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Blockbuster chief agrees to exit deal

Differences between John F. Antioco and the company's board over his compensation package have dragged on for nearly two years.

John F. Antioco, the chief executive of Blockbuster who has been locked in a dispute with company directors over the size of his bonus, has agreed to leave his job at the end of the year.

Antioco will exit with far less than he initially wanted and two years before his contract expires.

Blockbuster said Tuesday that Antioco would receive about $3.1 million for his 2006 bonus--less than half the amount he said he was entitled to, but $772,500 more than the board offered him in January.

He will also receive a severance payout of just under $5 million, Blockbuster said.

The agreement effectively ends a two-year battle of egos and management styles that began when the financier Carl C. Icahn, a Blockbuster director and one of its largest shareholders, objected to Antioco's $51.6 million compensation package. At the time, the company was facing a crippling financial crisis.

The feud became an early flashpoint in the push for changing how corporate executives are compensated, and led at one point to Antioco's brief removal as Blockbuster's chairman after shareholders overwhelmingly elected Icahn and two of his allies to the board.

Antioco, who has led the Dallas-based company for a decade, was supposed to stay in his job until 2009 under the terms of his contract. But his relations with board members became even more strained in January when they awarded him a $2.3 million bonus for 2006--an amount he felt underpaid him by some $5.4 million based on what the company said its bonus structure for the year would be.

In another sign of dissatisfaction with the chief executive, the board said it would give him nothing if he contested the amount of the bonus. For the last six weeks, the two sides tried to reach an agreement that would keep the matter out of court.

The deal they reached, which was approved by Blockbuster's board and signed by Antioco on Monday, had something in it for all sides. By still paying him less of a bonus in percentage terms than other Blockbuster employees received, the board signaled their displeasure with the chief executive's job performance. For his part, Antioco will leave the company on his own terms, avoiding a potentially awkward legal battle.

"John believes this is a fair compromise," said Karen Raskopf, Blockbuster's senior vice president for corporate communications. "It allows for management continuity, time for an orderly succession and enables him to leave on a timeline and on terms that are acceptable to him."

One point of contention was the amount of Antioco's severance pay. Under the terms of his contract, he was entitled to $13.5 million if he was terminated "without cause or resigned for good reason," according to a company filing with the Securities and Exchange Commission.

Icahn opposed giving Antioco that large an amount.

In an interview Tuesday, Icahn said he opposed contracts with large severances because he thought they eroded accountability.

"I have nothing against John," he said. "And I have no problem with the CEO being richly rewarded for a job well done. I really believe contracts like this are one of the things wrong with corporate America. When you have these huge severance packages, it so obviously undermines any type of accountability."

Antioco declined to comment beyond a written statement that said in part, "I am pleased that we were able to reach this agreement." As part of the agreement, he will receive $4.7 million in compensation for this year.

Raskopf said Antioco would donate to charity the $772,500 difference, after taxes, between what the board first offered and what it ended up paying for his 2006 bonus.

The company's stock price gained in 2006, but remains worth a small fraction of its high mark of nearly $30 a share in 2002. Shares of Blockbuster closed Tuesday down 3.5 percent, to $6.86.

Blockbuster has struggled to stem the flow of customers away from its video stores to online video rental services like NetFlix. Its losses in 2004 and 2005 totaled nearly $2 billion. But its turnaround plan, which has included closing stores and focusing more on renting videos online, gained some traction. Last year, it earned nearly $60 million.

Icahn stepped up his efforts for change at the company in 2005, when he nominated himself to the board to oppose what he said was an "unconscionable" $51.6 million pay package for Antioco.

With Blockbuster deep in the red, Icahn pressed the company to sell itself to a private equity firm, a move that the company's management opposed.

Icahn declined to name any candidates the board was considering as Antioco's successor, but he was resolute when asked how the new chief executive's pay and benefits might compare with the departing chief executive's.

"I feel the contract has been sort of an albatross around the company's neck," Icahn said, referring to Antioco's pay and severance. "You should reward people if the stock goes up. You shouldn't have contracts like this."