RESTATED COMBINATION AGREEMENT

                          Dated as of January 23, 2000

                                     Between

                               TIME WARNER INC.

                                       and

                                  EMI GROUP PLC

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                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----
                                    ARTICLE I

                                The Transactions
                               ----------------

SECTION 1.01.     Combination Entities.....................................1
SECTION 1.02.     Name and Ownership ......................................1
SECTION 1.03.     Assets, Liabilities and Debt to be
                             Contributed...................................2
SECTION 1.04.     Equalization ............................................7
SECTION 1.05.     Distribution to EMI Shareholders.........................9


                                   ARTICLE II

                            Documentation and Closing
                           -------------------------

SECTION 2.01.     The Documents............................................9
SECTION 2.02.     The Closing.............................................10
SECTION 2.03.     Mutual Closing Conditions...............................11
SECTION 2.04.     EMI Closing Conditions..................................12
SECTION 2.05.     TWI Closing Conditions..................................13
SECTION 2.06.     Subsequent Closings.....................................13


                                   ARTICLE III

                      Representations and Warranties of TWI
                     -------------------------------------

SECTION 3.01.     Corporate Existence and Power...........................14
SECTION 3.02.     Corporate Authorization.................................14
SECTION 3.03.     Information Supplied ...................................15
SECTION 3.04.     Non-Contravention.......................................15
SECTION 3.05.     Warner Contributed Entities.............................15
SECTION 3.06.     Financial Statements....................................16
SECTION 3.07.     Absence of Certain Changes..............................17
SECTION 3.08.     No Undisclosed Material Liabilities.....................17
SECTION 3.09.     Material Contracts......................................18
SECTION 3.10.     Compliance with Laws and Court Orders ..................19
SECTION 3.11.     Litigation..............................................20
SECTION 3.12.     Title; Properties.......................................20
SECTION 3.13.     Sufficiency of the Warner Contributed
                             Assets.......................................20
SECTION 3.14.     Intellectual Property Rights............................21
SECTION 3.15.     Licenses and Permits....................................21
SECTION 3.16.     Tax Matters.............................................22
SECTION 3.17.     Employee Plans..........................................22
SECTION 3.18.     Environmental Compliance................................24


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                                                                               2

                                   ARTICLE IV

                      Representations and Warranties of EMI
                     -------------------------------------

SECTION 4.01.     Corporate Existence and Power...........................25
SECTION 4.02.     Corporate Authorization.................................25
SECTION 4.03.     Information Supplied....................................25
SECTION 4.04.     Non-Contravention.......................................25
SECTION 4.05.     EMI Contributed Entities................................26
SECTION 4.06.     Financial Statements....................................27
SECTION 4.07.     Absence of Certain Changes..............................27
SECTION 4.08.     No Undisclosed Material Liabilities.....................28
SECTION 4.09.     Material Contracts......................................28
SECTION 4.10.     Compliance with Laws and Court Orders...................30
SECTION 4.11.     Litigation..............................................30
SECTION 4.12.     Title; Properties.......................................30
SECTION 4.13.     Sufficiency of the EMI Contributed
                             Assets.......................................31
SECTION 4.14.     Intellectual Property...................................31
SECTION 4.15.     Licenses and Permits....................................32
SECTION 4.16.     Tax Matters.............................................32
SECTION 4.17.     Employee Plans..........................................33
SECTION 4.18.     Environmental Compliance................................34


                                    ARTICLE V

                                Employee Matters
                               ----------------

SECTION 5.01.     Employees Liabilities...................................35
SECTION 5.02.     Employee Plans..........................................35
SECTION 5.03.     Transfer of the Asset Employees.........................36
SECTION 5.04.     TWI and EMI Equity Awards...............................37
SECTION 5.05.     Transition..............................................37
SECTION 5.06.     EMI Pension Scheme......................................38
SECTION 5.07.     No Third Party Beneficiaries............................39


                                   ARTICLE VI

                                    Covenants
                                   ---------

SECTION 6.01.     Access to Information; Confidentiality..................40
SECTION 6.02.     Efforts.................................................40
SECTION 6.03.     Notices of Certain Events...............................42
SECTION 6.04.     EMI Shareholder Meeting.................................43
SECTION 6.05.     Publicity and Confidential Information..................43
SECTION 6.06.     Exclusivity.............................................43
SECTION 6.07.     EMI Listing.............................................44
SECTION 6.08.     Conduct of Business.....................................45
SECTION 6.09.     Warner Audit Opinion....................................45


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                                                                               3

SECTION 6.10.     Covenants Relating to Listing...........................46
SECTION 6.11.     Shareholder Obligations in respect of
                             Ventures.....................................47
SECTION 6.12.     Records.................................................47
SECTION 6.13.     Acknowledgment..........................................47
SECTION 6.14.     Good Faith Adjustments to Structure.....................48


                                   ARTICLE VII

                                   Termination
                                  -----------

SECTION 7.01.     Termination.............................................48
SECTION 7.02.     Fees and Expenses.......................................49
SECTION 7.03.     Effect of Termination...................................50


                                  ARTICLE VIII

                                   Indemnities
                                  -----------

SECTION 8.01.     Indemnification.........................................50
SECTION 8.02.     Tax Indemnification.....................................51


                                   ARTICLE IX

                                  Other Matters
                                 -------------

SECTION 9.01.     Notices.................................................51
SECTION 9.02.     Amendments; No Waivers..................................53
SECTION 9.03.     Governing Law...........................................53
SECTION 9.04.     Enforcement.............................................53
SECTION 9.05.     Severability............................................53
SECTION 9.06.     Counterparts............................................54
SECTION 9.07.     Assignment..............................................54
SECTION 9.08.     Waiver of Jury Trial....................................54
SECTION 9.09.     Entire Agreement........................................54
SECTION 9.10.     Captions................................................54
SECTION 9.11.     Specific Performance....................................54

APPENDIX A                 Definitions

EXHIBIT 1.03(e)(i)         EMI Contributed Assets
EXHIBIT 1.03(e)(ii)        EMI Excluded Assets
EXHIBIT 1.03(e)(iii)       Warner Contributed Assets
EXHIBIT 1.03(e)(iv)        Warner Excluded Assets
EXHIBIT 1.03(f)(i)         EMI Excluded Liabilities
EXHIBIT 1.03(f)(ii)        Warner Excluded Liabilities
EXHIBIT 2.01(c)            Terms of Joint Venture Agreement
   ATTACHMENT A            Music Business


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                                                                               4

EXHIBIT 2.01(d)            Terms of Parent Services Agreement
EXHIBIT 2.01(e)            Terms of EMI Services Agreement
EXHIBIT 2.01(f)            Terms of DVD License Agreement
EXHIBIT 2.01(g)            Terms of Credit Facility Agreement
EXHIBIT 2.01(h)            TWI Contracts
EXHIBIT 2.02               Terms of Convertible Deferred
                           Ordinary Shares

EXHIBIT 6.08(a)            Interface Issues List


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                   RESTATED COMBINATION AGREEMENT dated as of
                January 23, 2000 (this "Agreement"), between TIME
                 WARNER INC. ("TWI") and EMI GROUP PLC ("EMI").

          WHEREAS TWI and EMI wish to combine their global music businesses into
two joint venture businesses;

          WHEREAS TWI and EMI entered into a Combination  Agreement  dated as of
January 23, 2000 (the "Original Combination Agreement");

          WHEREAS  TWI  and  EMI  wish  to  restate  (and  amend)  the  Original
Combination  Agreement in its entirety,  which  restatement  (and  amendment) is
effective for all purposes as of January 23, 2000; and

          WHEREAS certain  capitalized  terms used in this Agreement are defined
in Appendix A.

          NOW, THEREFORE, the parties hereto agree as follows:

                                    ARTICLE I

                                The Transactions

          SECTION 1.01. Combination Entities. (a) TWI and EMI hereby agree to
create two entities that in the aggregate will conduct the music business of
the parties throughout the world.

          (b) The entities will be (i) a Delaware general  partnership  ("USCO")
that will operate directly and through  subsidiaries in the United States, Japan
and Canada,  and (ii) an English company ("UKCO") that will operate directly and
through  subsidiaries  in the United  Kingdom  and other  countries  outside the
United States, Japan and Canada. USCO and UKCO are each a "Venture".

          (c)  The  USCO,  all  USCO's  U.S.   Subsidiaries  and  UKCO  will  be
pass-through entities for U.S. federal income tax purposes;  provided,  however,
that a party may  contribute  one or more  non-pass  through  entities  with the
consent of the other party, which consent shall not be unreasonably withheld.

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                                                                               2

          SECTION 1.02. Name and Ownership. The two Ventures shall operate under
a name that will include the words  "Warner EMI Music" (in such form as shall be
determined  by  the  Venture  Boards).   As  a  result  of  the   contributions,
distributions  and  adjustments  referred to in this Article I, each party shall
own, directly or indirectly,  50% of the equity in each of USCO and UKCO. Except
as specifically provided in this Agreement (including the Exhibits),  the equity
interests in and voting  securities  of the Ventures held by each of the parties
hereto  shall  be  identical  in  all  respects.  TWI or EMI  may  divide  their
respective ownership interests among various wholly owned Subsidiaries of TWI or
EMI, as applicable.

          SECTION 1.03. Assets, Liabilities and Debt to be Contributed. (a) Upon
the  terms  and  subject  to the  conditions  of this  Agreement,  (i) EMI  will
contribute,  or cause to be  contributed,  to the  Ventures  at the  Closing all
right,  title and interest of EMI and its  Subsidiaries in, to and under the EMI
Contributed  Assets together with all rights attaching thereto and (ii) TWI will
contribute,  or cause to be  contributed,  to the  Ventures  at the  Closing all
right,  title  and  interest  of TWI and its  Subsidiaries  in, to and under the
Warner Contributed Assets together with all rights attaching thereto. The method
for  contribution  by EMI and TWI of the EMI  Contributed  Assets and the Warner
Contributed Assets will be determined by EMI and TWI, respectively, and may take
the form of the  transfer  of  assets,  the  transfer  of  equity  interests  in
Subsidiaries that, directly or indirectly, hold assets or a combination thereof,
although it is expected by both parties that the predominant  method will be the
transfer of equity  interests.  The parties will  cooperate in  determining  the
methods of contribution of Contributed Assets (minimizing the amount of business
conducted  by the  USCO  in  the  United  States  through  corporations)  and of
assumption of the Assumed  Liabilities,  taking into account the parties' common
objectives of minimizing transfer and other Taxes, optimizing the tax efficiency
and  position of the  Ventures,  minimizing  the  consents  and other  approvals
required  from third  parties  and,  subject  to the  foregoing,  ensuring  when
desirable that all  Contributed  Assets are  contributed in the simplest  manner
possible.  Notwithstanding any other provision of this Agreement,  neither party
shall have any obligation to contribute  assets to the Ventures by  contributing
shares of capital stock of particular Subsidiaries.

          (b) Contributed  Assets relating  primarily to the conduct of business
in the United  States,  Canada and Japan will be  contributed  to the USCO.  All
other Contributed Assets will be contributed to the UKCO.

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                                                                               3

          (c) "EMI Contributed Assets" means all assets, properties,  Rights and
businesses,  of every kind and description,  wherever located, real, personal or
mixed, tangible or intangible,  owned, held for use, leased, licensed or used by
EMI and its  Subsidiaries  as the same shall exist on the Closing  Date that are
not EMI Excluded Assets.

          (d) "Warner Contributed Assets" means all assets,  properties,  Rights
and businesses, of every kind and description,  wherever located, real, personal
or mixed, tangible or intangible,  owned, held for use, leased, licensed or used
by TWI and  its  Subsidiaries  primarily  in the  conduct  of the  Warner  Music
Business  as the  same  shall  exist on the  Closing  Date  that are not  Warner
Excluded  Assets,  including all assets included in the Warner Balance Sheet and
not subsequently  disposed of in the ordinary course of business as permitted by
this Agreement, and all assets, properties,  Rights and businesses of the Warner
Music  Business  acquired by TWI or its  Subsidiaries  after the Warner  Balance
Sheet Date that are not Warner  Excluded  Assets.  The "Warner  Music  Business"
means the Music Business conducted by TWI and its Subsidiaries under the overall
divisional name "Warner Music Group",  which is the Music Business the financial
performance  of which is  summarized  under the line items and captions  "Warner
Music  Group",  "Music  Group" and  "Music" in TWI's most  recent  Form 10-K and
10-Q's filed by TWI with the United States  Securities and Exchange  Commission,
including  the  record  labels  business   conducted  by  TWI  under  the  names
"Atlantic", "Elektra" and "Warner Bros. Records" (and affiliated labels) and the
music publishing business conducted by TWI under the name "Warner/Chappell".

          (e) The EMI  Contributed  Assets  and the Warner  Contributed  Assets,
respectively,  shall  include all right,  title and  interest of EMI and TWI and
their  respective  Subsidiaries,  as  applicable,  in, to and under the types of
assets, properties, Rights and businesses, other than Excluded Assets, set forth
in Exhibit  1.03(e)(i),  in the case of EMI, and, to the extent owned,  held for
use,  leased,  licensed or used  primarily  in the  conduct of the Warner  Music
Business  in  Exhibit  1.03(e)(iii),  in the case of TWI,  but  (subject  to the
ability of the  parties  to  contribute  equity  interests  pursuant  to Section
1.03(a)) shall exclude interests in Subsidiaries.

          (f) Upon the terms and subject to the  conditions  of this  Agreement,
the  Ventures  shall,  effective  at the  time of  Closing,  assume  all  debts,
liabilities,  obligations and commitments of any kind,  description or character
(whether


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                                                                               4

known or  unknown,  accrued,  absolute,  contingent  or  otherwise)  (other than
Excluded Liabilities):  (i) of EMI or its Subsidiaries to the extent arising out
of the EMI  Contributed  Assets,  the EMI Music  Business or any Music  Business
formerly  owned or  conducted  by EMI or its  present  or  former  Subsidiaries,
including all Financial  Indebtedness of EMI or its  Subsidiaries at the Closing
(including the 8 3/8% Guaranteed Notes due 2009 issued by Capitol Records,  Inc.
and  guaranteed  by EMI and the related  swaps set forth in  Schedule  4.09) and
additional  Financial  Indebtedness of EMI incurred to obtain the cash permitted
to be retained by EMI pursuant to Section 1.03(g) (such assumed liabilities, the
"EMI  Assumed  Liabilities");  (ii)  to the  extent  arising  out of the  Warner
Contributed  Assets,  the  Warner  Music  Business  or  any  former  businesses,
operations or assets relating to the Music Business  formerly owned or conducted
by TWI or its present or former  Subsidiaries  under the overall divisional name
"Warner  Music  Group",   (such  assumed   liabilities,   the  "Warner   Assumed
Liabilities");  provided,  however, that the Net Financial  Indebtedness of TWI,
its  Subsidiaries and the Warner Music Group to be assumed by the Ventures shall
be the amount set forth in Section  1.03(h);  and (iii) that constitute  Assumed
Tax  Liabilities  of  EMI  or  any  of  its  Subsidiaries  or  TWI or any of its
Subsidiaries.

          (g) In addition to the  subscription  proceeds payable to EMI pursuant
to Section 2.02(b),  at the Closing EMI and the EMI Retained  Entities  together
may retain cash equal to:

          (1) (pound)15 million; plus

          (2) if  the  Closing  occurs  prior  to  payment  by EMI of its  final
     dividend for EMI's  fiscal year ended March 2000,  an amount equal to EMI's
     estimate of such final dividend; plus

          (3) an  estimate  by EMI of  its  out-of-pocket  Transaction  expenses
     (including Tax Liabilities (other than Transfer Taxes), attorneys' fees and
     the fees of financial advisors in each case incurred in connection with the
     Transactions) not paid prior to Closing; plus

          (4) the Special Distribution Amount reduced by the subscription
     proceeds payable to EMI pursuant to Section 2.02(b); plus

          (5) to the extent  not  accounted  for in clauses  (3) and (6) of this
     Section  1.03(g),  an amount equal to the current  portion of the aggregate
     provision for the Tax Liabilities with respect to the EMI Contributed


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                                                                               5

     Entities for which an EMI Retained Entity is the primary obligor; plus

          (6) an amount  sufficient to pay any unpaid Tax incurred in connection
     with the  pre-Closing  disposal  of GWR Group plc  ("GWR") or any other EMI
     Excluded Asset.

          (h) The  Net  Financial  Indebtedness  of TWI  and  the  Warner  Music
Businesses to be included  within the Warner Assumed  Liabilities  shall carry a
market rate of interest and shall equal:

          (1) (pound)928.9 million, plus

          (2) the  amount  of any  cash  retained  by EMI  and the EMI  Retained
     Entities pursuant to Sections 1.03(g)(1), 1.03(g)(2) and 1.03(g)(3); plus

          (3) for the  period  from and  including  October  1,  1999,  to,  but
     excluding,  the Closing Date (the "Measurement Period"), the sum of (i) all
     cash distributions by EMI to its shareholders  (whether by dividend,  share
     repurchase  or  otherwise),  (ii) all  cash  outflows  relating  to the EMI
     Excluded Assets or EMI Excluded Liabilities, including all cash contributed
     by EMI or its Subsidiaries to businesses that are not being  contributed to
     the  Ventures  (other  than in  exchange  for the  provision  of goods  and
     services  at  then  prevailing  market  rates),  cash  used  by  EMI or its
     Subsidiaries   to  purchase   assets  or  businesses  that  are  not  being
     contributed to the Ventures and cash used by EMI or its Subsidiaries to pay
     liabilities  that would not  otherwise be assumed by the Ventures and (iii)
     all  cash  used by EMI and its  Subsidiaries  to pay  Transaction  expenses
     (including Tax Liabilities (other than Transfer Taxes), attorneys' fees and
     the  fees  of  financial   advisors   incurred  in   connection   with  the
     Transactions); less

          (4) $119 million; less

          (5) for the Measurement Period, the sum of the after-tax proceeds from
     the sale of any EMI Excluded Asset, including EMI's shares of capital stock
     of GWR, and proceeds to EMI from the exercise of share options; less

          (6) for the  Measurement  Period,  the  operating  cash  inflow of the
     Warner Music Business (A) reduced by (i) the applicable Tax thereon (except
     accrued and unpaid Tax where a Warner Contributed Entity is the


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                                                                               6

     primary obligor) and (ii) capital expenditures and (B) reflecting the
     change in working capital; plus

          (7) for the Measurement Period, the sum of all cash used by the Warner
     Music  Business  to  make   acquisitions  that  form  part  of  the  Warner
     Contributed Assets; plus

          (8) for the Measurement Period, EMI's and its Subsidiaries'
     consolidated after-Tax, net interest expense; less

          (9) for the  Measurement  Period,  the  proceeds  to the Warner  Music
     Business  from  the  sale of any  assets,  properties  or  businesses  that
     otherwise would have formed part of the Warner  Contributed  Assets reduced
     by the applicable Tax thereon (except accrued and unpaid Tax where a Warner
     Contributed Entity is the primary obligor); less

          (10) the  Special  Distribution  Amount  reduced  by the  subscription
     proceeds payable to EMI pursuant to Section 2.02(b).

          (i) For purposes of Sections 1.03(g) and 1.03(h), U.S. dollar/pound
sterling exchange rates shall be determined as follows:

          (1) for purposes of Section 1.03(g), the spot rate on the Closing
     Date;

          (2) for purposes of Section 1.03(h)(1), the spot rate on September
     30, 1999;

          (3) for  purposes  of the  clauses  of  Section  1.03(h)  employing  a
     Measurement  Period,  the arithmetic  mean of the monthly  average rate for
     each month during the Measurement Period; and

          (4) for purposes of all other subsections of Section 1.03(h), the spot
     rate on the Closing Date.

          (j) All Assumed Liabilities,  other than Financial Indebtedness,  that
primarily arise out of Contributed  Assets that are Contributed to the USCO will
be assumed directly or indirectly by the USCO or its Subsidiaries, and all other
Liabilities,  other than  Financial  Indebtedness,  will be assumed  directly or
indirectly by the UKCO or its Subsidiaries.


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                                                                               7

          (k)  Notwithstanding  any  provision  in this  Agreement  or any other
writing  to the  contrary,  the  Ventures  are  assuming  only  the EMI  Assumed
Liabilities  and the Warner Assumed  Liabilities  and are not assuming any other
liability or obligation of the parties (or any predecessor of the parties or any
prior  owner  of all or part of  their  respective  businesses  and  assets)  of
whatever nature,  whether presently in existence or arising hereafter.  All such
other  liabilities  and  obligations  (including  those  set  forth on  Exhibits
1.03(k)(i), in the case of EMI, and on Exhibit 1.03(k)(ii),  in the case of TWI,
and Excluded Tax  Liabilities)  shall be retained by and remain  obligations and
liabilities of EMI (the "EMI Excluded Liabilities") or TWI (the "Warner Excluded
Liabilities").

          (l) It is the intent of the parties  that the fair market value of the
Contributed  Assets (valued on the basis of their expected  contribution  to the
EBITDA of the Ventures),  net of Assumed Liabilities and any preferred interests
in the Ventures  received by the party upon the  contribution,  contributed by a
party  to  the  Ventures  (the  "Contributed  Amount")  shall  be  equal  to the
Contributed  Amount of the other party subject to Sections  1.03(g) and 1.03(h).
Subject to Sections  1.03(g),  1.03(h) and 1.04, the portion of the  Contributed
Amount  contributed  by each party to each  Venture  shall be  equalized  by the
following means in the following order of priority:  (i) first, the retention or
contribution by TWI or EMI, as applicable,  of cash, receivables,  inventory and
other  liquid  assets,  (ii)  second,  the  allocation  of the amount of Assumed
Liabilities  of each party with respect to each  Venture,  and (iii) third,  any
other tax  efficient  means,  such as the  issuance  to TWI or EMI of  preferred
interests in the Ventures;  provided,  however,  that the Contributed  Amount of
each  party  subsequent  to  such  equalization  shall  not  be  less  than  the
Contributed Amount of such party prior to such equalization.

          SECTION 1.04. Equalization. (a) Within 60 days after the Closing Date,
EMI will provide to TWI and the Ventures with respect to the EMI Music  Business
and TWI will  provide to EMI and the  Ventures  with regard to the Warner  Music
Business an audited  consolidated balance sheet as of the Closing Date stated in
both U.S. GAAP and U.K. GAAP and an audited  consolidated  income  statement and
statement  of cash flows for the period from October 1, 1999 to the Closing Date
stated in U.K. GAAP with respect to the EMI Music Business and in U.S. GAAP with
respect to the Warner Music Business.

          (b) Three business days prior to the expected Closing Date, (i) EMI
will deliver to TWI and Ernst & Young


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                                                                               8

a statement setting forth its estimate of the following amounts:  (x) the amount
of cash to be retained by EMI and the EMI Retained  Entities pursuant to Section
1.03(g),  (y) the Net  Financial  Indebtedness  of EMI and its  Subsidiaries  at
Closing,  and  (z)  the  amounts  in  Section  1.03(h)  relating  to EMI and its
Subsidiaries at Closing,  together with a reconciliation  statement  showing the
changes in the net indebtedness of EMI and its  Subsidiaries  from September 30,
1999 to the  Closing  Date,  (ii) TWI will  deliver  to EMI and  Ernst & Young a
statement  setting forth its estimate of the amounts in Section 1.03(h) relating
to TWI or the Warner  Music  Group and (iii) each  party  shall  provide to each
other and Ernst & Young such  information  as will be reasonably  appropriate to
effect the calculations  under Section 1.03. Based on the foregoing  statements,
Ernst & Young will provide a statement (the "Preliminary  Statement") to each of
the  parties  setting  forth  its  estimate  of  the  amount  of  Net  Financial
Indebtedness  of TWI and the  Warner  Music  Group  which may be  assumed by the
Ventures pursuant to Section 1.03(h). The Preliminary  Statement will be used to
establish  the  amount  (the   "Preliminary   Indebtedness")  of  Net  Financial
Indebtedness  of TWI and the Warner  Music  Group to be assumed by the  Ventures
pursuant to Section 1.03(h) at Closing and the amount (the "Preliminary Retained
Cash") of cash to be  retained by EMI and the EMI  Entities  pursuant to Section
1.03(g) at Closing.

          (c) Within 45 days after the  Closing  Date,  each party will  provide
Ernst & Young with a statement  setting forth such party's final  calculation of
the amounts set forth in clauses (i), in the case of EMI, and (ii),  in the case
of TWI, of Section  1.04(b).  Within 15 days after the receipt of the  foregoing
statements,  Ernst & Young will  provide to each of the parties a statement in a
form to be agreed upon by Warner,  EMI and Ernst & Young (the "Final Statement")
certifying its final calculation of the amount (the "Final Indebtedness") of Net
Financial  Indebtedness  of TWI and the Warner Music Group that should have been
assumed by the  Ventures at Closing  pursuant to Section  1.03(h) and the amount
(the "Final  Retained  Cash") of cash that should have been  retained by EMI and
the EMI Retained Entities pursuant to Section 1.03(g).

          (i) If the Preliminary  Retained Cash exceeds the Final Retained Cash,
     then EMI will make a cash  payment to the  Ventures  equal to the amount of
     such excess.  If the Final Retained Cash exceeds the  Preliminary  Retained
     Cash,  the Ventures  will make a cash payment to EMI equal to the amount of
     such excess.


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                                                                               9

          (ii) If the Preliminary  Indebtedness  exceeds the Final Indebtedness,
     then TWI will make a cash  payment to the  Ventures  equal to the amount of
     such   excess.   If  the  Final   Indebtedness   exceeds  the   Preliminary
     Indebtedness,  then the  Ventures  will make a cash payment to TWI equal to
     the amount of such excess.

          (iii) Any  payments  made  pursuant  to clause (i) or (ii) above shall
     include  interest from the Closing Date at the Ventures'  cost of revolving
     debt.

          (d) Any  payments to be made  pursuant to Section  1.04(c)  shall,  if
possible, be structured so as to be non-taxable  contributions or distributions.
In any case,  all payments made  pursuant to Section  1.04(c) shall be made on a
net after-Tax basis.

          SECTION 1.05.  Distribution to EMI Shareholders.  Within 60 days after
the  Closing  Date,  EMI will  distribute  to its  shareholders  through a share
repurchase  or as a  special  dividend  a  cash  amount  equal  to  the  Special
Distribution   Amount.  Any  such  special  dividend  may  be  combined  with  a
proportionate consolidation of the EMI ordinary shares.

                                   ARTICLE II

                            Documentation and Closing

          SECTION  2.01.  The  Documents.  (a) The parties shall prepare in good
faith one or more Contribution  Agreements,  a Partnership  Agreement  regarding
USCO (the "USCO Agreement"),  the Memorandum and Articles of and a Shareholders'
Agreement regarding UKCO (collectively,  the "UKCO Agreement" and, together with
the USCO  Agreement,  the  "Venture  Agreements"),  one or two  Parent  Services
Agreements,  the EMI Services Agreement,  the DVD License Agreement,  the Credit
Facility,   the  Service  Company  Agreement  and  one  or  more  TWI  contracts
(collectively and together with this Agreement, the "Documents").

          (b) Each  Contribution  Agreement will specify matters relating to the
creation of and transfer of assets and  liabilities  to the Ventures and reflect
the terms of this Agreement.

          (c) The Venture  Agreements will have consistent  terms and conditions
and will reflect the terms contained in Exhibit 2.01(c).


<PAGE>


                                                                              10

          (d) The  Parent  Services  Agreement  will set  forth  the  terms  and
conditions  upon  which TWI will  provide  services  to the  Ventures  after the
Closing Date in accordance with Exhibit 2.01(d) and the Interface Issues List.

          (e) The EMI Services Agreement will set forth the terms and conditions
upon which the Ventures will provide  services to EMI after the Closing Date and
will reflect the terms set forth in Exhibit 2.01(e).

          (f) The DVD License  Agreement will set forth the terms and conditions
upon  which  the  Ventures  will  receive  from  TWI a  license  to use  certain
intellectual  property  rights  relating  to the  manufacture  of DVDs  and will
reflect the terms set forth in Exhibit 2.01(f).

          (g) The Credit Facility will reflect the terms set forth in Exhibit
2.01(g).

          (h) The TWI  contracts  will each set forth the terms  upon  which TWI
provides certain goods or services to the Ventures or the Ventures provide goods
or services to TWI with regard,  at minimum,  to the  arrangements  set forth in
Exhibit 2.01(h).

          (i) The  Service  Company  Agreement  will set  forth  the  terms  and
conditions  upon which the service  company will be formed and the services that
the service company will provide to the Ventures after the Closing Date.

          SECTION 2.02.  The Closing.  The Closing shall occur at the offices of
Cravath,  Swaine & Moore,  825 Eighth Avenue,  New York, New York 10019 at 10:00
a.m.  on the first  Friday that is at least five  business  days  following  the
satisfaction  or waiver of the  conditions  contained in Section 2.03,  2.04 and
2.05. The date on which the closing occurs will be called the "Closing Date". At
the Closing:

          (a) The parties will  execute and deliver the  Documents to the extent
not previously executed and delivered.

          (b) EMI will issue to TWI the  Convertible  Deferred  Ordinary  Shares
(the "CDs") described in Exhibit 2.02 in exchange for the payment in cash by TWI
to EMI of an amount equal to  (pound)398,077,972  plus  (pound)5.75  for each CD
over  69,230,952  arising as a result of issues of ordinary  shares  (other than
pursuant to the  exercise  of options  existing  prior to January  23,  2000) or
options prior to Closing.


<PAGE>


                                                                              11

          (c) EMI will deliver to TWI: (i) in respect of EMI Contributed  Assets
comprising  corporate  entities,  share transfer forms (or their  equivalent) in
respect of EMI's interest in the issued share capital of such corporate entities
and (ii) in respect of other EMI  Contributed  Assets,  such documents as Warner
may reasonably  require to effect the transfer to the Ventures of EMI's interest
therein;

          (d) Warner will deliver to EMI:  (i) in respect of Warner  Contributed
Assets comprising corporate entities, share transfer forms (or their equivalent)
in respect of Warner's  interest in the issued share  capital of such  corporate
entities and (ii) in respect of other Warner Contributed  Assets, such documents
as EMI may reasonably require to effect the transfer to the Ventures of Warner's
interest therein;

          (e) Each of USCO and UKCO will issue partnership interests and shares,
respectively, to TWI (or a Subsidiary thereof) and EMI (or a Subsidiary thereof)
in equal  proportions in  consideration  for the transfer of the EMI Contributed
Assets and the Warner Contributed Assets; and

          (f)  Each of USCO  and  UKCO  will  execute  suitable  instruments  of
assumption of the Assumed Liabilities.

          SECTION 2.03. Mutual Closing Conditions. The obligations of the
parties to consummate the Closing will be subject to the satisfaction or
mutual waiver of following conditions:

          (a) all filings  required by law to be made prior to the Closing  Date
     by either party, and all consents, approvals and authorizations required by
     law to be obtained  prior to the Closing  Date by either party with or from
     any  Governmental  Authority  responsible  for  enforcement of antitrust or
     foreign investment law of the United States, the European Union,  Canada or
     Japan  (each such  entity a  "Specified  Governmental  Entity") in order to
     consummate the  Transactions  shall have been made or obtained (as the case
     may be);

          (b) the absence of any pending litigation by a Specified
     Governmental Entity challenging any Transaction;

          (c) the EMI Approval having been obtained at the EMI Shareholders
     Meeting (or any adjournment thereof);


<PAGE>


                                                                              12

          (d) the  consent  of H M  Treasury  under  section  765 of the  United
     Kingdom  Income and  Corporation  Taxes Act 1988  ("ICTA") (or such similar
     consents as required in any jurisdiction elsewhere) insofar as such consent
     is required in respect of any transaction  step proposed to be entered into
     in relation to the formation of either Venture;

          (e) no provision of any  applicable law or regulation and no judgment,
     injunction,  order or decree shall prohibit the consummation of the Closing
     the  violation  of which would cause an EMI  Material  Adverse  Effect or a
     Warner Material  Adverse Effect or would have a material  adverse effect on
     the  condition  (financial  or  otherwise),  business,  assets,  results of
     operation or prospects of the Ventures, taken together (a "Venture Material
     Adverse Effect");  provided,  however, that the violation of any injunction
     prohibiting the  Transactions  issued by or at the request of any Specified
     Governmental Entity shall be deemed to result in a Venture Material Adverse
     Effect;

          (f) subject to Section  2.06,  all consents and  approvals  from third
     parties necessary for the Transactions shall have been obtained in form and
     substance  reasonably  satisfactory  to EMI and TWI, and not revoked (other
     than consents and approvals the lack of which,  in the aggregate,  will not
     have a Venture Material Adverse Effect); and

          (g) EMI continuing to qualify for listing on the London Stock Exchange
     Limited (the "LSE") following the Closing.

          SECTION 2.04. EMI Closing Conditions. The obligation of EMI to
consummate the Closing is subject to the satisfaction or waiver by EMI of the
following further conditions:

          (a) (i) TWI  having  performed  in all  material  respects  all of its
     material  obligations  hereunder required to be performed by it on or prior
     to the  Closing  Date,  (ii)  the  representations  and  warranties  of TWI
     contained  in  this  Agreement  and in any  certificate  or  other  writing
     delivered by TWI pursuant  hereto being true at and as of the Closing Date,
     as if  made  at and as of  such  date  and  (iii)  EMI  having  received  a
     certificate  signed  by an  appropriate  officer  of TWI  to the  foregoing
     effect;


<PAGE>


                                                                              13

          (b)  clearance  under  section 138 of the United  Kingdom  Taxation of
     Chargeable  Gains  Act  1992  in  respect  of the  contribution  of the EMI
     Contributed Entities to UKCO;

          (c) clearance under section 707 of ICTA in respect of the
     Transactions;

          (d) clearance  under  section 215 of ICTA (to the extent  relevant) in
     respect of the  transaction  steps  proposed to be entered into in relation
     to:

               (i) the formation and operation of the Ventures and any related
          arrangements; and

               (ii) the distribution to EMI shareholders referred to in
          Section 1.05; and

          (e) no Warner Material Adverse Effect having occurred and being
     continuing.

          SECTION 2.05. TWI Closing Conditions. The obligation of TWI to
consummate the Closing is subject to the satisfaction or waiver by TWI of the
following further conditions:

          (a) (i) EMI  having  performed  in all  material  respects  all of its
     material  obligations  hereunder required to be performed by it on or prior
     to the  Closing  Date,  (ii)  the  representations  and  warranties  of EMI
     contained  in  this  Agreement  and in any  certificate  or  other  writing
     delivered by EMI pursuant  hereto being true at and as of the Closing Date,
     as if  made  at and as of  such  date  and  (iii)  TWI  having  received  a
     certificate  signed  by an  appropriate  officer  of EMI  to the  foregoing
     effect;

          (b) no EMI Material Adverse Effect having occurred and being
     continuing;

          (c)  clearance  under  section 138 of the United  Kingdom  Taxation of
     Chargeable  Gains  Act  1992  in  respect  of the  contribution  of  Warner
     Contributed Entities to the UKCO; and

          (d) clearance under section 707 of ICTA in respect of the
     Transactions.

          SECTION 2.06. Subsequent Closings. (a) Notwithstanding any provision
contained in Article I, if the conditions contained in Sections 2.03,


<PAGE>


                                                                              14

2.04 and 2.05 have been satisfied or waived but the  consummation of the Closing
with respect to certain assets (the "Affected Assets") that would otherwise have
been Contributed Assets is prohibited because of an applicable law,  regulation,
judgment,  injunction,  order or  decree  or  because  a  consent,  approval  or
authorization  required  by law to be  obtained  with or from  any  Governmental
Authority  with respect to such assets has not been  obtained,  then the Closing
shall  nevertheless  be consummated in accordance with Section 2.02 with respect
to the Contributed  Assets other than the Affected Assets with such  adjustments
as the parties shall in good faith have  negotiated in respect of and to reflect
such  arrangements.  The  Affected  Assets  shall be deemed for purposes of this
Agreement to be "Excluded Assets" of the party directly or indirectly  retaining
such assets  unless and until a Subsequent  Closing  occurs with respect to such
assets.

          (b) After the Closing  Date,  the parties agree to use efforts (to the
same extent as specified by Section 6.02) to consummate  and make  effective the
transactions contemplated by this Agreement with respect to the Affected Assets.
On the first  Friday  that is at least  five  business  days after any such law,
regulation,  judgment,  injunction, order or decree has been lifted or after any
such  consent,  approval or  authorization  has been  obtained with respect to a
material amount of the Affected Assets,  the  transactions  contemplated by this
Agreement  shall be consummated at the offices of Cravath,  Swaine & Moore,  825
Eighth  Avenue,  New York,  New York  10019 at 10:00 a.m.  with  respect to such
Affected Assets (each a "Subsequent  Closing").  At each Subsequent Closing, the
parties shall execute and deliver a Contribution  Agreement with respect to such
Affected Assets.  Any Affected Assets  contributed in a Subsequent Closing shall
be deemed for purposes of this Agreement to be "Contributed Assets" of the party
directly or  indirectly  contributing  such  assets  following  such  Subsequent
Closing.

          ARTICLE III

          Representations and Warranties of TWI

          TWI represents and warrants to EMI that:

          SECTION 3.01. Corporate Existence and Power. TWI is a corporation duly
incorporated,  validly existing and in good standing under the laws of the State
of Delaware and has all corporate powers and all material governmental licenses,
authorizations,  permits,  consents  and  approvals  required  to  carry  on its
business as now conducted, to the


<PAGE>


                                                                              15

extent  relevant  to  the  Transactions   except  where  failure  to  meet  such
requirements would not have, individually or in the aggregate, a Warner Material
Adverse Effect.

          SECTION 3.02.  Corporate  Authorization.  The execution,  delivery and
performance by TWI of this Agreement and, at the Closing,  each of the Documents
and the  consummation by TWI or its  Subsidiaries of the Transactions are within
TWI's corporate powers and have been duly authorized by all necessary  corporate
action on the part of TWI or its Subsidiaries.  This Agreement constitutes,  and
at the  Closing,  each of the  Documents  will  constitute,  a valid and binding
agreement of TWI.

          SECTION 3.03.  Information Supplied.  None of the information supplied
or to be supplied and approved by TWI in respect of TWI or its  Subsidiaries  or
any director of the Ventures  appointed by TWI for inclusion or incorporation by
reference in the EMI  Shareholder  Documentation  will,  at the  Relevant  Time,
contain any untrue  statement  of a material  fact or omit to state any material
fact required to be stated therein or necessary to make the statements  therein,
or in light of the circumstances under which they were made, not misleading. For
these purposes,  "Relevant Time" means the date such information is supplied and
the date of publication thereof.

          SECTION 3.04. Non-Contravention. Except as set forth on Schedule 3.04,
the  execution,  delivery and  performance by TWI and its  Subsidiaries  of this
Agreement and, at the Closing,  each of the other Documents and the consummation
of the Transactions do not and will not (i) contravene, conflict with, or result
in any violation or breach of any provision of the certificate of  incorporation
or by-laws of TWI, (ii) require any consent or other action by any Person under,
constitute a default,  or an event that, with or without notice or lapse of time
or both,  would  constitute a default under, or cause or permit the termination,
cancellation,  acceleration  or other change of any right or  obligation  or the
loss of any benefit relating to the Warner Music Business under any provision of
any agreement or other instrument binding upon TWI or any of its Subsidiaries or
by which TWI or any of its Subsidiaries is or may be bound,  (iii) result in the
creation or imposition of any Lien on any asset of the Warner Music  Business or
(iv)  create in favor of any Person,  or allow any Person to have,  any right or
option  (including any matching  right) with respect to any contract or right of
TWI or any of its  Subsidiaries  that will form part of the  Warner  Contributed
Assets, except for (x) such failures to obtain any such consent or other action,
defaults, terminations,


<PAGE>


                                                                              16

cancellations,  accelerations,  changes,  losses or Liens referred to in clauses
(ii) and (iii) and (y) such  rights or options  referred to in clause (iv) that,
in each case, would not be reasonably  expected to have,  individually or in the
aggregate, a Warner Material Adverse Effect.

          SECTION 3.05. Warner Contributed Entities.  (a) Each Warner Controlled
Entity is an entity validly existing and (with respect to jurisdictions  outside
of the United Kingdom which recognize the concept) is in good standing under the
laws of its jurisdiction of incorporation or organization,  has all corporate or
other constituent powers and all governmental licenses, authorizations, permits,
consents  and  approvals  required to carry on its  business  as now  conducted,
except for those licenses,  authorizations,  permits, consents and approvals the
absence of which would not be reasonably  expected to have,  individually  or in
the aggregate,  a Warner Material  Adverse Effect.  Each such Warner  Controlled
Entity is duly qualified to do business as a foreign entity and (with respect to
jurisdictions  outside of the United Kingdom which  recognize the concept) is in
good standing in each jurisdiction where such qualification is necessary, except
for those  jurisdictions  where  failure to be so qualified  would not have,  or
reasonably  be  expected to have,  individually  or in the  aggregate,  a Warner
Material Adverse Effect.

          (b) Except as set forth in Schedule 3.05(b),  there are no outstanding
(i)  securities  of  TWI  or  any  of  its  Subsidiaries   convertible  into  or
exchangeable for shares of capital stock or other voting securities or ownership
interests  in any Warner  Controlled  Entity or (ii)  options or other rights to
acquire from TWI or any of its Subsidiaries or other obligation of TWI or any of
its  Subsidiaries  to issue,  any capital  stock or other voting  securities  or
ownership  interests in, or any securities  convertible into or exchangeable for
any capital  stock or other voting  securities  or ownership  interests  in, any
Warner  Controlled  Entity (the items in clauses (i) and (ii) being  referred to
collectively as the "Warner  Controlled Entity  Securities"),  nor are there any
outstanding obligations of TWI or any of its Subsidiaries to repurchase,  redeem
or otherwise acquire any of the Warner Controlled Entity Securities,  other than
for  such  securities,  options,  rights  and  obligations  that  would  not  be
reasonably expected to have, individually or in the aggregate, a Warner Material
Adverse Effect.

          SECTION 3.06. Financial Statements. (a) The unaudited consolidated
balance sheet of the Warner Music Business as of September 30, 1999 and the
related unaudited


<PAGE>


                                                                              17

consolidated statements of income for the twelve months ended September 30, 1999
for the Warner Music  Business  attached as Schedule  3.06(a)  fairly present in
conformity with United States generally  accepted  accounting  principles ("U.S.
GAAP")  and TWI's  accounting  policies  and  procedures  attached  as  Schedule
3.06(b),  applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of the Warner Music Business as of
the dates thereof and its  consolidated  results of  operations  for the periods
then ended (subject to normal year-end  adjustments in the case of any unaudited
interim financial statements) other than with respect to Tax Liabilities.

          (b) The  unaudited  consolidated  balance  sheets of the Warner  Music
Business as of December 31, 1997 and 1998 and the related unaudited consolidated
statements  of income for each of the years  ended  December  31,  1997 and 1998
attached as Schedule  3.06(a)  fairly  present in conformity  with U.S. GAAP and
TWI's accounting policies and procedures  attached as Schedule 3.06(b),  applied
on a consistent  basis  (except as may be indicated in the notes  thereto),  the
consolidated  financial  position of the Warner  Music  Business as of the dates
thereof and its  consolidated  results of operations  for the periods then ended
other than with respect to Tax Liabilities.

          SECTION  3.07.  Absence  of  Certain  Changes.  Except as set forth on
Schedule 3.07 and since the Warner Balance Sheet Date, the Warner Music Business
has been conducted in the ordinary course  consistent with past practices except
for any  reorganization  of Warner and its  Subsidiaries in connection with this
Agreement and the Documents and there has not been:

          (a) any event,  occurrence,  development or state of  circumstances or
     facts that has had or would be reasonably expected to have, individually or
     in the aggregate, a Warner Material Adverse Effect;

          (b) any guarantee by the Warner Music Business of any indebtedness for
     borrowed  money  or  other  liabilities  of  third  parties  in  excess  of
     $30,000,000 in the aggregate;

          (c) any creation or other incurrence of any material Lien on any asset
     of the Warner Music Business other than in the ordinary  course of business
     consistent with past practices; or


<PAGE>


                                                                              18

          (d) any change in any method of  accounting,  method of tax accounting
     or accounting principles or practice by TWI or any of its Subsidiaries with
     respect to the Warner Music  Business,  except for any such change required
     by reason of a concurrent change in U.S. GAAP.

          SECTION 3.08. No Undisclosed Material Liabilities. Except as set forth
on Schedule  3.08,  there are no  liabilities or obligations of the Warner Music
Business  or any of the  Warner  Controlled  Entities  of any  kind  whatsoever,
whether accrued,  contingent,  absolute,  determined,  determinable or otherwise
(including  with  respect to any earn out  agreement),  and there is no existing
condition,  situation or set of circumstances  that could reasonably be expected
to result in such a liability or obligation, other than:

          (a)  liabilities  provided for in the Warner  Balance  Sheet or in the
     unaudited  consolidated  balance  sheet of the Warner Music  Business as of
     December 31, 1998 (the "Warner December Balance Sheet");

          (b) liabilities or obligations disclosed in the notes to the Warner
     Balance Sheet or in the Warner December Balance Sheet;

          (c) items disclosed in Schedule 3.07, 3.10 or 3.11;

          (d) Warner Excluded Liabilities;

          (e) Tax Liabilities; and

          (f)  other  undisclosed  liabilities  which,  individually  or in  the
     aggregate,  would  not be  reasonably  expected  to have a Warner  Material
     Adverse Effect.

          SECTION 3.09. Material Contracts. (a) Except for the contracts
disclosed on Schedule 3.09, with respect to the Warner Music Business, none of
TWI or any of its Subsidiaries is a party to or bound by:

          (i) any partnership, joint venture or other similar agreement or
     arrangement that is material to the Warner Music Business;

          (ii)  any  agreement   with  material   commitments,   obligations  or
     liabilities on the part of TWI or its  Subsidiaries  which remain in effect
     as of the date hereof relating to the acquisition or disposition of


<PAGE>


                                                                              19

     any material business (whether by merger, sale of stock, sale of assets
     or otherwise);

          (iii) any agreement relating to indebtedness for borrowed money or the
     deferred  purchase  price of property  (in either case,  whether  incurred,
     assumed,  guaranteed  or secured by any asset),  except any such  agreement
     with an aggregate  outstanding  principal amount not exceeding  $30,000,000
     and  which may be  prepaid  on not more than 30 days'  notice  without  the
     payment of any penalty;

          (iv) any agreement  that  materially  limits the freedom of the Warner
     Music  Business  or any  Warner  Controlled  Entity to compete in the Music
     Business or that materially limits the freedom of the Warner Music Business
     or any Warner Controlled Entity to own, operate, sell, transfer,  pledge or
     otherwise  dispose of or  encumber  any Warner  Contributed  Asset or which
     would so limit the freedom of either USCO or UKCO after the Closing;

          (v) any material arrangement,  agreement or relationship with monetary
     or financial  effects with or for the benefit of Warner or any Affiliate of
     TWI (other than solely between Warner  Contributed  Entities) in connection
     with the Warner Music Business or any Warner Controlled Entity;

          (vi) any other agreement, commitment,  arrangement or plan not made in
     the  ordinary  course of  business  that is  material  to the Warner  Music
     Business.

          (b) Each  Contract  disclosed  in any  Schedule to this  Agreement  or
required to be  disclosed  pursuant to this  Section 3.09 is a valid and binding
agreement of TWI or its  Subsidiaries,  as the case may be, and is in full force
and effect,  and none of TWI or any of its  Subsidiaries or, to the knowledge of
TWI or any of its Subsidiaries,  any other party thereto is in default or breach
in any  material  respect  under the  terms of any such  Contract,  and,  to the
knowledge  of TWI or any of its  Subsidiaries,  no  event  or  circumstance  has
occurred that, with notice or lapse of time or both,  would  constitute an event
of  default  thereunder,  other than for such  failures  to be in full force and
effect and such defaults that would not be reasonably expected,  individually or
in the aggregate, to have a Warner Material Adverse Effect.

          SECTION 3.10. Compliance with Laws and Court Orders. Except as set
forth on Schedule 3.10, none of the


<PAGE>


                                                                              20

Warner  Controlled  Entities or TWI or its  Subsidiaries (in connection with the
Warner  Music  Business)  is in  violation  of,  has not since  January  1, 1997
violated,  and  to the  knowledge  of TWI  or  its  Subsidiaries,  is not  under
investigation  with respect to and has not been threatened to be charged with or
given  notice  of  any  violation  of,  any  law,  rule,  regulation,  judgment,
injunction, order or decree (other than with respect to Taxes) applicable to the
Warner Music  Business,  except for  violations  that have not had and could not
reasonably  be  expected to have,  individually  or in the  aggregate,  a Warner
Material Adverse Effect.

          SECTION 3.11. Litigation.  Except as set forth on Schedule 3.11, there
is no  action,  suit,  investigation  (whether  or not the  defense  thereof  or
liabilities  in respect  thereof are  covered by  insurance),  claim  (including
royalty  audit claims) or proceeding  pending  against,  or, to the knowledge of
Warner,  threatened against or affecting, the Warner Music Business,  before any
court or arbitrator  or before or by any  Governmental  Authority  that would be
reasonably expected to have, individually or in the aggregate, a Warner Material
Adverse Effect,  or that in any manner  challenges or seeks to prevent,  enjoin,
alter  or  materially  delay  the  formation  of  each  of  USCO  or UKCO or the
Transactions.

          SECTION 3.12.  Title;  Properties.  (a) TWI and its Subsidiaries  have
good,  unencumbered  title to, or in the case of leased property and assets have
valid leasehold  interests in, all property and assets (whether real,  personal,
tangible  or  intangible)  included in the Warner  Contributed  Assets or in the
Warner Controlled Entity  Securities,  other than those properties or assets for
which the absence of such title or leasehold interest have not had and would not
reasonably  be  expected to have,  individually  or in the  aggregate,  a Warner
Material Adverse Effect.

          (b) The plants,  buildings,  structures and equipment  included in the
Warner Music Business have no material defects,  are in good operating condition
and  repair  and have  been  reasonably  maintained  consistent  with  standards
generally  followed in the industry (giving due account to the age and length of
use of same,  ordinary  wear and tear  excepted),  are adequate and suitable for
their present and intended uses and, in the case of plants,  buildings and other
structures (including,  without limitation,  the roofs thereof) are structurally
sound, except for such defects and absence of repairs as have not have and could
not reasonably be expected to have,  individually or in the aggregate,  a Warner
Material Adverse Effect.


<PAGE>


                                                                              21

          SECTION 3.13. Sufficiency of the Warner Contributed Assets. The Warner
Contributed   Assets,   together  with  the  Warner   Excluded  Assets  and  the
"shared-use"  facilities  and assets to be made available by TWI pursuant to the
Parent Services Agreement, constitute all the assets used or held for use in the
Warner Music Business.  The Warner Contributed Assets,  together with the rights
under the  Documents,  are  adequate  to conduct  the Warner  Music  Business as
currently conducted, and as planned to be conducted by each of USCO and UKCO.

          SECTION 3.14. Intellectual Property Rights. Except as set forth on
Schedule 3.14 and except as would not be reasonably expected to have,
individually or on the aggregate, a Warner Material Adverse Effect:

          (a)  In  the  course  of  the  Warner  Music  Business,   TWI  or  its
     Subsidiaries have not infringed,  misappropriated or otherwise violated any
     Intellectual  Property  Rights  or other  proprietary  rights  of any third
     Person.  There is no  claim,  action,  suit,  investigation  or  proceeding
     against,  or,  to the  knowledge  of TWI  or its  Subsidiaries,  threatened
     against or  affecting,  TWI or its  Subsidiaries  or any  present or former
     officer, director or employee of TWI or its Subsidiaries (i) based upon, or
     challenging or seeking to deny or restrict,  the use or ownership by TWI or
     its Subsidiaries of any of the Warner Owned Intellectual Property Rights or
     TWI's or its  Subsidiaries'  rights  in the  Warner  Licensed  Intellectual
     Property   Rights,   (ii)  alleging  that  the  use  of  the  Warner  Owned
     Intellectual  Property Rights or the Warner Licensed  Intellectual Property
     Rights or any services provided,  processes used, or products manufactured,
     used,  imported or sold by TWI or its Subsidiaries do or may conflict with,
     misappropriate,  infringe or otherwise  violate any  Intellectual  Property
     Right or other proprietary right of any third Person or (iii) alleging that
     TWI or any of its Subsidiaries have infringed, misappropriated or otherwise
     violated any Intellectual  Property Right or other proprietary right of any
     third party.

          (b) The Warner  Licensed  Intellectual  Property Rights and the Warner
     Owned Intellectual Property Rights together constitute all the Intellectual
     Property  Rights  necessary,  used or held  for use in the  conduct  of the
     Warner Music Business. The consummation of the transactions contemplated by
     this Agreement will not alter, impair or extinguish any Warner Owned


<PAGE>


                                                                              22

     Intellectual Property Rights or Warner Licensed Intellectual Property
     Rights.

          SECTION  3.15.  Licenses  and  Permits.  Except  as set  forth  on the
Schedule 3.15, each license, franchise,  permit, certificate,  approval or other
similar authorization from any Governmental Authority affecting,  or relating in
any way to, the Warner Music Business (the "Warner Music Permits"), (i) is valid
and in full force and effect and (ii)  neither TWI nor any of its  Subsidiaries,
as the case may be, is in default,  and no condition  exists that with notice or
lapse of time or both would constitute a default, under the Warner Music Permits
other  than  those  permits  whose  failure  to obtain  would not be  reasonably
expected to have,  individually or in the aggregate,  a Warner Material  Adverse
Effect.

          SECTION  3.16.  Tax Matters.  Solely for purposes of this Section 3.16
the term "Warner  Contributed  Entity" shall include any Warner  Retained Entity
substantially all of whose assets are Warner Contributed Assets.

          (a) Filing.  Except as set forth on Schedule 3.16, and except as would
not result,  individually  or in the  aggregate,  in a Warner  Material  Adverse
Effect, all Tax returns, statements,  reports and forms (including estimated tax
or information returns and reports) (collectively, the "Returns") required to be
filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or
on behalf of any Warner Contributed  Entity,  have, to the extent required to be
filed on or before the date hereof,  been filed when due in accordance  with all
applicable  laws  and,  as of the time of  filing,  such  Returns  were true and
complete.

          (b) Payment. Except as set forth on Schedule 3.16, and except as would
not result,  individually  or in the  aggregate,  in a Warner  Material  Adverse
Effect,  all Taxes  shown as due and  payable  on such  Returns  referred  to in
Section  3.16(a)  that have been filed have been timely  paid,  or withheld  and
remitted to the appropriate Taxing Authority.

          (c) Procedure and  Compliance.  Except as set forth on Schedule  3.16,
and except as would not result,  individually  or in the aggregate,  in a Warner
Material Adverse Effect, there is no claim, audit, action, suit, proceeding,  or
investigation  now pending or  threatened  in respect of any Tax against or with
respect to any of the Warner Contributed Entities or any member of an affiliated
group of which any one of them is a member.


<PAGE>


                                                                              23

          (d) Special  Arrangements.  Except as set forth in Schedule  3.16, and
except  where  the  termination  of such  arrangements  would  not have a Warner
Material  Adverse  Effect,   there  are  no  special  arrangements  with  taxing
authorities  regarding the Warner Contributed Entities or the Warner Contributed
Assets.

          SECTION  3.17.  Employee  Plans.  (a) Each Warner  Employee Plan (and,
where  distinct,  each  trust or other  funding  vehicle  supporting  such plan)
intended to qualify for tax exempt or tax favored  status  under the  applicable
local fiscal regime  satisfies the applicable  regulatory  requirements for such
tax exempt or tax favored status and has obtained all appropriate confirmations,
determinations and certificates  necessary to confer and record such status, and
nothing has  occurred  since the most recent  date of any such  assurance  or is
expected to occur through the Closing Date (including the Transactions) that has
caused  or could  cause  the  impairment  of such  status,  other  than any such
impairment which would not have a Warner Material Adverse Effect.

          (b) Each  Warner  Employee  Plan has been  maintained  in  substantial
compliance  with its terms and with the  requirements  prescribed by any and all
applicable  statutes,  orders,  rules and regulations,  including any applicable
requirements of any relevant regulatory or fiscal body, except for such failures
to so  comply  as  individually  or in the  aggregate  would  not  have a Warner
Material Adverse Effect.

          (c) As of December 31, 1999, the aggregate  unfunded  liability of TWI
and its  Affiliates  in respect  of all Warner  Employee  Plans  computed  using
reasonable  actuarial  assumptions  and determined as if all benefits under such
plans  were  vested  and  payable as of such  date,  and  disregarding  any such
liabilities  to the extent funded or for which  adequate  reserves or provisions
shall have been made, would not have a Warner Material Adverse Effect.

          (d) No  amounts  are or  might  be  payable  to or in  respect  of any
Employee Plan by any of the Warner Contributed  Entities as a direct or indirect
result  of  the  termination  of  that  Employee  Plan,  or the  termination  of
participation in the plan by any Warner Contributed Entity, and no amounts would
or might be payable to any such plan by the Ventures or any of their  Affiliates
as a result of the Transactions contemplated by this Agreement,  except for such
amounts as would not have a Warner Material Adverse Effect.


<PAGE>


                                                                              24

          (e)  Except  as set  forth on  Schedule  3.17,  (i)  there has been no
amendment to, written  interpretation of or announcement (whether written or not
written)  by TWI or any of its  Affiliates  relating  to, or change in  employee
participation  or coverage under,  any Warner Employee Plan which would increase
materially the expense of maintaining  such Warner Employee Plan above the level
of the expense  incurred in respect  thereof for the most recent fiscal year and
(ii) no  employee  of the Warner  Music  Business  will  become  entitled to any
payment, benefit or right in respect of his employment or termination thereof or
enhanced  such  payment,  benefit  or  right  as a  result  of the  Transactions
contemplated  hereby,  and no other employee of TWI will become  entitled to any
payment,  benefit or right  affecting the business or assets of the Warner Music
Group as a result of the  Transactions  contemplated  hereby,  in any case under
clause  (i) or (ii)  involving  an  amount  or value  that  would  have a Warner
Material Adverse Effect.

          SECTION 3.18. Environmental Compliance. Except as disclosed on
Schedule 3.18 or except as to matters that would not reasonably be expected to
have a Warner Material Adverse Effect:

          (a)  no  written  notice  of  violation  or  liability,   request  for
     information,  order,  demand,  citation  or summons has been  received,  no
     complaint   has  been  filed,   no  penalty  has  been   assessed   and  no
     investigation,  action,  claim,  suit or  proceeding  is pending or, to the
     knowledge of TWI,  threatened  with respect to any matters  relating to the
     Warner Music Business,  the Warner  Contributed Assets or any of the Warner
     Controlled Entities and arising out of any Environmental Law;

          (b) TWI and each of its Subsidiaries  have all  Environmental  Permits
     necessary  for the Warner  Music  Business  to comply  with all  applicable
     Environmental  Laws and TWI and its Subsidiaries are in compliance with the
     terms of such  Environmental  Permits and, with respect to the operation of
     the Warner Music Business, with all other applicable Environmental Laws;

          (c) there are no liabilities or obligations of, or in any way relating
     to, the Warner Music Business,  the Warner Contributed Assets or the Warner
     Controlled  Entities,  as the case may be, of any kind whatsoever,  whether
     accrued,  contingent,  absolute,  determined,  determinable  or  otherwise,
     arising  under  or  relating  to any  Environmental  Law,  and  there is no
     existing condition, situation or set of circumstances which


<PAGE>


                                                                              25

     could reasonably be expected to result in any such liability or
     obligation; and

          (d) no Hazardous  Substance has been discharged,  disposed of, dumped,
     injected,  pumped, deposited,  spilled, leaked, emitted, or released at, on
     or  under  any  real  property  leased,  owned,  operated  on,  or  used in
     connection with and included in the Warner Music Business.

                                   ARTICLE IV

                      Representations and Warranties of EMI

          EMI  represents  and warrants to TWI that,  except with respect to the
EMI Excluded Assets and the EMI Excluded Liabilities:

          SECTION 4.01. Corporate Existence and Power. EMI is a corporation duly
incorporated  and  validly  existing  under  the  laws  of  England  and has all
corporate  powers  and  all  material  governmental  licenses,   authorizations,
permits,  consents  and  approvals  required  to  carry on its  business  as now
conducted,  to the extent relevant to the  Transactions  except where failure to
meet such requirements would not have,  individually or in the aggregate, an EMI
Material Adverse Effect.

          SECTION 4.02.  Corporate  Authorization.  The execution,  delivery and
performance by EMI of this Agreement and, at the Closing,  each of the Documents
and the  consummation by EMI or its  Subsidiaries of the Transactions are within
EMI's  corporate  powers  and  except  for  the EMI  Approval,  have  been  duly
authorized by all necessary  corporate action on the part of EMI. This Agreement
constitutes,  and at the Closing, each of the Documents will constitute, a valid
and binding agreement of EMI.

          SECTION 4.03.  Information Supplied.  None of the information supplied
or to be supplied and approved by EMI in respect of EMI or its  Subsidiaries  or
any director of the Ventures  appointed by EMI for inclusion or incorporation by
reference in the EMI  Shareholder  Documentation  will,  at the  Relevant  Time,
contain any untrue  statement  of a material  fact or omit to state any material
fact required to be stated therein or necessary to make the statements  therein,
or in light of the circumstances under which they were made, not misleading. For
these purposes,  "Relevant Time" means the date such information is supplied and
the date of publication thereof.


<PAGE>


                                                                              26

          SECTION 4.04. Non-Contravention. Except as set forth on Schedule 4.04,
the  execution,  delivery and  performance by EMI and its  Subsidiaries  of this
Agreement and at the Closing,  each of the other Documents and the  consummation
of the Transactions do not and will not (i) contravene, conflict with, or result
in any  violation or breach of any provision of the  memorandum  and articles of
association  of EMI,  (ii)  require  any  consent or other  action by any Person
under,  constitute a default,  or an event that, with or without notice or lapse
of time or both,  would  constitute  a  default,  under,  or cause or permit the
termination,  cancellation,  acceleration  or  other  change  of  any  right  or
obligation or the loss of any benefit  relating to the EMI Music  Business under
any  provision of any agreement or other  instrument  binding upon EMI or any of
its  Subsidiaries or by which EMI or any of its  Subsidiaries is or may be bound
or (iii)  result in the creation or  imposition  of any Lien on any asset of the
EMI Music  Business or (iv)  create in favor any Person,  or allow any Person to
have, any right or option  (including,  any matching  right) with respect to any
contract or right of EMI or its  Subsidiaries  under any contract (other than an
Excluded  Asset),  except for (x) such  failures  to obtain any such  consent or
other action, defaults,  terminations,  cancellations,  accelerations,  changes,
losses or Liens  referred  to in clauses  (ii) and (iii) and (y) such  rights or
options  referred to in clause (iv) that, in each case,  would not be reasonably
expected to have,  individually  or in the  aggregate,  an EMI Material  Adverse
Effect.

          SECTION 4.05. EMI Contributed Entities. (a) Each EMI Controlled Entity
is an entity validly existing and (with respect to jurisdictions  outside of the
United  Kingdom which  recognize the concept) in good standing under the laws of
its jurisdiction of  incorporation  or organization,  has all corporate or other
constituent  powers  and all  governmental  licenses,  authorizations,  permits,
consents  and  approvals  required to carry on its  business  as now  conducted,
except for those licenses,  authorizations,  permits, consents and approvals the
absence of which would not be reasonably  expected to have,  individually  or in
the aggregate,  an EMI Material Adverse Effect.  Each such EMI Controlled Entity
is duly  qualified  to do  business  as a foreign  entity  and (with  respect to
jurisdictions  outside of the United Kingdom which  recognize the concept) is in
good standing in each jurisdiction where such qualification is necessary, except
for those  jurisdictions  where  failure  to be so  qualified  would not have or
reasonably  be  expected  to  have,  individually  or in the  aggregate,  an EMI
Material Adverse Effect.


<PAGE>


                                                                              27

          (b) Except as set forth in Schedule 4.05(b),  there are no outstanding
(i)  securities  of  EMI  or  any  of  its  Subsidiaries   convertible  into  or
exchangeable  for  shares  in the  capital  of or  other  voting  securities  or
ownership interests in any EMI Controlled Entity or (ii) options or other rights
to acquire from EMI or any of its  Subsidiaries,  or other  obligation of EMI or
any of its  Subsidiaries to issue,  any shares in the capital of or other voting
securities or ownership  interests  in, or any  securities  convertible  into or
exchangeable  for any shares in the  capital of or other  voting  securities  or
ownership  interests in, any EMI Controlled Entity (the items in clauses (i) and
(ii) being referred to collectively as the "EMI Controlled Entity  Securities"),
nor are there any outstanding  obligations of EMI or any of its  Subsidiaries to
repurchase,  redeem  or  otherwise  acquire  any of the  EMI  Controlled  Entity
Securities, other than for such securities, options, rights and obligations that
would not be reasonably expected to have,  individually or in the aggregate,  an
EMI Material Adverse Effect.

          SECTION 4.06.  Financial  Statements.  (a) The unaudited  consolidated
balance  sheet  of EMI as of  September  30,  1999  and  the  related  unaudited
consolidated  statements of profit and loss account for the year ended September
30, 1999 attached as Schedule 4.06(a) fairly present the financial  position and
results of operations  of EMI and its  Subsidiaries,  in conformity  with United
Kingdom  generally  accepted   accounting   principles  ("UK  GAAP")  and  EMI's
accounting  policies and procedures  attached as Schedule 4.06(b),  applied on a
consistent  basis (except as may be indicated in the notes  thereto),  as of the
dates  thereof  and for the  periods  then  ended,  subject  to normal  year end
adjustments.

          (b) The  audited  consolidated  balance  sheets of EMI as of March 31,
1999 and 1998 and the related audited consolidated statements of profit and loss
account and cash flows for the years  ended March 31, 1999 and 1998  attached as
Schedule  4.06(a)  give a true and fair  view of the  state of  affairs  and the
profit  of EMI and its  Subsidiaries,  in  conformity  with  UK GAAP  and  EMI's
accounting  policies and procedures  attached as Schedule 4.06(b),  applied on a
consistent  basis (except as may be indicated in the notes  thereto),  as of the
dates thereof and for the periods then ended.

          SECTION 4.07. Absence of Certain Changes. Except as set forth on
Schedule 4.07 and since the EMI Balance Sheet Date, the EMI Music Business has
been conducted in the ordinary course consistent with past practices except
for


<PAGE>


                                                                              28

any reorganization of EMI and its Subsidiaries in connection with this Agreement
and the Documents and there has not been:

          (a) any event,  occurrence,  development or state of  circumstances or
     facts that has had or would be reasonably expected to have, individually or
     in the aggregate, an EMI Material Adverse Effect;

          (b) any guarantee by the EMI Music  Business of any  indebtedness  for
     borrowed  money  or  other  liabilities  of  third  parties  in  excess  of
     $30,000,000 in the aggregate;

          (c) any creation or other incurrence of any material Lien on any asset
     of the EMI Music  Business  other than in the  ordinary  course of business
     consistent with past practices; or

          (d) any change in any method of  accounting,  method of tax accounting
     or accounting principles or practice by EMI or any of its Subsidiaries with
     respect to the EMI Music  Business,  except for any such change required by
     reason of a concurrent change in U.K. GAAP.

          SECTION 4.08. No Undisclosed Material Liabilities. Except as set forth
on Schedule  4.08,  there are no  liabilities  or  obligations  of the EMI Music
Business or any of the EMI Controlled  Entities of any kind whatsoever,  whether
accrued, contingent, absolute, determined,  determinable or otherwise (including
with  respect to any earn out  agreement),  and there is no existing  condition,
situation or set of circumstances that could reasonably be expected to result in
such a liability or obligation, other than:

          (a) liabilities provided for in the EMI Balance Sheet;

          (b)  liabilities  or  obligations  disclosed  in the  notes to the EMI
     Balance Sheet or in the notes to the audited  consolidated balance sheet of
     EMI dated March 31, 1999; and

          (c) items disclosed in Schedule 4.07, 4.10, 4.11 or 4.18;

          (d) EMI Excluded Liabilities;

          (e) Tax Liabilities; and


<PAGE>


                                                                              29

          (f)  other  undisclosed  liabilities  which,  individually  or in  the
     aggregate, would not be reasonably expected to have an EMI Material Adverse
     Effect.

          SECTION 4.09. Material Contracts. (a) Except for the contracts
disclosed on Schedule 4.09, with respect to the EMI Music Business, none of
EMI or any of its Subsidiaries is a party to or bound by:

          (i) any partnership, joint venture or other similar agreement or
     arrangement that is material to the EMI Music Business;

          (ii)  any  agreement   with  material   commitments,   obligations  or
     liabilities on the part of EMI or its  Subsidiaries  which remain in effect
     as of the date hereof  relating to the  acquisition  or  disposition of any
     material  business  (whether  by merger,  sale of stock,  sale of assets or
     otherwise);

          (iii) any agreement relating to indebtedness for borrowed money or the
     deferred  purchase  price of property  (in either case,  whether  incurred,
     assumed,  guaranteed  or secured by any asset),  except any such  agreement
     with an aggregate  outstanding  principal amount not exceeding  $30,000,000
     and  which may be  prepaid  on not more than 30 days'  notice  without  the
     payment of any penalty;

          (iv) any agreement that materially limits the freedom of the EMI Music
     Business or any EMI  Controlled  Entity to compete in the Music Business or
     that  materially  limits the  freedom of the EMI Music  Business or any EMI
     Controlled  Entity to own,  operate,  sell,  transfer,  pledge or otherwise
     dispose of or encumber  any EMI  Contributed  Asset or which would so limit
     the freedom of either of USCO and UKCO after the Closing;

          (v) any material arrangement,  agreement or relationship with monetary
     or financial effects with or for the benefit of EMI or any Affiliate of EMI
     (other than solely between EMI Contributed Entities) in connection with the
     EMI Music Business or any EMI Controlled Entity;

          (vi) any other agreement, commitment,  arrangement or plan not made in
     the ordinary course of business that is material to the EMI Music Business.


<PAGE>


                                                                              30

          (b) Each  Contract  disclosed  in any  Schedule to this  Agreement  or
required to be  disclosed  pursuant to this  Section 4.09 is a valid and binding
agreement of EMI or its  Subsidiaries,  as the case may be, and is in full force
and effect,  and none of EMI or any of its  Subsidiaries or, to the knowledge of
EMI or any of its Subsidiaries,  any other party thereto is in default or breach
in any  material  respect  under the  terms of any such  Contract,  and,  to the
knowledge  of EMI or any of its  Subsidiaries,  no  event  or  circumstance  has
occurred that, with notice or lapse of time or both,  would  constitute an event
of  default  thereunder,  other than for such  failures  to be in full force and
effect and such defaults that would not be reasonably expected,  individually or
in the aggregate, to have an EMI Material Adverse Effect.

          SECTION 4.10.  Compliance with Laws and Court Orders. Except set forth
on Schedule 4.10, none of the EMI Controlled Entities or EMI or its Subsidiaries
(in  connection  with the EMI Music  Business) is in violation of, has not since
January 1, 1997 violated,  and to the knowledge of EMI or its  Subsidiaries,  is
not  under  investigation  with  respect  to and has not been  threatened  to be
charged with or given notice of any  violation  of, any law,  rule,  regulation,
judgment,  injunction,  order or  decree  (other  than  with  respect  to Taxes)
applicable to the EMI Music  Business,  except for violations  that have not had
and could not reasonably be expected to have,  individually or in the aggregate,
an EMI Material Adverse Effect.

          SECTION 4.11. Litigation.  Except as set forth on Schedule 4.11, there
is no  action,  suit,  investigation  (whether  or not the  defense  thereof  or
liabilities  in respect  thereof are  covered by  insurance),  claim  (including
royalty  audit claims) or proceeding  pending  against,  or, to the knowledge of
EMI, threatened against or affecting, the EMI Music Business before any court or
arbitrator or before or by any  Governmental  Authority that would be reasonably
expected to have,  individually  or in the  aggregate,  an EMI Material  Adverse
Effect, or that in any manner challenges or seeks to prevent,  enjoin,  alter or
materially delay the formation of each of USCO and UKCO or the Transactions.

          SECTION 4.12.  Title;  Properties.  (a) EMI and its Subsidiaries  have
good,  unencumbered  title to, or in the case of leased property and assets have
valid leasehold  interests in, all property and assets (whether real,  personal,
tangible or  intangible)  included in the EMI  Contributed  Assets or in the EMI
Controlled  Entity  Securities,  other than those properties or assets for which
the absence of such title or leasehold interest have not had


<PAGE>


                                                                              31

and would not be reasonably expected to have,  individually or in the aggregate,
an EMI Material Adverse Effect.

          (b) The plants,  buildings,  structures and equipment  included in the
EMI Music Business have no material defects, are in good operating condition and
repair and have been reasonably  maintained  consistent with standards generally
followed  in the  industry  (giving  due account to the age and length of use of
same,  ordinary  wear and tear  excepted),  are  adequate and suitable for their
present  and  intended  uses and,  in the case of  plants,  buildings  and other
structures (including,  without limitation,  the roofs thereof) are structurally
sound, except for such defects and absence of repairs as have not have and would
not be reasonably  expected to have,  individually  or in the aggregate,  an EMI
Material Adverse Effect.

          SECTION  4.13.  Sufficiency  of the EMI  Contributed  Assets.  The EMI
Contributed  Assets are adequate to conduct the EMI Music  Business as currently
conducted, and as planned to be conducted by each of USCO and UKCO.

          SECTION 4.14. Intellectual Property. Except as set forth on Schedule
4.14 and except as would not be reasonably expected to have, individually or
on the aggregate, a EMI Material Adverse Effect:

          (a) In the course of the EMI Music Business,  EMI or its  Subsidiaries
     have not infringed,  misappropriated or otherwise violated any Intellectual
     Property Rights or other proprietary  rights of any third Person.  There is
     no claim,  action,  suit,  investigation or proceeding against,  or, to the
     knowledge of EMI or its Subsidiaries,  threatened against or affecting, EMI
     or its Subsidiaries or any present or former officer,  director or employee
     of EMI or its  Subsidiaries  (i) based upon, or  challenging  or seeking to
     deny or restrict, the use or ownership by EMI or its Subsidiaries of any of
     the EMI Owned  Intellectual  Property Rights or EMI's or its  Subsidiaries'
     rights in the EMI Licensed Intellectual Property Rights, (ii) alleging that
     the use of the EMI Owned  Intellectual  Property Rights or the EMI Licensed
     Intellectual  Property Rights or any services provided,  processes used, or
     products manufactured, used, imported or sold by EMI or its Subsidiaries do
     or may conflict  with,  misappropriate,  infringe or otherwise  violate any
     Intellectual  Property Right or other proprietary right of any third Person
     or (iii) alleging that EMI or any of its Subsidiaries have infringed,


<PAGE>


                                                                              32

     misappropriated  or otherwise  violated any Intellectual  Property Right or
     other proprietary right of any third party.

          (b) The EMI Licensed  Intellectual  Property  Rights and the EMI Owned
     Intellectual  Property  Rights  together  constitute  all the  Intellectual
     Property Rights  necessary,  used or held for use in the conduct of the EMI
     Music Business.  The consummation of the transactions  contemplated by this
     Agreement will not alter,  impair or extinguish any EMI Owned  Intellectual
     Property Rights or EMI Licensed Intellectual Property Rights.

          SECTION  4.15.  Licenses  and  Permits.  Except  as set  forth  on the
Schedule 4.15, each license, franchise,  permit, certificate,  approval or other
similar authorization from any Governmental Authority affecting,  or relating in
any way to, the EMI Music Business (the "EMI Music  Permits"),  (i) is valid and
in full force and effect and (ii)  neither EMI nor any of its  Subsidiaries,  as
the case may be, is in  default,  and no  condition  exists  that with notice or
lapse of time or both would  constitute a default,  under the EMI Music  Permits
other than those permits whose failure to obtain would be reasonably expected to
not have, individually or in the aggregate, an EMI Material Adverse Effect.

          SECTION 4.16.  Tax Matters.  Solely for purposes of this Section 4.16,
the  term  "EMI  Contributed  Entity"  shall  include  any EMI  Retained  Entity
substantially all of whose assets are EMI Contributed Assets.

          (a) Filing.  Except as set forth on Schedule 4.16, and except as would
not result, individually or in the aggregate, in an EMI Material Adverse Effect,
all Returns  required to be filed with any Taxing  Authority with respect to any
Pre-Closing  Tax Period by or on behalf of any EMI  Contributed  Entity have, to
the extent  required to be filed on or before the date  hereof,  been filed when
due in accordance with all applicable  laws and, as of the time of filing,  such
Returns were true and complete.

          (b) Payment. Except as set forth on Schedule 4.16, and except as would
not result, individually or in the aggregate, in an EMI Material Adverse Effect,
all Taxes  shown as due and  payable  on such  Returns  referred  to in  Section
4.16(a) that have been filed have been timely paid,  or withheld and remitted to
the appropriate Taxing Authority.


<PAGE>


                                                                              33

          (c) Procedure and  Compliance.  Except as set forth on Schedule  4.16,
and except as would not  result,  individually  or in the  aggregate,  in an EMI
Material Adverse Effect there is no claim, audit, action, suit,  proceeding,  or
investigation  now pending or  threatened  in respect of any Tax against or with
respect to any of the EMI  Contributed  Entities or any member of an  affiliated
group of which any one of them is a member.

          (d)  Except  as set  forth in  Schedule  4.16,  and  except  where the
termination of such arrangements  would not have an EMI Material Adverse Effect,
there are no special  arrangements  with taxing  authorities  regarding  the EMI
Contributed Entities or the EMI Contributed Assets.

          SECTION 4.17.  Employee Plans.  (a) Each EMI Employee Plan (and, where
distinct,  each trust or other funding vehicle supporting such plan) intended to
qualify for tax exempt or tax favored status under the  applicable  local fiscal
regime satisfies the applicable  regulatory  requirements for such tax exempt or
tax   favored   status  and  has   obtained   all   appropriate   confirmations,
determinations and certificates  necessary to confer and record such status, and
nothing has  occurred  since the most recent  date of any such  assurance  or is
expected to occur through the Closing Date (including,  without limitation,  the
Transactions)  that has caused or could  cause the  impairment  of such  status,
other than any such  impairment  which  would not have an EMI  Material  Adverse
Effect.

          (b)  Each  EMI  Employee  Plan  has  been  maintained  in  substantial
compliance  with its terms and with the  requirements  prescribed by any and all
applicable  statutes,  orders,  rules and regulations,  including any applicable
requirements of any relevant regulatory or fiscal body, except for such failures
to so comply as  individually or in the aggregate would not have an EMI Material
Adverse Effect.

          (c) As of December 31, 1999, the aggregate  unfunded  liability of EMI
and  its  Affiliates  in  respect  of all  EMI  Employee  Plans  computed  using
reasonable  actuarial  assumptions  and determined as if all benefits under such
plans  were  vested  and  payable as of such  date,  and  disregarding  any such
liabilities  to the extent funded or for which  adequate  reserves or provisions
shall have been made, would not have an EMI Material Adverse Effect.

          (d) No  amounts  are or  might  be  payable  to or in  respect  of any
Employee  Plan by any of the EMI  Contributed  Entities  as a direct or indirect
result  of  the  termination  of  that  Employee  Plan,  or the  termination  of
participation


<PAGE>


                                                                              34

in the plan by any EMI  Contributed  Entity,  and no  amounts  would or might be
payable to any such plan by the Ventures or any of their  Affiliates as a result
of the Transactions  contemplated by this Agreement,  except for such amounts as
would not have an EMI Material Adverse Effect.

          (e)  Except  as  disclosed  on  Schedule  4.17,  (i) there has been no
amendment to, written  interpretation of or announcement (whether written or not
written)  by EMI or any of its  Affiliates  relating  to, or change in  employee
participation  or coverage  under,  any EMI Employee  Plan which would  increase
materially the expense of maintaining  such EMI Employee Plan above the level of
the expense incurred in respect thereof for the most recent fiscal year and (ii)
no  employee of the EMI Music  Business  will  become  entitled to any  payment,
benefit or right in respect of his employment or termination thereof or enhanced
such  payment,  benefit  or right as a result of the  Transactions  contemplated
hereby,  and no other  employee  of EMI will  become  entitled  to any  payment,
benefit or right affecting the business or assets of the EMI Music Business as a
result of the Transactions  contemplated hereby, in any case under clause (i) or
(ii)  involving  an amount or value  that  would  have an EMI  Material  Adverse
Effect.

          SECTION 4.18. Environmental Compliance. Except as disclosed on
Schedule 4.18 or except as to matters that would not reasonably be expected to
have an EMI Material Adverse Effect:

          (a)  no  written  notice  of  violation  or  liability,   request  for
     information,  order,  demand,  citation  or summons has been  received,  no
     complaint   has  been  filed,   no  penalty  has  been   assessed   and  no
     investigation,  action,  claim,  suit or  proceeding  is pending or, to the
     knowledge of EMI,  threatened  with respect to any matters  relating to the
     EMI Music Business, the EMI Contributed Assets or any of the EMI Controlled
     Entities, and arising out of any Environmental Law;

          (b) EMI and each of its Subsidiaries  and the EMI Controlled  Entities
     have all  Environmental  Permits  necessary  for the EMI Music  Business to
     comply with all applicable  Environmental Laws and EMI and its Subsidiaries
     are in compliance  with the terms of such  Environmental  Permits and, with
     respect  to the  operation  of the  EMI  Music  Business,  with  all  other
     applicable Environmental Laws;

          (c) there are no liabilities or obligations of, or in any way
     relating to, the EMI Music Business the EMI


<PAGE>


                                                                              35

     Contributed Assets or the EMI Contributed  Entities, as the case may be, of
     any kind whatsoever,  whether accrued,  contingent,  absolute,  determined,
     determinable or otherwise,  arising under or relating to any  Environmental
     Law, and there is no existing condition,  situation or set of circumstances
     which  could  reasonably  be expected  to result in any such  liability  or
     obligation; and

          (d) no Hazardous  Substance has been discharged,  disposed of, dumped,
     injected,  pumped, deposited,  spilled, leaked, emitted, or released at, on
     or  under  any  real  property  leased,  owned,  operated  on,  or  used in
     connection with and included in the EMI Music Business.

                                    ARTICLE V

                                Employee Matters

          SECTION 5.01.  Employee  Liabilities.  As of the Closing Date, (i) the
Ventures or one or more of their  Subsidiaries  will become the  employer of all
TWI employees employed  principally in connection with the Warner Music Business
and all employees of EMI and its Subsidiaries, except for those employees of EMI
and its Subsidiaries  designated in writing by EMI as being retained by EMI (the
"EMI Retained  Employees")  and, subject to the other provisions of this Article
V, will assume all  employee or  employment  related  liabilities  of the Warner
Music  Business  and  of EMI  and  its  Subsidiaries,  except  such  liabilities
pertaining  to the EMI Retained  Employees,  including  liabilities  relating to
former employees and retirees,  without regard to whether such liabilities arose
on,  before or after the Closing  Date.  The  Venture  will not assume any other
employee or  employment  related  liabilities  of TWI or EMI. From and after the
Closing  Date,  TWI shall have no  liability  or  obligation  of any kind to the
Ventures  in  respect  of any  present or former  employee  of the Warner  Music
Business.  From and after the  Closing  Date,  EMI shall  have no  liability  or
obligation  of any kind to the  Ventures  in  respect  of any  present or former
employee of the EMI Music  Business  who is not an EMI  Retained  Employee.  For
purposes of this Article V, a TWI employee who may formerly  have been  employed
in connection with the Warner Music Business and who, as of the Closing Date, is
employed by TWI or its  Subsidiaries  principally in connection  with a business
other than the Warner Music Business, shall not be considered a "former employee
of the Warner Music Business."


<PAGE>


                                                                              36

          SECTION 5.02.  Employee Plans. EMI and TWI will cooperate to determine
the  treatment  of the  existing  Warner and EMI  Employee  Plans and any assets
thereof,  consistent  with the  parties'  agreement in Section 5.01 and with all
applicable  laws and  regulations,  with the  goal of  establishing  appropriate
employee  benefit plans and  arrangements  for the  Ventures,  providing for the
proper  and  adequate  funding  thereof  and  minimizing  the  costs  associated
therewith.  Contractual  rights,  if any,  of TWI and EMI  employees  who become
employed by the Ventures or their  Subsidiaries by operation of law or otherwise
by virtue of the  arrangements  set out in this  Agreement,  as well as those of
former  employees  of the Warner and EMI Music  Businesses,  shall be  preserved
following the Closing  Date.  However,  except to such extent,  the Ventures and
their  Subsidiaries  shall  have no  obligation  to  maintain  or  continue  any
arrangement  applicable to any such  employee or former  employee or to continue
the employment of any such employee.

          SECTION  5.03.  Transfer  of the  Asset  Employees.  (a)  The  parties
acknowledge and agree that the  contribution  of the EMI Contributed  Assets and
the Warner  Contributed  Assets in the United Kingdom or any Member State of the
European  Community by EMI and TWI to UKCO is a "relevant  transfer"  within the
meaning of the Transfer of Undertakings  (Protection of Employment)  Regulations
1981, as amended from time to time and in respect of other jurisdictions  within
the  Member  States  of the  European  Community  the  regulations  and/or  laws
implementing the Acquired Rights Directive 77/187EEC as amended (the "Employment
Regulations").  TWI and EMI agree to  cooperate to satisfy the  information  and
consultation  requirements  of the  Employment  Regulations as they apply to the
Transactions.

          (b) UKCO shall indemnify on a net after-Tax basis EMI and TWI from and
against  any costs,  claims,  charges,  liabilities,  demands,  damages,  fines,
penalties,  compensation  awards or  expenses  ("Liabilities")  which arise from
employment of the employees  engaged in the Music Business in the United Kingdom
or any Member  State of the European  Community,  who are not employed by any of
the  Contributed  Entities  at the  Closing  Date  ("Asset  Employees"),  or are
attributable  to any breach or default by EMI or TWI or any of their  Affiliates
or UKCO or any of its Affiliates in relation to any of the Asset Employees. This
shall include,  but shall not be limited to, any Liabilities  arising out of the
termination or dismissal of any Asset  Employee,  any failure by UKCO to provide
terms and  conditions of  employment  and working  conditions  which are no less
favorable than those which apply to the Asset  Employees up to the Closing Date,
and any failure by EMI or TWI or


<PAGE>


                                                                              37

UKCO to comply with its obligations under the Employment Regulations.

          (c) If for any reason the  contracts of employment of any of the Asset
Employees are not  automatically  transferred to UKCO pursuant to the Employment
Regulations,  UKCO shall  immediately  offer to employ such persons on terms and
conditions no less favorable to the Asset Employees than the terms on which they
would have been employed had their  contracts of employment  been so transferred
and EMI or TWI, as applicable  shall then  terminate the contracts of employment
of the Asset Employees who accept such offer.

          SECTION 5.04.  TWI and EMI Equity  Awards.  (a) All holders of TWI and
EMI equity incentives who become employed by the Ventures and their Subsidiaries
in accordance  with Section 5.01 shall retain such awards,  and service with the
Ventures  shall be deemed  service  with TWI or EMI, as the case may be, for all
purposes under such awards,  in the case of such retention and service credit to
the extent  permitted by the terms of the plan or scheme  governing  such awards
and  applicable  law and  regulation.  Each of TWI and EMI shall be  entitled to
claim the benefit of the Tax deduction  otherwise available in respect of equity
incentives  issued to TWI and EMI employees,  respectively,  and the parties and
the Ventures shall cooperate to facilitate such result.

          (b)  The  Ventures  shall  not be  responsible  for  costs  of  equity
incentive awards made prior to the Closing Date.

          (c) After the Closing Date, equity incentives  granted to employees of
the Ventures and their  Subsidiaries  shall be based upon the performance of the
Ventures. The Ventures may choose to use the EMI share price as a measure of the
Ventures' performance.

          SECTION  5.05.  Transition.  TWI and EMI  agree  that,  to the  extent
permitted by applicable  law and  regulation,  they may each continue to provide
(i) coverage and  participation  for employees of the Warner Music  Business and
the  EMI  Music  Business  in the  respective  TWI  and  EMI  tax-qualified  and
nonqualified employee benefit arrangements in which such employees were eligible
to  participate  immediately  prior to the Closing Date,  (ii) certain  employee
benefit related  administrative and claims processing services and (iii) welfare
benefit insurance coverage to employees of the Ventures,  at the Ventures' cost,
all in accordance with the Interface Issues List, for a reasonable  period after
the Closing Date to effect an orderly


<PAGE>


                                                                              38

transition to the plans of the Ventures. Unless otherwise agreed by TWI and EMI,
such continuation shall not affect the allocation of liabilities and obligations
set forth in this Article V.

          SECTION 5.06. EMI Pension  Scheme.  (a) Subject to the position of the
EMI Group Pension Fund as exempt  approved or capable of exempt  approval  under
Chapter I of Part XIV of ICTA not being  prejudiced,  EMI and TWI shall each use
all reasonable  endeavors to procure that following Closing Date and for as long
as UKCO remains a joint venture between EMI and TWI (or such earlier date as may
be agreed in writing between EMI and TWI):

          (i) EMI remains the  principal  employer  for the  purposes of the EMI
     Group  Pension Fund without any change to its powers as they exist prior to
     the Closing; and

          (ii) each of the EMI  Contributed  Entities  participating  in the EMI
     Group  Pension  Fund  as at  Closing  Date  is  permitted  to  continue  to
     participate  in the EMI Group Pension Fund in respect of its employees from
     time to time on the same  terms as apply to it prior to the  Closing,  such
     participation  being  subject to such  condition  as the Trustee of the EMI
     Pension  Fund may  impose  as to (A)  increases  in the  number  of  member
     employees of the EMI Contributed Entities as compared to the number of such
     employees as at Closing,  and (B) increases in pay for pension purposes not
     to be excessive;

and EMI and TWI shall each use all  reasonable  endeavors to secure the approval
of the  Inland  Revenue  (and,  to the extent  necessary,  the  approval  of the
trustees of the EMI Group Pension Fund) to such continued participation.

          (b) If, not withstanding the endeavors of EMI and TWI described above,
the EMI Contributed Entities are not permitted to continue to participate in the
EMI Group Pension Fund on the terms described above,  EMI and TWI shall,  unless
otherwise  agreed in writing between them, use their  reasonable  endeavors (and
enter into all such  agreements  and take all such steps as may be necessary) to
procure that UKCO,  or such  Affiliate of UKCO as may be agreed  between EMI and
TWI in writing, is substituted for EMI as principal employer for the purposes of
the EMI Pension Scheme.

          (c) Subject to the position of the EMI Pension Scheme as exempt
approved or capable of exempt approval


<PAGE>


                                                                              39

under Chapter I of Part XIV of the ICTA not being  prejudiced  thereby,  EMI and
TWI  shall  use  all  reasonable   endeavors  to  procure  that  following  such
substitution each of the EMI Contributed Entities participating in the EMI Group
Pension Fund as of the Closing Date are permitted to continue to  participate in
the EMI Pension Scheme in respect of its employees from time to time on the same
terms as apply  prior  to  Closing,  and EMI and TWI  shall  use all  reasonable
endeavors to secure the approval of the Inland Revenue to such participation. If
so  requested  by EMI and subject to the  position of the EMI Pension  Scheme as
exempt  approved or capable of exempt  approval  under  Chapter I of Part XIV of
ICTA not  being  prejudiced  thereby,  EMI and TWI  shall  also  use  reasonable
endeavors to procure that EMI is permitted to continue to participate in the EMI
Group Pension Fund on the same terms as apply to other  participating  employers
in the scheme, in default of which a transfer payment shall be made from the EMI
Pension Fund to a new pension fund established by EMI in respect of EMI Retained
Employees,  such  transfer  to be on a  share  of fund  basis  on the  basis  of
actuarial assumptions agreed between the parties.

          (d)  Subject  to the  position  of the EMI  Pension  Scheme  as exempt
approved or capable of exempt  approval  under Chapter I of Part XIV of ICTA not
being  prejudiced  thereby,  EMI shall,  where  requested  by UKCO,  request the
Trustees to consider  whether UKCO or any  subsidiary of UKCO may be admitted to
participate  in the EMI Group Pension Fund in respect of its employees from time
to time on the same  terms as apply  to  other  participating  employees  in the
scheme or such other  terms as may be agreed and subject to such  conditions  as
may be imposed by the Trustees.

          SECTION  5.07.  No Third Party  Beneficiaries.  No  provision  of this
Article  V shall  create  any third  party  beneficiary  or other  rights in any
employee or former employee  (including any beneficiary or dependent thereof) of
TWI or EMI or of any of their  Subsidiaries  in respect of continued  employment
(or  resumed  employment)  with  either  Venture  or  any  of  their  respective
Affiliates  and no  provision  of this Article V shall create any such rights in
any such  Persons in respect of any benefits  that may be provided,  directly or
indirectly,  under any  Employee  Plan or any plan or  arrangement  which may be
established by the Ventures or any of their respective Affiliates.  No provision
of this Agreement  shall  constitute a limitation on rights to amend,  modify or
terminate  after the Closing Date any such plans or arrangements of the Ventures
or any of their respective Affiliates.


<PAGE>


                                                                              40

                                   ARTICLE VI

                                    Covenants

          SECTION 6.01.  Access to Information;  Confidentiality.  From the date
hereof  until  the  Closing  Date  and  subject  to   applicable   law  and  the
Confidentiality  Agreement  between the parties  dated as of September  28, 1999
(the "Confidentiality  Agreement"), each of TWI and EMI will, and will cause its
respective Subsidiaries to, (i) give to the other party, its counsel,  financial
advisors, auditors and other authorized representatives reasonable access to the
offices, properties, books and records of such party and its Subsidiaries to the
extent  relevant  to the  Transactions,  (ii)  furnish to the other  party,  its
counsel, financial advisors,  auditors and other authorized representatives such
financial and operating data and other information  relating to the Warner Music
Business  or the  EMI  Music  Business,  as  applicable,  as  such  Persons  may
reasonably  request  and  (iii)  instruct  its  employees,   counsel,  financial
advisors,  auditors and other authorized  representatives  to cooperate with the
other party in its  investigation  of the Warner Music Business or the EMI Music
Business, as applicable;  provided,  however,  that any competitively  sensitive
information  that is  disclosed  by either  party  pursuant to this Section 6.01
shall be  limited  to the other  party's  counsel  and  advisors  pursuant  to a
separate,  customary  confidentiality  agreement.  Any investigation pursuant to
this  Section  6.01  shall  be  conducted  in such  manner  as not to  interfere
unreasonably  with the conduct of the  business of the other  party.  Subject to
Section  6.10 and unless  otherwise  required  by law,  each of TWI and EMI will
hold,  and will cause its respective  officers,  employees,  counsel,  financial
advisors,  auditors and other authorized  representatives to hold, any nonpublic
information  obtained in any such investigation in confidence in accordance with
the  Confidentiality  Agreement.  No  investigation  by  either  party  or other
information  received  by either  party shall  operate as a waiver or  otherwise
affect any covenant or agreement given or made by any party hereunder.

          SECTION 6.02. Efforts (a) Except as described in Section 6.02(e), each
party will endeavor to take, or cause to be taken, all appropriate  actions, and
to do, or cause to be done,  and to assist and cooperate with the other party in
doing,  all  things  necessary,  proper  or  advisable  to  consummate  and make
effective,  in  the  most  expeditious  manner  practicable,  the  Transactions,
including (i) using best efforts to (A) obtain all necessary  actions,  waivers,
consents  and  approvals  from  Specified  Governmental  Entities  and  make all
necessary registrations and filings (including


<PAGE>


                                                                              41

filings with Specified  Governmental  Entity),  (B) obtain an approval or waiver
from,  or to avoid an  action  or  proceeding  by,  any  Specified  Governmental
Entities  and (C) comply with any requests for  information  from any  Specified
Governmental  Entity,  and (ii)  using  reasonable  efforts  to (A)  obtain  all
necessary actions, waivers, consents and approvals from Governmental Authorities
(other  than  a   Specified   Governmental   Entity)  and  make  all   necessary
registrations and filings (including filings with such Governmental Authorities)
and take all  reasonable  steps as may be  necessary  to obtain an  approval  or
waiver from, or to avoid an action or proceeding by, any Governmental  Authority
(other than a Specified  Governmental  Entity), (B) comply with any requests for
information from a Governmental  Authority (other than a Specified  Governmental
Entity),  (C) obtain from third  parties all  necessary  consents,  approvals or
waivers and (D) execute and deliver  any  additional  instruments  necessary  to
consummate  the  Transactions  and to carry out fully the  Transactions  and the
purposes of this Agreement and the other Documents.

          (b) Subject to Section  6.02(e),  in furtherance and not in limitation
of the foregoing,  each of TWI and EMI will make an appropriate filing of a Form
CO with the  European  Union with  respect to the  Transactions  as  promptly as
practicable after the date hereof and will supply as promptly as practicable any
additional  information and documentary  material that may be requested pursuant
to the applicable statute and will take all other actions necessary to cause the
expiration  or  termination  of  the  applicable  waiting  periods  as  soon  as
practicable.

          (c) In connection  with the efforts  referred to in Section 6.02(a) to
obtain all requisite approvals and authorizations for the Transactions,  each of
TWI and EMI will use its  reasonable  efforts to (i)  cooperate  in all respects
with each other in connection  with any filing or  submission  and in connection
with any investigation or other inquiry,  including any proceeding  initiated by
any Person,  (ii) keep the other party informed in all material  respects of any
material  communication  received by such party from,  or given by such party to
any Governmental  Authority and of any material  communication received or given
in connection  with any  proceeding by any Persons,  in each case  regarding any
Transaction   and  (iii)   permit  the  other  party  to  review  any   material
communication  given by it to,  and  consult  with each  other in advance of any
meeting or conference with any Governmental Authority or, in connection with any
proceeding  by any  Person.  Subject to the  Confidentiality  Agreement  and any
attorney-client  work  product  or  other  privilege,  each of TWI and EMI  will
coordinate and cooperate fully with the


<PAGE>


                                                                              42

other party in exchanging such information and providing such assistance as such
other  party may  reasonably  request  in  connection  with the  foregoing.  Any
competitively  sensitive  information that is disclosed pursuant to this Section
6.02(c)  will be  limited  to each of TWI's and  EMI's  respective  counsel  and
advisors pursuant to a separate, customary confidentiality agreement.

          (d) Subject to Section 6.02(e),  if any objections are asserted by any
Specified Governmental Entity with respect to the Transactions,  each of TWI and
EMI will use its best efforts to resolve such objections as such Person may have
to the Transactions so as to permit consummation of the Transactions.

          (e) Notwithstanding the foregoing,  neither party shall be required to
(i) initiate or defend any lawsuit based on antitrust or foreign investment laws
or (ii)  consent to any action or accept any  condition,  consent,  approval  or
order (whether relating to such party, either Venture, the Contributed Assets of
such party or any other assets of such party) that either (A) relates  primarily
to the assets or businesses of such party that are not being  contributed to the
Ventures  and would  adversely  affect  such assets or  businesses  and would be
commercially  unreasonable to accept or (B) would have an adverse effect on such
party or either Venture that is significant relative to the benefits expected to
be  derived  by such  party from the  formation  of the  Ventures  and the other
Transactions.

          SECTION 6.03. Notices of Certain Events. Each of TWI and EMI will
promptly notify the other of:

          (a) any notice or other communication from any Person whose consent
     is or may be required in connection with the Transactions;

          (b) any notice or other communication from any governmental or
     regulatory agency or authority in connection with the Transactions; and

          (c)  any  actions,   suits,  claims,   investigations  or  proceedings
     commenced  or,  to  its  knowledge,  threatened  against,  relating  to  or
     involving or otherwise affecting TWI or EMI or the Warner Music Business or
     the EMI Music  Business  that,  if pending  on the date of this  Agreement,
     would have been required to have been  disclosed  pursuant to Section 3.10,
     3.11,  3.15, 3.16, 3.17, 3.18, 4.10, 4.11, 4.15, 4.16, 4.17 or 4.18, as the
     case may be, or that relate to the consummation of the Transactions.


<PAGE>


                                                                              43

          SECTION 6.04. EMI Shareholder  Meeting.  As soon as practicable  after
the delivery of the audit opinion  referred to in Section 6.09, EMI will convene
a meeting  (including any  adjournment  thereof) of its  shareholders  (the "EMI
Shareholder  Meeting") for the purpose of seeking the EMI  Approval.  As soon as
practicable,  EMI will commence preparation of the EMI Shareholder Documentation
to convene such meeting and obtain such approval. TWI will cooperate with EMI in
the  preparation  of  such   documentation,   which,   solely  with  respect  to
descriptions  contained  therein of TWI and the Warner Music  Business,  will be
subject  to  TWI's   reasonable   approval,   which  must  be  provided  without
unreasonable  delay.  EMI will consult  reasonably  with TWI and its advisors in
relation to the remaining contents of the EMI Shareholder Documentation.

          SECTION 6.05. Publicity and Confidential Information.  (a) TWI and EMI
will  consult  with each other  before  issuing any press  release or making any
public  statement or filing with respect to this  Agreement or the  Transactions
and, except as may be required by applicable law or any listing  agreement with,
or the listing rules of, any securities exchange or other applicable  regulatory
body, will not issue any such press release or make any such public statement or
filing prior to such consultation.

          (b) Prior to the Closing Date, except as otherwise  required by law or
regulation  (including  the U.K.  Code on Takeovers  and Mergers (the  "Takeover
Code") or the  fiduciary  duties of the EMI Board),  neither  party may disclose
material  nonpublic  information  about its  businesses to be contributed to the
Ventures  to any third  party  except in the  ordinary  course  of  business  as
permitted by Section 6.08, it being  understood that AOL is not considered to be
a third party for the purposes of this Section  6.05(b) so long as disclosure by
AOL of any such  information  so disclosed to AOL by TWI is  prohibited  under a
Confidentiality Agreement dated December 10, 1999, between TWI and AOL.

          SECTION 6.06.  Exclusivity.  (a) Prior to the Closing  Date,  EMI will
not, nor will it permit any of its officers,  directors,  employees, advisors or
representatives to (i) solicit,  initiate or knowingly  encourage the submission
of or (ii) take any other action to knowingly  encourage,  any  inquiries or the
making of any proposal  regarding the acquisition by a third party of any equity
securities of EMI (other than options issued in the ordinary course of business)
or greater than 30% of the  consolidated  total assets of EMI (excluding any EMI
Excluded Assets); provided, however, that neither this Section 6.06(a) nor any


<PAGE>


                                                                              44

other provision of this Agreement (other than the third sentence of Section 6.01
and Section  6.05(a)) shall prohibit EMI from (i) responding to any  unsolicited
requests,  inquiries  or  proposals  that it may receive  from any third  party,
providing confidential information to such third parties, negotiating,  entering
into or performing definitive agreements with such third parties or recommending
a transaction with such third party to its  shareholders,  (ii) carrying out its
obligations  under  applicable law or rules,  the Takeover Code and the rules of
any applicable securities exchange or (iii) ordinary course discussions with the
investment  community.  EMI will  notify TWI  immediately  upon the receipt of a
Competing EMI Proposal (including the material terms thereof and the identity of
the Person making such Competing EMI Proposal), upon any determination by EMI to
engage in  discussions  with such Person and of any change to the material terms
of such  Competing  EMI  Proposal  and will keep TWI  generally  informed of the
status  of such  Competing  EMI  Proposal;  provided,  however,  that  any  such
notification by EMI will be kept in strict confidence by TWI.

          (b) Prior to the Closing Date, TWI will not, nor will it permit any of
its officers, directors,  employees, advisors or representatives to (i) solicit,
initiate or knowingly  encourage the submission of or (ii) take any other action
to knowingly  encourage,  any inquiries or the making of any proposal  regarding
the acquisition by a third party of greater than 30% of the  consolidated  total
assets of the Warner  Music  Business;  provided,  however,  that  neither  this
Section 6.06(b) nor any other provision of this Agreement  (other than the third
sentence  of Section  6.01 and  Section  6.05(a))  shall  prohibit  TWI from (i)
responding  to any  unsolicited  requests,  inquiries or  proposals  that it may
receive from any third party, (ii) carrying out its obligations under applicable
law or  rules,  and the rules of any  applicable  securities  exchange  or (iii)
ordinary course discussions with the investment  community.  TWI will notify EMI
immediately  upon the  receipt of a Competing  Warner  Proposal  (including  the
material  terms  thereof and the  identity of the Person  making such  Competing
Warner  Proposal),  upon any  determination by TWI to engage in discussions with
such  Person and of any change to the  initial  terms of such  Competing  Warner
Proposal;  provided, however, that any such notification by TWI shall be kept in
strict  confidence by EMI. For the avoidance of doubt, it is understood that the
provisions  contained in this Section  6.06(b) are not intended to and would not
cover any merger or business combination involving all of TWI.


<PAGE>


                                                                              45

          SECTION 6.07.  EMI Listing.  Until the Closing Date,  EMI will use its
best efforts to maintain its listing on the London Stock Exchange subject to the
fiduciary duties of the EMI Board.

          SECTION 6.08. Conduct of Business.  (a) Prior to the Closing,  each of
TWI and EMI will,  and will cause its  Subsidiaries  to, (i)  conduct  its Music
Business in the ordinary  course  consistent  with past practice  (including the
continuation  of services at their present rates,  as described on the Interface
Issues List (the "Interface  Issues List") attached hereto as Exhibit  6.08(a)),
(ii) to use its best efforts to preserve intact its business  organizations  and
relationships  with third  parties  and to keep  available  the  services of its
present  employees  of its  Music  Business  and  (iii) not (A) take or agree or
commit to take any action  that would make any  representation  and  warranty of
such party  hereunder  inaccurate in any material  respect at, or as of any time
prior to, the  Closing or (B) omit to take any action  necessary  to prevent any
such representation or warranty from being inaccurate in any material respect at
any such time.

          (b) In  addition,  prior to the  Closing  EMI (i) will comply with the
provisions of Paragraph 12(b) of Exhibit 2.01 as if the Closing Date had already
occurred (except with respect to activities within the EMI Music Business), (ii)
will not issue any  equity  securities  of EMI or  securities  convertible  into
equity  securities  of EMI (except  with respect to (A) the exercise of employee
stock options  outstanding  on the date hereof in accordance  with their current
terms and (B) employee stock options  issued in the ordinary  course of business
that are not  exercisable  prior to the Closing Date),  (iii) will not incur any
indebtedness  unless  such  indebtedness  is either  (x)  repayable  at any time
without  penalty  (other  than  LIBOR  breakage)  or (y) in an amount  less than
(pound)50 million, or (iv) will not enter into agreements that can be terminated
by the party contracting with EMI upon (A) the event that a particular  employee
of EMI should  cease to be an employee of EMI or (B) a change of control of EMI.
For the avoidance of doubt, the parties acknowledge that the Spectrum 3G license
is not in the ordinary course of the business of EMI.

          SECTION  6.09.  Warner  Audit  Opinion.  TWI will  use its  reasonable
efforts to cause to be delivered  to EMI as soon as  reasonably  practicable  an
unqualified  audit  opinion  addressed to EMI and Warburg  Dillon Read in a form
customary  for  inclusion  in UK  listing  particulars  from  Ernst & Young with
respect to the audited  consolidated balance sheets of the Warner Music Business
as of December 31, 1997, 1998 and


<PAGE>


                                                                              46

1999 and the related audited consolidated statements of income and cash flow for
the Warner Music  Business  for each of the three years ended  December 31, 1999
prepared  under  U.K.  GAAP  together  with the  consent  of  Ernst & Young  (in
customary  form)  to the  inclusion  of  such  opinion  in the  EMI  Shareholder
Documentation.

          SECTION 6.10.  Covenants Relating to Listing. (a) TWI will provide EMI
with, and use its  reasonable  efforts to procure that Ernst & Young provide EMI
with, (i) all such assistance and  information as EMI may reasonably  require to
prepare  any  circular  to   shareholders   and/or   listing   particulars   (or
supplementary  circular  and/or  listing  particulars)  that EMI is  required to
publish in connection with the transactions to which this Agreement relates (the
"EMI  Shareholder  Documentation")  and to achieve the LSE's approval thereof at
the earliest  practicable  time, and (ii) such cooperation in complying with the
requirements  of  the  LSE in  connection  with  such  transactions  as EMI  may
reasonably require. TWI will also notify EMI of any new development or matter of
which it is aware in respect of the Warner Music Group that could  reasonably be
expected to require the publication of supplementary listing particulars.

          (b) Each of TWI and EMI will co-operate as may be required and use all
reasonable  efforts to ensure that the sponsor  appointed by EMI is able to give
to the LSE the  confirmations  required by paragraph 2.11 ("Financial  Reporting
Procedures"),   paragraph  2.14  ("Working   Capital")  and  paragraph   2.15(A)
("Financial  Information")  of the  Listing  Rules of the LSE in  respect of the
Ventures,  in respect of paragraph 2.14 by the appropriate raising of finance by
the Ventures.

          (c) The Ventures will provide EMI with such reasonable co-operation as
may be necessary to assist EMI in complying with the Listing Rules of the LSE in
so far as they are applied  through EMI to the Ventures  and EMI's  interests in
the Ventures.

          (d) TWI will use its  reasonable  efforts to ensure that any directors
or senior  officers (or proposed  directors or senior  officers) of UKCO or USCO
appointed  by it  will  comply  with  any  requirements  of the  LSE  (including
accepting  responsibility  with others for the  information  about the  Ventures
included in the EMI Shareholder  Documentation  and ongoing  compliance with the
Listing Rules of the LSE, to the extent that the LSE)  determines  that they are
applicable to any of such persons.


<PAGE>


                                                                              47

          (e) TWI and EMI will each  indemnify the directors and officers  (and,
as appropriate,  proposed  directors and officers) of UKCO and USCO appointed or
to be  appointed by the other of them and, in the case of TWI,  EMI's  directors
who are  required by the LSE to accept  responsibility  for the EMI  Shareholder
Documentation in respect of any costs, liabilities and claims they may suffer or
incur as a result of the information relating to, in the case of TWI, the Warner
Music  Group and in the case of EMI,  to the EMI  Music  Group  being  untrue or
inaccurate or omitting to state any material fact required to be stated  therein
or necessary to make the statements therein not misleading in the circumstances.

          SECTION 6.11. Shareholder  Obligations in Respect of Ventures. Each of
TWI and EMI will as soon as reasonably  practicable in any relevant circumstance
exercise its rights in relation to the Ventures to ensure, insofar as it is able
to by the  exercise  of  such  rights,  that  the  Ventures  comply  with  their
obligations under the Venture Agreements.

          SECTION 6.12.  Records.  Each party  recognizes  that certain  records
concerning the Contributed  Assets may contain incidental  information  relating
primarily  to  Excluded  Assets and that either  party may retain  copies of the
relevant portions thereof.

          SECTION 6.13. Acknowledgment. Each party acknowledges that:

          (a) it is desirable to TWI (or its parent corporation, if any) to
     consolidate the Ventures in its consolidated accounts;

          (b) EITF 96-16 provides that one factor in assessing the applicability
     of  consolidation  of a joint  venture in the  accounts of its  controlling
     entity is that rights of the  minority in the joint  venture do not prevent
     the entity  seeking to  consolidate  from  controlling  the  acquisition or
     divestiture  of assets by the joint venture  which  represent 20 percent or
     less of the fair  value of the  total  assets of the  venture  (the "20% of
     Assets  Test"),   and  that  in  theory  the   application  of  the  Market
     Capitalization  Class 1 Test could be  inconsistent  with the 20% of Assets
     Test such that a transaction falls above the test set out in sub- paragraph
     (d) of  paragraph  10.5 (the "Market  Capitalization  Class 1 Test") of the
     Listing Rules of the LSE but below the 20% of Assets Test rules; and


<PAGE>


                                                                              48

          (c) the  parties  have  considered  carefully  with  their  respective
     financial  and   accounting   advisors  and  reviewed  the   likelihood  of
     circumstances  arising where the Market  Capitalization  Class 1 Test might
     apply to a transaction  proposed by the Ventures and such  transaction also
     fell below the 20% of Assets Test, and the parties have concluded, based on
     such  consideration  and review,  that it is extremely remote that any such
     circumstance  will  arise in  practice  and  neither  party  believes  such
     circumstance will arise in respect of the Ventures.

          SECTION 6.14. Good Faith  Adjustments to Structure.  EMI  acknowledges
that in the event (which TWI confirms it considers to be unlikely)  that because
of the possible application of the Market Capitalization Class 1 Test and of the
20% of Assets Test the structure for the Ventures provided for in this Agreement
precludes consolidation,  EMI will cooperate in good faith with TWI to negotiate
such changes to the terms and structures of the Ventures  provided herein as may
be  reasonably  necessary  to resolve the  foregoing  in order to achieve  TWI's
objective of  consolidation  whilst at the same time preserving  EMI's value and
governance  rights  envisaged by this Agreement,  its continued  listing and its
other material rights including under this Agreement. In this regard EMI and TWI
agree that, if compatible with these objectives, which (subject to LSE approval)
they expect them to be, they would if necessary  prior to the date of posting of
the EMI Shareholder Documentation implement changes (subject to LSE approval) to
achieve either of the two alternative structures considered between them in this
regard (giving first consideration to EMI's preferred structure).

                                   ARTICLE VII

                                   Termination

          SECTION 7.01. Termination. This Agreement will terminate upon the
occurrence of any of the following events:

          (a) upon notice by either party if the other party has breached in any
     material  respect any of its material  obligations  set forth in Article VI
     (other than  Section  6.06) and the party in breach has failed to cure such
     breach  within  30 days  after  receiving  notice of such  breach  from the
     non-breaching party;


<PAGE>


                                                                              49

          (b) upon notice by either party if the other party breaches in any
     material respect Section 6.06(a) or 6.06(b), as applicable;

          (c)  by  TWI  if  the  board  of  directors  of  EMI   withdraws   its
     recommendation of the Transactions, fails to include in the EMI Shareholder
     Documentation its unconditional  recommendation of the Transactions,  fails
     to publicly reaffirm its recommendations of the Transactions within 45 days
     of  being  requested  by TWI to do so  (which  request  may  only  be  made
     following  the making and during the  pendency of a Competing  EMI Proposal
     and  while  no other  such  request  has been  made  without  response)  or
     recommends that the EMI shareholders  accept a publicly announced Competing
     EMI Proposal;

          (d) by either party if the EMI Approval is not obtained at the EMI
     Shareholder Meeting or any adjournment thereof;

          (e) upon notice by either party if the other party undergoes a
     Change of Control; or

          (f) upon notice by either party if the Transactions have not closed by
     January 31, 2001.

          SECTION  7.02.  Fees and  Expenses.  (a)  Except as  provided  in this
Section 7.02,  all fees and expenses  incurred in connection  with the Documents
and the  Transactions  contemplated by this Agreement shall be paid by the party
incurring  such fees or expenses,  whether or not the  Documents are executed or
the Transactions are consummated.

          (b) Notwithstanding the foregoing, EMI shall pay to TWI (pound)55
million:

          (i) immediately  upon  termination of this Agreement if this Agreement
     is terminated by TWI pursuant to Section 7.01(b), 7.01(c) or 7.01(e); or

          (ii) if (A) this Agreement is terminated  pursuant to Section  7.01(d)
     and at the time of the EMI Shareholder  Meeting a Competing EMI Proposal is
     pending and (B) after January 23, 2000 and prior to one year following such
     termination  either  (x) EMI signs a  definitive  agreement  relating  to a
     Competing EMI Proposal, or (y) a Competing EMI Proposal is consummated.


<PAGE>


                                                                              50

          (c)  Notwithstanding  the  foregoing,  TWI shall pay to EMI  (pound)55
million if this  Agreement is terminated  by EMI pursuant to Section  7.01(b) or
7.01(e).

          SECTION  7.03.  Effect  of  Termination.   Upon  termination  of  this
Agreement,  all  provisions  of,  and all  rights and  obligations  under,  this
Agreement  shall  terminate,  except  that  Section  7.02 and Article IX of this
Agreement and the  Confidentiality  Agreement  shall continue and that any party
will retain any cause of action for,  and a  breaching  party shall  indemnify a
non-breaching  party for,  damages  arising  out of any breach of  covenant or a
wilful and material  breach of  representation  or warranty of this Agreement by
the other  party  (provided  that where TWI has  received  the  termination  fee
referred to in Section  7.02(b) or where EMI has  received the  termination  fee
referred to in Section 7.02(c) no further remedy will be available for breach of
any representation, warranty or covenant by either party).

                                  ARTICLE VIII

                                   Indemnities

          SECTION 8.01  Indemnification.  (a)  Following  the Closing,  TWI will
indemnify each of USCO and UKCO and their respective  Subsidiaries  (but not EMI
and the EMI Retained  Entities) against and agrees to hold each of them harmless
from any and all  damage,  loss,  liability  and expense  (including  reasonable
expenses  of  investigation  and  reasonable  attorneys'  fees and  expenses  in
connection  with any action,  suit or proceeding)  ("Damages")  (other than with
respect  to  Taxes)  incurred  or  suffered  by each of USCO and UKCO and  their
respective Subsidiaries arising out of:

          (i) any Warner Excluded Liability; or

          (ii) any breach of covenant or  agreement  made or to be  performed by
     TWI pursuant to this Agreement.

          (b) Following the Closing,  EMI will  indemnify  each of USCO and UKCO
     and  their  respective  Subsidiaries  (but  not TWI  and  the TWI  Retained
     Entities) against and agrees to hold each of them harmless from any and all
     Damages (other than with respect to Taxes)  incurred or suffered by each of
     USCO and UKCO and their respective Subsidiaries arising out of:

          (i) any EMI Excluded Liability; or


<PAGE>


                                                                              51

          (ii) any breach of covenant or  agreement  made or to be  performed by
     EMI pursuant to this Agreement.

          (c) The representations and warranties of the parties hereto contained
in this  Agreement or in any  certificate  or other writing  delivered  pursuant
hereto or in connection herewith shall not survive the Closing Date.

          (d)  Payments  made to the Ventures or their  Subsidiaries  under this
Article VIII shall be made on a net after-Tax  basis.  The parties will endeavor
to structure such payments as nontaxable contributions whenever possible.

          (e) To the extent TWI or EMI,  as the case may be,  makes a payment to
the  Ventures  under this  Article  VIII that gives rise to a  deduction  to the
Venture for U.S. Tax purposes,  such deduction  shall be specially  allocated to
TWI or EMI, as the case may be.

          SECTION 8.02 Tax Indemnification.  Following the Closing,  each of TWI
and EMI,  as the case may be,  will  indemnify  each of the  Ventures  and their
Subsidiaries against and holds the Ventures and their Subsidiaries harmless on a
net  after-Tax  basis  from  (a) the  Excluded  Tax  Liabilities  of TWI or EMI,
respectively,  and (b) any Damages arising out of or incident to the imposition,
assessment or assertion thereof.

                                   ARTICLE IX

                                  Other Matters

          SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission) and shall be given,

                                if to TWI, to:

                                Time Warner Inc.
                              75 Rockefeller Plaza
                               New York, NY 10019
                               Fax: (212) 265-2646
                              Attn: General Counsel


<PAGE>


                                                                              52

                                with copies to:

                             Cravath, Swaine & Moore
                                 825 8th Avenue
                               New York, New York
                               Fax: (212) 474-3700
                            Attn: Richard Hall, Esq.

                                  Herbert Smith
                                 Exchange Place
                                 Primrose Street
                                London, EC2A 2HS
                                 United Kingdom
                             Fax: 44 171 374 0888
                            Attn: James Palmer, Esq.

                                if to EMI, to:

                                  EMI Group plc
                               4 Tenterden Street
                                 Hanover Square
                                 London W1A 2AY
                                 United Kingdom
                             Fax: 44 171 495 1421
                             Attn: Company Secretary

                                with copies to:

                             Davis Polk and Wardwell
                              450 Lexington Avenue
                               New York, NY 10017
                               Fax: (212) 450-5500
                            Attn: Phillip Mills, Esq.

                                   Freshfields
                                 65 Fleet Street
                                 London EC4Y 1HS
                                 United Kingdom
                             Fax: 44 171 832 7001
                           Attn: Mark Rawlinson, Esq.

or such other address or facsimile  number as such party may  hereafter  specify
for the  purpose  by notice  to the  other  parties  hereto.  All such  notices,
requests  and  other  communications  shall be  deemed  received  on the date of
receipt by the  recipient  thereof if  received  prior to 5 p.m. in the place of
receipt and such day is a business day, in


<PAGE>


                                                                              53

the place of receipt. Otherwise, any such notice, request or communication shall
be deemed not to have been received  until the next  succeeding  business day in
the place of receipt.

          SECTION  9.02.  Amendments;  No  Waivers.  (a) Any  provision  of this
Agreement may be amended or waived if, but only if, such  amendment or waiver is
in writing  and is signed,  in the case of an  amendment,  by each party to this
Agreement or, in the case of a waiver,  by each party against whom the waiver is
to be effective.

          (b) No failure or delay by any party in exercising any right, power or
privilege  hereunder  shall operate as a waiver  thereof nor shall any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein
provided  shall be  cumulative  and not  exclusive  of any  rights  or  remedies
provided by law.

          SECTION 9.03.  Governing Law. This Agreement shall be governed by, and
construed in accordance  with, the laws of the State of New York,  regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof;  provided,  however, that the laws of the respective jurisdictions
of incorporation of each of the parties hereto shall govern the relative rights,
obligations,  powers,  duties and other  internal  affairs of such party and its
board of directors.

          SECTION  9.04.  Enforcement.  (a) Each party  hereby  consents  to the
exclusive  jurisdiction  of (i) the United States  Federal courts located in the
State of New York with  respect to  disputes  arising out of this  Agreement  in
actions  brought  against TWI and (ii) the High Court of England with respect to
disputes arising out of this Agreement in actions brought against EMI.

          (b) Other than as specifically provided in Section 6.10(e),  there are
not any intended third-party beneficiaries of any provision of this Agreement.

          SECTION  9.05.  Severability.   If  any  term,  provision,   covenant,
restriction or other condition of this Agreement is held by a court of competent
jurisdiction  or other  authority  to be invalid,  illegal or incapable of being
enforced  by any rule or law, or public  policy,  all other  terms,  provisions,
covenants,  restrictions  and  conditions of this Agreement  shall  nevertheless
remain in full force and effect so long as the  economic or legal  substance  of
the


<PAGE>


                                                                              54

transactions  contemplated  hereby  is not  affected  in any  manner  materially
adverse to either party. Upon such a determination,  the parties shall negotiate
in good faith to modify this  Agreement so as to effect the  original  intent of
the  parties as  closely as  possible  in an  acceptable  manner to the end that
transactions contemplated hereby are consummated to the extent possible.

          SECTION 9.06.  Counterparts.  This Agreement may be executed in one or
more  counterparts,  all of which shall be considered one and the same agreement
and shall become  effective  when one or more  counterparts  have been signed by
each of the parties and delivered to the other parties.

          SECTION  9.07.  Assignment.  Neither  this  Agreement  nor  any of the
rights,  interests or  obligations  under this Agreement  shall be assigned,  in
whole or in part,  by operation of law or otherwise by either party  without the
prior written consent of the other party. Any purported  assignment without such
consent shall be void. Subject to the preceding  sentences,  this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.

          SECTION 9.08.  WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY  WAIVES  ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL  PROCEEDING
ARISING OUT OF OR RELATED TO THIS  AGREEMENT  OR THE  TRANSACTIONS  CONTEMPLATED
HEREBY.

          SECTION 9.09. Entire Agreement. This Agreement and the Confidentiality
Agreement  constitutes the entire agreement  between the parties with respect to
the subject matter of this  Agreement and  supersedes  all prior  agreements and
understandings,  both oral and written,  between the parties with respect to the
subject matter of this Agreement.

          SECTION 9.10. Captions. The captions herein are included for
convenience of reference only and shall be ignored as in the construction or
interpretation hereof.

          SECTION  9.11.  Specific  Performance.  The parties  hereto agree that
irreparable  damage  would occur if any  provision  of this  Agreement  were not
performed  in  accordance  with the terms  hereof and that the parties  shall be
entitled to an injunction or injunctions  to prevent  breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof.


<PAGE>


                                                                              55

          IN WITNESS WHEREOF, TWI and EMI have duly executed this Agreement, all
as of the date first written above.

                                        TIME WARNER INC.,

                                         by
                                            /s/ Spencer B. Hays
                                            --------------------------
                                            Name:  Spencer B. Hays
                                            Title: Vice President and
                                                   Deputy General
                                                   Counsel

                                        EMI GROUP PLC,
                                         by
                                            /s/ Charles P. Ashcroft
                                            --------------------------
                                            Name:  Charles P. Ashcroft
                                            Title: Company Secretary
                                                   and Group General
                                                   Counsel


<PAGE>


                                                               EXHIBIT 2.01(c)


                        Terms of Joint Venture Agreements

          1. Headquarters and Scope. USCO will be headquartered in New York
and UKCO will be headquartered in London. The Ventures will operate in the
Music Business.

          2. Board of  Directors.  (a) Each Venture  Board will be identical and
will  consist of 11  persons.  TWI will have the right to appoint six members of
each  Venture  Board.  EMI will have the right to appoint  five  members of each
Venture  Board,  one of whom shall be the  Chairman of the board of directors of
EMI (the "EMI Board").

          (b) Neither party may, without the approval of the other,  appoint any
person to serve on a Venture  Board who has, or who  represents or is affiliated
with any person who has, any significant current financial interest in the Music
Business other than TWI, EMI and the Ventures; provided, however, that no person
shall be deemed to have a significant current financial interest in any business
if (i) such person  derives 10% or less of its total  revenue from such business
or (ii) such person's  interest in such business is solely a passive  investment
in less than 1% of the outstanding capital stock of a publicly traded company.

          3. Decisions of a Venture Board. (a) Except as described in this
Paragraph 3, all decisions of a Venture Board will be determined by majority
vote of a Venture Board.

          (b) Any  action by a Venture  with  respect to the  following  matters
("Category  1  Matters")  will  require  the  approval  of the EMI Board and the
shareholders of EMI (by ordinary resolution):

          (i) a declaration by the Venture of voluntary bankruptcy or
     liquidation;

          (ii) any transaction between the Venture and TWI or any other relevant
     related party that,  were the combined  Ventures  subject to the rules (the
     "LSE  Rules")  of  the  LSE,  would  have  required  the  approval  of  the
     independent  shareholders  of the Ventures  under the  "related  party" LSE
     Rules,  as in  effect  and as  applied  from  time to  time,  including  in
     accordance with LSE Guidance Note No. 03-2000 whilst it remains applicable,
     other  than any  issuance  by the  Venture of equity  securities  to TWI in
     accordance with Paragraph 3(c)(ii);


<PAGE>


                                                                               2

          (iii) the Venture engaging in any material business outside the
     Music Business;

          (iv) any  incurrence  of Financial  Indebtedness  by the Ventures such
     that the ratio of Net Financial  Indebtedness to earnings before  interest,
     taxes, depreciation,  amortization and extraordinary and exceptional items,
     and  excluding  Columbia  House  ("EBITDA"),  of the  Ventures  as a whole,
     determined in accordance with U.K. GAAP, would exceed 6.0 to 1.0; and

          (v) any  acquisition  or  disposition  of assets or  businesses by the
     Venture or merger or joint  venture  involving the Venture or entering into
     indemnities outside the ordinary course of business that, were the combined
     Ventures subject to the LSE Rules,  would have required the approval of the
     independent  shareholders of the Ventures under the Class I Requirements of
     the LSE Rules, as in effect and applied by the LSE to the Venture as of the
     date hereof,

          (c) Any  action by a Venture  with  respect to the  following  matters
     ("Category 2 Matters") will require the approval of the EMI Board:

          (i) any deviation by the Venture from the dividend policy described
     in Paragraph 9; and

          (ii) any  issuance  by the  Venture  of equity  interests  other  than
     pursuant to a pro rata rights  offering for cash of  convertible  preferred
     equity interests or convertible debt securities, that is made (A) only when
     the ratio of EBITDA to net  interest  expense  of the  Ventures  as a whole
     (measured on a trailing four fiscal  quarter basis in accordance  with U.K.
     GAAP) as of the end of three  consecutive  fiscal quarters is less than 1.3
     to 1.0 and (B) after at least 90 days' notice by the Venture to EMI.

          (d) Approval of the EMI Board will also be required for any
amendment to the Documents, including:

          (i) any change in the size of a Venture Board; and

          (ii) any dividend or other  distribution  of cash of a Venture that is
     not in accordance with the Documents.

          4. Co-Chairmen. (a) There will be two Co- Chairmen of the Venture
Boards, one appointed by TWI and one appointed by EMI. The Co-Chairmen will be
jointly


<PAGE>


                                                                               3

responsible to each Venture Board for the Venture's strategic and financial
direction.

          (b)  The  decisions  of  the  Co-Chairmen   must  be  unanimous.   Any
disagreements shall be referred to each Venture Board for resolution by majority
vote.

          (c) Richard D. Parsons and Eric Nicoli will be the initial
     Co-Chairmen.

          5. Removal and Replacement of Co-Chairmen. (a) Within the first five
years following the Closing Date:

          (i) a Co-Chairman may only be removed from office by a Venture Board
     for misconduct; and

          (ii) if a Co-Chairman  ceases for any reason to be a Co-Chairman,  the
     party who appointed  such  Co-Chairman  shall appoint his or her successor;
     provided, however, that EMI successor appointments are subject to the prior
     approval of TWI, who may not act arbitrarily or capriciously in withholding
     such approval.

          (b) After the first five years following the Closing Date:

          (i) each of the Co-Chairmen  will serve at the pleasure of the Venture
     Boards and the Venture  Boards may remove either  Co-Chairman as long as in
     doing so the Venture Boards are not acting arbitrarily or capriciously; and

          (ii) if either  Co-Chairman ceases for any reason to be a Co-Chairman,
     the  party  who  appointed  such  Co-  Chairman  shall  appoint  his or her
     successor,  subject to the approval of the Venture Board, which may not act
     arbitrarily or capriciously in withholding such approval.

          (c) Notwithstanding the foregoing, at any time the party who appointed
a Co-Chairman may remove that appointee from office.

          6. Executive  Committee.  There will be an Executive Committee of each
Venture  that will  consist of the two  Co-Chairmen  and one other member of the
appropriate  Venture Board  appointed by TWI. Each Executive  Committee will act
within the scope of its authority as determined by the relevant  Venture  Board.
The CEO will be expected to attend all Executive Committee meetings.


<PAGE>


                                                                               4

          7. Officers of the Ventures.  (a) The  operations of each Venture will
be managed by the  officers of such  Venture,  who will serve at the pleasure of
the appropriate Venture Board. The officers of USCO will have such powers as are
usually exercised by comparable  designated  officers of a Delaware  corporation
and will have the power to bind the Venture  through the exercise of such powers
to the extent  consistent  with the terms  hereof,  but subject to any  contrary
determination of the appropriate Venture Board.

          (b) There will be one Chief Executive Officer ("CEO") of the Ventures,
who will  report to the  Venture  Boards  through  the  Co-Chairmen.  The direct
reports to the CEO will be  determined by the CEO. The initial CEO will be Roger
Ames, and the initial Chief Operating Officer ("COO") will be Ken Berry.

          (c) Upon the request of the EMI Board,  each senior executive  officer
of a Venture  (including  the CEO, CFO and COO) will attend  meetings of the EMI
Board and the meetings of shareholders of EMI.

          (d)  Upon  the  reasonable  request  of the  EMI  Board,  each  senior
executive officer of a Venture  (including the CEO, CFO and COO) will attend EMI
presentations to the investment community and meetings with individual or groups
of  shareholders,  in each case in  accordance  with normal  investor  relations
practices.

          8. Accounting Matters. (a) The auditors of each Venture will be the
same as the auditors of TWI, and the fiscal year end of each Venture will be
the same as the fiscal year end of TWI.

          (b) The books and financial reports of each Venture and the Ventures
on a consolidated basis will be maintained in both U.S. GAAP and U.K. GAAP and
will be made available to each of TWI and EMI.

          (c)  The  Ventures  will  provide  such  other   financial  and  other
information to each of the parties as is necessary for them to comply with their
own normal and customary  communication,  response,  reporting and disclosure to
shareholders, analysts, the investment community and the press or to comply with
applicable law or LSE Rules as applied from time to time. This includes:

          (i) timely  disclosure to EMI of any  transaction  between the Venture
     and TWI that, had the combined  Ventures been listed on the LSE, would have
     required


<PAGE>


                                                                               5

     disclosure to the Venture's shareholders under the LSE Rules;

          (ii) monthly management information, both actual and forecast,
     regarding the Venture;

          (iii) information about material transactions and other matters
     under discussion;

          (iv) the budgets and business plans of the Ventures;

          (v) an annual report of  transactions  between the Venture and TWI and
     its  Subsidiaries  and,  after  the  closing  of  the  AOL-TWI  merger,  in
     aggregated,  summary  form that is  sufficiently  detailed to permit EMI to
     understand  the nature and extent of and any payment  made with  respect to
     the material categories of transactions between the Ventures and TWI; and

          (vi) periodic  meetings  with  management to discuss the Ventures upon
     the reasonable request of EMI.

          (d) The Ventures  will deliver to EMI U.K. GAAP  financial  statements
(together  with the notes  related  thereto)  of the  Ventures  on a  quarterly,
semi-annual  and annual basis in a timely  manner so as to permit EMI to prepare
quarterly, semi-annual and annual reports to its shareholders.

          (e)  In  connection  with  the  reporting  requirements  of EMI to its
shareholders and EMI's ongoing  relationship  with the investor  community,  the
Ventures  will  provide  to EMI the same  level of access to both  officers  and
information (financial and otherwise) of the Ventures as provided to TWI.

          9. Dividends, Distributions and Allocations. (a) Annual
distributions will be determined by the Boards of the Ventures with the
following payment levels:

          (i) subject  always to Paragraph  9(b),  for year 2000, the payment of
     75% of the  Dividend  Level (as  defined  below) to each  party  (the "Stub
     Period Dividend");

          (ii) subject  always to Paragraph  9(b),  for year 2001 and year 2002,
     the payment of the Dividend Level to each party;


<PAGE>


                                                                               6

          (iii) subject  always to clause (iv) below and to Paragraph  9(b), for
     each year after year 2002 the payment of aggregate cash distributions equal
     to 80% of the Ventures'  profit  attributable  to members  (after  minority
     interests),  after tax and tax  distributions,  before (x)  amortization of
     intangible  assets,  (y)  exceptional  items  and (z)  profit  or loss from
     Columbia House, all calculated in accordance with UK GAAP;

          (iv) subject  always to Paragraph  9(b), if in any financial  year the
     aggregate  amount of cash  dividends  received  by EMI from  both  Ventures
     pursuant to clause  (iii) above  produces  aggregate  distributions  to EMI
     which are less than the sum (the  "Dividend  Level") of (A) the Current EMI
     Dividend increased after year 2002, each year, by inflation,  and (B) EMI's
     consolidated estimated corporate overhead and interest costs and taxes less
     tax  distributions,  then for such  financial year the payment of aggregate
     cash  distributions  sufficient to result in  distributions to EMI equal to
     the Dividend Level; and

          (v) in all cases, such additional amounts as the Boards of the
     Ventures may determine.

          (b) The financial  policies of each  Venture,  including as to gearing
(leverage) levels and target credit ratings, will be determined by the Boards of
the Ventures so as to secure the payment levels in clauses (i), (ii),  (iii) and
(iv) of Paragraph  9(a).  These  payment  levels and the  obligations  under the
preceding  sentence  will be subject to the ability of the  Ventures to meet the
cash requirements  needed to operate the business in the ordinary course without
prejudicing the objective that the Ventures  maintain  Investment  Grade Status,
unless the Boards of the Ventures  determine that a lower rating than Investment
Grade Status is in the best interest of the Ventures.  Subject to the foregoing,
management  of the Ventures will use best efforts to maintain  Investment  Grade
Status.

          (c) For the purposes of this  Paragraph 9, the following  phrases have
the following meaning:

          "Current EMI Dividend" means  (pound)126  million,  which reflects the
     actual current EMI dividend, increased pro rata to take account of ordinary
     shares of EMI issued  pursuant to the CDs or upon  exercise of EMI employee
     options granted prior to the Closing Date.

          "Investment  Grade Status" means a corporate  credit rating of Baa3 or
     better from Moody's Investors


<PAGE>


                                                                               7

     Services, Inc., or BBB- or better from Standard & Poor's Investor Advisor
     Services, Inc.

          (d) Notwithstanding  anything contained herein, the Ventures will make
mandatory  minimum  distributions,  for the purpose of paying the parties'  U.S.
Federal,  state and  local  income  and  franchise  Taxes  with  respect  to the
Ventures, based upon a rate equal to (x) the highest applicable marginal federal
corporate  income tax rates on ordinary income and capital gains plus (y) 5% and
assuming full creditability of foreign income taxes. Distributions made pursuant
to this  Paragraph  9(d)  will be made  equally  to  both  parties,  subject  to
adjustment to reflect any transfer of interests in the Venture.

          (e) Except as provided  in  Paragraph  9(g),  all  distributions  made
pursuant to  Paragraph  9(a) shall be made equally to both  parties,  subject to
adjustment to reflect any transfer of interest in the Ventures.

          (f) TWI will  indemnify USCO and hold it harmless from and against any
Damages with respect to Columbia House, other than diminution in value of USCO's
interest in Columbia  House or loss on sale of such  interest;  provided that to
the extent that any such Damages  gives rise to a tax deduction to the Ventures,
such  deduction will be specially  allocated to TWI for U.S.  federal income tax
purposes.

          (g) All net proceeds from the sale,  exchange or other  disposition by
the Ventures of the equity interest of Columbia House contributed to the Venture
pursuant to Section 1.03 of the Combination Agreement or from cash distributions
with respect to such equity interest of Columbia House shall be distributed:

          (i) first,  100% to TWI until the  aggregate  amount TWI has  received
     pursuant to this clause (i) equals $1 billion (subject to adjustment as set
     forth in Paragraph 13); and

          (ii) thereafter, 75% to TWI and 25% to EMI.

          (h) Any annual distribution payable by a Venture pursuant to Paragraph
9(a) will be paid in the form of an  interim  and a final  dividend,  each to be
paid in  sufficient  time to permit EMI to make its interim  and final  dividend
payments to its shareholders on customary dates for U.K. listed  companies.  The
distributions  payable by the Ventures  pursuant to Paragraph  9(a) will, to the
maximum extent  possible,  be allocated such that 75% of the expected  aggregate
annual dividend will be paid in the final dividend


<PAGE>


                                                                               8

and 25% of the expected  aggregate  annual  dividend will be paid in the interim
dividend.  Notwithstanding the foregoing, the Stub Period Dividend shall be paid
in May 2001.

          10.  Transfer.  (a) Except as set forth in this Paragraph 10 or in the
Credit Facility Term Sheet, neither party may transfer or mortgage any of or all
its  ownership  interest  in a  Venture  to  another  person.  This  includes  a
prohibition on TWI and EMI transferring, mortgaging or issuing (or permitting to
be transferred, mortgaged or issued) any shares in any Subsidiary that, directly
or  indirectly,  holds any portion of their  respective  ownership  interests in
either Venture.

          (b)  Notwithstanding  Paragraph 10(a), at any time after the date that
is three years after the Closing  Date,  either  party may  transfer  its entire
ownership  interest  in both  Ventures  to another  person if (i) the party (the
"Transferor")  that desires to transfer its  ownership  interest in the Ventures
notifies  the other party (the "Other  Party") of its desire to do so, (ii) such
notice is accompanied by a copy of a bona fide,  binding  agreement with a third
party (the  "Transferee")  that  provides for such a transfer for  consideration
that consists solely of cash, (iii) within 60 days of receipt of such notice the
Other  Party does not elect to  purchase  the entire  ownership  interest of the
Transferor in the Ventures on the terms set forth in such binding  agreement and
(iv) the transfer to the  Transferee is completed  within 180 days of receipt of
such notice on terms not less favorable to the  Transferor  than those set forth
in such binding agreement.  If, in response to such notice, the Other Party does
elect to  purchase  the  entire  ownership  interest  of the  Transferor  in the
Ventures on the terms set forth in such binding  agreement,  then the Transferor
shall be bound to  transfer  to the Other  Party,  and the Other  Party shall be
bound to  purchase,  the entire  ownership  interest  of the  Transferor  in the
Ventures on those terms.

          (c)  Notwithstanding  Paragraph  10(a),  any  Subsidiary  of TWI that,
directly or indirectly,  holds TWI's entire  ownership  interest in the Ventures
may make (or TWI may make) a public  distribution of shares in such corporation.
If any such corporation  ceases to be a Subsidiary of TWI, then such corporation
shall be substituted for "TWI" under this Agreement,  the Venture Agreements and
the Contribution  Agreement;  provided,  however,  that for a period of at least
three  years  after TWI ceases to control  any such  Subsidiary  following  such
public distribution, TWI agrees to comply with the Confidentiality


<PAGE>


                                                                               9

Agreement and the non-compete provisions contained in the Venture Agreements.

          (d)  Notwithstanding  Paragraph  10(a),  either  party may at any time
transfer  any portion of its  ownership  interest in the  Ventures to any entity
that is wholly owned by such party or that owns all of the capital stock of such
party if such transfer will not result in any  incremental tax cost to the other
party;  provided,  however,  that if such entity  should cease to remain  wholly
owned by such party or own all the capital stock of such party, then such entity
shall transfer such ownership  interest back to such party or another  permitted
transferee of such party.

          11.  Change  of  Control.  (a) Upon the  occurrence  of a  "Change  of
Control"  (as  defined  below) of either  party  (such  party  being a  "Subject
Party"),  the other party will have the right to purchase (the "Purchase Right")
all (but not less  than  all) the  Subject  Party's  ownership  interest  in the
Ventures, subject to the following conditions:

          (i) in the event of a Change  of  Control  within  the first 42 months
     following the Closing Date, the Purchase  Right will be exercisable  for up
     to one year  following  the Change of Control;  in the event of a Change of
     Control  thereafter,  the Purchase Right will be exercisable  for up to six
     months following the Change of Control;

          (ii) the price at which  the  Purchase  Right  will be  executed  (the
     "Purchase  Price")  will be the fair market  value of the  Subject  Party's
     interest  (including,  for the avoidance of doubt,  in the case of Warner's
     interest a control  premium),  as  determined  in the manner  described  in
     Paragraph 11(d);

          (iii) the Purchase Price will be paid in cash; and

          (iv) upon such  Change of  Control,  the  Subject  Party will lose any
     rights it has that are described under Paragraphs 3(c)(iii) and 4(a), until
     such time as the other party either (A) elects not to exercise or loses its
     Purchase Right or (B) defaults in completing the purchase.

          (b) A "Change of  Control"  with regard to EMI means (1) any person or
group of persons  acting in concert  owning 30% or more of EMI's voting  rights,
(2)  more  than  one-third  of the  members  of the  EMI  Board  being  "subject
directors".  For purposes of this Paragraph 11(b) a "subject director" of EMI is
a person (A) who was originally


<PAGE>


                                                                              10

nominated or designated for election as a director, directly or indirectly, by a
shareholder,  or group of  shareholders  acting in concert,  of EMI or (B) whose
original  election  to  the  EMI  Board  (either  by  the  EMI  Board  or  EMI's
shareholders)  took place when there  were  other  subject  directors  and whose
original election was not approved by all the then directors of EMI who were not
subject directors or (3) any winding-up or other insolvency or administration of
EMI. For the avoidance of doubt, a reorganization of EMI that does not result in
a change in the board of directors of EMI or the  shareholders  of EMI shall not
be a Change of Control of EMI.

          (c) A "Change of  Control"  of TWI means (1) if "TWI" no longer  means
Time Warner Inc.  or AOL Time  Warner  after the merger  referred to in the last
sentence of this section in accordance with Paragraph  10(c),  (A) any person or
group of persons  acting in concert  owning 30% or more of TWI's voting  rights,
(B) more than  one-third  of the members of the board of directors of TWI or the
ultimate  public  parent  company  of  TWI  (the  "TWI  Board")  being  "subject
directors" of TWI or (C) any  bankruptcy or other  insolvency of TWI, and (2) if
otherwise,  (A) more  than  one-third  of the  members  of the TWI  Board  being
"subject  directors" of TWI or (B) any bankruptcy or other  insolvency of TWI. A
"subject  director"  of TWI is a  person  (A) who was  originally  nominated  or
designated for election as a director, directly or indirectly, by a stockholder,
or  group  of  stockholders  acting  in  concert,  of TWI,  and  whose  original
nomination or designation  was not approved by the  nominating  committee of the
TWI Board,  or (B) whose  original  election to the TWI Board (either by the TWI
Board or TWI's  stockholders) took place when there were other subject directors
and whose  original  election was not approved by all the then  directors of TWI
who were not subject directors.  For the avoidance of doubt, a reorganization of
TWI that does not  result in a change  in the board of  directors  of TWI or the
ultimate  shareholders  of TWI shall not be a Change of  Control of TWI and (ii)
the closing of the merger of TWI and AOL and the  transactions  related  thereto
shall not constitute a Change of Control of TWI.

          (d) The Purchase  Price will be determined  in the  following  manner.
First,  within  15 days of the  date of  exercise  of the  Purchase  Right  (the
"Exercise   Date"),   each  party   will   select  as  its   representative   an
internationally  recognized  investment banking firm (a "Representative  Firm").
Within  seven  days  after  the  selection  of  the  Representative  Firms,  the
Representative  Firms shall together agree upon a third investment  banking firm
to serve as a neutral appraiser (the "Neutral Firm"). The


<PAGE>


                                                                              11

Representative  Firms shall then  provide  their best  estimate of the  Purchase
Price to the Neutral Firm within 60 days after the Exercise  Date. If the amount
of the lower estimate is at least 90% of the amount of the higher estimate, then
the Purchase Price will equal the average of the two estimates.  If the lower of
the two estimates is less than 90% of the higher estimate, then the Neutral Firm
shall  choose the  estimate  that it  believes  to be closest to the fair market
value of the Subject Party's interest (including, for the avoidance of doubt, in
the case of TWI's interest a control  premium),  and the estimate  chosen by the
Neutral Firm shall be the Purchase  Price.  Each party shall pay the fees of the
Representative Firm appointed by it. The parties shall evenly divide the fees of
the Neutral Firm.

          12. Covenants.  (a) (i) After the Closing Date, TWI will not, and will
cause each of its Controlled  Affiliates not to, and after the expiration of the
period  described in Paragraph  12(b), TWI and EMI will not, and will cause each
of their respective  Controlled Affiliates not to, engage directly or indirectly
in any  Restricted  Business  anywhere in the world,  otherwise than through the
Ventures.

          (ii)  If  TWI,  EMI or any of  their  Controlled  Affiliates  acquires
knowledge  of a  potential  transaction  or  matter  that  may  be  a  corporate
opportunity  for either Venture and such  transaction or matter does not involve
any activity that TWI, EMI or any of their  Controlled  Affiliates are forbidden
to  undertake  pursuant to this  Paragraph 12 (assuming  the  expiration  of the
period described in Paragraph 12(b)),  then none of TWI, EMI or their Controlled
Affiliates,  as  applicable,  shall have any duty to  communicate  or offer such
corporate opportunity to the Ventures and shall be entitled to pursue or acquire
such corporate opportunity for itself or to direct such corporate opportunity to
another  Person.  If TWI,  EMI or any of their  Controlled  Affiliates  acquires
knowledge  of a  potential  transaction  or  matter  that  may  be  a  corporate
opportunity  for  either  Venture  and such  transaction  or matter  involves  a
Restricted  Business,  then  TWI,  EMI  and  their  Controlled  Affiliates,   as
applicable,   shall  not  be  entitled  to  pursue  or  acquire  such  corporate
opportunity  for  itself or to direct  such  corporate  opportunity  to  another
Person.

          (iii) For the purposes of this  Paragraph  12(a) only,  the  following
terms shall have the following meanings:

          "Commercial  Distribution" means (A) distribution on a wholesale basis
to "brick and mortar" or on-line stores that distribute  Recorded Music or Music
Videos in physical


<PAGE>


                                                                              12

form to  consumers  or (B)  distribution  of Recorded  Music or Music  Videos to
consumers in digital form via the Internet or otherwise.

          "Content   Business"  means  any  business  that  is  limited  to  the
following:

          (A) the business of a party or its Controlled  Affiliates of producing
     soundtracks  (including  acquiring  copyrights in musical  compositions and
     related activities in connection therewith) for motion pictures, television
     programs and similar  entertainment  programs produced by such party or its
     Controlled  Affiliates and exploiting such  soundtracks as a part of and in
     the marketing of such pictures or programs;

          (B) the music programming service business, including the ownership or
     operation  of broadcast  music video  channels,  satellite-delivered  music
     video channels,  music video-based  Internet websites  (including  websites
     with links to persons engaged in Commercial Distribution),  broadcast radio
     stations,  satellite-delivered  radio  stations and Internet radio stations
     (including   websites   with  links  to  Persons   engaged  in   Commercial
     Distribution)  and similar  programming  services,  but  excluding  (1) the
     Commercial  Distribution  of  Recorded  Music  pursuant  to any such  music
     programming  service in a manner  distinct from the service  itself and (2)
     subject  (for the  avoidance of doubt) to clause (B) of the  definition  of
     "Grandfathered  Businesses",  the  administration  of copyrights in musical
     compositions arising out of any such service;

          (C)  other  than  with  respect  to  Music  Videos,  the  business  of
     producing,  manufacturing,  packaging,  advertising,  marketing, promoting,
     Commercial  Distribution of or other exploitation of audio-visual  programs
     (including  music  audio-visual  programs) for distribution by any means or
     medium (including for broadcast on a pay-per-play  basis or similar basis);
     and

          (D)  the  concert  promotion  business,  including  the  ownership  or
     operation of concert venues.

          "Controlled  Affiliate"  of any  Person  means any other  Person  with
respect to which (A) the first Person directly or indirectly  beneficially  owns
50% or more of the  participating  or common  equity  securities or interests of
such other Person or 50% or more of the interests in the


<PAGE>


                                                                              13

profits  of such other  Person,  (B) a majority  of the board of  directors  (or
similar  governing  body)  of  which  are  elected  or  appointed,  directly  or
indirectly,  by the first Person or (C) the first Person  directly or indirectly
beneficially owns 50% or more of the securities or interests having the right to
elect or appoint directors (or equivalent  governing Persons) of such Person (or
in the case of a Person which is not a corporation, having the equivalent voting
power).

          "Grandfathered  Business"  means any  business  that is limited to the
following:

          (A)  the  Record  Business  conducted  by  Time  Life,  Inc.  and  its
     Subsidiaries so long as (1) such business remains primarily the production,
     manufacturing,  packaging,  advertising,  marketing,  promotion,  and other
     exploitation  of  previously-released  Recorded  Music and  Recorded  Music
     embodying  previously-recorded  musical  compositions  where such  previous
     recordings have been previously  released,  and (2) the substantial portion
     of the releases and sales of such business are sold through direct response
     channels;

          (B) any Restricted Business of any party that is incidental to another
     business  of such  party  (the "base  business")  that is not a  Restricted
     Business,  as such base business is currently  conducted and may reasonably
     evolve,  including the evolution of such base business  resulting  from the
     application of the Internet to such base business; and

          (C) any  Restricted  Business  conducted  by AOL on the  later  of the
     Closing  Date  and the  date of  closing  of the  AOL-TWI  merger,  as then
     conducted and as such Restricted Business may evolve in an incidental way.

          The  parties  understand  and agree  that the list  contained  in this
definition may be supplemented after the date of this Agreement and prior to the
Closing  Date  with  the  prior  approval  of both  parties  (which  will not be
unreasonably  withheld or delayed) to specify, for the avoidance of doubt, other
insignificant  businesses  currently  conducted  by TWI,  EMI or AOL outside the
Warner Music Business that are intended to be Grandfathered Businesses.

          "Internet" means: (A) the wide area cooperative network of university,
corporate,  government  and  private  computer  networks  communicating  through
Transmission Control Protocol/Internet  Protocol that is commonly referred to as
the  "Internet";  (B) any successor  and/or  parallel  networks  thereto  and/or
spin-off networks therefrom; and (C) any


<PAGE>


                                                                              14

current or future  proprietary  networks or services,  including AOL,  Microsoft
Network, Prodigy or CompuServe.

          "Music  Publishing  Business"  means the business of (A) entering into
agreements  with  composers,  songwriters,  lyricists,  production  companies or
owners  of  rights  in  musical  compositions  for  the  acquisition,  creation,
advertising,  marketing,  promotion,  administration  or other  exploitation  of
musical  compositions or musical arrangements and (B) exercising and authorizing
the exercise of rights under such agreements.

          "Music Videos" means audio-visual programs,  including compilations of
such  programs,  based upon a single  musical  composition  or medley of musical
compositions.

          "Outlet   Business"  means  any  business  which  is  limited  to  the
following:

          (A) the business of operating  any "brick and mortar" or on-line store
     that sells Recorded Music or Music Videos in physical form to consumers; or

          (B) the business of establishing or operating any Internet  website or
     other Internet business that  distributes,  in digital or any other form to
     consumers,  Recorded  Music or Music  Videos the major  portion of which is
     acquired from third parties (including the Ventures), other than performers
     of musical works.

          "Record  Business"  means the business of (A) entering into agreements
with  performers of musical works,  production  companies or owners of rights in
sound   recordings   (with  or  without  visual  images)  for  the  acquisition,
production,   manufacturing,   packaging,  advertising,   marketing,  promotion,
Commercial  Distribution or other  exploitation (by whatever means,  whether now
known  or  hereafter  developed)  of  Recorded  Music  and  (B)  exercising  and
authorizing the exercise of rights under such agreements.

          "Recorded Music" means master  recordings  embodying  reproductions of
performances   (both  audio  and  audio-visual)  of  musical  works,   alone  or
accompanied by visual images,  in a format (physical or nonphysical)  capable of
mass reproduction or distribution.

          "Restricted  Businesses"  means  the  Record  Business  and the  Music
Publishing Business, excluding however Content Businesses, Outlet Businesses and
Grandfathered Businesses.


<PAGE>


                                                                              15

          (iv) The provisions in Paragraph 12(a)(i) will not apply to:

          (A) except as  otherwise  provided in Paragraph  12(a)(vi)  and except
     with  respect  to any  Person  which  is (or as a  result  of the  proposed
     acquisition will become) a Controlled  Affiliate of EMI or TWI, as the case
     may be, any  acquisition  of less than 5% of the equity or less than 10% of
     the debt of any person engaged in any Restricted Business;

          (B) engaging in any Restricted Business, whether directly or through a
     Controlled  Affiliate  so  long  as the  consolidated  revenues  of TWI (or
     AOL-TWI  or any New  Parent)  or EMI,  as the  case  may be,  from any such
     Restricted  Business  (other than the Ventures) shall not exceed $5 million
     per fiscal  year and from all such  Restricted  Businesses  (other than the
     Ventures)  shall not exceed $25 million per fiscal year (such amounts to be
     adjusted annually to match the rate of inflation in the U.S. Consumer Price
     Index published by the United States Government);

          (C) any inadvertent violation of the provisions of Paragraph
     12(a)(i) by either party; or

          (D) any  acquisition  of any person or business that, in the last full
     fiscal year preceding execution of the acquisition agreement,  derived less
     than 25% of its consolidated revenues from Restricted Businesses;

     provided,  however,  in the case of clause  (C) and clause  (D),  that upon
     closing  of any such  acquisition  or  discovery  of any  such  inadvertent
     violation, the relevant Restricted Business will be offered to the Ventures
     and the  acquiring  or violating  party will  negotiate in good faith for a
     period of 60 days with the Ventures  regarding the terms of such sale,  and
     if  agreement in respect of the  acquisition  of such assets is not reached
     during such 60 day period, the acquiror or violator will not be required to
     continue to negotiate  with the Ventures but will be required to dispose of
     such Restricted Business within 15 months after the first occurrence of the
     event referred to in clause (C) or (D).  Notwithstanding the proviso to the
     preceding  sentence,  but subject to Paragraphs  3(b)(ii) and 12(e), if the
     acquiror or violator is TWI, and if the Ventures  purchase such  Restricted
     Business,  arms length terms shall be determined (except in the case of any
     insignificant Restricted Business) by independent appraisal.


<PAGE>


                                                                              16

          (v) The parties  acknowledge  that the  businesses of TWI and EMI will
likely  evolve in ways that  cannot be fully  anticipated  at this time;  in the
event such evolution  results in any actual or potential  violation of Paragraph
12(a)(i),  the parties and the  Ventures  will discuss in good faith and seek to
reasonably resolve such issue,  taking into account the legitimate  interests of
the parties and the Ventures.

          (vi) For purposes of this Paragraph  12(a), a Person will be deemed to
"engage  in" a  Restricted  Business if such  Person:  (A)  acquires  beneficial
ownership of 5% or more of the  participating  or voting  equity  securities  or
interests  of any other  Person,  5% or more of the  interests in the profits or
voting  power of any Person or 10% or more of the debt  securities  of any other
Person and, in any such case,  either (1) such other Person or, to the knowledge
of the first Person,  its  Controlled  Affiliates  is then engaged,  directly or
indirectly,  in any  Restricted  Businesses or (2) such  securities or interests
were  acquired by the first  Person  expressly  in  contemplation  of such other
Person commencing to engage, directly or indirectly, in any Restricted Business;
or (B) acquires any  securities or interests of, or makes any investment in, any
other  Person with  respect to which the first  Person  already  has  beneficial
ownership  of the kind  described  in clause  (A) above if either (1) such other
Person or, to the knowledge of the first Person,  its  Controlled  Affiliates is
then engaged,  directly or indirectly,  in any  Restricted  Business or (2) such
securities or interests were acquired, or such investment was made, by the first
Person  expressly in  contemplation  of such other Person  commencing to engage,
directly or indirectly,  in any Restricted Business,  other than, in the case of
this clause (B), for  participation in pro rata offerings,  for investments made
pursuant to preexisting  commitments and for investments  made upon the exercise
or conversion of preexisting securities.

          (vii) If TWI or EMI or any of their respective  Controlled  Affiliates
holds  an  equity  or debt  interest  in any  Person  (other  than a  Controlled
Affiliate or a Venture),  then TWI or EMI, as the case may be, will,  subject to
fiduciary duties and contractual obligations and other applicable laws, exercise
its rights and powers so as to inhibit  such Person  entering  into or expanding
any Restricted Business.

          (viii) At the  later of the  closing  of the  AOL-TWI  Merger  and the
Closing Date, TWI will cause AOL-TWI and its  Controlled  Affiliates to be bound
by this Paragraph 12(a). If TWI (or following the closing of the AOL-

<PAGE>

                                                                              17


TWI Merger, AOL- TWI) shall become a Controlled Affiliate of any other Person (a
"New Parent"),  TWI shall cause such other Person and its Controlled  Affiliates
to be bound by this Paragraph  12(a). TWI will be fully liable for any breach of
this  Paragraph  12(a)  by  AOL-TWI  or any  New  Parent  and  their  respective
Controlled  Affiliates  determined  as if  AOL-TWI,  any New  Parent  and  their
respective Controlled Affiliates were bound by this Paragraph 12(a).

          (ix) This  Paragraph  12(a)  will  cease to apply to any party and its
Controlled  Affiliates on the third anniversary of such party (together with its
Affiliates) ceasing to hold any interest in either Venture.

          (b) For the first 42 months  following the Closing Date,  EMI will not
engage  in or  agree  to  engage  in any  business  activities,  other  than its
ownership  of the  Ventures  and its  ownership  interests  in the EMI  Excluded
Assets;  provided,  however,  that  EMI's  aggregate  investment  in and  equity
ownership  percentage  of any such asset  shall not exceed such levels as of the
date hereof except that EMI may contribute up to (pound)100  million  additional
investment in HMV or any other EMI Excluded Asset that is a minority  investment
so long as EMI's  ownership  percentage  of HMV equity or any other EMI Excluded
Asset does not increase.

          (c) After the Closing Date, if TWI and its  Subsidiaries  and together
with,  after the closing of the AOL-TWI  merger,  AOL, owns equity shares of EMI
that together  comprise less than 30% of the voting rights of all shares of EMI,
TWI will vote such shares  proportionately  with the other shares  voting on any
matter.

          (d) For the  first 42  months  after the  Closing  Date,  EMI will (i)
distribute to its  shareholders,  by dividend,  repurchase of capital stock,  or
otherwise,  all distributions  EMI receives from the Ventures,  other than funds
reasonably  required  by EMI to pay  corporate  overhead  and  taxes  and to pay
current or reasonably anticipated liabilities, and (after the final distribution
in respect of 2002) an  additional  amount,  not greater  than 5% of the related
distribution from the Ventures and (ii) only be permitted to incur  indebtedness
either (A) reasonably  necessary to fund its  liabilities and  obligations,  the
proceeds of which are used in a manner  consistent  with clause (i), or (B) used
to finance an investment in HMV in accordance with Paragraph 12(b).

          (e) The relationships between the Ventures and TWI, the Ventures and
EMI and the Ventures and Columbia House will be governed by the Interface
Issues List. For


<PAGE>


                                                                              18

such  purposes,  an  integrated  series of similar  or  related  contemporaneous
transactions will be considered in the aggregate.

          (f) The parties will comply with the  provisions of Sections  6.10(c),
6.10(d) and 6.11 of the Combination Agreement.

          (g) An  entity  (the  "Service  Company")  shall be  formed  to employ
providers of services (other than the four senior officers) that are provided to
the Ventures on a worldwide  basis.  The  jurisdiction and type of entity of the
Service Company shall be mutually agreed.  The Service Company shall charge each
entity to which it provides  services on an arm's length,  cost-plus  basis. The
equity of the Service Company shall be owned equally by EMI and TWI.

          (h) Business opportunities shall be offered to the appropriate Venture
taking into account the location of relevant assets and personnel.

          (i) Expenses shall be attributed to the appropriate  Venture and shall
reflect the relative benefits expected to be enjoyed by each Venture as a result
of such expense.

          (j) USCO shall grant to EMI irrevocable  proxies with respect to every
entity that is directly owned by USCO.  Such  irrevocable  proxies shall entitle
EMI to vote at least 10% of the voting securities of each such entity.

          (k) The parties  will,  to the extent  commercially  reasonable to the
Ventures,  endeavor to maintain substantially similar capital structures in each
Venture.

          13. Columbia House Investment.  Neither Venture shall make any further
investment in the equity or  indebtedness  of Columbia House without the consent
of the EMI  Board.  Any  investment  by TWI in the  equity  or  indebtedness  of
Columbia  House may be made only after the  Ventures  have been given a right of
first refusal over the investment,  such right to be exercised solely by the EMI
Board.  The amount set forth in  Paragraph  9(g)(i)  shall be  increased  by the
amount of any  distributions  by  Warner  to the  creditors  of  Columbia  House
pursuant to a guaranty provided by Warner to such creditors.

          14. Tax Indemnity. The Ventures will indemnify TWI and EMI, as the
case may be, against and agree to hold TWI and EMI, as the case may be,
harmless, on a net after- Tax basis, from (y) any Assumed Tax Liabilities and
(z) any


<PAGE>


                                                                              19

Damages  arising out of or incident to the  imposition,  assessment or assertion
thereof  (the sum of clauses  (y) and (z) being  referred  to as a "Partner  Tax
Loss");  provided,  however,  that the Ventures  shall have no liability for the
payment of any  Partner  Tax Loss to the extent  such  liability  was taken into
account in the cash retention or debt adjustment  provisions of Article I of the
Combination  Agreement.  The parties will  endeavor to structure  payments  made
under this Paragraph 14 as non-Taxable distributions whenever possible.

          15. General Indemnity. The Ventures will indemnify TWI and EMI
against all Assumed Liabilities (subject to no "double recovery" through the
equalization process).


<PAGE>


                                                                  ATTACHMENT A
                                                            to Exhibit 2.01(c)


                                 Music Business

          "Music Business" shall mean owning, operating, managing, investing in,
receiving  money  from  (other  than by  virtue  of  ownership  interest  in the
Ventures),  engaging in,  consulting or rendering  advice in connection  with or
otherwise participating in the business of:

          (a) the creation,  acquisition,  production,  manufacture,  packaging,
     distribution,  including  through  all  forms of new  media,  sale,  lease,
     rental, license, advertising, marketing, promotion or exploitation of audio
     recordings and/or audiovisual  recordings and all rights contained therein,
     including  the  acquisition  of  rights  and/or   interests,   directly  or
     indirectly,  in and to the artists whose  performances are embodied on such
     recordings;

          (b) the creation,  acquisition,  administration  sale, lease,  rental,
     license and/or  exploitation,  including through all forms of new media, of
     musical   compositions  or  works  (including  music  publishing)  and  the
     acquisition of rights and/or  interests in and to the authors and composers
     of such musical compositions;

          (c) the creation,  acquisition,  administration  sale, lease,  rental,
     license and/or  exploitation of merchandise  (including  tee-shirts,  hats,
     sweatshirts,  general apparel, posters,  photographs,  toys and any and all
     other  consumer  products) in connection  with music and/or  artists and/or
     authors and composers;

          (d) the creation,  acquisition,  administration  sale, lease,  rental,
     license  and/or  exploitation  of  copyrights,  trademarks  and  patents in
     connection with musical  compositions,  audio and  audiovisual  recordings,
     formats (e.g. CD and DVD) and technologies;

          (e) recording studios for use in connection with audio and
     audiovisual recordings;

          (f) concert promotion, including the ownership or operation of
     concert venues;

          (g) artist management, talent or booking agencies or the
     representation of artists;

          (h) the music programming  business,  including the operation of radio
     stations or networks, music video channels or networks or the engagement in
     any other


<PAGE>


                                                                               2

     business or activity in connection with the exhibition via television,
     the Internet or any other media or audio or audiovisual recordings;

          (i) audio and audiovisual retail and wholesale outlets;

          (j) the acquisition and exploitation of any ancillary rights with
     respect to any or all of the foregoing;

          (k) any other activity,  which now or hereafter becomes  understood as
     being  part of the  "music  business,"  as such term is  understood  in the
     regional or worldwide record industry;

          (l) printing; and

          (m) any of the foregoing conducted through new media.

          For purposes of this Attachment A, "recording"  shall mean any form of
reproduction   transmission  or  communication  whether  now  known  or  unknown
embodying sound alone,  sound accompanied by visual images,  other sensory data,
other  information  or  material  including  without  limitation  discs  of  any
configuration  or  format  digital  storage,   media  of  any  kind,  electronic
transmission, reel to reel tapes, cartridges, cassettes and tapes of any kind.