EQUITY STAKE TRANSITION
AGREEMENT
This Equity
Stake Transition Agreement (the “Agreement”) is entered
into by and between Discovery Communications, Inc., a Delaware
corporation (the “Company”), and John S. Hendricks
(“the Executive”) as of the 5 th day of November, 2008.
WHEREAS, the
Executive is the founder of Discovery Communications (in 1982 the
Executive incorporated Cable Educational Network, Inc., which
launched The Discovery Channel in 1985, and later changed the
company’s name to Discovery Communications to reflect its
flagship network brand);
WHEREAS, in
1986, the predecessor entities of the Company’s shareholders,
Discovery Holding Company and Advance Newhouse Communications, made
investments in Discovery Communications and, over time, entered
into a number of agreements with the Executive, whereby the
Executive’s original equity holdings were transitioned into
phantom equity and appreciation units—forms of long-term
incentive compensation appropriate for a private company with no
public market value; and
WHEREAS, the
Company is now a public company, and it is appropriate and in the
best interests of the Company that the Executive’s long-term
incentive compensation be transitioned to stock options, a form of
incentive more suitable for a public company, as stock options more
directly align the Executive’s incentive compensation with
the interests of the Company’s shareholders.
NOW, THEREFORE,
the parties hereto agree as follows:
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1.
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Discovery Appreciation
Plan .
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a.
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All
“Appreciation Units” previously awarded to the
Executive under the terms of the Company’s Discovery
Appreciation Plan (“DAP”) shall be paid to the
Executive, following his earning a vested right to the Appreciation
Units, in accordance with the terms of DAP, provided that,
regardless of how the Company determines “Ending Unit
Value” (as defined in the DAP) for other DAP participants,
the “Ending Unit Value” of such Appreciation Units
shall be determined without application of the 110% multiplier
referred to in the DAP’s definition of “Ending Unit
Value.”
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b.
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As
of the date hereof, the Executive holds (or recently had settled)
the following Appreciation Unit awards under DAP:
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i.
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4,779,467 Appreciation Units which
vested on October 1, 2008 (“2008 DAP Units”) and
have been settled;
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ii.
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1,042,171 Appreciation Units which
are scheduled to vest on October 1, 2009 (“2009 DAP
Units”);
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iii.
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415,831 Appreciation Units which are
scheduled to vest on October 1, 2010 (“2010 DAP
Units”); and
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iv.
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415,831 Appreciation Units which are
scheduled to vest on October 1, 2011 (“2011 DAP
Units”).
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The
number of Appreciation Units associated with the 2008 DAP Units,
the 2009 DAP Units, the 2010 DAP Units and the 2011 DAP Units, as
well as the “Beginning Unit Value” and “Ending
Unit Value” of such awards, shall remain subject to
adjustment (for example, for changes in capitalization related to
the Company becoming publicly traded) in accordance with DAP and,
except as described above, will be governed by the terms of
DAP.
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2.
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Stock Option Grants
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a.
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Option Grant.
If the Executive remains
an employee of the Company in good standing as of the date his
Appreciation Units under DAP vest and become payable, then the
Company shall issue to the Executive, as of the date such
Appreciation Units mature (or if such day is not a business day,
then as of the next following business day) an equivalent number of
nonqualified stock options to purchase Series A common stock
of the Company with the terms specified below (the
“Options”).
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b.
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Option Term. With respect to Options granted upon
maturation of the Executive’s Appreciation Units, the Options
will expire no later than the number of years following the date of
grant, as follows:
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Appreciation
Units
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Expiration Date
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10 years
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9 years
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8 years
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7 years
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All
Options will expire no later than October 1, 2018.
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c.
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Exercise Price.
The exercise price of
each Option granted upon maturation of a DAP Appreciation Unit
shall be equal to the fair market value of the Company’s
Series A Common Stock on the date the Option is
granted.
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d.
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Vesting and Exercise.
The Executive’s
right to exercise each Option granted upon maturation of a DAP
Appreciation Unit shall vest in four equal installments of
twenty-five percent (25%) on each of the four anniversaries
immediately following the date the Option is granted, provided that
in the event the
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Executive’s employment with
the Company is terminated, the Executive’s right to exercise
the Options will be governed by the following
provisions:
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i.
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If
the Executive’s employment with the Company is terminated for
Cause, then all of the Options (whether or not previously vested
and exercisable) immediately shall cease to be exercisable and
shall be forfeited.
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ii.
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If
the Executive’s employment with the Company is terminated
(A) as a result of death, Disability, or Retirement, or
(B) by the Company other than for Cause, then all of the
Options shall be immediately vested, and the Options will remain
exercisable during their original term;
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iii.
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If
the Executive’s employment with the Company terminates for
any other reason (not described in (i) or (ii)), then any
Options not vested and exercisable on the date of termination
immediately shall be forfeited, and any Options vested as of such
date shall remain exercisable for one year following the
termination (but not beyond their original term); and
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iv.
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The
Executive’s right to exercise any Options during any period
of time following termination of employment, pursuant to
(ii) or (iii), above, shall be conditioned upon the Executive
signing a General Liability Release and abiding by a
Non-Competition Agreement, and if such release is not timely signed
(and not revoked) or if the Company determines that the
Non-Competition Agreement is breached, then no Options may be
exercised after the date of termination and any gains the Executive
recognized from the post-termination exercise of the Options may be
clawed back by the Company in its discretion (by requiring an
immediate cash payment to the Company).
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e.
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Incorporation of Plan
. Except as specified
above, the terms of the Options shall be consistent with the
Company’s 2005 Incentive Plan, as amended from time to time,
or any successor plan under which the Options are granted,
including the adjustment of the Options (in terms of number of
shares, exercise price or class of shares) in the event of a
recapitalization of the Company.
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3.
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Definitions for
Options .
The following definitions will apply to this Agreement and to the
Options granted upon maturation of a DAP Appreciation
Unit:
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a.
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Board . “Board” means the
Company’s Board of Directors, as it may be constituted from
time to time.
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b.
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Cause . The Company shall have
“Cause” to terminate the Executive’s employment
as a result of the Executive’s:
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i.
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Willful malfeasance in connection
with his services to the Company (and its successors), including
embezzlement, or misappropriation of funds, property or corporate
opportunity;
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ii.
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Committing any act or becoming
involved in any situation or occurrence involving moral turpitude,
which is materially damaging to the business or reputation of the
Company (or its successors); or
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iii.
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Conviction of, or plea of guilty or
nolo contendere to, or failure to defend against the prosecution
for, a felony or a crime involving moral turpitude.
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iv.
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The
Executive’s employment shall not be terminated for Cause
under clauses (i) or (ii) unless the Company notifies the
Executive in writing of its intention to terminate his employment
for Cause, describes with reasonably specificity the circumstances
giving rise thereto, and (provided the Board believes such
circumstances are susceptible of being cured by the Executive)
provides the Executive a period of at least ten (10) business
days to cure, and the Executive has failed to effect such a cure
within such period. The Board, in its reasonable discretion,
exercised in good faith, shall determine whether the Executive has
cured the circumstances giving rise to Cause. In addition, the
Executive’s removal as Chairman of the Company is subject to
the special class voting rights of the Company’s
Series A convertible preferred stockholders (requiring a
supermajority vote).
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c.
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Disability . The Executive shall be deemed to
have a “Disability” if the Executive is unable to
perform substantially all of his duties to the Company in the
normal and regular manner due to mental or physical illness or
injury, and has been unable so to perform for one hundred fifty
(150) days or more during the twelve (12) consecutive months
then ending. The determination of the Executive’s Disability
shall be made by the Board. The Executive shall cooperate fully
with any physician or health care professional (the
“Doctor”) chosen by the Board, in its sole discretion,
to review the Executive’s medical condition. The Executive
shall cooperate with the Doctor by, among other things, executing
any necessary releases to grant the Doctor full access to any and
all of the Executive’s medical records, authorizing or
requiring physicians and other healthcare professionals who have
treated or dealt with the Executive to consult with the Doctor and
submitting to such physical examinations or testing as may be
requested by the Doctor. The Executive shall be deemed to have a
Disability if he is receiving disability benefits under the long
term disability plan sponsored by the Company.
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d.
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General Liability Release
. The General Liability
Release shall have terms substantively identical to the form
annexed hereto as Attachment A.
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e.
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Non-Competition Agreement
. The Non-Competition
Agreement shall have terms which are substantively identical to the
form annexed hereto as Attachment B.
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f.
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Retirement . Retirement shall mean the
Executive’s voluntary termination of employment after
attainment of age 65.
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4.
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Mutual Intent
. The parties mutually
agree that the Executive will not be eligible to participate in any
ongoing periodic equity awards which the Company may grant to other
executives and that the Option awards described herein constitute
all of the equity awards which will be made to the Executive
through 2018 (although the Company may grant additional equity at
its sole discretion). Furthermore, the parties mutually agree that
to the extent the Executive exercises an Option, the Executive will
not be entitled to be “reloaded” with an additional
Option grant.
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5.
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Miscellaneous
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a.
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Waiver or Modification
. Any waiver by either
party of a breach of any provision of this Agreement shall not
operate as, or be construed to be, a waiver of any other breach of
such provision of this Agreement. The failure of a party to insist
upon strict adherence to any term of this Agreement on one or more
occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement. Neither this Agreement nor any
part of it may be waived, changed or terminated orally, and any
waiver, amendment or modification must be in writing and signed by
each of the parties. Any waiver of any right of the Company
hereunder or any amendment hereof shall require the approval of the
Chairman of the Compensation Committee. Until such approval or
waiver has been obtained, no such waiver or amendment shall be
effective.
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b.
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Successors and Assigns
. The rights and
obligations of the Company under this Agreement shall be binding on
and inure to the benefit of the Company, its successors and
permitted assigns. The rights and obligations of the Executive
under this Agreement shall be binding on and inure to the benefit
of the heirs and legal representatives of the Executive. The
Company may assign this Agreement to a successor in interest,
including the purchaser of all or substantially all of the assets
of the Company, provided that the Company shall remain liable
hereunder unless the assignee purchased all or substantially all of
the assets of the Company. The Executive may not assign any of his
duties or rights under this Agreement.
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c.
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Counterparts . This Agreement may be executed in
any number of counterparts, each of which shall, when executed, be
deemed to be an original and all of which shall be deemed to be one
and the same instrument.
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d.
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Governing Law
. This Agreement will be
governed by, and construed and enforced in accordance with, the
laws of the State of Maryland, without regard to its conflicts of
law rules.
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e.
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Entire Agreement
. This Agreement
contains the entire understanding of the parties relating to the
subject matter of this Agreement and supersedes all other prior
written or oral agreements, understandings or arrangements
regarding the
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subject matter, including that
certain Hendricks Equity Stake Transition Term Sheet dated July 29,
2008. The Executive and the Company each acknowledges that, in
entering into this Agreement, he/it does not rely on any statements
or representations not contained in this Agreement.
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f.
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Severability . Any term or provision of this
Agreement which is determined to be invalid or unenforceable by any
court of competent jurisdiction in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction and such invalid or
unenforceable provision shall be modified by such court so that it
is enforceable to the extent permitted by applicable
law.
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g.
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Notices . All notices, demands and requests
required or permitted to be given under the provisions of this
Agreement shall be (a) in writing, (b) sent by telecopy
or email (with receipt personally confirmed by telephone),
delivered by personal delivery, sent by nationally reputable
commercial overnight delivery service or sent by registered or
certified U.S. mail, with return receipt requested, (c) deemed
to have been given on the date telecopied or emailed with receipt
confirmed, the date of personal delivery or the date set forth in
the records of the delivery service or on the return receipt, and
(d) addressed as follows:
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(i)
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if
to the Company, to:
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Discovery Communications, Inc.
One Discovery Place
Silver Spring, MD 20910
Attention: General Counsel
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(ii)
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if
to Executive, to:
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John S. Hendricks
8484 Georgia Avenue, Suite 700
Silver Spring, MD 20910
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or
to any other or additional persons and addresses as the parties may
from time to time designate in a writing delivered in accordance
with this Paragraph 5(g).
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h.
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Titles . The titles and headings of any
paragraphs in this Agreement are for reference only and shall not
be used in construing the terms of this Agreement.
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i.
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No Third Party
Beneficiaries . This Agreement does not create,
and shall not be construed as creating, an
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