
3100 Highwoods Boulevard
Raleigh, NC 27604
and
Mr. John R. Jester
Muzak Limited Partnership
400 North 34th Street, Suite 200
Seattle, WA 98103
or to such other addresses as the Parties may specify in writing.
16.09 Headings. The headings of the Articles, Sections, Paragraphs and
--------
Subparagraphs of this Agreement are inserted as a matter of convenience and for
reference purposes only, are of no binding effect, and in no respect define,
limit or describe the scope of this Agreement or the intent of any provision
hereof.
16.10 Exhibits. All Exhibits attached to this Agreement shall be deemed
--------
part of this Agreement and incorporated herein as if fully set forth herein, and
in the event of a variation or an inconsistency between this Agreement and the
Exhibits attached hereto, the Agreement shall govern.
16.11 Ambiguities. This Agreement and the Exhibits hereto have been
-----------
drafted jointly by the Parties and in the event of any ambiguities in the
language hereof, there shall be no inference drawn in favor of either Party.
16.12 Entire Agreement. This Agreement, including the "WHEREAS" clauses on
----------------
Page 1, and all Exhibits hereto, represent the entire understanding and
agreement between the Parties hereto with respect to the subject matter hereof,
supersede all prior negotiations between such Parties, and can be amended,
supplemented or changed only by an agreement in writing which makes specific
reference to this Agreement and which is signed by both Parties.
18
<PAGE>
16.13 Counterparts. This Agreement may be signed in counterpart and in
------------
multiple copies, and each such copy having all signatures attached thereto shall
constitute an original hereof.
16.14 Technical Support. During the term of this Agreement, Microspace
-----------------
will provide technical and operational support to Customer with respect to
transmission frequency planning and equipment modulation configuration, transmit
channel additions, software interface requirements and headend equipment
interface standards.
19
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
MICROSPACE COMMUNICATIONS CORPORATION
By: /s/ Keith N. Smith
---------------------------------------
Keith N. Smith
Vice President and General Manager
Attest [SIGNATURE ILLEGIBLE]
------------------------------------
MUZAK LIMITED PARTNERSHIP
By: /s/Thomas J. Gentry
---------------------------------------
Thomas J. Gentry
Vice President and General Manager
Attest /s/ Susan A. Keith
------------------------------------
20
<PAGE>
EXHIBIT 10.25
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
TRANSPONDER LEASE AGREEMENT
---------------------------
THIS AGREEMENT, made and entered into this 5th day of July, 1995, by
--- ----
and between Microspace Communications Corporation, a North Carolina corporation
("Microspace"), and Muzak Limited Partnership, a limited partnership with
principal offices in Seattle, Washington ("Customer").
WITNESSETH:
WHEREAS, Microspace has leased transponder capacity on the Galaxy IV Ku-
band domestic communications satellite operated by Hughes Communications Galaxy
Inc. (Hughes); and
WHEREAS, Customer desires to use part of the transponder capacity leased by
Microspace for the purpose of SCPC transmission; and
WHEREAS, Microspace desires to provide such Service to Customer pursuant to
the terms and conditions hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein made, the Parties, intending to be legally bound, hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.01 "Agreement" means this Agreement.
1.02 "Galaxy IV" means the domestic communications satellite designed to
operate in the Ku-band, positioned at the 99 degrees W.L. orbital position.
1.03 "Microspace's Transponder Capacity" means that portion of a
transponder or transponders on a 54 MHz transponder with downlink coverage of
Hawaii, Alaska, Continental United States and Puerto Rico on Galaxy IV leased
from Hughes by Microspace.
1.04 "Parties" means the signatories to this Agreement and a "Party" means
one of such signatories.
1.05 "Transponder" or "Transponders" means Microspace's Transponder.
Page 1
<PAGE>
1.06 "Transponder Failure" means with respect to Microspace's Transponder,
any of the following events:
(a) Twenty (20) or more "outage units" shall occur within any thirty
(30) consecutive days (an outage unit being an interruption of Microspace's
Transponder such that an Outage Allowance is due under Article V of this
Agreement);
(b) Microspace's Transponder shall fail to meet Transponder
Performance Specifications for twelve (12) consecutive days.
1.07 "Transponder Performance Specifications" means those specifications
for the design and performance of the Galaxy VII Transponders contained in
Exhibit A.
1.08 "Transponder Spares" means certain redundant transponder equipment
units which are designed as substitutes for equipment component units, the
failure of which could cause a transponder to fail to meet the Transponder
Performance Specifications.
1.09 "Customer's Signal" means the complete intelligence to be transmitted
to Microspace's Transponder on behalf of Customer pursuant to this Agreement.
1.10 "Service" means the Transponder Capacity leased by Customer from
Microspace.
ARTICLE II
SERVICE
-------
2.01 Transponder Service. Beginning August 15, 1995, Customer shall take
-------------------
full-time Service from Microspace as specified in Exhibit B, "Technical
Specifications", Part 1, "Individual Subcarrier Specifications". During the
term of this Agreement, Microspace shall provide transponder capacity to
Customer, subject and according to the terms hereof, on a full-time (24 hours a
day, 7 days a week) basis.
2.02 Orbital Location. Customer's Transponder Capacity shall be provided
----------------
from the 99 degrees W.L. orbital location.
2.03 Uplink Facilities. Microspace shall provide transmitting equipment
-----------------
and related facilities (hereinafter "Uplink Facilities") sufficient to transmit
Customer's Signals from the ground to Microspace's Transponder subject to the
following conditions:
Page 2
<PAGE>
(a) The Uplink Facilities shall be located in or near Raleigh, North
Carolina;
(b) Microspace will provide, operate and maintain transmitting
equipment which will be capable of sending Customer's Signal to Microspace's
Transponder if Customer's Signal is configured so that it is technically
compatible with the transmitting equipment provided by Microspace;
(c) Microspace will operate the Uplink Facilities in a reasonable
manner consistent with the type of equipment located thereon. Unless Microspace
commits an intentional breach, it will not be liable for consequential damages
for breach of this provision. As used herein, "consequential damages" includes
revenues lost to Customer as a result of the inability of Customer to transmit
Customer's Signal but does not mean the costs incurred by Customer in replacing
damaged property or in securing replacement facilities or replacement
transponder capacity;
(d) Customer will adhere to all reasonable rules and regulations
established by Microspace for the Uplink Facilities, including, but not limited
to, access by third persons;
(e) The Uplink Facilities provided by Microspace shall include
facilities to allow for the downlink of Customer's Signal from other satellites,
including those operating in C-band, for re-transmission to Microspace's
Transponder;
(f) Microspace will provide Customer space within a building at the
Uplink Facilities sufficient to accommodate standard Wegener or equivalent
modulation equipment required for transmission of Customer's channels as defined
in the Exhibits of this Agreement. Customer will pay no rent for said space.
Additional rack space will be leased to Customer, if requested, at rates to be
agreed upon, subject to space available:
(i) All taxes or assessments which are incurred as the result of
the installation and operation of Customer's equipment will be paid by Customer
in a timely manner;
(ii) Microspace will provide electric power and temporary
emergency backup electrical power for the operation of Customer's equipment
without charge. Microspace will use all reasonable efforts to maintain a
suitable environment within the building to support the operation of standard
electrical devices typically installed in Uplink Facilities;
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
(iii) Microspace will not be responsible for damage to or
destruction of Customer's equipment located at the Uplink Facilities unless the
damage or destruction is caused by Microspace's gross negligence or willful
misconduct.
ARTICLE III
SERVICE TERM
------------
3.01 Term. Customer shall begin taking Service as provided herein for a
----
term commencing August 15, 1995, and continuing until the Expiration Date, as
defined below:
"Expiration Date": Upon the earlier to occur:
(a) July 31, 2000; or
(b) The termination or cancellation of this Agreement as provided in
Article X of this Agreement.
ARTICLE IV
MONTHLY CHARGE AND METHOD OF PAYMENT
------------------------------------
4.01 Monthly Charge. Customer shall pay to Microspace monthly, in
--------------
advance, the sum of [**].
If the term should not commence on the first day of a month or end on
the last day of a month, the monthly charge for the fractional part of the month
shall be calculated at a daily rate of one-thirtieth of the monthly charge
specified in Paragraph 4.01.
All payments shall be made to Microspace at its address as designated
in Paragraph 13.08 and shall be deemed to be made upon receipt thereof by
Microspace. Microspace shall assess a late payment charge of one and one-half
percent (1.5%) compounded monthly on payments received after the due date.
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
4.02 [**] Microspace will not [**] to any other person or entity [**]
than those applicable to [**] hereunder. Should Microspace provide [**], this
Agreement shall be amended to provide Customer with [**] for the remainder of
the term of the Agreement; provided, however, that this provision will not apply
with respect to [**] Capital Broadcasting Company or any subsidiary thereof.
ARTICLE V
INTERRUPTION OF TRANSMISSIONS OVER TRANSPONDERS
-----------------------------------------------
5.01 Outage Allowance. If applicable, Microspace shall grant Customer an
----------------
Outage Allowance, as follows:
If an "Outage Allowance Failure Period" (as defined below) occurs,
then for each full hour of such Outage Allowance Failure Period Microspace shall
grant Customer a pro rata Outage Allowance based upon the monthly charge for
Customer's Transponder Capacity and the length of the Outage Allowance Failure
Period, calculated pursuant to the equation below. Any such Outage Allowance
shall be applied to the next succeeding monthly billing to Customer and shall
not in any case exceed one month's standard billing. As used herein, "Outage
Allowance Failure Period" shall mean the aggregate period (in hours) -- only
where such aggregation exceeds twelve (12) hours during any consecutive thirty
(30) day period -- during which a Transponder Capacity Failure(s) occurs. For
purposes of this Agreement, A Transponder Capacity Failure shall be measured
from the time Microspace receives notice from Customer of the Transponder
Capacity Failure until the time the Transponder has been restored to operation,
but shall not begin in any event until Customer ceases to use Customer's
Transponder Capacity.
Outage Allowance = Outage Allowance Failure Period (In Hours) X Monthly Lease
Payment
----------------------------------------------------------
720 Hours/Month
In no case shall an Outage Allowance be made for any Transponder
Capacity Failure related to: (i) any failure on the part of Customer to perform
its transmission or other material or operational obligations pursuant to this
Agreement, (ii) failure of facilities provided by Customer, (iii) reasonable
periodic maintenance, (iv) interference from third party transmissions or usage,
(v) cooperative testing, except where trouble or fault is found in the
Transponder or (vi) any other act or failure to act by Customer.
<PAGE>
5.02 Resolution of Credit Disputes. In the event that Microspace and
-----------------------------
Customer cannot agree on the amount of credit due Customer following an
interruption, Customer may withhold payment of the disputed amount until
Microspace and Customer resolve the dispute; provided, however, that should a
credit dispute or disputes arise totalling two months Service fees or more in
the aggregate, Microspace or Customer may cancel this Agreement on thirty (30)
days written notice and pursue all legal remedies available to resolve the
dispute, including claims of breach for wrongful termination.
ARTICLE VI
TRANSPONDER PROTECTION
----------------------
6.01 Restoration of Service. If Microspace's Transponder suffers a
----------------------
Transponder Failure, Customer shall remain bound by this Agreement if
Microspace's Transponder is restored within two hundred forty (240) hours using
a Transponder Spare or unused transponder per the underlying lease agreement
between Microspace and Hughes as excerpted below:
"B. Provision of Continuing Service. In the event of a Transponder
-------------------------------
Capacity Failure, Hughes shall provide Customer's Transponder Capacity
using a spare component of a Transponder on the Satellite (including a
spare traveling wave tube, if available, or if such spare component is
unavailable, then by using an alternate Transponder on the Satellite, if
available. The availability of such spare component or alternate
Transponder on the Satellite, on a permanent or temporary basis, shall be
determined by Hughes in its sole discretion. The foregoing
notwithstanding, Customer's sole remedies for any preemption or
interruption of use under this Article III, shall be the recovery of an
Outage Allowance pursuant to Article V, or the termination of this
Agreement pursuant to Article VIII."
If it is not so restored, Customer may terminate this Agreement
immediately and without any notice to Microspace. In the event that the
Satellite is prematurely removed from service by Hughes and if Microspace has,
pursuant to the Hughes lease, preferential rights to replacement transponder
capacity on a successor satellite, Customer shall have the corresponding right
to sublease transponder service from Microspace on such successor satellite.
ARTICLE VII
TRACKING, TELEMETRY AND CONTROL
-------------------------------
7.01 Throughout the term of this Agreement, Hughes shall be responsible for
all the functions of Tracking, Telemetry and Control ("TT&C") including, without
limitation, stationkeeping, attitude control, and other satellite maintenance
and switching functions.
<PAGE>
ARTICLE VIII
REPORTS AND COMMUNICATIONS
--------------------------
Microspace shall provide Customer with the following reports regarding the
operation of the satellite and the associated TT&C facilities:
8.01 Anomalous Operation Notification. Microspace shall notify Customer as
--------------------------------
soon as possible by telephone with prompt written confirmation of any
significant incidents that have been brought to its attention by Hughes which
have a material effect on Microspace's Transponder. Microspace also shall notify
Customer promptly of any circumstances that are brought to its attention which
make it clearly ascertainable or predictable that any of the incidents described
in this section will occur.
8.02 Maneuver Notification. Microspace shall notify Customer of all non-
---------------------
emergency maneuvers of The Satellite which would result in a change in the
orbital location of The Satellite within two (2) days of receiving notification
of the same from Hughes.
ARTICLE IX
USE OF TRANSPONDERS
-------------------
9.01 Use of and Right to Transponders. Customer shall have the right to
--------------------------------
use the Service, including transponder channels, provided hereunder for any
lawful purpose.
ARTICLE X
TERMINATION
-----------
10.01 Termination by Customer. Anything set forth herein to the contrary
-----------------------
notwithstanding, upon the occurrence of any of the following events Customer may
terminate this Agreement within ninety (90) days of actual knowledge of the
events giving rise to the right to termination:
(a) Breach or Default. If Microspace commits a material breach or
-----------------
default of any of the provisions of this Agreement and such breach or default
has not been cured within thirty (30) days after receipt by Microspace of
Customer's notice of such breach or default;
(b) Governmental Restrictions. If the performance of this Agreement
-------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and Service has been interrupted for a
period of two hundred forty (240) hours or more as a result.
<PAGE>
10.02 Termination by Microspace with Notice. Anything set forth herein to
-------------------------------------
the contrary notwithstanding, upon the occurrence of any of the following events
Microspace may terminate this Agreement upon ten (10) days prior notice of
intent to terminate to Customer:
(a) Breach or Default. If Customer commits a material breach or
-----------------
default of any of the provisions of this Agreement, including, but not limited
to a failure to pay timely the monthly charge due under Article IV, and such
breach or default has not been cured within thirty (30) days after receipt by
Customer of Microspace's notice of such breach or default;
(b) Governmental Restrictions. If performance of this Agreement
-------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and performance by Customer has been
interrupted for a period of two hundred forty (240) hours or more as a result.
10.03 Termination by Microspace Without Notice. Microspace can terminate
----------------------------------------
this Agreement immediately if the underlying transponder lease between
Microspace and Hughes (the Hughes lease) terminates for reasons beyond the
control of Microspace. Termination of the Hughes lease shall not be deemed to be
beyond the control of Microspace if it results from a default of said lease by
Microspace and said default has been acknowledged as such in writing by
Microspace or judicially determined to be such.
10.04 Damages. A termination of this Agreement under Sections 10.01 (a)
-------
and 10.02 (a) shall not limit a Party's right or ability to recover damages
occasioned to such Party as a result of the other Party's breach of this
Agreement.
ARTICLE XI
DEPOSIT
-------
11.01 Deposit. No deposit required.
-------
ARTICLE XII
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
12.01 Limitation of Liability.
-----------------------
(a) Neither Party shall not be liable for any failure of performance
hereunder due to causes beyond its control, including but not limited to acts of
God; fire, flood or other catastrophes; any law, order, regulation, direction,
action or request of the United States
Page 8
<PAGE>
government, or of any other government, including state and local governments
having jurisdiction over such Party, or of any department, agency, commission,
bureau, corporation or other instrumentality of any one or more said
governments, or of any civil or military authority, national emergencies,
insurrections; riots, wars, or strikes, lockouts, work stoppages or other labor
difficulties;
(b) Except with respect to an intentional breach by Microspace of
Section 2.02 or Section 13.15, the liability of Microspace for damages or losses
of any kind arising out of its furnishing Service to the Customer hereunder
shall not include consequential damages, as defined in Section 2.02 above;
(c) Microspace shall not be liable for any act or omission of any
other entity furnishing to the Customer facilities or equipment used with the
Service nor shall Microspace be liable for any damages or losses due to the
fault or negligence of the Customer or to the failure of Customer-provided
equipment or facilities.
12.02 Indemnification by Customer. Customer shall indemnify and hold
---------------------------
Microspace and its affiliates, its and their officers, employees or agents, or
any of them, whether acting through Microspace or otherwise, harmless from and
against:
(a) Use by Customer. All loss, liability, damage and expense,
---------------
including reasonable counsel fees due to claims for libel, slander, infringement
of copyright arising from the material transmitted by Customer over Microspace's
facilities; and any other claim resulting from any negligent or wrongful act or
omission of Customer or patrons of Customer and relating to the Service
furnished by Microspace;
(b) Misrepresentation, Breach, etc. Any and all damages occasioned
------------------------------
by, arising out of or resulting from any material misrepresentation, intentional
breach of warranty or covenant, or intentional default or intentional
nonfulfillment of any agreement on the part of Customer under this Agreement or
under any certificate, agreement, exhibit, schedule or other instrument
furnished to Microspace pursuant to this Agreement or in connection with any of
the transactions contemplated hereby;
(c) Defense of Third Party Claims. Microspace shall notify Customer
-----------------------------
within ten (10) days of its being served with a lawsuit, and otherwise within
thirty (30) days of its actual knowledge of the occurrence of any event, or of
its discovery of any facts, which in its opinion entitle or may entitle it to
indemnification from a third party claim under this Article. Microspace's
failure to do so shall preclude it from seeking indemnification hereunder unless
such failure has not prejudiced the Customer's ability to defend such claim.
Customer shall promptly defend such claim by counsel of its own choosing at its
own
Page 9
<PAGE>
cost and expense and Microspace shall cooperate with Customer in the defense
of such claim including the settlement of the matter on the basis stipulated by
Customer (with Customer being responsible for all costs and expenses of such
settlement). If Customer within reasonable time after notice of a claim fails
to defend Microspace, Microspace shall be entitled to undertake the defense,
compromise or settlement of such claim at the expense of and for the account and
risk of Customer;
(d) Right to Defend. If there is a reasonable probability that
---------------
resolution of a claim in the manner provided in paragraph (c) above will
materially and adversely affect Microspace, Microspace shall have the right, at
its own cost and expense, to defend, compromise or settle such claim against it;
(e) Claim Against Third Party. If the facts giving rise to
-------------------------
indemnification hereunder shall involve a possible claim by Microspace against a
third party, Microspace shall have the right, at its own costs and expense, to
undertake the prosecution, compromise and settlement of such claim;
(f) Release. Customer shall not, without Microspace's consent, settle
-------
or compromise any claim or consent to any entry of judgment which does not
include as a term thereof an unconditional release by the claimant or plaintiff
of Microspace from all liability with respect to such claim.
ARTICLE XIII
MISCELLANEOUS
-------------
13.01 Public Notice, Confidentiality and Proprietary Information.
----------------------------------------------------------
Notwithstanding any termination of this Agreement, Microspace and Customer shall
hold in confidence the information contained in this Agreement, and Microspace
and Customer hereby acknowledge that all information related to this Agreement
is confidential and proprietary and is not to be disclosed to third persons,
without the prior consent of both Microspace and Customer. Neither Microspace
nor Customer shall disclose to any third party (other than Hughes) the existence
of, or any of the terms and provisions of, this Agreement except as provided in
this Section 13.01. Neither Party shall issue a public notice or a news release
concerning this Agreement and the transactions contemplated hereby without the
prior approval of the other Party, which approval shall include the right to
approve the form, content and timing of any such release. To the extent that
either Party discloses additional information which it considers proprietary, it
shall identify such information as proprietary when disclosing it to the other
Party by marking it clearly and conspicuously as proprietary information;
provided, however, that Microspace understands and agrees that the names and
locations of Customer's patrons and affiliates are
Page 10
<PAGE>
confidential and proprietary and need not be identified as such at the time of
disclosure to Microspace. Any proprietary disclosure to either Party, if made
orally, shall be promptly confirmed in writing and identified as proprietary
information, if the disclosing Party wishes to keep such information proprietary
under this Agreement. Any such information disclosed under this Agreement shall
be used by the recipient thereof only in its performance under this Agreement.
Notwithstanding the foregoing, neither Party shall be liable for disclosure or
use of such proprietary information (but shall notify the other Party prior to
such disclosure or use) which is:
(a) Applicable Law. Required to be disclosed to the extent necessary
--------------
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction;
(b) Internal Business Matter. Disclosed as part of its normal
------------------------
procedures to its officers, directors, parent company, auditors and attorneys,
each of whom shall agree to be bound by the provisions and spirit of this
Section;
(c) Enforcement of Rights. Disclosed in order to enforce its rights
---------------------
and perform its obligations pursuant to this Agreement;
(d) Financing and Disposition. Disclosed to the extent necessary as
-------------------------
part of a sale, lease or financing arrangement, to its purchasers, lessees,
investment bankers, independent auditors or legal counsel and their agents,
representatives or independent contractors or any financial institution;
provided, however, that such parties shall agree in writing to be bound by the
provisions and spirit of this Section;
(e) Public Information. Available or becomes available to the public
------------------
from a source other than the receiving Party before or during the period of this
Agreement, is lawfully obtained by the receiving Party from a third party or
parties, or is known by the receiving Party prior to such disclosure;
(f) Release. Released without restrictions in writing by the
-------
disclosing Party; or
(g) Independent Development. At any time developed by the receiving
-----------------------
Party completely independently of and prior to any such disclosure or
disclosures from the disclosing Party when such development can be documented to
have occurred prior to a disclosure. No license to the other Party, under any
patents, is granted or implied by conveying proprietary information or other
information to that Party.
Notwithstanding the foregoing, the existence (but not the material
terms) of this Agreement may be disclosed to the patrons and
Page 11
<PAGE>
affiliates of Customer to the extent necessary to establish proper transmission
of music and other communications services to such individuals and entities
through the leased transponder channels.
13.02 Not Fiduciaries. Nothing contained in this Agreement shall be deemed
---------------
or construed by the Parties hereto or by any third party to create any rights,
obligations or interests in third parties; to create the relationship of
principal and agent, partnership or joint venture or of any other fiduciary
relationship or association between the Parties.
13.03 Waiver. No failure on the part of either Party to notify the other
------
Party of any noncompliance hereunder, and no failure on the part of either Party
to exercise its rights hereunder shall prejudice any remedy for any subsequent
noncompliance, and any waiver by either Party of any breach or noncompliance
with any term or condition of this Agreement shall be limited to the particular
instance and shall not operate or be deemed to waive any future breaches or
noncompliance with any term or condition. All remedies and rights hereunder and
those available in law or in equity shall be cumulative and the exercise by a
Party of any such right or remedy shall not preclude the exercise of any other
right or remedy available under this Agreement in law or in equity.
13.04 Assignment and Binding Effect. This Agreement may be assigned by
-----------------------------
either Party to a third party during the term of this Agreement without the
written consent of the other Party.
13.05 Taxes. Customer shall not be responsible for any taxes and similar
-----
liabilities, including sales, use, income and personal property taxes, which may
be required under any federal, state or local laws with respect to the
Transponders used by Customer hereunder.
13.06 Expenses. Except as otherwise provided herein, each Party hereto
--------
shall bear its own expenses incurred in connection with the transactions
pursuant to this Agreement.
13.07 Construction. This Agreement shall be construed and enforced in
------------
accordance with the internal substantive laws of the State of North Carolina
except for conflicts of laws. The Parties hereby consent and submit to the
jurisdiction of the federal and state courts located in the State of North
Carolina, and any action or suit under this Agreement may be brought by the
Parties in any federal or state court with appropriate jurisdiction over the
subject matter established or sitting in the State of North Carolina. The
Parties shall not raise in connection therewith, and hereby waive, any defenses
based upon the venue, the inconvenience of the forum, the lack of personal
jurisdiction, the sufficiency of Service of process or the like in any such
action or suit brought in the State of North Carolina. If any action or
proceeding is brought for the enforcement of this Agreement, the successful or
Page 12
<PAGE>
prevailing party or parties shall be entitled to recover reasonable attorney's
fees and other costs incurred in the action or proceeding, in addition to any
other relief to which it or they may be entitled.
13.08 Notices. All necessary notices, demands, reports, orders and
-------
requests required or permitted hereunder shall be deemed to be duly given only
if and on the date sent by Federal Express, Express Mail, or other means of
overnight courier services requiring a signature upon delivery, mailed by
certified or registered United States mail, postage prepaid, return receipt
requested, or delivered by hand and addressed as follows:
(a) If to be given to Microspace:
Mr. Joseph L. Amor III
Microspace Communications Corporation
3100 Highwoods Boulevard
Raleigh, NC 27604
and
Mr. James F. Goodmon
Capitol Broadcasting Company
711 Hillsborough Street
Box 12800
Raleigh, NC 27605
(b) If to be given to Customer:
Mr. Thomas J. Gentry
Muzak DBS Division
3100 Highwoods Boulevard
Raleigh, NC 27604
and
Mr. John R. Jester
Muzak Limited Partnership
400 North 34th Street, Suite 200
Seattle, WA 98103
or to such other addresses as the Parties may specify in writing.
13.09 Headings. The headings of the Articles, Sections, Paragraphs and
--------
Subparagraphs of this Agreement are inserted as a matter of convenience and for
reference purposes only, are of no binding effect, and in no respect define,
limit or describe the scope of this Agreement or the intent of any provision
hereof.
Page 13
<PAGE>
13.10 Exhibits. All Exhibits attached to this Agreement shall be deemed
--------
part of this Agreement and incorporated herein as if fully set forth herein, and
in the event of a variation or an inconsistency between this Agreement and the
Exhibits attached hereto, the Agreement shall govern.
13.11 Ambiguities. This Agreement and the Exhibits hereto have been
-----------
drafted jointly by the Parties and in the event of any ambiguities in the
language hereof, there shall be no inference drawn in favor of either Party.
13.12 Entire Agreement. This Agreement, including the "WHEREAS" clauses on
----------------
Page 1, and all Exhibits hereto, represent the entire understanding and
agreement between the Parties hereto with respect to the subject matter hereof,
supersede all prior negotiations between such Parties, and can be amended,
supplemented or changed only by an agreement in writing which makes specific
reference to this Agreement and which is signed by both Parties.
13.13 Counterparts. This Agreement may be signed in counterpart and in
------------
multiple copies, and each such copy having all signatures attached thereto shall
constitute an original hereof.
13.14 Technical Support. During the term of this Agreement, Microspace
-----------------
will provide technical and operational support to Customer with respect to
transmission frequency planning and equipment modulation configuration, transmit
channel additions, software interface requirements and headend equipment
interface standards.
13.15 Hughes Communications Lease. Microspace hereby affirms and agrees
---------------------------
that it will use its best efforts properly to perform its obligations and
exercise its rights under the Hughes lease for the benefit of Customer as well
as itself and that, as afforded by the Hughes lease, in the event of its default
under such lease, Customer shall have the right (contingent on approval by
Hughes) to assume Microspace's rights and obligations under said lease to the
extent necessary to provide continued access to the transponder channels leased
by Customer under this Agreement. In the event of default, Microspace will use
its reasonable best efforts to seek Hughes' consent to assignment of the
transponder lease to Customer. Unless Microspace's breach of this Section 13.15
is intentional, Microspace will not be liable to Customer for consequential
damages, as defined in Section 2.02, for such breach. For purposes of this
provision, Microspace shall be deemed to be in default of the Hughes lease if
such default is acknowledged by it in writing or is judicially determined.
13.16 Representations and Warranties. Microspace represents and warrants
------------------------------
that, as of the date hereof, its lease with Hughes is a valid and binding lease
of the Transponder channels that are the subject of
Page 14
<PAGE>
this Agreement, it has performed its obligations and is in good standing under
the Hughes lease, and it knows of no breach or default by Hughes of the Hughes
lease. Each of the Parties hereto further represents and warrants to the other
that, as of the date hereof, (i) it has all necessary rights and powers to enter
into and fully perform this Agreement, (ii) this Agreement constitutes a valid
and binding obligation of such Party, (iii) it has no knowledge of any agreement
or arrangement which conflict with this Agreement or which limit or could
reasonably be expected to limit the performance of its obligations under this
Agreement, and (iv) it is in full compliance with all local, state, and federal
laws, rules, and regulations applicable to its performance of this Agreement. In
the event of a material breach of the foregoing representation and warranties,
Customer (if the breaching Party) shall indemnify and hold harmless Microspace
and its affiliates, its and their officers, employees or agents, or any of them,
as provided in Section 12.02, and Microspace (if the breaching Party) shall
indemnify and hold harmless Customer and its affiliates, its and their officers,
employees or agents, or any of them, from and against any and all damages
occasioned by, arising out of or resulting from such breach.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
MICROSPACE COMMUNICATIONS CORPORATION
By: /s/ Joseph L. Amor III
-------------------------------------
Joseph L. Amor III
Vice President and General Manager
Attest: [SIGNATURE ILLEGIBLE]
---------------------------------
MUZAK LIMITED PARTNERSHIP
By: /s/ Thomas J. Gentry
-------------------------------------
Thomas J. Gentry
Vice President and General Manager
Attest: [SIGNATURE ILLEGIBLE]
---------------------------------
Page 15
<PAGE>
Exhibit 10.26
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
TRANSPONDER LEASE AGREEMENT
---------------------------
THIS AGREEMENT, made and entered into this 29th day of April, 1996, by and
---- -----
between Microspace Communications Corporation, a North Carolina corporation
("Microspace"), and Muzak Limited Partnership, a limited partnership with
principal offices in Seattle, Washington ("Customer").
WITNESSETH:
WHEREAS, Microspace has leased C-band transponder capacity on the Satellite
known as GE Satcom C-5; and
WHEREAS, Customer desires to use part of the transponder capacity leased by
Microspace for the purpose of SCPC transmission; and
WHEREAS, Microspace desires to provide such Service to Customer pursuant to
the terms and conditions hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein made, the Parties, intending to be legally bound, hereby
mutually agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.01 "Agreement" means this Agreement.
1.02 "C-5" means the domestic communications satellite designed to operate
in the C-band, positioned at the 139 degrees W.L. orbital position.
1.03 "Microspace's Transponder" means that portion of a transponder or
transponders on C-5 leased by Microspace.
1.04 "Parties" means the signatories to this Agreement and a "Party" means
one of such signatories.
1.05 "Transponder" or "Transponders" means Microspace's Transponder.
1.06 "Transponder Failure" means with respect to Microspace's Transponder,
any of the following events:
Page 1
<PAGE>
(a) Twenty (20) or more "outage units" shall occur within any thirty
(30) consecutive days (an outage unit being an interruption of Microspace's
Transponder such that an Outage Allowance is due under Article V of this
Agreement);
(b) Microspace's Transponder shall fail to meet Transponder
Performance Specifications for twelve (12) consecutive days.
1.07 "Transponder Performance Specifications" means those specifications
for the design and performance of the C-5 Transponders contained in Exhibit A.
1.08 "Transponder Spares" means certain redundant transponder equipment
units which are designed as substitutes for equipment component units, the
failure of which could cause a transponder to fail to meet the Transponder
Performance Specifications.
1.09 "Customer's Signal" means the complete intelligence to be transmitted
to Microspace's Transponder on behalf of Customer pursuant to this Agreement.
1.10 "Service" means the Transponder Capacity leased by Customer from
Microspace.
ARTICLE II
SERVICE
-------
2.01 Transponder Service. Beginning in 1991, Customer took full-time
-------------------
Service from Microspace as specified in Exhibit B, "Technical Specifications",
Part 1, "Individual SCPC Specifications." During the term of this Agreement,
Microspace shall provide transponder capacity to Customer, subject and according
to the terms hereof, on a full-time (24 hours a day, 7 days a week) basis.
2.02 Orbital Location. Customer's Transponder Capacity shall be provided
----------------
on C-5 satellite from the 139 degrees W.L. orbital location.
2.03 Uplink Facilities. Microspace shall provide transmitting equipment
-----------------
and related facilities (hereinafter "Uplink Facilities") sufficient to transmit
Customer's Signals from the ground to Microspace's Transponder subject to the
following conditions:
(a) The Uplink Facilities shall be located in or near Raleigh, North
Carolina;
(b) Microspace will provide, operate and maintain transmitting
equipment which will be capable of sending Customer's
Page 2
<PAGE>
Signal to Microspace's Transponder if Customer's Signal is configured so that it
is technically compatible with the transmitting equipment provided by
Microspace;
(c) Microspace will operate the Uplink Facilities in a reasonable
manner consistent with the type of equipment located thereon. Unless Microspace
commits an intentional breach, it will not be liable for consequential damages
for breach of this provision. As used herein, "consequential damages" includes
revenues lost to Customer as a result of the inability of Customer to transmit
Customer's Signal but does not mean the costs incurred by Customer in replacing
damaged property or in securing replacement facilities or replacement
transponder capacity;
(d) Customer will adhere to all reasonable rules and regulations
established by Microspace for the Uplink Facilities, including, but not limited
to, access by third persons;
(e) Microspace will provide Customer space within a building at the
Uplink Facilities sufficient to accommodate modulation equipment required for
transmission of Customer's channels as defined in the Exhibits of this
Agreement. Customer will pay no rent for said space. Additional rack space
will be leased to Customer, if requested, at rates to be agreed upon, subject to
space available:
(i) All taxes or assessments which are incurred as the result of
the installation and operation of Customer's equipment will be paid by Customer
in a timely manner;
(ii) Microspace will provide electric power and temporary
emergency backup electrical power for the operation of Customer's equipment
without charge. Microspace will use all reasonable efforts to maintain a
suitable environment within the building to support the operation of standard
electrical devices typically installed in Uplink Facilities;
(iii) Microspace will not be responsible for damage to or
destruction of Customer's equipment located at the Uplink Facilities unless the
damage or destruction is caused by Microspace's gross negligence or willful
misconduct.
ARTICLE III
SERVICE TERM
------------
3.01 Term. Customer began taking Service as provided herein for a term
----
commencing in 1991 and continuing until the Expiration Date, as defined below:
Page 3
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
"Expiration Date": Upon the earlier to occur:
(a) June 30, 1998; or
(b) The termination or cancellation of this Agreement as provided in
Article X of this Agreement.
ARTICLE IV
MONTHLY CHARGE AND METHOD OF PAYMENT
------------------------------------
4.01 Monthly Charge. Customer shall pay to Microspace monthly, in
--------------
advance, the sum of [**].
If the term should not commence on the first day of a month or end on
the last day of a month, the monthly charge for the fractional part of the month
shall be calculated at a daily rate of one-thirtieth of the monthly charge
specified in the above paragraph.
All payments shall be made to Microspace at its address as designated
in Paragraph 13.08 and shall be deemed to be made upon receipt thereof by
Microspace. Microspace shall assess a late payment charge of one and one-half
percent (1.5%) compounded monthly on payments received after the due date.
4.02 [**] Microspace will not [**] to any other person or entity [**] than
those applicable to [**] hereunder. Should Microspace provide [**], this
Agreement shall be amended to provide Customer with [**] for the remainder of
the term of the Agreement; provided, however, that this provision will not apply
with respect to [**] Capital Broadcasting Company or any subsidiary thereof.
ARTICLE V
INTERRUPTION OF TRANSMISSIONS OVER TRANSPONDERS
-----------------------------------------------
5.01 Outage Allowance. If applicable, Microspace shall grant Customer an
----------------
Outage Allowance, as follows:
If an "Outage Allowance Failure Period" (as defined below) occurs,
then for each full hour of such Outage Allowance Failure Period Microspace shall
grant Customer a pro rata Outage Allowance based upon the monthly charge for
Customer's Transponder Capacity and the length of the Outage Allowance Failure
Period, calculated pursuant to
Page 4
<PAGE>
the equation below. Any such Outage Allowance shall be applied to the next
succeeding monthly billing to Customer and shall not in any case exceed one
month's standard billing. As used herein, "Outage Allowance Failure Period"
shall mean the aggregate period (in hours) -- only where such aggregation
exceeds twelve (12) hours during any consecutive thirty (30) day period --
during which a Transponder Capacity Failure(s) occurs. For purposes of this
Agreement, A Transponder Capacity Failure shall be measured from the time
Microspace receives notice from Customer of the Transponder Capacity Failure
until the time the Transponder has been restored to operation, but shall not
begin in any event until Customer ceases to use Customer's Transponder Capacity.
Outage Allowance = Outage Allowance Failure Period (In Hours) X Monthly Lease
-----------------------------------------------------------------------------
Payment
-------
720 Hours/Month
In no case shall an Outage Allowance be made for any Transponder
Capacity Failure related to: (i) any failure on the part of Customer to perform
its transmission or other material or operational obligations pursuant to this
Agreement, (ii) failure of facilities provided by Customer, (iii) reasonable
periodic maintenance, (iv) interference from third party transmissions or usage,
(v) cooperative testing, except where trouble or fault is found in the
Transponder or (vi) any other act or failure to act by Customer.
5.02 Resolution of Credit Disputes. In the event that Microspace and
-----------------------------
Customer cannot agree on the amount of credit due Customer following an
interruption, Customer may withhold payment of the disputed amount until
Microspace and Customer resolve the dispute; provided, however, that should a
credit dispute or disputes arise totaling two months Service fees or more in the
aggregate, Microspace or Customer may cancel this Agreement on thirty (30) days
written notice and pursue all legal remedies available to resolve the dispute,
including claims of breach for wrongful termination.
ARTICLE VI
TRANSPONDER PROTECTION
----------------------
6.01 Restoration of Service. If Microspace's Transponder suffers a
----------------------
Transponder Failure, Customer shall remain bound by this Agreement if
Microspace's Transponder is restored within two hundred forty (240) hours using
a Transponder Spare or unused transponder per the underlying lease agreement.
If it is not so restored, Customer may terminate this Agreement
immediately and without any notice to Microspace. In the event that the
Satellite is prematurely removed from service and if Microspace has, pursuant to
the underlying lease, preferential rights to replacement transponder capacity on
a successor satellite, Customer
Page 5
<PAGE>
shall have the corresponding right to sublease transponder service from
Microspace on such successor satellite.
ARTICLE VII
TRACKING, TELEMETRY AND CONTROL
-------------------------------
7.01 Throughout the term of this Agreement, GE shall be responsible for
all the functions of Tracking, Telemetry and Control ("TT&C") including, without
limitation, stationkeeping, attitude control, and other satellite maintenance
and switching functions.
ARTICLE VIII
REPORTS AND COMMUNICATIONS
--------------------------
Microspace shall provide Customer with the following reports regarding the
operation of the satellite and the associated TT&C facilities:
8.01 Anomalous Operation Notification. Microspace shall notify Customer
--------------------------------
as soon as possible by telephone with prompt written confirmation of any
significant incidents that have been brought to its attention by GE which have a
material effect on Microspace's Transponder. Microspace also shall notify
Customer promptly of any circumstances that are brought to its attention which
make it clearly ascertainable or predictable that any of the incidents described
in this section will occur.
8.02 Maneuver Notification. Microspace shall notify Customer of all non-
---------------------
emergency maneuvers of The Satellite which would result in a change in the
orbital location of The Satellite within two (2) days of receiving notification
of the same from GE.
ARTICLE IX
USE OF TRANSPONDERS
-------------------
9.01 Use of and Right of Transponders. Customer shall have the right to
--------------------------------
use the Service, including transponder channels, provided hereunder for any
lawful purpose.
ARTICLE X
TERMINATION
-----------
10.01 Termination by Customer. Anything set forth herein to the contrary
-----------------------
notwithstanding, upon the occurrence of any of the following
Page 6
<PAGE>
events Customer may terminate this Agreement within ninety (90) days of actual
knowledge of the events giving rise to the right to termination:
(a) Breach or Default. If Microspace commits a material breach or
-----------------
default of any of the provisions of this Agreement and such breach or default
has not been cured within thirty (30) days after receipt by Microspace of
Customer's notice of such breach or default;
(b) Governmental Restrictions. If the performance of this Agreement
-------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and Service has been interrupted for a
period of two hundred forty (240) hours or more as a result.
10.02 Termination Notice. Anything set forth herein to the contrary
------------------
notwithstanding, upon the occurrence of any of the following events Microspace
may terminate this Agreement upon ten (10) days prior notice of intent to
terminate to Customer:
(a) Breach or Default. If Customer commits a material breach or
-----------------
default of any of the provisions of this Agreement, including, but not limited
to a failure to pay timely the monthly charge due under Article IV, and such
breach or default has not been cured within thirty (30) days after receipt by
Customer of Microspace's notice of such breach or default;
(b) Governmental Restrictions. If performance of this Agreement
-------------------------
pursuant to the terms hereof has been prohibited by any federal, state or local
court, governmental or regulatory body, and performance by Customer has been
interrupted for a period of two hundred forty (240) hours or more as a result.
10.03 Termination by Microspace Without Notice. Microspace can terminate
----------------------------------------
this Agreement immediately if the underlying transponder lease terminates for
reasons beyond the control of Microspace. Termination of the underlying lease
shall not be deemed to be beyond the control of Microspace if it results from a
default of said lease by Microspace and said default has been acknowledged as
such in writing by Microspace or judicially determined to be such.
10.04 Damages. A termination of this Agreement under Sections 10.01(a) and
-------
10.02(a) shall not limit a Party's right or ability to recover damages
occasioned to such Party as a result of the other Party's breach of this
Agreement.
ARTICLE XI
DEPOSIT
-------
11.01 Deposit. No deposit required.
-------
Page 7
<PAGE>
ARTICLE XII
INDEMNIFICATION AND LIMITATION OF LIABILITY
-------------------------------------------
12.01 Limitation of Liability.
-----------------------
(a) Neither Party shall not be liable for any failure of performance
hereunder due to causes beyond its control, including but not limited to acts of
God; fire, flood or other catastrophes; any law, order, regulation, direction,
action or request of the United States government, or of any other government,
including state and local governments having jurisdiction over such Party, or of
any department, agency, commission, bureau, corporation or other instrumentality
of any one or more said governments, or of any civil or military authority,
national emergencies, insurrections; riots, wars, or strikes, lockouts, work
stoppages or other labor difficulties;
(b) Except with respect to an intentional breach by Microspace of
Section 2.02 or Section 13.15, the liability of Microspace for damages or losses
of any kind arising out of its furnishing Service to the Customer hereunder
shall not include consequential damages, as defined in Section 2.02 above;
(c) Microspace shall not be liable for any act or omission of any
other entity furnishing to the Customer facilities or equipment used with the
Service nor shall Microspace be liable for any damages or losses due to the
fault or negligence of the Customer or to the failure of Customer-provided
equipment or facilities.
12.02 Indemnification by Customer. Customer shall indemnify and hold
---------------------------
Microspace and its affiliates, its and their officers, employees or agents, or
any of them, whether acting through Microspace or otherwise, harmless from and
against:
(a) Use by Customer. All loss, liability, damage and expense,
---------------
including reasonable counsel fees due to claims for libel, slander, infringement
of copyright arising from the material transmitted by Customer over Microspace's
facilities; and any other claim resulting from any negligent or wrongful act or
omission of Customer or patrons of Customer and relating to the Service
furnished by Microspace;
(b) Misrepresentation, Breach, etc. Any and all damages occasioned
------------------------------
by, arising out of or resulting from any material misrepresentation, intentional
breach of warranty or covenant, or intentional default or intentional
nonfulfillment of any agreement on the part of Customer under this Agreement or
under any certificate, agreement, exhibit, schedule or other instrument
furnished to
Page 8
<PAGE>
Microspace pursuant to this Agreement or in connection with any of the
transactions contemplated hereby;
(c) Defense of Third Party Claims. Microspace shall notify Customer
-----------------------------
within ten (10) days of its being served with a lawsuit, and otherwise within
thirty (30) days of its actual knowledge of the occurrence of any event, or of
its discovery of any facts, which in its opinion entitle or may entitle it to
indemnification from a third party claim under this Article. Microspace's
failure to do so shall preclude it from seeking indemnification hereunder unless
such failure has not prejudiced the Customer's ability to defend such claim.
Customer shall promptly defend such claim by counsel of its own choosing at its
own cost and expense and Microspace shall cooperate with Customer in the defense
of such claim including the settlement of the matter on the basis stipulated by
Customer (with Customer being responsible for all costs and expenses of such
settlement). If Customer within reasonable time after notice of a claim fails
to defend Microspace, Microspace shall be entitled to undertake the defense,
compromise or settlement of such claim at the expense of and for the account and
risk of Customer;
(d) Right to Defend. If there is a reasonable probability that
---------------
resolution of a claim in the manner provided in paragraph (c) above will
materially and adversely affect Microspace, Microspace shall have the right, at
its own cost and expense, to defend, compromise or settle such claim against it;
(e) Claim Against Third Party. If the facts giving rise to
-------------------------
indemnification hereunder shall involve a possible claim by Microspace against a
third party, Microspace shall have the right, at its own costs and expense, to
undertake the prosecution, compromise and settlement of such claim;
(f) Release. Customer shall not, without Microspace's consent,
-------
settle or compromise any claim or consent to any entry of judgment which does
not include as a term thereof an unconditional release by the claimant or
plaintiff of Microspace from all liability with respect to such claim.
ARTICLE XIII
MISCELLANEOUS
-------------
13.01 Public Notice, Confidentiality and Proprietary Information.
----------------------------------------------------------
Notwithstanding any termination of this Agreement, Microspace and Customer shall
hold in confidence the information contained in this Agreement, and Microspace
and Customer hereby acknowledge that all information related to this Agreement
is confidential and proprietary and is not to be disclosed to third persons,
without the prior consent of both Microspace and Customer. Neither Microspace
nor Customer
Page 9
<PAGE>
shall disclose to any third party the existence of, or any of the terms and
provisions of, this Agreement except as provided in this Section 13.01. Neither
Party shall issue a public notice or a news release concerning this Agreement
and the transactions contemplated hereby without the prior approval of the other
Party, which approval shall include the right to approve the form, content and
timing of any such release. To the extent that either Party discloses additional
information which it considers proprietary, it shall identify such information
as proprietary when disclosing it to the other Party by marking it clearly and
conspicuously as proprietary information; provided, however, that Microspace
understands and agrees that the names and locations of Customer's patrons and
affiliates are confidential and proprietary and need not be identified as such
at the time of disclosure to Microspace. Any proprietary disclosure to either
Party, if made orally, shall be promptly confirmed in writing and identified as
proprietary information, if the disclosing Party wishes to keep such information
proprietary under this Agreement. Any such information disclosed under this
Agreement shall be used by the recipient thereof only in its performance under
this Agreement. Notwithstanding the foregoing, neither Party shall be liable for
disclosure or use of such proprietary information (but shall notify the other
Party prior to such disclosure or use) which is:
(a) Applicable Law. Required to be disclosed to the extent necessary
--------------
to comply with law or the valid order of a governmental agency or court of
competent jurisdiction;
(b) Internal Business Matter. Disclosed as part of its normal
------------------------
procedures to its officers, directors, parent company, auditors and attorneys,
each of whom shall agree to be bound by the provisions and spirit of this
Section;
(c) Enforcement of Rights. Disclosed in order to enforce its rights
---------------------
and perform its obligations pursuant to this Agreement;
(d) Financing and Disposition. Disclosed to the extent necessary as
-------------------------
part of a sale, lease or financing arrangement, to its purchasers, lessees,
investment bankers, independent auditors or legal counsel and their agents,
representatives or independent contractors or any financial institution;
provided, however, that such parties shall agree in writing to be bound by the
provisions and spirit of this Section;
(e) Public Information. Available or becomes available to the public
------------------
from a source other than the receiving Party before or during the period of this
Agreement, is lawfully obtained by the receiving Party from a third party or
parties, or is known by the receiving Party prior to such disclosure;
(f) Release. Released without restrictions in writing by the
-------
disclosing Party; or
Page 10
<PAGE>
(g) Independent Development. At any time developed by the receiving
-----------------------
Party completely independently of and prior to any such disclosure or
disclosures from the disclosing Party when such development can be documented to
have occurred prior to a disclosure. No license to the other Party, under any
patents, is granted or implied by conveying proprietary information or other
information to that Party.
Notwithstanding the foregoing, the existence (but not the material
terms) of this Agreement may be disclosed to the patrons and affiliates of
Customer to the extent necessary to establish proper transmission of music and
other communications services to such individuals and entities through the
leased transponder channels.
13.02 Not Fiduciaries. Nothing contained in this Agreement shall be deemed
---------------
or construed by the Parties hereto or by any third party to create any rights,
obligations or interests in third parties; to create the relationship of
principal and agent, partnership or joint venture or of any other fiduciary
relationship or association between the Parties.
13.03 Waiver. No failure on the part of either Party to notify the other
------
Party of any noncompliance hereunder, and no failure on the part of either Party
to exercise its rights hereunder shall prejudice any remedy for any subsequent
noncompliance, and any waiver by either Party of any breach or noncompliance
with any term or condition of this Agreement shall be limited to the particular
instance and shall not operate or be deemed to waive any future breaches or
noncompliance with any term or condition. All remedies and rights hereunder and
those available in law or in equity shall be cumulative and the exercise by a
Party of any such right or remedy shall not preclude the exercise of any other
right or remedy available under this Agreement in law or in equity.
13.04 Assignment and Binding Effect. This Agreement may be assigned by
-----------------------------
either Party to a third party during the term of this Agreement without the
written consent of the other Party.
13.05 Taxes. Customer shall not be responsible for any taxes and similar
-----
liabilities, including sales, use, income and personal property taxes, which may
be required under any federal, state or local laws with respect to the
Transponders used by Customer hereunder.
13.06 Expenses. Except as otherwise provided herein, each Party hereto
--------
shall bear its own expenses incurred in connection with the transactions
pursuant to this Agreement.
13.07 Construction. This Agreement shall be construed and enforced in
------------
accordance with the internal substantive laws of the State
Page 11
<PAGE>
of North Carolina except for conflicts of laws. The Parties hereby consent and
submit to the jurisdiction of the federal and state courts located in the State
of North Carolina, and any action or suit under this Agreement may be brought by
the Parties in any federal or state court with appropriate jurisdiction over the
subject matter established or sitting in the State of North Carolina. The
Parties shall not raise in connection therewith, and hereby waive, any defenses
based upon the venue, the inconvenience of the forum, the lack of personal
jurisdiction, the sufficiency of Service of process or the like in any such
action or suit brought in the State of North Carolina. If any action or
proceeding is brought for the enforcement of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable attorney's
fees and other costs incurred in the action or proceeding, in addition to any
other relief to which it or they may be entitled.
13.08 Notices. All necessary notices, demands, reports, orders and
-------
requests required or permitted hereunder shall be deemed to be duly given only
if and on the date sent by Federal Express, Express Mail, or other means of
overnight courier services requiring a signature upon delivery, mailed by
certified or registered United States mail, postage prepaid, return receipt
requested, or delivered by hand and addressed as follows:
(a) If to be given to Microspace:
Mr. Joseph L. Amor III
Microspace Communications Corporation
3100 Highwoods Boulevard
Raleigh, NC 27604
and
Mr. James F. Goodmon
Capitol Broadcasting Company
711 Hillsborough Street
Box 12800
Raleigh, NC 27605
(b) If to be given to Customer:
Mr. Thomas J. Gentry
Muzak DBS Division
3100 Highwoods Boulevard
Raleigh, NC 27604
and
Mr. John R. Jester
Muzak Limited Partnership
400 North 34th Street, Suite 200
Seattle, WA 98103
Page 12
<PAGE>
or to such other addresses as the Parties may specify in writing.
13.09 Headings. The headings of the Articles, Sections, Paragraphs and
--------
Subparagraphs of this Agreement are inserted as a matter of convenience and for
reference purposes only, are of no binding effect, and in no respect define,
limit or describe the scope of this Agreement or the intent of any provision
hereof.
13.10 Exhibits. All Exhibits attached to this Agreement shall be deemed
--------
part of this Agreement and incorporated herein as if fully set forth herein, and
in the event of a variation or an inconsistency between this Agreement and the
Exhibits attached hereto, the Agreement shall govern.
13.11 Ambiguities. This Agreement and the Exhibits hereto have been
-----------
drafted jointly by the Parties and in the event of any ambiguities in the
language hereof, there shall be no inference drawn in favor of either party.
13.12 Entire Agreement. This Agreement, including the "WHEREAS" clauses on
----------------
Page 1, and all Exhibits hereto, represent the entire understanding and
agreement between the Parties hereto with respect to the subject matter hereof,
supersede all prior negotiations between such Parties, and can be amended,
supplemented or changed only by an agreement in writing which makes specific
reference to this Agreement and which is signed by both Parties.
13.13 Counterparts. This Agreement may be signed in counterpart and in
------------
multiple copies, and each such copy having all signatures attached thereto shall
constitute an original hereof.
13.14 Technical Support. During the term of this Agreement, Microspace
-----------------
will provide technical and operational support to Customer with respect to
transmission frequency planning and equipment modulation configuration, transmit
channel additions, software interface requirements and headend equipment
interface standards.
13.15 GE Communications Lease. Microspace hereby affirms and agrees that
-----------------------
it will use its best efforts properly to perform its obligations and exercise
its rights under the underlying lease for the benefit of Customer as well as
itself and that, as afforded by the underlying lease, in the event of its
default under such lease, Customer shall have the right (contingent on approval
by GE) to assume Microspace's rights and obligations under said lease to the
extent necessary to provide continued access to the transponder channels leased
by Customer under this Agreement. In the event of default, Microspace will use
its reasonable best efforts to seek GE' consent to assignment of the transponder
lease to Customer. Unless Microspace's breach of this
Page 13
<PAGE>
Section 13.15 is intentional, Microspace will not be liable to Customer for
consequential damages, as defined in Section 2.02, for such breach. For purposes
of this provision, Microspace shall be deemed to be in default of the underlying
lease if such default is acknowledged by it in writing or is judicially
determined.
13.16 Representations and Warranties. Microspace represents and warrants
------------------------------
that, as of the date hereof, its underlying lease with GE is a valid and binding
lease of the Transponder channels that are the subject of this Agreement, it has
performed its obligations and is in good standing, and it knows of no breach or
default by GE. Each of the Parties hereto further represents and warrants to
the other that, as of the date hereof, (i) it has all necessary rights and
powers to enter into and fully perform this Agreement, (ii) this Agreement
constitutes a valid and binding obligation of such Party, (iii) it has no
knowledge of any agreement or arrangement which conflict with this Agreement or
which limit or could reasonably be expected to limit the performance of its
obligations under this Agreement, and (iv) it is in full compliance with all
local, state, and federal laws, rules, and regulations applicable to its
performance of this Agreement. In the event of a material breach of the
foregoing representation and warranties, Customer (if the breaching Party) shall
indemnify and hold harmless Microspace and its affiliates, its and their
officers, employees or agents, or any of them, as provided in Section 12.02, and
Microspace (if the breaching Party) shall indemnify and hold harmless Customer
and its affiliates, its and their officers, employees or agents, or any of them,
from and against any and all damages occasioned by, arising out of or resulting
from such breach.
Page 14
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
MICROSPACE COMMUNICATIONS CORPORATION
By: /s/ Joseph L. Amor III
--------------------------------
Joseph L. Amor III
Vice President and General Manager
Attest: /s/ Shirley Adams
----------------------------
MUZAK LIMITED PARTNERSHIP
By: /s/ Thomas J. Gentry
--------------------------------
Thomas J. Gentry
Vice President and General Manager
Attest: /s/ Susan A. Tyree
----------------------------
Page 15
<PAGE>
EXHIBIT 10.28
<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
SALES AGREEMENT AND LICENSE
This SALES AGREEMENT AND LICENSE ("Agreement") is made and entered into
this 28th day of September , 1995, by and between MAINSTREAM DATA, INC., a
------ -------------
Delaware corporation ("Mainstream"), and MUZAK LIMITED PARTNERSHIP, a Delaware
limited partnership ("Muzak").
Mainstream is in the business of manufacturing and servicing audio, data
and telecommunications equipment suitable for commercial use. Muzak wishes to
purchase certain items of equipment produced by Mainstream, and Mainstream
wishes to sell such items to Muzak, on the terms and conditions set forth
herein.
The parties therefore agree as follows:
1. Equipment.
---------
1.1 Subject to the terms and conditions set forth in this agreement,
Mainstream hereby agrees to sell to Muzak and Muzak hereby agrees to purchase
from Mainstream over a 3-year period 5,000 KU-band Digital SCPC satellite
receivers (the "Receivers").
a. The MH77 and ME77 Receivers are an addressable KU-band
Digital SCPC Satellite Receiver in a self-contained receiver chassis capable of
receiving four (4) audio channels at approximately 10 kHz, one (1) data channel
at a minimum of 9.6 Kbps and a single command and control channel.
b. The MH77-2 and ME77-2 receivers are an addressable KU-band
Digital SCPC Satellite receiver in a self contained chassis which receives and
simultaneously outputs two (2) audio channels at approximately 10 kHz, one (1)
DATA channel at a minimum of 9.6 Kbps and a single command and control channel.
c. The MH77-4 and ME77-4 receivers are an addressable KU-band
Digital SCPC Satellite receiver in a self contained chassis which receives and
<PAGE>
simultaneously outputs four (4) audio channels at approximately 10 kHz, one (1)
DATA channel at a minimum of 9.6 Kbps and a single command and control channel.
d. The receivers provided will be private labeled for Muzak.
2. License. In conjunction with its sale of the Equipment to Muzak,
-------
Mainstream hereby grants to Muzak a non-exclusive license to use in perpetuity,
in association with the Equipment, the computer software which is described in
Exhibit A attached hereto and incorporated herein by reference, as such software
- ---------
now exists and is hereafter revised, modified, and updated by Mainstream within
ten (10) years after the date of this Agreement (the "Software"). Mainstream
shall make available to Muzak all revisions, modifications, and updates of the
Software promptly after they are developed. Subject to Section 8.2, such license
shall be under the following conditions:
2.1 Muzak is allowed the use of the Software to control, operate, and
otherwise utilize the full capability of Mainstream produced equipment via a
satellite distributed data stream (and various related other equipment present
at the uplink).
2.2 Muzak agrees to not create any derivations of the Software or to
modify its content in any form unless authorized by Mainstream which
authorization will not be unreasonably withheld. Muzak is allowed to fully
utilize the Software (and its associated documentation) for use in Muzak's
operational system.
2.3 Mukaz acknowledges that the Software contains trade secrets of
Mainstream and agrees to take all necessary steps to protect the Software, as
mentioned above.
2.4 New software requirements or developments requested by Muzak
which are out of the scope of the ongoing software maintenance provided for in
this Section 2 shall be the subject of a separate negotiation between the
parties.
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
2.5 In the event that Mainstream defaults under any term or provision
of this Agreement, Mainstream, upon written demand from Muzak, shall deliver to
Muzak, without cost of any kind to Muzak, any downlink software Mainstream has
produced for downlink control and Mainstream, without any further action on its
part, shall be deemed to have assigned to Muzak all of Mainstream's rights for,
or relating to, third party produced control software.
2.6 Mainstream shall take all steps necessary to assure that downlink
control software shall be available to Muzak, without cost of any kind to Muzak,
in the event that any third party provider of such software cannot continue to
meet its obligations to Mainstream. Such steps shall include escrow storage of
source codes and all related materials and documentation necessary to produce
the current release of all such control software at any time.
3. Prices and Payment.
------------------
3.1 The prices of the Equipment shall be as follows:
<TABLE>
<CAPTION>
Model Price Per Unit
----- --------------
<S> <C> <C>
a. Digital SCPC Audio Receiver MH77 [**]
b. Digital SCPC Audio Receiver (2 Port) MH77-2 [**]
c. Digital SCPC Audio Receiver (4 Port) MH77-4 [**]
d. Digital SCPC Audio Receiver ME77 [**]
e. Digital SCPC Audio Receiver (2 Port) ME77-2 [**]
f. Digital SCPC Audio Receiver (4 Port) ME77-4 [**]
g. BPSK Modulator [**]
h. APT-X Audio/Data Encoder [**]
i. Audio NMS System [**]
</TABLE>
<PAGE>
* This fee is waived unless Muzak does not purchase a combined number of
receivers totaling 3,000 in quantity over the contract period.
3.2 Payment for the Equipment shall be made as follows:
a. The price of all items of Equipment ordered by Muzak
hereunder, shall be invoiced to Muzak of the date(s) such items of Equipment are
shipped to Muzak. Payment under such invoices shall be due to Mainstream thirty
(30) days after the invoice date.
b. In addition to the purchase price, Muzak shall pay to
Mainstream any sales taxes directly attributable to its purchases of Equipment
under this Agreement.
4. Specifications; Product Warranties.
-----------------------------------
4.1 Mainstream warrants that the Equipment and the Software will meet
and perform according to the specifications set forth in Exhibits A and B
----------------
attached hereto and incorporated herein by reference and will be delivered to
Muzak free of any latent or patent defects, whether hazardous or not.
4.2 Mainstream acknowledges and agrees that Muzak and its affiliates
and customers intend to use the Equipment and the Software for the delivery and
reception of high-quality, satellite-delivered audio and data communications on
a continuous 24-hour-per-day, 365-days-per-year basis and that Muzak is relying
on Mainstream's expertise in designing and manufacturing products for that
intended use. Mainstream expressly warrants that the Equipment and the Software
shall be fit for Muzak's purposes as stated herein.
4.3 Mainstream further warrants that it has the right to license the
Software and sell the Equipment to Muzak and that neither the Equipment nor the
<PAGE>
Software infringes (or will at any time infringe) any patent, copyright, trade
secret, or other proprietary interest or right of any person or entity.
4.4 The warranties set forth in this Agreement are in addition to and
not in lieu of any other warranties, express or implied, provided to Muzak under
law.
5. Orders; Shipments.
-----------------
5.1 The parties anticipate that, following the Initial Order, Muzak
will order a minimum of 1,500 Receivers per year (up to the total number of
Receivers ordered hereunder). The parties also anticipate that each order for
Receivers will contain a release for at least 500 units. All orders shall be
made in writing and shall be delivered to Mainstream at its address set forth in
Section 12.7 below. Notwithstanding the foregoing, Muzak shall not be obligated
at any time to order or pay for any amount of Equipment from Mainstream in the
event that (i) prior orders of Equipment or Software have not conformed to the
specifications set forth in this Agreement or have included Equipment that is
substantially defective or otherwise of a lesser quality than represented to
Muzak by Mainstream and Mainstream has failed properly to repair defective or
damaged Equipment under Article 7 or resolve any software deficiency within a
mutually agreeable time; (ii) Muzak, for any reason, cancels its direct-
broadcast-satellite program; (iii) there is, for any reason, a reduction in
Muzak's projected needs for the Equipment; or (iv) without derogating from any
other right of Muzak in such event, Mainstream is in material breach of this
Agreement.
5.2 Mainstream shall ship the Initial Order according to a forecast
schedule set forth in Exhibit C attached hereto and incorporated herein by
reference. All Equipment that is the subject of subsequent orders placed by
Muzak shall be shipped in accordance with a shipment schedule included in such
order. All shipments of Equipment shall be FOB Salt Lake City and shall be sent
to such locations and by means of such
<PAGE>
carriers as are designated by Muzak in the Order. Unless Muzak requests that
Mainstream obtain shipment-period insurance on behalf of Muzak, Muzak shall
obtain its own insurance to cover damage caused by or during shipping. Damage
resulting from shipping or otherwise occurring during the shipping period shall
be reported to Mainstream within 30 days of receipt of the damaged item, and
such damage shall be repaired by Mainstream in the manner set forth in Article 7
below; provided, however, that notwithstanding anything to the contrary in
Article 7, if such shipment-period damage was directly or indirectly caused by
Mainstream, the costs of repair of such damage and other costs incurred by Muzak
as a result of the such damage (which is limited to replacement equipment and
related shipping costs) shall be borne by Mainstream. If so requested by Muzak,
Mainstream shall file and administer on behalf of Muzak any claims against
carriers or insurers relating to shipment-period damage.
5.3 The prices set forth and referred to in Article 3 above are
inclusive of order, processing, packaging and handling costs.
6. Testing. Each item of Equipment shall be fully bench-tested by
-------
Mainstream prior to its shipment.
7. Repair Services.
---------------
7.1 Muzak (or its affiliate or customer) shall return any defective
item of Equipment to Mainstream at its address set forth in Section 12.7 below,
and Mainstream shall complete the repair or replacement of such defective item
within ten (10) business days after its receipt of such item. Mainstream shall
guarantee all such repairs for a period of three months from the date of repair.
The costs of sending a defective item to Mainstream for repair shall be borne by
Muzak (or its affiliate or customer, as determined by Muzak). The costs of
returning warranty repaired items of Equipment (including any insurance costs)
shall be borne by Mainstream.
<PAGE>
7.2 Except as provided in Section 7.1, Mainstream shall bear all
costs associated with the repair or replacement of any item of Equipment found
to be defective within twelve (12) months of the date such item was first
installed and put into service by Muzak (or its affiliate or customer). All
other repairs of defective Equipment shall be subject to Mainstream's usual and
customary repair charges.
8. Technical Assistance.
---------------------
8.1 Mainstream shall deliver to Muzak within ninety (90) days after
the date of this Agreement schematic diagrams, block diagrams, and system
descriptions of the Receivers and each other item of Equipment referred to in
this Agreement, as well as an Operations Software Manual that explains the
proper operations and use of the Software in conjunction with the Equipment as
required for maintenance, repair and operation. In addition, Mainstream shall
provide with each Receiver that it ships an Installation and Operations Manual
(the "Manual") that describes and explains the proper installation and usage of
such Receiver. Mainstream shall include in the manual such information about
the Receivers as Muzak reasonably requests but shall retain exclusive
responsibility for the contents of the Manual. Mainstream affirms and agrees
that with the exception of schematic none of the information contained in
the documents referred to in this Section 8.1 shall be deemed by it to be
proprietary in nature. All such documents shall be revised by Mainstream from
time to time as necessary to maintain their accuracy and usefulness to Muzak and
its affiliates and customers.
8.2 Without derogating from any other right of Muzak in such event,
if Mainstream is unable to complete production of the equipment ordered by Muzak
hereunder without a reasonable and acceptable remedy and/or cure to Muzak, and
Muzak is not then in breach of this Agreement, Mainstream shall, upon demand,
license Muzak (or such other person or entity as Muzak selects for such purpose)
to complete such
<PAGE>
production and immediately make available to Muzak such drawings,
specifications, software, object/source codes and such other assistance as will
permit Muzak (or such other person or entity as Muzak selects for such purposes)
promptly to complete such production.
9. Term.
----
9.1 This Agreement shall commence on the date hereof and, unless
sooner terminated as set forth in Sections 9.2 and 9.3, shall remain in effect
for three (3) years from the date hereof, provided, however, that Articles 2, 4,
7, 10, 11, and 12 shall survive said termination for a period of five (5) years.
9.2 In the event that Mainstream is in material breach of this
Agreement and has not commenced to cure such breach within thirty (30) days
after its receipt of a notice of such breach from Muzak, Muzak may terminate
this Agreement without penalty as provided for in Section 5.1 by giving 90 days
prior written notice thereof to Mainstream provided, however, that if (i) Muzak
terminates this Agreement after having placed an order for Equipment that has
not been shipped and (ii) Mainstream is not then in breach of this Agreement,
Muzak shall reimburse Mainstream for Mainstream's actual costs of parts and
components ordered, purchased, or manufactured for use in such Equipment to the
extent that such parts and components cannot otherwise be employed by
Mainstream. Mainstream shall not order, purchase, or manufacture any such parts
or components following its receipt of Muzak's 90-day notice of early
termination of this Agreement.
9.3 In the event that Muzak is in material breach of this Agreement
and has not commenced to cure such breach within thirty (30) days after its
receipt of a notice of such breach from Mainstream, Mainstream may terminate
this Agreement upon written notice to Muzak.
<PAGE>
The information below marked by [**] has been omitted pursuant to a request
for confidential treatment. The omitted portion has been separately filed with
the Commission.
10. Indemnification; Damages. Mainstream shall indemnify Muzak and hold
-------------------------
it harmless from and against any and all losses, damages, costs and expenses,
including attorneys' fees and court costs, incurred by reason of a breach of any
of the representations, warranties, covenants, and agreements made by Mainstream
in this Agreement or under law or in any other instrument or document related to
this Agreement. Muzak shall promptly notify Mainstream of any third-party claim
threatened in writing which may give rise to Muzak's right of indemnification
hereunder. Damages payable to Muzak as a result of any such breach may include
incidental and special damages. Notwithstanding any other provision of this
Agreement to the contrary, Mainstream shall not be liable in any event for any
consequential damages of any kind arising out of or related to any defects in
the Equipment or Software or any use thereof by Muzak.
11. [**]. In the event that Mainstream [**] of Equipment and accompanying
Software that are the subject of the Agreement [**], Mainstream shall
immediately offer [**] to Muzak in lieu of those set forth herein.
12. General Provisions.
------------------
12.1 This Agreement may not be assigned or delegated by a party
without the prior written consent of the other party,
which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, Muzak may assign its rights and delegate its duties hereunder to any
affiliated person or entity, any successor to its business, and any of its
lenders (including for security purposes). In the event of any delegation of a
party's duties hereunder, such party shall remain liable hereunder unless
<PAGE>
and until the other party approves the delegee and the delegee assumes the
delegating party's obligations in writing. Subject to the foregoing, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
12.2 This Agreement embodies the entire agreement and understanding
of the parties with respect to the subject matter hereof, supersedes all prior
oral or written agreements and understandings with respect to such subject
matter, and may not be modified except by a written instrument signed by both
parties hereto.
12.3 The captions in this Agreement are for convenience only and do
not in any way limit or amplify the provisions hereof.
12.4 This Agreement may be executed in counterparts, and all of such
counterparts together shall constitute one agreement binding on all parties
thereto, notwithstanding that all parties are not signatory to the original or
same counterpart.
12.5 If any action or proceeding is brought for the enforcement of
this Agreement, the successful or prevailing party or parties shall be entitled
to recover reasonable attorney's fees and other costs incurred in the action or
proceeding, in addition to any other relief to which it or they may be entitled.
12.6 This Agreement shall be governed by the laws of the State of
Washington, including without limitation the Uniform Commercial Code codified as
Title 62A, Revised Code of Washington.
<PAGE>
12.7 All notices hereunder shall be in writing and deemed delivered
when personally delivered or sent by certified mail, postage prepaid, return
receipt requested, to a party at its address set forth below (or at such other
address as shall hereafter be designated in writing for such purpose by such
party):
(i) If to Mainstream, at
________________________
________________________
________________________
Attention:______________
(ii) If to Muzak, at
________________________
________________________
________________________
Attention:______________
12.8 Each party hereto, within thirty (30) days after the date of
this Agreement, shall appoint an Administrator who shall be primarily
responsible for overseeing the administration of this Agreement on behalf of
such party, and shall notify the other party of the name and address of such
Administrator.
12.9 Neither party shall be liable for its failure to perform
hereunder as a result of any contingency beyond its reasonable control,
including an act of God, sun outage, fire, floor, was, sabotage, and labor
strike.
12.10 The waiver of any term or condition of this Agreement by any
party shall not be construed as a waiver of any subsequent breach or failure of
the same term or condition, or an a waiver of any other term or condition of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MUZAK LIMITED PARTNERSHIP MAINSTREAM DATA, INC.
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
-------------------------- --------------------------
Title: Vice President Title: President
----------------------- -----------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MUZAK LIMITED PARTNERSHIP MAINSTREAM DATA, INC.
By: [SIGNATURE ILLEGIBLE] By: [SIGNATURE ILLEGIBLE]
-------------------------- --------------------------
Title: Vice President Title: President
----------------------- -----------------------
<PAGE>
EXHIBIT 12
MUZAK LIMITED PARTNERSHIP
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT- FOUR- SIX MONTHS
YEAR MONTHS MONTHS ENDED
ENDED ENDED ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DEC. 31, AUGUST 31, DEC. 31, ---------------------------- ------------------
1991 1992 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net income (loss)
attributable to general
and limited partners... ($ 9,505) ($ 5,975) ($ 656) ($ 4,047) ($ 8,116) ($ 6,743) ($ 3,961) ($ 4,718)
-------- -------- -------- -------- -------- -------- -------- --------
ADD BACK FIXED CHARGES:
Interest expense includ-
ing
amortization of de-
ferred
financing costs........ 7,514 3,639 1,228 3,785 6,990 7,483 3,791 3,574
Preferred returns....... -- -- 188 572 933 1,029 506 543
Assumed interest compo-
nent
of rent expenses(1).... 1,444 1,064 546 1,863 2,128 2,566 1,278 1,049
-------- -------- -------- -------- -------- -------- -------- --------
Total fixed charges... 8,958 4,703 1,962 6,220 10,051 11,078 5,575 5,166
-------- -------- -------- -------- -------- -------- -------- --------
Adjusted earnings....... ($ 547) ($ 1,272) $ 1,306 $ 2,173 $ 1,935 $ 4,335 $ 1,614 $ 448
======== ======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges.......... (0.06)x (0.27)x 0.67x 0.35x 0.19x 0.39x 0.29x 0.09x
======== ======== ======== ======== ======== ======== ======== ========
Deficiency of earnings
to fixed charges....... $ 9,505 $ 5,975 $ 656 $ 4,047 $ 8,116 $ 6,743 $ 3,961 $ 4,718
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------------
(1)Estimated as one-third of operating lease expenses.
<PAGE>
EXHIBIT 21
List of Subsidiaries
MUZAK LIMITED PARTNERSHIP
State of
Name Incorporation
- ---- -------------
Muzak Capital Corporation Delaware
MUZAK CAPITAL CORPORATION
None
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT
SCHEDULE OF MUZAK LIMITED PARTNERSHIP
We consent to the use in this Registration Statement relating to the sale of
Senior Notes by Muzak Limited Partnership and Muzak Capital Corporation on
Amendment No. 3 to Form S-1 of our report dated March 6, 1996 (August 23,
1996, as to Note 10) on the financial statements of Muzak Limited Partnership
as of December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, appearing in the Prospectus, which is a part
of this Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Muzak Limited
Partnership, listed in Item 16(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
August 28, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement relating to the sale of
Senior Notes of Muzak Limited Partnership and Muzak Capital Corporation on
Amendment No. 3 to Form S-1 of our report dated August 27, 1996 on the
financial statement of Muzak Capital Corporation as of May 8, 1996, appearing
in the Prospectus, which is part of the Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Seattle, Washington
August 28, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement relating to the sale of
Senior Notes of Muzak Limited Partnership and Muzak Capital Corporation on
Amendment No. 3 to Form S-1 of our report dated February 10, 1994 on the
financial statements of Comcast Sound Communications, Inc. and subsidiaries
for the year ended December 31, 1993, appearing in the Prospectus, which is
part of this Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
August 28, 1996
