AMENDED AND RESTATED
MANAGEMENT OPTION PLAN
(Effective September __, 1996)
1. Purpose. This Amended and Restated Management Option Plan (the "Amended
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and Restated Plan" or the "Plan") amends and restates the Management Option Plan
of Muzak Limited Partnership (the "Partnership") effective August 31, 1992. The
purpose of this Plan is to further the best interests of the Partnership by
encouraging key employees of the Partnership to continue association with the
Partnership and by providing additional incentive for unusual industry and
efficiency through offering them an opportunity to acquire on reasonable terms a
proprietary stake in the Partnership and its future growth. The Partnership
believes that this goal best may be achieved by granting options (the "Options")
to acquire units (the "Units") of limited partnership interest in the
Partnership to employees of the Partnership (the "Optionees").
The options to be granted pursuant to the Amended and Restated Plan shall
not be Incentive Stock Options (as defined in Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code")).
2. Option Units. The Units which may be made subject to Options granted
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pursuant to the Plan shall be a total maximum of 1,840,000 units of the Class B
limited partnership interest (the "Class B Interests"). If any Options expire or
terminate for any reason without having been exercised in full, the unpurchased
Units subject thereto shall again be available for the purposes of the Plan.
3. Effective Date of Plan. The Amended and Restated Plan shall take effect
----------------------
on September __, 1996.
4. Administration of the Plan. The Plan shall be administered by MLP
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Acquisition, L.P., the managing general partner of the Partnership (the
"Managing General Partner"). The interpretation and construction by the Managing
General Partner of any provisions of the Plan or of any Options granted
hereunder shall be final, binding and conclusive. The Managing General Partner
shall not be liable for any action or determination made in good faith with
respect to the Plan or any Options granted hereunder.
5. Eligibility. The persons eligible to participate in the Plan as
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recipients of Options shall include only the employees of the Partnership who
hold executive or other responsible positions in the management of the affairs
of the Partnership.
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6. Grant of Options. Options heretofore granted to eligible persons
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selected by the Managing General Partner, as indicated on Exhibit A hereto,
shall continue to be outstanding under the Amended and Restated Plan, and shall
be subject to all of the terms and conditions of the Amended and Restated Plan.
In the event any Options shall expire or terminate prior to the termination of
the Plan for any reason without having been exercised in full, the Managing
General Partner may grant new Options with respect to the Units covered by such
expired or terminated Options to such eligible persons as may be selected by the
Managing General Partner and subject to the provisions of the Plan. Each grant
of an option pursuant to the Plan shall be made in writing and upon such terms
and conditions as may be determined by the Managing General Partner at the time
of grant, subject to the provisions and limitations set forth in the Plan. The
grant of such Option shall be evidenced by a written agreement or certificate
executed by the Managing General Partner.
7. Option Price. The purchase price (the "Option Exercise Price") for each
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Unit placed under option pursuant to the Plan shall be (a) with respect to
Options heretofore granted by the Managing General Partner, the Option Exercise
Price specified on Exhibit A hereto, and (b) with respect to Options granted
after the date hereof, "Fair Market Value" (as such term is defined in the
Amended and Restated Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement")) on the date the Option is granted.
8. Duration of Options. (a) The period (the "Option Period") for which
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each Option granted hereunder shall be effective shall commence upon the date of
the grant of such Option and shall continue until such option shall be
terminated according to its terms or as hereinafter provided, but in the absence
of any terms to the contrary, all Options shall expire seven (7) years from the
date hereof.
(b) Upon any termination of employment of any Optionee with the
Partnership, other than for "Cause" (as hereinafter defined), death or
"Disability" (as hereinafter defined), (i) unvested Options owned by such
Optionee shall immediately terminate and become null and void, and (ii) vested
Options owned by such Optionee shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (A) the
expiration of the Option Period, as determined in accordance with Section 8(a)
above; or (B) the sixtieth day after the date on which such Option becomes
exercisable.
(c) Upon any termination of employment of any Optionee with the
Partnership by reason of death or Disability, (i) unvested Options owned by such
Optionee shall immediately terminate and become null and void, and (ii) vested
Options owned by such Optionee shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (A) the
expiration of the Option Period, as determined in accordance with Section 8(a)
above; or (B) the later of (x) the sixtieth day after the date on which such
Option became exercisable or (y) the expiration of one year from the date of
death or termination of employment by reason of Disability. If an Optionee's
employment is terminated by death, any Option held by the Optionee shall be
exercisable only by the person or persons to whom such Optionee's rights under
such
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Option shall pass by the Optionee's will or by the laws of descent and
distribution of the state or county of the Optionee's domicile at the time of
death.
(d) Upon any termination of employment of any Optionee with the Partnership
for Cause, all Options owned by such Optionee shall immediately terminate and
become null and void.
(e) For the purposes of the Plan, the term "Cause" shall mean, except as
otherwise provided in any employment agreement between the Optionee and the
Partnership (in which case the term "Cause" as used herein with respect to such
Optionee shall have the meaning ascribed to it therein), (i) the willful and
continued failure by such Optionee to perform substantially his or her duties to
the Partnership (other than any such failure arising from his or her Disability)
within thirty days after a written demand for substantial performance is
delivered to such Optionee by the Partnership, which demand specifically
identifies the manner in which the Partnership believes that such Optionee has
not substantially performed his or her duties, (ii) the conviction by a court of
competent jurisdiction of such Optionee of any offense, regardless of
classification, related to such Optionee's duties and responsibilities to the
Partnership, (iii) the negligent performance by such Optionee of his or her
duties to the Partnership if such negligent performance is reasonably determined
by the Partnership to have had or be reasonably likely to have a material
adverse affect on the business, assets, prospects or financial condition of the
Partnership, or (iv) the conviction of such Optionee by a court of competent
jurisdiction of a felony.
(f) For purposes of this Plan, "Disability" shall mean, except as otherwise
provided in any employment agreement between the Optionee and the Partnership
(in which case the term "Disability" as used herein with respect to such
Optionee shall have the meaning ascribed to it therein) the inability of such
Optionee to perform substantially his or her duties or responsibilities to the
Partnership by reason of a physical or mental disability or infirmity (i) for a
continuous period of four months or longer or (ii) at such earlier time as such
Optionee submits satisfactory medical evidence that such Optionee has a physical
or mental disability or infirmity that will likely prevent such Optionee from
substantially performing his duties and responsibilities for four months or
longer.
(g) Neither the existence of the Plan nor the grant of any Option shall
limit whatever right the Partnership might otherwise have to terminate the
employment of any Optionee.
9. Vesting. Each Option granted under the Plan shall vest according to
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the following schedule:
(a) Ten percent (10%) of each Option shall vest as follows, and shall
be referred to herein as the "First Tranche":
(i) One-half of the First Tranche shall vest on the first
anniversary of the effectiveness of a registered debt offering of the
Partnership (a "Debt Offering").
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(ii) One-half of the First Tranche shall vest on the second
anniversary of a Debt Offering.
(b) Forty-five percent (45%) of each Option shall vest as follows,
and shall be referred to herein as "Second Tranche":
Calendar Year End Percentage Vested
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12/31/97 20%
12/31/98 40%
12/31/99 60%
12/31/00 80%
12/31/01 100%
(c) Forty-five percent (45%) of each Option shall vest as follows,
and shall be referred to herein as the "Third Tranche":
Calendar Year End Percentage Vested
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12/31/97 20%
12/31/98 40%
12/31/99 60%
12/31/00 80%
12/31/01 100%
10. Non-Transferability. Options granted pursuant to the Plan shall not
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be transferred by the Optionee except to a deceased Optionee's executors, legal
heirs, administrators or testamentary trustees and beneficiaries. During the
lifetime of the Optionee, the Options may be exercised only by him or her.
11. Termination of the Plan. The Plan shall terminate upon the close of
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business on the seventh anniversary of the date hereof unless it shall have
sooner terminated by there having been granted and fully exercised Options
covering all of the Units subject to the Plan. Any Option outstanding under the
Plan at the time of the termination of the Plan shall remain in effect until
such Option shall have been exercised or shall have expired in accordance with
its terms.
12. Termination of Employment. The employment of an Optionee shall not
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be deemed to have terminated if the Optionee is absent upon a bona fide leave of
absence.
13. Exercisability of Options. (a) The First Tranche of each Option
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granted under the Plan shall become exercisable with respect to the vested
percentage of the Units covered thereby upon a Debt Offering.
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(b) The Second Tranche of each Option granted under the Plan shall
become exercisable with respect to the vested percentage of the Units covered
thereby if the Partnership's cumulative "EBITDA" (as hereinafter defined) equals
or exceeds $56.1 million (as such amount may be adjusted as provided in Section
17(b) for the period from October 1, 1996 to December 31, 1998 (the "Second
Tranche EBITDA Target"). "EBITDA" shall mean, with respect to any period,
"Consolidated Cash Flow" as defined in that certain Indenture dated ______, 1996
among the Partnership, Muzak Capital Corporation and First Trust National
Association, as trustee.
(c) The Third Tranche of each Option granted under the Plan, and, if
the Second Tranche EBITDA Target is not achieved, the Second Tranche of each
Option granted under the Plan, shall become exercisable with respect to the
vested percentage of the Units covered thereby if the Partnership's cumulative
EBITDA equals or exceeds $167.5 million (as such amount may be adjusted as
provided in Section 17(b)) for the period from October 1, 1996 to December 31,
2001 (the "Third Tranche EBITDA Target").
14. Change In Control. (a) In the event of a "Change of Control" (as
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defined below) at any time prior to the expiration of an Option hereunder, the
Second Tranche of each Option shall become immediately vested and exercisable
if, as of the last day of the calendar quarter immediately preceding such Change
of Control, the Partnership's cumulative EBITDA is consistent with that
necessary to achieve the Second Tranche EBITDA Target, as determined by the
board of directors of the general partner of the Managing General Partner in its
reasonable discretion, based on the five-year plan attached hereto as Exhibit B.
In addition, in the event of a Change of Control after December 31, 1998, the
Third Tranche of each Option shall become immediately vested and exercisable if,
as of the last day of the calender quarter immediately preceding such Change of
Control, the Partnership's cumulative EBITDA is consistent with that necessary
to achieve the Third Tranche EBITDA Target, as determined by the board of
directors of the general partner of the Managing General Partner in its
reasonable discretion, based on the five-year plan attached hereto as Exhibit B.
(b) A "Change of Control" shall mean (i) a Transfer (as such term is
defined in the Partnership Agreement) of substantially all of the assets of the
Partnership, (ii) a change in control of the board of directors of the general
partner of the Managing General Partner (or, if the Partnership is
incorporated, of the board of directors of the successor corporation) pursuant
to which any single Person or group of Persons acting in concert other than an
Affiliate or Affiliates (as such terms are defined in the Partnership
Agreement) of the Partnership acquires control of such board of directors or
(iii) the Transfer of at least 51% or more of the voting equity interests in the
Partnership (or any parent entity of the Partnership), whether by sale, merger
or consolidation to any single Person or Group of Persons acting in concert
other than an Affiliate or Affiliates; provided, however, that a "Change of
Control" shall not include (a) a change of control of Centre Capital Investors
L.P. ("CCI") or Centre Partners L.P. ("Centre Partners") or their successors
(unless at the time of such change of control, substantially all the operating
assets of
5
CCI or Centre Partners directly or indirectly, consist of assets of the
Partnership), (b) any Transfer of the voting equity interests in the Partnership
or CCI or the Managing General Partner to each other and/or to an Affiliate or
one or more partners of CCI, the Managing General Partner or Centre Partners, or
(c) a Transfer of substantially all of the assets of the Partnership in
connection with an incorporation of the Partnership and its business and assets
in accordance with the provisions of the Partnership Agreement.
15. Procedure for Exercise and Payment for Units. (a) Exercise of an
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Option shall be made by the giving of written notice to the Partnership by the
Optionee. Such written notice shall be deemed sufficient for this purpose only
if delivered to the Partnership at its principal offices and only if such
written notice states the number of Units with respect to which the Option is
being exercised and, further states the date, not more than ninety (90) days
after the date of such notice, upon which the Units shall be purchased and
payment therefor shall be made. The payments for Units purchased pursuant to
exercise of an Option shall be made at the principal offices of the Partnership.
Upon the exercise of any Option, in compliance with the provisions of this
paragraph and upon receipt by the Partnership of the payment for the Units so
purchased together with the payment of the amount of any taxes (the "Withholding
Taxes") required to be collected or withheld as a result of the exercise of such
Option together with an executed copy of the Partnership Agreement, unless such
Optionee is already a party thereto, the Partnership shall deliver or cause to
be delivered to the Optionee so exercising an Option a certificate or
certificates for the number of Units with respect to which the Option is so
exercised and payment is so made. The Units shall be registered in the name of
the exercising Optionee, provided that, in no event shall any Units be issued
pursuant to exercise of an Option until full payment therefor shall have been
made by cash or certified or bank cashier's check and not until the Units have
been issued shall the exercising Optionee have any of the rights of a limited
partner of the Partnership (other than the rights that such Optionee has by
virtue of his already being a limited partner). For purposes of this paragraph,
the date of issuance shall be the date upon which payment in full has been
received by the Partnership as provided herein. In the event of the death of an
Optionee, a condition of exercising any Option shall be the delivery to the
Partnership of such tax waivers and other documents as the Managing General
Partner shall reasonably determine.
(b) Notwithstanding any other provision of the Plan, if an Optionee
determines to exercise an Option, the Partnership may notify an Optionee, after
the Partnership's receipt of the notice by the Optionee pursuant to Section
15(a), that the Partnership will settle such Option in cash, or a "Permitted
Security" (as defined in the Partnership Agreement) if the Partnership is then
prohibited from making payment in cash, by paying the Optionee on a date (the
"Settlement Date") to occur as soon as practicable after such notification, and
in all events within ninety (90) days after the date of such notice, an amount
equal to (A) the difference between (i) the aggregate Fair Market Value on the
Settlement Date of the Units with respect to which the Optionee requested the
exercise of the Option and (ii) the aggregate Option Exercise Price for such
Units, less (B) any Withholding Taxes with respect to such payment less (C) an
amount (the "Promissory Note Amount") equal to (i) the then outstanding
principal amount of the Optionee's Promissory Note, together with accrued
interest thereon, if any, minus (ii) an amount equal to the price to be
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paid by such Optionee for Units pursuant to the last sentence of this Section
15, provided, that if the Partnership is to pay for such settled Option with a
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Permitted Security, the Partnership may only elect to do so with the consent of
the Optionee (and if the Optionee does not so consent, the Option shall be
settled with Units in accordance with the provisions of Section 15(a)). The
Partnership shall apply the Promissory Note Amount to the repayment of the
Optionee's Promissory Note. In the event that the Partnership determines
(subject to the limitation imposed in the proviso to the previous sentence) to
settle an Option in cash or a Permitted Security, the Optionee shall thereafter
have the right to purchase such Units from the Partnership at a price equal to
the Fair Market Value on the Settlement Date, in accordance with the provisions
of Section 11.12 of the Partnership Agreement.
16. Requirements of Law and of Certain Agreements. If any law or any
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regulation of any commission or agency of competent jurisdiction shall require
the Partnership or the exercising Optionee to take any action with respect to
the Units acquired by the exercise of an Option, then the date upon which the
Partnership shall issue the Units shall be postponed until full compliance has
been made with all such requirements of law or regulation; provided, that the
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Partnership shall use its best efforts to promptly take all necessary action to
comply with such requirements of law or regulation. Further, if requested by
the Partnership, at or before the time of the issuance of the Units with respect
to which exercise of an Option has been made, the exercising Optionee shall
deliver to the Partnership his written statements satisfactory in form and
content to the Partnership, that he intends to hold the Units so acquired by him
on exercise of his Option for investment and not with a view to resale or other
distribution thereof to the public in violation of the Securities Act of 1933.
Moreover, in the event that the Partnership shall determine that, in compliance
with the Securities Act of 1933 or other applicable statutes or regulations, it
is necessary to register any of the Units with respect to which an exercise of
an Option has been made, or to qualify any such Units for exemption from any of
the requirements of the Securities Act of 1933 or any other applicable statute
or regulation, no Options may be exercised (and any resulting delay will not
otherwise derogate from the rights of the Optionee to exercise the Option
thereafter) and no Units shall be issued to the exercising Optionee until the
required action has been completed; provided, that the Partnership shall use its
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best efforts promptly to take all necessary action to comply with such
requirements of law or regulation.
17. Adjustments. (a) In the event that a distribution shall be declared
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on the Class B Interest payable in units of the Class B Interest, the number of
Units then subject to any Option shall be adjusted by adding the number of units
of Class B Interest which would be distributable thereon if such Units had been
outstanding on the date fixed for determining the limited partners entitled to
receive such Class B Interest. In the event of a split-up of the Class B
Interests there shall be substituted for each Unit of the Class B Interests
then subject to any Option the number of units of Class B Interest into which
each outstanding unit of Class B Interest shall be so changed. In the event
that there shall be any change, other than as specified in this Section 17(a),
in the number or kind of outstanding units of the Class B Interest, or other
securities into which the Class B Interest shall have been changed, or for which
it shall have been exchanged, then, if the Managing General Partner shall, in
the reasonable exercise of its judgment, determine that
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such change equitably requires an adjustment in the number or kind of Units then
subject to any Option, such adjustment shall be made by the Managing General
Partner and shall be conclusive, effective and binding for all purposes of the
Plan.
(b) If the Partnership purchases any substantial productive assets,
sells any substantial productive assets or makes a significant change in its
business (an "Adjustment Event") and as a result the cumulative EBITDA amounts
set forth in Section 13 above and set forth on Exhibit A do not operate so as to
achieve their intended purposes, equitable adjustments to the Plan shall be made
as follows: (i) the Managing General Partner shall in good faith estimate the
aggregate amount (the "Aggregate Adjustment Amount") of EBITDA attributable to
the purchased or sold assets or change in business with respect to each period
referred to in Section 13 above and Exhibit A; and (ii) the cumulative EBITDA
amounts set forth in Section 13 above and on Exhibit A shall be increased or
decreased, as appropriate, by allocating the Aggregate Adjustment Amount pro
rata among all of the remaining periods (or portions of such periods) set forth
in Section 13 and Exhibit A. Any adjustment(s) made pursuant to this Section
17(b) shall be made by action of the Managing General Partner, whose
determination shall be conclusive, effective and binding for all purposes of the
Plan.
18. Amendment or Discontinuance of the Plan. The Managing General Partner
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may, insofar as permitted by law, amend, suspend, or discontinue the Plan at any
time without restriction; provided, however, that (i) neither the Managing
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General Partner nor the Partnership may alter, amend, suspend or discontinue or
revoke or otherwise impair the rights of any holder of any outstanding Options
which have been granted pursuant to the Plan and which remain unexercised,
except as contemplated by Section 17 above, or except in the event that there is
secured the written consent of such holder, (ii) neither the Managing General
Partner nor the Partnership may alter or amend Exhibit A hereto, except as
contemplated by Section 17 above, or except in the event that there is secured
the written consent of each of the holders of the then outstanding Options, and
(iii) the Managing General Partner may not amend, alter or revise the Plan to
change the number of Units subject to the Plan or change the description of the
class of employees eligible to receive Options. Nothing contained in this
paragraph, however, shall in any way condition or limit the termination of an
Option as hereinabove provided where reference is made to termination of
employment of an Optionee. The Option Period of any outstanding Option shall not
be extended by any amendment or suspension or discontinuance of the Plan.
19. Liquidation of the Partnership. In the event of the complete
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liquidation or dissolution of the Partnership, any Options granted pursuant to
the Plan and remaining unexercised shall be deemed cancelled without regard to
or limitation by any other provision of the Plan, provided that if the
Partnership and its business and assets shall be incorporated, such successor
corporation shall adopt a management Option plan which shall contain
substantially the same terms as the Plan, including, without limitation, terms
which define the type of events and conditions that will constitute a Change of
Control (it being understood that (i) a change in control of the board of
directors of the general partner of the Managing General Partner shall,
following an incorporation of the Partnership, mean a change in control of the
board of directors
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of such successor corporation pursuant to which a single Person or group of
Persons acting in concert other than an Affiliate or Affiliates of the successor
corporation acquires control of such board of directors, and (ii) the
acquisition of 51% or more of the voting equity interests in the successor
corporation by multiple public shareholders shall not be considered an
acquisition by a group of Persons acting in concert), and such successor
corporation's plan shall provide for the continuation of any Options previously
granted pursuant to the Plan and remaining unexercised at the time of such
incorporation.
20. Specified Debt Agreements. Notwithstanding anything to the contrary
-------------------------
set forth herein, it is acknowledged that the Specified Debt Agreements (as such
term is defined in the Partnership Agreement) place certain limitations and/or
restrictions on the exercise of the rights, powers, and privileges set forth
herein, and, by acceptance of an Option, an Optionee expressly agrees that
notwithstanding any other provision herein, such rights, powers and privileges
hereunder are subject to such limitations and/or restrictions set forth in the
Specified Debt Agreements and that the payment of obligations hereunder shall
not be made at any time at which the provisions of the Specified Debt Agreements
prohibit such payment or if such payment would constitute a default thereunder.
By accepting an Option, Optionee expressly agrees not to assert, participate in
or bring any action, suit or proceeding (including, without limitation, any
bankruptcy or insolvency proceedings) either at law or in equity against the
Partnership, any other Partner or any of their respective properties or assets,
for the enforcement, collection or realization of any of such obligations.
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EXHIBIT A
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Name No. of Class B Options Excercise Price
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John R. Jester 325,000 $1.00
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James F. Harrison 205,000 $1.00
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Kirk A. Collamer 150,000 $1.75
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Thomas J. Gentry 140,000 $1.00
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John A. Neal 140,000 $1.00
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Wallace R. Borgeson 140,000 $1.00
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Jack D. Craig 65,000 $1.00
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Richard Chaffee 35,000 $1.00
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Bruce B. Funkhouser 65,000 $1.00
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L. Dale Stewart 65,000 $1.00
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Daniel Lee Hart 30,000 $1.00
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Robert E. Crowe 40,000 $1.00
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Dino J. DeRose 65,000 $1.00
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James G. Henderson 100,000 $1.50
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Roger Fairchild 65,000 $1.75
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Steven Tracy 30,000 $1.00
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Susan P. Chetwin 24,545 $1.00
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Thomas J. Gantert 20,000 $1.00
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Stephen F. Ward 15,000 $1.00
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Douglas Alvin Collis 15,000 $1.00
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Leslie A. Ritter 15,000 $1.00
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Terry L. Johnson 15,000 $1.00
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Jonathan S. McKinnon 15,000 $1.00
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Harry J. Kuhman 20,000 $1.00
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Jeffrey P. Kelly 20,000 $1.00
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