Exhibit 10.38


 


RESTRICTED STOCK AWARD AGREEMENT


 


THIS RESTRICTED STOCK AWARD 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 David H. Johnson (the “Executive”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the “Employment Agreement” (as defined
herein).


 


R  E  C  I  T  A  L  S:


 


WHEREAS, Warner
Music Group Inc., a Delaware corporation (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 as of December 15, 1998 (such employment agreement, as it may be amended,
superceded or replaced from time to time, the “Employment Agreement”);
and


 


WHEREAS, the Board
of Directors of Parent (the ‘‘Board”) has determined to sell to the
Executive on the date hereof (the “Effective Date”) the restricted stock
provided for herein (the “Restricted Stock Award”), such sale to be
subject to the terms and conditions set forth herein.


 


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


 


1.                                       Purchase
of Restricted Stock. Subject to the terms and conditions set forth in this
Agreement, Parent hereby sells to the Executive, and the Executive hereby
purchases from Parent, effective as of the Effective Date (which is the date
hereof), 104,9382716 shares of Class A Common Stock of Parent (the “Restricted
Shares”) for an aggregate purchase price of S123,722,22. The Board
acknowledges to the Executive that such purchase price is the fair market value
of the Restricted Shares on the Effective Date (the “Initial Value”),
determined without regard to any restrictions applicable thereto other than
restrictions which by their terms do not lapse. The Restricted Shares shall
vest in accordance with Section 2 and
Section 5 hereof.


 





















 


2.                                       Vesting.


 


(a)          Service-Based Restricted Stock. 
Except as otherwise provided in this Agreement, one-third of the
Restricted Shares (the “Service-Based Restricted Stock”), shall vest and become non-forfeitable 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 Restricted Stock shall be vested and
non-forfeitable on the day prior to the fourth anniversary of the Effective
Date; provided that any unvested Service-Based Restricted Stock shall become
vested and non-forfeitable 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 2(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 “C1C Termination”).


 


(b)          Performance-Based Restricted Stock. 
Except as otherwise provided in this Agreement, two-thirds of the
Restricted Shares (the ‘‘Performance-Based Restricted Stock”) shall
contingently vest in equal installments on the day prior to each of the first,
second, third and fourth anniversary of the Effective Date provided that the
Executive remains employed with the Company on each such date (the “Service
Condition”), but. shall not he considered to be fully vested until and
unless the condition described in Section 2(b)(i) or 2(b)(ii), as applicable,
has been satisfied (each such condition, a “Performance Condition”).


 


(i)                                     With respect to one-half of the
Performance-Based Restricted Stock, the Performance Condition shall be the
occurrence of a 2X Restricted Stock Liquidity Event.


 


(ii)                                  With respect to the other one-half of the
Performance-Based Restricted Stock, the Performance Condition shall be the
occurrence of a 3X Restricted Stock Liquidity Event.


 


(iii)                               For purposes of this Section 2(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.


 


2





















 


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


 


(5)                                  “Bonus Liquidity 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.


 


3





















 


(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 closet 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 the Parent Group, the Board
shall take into account the free cash flow, revenue and EB1TDA 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” shall mean $1.25 billion.


 


(9)                                  “Investor Equity” shall mean all
equity securities of all members of the 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 1 LLC, (vi)
Putnam Investments Employees’ Securities Company II LLC, (vii) 1.997 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
FV, L.P., (xiii) Providence Equity Operating Partners IV, L.P. and (xiv) Lexa
Partners LLC, or any


 


4





















 


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 each share of Performance-Based Restricted Stock shall
be deemed to have been attained upon a C1C Termination.


 


(c)          The
term “Vested Restricted Shares,” as used herein, shall mean (i) each
share of Service-Based Restricted Stock on and following the time that the
vesting condition set faith in Section 2 (a) hereof has been actually or deemed
satisfied as to such share, (ii) each share of Performance-Based Restricted
Stock on and following the time that both the Service Condition and the Performance
Condition have been actually or deemed satisfied as to such share and (iii)
each share of Performance-Based Restricted Stock not described in the
immediately preceding clause (ii) on an 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. Restricted Shares which have not become Vested
Restricted Shares are hereinafter referred to as “Unvested Restricted Shares.”


 


3.                                       Taxes.
The Executive shall pay to the Company or Parent promptly upon request, and in
any event at the time the Executive recognizes taxable income in respect of the
Restricted Stock Award, an amount equal to the taxes the Company or Parent
determines it is required to withhold under applicable tax laws with respect to
the Restricted Shares. Such payment shall be made in the form of cash. As a
condition to the effectiveness of the Restricted Stock Award, the Executive
shall make a timely and valid election pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended (the “Code”) to realize
taxable income in respect of the grant of the Restricted Stock Award, in an
amount equal to the Initial Value less the purchase price paid for the
Restricted Shares. Notwithstanding the above, because the Company and the
Executive acknowledge that the purchase price for the Restricted Shares is
equal to the Initial Value, so long as the Executive makes a timely and valid
Code Section 83(b) election in respect of the Restricted Shares the Company and
the Executive agree that no tax is due, and no withholding is necessary, upon
or on account of the Executive’s purchase of the Restricted Shares.


 


4.                                       Certificates.
Certificates evidencing the Restricted Shares shall be issued by Parent and
shall be registered in the Executive’s name on the stock transfer books of
Parent promptly after the date hereof, but shall remain in the physical custody
of Parent or its designee at all times prior to, in the case of any particular
Restricted Shares, the date such Restricted Shares become Vested Restricted
Shares. As a condition to the receipt of this Restricted Stock Award, the
Executive shall deliver to Parent a stock power, duly endorsed in blank,
relating to the Restricted Shares.


 


5





















 


5.                                         Effect of
Termination of Employment.


 


(a)          Upon
the termination of the Executive’s employment with the Company for any reason,
the Restricted Shares shall be subject to the Call Option described in Section
5(b) below. For purposes of this Agreement, such a termination may be (i) by
the Company for Cause or on account of the Executive’s Disability, by the
Executive without Good Reason or on account of the Executive’s death (a “5(a)(i)
Termination”) or (ii) by the Company without Cause or by the Executive for
Good Reason (a “5(a)(ii) Termination”).


 


(b)          Call Option.


 


(i)                                     Other than as set
forth in the second sentence of Section 5(b)(ix), upon 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 the Parent Group designated
by Parent (the “Call Assignee”) to purchase, from the Executive, on and
after the Initial Call Date any or all of the Restricted Shares, The purchase
price (the “Call Price”) of the Restricted Shares subject to purchase
under this provision (the “Called Shares”) shall be as follows:


 


(1)         In the event of a 5(a)(i)
Termination, (A) as to each Called Share which is an Unvested Restricted Share
immediately prior to the Initial Call Date of such share, the lower of the Fair
Market Value of such share on the date of the applicable “Call Notice”(us
defined below) or the Initial Value of such share, and (B) as to each Called
Share which is a Vested Restricted Share immediately prior to the Initial Call
Date of such share, the Fair Market Value of such share on the date of the
applicable Call Notice.


 


(2)         In the event of a 5(a)(ii) Termination, as to each Called Share of Service-Based
Restricted Stock and Performance- Based Restricted Stock which is a Vested
Restricted Share immediately prior to the Initial Call Date of such share, or
which becomes a Vested Restricted Share upon termination of employment solely because
such termination is a CIC Termination, the Fair Market Value of such share on
the date of the applicable Call Notice


 


(3)         In the event of a
5(a)(ii) Termination, as to each Called Share of Service-Based Restricted Stock
and Performance-Based Restricted Stock which is an Unvested Restricted Share
immediately prior to the Initial Call Date of such share (other than such a
share which becomes a Vested Restricted Share upon termination of employment
solely because such termination is a


 


6





















 


CIC Termination), the lower of the Fair Market Value of such share on
the date of the applicable Call Notice or the Initial Value of such share.


 


(ii)                                  The “Initial Call
Date” shall mean (A) with respect to each share of Performance-Based
Restricted Stock as to which the Service Condition, but not the Performance
Condition, has been attained at the time of a 5(a)(ii) Termination, the earlier
of (I) the date the Performance Condition is first attained with respect to
such share and (II) the six-month anniversary of the 5(a)(ii) Termination, or
(B) in all other cases, the date of termination of the Executive’s employment
with the Company.


 


(iii)                               For purposes of Section
5(b)(i), (A) 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 5(a)(ii) Termination and
(B) 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 5(a)(i) Termination.


 


(iv)                              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
16 of this Agreement, written notice of exercise (a “Call Notice”) at
any time following the Initial Call Date. The Call Notice shall specify the
date thereof, the number of Called Shares and the Call Price.


 


(v)                                 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 therefore, in cash.


 


(vi)                              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.


 


7





















 


(vii)                           If Parent or the Call
Assignee, as applicable, delivers a Call Notice, then from and after the lime
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.


 


(viii)                        Any Restricted 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.


 


(ix)                                This Section 5(b) is in
addition to, and not in lieu of, any rights and obligations of the Executive
and Parent in respect of the Restricted Shares contained in the “Stockholders’
Agreement” (as defined below). Notwithstanding the above, this Section 5(b)
shall be ineffective as to each Vested Restricted Share on and following the
later of (I) 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 and (II) the date
on which such share becomes a Vested Restricted Share.


 


6.                                       Rights
as a Stockholder: Dividends.


 


(a)                                  The
Executive shall be the record owner of the Restricted Shares unless and until
such shares are sold or otherwise disposed of, and as record owner shall be
entitled to all rights of a common stockholder of Parent, including, without limitation,
voting rights, if any, with respect to the Restricted Shares; provided that
(i) any cash or in-kind dividends paid with respect to Restricted Shares which
are not Vested Restricted Shares shall be withheld by Parent and shall be paid
to the Executive, without interest, only when, and if, such Restricted Shares
shall become Vested Restricted Shares (provided, however, that in the event of
a rights offering in which the Restricted Shares are entitled to participate,
the Executive shall be entitled to subscribe for and purchase any securities
made available in such rights offering with respect to all Restricted Shares,
whether or not such Restricted Shares are Vested Restricted Shares), and (ii)
the Restricted Shares shall be subject to the limitations on transfer and
encumbrance set forth in this Agreement and the stockholders’ agreement
executed and entered into by and between Parent, the Investors and the other
parties thereto prior to the Effective Date (such stockholders’ agreement, as
it may be amended, superseded or replaced 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. As soon as practicable following
the vesting of any Restricted Shares, certificates for such Vested Restricted
Shares shall be delivered to the Executive or to the Executive’s legal
representative along with the stock powers relating thereto.


 


8





















 


(b)                                 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 Restricted
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 Restricted
Shares.


 


7.                                       Restrictive
Legend.  All certificates
representing Restricted Shares 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, unless and to the extent
determined inapplicable or unnecessary by Parent:


 


THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND AN OPTION TO PURCHASE SET FORTH IN A CERTAIN
RESTRICTED STOCK AWARD 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 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, AS
AMENDED AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS WMG PARENT CORP. HAS
RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY TO IT,
TO THE EFFECT THAT SUCH REGISTRATIONS ARE NOT REQUIRED.


 


8.                                       Transferability.


 


(a)                                  The
Restricted Shares may not, at any time prior to becoming Vested Restricted
Shares, be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by the Executive and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void


 


9





















 


and
unenforceable against the Parent; provided that the designation of a beneficiary
shall not constitute an assignment, alienation, pledge, attachment, sale,
transfer or encumbrance; and provided further that the foregoing restriction
shall not apply to a sale of Restricted Shares in compliance with the
obligations, if any, of the holder thereof to sell such shares pursuant to the “drag
along” provisions of the Stockholders’ Agreement.


 


(b)                                 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 Restricted Shares upon or
subsequent to their vesting, except in accordance with the applicable
provisions of this Agreement and the Stockholders’ Agreement; provided, that,
subject to the provisions of the Stockholders’ Agreement, Vested Restricted
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 Vested
Restricted Shares transferred in accordance with this Section 8(b) 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 of the
Stockholders’ Agreement, 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 Vested Restricted 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.


 


9.                                       Securities
Laws.  The Executive represents, warrants and covenants as follows:


 


(a)                                  The
Executive is acquiring the Restricted Shares for his own account and not with a
view to, or for sale in connection with, any distribution of the Restricted
Shares in violation of the Securities Act 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.


 


10





















 


(c)                                         The Executive
has sufficient experience in business, financial and investment matters to be
able to evaluate the risks involved in acquiring of the Restricted 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 Restricted Shares and is able
to bear the economic risk of holding such shares for an indefinite period.


 


(e)                                         The Executive
understands that (i) the Restricted Shares have not been registered under the
Securities Act and are “restricted securities” within the meaning of Rule 144
under the Securities Act; (ii) the Restricted 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;
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least one (1) year and even then will not be available unless
a public market then exists for such shares, adequate information concerning
Parent is then available to the public, and other terms and conditions of Rule
144 are complied with and (iv) there is now no registration statement on file
with the SEC with respect to the Restricted Shares and, except as set forth in
Section 6(b) hereof or in the Stockholders’ Agreement, there is no commitment
on the part of Parent to make any such filing.


 


(f)                                           In addition,
upon any Restricted Shares becoming Vested Restricted Shares, the Executive
will make or enter into such other written representations, the warranties and
agreements as the Board may reasonably determine are legally required in order to
comply with applicable securities laws.


 


10.                                 Adjustments
for Stock Splits, Stock Dividends, etc.


 


(a)                                         If from time
to time during the term of this Agreement there is any stock split-up, stock
dividend, stock distribution or other reclassification of Parent’s Class A
Common Stock, any and all new, substituted or additional securities to which
the Executive is entitled by reason of his ownership of the Restricted Shares
shall be immediately subject to the terms of this Agreement.


 


(b)                                        If the 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 Restricted Shares.


 


11.                                 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


 


11





















 


attorneys or
accountants for purposes of obtaining legal or tax advice or as otherwise
required by law, regulation or stock exchange rule.


 


12.                                 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 the Agreement shall be severable and enforceable to the extent
permitted by law.


 


13.                                 Waiver.  Any right of Parent contained in the
Agreement may be waived in writing by the Board. No waiver of any right
hereunder by any party shall operate as a waiver of any other right, or as a
waiver of the same right with respect to any subsequent occasion for its
exercise, or as a waiver of any right to damages. No waiver by any party of any
breach of this Agreement shall be held to constitute a waiver of any other
breach or a waiver of the continuation of the same breach.


 


14.                                 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.


 


15.                                 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.


 


16.                                 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


 


12





















 


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.


 


17.                                 Beneficiary.  The Executive may file with the Board a
written designation of a beneficiary on such form as may be prescribed by the
Board 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. The
Executive’s beneficiary shall succeed to the rights and obligations of the
Executive hereunder upon the Executive’s death, except as maybe otherwise
described herein.


 


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


 


19.                                 Modifications.  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.


 


20.                                Restricted Stock
Award Subject to the Stockholders’ Agreement.  By entering into this Agreement the Executive
agrees and acknowledges that the Executive has received and read the
Stockholders’ Agreement. The Stockholders’ Agreement as it may be amended from
time to time is hereby incorporated herein by reference. 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
Section 5(b) hereof. Notwithstanding the above, Section 4.1 of the Stockholders’
Agreement (“Tag-Along”) shall not apply to Unvested Restricted Shares.


 


21.                                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.


 


13





















 


22.                                  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.


 


23.                                  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)(11).


 


24.                                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.


 


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


 


	
   

  	
  WMG PARENT CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Edgar
  Bronfman. Jr.

  	
   

  
	
   

  	
  By: 

  	
  Edgar Bronfman. Jr.

  
	
   

  	
  Title:

  	
  CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ David H. Johnson

  	
   

  
	
   

  	
  David H. Johnson

  
				



 


14