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Discovery's Bearing of the Green

6/13/2008 8:00 PM Eastern

With the consolidation of its ownership into one public company expected by the end of the third quarter, Discovery Holding, which includes cable-network powerhouse Discovery Communications, filed its first proxy statement with the Securities and Exchange Commission, revealing among other tidbits that founder and chairman John Hendricks received nearly $58 million in compensation last year.

Discovery Holding, which owns a 66.7% interest in Discovery Communications Inc., said earlier this month that it will combine its interest in the cable networks with Advance/Newhouse's 33.3% interest in DCI in a new publicly traded entity.

The deal, expected to close before the end of the year, needs regulatory approval from U.S. and German regulators (because of its ownership of properties in that country). It must also pass muster with Discovery Holding shareholders (no date for a special meeting of shareholders has been set), hence the need for the proxy.

Because of its past ownership structure — DCI was one-third owned by Advance/Newhouse, a privately held company — Discovery Holding filed limited financial documents with the SEC and had not filed a proxy statement before June 11.

That will change once the restructuring is complete. In the proxy filing, Discovery Holding noted that the new structure will enable shareholders, potential investors and analysts to “obtain significantly improved disclosure regarding Discovery, including more transparent financial information.”

That includes more details concerning executive compensation.

According to the June 11 document, Hendricks reaped $1 million in salary, a $500,000 bonus and $56.2 million in stock-option awards. Included in those option awards was $28.6 million in cash from the Discovery Appreciation Program, a long-term incentive plan for employees.

The proxy filing also stated that awards from the DAP program were previously doled out in increments over a four-year period, but in 2007 the plan was changed to allow employees to receive payment upon vesting.

The DAP awards also are based on the average trading price of Discovery Holding stock, which rose more than 50% in 2007 ($8.65 per share) from $16.49 to $25.14 each.

Those are the main differences between Hendricks' compensation in 2006 of $15.2 million, which included about $12.2 million in stock-option awards. Hendricks' 2006 salary was $1 million and he received a $1.875 million bonus that year, reflecting his additional responsibilities as interim chief executive after CEO Judith McHale resigned.

Discovery hired former NBC Universal Cable president David Zaslav to replace McHale and, according to the proxy statement, the new CEO received $19.1 million in total compensation in 2007. Zaslav's package included a salary of $1.95 million, a $5.5 million bonus (including a $2.5 million signing bonus) and $11.1 million in stock options.

Other executives also got big raises during the year — senior executive vice president and chief operating officer Mark Hollinger's total compensation increased nearly four-fold in 2007 (to $8.96 million from $2.59 million in 2006), mainly because of the change in the distribution of the DAP payments.

Once the deal is completed, Hendricks and Zaslav will retain their positions with the new Discovery, as will the company's remaining top-level executives.

Discovery also revealed the expected composition of its new board of directors.

According to the proxy, the board will consist of eight members nominated by Discovery Holding — DHC and Liberty Media chairman John Malone, former Liberty Media CEO (and DHC director) Robert Bennett; Hendricks; Zaslav; former DHC director and Anschutz Foundation executive director LaVoy Robison; DHC director and Allen & Co. executive Paul Gould; former DHC director and Wargo & Co. president J. David Wargo; and independent consultant Robert Beck — and three by Advance/Newhouse — A/N chairman Robert Miron, A/N co-chairman Steven Newhouse and former president of CBS Digital Media Lawrence Kramer.

Malone will retain about 23% of the voting control in the new company, while A/N will have 26%. In addition, A/N retains its blocking rights over certain transactions of the new company (including fundamental changes to its business, the issuance of capital stock, mergers and business combinations and certain acquisitions and disposition).

Name Year Salary Bonus Option Awards Total
* Partial Year

Source: Discovery Holding SEC filings
John Hendricks Chairman & founder 2007 $1 million $500,000 $56.2 million $57.9 million
2006 $1 million $1.875 million $12.2 million $15.2 million
David Zaslav CEO 2007 $1.95 million $5.5 million $11.1 million $19.1 million
Mark Hollinger COO 2007 $967,692 0 $6.6 million $8.95 million
2006 $719,423 0 $1.25 million $2.59 million
Roger Millay CFO 2007 $550,000 0 $2.27 million $3.5 million
2006* $129,038 $160,000 $84,885 $565,312
Bruce Campbell President, Digital Media and Corporate Development 2007* $615,385 $461,539 $1.3 million $2.8 million

September