Access-Warner Music Investor Documents Reveal New Roles for Edgar Bronfman Jr., Lyor Cohen
Access-Warner Music Investor Documents Reveal New Roles for Edgar Bronfman Jr., Lyor Cohen

Warner Music Group's two top execs, Edgar Bronfman Jr. and Lyor Cohen, have already cashed out of stocks and will enjoy large golden parachutes when the company's acquisition by Access Industries is complete. If the recommendation of governance analysis firm Glass Lewis & Co. is any indication of the way shareholders will vote July 6, the acquisition will go through as planned.

Both Edgar Bronfman Jr., Warner's chairman and chief executive officer, and Lyor Cohen, vice chairman and chairman and chief executive officer, Americas and U.K. - neither of whom are expected to leave the company -- have already cashed out some shares prior to the completion of the merger. From May 27 to June 13, two trusts for the benefit of Bronfman or his family members (of which he is a trustee), sold 2,110,454 shares at an average weighted price of $8.19 for a total of $17.3 million. He did not sell shares that he holds personally. On June 15, Cohen sold 871,102 shares at $8.19 for a total of $7.13 million.

In addition, both Bronfman and Cohen will receive large "golden parachutes" once the merger is complete. According to the company's latest proxy statement, Bronfman and Cohen are set to receive the compensation packages at either the consummation of the merger or upon termination of employment.

Bronfman's golden parachute gives him $16.87 million in equity awards -- $3.26 million from stock options and $13.6 million from restricted stock. Cohen's golden parachute is worth $10 million -- $1.78 million from stock options and $8.25 million from restricted stock.

An executive need not remain with the company until the merger to get a payday. Michael Fleisher, vice chairman, strategy and operations, received a golden parachute when he resigned on May 31. His employment agreement was amended May 9, and he left with a total payment of just over $6 million. A $4.5 million cash payment consisted of a severance of $1.925 million, a prorated bonus of $733,333 and a "success bonus" of $1.8 million.

Bronfman will be able to sell his restricted stock because of changes to a restricted stock award agreement from March 2008. In effect, Bronfman will receive more restricted shares for surpassing a lower hurdle. No shares of restricted stock would vest for Bronfman at Access Industries' winning bid of $8.25 per share since the minimum hurdle was $10.00. Under the revised plan, the $8.25 acquisition rate passed two of the four price hurdles and provided that 1.65 million restricted shares would vest.

The timing of the change in Bronfman's employment contract raised some eyebrows. The New York Post talked with compensation expert Paul Hodgson at Governance Metrics International, who noted the unusual timing of the board's decision to alter Bronfman's employment contract. "It was tied to performance, and he didn't achieve the performance," said Hodgson.

But Bronfman did perform in one important way: he found a bidder willing to pay $8.25 a share for the company. The board changed Bronfman's restricted stock agreement on January 18, while implies discussions by the compensation committee began weeks or months early. News that Warner was seeking a bidder surfaced on January 21, sending Warner's shares beyond $6 but still short of the lowest hurdle at $7 per share.

The executives' golden parachutes are tied to the sale of the company. Shareholders will vote at Warner's annual shareholders meeting July 6. Glass Lewis & Co has come out in favor of both the acquisition and the golden parachutes. The acquisition price of $8.25 is "fair, from a financial point of view, to the company's shareholders," the report states. Glass Lewis had some concerns (specifically about payments for unvested equity) but ultimately called the golden parachutes "reasonably structured."

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