Exhibit 10.36


 


WMG PARENT CORP.


LTIP STOCK OPTION AGREEMENT


 


THIS LTIP STOCK OPTION AGREEMENT
(this “Agreement”), is entered into as of this 1st day of October, 2004,
by and between WMG Parent Corp., a Delaware corporation (“Parent”), and          (the
“Executive”).  Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the “Employment Agreement” (as defined herein).


 


WHEREAS, Warner Music Group
Inc., a Delaware corporation (the “Company”), an indirect majority owned
subsidiary of Parent, or one of Parent’s direct or indirect subsidiaries, and
the Executive have entered into an employment agreement, the “Employment
Agreement”); and


 


WHEREAS,
the Board of Directors of Parent (the “Board”) has determined that it is
in the best interests of the Company and its stockholders to grant to the
Executive as of the date hereof (the “Effective Date”) an option to
purchase shares of Class A Common Stock of Parent (“Common  Stock”),
as provided for herein (the “Stock Option Award”);


 


NOW,
THEREFORE, for and in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:


 


1.                                       Grant.  Parent hereby grants to the Executive an
option (the “Option”) to purchase     shares of
Common Stock (such shares of Common Stock, the “Option Shares”), on the
terms and conditions set forth in this Agreement.  This Option is not intended to be treated as
an incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended.  This grant is subject
to the Executive having executed the Stockholders’ Agreement entered into by
and between Parent, the “Investors” (as defined below) and the other parties
thereto prior to the Effective Date, as it may be amended from time to time
(the “Stockholders’ Agreement”). 
A copy of the Stockholders’ Agreement, as in effect on the date hereof,
is annexed hereto as Exhibit A.  The
number and type of Option Shares purchasable hereunder shall be subject to
adjustment as and in the manner provided in Section 9(a) below.


 


2.                                       Incorporation
by Reference, Etc.  Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Employment Agreement.


 


3.                                       Option
Price.  The price at which the
Executive shall be entitled to purchase the Option Shares upon the exercise of
all or any portion of this Option shall be $1,179.00 per share.  Such exercise price shall be subject to
adjustment as and in the manner provided in Section 9(a) below.


 


4.                                       Expiration
Date.  Subject to Section 6 hereof,
the Option shall expire at the end of the period commencing on the Effective
Date and ending at 11:59 p.m. Eastern Time (“ET”) on the day preceding
the tenth anniversary of the Effective Date (the “Option Period”).


 


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5.                                       Exercisability
of the Option.


 


(a)           Service-Based
Option.  Except as may otherwise be
provided herein, the Option shall become vested and exercisable as to one-third
of the shares subject thereto (the “Service-Based
Option”) in four equal installments on the day prior to each of the
first, second, third and fourth anniversaries of the Effective Date provided
that the Executive remains employed with the Company on each such date, such
that one hundred percent (100%) of the Service-Based Option shall be vested and
exercisable on the day prior to the fourth anniversary of the Effective Date;
provided that the unvested portion of the Service-Based Option shall become
vested and exercisable upon a termination of the Executive’s employment with
the Company (A) due to his death, (B) by the Company due to his Disability or
without Cause or (C) by the Executive for Good Reason, in each case on or after
a “Change in Control” (as defined in Section 5(b)(iii)(6)) or, in the case of a
termination by the Company without Cause or a termination by the Executive for
Good Reason, in anticipation of a Change in Control (a termination described in
the foregoing proviso being referred to hereinafter as a “CIC Termination”).


 


(b)           Performance-Based
Option.  Except as otherwise provided
in this Agreement, the Option shall become contingently vested as to two-thirds of the shares subject thereto (the “Performance-Based
Option”) in four equal installments on the day prior to each of the first,
second, third and fourth anniversaries of the Effective Date provided that the
Executive remains employed with the Company on each such date (the “Service
Condition”), but shall not be considered to be fully vested and exercisable
until and unless the condition described in Section 5(b)(i) or 5(b)(ii), as
applicable, has been satisfied (each such condition, a “Performance
Condition”).


 


(i)                                     With
respect to one-half of the Performance-Based Option, the Performance Condition
shall be the actual or deemed occurrence of a 2X Option Vesting Event.


 


(ii)                                  With
respect to the other one-half of the Performance-Based Option, the Performance
Condition shall be the actual or deemed occurrence of a 3X Option Vesting
Event.


 


(iii)                               For
purposes of this Section 5(b), and also as and if used elsewhere in this
Agreement, the following terms shall have the following meanings:


 


(1)          
“2X Investor Equity Value” shall mean (X) two times the Investment minus
(Y) the aggregate amount of cash and “Fair Market Value” (as defined below) of
readily marketable securities or other assets (determined at the time of
receipt) received by the Investors in respect of the Investor Equity prior to
or coincident with the time of determination.


 


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(2)          
“3X Investor Equity Value” shall mean (X) three times the Investment minus
(Y) the aggregate amount of cash and Fair Market Value of readily marketable
securities or other assets (determined at the time of receipt) received by the
Investors in respect of the Investor Equity prior to or coincident with the
time of determination.


 


(3)          
“2X Option Vesting Event” shall mean (A) the first sale in an
underwritten offering of Parent’s Class A Common Stock pursuant to a
registration statement on Securities and Exchange Commission (“SEC”)
Form S-1 or otherwise under the Securities Act of 1933, as amended (the “Securities
Act”) (an “IPO”), at a per share price which implies an aggregate
value of the Investor Equity at the time of the IPO of at least the 2X Investor
Equity Value, (B) following an IPO, or any transaction other than an IPO which
causes Parent’s Class A Common Stock, or all or substantially all of the
securities into which such Class A Common Stock is converted or for which it is
exchanged, to be listed for trading on a national securities exchange or quoted
on an automated quotation system, the average closing price of Parent’s Class A
Common Stock, or such securities into which Class A Common Stock is converted
or for which it is exchanged, on the primary exchange on which, or system over
which, it is traded over any 20 consecutive trading days is such that the
implied aggregate value of the Investor Equity at the end of such 20
consecutive trading days, based on such average price, is at least the 2X
Investor Equity Value, determined as of the first of such 20 consecutive
trading days, or (C) a Bonus Vesting Event occurs which results in a
combination of cash and readily marketable securities being paid or provided to
the Investors having an aggregate value (as determined by the Board in good
faith as of the time of receipt) of at least the 2X Investor Equity Value.


 


(4)                                  “3X
Option Vesting Event” has the same meaning as a 2X Option Vesting Event,
except that the term “2X Investor Equity Value” each time it appears in Section
5(b)(iii)(3) above shall be replaced with “3X Investor Equity Value.”


 


(5)                                  “Bonus
Vesting Event” shall mean a Change in Control, or other event (e.g.,
a leveraged recapitalization in which the proceeds are paid out to the
Investors as dividends and/or redemptions), in which consideration is paid to
Investors in respect of the Investor Equity in the form of cash, readily
marketable securities or a combination of both.


 


(6)                                  “Change
in Control” shall mean a “Change of Control,” as defined in the certificate
of incorporation of Parent, as amended from time to time.


 


(7)                                  
“Fair Market Value” shall mean the price at which the asset in question
would change hands in an arms’ length sale between


 


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a willing buyer and a willing seller, with neither
being under any compunction to buy or sell and each with full knowledge of all
relevant facts, as determined by the Board in good faith; provided that, in
determining Fair Market Value of the securities of any member of Parent Group,
the Board shall take into account the free cash flow, revenue and EBITDA and
such other methodologies and characteristics as it may determine to be
relevant, and shall (A) adjust the Fair Market Value of the securities to take
into account the illiquidity of securities which are not publicly traded and
(B) make no adjustment on account of any control premium.  Notwithstanding the above, the Fair Market
Value of any freely tradable security which is of a class listed for trading on
an established securities market or established trading system shall be the
average of the high and low trading prices of such class of securities, as
reported on the primary market or trading system on which such securities are
listed on the date Fair Market Value is determined.


 


(8)                                  “Investment”
means $1.25 billion.


 


(9)                                  “Investor
Equity” shall mean all equity securities of all members of Parent Group,
including common and preferred stock and warrants, options and other
instruments convertible or exercisable into, or redeemable for, common or
preferred stock, either (A) purchased or otherwise received by the Investors on
or prior to the Effective Date or (B) received by the Investors following the
Effective Date, without cost to the Investors, in respect of the equity securities
described in the preceding clause (A).


 


(10)                            “Investors”
shall mean all of (i) Thomas H. Lee Equity Fund V, L.P., (ii) Thomas H. Lee
Parallel Fund V, L.P., (iii) Thomas H. Lee Equity (Cayman) Fund V, L.P., (iv)
Putnam Investments Holdings, LLC, (v) Putnam Investments Employees’ Securities
Company I LLC, (vi) Putnam Investments Employees’ Securities Company II LLC,
(vii) 1997 Thomas H. Lee Nominee Trust, (viii) Thomas H. Lee Investors Limited
Partnership, (ix) Bain Capital Partners Integral Investors, LLC, (x) Bain
Capital VII Coinvestment Fund, LLC, (xi) BCIP TCV, LLC, (xii) Providence Equity
Partners IV, L.P., (xiii) Providence Equity Operating Partners IV, L.P. and
(xiv) Lexa Partners LLC, or any affiliate of any of them, in each case which
purchases Investor Equity on or prior to the Effective Date.


 


(11)                            “Parent
Group” shall mean Parent, the Company and each direct or indirect
subsidiary of any of them.


 


Notwithstanding
anything in this Agreement to the contrary, the Service Condition applicable to
the Performance-Based Option shall be deemed to have been attained upon a CIC
Termination.


 


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(c)                                  The
term “Vested Option,” as used herein, shall mean (i) the portion of the
Service-Based Option on and following the time that the vesting condition set
forth in Section 5(a) hereof has been actually or deemed satisfied as to such
portion, (ii) the portion of the Performance-Based Option on and following the
time that both the Service Condition and the Performance Condition have been
actually or are deemed to have been satisfied as to such portion and (iii) the
portion of the Performance-Based Option not described in the immediately
preceding clause (ii) on and following the day prior to the seventh anniversary
of the Effective Date, so long as the Executive remains employed by the Company
on such day.  The portion of the Option
which has not become the Vested Option is hereinafter referred to as the “Unvested
Option.”


 


(d)                                 The
Option may be exercised only as to the Vested Option, and only by written
notice, substantially in the form attached hereto as Exhibit B (or a
successor form provided by Parent) delivered in person or by mail in accordance
with Section 11(a) hereof and accompanied by payment therefor.  The purchase price of the Option Shares shall
be paid by the Executive to Parent (A) by certified check or wire transfer
(using such wire transfer instructions as are provided by Parent or the
Company), (B) by transferring to Parent shares of Common Stock, if and in the
manner approved by Parent, (C) on or after an IPO, by a broker-assisted “cashless
exercise” procedure if and in the manner approved by the Board or a designated
committee thereof, or (D) by any other method approved in writing by the
Board or a designated committee thereof. 
If requested by Parent, the Executive shall promptly deliver his copy of
this Agreement evidencing the Option to the Secretary of Parent who shall
endorse thereon a notation of such exercise and promptly return such Agreement
to the Executive.  Upon payment of the
applicable purchase price and the issuance of the Option Shares in accordance
with the terms and conditions of this Agreement, the Option Shares shall be
validly issued, fully paid and nonassessable.


 


6.                                       Effect
of Termination of Employment on Option.


 


(a)                                  For
purposes of this Agreement, the Executive’s employment may be terminated (i) by
the Company for Cause (a “6(a)(i) Termination”), (ii) by the Executive
without Good Reason, other than a Retirement (a “6(a)(ii) Termination”),
(iii) by the Company without Cause (including on account of Disability), by the
Executive for Good Reason or on account of the Executive’s death (a “6(a)(iii)
Termination”) or (iv) by the Executive on account of Retirement (a “6(a)(iv)
Termination”).  For purposes of the
preceding sentence, (A) “Retirement” shall mean the Executive’s
voluntary termination of employment with the Company on or after the age of 62,
after no less than 10 years of employment with the Company (B) the termination
of the Executive’s employment at the end of the term of the Employment
Agreement following the failure of the Company to offer the Executive continued
employment at a base salary not less than that in effect at the end of such
term shall be deemed to be a Section 6(a)(iii) Termination and (C) the
termination of the Executive’s employment at the end of the term of the
Employment Agreement following the


 


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Company’s offering the Executive continued employment
at a base salary not less than that in effect at the end of such term shall be
deemed to be a 6(a)(ii) Termination.


 


(b)                                 The
Unvested Option, if any, shall immediately terminate upon the termination of
the Executive’s employment with the Company and its affiliates for any
reason;  provided, however,
that the portion of the Unvested Option which is the portion of the
Performance-Based Option as to which the Service Condition, but not the
Performance Condition, has been attained at the time of a 6(a)(iii) Termination
or a 6(a)(iv) Termination (the “Tail Option”) shall terminate upon the
six-month anniversary of the termination to the extent that the applicable
Performance Condition has not been attained as of such six-month anniversary.


 


(c)                                  The
Vested Option shall remain exercisable by the Executive until, as applicable,
(i) the date of a 6(a)(i) Termination, (ii) thirty (30) days following the date
of a 6(a)(ii) Termination, (iii) one hundred and twenty (120) days following
the date of a 6(a)(iii) Termination and (iv) the last day of the Option Period,
in the case of a 6(a)(iv) Termination. 
Notwithstanding the above, the portion of the Tail Option as to which
the Performance Condition is attained on or prior to the six-month anniversary
of a 6(a)(iii) Termination or 6(a)(iv) Termination shall remain exercisable by
the Executive until (A) one hundred and twenty (120) days following the
attainment of the applicable Performance Condition, in the case of a 6(a)(iii)
Termination, and (B) the last day of the Option Period, in the case of a
6(a)(iv) Termination.


 


(d)                                 Any
Option Shares purchased by the Executive through the exercise of the Option
shall be subject to the Call Option described in this Section 6(d).


 


(i)                                     Other
than as set forth in the second sentence of Section 6(d)(vii), upon and
following the termination of the Executive’s employment with the Company for
any reason (or no reason), Parent shall have the right and option (the “Call
Option”), but not the obligation, to purchase, or to cause any member of
Parent Group designated by Parent (the “Call Assignee”) to purchase,
from the Executive any or all of the Option Shares (whether purchased pursuant
to the exercise of the Vested Option prior to, on or following such termination
of employment).  The purchase price (the “Call
Price”) of the Option Shares subject to purchase under this provision (the “Called
Shares”) shall be (i) in the case of a 6(a)(i) Termination, the lower of
the purchase price of such Called Shares or the Fair Market Value of such
Called Shares on the date of the applicable “Call Notice” (as defined below)
and (ii) in the case of any other termination of employment, the Fair Market
Value of such Called Shares on the date of the applicable Call Notice.


 


(ii)                                  Parent
or the Call Assignee, as applicable, may exercise the Call Option by delivering
or mailing to the Executive (or to his estate, if applicable), in accordance
with Section 9 of this Agreement, written notice of


 


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exercise (a “Call Notice”).  The Call Notice shall specify the date
thereof, the number of Called Shares and the Call Price.


 


(iii)                               Within
ten (10) days after his receipt of the Call Notice, the Executive (or his
estate) shall tender to Parent or the Call Assignee, as applicable, at its
principal office the certificate or certificates representing the Called
Shares, duly endorsed in blank by the Executive (or his estate) or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer
of such shares to Parent or the Call Assignee, as applicable.  Upon its receipt of such shares, Parent or
the Call Assignee, as applicable, shall pay to the Executive the aggregate Call
Price therefor, in cash.


 


(iv)                              Parent
or the Call Assignee, as applicable, will be entitled to receive customary
representations and warranties from the Executive regarding the sale of the
Called Shares pursuant to the exercise of the Call Option as may reasonably
requested by Parent or the Call Assignee, as applicable, including but not
limited to the representation that the Executive has good and marketable title
to the Called Shares to be transferred free and clear of all liens, claims and
other encumbrances.


 


(v)                                 If
Parent or the Call Assignee, as applicable, delivers a Call Notice, then from
and after the time of delivery of the Call Notice the Executive shall no longer
have any rights as a holder of the Called Shares subject thereto (other than
the right to receive payment of the Call Price as described above), and such
Called Shares shall be deemed purchased in accordance with the applicable
provisions hereof and Parent or the Call Assignee, as applicable, shall be
deemed to be the owner and holder of such Called Shares.


 


(vi)          Any
Option Shares as to which the Call Option is not exercised will remain subject
to all terms and conditions of this Agreement, including the continuation of
Parent’s or the Call Assignee’s, as applicable, right to exercise the Call
Option.


 


(vii)         This
Section 6(d) is in addition to, and not in lieu of, any rights and obligations
of the Executive and Parent in respect of the Option Shares contained in the “Stockholders’
Agreement” (as defined below). 
Notwithstanding the above, this Section 6(d) shall be ineffective as to
each Option Share on and following an IPO or any other event which causes the
Class A Common Stock, or other securities for which all or substantially all of
the Class A Common Stock may have been exchanged, to be or become listed for
trading on or over an established securities market or established trading
system.


 


(e)                                  Compliance
with Legal Requirements.  The
granting and exercising of the Option, and any other obligations of the Company
under this Agreement shall be subject to all applicable federal and state laws,
rules and regulations and to such approvals by any regulatory or governmental
agency as may be required.  Parent, in
its sole discretion, may postpone the issuance or


 


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delivery of Option Shares as Parent may consider
appropriate and may require the Executive to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of Option Shares in compliance with applicable laws, rules
and regulations.


 


(f)                                    Transferability.


 


(i)                                     The
Option shall not be transferable by the Executive other than by will or the
laws of descent and distribution, and any such purported transfer shall be void
and unenforceable against Parent; provided that the designation of a
beneficiary shall not constitute a transfer or encumbrance.


 


(ii)                                  Prior
to an IPO, neither the Executive nor any transferee of the Executive (including
any beneficiary, executor or administrator) shall assign, alienate, pledge,
attach, sell or otherwise transfer or encumber the Option Shares, except in
accordance with the applicable provisions of this Agreement; provided, that,
Option Shares may be transferred (i) by will or the laws of descent, or (ii)
with the Board’s approval (which may be granted or withheld at its sole
discretion), by the Executive without consideration to (A) any person who is a “family
member” of the Executive, as such term is used in the instructions to SEC Form
S-8 (collectively, the “Immediate Family  Members”); (B) a trust
solely for the benefit of the Executive and/or Immediate Family Members; or (C)
any other transferee as may be approved by the Board in its sole discretion
(collectively, the “Permitted Transferees”); provided, that,
the Executive gives the Board advance written notice describing the terms and
conditions of the proposed transfer and the Board notifies the Executive in
writing that such a transfer is in compliance with the terms of this Agreement;
provided, further, that, the restrictions upon any Option
Shares transferred in accordance with this Section 6(f)(ii) shall apply to the
Permitted Transferee, such transfer shall be subject to the acceptance by the
Permitted Transferee of the terms and conditions hereof, and any reference in
this Agreement or the Stockholders’ Agreement to the Executive shall be deemed
to refer to the Permitted Transferee, except that (a) prior to an IPO,
Permitted Transferees shall not be entitled to transfer any Option Shares other
than by will or the laws of descent and distribution or, with the Board’s
approval (which may be granted or withheld at its sole discretion), to a trust
solely for the benefit of the Permitted Transferee, and (b) the consequences of
the termination of the Executive’s employment with the Company under the terms
of this Agreement shall continue to be applied with respect to the Permitted
Transferee to the extent specified in this Agreement.


 


(g)                                 Rights
as Stockholder.


 


(i)                                     The
Executive shall not be deemed for any purpose to be the owner of any shares of
Common Stock subject to this Option unless, until and to the extent that (A)
this Option shall have been exercised pursuant to its terms, (B) the Executive
shall have executed the Stockholders’ Agreement, (C) Parent shall have issued
and delivered to the Executive the Option Shares, and (D) the


 


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Executive’s name shall have been entered as a
stockholder of record with respect to such Option Shares on the books of
Parent.  The Executive acknowledges that
the Option and the Option Shares shall be subject to the Stockholders’
Agreement and, in the event of a conflict between any term or provision
contained herein and any terms or provisions of the Stockholders’ Agreement,
the applicable terms and provisions of the Stockholders’ Agreement will govern
and prevail except with respect to Sections 6(d) and 9(c) hereof.


 


(ii)                                  At
or promptly following an IPO or any other transaction which makes Parent
eligible to use SEC Form S-8, Parent shall register all of the Option Shares
(whether or not vested) on Form S-8 or an equivalent registration statement
(including, at Parent’s option, on the Form S-1 filed in connection with an
IPO), and use reasonable commercial efforts to keep such registration effective
so long as the Executive continues to hold any of the Option Shares.


 


(h)                                 Tax
Withholding.  Prior to the delivery
of a certificate or certificates representing the Option Shares, the Executive
must pay in the form of a certified check to Parent or the Company (as
designated by Parent) any such additional amount as Parent (or the Company)
determines that it is required to withhold under applicable federal, state or
local tax laws in respect of the exercise or the transfer of Option Shares;
provided that the Board or an authorized committee thereof may, in its sole discretion,
allow such withholding obligation to be satisfied by withholding Option Shares
otherwise deliverable upon exercise of the Option or by any other method.


 


7.                                       Restrictive
Legend.  Unless otherwise determined
by Parent, all certificates representing Stock shall have affixed thereto a
legend in substantially the following form, in addition to any other legends
that may be required under federal or state securities laws:


 


THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND AN OPTION TO PURCHASE SET FORTH IN
A CERTAIN STOCK OPTION AGREEMENT BETWEEN WMG PARENT CORP. AND THE REGISTERED
OWNER OF THIS CERTIFICATE (OR HIS PREDECESSOR IN INTEREST) AND A STOCKHOLDERS
AGREEMENT TO WHICH WMG PARENT CORP. AND THE REGISTERED OWNER OF THIS
CERTIFICATE (OR HIS PREDECESSOR IN INTEREST) ARE PARTIES, WHICH AGREEMENTS ARE
BINDING UPON ANY AND ALL OWNERS OF ANY INTEREST IN SAID SHARES.  SAID AGREEMENTS ARE AVAILABLE FOR INSPECTION
WITHOUT CHARGE AT THE PRINCIPAL OFFICE OF WMG PARENT CORP. AND COPIES THEREOF
WILL BE FURNISHED WITHOUT CHARGE TO ANY OWNER OF SAID SHARES UPON REQUEST.


 


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS.  THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR


 


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RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AND ANY
APPLICABLE STATE SECURITIES LAWS, UNLESS WMG PARENT CORP. HAS RECEIVED AN
OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY TO IT, TO THE EFFECT THAT
SUCH REGISTRATIONS ARE NOT REQUIRED.


 


8.                                       Securities
Laws. As a condition to the exercise of the Option, unless otherwise
determined by Parent, the Executive will be required to represent, warrant and
covenant as follows:


 


(a)                                  The
Executive is acquiring the Option Shares for his own account and not with a
view to, or for sale in connection with, any distribution of the Option Shares
in violation of the Securities Act of 1933, as amended, or any rule or
regulation under the Securities Act or in violation of any applicable state securities
law.


 


(b)                                 The
Executive has had such opportunity as he has deemed adequate to obtain from
representatives of Parent such information as is necessary to permit him to
evaluate the merits and risks of his investment in the Parent.


 


(c)                                  The
Executive has sufficient experience in business, financial and investment
matters to be able to evaluate the risks involved in acquiring the Option
Shares and to make an informed investment decision with respect to such
investment.


 


(d)                                 The
Executive can afford the complete loss of the value of the Option Shares and is
able to bear the economic risk of holding such Option Shares for an indefinite
period.


 


(e)                                  The
Executive understands that (i) the Option Shares have not been registered
under the Securities Act and constitute “restricted securities” within the
meaning of Rule 144 under the Securities Act; (ii) the Option Shares
cannot be sold, transferred or otherwise disposed of unless they are
subsequently registered under the Securities Act or an exemption from registration
is then available; and (iii) there is now no registration statement on
file with the Securities and Exchange Commission with respect to the Option
Shares and there is no commitment on the part of Parent to make any such
filing.


 


(f)                                    In
addition, upon the exercise of any Option, and as a condition thereof,
Executive will make or enter into such other written representations,
warranties and agreements as Parent may reasonably request in order to comply
with applicable securities laws or with this Agreement.


 


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9.                                       Adjustments
for Stock Splits, Stock Dividends, etc.; Change in Control.


 


(a)                                  The
Option shall be subject to adjustment or substitution as to the number, price,
kind or class of a share of stock subject thereto, the exercise price thereof
and otherwise, in each case as determined by the Board to be equitable and
necessary to preserve the rights of the Executive hereunder, (i) in the event
of changes in the Common Stock or in the capital structure of Parent by reason
of stock or extraordinary cash dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the Effective
Date or (ii) in the event of any change in applicable laws or any change in
circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, the Executive
hereunder, or which otherwise warrants equitable adjustment because it
interferes with the intended operation of this Agreement; provided that any
such adjustment shall be made by the Board with the intent of preserving the
value of the Option.  The Board shall
give the Executive notice of any and all adjustments hereunder and, upon
notice, such adjustment shall be conclusive and binding for all purposes absent
manifest error.


 


(b)                                 If
Parent’s Class A Common Stock is converted into or exchanged for, or
stockholders of Parent receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to any merger of Parent or acquisition of its
assets, then the rights of Parent under this Agreement shall inure to the
benefit of Parent’s successor and this Agreement shall apply to the securities
or other property received upon such conversion, exchange or distribution in
the same manner and to the same extent as the Option Shares.


 


(c)                                  Notwithstanding
anything in this Agreement to the contrary, in the event of a Change in
Control, the Board may in its discretion and upon at least 10 days’ advance
notice to the Executive, cancel any portion or all of the Option and pay to the
Executive, in cash or stock, or any combination thereof, the value of the
cancelled portion of the Option based upon the excess, if any, of the price per
share of Common Stock received or to be received by other shareholders of the
Company in the event over the per-share exercise price of the Option.


 


10.                                 Confidentiality
of the Agreement.  The Executive
agrees to keep confidential the terms of this Agreement.  This provision does not prohibit the
Executive from providing this information on a confidential and privileged
basis to the Executive’s attorneys or accountants for purposes of obtaining
legal or tax advice or as otherwise required by law, regulation or stock
exchange rule.


 


11.                                 Miscellaneous.


 


(a)                                  Notices.  Any notice, consent, request or other
communication made or given in accordance with this Agreement shall be in
writing and shall be deemed to have been duly given when actually received or,
if mailed, three days after mailing by registered or certified mail, return
receipt requested, or one business day after mailing by a nationally recognized
express mail delivery service with instructions for next-day delivery, to those
persons listed below at


 


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their following respective addresses or at such other
address or person’s attention as each may specify by notice to the others:


 


	
  To Parent:

  
	
   

  
	
  WMG Parent Corp.

  
	
  75 Rockefeller Plaza

  
	
  New York, New York 10019

  
	
  Attention: General Counsel

  
	
   

  
	
  with a copy to:

  
	
   

  
	
  Paul, Weiss, Rifkind, Wharton & Garrison LLP

  
	
  1285 Avenue of the Americas

  
	
  New York, New York 10019

  
	
  Attention: Michael J. Segal, Esq.

  
	
   

  
	
  To the Executive:

  
	
   

  
	
  The most recent address for the Executive in the
  records of Parent or the Company. The Executive hereby agrees to promptly
  provide Parent and the Company with written notice of any change in the
  Executive’s address for so long as this Agreement remains in effect.

  



 


(b)                                 Severability.  The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.


 


(c)                                  No
Rights to Employment.  Nothing
contained in this Agreement shall be construed as giving the Executive any
right to be retained, in any position, as an employee, consultant or director
of the Company or its affiliates or shall interfere with or restrict in any way
the right of the Company or its affiliates, which are hereby expressly
reserved, to remove, terminate or discharge the Executive at any time for any
reason whatsoever.


 


(d)                                 Beneficiary.  The Executive may file with Parent a written
designation of a beneficiary on such form as may be prescribed by Parent and
may, from time to time, amend or revoke such designation.  If no designated beneficiary survives the
Executive, the executor or administrator of the Executive’s estate shall be
deemed to be the Executive’s beneficiary.


 


(e)                                  Successors.  The terms of this Agreement shall be binding
upon and inure to the benefit of Parent and its successors and assigns, and of
the Executive and the beneficiaries, executors, administrators, heirs and
successors of the Executive.


 


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(f)                                    Entire
Agreement.  This Agreement contains
the entire agreement and understanding of the parties hereto with respect to
the subject matter contained herein and supersedes all prior communications,
representations and negotiations in respect thereto.  No change, modification or waiver of any
provision of this Agreement shall be valid unless the same be in writing and
signed by the parties hereto.


 


(g)                                 GOVERNING
LAW; CONSENT TO JURISDICTION.  THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED
WITHIN THAT STATE.  ANY ACTION TO ENFORCE
THIS AGREEMENT MUST BE BROUGHT IN A COURT SITUATED IN, AND THE PARTIES HEREBY
CONSENT TO THE JURISDICTION OF, COURTS SITUATED IN NEW YORK COUNTY, NEW
YORK.  EACH PARTY HEREBY WAIVES THE
RIGHTS TO CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM FOR THE RESOLUTION
OF ANY SUCH ACTION.


 


(h)                                 JURY
TRIAL WAIVER.  THE PARTIES EXPRESSLY
AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION ARISING
UNDER OR IN CONNECTION WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.


 


(i)                                     Interpretation.  The headings of the Sections hereof are
provided for convenience only and are not to serve as a basis for
interpretation or construction, and shall not constitute a part, of this Agreement.
The term “Company” as used herein with reference to the employment of the
Executive or the termination thereof shall refer to the Company and each member
of the “Parent Group” (as defined in Section 2 (b) (iii) (11).


 


(j)                                     Signature
in Counterparts.  This Agreement may
be signed in counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument.  The parties hereto confirm
that any facsimile copy of another party’s executed counterpart of this
Agreement (or its signature page thereof) will be deemed to be an executed
original thereof.


 


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IN WITNESS WHEREOF, the parties
hereto have executed this Agreement as of the date first set forth above.


 


	
   

  	
  WMG PARENT CORP.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [NAME]

  	
   

  



 


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Exhibit B


 


NOTICE OF OPTION EXERCISE


 


To exercise your
option to purchase shares of WMG Parent Corp. (“Parent”) common stock (“Shares”),
please fill out this form and return it to the Corporate Secretary of Parent,
together with a certified check in the amount of the exercise price due,  which is the product of the number of Shares with respect
to which you are exercising the Option and the per share exercise price of
$1,179.00. 
At its option, Parent may provide for the exercise price to be paid in a
different manner.  You are not required
to exercise your option with respect to all Shares thereunder.  You also must include a certified check in
the amount of any required payroll taxes and income tax withholding due in
connection with your exercise, unless Parent specifically provides for such
obligation to be satisfied in a different manner.


 


I hereby exercise my
right to purchase          Shares
under the option granted to me pursuant to the LTIP Stock Option Agreement
between myself and Parent, dated as of October 1, 2004.  My option is vested and exercisable as to the
Shares being purchased hereunder.  I have
enclosed either one or more certified checks covering both the exercise price
of $          and the
required payroll taxes and income tax withholding of $          .  (Please contact the office of the Chief
Executive Officer of WMG Acquisition Corp. to determine the amount of any
required payroll taxes and income tax withholding.)  I hereby represent that, to the best of my
knowledge and belief, I am legally entitled to exercise this option.  I hereby represent and warrant that I have
signed the Stockholders Agreement by and among Parent and the stockholders who
are party thereto, as described in the Stock Option Agreement.


 


	
  Signature:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Printed Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Social Security Number:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  



 


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