Lucrative Sony Offer to Managers Is Detailed

In an unusually rich compensation package, Sony Corp. has promised five prospective managers of soon-to-be-acquired Columbia Pictures Entertainment a lump-sum payment of $50 million and a percentage of studio profits, in addition to their multimillion-dollar salaries and a promised stake in the company’s future appreciation.

According to a document filed by Sony with the Securities and Exchange Commission, Peter Guber and Jon Peters--who are to be named co-chairman of Columbia--will share the compensation package with three other executives, who are still to be named.

Sony has agreed to buy Columbia for $3.4 billion and will pay an additional $200 million to acquire Guber-Peters Entertainment Co. Guber and Peters own about 28% of their company’s shares and will receive more than $50 million from the sale.

Under employment agreements with Sony, however, the executives during the next five years will also share in payments that appear unusually large, even by Hollywood standards. They include:

- At least $14 million each in salary over five years, under a formula that pays them $2.75 million apiece initially, and includes adjustments for any cost-of-living increases in the Los Angeles area.

- A yearly percentage of combined Columbia and Guber-Peters profits, calculated before taxes and interest expense. The profit participation begins at 2.5% for any profits in excess of $200 million, and escalates to 10% of profits over $425 million. If the companies earned $300 million, for instance, about $3 million would be divided among five top executives, at the sole discretion of Guber, who will be Columbia’s chief executive. If profit reached $425 million, the bonus pool would be $11.25 million.

- A $50-million lump-sum payment in five years, to be divided among the top five officers at Guber’s discretion.

- A payment equal to 8.08% of Columbia’s appreciation five years from now. The appreciation is figured by subtracting the current value, reckoned at $3.4 billion, from the studio’s future value. Thus, if the studio is thought to be worth $4.4 billion in five years, the five top executives will divide, at Guber’s discretion, about $81 million.

An attorney for Guber and Peters didn’t return calls seeking comment on whether the pair had made progress in negotiations to obtain a release from their current contract with Time Warner Inc.’s Warner Bros. unit. A Warner spokesman declined comment.

Sony can cancel its proposed acquisition of Guber-Peters Entertainment if the pair don’t receive a release by Oct. 25.

The SEC filing disclosed that Guber-Peters Entertainment expects to receive $50 million in revenue over three years from two hit films--MGM/UA’s “Rain Man” and Warner’s “Batman”--on which Guber and Peters served as producers. Guber-Peters Entertainment expects to post $15.2 million in net income for its fiscal year ending next May 31, despite anticipated losses in its television division, according to the filing.

The filing also provided some additional details regarding the likely management structure of Columbia under Sony. According to the filing, all Columbia employees will report to Guber, who will report to a “steering committee” to be established by Sony.

In a separate filing, Columbia said its investment banker, Allen & Co., will collect $30 million in fees from the transaction.

Mitsui Bank Ltd. has agreed to lend Sony $250 million to complete the Guber-Peters Entertainment purchase, according to Sony’s filing. A consortium of Japanese banks has committed financing for the Columbia purchase.