Exhibit 10.54


 


Warner Music Group Corp.

2005 Omnibus Award Plan


 


1.                                      Purpose


 


The purpose of the Plan
is to provide a means through which the Company and its Affiliates may attract
able persons to enter and remain in the employ of the Company and its Affiliates
and to provide a means whereby employees, directors and consultants of the
Company and its Affiliates can acquire and maintain Common Stock ownership, or
be paid incentive compensation measured by reference to the value of Common
Stock, thereby strengthening their commitment to the welfare of the Company and
its Affiliates and promoting an identity of interest between stockholders and
these persons.


 


So that the appropriate
incentive can be provided, the Plan provides for granting Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted
Stock Units, Phantom Stock Awards, Stock Bonuses and Performance Compensation
Awards, or any combination of the foregoing.


 


2.                                      Definitions


 


The following definitions
shall be applicable throughout the Plan.


 


(a)                                  “Affiliate”
means any entity that directly or indirectly is controlled by, controls or is under
common control with the Company.


 


(b)                                 “Award”
means, individually or collectively, any Incentive Stock Option, Nonqualified
Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit,
Phantom Stock Award, Stock Bonus or Performance Compensation Award granted
under the Plan.


 


(c)                                  “Board”
means the Board of Directors of the Company.


 


(d)                                 “Cause”
means the Company or an Affiliate having “cause” to terminate a Participant’s
employment or service, as defined in any existing employment, consulting or any
other agreement between the Participant and the Company or an Affiliate or, in
the absence of such an employment, consulting or other agreement, upon (i) the
determination by the Committee that the Participant has ceased to perform his
duties to the Company, or an Affiliate (other than as a result of his
incapacity due to physical or mental illness or injury), which failure amounts
to an intentional and extended neglect of his duties to such party, (ii) the
Committee’s determination that the Participant has engaged or is about to
engage in conduct materially injurious to the Company or an Affiliate, (iii) the
Participant having been convicted of, or plead guilty or no contest to, a
felony or any crime involving as a material element fraud or dishonesty, (iv) the
failure of the Participant to follow the
lawful instructions of the Board or his direct superiors or (v) in the
case of a Participant who is a non-employee director, the


 





















 


Participant ceasing to be a member of the
Board in connection with the Participant engaging in any of the activities described
in clauses (i) through (iv) above.


 


(e)                                  “Change
in Control” shall, unless in the case of a particular Award the applicable
Award agreement states otherwise or contains a different definition of “Change
in Control,” have the meaning set forth in the Certificate of Incorporation of
the Company.


 


(f)                                    “Code”
means the Internal Revenue Code of 1986, as amended.  Reference in the Plan to any section of
the Code shall be deemed to include any amendments or successor provisions to
such section and any regulations under such section.


 


(g)                                 “Committee”
means a committee of at least two people as the Board may appoint to administer
the Plan or, if no such committee has been appointed by the Board, the
Board.  Unless the Board is acting as the
Committee or the Board specifically determines otherwise, each member of the Committee
shall, at the time he takes any action with respect to an Award under the Plan,
be an Eligible Director.  However, the fact
that a Committee member shall fail to qualify as an Eligible Director shall not
invalidate any Award granted by the Committee which Award is otherwise validly granted
under the Plan.


 


(h)                                 “Common
Stock” means the common stock, par value $0.01 per share, of the Company and
any stock into which such common stock may be converted or into which it may be
exchanged.


 


(i)                                     “Company”
means Warner Music Group Corp. and any successor
thereto.


 


(j)                                     “Date
of Grant” means the date on which the granting of an Award is authorized, or
such other date as may be specified in such authorization or, if there is no
such date, the date indicated on the applicable Award agreement.


 


(k)                                  “Disability”
means, unless in the case of a particular Award the applicable Award agreement
states otherwise, the Company or an Affiliate having cause to terminate a
Participant’s employment or service on account of “disability,” as defined in
any existing employment, consulting or other similar agreement between the
Participant and the Company or an Affiliate or, in the absence of such an
employment, consulting or other agreement, a condition entitling the
Participant to receive benefits under a long-term disability plan of the
Company or an Affiliate or, in the absence of such a plan, the complete and
permanent inability by reason of illness or accident to perform the duties of
the occupation at which a Participant was employed or served when such
disability commenced, as determined by the Committee based upon medical
evidence acceptable to it.


 


(l)                                     “Effective
Date” means the date upon which the Pricing Committee of the Board sets the
price at which the shares of Common Stock are to be sold to a group of underwriters
in the underwritten initial public offering of Common


 


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Stock, immediately following the recapitalization of the Common Stock
in preparation for such initial public offering.


 


(m)                               “Eligible
Director” means a person who is (i) a “non-employee director” within the
meaning of Rule 16b-3 under the Exchange Act, or a person meeting
any similar requirement under any successor rule or regulation and (ii) an
“outside director” within the meaning of Section 162(m) of the Code, and
the Treasury Regulations promulgated thereunder; provided, however,
that clause (ii) shall apply only with respect to grants of Awards with
respect to which the Company’s tax deduction could be limited by Section 162(m)
of the Code if such clause did not apply.


 


(n)                                 “Eligible
Person” means any (i) individual regularly employed by the Company or
Affiliate who satisfies all of the requirements of Section 6; provided,
however, that no such employee covered by a collective bargaining
agreement shall be an Eligible Person unless and to the extent that such
eligibility is set forth in such collective bargaining agreement or in an
agreement or instrument relating thereto; (ii) director of the Company or an
Affiliate; or (iii) consultant or advisor to the Company or an Affiliate
who may be offered securities pursuant to Form S-8.


 


(o)                                 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.


 


(p)                                 “Fair
Market Value”, on a given date means (i) if the Stock is listed on a
national securities exchange, the average of the highest and lowest sale prices
reported as having occurred on the primary exchange with which the Stock is
listed and traded on the date prior to such date, or, if there is no such sale
on that date, then on the last preceding date on which such a sale was
reported; (ii) if the Stock is not listed on any national securities
exchange but is quoted in the Nasdaq National Market (the “Nasdaq”) on a last
sale basis, the average between the high bid price and low ask price reported
on the date prior to such date, or, if there is no such sale on that date, then
on the last preceding date on which a sale was reported; or (iii) if the
Stock is not listed on a national securities exchange nor quoted in the Nasdaq
on a last sale basis, the amount determined by the Committee to be the fair
market value based upon a good faith attempt to value the Stock accurately and
computed in accordance with applicable regulations of the Internal Revenue Service.


 


(q)                                 “Good
Reason” shall have the meaning, if any, set forth in a Participant’s employment
agreement, if any, with the Company or an Affiliate, and shall not apply in
respect of any Participant who does not have such an employment agreement.


 


(r)                                    “Incentive
Stock Option” means an Option granted by the Committee to a Participant under
the Plan which is designated by the Committee as an incentive stock option as
described in Section 422 of the Code and otherwise meets the requirements
set forth herein.


 


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(s)                                  “Mature
Shares” means shares of Stock owned by a Participant which are not subject to
any pledge or other security interest and have such other requirements as the
Committee may determine are necessary in order to avoid an accounting earnings
charge on account of the use of such shares to pay the Option Price or satisfy
a withholding obligation in respect of an Option.


 


(t)                                    “Negative
Discretion” shall mean the discretion authorized by the Plan to be applied by
the Committee to eliminate or reduce the size of a Performance Compensation
Award in accordance with Section 11(d)(iv) of the Plan; provided,
that the exercise of such discretion would not cause the Performance
Compensation Award to fail to qualify as “performance-based compensation” under
Section 162(m) of the Code.


 


(u)                                 “Nonqualified
Stock Option” means an Option granted by the Committee to a Participant under
the Plan which is not designated by the Committee as an Incentive Stock Option.


 


(v)                                 “Option”
means an Award granted under Section 7 of the Plan.


 


(w)                               “Option
Period” means the period described in Section 7(c) of the Plan.


 


(x)                                   “Option
Price” means the exercise price for an Option as described in Section 7(a) of
the Plan.


 


(y)                                 “Participant”
means an Eligible Person who has been selected by the Committee to participate
in the Plan and to receive an Award pursuant to Section 6 of the Plan.


 


(z)                                   “Parent”
means any parent of the Company as defined in Section 424(e) of the
Code.


 


(aa)                            “Performance
Compensation Award” shall mean any Award designated by the Committee as a
Performance Compensation Award pursuant to Section 11 of the Plan.


 


(bb)                          “Performance
Criteria” shall mean the criterion or criteria that the Committee shall select
for purposes of establishing the Performance Goal(s) for a Performance Period
with respect to any Performance Compensation Award under the Plan.  The Performance Criteria that will be used to
establish the Performance Goal(s) shall be based on the attainment of specific
levels of performance of the Company (or Affiliate, division or operational
unit of the Company) and shall be limited to the following:


 


(i)                                     net
earnings or net income (before or after taxes);


 


(ii)                                  basic
or diluted earnings per share (before or after taxes);


 


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(iii)                               net
revenue or net revenue growth;


 


(iv)                              gross
profit or gross profit growth;


 


(v)                                 net
operating profit (before or after taxes);


 


(vi)                              return
measures (including, but not limited to, return on assets, capital, invested
capital, equity, or sales);


 


(vii)                           cash
flow (including, but not limited to, operating cash flow, free cash flow, and
cash flow return on capital);


 


(viii)                        earnings
before or after taxes, interest, depreciation and/or amortization;


 


(ix)                                gross
or operating margins;


 


(x)                                   productivity
ratios;


 


(xi)                                share
price (including, but not limited to, growth measures and total stockholder
return);


 


(xii)                             expense
targets;


 


(xiii)                          margins;


 


(xiv)                         operating
efficiency;


 


(xv)                            objective
measures of customer satisfaction;


 


(xvi)                         working
capital targets;


 


(xvii)                      measures of
economic value added;


 


(xviii)                   inventory
control; and


 


(xix)                           enterprise
value.


 


Any one or more of the
Performance Criterion may be used on an absolute or relative basis to measure
the performance of the Company and/or an Affiliate as a whole or any business
unit of the Company and/or an Affiliate or any combination thereof, as the
Committee may deem appropriate, or any of the above Performance Criteria as
compared to the performance of a group of comparator companies, or published or
special index that the Committee, in its sole discretion, deems appropriate, or
the Company may select Performance Criterion (xi) above as compared to
various stock market indices.  The
Committee also has the authority to provide for accelerated vesting of any
Award based on the achievement of Performance Goals pursuant to the Performance
Criteria specified in this paragraph.  To
the extent required under Section 162(m) of the Code, the Committee shall,
within the first 90 days of a


 


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Performance Period (or,
if longer or shorter, within the maximum period allowed under Section 162(m)
of the Code), define in an objective fashion the manner of calculating the
Performance Criteria it selects to use for such Performance Period.  In the event that applicable tax and/or
securities laws change to permit Committee discretion to alter the governing
Performance Criteria without obtaining stockholder approval of such changes,
the Committee shall have sole discretion to make such changes without obtaining
stockholder approval.


 


(cc)                            “Performance
Formula” shall mean, for a Performance Period, the one or more objective
formulas applied against the relevant Performance Goal to determine, with
regard to the Performance Compensation Award of a particular Participant,
whether all, some portion but less than all, or none of the Performance
Compensation Award has been earned for the Performance Period.


 


(dd)                          “Performance
Goals” shall mean, for a Performance Period, the one or more goals established
by the Committee for the Performance Period based upon the Performance
Criteria.  The Committee is authorized at
any time during the first 90 days of a Performance Period (or, if longer or
shorter, within the maximum period allowed under Section 162(m) of the
Code), or at any time thereafter to the extent allowed under Section 162(m)
of the Code, in its sole and absolute discretion, to adjust or modify the
calculation of a Performance Goal for such Performance Period in order to
prevent the dilution or enlargement of the rights of Participants based on the
following events:


 


(i)                                     asset write-downs;


 


(ii)                                  litigation or claim judgments or settlements;


 


(iii)                               the effect of changes in tax laws, accounting
principles, or other laws or regulatory rules affecting reported results;


 


(iv)                              any reorganization and restructuring programs;


 


(v)                                 extraordinary nonrecurring items as described in
Accounting Principles Board Opinion No. 30 (or any successor pronouncement
thereto) and/or in management’s discussion and analysis of financial condition
and results of operations appearing in the Company’s annual report to
stockholders for the applicable year;


 


(vi)                              acquisitions or divestitures;


 


(vii)                           any other specific unusual or nonrecurring
events, or objectively determinable category thereof;


 


(viii)                        foreign exchange gains and losses; and


 


(ix)                                a change in the Company’s fiscal year.


 


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(ee)                            “Performance
Period” shall mean the one or more periods of time not less than one (1) year
in duration, as the Committee may select, over which the attainment of one or
more Performance Goals will be measured for the purpose of determining a
Participant’s right to, and the payment of, a Performance Compensation Award.


 


(ff)                                “Phantom
Stock Award” shall mean a cash award whose value is determined based on the
change in the value of the Company Common Stock from the Effective Date.


 


(gg)                          “Plan”
means this Warner Music Group Corp. 2005 Omnibus Award Plan.


 


(hh)                          “Restricted
Period” means, with respect to any Award of Restricted Stock or any Restricted
Stock Unit, the period of time determined by the Committee during which such
Award is subject to the restrictions set forth in Section 9 or, as
applicable, the period of time within which performance is measured for
purposes of determining whether an Award has been earned.


 


(ii)                                  “Restricted
Stock Unit” means a hypothetical investment equivalent to one share of Stock
granted in connection with an Award made under Section 9.


 


(jj)                                  “Restricted
Stock” means shares of Stock issued or transferred to a Participant subject to
forfeiture and the other restrictions set forth in Section 9 of the Plan.


 


(kk)                            “Securities
Act” means the Securities Act of 1933, as amended.


 


(ll)                                  “Stock”
means the Common Stock or such other authorized shares of stock of the Company
as the Committee may from time to time authorize for use under the Plan.


 


(mm)                      “Stock
Appreciation Right” or “SAR” means an Award granted under Section 8 of the
Plan.


 


(nn)                          “Stock
Bonus” means an Award granted under Section 10 of the Plan.


 


(oo)                          “Stock
Option Agreement” means any agreement between the Company and a Participant who
has been granted an Option pursuant to Section 7 which defines the rights
and obligations of the parties thereto.


 


(pp)                          “Strike
Price” means, (i) in the case of a SAR granted in tandem with an Option,
the Option Price of the related Option, or (ii) in the case of a SAR
granted independent of an Option, the Fair Market Value on the Date of Grant.


 


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(qq)                          “Subsidiary”
means any subsidiary of the Company as defined in Section 424(f) of
the Code.


 


(rr)                                “Substitution
Award” means an Award that is intended to replace any existing incentive award
held by an employee or director of, or consultant or advisor to, an entity
acquired by the Company or an Affiliate of the Company.  The terms and conditions of any Substitution
Award shall be set forth in an Award agreement and shall, except as may be
inconsistent with any provision of the Plan, to the extent practicable provide
the recipient with benefits (including economic value) substantially similar to
those provided to the recipient under the existing award which such
Substitution Award is intended to replace.


 


(ss)                            “Vested
Unit” shall have the meaning ascribed thereto in Section 9(d) of the
Plan.


 


(tt)                                “Voting
Stock” of a person means all classes of capital stock or other interests,
including partnership interests, of such person then outstanding and normally
entitled, without regard to the occurrence of any contingency, to vote in the
election of directors, managers, or trustee thereof.


 


3.                                      Effective Date,
Duration and Shareholder Approval


 


The Plan is effective as
of the Effective Date.  No Option shall
be treated as an Incentive Stock Option unless the Plan has been approved by
the shareholders of the Company in a manner intended to comply with the
shareholder approval requirements of Section 422(b)(i) of the Code; provided,
that any Option intended to be an Incentive Stock Option shall not fail to be
effective solely on account of a failure to obtain such approval, but rather
such Option shall be treated as a Nonqualified Stock Option unless and until
such approval is obtained.


 


The expiration date of
the Plan, on and after which no Awards may be granted hereunder, shall be the
tenth anniversary of the Effective Date; provided, however, that such
expiration shall not affect Awards then outstanding, and the terms and
conditions of the Plan shall continue to apply to such Awards.


 


4.                                      Administration


 


(a)                                  The
Committee shall administer the Plan.  The
majority of the members of the Committee shall constitute a quorum.  The acts of a majority of the members present
at any meeting at which a quorum is present or acts approved in writing by a
majority of the Committee shall be deemed the acts of the Committee.


 


(b)                                 Subject
to the provisions of the Plan and applicable law, the Committee shall have the
power, and in addition to other express powers and authorizations conferred on
the Committee by the Plan, to:  (i) designate
Participants; (ii) determine the type or types of Awards to be granted to
a Participant; (iii) determine the number of shares of Stock to be covered
by, or with respect to which payments,


 


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rights, or other matters are to be calculated in connection with, Awards;
(iv) determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards may be settled or
exercised in cash, shares of Stock, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine
whether, to what extent, and under what circumstances the delivery of cash, Stock,
other securities, other Options, other property and other amounts payable with
respect to an Award shall be deferred either automatically or at the election of
the holder thereof or of the Committee; (vii) interpret, administer,
reconcile any inconsistency, correct any defect and/or supply any omission in
the Plan and any instrument or agreement relating to, or Award granted under,
the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations; (ix) appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (x) make any other determination
and take any other action that the Committee deems necessary or desirable for
the administration of the Plan.


 


(c)                                  Notwithstanding
the foregoing, the committee may delegate to any officer of the Company or any
Affiliate the authority to act on behalf of the Committee with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Committee herein, and which may be so delegated as a matter of law, except for grants of Awards to (i) ”covered
employees” under Code Section 162(m) (other than Awards exempt from the
application of Code Section 162(m)) and (ii) persons subject to Section 16
of the 1934 Act.


 


(d)                                 Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award or any documents evidencing Awards granted pursuant to the Plan shall be
within the sole discretion of the Committee, may be made at any time and shall
be final, conclusive and binding upon all parties, including, without
limitation, the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, and any shareholder.


 


(e)                                  No
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Award hereunder.


 


5.                                      Grant of Awards;
Shares Subject to the Plan


 


The Committee may, from
time to time, grant Awards of Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Phantom Stock Awards, Stock Bonuses and/or Performance
Compensation Awards to one or more Eligible Persons; provided, however,
that:


 


(a)                                  Subject
to Section 13, the aggregate number of shares of Stock in respect of which
Awards may be granted under the Plan is 3,416,133 shares;


 


(b)                                 Shares
of Stock shall be deemed to have been used in settlement of Awards whether or
not they are actually delivered or the Fair Market Value


 


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equivalent of such shares is paid in cash; provided, however,
that shares of Stock delivered (either directly or by means of attestation) in
full or partial payment of the Option Price in accordance with Section 7(b) shall
be deducted from the number of shares of Stock delivered to the Participant
pursuant to such Option for purposes of determining the number of shares of
Stock acquired pursuant to the Plan.  In
accordance with (and without limitation upon) the preceding sentence, if and to
the extent an Award under the Plan expires, terminates or is canceled for any
reason whatsoever without the Participant having received any benefit therefrom,
the shares covered by such Award shall again become available for future Awards
under the Plan.  For purposes of the
foregoing sentence, a Participant shall not be deemed to have received any “benefit”
(i) in the case of forfeited Restricted Stock Awards by reason of having
enjoyed voting rights and dividend rights prior to the date of forfeiture or (ii) in
the case of an Award canceled by reason of a new Award being granted in
substitution therefor;


 


(c)                                  Stock
delivered by the Company in settlement of Awards may be authorized and unissued
Stock, Stock held in the treasury of the Company, Stock purchased on the open
market or by private purchase, or a combination of the foregoing; and


 


(d)                                 Subject
to Section 13, no person may be granted Options or SARs under the Plan
during any calendar year with respect to more than 500,000 shares of Stock.


 


6.                                      Eligibility


 


Participation shall be
limited to Eligible Persons who have entered into an Award agreement or who
have received written notification from the Committee, or from a person
designated by the Committee, that they have been selected to participate in the
Plan.


 


7.                                      Options


 


The Committee is
authorized to grant one or more Incentive Stock Options or Nonqualified Stock
Options to any Eligible Person; provided, however, that no
Incentive Stock Option shall be granted to any Eligible Person who is not an
employee of the Company or a Parent or Subsidiary.  Each Option so granted shall be subject to
the conditions set forth in this Section 7, or to such other conditions as
may be reflected in the applicable Stock Option Agreement.


 


(a)                                  Option Price.  The
exercise price (“Option Price”) per share of Stock for each Option which is not
a Substitution Award shall be set by the Committee at the time of grant but shall
not be less than the Fair Market Value of a share of Stock on the Date of Grant.


 


(b)                                 Manner of Exercise and Form of Payment.  No shares of Stock shall be delivered pursuant
to any exercise of an Option until payment in full of the Option Price therefor
is received by the Company.  Options
which have become


 


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exercisable may be exercised by delivery of written notice of exercise
to the Committee accompanied by payment of the Option Price.  The Option Price shall be payable (i) in
cash, check, cash equivalent and/or shares of Stock valued at the Fair Market
Value at the time the Option is exercised (including by means of attestation of
ownership of a sufficient number of shares of Stock in lieu of actual delivery
of such shares to the Company); provided, that such shares of Stock are Mature
Shares; (ii) in the discretion of the Committee, either (A) in other
property having a fair market value on the date of exercise equal to the Option
Price or (B) by delivering to the Committee a copy of irrevocable
instructions to a stockbroker to deliver promptly to the Company an amount
sufficient to pay the Option Price; or (iii) by such other method as the
Committee may allow.  Notwithstanding the
foregoing, in no event shall a Participant be permitted to exercise an Option
in a manner which the Committee determines would violate the Sarbanes-Oxley Act
of 2002, or any other applicable law or the applicable rules and
regulations of the Securities and Exchange Commission or the applicable rules and
regulations of any securities exchange or inter dealer quotation system on
which the securities of the Company or any Affiliates are listed or traded.


 


(c)                                  Vesting, Option Period and Expiration. 
Options shall vest and become exercisable in such manner and
on such date or dates determined by the Committee and shall expire after such
period, not to exceed ten years, as may be determined by the Committee (the “Option
Period”); provided, however, that notwithstanding any vesting dates
set by the Committee, the Committee may, in its sole discretion, accelerate the
exercisability of any Option, which acceleration shall not affect the terms and
conditions of such Option other than with respect to exercisability.  If an Option is exercisable in installments,
such installments or portions thereof which become exercisable shall remain
exercisable until the Option expires.


 


(d)                                 Stock Option Agreement – Other Terms and Conditions.  Each Option granted under the Plan
shall be evidenced by a Stock Option Agreement. 
Except as specifically provided otherwise in such Stock Option
Agreement, each Option granted under the Plan shall be subject to the following
terms and conditions:


 


(i)                                     Each
Option or portion thereof that is exercisable shall be exercisable for the full
amount or for any part thereof.


 


(ii)                                  Each
share of Stock purchased through the exercise of an Option shall be paid for in
full at the time of the exercise.  Each
Option shall cease to be exercisable, as to any share of Stock, when the
Participant purchases the share or exercises a related SAR or when the Option
expires.


 


(iii)                               Subject
to Section 12(k), Options shall not be transferable by the Participant
except by will or the laws of descent and distribution and shall be exercisable
during the Participant’s lifetime only by him.


 


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(iv)                              Each
Option shall vest and become exercisable by the Participant in accordance with
the vesting schedule established by the Committee and set forth in the
Stock Option Agreement.


 


(v)                                 At
the time of any exercise of an Option, the Committee may, in its sole
discretion, require a Participant to deliver to the Committee a written
representation that the shares of Stock to be acquired upon such exercise are to
be acquired for investment and not for resale or with a view to the
distribution thereof and any other representation deemed necessary by the
Committee to ensure compliance with all applicable federal and state securities
laws.  Upon such a request by the
Committee, delivery of such representation prior to the delivery of any shares
issued upon exercise of an Option shall be a condition precedent to the right
of the Participant or such other person to purchase any shares.  In the event certificates for Stock are
delivered under the Plan with respect to which such investment representation
has been obtained, the Committee may cause a legend or legends to be placed on
such certificates to make appropriate reference to such representation and to
restrict transfer in the absence of compliance with applicable federal or state
securities laws.


 


(vi)                              Each
Participant awarded an Incentive Stock Option under the Plan shall notify the
Company in writing immediately after the date he or she makes a disqualifying
disposition of any Stock acquired pursuant to the exercise of such Incentive
Stock Option.  A disqualifying
disposition is any disposition (including any sale) of such Stock before the
later of (A) two years after the Date of Grant of the Incentive Stock
Option or (B) one year after the date the Participant acquired the Stock
by exercising the Incentive Stock Option. 
The Company may, if determined by the Committee and in accordance with
procedures established by it, retain possession of any Stock acquired pursuant
to the exercise of an Incentive Stock Option as agent for the applicable
Participant until the end of the period described in the preceding sentence,
subject to complying with any instructions from such Participant as to the sale
of such Stock.


 


(e)                                  Incentive Stock Option Grants to 10% Stockholders.  Notwithstanding anything to the contrary in
this Section 7, if an Incentive Stock Option is granted to a Participant
who owns stock representing more than ten percent of the voting power of all
classes of stock of the Company or of a Subsidiary or Parent, the Option Period
shall not exceed five years from the Date of Grant of such Option and the
Option Price shall be at least 110 percent of the Fair Market Value (on the
Date of Grant) of the Stock subject to the Option.


 


(f)                                    $100,000 Per Year Limitation for Incentive Stock Options.  To the extent the aggregate Fair Market Value
(determined as of the Date of Grant) of Stock for which Incentive Stock Options
are exercisable for the first time by any Participant during any calendar year
(under all plans of the Company) exceeds $100,000, such excess Incentive Stock
Options shall be treated as Nonqualified Stock Options.


 


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8.                                      Stock
Appreciation Rights


 


Any Option granted under
the Plan may include SARs, either at the Date of Grant or, except in the case
of an Incentive Stock Option, by subsequent amendment.  The Committee also may award SARs to Eligible
Persons independent of any Option. 
A SAR shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose, including, but not
limited to, the following:


 


(a)                                  Vesting, Transferability and Expiration.  A SAR granted in
connection with an Option shall become exercisable, be transferable and shall
expire according to the same vesting schedule, transferability rules and
expiration provisions as the corresponding Option.  A SAR granted independent of an Option shall
become exercisable, be transferable and shall expire in accordance with a
vesting schedule, transferability rules and expiration provisions as
established by the Committee and reflected in an Award agreement.


 


(b)                                 Automatic Exercise.  If
on the last day of the Option Period (or in the case of a SAR independent of an
option, the period established by the Committee after which the SAR shall
expire), the Fair Market Value exceeds the Strike Price, the Participant has
not exercised the SAR or the corresponding Option, and neither the SAR nor the
corresponding Option has expired, such SAR shall be deemed to have been
exercised by the Participant on such last day and the Company shall make the
appropriate payment therefor.


 


(c)                                  Payment.  Upon the
exercise of a SAR, the Company shall pay to the Participant an amount equal to
the number of shares subject to the SAR multiplied by the excess, if any, of
the Fair Market Value of one share of Stock on the exercise date over the
Strike Price.  The Company shall pay such
excess in shares of Stock valued at Fair Market Value.


 


(d)                                 Method of Exercise.  A
Participant may exercise a SAR at such time or times as may be determined by
the Committee at the time of grant by filing an irrevocable written notice with
the Committee or its designee, specifying the number of SARs to be exercised
and the date on which such SARs were awarded.


 


(e)                                  Expiration.  Except as
otherwise provided in the case of SARs granted in connection with Options, a
SAR shall expire on a date designated by the Committee which is not later than
ten years after the Date of Grant of the SAR.


 


(f)                                    Tax Considerations.  The
Committee shall take into account Section 409A of the Code and applicable
regulatory guidance thereunder before granting a SAR.


 


13





















 


9.                                      Restricted Stock
and Restricted Stock Units


 


(a)                                  Award
of Restricted Stock and Restricted Stock Units.


 


(i)                                     The
Committee shall have the authority (A) to grant Restricted Stock and Restricted
Stock Units to Eligible Persons, (B) to issue or transfer Restricted Stock
to Participants, and (C) to establish terms, conditions and restrictions
applicable to such Restricted Stock and Restricted Stock Units, including the
Restricted Period, as applicable, which may differ with respect to each
grantee, the time or times at which Restricted Stock or Restricted Stock Units
shall be granted or become vested and the number of shares or units to be
covered by each grant.


 


(ii)                                  Each
Participant granted Restricted Stock shall execute and deliver to the Company
an Award agreement with respect to the Restricted Stock setting forth the
restrictions and other terms and conditions applicable to such Restricted
Stock.  If the Committee determines that
the Restricted Stock shall be held by the Company or in escrow rather than
delivered to the Participant pending the release of the applicable
restrictions, the Committee may require the Participant to additionally execute
and deliver to the Company (A) an escrow agreement satisfactory to the
Committee, if applicable, and (B) the appropriate blank stock power with
respect to the Restricted Stock covered by such agreement.  If a Participant shall fail to execute an
agreement evidencing an Award of Restricted Stock and, if applicable, an escrow
agreement and stock power, the Award shall be null and void.  Subject to the restrictions set forth in Section 9(b),
the Participant generally shall have the rights and privileges of a stockholder
as to such Restricted Stock, including the right to vote such Restricted
Stock.  At the discretion of the
Committee, cash dividends and stock dividends with respect to the Restricted
Stock may be either currently paid to the Participant or withheld by the
Company for the Participant’s account, and interest may be credited on the
amount of dividends withheld at a rate and subject to such terms as determined
by the Committee.  The cash dividends or
stock dividends so withheld by the Committee and attributable to any particular
share of Restricted Stock (and earnings thereon, if applicable) shall be
distributed to the Participant in cash or, at the discretion of the Committee,
in shares of Stock having a Fair Market Value equal to the amount of such dividends
and earnings, if applicable, upon the release of restrictions on such share
and, if such share is forfeited, the Participant shall have no right to such
cash dividends, stock dividends or earnings.


 


(iii)                               Upon
the grant of Restricted Stock, the Committee shall cause a stock certificate
registered in the name of the Participant to be issued and, if it so
determines, deposited together with the stock powers with an escrow agent
designated by the Committee.  If an
escrow arrangement is used, the Committee may cause the escrow agent to issue
to the Participant a receipt evidencing any stock certificate held by it,
registered in the name of the Participant.


 


(iv)                              The
terms and conditions of a grant of Restricted Stock Units shall be reflected in
a written Award agreement.  No shares of
Stock shall be issued at the time a Restricted Stock Unit is granted, and the
Company will not be required to set aside a fund for the payment of any such
Award.  At the discretion of the
Committee, each Restricted Stock Unit (representing one share of Stock) may be


 


14





















 


credited with cash and
stock dividends paid by the Company in respect of one share of Stock (“Dividend
Equivalents”).  At the discretion of the
Committee, Dividend Equivalents may be either currently paid to the Participant
or withheld by the Company for the Participant’s account, and interest may be
credited on the amount of cash Dividend Equivalents withheld at a rate and
subject to such terms as determined by the Committee.  Dividend Equivalents credited to a
Participant’s account and attributable to any particular Restricted Stock Unit
(and earnings thereon, if applicable) shall be distributed in cash or, at the
discretion of the Committee, in shares of Stock having a Fair Market Value
equal to the amount of such Dividend Equivalents and earnings, if applicable, to
the Participant upon settlement of such Restricted Stock Unit and, if such Restricted
Stock Unit is forfeited, the Participant shall have no right to such Dividend
Equivalents.


 


(b)                                 Restrictions.


 


(i)                                     Restricted
Stock awarded to a Participant shall be subject to the following restrictions
until the expiration of the Restricted Period, and to such other terms and
conditions as may be set forth in the applicable Award agreement: (A) if
an escrow arrangement is used, the Participant shall not be entitled to
delivery of the stock certificate; (B) the shares shall be subject to the restrictions
on transferability set forth in the Award agreement; (C) the shares shall
be subject to forfeiture to the extent provided in Section 9(d) and
the applicable Award agreement; and (D) to the extent such shares are
forfeited, the stock certificates shall be returned to the Company, and all
rights of the Participant to such shares and as a shareholder shall terminate
without further obligation on the part of the Company.


 


(ii)                                  Restricted
Stock Units awarded to any Participant shall be subject to (A) forfeiture
until the expiration of the Restricted Period, and satisfaction of any applicable
Performance Goals during such period, to the extent provided in the applicable
Award agreement, and to the extent such Restricted Stock Units are forfeited,
all rights of the Participant to such Restricted Stock Units shall terminate
without further obligation on the part of the Company and (B) such other
terms and conditions as may be set forth in the applicable Award agreement.


 


(iii)                               The
Committee shall have the authority to remove any or all of the restrictions on
the Restricted Stock and Restricted Stock Units whenever it may determine that,
by reason of changes in applicable laws or other changes in circumstances
arising after the date of the Restricted Stock or Restricted Stock Units are
granted, such action is appropriate.


 


(c)                                  Restricted Period.  The
Restricted Period of Restricted Stock and Restricted Stock Units shall commence
on the Date of Grant and shall expire from time to time as to that part of the
Restricted Stock and Restricted Stock Units indicated in a schedule established
by the Committee in the applicable Award agreement.


 


15





















 


(d)                                 Delivery of Restricted Stock and Settlement of Restricted Stock Units.  Upon the expiration of the Restricted Period
with respect to any shares of Restricted Stock, the restrictions set forth in Section 9(b) and
the applicable Award agreement shall be of no further force or effect with
respect to such shares, except as set forth in the applicable Award agreement.  If an escrow arrangement is used, upon such
expiration, the Company shall deliver to the Participant, or his beneficiary,
without charge, the stock certificate evidencing the shares of Restricted Stock
which have not then been forfeited and with respect to which the Restricted
Period has expired (to the nearest full share) and any cash dividends or stock
dividends credited to the Participant’s account with respect to such Restricted
Stock and the interest thereon, if any.


 


Upon the expiration of
the Restricted Period with respect to any outstanding Restricted Stock Units,
the Company shall deliver to the Participant, or his beneficiary, without
charge, one share of Stock for each such outstanding Restricted Stock Unit (“Vested
Unit”) and cash equal to any Dividend Equivalents credited with respect to each
such Vested Unit in accordance with Section 9(a)(iv) hereof and the
interest thereon or, at the discretion of the Committee, in shares of Stock
having a Fair Market Value equal to such Dividend Equivalents and interest
thereon, if any; provided, however, that, if explicitly provided in
the applicable Award agreement, the Committee may, in its sole discretion,
elect to (i) pay cash or part cash and part Stock in lieu of delivering
only shares of Stock for Vested Units or (ii) delay the delivery of Stock
(or cash or part Stock and part cash, as the case may be) beyond the expiration
of the Restricted Period.  If a cash
payment is made in lieu of delivering shares of Stock, the amount of such
payment shall be equal to the Fair Market Value of the Stock as of the date on
which the Restricted Period lapsed with respect to such Vested Unit.


 


(e)                                  Stock Restrictions.  Each
certificate representing Restricted Stock awarded under the Plan shall bear a legend
substantially in the form of the following until the lapse of all restrictions
with respect to such Stock as well as any other information the Company deems appropriate:


 


Transfer of this certificate and the shares
represented hereby is restricted pursuant to the terms of the Warner Music
Group Corp. 2005 Omnibus Award Plan and a Restricted Stock Purchase and Award
Agreement, dated as of                     ,
between Warner Music Group Corp. and                    .  A copy of such Plan and Agreement is on file
at the offices of Warner Music Group Corp.


 


Stop transfer orders shall be entered with the Company’s
transfer agent and registrar against the transfer of legended securities.


 


10.                               Stock Bonus Awards


 


The Committee may issue
unrestricted Stock, or other Awards denominated in Stock, under the Plan to
Eligible Persons, alone or in tandem with other Awards, in such amounts and
subject to such terms and conditions as the Committee shall from time to time
in its sole discretion determine.  A Stock
Bonus Award under the Plan


 


16





















 


shall be granted as, or
in payment of, a bonus, or to provide incentives or recognize special
achievements or contributions.


 


11.                               Performance Compensation
Awards


 


(a)                                  General.  The
Committee shall have the authority, at the time of grant of any Award described
in Sections 7 through 10 (other than Options and Stock Appreciation Rights
granted with an exercise price or grant price, as the case may be, equal to or
greater than the Fair Market Value per share of Stock on the date of grant), to
designate such Award as a Performance Compensation Award in order to qualify
such Award as “performance-based compensation” under Section 162(m) of the
Code.  The Committee shall have the
authority to grant cash bonuses under the Plan with the intent that such
bonuses shall qualify for the exemption from Section 162(m) of the Code
provided pursuant to Treasury Regulation Section 1.162-27(f)(1), for
the reliance period described in Treasury Regulation Section 1.162-27(f)(2).  In addition, the Committee shall have the
authority to make an award of a cash bonus to any Participant and designate
such Award as a Performance Compensation Award in order to qualify such Award
as “performance-based compensation” under Section 162(m).


 


(b)                                 Eligibility.  The
Committee will, in its sole discretion, designate which Participants will be
eligible to receive Performance Compensation Awards in respect of such
Performance Period.  However, designation
of a Participant eligible to receive an Award hereunder for a Performance
Period shall not in any manner entitle the Participant to receive payment in
respect of any Performance Compensation Award for such Performance Period.  The determination as to whether or not such
Participant becomes entitled to payment in respect of any Performance
Compensation Award shall be decided solely in accordance with the provisions of
this Section 11.  Moreover,
designation of a Participant eligible to receive an Award hereunder for a
particular Performance Period shall not require designation of such Participant
eligible to receive an Award hereunder in any subsequent Performance Period and
designation of one person as a Participant eligible to receive an Award
hereunder shall not require designation of any other person as a Participant
eligible to receive an Award hereunder in such period or in any other period.


 


(c)                                  Discretion of Committee with Respect to Performance Compensation Awards.  With regard to a particular Performance
Period, the Committee shall have full discretion to select the length of such
Performance Period (provided any such Performance Period shall be not less than
one (1) year in duration), the type(s) of Performance Compensation Awards
to be issued, the Performance Criteria that will be used to establish the
Performance Goal(s), the kind(s) and/or level(s) of the Performance Goals(s)
that is(are) to apply to the Company and the Performance Formula.  Within the first 90 days of a Performance
Period (or, if longer or shorter, within the maximum period allowed under Section 162(m)
of the Code), the Committee shall, with regard to the Performance Compensation
Awards to be issued for such Performance Period, exercise its discretion with
respect to each of the matters enumerated in the immediately preceding sentence
of this Section 11(c) and record the same in writing.  


 


17





















 


(d)                                 Payment of Performance Compensation Awards


 


(i)                                     Condition to Receipt of Payment.  Unless otherwise provided in the applicable
Award agreement, a Participant must be employed by the Company on the last day
of a Performance Period to be eligible for payment in respect of a Performance
Compensation Award for such Performance Period.


 


(ii)                                  Limitation.  A
Participant shall be eligible to receive payment in respect of a Performance
Compensation Award only to the extent that:  (A) the Performance Goals for such period
are achieved; and (B) the Performance Formula as applied against such
Performance Goals determines that all or some portion of such Participant’s
Performance Award has been earned for the Performance Period.


 


(iii)                               Certification. 
Following the completion of a Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Goals for the Performance Period have been achieved and, if so, calculate and
certify in writing that amount of the Performance Compensation Awards earned
for the period based upon the Performance Formula.  The Committee shall then determine the actual
size of each Participant’s Performance Compensation Award for the Performance
Period and, in so doing, may apply Negative Discretion in accordance with Section 11(d)(iv) hereof,
if and when it deems appropriate.


 


(iv)                              Use of Discretion.  In
determining the actual size of an individual Performance Award for a
Performance Period, the Committee may reduce or eliminate the amount of the
Performance Compensation Award earned under the Performance Formula in the
Performance Period through the use of Negative Discretion if, in its sole
judgment, such reduction or elimination is appropriate.  The Committee shall not have the discretion
to (a) grant or provide payment in respect of Performance Compensation
Awards for a Performance Period if the Performance Goals for such Performance
Period have not been attained; or (b) increase a Performance Compensation
Award above the maximum amount payable under Section 5(a) or Section 11(d)(vi) of
the Plan.


 


(v)                                 Timing of Award Payments.  Performance Compensation Awards granted for a
Performance Period shall be paid to Participants as soon as administratively practicable
following completion of the certifications required by this Section 11.


 


(vi)                              Maximum Award Payable. 
Notwithstanding any provision contained in this Plan to the contrary,
the maximum Performance Compensation Award payable to any one Participant under
the Plan for a Performance Period is 500,000 shares of Stock or, in the event
such Performance Compensation Award is paid in cash, the equivalent cash value
thereof on the first or last day of the Performance Period to which such Award
relates, as determined by the Committee. 
The maximum amount that can be paid in any calendar year to any


 


18





















 


Participant pursuant to a
cash bonus Award described in the last sentence of Section 11(a) shall
be $10,000,000.  Furthermore, any
Performance Compensation Award that has been deferred shall not (between the
date as of which the Award is deferred and the payment date) increase (A) with
respect to Performance Compensation Award that is payable in cash, by a
measuring factor for each fiscal year greater than a reasonable rate of interest
set by the Committee or (B) with respect to a Performance Compensation
Award that is payable in shares of Stock, by an amount greater than the
appreciation of a share of Stock from the date such Award is deferred to the
payment date.


 


12.                               General


 


(a)                                  Additional Provisions of an Award. 
Awards to a Participant under the Plan also may be subject to
such other provisions (whether or not applicable to Awards granted to any other
Participant) as the Committee determines appropriate, including, without
limitation, provisions (in addition to those provisions of Section 9
providing for the payment of dividends with respect to Restricted Stock and
Dividend Equivalents with respect to Restricted Stock Units) adding dividend
equivalent rights or other protections to Participants in respect of dividends
paid on Stock underlying any Award, provisions for the forfeiture of or
restrictions on resale or other disposition of shares of Stock acquired under
any Award, provisions giving the Company the right to repurchase shares of
Stock acquired under any Award in the event the Participant elects to dispose
of such shares, provisions allowing the Participant to elect to defer the
receipt of payment in respect of Awards for a specified period or until a
specified event, and provisions to comply with Federal and state securities
laws and Federal and state tax withholding requirements; provided, however,
that any such deferral does not result in acceleration of taxability of an
Award prior to receipt, or tax penalties, under Section 409A of the Code.  Any such provisions shall be reflected in the
applicable Award agreement.


 


(b)                                 Privileges of Stock Ownership.  Except
as otherwise specifically provided in the Plan, no person shall be entitled to
the privileges of ownership in respect of shares of Stock which are subject to
Awards hereunder until such shares have been issued to that person.


 


(c)                                  Government and Other Regulations. 
The obligation of the Company to settle Awards in Stock shall
be subject to all applicable laws, rules, and regulations, and to such
approvals by governmental agencies as may be required.  Notwithstanding any terms or conditions of
any Award to the contrary, the Company shall be under no obligation to offer to
sell or to sell, and shall be prohibited from offering to sell or selling, any
shares of Stock pursuant to an Award unless such shares have been properly
registered for sale pursuant to the Securities Act with the Securities and
Exchange Commission or unless the Company has received an opinion of counsel,
satisfactory to the Company, that such shares may be offered or sold without
such registration pursuant to an available exemption therefrom and the terms
and conditions of such exemption have been fully complied with.  The Company shall be under no obligation to
register for sale under the Securities Act any of the shares of Stock to be


 


19





















 


offered or sold under the Plan. 
If the shares of Stock offered for sale or sold under the Plan are
offered or sold pursuant to an exemption from registration under the Securities
Act, the Company may restrict the transfer of such shares and may legend the
Stock certificates representing such shares in such manner as it deems
advisable to ensure the availability of any such exemption.


 


(d)                                 Tax Withholding.


 


(i)                                     A
Participant may be required to pay to the Company or any Affiliate, and the
Company or any Affiliate shall have the right and is hereby authorized to
withhold from any shares of Stock or other property deliverable under any Award
or from any compensation or other amounts owing to a Participant, the amount
(in cash, Stock or other property) of any required income tax withholding and
payroll taxes in respect of an Award, its exercise, or any payment or transfer
under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such withholding and taxes.


 


(ii)                                  Without
limiting the generality of clause (i) above, the Committee may, in
its sole discretion, permit a Participant to satisfy, in whole or in part, the
foregoing withholding liability (but no more than the minimum required
withholding liability) by (A) the delivery of Mature Shares owned by the
Participant having a Fair Market Value equal to such withholding liability or (B) having
the Company withhold from the number of shares of Stock otherwise issuable
pursuant to the exercise or settlement of the Award a number of shares with a
Fair Market Value equal to such withholding liability.


 


(e)                                  Claim to Awards and Employment Rights. 
No employee of the Company or an Affiliate, or other person,
shall have any claim or right to be granted an Award under the Plan or, having
been selected for the grant of an Award, to be selected for a grant of any other
Award.  Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the employ or service of the Company or an Affiliate.


 


(f)                                    Designation and Change of Beneficiary. 
Each Participant may file with the Committee a written
designation of one or more persons as the beneficiary who shall be entitled to
receive the amounts payable with respect to an Award, if any, due under the
Plan upon his death.  A Participant may,
from time to time, revoke or change his beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the
Committee.  The last such designation
received by the Committee shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Participant’s death, and in no event
shall it be effective as of a date prior to such receipt.  If no beneficiary designation is filed by a
Participant, the beneficiary shall be deemed to be his or her spouse or, if the
Participant is unmarried at the time of death, his or her estate.


 


20





















 


(g)                                 Payments to Persons Other Than Participants.  If the Committee shall find that
any person to whom any amount is payable under the Plan is unable to care for
his affairs because of illness or accident, or is a minor, or has died, then
any payment due to such person or his estate (unless a prior claim therefor has
been made by a duly appointed legal representative) may, if the Committee so
directs the Company, be paid to his spouse, child, relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment.  Any such payment shall be a
complete discharge of the liability of the Committee and the Company therefor.


 


(h)                                 No Liability of Committee Members. 
No member of the Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Committee nor for any mistake of
judgment made in good faith, and the Company shall indemnify and hold harmless
each member of the Committee and each other employee, officer or director of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in connection
with the Plan unless arising out of such person’s own fraud or willful bad
faith; provided, however, that approval of the Board shall be
required for the payment of any amount in settlement of a claim against any
such person.  The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company’s Articles of
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.


 


(i)                                     Governing Law.  The
Plan shall be governed by and construed in accordance with the internal laws of
the State of Delaware applicable to contracts made and performed wholly within the
State of Delaware.


 


(j)                                     Funding.  No provision
of the Plan shall require the Company, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust
or other entity to which contributions are made or otherwise to segregate any
assets, nor shall the Company maintain separate bank accounts, books, records
or other evidence of the existence of a segregated or separately maintained or
administered fund for such purposes.  Participants
shall have no rights under the Plan other than as unsecured general creditors
of the Company, except that insofar as they may have become entitled to payment
of additional compensation by performance of services, they shall have the same
rights as other employees under general law.


 


(k)                                  Nontransferability.


 


(i)                                     Each
Award shall be exercisable only by a Participant during the Participant’s
lifetime, or, if permissible under applicable law, by the Participant’s legal
guardian or representative.  No Award may
be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant other than by will or by the laws of descent and
distribution and any such purported


 


21





















 


assignment, alienation,
pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or an Affiliate; provided that the
designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.


 


(ii)                                  Notwithstanding
the foregoing, the Committee may, in its sole discretion, permit Awards other
than Incentive Stock Options to be transferred by a Participant, without
consideration, subject to such rules as the Committee may adopt consistent
with any applicable Award agreement to preserve the purposes of the Plan, to:


 


(A)                              any
person who is a “family member” of the Participant, as such term is used in the
instructions to Form S-8 (collectively, the “Immediate Family
Members”);


 


(B)                                a
trust solely for the benefit of the Participant and his or her Immediate Family
Members;


 


(C)                                a
partnership or limited liability company whose only partners or shareholders
are the Participant and his or her Immediate Family Members; or


 


(D)                               any
other transferee as may be approved either (a) by the Board or the
Committee in its sole discretion, or (b) as provided in the applicable
Award agreement;


 


(each transferee described in clauses (A), (B), (C) 
and (D) above is hereinafter referred to as a “Permitted Transferee”); provided
that the Participant gives the Committee advance written notice describing the
terms and conditions of the proposed transfer and the Committee notifies the
Participant in writing that such a transfer would comply with the requirements
of the Plan.


 


(iii)                               The
terms of any Award transferred in accordance with the immediately preceding
sentence shall apply to the Permitted Transferee and any reference in the Plan,
or in any applicable Award agreement, to a Participant shall be deemed to refer
to the Permitted Transferee, except that (A) Permitted Transferees shall
not be entitled to transfer any Award, other than by will or the laws of
descent and distribution; (B) Permitted Transferees shall not be entitled
to exercise any transferred Option unless there shall be in effect a
registration statement on an appropriate form covering the shares of Stock to
be acquired pursuant to the exercise of such Option if the Committee
determines, consistent with any applicable Award agreement, that such a
registration statement is necessary or appropriate; (C) the Committee or
the Company shall not be required to provide any notice to a Permitted
Transferee, whether or not such notice is or would otherwise have been required
to be given to the Participant under the Plan or otherwise; and (D) the
consequences of the termination of the Participant’s employment by, or services
to, the Company or an Affiliate under the terms of the


 


22





















 


Plan and the applicable
Award agreement shall continue to be applied with respect to the Participant, including,
without limitation, that an Option shall be exercisable by the Permitted
Transferee only to the extent, and for the periods, specified in the Plan and
the applicable Award agreement.


 


(l)                                     Reliance on Reports.  Each
member of the Committee and each member of the Board shall be fully justified
in acting or failing to act, as the case may be, and shall not be liable for
having so acted or failed to act in good faith, in reliance upon any report
made by the independent public accountant of the Company and its Affiliates and/or
any other information furnished in connection with the Plan by any person or
persons other than himself.


 


(m)                               Relationship to Other Benefits.  No
payment under the Plan shall be taken into account in determining any benefits
under any pension, retirement, profit sharing, group insurance or other benefit
plan of the Company except as otherwise specifically provided in such other plan.


 


(n)                                 Expenses.  The
expenses of administering the Plan shall be borne by the Company and
Affiliates.


 


(o)                                 Pronouns.  Masculine
pronouns and other words of masculine gender shall refer to both men and women.


 


(p)                                 Titles and Headings.  The
titles and headings of the sections in the Plan are for convenience of
reference only, and in the event of any conflict, the text of the Plan, rather
than such titles or headings shall control.


 


(q)                                 Termination of Employment.  Unless
an applicable Award agreement provides otherwise, for purposes of the Plan a
person who transfers from employment or service with the Company to employment
or service with an Affiliate or vice versa shall not be deemed to have
terminated employment or service with the Company or an Affiliate.


 


(r)                                    Severability.  If any
provision of the Plan or any Award agreement is or becomes or is deemed to be
invalid, illegal, or unenforceable in any jurisdiction or as to any person or
Award, or would disqualify the Plan or any Award under any law deemed applicable
by the Committee, such provision shall be construed or deemed amended to
conform to the applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.


 


(s)                                  Compliance with Applicable Law.  Notwithstanding
any provision in the Plan to the contrary, the Committee reserves the right to
add any additional terms or provisions to any Award granted under the Plan that
it in its sole discretion deems necessary or advisable in order that such Award
complies with the legal requirements of any governmental entity to whose
jurisdiction the Award is subject.


 


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13.                               Changes in Capital
Structure


 


Awards granted under the
Plan and any agreements evidencing such Awards, the maximum number of shares of
Stock subject to all Awards stated in Section 5(a) and the maximum
number of shares of Stock with respect to which any one person may be granted Awards
during any period stated in Sections 5(d) or 11(d)(vi) shall be
subject to adjustment or substitution, as determined by the Committee in its
sole discretion, as to the number, price or kind of a share of Stock or other
consideration subject to such Awards or as otherwise determined by the
Committee to be equitable (i) in the event of changes in the outstanding Stock
or in the capital structure of the Company by reason of stock or extraordinary
cash dividends, stock splits, reverse stock splits, recapitalization,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the Date of Grant of any
such Award 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,
Participants, or which otherwise warrants equitable adjustment because it
interferes with the intended operation of the Plan.  Any adjustment in Incentive Stock Options
under this Section 13 shall be made only to the extent not constituting a “modification”
within the meaning of Section 424(h)(3) of the Code, and any
adjustments under this Section 13 shall be made in a manner which does not
adversely affect the exemption provided pursuant to Rule 16b-3 under
the Exchange Act.  Further, with respect
to Awards intended to qualify as “performance-based compensation” under Section 162(m)
of the Code, such adjustments or substitutions shall be made only to the extent
that the Committee determines that such adjustments or substitutions may be
made without causing the Company to be denied a tax deduction on account of Section 162(m)
of the Code.  The Company shall give each
Participant notice of an adjustment hereunder and, upon notice, such adjustment
shall be conclusive and binding for all purposes.


 


Notwithstanding the
above, in the event of any of the following:


 


A.                                   The
Company is merged or consolidated with another corporation or entity and, in
connection therewith, consideration is received by shareholders of the Company
in a form other than stock or other equity interests of the surviving entity;


 


B.                                     All
or substantially all of the assets of the Company are acquired by another
person;


 


C.                                     The
reorganization or liquidation of the Company; or


 


D.                                    The
Company shall enter into a written agreement to undergo an event described in
clauses A, B or C above,


 


then the Committee may, in its discretion and upon at
least 10 days advance notice to the affected persons, cancel any outstanding
Awards and cause the holders thereof to be paid, in cash or stock, or any
combination thereof, the value of such Awards based upon the price per share of
Stock received or to be received by other shareholders of the Company


 


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in the event. 
The terms of this Section 13 may be varied by the Committee in any
particular Award agreement.


 


14.                               Effect of Change in
Control


 


(a)                                  Except
to the extent provided in a particular Award agreement:


 


(i)                                     In
the event of a Participant’s termination of employment without Cause or
voluntary termination for Good Reason, if applicable, in either case following
a Change in Control, notwithstanding any provision of the Plan to the contrary,
all Options and SARs awarded to such Participant shall become exercisable with
respect to 100 percent of the shares subject to such Option or SAR, and the
Restricted Period shall expire with respect to 100 percent of such shares of
Restricted Stock or Restricted Stock Units (including a waiver of any
applicable Performance Goals). 
Notwithstanding the foregoing, the Committee may, upon a Change in
Control and in its sole discretion, make any Options and SARs immediately
exercisable, and may cause the Restricted Period to expire with respect to any
Shares of Restricted Stock or Restricted Stock Units.


 


(ii)                                  In
the event of a Change in Control, all incomplete Performance Periods in effect
on the date the Change in Control occurs shall end on the date of such change,
and the Committee shall (A) determine the extent to which Performance
Goals with respect to each such Award Period have been met based upon such
audited or unaudited financial information then available as it deems relevant,
(B) cause to be paid to each Participant partial or full Awards with
respect to Performance Goals for each such Award Period based upon the
Committee’s determination of the degree of attainment of Performance Goals
which Awards may be adjusted, at the discretion of the Committee, to reflect
the portion of the Award Period occurring before such Change in Control, and (C) cause
all previously deferred Awards to be settled in full as soon as possible,
provided, however, that any such payment does not result in acceleration of
taxability of an Award prior to receipt, or tax penalties, under Section 409A
of the Code.


 


(b)                                 In
addition, in the event of a Change in Control, the Committee may in its
discretion and upon at least 10 days’ advance notice to the affected persons,
cancel any outstanding Awards and pay to the holders thereof, in cash or stock,
or any combination thereof, the value of such Awards based upon the price per
share of Stock received or to be received by other shareholders of the Company
in the event.


 


(c)                                  The
obligations of the Company under the Plan shall be binding upon any successor
corporation or organization resulting from the merger, consolidation or other
reorganization of the Company, or upon any successor corporation or
organization succeeding to substantially all of the assets and business of the
Company.  The Company agrees that it will
make appropriate provisions for the preservation of


 


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Participants’ rights under the Plan in any agreement or plan which it
may enter into or adopt to effect any such merger, consolidation,
reorganization or transfer of assets.


 


15.                               Nonexclusivity of the
Plan


 


Neither the adoption of
this Plan by the Board nor the submission of this Plan to the stockholders of
the Company for approval shall be construed as creating any limitations on the
power of the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options
otherwise than under this Plan, and such arrangements may be either applicable
generally or only in specific cases.


 


16.                               Amendments and
Termination


 


(a)                                  Amendment and Termination of the Plan.  The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided,
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement applicable to the Plan (including
as necessary to comply with any applicable stock exchange listing requirement
or to prevent the Company from being denied a tax deduction on account of Section 162(m)
of the Code); and provided, further, that any such amendment,
alteration, suspension, discontinuance or termination that would impair the
rights of any Participant or any holder or beneficiary of any Award theretofore
granted shall not to that extent be effective without the consent of the
affected Participant, holder or beneficiary. 
The expiration date of the Plan is the tenth anniversary of the
Effective Date, as described in Section 3 of the Plan.


 


(b)                                 Amendment of Award Agreements.  The Committee may, to the extent consistent
with the terms of any applicable Award agreement, waive any conditions or
rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate, any Award theretofore granted or the associated Award agreement,
prospectively or retroactively; provided that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would
impair the rights of any Participant or any holder or beneficiary of any Award
theretofore granted shall not to that extent be effective without the consent
of the affected Participant, holder or beneficiary; and provided, further,
that, without stockholder approval, (i) no amendment or modification may
reduce the Option Price of any Option or the Strike Price of any SAR, (ii) the
Committee may not cancel any outstanding Option or SAR and replace it with a
new Option or SAR (with a lower Option Price or Strike Price, as the case may
be) in a manner which would either (A) be reportable on the Company’s
proxy statement as Options which have been “repriced” (as such term is used in
Item 402 of Regulation S-K promulgated under the Exchange Act), or (B) result
in any “repricing” for financial statement reporting purposes and (iii) the
Committee may not take any other action which is considered a “repricing” for
purposes of the shareholder approval rules of any applicable stock
exchange.


 


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(c)                                  Section 162(m) Approval


 


If so determined by the
Committee, (i) the Plan shall be approved by the stockholders of the
Company no later than the first meeting of stockholders at which directors are
to be elected that occurs after the close of the third calendar year following
the calendar year in which the Company’s initial public offering occurs, and (ii) the
provisions of the Plan regarding Performance Compensation Awards shall be
disclosed and reapproved by stockholders of the Company no later than the first
stockholder meeting that occurs in the fifth year following the year that
stockholders previously approved such provisions following the Company’s
initial public offering, in each case in order for certain Awards granted after
such time to be exempt from the deduction limitations of Section 162(m) of
the Code.  Nothing in this Section 16(c),
however, shall affect the validity of Awards granted after such time if such
stockholder approval has not been obtained.


 


*       *       *


 


As adopted by the Board of Directors of

Warner Music Group Corp. by Unanimous Written Consent

dated as of May 6, 2005.


 


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