Exhibit 10.40


 


WMG PARENT CORP.

STOCK OPTION AGREEMENT


 


THIS 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 Paul-Rene Albertini (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 Services Limited (the “Company”), an indirect majority
owned subsidiary of Parent, or one of its direct or indirect subsidiaries, and
the Executive have entered into an employment agreement, dated November 28,
2002 (as amended, superceded or replaced from time to time, the “Employment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 and supplemented by the terms set out in the Schedule A entitled “UK Resident Executive”, the parties hereto agree
as follows:


 


1.                                       Grant.  Parent hereby grants to the
Executive an option (the “Option”) to purchase 522.5238 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”).


 


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


 


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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.


 


(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 - l 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.


 


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(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 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 tow 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 March 1,
2004 or (B) received by the Investors following March 1, 2004, 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 II LLC,
(vi) Putnam Investments Employees’ Securities Company II LLC, (vii) 1997 Thomas
II, 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 March 1, 2004.


 


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(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.


 


(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 3 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


 


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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 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


 


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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 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


 


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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 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.


 


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(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 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-l
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 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.


 


(i)                                     Additional Terms.  This
Agreement shall be supplemented by the additional terms set out in Exhibit
6(i).


 


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


 


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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 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 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


 


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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.


 


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





















 


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 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


 


12





















 


beneficiary survives the Executive, the executor or administrator of
the Executive’s estate shall he 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.


 


(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)                                     Headings.  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.


 


(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.


 


13





















 


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


 


	
   

  	
  WMG PARENT CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Paul-Rene Albertini

  	
   

  
	
   

  	
  PAUL-RENE ALBERTINI

  



 


14





















 


Schedule A


 


UK
Resident Executive


 


1.                                       Tax Indemnity


 


Without prejudice to Section 6(h)
of the Agreement (“Tax Withholding”), the Executive unconditionally and
irrevocably agrees as a condition of his right to exercise the Option:


 


1.1                                 unless
the directors of the Company determine otherwise in writing, to enter into a
tax election under section 431(1) of Income Tax (Earnings and Pensions) Act
2003 (“ITEPA”) to fully dis-apply the provisions of Chapter 2 of Part 7 of
ITEPA in respect of restricted securities in such form as is approved or agreed
with the Inland Revenue under the terms of paragraph 431(5) of ITEPA (a sample
copy of which is attached to the Agreement as Exhibit C); and


 


1.2                                 to
place the Company in funds and to indemnify the Company in respect of all
liability to income tax which the Company is liable to account for on behalf of
the Executive directly to any taxation authority (including, but without
limitation, through the UK PAYE system) and all liability to social security
which the Company is liable to account for on behalf of the Executive to any
taxation authority (including, but without limitation, primary class 1 (employee’s)
national insurance contributions in the UK) which arises as a consequence of or
in connection with the exercise of the Option, provided that (where and to the
extent permissible by law) the Board or an authorised committee thereof may, in
its sole discretion, allow the obligation set out in the paragraph 1.2 to be
satisfied by withholding Option Shares otherwise deliverable upon exercise of
the Option or by any other method; and


 


1.3                                 to
sign, promptly, all documents required by the Company to effect the terms of
this provision.


 


2.                                       Relevance of contract of employment


 


2.1                                 The
provisions set out in paragraph 3 of this Schedule arc without prejudice
to the terms set out in Section 11(c) of the Agreement (“No Rights to
Employment”).


 


2.2                                 The
grant of the Option will not form part of the Executive’s entitlement to
remuneration or benefits pursuant to his Employment Contract or any other
contract of employment.  The existence of
a contract of employment between any person and the Company or any member of
the Parent Group does not give such person any right or entitlement to have an
option granted to him in respect of any number of shares of Common Stock or any
expectation that such an option will or might be granted to him whether subject
to any conditions or at all.


 





















 


2.3                                 The rights and obligations of the Executive
under the terms of his contract of employment with the Company or any member of
the Parent Group shall not be affected by the grant of the Option.


 


2.4                                 The rights granted to the Executive upon the grant
of the Option shall not afford the Executive any rights or additional rights to
compensation or damages in consequence of the loss or termination of his office
or employment with the Company or any member of the Parent Group for any reason
whatsoever.


 


2.5                                 The Executive shall not be entitled to any
compensation or damages for any loss or potential loss which he may suffer by
reason of being or becoming unable to exercise the Option or the Option not
vesting in consequence of the loss or termination of his office or employment
with the Company or any member of the Parent Group for any reason (including,
without limitation, any breach of contract by his employer) or in any other
circumstances whatsoever.


 


2.6                                 Benefits received under this Agreement are not
pensionable in any circumstances.


 


3.                                       Third party rights


 


3.1                                 Subject to paragraphs 3.2 and 3.3 below, the
Company (and any other member of the Parent Group of which the Executive is an
officer or employee or has a liability to pay income tax or social security in
the UK by virtue of the Executive being an officer or employee of any member of
the Parent Group) (the “Third Party”) may rely upon and enforce the terms of paragraphs 1 and 2 of
this schedule against the Executive.


 


3.2                                 The third party rights referred to in
paragraph 3.1 may only be enforced by the relevant third subject to and in
accordance with the provisions of the Contracts (Rights of Third Parties) Act
1999 (the “1999 Act”) and all
other relevant terms of this Agreement.


 


3.3                                 Notwithstanding any other provision of this
Agreement and unless the Company or the Parent (on behalf of any other Third
Party which is not the Company) agree otherwise in writing, the Parent and the
Executive may not rescind or vary any of the provisions of this schedule so
as to extinguish or alter the Third Party’s rights under this paragraph 3
without his prior written consent and accordingly section 2(l)(a) to (c)
of the 1999 Act shall not apply with respect to the Third Party’s rights under
paragraph 3.1.


 


3.4                                 Except as provided in this paragraph, a
person who is not a party to this Agreement has no right under the 1999 Act to
rely upon or enforce any term of this schedule but this does not affect
any right or remedy of a third party which exists or is available apart from
that Act.


 


4.                                       Governing law and jurisdiction


 


4.1                                 Without prejudice to the terms of Section 11(g)
of the Agreement, the terms of this schedule shall be governed by and
construed in accordance with the law of England and


 


16





















 


Wales (and the terms of the Agreement insofar as they relate to the
enforcement of any right or obligation set out in this Schedule).


 


4.2                                 To the extent that any party seeks to enforce
any right or obligation set out in this Schedule:


 


4.2.1                        each party irrevocably submits to the
exclusive jurisdiction of the courts of England and Wales over any claim,
dispute or matter arising under or in connection the terms of this schedule;


 


4.2.2                        each party irrevocably waives any objection which
it may have now or later to proceedings being brought in the courts of England
and Wales and any claim that proceedings have been brought in an inconvenient
forum; and


 


4.2.3                        each party further irrevocably agrees that a
judgement in any proceedings brought in the courts of England and Wales shall
be conclusive and binding upon each party and may be enforced in the courts of
any other jurisdiction.


 


17





















 


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 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:

  	
   

  	
   

  	
   

  



 





















 


Exhibit C


 


Joint Election under s431 ITEPA
2003 for full or partial disapplication of Chapter 2 Income Tax (Earnings and
Pensions) Act 2003


 


One Part
Election


 


1.  Between


 


	
  the
  Executive

  	
   

  	
  [Insert name of Executive]

  
	
   

  	
   

  	
   

  
	
  whose
  National Insurance Number is

  	
   

  	
   [Insert NINO]

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  the
  Company (of which the Executive is an officer or an employee)

  	
   

  	
     [Insert name of Company that

  
	
   

  	
   

  	
  employs the Executive]

  
	
   

  	
   

  	
   

  
	
  of
  Company Registration Number

  	
   

  	
     [Insert number]

  



 


2.  Purpose of Election


 


This joint election is made pursuant to section 431(1)
or 431(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and applies where
employment-related securities, which are restricted securities by reason of section 423
ITEPA, are acquired.


 


The effect of an election under section 431(1)
is that, for the relevant Income Tax and NIC purposes, the employment-related
securities and their market value will be treated as if they were not
restricted securities and that sections 425 to 430 ITEPA do not apply.  An election under section 431(2) will
ignore one or more of the restrictions in computing the charge on
acquisition.  Additional Income Tax will
be payable (with PAYE and NIC where the securities are Readily Convertible
Assets).


 


Should the value of the securities
fall following the acquisition, it is possible that Income Tax/NIC that would
have arisen because of  any  future
chargeable event (in the absence of an election) would have been less than the
Income Tax/NIC due by reason of this election. 
Should this be the case, there is no Income Tax/NIC relief available
under Part 7 of ITEPA 2003; nor is it available if the securities acquired are
subsequently transferred, forfeited or revert to the original owner.


 


3.  Application


 


This joint election is made not later than 14 days after the date of
acquisition of the securities by the employee and applies to:


 


	
  Number of securities

  	
   

  	
  [Insert number of shares]

  
	
   

  	
   

  	
   

  
	
  Description
  of securities

  	
   

  	
  [Class
  A Common Stock]

  
	
   

  	
   

  	
   

  
	
  Name
  of issuer of securities

  	
   

  	
  WMG
  PARENT CORP., a Delaware Corporation

  
	
   

  	
   

  	
   

  
	
  Acquired
  by the Executive on

  	
   

  	
  [Insert date]

  



 





















 


4.  Extent of Application


 


This election disapplies s 431(1) ITEPA: All restrictions attaching to
the securities.


 


5.  Declaration


 


This election will become irrevocable upon the later of its signing or
the acquisition of employment-related securities to which this election
applies.


 


In signing this joint election, we agree to be bound by its terms as
stated above.


 


 


	
   

  	
   

  	
   

  	
     /   /

  	
   

  
	
  Signature  (Executive)

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
     /   /

  	
   

  
	
  Signature
  (for and on behalf of the Company)

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Position
  in company

  	
   

  	
   

  



 


Note:                  Where the election is in respect of multiple
acquisitions, prior to the date of any subsequent acquisition of a security it may be revoked by agreement between
the employee and employer in respect of that and any later acquisition.


 


2