[FTI PALLADIUM PARTNERS COMPANY LETTERHEAD] FTI Palladium Partners
3 Times Square
11th Floor
New York, NY 10036
212.247.1010 telephone
212.841.9350 facsimile
www.ftpallaidumpartners.com
July 8, 2005
Royce G. Yudkoff
Robert P. MacInnis
Directors
Muzak Holdings LLC
3318 Lakemont Blvd.
Fort Mill, SC. 29708
Dear Mr. Yudkoff and MacInnis:
1. Introduction
This letter confirms the engagement of FTI Palladium Partners, a
division of FTI Consulting, Inc. and its wholly owned subsidiaries
(collectively referred as "FTI") by Muzak Holdings LLC ("you," "your"
or "Muzak" or the "Company") to provide certain employees to the
Company to assist it with the services described below (the
"Engagement"). This letter of engagement and the related supporting
schedules constitute the engagement contract (the "Engagement
Contract") pursuant to which the Services will be provided.
2. Scope of Services
FTI will provide the following individuals to work with you and your
team in connection with the services (the "Services") outlined below:
o Greg Rayburn, to serve as a Chief Executive Officer (the "CEO")
of the Company, reporting directly to the Board of Directors; to
the extent determined by the Board of Directors from time to
time, Greg Rayburn will be granted the right to attend and
participate (but not vote) in the meetings of the Board of
Directors of the Company as an observer (such role referred to as
"Board Observer"); Greg Rayburn will devote 90% of his business
time and attention to his duties as the CEO of the Company;
o Bill Nolan, who will report directly to Greg Rayburn; Bill Nolan
will assist Greg Rayburn and will be responsible for the
facilitation and implementation of the CEO's directives; Bill
Nolan will devote such of his business time and attention to his
duties assisting the CEO as may be required to assist Greg
Rayburn in performing services under this agreement; and.
o Other temporary employees (the "Temporary Employees") whom you
may approve from time to time to support Greg Rayburn in his role
as CEO as follows:
1. Work with management to further identify and implement both
short-term and long-term profit improvement, liquidity generating
and debt reduction initiatives in an effort to improve the value
of the shareholders' interest;
2. Perform the duties of CEO and assist in the recruiting and
retention of a permanent replacement for that position; and 3.
Provide such other similar services as may be requested by the
Board of Directors.
We will keep you informed as to our staffing and will not add
additional Temporary Employees to the assignment without first
obtaining your consent that such additional resources are required and
do not duplicate the activities of other employees or professionals.
Moreover, we will attempt to utilize Company personnel to fulfill such
roles and will take such steps as may be necessary to avoid duplication
with the Company's other professionals. Furthermore, we will obtain
your consent as to the areas of responsibility being filled by all
Temporary Employees and will adjust the staffing level upwards or
downwards as you direct. We agree that we will not replace Greg Rayburn
as the individual performing services as the CEO under this engagement
without your prior written consent.
The Services of the Temporary Employees may be performed by FTI or by any
subsidiary of FTI, as FTI shall determine. FTI may also provide non-officer
Services through agents or independent contractors. References herein to
FTI and its employees shall be deemed to apply also, unless the context
shall otherwise indicate, to employees of each such subsidiary and to any
such agents or independent contractors and their employees. Prior to
providing services hereunder, each Temporary Employee, FTI subsidiary,
agent, independent contractor and employee thereof shall execute a
confidentiality agreement similar to the Confidentiality Agreement (as
defined in Section 4).
3. No Assurance on Financial Data
Because of the time and scope limitations implicit in this Engagement, the
depth of our analyses and verification of the data is significantly
limited. We understand that our Temporary Employees are not being requested
to perform an audit or to apply generally accepted auditing standards or
procedures.
4. Privileged and Confidential Information and Work Product
The Company acknowledges that all advice (written or oral) given by the
Temporary Employees to the Company in connection with the Engagement is
intended solely for the benefit and use of the Company (limited to the
Board of Directors and management) and we understand that the Company has
agreed to treat any advice received from us, whether orally or in writing,
confidential and, except as provided in this Engagement Contract, will not
publish, distribute or disclose in any manner any advice developed by or
received from us without our prior written approval (except to the
Company's respective officers, directors, employees, attorneys, advisors,
owners, lenders, or prospective lenders and persons who have a need to know
such information in order to perform services under this Engagement
Contract). Such approval shall not be unreasonably withheld. Our approval
is not needed if (a) the advice sought is required to be disclosed by law
or by an order binding on the Company or us, issued by a court having
competent jurisdiction over the Company or us, as applicable (unless such
order specifies that the advice to be disclosed is to be placed under seal)
provided however that the Company shall provide FTI with prompt written
notice of such requirement, (b) such information is otherwise publicly
available, (c) the disclosure is of information in the possession of the
Company prior to this Engagement or is independently developed by the
Company, or (d) the disclosure is of information acquired from a third
party who, to the Company's knowledge owes no obligation of confidence with
respect to such information.
We agree that all non-public, confidential or proprietary information
("Information") that is received by us from the Company or the Company's
accountants or outside counsel in connection with this engagement will be
subject to the separate Confidentiality Agreement, dated as
of________________(the "Confidentiality Agreement"), between FTI and the
Company, and that we and our personnel who perform services pursuant to
this Engagement Letter will be bound by the non-solicitation and
non-compete provisions of the Confidentiality Agreement.
5. Fees
Our agreed upon compensation for the services to be rendered pursuant to
this letter agreement is set forth on Schedule I. We will also be
reimbursed for customary and reasonable out-of-pocket expenses including,
but not limited to, travel, lodging, costs of reproduction, reasonable
out-of-pocket counsel fees and other direct expenses.
We will require a retainer (the "Retainer") of $120,000, due upon the
execution of this Engagement Contract. We will further submit to the
Company monthly invoices (or more frequently at FTI's discretion) for
services rendered and expenses incurred by additional temporary employees,
which are due within 15 business days of receipt. Upon the conclusion of
this engagement, the Retainer either will be returned to the Company upon
payment in full of all of our outstanding invoices or, in our sole
discretion, applied to any outstanding invoice.
It is understood that if employees of FTI are required to testify at any
administrative or judicial proceeding relating to this matter (whether
during the term of this letter agreement or after termination), FTI will be
compensated by the Company at the regular hourly rates for each such
employee, in effect at the time, and reimbursed for reasonable
out-of-pocket expenses (including counsel fees).
The Company agrees to promptly notify FTI if it hires a principal or
employee of FTI involved in this Engagement and agrees that it will pay FTI
a cash fee, upon hiring, equal to 100% of the aggregate first year's
annualized salary compensation, plus any guaranteed bonus, to be paid to
FTI's former principal or employee that the Company or any of its
subsidiaries or affiliates hires at any time up to one year subsequent to
the date of the final invoice rendered by FTI with respect to this
Engagement.
6. Conflicts of Interest
Based on the list of interested parties (the "Potentially Interested
Parties") provided by you, we have undertaken a limited review of our
records to determine FTI's professional relationships with the Company and
with Bear Stearns Corporate Lending Inc as Administrative Agent and
Collateral Agent of the Company's Credit Agreement dated April 15, 2005
among Muzak Holdings LLC, as Parent Guarantor, Muzak LLC, as Borrower. From
the results of such review, we are not aware of any conflicts of interest
or relationships that would preclude us from performing the above Services
for you.
As you know, however, we are a large consulting firm with numerous offices
throughout the United States. We are regularly engaged by new clients,
which may include one or more of the Potentially Interested Parties. We
will not accept an engagement that directly conflicts with this Engagement
without your prior written consent.
7. Limitation of Liability
The Company agrees to indemnify, hold harmless and defend FTI against any
and all losses, claims, damages, liabilities, penalties, judgments, awards,
amounts paid in settlement, reasonable out-of-pocket costs, fees, expenses
and disbursements including,
without limitation, the reasonable out-of-pocket costs, fees, expenses and
disbursements, as and when incurred, of investigating, preparing or
defending any action, suit, proceeding or investigation (whether or
not in connection with proceedings or litigation in which FTI is a
party), directly or indirectly caused by, relating to, based upon,
arising out of or in connection with the engagement of FTI by the
Company or any services rendered pursuant to such engagement; provided
that the Company will not be responsible for payment of
indemnification amounts hereunder (and any indemnified person shall
reimburse the Company for indemnification amounts already paid) that
are determined by a final judgment of a court of competent
jurisdiction to have resulted from any indemnified person's bad faith,
self dealing, gross negligence or willful misconduct. These
indemnification provisions extend to the officers, directors,
principals, members, managers, stockholders, employees,
representatives, agents and counsel of FTI and shall survive the
termination or expiration of the engagement. The contract rights to
indemnification conferred in this paragraph shall not be exclusive of
any other right that any indemnified person may have or hereafter
acquire under any statute, agreement, order of a bankruptcy court or
pursuant to any directors and officers liability insurance policy
(including any such policy identified in Schedule I). The Company
shall also reimburse any indemnified person for all reasonable
out-of-pocket expenses incurred in connection with enforcing such
indemnified person's rights under this letter agreement.
In addition to the above indemnification, FTI personnel serving as
employees of the Company wi11 be entitled to the benefit of the most
favorable indemnities provided by the Company to its officers and
directors, whether under the Company's by-laws, certificate of
incorporation, by contract or otherwise.
The Company agrees that it will specifically include and cover Greg
Rayburn (and any other employee of FTI who, at the request of the
Board of Directors of the Company, FTI agrees will serve as an
employee or officer of the Company) under the Company's policies for
directors' and officers' insurance. The Company agrees to also
maintain insurance coverage for Mr. Rayburn for a period of not less
than two (2) years following the date of termination of such
employee's services hereunder. In the event that the Company is unable
to include FTI employees serving as employees or officers of the
Company under the Company's policies, it is agreed that FTI will
attempt to purchase a separate directors' and officers' policy
providing coverage similar to the coverage provided to the Company's
other directors and officers that will cover FTI's employees serving
as employees or officers of the Company only and that the cost of the
same shall be invoiced to the Company as an out-of-pocket expense. If
FTI is unable to purchase such coverage, then it shall have the right
to terminate this letter agreement upon notice to the Company. The
provisions of this section 7 are in the nature of contractual
obligations and no change in applicable law or the Company's charter,
bylaws or other organizational documents or policies shall affect any
of Mr. Rayburn's rights hereunder.
The obligations of the parties as reflected herein shall survive the
termination of the Engagement.
The parties intend that an independent contractor relationship will be
created by this letter agreement. As an independent contractor, FTI will
have complete and exclusive charge of the management and operation of its
business, including hiring and paying the wages and other compensation of
all its employees and agents, and paying all bills, expenses and other
charges incurred or payable with respect to the operation of its business.
None of FTI's employees serving as a Temporary Employee, including Greg
Rayburn in his capacity as CEO of the Company and Bill Nolan, will be
entitled to receive from the Company any salary, bonus, compensation,
vacation pay, sick leave, retirement, pension or social security benefits,
workers compensation, disability, unemployment insurance benefits or any
other Company employee benefits. FTI will be responsible for all
employment, withholding, income and other taxes incurred in connection with
the operation and conduct of its business (including those related to Greg
Rayburn, Bill Nolan and the Temporary Employees).
8. Waiver of Jury Trial/Dispute Resolution
The Company agrees that neither it nor any of its assignees or successors
shall (a) seek a jury trial in any lawsuit, proceeding, counterclaim or any
other action based upon or arising out of or in connection with the
engagement of FTI by the Company or any services rendered pursuant to such
engagement or (b) seek to consolidate any such action with any other action
in which a jury trial cannot be or has not been waived. The provisions of
this paragraph have been fully discussed by the Company and FTI and shall
be subject to no exceptions.
9. Term of Engagement
This letter agreement shall be effective as of the date hereof and shall
continue in effect until termination or completion of our engagement
hereunder. You may terminate this letter agreement and our engagement at
any time upon the giving of written notice to us. We may terminate this
letter agreement and our engagement at any time upon the giving of at least
ninety (90) days prior written notice to you. Either you or we may
terminate this letter agreement and our engagement immediately upon a
material breach of this Agreement by the other party by the giving of
written notice to the breaching party. Termination shall not affect our
right to receive payment for services performed, reimbursement for
reasonable out-of-pocket expenses properly incurred (in accordance with the
terms of this letter agreement) or the' Company's obligations under section
7 herein or our obligations under the Confidentiality Agreement. In the
event of termination prior to the end of a calendar month, you agree to pay
us a pro rata portion
of any set monthly compensation based upon the number of days elapsed in
the month up to the effective time of termination.
If any provision of this Engagement Contract shall be invalid or
unenforceable, in whole or in part, then such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to
render the same valid and enforceable, or shall be deemed excluded from
this letter agreement, as the case may require, and this letter agreement
shall be construed and enforced to the maximum extent permitted by law as
if such provision had been originally incorporated herein as so modified or
as if such provision had not been originally incorporated herein, as
applicable.
This Engagement Contract, the Confidentiality Agreement and each related
confidentiality agreement that any Temporary Employee may execute
constitute the entire understanding between the parties with respect to the
subject matter and supercede all prior written and oral proposals,
understandings, agreements and/or representations, all of which are merged
herein. Any amendment or modification of this letter agreement shall be in
writing and executed by each of the parties hereto.
10. Governing Law and Jurisdiction
This Engagement Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York. The Courts of New
York shall have exclusive jurisdiction in relation of any claim, dispute or
difference concerning the Engagement Agreement and any matter arising from
it. The parties hereto irrevocably waive any right they may have to object
to any action being brought in these Courts, to claim that the action has
been brought to an inconvenient forum or to claim that those Courts do not
have jurisdiction.
11. Notice
All notices required or permitted to be delivered under this Engagement
Contract shall be sent, if to us, to the address set forth above, to the
attention of Dianne R. Sagner, and if to you, to the address for you set
forth above, to the attention of your General Counsel, or to such other
name or address as may be given in writing to the other party. All notices
under the Engagement Contract shall be sufficient if delivered by facsimile
or overnight mail. Any notice shall be deemed to be given only upon actual
receipt.
12. Continuation of Terms
The terms of the Engagement Contract that by their context are intended to
be performed after termination or expiration of this Engagement Contract,
including but not limited to, section 4 and section 7, are intended to
survive such termination or expiration and shall continue to bind all
parties.
13. Citation of Engagement
Notwithstanding anything to the contrary contained herein, after the
engagement of FTI becomes a matter of public record, we shall have the
right to disclose our retention by the Company or the successful completion
of its services hereunder in marketing or promotional materials placed by
FTI, at its own expense, in financial and other newspapers or otherwise,
with the Company's prior written approval, which the Company may not
unreasonably withhold.
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We look forward to working with you on this matter. Please sign and return a
copy of this letter signifying your agreement with the terms and provisions
herein. If you have any questions, please contact Greg Rayburn at 212-499-3622.
Very truly yours,
FTI Consulting, Inc.
By: /s/ Greg Rayburn
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Greg Rayburn
Senior Managing Director
Date: 7/8/05
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Agreed by:
Muzak Holdings LLC
By: /s/ Robert P. MacInnis
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Robert P. MacInnis
Director
Date: 7/8/05
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