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1 File: [05DEN1433]SUBMISSION-BEGIN EFW: Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: Doc # <SUBMISSION> <TYPE> 10-12G/A <LIVE> <DOCUMENT-COUNT> 23 <FILER> <CIK> <CCC>XXXXXXX </FILER> <SROS> NONE <SUBMISSION-CONTACT> <NAME> EDGAR Advantage Service Team <PHONE> (800) </SUBMISSION-CONTACT>

2 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: Doc # 1 <DOCUMENT> <TYPE> 10-12G/A <DESCRIPTION> 10-12G/A <FILENAME> a z10-12ga.htm <TEXT>

3 File: DISK126:[05DEN3.05DEN1433]BA1433A.;9 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:24 (v.162) Created: 21-JUN-2005;20:02 Chksum: HTML Page: 1 Folio: BLANK Doc # 1 QuickLinks-- Click here to rapidly navigate through this document UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C AMENDMENT NO. 2 TO FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES Pursuant to Section 12(b) or 12(g) of The Securities Exchange Act of 1934 Discovery Holding Company (Exact name of registrant as specified in its charter) Delaware (State of incorporation (I.R.S. Employer or organization) Identification No.) Liberty Boulevard Englewood, Colorado (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (720) Securities to be registered pursuant to Section 12(b) of the Act: [None] Securities to be registered pursuant to Section 12(g) of the Act: Series A Common Stock, $0.01 par value (Title of class) Series A Preferred Share Purchase Rights (Title of class) Series B Common Stock, $0.01 par value (Title of class) Series B Preferred Share Purchase Rights (Title of class)

4 Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: 2 File: DISK126:[05DEN3.05DEN1433]JA1433A.;19 Created: 24-JUN-2005;17:41 Chksum: Folio: 2 User: MBRADT EFW: Doc # 1 Discovery Holding Company Our Information Statement is filed as Exhibit 99.1 to this Form 10. For your convenience, we have provided below a cross-reference sheet identifying where the items required by Form 10 can be found in the Information Statement. Item No. Item Caption Location in Information Statement 1. Business. Summary; Risk Factors; Cautionary Statements Concerning Forward Looking Statements; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Description of Our Business and Certain Inter-Company Agreements 2. Financial Information. Summary; Risk Factors; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations and Financial Statements 3. Properties. Description of Our Business Properties 4. Security Ownership of Certain Beneficial Owners and Management. Management Security Ownership of Certain Beneficial Owners; and Security Ownership of Management 5. Directors and Executive Officers. Management 6. Executive Compensation. Management 7. Certain Relationships and Related Transactions. Summary; Risk Factors; Management and Certain Inter-Company Agreements 8. Legal Proceedings. Description of our Business Legal Proceedings 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters. 10. Recent Sales of Unregistered Securities. 11. Description of Registrant's Securities to be Registered. 12. Indemnification of Directors and Officers. 13. Financial Statements and Supplementary Data. 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Summary; The Spin Off; Risk Factors and Description of Our Capital Stock Not Applicable Description of our Capital Stock Indemnification of Directors and Officers Summary; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations and Financial Statements Not Applicable

5 Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: 3 File: DISK126:[05DEN3.05DEN1433]JA1433A.;19 Created: 24-JUN-2005;17:41 Chksum: Folio: 3 User: MBRADT EFW: Doc # Financial Statements and Exhibits (a) Financial Statements : The following financial statements are included in the Information Statement and filed as part of this Registration Statement: LMC Discovery Group Unaudited Condensed Combined Balance Sheets as of March 31, 2005 and December 31, 2004 Unaudited Condensed Combined Statements of Operations and Comprehensive Earnings for the three months ended March 31, 2005 and 2004 Unaudited Condensed Combined Statement of Parent's Investment for the three months ended March 31, 2005 Unaudited Condensed Combined Statements of Cash Flows for the three months ended March 31, 2005 and 2004 Notes to Condensed Combined Financial Statements (unaudited) Report of Independent Registered Public Accounting Firm Combined Balance Sheets as of December 31, 2004 and 2003 Combined Statements of Operations and Comprehensive Earnings (Loss) for the years ended December 31, 2004, 2003 and 2002 Combined Statements of Parent's Investment for the years ended December 31, 2004, 2003 and 2002 Combined Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 Notes to Combined Financial Statements Discovery Communications, Inc. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2004 and 2003 Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2004, 2003 and 2002 Notes to Consolidated Financial Statements (b) Exhibits. The following documents are filed as exhibits hereto: Exhibit Number Exhibit Description 2.1 Form of Reorganization Agreement among Liberty Media Corporation, the Registrant and Ascent Media Group, Inc. 3.1 Form of Restated Certificate of Incorporation of the Registrant to be in effect at the time of the spin off

6 Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: 4 File: DISK126:[05DEN3.05DEN1433]JA1433A.;19 Created: 24-JUN-2005;17:41 Chksum: Folio: 4 User: MBRADT EFW: Doc # Form of Bylaws of the Registrant to be in effect at the time of the spin off* 4.1 Specimen Certificate for shares of the Series A common stock, par value $.01 per share, of the Registrant 4.2 Specimen Certificate for shares of the Series B common stock, par value $.01 per share, of the Registrant 4.3 Form of Rights Agreement between the Registrant and EquiServe Trust Company, N.A., as Rights Agent 10.1 The Shareholders Agreement, dated as of November 30, 1991 (the "Stockholders' Agreement"), by and among Discovery Communications, Inc. ("Discovery"), Cox Discovery, Inc. ("Cox"), NewChannels TDC Investments, Inc. ("NewChannels"), TCI Cable Education, Inc. ("TCID"), John S. Hendricks ("Hendricks") 10.2 First Amendment to the Stockholders' Agreement, dated as of December 20, 1996, by and among Discovery, Cox Communications Holdings, Inc. (the successor to Cox), Newhouse Broadcasting Corporation (the successor to NewChannels), TCID, Hendricks and for the purposes stated therein only, LMC Animal Planet, Inc. ("LMC") and Liberty Media Corporation, a Colorado corporation ("Liberty") 10.3 Second Amendment to the Stockholders' Agreement, dated as of September 7, 2000, by and among Discovery, Cox Communications Holdings, Inc. (the successor to Cox), Advance/Newhouse Programming Partnership (the successor to NewChannels), LMC Discovery, Inc. (formerly known as TCID) and Hendricks 10.4 Third Amendment to the Stockholders' Agreement, dated as of September, 2001, by and among Discovery, Cox, NewChannels, TCID, Hendricks and Advance Programming Holdings Corp Fourth Amendment to the Stockholders' Agreement, dated as of June 23, 2003, by and among Discovery, Cox, NewChannels, TCID, Liberty Animal, Inc. (the successor in interest to LMC) for the purposes stated in the First Amendment to the Stockholders' Agreement, and Hendricks 10.6 Form of Tax Sharing Agreement between Liberty Media Corporation and the Registrant 10.7 Discovery Holding Company 2005 Incentive Plan 10.8 Discovery Holding Company 2005 Non-Employee Director Plan 10.9 Form of Discovery Holding Company Transitional Stock Adjustment Plan Agreement, dated as of [ ], 2005, between the Registrant and John C. Malone Agreement, dated June 24, 2005, between Discovery and the Registrant Indemnification Agreement, dated as of June 24, 2005, between Cox and the Registrant Indemnification Agreement, dated as of June 24, 2005, between NewChannels and the Registrant 21.1 List of Subsidiaries 99.1 Information Statement, Subject to Completion, dated June 27, 2005

7 Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: 5 File: DISK126:[05DEN3.05DEN1433]JA1433A.;19 Created: 24-JUN-2005;17:41 Chksum: Folio: 5 User: MBRADT EFW: Doc # Form of Letter from the President and Chief Executive Officer of Liberty Media Corporation to holders of Liberty Media Corporation's common stock 99.3 Form of Letter from the Chief Executive Officer and Chairman of the Board of the Registrant to holders of the Registrant's common stock * Previously filed.

8 Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: 6 File: DISK126:[05DEN3.05DEN1433]JC1433A.;15 Created: 24-JUN-2005;17:42 Chksum: Folio: 6 User: MBRADT EFW: Doc # 1 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. Date: June 27, 2005 DISCOVERY HOLDING COMPANY By: /s/ CHARLES Y. TANABE Name: Charles Y. Tanabe Title: Senior Vice President

9 File: DISK126:[05DEN3.05DEN1433]KA1433A.;22 User: MBRADT EFW: Printed: 24-Jun-2005;20:03:24 (v.162) Created: 24-JUN-2005;17:42 Chksum: HTML Page: 7 Folio: BLANK Doc # 1 EXHIBIT INDEX Exhibit Number Exhibit Description 2.1 Form of Reorganization Agreement among Liberty Media Corporation, the Registrant and Ascent Media Group, Inc. 3.1 Form of Restated Certificate of Incorporation of the Registrant to be in effect at the time of the spin off 3.2 Form of Bylaws of the Registrant to be in effect at the time of the spin off* 4.1 Specimen Certificate for shares of the Series A common stock, par value $.01 per share, of the Registrant 4.2 Specimen Certificate for shares of the Series B common stock, par value $.01 per share, of the Registrant 4.3 Form of Rights Agreement between the Registrant and EquiServe Trust Company, N.A., as Rights Agent 10.1 The Shareholders Agreement, dated as of November 30, 1991 (the "Stockholders' Agreement"), by and among Discovery Communications, Inc. ("Discovery"), Cox Discovery, Inc. ("Cox"), NewChannels TDC Investments, Inc. ("NewChannels"), TCI Cable Education, Inc. ("TCID"), John S. Hendricks ("Hendricks") 10.2 First Amendment to the Stockholders' Agreement, dated as of December 20, 1996, by and among Discovery, Cox Communications Holdings, Inc. (the successor to Cox), Newhouse Broadcasting Corporation (the successor to NewChannels), TCID, Hendricks and for the purposes stated therein only, LMC Animal Planet, Inc. ("LMC") and Liberty Media Corporation, a Colorado corporation ("Liberty") 10.3 Second Amendment to the Stockholders' Agreement, dated as of September 7, 2000, by and among Discovery, Cox Communications Holdings, Inc. (the successor to Cox), Advance/Newhouse Programming Partnership (the successor to NewChannels), LMC Discovery, Inc. (formerly known as TCID) and Hendricks 10.4 Third Amendment to the Stockholders' Agreement, dated as of September, 2001, by and among Discovery, Cox, NewChannels, TCID, Hendricks and Advance Programming Holdings Corp Fourth Amendment to the Stockholders' Agreement, dated as of June 23, 2003, by and among Discovery, Cox, NewChannels, TCID, Liberty Animal, Inc. (the successor in interest to LMC) for the purposes stated in the First Amendment to the Stockholders' Agreement, and Hendricks 10.6 Form of Tax Sharing Agreement between Liberty Media Corporation and the Registrant 10.7 Discovery Holding Company 2005 Incentive Plan 10.8 Discovery Holding Company 2005 Non-Employee Director Plan 10.9 Form of Discovery Holding Company Transitional Stock Adjustment Plan Agreement, dated as of [ ], 2005, between the Registrant and John C. Malone Agreement, dated June 24, 2005, between Discovery and the Registrant Indemnification Agreement, dated as of June 24, 2005, between Cox and the Registrant Indemnification Agreement, dated as of June 24, 2005, between NewChannels and the Registrant 21.1 List of Subsidiaries 99.1 Information Statement, Subject to Completion, dated June 27, 2005

10 File: DISK126:[05DEN3.05DEN1433]KA1433A.;22 User: MBRADT EFW: Printed: 24-Jun-2005;20:03:24 (v.162) Created: 24-JUN-2005;17:42 Chksum: HTML Page: 8 Folio: BLANK Doc # Form of Letter from the President and Chief Executive Officer of Liberty Media Corporation to holders of Liberty Media Corporation's common stock 99.3 Form of Letter from the Chief Executive Officer and Chairman of the Board of the Registrant to holders of the Registrant's common stock * Previously filed.

11 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: Doc # 1 QuickLinks Discovery Holding Company SIGNATURES EXHIBIT INDEX

12 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: Doc # 1 </TEXT> </DOCUMENT>

13 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:24 (v.162) HTML Page: Doc # 2 <DOCUMENT> <TYPE> EX-2.1 <DESCRIPTION> Ex 2.1 <FILENAME> a zex-2_1.htm <TEXT>

14 File: DISK015:[05DEN5.05DEN1445]BA1445A.;6 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:24 (v.162) Created: 21-JUN-2005;19:56 Chksum: HTML Page: 1 Folio: BLANK Doc # 2 QuickLinks-- Click here to rapidly navigate through this document Exhibit 2.1 FORM OF REORGANIZATION AGREEMENT among Liberty Media Corporation, Discovery Holding Company and Ascent Media Group, Inc. Dated as of [ ], 2005

15 File: DISK015:[05DEN5.05DEN1445]BC1445A.;6 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:24 (v.162) Created: 21-JUN-2005;19:56 Chksum: TABLE OF CONTENTS HTML Page: 2 Folio: I Doc # 2 ARTICLE I REORGANIZATION AND DISTRIBUTION 1 ARTICLE II CONTRIBUTIONS OF ASSETS 2 Section 2.1 Contributions to the Company 2 Section 2.2 Excess Loss Accounts 2 ARTICLE III DISTRIBUTION OF COMPANY COMMON STOCK TO LMC 2 STOCKHOLDERS Section 3.1 The Distribution 2 Section 3.2 Conditions to the Distribution 3 Section 3.3 Treatment of Certain LMC Awards 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4 Section 4.1 Representations and Warranties of the Parties 4 Section 4.2 Additional Representations and Warranties of LMC 5 ARTICLE V COVENANTS 5 Section 5.1 Cross-Indemnities 5 Section 5.2 Further Assurances 7 Section 5.3 Specific Performance 7 Section 5.4 Arbitration 8 Section 5.5 Access to Information 8 Section 5.6 Confidentiality 8 Section 5.7 Notices Regarding Transferred Assets 9 ARTICLE VI CLOSING 9 Section 6.1 Closing 9 Section 6.2 Conditions to Closing 9 Section 6.3 Deliveries at Closing 10 ARTICLE VII TERMINATION 11 Section 7.1 Termination 11 Section 7.2 Effect of Termination 11 ARTICLE VIII MISCELLANEOUS 11 Section 8.1 No Third-Party Rights 11 Section 8.2 Notices 11 Section 8.3 Entire Agreement 12 Section 8.4 Amendment, Modification or Waiver 12 Section 8.5 Binding Effect; Benefit; Successors and Assigns 12 Section 8.6 Costs and Expenses 12 Section 8.7 Severability 12 Section 8.8 Miscellaneous 13 EXHIBIT A Form of Services Agreement EXHIBIT B Form of Tax Sharing Agreement EXHIBIT C Form of Termination Agreement SCHEDULE 1.1 Discovery Holding Restructure Plan Page

16 File: DISK015:[05DEN5.05DEN1445]BC1445A.;6 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:25 (v.162) Created: 21-JUN-2005;19:56 Chksum: INDEX TO DEFINITIONS HTML Page: 3 Folio: II Doc # 2 Term The following terms used in this Agreement are defined in the sections indicated: Section Adjusted LMC Option Section 3.4(b) Agents Section 5.6(a) Agreement Preamble Closing Section 6.1 Closing Date Section 6.1 Company Preamble Company Business Recitals Company Business and Assets Section 5.1(b) Company Common Stock Section 3.1(b) Company Option Section 3.3(b) Contributed Assets Section 2.1 Contributing Parent Section 2.2 Delaware Act Article I disclosing party Section 5.6(b) Distribution Recitals Distribution Date Section 3.1(a) Indemnitee Section 5.1(c) Indemnitor Section 5.1(c) LMC Preamble LMC Board Section 3.1(a) LMC Common Stock Recitals LMC Options Section 3.3(a) LMC Plan Committee Section 3.3(b) LMC Plans Section 3.3(a) LMC SARs Section 3.3(a) LMC Series A Common Stock Recitals LMC Series B Common Stock Recitals LMC Services Agreement Section 6.3(a) LMC Stockholders Section 3.1(b) Losses Section 5.1(a) Other Agreements Section 4.1(b) Proprietary Information Section 5.6(b) receiving party Section 5.6(c) Recipient Subsidiary Section 2.2 Record Date Section 3.1(a) Reorg Agreements Section 4.1(b) Reorganization Article I Series A Common Stock Section 2.1 Series B Common Stock Section 2.1 Tax Sharing Agreement Section 6.3(a) Termination Agreement 6.3(a)

17 File: DISK015:[05DEN5.05DEN1445]BE1445A.;5 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:25 (v.162) Created: 21-JUN-2005;19:57 Chksum: HTML Page: 4 Folio: BLANK Doc # 2 REORGANIZATION AGREEMENT This Reorganization Agreement (this "Agreement") dated as of [ ], 2005 is among Liberty Media Corporation, a Delaware corporation ("LMC"), Ascent Media Group, Inc., a Delaware corporation ("Ascent"), and Discovery Holding Company, a Delaware corporation (the "Company"). RECITALS Ascent and the Company are wholly-owned subsidiaries of LMC. The parties desire to effect the transactions set forth in this Agreement in connection with a plan to reorganize and spin off certain assets that includes LMC's 100% ownership interest in Ascent and LMC's 50% ownership in Discovery Communications, Inc. (collectively, the "Company Business") in a series of transactions intended to qualify under, among other provisions, Sections 355 and 368 of the Internal Revenue Code, as amended, which plan was adopted by LMC's Board of Directors on May 3, 2005 with the expectation that the plan would accomplish certain non-federal tax purposes germane to the business of LMC and its affiliates and the Company and its affiliates. This agreement constitutes a plan of reorganization. Pursuant to this Agreement and upon the consummation of the other transactions provided for herein, subject to regulatory approval and certain conditions, LMC intends to distribute all the issued and outstanding capital stock of the Company (the "Distribution") to the holders of record on the record date for the Distribution of shares of Liberty Media Corporation Series A Common Stock (the "LMC Series A Common Stock"), and Liberty Media Corporation Series B Common Stock (the "LMC Series B Common Stock" and together with the LMC Series A Common Stock, the "LMC Common Stock"). NOW, THEREFORE, in consideration of the foregoing and the mutual promises contained herein, the parties hereto agree as follows: ARTICLE I REORGANIZATION AND DISTRIBUTION In accordance with and subject to the provisions of this Agreement and the Delaware General Corporation Law (the "Delaware Act"), the parties will take, or cause to be taken, all actions that are necessary or appropriate to accomplish steps numbered 4 through 21, inclusive, set forth in the Discovery Holding Restructure Plan attached hereto as Schedule 1.1 (the "Reorganization") in the order set forth therein as soon as practicable after the conditions thereto have been satisfied or, to the extent waivable, waived. All of the steps of the Reorganization, together with steps 1 through 3 of Schedule 1.1, which already have been completed prior to the date hereof, are intended to be part of the same plan of reorganization even though there may be delays between certain of the steps. The parties will cause any transferee of assets in the Reorganization (whether by merger, contribution, distribution or sale) to assume all liabilities and obligations of the transferor associated with the transferred assets whether arising before or after the Reorganization (except as otherwise expressly provided in the agreement effecting the transfer). As promptly as practicable after the Reorganization is completed the parties will take, or cause to be taken, all actions that are necessary or appropriate to accomplish the Distribution. All documents and instruments used to effect the Reorganization and Distribution shall be in form satisfactory to LMC and the Company. Section 2.1 Contributions to the Company. ARTICLE II CONTRIBUTIONS OF ASSETS LMC hereby agrees to, or cause its wholly owned subsidiaries to, assign, transfer, deliver and convey to the Company the assets, subject to associated liabilities and obligations, which step 16 of Schedule 1.1 contemplates will be contributed to the Company (collectively, the "Contributed Assets"), in exchange for [ ] shares of Series A Common Stock, par value $0.01 per share, of the Company (the "Series A Common Stock"), and [ ] shares of Series B Common Stock, par value $0.01 per share, of the Company (the "Series B Common Stock"). The Company hereby agrees to acquire, accept and

18 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]BE1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: 2 User: BSKELLE EFW: Doc # 2 receive all of LMC's right, title and interest in and to the Contributed Assets, subject to associated liabilities and obligations. The contributions to the Company pursuant to this Section 2.1 are intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Section 2.2 Excess Loss Accounts The Reorganization is being completed in part in order to eliminate any excess loss accounts that may exist with respect to direct and indirect corporate subsidiaries of the Company. To the extent any excess loss account existing as of the day prior to the Distribution Date with respect to any direct or indirect corporate subsidiary of the Company is not eliminated as a consequence of the Reorganization, the amount of the intercompany payable, if any, determined as of the day prior to the Distribution Date, that is payable by such subsidiary to the Company or to the direct or indirect parent of such subsidiary other than the Company will be deemed to have been contributed to the capital of such subsidiary as of the day prior to the Distribution Date to the extent necessary to eliminate such excess loss account, provided that (a) such contribution will be deemed to be have been made only if the company from which the deemed contribution originates (the "Contributing Parent") owns 100%, directly or indirectly, of such subsidiary, and (b) with respect to any subsidiary (a "Recipient Subsidiary") that is an indirect subsidiary of the Contributing Parent, such contribution shall be deemed to have been contributed to the direct subsidiary of the Contributing Parent that is an owner in the ownership chain of such Recipient Subsidiary and in turn by such owner to its subsidiary that is an owner in the ownership chain of such Recipient Subsidiary, successively, until a contribution in the required amount is made to such Recipient Subsidiary by the owner that is the direct stockholder of such Recipient Subsidiary, and in the case of any Recipient Subsidiary having more than one stockholder, such capital contribution will be deemed to have been made to such Recipient Subsidiary by the owners that are its stockholders in proportion to their stock ownership in such Recipient Subsidiary. Section 3.1 The Distribution. ARTICLE III DISTRIBUTION OF COMPANY COMMON STOCK TO LMC STOCKHOLDERS (a) The Board of Directors of LMC (the "LMC Board") shall have the authority to (i) declare or refrain from declaring the Distribution, (ii) establish or change the record date for the Distribution (the "Record Date"), (iii) establish or change the date on which the Distribution will be effective (the "Distribution Date") and (iv) establish or change the procedures for effecting the Distribution, subject to this Agreement and the Delaware Act. (b) On the Distribution Date, subject to the conditions to the Distribution set forth in Section 3.2, LMC shall cause to be distributed to the holders of record of LMC Common Stock at the close of business on the Record Date (such holders, the "LMC Stockholders"), as a dividend, all the issued and outstanding shares of Series A Common Stock and Series B Common Stock (collectively, the "Company Common Stock"), on the basis of 0.10 of a share of Series A Common Stock for each share of LMC Series A Common Stock held of record on the Record Date and 0.10 of a share of Series B Common Stock for each share of LMC Series B Common Stock held of record on the Record Date. Attached to each share of Company Common Stock will be a preferred share purchase right as described in the Rights Agreement, dated as of [ ], 2005, between the Company and EquiServe Trust Company, N.A., as Rights Agent. (c) LMC will not issue fractional shares of Company Common Stock in connection with the Distribution. If any LMC Stockholder otherwise would be entitled to receive a fractional share of

19 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]BE1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: 3 User: BSKELLE EFW: Doc # 2 Company Common Stock in the Distribution, that person will instead receive cash in an amount equal to the product of the applicable fraction of a share multiplied by the average of the closing prices of the applicable series of Company Common Stock on the Nasdaq National Market over the 10 trading day period beginning on the trading day on which shares of Company Common Stock begin trading in the regular way market. Section 3.2 Conditions to the Distribution. It shall be a condition to the occurrence of the Distribution that (a) on or before the Record Date, the LMC Board shall have taken all necessary corporate action to establish the Record Date and to declare the Distribution in accordance with the certificate of incorporation and bylaws of LMC and the Delaware Act, (b) Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to LMC, shall have rendered an opinion substantially to the effect that the Distribution will qualify as part of a tax-free reorganization under Sections 368(a) and 355 of the Code and (c) the registration statement of the Company with respect to the registration under the Securities Exchange Act of 1934 of the Company Common Stock shall have become effective, and such effectiveness shall not on the date of the Distribution be stayed or suspended. Section 3.3 Treatment of Certain LMC Awards. (a) Certain employees, directors and officers of LMC and its subsidiaries have been granted options to purchase shares of LMC Common Stock ("LMC Options") and stock appreciation rights with respect to shares of LMC Common Stock ("LMC SARs") pursuant to various stock incentive plans of LMC (the "LMC Plans"). (b) Subject to the approval of the committee of the LMC Board that administers the LMC Plans (the "LMC Plan Committee"), each LMC Option held as of the Record Date by persons who are LMC Corporate Holders (as such term is defined in the Discovery Holding Company Transitional Stock Adjustment Plan) shall be divided into two separately exercisable options: (i) an option (a "Company Option") to purchase shares of the same series of Company Common Stock as the series of LMC Common Stock for which the LMC Option is exercisable, exercisable for a number of shares of such series of Company Common Stock equal to the product of the number of shares of LMC Common Stock for which the applicable LMC Option originally was exercisable multiplied by 0.10, and (ii) an option (an "Adjusted LMC Option") to purchase shares of the same series of LMC Common Stock as the series of LMC Common Stock for which the LMC Option is exercisable, exercisable for the same number of shares of such series of LMC Common Stock as the corresponding LMC Option had been exercisable. The aggregate original exercise price of each LMC Option held by an LMC Corporate Holder shall be allocated between the Company Option and the Adjusted LMC Option into which it is divided in a manner determined by the LMC Plan Committee so that the aggregate amount by which the LMC Option was "in-the-money" or "out-of-the-money," as applicable (as of the date of such adjustment), is preserved. Except as described in this Section 3.3 or as otherwise determined by the LMC Plan Committee in accordance with the LMC Plan all other terms of the Company Option and Adjusted LMC Option shall in all material respects be the same as such original LMC Option. (c) All other outstanding LMC Options as of the Record Date will not be split into Company Options and Adjusted LMC Options, but will be subject to an adjustment as of the Record Date as determined by the LMC Plan Committee. (d) LMC Corporate Holders who hold outstanding LMC SARs as of the Record Date will receive an adjusted LMC SAR and a Company Option relating to shares of the corresponding series of Company Common Stock in replacement of their outstanding LMC SARs. The aggregate base price of the original LMC SAR shall be allocated between the base price of the adjusted LMC SAR and the exercise price of the Company Option in a manner determined by the LMC Plan Committee so that

20 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]BE1445B.;3 Created: 21-JUN-2005;19:57 Chksum: Folio: 4 User: BSKELLE EFW: Doc # 2 the aggregate amount by which the LMC SAR was "in-the-money" or "out-of-the-money," as applicable (as of the date of such adjustment), is preserved. The number of shares of LMC Common Stock related to the adjusted LMC SAR shall be the same as the number of shares of LMC Common Stock related to the original LMC SAR. The number of shares of Company Common Stock for which the Company Option is exercisable shall be equal to the product of the number of shares of LMC Common Stock related to the original LMC SAR multiplied by Except as described in this Section 3.3 or as otherwise determined by the LMC Plan Committee in accordance with the LMC Plan all other terms of the Company Option and Adjusted LMC SAR shall in all material respects be the same as such original LMC SAR. (e) Each other holder of an LMC SAR will retain his or her LMC SAR, the number of shares of LMC Common Stock and base price per share of which will be adjusted as determined by the LMC Plan Committee. (f) The Company will issue to each holder of an unvested LMC restricted stock award outstanding as of the Record Date, for each share of restricted LMC Common Stock awarded thereunder, an award of 0.10 of a share of the same series of Company Common Stock as the shares of LMC Common Stock to which such LMC restricted stock award relates. Except as described in this subsection (f), the Distribution will not affect the outstanding LMC restricted stock awards and the restricted stock awards relating to Company Common Stock will be subject to the same restrictions as apply to the LMC restricted stock award with respect to which the Distribution is made. Except as described in this Section 3.3 or as otherwise determined by the LMC Plan Committee in accordance with the LMC Plan all other terms of the restricted shares of LMC Common Stock and any restricted shares of Company Common Stock shall in all material respects be the same as such original restricted stock. (g) From and after the Distribution LMC will have sole responsibility with respect to the LMC Options, Adjusted LMC Options, LMC SARs and LMC restricted stock, and the Company will have sole responsibility with respect to the Company Options and restricted Company Common Stock. As soon as practicable after the Distribution the Company will enter into an option agreement or restricted stock agreement, as applicable, with each holder of a Company Option or shares of restricted Company Common Stock, and LMC will amend its existing option agreement with each holder of an outstanding LMC Option and will amend its existing stock appreciation rights agreement with each holder of an LMC SAR, to reflect the adjustments described above. The Company will file a Form S-8 registration statement with respect to shares of Company Common Stock issuable upon exercise of Company Options or vesting of awards of restricted Company Common Stock as soon as practicable after the Distribution. Section 4.1 Representations and Warranties of the Parties. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each of the parties hereto, severally and not jointly, hereby represents and warrants to each of the other parties as follows: (a) Organization and Qualification. Such party is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, has all requisite corporate power and authority to own, lease or operate its properties and to conduct the business heretofore conducted by it, and is duly qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except in such jurisdictions where the failure to be so qualified and in good standing would not have a material adverse effect on its business, financial condition or results of operations.

21 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]BE1445B.;3 Created: 21-JUN-2005;19:57 Chksum: Folio: 5 User: BSKELLE EFW: Doc # 2 (b) Authorization and Validity of Agreement. Such party has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, the agreements and instruments required to effect the Reorganization (the "Reorg Agreements") and the other agreements to be delivered by it at the Closing (the "Other Agreements"). The execution, delivery and performance by such party of this Agreement, the Reorg Agreements and the Other Agreements and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by the board of directors of such party and, to the extent required by law, its stockholders, and no other corporate action on its part is necessary to authorize the execution and delivery by such party of this Agreement, the Reorg Agreements and the Other Agreements and the consummation by it of the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by such party and is a valid and binding obligation of such party, enforceable in accordance with its terms (except as enforceability may be limited by laws affecting creditors' rights generally or by principles governing the availability of equitable remedies). The Reorg Agreements and the Other Agreements to which it will be a party, when executed and delivered by it, will be valid and binding obligations of such party, enforceable in accordance with their respective terms (except as enforceability may be limited by laws affecting creditors' rights generally or by principles governing the availability of equitable remedies). (c) No Approvals or Notices Required; No Conflict with Instruments. The execution, delivery and performance by such party of this Agreement, the Reorg Agreements and the Other Agreements and the consummation of the transactions contemplated hereby and thereby do not and will not conflict with or result in a breach or violation of any of the terms or provisions of, constitute a default under, or result in the creation of any lien, charge or encumbrance upon any of its assets pursuant to the terms of, the charter or bylaws of such party, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it or any of its assets are bound, or any law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over it or its properties. (d) No Other Reliance. In determining to enter into this Agreement, the Reorg Agreements and the Other Agreements and consummate the transactions contemplated hereby and thereby, it has not relied upon any representation, warranty, promise or agreement other than those expressly contained herein, and no other representation, warranty, promise or agreement has been made or shall be implied. Section 4.2 Additional Representations and Warranties of LMC. LMC hereby represents and warrants to the Company that upon the transfer of the Contributed Assets to the Company, the Company will acquire all right, title and interest of LMC free and clear of any liens, claims and encumbrances, except for the liabilities and obligations assumed by the Company. Section 5.1 Cross-Indemnities. ARTICLE V COVENANTS (a) Each party hereby covenants and agrees to indemnify, defend and hold harmless each of the other parties hereto and their respective affiliates, their respective officers, directors, employees and agents, and the successors and assigns of each of the foregoing, from and against any and all claims, judgments, liabilities, losses, damages, costs and expenses (including reasonable attorneys' fees, disbursements and court costs and other reasonable professional fees and disbursements, whether or not litigation is instituted) (collectively, "Losses") arising from or out of or relating to any breach of any representation, warranty or covenant of such party contained herein.

22 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]BE1445B.;3 Created: 21-JUN-2005;19:57 Chksum: Folio: 6 User: BSKELLE EFW: Doc # 2 (b) In addition to the indemnification provided for in Section 5.1(a): (i) the Company hereby covenants and agrees to indemnify, defend and hold harmless LMC and its affiliates (other than the Company and its subsidiaries) and their respective officers, directors, employees and agents, and the successors and assigns of each of the foregoing, from and against (A) any and all Losses to the extent arising from or out of or relating to the assets and businesses owned or operated by the Company and its subsidiaries on the Distribution Date (the "Company Business and Assets"), including without limitation any such Losses to the extent arising out of or resulting from any liability or obligation of (or relating to) the Company Business and Assets, whether arising before or after the Distribution, and (B) any and all Losses arising out of or resulting from the ownership or operation of the business or assets of, or arising out of or relating to the liabilities or obligations of, the Company and its subsidiaries, to the extent arising following the Distribution; and (ii) LMC hereby covenants and agrees to indemnify, defend and hold harmless the Company and its affiliates (other than LMC and its subsidiaries other than the Company and its subsidiaries) and their respective officers, directors, employees and agents, and the successors and assigns of each of the foregoing, from and against (A) any and all Losses to the extent arising out of or resulting from the ownership or operation by LMC, its subsidiaries or any of their respective predecessors of any business or assets other than the Company Business and Assets (or arising out of or resulting from any liability or obligation of LMC, other than any liability or obligation of LMC to the extent relating to the Company Business and Assets), whether arising before or after the Distribution, and (B) any and all Losses arising out of or resulting from the ownership or operation of the business or assets of, or arising out of or relating to the liabilities or obligations of, LMC and its subsidiaries, to the extent arising following the Distribution. The foregoing indemnification is not intended to cover any acts or activities that constitute fraud or willful misconduct by an indemnified person, or any Losses the responsibility for which is expressly covered by a Reorg Agreement or Other Agreement, including, without limitation, the Tax Sharing Agreement. (c) (i) In connection with any indemnification provided for in this Section 5.1, the party seeking indemnification (the "Indemnitee") will give the party from which indemnification is sought (the "Indemnitor") prompt notice whenever it comes to the Indemnitee's attention that the Indemnitee has suffered or incurred, or may suffer or incur, any Losses for which it is entitled to indemnification under this Section 5.1, and, when known, the facts constituting the basis for such claim (in reasonable detail). Failure by the Indemnitee to so notify the Indemnitor will not relieve the Indemnitor of any liability under this Agreement except to the extent that such failure prejudices the Indemnitor in any material respect. (ii) After receipt of a notice pursuant to Section 5.1(c)(i), the Indemnitor will be entitled, if it so elects, to take control of the defense and investigation with respect to such claim and to employ and engage attorneys reasonably satisfactory to the Indemnitee to handle and defend such claim, at the Indemnitor's cost, risk and expense, upon written notice to the Indemnitee of such election, which notice acknowledges the Indemnitor's obligation to provide indemnification under this Agreement. The Indemnitor will not settle any third-party claim that is the subject of indemnification without the written consent of the Indemnitee, which consent will not be unreasonably withheld, delayed or conditioned; provided, however, that the Indemnitor may settle a claim without the Indemnitee's consent if such settlement (A) makes no admission or acknowledgment of liability or culpability with respect to the Indemnitee, (B) includes a complete release of the Indemnitee and its affiliates and their respective officers, directors, employees and agents and (C) does not require the Indemnitee to make any payment not covered by indemnification by the Indemnitor hereunder or forego or take any action. The Indemnitee will

23 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]BE1445B.;3 Created: 21-JUN-2005;19:57 Chksum: Folio: 7 User: BSKELLE EFW: Doc # 2 cooperate in all reasonable respects with the Indemnitor and its attorneys in the investigation, trial and defense of any lawsuit or action with respect to such claim and any appeal arising therefrom (including the filing in the Indemnitee's name of appropriate cross claims and counterclaims). The Indemnitee may, at its own cost, participate in any investigation, trial and defense of such lawsuit or action controlled by the Indemnitor and any appeal arising therefrom. If there are one or more legal defenses available to the Indemnitee that conflict with those available to, or that are not available to, the Indemnitor, the Indemnitee will have the right, at the expense of the Indemnitor, to engage separate counsel reasonably acceptable to the Indemnitor and to participate in the defense of the lawsuit or action. (iii) If, after receipt of a notice pursuant to Section 5.1(c)(i), the Indemnitor does not undertake to defend any such claim, the Indemnitee may, but will have no obligation to, contest any lawsuit or action with respect to such claim, and the Indemnitor will be bound by the result obtained with respect thereto by the Indemnitee. The Indemnitee may not settle any lawsuit or action with respect to which the Indemnitee is entitled to indemnification hereunder without the consent of the Indemnitor, which consent will not be unreasonably withheld, delayed or conditioned. (iv) At any time after the commencement of defense of any lawsuit or action, the Indemnitor may request the Indemnitee to agree in writing to the abandonment of such contest or to the payment or compromise by the Indemnitor of such claim, whereupon such action will be taken unless the Indemnitee determines that the contest should be continued and so notifies the Indemnitor in writing within 15 days of such request from the Indemnitor. Any request from the Indemnitor that any contest be abandoned will specify the amount that the other party or parties to the contested claim have agreed to accept in payment or compromise of the claim. If the Indemnitee determines that the contest should be continued, the Indemnitor will be liable under this Agreement only to the extent of the lesser of (A) the amount that the other party or parties to the contested claim had agreed to accept in payment or compromise as of the time the Indemnitor made its request therefor to the Indemnitee, as specified in the Indemnitor's request, or (B) the amount for which the Indemnitor may be liable with respect to such claim by reason of the provisions of this Agreement. (d) In no event shall any Indemnitor be liable to any Indemnitee for any indirect, special, incidental or consequential damages with respect to any matter relating to this Agreement. (e) The terms and conditions of this Section 5.1 will survive the expiration or termination of this Agreement, regardless of the reason for such expiration or termination. Section 5.2 Further Assurances. Each party hereto covenants and agrees to make, execute, acknowledge and deliver such instruments, agreements, consents, assurances and other documents, and to take all such other commercially reasonable actions, as any other party may reasonably request and as may reasonably be required in order to carry out the purposes and intent of this Agreement and to implement the terms hereof. Section 5.3 Specific Performance. Each party hereby acknowledges that the benefits to the other parties of the performance by such party of its obligations under this Agreement are unique and that the other parties hereto are willing to enter into this Agreement only in reliance that such party will perform such obligations, and agrees that monetary damages may not afford an adequate remedy for any failure by such party to perform any of such obligations. Accordingly, each party hereby agrees that the other parties shall have the right to enforce the specific performance of such party's obligations hereunder and irrevocably waives any

24 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]BE1445B.;3 Created: 21-JUN-2005;19:57 Chksum: Folio: 8 User: BSKELLE EFW: Doc # 2 requirement for securing or posting of any bond in connection with the obtaining by the other parties of any injunctive or other equitable relief to enforce their rights hereunder. Section 5.4 Arbitration. Except as provided in Section 5.3, all disputes arising under this Agreement that are not settled by the parties will be submitted to binding arbitration under the then existing Commercial Arbitration Rules of the American Arbitration Association. Arbitration proceedings will be held in Denver, Colorado, or such other location agreed to by the parties. The parties to the arbitration may agree on an arbitrator; otherwise, there will be a panel of three arbitrators, one named in writing by each party within 20 days after any party serves a notice of arbitration and the third arbitrator named by the two arbitrators named by the parties. No person financially interested in this Agreement or any party may serve as an arbitrator. The costs of the arbitration and the fees of the arbitrator or arbitrators will be borne by the parties equally. The decision of the arbitrator or arbitrators will be final and conclusive and binding on all the parties, and judgment thereon may be entered in any Colorado court of competent jurisdiction. For purposes of this Section 5.4 the Company and Ascent will be considered one party. Section 5.5 Access to Information. (a) Each party shall provide to the other parties, at any time before or after the Closing Date, upon written request and promptly after the request therefor, any information in its possession or under its control that the requesting party reasonably needs (i) to comply with reporting, filing or other requirements imposed on the requesting party by a foreign or U.S. federal, state or local judicial, regulatory, administrative or taxing authority having jurisdiction over the requesting party or its subsidiaries or (ii) to enable the requesting party to implement the transactions contemplated hereby, including but not limited to performing its obligations under this Agreement, the Reorg Agreements and the Other Agreements, including, without limitation, the Tax Sharing Agreement. (b) Any information owned by a party that is provided to another party pursuant to Section 5.5(a) shall remain the property of the providing party. Nothing contained in this Agreement shall be construed as granting or conferring license or other rights in any such information. (c) The party requesting any information under this Section 5.5 shall reimburse the providing party for the reasonable costs, if any, of creating, gathering and copying such information, to the extent that such costs are incurred for the benefit of the requesting party. No party shall have any liability to any other party if any information exchanged or provided pursuant to this Agreement that is an estimate or forecast, or is based on an estimate or forecast, is found to be inaccurate, absent willful misconduct by the party providing such information. Section 5.6 Confidentiality. (a) Each party shall keep confidential for five years following the Closing Date (or for three years following disclosure to such party, whichever is longer), and shall use reasonable efforts to cause its officers, directors, employees, affiliates and agents (collectively, "Agents") to keep confidential during such period all Proprietary Information (as defined below) of the other parties, in each case to the extent permitted by law. (b) "Proprietary Information" means any proprietary ideas, plans and information, including information of a technological or business nature, of a party (in this context, the "disclosing party") (including all trade secrets, intellectual property, data, summaries, reports or mailing lists, in whatever form or medium whatsoever, including oral communications, and however produced or reproduced), that is marked proprietary or confidential, or that bears a marking of like import, or that the disclosing party states is to be considered proprietary or confidential, or that a reasonable and prudent person

25 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]BE1445C.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: 9 User: BSKELLE EFW: Doc # 2 would consider proprietary or confidential under the circumstances of its disclosure. In addition, all information of the types referred to in the immediately preceding sentence that is used by the Company or LMC and their respective subsidiaries on or prior to the Closing Date in connection with the Company Business and that is treated as proprietary or confidential, or that a reasonable and prudent person would consider proprietary or confidential under the circumstances, shall constitute Proprietary Information of the Company for purposes of this Section 5.6. (c) Information of a disclosing party will not constitute Proprietary Information (and the other party (in this context, the "receiving party") shall have no obligation with respect thereto), to the extent such information: (i) is approved for release by prior written authorization of the disclosing party, (ii) is disclosed in order to comply with a judicial order issued by a court of competent jurisdiction, or to comply with government laws or regulations, in which event the receiving party shall give prior written notice to the disclosing party of such disclosure as soon as practicable and shall cooperate with the disclosing party in using commercially reasonable efforts to obtain an appropriate protective order or equivalent, and provided that the information shall continue to be Proprietary Information to the extent it is covered by such protective order or equivalent, (iii) is disclosed to the receiving party or the receiving party's Agents on a non-confidential basis by a person other than the disclosing party or its Agents that, to the receiving party's knowledge, is not restricted from disclosing such information to the receiving party by any contractual, fiduciary or other legal obligation or (iv) is independently developed after the Closing Date by the receiving party or its Agents. Section 5.7 Notices Regarding Transferred Assets. Any transferor of an asset, contract or interest in the Reorganization that receives a notice or other communication from any third party, or that otherwise becomes aware of any fact or circumstance, after the Reorganization relating to such asset, contract or interest promptly will forward the notice or other communication to the transferee or give notice to the transferee of such fact or circumstance of which it has become aware. The parties will comply, and will cause their respective subsidiaries to comply, with this Section 5.7. Section 6.1 Closing. ARTICLE VI CLOSING Unless this Agreement is terminated and the transactions contemplated by this Agreement abandoned pursuant to the provisions of Article VIII, and subject to the satisfaction of all conditions set forth in Sections 4.3 and 7.2 (or the waiver of such conditions, to the extent such conditions may be waived), the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of LMC, at Liberty Boulevard, Englewood, Colorado, at a mutually acceptable time and date (the "Closing Date"). Section 6.2 Conditions to Closing. (a) The obligations of the parties to complete the transactions provided for herein are conditioned upon the following: (i) the receipt and continued validity of all third party consents or waivers required to be obtained in connection with the transactions contemplated by this Agreement; (ii) the receipt and continued validity of all consents, approvals, orders, licenses or permits required to be received from the Federal Communications Commission in connection with the Reorganization and the Distribution;

26 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 13 File: DISK015:[05DEN5.05DEN1445]BE1445C.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: 10 User: BSKELLE EFW: Doc # 2 (iii) the receipt and continued validity of all consents and approvals required to be received from foreign governmental agencies, or the passage of the period of time allowed by applicable law for any such agency to object to the Reorganization or the Distribution; and (iv) the absence of any injunction, law, regulation or court order that would prohibit the Reorganization or the Distribution. (b) The performance by each party of its obligations hereunder is further conditioned upon: (i) the performance by each other party of its covenants and agreements contained herein to the extent such are required to be performed at or prior to the Closing; and (ii) the representations and warranties of the other parties herein being true and complete in all material respects as of the Closing Date with the same force and effect as if made at and as of the Closing Date. Section 6.3 Deliveries at Closing. (a) LMC. At the Closing, LMC shall deliver or cause to be delivered to the appropriate party or parties: (i) the Services Agreement with the Company in substantially the form attached hereto as Exhibit A (the "LMC Services Agreement"); (ii) the Tax Sharing Agreement with the Company in substantially the form attached hereto as Exhibit B (the "Tax Sharing Agreement"); (iii) the Termination Agreement with Ascent in substantially the form attached as Exhibit C (the "Termination Agreement"); (iv) certified copies of resolutions of its Board of Directors authorizing the execution, delivery and performance by LMC of this Agreement, which resolutions shall be in full force and effect at and as of the Closing; and (v) such other documents and instruments as are required or appropriate to complete the Reorganization and effect the Distribution. (b) parties: The Company. At the Closing, the Company shall deliver or cause to be delivered to the appropriate party or (i) the LMC Services Agreement; (ii) the Tax Sharing Agreement; (iii) certified copies of resolutions of its Board of Directors authorizing the execution, delivery and performance by the Company of this Agreement, which resolutions shall be in full force and effect at and as of the Closing; and (iv) such other documents and instruments as are required or appropriate to complete the Reorganization and effect the Distribution. (c) Ascent. At the Closing, Ascent shall deliver or cause to be delivered to the appropriate party or parties: (i) the Termination Agreement; (ii) certified copies of resolutions of its Board of Directors authorizing the execution, delivery and performance by Ascent of this Agreement, which resolutions shall be in full force and effect at and as of the Closing; and

27 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 14 File: DISK015:[05DEN5.05DEN1445]BE1445C.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: 11 User: BSKELLE EFW: Doc # 2 (iii) such other documents and instruments as are required or appropriate to complete the Reorganization. Section 7.1 Termination. ARTICLE VII TERMINATION This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date: (i) by LMC for any reason; or (ii) by any other party hereto if such party has discovered any material error, misstatement or omission in any of the representations or warranties of any other party hereto, any other party otherwise has breached in any material respect any such representation or warranty, any such representation or warranty shall not be true and complete in all material respects at and as of the Closing Date with the same effect as if made at and as of such time, or any other party fails to comply in any material respect with any of the terms, covenants, conditions or agreements contained in this Agreement to be complied with or performed by such party at or prior to the Closing Date. Section 7.2 Effect of Termination. In the event of termination of this Agreement as provided by Section 7.1, this Agreement shall immediately become void and the parties hereto shall have no obligation or liability to each other with respect to the transactions contemplated hereby. Section 8.1 No Third-Party Rights. ARTICLE VIII MISCELLANEOUS Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person or entity other than the parties hereto and their respective successors any legal or equitable right, remedy or claim under or with respect to this Agreement, or any provision hereof, it being the intention of the parties hereto that this Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their respective successors. Section 8.2 Notices. All notices and communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, certified or registered mail with postage prepaid, or sent by confirmed facsimile, addressed as follows: if to LMC: Liberty Media Corporation Liberty Boulevard Englewood, Colorado Facsimile (720) Attention: Charles Y. Tanabe, Esq.

28 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 15 File: DISK015:[05DEN5.05DEN1445]BE1445C.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: 12 User: BSKELLE EFW: Doc # 2 if to Ascent or the Company: Discovery Holding Company Liberty Boulevard Englewood, Colorado Facsimile (720) Attention: Charles Y. Tanabe, Esq. or to such other address (or to the attention of such other person) as the parties may hereafter designate in writing. All such notices and communications shall be deemed to have been given on the date of delivery if sent by facsimile or personal delivery, or the third business day after the mailing thereof, except that any notice of a change of address shall be deemed to have been given only when actually received. Section 8.3 Entire Agreement. This Agreement (including the Exhibits and Schedules attached hereto), the Reorg Agreements and the Other Agreements, including, without limitation, the Tax Sharing Agreement constitute the entire agreement among the parties hereto on the subject matter hereof and thereof, and supersede all prior agreements and understandings, oral and written, among the parties hereto with respect to such subject matter. Section 8.4 Amendment, Modification or Waiver. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated other than by an agreement in writing signed by the parties hereto. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instance shall be deemed or construed as a further or continuing waiver of any such term, provision or condition or of any other term, provision or condition, but any party hereto may waive its rights in any particular instance by written instrument of waiver. Section 8.5 Binding Effect; Benefit; Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, provided that this Agreement may not be assigned by any of the parties hereto without the prior written consent of the other parties hereto, which consent will not be unreasonably withheld, delayed or conditioned. Section 8.6 Costs and Expenses. All costs and expenses incurred in connection with the authorization, preparation and consummation of this Agreement and the transactions contemplated hereby shall be borne one-half by the Company and one-half by LMC, unless the parties otherwise agree. Section 8.7 Severability. It is the intention of the parties hereto that the provisions of this Agreement shall be enforced to the fullest extent permissible under all applicable laws and public policies, but that the unenforceability of any provision hereof (or the modification of any provision hereof to conform with such laws or public policies, as provided in the next sentence) shall not render unenforceable or impair the remainder of this Agreement. Accordingly, if any provision shall be determined to be invalid or unenforceable either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the invalid or unenforceable provisions and to alter the balance of this Agreement in order to render the same valid and enforceable, consistent (to the fullest extent possible) with the intent and purposes hereof.

29 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 16 File: DISK015:[05DEN5.05DEN1445]BE1445C.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: 13 User: BSKELLE EFW: Doc # 2 Section 8.8 Miscellaneous. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement and the legal relations among the parties hereto shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of Delaware, without regard to the conflict of laws rules thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. LIBERTY MEDIA CORPORATION DISCOVERY HOLDING COMPANY By: Name: Title: By: Name: Title: ASCENT MEDIA GROUP, INC. By: Name: Title:

30 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: Doc # 2 QuickLinks FORM OF REORGANIZATION AGREEMENT among Liberty Media Corporation, Discovery Holding Company and Ascent Media Group, Inc. Dated as of [ ], 2005

31 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: Doc # 2 </TEXT> </DOCUMENT>

32 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: Doc # 3 <DOCUMENT> <TYPE> EX-3.1 <DESCRIPTION> Ex 3.1 <FILENAME> a zex-3_1.htm <TEXT>

33 File: DISK015:[05DEN5.05DEN1445]CA1445A.;9 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:25 (v.162) Created: 21-JUN-2005;19:57 Chksum: HTML Page: 1 Folio: BLANK Doc # 3 QuickLinks-- Click here to rapidly navigate through this document Exhibit 3.1 FORM OF RESTATED CERTIFICATE OF INCORPORATION OF DISCOVERY HOLDING COMPANY DISCOVERY HOLDING COMPANY, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: (1) The name of the Corporation is Discovery Holding Company. The original Certificate of Incorporation of the Corporation was filed on March 9, (2) This Restated Certificate of Incorporation restates and amends the Certificate of Incorporation of the Corporation. (3) This Restated Certificate of Incorporation has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware. (4) This Restated Certificate of Incorporation shall become effective upon its filing with the Secretary of State of the State of Delaware. (5) Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, the text of the Certificate of Incorporation is hereby restated to read in its entirety as follows: ARTICLE I NAME The name of the corporation is Discovery Holding Company (the " Corporation "). ARTICLE II REGISTERED OFFICE The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle, The name of its registered agent at such address is the Corporation Service Company. ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware (as the same may be amended from time to time, " DGCL "). ARTICLE IV AUTHORIZED STOCK The total number of shares of capital stock which the Corporation shall have authority to issue is one billion three hundred million (1,300,000,000) shares, which shall be divided into the following classes: (a) One billion two hundred fifty million (1,250,000,000) shares shall be of a class designated Common Stock, par value $0.01 per share (" Common Stock "), such class to be divided into series as provided in Section A of this Article IV; and (b) Fifty million (50,000,000) shares shall be of a class designated Preferred Stock, par value $0.01 per share (" Preferred Stock "), such class to be issuable in series as provided in Section B of this Article IV.

34 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]CA1445A.;9 Created: 21-JUN-2005;19:57 Chksum: Folio: 2 User: BSKELLE EFW: Doc # 3 The description of the Common Stock and the Preferred Stock of the Corporation, and the relative rights, preferences and limitations thereof, or the method of fixing and establishing the same, are as hereinafter in this Article IV set forth: SECTION A SERIES A COMMON STOCK, SERIES B COMMON STOCK AND SERIES C COMMON STOCK Six hundred million (600,000,000) shares of Common Stock shall be of a series designated as Series A Common Stock (the " Series A Common Stock "), fifty million (50,000,000) shares of Common Stock shall be of a series designated as Series B Common Stock (the " Series B Common Stock ") and six hundred million (600,000,000) shares of Common Stock shall be of a series designated as Series C Common Stock (the " Series C Common Stock "). Each share of common stock, par value $0.01 per share (" Old Common Stock "), of the Corporation issued and outstanding immediately prior to the effectiveness of this Restated Certificate of Incorporation (the " Effective Time ") shall be changed into and reclassified into one fully paid and non-assessable share of Series A Common Stock such that at the Effective Time each holder of record of Old Common Stock shall, without further action, be and become the holder of one share of Series A Common Stock. Each share of Series A Common Stock, each share of Series B Common Stock and each share of Series C Common Stock shall, except as otherwise provided in this Section A, be identical in all respects and shall have equal rights, powers and privileges. 1. Voting Rights. Holders of Series A Common Stock shall be entitled to one vote for each share of such stock held, and holders of Series B Common Stock shall be entitled to ten votes for each share of such stock held, on all matters that may be submitted to a vote of stockholders at any annual or special meeting thereof (regardless of whether such holders are voting together with the holders of all series of Common Stock that are Voting Securities (as defined below), or as a separate class with the holders of one or more series of Common Stock or as a separate series of Common Stock). Holders of Series C Common Stock shall not be entitled to any voting powers, except as otherwise required by the laws of the State of Delaware. When the vote or consent of the holders of Series C Common Stock is required by the laws of the State of Delaware (regardless of whether such holders are voting together with the holders of all series of Common Stock that are Voting Securities, or as a separate class with the holders of one or more series of Common Stock or as a separate series of Common Stock), the holders of Series C Common Stock shall be entitled to 1/100 th of a vote per share. Except as may otherwise be provided in this Restated Certificate of Incorporation (as it may from time to time hereafter be amended or restated, the " Certificate "), required by the laws of the State of Delaware or, with respect to any series of Preferred Stock, in any resolution or resolutions providing for the establishment of such series pursuant to authority vested in the Board of Directors by Article IV, Section B, of this Certificate, the holders of outstanding shares of Series A Common Stock, the holders of outstanding shares of Series B Common Stock and the holders of outstanding shares of each series of Preferred Stock entitled to vote thereon, if any, shall vote as one class with respect to the election of directors and with respect to all other matters to be voted on by stockholders of the Corporation (including, without limitation and irrespective of the provisions of Section 242(b)(2) of the DGCL, any proposed amendment to this Certificate that would increase the number of authorized shares of Common Stock or any series thereof, the number of authorized shares of Preferred Stock or any series thereof or establish any other class or series of capital stock of the Corporation or decrease the number of authorized shares of Common Stock or any series thereof, the number of authorized shares of Preferred Stock or any series thereof or the number of authorized shares of any other class or series of capital stock hereafter

35 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]CA1445A.;9 Created: 21-JUN-2005;19:57 Chksum: Folio: 3 User: BSKELLE EFW: Doc # 3 established (but not below the number of shares of Common Stock or any series thereof, Preferred Stock or any series thereof or any other class or series of capital stock, in each case then outstanding)), and except as otherwise provided in this Certificate or required by law, no separate vote or consent of the holders of shares of Common Stock or any series thereof, or Preferred Stock or any series thereof, shall be required for the approval of any such matter. " Voting Securities " means the shares of Series A Common Stock and Series B Common Stock and any series of Preferred Stock entitled to vote with the holders of the Series A Common Stock and the Series B Common Stock generally upon all matters that may be submitted to a vote of stockholders at any annual or special meeting thereof. 2. Conversion Rights. Each share of Series B Common Stock shall be convertible, at the option of the holder thereof, into one fully paid and non-assessable share of Series A Common Stock. Any such conversion may be effected by any holder of Series B Common Stock by surrendering such holder's certificate or certificates for the Series B Common Stock to be converted, duly endorsed, at the office of the Corporation or any transfer agent for the Series B Common Stock, together with a written notice to the Corporation at such office that such holder elects to convert all or a specified number of shares of Series B Common Stock represented by such certificate and stating the name or names in which such holder desires the certificate or certificates representing shares of Series A Common Stock to be issued and, if less than all of the shares of Series B Common Stock represented by one certificate are to be converted, the name or names in which such holder desires the certificate representing shares of Series B Common Stock to be issued. If so required by the Corporation, any certificate representing shares surrendered for conversion in accordance with this paragraph shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder of such shares or the duly authorized representative of such holder, and shall, if required by this Section A.2., be accompanied by payment, or evidence of payment, of applicable issue or transfer taxes. Promptly thereafter, the Corporation shall issue and deliver to such holder or such holder's nominee or nominees, a certificate or certificates representing the number of shares of Series A Common Stock to which such holder shall be entitled as herein provided. If less than all of the shares of Series B Common Stock represented by any one certificate are to be converted, the Corporation shall issue and deliver to such holder or such holder's nominee or nominees a new certificate representing the shares of Series B Common Stock not converted. Such conversion shall be deemed to have been made at the close of business on the date of receipt by the Corporation or any such transfer agent of the certificate or certificates, notice and, if required, instruments of transfer and payment or evidence of payment of taxes referred to above, and the person or persons entitled to receive the Series A Common Stock issuable on such conversion shall be treated for all purposes as the record holder or holders of such Series A Common Stock on that date. A number of shares of Series A Common Stock equal to the number of shares of Series B Common Stock outstanding from time to time shall be set aside and reserved for issuance upon conversion of shares of Series B Common Stock. Shares of Series B Common Stock that have been converted hereunder shall become treasury shares that may be issued or retired by resolution of the Board of Directors. Shares of Series A Common Stock and shares of Series C Common Stock shall not be convertible into shares of any other series of Common Stock. The Corporation shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of certificates representing shares of Common Stock on conversion of shares of Series B Common Stock pursuant to this Section A.2. The Corporation shall not, however, be required to pay any tax that may be payable in respect of any issue or delivery of certificates representing any shares of Common Stock in a name other than that in which the shares of Series B Common Stock so converted were registered and no such issue or delivery shall be made unless and until the person requesting the same has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid.

36 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]CA1445A.;9 Created: 21-JUN-2005;19:57 Chksum: Folio: 4 User: BSKELLE EFW: Doc # 3 3. Dividends Generally. Whenever a dividend, other than a dividend that consists of a Share Distribution, is paid to the holders of one or more series of Common Stock, the Corporation also shall pay to the holders of each other series of Common Stock a dividend per share equal to the dividend per share paid to the holders of such first one or more series of Common Stock, such that the dividend paid on each share of Common Stock, regardless of series, is the same. Dividends shall be payable only as and when declared by the Board of Directors of the Corporation out of assets of the Corporation legally available therefor. Whenever a dividend that consists of a Share Distribution is paid to the holders of one or more series of Common Stock, the Corporation shall also pay a dividend that consists of a Share Distribution to the holders of each other series of Common Stock as provided in Section A.4. below. For purposes of this Section A.3. and Section A.4. below, a " Share Distribution " shall mean a dividend payable in shares of any class or series of capital stock, Convertible Securities (as defined in Section A.4.) or other equity securities of the Corporation or any other corporation, partnership, limited liability company, joint venture, trust, unincorporated association or other legal entity (all of the foregoing and any natural person, a " Person "). 4. Share Distributions. If at any time a Share Distribution is to be made with respect to the Series A Common Stock, Series B Common Stock or Series C Common Stock, such Share Distribution may be declared and paid only as follows: (a) subject to Section A.4(c), a Share Distribution (i) consisting of shares of Series A Common Stock (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase shares of Series A Common Stock) may be declared and paid to holders of Series A Common Stock, Series B Common Stock and Series C Common Stock, on an equal per share basis; or (ii) consisting of shares of Series B Common Stock (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase shares of Series B Common Stock) may be declared and paid to holders of Series A Common Stock, Series B Common Stock and Series C Common Stock, on an equal per share basis; or (iii) consisting of shares of Series C Common Stock (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase shares of Series C Common Stock) may be declared and paid to holders of Series A Common Stock, Series B Common Stock and Series C Common Stock, on an equal per share basis; or (iv) consisting of (x) shares of Series A Common Stock (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase shares of Series A Common Stock) may be declared and paid to holders of Series A Common Stock, (y) shares of Series B Common Stock (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase shares of Series B Common Stock) may be declared and paid to holders of Series B Common Stock and (z) shares of Series C Common Stock (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase shares of Series C Common Stock) may be declared and paid to holders of Series C Common Stock, in each case on an equal per share basis; and (b) subject to Section A.4(c), a Share Distribution consisting of shares of any class or series of securities of the Corporation or any other Person other than Series A Common Stock, Series B Common Stock or Series C Common Stock (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase shares of Series A Common Stock, Series B Common Stock or Series C Common Stock), may be declared and paid on the basis of a distribution of (i) identical securities, on an equal per share basis, to holders of Series A Common Stock, Series B Common Stock and Series C Common Stock, (ii) separate classes or series of securities, on an equal per share basis, to the holders of each series of Common Stock or (iii) a separate class or series of securities to the holders of one or more series of Common Stock and, on an equal per share basis, a different class or series of securities to the holders of all other series of Common Stock; provided, that,

37 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]CA1445A.;9 Created: 21-JUN-2005;19:57 Chksum: Folio: 5 User: BSKELLE EFW: Doc # 3 in connection with a Share Distribution pursuant to clauses (ii) and (iii), (x) in the event the securities to be received by the holders of shares of Common Stock consist of different classes or series of securities and such separate classes or series of securities (and, if the distribution consists of Convertible Securities, the separate classes or series of securities into which such Convertible Securities are convertible or for which they are exchangeable or which they evidence the right to purchase) do not differ in any respect other than their relative voting rights (and related differences in designation, conversion, redemption and Share Distribution provisions, as applicable), then the holders of shares of Series B Common Stock shall receive in such Share Distribution securities of the class or series having (or convertible into, exchangeable for or evidencing the right to purchase securities having) the highest relative voting rights and the holders of shares of each other series of Common Stock shall receive in such Share Distribution securities of a class or series having (or convertible into, exchangeable for or evidencing the right to purchase securities having) lesser relative voting rights, in each case without regard to whether such voting rights differ to a greater or lesser extent than the corresponding differences in voting rights (and related differences in designation, conversion, redemption and Share Distribution provisions, as applicable) among the Series A Common Stock, the Series B Common Stock and the Series C Common Stock, and (y) in the event the securities to be received by the holders of shares of Common Stock other than the Series B Common Stock consist of different classes or series of securities, and each such class or series of securities (or the securities into which such class or series is convertible or for which such class or series is exchangeable or which such class or series evidences the right to purchase) differs only with respect to the relative voting rights of such class or series (and the related differences in designation, conversion, redemption and Share Distribution provisions, as applicable), then such classes or series of securities shall be distributed to the holders of each series of Common Stock (other than the Series B Common Stock) (A) as the Board of Directors determines or (B) such that the relative voting rights (and related differences in designation, conversion, redemption and Share Distribution provisions, as applicable) of the class or series of securities (or the securities into which such class or series is convertible or for which such class or series is exchangeable or which such class or series evidences the right to purchase) to be received by the holders of each series of Common Stock (other than the Series B Common Stock) corresponds to the extent practicable to the relative voting rights (and related differences in designation, conversion, redemption and Share Distribution provisions, as applicable) of such series of Common Stock, as compared to the other series of Common Stock (other than the Series B Common Stock). As used herein, the term " Convertible Securities " means (x) any securities of the Corporation (other than any series of Common Stock) that are convertible into, exchangeable for or evidence the right to purchase any shares of any series of Common Stock or securities of any other Person, whether upon conversion, exercise, exchange, pursuant to anti-dilution provisions of such securities or otherwise, and (y) any securities of any other Person that are convertible into, exchangeable for or evidence the right to purchase, securities of such Person or any other Person (including the Corporation), whether upon conversion exercise, exchange, pursuant to anti-dilution provisions of such securities or otherwise. (c) Notwithstanding anything herein to the contrary, so long as any shares of Series B Common Stock are issued and outstanding, no Share Distribution of securities entitled to vote generally upon matters that may be submitted to a vote of security holders of the issuer thereof, whether consisting of shares of any class or series of the Corporation or any other Person (or Convertible Securities that are convertible into, exchangeable for or evidence the right to purchase such securities), may be declared or paid unless such Share Distribution is of the type specified in Section A.4(a) or (b) above, and either (x) the securities to be received by the holders of Series B Common Stock, consist of securities (and, if the distribution consists of Convertible Securities, the securities into which such Convertible Securities are convertible or for which they are exchangeable or which they evidence the right to purchase) having per share voting power of not less than ten times the per share voting power of the securities (and, if the distribution consists of Convertible Securities, the securities into which such Convertible Securities are convertible or for which they are exchangeable or which they evidence the

38 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 6 User: BSKELLE EFW: Doc # 3 right to purchase) received in such distribution by the holders of shares of any class or series of Common Stock which are voting securities, other than the Series B Common Stock, or (y) the terms of such Share Distribution have been consented to (at a meeting of stockholders of the Corporation or by written consent pursuant to Article VI, Section B of this Certificate) by the holders of at least 75% of the outstanding shares of Series B Common Stock, voting as a separate class (such consent of the holders of Series B Common Stock, a " Series B Consent "). 5. Reclassification. The Corporation shall not reclassify, subdivide or combine one series of Common Stock without reclassifying, subdividing or combining each other series of Common Stock, on an equal per share basis. Any such reclassification, subdivision or combination must also satisfy the requirements set forth in Article VII of this Certificate. 6. Liquidation and Dissolution. In the event of a liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and liabilities of the Corporation and subject to the prior payment in full of the preferential amounts to which any series of Preferred Stock is entitled, the holders of shares of Series A Common Stock, the holders of shares of Series B Common Stock and the holders of shares of Series C Common Stock shall share equally, on a share for share basis, in the assets of the Corporation remaining for distribution to the holders of Common Stock. Neither the consolidation or merger of the Corporation with or into any other Person or Persons nor the sale, transfer or lease of all or substantially all of the assets of the Corporation shall itself be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph 6. SECTION B PREFERRED STOCK The Preferred Stock may be divided and issued in one or more series from time to time, with such powers, designations, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of each such series adopted by the Board of Directors (a " Preferred Stock Designation "). The Board of Directors, in the Preferred Stock Designation with respect to a series of Preferred Stock (a copy of which shall be filed as required by law), shall, without limitation of the foregoing, fix the following with respect to such series of Preferred Stock: (i) the distinctive serial designations and the number of authorized shares of such series, which may be increased or decreased, but not below the number of shares thereof then outstanding, by a certificate made, signed and filed as required by law (except where otherwise provided in a Preferred Stock Designation); (ii) the dividend rate or amounts, if any, for such series, the date or dates from which dividends on all shares of such series shall be cumulative, if dividends on stock of such series shall be cumulative, and the relative preferences or rights of priority, if any, or participation, if any, with respect to payment of dividends on shares of such series; (iii) the rights of the shares of such series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, if any, and the relative preferences or rights of priority, if any, of payment of shares of such series; (iv) the right, if any, of the holders of such series to convert or exchange such shares into or for other classes or series of a class of stock or indebtedness of the Corporation or of another Person, and the terms and conditions of such conversion or exchange, including provision for the

39 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 7 User: BSKELLE EFW: Doc # 3 adjustment of the conversion or exchange rate in such events as the Board of Directors may determine; (v) the voting powers, if any, of the holders of such series; (vi) the terms and conditions, if any, for the Corporation to purchase or redeem shares of such series; and (vii) any other relative rights, powers, preferences and limitations, if any, of such series. The Board of Directors is hereby expressly authorized to exercise its authority with respect to fixing and designating various series of the Preferred Stock and determining the relative rights, powers and preferences, if any, thereof to the full extent permitted by applicable law, subject to any stockholder vote that may be required by this Certificate. All shares of any one series of the Preferred Stock shall be alike in every particular. Except to the extent otherwise expressly provided in the Preferred Stock Designation for a series of Preferred Stock, the holders of shares of such series shall have no voting rights except as may be required by the laws of the State of Delaware. Further, unless otherwise expressly provided in the Preferred Stock Designation for a series of Preferred Stock, no consent or vote of the holders of shares of Preferred Stock or any series thereof shall be required for any amendment to this Certificate that would increase the number of authorized shares of Preferred Stock or the number of authorized shares of any series thereof or decrease the number of authorized shares of Preferred Stock or the number of authorized shares of any series thereof (but not below the number of authorized shares of Preferred Stock or such series, as the case may be, then outstanding). Except as may be provided by the Board of Directors in a Preferred Stock Designation or by law, shares of any series of Preferred Stock that have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the Corporation, or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part or may be reissued as part of a new series of Preferred Stock to be created by a Preferred Stock Designation or as part of any other series of Preferred Stock. ARTICLE V DIRECTORS SECTION A NUMBER OF DIRECTORS The governing body of the Corporation shall be a Board of Directors. Subject to any rights of the holders of any series of Preferred Stock to elect additional directors, the number of directors shall not be less than three (3) nor more than nine (9), with the exact number of directors to be fixed from time to time by the Board of Directors by resolution adopted by the vote of 75% of the members then in office. Election of directors need not be by written ballot. SECTION B CLASSIFICATION OF THE BOARD Except as otherwise fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any series of Preferred Stock to separately elect additional directors, which additional directors are not required to be classified pursuant to the terms of such series of Preferred Stock, the Board of Directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. Each class shall consist, as nearly as possible, of a number of directors equal to one-third ( 1 / 3 ) of the number of members of the Board of Directors authorized as provided in Section A of this Article V. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders in 2006; the term of office of the initial Class II directors shall expire at the annual

40 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 8 User: BSKELLE EFW: Doc # 3 meeting of stockholders in 2007; and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders in At each annual meeting of stockholders of the Corporation the successors of that class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The directors of each class will hold office until their respective successors are elected and qualified or until such director's earlier death, resignation or removal. SECTION C REMOVAL OF DIRECTORS Subject to the rights of the holders of any series of Preferred Stock, directors may be removed from office only for cause upon the affirmative vote of the holders of at least a majority of the total voting power of the then outstanding shares of Series A Common Stock, Series B Common Stock and any series of Preferred Stock entitled to vote at an election of directors. SECTION D NEWLY CREATED DIRECTORSHIPS AND VACANCIES Subject to the rights of holders of any series of Preferred Stock, vacancies on the Board of Directors resulting from death, resignation, removal, disqualification or other cause, and newly created directorships resulting from any increase in the number of directors on the Board of Directors, shall be filled only by the affirmative vote of a majority of the remaining directors then in office (even though less than a quorum) or by the sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or to which the new directorship is apportioned, and until such director's successor shall have been elected and qualified or until such director's earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director, except as may be provided in a Preferred Stock Designation with respect to any additional director elected by the holders of the applicable series of Preferred Stock. 1. Limitation On Liability. SECTION E LIMITATION ON LIABILITY AND INDEMNIFICATION To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this paragraph 1 shall be prospective only and shall not adversely affect any limitation, right or protection of a director of the Corporation existing at the time of such repeal or modification. 2. Indemnification. (a) Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or while a director or officer of the Corporation is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) incurred by such person. Such right of indemnification shall inure whether or not the claim asserted is based on matters which antedate

41 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 9 User: BSKELLE EFW: Doc # 3 the adoption of this Section E. The Corporation shall be required to indemnify or make advances to a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. (b) Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys' fees) incurred by a director or officer in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this paragraph or otherwise. (c) Claims. If a claim for indemnification or payment of expenses under this paragraph is not paid in full within 30 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. (d) Non-Exclusivity of Rights. The rights conferred on any person by this paragraph shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of this Certificate, the Bylaws, agreement, vote of stockholders or resolution of disinterested directors or otherwise. (e) Insurance. The Board of Directors may, to the full extent permitted by applicable law as it presently exists, or may hereafter be amended from time to time, authorize an appropriate officer or officers to purchase and maintain at the Corporation's expense insurance: (i) to indemnify the Corporation for any obligation which it incurs as a result of the indemnification of directors and officers under the provisions of this Section E; and (ii) to indemnify or insure directors and officers against liability in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this Section E. (f) Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity. 3. Amendment or Repeal. Any amendment, modification or repeal of the foregoing provisions of this Section E shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. SECTION F AMENDMENT OF BYLAWS In furtherance and not in limitation of the powers conferred by the DGCL, the Board of Directors, by action taken by the affirmative vote of not less than 75% of the members of the Board of Directors then in office, is hereby expressly authorized and empowered to adopt, amend or repeal any provision of the Bylaws of this Corporation.

42 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 10 User: BSKELLE EFW: Doc # 3 ARTICLE VI MEETINGS OF STOCKHOLDERS SECTION A ANNUAL AND SPECIAL MEETINGS Subject to the rights of the holders of any series of Preferred Stock and except as provided in Article VI, Section B, stockholder action may be taken only at an annual or special meeting. Except as otherwise provided in a Preferred Stock Designation with respect to any series of Preferred Stock or unless otherwise prescribed by law or by another provision of this Certificate, special meetings of the stockholders of the Corporation, for any purpose or purposes, shall be called by the Secretary of the Corporation at the request of at least 75% of the members of the Board of Directors then in office. SECTION B ACTION WITHOUT A MEETING Except (i) with respect to the consent of the holders of shares of Series B Common Stock pursuant to Article IV, Section A.4(c) or paragraph (a) of Article VII, and (ii) as otherwise provided in a Preferred Stock Designation with respect to any series of Preferred Stock, no action required to be taken or which may be taken at any annual meeting or special meeting of stockholders may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. ARTICLE VII ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE Subject to the rights of the holders of any series of Preferred Stock, the affirmative vote of the holders of at least 80% of the total voting power of the then outstanding Voting Securities, voting together as a single class at a meeting specifically called for such purpose, shall be required in order for the Corporation to take any action to authorize: (a) the amendment, alteration or repeal of any provision of this Certificate or the addition or insertion of other provisions herein; provided, however, that this clause (a) shall not apply to any such amendment, alteration, repeal, addition or insertion (i) as to which the laws of the State of Delaware, as then in effect, do not require the consent of this Corporation's stockholders, or (ii) that at least 75% of the members of the Board of Directors then in office have approved; notwithstanding the foregoing, so long as any shares of Series B Common Stock are issued and outstanding, unless the Corporation shall have obtained the Series B Consent with respect to such amendment, alteration, repeal, addition or insertion, no amendment, alteration, repeal, addition or insertion of any provision of this Certificate may be made if the direct or indirect effect of such amendment, alteration, repeal, addition or insertion of any provision to this Certificate is to reclassify or recapitalize the then outstanding shares of Common Stock into securities of the Corporation or any other Person and the securities to be held or received by the holders of Series B Common Stock as a result of such reclassification or recapitalization consist of securities (and, if the reclassification or recapitalization results in the issuance of Convertible Securities, the securities into which such Convertible Securities are convertible or for which they are exchangeable or which they evidence the right to purchase) have a per share voting power that is less than ten times the per share voting power of the securities (and, if the reclassification or recapitalization results in the issuance of Convertible Securities, the securities into which such Convertible Securities are convertible or for which they are exchangeable or which they evidence the right to purchase) held or received by the holders of shares of any class or series of Common Stock which are Voting Securities, other than the Series B Common Stock as a result of such reclassification or recapitalization;

43 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 11 User: BSKELLE EFW: Doc # 3 (b) the adoption, amendment or repeal of any provision of the Bylaws of the Corporation; provided, however, that this clause (b) shall not apply to, and no vote of the stockholders of the Corporation shall be required to authorize, the adoption, amendment or repeal of any provision of the Bylaws of the Corporation by the Board of Directors in accordance with the power conferred upon it pursuant to Section F of Article V of this Certificate; (c) the merger or consolidation of this Corporation with or into any other Person or any other business combination involving the Corporation; provided, however, that this clause (c) shall not apply to any such merger or consolidation (i) as to which the laws of the State of Delaware, as then in effect, do not require the consent of this Corporation's stockholders, or (ii) that at least 75% of the members of the Board of Directors then in office have approved; (d) the sale, lease or exchange of all, or substantially all, of the assets of the Corporation; provided, however, that this clause (d) shall not apply to any such sale, lease or exchange that at least 75% of the members of the Board of Directors then in office have approved; or (e) the dissolution of the Corporation; provided, however, that this clause (e) shall not apply to such dissolution if at least 75% of the members of the Board of Directors then in office have approved such dissolution. Subject to the foregoing provisions of this Article VII, the Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other Persons whomsoever by and pursuant to this Certificate in its present form or as hereafter amended are granted subject to the rights reserved in this Article VII. ARTICLE VIII SECTION 203 OF THE DGCL The Corporation expressly elects not to be governed by Section 203 of the DGCL. ARTICLE IX CERTAIN BUSINESS OPPORTUNITIES 1. Certain Acknowledgements; Definitions. In recognition and anticipation that (a) directors, officers and employees of Liberty Media Corporation, a Delaware corporation (" LMC "), may serve as directors and/or officers of the Corporation and its Subsidiaries, (b) LMC and its Affiliates may engage and are expected to continue to engage in the same, similar or related lines of business as those in which the Corporation and its Affiliates, directly or indirectly, may engage and other business activities that overlap with or compete with those in which the Corporation and its Affiliates, directly or indirectly, may engage, (c) LMC and its Affiliates may have an interest in the same areas of business opportunity as the Corporation and its Affiliates, (d) LMC and its Affiliates may engage in material business transactions with the Corporation and its Affiliates, including (without limitation) providing services to or being a significant customer or supplier of the Corporation and its Affiliates, and that LMC, the Corporation or one or more of their respective Affiliates may benefit therefrom, and (e) as a consequence of the foregoing, it is in the best interests of the Corporation that the rights of the Corporation and its Subsidiaries, and the duties of any directors or officers of the Corporation or any of its Subsidiaries who are also directors, officers or employees of LMC, be determined and delineated in respect of any transactions between, or opportunities that may be suitable for both, the Corporation and its Affiliates, on the one hand, and LMC and its Affiliates, on the other hand, and in recognition of the benefits to be derived by the Corporation through its continued contractual, corporate and business relations with LMC (including possible service of directors, officers and employees of LMC as

44 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 12 User: BSKELLE EFW: Doc # 3 directors or officers of the Corporation and its Subsidiaries), the provisions of this Article IX shall to the fullest extent permitted by law regulate and define the conduct of the business and affairs of the Corporation and its Subsidiaries in relation to LMC and its Affiliates, and as such conduct and affairs may involve LMC's directors, officers and employees, and the powers, rights, duties and liabilities of the Corporation and its Subsidiaries and their respective officers and directors in connection therewith. Any person or other entity purchasing or otherwise acquiring any shares of capital stock of the Corporation, or any interest therein, shall be deemed to have notice of and to have consented to the provisions of this Article IX. For purposes of this Article IX, " Control " and derivative terms means the possession of the power to direct or cause the direction of the management and policies of a person or entity, whether through the possession of voting securities, by contract or otherwise; " Subsidiary " means, with respect to any person or entity, any other person or entity that such first person or entity directly or indirectly Controls; and " Affiliate " means, with respect to any person or entity, any other person or entity that, directly or indirectly, Controls, is Controlled by or is under common Control with such first person or entity; provided, however, that (i) neither the Corporation nor any Affiliate of the Corporation shall be deemed to be an Affiliate of LMC, and (ii) so long as the Corporation and its Subsidiaries own 50% or more (but less than 80%) of the outstanding voting stock of Discovery Communications, Inc., a Delaware corporation (" DCI "), DCI will be deemed to be an Affiliate (but not a Subsidiary) of the Corporation for purposes of this Article IX. References in this Article IX to " directors " and " officers " of an entity shall be deemed to include those persons who hold similar positions or exercise similar powers and authority with respect to any limited liability company or other non-corporate entity. 2. Certain Agreements and Transactions Permitted. The Corporation may from time to time enter into and perform, and cause or permit any of its Affiliates to enter into and perform, one or more agreements (or modifications or supplements thereto) with LMC or any Affiliate thereof pursuant to which the Corporation or an Affiliate thereof, on the one hand, and LMC or an Affiliate thereof, on the other hand, agree to engage in transactions of any kind or nature with each other, or agree to compete, or to refrain from competing or to limit or restrict their competition, with each other, including to allocate and cause their respective directors, officers and employees (including any such persons who are directors, officers or employees of both) to allocate opportunities between, or to refer opportunities to, each other. To the fullest extent permitted by law, no such agreement, or the performance thereof by the Corporation, LMC or any Affiliate of the Corporation or LMC, shall be considered contrary to any fiduciary duty owed to the Corporation (or to any Subsidiary of the Corporation, or to any stockholder of the Corporation of any of its Subsidiaries) by any director or officer of the Corporation (or by any director or officer of any Affiliate of the Corporation) who is also a director, officer or employee of LMC. To the fullest extent permitted by law, no director or officer of the Corporation or any Affiliate of the Corporation who is also a director, officer or employee of LMC shall have or be under any fiduciary duty to the Corporation (or to any Subsidiary of the Corporation, or to any stockholder of the Corporation of any of its Subsidiaries) to refrain from acting on behalf of the Corporation or LMC, or any of their respective Affiliates, in respect of any such agreement or transaction or performing any such agreement in accordance with its terms. 3. Duties of Directors of the Corporation. If a director or officer of the Corporation or any Subsidiary of the Corporation who is also a director, officer or employee of LMC acquires knowledge of a potential transaction or matter that may be a business opportunity for both the Corporation or any of its Affiliates and LMC or any of its Affiliates, such director or officer shall to the fullest extent permitted by law have no duty to the Corporation or any of its Subsidiaries, as a director, officer, stockholder or otherwise, to refer such potential business opportunity to the Corporation or any of its Affiliates or otherwise notify the Corporation or any of its Affiliates of the existence of such business opportunity, and the Corporation (on its own behalf and on behalf of each of its Subsidiaries) to the fullest extent permitted by law hereby renounces any interest or expectancy of the Corporation and its Subsidiaries in, or in being offered an opportunity to participate in, such business opportunity, and

45 Printed: 24-Jun-2005;20:03:25 (v.162) HTML Page: 13 File: DISK015:[05DEN5.05DEN1445]CA1445B.;8 Created: 21-JUN-2005;19:57 Chksum: Folio: 13 User: BSKELLE EFW: Doc # 3 waives any and all claims relating to any such business opportunity, if such director or officer acts in a manner consistent with the following policy: a corporate opportunity offered to any person who is a director or officer of the Corporation or any Subsidiary of the Corporation, and who is also a director, officer or employee of LMC, shall belong to LMC, unless (A) such opportunity was expressly offered to such person solely in his or her capacity as a director or officer of the Corporation or as a director or officer of any Subsidiary of the Corporation, and (B) such opportunity relates to a line of business in which the Corporation or any Subsidiary of the Corporation is then directly engaged. 4. Amendment of Article IX. No alteration, amendment or repeal, or adoption of any provision inconsistent with, any provision of this Article IX shall have any effect upon (a) any agreement between the Corporation or an Affiliate thereof and LMC or an Affiliate thereof that was entered into before such time or any transaction entered into in connection with the performance of any such agreement, whether such transaction is entered into before or after such time, (b) any transaction entered into between the Corporation or an Affiliate thereof and LMC or an Affiliate thereof before such time or (c) the allocation of any business opportunity between the Corporation or an Affiliate thereof and LMC or an Affiliate thereof before such time." IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of Incorporation this of, day DISCOVERY HOLDING COMPANY By: Name: Title:

46 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: Doc # 3 QuickLinks FORM OF RESTATED CERTIFICATE OF INCORPORATION OF DISCOVERY HOLDING COMPANY ARTICLE IX CERTAIN BUSINESS OPPORTUNITIES

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48 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: Doc # 4 <DOCUMENT> <TYPE> EX-4.1 <DESCRIPTION> Ex 4.1 <FILENAME> a zex-4_1.htm <TEXT>

49 File: DISK015:[05DEN5.05DEN1445]EA1445A.;5 User: EROWE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) Created: 23-JUN-2005;22:17 Chksum: HTML Page: 1 Folio: BLANK Doc # 4 QuickLinks-- Click here to rapidly navigate through this document Exhibit 4.1 Number A- Incorporated Under the Laws of the State of Delaware Shares -0- Cusip No. DISCOVERY HOLDING COMPANY Series A Common Stock, par value $.01 per share Specimen Certificate This Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF DISCOVERY HOLDING COMPANY (hereinafter called the "Corporation") transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of the Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Discovery Holding Company (the "Company") and EquiServe Trust Company, N.A., as Rights Agent, dated as of [ ], 2005 and as amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who is or becomes an Acquiring Person (as defined in the Rights Agreement) and certain transferees thereof will become null and void and will no longer be transferable. Dated: Witness, the seal of the Corporation and the signatures of its duly authorized officers. Discovery Holding Company [Corporate Seal] President Secretary

50 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: Doc # 4 QuickLinks DISCOVERY HOLDING COMPANY Series A Common Stock, par value $.01 per share Specimen Certificate

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52 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: Doc # 5 <DOCUMENT> <TYPE> EX-4.2 <DESCRIPTION> Ex 4.2 <FILENAME> a zex-4_2.htm <TEXT>

53 File: DISK015:[05DEN5.05DEN1445]EE1445A.;5 User: EROWE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) Created: 23-JUN-2005;22:18 Chksum: HTML Page: 1 Folio: BLANK Doc # 5 QuickLinks-- Click here to rapidly navigate through this document Exhibit 4.2 Number B- Incorporated Under the Laws of the State of Delaware Shares -0- Cusip No. DISCOVERY HOLDING COMPANY Series B Common Stock, par value $.01 per share Specimen Certificate This Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES B COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF DISCOVERY HOLDING COMPANY (hereinafter called the "Corporation") transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of the Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Discovery Holding Company (the "Company") and EquiServe Trust Company, N.A., as Rights Agent, dated as of [ ], 2005 and as amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who is or becomes an Acquiring Person (as defined in the Rights Agreement) and certain transferees thereof will become null and void and will no longer be transferable. Dated: Witness, the seal of the Corporation and the signatures of its duly authorized officers. Discovery Holding Company [Corporate Seal] President Secretary

54 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: Doc # 5 QuickLinks DISCOVERY HOLDING COMPANY Series B Common Stock, par value $.01 per share Specimen Certificate

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57 File: DISK015:[05DEN5.05DEN1445]FA1445A.;6 User: EROWE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) Created: 23-JUN-2005;22:18 Chksum: HTML Page: 1 Folio: BLANK Doc # 6 QuickLinks-- Click here to rapidly navigate through this document Exhibit 4.3 DISCOVERY HOLDING COMPANY and EquiServe Trust Company, N.A., as Rights Agent RIGHTS AGREEMENT Dated as of [ ], 2005

58 File: DISK015:[05DEN5.05DEN1445]FC1445A.;6 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) Created: 21-JUN-2005;19:57 Chksum: TABLE OF CONTENTS HTML Page: 2 Folio: BLANK Doc # 6 Section 1. Certain Definitions 1 Section 2. Appointment of Rights Agent 5 Section 3. Issue of Right Certificates 5 Section 4. Form of Right Certificates 7 Section 5. Countersignature and Registration 7 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; 8 Mutilated, Destroyed, Lost or Stolen Right Certificates Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights 8 Section 8. Cancellation and Destruction of Right Certificates 9 Section 9. Availability of Shares of Preferred Stock 10 Section 10. Preferred Stock Record Date 10 Section 11. Adjustment of Purchase Price, Number and Kind of Shares and Number of 11 Rights Section 12. Certificate of Adjusted Purchase Price or Number of Shares 18 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power 18 Section 14. Fractional Rights and Fractional Shares 21 Section 15. Rights of Action 22 Section 16. Agreement of Right Holders 22 Section 17. Right Certificate Holder Not Deemed a Stockholder 23 Section 18. Concerning the Rights Agent 23 Section 19. Merger or Consolidation or Change of Name of Rights Agent 23 Section 20. Duties of Rights Agent 24 Section 21. Change of Rights Agent 25 Section 22. Issuance of New Right Certificates 26 Section 23. Redemption 26 Section 24. Exchange 27 Section 25. Notice of Certain Events 28 Section 26. Notices 29 Section 27. Supplements and Amendments 29 Section 28. Successors 29 Section 29. Benefits of this Agreement 29 Section 30. Determinations and Actions by the Board of Directors 29 Section 31. Severability 30 Section 32. Governing Law 30 Section 33. Counterparts 30 Section 34. Descriptive Headings 30 Section 35. Force Majeure 30 Page

59 File: DISK015:[05DEN5.05DEN1445]FE1445A.;7 User: EROWE EFW: Printed: 24-Jun-2005;20:03:27 (v.162) Created: 23-JUN-2005;22:19 Chksum: RIGHTS AGREEMENT HTML Page: 3 Folio: BLANK Doc # 6 Rights Agreement, dated as of [ ], 2005 (" Agreement "), between Discovery Holding Company, a Delaware corporation (the " Company "), and EquiServe Trust Company, N.A., a national banking association, as Rights Agent (the " Rights Agent "). The Board of Directors of the Company has, subject to the consummation of the Spin-off Transaction, declared a dividend of preferred share purchase rights to holders of the Company's Common Stock of record as of the close of business on [ ], 2005 (the " Record Date "). The dividend consists of one Series A Right for each share of Series A Common Stock outstanding on the Record Date and one Series B Right for each shares of Series B Common Stock outstanding on the Record Date. The Board has also directed the issuance of one Series A Right or Series B Right, as applicable, with respect to each share of Series A Common Stock or Series B Common Stock that shall become outstanding between the Record Date and the earlier of the Distribution Date and the Expiration Date. Each Series A Right represents the right to purchase one one-thousandth of a share of the Company's Series A Preferred Stock, and each Series B Right represents the right to purchase one one-thousandth of a share of the Company's Series B Preferred Stock. In the event that shares of Series C Common Stock are issued, each share of Series C Common Stock will be issued together with one Series C Right, which Series C Right will represent the right to purchase one one-thousandth of a share of the Company's Series C Preferred Stock. All capitalized terms used in this paragraph are defined in Section 1 of this Agreement, and the foregoing provisions are subject to adjustment as provided herein. Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meaning indicated: (a) " Acquiring Person " shall mean any Person (as such term is hereinafter defined) who or which shall be the Beneficial Owner (as such term is hereinafter defined) of 10% or more of the number of shares of Common Stock then outstanding, but shall not include an Exempt Person (as such term is hereinafter defined); provided, however, that (i) if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person" became the Beneficial Owner of a number of shares of Common Stock such that the Person would otherwise qualify as an "Acquiring Person" inadvertently (including, without limitation, because (A) such Person was unaware that it beneficially owned a percentage of Common Stock that would otherwise cause such Person to be an "Acquiring Person" or (B) although such Person was aware of the extent of its Beneficial Ownership of Common Stock, such Person had no actual knowledge of the consequences of such Beneficial Ownership under this Agreement) and without any intention of changing or influencing control of the Company, then such Person shall not be deemed to be or to have become an "Acquiring Person" for any purposes of this Agreement unless and until such Person shall have failed to divest itself, as soon as practicable (as determined, in good faith, by the Board of Directors of the Company), of Beneficial Ownership of a sufficient number of shares of Common Stock so that such Person would no longer otherwise qualify as an "Acquiring Person"; (ii) if, as of the Spin-off Date, any Person is the Beneficial Owner of 10% or more of the number of shares of Common Stock outstanding, such Person shall not be deemed to be or to become an "Acquiring Person" unless and until such time as such Person shall, after the Spin-Off Date, become the Beneficial Owner of additional shares of Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding Common Stock or pursuant to a split or subdivision of the outstanding Common Stock), unless, upon becoming the Beneficial Owner of such additional shares of Common Stock, such Person is not then the Beneficial Owner of 10% or more of the number of shares of Common Stock then outstanding; and (iii) no Person shall become an "Acquiring Person" as the result of an acquisition of shares of Common Stock by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares of Common Stock beneficially owned by such Person to 10% or more of the number of shares of Common Stock then outstanding, provided, however, that if a Person shall

60 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]FE1445A.;7 Created: 23-JUN-2005;22:19 Chksum: Folio: 2 User: EROWE EFW: Doc # 6 become the Beneficial Owner of 10% or more of the number of shares of Common Stock then outstanding by reason of such share acquisitions by the Company and shall thereafter become the Beneficial Owner of any additional shares of Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding Common Stock or pursuant to a split or subdivision of the outstanding Common Stock), then such Person shall be deemed to be an "Acquiring Person" unless upon becoming the Beneficial Owner of such additional shares of Common Stock such Person does not beneficially own 10% or more of the number of shares of Common Stock then outstanding. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the " Exchange Act "), as in effect on the date hereof. (b) " Affiliate " and " Associate " shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. (c) A Person shall be deemed the " Beneficial Owner " of, shall be deemed to have " Beneficial Ownership " of and shall be deemed to " beneficially own " any securities: (i) which such Person or any of such Person's Affiliates or Associates is deemed to beneficially own, directly or indirectly, within the meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange Act as in effect on the date hereof; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase, (y) securities which such Person has a right to acquire upon the exercise of Rights at any time prior to the time that any Person becomes an Acquiring Person or (z) securities issuable upon the exercise of Rights from and after the time that any Person becomes an Acquiring Person if such Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (" Original Rights ") or pursuant to Section 11(i) or Section 11(n) with respect to an adjustment to Original Rights; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security by reason of such agreement, arrangement or understanding if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); (iii) which are beneficially owned, directly or indirectly, by any other Person and with respect to which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to

61 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]FE1445A.;7 Created: 23-JUN-2005;22:19 Chksum: Folio: 3 User: EROWE EFW: Doc # 6 Section 1(c)(ii)(B)) or disposing of such securities of the Company; provided, however, in each such case, that (A) no Person who is an officer, director or employee of an Exempt Person shall be deemed, solely by reason of such Person's status or authority as such, to be the "Beneficial Owner" of, to have "Beneficial Ownership" of or to "beneficially own" any securities that are "beneficially owned" (as defined in this Section l(c)), including, without limitation, in a fiduciary capacity, by an Exempt Person or by any other such officer, director or employee of an Exempt Person; and (B) no Person who is an officer, director or employee of an Exempt Person shall be deemed to be the "Beneficial Owner" of, to have "Beneficial Ownership" of or to "beneficially own" any securities that are "beneficially owned" (as so defined) by any other Person or Persons that acquired such securities, or that has or have agreed to acquire such securities, from the Company or any Subsidiary of the Company, solely by reason of any agreement, arrangement or understanding between such officer, director or employee and such other Person; or (iv) which are beneficially owned, directly or indirectly, by any other Person, if such Person and such other Person are members of the same Group. (d) " Business Day " shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York or the city in which the principal office of the Rights Agent is located are authorized or obligated by law or executive order to close. (e) " Close of Business " on any given date shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day. (f) " Common Stock " when used with reference to the Company shall mean the common stock, presently par value $0.01 per share, of the Company or any other stock resulting from successive changes or reclassifications of common stock, and includes the Series A Common Stock, Series B Common Stock and Series C Common Stock. " Common Stock " when used with reference to any Person other than the Company shall mean the common stock (or, in the case of an unincorporated entity, the equivalent equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary (as such term is hereinafter defined) of another Person, of the Person or Persons which ultimately control such first-mentioned Person. (g) " Common Stock Equivalents " shall have the meaning set forth in Section 11(a)(iii) hereof. (h) " Current Values " shall have the meaning set forth in Section 11(a)(iii) hereof. (i) " Distribution Date " shall have the meaning set forth in Section 3 hereof. (j) " Equivalent Preferred Shares " shall have the meaning set forth in Section 11(b) hereof. (k) " Exempt Person " shall mean the Company or any Subsidiary of the Company, in each case including, without limitation, in its fiduciary capacity, or any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity or trustee holding Common Stock for or pursuant to the terms of any such plan or for the purpose of funding any such plan or funding other employee benefits for employees of the Company or of any Subsidiary of the Company. (l) " Exchange Ratio " shall have the meaning set forth in Section 24 hereof. (m) " Expiration Date " shall have the meaning set forth in Section 7 hereof. (n) " Final Expiration Date " shall have the meaning set forth in Section 7 hereof. (o) " Flip-In Event " shall have the meaning set forth in Section 11(a)(ii) hereof. (p) " Group " shall mean any group within the meaning of Section 13(d)(3) of the Exchange Act and shall also mean and include the group described in the following sentence. Anything to the contrary notwithstanding, the stockholders of Discovery Communications, Inc., a Delaware corporation

62 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]FE1445B.;6 Created: 23-JUN-2005;22:19 Chksum: Folio: 4 User: EROWE EFW: Doc # 6 (" DCI ") (other than the Company or any Subsidiary of the Company), each Affiliate or Associate of any such stockholder, any other Person that has any agreement, arrangement or understanding with any such stockholder (or with any Affiliate or Associate of any such stockholder) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any equity securities of DCI, and each Affiliate or Associate of any such Person, shall together constitute a Group for purposes of this Agreement. (q) " NASDAQ " shall mean The Nasdaq Stock Market. (r) " New York Stock Exchange " shall mean the New York Stock Exchange, Inc. (s) " Person " shall mean any individual, firm, corporation, partnership, limited liability company, trust or other entity, and shall include any successor (by merger or otherwise) to such entity. (t) " Preferred Stock " shall mean collectively or severally, as the context shall require, the Series A Preferred Stock, the Series B Preferred Stock and/or the Series C Preferred Stock, and to the extent that there is not a sufficient number of shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock of the Company designated for such purpose containing terms substantially similar to the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock, as the case may be. (u) " Principal Party " shall have the meaning set forth in Section 13(b) hereof. (v) " Purchase Price " shall have the meaning set forth in Section 7(b) hereof. (w) " Record Date " shall have the meaning set forth in the recitals hereto. (x) " Redemption Date " shall have the meaning set forth in Section 7 hereof. (y) " Redemption Price " shall have the meaning set forth in Section 23 hereof. (z) " Rights " shall mean collectively or severally, as the context shall require, the Series A Rights, the Series B Rights and/or the Series C Rights. (aa) " Right Certificate " shall have the meaning set forth in Section 3 hereof. (bb) " Securities Act " shall mean the Securities Act of 1933, as amended. (cc) " Section 11(a)(ii) Trigger Date " shall have the meaning set forth in Section 11(a)(iii) hereof. (dd) " Series A Common Stock " shall mean the Series A Common Stock, par value $0.01 per share, of the Company. (ee) " Series B Common Stock " shall mean the Series B Common Stock, par value $0.01 per share, of the Company. (ff) " Series C Common Stock " shall mean the Series C Common Stock, par value $0.01 per share, of the Company. (gg) " Series A Preferred Stock " shall mean the Series A Junior Participating Preferred Stock, par value $.01 per share, of the Company having the rights and preferences set forth in the Form of Certificate of Designation attached to this Agreement as Exhibit A. (hh) " Series B Preferred Stock " shall mean the Series B Junior Participating Preferred Stock, par value $.01 per share, of the Company having the rights and preferences set forth in the Form of Certificate of Designation attached to this Agreement as Exhibit B.

63 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]FE1445B.;6 Created: 23-JUN-2005;22:19 Chksum: Folio: 5 User: EROWE EFW: Doc # 6 (ii) " Series C Preferred Stock " shall mean the Series C Junior Participating Preferred Stock, par value $.01 per share, of the Company having the rights and preferences set forth in the Form of Certificate of Designation attached to this Agreement as Exhibit C. (jj) " Series A Rights " shall mean preferred share purchase rights, each such Series A Right representing the right to purchase one one-thousandth (subject to adjustment) of a share of the Series A Preferred Stock, upon the terms and subject to the conditions set forth in this Agreement. (kk) " Series A Rights Certificate " shall have the meaning set forth in Section 3. (ll) " Series B Rights " shall mean preferred share purchase rights, each such Series B Right representing the right to purchase one one-thousandth (subject to adjustment) of a share of the Series B Preferred Stock, upon the terms and subject to the conditions set forth in this Agreement. (mm) " Series B Rights Certificate " shall have the meaning set forth in Section 3. (nn) " Series C Rights " shall mean preferred share purchase rights, each such Series C Right representing the right to purchase one one-thousandth (subject to adjustment) of a share of the Series C Preferred Stock, upon the terms and subject to the conditions set forth in this Agreement. (oo) " Series C Rights Certificate " shall have the meaning set forth in Section 3. (pp) " Spin-off Date " shall mean the date upon which the Spin-off Transaction is consummated. (qq) " Spin-off Transaction " shall mean the transaction involving the pro rata distribution by Liberty Media Corporation of its equity ownership in the Company to holders of common stock of Liberty Media Corporation. (rr) " Spread " shall have the meaning set forth in Section 11(a)(iii) hereof. (ss) " Stock Acquisition Date " shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, any report filed pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such, or such earlier date as a majority of the Board of Directors of the Company shall become aware of the existence of an Acquiring Person. (tt) " Subsidiary " of any Person shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by such Person, and any corporation or other entity that is otherwise controlled by such Person. (uu) " Substitution Period " shall have the meaning set forth in Section 11(a)(iii) hereof. (vv) " Summary of Rights " shall have the meaning set forth in Section 3 hereof. (ww) " Trading Day " shall have the meaning set forth in Section 11(d)(i) hereof. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date be the holders of Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-rights Agents as it may deem necessary or desirable, upon ten (10) days' prior written notice to the Rights Agent. The Rights Agent shall have no duty to supervise, and in no event be liable for, the acts or omissions of any such co-rights Agent. Section 3. Issue of Right Certificates. (a) Until the Close of Business on the earlier of (i) the tenth day after the Stock Acquisition Date or (ii) the tenth Business Day (or such later date as may be determined by action of the Board of

64 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]FE1445B.;6 Created: 23-JUN-2005;22:19 Chksum: Folio: 6 User: EROWE EFW: Doc # 6 Directors of the Company prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than an Exempt Person) of, or of the first public announcement of the intention of such Person (other than an Exempt Person) to commence, a tender or exchange offer the consummation of which would result in any Person (other than an Exempt Person) becoming the Beneficial Owner of shares of Common Stock aggregating 10% or more of the Common Stock then outstanding (the earlier of such dates being herein referred to as the " Distribution Date "), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Stock or, in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock, registered in the names of the holders thereof and not by separate Right Certificates, and (y) the Rights will be transferable only in connection with the transfer of Common Stock. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, (A) to each record holder of Series A Common Stock as of the close of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the Company, a Series A Right Certificate, in substantially the form of Exhibit D hereto (a " Series A Right Certificate "), evidencing one Series A Right (subject to adjustment as provided herein) for each share of Series A Common Stock so held; (B) to each record holder of Series B Common Stock as of the close of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the Company, a Series B Right Certificate, in substantially the form of Exhibit E hereto (a " Series B Right Certificate "), evidencing one Series B Right (subject to adjustment as provided herein) for each share of Series B Common Stock so held; and (C) to each record holder of Series C Common Stock as of the close of business on the Distribution Date (other than any Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the address of such holder shown on the records of the Company, a Series C Right Certificate, in substantially the form of Exhibit F hereto (a " Series C Right Certificate," and collectively with the Series A Right Certificates and the Series B Rights Certificates or severally, as the context shall require, the " Rights Certificates "), evidencing one Series C Right (subject to adjustment as provided herein) for each share of Series C Common Stock so held. From and after the Distribution Date, the Rights will be evidenced solely by Right Certificates. (b) A copy of the Summary of Rights to Purchase Shares of Preferred Stock, in substantially the form of Exhibit G hereto (the " Summary of Rights "), has been included in an exhibit to the Information Statement on Form 10/A (the " Information Statement ") filed by the Company with the Securities and Exchange Commission on June [ ], 2005 and a copy of the Information Statement will be made available to each record holder of Common Stock as of the Close of Business on the Record Date. With respect to shares of Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by the certificates for Common Stock, or in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock, registered in the names of the holders thereof together with the Summary of Rights. Until the Distribution Date (or, if earlier, the Expiration Date), the transfer of any shares of Common Stock outstanding on the Record Date, with or without a copy of the Summary of Rights, shall also constitute the transfer of the Rights associated with such shares of Common Stock. (c) Rights shall be issued in respect of all shares of Common Stock issued or disposed of (including, without limitation, upon disposition of Common Stock out of treasury stock or issuance or reissuance of Common Stock out of authorized but unissued shares) after the Record Date but prior to the earlier of the Distribution Date and the Expiration Date, or under the circumstances provided in clauses (i), (ii), (iii) and (iv) of Section 22 hereof, after the Distribution Date. Certificates issued for Common Stock (including, without limitation, upon transfer of outstanding Common Stock, disposition of Common Stock out of treasury stock or issuance or reissuance of Common Stock out of authorized

65 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]FE1445B.;6 Created: 23-JUN-2005;22:19 Chksum: Folio: 7 User: EROWE EFW: Doc # 6 but unissued shares) after the Record Date but prior to the earlier of the Distribution Date and the Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: (i) This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Discovery Holding Company (the " Company ") and EquiServe Trust Company, N.A., as Rights Agent, dated as of [ ], 2005 and as amended from time to time (the " Rights Agreement "), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who is or becomes an Acquiring Person (as defined in the Rights Agreement) and certain transferees thereof will become null and void and will no longer be transferable. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate, except as otherwise provided herein, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby. In the event that the Company purchases or otherwise acquires any Common Stock after the Record Date but prior to the Distribution Date, any Rights associated with such Common Stock shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Stock which are no longer outstanding. Notwithstanding this paragraph (c), the omission of a legend shall not affect the enforceability of any part of this Agreement or the rights of any holder of the Rights. Section 4. Form of Right Certificates. The Series A Right Certificates, the Series B Right Certificates and the Series C Certificates (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall be substantially in the forms set forth in Exhibit D, Exhibit E and Exhibit F hereto, respectively, and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or interdealer quotation system on which the Rights may from time to time be listed or quoted, or to conform to usage. Subject to the provisions of this Agreement, the Right Certificates shall entitle the holders thereof to purchase such number of one-thousandths of a share of Preferred Stock as shall be set forth therein at the applicable Purchase Price, but the number of such one-thousandths of a share of Preferred Stock and such Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. (a) The Right Certificates shall be executed on behalf of the Company by the President of the Company, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof and shall be attested by the Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the Person who signed such Right Certificates had not ceased to be such officer of

66 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]FE1445B.;6 Created: 23-JUN-2005;22:19 Chksum: Folio: 8 User: EROWE EFW: Doc # 6 the Company; and any Right Certificate may be signed on behalf of the Company by any Person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Agreement any such Person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at an office or agency designated for such purpose, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a) Subject to the provisions of this Agreement, at any time after the Distribution Date and prior to the Expiration Date, any Right Certificate or Right Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one-thousandths of a share of Preferred Stock as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office or agency of the Rights Agent designated for such purpose. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. (b) Subject to the provisions of this Agreement, at any time after the Distribution Date and prior to the Expiration Date, upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights. (a) Except as otherwise provided herein, the Rights shall become exercisable on the Distribution Date, and thereafter the registered holder of any Right Certificate may, subject to Section 11(a)(ii) hereof and except as otherwise provided herein, exercise the Rights evidenced thereby in whole or in part upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the office or agency of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one-thousandths of a share of Preferred Stock (or other securities, cash or other assets, as the case may be) as to which the Rights are exercised, at any time which is both after the Distribution Date and prior to the time (the " Expiration Date ") that is the earliest of (i) the tenth anniversary of the Spin-off Date (the " Final Expiration Date "), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the " Redemption Date ") or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof.

67 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]FE1445C.;4 Created: 23-JUN-2005;22:19 Chksum: Folio: 9 User: EROWE EFW: Doc # 6 (b) The Purchase Price shall be initially (i) $100 for each one-thousandth of a share of Series A Preferred Stock purchasable upon the exercise of a Series A Right, (ii) $100 for each one-thousandth of a share of Series B Preferred Stock purchasable upon the exercise of a Series B Right and (iii) $100 for each one-thousandth of a share of Series C Preferred Stock purchasable upon the exercise of a Series C Right. The Purchase Price and the number of one-thousandths of a share of Preferred Stock or other securities or property to be acquired upon exercise of a Right shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) of this Section 7. (c) Except as otherwise provided herein, upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the aggregate Purchase Price for the shares of Preferred Stock to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof, in cash or by certified check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the Preferred Stock, or make available if the Rights Agent is the transfer agent for the Preferred Stock, certificates for the number of shares of Preferred Stock to be purchased, and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) requisition from a depositary agent appointed by the Company depositary receipts representing interests in such number of one-thousandths of a share of Preferred Stock as are to be purchased (in which case certificates for the Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent), and the Company hereby directs any such depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, promptly deliver such cash to or upon the order of the registered holder of such Right Certificate. (d) Except as otherwise provided herein, in case the registered holder of any Right Certificate shall exercise less than all of the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the exercisable Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder of Rights upon the occurrence of any purported transfer or exercise of Rights pursuant to Section 6 hereof or this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of assignment or form of election to purchase set forth on the reverse side of the Right Certificate surrendered for such transfer or exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company, or

68 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]FE1445C.;4 Created: 23-JUN-2005;22:19 Chksum: Folio: 10 User: EROWE EFW: Doc # 6 shall, at the written request of the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Availability of Shares of Preferred Stock. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock, or any shares of Preferred Stock held in its treasury, the number of shares of Preferred Stock that will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock issuable upon the exercise of Rights may be listed or admitted to trading on any national securities exchange, or quoted on NASDAQ, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed or admitted to trading on such exchange, or quoted on NASDAQ, upon official notice of issuance upon such exercise. (c) From and after such time as the Rights become exercisable, the Company shall use its best efforts, if then necessary to permit the issuance of shares of Preferred Stock upon the exercise of Rights, to register and qualify such shares of Preferred Stock under the Securities Act and any applicable state securities or "Blue Sky" laws (to the extent exemptions therefrom are not available), cause such registration statement and qualifications to become effective as soon as possible after such filing and keep such registration and qualifications effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of the date as of which the Rights are no longer exercisable for such securities and the Expiration Date. The Company may temporarily suspend, for a period of time not to exceed 90 days, the exercisability of the Rights in order to prepare and file a registration statement under the Securities Act and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained and until a registration statement under the Securities Act shall have been declared effective, unless an exemption therefrom is available. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Preferred Stock delivered upon exercise of Rights shall, at the time of delivery of the certificates therefor (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any shares of Preferred Stock upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Stock in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any certificates or depositary receipts for Preferred Stock upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by that holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section 10. Preferred Stock Record Date. Each Person in whose name any certificate for Preferred Stock is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Preferred Stock represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of

69 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 13 File: DISK015:[05DEN5.05DEN1445]FE1445C.;4 Created: 23-JUN-2005;22:19 Chksum: Folio: 11 User: EROWE EFW: Doc # 6 the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Stock for which the Rights shall be exercisable, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number and Kind of Shares and Number of Rights. The Purchase Price, the number of shares of Preferred Stock or other securities or property purchasable upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare and pay a dividend on any series of the Preferred Stock payable in shares of Preferred Stock, (B) subdivide any series of the outstanding Preferred Stock, (C) combine any series of the outstanding Preferred Stock into a smaller number of shares of Preferred Stock or (D) issue any shares of its capital stock in a reclassification of any series of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the number and kind of shares of capital stock issuable upon exercise of a Right as of the record date for such dividend or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, the holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. So long as Series A Rights, Series B Rights and Series C Rights are outstanding, the Corporation shall not effect any of the actions set forth in Clauses (A), (B), (C) or (D) of this paragraph with respect to either the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock unless the Corporation shall also contemporaneously effect a like transaction with respect to each other such series; provided, however, that in the event that such a transaction is effected with respect to one such series but no such shares of the other series are outstanding, the number and kind of shares of capital stock issuable upon such date, shall be proportionately adjusted with respect to the holders of Rights exercisable for shares of such series that are not outstanding as if such a dividend, subdivision, combination or reclassification had been effected with respect to the shares of such series. (ii) Subject to Section 24 of this Agreement, in the event any Person becomes an Acquiring Person (the first occurrence of such event being referred to hereinafter as the " Flip-In Event "), then (A) (x) in the case of a Series A Right, the Purchase Price shall be adjusted to be the Purchase Price in effect immediately prior to the Flip-In Event multiplied by the number of one-thousandths of a share of Series A Preferred Stock for which a Series A Right was exercisable immediately prior to such Flip-In Event, whether or not such Series A Right was then exercisable, and (y) each holder of a Series A Right, except as otherwise provided in this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have the right to receive, upon exercise thereof at a price equal to the Purchase Price (as so adjusted), in accordance with the terms of this Agreement and in lieu of shares of Series A Preferred Stock, such number of shares of Series A Common Stock as shall equal the result obtained by dividing the Purchase Price (as so adjusted) by 50% of the current per share market price of the Series A

70 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 14 File: DISK015:[05DEN5.05DEN1445]FE1445C.;4 Created: 23-JUN-2005;22:19 Chksum: Folio: 12 User: EROWE EFW: Doc # 6 Common Stock (determined pursuant to Section 11(d) hereof) on the date of such Flip-In Event; (B) (x) in the case of a Series B Right, the Purchase Price shall be adjusted to be the Purchase Price in effect immediately prior to the Flip-In Event multiplied by the number of one-thousandths of a share of Series B Preferred Stock for which a Series B Right was exercisable immediately prior to such Flip-In Event, whether or not such Series B Right was then exercisable, and (y) each holder of a Series B Right, except as otherwise provided in this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have the right to receive, upon exercise thereof at a price equal to the Purchase Price (as so adjusted), in accordance with the terms of this Agreement and in lieu of shares of Series B Preferred Stock, such number of shares of Series B Common Stock as shall equal the result obtained by dividing the Purchase Price (as so adjusted) by 50% of the current per share market price of the Series B Common Stock (determined pursuant to Section 11(d) hereof) on the date of such Flip-In Event; and (C) (x) in the case of a Series C Right, the Purchase Price shall be adjusted to be the Purchase Price in effect immediately prior to the Flip-In Event multiplied by the number of one-thousandths of a share of Series C Preferred Stock for which a Series C Right was exercisable immediately prior to such Flip-In Event, whether or not such Series C Right was then exercisable, and (y) each holder of a Series C Right, except as otherwise provided in this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have the right to receive, upon exercise thereof at a price equal to the Purchase Price (as so adjusted), in accordance with the terms of this Agreement and in lieu of shares of Series C Preferred Stock, such number of shares of Series C Common Stock as shall equal the result obtained by dividing the Purchase Price (as so adjusted) by 50% of the current per share market price of the Series C Common Stock (determined pursuant to Section 11(d) hereof) on the date of such Flip-In Event; provided, however, in each case, that the Purchase Price (as so adjusted) and the number of shares of Common Stock so receivable upon exercise of a Right shall, following the Flip-In Event, be subject to further adjustment as appropriate in accordance with Section 11(f) hereof. Notwithstanding anything in this Agreement to the contrary, however, from and after the Flip-In Event, any Rights that are beneficially owned by (x) any Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a transferee of any Acquiring Person (or any such Affiliate or Associate) who becomes a transferee after the Flip-In Event or (z) a transferee of any Acquiring Person (or any such Affiliate or Associate) who became a transferee prior to or concurrently with the Flip-In Event pursuant to either (I) a transfer from the Acquiring Person to holders of its equity securities or to any Person with whom it has any continuing agreement, arrangement or understanding regarding the transferred Rights or (II) a transfer which the Board of Directors of the Company has determined is part of a plan, arrangement or understanding which has the purpose or effect of avoiding the provisions of this paragraph, and subsequent transferees of such Persons, shall be void without any further action and any holder of such Rights shall thereafter have no rights whatsoever with respect to such Rights under any provision of this Agreement. The Company shall use all reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are complied with, but shall have no liability to any holder of Right Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. From and after the Flip-In Event, no Right Certificate shall be issued pursuant to Section 3 or Section 6 hereof that represents Rights that are or have become void pursuant to the provisions of this paragraph, and any Right Certificate delivered to the Rights Agent that represents Rights that are or have become void pursuant to the provisions of this paragraph shall be canceled. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exercised pursuant to this Section 11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and not pursuant to this Section 11(a)(ii).

71 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 15 File: DISK015:[05DEN5.05DEN1445]FG1445A.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 13 User: BSKELLE EFW: Doc # 6 (iii) The Company may at its option substitute for a share of Common Stock issuable upon the exercise of Rights in accordance with the foregoing subparagraph (ii) a number of shares of the applicable series of Preferred Stock or fraction thereof such that the current per share market price of one share of the applicable series of Preferred Stock multiplied by such number or fraction is equal to the current per share market price of one share of the applicable series of Common Stock. In the event that there shall not be sufficient shares of any series of Common Stock issued but not outstanding or authorized but unissued to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Board of Directors of the Company shall, with respect to such deficiency, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party, (A) determine the excess (such excess, the " Spread ") of (1) the value of the shares of Common Stock issuable upon the exercise of each Series A Right, Series B Right and Series C Right in accordance with the foregoing subparagraph (ii) (the " Current Values ") over (2) the applicable Purchase Price (as adjusted in accordance with the foregoing subparagraph (ii)), and (B) with respect to each Right (other than Rights which have become void pursuant to the foregoing subparagraph (ii)), make adequate provision to substitute for the shares of Series A Common Stock, Series B Common Stock or Series C Common Stock, as the case may be, issuable in accordance with the foregoing subparagraph (ii) upon exercise of the Right and payment of the applicable Purchase Price (as adjusted in accordance therewith), (1) cash, (2) a reduction in the applicable Purchase Price, (3) shares of Preferred Stock or other equity securities of the Company (including, without limitation, shares or fractions of shares of preferred stock which, by virtue of having dividend, voting and liquidation rights substantially comparable to those of the shares of the applicable series of Common Stock, are deemed in good faith by the Board of Directors of the Company to have substantially the same value as the shares of Series A Common Stock (in the case of a Series A Right), Series B Common Stock (in the case of a Series B Right) or Series C Common Stock (in the case of a Series C Right) (such shares of Preferred Stock and shares or fractions of shares of preferred stock are hereinafter referred to as " Common Stock Equivalents ")), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having a value which, when added to the value of the shares of Common Stock issued upon exercise of such Right, shall have an aggregate value equal to the Current Value (less the amount of any reduction in such Purchase Price), where such aggregate value has been determined by the Board of Directors of the Company upon the advice of a nationally recognized investment banking firm selected in good faith by the Board of Directors of the Company; provided, however, that if the Company shall not make adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the Flip-In Event (the date of the Flip-In Event being the " Section 11(a)(ii) Trigger Date "), then the Company shall be obligated to deliver, to the extent permitted by applicable law and any material agreements then in effect to which the Company is a party, upon the surrender for exercise of a Right and without requiring payment of such Purchase Price, shares of Series A Common Stock (in the case of a Series A Right), Series B Common Stock (in the case of a Series B Right) or Series C Common Stock (in the case of a Series C Right) (to the extent available), and then, if necessary, such number or fractions of shares of the applicable series of Preferred Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If, upon the occurrence of the Flip-In Event, the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional shares of the applicable series of Common Stock could be authorized for issuance upon exercise in full of the Rights, then, if the Board of Directors of the Company so elects, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, is herein called the " Substitution Period "). To the extent that the Company determines that some action need be taken pursuant to the second and/or third sentence of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii) hereof and the last sentence of this Section 11(a)(iii) hereof, that such action shall apply uniformly to all outstanding Series A Rights, Series B Rights and/or Series C Rights, as

72 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 16 File: DISK015:[05DEN5.05DEN1445]FG1445A.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 14 User: BSKELLE EFW: Doc # 6 applicable, and (y) may suspend the exercisability of the Series A Rights, Series B Rights and/or Series C Rights, as applicable, until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such second sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Series A Rights, Series B Rights and/or Series C Rights, as applicable, has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the shares of Series A Common Stock (in the case of a Series A Right), the Series B Common Stock (in the case of a Series B Right) or Series C Common Stock (in the case of a Series C Right), shall be the current per share market price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and the per share or fractional value of any "Common Stock Equivalent" shall be deemed to equal the current per share market price of the Series A Common Stock (in the case of a Series A Right), the Series B Common Stock (in the case of a Series B Right) and the Series C Common Stock (in the case of a Series C Right). The Board of Directors of the Company may, but shall not be required to, establish procedures to allocate the right to receive (x) shares of Series A Common Stock upon the exercise of the Series A Rights among holders of Series A Rights, (y) shares of Series B Common Stock upon the exercise of the Series B Rights among holders of the Series B Rights and (z) shares of Series C Common Stock upon the exercise of the Series C Rights among holders of the Series C Rights, in each case, pursuant to this Section 11(a)(iii). (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of any series of Preferred Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase shares of the applicable series of Preferred Stock (or shares having the same rights, privileges and preferences as the applicable series of Preferred Stock (" Equivalent Preferred Shares ")) or securities convertible into the applicable series of Preferred Stock or Equivalent Preferred Shares at a price per share of Preferred Stock or Equivalent Preferred Shares (or having a conversion price per share, if a security convertible into shares of Preferred Stock or Equivalent Preferred Shares) less than the then current per share market price of the applicable series of Preferred Stock (determined pursuant to Section 11(d) hereof) on such record date, the applicable Purchase Price to be in effect after such record date shall be determined by multiplying the applicable Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of such series of Preferred Stock and Equivalent Preferred Shares outstanding on such record date plus the number of shares of such series of Preferred Stock and Equivalent Preferred Shares which the aggregate offering price of the total number of shares of such series of Preferred Stock and/or Equivalent Preferred Shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price, and the denominator of which shall be the number of shares of such series of Preferred Stock and Equivalent Preferred Shares outstanding on such record date plus the number of additional shares of such series of Preferred Stock and/or Equivalent Preferred Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Shares of Preferred Stock and Equivalent Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall

73 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 17 File: DISK015:[05DEN5.05DEN1445]FG1445A.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 15 User: BSKELLE EFW: Doc # 6 be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of any series of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the applicable Purchase Price to be in effect after such record date shall be determined by multiplying the applicable Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of such series of Preferred Stock (determined pursuant to Section 11(d) hereof) on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of such series of Preferred Stock, and the denominator of which shall be such current per share market price (determined pursuant to Section 11(d) hereof) of such series of Preferred Stock; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the applicable Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) (i) Except as otherwise provided herein, for the purpose of any computation hereunder, the "current per share market price" of any security (a "Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed to be the average of the daily closing prices per share of such Security for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported by the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices on NASDAQ or in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. The term " Trading Day " shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day. (ii) For the purpose of any computation hereunder, if any series of Preferred Stock is publicly traded, the "current per share market price" of such series of Preferred Stock shall be determined in

74 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 18 File: DISK015:[05DEN5.05DEN1445]FG1445A.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 16 User: BSKELLE EFW: Doc # 6 accordance with the method set forth in Section 11(d)(i). If any series of Preferred Stock is not publicly traded but the corresponding series of Common Stock is publicly traded, the "current per share market price" of such series of Preferred Stock shall be conclusively deemed to be the current per share market price of the corresponding series of Common Stock as determined pursuant to Section 11(d)(i) multiplied by the then applicable Adjustment Number (as defined in and determined in accordance with the Certificate of Designation for the Preferred Stock). If neither the Common Stock nor the corresponding Preferred Stock of any series is publicly traded, "current per share market price" shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one hundred-thousandth of a share of Preferred Stock or one-hundredth of a share of Common Stock or other share or security as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than the applicable series of Preferred Stock, thereafter the applicable Purchase Price and the number of such other shares so receivable upon exercise of a Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the applicable series of Preferred Stock contained in Sections 11(a), 11(b), 11(c), 11(e), 11(h), 11(i) and 11(m) hereof, as applicable, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the applicable series of Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the applicable Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one-thousandths of a share of the applicable series of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the applicable Purchase Price as a result of the calculations made in Sections 11(b) and 11(c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted applicable Purchase Price, that number of one-thousandths of a share of the applicable series of Preferred Stock (calculated to the nearest one hundred-thousandth of a share of Preferred Stock) obtained by (i) multiplying (x) the number of one-thousandths of a share purchasable upon the exercise of a Right immediately prior to such adjustment by (y) the applicable Purchase Price in effect immediately prior to such adjustment and (ii) dividing the product so obtained by the applicable Purchase Price in effect immediately after such adjustment. (i) The Company may elect on or after the date of any adjustment of the applicable Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the number of Rights, in substitution for any adjustment in the number of one-thousandths of a share of the applicable series of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one-thousandths of a share of the applicable series of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of

75 Printed: 24-Jun-2005;20:03:27 (v.162) HTML Page: 19 File: DISK015:[05DEN5.05DEN1445]FG1445B.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 17 User: BSKELLE EFW: Doc # 6 Rights (calculated to the nearest one-hundredth) obtained by dividing the applicable Purchase Price in effect immediately prior to adjustment of the Purchase Price by the applicable Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. Such record date may be the date on which the applicable Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company may, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the applicable Purchase Price or the number of one-thousandths of a share of the applicable series of Preferred Stock issuable upon the exercise of a Right, the Right Certificates theretofore and thereafter issued may continue to express the applicable Purchase Price and the number of one-thousandths of a share of such series of Preferred Stock which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the applicable Purchase Price below the then par value, if any, of the fraction of the applicable series of Preferred Stock or other shares of capital stock issuable upon exercise of a Right, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of the applicable series of Preferred Stock or other such shares at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the applicable Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event issuing to the holder of any Right exercised after such record date the applicable series of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the applicable Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such adjustments in the applicable Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that (i) any consolidation or subdivision of any series of Preferred Stock, (ii) issuance wholly for cash of any shares of any series of Preferred Stock at less than the current market price, (iii) issuance wholly for cash of any series of Preferred Stock or securities which by their terms are convertible into or exchangeable for any series of Preferred Stock, (iv) dividends on any series of Preferred Stock payable in shares of Preferred Stock or (v) issuance of rights, options or warrants referred to hereinabove in Section 11(b), hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such holders.

76 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 20 File: DISK015:[05DEN5.05DEN1445]FG1445B.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 18 User: BSKELLE EFW: Doc # 6 (n) Anything in this Agreement to the contrary notwithstanding, in the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare and pay any dividend on any series of shares of Common Stock payable in Common Stock or (ii) effect a subdivision, combination or consolidation of any series of Common Stock (by reclassification or otherwise than by payment of a dividend payable in Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the number of Rights associated with each share of the applicable series of Common Stock then outstanding, or issued or delivered thereafter, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of the applicable series of Common Stock following any such event shall equal the result obtained by (A) in the case of the Series A Rights, multiplying the number of Series A Rights associated with each share of Series A Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Series A Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Series A Common Stock outstanding immediately following the occurrence of such event, (B) in the case of the Series B Rights, multiplying the number of Series B Rights associated with each share of Series B Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Series B Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Series B Common Stock outstanding immediately following the occurrence of such event and (C) in the case of the Series C Rights, multiplying the number of Series C Rights associated with each share of Series C Common Stock immediately prior to such event by a fraction the numerator of which shall be the total number of shares of Series C Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Series C Common Stock outstanding immediately following the occurrence of such event. The adjustments provided for in this Section 11(n) shall be made successively to any series of Common Stock whenever such a dividend is declared or paid or such subdivision, combination or consolidation is effected on such series of Common Stock. (o) The Company agrees that, after the earlier of the Distribution Date or the Stock Acquisition Date, it will not, except as permitted by Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or eliminate the benefits intended to be afforded by the Rights. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the applicable series of Common Stock and the applicable series of Preferred Stock a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof (if so required under Section 25 hereof). The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such certificate. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event, directly or indirectly, at any time after the Flip-In Event (i) the Company shall consolidate with or shall merge into any other Person, (ii) any Person shall merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Stock shall be changed into or exchanged for stock or other securities of any other Person (or of the Company) or cash or any other property, or (iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person (other than the Company or one or more wholly-owned Subsidiaries of the Company), then upon the

77 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 21 File: DISK015:[05DEN5.05DEN1445]FG1445B.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 19 User: BSKELLE EFW: Doc # 6 first occurrence of such event, proper provision shall be made so that: (A) each holder of a Right (other than Rights which have become void pursuant to Section 11(a)(ii) hereof) shall thereafter have the right to receive, upon the exercise thereof at the applicable Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof), in accordance with the terms of this Agreement and in lieu of shares of Preferred Stock or Common Stock of the Company, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall equal the result obtained by dividing the Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof) by 50% of the current per share market price of the Common Stock of such Principal Party (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; provided, however, that the Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof) and the number of shares of Common Stock of such Principal Party so receivable upon exercise of a Right shall be subject to further adjustment as appropriate in accordance with Section 11(f) hereof to reflect any events occurring in respect of the Common Stock of such Principal Party after the occurrence of such consolidation, merger, sale or transfer; (B) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (C) the term "Company" shall thereafter be deemed to refer to such Principal Party; and (D) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its shares of Common Stock in accordance with Section 9 hereof) in connection with such consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the shares of its Common Stock thereafter deliverable upon the exercise of the Rights; provided that, upon the subsequent occurrence of any consolidation, merger, sale or transfer of assets or other extraordinary transaction in respect of such Principal Party, each holder of a Right shall thereupon be entitled to receive, upon exercise of a Right and payment of the applicable Purchase Price as provided in this Section 13(a), such cash, shares, rights, warrants and other property which such holder would have been entitled to receive had such holder, at the time of such transaction, owned the Common Stock of the Principal Party receivable upon the exercise of a Right pursuant to this Section 13(a), and such Principal Party shall take such steps (including, but not limited to, reservation of shares of stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms hereof for such cash, shares, rights, warrants and other property. (b) " Principal Party " shall mean: (i) in the case of any transaction described in (i) or (ii) of the first sentence of Section 13(a) hereof: (A) the Person that is the issuer of the securities into which the shares of Common Stock are converted in such merger or consolidation, or, if there is more than one such issuer, the issuer of the shares of Common Stock of which have the greatest aggregate market value of shares outstanding, or (B) if no securities are so issued, (x) the Person that is the other party to the merger, if such Person survives said merger, or, if there is more than one such Person, the Person the shares of Common Stock of which have the greatest aggregate market value of shares outstanding or (y) if the Person that is the other party to the merger does not survive the merger, the Person that does survive the merger (including the Company if it survives) or (z) the Person resulting from the consolidation; and (ii) in the case of any transaction described in (iii) of the first sentence of Section 13(a) hereof, the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions, or, if each Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so transferred or if the Person receiving the greatest portion of the assets or earning power cannot

78 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 22 File: DISK015:[05DEN5.05DEN1445]FG1445B.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 20 User: BSKELLE EFW: Doc # 6 be determined, whichever of such Persons is the issuer of Common Stock having the greatest aggregate market value of shares outstanding; provided, however, that in any such case described in the foregoing clause (b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has not been continuously over the preceding 12-month period registered under Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, the term "Principal Party" shall refer to such other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stock of all of which is and has been so registered, the term "Principal Party" shall refer to whichever of such Persons is the issuer of Common Stock having the greatest aggregate market value of shares outstanding, or (3) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not owned, directly or indirectly, by the same Person, the rules set forth in clauses (1) and (2) above shall apply to each of the owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint venturers, and the Principal Party in each such case shall bear the obligations set forth in this Section 13 in the same ratio as its interest in such Person bears to the total of such interests. (c) The Company shall not consummate any consolidation, merger, sale or transfer referred to in Section 13(a) hereof unless prior thereto the Company and the Principal Party involved therein shall have executed and delivered to the Rights Agent an agreement confirming that the requirements of Sections 13(a) and (b) hereof shall promptly be performed in accordance with their terms and that such consolidation, merger, sale or transfer of assets shall not result in a default by the Principal Party under this Agreement as the same shall have been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof and providing that, as soon as practicable after executing such agreement pursuant to this Section 13, the Principal Party will: (i) prepare and file a registration statement under the Securities Act, if necessary, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, use its best efforts to cause such registration statement to become effective as soon as practicable after such filing and use its best efforts to cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date and similarly comply with applicable state securities laws; (ii) use its best efforts, if the Common Stock of the Principal Party shall be listed or admitted to trading on the New York Stock Exchange or on another national securities exchange, to list or admit to trading (or continue the listing of) the Rights and the securities purchasable upon exercise of the Rights on the New York Stock Exchange or such securities exchange, or, if the Common Stock of the Principal Party shall not be listed or admitted to trading on the New York Stock Exchange or a national securities exchange, to cause the Rights and the securities receivable upon exercise of the Rights to be authorized for quotation on NASDAQ or on such other system then in use; (iii) deliver to holders of the Rights historical financial statements for the Principal Party which comply in all respects with the requirements for registration on Form 10 (or any successor form) under the Exchange Act; and (iv) obtain waivers of any rights of first refusal or preemptive rights in respect of the Common Stock of the Principal Party subject to purchase upon exercise of outstanding Rights. (d) In case the Principal Party has a provision in any of its authorized securities or in its certificate of incorporation or by-laws or any other instrument governing its affairs, which provision would have the effect of (i) causing such Principal Party to issue (other than to holders of Rights pursuant to this Section 13), in connection with, or as a consequence of, the consummation of a

79 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 23 File: DISK015:[05DEN5.05DEN1445]FG1445C.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 21 User: BSKELLE EFW: Doc # 6 transaction referred to in this Section 13, shares of Common Stock or Common Stock Equivalents of such Principal Party at less than the then current market price per share thereof (determined pursuant to Section 11(d) hereof) or securities exercisable for, or convertible into, Common Stock or Common Stock Equivalents of such Principal Party at less than such then current market price, or (ii) providing for any special payment, tax or similar provision in connection with the issuance of the Common Stock of such Principal Party pursuant to the provisions of Section 13, then, in such event, the Company hereby agrees with each holder of Rights that it shall not consummate any such transaction unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing that the provision in question of such Principal Party shall have been canceled, waived or amended, or that the authorized securities shall be redeemed, so that the applicable provision will have no effect in connection with, or as a consequence of, the consummation of the proposed transaction. (e) The Company covenants and agrees that it shall not, at any time after the Flip-In Event, enter into any transaction of the type described in clauses (i) through (iii) of Section 13(a) hereof if (i) at the time of or immediately after such consolidation, merger, sale, transfer or other transaction there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights, (ii) prior to, simultaneously with or immediately after such consolidation, merger, sale, transfer or other transaction, the stockholders of the Person who constitutes, or would constitute, the Principal Party for purposes of Section 13(b) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates or Associates or (iii) the form or nature of organization of the Principal Party would preclude or limit the exercisability of the Rights. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights (except prior to the Distribution Date in accordance with Section 11(n) hereof) or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices on NASDAQ or in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon the exercise or exchange of

80 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 24 File: DISK015:[05DEN5.05DEN1445]FG1445C.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 22 User: BSKELLE EFW: Doc # 6 Rights. Interests in fractions of Preferred Stock in integral multiples of one one-thousandth of a share of Preferred Stock may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Stock represented by such depositary receipts. In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised or exchanged as herein provided an amount in cash equal to the same fraction of the current market value of a whole share of Preferred Stock (as determined in accordance with Section 14(a) hereof) for the Trading Day immediately prior to the date of such exercise or exchange. (c) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock upon the exercise or exchange of Rights. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock (as determined in accordance with Section 14(a) hereof) for the Trading Day immediately prior to the date of such exercise or exchange. (d) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise or exchange of a Right (except as provided above). Section 15. Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock), on his own behalf and for his own benefit, may enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate (or, prior to the Distribution Date, such Common Stock) in the manner provided therein and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Stock; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office or agency of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the Person in whose name the Right Certificate (or, prior to the Distribution Date, the Common Stock certificate or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Common Stock) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the

81 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 25 File: DISK015:[05DEN5.05DEN1445]FG1445C.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 23 User: BSKELLE EFW: Doc # 6 Common Stock certificate or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Common Stock, made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to Section 7(e) hereof, shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise or exchange of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in this Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by such Right Certificate shall have been exercised or exchanged in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly. (b) The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Preferred Stock or Common Stock or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Preferred Stock or Common Stock, or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust powers of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the

82 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 26 File: DISK015:[05DEN5.05DEN1445]FG1445C.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 24 User: BSKELLE EFW: Doc # 6 predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the President and the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights provided for in Sections 3, 11, 13, 23 and 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after receipt of a certificate furnished pursuant to Section 12, describing such change or adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Preferred Stock or other securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of Preferred Stock or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

83 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 27 File: DISK015:[05DEN5.05DEN1445]FG1445C.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 25 User: BSKELLE EFW: Doc # 6 (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person reasonably believed by the Rights Agent to be one of the President or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Agreement and the date on and/or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than five Business Days after the date any officer of the Company actually receives such application unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. (j) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or the form of election to purchase set forth on the reverse thereof, as the case may be, has not been completed to certify the holder is not an Acquiring Person (or an Affiliate or Associate thereof) or a transferee thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Stock or Preferred Stock by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. In the event the transfer agency relationship in effect between the Company and the Rights Agent terminates, the Rights Agent will be deemed to resign automatically on the effective date of such termination; and any required notice will be sent by the Company. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock or Preferred Stock by registered or certified mail, and, following the Distribution Date, to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights

84 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 28 File: DISK015:[05DEN5.05DEN1445]FG1445D.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 26 User: BSKELLE EFW: Doc # 6 Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or the laws of any state of the United States or the District of Columbia, in good standing, having an office in the State of Delaware or the State of New York, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock or Preferred Stock, and, following the Distribution Date, mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such forms as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class or series of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of Common Stock following the Distribution Date and prior to the Expiration Date, the Company may with respect to shares of Common Stock so issued or sold pursuant to (i) the exercise of stock options, (ii) under any employee plan or arrangement, (iii) upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company or (iv) a contractual obligation of the Company, in each case existing prior to the Distribution Date, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale. Section 23. Redemption. (a) The Board of Directors of the Company may, at any time prior to the Flip-In Event, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring in respect of the Common Stock after the date hereof (the redemption price being hereinafter referred to as the " Redemption Price "). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors of the Company in its sole discretion may establish. The Redemption Price shall be payable, at the option of the Company, in cash, shares of Common Stock, or such other form of consideration as the Board of Directors of the Company shall determine. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at such later time as the Board of Directors of the Company may establish for the effectiveness of such redemption), and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after such action of the Board of Directors of the Company ordering the redemption of the Rights (or such later time as the Board of Directors of the Company may establish for the effectiveness of such redemption), the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent

85 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 29 File: DISK015:[05DEN5.05DEN1445]FG1445D.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 27 User: BSKELLE EFW: Doc # 6 or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. Section 24. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after the Flip-In Event, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common Stock at an exchange ratio of one share of Series A Common Stock per Series A Right, one share of Series B Common Stock per Series B Right and one share of Series C Common Stock per Series C Right appropriately adjusted to reflect any stock split, stock dividend or similar transaction with respect to the applicable series of Common Stock occurring after the date hereof (such amount per Right being hereinafter referred to as the " Exchange Ratio "). Notwithstanding the foregoing, the Board of Directors of the Company shall not be empowered to effect such exchange at any time after an Acquiring Person shall have become the Beneficial Owner of shares of Common Stock representing, in the aggregate, 50% or more of the outstanding voting power of the Company. From and after the occurrence of an event specified in Section 13(a) hereof, any Rights that theretofore have not been exchanged pursuant to this Section 24(a) shall thereafter be exercisable only in accordance with Section 13 and may not be exchanged pursuant to this Section 24(a). The exchange of the Rights by the Board of Directors of the Company may be made effective at such time, on such basis and with such conditions as the Board of Directors of the Company in its sole discretion may establish. (b) Immediately upon the effectiveness of the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company shall promptly mail a notice of any such exchange to all of the holders of the Rights so exchanged at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange of (i) Series A Rights shall be effected pro rata based on the number of Series A Rights (other than Series A Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Series A Rights, (ii) Series B Rights shall be effected pro rata based on the number of Series B Rights (other than Series B Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Series B Rights and (iii) Series C Rights shall be effected pro rata based on the number of Series C Rights (other than Series C Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Series C Rights. (c) The Company may at its option substitute, and, in the event that there shall not be sufficient shares of Series A Common Stock, Series B Common Stock or Series C Common Stock, as the case may be, issued but not outstanding or authorized but unissued to permit an exchange of Series A Rights, Series B Rights or Series C Rights, as the case may be, for Series A Common Stock, Series B Common Stock or Series C Common Stock as contemplated in accordance with this Section 24, the Company may, in its discretion, take such action as may be necessary to authorize additional shares of Series A Common Stock, Series B Common Stock or Series C Common Stock for issuance upon exchange of the Series A Rights, the Series B Rights or the Series C Rights. In the event that the

86 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 30 File: DISK015:[05DEN5.05DEN1445]FG1445D.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 28 User: BSKELLE EFW: Doc # 6 Company shall determine not to take such action or shall, after good faith effort, be unable to take such action as may be necessary to authorize such additional shares of Series A Common Stock, Series B Common Stock or Series C Common Stock, the Company shall substitute, to the extent of such insufficiency, for each share of Series A Common Stock, Series B Common Stock or Series C Common Stock that would otherwise be issuable upon exchange of a Series A Right, Series B Right or Series C Right, a number of shares of Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock or fractions thereof (or Equivalent Preferred Shares as such term is defined in Section 11(b)) such that the current per share market price (determined pursuant to Section 11(d) hereof) of one share of Preferred Stock (or Equivalent Preferred Share) multiplied by such number or fraction is equal to the current per share market price of one share of the applicable series of Common Stock (determined pursuant to Section 11(d) hereof) as of the date of such exchange. (d) The Company shall not, in connection with any exchange pursuant to this Section 24, be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of the applicable series of Common Stock. For the purposes of this paragraph (d), the current market value of a whole share of Series A Common Stock, Series B Common Stock or Series C Common Stock shall be the closing price of a share of Series A Common Stock, Series B Common Stock and Series C Common Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof), as applicable, for the Trading Day immediately prior to but not including the date of exchange pursuant to this Section 24. Section 25. Notice of Certain Events. (a) In case the Company shall at any time after the earlier of the Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend payable in stock of any class or series to the holders of its Preferred Stock or to make any other distribution to the holders of any series of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to offer to the holders of any series of its Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of any series of Preferred Stock or shares of stock of any class or series or any other securities, rights or options, (iii) to effect any reclassification of its any series of Preferred Stock (other than a reclassification involving only the subdivision or combination of outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or winding up of the Company, or (v) to pay any dividend on the Common Stock payable in Common Stock or to effect a subdivision, combination or consolidation of the Common Stock (by reclassification or otherwise than by payment of dividends in Common Stock), then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such dividend or distribution or offering of rights or warrants, or the date on which such liquidation, dissolution, winding up, reclassification, subdivision, combination or consolidation is to take place and the date of participation therein by the holders of the Common Stock and/or Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Stock for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Stock and/or Preferred Stock, whichever shall be the earlier. (b) In case any event described in Section 11(a)(ii) or Section 13 shall occur then the Company shall as soon as practicable thereafter give to each holder of a Right Certificate (or if occurring prior to the Distribution Date, the holders of the Common Stock) in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) and Section 13 hereof.

87 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 31 File: DISK015:[05DEN5.05DEN1445]FG1445D.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 29 User: BSKELLE EFW: Doc # 6 Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Discovery Holding Company Liberty Boulevard Englewood, Colorado Attention: General Counsel Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: EquiServe Trust Company, N.A. 250 Royall Street Canton, MA Attention: Client Administration Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. Except as provided in the penultimate sentence of this Section 27, for so long as the Rights are then redeemable, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so directs, supplement or amend any provision of this Agreement in any respect without the approval of any holders of the Rights. At any time when the Rights are no longer redeemable, except as provided in the penultimate sentence of this Section 27, the Company may, and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights, provided that no such supplement or amendment may (a) adversely affect the interests of the holders of Rights as such (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), (b) cause this Agreement again to become amendable other than in accordance with this sentence or (c) cause the Rights again to become redeemable. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price. Upon the delivery of a certificate from an appropriate officer of the Company which states that the supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Stock). Section 30. Determinations and Actions by the Board of Directors. The Board of Directors of the Company or any committee thereof authorized by the Board for such purpose shall have the exclusive power and authority to administer this Agreement and to exercise the rights and powers specifically

88 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 32 File: DISK015:[05DEN5.05DEN1445]FG1445D.;4 Created: 21-JUN-2005;19:57 Chksum: Folio: 30 User: BSKELLE EFW: Doc # 6 granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (a) interpret the provisions of this Agreement and (b) make all determinations deemed necessary or advisable for the administration of this Agreement (including, without limitation, a determination to redeem or not redeem the Rights or to amend or not amend this Agreement). All such actions, calculations, interpretations and determinations that are done or made by the Board of Directors of the Company in good faith shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other parties. Section 31. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 32. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 33. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 34. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 35. Force Majeure. Notwithstanding anything to the contrary contained herein, the Rights Agent shall not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. DISCOVERY HOLDING COMPANY By: Name: Title: EquiServe Trust Company, N.A. as Rights Agent By: Name: Title:

89 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 33 File: DISK015:[05DEN5.05DEN1445]FI1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: A-1 User: MBRADT EFW: Doc # 6 FORM OF CERTIFICATE OF DESIGNATION of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of DISCOVERY HOLDING COMPANY Pursuant to Section 151 of the General Corporation Law of the State of Delaware Exhibit A Discovery Holding Company, a corporation organized and existing under the General Corporation Law of the State of Delaware (the " Corporation "), in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors of the Corporation (the " Board of Directors ") in accordance with the provisions of the Certificate of Incorporation of the said Corporation, the said Board of Directors on [ ], 2005 adopted the following resolution creating a series of [ ] shares of Preferred Stock designated as "Series A Junior Participating Preferred Stock": RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of the Restated Certificate of Incorporation, a series of Preferred Stock, par value $.01 per share, of the Corporation be and hereby is created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: Series A Junior Participating Preferred Stock 1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as "Series A Junior Participating Preferred Stock" (the " Series A Preferred Stock "), and the number of shares constituting such series shall be [ ]. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of shares of Series A Common Stock, par value $.01 per share, of the Corporation (" Series A Common Stock "), Series B Common Stock, par value $.01 per share, of the Corporation (" Series B Common Stock ") and Series C Common Stock, par value $.01, of the Corporation (" Series C Common Stock," and collectively with the Series A Common Stock and Series B Common Stock, the " Common Stock ") and of any class or series of any other stock of the Corporation ranking junior to the Series A Preferred Stock in respect thereof, and on a pari passu basis with the Series B Junior Participating Preferred Stock, par value $.01 per share, of the Corporation (the " Series B Preferred Stock ") and the Series C Junior Participating Preferred Stock, par value $.01 per share, of the Corporation (the " Series C Preferred Stock ", and collectively with the Series A and Series B Preferred Stock, the " Preferred Stock "), shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose,

90 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 34 File: DISK015:[05DEN5.05DEN1445]FI1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: A-2 User: MBRADT EFW: Doc # 6 quarterly dividends payable in cash on the last day of March, June, September and December, in each year (each such date being referred to herein as a " Quarterly Dividend Payment Date "), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Series A Common Stock or a subdivision of the outstanding shares of Series A Common Stock (by reclassification or otherwise), declared on the Series A Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. The " Adjustment Number " shall initially be In the event the Corporation shall at any time after [ ], 2005 (i) declare and pay any dividend on Series A Common Stock payable in shares of Series A Common Stock, (ii) subdivide the outstanding Series A Common Stock or (iii) combine the outstanding Series A Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Series A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Series A Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Series A Common Stock (other than a dividend payable in shares of Series A Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Each share of Series A Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number times the number of votes which each share of Series A Common Stock is entitled to vote, on all matters upon which the holders of the Series A Common Stock are entitled to vote. (B) Except as otherwise provided herein, in the Restated Certificate of Incorporation or in any other Certificate of Designation creating a series of preferred stock or any similar stock, and except as otherwise required by law, the holders of shares of Series A Preferred Stock and the

91 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 35 File: DISK015:[05DEN5.05DEN1445]FI1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: A-3 User: MBRADT EFW: Doc # 6 holders of shares of Series A Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of the stockholders of the Corporation. (C) Except as required by law and by Section 10 hereof, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Series A Common Stock as set forth herein) for taking any corporate action. 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (including, without limitation, the redemption of any such parity stock), except (x) in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes and (y) that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock (other than any shares of Series B or Series C Preferred Stock) in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock or rights, warrants or options to acquire such junior stock. (D) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless,

92 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 36 File: DISK015:[05DEN5.05DEN1445]FI1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: A-4 User: MBRADT EFW: Doc # 6 prior thereto, the holders of shares of Series A Preferred Stock shall have received an amount per share (the " Series A Liquidation Preference ") equal to the greater of (i) $10.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash and other property to be distributed in respect of the Series A Common Stock upon such liquidation, dissolution or winding up of the Corporation. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series A Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. (C) Neither the merger or consolidation of the Corporation into or with another entity nor the merger or consolidation of any other entity into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the outstanding shares of Series A Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Series A Common Stock is changed or exchanged. 8. No Redemption. Shares of Series A Preferred Stock shall not be subject to redemption by the Corporation. 9. Ranking. The Series A Preferred Stock shall rank with respect to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, pari passu with the Series B and Series C Preferred Stock, junior to all other series of preferred stock unless the terms of any such series shall provide otherwise, and senior to any class or series of common stock of the Corporation. 10. Amendment. At any time that any shares of Series A Preferred Stock are outstanding, the Certificate of Incorporation of the Corporation shall not be amended, by merger, consolidation or otherwise, which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Preferred Stock, voting separately as a class. 11. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. IN WITNESS WHEREOF, the undersigned has executed this Certificate this day of, DISCOVERY HOLDING COMPANY By: Name: Title:

93 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 37 File: DISK015:[05DEN5.05DEN1445]FK1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: B-1 User: MBRADT EFW: Doc # 6 FORM OF CERTIFICATE OF DESIGNATION of SERIES B JUNIOR PARTICIPATING PREFERRED STOCK of DISCOVERY HOLDING COMPANY Pursuant to Section 151 of the General Corporation Law of the State of Delaware Exhibit B Discovery Holding Company, a corporation organized and existing under the General Corporation Law of the State of Delaware (the " Corporation "), in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors of the Corporation (the " Board of Directors ") in accordance with the provisions of the Certificate of Incorporation of the said Corporation, the said Board of Directors on [ ], 2005 adopted the following resolution creating a series of [ ] shares of Preferred Stock designated as "Series B Junior Participating Preferred Stock": RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of the Restated Certificate of Incorporation, a series of Preferred Stock, par value $.01 per share, of the Corporation be and hereby is created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: Series B Junior Participating Preferred Stock 1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as "Series B Junior Participating Preferred Stock" (the " Series B Preferred Stock "), and the number of shares constituting such series shall be [ ]. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series B Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of shares of Series A Common Stock, par value $.01 per share, of the Corporation (" Series A Common Stock "), Series B Common Stock, par value $.01 per share, of the Corporation (" Series B Common Stock ") and Series C Common Stock, par value $.01, of the Corporation (" Series C Common Stock," collectively with the Series A Common Stock and Series B Common Stock, the " Common Stock ") and of any class or series of any other stock of the Corporation ranking junior to the Series B Preferred Stock in respect thereof, and on a pari passu basis with the Series A Junior Participating Preferred Stock, par value $.01 per share, of the Corporation (the " Series A Preferred Stock ") and the Series C Junior Participating Preferred Stock, par value $.01 per share, of the Corporation (the " Series C Preferred Stock," and collectively with the Series A and Series B Preferred Stock, the " Preferred Stock "), shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly

94 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 38 File: DISK015:[05DEN5.05DEN1445]FK1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: B-2 User: MBRADT EFW: Doc # 6 dividends payable in cash on the last day of March, June, September and December, in each year (each such date being referred to herein as a " Quarterly Dividend Payment Date "), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Series B Common Stock or a subdivision of the outstanding shares of Series B Common Stock (by reclassification or otherwise), declared on the Series B Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Preferred Stock. The " Adjustment Number " shall initially be In the event the Corporation shall at any time after [ ], 2005 (i) declare and pay any dividend on Series B Common Stock payable in shares of Series B Common Stock, (ii) subdivide the outstanding Series B Common Stock or (iii) combine the outstanding Series B Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Series B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Series B Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series B Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Series B Common Stock (other than a dividend payable in shares of Series B Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series B Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series B Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series B Preferred Stock shall have the following voting rights: (A) Each share of Series B Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number times the number of votes which each share of Series B Common Stock is entitled to vote, on all matters upon which the holders of the Series B Common Stock are entitled to vote. (B) Except as otherwise provided herein, in the Restated Certificate of Incorporation or in any other Certificate of Designation creating a series of preferred stock or any similar stock, and except as otherwise required by law, the holders of shares of Series B Preferred Stock and the

95 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 39 File: DISK015:[05DEN5.05DEN1445]FK1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: B-3 User: MBRADT EFW: Doc # 6 holders of shares of Series B Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of the stockholders of the Corporation. (C) Except as required by law and by Section 10 hereof, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Series B Common Stock as set forth herein) for taking any corporate action. 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, or any shares of stock ranking on a parity with the Series B Preferred Stock (including, without limitation, the redemption of any such parity stock), except (x) in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series B Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes and (y) that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock (other than any shares of Series A or Series C Preferred Stock) in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series B Preferred Stock or rights, warrants or options to acquire such junior stock. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock unless,

96 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 40 File: DISK015:[05DEN5.05DEN1445]FK1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: B-4 User: MBRADT EFW: Doc # 6 prior thereto, the holders of shares of Series B Preferred Stock shall have received an amount per share (the " Series B Liquidation Preference ") equal to the greater of (i) $10.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash and other property to be distributed in respect of the Series B Common Stock upon such liquidation, dissolution or winding up of the Corporation. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series B Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series B Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series B Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. (C) Neither the merger or consolidation of the Corporation into or with another entity nor the merger or consolidation of any other entity into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the outstanding shares of Series B Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series B Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Series B Common Stock is changed or exchanged. 8. No Redemption. Shares of Series B Preferred Stock shall not be subject to redemption by the Corporation. 9. Ranking. The Series B Preferred Stock shall rank with respect to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, pari passu with the Series A and Series C Preferred Stock, junior to all other series of preferred stock unless the terms of any such series shall provide otherwise, and senior to any class or series of common stock of the Corporation. 10. Amendment. At any time that any shares of Series B Preferred Stock are outstanding, the Certificate of Incorporation of the Corporation shall not be amended, by merger, consolidation or otherwise, which would materially alter or change the powers, preferences or special rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series B Preferred Stock, voting separately as a class. 11. Fractional Shares. Series B Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Preferred Stock. IN WITNESS WHEREOF, the undersigned has executed this Certificate this day of, DISCOVERY HOLDING COMPANY By: Name: Title:

97 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 41 File: DISK015:[05DEN5.05DEN1445]FM1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: C-1 User: MBRADT EFW: Doc # 6 FORM OF CERTIFICATE OF DESIGNATION of SERIES C JUNIOR PARTICIPATING PREFERRED STOCK of DISCOVERY HOLDING COMPANY Pursuant to Section 151 of the General Corporation Law of the State of Delaware Exhibit C Discovery Holding Company, a corporation organized and existing under the General Corporation Law of the State of Delaware (the " Corporation "), in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors of the Corporation (the " Board of Directors ") in accordance with the provisions of the Certificate of Incorporation of the said Corporation, the said Board of Directors on [ ], 2005 adopted the following resolution creating a series of [ ] shares of Preferred Stock designated as "Series C Junior Participating Preferred Stock": RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of the Restated Certificate of Incorporation, a series of Preferred Stock, par value $.01 per share, of the Corporation be and hereby is created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: Series C Junior Participating Preferred Stock 1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as "Series C Junior Participating Preferred Stock" (the " Series C Preferred Stock "), and the number of shares constituting such series shall be [ ]. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series C Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series C Preferred Stock with respect to dividends, the holders of shares of Series C Preferred Stock, in preference to the holders of shares of Series A Common Stock, par value $.01 per share, of the Corporation (" Series A Common Stock "), Series B Common Stock, par value $.01 per share, of the Corporation (" Series B Common Stock ") and Series C Common Stock, par value $.01, of the Corporation (" Series C Common Stock," and collectively with the Series A Common Stock and Series B Common Stock, the " Common Stock ") and of any class or series of any other stock of the Corporation ranking junior to the Series C Preferred Stock in respect thereof, and on a pari passu basis with the Series A Junior Participating Preferred Stock, par value $.01 per share, of the Corporation (the " Series A Preferred Stock ") and the Series B Junior Participating Preferred Stock, par value $.01 per share, of the Corporation (the " Series B Preferred Stock," and collectively with the Series A and Series C Preferred Stock, the " Preferred Stock "), shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose,

98 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 42 File: DISK015:[05DEN5.05DEN1445]FM1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: C-2 User: MBRADT EFW: Doc # 6 quarterly dividends payable in cash on the last day of March, June, September and December, in each year (each such date being referred to herein as a " Quarterly Dividend Payment Date "), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series C Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Series C Common Stock or a subdivision of the outstanding shares of Series C Common Stock (by reclassification or otherwise), declared on the Series C Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series C Preferred Stock. The " Adjustment Number " shall initially be In the event the Corporation shall at any time after [ ], 2005 (i) declare and pay any dividend on Series C Common Stock payable in shares of Series C Common Stock, (ii) subdivide the outstanding Series C Common Stock or (iii) combine the outstanding Series C Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Series C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Series C Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series C Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Series C Common Stock (other than a dividend payable in shares of Series C Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series C Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series C Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series C Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series C Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series C Preferred Stock shall have the following voting rights: (A) Each share of Series C Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number times the number of votes which each share of Series C Common Stock is entitled to vote, on all matters upon which the holders of the Series C Common Stock are entitled to vote. (B) Except as otherwise provided herein, in the Restated Certificate of Incorporation or in any other Certificate of Designation creating a series of preferred stock or any similar stock, and except as otherwise required by law, the holders of shares of Series C Preferred Stock and the

99 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 43 File: DISK015:[05DEN5.05DEN1445]FM1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: C-3 User: MBRADT EFW: Doc # 6 holders of shares of Series C Common Stock shall vote together as one class on all matters which the holders of Series C Common Stock are entitled to vote. (C) Except as required by law and by Section 10 hereof, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Series C Common Stock as set forth herein) for taking any corporate action. 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series C Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series C Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except dividends paid ratably on the Series C Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) purchase or otherwise acquire for consideration any shares of Series C Preferred Stock, or any shares of stock ranking on a parity with the Series C Preferred Stock (including, without limitation, the redemption of any such parity stock), except (x) in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series C Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes and (y) that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock (other than any shares of Series A or Series B Preferred Stock) in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series C Preferred Stock or rights, warrants or options to acquire such junior stock. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series C Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock unless, prior thereto, the holders of shares of Series C Preferred Stock shall have received an amount per

100 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 44 File: DISK015:[05DEN5.05DEN1445]FM1445A.;6 Created: 24-JUN-2005;15:30 Chksum: Folio: C-4 User: MBRADT EFW: Doc # 6 share (the " Series C Liquidation Preference ") equal to the greater of (i) $10.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash and other property to be distributed in respect of the Series C Common Stock upon such liquidation, dissolution or winding up of the Corporation. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series C Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series C Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series C Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. (C) Neither the merger or consolidation of the Corporation into or with another entity nor the merger or consolidation of any other entity into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the outstanding shares of Series C Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series C Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Series C Common Stock is changed or exchanged. 8. No Redemption. Shares of Series C Preferred Stock shall not be subject to redemption by the Corporation. 9. Ranking. The Series C Preferred Stock shall rank with respect to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, pari passu with the Series A and Series B Preferred Stock, junior to all other series of preferred stock unless the terms of any such series shall provide otherwise, and senior to any class or series of common stock of the Corporation. 10. Amendment. At any time that any shares of Series C Preferred Stock are outstanding, the Certificate of Incorporation of the Corporation shall not be amended, by merger, consolidation or otherwise, which would materially alter or change the powers, preferences or special rights of the Series C Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series C Preferred Stock, voting separately as a class. 11. Fractional Shares. Series C Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series C Preferred Stock. IN WITNESS WHEREOF, the undersigned has executed this Certificate this day of, DISCOVERY HOLDING COMPANY By: Name: Title:

101 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 45 File: DISK015:[05DEN5.05DEN1445]FO1445A.;7 Created: 21-JUN-2005;19:57 Chksum: Folio: D-1 User: BSKELLE EFW: Doc # 6 Certificate No. R- Form of Series A Right Certificate Exhibit D NOT EXERCISABLE AFTER [ ], 2015 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE SERIES A RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER SERIES A RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SERIES A RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. SERIES A RIGHT CERTIFICATE DISCOVERY HOLDING COMPANY This certifies that or registered assigns, is the registered owner of the number of Series A Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of [ ], 2005, as the same may be amended from time to time (the " Rights Agreement "), between Discovery Holding Company, a Delaware corporation (the " Company "), and EquiServe Trust Company, N.A., as Rights Agent (the " Rights Agent "), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on [ ], 2015 at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock, par value $.01 per share (the " Series A Preferred Stock "), of the Company at a purchase price of $100 per one one-thousandth of a share of Preferred Stock (the " Purchase Price "), upon presentation and surrender of this Series A Right Certificate with the Form of Election to Purchase duly executed. The number of Series A Rights evidenced by this Series A Rights Certificate (and the number of one-thousandths of a share of Series A Preferred Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of [ ], 2005, based on the Series A Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price, the number of one-thousandths of a share of Series A Preferred Stock (or other securities or property) which may be purchased upon the exercise of the Series A Rights and the number of Series A Rights evidenced by this Series A Right Certificate are subject to modification and adjustment upon the happening of certain events. This Series A Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Series A Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this Series A Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. This Series A Right Certificate, with or without other Series A Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another Series A Right Certificate or Series A Right Certificates of like tenor and date evidencing Series A Rights entitling the holder to purchase a like aggregate number of shares of Series A Preferred Stock

102 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 46 File: DISK015:[05DEN5.05DEN1445]FO1445A.;7 Created: 21-JUN-2005;19:57 Chksum: Folio: D-2 User: BSKELLE EFW: Doc # 6 as the Series A Rights evidenced by the Series A Right Certificate or Series A Right Certificates surrendered shall have entitled such holder to purchase. If this Series A Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Series A Right Certificate or Series A Right Certificates for the number of whole Series A Rights not exercised. Subject to the provisions of the Rights Agreement, the Series A Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Series A Right or (ii) may be exchanged in whole or in part for shares of the Company's Series A Common Stock, par value $.01 per share (" Series A Common Stock "), or shares of Series A Preferred Stock. No fractional shares of Series A Preferred Stock or Series A Common Stock will be issued upon the exercise or exchange of any Series A Right or Series A Rights evidenced hereby (other than fractions of Series A Preferred Stock which are integral multiples of one one-thousandth of a share of Series A Preferred Stock, which may, at the election of the Company, be evidenced by depository receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Series A Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Series A Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise or exchange hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or otherwise, until the Series A Right or Series A Rights evidenced by this Right Certificate shall have been exercised or exchanged as provided in the Rights Agreement. This Series A Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of, 200. DISCOVERY HOLDING COMPANY By: [Title] ATTEST: [Title] Countersigned: By [Title], as Rights Agent

103 Printed: 24-Jun-2005;20:03:29 (v.162) HTML Page: 47 File: DISK015:[05DEN5.05DEN1445]FO1445A.;7 Created: 21-JUN-2005;19:57 Chksum: Folio: D-3 User: BSKELLE EFW: Doc # 6 Form of Reverse Side of Series A Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Series A Right Certificate) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) Series A Rights represented by this Series A Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer said Rights on the books of the within-named Company, with full power of substitution. Dated: Signature Guaranteed: Signature Signatures must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program. (To be completed) The undersigned hereby certifies that the Series A Rights evidenced by this Series A Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being assigned to an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). Signature

104 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 48 File: DISK015:[05DEN5.05DEN1445]FO1445A.;7 Created: 21-JUN-2005;19:57 Chksum: Folio: D-4 User: BSKELLE EFW: Doc # 6 To DISCOVERY HOLDING COMPANY: Form of Reverse Side of Series A Right Certificate continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Series A Rights represented by the Series A Rights Certificate) The undersigned hereby irrevocably elects to exercise Series A Rights represented by this Series A Right Certificate to purchase the shares of Series A Preferred Stock (or other securities or property) issuable upon the exercise of such Series A Rights and requests that certificates for such shares of Series A Preferred Stock (or such other securities) be issued in the name of: (Please print name and address) If such number of Series A Rights shall not be all the Series A Rights evidenced by this Series A Right Certificate, a new Series A Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number (Please print name and address) Dated: Signature Guaranteed: (Signature must conform to holder specified on Right Certificate) Signature Signature must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program.

105 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 49 File: DISK015:[05DEN5.05DEN1445]FO1445A.;7 Created: 21-JUN-2005;19:57 Chksum: Folio: D-5 User: BSKELLE EFW: Doc # 6 Form of Reverse Side of Series A Right Certificate continued (To be completed) The undersigned certifies that the Series A Rights evidenced by this Series A Right Certificate are not beneficially owned by, and were not acquired by the undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). NOTICE Signature The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Series A Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to Purchase will not be honored.

106 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 50 File: DISK015:[05DEN5.05DEN1445]FQ1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: E-1 User: BSKELLE EFW: Doc # 6 Certificate No. R- Form of Series B Right Certificate Exhibit E NOT EXERCISABLE AFTER [ ], 2015 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE SERIES B RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SERIES B RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. SERIES B RIGHT CERTIFICATE DISCOVERY HOLDING COMPANY This certifies that or registered assigns, is the registered owner of the number of Series B Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of [ ], 2005, as the same may be amended from time to time (the " Rights Agreement "), between Discovery Holding Company, a Delaware corporation (the " Company "), and EquiServe Trust Company, N.A., as Rights Agent (the " Rights Agent "), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on [ ], 2015 at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series B Junior Participating Preferred Stock, par value $.01 per share (the " Series B Preferred Stock "), of the Company at a purchase price of $100 per one one-thousandth of a share of Preferred Stock (the " Purchase Price "), upon presentation and surrender of this Series B Right Certificate with the Form of Election to Purchase duly executed. The number of Series B Rights evidenced by this Series B Rights Certificate (and the number of one-thousandths of a share of Series B Preferred Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of [ ], 2005, based on the Series B Junior Participating Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price, the number of one-thousandths of a share of Series B Preferred Stock (or other securities or property) which may be purchased upon the exercise of the Series B Rights and the number of Series B Rights evidenced by this Series B Right Certificate are subject to modification and adjustment upon the happening of certain events. This Series B Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Series B Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this Series B Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. This Series B Right Certificate, with or without other Series B Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another Series B Right Certificate or Series B Right Certificates of like tenor and date evidencing Series B

107 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 51 File: DISK015:[05DEN5.05DEN1445]FQ1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: E-2 User: BSKELLE EFW: Doc # 6 Rights entitling the holder to purchase a like aggregate number of shares of Series B Preferred Stock as the Series B Rights evidenced by the Series B Right Certificate or Series B Right Certificates surrendered shall have entitled such holder to purchase. If this Series B Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Series B Right Certificate or Series B Right Certificates for the number of whole Series B Rights not exercised. Subject to the provisions of the Rights Agreement, the Series B Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Series B Right or (ii) may be exchanged in whole or in part for shares of the Company's Series B Common Stock, par value $.01 per share (" Series B Common Stock "), or shares of Series B Preferred Stock. No fractional shares of Series B Preferred Stock or Series B Common Stock will be issued upon the exercise or exchange of any Series B Right or Series B Rights evidenced hereby (other than fractions of Series B Preferred Stock which are integral multiples of one one-thousandth of a share of Series B Preferred Stock, which may, at the election of the Company, be evidenced by depository receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Series B Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Series B Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise or exchange hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or otherwise, until the Series B Right or Series B Rights evidenced by this Right Certificate shall have been exercised or exchanged as provided in the Rights Agreement. This Series B Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of, 200. DISCOVERY HOLDING COMPANY By: [Title] ATTEST: [Title] Countersigned: By [Title], as Rights Agent

108 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 52 File: DISK015:[05DEN5.05DEN1445]FQ1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: E-3 User: BSKELLE EFW: Doc # 6 Form of Reverse Side of Series B Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Series B Right Certificate) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) Series B Rights represented by this Series B Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer said Rights on the books of the within-named Company, with full power of substitution. Dated: Signature Guaranteed: Signature Signatures must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program. (To be completed) The undersigned hereby certifies that the Series B Rights evidenced by this Series B Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being assigned to an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). Signature

109 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 53 File: DISK015:[05DEN5.05DEN1445]FQ1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: E-4 User: BSKELLE EFW: Doc # 6 To DISCOVERY HOLDING COMPANY: Form of Reverse Side of Series B Right Certificate continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Series B Rights represented by the Series B Rights Certificate) The undersigned hereby irrevocably elects to exercise Series B Rights represented by this Series B Right Certificate to purchase the shares of Series B Preferred Stock (or other securities or property) issuable upon the exercise of such Series B Rights and requests that certificates for such shares of Series B Preferred Stock (or such other securities) be issued in the name of: (Please print name and address) If such number of Series B Rights shall not be all the Series B Rights evidenced by this Series B Right Certificate, a new Series B Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number (Please print name and address) Dated: Signature Guaranteed: (Signature must conform to holder specified on Right Certificate) Signature Signature must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program.

110 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 54 File: DISK015:[05DEN5.05DEN1445]FQ1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: E-5 User: BSKELLE EFW: Doc # 6 Form of Reverse Side of Series B Right Certificate continued (To be completed) The undersigned certifies that the Series B Rights evidenced by this Series B Right Certificate are not beneficially owned by, and were not acquired by the undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). NOTICE Signature The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Series B Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to Purchase will not be honored.

111 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 55 File: DISK015:[05DEN5.05DEN1445]FS1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: F-1 User: BSKELLE EFW: Doc # 6 Certificate No. R- Form of Series C Right Certificate Exhibit F NOT EXERCISABLE AFTER [ ], 2015 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE SERIES C RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SERIES C RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. SERIES C RIGHT CERTIFICATE DISCOVERY HOLDING COMPANY This certifies that or registered assigns, is the registered owner of the number of Series C Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of [ ], 2005, as the same may be amended from time to time (the " Rights Agreement "), between Discovery Holding Company, a Delaware corporation (the " Company "), and EquiServe Trust Company, N.A., as Rights Agent (the " Rights Agent "), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on [ ], 2015 at the office or agency of the Rights Agent designated for such purpose, or of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series C Junior Participating Preferred Stock, par value $.01 per share (the " Series C Preferred Stock "), of the Company at a purchase price of $100 per one one-thousandth of a share of Preferred Stock (the " Purchase Price "), upon presentation and surrender of this Series C Right Certificate with the Form of Election to Purchase duly executed. The number of Series C Rights evidenced by this Series C Rights Certificate (and the number of one-thousandths of a share of Series C Preferred Stock which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of [ ], 2005, based on the Series C Preferred Stock as constituted at such date. As provided in the Rights Agreement, the Purchase Price, the number of one-thousandths of a share of Series C Preferred Stock (or other securities or property) which may be purchased upon the exercise of the Series C Rights and the number of Series C Rights evidenced by this Series C Right Certificate are subject to modification and adjustment upon the happening of certain events. This Series C Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Series C Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned office or agency of the Rights Agent. The Company will mail to the holder of this Series C Right Certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. This Series C Right Certificate, with or without other Series C Right Certificates, upon surrender at the office or agency of the Rights Agent designated for such purpose, may be exchanged for another Series C Right Certificate or Series C Right Certificates of like tenor and date evidencing Series C Rights entitling the holder to purchase a like aggregate number of shares of Series C Preferred Stock

112 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 56 File: DISK015:[05DEN5.05DEN1445]FS1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: F-2 User: BSKELLE EFW: Doc # 6 as the Series C Rights evidenced by the Series C Right Certificate or Series C Right Certificates surrendered shall have entitled such holder to purchase. If this Series C Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Series C Right Certificate or Series C Right Certificates for the number of whole Series C Rights not exercised. Subject to the provisions of the Rights Agreement, the Series C Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Series C Right or (ii) may be exchanged in whole or in part for shares of the Company's Series C Common Stock, par value $.01 per share (" Series C Common Stock "), or shares of Series C Preferred Stock. No fractional shares of Series C Preferred Stock or Series C Common Stock will be issued upon the exercise or exchange of any Series C Right or Series C Rights evidenced hereby (other than fractions of Series C Preferred Stock which are integral multiples of one one-thousandth of a share of Series C Preferred Stock, which may, at the election of the Company, be evidenced by depository receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Series C Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Series C Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise or exchange hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement) or to receive dividends or subscription rights, or otherwise, until the Series C Right or Series C Rights evidenced by this Right Certificate shall have been exercised or exchanged as provided in the Rights Agreement. This Series C Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of, 200. DISCOVERY HOLDING COMPANY By: [Title] ATTEST: [Title] Countersigned: By [Title], as Rights Agent

113 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 57 File: DISK015:[05DEN5.05DEN1445]FS1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: F-3 User: BSKELLE EFW: Doc # 6 Form of Reverse Side of Series C Right Certificate FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Series C Right Certificate) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) Series C Rights represented by this Series C Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer said Rights on the books of the within-named Company, with full power of substitution. Dated: Signature Guaranteed: Signature Signatures must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program. (To be completed) The undersigned hereby certifies that the Series C Rights evidenced by this Series C Right Certificate are not beneficially owned by, were not acquired by the undersigned from, and are not being assigned to an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). Signature

114 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 58 File: DISK015:[05DEN5.05DEN1445]FS1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: F-4 User: BSKELLE EFW: Doc # 6 To DISCOVERY HOLDING COMPANY: Form of Reverse Side of Series C Right Certificate continued FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Series C Rights represented by the Series C Rights Certificate) The undersigned hereby irrevocably elects to exercise Series C Rights represented by this Series C Right Certificate to purchase the shares of Series C Preferred Stock (or other securities or property) issuable upon the exercise of such Series C Rights and requests that certificates for such shares of Series C Preferred Stock (or such other securities) be issued in the name of: (Please print name and address) If such number of Series C Rights shall not be all the Series C Rights evidenced by this Series C Right Certificate, a new Series C Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number (Please print name and address) Dated: Signature Guaranteed: (Signature must conform to holder specified on Right Certificate) Signature Signature must be guaranteed by a bank, trust company, broker, dealer or other eligible institution participating in a recognized signature guarantee medallion program.

115 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 59 File: DISK015:[05DEN5.05DEN1445]FS1445A.;5 Created: 21-JUN-2005;19:57 Chksum: Folio: F-5 User: BSKELLE EFW: Doc # 6 Form of Reverse Side of Series C Right Certificate continued (To be completed) The undersigned certifies that the Series C Rights evidenced by this Series C Right Certificate are not beneficially owned by, and were not acquired by the undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). NOTICE Signature The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written upon the face of this Series C Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, such Assignment or Election to Purchase will not be honored.

116 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 60 File: DISK015:[05DEN5.05DEN1445]FU1445A.;6 Created: 24-JUN-2005;15:44 Chksum: Folio: G-1 User: MBRADT EFW: Doc # 6 Exhibit G UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. SUMMARY OF RIGHTS TO PURCHASE SHARES OF PREFERRED STOCK OF DISCOVERY HOLDING COMPANY On [DATE], the Board of Directors of Discovery Holding Company (the " Company ") declared a dividend of preferred share purchase rights to holders of the Company's Common Stock of record as of the close of business on [RECORD DATE] (the " Record Date "). The dividend consisted of one Series A Right for each share of Series A Common Stock outstanding on the Record Date, and one Series B Right for each share of Series B Common Stock outstanding on the Record Date. Each Series A Right represents the right to purchase 1/1000th of a share of the Company's Series A Junior Participating Preferred Stock, par value $.01 per share (the " Series A Preferred Stock "), and each Series B Right represents the right to purchase 1/1000th of a share of the Company's Series B Junior Participating Preferred Stock, par value $.01 per share (the " Series B Preferred Stock "). In the event that shares of Series C Common Stock are issued, each share of Series C Common Stock will be issued together with one Series C Right (collectively with the Series A Rights and the Series B Rights, the " Rights "), which Series C Right will represent the right to purchase 1/1000th of a share of the Company's Series C Junior Participating Preferred Stock, par value $.01 per share (the " Series C Preferred Stock " and collectively with the Series A Preferred Stock and the Series B Preferred Stock, the " Preferred Stock "). The description and terms of the Rights are set forth in a Rights Agreement, dated as of [ ], 2005, as the same may be amended from time to time (the " Rights Agreement "), between the Company and EquiServe Trust Company, N.A., as Rights Agent (the " Rights Agent "). Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (with certain exceptions, an " Acquiring Person ") has acquired beneficial ownership of 10% or more of the outstanding shares of Common Stock or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors of the Company prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 10% or more of the outstanding shares of Common Stock (the earlier of such dates being called the " Distribution Date "), the Rights will be evidenced, with respect to any of the Common Stock certificates outstanding as of the Record Date, by such Common Stock certificate together with this Summary of Rights, or in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock. The Rights Agreement defines "group" to mean any group within the meaning of Section 13(d)(3) of the Securities Exchange Act of In addition, the stockholders of Discovery Communications, Inc. ("DCI") (other than the Company or any of its subsidiaries), each Affiliate or Associate of any such stockholder, any other Person that has any agreement, arrangement or understanding with any such stockholder (or with any Affiliate or Associate of any such stockholder) for the purpose of acquiring, holding, voting (subject to a limited exception) or disposing of any equity securities of DCI, and each Affiliate or Associate of any such person, shall together constitute a "group" for purposes of the Rights Agreement.

117 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 61 File: DISK015:[05DEN5.05DEN1445]FU1445A.;6 Created: 24-JUN-2005;15:44 Chksum: Folio: G-2 User: MBRADT EFW: Doc # 6 The Rights Agreement provides that, until the Distribution Date (or earlier expiration of the Rights), the Rights will be transferred with and only with the Common Stock. Until the Distribution Date (or earlier expiration of the Rights), new Common Stock certificates issued after the Record Date upon transfer or new issuances of Common Stock will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier expiration of the Rights), the transfer of any shares of Common Stock outstanding as of the Record Date, even without such notation or a copy of this Summary of Rights, will also constitute the transfer of the Rights associated with such shares of Common Stock. As soon as practicable following the Distribution Date, separate certificates evidencing the Series A Rights (" Series A Right Certificates "), the Series B Rights (" Series B Rights Certificates ") and the Series C Rights (" Series C Rights Certificates " and, collectively with the Series A Right Certificates and the Series B Right certificates, the " Right Certificates ") will be mailed to holders of record of the Series A Common Stock, the Series B Common Stock and the Series C Common Stock, respectively, as of the close of business on the Distribution Date, and thereafter such separate Rights Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on [, 2015] (the " Final Expiration Date "), unless the Final Expiration Date is advanced or extended or unless the Rights are earlier redeemed or exchanged by the Company, in each case as described below. The Purchase Price payable to exercise the Rights, and the number of shares of Preferred Stock or other securities or property issuable upon any such exercise are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights, options or warrants to subscribe for or purchase Preferred Stock at a price, or securities convertible into Preferred Stock with a conversion price, less than the then-current market price of the Preferred Stock or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in Preferred Stock) or of subscription rights or warrants (other than those referred to above). The number of outstanding Rights is subject to adjustment in the event of a stock dividend on the Common Stock payable in shares of Common Stock or subdivisions, consolidations or combinations of the Common Stock occurring, in any such case, prior to the Distribution Date. Shares of Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Preferred Stock will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of the greater of (a) $10.00 per share of Preferred Stock, and (b) an amount per share of Preferred Stock equal to 1000 times the dividend declared per share of the applicable series of Common Stock. In the event of liquidation, dissolution or winding up of the Company, the holders of the Preferred Stock will be entitled to a minimum preferential payment of the greater of (a) $10.00 per share (plus any accrued but unpaid dividends), and (b) an amount equal to 1000 times the payment made per share of the applicable series of Common Stock. Each share of Preferred Stock will have 1000 times the number of votes each share of the applicable series of Common Stock has on matters such series is entitled to vote on, which shall be voted together with the applicable series of Common Stock (and, accordingly, the Series C Preferred Stock, like the Series C Common Stock, will not ordinarily have any voting power). Finally, in the event of any merger, consolidation or other transaction in which outstanding shares of Common Stock are converted or exchanged, each share of Preferred Stock will be entitled to receive 1000 times the amount received per share of the applicable series of Common Stock. These rights are protected by customary antidilution provisions. Because of the nature of the Preferred Stock's dividend, liquidation and voting rights, the value of the 1/1000th interest in a share of Preferred Stock purchasable upon exercise of each Series A Right,

118 Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: 62 File: DISK015:[05DEN5.05DEN1445]FU1445A.;6 Created: 24-JUN-2005;15:44 Chksum: Folio: G-3 User: MBRADT EFW: Doc # 6 Series B Right and Series C Right should approximate the value of one share of Series A Common Stock, Series B Common Stock and Series C Common Stock, respectively. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right that number of shares of Series A Common Stock (in the case of a Series A Right), Series B Common Stock (in the case of a Series B Right) or Series C Common Stock (in the case of a Series C Right), having a market value equal to two times the exercise price of the Right. In the event that, after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or 50% or more of its consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Right (other than Rights beneficially owned by an Acquiring Person, which will have become void) will thereafter have the right to receive upon the exercise of a Right that number of shares of common stock of the person with whom the Company has engaged in such transaction (or its parent) that at the time of such transaction have a market value of two times the exercise price of the Right. At any time after any person or group becomes an Acquiring Person and prior to the earlier of one of the events described in the previous paragraph or the acquisition by such Acquiring Person of shares of Common Stock representing 50% or more of the total number of votes entitled to be cast generally by the holders of the Common Stock then outstanding, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such Acquiring Person, which will have become void), in whole or in part, for shares of Common Stock or Preferred Stock (or a series of the Company's preferred stock having equivalent rights, preferences and privileges), at an exchange ratio of one share of Common Stock, or a fractional share of Preferred Stock (or other preferred stock) equivalent in value thereto, per Right. With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares of Preferred Stock or Common Stock will be issued (other than fractions of Preferred Stock which are integral multiples of 1/1000th of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), and in lieu thereof an adjustment in cash will be made based on the current market price of the Preferred Stock or the Common Stock. At any time prior to the time an Acquiring Person becomes such, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the " Redemption Price ") payable, at the option of the Company, in cash, shares of Common Stock or such other form of consideration as the Board of Directors of the Company shall determine. The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors of the Company in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. For so long as the Rights remain redeemable, the Company may, except with respect to the Redemption Price, amend the Rights Agreement in any manner. After the Rights are no longer redeemable, the Company may, except with respect to the Redemption Price, amend the Rights Agreement in any manner that does not adversely affect the interests of holders of the Rights. Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 10 (Registration No ). A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, as the same may be amended from time to time, which is hereby incorporated herein by reference.

119 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: Doc # 6 QuickLinks DISCOVERY HOLDING COMPANY and EquiServe Trust Company, N.A., as Rights Agent RIGHTS AGREEMENT Dated as of [ ], 2005

120 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: Doc # 6 </TEXT> </DOCUMENT>

121 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:31 (v.162) HTML Page: Doc # 7 <DOCUMENT> <TYPE> EX-10.1 <DESCRIPTION> Ex 10.1 <FILENAME> a zex-10_1.htm <TEXT>

122 File: DISK015:[05DEN5.05DEN1445]GA1445A.;9 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:31 (v.162) Created: 21-JUN-2005;19:57 Chksum: HTML Page: 1 Folio: BLANK Doc # 7 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.1 SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC. BY AND AMONG DISCOVERY COMMUNICATIONS, INC. COX DISCOVERY, INC. NEWCHANNELS TDC INVESTMENTS, INC. TCI CABLE EDUCATION, INC. JOHN S. HENDRICKS AND FOR PURPOSES OF SECTION 4.02 ONLY, DISCOVERY PROGRAMMING INVESTMENT, INC.

123 File: DISK015:[05DEN5.05DEN1445]GC1445A.;6 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:31 (v.162) Created: 21-JUN-2005;19:57 Chksum: TABLE OF CONTENTS HTML Page: 2 Folio: I Doc # 7 ARTICLE I DEFINITIONS 2 ARTICLE II MANAGEMENT AND VOTING RIGHTS Management of the Company Voting Rights Exclusive Agreement 6 ARTICLE III PROVISIONS GOVERNING OPERATIONS OF THE COMPANY Super-Majority Provisions Majority Provisions 9 ARTICLE IV COMMITMENTS OF THE PARTIES TO THE DISCOVERY CHANNEL Ownership of Similar Programming Services Carriage of The Discovery Channel 10 ARTICLE V ADDITIONAL CAPITAL Capital Contributions 12 ARTICLE VI RESTRICTIONS ON TRANSFERS Restrictions on Transfer; Permitted Transfers Right of First Refusal Appraisal Procedure Documents Delivered Upon Transfer Restrictions on Voting Stock Ownership Legend Special Provisions relating to Pledge Agreements 18 ARTICLE VII PREEMPTIVE RIGHTS 21 ARTICLE VIII TERMINATION OF CLOSE CORPORATION STATUS Cure Obligation; Indemnification Loss of Close Corporation Status Stockholder Vote on Close Corporation Status 22 ARTICLE IX ADDITIONAL PARTIES 23 ARTICLE X MISCELLANEOUS Further Assurances Parties in Interest Amendments Governing Law Severability Notices Counterparts Captions Complete Agreement Remedies Company Action Regarding Shares Effective Date; Termination Termination of Other Agreements Confidentiality 26 Page

124 File: DISK015:[05DEN5.05DEN1445]GC1445A.;6 User: BSKELLE EFW: SCHEDULE I Capital Stock Printed: 24-Jun-2005;20:03:32 (v.162) Created: 21-JUN-2005;19:57 Chksum: SCHEDULE HTML Page: 3 Folio: II Doc # 7

125 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:32 (v.162) Created: 21-JUN-2005;19:58 Chksum: SHAREHOLDERS AGREEMENT HTML Page: 4 Folio: BLANK Doc # 7 This SHAREHOLDERS AGREEMENT made as of November 30, 1991 (the "Agreement") by and among Discovery Communications, Inc., a Delaware corporation (the "Company", which term shall include CEN, as the predecessor in interest of the Company), Cox Discovery, Inc., a Delaware corporation ("Cox"), NewChannels TDC Investments, Inc., a New York corporation ("NewChannels"), TCI Cable Education, Inc., a Colorado corporation ("TCID"), John S. Hendricks ("Hendricks") (Cox, NewChannels, TCID, and Hendricks and their permitted assignees and transferees (other than an assignee or transferee of Shares pursuant to the exercise of a remedy by the Agent or the Banks under a Pledge Agreement which assignee or transferee is not a party hereto) are referred to herein collectively as the "Stockholders" and individually as a "Stockholder") and for purposes of Section 4.02 only, Discovery Programming Investment, Inc. ("United"). R E C I T A L S WHEREAS, the Company is organized as a close corporation managed by its Stockholders rather than a board of directors under the General Corporation Law of the State of Delaware; WHEREAS, the authorized capital stock of the Company consists of One Hundred Thousand (100,000) shares of common stock, par value of one cent ($0.01) per share (the "Capital Stock"). WHEREAS, each of the Stockholders owns the number of shares of Capital Stock set forth opposite the name of such Stockholder on Schedule I; WHEREAS, the parties have determined that it is in the best interests of the Company and the Stockholders to impose certain restrictions on the disposition and transfer of the Capital Stock, to create certain rights of purchase and sale with respect thereto, and to provide for the continuity and stability of the business and policies of the Company. NOW, THEREFORE, based upon the foregoing and the mutual covenants herein contained and other good and valuable consideration, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS As used herein, capitalized terms shall have the meanings ascribed to them below or elsewhere in this Agreement (terms defined in the singular shall have the same meanings when used in the plural and vice versa ): " Affiliate " shall mean, with respect to any Stockholder, a Person (other than the Company) that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Stockholder. For purposes of this definition, "control" shall mean (i) the ownership, directly or indirectly, of equity securities or other ownership interest in a Person by another Person which represents more than fifty percent (50%) of the voting power of such Person or (ii) the power to direct or cause the direction of the management and policies of a Person whether by contract or otherwise. " Affiliation Agreement " shall mean an agreement pursuant to which the Company licenses a Cable System to carry The Discovery Channel. " Agent " shall have the meaning set forth in Section 6.07(a). " Agreement " shall mean this Shareholders Agreement and Schedule I attached hereto, as they may be amended or supplemented pursuant to the terms hereof. " Annual Business Plan " shall mean for any fiscal year of the Company, a comprehensive statement of the objectives and projections of the Company (including its Subsidiaries) with respect to the operations of its business, including without limitation, objectives and projections concerning capital

126 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 2 User: BSKELLE EFW: Doc # 7 expenditures, cable television programming developments, license fees, subscriber discounts, revenues, and expenses. " Banks " shall have the meaning set forth in Section 6.07(a). " Cable System " shall mean a cable television system of any of the MSOs or any Affiliate thereof. " Capital Stock " is as defined in the recitals to this Agreement. " Capitalized Lease Obligations " of any Person shall mean any obligations to pay rent or other amounts under a lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. " Cash Flow " shall mean for any Person, for any period, gross operating revenues of such Person and any Entities required to be consolidated with such Person on a financial statement in accordance with GAAP (the "Consolidated Group") for such period derived in the ordinary course of business from continuing operations minus all operating expenses from continuing operations of such Consolidated Group for such period, including, without limitation, technical, programming, selling, advertising, general and administrative expenses and corporate overhead incurred to the extent deducted in calculating operating income by such Consolidated Group during such period and all income taxes paid, but excluding depreciation, amortization, deferred taxes and other non-cash charges and interest expense, all the foregoing otherwise being determined in accordance with GAAP. Interest income, extraordinary items and gains or losses on sales or dispositions of property shall be excluded from the calculation of Cash Flow. In the event of a sale, transfer or other disposition of any asset by any member of the Consolidated Group during any period, Cash Flow shall be adjusted (a) to give effect to such sale, transfer or other disposition by excluding from Cash Flow the actual cash flow derived from such asset as if such sale, transfer or other disposition occurred on the first day of such period, and (b) by adding to Cash Flow all sale, transfer and other disposition-related operating expenses incurred by such member in connection with the sale, transfer or other disposition of such asset. In the event of an acquisition of any asset by any member of the Consolidated Group during any period, Cash Flow shall be adjusted (a) to give effect to such acquisition by including in Cash Flow the actual cash flow derived from such asset as if such acquisition occurred on the first day of such period, and (b) by adding to Cash Flow all acquisition-related operating expenses incurred by such member in connection with the acquisition of such asset. " CEN " shall mean Cable Educational Network, Inc., a Maryland corporation and the predecessor in interest of the Company. " Company " is as defined in the preamble to this Agreement. " Company Convertible Securities " means any securities convertible into or exchangeable for Capital Stock or any other equity securities of the Company, including any options, warrants or other rights to purchase or otherwise acquire any of the foregoing. " Convertible Securities " means any securities convertible into or exchangeable for Capital Stock or any other equity securities of the Company or any of its Subsidiaries, including any options, warrants or other rights to purchase or otherwise acquire any of the foregoing. " Cox " is as defined in the preamble to this Agreement. " Debt Service " shall mean for any period, the sum of (i) all principal due and payable with respect to any item of Indebtedness during such period and (ii) all interest, premium, commitment, and other recurring or nonrecurring charges that are payable and should be accrued in accordance with GAAP with respect to any item of Indebtedness during such period.

127 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 3 User: BSKELLE EFW: Doc # 7 " Default Period " shall mean the period of time which shall commence on the date on which any Shares of an MSO pledged pursuant to a Pledge Agreement (the "Subject Shares") are transferred to any Person, other than any of the MSOs or Hendricks or any of their Affiliates, as a result of the exercise by the Agent on behalf of the Banks of a remedy upon the occurrence and during the continuation of an event of default under such Pledge Agreement, and which shall terminate on the date such Subject Shares are reacquired by any of the MSOs or Hendricks or any of their Affiliates from any of the Banks or the Agent. " Entity " shall mean any general partnership, limited partnership, corporation, joint venture, trust, business trust, cooperative or association. " Fair Market Value " shall mean as to any property (both tangible and intangible), the price in cash at which a willing seller would sell and a willing buyer would buy such property having full knowledge of the facts, in an arm's-length transaction without time constraints, and without being under any compulsion to buy or sell. " GAAP " shall mean generally accepted accounting principles as in effect in the United States from time to time, consistently applied. " Hendricks " is as defined in the preamble to this Agreement. " Immediate Family " shall have the meaning set forth in Section 3.01(b). " Indebtedness " shall mean with respect to any Person, any indebtedness or obligations, direct or indirect, secured or unsecured, contingent or otherwise (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) for borrowed money, and any deposits or advances of any kind, and all obligations with respect to which interest charges are customarily paid, and all obligations evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property or payment for any services (other than accounts payable to suppliers incurred in the ordinary course of business and paid in the ordinary course of business), if and to the extent any of the foregoing obligations or indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included (but without duplication), (i) any Capitalized Lease Obligations, (ii) obligations secured by a lien to which the property or assets owned or held by such Person are subject, whether or not the obligation or obligations secured thereby shall have been assumed, (iii) any obligations, contingent or otherwise, guaranteeing or having the economic effect of guaranteeing any debt or obligation of any other Person, (iv) the face value of any letters of credit and bankers acceptances less amounts drawn thereunder and for which reimbursement has been made, (v) the amount of any obligations of such Person under conditional sales and title retention agreements and (vi) obligations of any such Person under any Interest Rate Agreement applicable to any of the foregoing. " Interest Rate Agreement " shall mean for any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, or other similar agreement designed to protect the party indicated therein against fluctuations in interest rates. " Merger " shall mean the proposed merger of UAE into and with a wholly-owned Subsidiary of TCI in which the survivor is or shall be a wholly-owned Subsidiary of TCI on substantially the same terms and conditions as set forth in that certain Agreement and Plan of Merger dated June 6, 1991, as amended. " MSOs " shall mean Cox, NewChannels, TCID and, except with respect to an MSO's obligations under Section 4.02 hereof, any Person who is a transferee of any of the foregoing Persons in accordance with the terms of this Agreement. " NewChannels " is as defined in the preamble to this Agreement.

128 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 4 User: BSKELLE EFW: Doc # 7 " Option Agreement " shall mean the Option Agreement, dated as of August 31, 1989, between CEN and Hendricks, which agreement has been assumed by the Company by operation of law. " Parent " shall mean with respect to any Person, any other Person that owns directly or indirectly through one or more Subsidiaries, more than fifty percent (50%) of the voting or beneficial interest in such Person. " Permitted Pledge " shall mean (i) with respect to each MSO, the pledge and security interest in its Shares granted by such MSO pursuant to a Pledge Agreement and (ii) any pledge by Hendricks of his Shares permitted under the Option Agreement. " Person " shall mean any natural person or any Entity. " Pledge Agreement " shall mean, with respect to each of the MSOs, the Shareholder Stock Pledge Agreement entered into by each of such MSOs and The Toronto-Dominion Bank, Crestar Bank, and The Toronto-Dominion Bank Trust Company, dated as of September 20, "Pledge Agreements" shall mean, collectively, the Pledge Agreements entered into by all of the MSOs. " Securities Act " shall mean the Securities Act of 1933, as amended. " Shares " shall mean any and all shares of Capital Stock and any and all other equity securities or Company Convertible Securities of the Company which any Stockholder or any Affiliate thereof now holds or has the right to acquire or which any Stockholder or any Affiliate thereof hereafter acquires or has the right to acquire, irrespective of the manner of such acquisition, including, without limitation, any Capital Stock, equity securities or Company Convertible Securities of the Company (whether issued by the Company or otherwise) acquired by reason of any split-up, recapitalization, preemptive rights, stock dividend, combination, conversion or exchange of shares of Capital Stock or other equity securities or Company Convertible Securities of the Company, or acquired by reason of any purchases by, or transfer or issuance to, any such Stockholder or any Affiliate thereof. " Stockholder " is as defined in the preamble to this Agreement. " Subscriber " shall mean each customer of a Cable System that is carrying The Discovery Channel if such customer receives from such Cable System a level or tier of service which exhibits The Discovery Channel without interruption or deletion (except as consented to by the Company). " Subsidiary " shall mean, with respect to any Person, any corporation, partnership, joint venture, association, or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, in which such Person, directly or indirectly, through one or more Subsidiaries, holds more than fifty percent (50%) of the total voting power of the capital stock entitled (without regard to the occurrence of any contingency) to vote or (ii) in the case of a partnership, joint venture, association or other business entity, in which such Person, directly or indirectly, through one or more Subsidiaries, has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise. " TCI " shall mean Tele-Communications, Inc. " TCID " is as defined in the preamble to this Agreement. " The Discovery Channel " shall mean the basic programming service consisting primarily of documentary, science and nature programming produced by the Company for carriage on cable television systems. " Transfer " shall mean a sale, assignment, transfer, pledge, hypothecation, grant of security interest, or other disposition, whether voluntary or by operation of law, other than a Permitted Pledge or a transfer pursuant to the exercise by the Agent or the Banks of a remedy under a Pledge Agreement. " UAE " shall mean United Artists Entertainment Company.

129 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 5 User: BSKELLE EFW: Doc # 7 " United " is as defined in the preamble to this Agreement. " Wholly-owned and Managed Subsidiary " shall mean with respect to any Person, an Entity (i) in which such Person owns, directly or indirectly, through one or more wholly-owned subsidiaries, all the issued and outstanding equity securities or other ownership interest and (ii) in which such Person, directly or indirectly, has the power to direct or cause the direction of the management and policies of such Entity by contract or otherwise. ARTICLE II MANAGEMENT AND VOTING RIGHTS 2.01 Management of the Company. The Company shall be managed by the Stockholders pursuant to the provisions of the General Corporation Law of the State of Delaware, and specifically Section 351 thereof Voting Rights. Each Stockholder shall be entitled to one (1) vote (or fraction thereof) for each share of the Capital Stock (or fraction thereof) owned by such Stockholder Exclusive Agreement. Except as expressly authorized by this Agreement and as contemplated by the Pledge Agreements, none of the parties hereto shall enter into a voting trust or voting agreement with any other Person, give a proxy to any such Person, or otherwise agree with any such Person to restrict or limit the power to vote its Shares. Subject to Section 10.14, this Section shall not be deemed to preclude any Stockholder or any of such Stockholder's officers or agents from freely discussing at any time affairs of the Company with any other Person and disclosing to such Person the position of such Stockholder with respect to any issue concerning the Company, provided that such Stockholder does not enter into a binding agreement concerning its voting with respect to such affairs or issues. ARTICLE III PROVISIONS GOVERNING OPERATIONS OF THE COMPANY 3.01 Super-Majority Provisions. Notwithstanding any other provision contained in this Agreement or in the Company's Certificate of Incorporation or By-Laws, none of the following actions may be taken by or on behalf of the Company without the affirmative vote or written consent of the holders of eighty percent (80%) or more of the issued and outstanding shares of the Company entitled to vote thereon: (a) Any fundamental change in the business of the Company and its Subsidiaries from the business of the Company and such Subsidiaries as presently conducted; (b) Any transaction except as provided in Section 3.02(f) entered into subsequent to the date hereof between the Company or any of its Subsidiaries and a Stockholder or an Affiliate thereof, including, without limitation, the amendment of any currently outstanding agreement between the Company or any of its Subsidiaries and a Stockholder or an Affiliate thereof, (and, if such Stockholder is an individual, any individual who is a member of such Stockholder's Immediate Family ("Immediate Family" shall mean the spouse, any sibling by birth or adoption, or any lineal ascendants and descendants of such Stockholder, spouse, or sibling by birth or adoption)), other than an Affiliation Agreement with any of the MSOs or an Affiliate thereof as long as the Affiliation Agreement of each MSO or its Affiliate is substantially identical (except for differences in the effective rates charged to each MSO or its Affiliate provided such differences are based upon the number of Subscribers of such MSO and its Affiliates) to the Affiliation Agreement of each other MSO or its Affiliate;

130 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 6 User: BSKELLE EFW: Doc # 7 (c) (i) the election or the removal (other than for cause) of the Chairman and Chief Executive Officer of the Company or (ii) the election or the removal (other than for cause) of the chief operating officer of the Company or of any operating division or Subsidiary thereof, provided that if at the time of such election or removal of any such chief operating officer, Hendricks is the Chairman and Chief Executive Officer and a holder of Capital Stock, such election or removal of any such chief operating officer shall not be effective unless Hendricks shall have voted in favor of such election or removal (other than for cause) of any such chief operating officer; (d) Any merger, reorganization, consolidation, or dissolution of the Company or any of its Subsidiaries, or any sale of any assets of the Company or any of its Subsidiaries outside of the ordinary course of business; (e) the incurrence of Indebtedness by or on behalf of the Company or any of its Subsidiaries if (i) such Indebtedness, together with all other Indebtedness of the Company and its Consolidated Group, would exceed four (4) times the Cash Flow of the Company and its Consolidated Group for the last four (4) consecutive calendar quarters (the "Annualized Cash Flow") or (ii) the Debt Service for the next twelve (12) calendar months related to such Indebtedness, together with the Debt Service for the next twelve (12) calendar months for all other Indebtedness of the Company and its Consolidated Group, would exceed sixty-six percent (66%) of the Annualized Cash Flow of the Company and its Consolidated Group; (f) the authorization, issuance (other than the issuance to the Company of any equity securities of any entity if subsequent to such issuance, such entity would be a wholly-owned Subsidiary of the Company or the issuance of new certificates evidencing Shares which have been transferred in accordance with Section 6.01(a) or certificates issued in replacement of certificates which have been lost or stolen as provided by the Company's By-Laws), reclassification or recombination of any equity security of the Company or its Subsidiaries, including, without limitation, its Capital Stock and any Convertible Securities, including, without limitation, the award, grant, or issuance (except as permitted aforesaid) of any such securities to any employee of the Company or any Subsidiary thereof; or the repurchase or reacquisition of any of the foregoing by the Company from any Stockholder, other than a repurchase of Shares from Hendricks pursuant to the Option Agreement; (g) any offering of any security of the Company or any of its Subsidiaries which would constitute a "public offering" within the meaning of the Securities Act; (h) any amendment to the Certificate of Incorporation or the By-Laws of the Company or any of its Subsidiaries; (i) any formulation or substantial change in the service distribution policy and practice of the Company or any of its Subsidiaries other than the imposition of, or increase or change in, any subscriber license fee pursuant to Section 3.02(b); (j) the adoption of each Annual Business Plan; provided, however, that if such eighty percent (80%) vote shall not have been obtained by the earlier of (i) sixty (60) days after the initial presentation of such Annual Business Plan for a vote of the Stockholders or (ii) February 1 of the fiscal year of the Company to which such proposed Annual Business Plan relates, then, the Annual Business Plan for such fiscal year shall be set at the revenue and expense levels for the previous fiscal year, adjusted to take into account (i) the operation of escalation or de-escalation provisions in contracts, agreements and commitments entered into by the Company and its Subsidiaries in accordance with this Agreement and (ii) the anticipated incurrence of costs during such fiscal year for any legal fees or disbursements relating to any civil or criminal lawsuit, governmental inquiry, or administrative or other proceedings approved in any previously approved Annual Business Plan;

131 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 7 User: BSKELLE EFW: Doc # 7 (k) any material deviation from the Annual Business Plan of the Company for the applicable fiscal year in addition to those described in Section 3.01(n); (l) any action that would or could cause the Company to jeopardize or lose its status as a close corporation as defined in Section 342 of the General Corporation Law of the State of Delaware; (m) the institution by the Company or any of its Subsidiaries of any litigation, including by counter-claim or cross-claim, having an aggregate amount in dispute in excess of Fifty Thousand Dollars ($50,000) or any request for injunctive or other equitable relief; provided, however, that if such litigation is of such a nature that its institution or subsequent determination against the Company or its Subsidiaries could have a materially adverse effect on the Company or any of the Stockholders, a vote of the Stockholders under this Section 3.01 shall be required regardless of the amount in dispute or type of relief requested; (n) the entering into by the Company or any of its Subsidiaries of any contract or transaction or series of related contracts or transactions in excess of $1,000,000 unless (i) approval thereof shall already be given in connection with the adoption of the Annual Business Plan for the applicable fiscal year or (ii) in the case of programming, the cost of such contract or transaction or series of related contracts or transactions is within the budget for programming in the Annual Business Plan for the applicable fiscal year; (o) an amendment to the Option Agreement by and between the Company and Hendricks dated as of August 31, 1989 or any repurchase of Shares thereunder by the Company at the Company's option; (p) the incurrence by the Company or any of its Subsidiaries of any Indebtedness from any of the MSOs; or (q) any modification to or cancellation of the Company's advertising rebate plan with respect to the Discovery Channel. Notwithstanding any provision to the contrary in this Section 3.01, upon the commencement of and during the continuance of a Default Period, the provisions of this Section 3.01 shall be deemed to be suspended and of no force and effect, and except for those actions for which a higher percentage vote is required pursuant to the Company's Certificate of Incorporation or By-Laws or by the General Corporation Law of the State of Delaware, all corporate actions, including those actions specified in this Section 3.01, shall be taken by the affirmative vote or written consent of the holders of a majority of the issued and outstanding shares of the Company entitled to vote thereon; provided, however, that upon the termination of such Default Period, the provisions of this Section 3.01 shall be immediately and automatically reinstated without the requirement of any action on the part of any Person and shall thereafter be in full force and effect Majority Provisions. Except as provided in Section 3.01 and except for those actions of the Company for which a higher percentage vote is required pursuant to the Company's Certificate of Incorporation or By-Laws or as may be required by the General Corporation Law of the State of Delaware, all actions of the Company shall be taken by the affirmative vote or written consent of the holders of a majority of the issued and outstanding shares of the Company entitled to vote thereon, including, without limitation, the actions set forth below: (a) except as set forth in Section 3.01, any transaction, contract or understanding with or commitment to a Person outside the ordinary course of business of the Company and its Subsidiaries; (b) the imposition of, or increase or change in, any subscriber license fee; provided, however, that any such imposition, increase, or change shall be in accordance with the provisions of

132 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]GE1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 8 User: BSKELLE EFW: Doc # 7 Section 4.02(a)(2) of this Agreement and that the subscriber license fees charged to each MSO and its Affiliates shall be consistent with the rates which could be charged to an MSO and its Affiliates pursuant to an Affiliation Agreement in accordance with Section 3.01(b); (c) the declaration or payment of dividends or other distributions by the Company or any of its Subsidiaries (other than the declaration or payment of dividends or distributions from a wholly-owned Subsidiary of the Company to the Company);

133 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 9 User: BSKELLE EFW: Doc # 7 (d) (i) the removal for cause of the Chairman and Chief Executive Officer of the Company or (ii) the removal for cause of the chief operating officer of the Company or of any operating division or Subsidiary thereof; (e) except as specified in Sections 3.01 or 3.02(d), the election or removal of any of the officers of the Company or any of its Subsidiaries, other than such officers which the Stockholders, by written consent of holders of eighty percent (80%) of the issued and outstanding shares of the Company entitled to vote, have authorized the Chairman and Chief Executive Officer of the Company to appoint; and (f) any amendment to or extension of the Employment Agreement between Hendricks and the Company (as successor to CEN) dated August 31, 1989 and the entering into any new employment agreement between Hendricks and the Company. ARTICLE IV COMMITMENTS OF THE PARTIES TO THE DISCOVERY CHANNEL 4.01 Ownership of Similar Programming Services. No Stockholder or its Parent or any of such Stockholder's Wholly-owned and Managed Subsidiaries shall start, or acquire a majority of the voting equity interest in, another basic programming service carried by or to be carried by cable systems in the United States consisting primarily of documentary, science and nature programming; provided, however, that nothing herein contained shall require any Stockholder, its Parent or any of its Wholly-owned and Managed Subsidiaries to dispose of an investment in any such service if such Stockholder, its Parent or any of its Wholly-owned and Managed Subsidiaries does not own a majority of the voting equity interest in such service and such service substantially changed its programming subsequent to such Person's investment therein Carriage of The Discovery Channel. (a) Subject to the conditions set forth in paragraphs (1) through (3) of this Section 4.02(a), (i) each MSO hereby agrees that until October 31, 1998, it will cause its Parent to carry The Discovery Channel on cable television systems of such Parent and such Parent's Affiliates at a Subscriber level at least equal to the Subscriber level as of November 1, 1988 (adjusted in accordance with Section 4.02(c)) and (ii) United hereby agrees that until the earlier to occur of the effectiveness under controlling law of the Merger and October 31, 1998, it will cause UAE to carry The Discovery Channel on cable television systems of UAE and its Affiliates at a Subscriber level at least equal to the Subscriber level as of November 1, 1988 (adjusted in accordance with Section 4.02(c)); provided that: (1) the overall quality of programming exhibited on The Discovery Channel during the remaining portion of such period shall be of a quality at least comparable to that currently exhibited; (2) the dollar differential between (x) the amount of the average license fee per Subscriber per month for an MSO or an Affiliate thereof or United or its Affiliates and (y) the license fee per month payable by The Discovery Channel affiliates not on free subscription contracts may be increased, but shall not be decreased from the current levels; provided, however, that subject to Section 3.01(b), appropriate adjustments to the average license fees per Subscriber for an MSO or its Affiliates or United or its Affiliates may be made on account of an increase or decrease in the number of Subscribers served by any MSO and its Affiliates or United and its Affiliates; and (3) the amount of such dollar differential of each MSO and its Affiliates or United and its Affiliates relative to the dollar differential of each other MSO and its Affiliates or United and its Affiliates shall be continued except subject to Section 3.01(b), for any appropriate

134 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 13 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 10 User: BSKELLE EFW: Doc # 7 adjustment on account of an increase or decrease in the number of Subscribers served by any such MSO and its Affiliates or United and its Affiliates. (b) For purposes of Section 4.02(a)(i), (i) prior to the effectiveness under controlling law of the Merger, neither United nor UAE shall be deemed to be Affiliates of TCID and (ii) concurrent with the effectiveness under controlling law of the Merger, United and UAE shall be deemed Affiliates of TCID for purposes of Section 4.02(a)(i), and the Subscriber obligation of TCID set forth in Section 4.02(a)(i) shall be increased by United's Subscriber commitment set forth in Section 4.02(a)(ii). (c) For purposes of this Section 4.02, the Subscriber commitment of each MSO and United as of November 1, 1988, shall be adjusted as follows: (i) For the period from November 1, 1988 until the date hereof, the Subscriber commitment as of November 1, 1988 of each MSO and United shall be increased on account of the acquisition by any such MSO or United or their respective Affiliates of a cable television system which carried The Discovery Channel (a "Subject System") at the time of acquisition by a number equal to the number of Subscribers to such Subject System as of the date of such acquisition or decreased on account of the sale or transfer by any such MSO or United or their respective Affiliates to a Person which is not an Affiliate of such MSO or United of a Subject System by a number equal to the number of Subscribers to such Subject System as of October 31, 1988 (if such Subject System was owned by such MSO or United or its respective Affiliate as of that date) or the number of Subscribers to such Subject System as of the date of its acquisition (if such Subject System was acquired by such MSO or United or their respective Affiliates after November 1, 1988); provided, however, that notwithstanding the foregoing, the Subscriber commitment of TCID shall be reduced in accordance with the foregoing formula upon the transfer by TCI or an Affiliate thereof of Subject Systems to Liberty Media Corporation pursuant to the Consent dated as of December 31, 1990 by and among Cox Communications, Inc., NewChannels Corp., TCI Development Corporation, United Cable Television Investments, Ltd., CEN, Hendricks, TCI Liberty, Inc. and Liberty Cable, Inc. (the "Consent") and following such transfer the Subscriber commitment with respect to such transferred Subject Systems shall be an obligation of Liberty Media Corporation in accordance with the terms of the Consent. Each of the MSOs and United hereby agree that within ninety-six (96) days after the date hereof it shall supply the Company with a reasonably acceptable calculation of the number of Subscribers for which such MSO or United, as the case may be, is obligated pursuant to this Section 4.02 as of November 30, 1991 (the "1991 Subscriber Number"). (ii) For the period from the date hereof until November 1, 1998 or the earlier termination of its obligation under Section 4.02(a), the 1991 Subscriber Number relating to each MSO and United shall be increased in the event of the acquisition by any such MSO or United or their respective Affiliates of a Subject System by a number equal to the number of Subscribers to such Subject System as of the date of the acquisition or decreased in the event of the sale or transfer by any such MSO or United or their respective Affiliates to a Person which is not an Affiliate of such MSO or United of a Subject System by a number equal to the number of Subscribers to such Subject System as of October 31, 1988 (if such Subject System was owned by such MSO or United or its respective Affiliates as of that date) or the number of Subscribers to such Subject System as of the date of its acquisition (if such Subject System was acquired by such MSO or United or its respective Affiliates after November 1, 1988). Each MSO and United shall report to the Company and each other MSO within thirty (30) days after the closing of any acquisition or disposition of a Subject System subsequent to the date hereof the adjustment, if any, required by the application of this Section 4.02(c)(ii) as a result of such acquisition or disposition.

135 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 14 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 11 User: BSKELLE EFW: Doc # 7 (d) For purposes of this Section 4.02, up until such time as an MSO or an Affiliate thereof or United or an Affiliate thereof executes with the Company an Affiliation Agreement, the number of Subscribers attributable to such MSO and its Affiliates or United and its Affiliates shall be calculated in accordance with the terms hereof. ARTICLE V ADDITIONAL CAPITAL 5.01 Capital Contributions. Unless all the Stockholders consent in writing thereto, the Stockholders shall not be required to make additional capital contributions to the Company Restrictions on Transfer; Permitted Transfers. ARTICLE VI RESTRICTIONS ON TRANSFERS (a) There shall be no Transfer by any Stockholder of any Shares in any manner or by any means whatsoever except for the following Transfers which shall be permitted provided that the transferor complies with all of the applicable requirements in this Article VI: (i) any Transfer by a Stockholder of Shares to an Affiliate thereof or in the case of a Stockholder who is a natural person, to a member of his or her Immediate Family or to his or her estate; (ii) any Transfer by Hendricks or his estate of his Shares to the Company on the terms and conditions set forth in the option Agreement; and (iii) any Transfer of Shares pursuant to a Third Party Offer in compliance with the provisions of Section Right of First Refusal. (a) Prior to any proposed Transfer of Shares (other than a Transfer described in subparagraph (i) or (ii) of Section 6.01(a) or pursuant to Section 6.07), the Stockholder proposing to transfer such Shares (the "Transferor") shall be required to obtain a bona fide, non-collusive, binding arm's-length written offer, subject only to customary conditions, with respect to the proposed Transfer (a "Third Party Offer") from a third party that is not an Affiliate of such Transferor (the "Third Party") which the Transferor desires to accept. The Third Party Offer must not be subject to unstated conditions or contingencies or be part of a larger transaction such that the price for the Shares proposed to be transferred in the Third Party Offer (the "Offered Shares") does not accurately reflect the Fair Market Value of such Offered Shares, and the Third Party Offer shall contain a description of all of the consideration, material terms and conditions for the proposed Transfer. If the Transferor is still a party to a Pledge Agreement, a Third Party Offer shall also contain a covenant by the Third Party to pledge to the Banks pursuant to an agreement having substantially the same terms as the Transferor's Pledge Agreement the same percentage of the Offered Shares as the Transferor has pledged to the Banks pursuant to its Pledge Agreement. The Transferor shall send a copy of the Third Party Offer which shall include the identity of the Third Party to each of the MSOs (the "Offerees"), together with a written offer to sell the Offered Shares to the Offerees at the Third Party Price. For purposes hereof, the "Third Party Price" means the amount of consideration set forth in the Third Party Offer, which, if all or part of such consideration is in cash, shall be that amount in cash, and as to any consideration in the Third Party Offer which is not in cash, shall be deemed to be an amount equal to the Fair Market Value of such consideration as determined pursuant to Section 6.03.

136 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 15 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 12 User: BSKELLE EFW: Doc # 7 (b) Any proposed Transfer of Offered Shares under Section 6.02(a) by either Cox or NewChannels (other than transfers to Affiliates under Section 6.01(a)(1)) shall be subject to an initial right of first refusal by whichever of Cox and NewChannels is not the Transferor. An Offeree with a right of initial first refusal under this Section 6.02(b) shall be referred to hereunder as the "Initial Offeree" and the offering to such Initial Offeree shall be referred to as the "Initial Offering". (c) The Initial Offeree shall initially have the right to accept the offer to sell and to purchase any portion of the Offered Shares. The Initial Offeree shall have thirty (30) days from the receipt of the written offer from the Transferor, or if later, within ten (10) days after the determination of all non-cash parts of the Third Party Price, to notify the Transferor in writing of such Initial Offeree's election to purchase all or a portion of the Offered Shares. The Transferor shall notify the Initial Offeree and each other Offeree (collectively with the Initial Offeree, the "Secondary Offerees") as to the number of Offered Shares remaining within three (3) days following the Initial Offeree's election (the "Initial Offeree Notice") and through such notice offer to sell such remaining Offered Shares to the Secondary Offerees (a "Secondary Offering"). If the Initial Offeree has not elected to purchase all the Offered Shares within such thirty (30) day period (or ten (10) day period, if applicable), each of the Secondary Offerees shall have fifteen (15) days from the later of the date of the Initial Offeree Notice or the date of the determination of all non-cash parts of the Third Party Price to give written notice to the Transferor of their respective elections to purchase the remaining Offered Shares. In the case of a Secondary Offering, the Transferor shall notify each Secondary Offeree as to the number of Offered Shares remaining within three (3) days following such election (the "Secondary Offeree Notice"). If there is no Initial Offering, the foregoing Section 6.02(b) and the first paragraph of this Section 6.02(c) shall not apply and the Transferor through such notice shall offer the Offered Shares to all of the Offerees (a "Primary Offering") and each of the Offerees shall have thirty (30) days from the receipt of written notice from the Transferor, or if later within ten (10) days after determination of all non-cash parts of the Third Party Price to give written notice to the Transferor of their respective elections to purchase the Offered Shares. In the case of a Primary Offering, the Transferor shall notify each Offeree as to the number of Offered Shares remaining within three (3) days following such election (the "Offeree Notice"). If the Offerees in a Primary Offering or the Secondary Offerees in a Secondary Offering have not elected to purchase all the Offered Shares within the applicable election period, each Offeree or Secondary Offeree, as applicable, shall have an additional seven (7) days from receipt of the Offeree Notice or the Secondary Offeree Notice, as applicable, to elect to purchase the remaining Offered Shares. If the offer to sell the Offered Shares in a Primary Offering or a Secondary Offering is oversubscribed at the expiration of any election period, such Offered Shares and the Third Party Price in respect thereof shall be allocated on a pro rata basis among the Offerees or the Secondary Offerees, as applicable, which have elected to purchase Offered Shares so that such electing Offeree or electing Secondary Offeree, as applicable, shall receive a portion of the Offered Shares which bears the same ratio to the Offered Shares as the Shares of each electing Offeree or electing Secondary Offeree, as applicable, bear to the total number of Shares owned collectively by all such electing Offerees or electing Secondary Offerees, as applicable, or as may otherwise be agreed among such electing Offerees or electing Secondary Offerees, as applicable, provided that no Offeree or Secondary Offeree which elects to purchase Offered Shares shall be required to purchase more Offered Shares than the amount set forth in its election. After the expiration of the thirty (30) day period or ten (10) day period, as applicable, during which the Initial Offeree has the initial right to purchase the Offered Shares, such Initial Offeree shall have the same rights under this Section 6.02(c) as any other Offeree. (d) Subject to Section 6.02(e) and the second paragraph of this Section 6.02(d), the closing of the sale to the Offerees pursuant to a Primary Offering, an Initial Offering or a Secondary

137 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 16 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 13 User: BSKELLE EFW: Doc # 7 Offering shall be held at the offices of the Company on the tenth day after the date of the last notice to the Transferor of an Offeree's election to purchase the Offered Shares (the "Scheduled Closing Date"). Contemporaneously with such closing, the Transferor shall deliver a certificate or certificates representing the Offered Shares, properly endorsed for transfer and with all necessary transfer or documentary stamps, if any, affixed and free and clear of all liens, restrictions or encumbrances against receipt from each purchasing Offeree of the Third Party Price or allocable portion thereof in cash or by certified or bank cashier's check or wire or interbank transfer of funds; provided, however, that if the Transferor is still a party to a Pledge Agreement, each purchasing Offeree shall be required to pledge to the Banks a percentage of the Offered Shares purchased by such purchasing Offeree which is equal to the percentage of Offered Shares pledged by the Transferor under its Pledge Agreement at the time of the Transfer hereunder. The obligation of a Transferor and a purchasing Offeree to proceed with the closing on the Scheduled Closing Date and the obligation of a Transferor and a Third Party to consummate a Transfer prior to the Expiration Date (as hereinafter defined) shall be conditioned upon and the Scheduled Closing Date or the Expiration Date, as applicable, shall be extended to a date which is ten (10) days following the last to occur of, (i) the expiration (or earlier termination) of any applicable waiting period and, if extended, the extended waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (ii) the receipt of all material governmental and regulatory consents, approvals or waivers that may be required in connection with the purchase and sale of the Offered Shares; provided, however, that neither the Transferor nor the purchasing Offerees (unless in material breach of their obligations hereunder) shall be obligated to proceed with the closing of the purchase and sale of the Offered Shares in the event that such conditions have not been satisfied on or before the 90th day following the original Scheduled Closing Date. The Transferor and the purchasing Offerees shall use all reasonable efforts to cooperate with each other or with a third party to promptly make all filings, give all notices and secure all consents, approvals and waivers that may be required in connection with the purchase and sale of the Offered Shares. (e) Notwithstanding the provisions of Section 6.02(a) through (d), elections to purchase made by the Offerees shall not be binding on the Transferor if (x) the Offerees have not elected by the conclusion of the offering period to purchase all of the Offered Shares or (y) the Offerees have not closed on the purchase of all the Offered Shares by the Scheduled Closing Date in accordance with the terms hereof. In such event, no sales pursuant to such elections shall be required to be made by the Transferor and the Transferor shall have the right for a period of ninety (90) days after the expiration of the last election period in Section 6.02(c) or, if later, the last date for the closing of such purchase under Section 6.02(d) (such later date being the "Expiration Date"), as appropriate, to sell all but not less than all of the Offered Shares, but only to the Third Party for a price (including any non-cash consideration in the Third Party Offer) and on terms no more favorable to the Third Party than the Third Party Price and the terms of the Third Party Offer. The Third Party shall prior to any Transfer execute and deliver to the Company the documents required by Section If such Offered Shares are not sold prior to the Expiration Date, all rights to sell such Offered Shares pursuant to such Third Party Offer, without making another offer to the Offerees pursuant to this Section 6.02, shall terminate and the provisions of this Article VI shall continue to apply to any proposed Transfer in the future Appraisal Procedure. (a) The Fair Market Value of any non-cash consideration included in a Third Party Offer shall be determined as follows: (i) Initial Offering. In the event of an Initial Offering, the Fair Market Value of any non-cash consideration shall be determined by mutual agreement between the Transferor and the Initial Offeree or, in the event such Fair Market Value has not been mutually agreed upon

138 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 17 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 14 User: BSKELLE EFW: Doc # 7 by the tenth (10th) day following the date of the Transferor's notice, by appraisal pursuant to paragraph (b) hereof. (ii) Primary or Secondary Offering. In the event of a Primary Offering or a Secondary Offering, the Fair Market Value of any non-cash consideration contained in the Third Party Offer shall be determined by agreement between the Transferor and those Offerees or Secondary Offerees, as the case may be, holding seventy-five percent (75%) or more of the issued and outstanding shares of Capital Stock owned by the Offerees or Secondary Offerees, as the case may be (the "Requisite Holders") or, in the event the Transferor and the Requisite Holders have not agreed upon such Fair Market Value by the tenth (10th) day following the date of the Transferor's notice or Initial Offeree Notice, as the case may be, such Fair Market Value shall be determined by appraisal pursuant to paragraph (b) hereof. (iii) Assumption of Determination of Fair Market Value. In the event there has been an Initial Offering pursuant to which the Initial Offeree has elected to purchase any Offered Shares, then the Secondary Offerees, by written action of the holders of seventy-five percent (75%) or more of the issued and outstanding shares of Capital Stock owned by the Secondary Offerees (but excluding, for this purpose only, the Shares owned by any Initial Offeree), shall be entitled to adopt the determination of Fair Market Value made by agreement with the Transferor or by appraisal, and to purchase any remaining Offered Shares at the Third Party Price determined in connection with any Initial Offering. (b) If the Transferor and the Initial Offeree, the Offerees or the Secondary Offerees, as the case may be, have failed to agree upon the Fair Market Value of any non-cash consideration as provided above, such Fair Market Value shall be determined by appraisal pursuant to this Section 6.03(b). Within ten (10) days after the determination for the need for an appraisal, (i) in a Primary Offering or a Secondary Offering, the Offerees (by a vote of the Offerees holding a majority of the Capital Stock held by all the Offerees), or (ii) in an Initial Offering, the Initial Offeree, as applicable, shall designate one appraiser experienced in such appraisals, and the Transferor shall designate one such appraiser. Within thirty (30) days after their selection, the two appraisers so selected shall each determine the Fair Market Value of such non-cash consideration. In the event such determinations vary by less than ten percent (10%) of the higher determination, such Fair Market Value shall equal the average of the two determinations. If such determinations vary by ten percent (10%) or more of the higher determination, the two appraisers shall promptly designate a third appraiser with similar qualifications. No Stockholder will provide, and the selecting Stockholders will instruct the two appraisers initially selected not to provide, any information to the third appraiser as to the determinations of the two appraisers initially selected, or otherwise influence such third appraiser's determination in any way. The third appraiser shall make a determination of the Fair Market Value within thirty (30) days after its selection. The Fair Market Value shall be equal to the average of the two closest determinations of the three appraisers, or, if the difference between the highest and middle determination is equal to the difference between the middle and lowest determination, then the Fair Market Value will be equal to the middle determination. The Fair Market Value determined pursuant to this Section shall be binding and conclusive on the Transferor and all Offerees. Any appraisal cost incurred under this Section 6.03 shall be borne by the Transferor Documents Delivered Upon Transfer. Any proposed transferee of Shares pursuant to any Section of this Article VI or any proposed purchaser of Shares pursuant to Article VII that is not a party to this Agreement, other than any proposed transferee or purchaser of Shares pursuant to the exercise of a remedy by the Agent or the Banks under a Pledge Agreement, shall, prior to such Person's acquisition or subscription of Shares, execute and deliver to the Company (i) an opinion of counsel reasonably satisfactory to the Company to the effect that such Transfer would not be in violation of the Securities Act or Delaware law and would not terminate the Company's status as a

139 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 18 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 15 User: BSKELLE EFW: Doc # 7 close corporation under Section 342 of the General Corporation Law of the State of Delaware; (ii) a written agreement to the effect that (x) the Shares so transferred will continue to be subject to all the restrictions and other provisions of this Agreement and (y) the transferee, except as specified in Article IX, shall be bound by and assume all obligations and restrictions under this Agreement as if such transferee were an original party hereunder and as if all references in this Agreement to "Stockholder" referred to such transferee; and (iii) if the Transferor is still a party to a Pledge Agreement, a written agreement having substantially the same terms as the Pledge Agreement of the Transferor pursuant to which the transferee agrees to pledge to the Banks the same percentage of the Shares transferred to such transferee as such Transferor has pledged under its Pledge Agreement Restrictions on Voting Stock Ownership. Unless Shares have been acquired in compliance with the provisions of Article VI or VII, in no event shall (i) TCID or its Affiliates collectively hold in excess of fifty percent (50%) of the Capital Stock or (ii) either Cox or its Affiliates or NewChannels or its Affiliates hold in excess of twenty-five percent (25%) of the Capital Stock Legend. Each stock certificate representing Shares now or hereafter issued to a Stockholder shall bear the following legend: THE SHARES OF STOCK OF DISCOVERY COMMUNICATIONS, INC. REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS STOCK HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS STOCK UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. THE VOLUNTARY OR INVOLUNTARY ENCUMBERING, TRANSFER OR OTHER DISPOSITION (INCLUDING WITHOUT LIMITATION, ANY DISPOSITION PURSUANT TO THE LAWS OF BANKRUPTCY, INTESTACY, DESCENT AND DISTRIBUTION OR SUCCESSION) TO THE EXTENT PERMITTED BY LAW, OF THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE IS RESTRICTED UNDER THE TERMS OF A SHAREHOLDERS AGREEMENT (THE "SHAREHOLDERS AGREEMENT") BY AND AMONG DISCOVERY COMMUNICATIONS, INC., JOHN HENDRICKS, COX DISCOVERY, INC., NEWCHANNELS TDC INVESTMENTS, INC., TCI CABLE EDUCATION, INC. AND, FOR LIMITED PURPOSES ONLY, DISCOVERY PROGRAMMING INVESTMENT, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION. THE SHAREHOLDERS AGREEMENT ALSO PROVIDES FOR PREEMPTIVE RIGHTS, AS WELL AS OTHER MATTERS. UPON WRITTEN REQUEST OF ANY SHAREHOLDER OF THE CORPORATION, THE CORPORATION SHALL FURNISH, WITHOUT CHARGE TO SUCH SHAREHOLDER, A COPY OF SUCH SHAREHOLDERS AGREEMENT. THE CORPORATION IS A CLOSE CORPORATION UNDER THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE AND THUS, ITS STOCK MAY NOT BE HELD OF RECORD BY MORE THAN 30 PERSONS. PURSUANT TO ITS CERTIFICATE OF INCORPORATION, THE BUSINESS AND AFFAIRS OF THE CORPORATION ARE MANAGED BY THE SHAREHOLDERS OF THE CORPORATION RATHER THAN BY A BOARD OF DIRECTORS Special Provisions relating to Pledge Agreements. (a) Each Stockholder hereby agrees that neither such Stockholder nor its Affiliates will make a Third Party Offer (which for purposes of this Section 6.07 only, shall have the meaning assigned to such term in each Pledge Agreement) to The Toronto-Dominion Bank Trust Company (the "Agent") or

140 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 19 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 16 User: BSKELLE EFW: Doc # 7 The Toronto-Dominion Bank and Crestar Bank (collectively including any assignee thereof, the "Banks") without the prior written consent of all the MSOs. (b) Section 12 of each Pledge Agreement provides that under certain circumstances the Agent must offer the MSOs either the right to match any Third Party Offer to purchase the Stock (as defined in each Pledge Agreement) or to satisfy the Obligations (as defined in each Pledge Agreement). Section 9 of each Pledge Agreement provides that the Agent must give the MSOs ten (10) Business Days (as defined in each Pledge Agreement) written notice (the "Sale Notice") prior to selling, transferring or otherwise disposing of the Stock (including a transfer of the Stock to the Agent or the Banks upon a foreclosure or exercise of another remedy). In the event that the Agent gives to any MSO a Sale Notice pursuant to such Section 9, the MSOs hereby agree as follows: (i) Each MSO receiving a Sale Notice shall immediately notify each other MSO of the first MSO's receipt of such Sale Notice and shall transmit to each other MSO via facsimile a copy of such Sale Notice. (ii) upon receipt of the Sale Notice, each MSO may elect to satisfy all of its pro rata share of the Obligations. Each such MSO (an "Accepting MSO") shall exercise such election by delivering written notice of such election to the other MSOs within two Business Days of the date of the Sale Notice. For purposes of this Section 6.07(b)(ii), each MSO's pro rata share shall be the amount of the Obligations multiplied by a fraction, the numerator of which shall be the aggregate number of shares of Capital Stock held by such Accepting MSO (including shares pledged under such Accepting MSO's Pledge Agreement) and the denominator of which shall be the aggregate number of shares of Capital Stock held by all the MSOs (including shares pledged under all Pledge Agreements), both as of the time immediately prior to the date of the Sale Notice. (iii) In the event an MSO (the "Declining MSO") fails to deliver to the other MSOs a notice pursuant to Section 6.07(b)(ii), the Accepting MSOs may elect to satisfy such Declining MSO's pro rata share of the Obligations (the "Remaining Obligations"), in the following priority: (A) if Cox is the Declining MSO, NewChannels shall have an initial right to elect to satisfy all the Remaining Obligations; (B) if NewChannels is the Declining MSO, Cox shall have an initial right to elect to satisfy all the Remaining Obligations; and (C) in any case other than (A) or (B) each Accepting MSO may elect to satisfy its pro rata share of the Remaining Obligations. For purposes of this Section 6.07(b)(iii)(C) each Accepting MSO's pro rata share of the Remaining Obligations shall be the amount of all the Remaining Obligations multiplied by a fraction, the numerator of which shall be the aggregate number of shares of Capital Stock held by such Accepting MSO (including shares pledged under such Accepting MSO's Pledge Agreement) and the denominator of which shall be the aggregate number of shares of Capital Stock held by all the Accepting MSOs (including shares pledged under all Pledge Agreements). Each such MSO with a right to commit under (A), (B) or (C) above shall exercise such election by delivering written notice of such election to the other MSOs within four Business Days of the date of the Sale Notice. (iv) In the event that subsequent to the fourth Business Day after the Sale Notice, there remains any portion of the Obligations which the MSOs have not committed to satisfy, each Accepting MSO which has committed to satisfy its pro rata share of the Obligations and the Remaining Obligations in accordance with both Section 6.07(b)(ii) and Section 6.07(b)(iii), may elect to commit to satisfy such portion of the Remaining Obligations. Any MSO with a right to commit under this Section 6.07(b)(iv) shall exercise such election by delivering written notice of such election to the other MSOs within six Business Days after the date of the Sale Notice.

141 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 20 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 17 User: BSKELLE EFW: Doc # 7 (v) Provided one or more MSOs have in the aggregate committed prior to the seventh Business Day after the date of the Sale Notice to satisfy the entire amount of the Obligations, each MSO which has committed to satisfy any portion of the Obligations shall on the eighth Business Day after the date of the Sale Notice transmit via wire transfer to the Agent the portion of the Obligations such MSO has committed to satisfy. In the event any MSO which committed to satisfy any portion of the Obligations under this Section 6.07(b) fails to perform such commitment by the close of business on the eighth Business Day after the Sale Notice (a "Defaulting MSO"), the Accepting MSOs other than the Defaulting MSO may elect to perform the Defaulting MSO's commitment by transmitting via wire transfer the unpaid portion of the Obligations on the tenth Business Day after the date of the Sale Notice. If more than one Accepting MSO elects to satisfy the Defaulting MSO's commitment, each such Accepting MSO may elect to satisfy its pro rata share of the Defaulting MSO's commitment. For purposes of this Section 6.07(b)(v) each such electing Accepting MSO's pro rata share of the Defaulting MSO's commitment shall be the amount of the Defaulting MSO's commitment multiplied by a fraction, the numerator of which shall be the aggregate number of shares of Capital Stock held by such electing Accepting MSO (including shares pledged under such Accepting MSO's Pledge Agreement) and the denominator of which shall be the aggregate number of shares of Capital Stock held by all such electing Accepting MSOs (including shares pledged under all Pledge Agreements). In the event that one or more of the MSOs have not in the aggregate committed prior to the ninth Business Day after the date of the Sale Notice to satisfy all the Obligations, none of the MSOs shall have any commitment to satisfy any portion of the Obligations. (vi) In the event the MSOs satisfy the Obligations prior to the Agent or any of the Banks exercising any right under any of the Pledge Agreements to foreclose on, sell, convey or otherwise obtain or transfer title to the Stock and in the further event that any MSO did not pay its pro rata share of the Obligations under Section 6.07(b)(ii) or defaulted under Section 6.07(b)(v), such Declining MSO or Defaulting MSO shall simultaneously with the satisfaction of the Obligations transfer to each other MSO which paid more than its pro rata share of the Obligations determined pursuant to Section 6.07(b)(ii) a number of such Declining or Defaulting MSO's shares of Capital Stock determined with respect to each such other MSO paying more than its pro rata share of the Obligations by multiplying the number of shares of Capital Stock owned by such Declining or Defaulting MSO (including shares of Capital Stock pledged pursuant to such MSO's Pledge Agreement) by a fraction, the numerator of which shall be the amount of the Obligations paid by such MSO in excess of such MSO's pro rata share of the Obligations determined pursuant to Section 6.07(b)(ii) and the denominator of which shall be the aggregate amount of all Obligations paid by the MSOs which are not Declining or Defaulting MSOs in excess of such MSOs' pro rata share of the Obligations determined pursuant to Section 6.07(b)(ii). The shares of Capital Stock transferred by such Declining or Defaulting MSO shall be transferred free and clear of any liens or encumbrances. (vii) Purchases of a Declining or Defaulting MSO's Stock shall be deemed made pursuant to Article VI hereof, and, therefore, the MSOs purchasing such Declining or Defaulting MSO's Stock shall not be subject to the restrictions on aggregate voting power contained in Section 6.05 hereof. (c) This Section 6.07 shall terminate upon the termination of the last of the Pledge Agreements. ARTICLE VII PREEMPTIVE RIGHTS (a) The Company shall give to each Stockholder written notice of the intention of the Company to issue or sell any equity securities of the Company or any Company Convertible Securities (the "Securities"). Such notice shall set forth the terms of such proposed issuance or sale, including the

142 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 21 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 18 User: BSKELLE EFW: Doc # 7 price at which the Securities will be issued or sold (the "Stated Price"), and shall be given at least thirty (30) days prior to the issuance or sale of such Securities. Each Stockholder may elect to purchase up to that percentage of the Securities to be sold or issued equal to such Stockholder's percentage of the total number of shares of Capital Stock outstanding immediately prior to such issuance or sale. A Stockholder may exercise such election by giving written notice thereof to the Company before the end of the tenth business day after receipt by such Stockholder of the notice from the Company. Such Stockholder's notice shall state the number of Securities to be purchased pursuant to such election. If any Stockholder elects not to purchase all of the Securities to which such Stockholder is entitled hereunder, the Company shall notify the Stockholders of the availability of such excess Securities (the "Excess Securities") within ten (10) days after the expiration of the above election period. Each Stockholder shall have the right to elect to purchase such Excess Securities by giving notice of its election within ten (10) days after the receipt of the notice from the Company. If the Stockholders elect to purchase hereunder an amount of Securities in excess of the number of Excess Securities, such Excess Securities shall be allocated among the electing Stockholders on a pro rata basis based upon the proportion that the number of Shares owned by each electing Stockholder bears to the number of Shares owned collectively by all the electing Stockholders. (b) If a Stockholder exercises its right of election pursuant to clause (a) above, the closing of such purchase and sale shall take place within ten (10) days after the last Stockholder gives notice of its election. At the closing, the Company shall deliver to any electing Stockholder or an Affiliate thereof (provided such Affiliate has complied with the provisions of Section 6.04), if applicable, the certificate or certificates representing the number of Securities set forth in such Stockholder's notice of election against payment by the Stockholder or an Affiliate thereof, if applicable, by cash or certified or bank cashier's check or by wire or interbank transfer of funds of the Stated Price. (c) If the Stockholders do not elect pursuant to clause (a) above to subscribe for all the Securities proposed to be issued or sold by the Company, the Company shall have the right to issue and sell any such Excess Securities, provided that any purchaser thereof becomes a party to this Agreement. ARTICLE VIII TERMINATION OF CLOSE CORPORATION STATUS 8.01 Cure Obligation; Indemnification. If any Stockholder (the "Defaulting Stockholder") causes an event that results in the failure of the Company to qualify as a close corporation under Section 342 of the General Corporation Law of the State of Delaware, each of the Company, the Defaulting Stockholder, and the other Stockholders shall use its best efforts (i) to correct the situation that threatens the Company's status as a close corporation and (ii) to satisfy the requirements of Section 348 of the General Corporation Law of the State of Delaware, or any successor provision thereto, so as to preserve the Company's status as a close corporation. The Defaulting Stockholder shall indemnify the Company and the other Stockholders for all damages, costs and expenses, including reasonable legal fees and expenses, incurred by the Company and the other Stockholders in order to comply with this Article Loss of Close Corporation Status. If the Company loses voluntarily or involuntarily its close corporation status under the General Corporation Law of the State of Delaware, each Stockholder hereby agrees to cause the amendment of the Certificate of Incorporation of the Company and the By-Laws of the Company and each party to this Agreement hereby agrees to cause the amendment of this Agreement and the execution or amendment of any and all other agreements in order to provide each party hereto with substantially the same rights and obligations with respect to any matter covered by this Agreement as granted to such party in this Agreement Stockholder Vote on Close Corporation Status. In the event that the holders of eighty percent (80%) of the issued and outstanding shares of the Company entitled to vote thereon determine to take

143 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 22 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 19 User: BSKELLE EFW: Doc # 7 any action referred to in Section 3.01(l) hereof or otherwise determine to terminate the Company's close corporation status under Section 342 of the General Corporation Law of the State of Delaware, then the Stockholder or Stockholders voting in favor of such termination or other action shall not be liable as a "Defaulting Stockholder" under Section 8.01 hereof and this Agreement shall be appropriately amended pursuant to Section 8.02 hereof to reflect the fact that the Company is no longer a "close corporation." Notwithstanding the provisions of Section hereof, the amendments to this Agreement pursuant to Section 8.02 or 8.03 necessary to reflect the termination of the Company's "close corporation" status shall be effective upon the affirmative vote of eighty percent (80%) of the outstanding shares of the Company entitled to vote thereon. ARTICLE IX ADDITIONAL PARTIES No party hereto may assign its obligations, rights or interests herein without the written consent of all the MSOs; provided any MSO may assign its interest under this Agreement to any Affiliate thereof provided such Affiliate assumes all of such MSO's liabilities and obligations hereunder. Any purchaser or transferee from any party hereto of Shares, other than a purchaser or transferee of Shares pursuant to the exercise of a remedy by the Agent or the Banks under a Pledge Agreement which purchaser or transferee is not a party hereto, shall be obligated to assume all obligations and liabilities hereunder (other than the carriage commitments under Section 4.02 which shall remain the obligation of each MSO on the terms and conditions set forth in Section 4.02) and shall be entitled to all the rights hereunder of such party with respect to such purchased Shares. ARTICLE X MISCELLANEOUS Further Assurances. From time to time after the date hereof, the parties will, at their expense, and without further consideration, execute and deliver such other documents and instruments and take all such other actions as are reasonably requested to effect this Agreement. Without limiting the generality of the foregoing, the parties agree that the By-Laws and the Certificate of Incorporation of the Company shall contain such provisions as shall be consistent with and permit the effectuation of the provisions of this Agreement and further agree to take all such action as may be required from time to time to adopt or amend the By-Laws or Certificate of Incorporation of the Company accordingly Parties in Interest. All covenants, agreements, representations, warranties and undertakings in this Agreement made by and on behalf of any of the parties hereto other than the covenants, agreements and undertakings set forth in Section 4.02 shall bind and inure to the benefit of their respective successors, assigns and personal representatives, and in the case of Hendricks, to Hendricks' estate. The obligations of each MSO under Section 4.02 shall remain each such MSO's obligation on the terms and conditions set forth in Section Amendments. Except with respect to those amendments required pursuant to Section 8.02 or 8.03, this Agreement may only be amended or modified by the unanimous decision of the MSOs, provided that no such amendment which adversely affects Hendricks' rights or Obligations shall be effective without Hendricks' consent. Upon the adoption of any amendment or modification hereto, the MSOs shall notify Hendricks thereof and unless Hendricks shall have objected to any such amendment or modification on the basis that it adversely affects his rights or obligations within ten (10) days after Hendricks' receipt of such notice, such amendment shall become effective Governing Law. This Agreement, together with the rights and obligations of the parties hereunder, shall be governed by, construed and enforced in accordance with the internal laws of the State of Delaware without reference to principles of conflict of laws.

144 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 23 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 20 User: BSKELLE EFW: Doc # Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement shall not in any way be affected or impaired thereby, and the application of such provision to other Persons or circumstances shall not be affected thereby and shall be enforced against such Person as well as all other Persons to the greatest extent permitted by law. Upon the invalidity or unenforceability of any provision of this Agreement, the MSOs shall enter into good faith negotiations in an effort to reach mutual agreement upon one or more new replacement provisions addressing the subject matter of the provision rendered invalid or unenforceable, provided no such new replacement provision shall adversely affect Hendricks' rights or obligations; and further provided, the failure to conclude such negotiations or to agree upon such new replacement provisions shall not be deemed a breach of this Agreement or otherwise give rise to any further rights or obligations of the parties with regard to any such invalid or unenforceable provision Notices. All notices and other communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given to a party when delivered in person to such party (or, in the case of a corporate party, to the President or any Vice President thereof), or when sent prepaid by recognized overnight courier, on the date sent with telephonic or telex confirmation to such party on the date sent, or three (3) business days after such notice is enclosed in a properly sealed envelope, certified or registered, and deposited (postage and certification or registration prepaid) in a post office or collection facility regularly maintained by the United States Postal Service and sent to the address set forth below the party's signature hereto (or to such other address as any party shall have last designated by notice to others) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument Captions. The captions and headings of this Agreement are for convenience only and are not to be construed as defining or limiting the scope or intent of any of the provisions hereof Complete Agreement. This document embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof. This document supersedes and preempts any prior understandings, agreements, or representations by or among the parties, written or oral, which may have related to the subject matter hereof. In the event of any inconsistency or conflict between the provisions of this Agreement and any other agreement between the Company and a Stockholder dealing with the subject matter of this Agreement which has not been terminated pursuant to Section 10.13, the provisions of this Agreement shall govern and supersede the inconsistent or conflicting provisions of such other agreement Remedies. The parties agree and acknowledge that money damages may not be an adequate remedy for breach of any of the provisions of this Agreement, and that each such party shall be entitled, in its sole discretion, to apply to any court of competent jurisdiction for specific performance or injunctive relief in order to enforce or prevent any violation of the provisions of this Agreement, in addition to its remedies at law Company Action Regarding Shares. The Company shall not transfer on its books or take any action with respect to any Shares disposed of contrary to, or in violation of, this Agreement or that would terminate the Company's status as a close corporation under the General Corporation Law of the State of Delaware, and any transferee thereof shall neither be deemed to be the record or beneficial owner of any such Shares nor to be entitled to any of the rights or privileges thereof. Notwithstanding anything to the contrary in this Section 10.11, the Company shall be required to transfer on its books any transfer of Shares resulting from the exercise by the Agent or the Banks of a remedy under a Pledge Agreement.

145 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 24 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 21 User: BSKELLE EFW: Doc # Effective Date; Termination. This Agreement shall become effective on the date hereof and shall continue in full force and effect until terminated by the unanimous decision of the MSOs. If any Stockholder or other Person subject to this Agreement shall no longer own any Shares, such Stockholder or other Person shall thereupon cease to have any rights or obligations under this Agreement (other than the carriage commitments under Section 4.02 which shall remain the obligation of each MSO and United on the terms and conditions set forth in Section 4.02), except to the extent that it has violated any of the terms or provisions hereof and except as otherwise provided herein Termination of Other Agreements. This Agreement supersedes and terminates the Amended and Restated Memorandum of Agreement, dated December 31, 1990, as amended, by and among the Company and its stockholders, the Shareholders Agreement, dated June 25, 1986 by and among the Company and certain of its stockholders, the Memorandum of Agreement, dated October 26, 1988, and the Amended and Restated Memorandum of Agreement, dated November 1, Confidentiality. Except as required by law or government regulation and as reasonably necessary for the solicitation by any Stockholder in good faith of bona fide offers for all or a portion of such Stockholder's Shares pursuant to Section 6.02(a), (i) none of the parties hereto shall announce the existence or terms of this Agreement or any transaction contemplated hereby without the consent of the other parties hereto, and (ii) all public announcements by the parties concerning this Agreement or any transaction contemplated hereby shall be reasonably satisfactory to and previously approved by the parties hereto.

146 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 25 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 22 User: BSKELLE EFW: Doc # 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. DISCOVERY COMMUNICATIONS, INC. By: /s/ JOHN S. HENDRICKS Name: John S. Hendricks Title: Chairman and Chief Executive Officer 7700 Wisconsin Avenue Bethesda, Maryland Attention: Mr. John S. Hendricks, Chairman and Chief Executive Officer JOHN S. HENDRICKS /s/ JOHN S. HENDRIKS 7700 Wisconsin Avenue Bethesda, Maryland COX DISCOVERY, INC. By: /s/ AJIT DALVI Name: Ajit Dalvi Title: Vice President 1400 Lake Hearn Drive Atlanta, GA Attention: Ajit Dalvi VicePresident NEWCHANNELS TDC INVESTMENTS, INC. By: /s/ ROBERT MIRON Name: Robert Miron Title: President 5015 Campuswood Drive East Syracuse, NY Attention: Robert Miron, President

147 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 26 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 23 User: BSKELLE EFW: Doc # 7 TCI CABLE EDUCATION, INC. By: /s/ FRED A. VIERRA Name: Fred A. Vierra Title: Executive Vice President 5619 DTC Parkway Englewood, Colorado Attention: Fred A. Vierra Accepted and agreed with respect only to Section 4.02 of this Agreement: DISCOVERY PROGRAMMING INVESTMENT, INC. By: /s/ FRED A. VIERRA Name: Fred A. Vierra Title: Executive Vice President 5619 DTC Parkway Englewood, Colorado Attention: Fred A. Vierra

148 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 27 File: DISK015:[05DEN5.05DEN1445]GG1445A.;7 Created: 21-JUN-2005;19:58 Chksum: Folio: 24 User: BSKELLE EFW: Doc # 7 SCHEDULE I Capital Stock Number of Issued Shares of Capital Stock Ownership Percentage Cox 12, NewChannels 12, TCID 25, Hendricks TOTAL 51,

149 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: Doc # 7 QuickLinks Exhibit 10.1

150 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: Doc # 7 </TEXT> </DOCUMENT>

151 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: Doc # 8 <DOCUMENT> <TYPE> EX-10.2 <DESCRIPTION> Ex 10.2 <FILENAME> a zex-10_2.htm <TEXT>

152 File: DISK015:[05DEN5.05DEN1445]HA1445A.;6 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:32 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 1 Folio: BLANK Doc # 8 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.2 FIRST AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC. THIS FIRST AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC. is made as of this 20th day of December 1996, by and among Discovery Communications, Inc., Cox Communications Holdings, Inc., Newhouse Broadcasting Corporation ("Newhouse") as successor in interest to NewChannels TDC Investments, Inc., TCI Cable Education, Inc., John S. Hendricks and for the purposes stated herein only, LMC Animal Planet, Inc. ("LMC") and Liberty Media Corporation, a Colorado corporation ("Liberty"). WHEREAS, Section of that certain Shareholders Agreement dated as of November 30, 1991, by and among Discovery Communications, Inc., Cox Communications Holdings, Inc., Newhouse as successor in interest to NewChannels TDC Investments, Inc., TCI Cable Education, Inc., John S. Hendricks and for purposes of Section 4.02 only, Discovery Programming Investment, Inc. (the "Shareholders Agreement") provides for amendment of the Shareholders Agreement; NOW, THEREFORE, the parties hereto intending to be legally bound, agree as follows: 1. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to such terms in the Shareholders Agreement. 2. The parties hereto agree that the Shareholders Agreement is hereby amended as follows: 2.1 (a) Article I of the Shareholders Agreement is hereby amended to add the following definitions: "Partnership Agreement" shall mean the Limited Partnership Agreement of Animal Planet, L.P. dated as of December 20, 1996 by and among Animal Planet, L.L.C., LMC, Newhouse and Cox. "Partnership Interest" shall mean any and all equity interest in Animal Planet, L.P., a Delaware limited partnership, which any Stockholder or any Affiliate thereof now holds or has the right to acquire or which any Stockholder or any Affiliate thereof hereafter acquires or has the right to acquire, irrespective of the manner of such acquisition, including, without limitation, any equity interest acquired by reason of any purchases by, or transfer or issuance to, any such Stockholder or any Affiliate thereof; provided, however, that "Partnership Interest" shall not include any Senior Preferred Partnership Units in Animal Planet, L.P. (b) Article I of the Shareholders Agreement is hereby amended to add the following to the end of the definition of "Shares": ", together with any Partnership Interest of such Stockholder or Affiliate." 2.2 The introductory clause of Section 6.01(a) shall be deleted in its entirety, and the following substituted therefor: "There shall be no Transfer by any Stockholder of any Shares, or by any Partner of any portion of its Partnership Interest, in any manner or by any means whatsoever except for the following Transfers which shall be permitted provided that the transferor complies with all of the applicable requirements in this Article VI. For purposes of this Article VI, "Stockholder" means Cox, Newhouse, TCID, LMC, Hendricks, and their permitted assignees and transferees (other than an assignee or transferee of Shares pursuant to the exercise of a remedy by the Agent or the Banks under a Pledge Agreement which assignee or transferee is not a party hereto)."

153 Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]HA1445A.;6 Created: 21-JUN-2005;19:58 Chksum: Folio: 2 User: BSKELLE EFW: Doc # The ninth line of clause 6.02(d) of the Shareholders Agreement is amended to add the following after "Offered Shares": "(and documents appropriate to transfer the Partnership Interest)" 2.4 The tenth and fourteenth lines of Article IX of the Shareholders Agreement are amended to add following after "hereunder" in each such line: "or under the Partnership Agreement, as applicable," 3. Prior to the date hereof, NewChannels TDC Investments, Inc. transferred its Shares to its parent corporation, Newhouse Broadcasting Corporation, a New York corporation, pursuant to Section 6.01(a)(i) of the Shareholders Agreement. Newhouse Broadcasting Corporation hereby agrees to be bound by and assume all obligations and restrictions under the Shareholders Agreement as if Newhouse Broadcasting Corporation were an original party to the Shareholders Agreement and as if all references in the Shareholders Agreement to "Stockholder" referred to Newhouse Broadcasting Corporation. 4. Article VI of the Shareholders Agreement is amended by adding the following Section 6.08 at the end thereof: "6.08 Transfer of Stock of TCID and LMC. Liberty Media Corporation ("Liberty") hereby agrees that it shall not, directly or indirectly, Transfer, or permit the Transfer of, the capital stock of TCID or LMC in such a manner that both TCID and LMC are not controlled by the same person. For these purposes, "controlled" shall have the meaning as ascribed thereto in the definition of the term "Affiliate." Liberty shall cause any transferee of the capital stock of TCID and LMC to execute and deliver to the Company a written agreement to the effect that such transferee shall be subject to the obligations and restriction set forth in this Section 6.08 as if such transferee were an original party hereunder and as if all references in this Agreement to "Liberty" referred to such transferee." 5. This First Amendment shall become effective immediately upon the execution of this First Amendment by all parties hereto. 6. Except as expressly modified hereby, the Shareholders Agreement shall remain in full force and effect. 7. This First Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties herein have executed this instrument as of the date first set forth above. /s/ DISCOVERY COMMUNICATIONS, INC. /s/ JOHN S. HENDRICKS /s/ COX COMMUNICATIONS HOLDINGS, INC. /s/ NEWHOUSE BROADCASTING CORPORATION /s/ TCI CABLE EDUCATION, INC. /s/ LMC ANIMAL PLANET, INC.

154 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: Doc # 8 QuickLinks FIRST AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC.

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156 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:32 (v.162) HTML Page: Doc # 9 <DOCUMENT> <TYPE> EX-10.3 <DESCRIPTION> Ex 10.3 <FILENAME> a zex-10_3.htm <TEXT>

157 File: DISK015:[05DEN5.05DEN1445]HM1445A.;5 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:32 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 1 Folio: BLANK Doc # 9 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.3 SECOND AMENDMENT TO SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC. This SECOND AMENDMENT TO SHAREHOLDERS AGREEMENT (the "Amendment") is made and entered into as of September 7, 2000, by and among Discovery Communications, Inc., a Delaware corporation (the "Company"), Cox Communications Holdings, Inc., a Delaware corporation ("Cox") (the successor to Cox Discovery, Inc.), Advance/Newhouse Programming Partnership, a New York general partnership ("A/NPP") (the successor to Newhouse Broadcasting Corporation), LMC Discovery, Inc. (formerly known as TCI Cable Education, Inc.), a Colorado corporation ("TCID") and John S. Hendricks ("Hendricks") (Cox, A/NPP, TCID and Hendricks and their permitted assignees and transferees are referred to herein collectively as "Stockholders" and individually as a "Stockholder"). RECITALS WHEREAS, the Stockholders agree that the Persons to whom Hendricks may transfer Shares hereunder shall be increased to include certain specified entities (the "Exempt Tranferees"); WHEREAS, Hendricks and the Company concurrently herewith are executing the Amended and Restated Option Agreement dated as of the date hereof which extends to the Company certain additional rights to repurchase Shares if owned by any of such Exempt Transferees; WHEREAS, Section of that certain Shareholders Agreement, dated as of November 30, 1991, by and among Discovery Communications, Inc., Cox Discovery, Inc., NewChannels TDC Investments, Inc., TCI Cable Education, Inc., John S. Hendricks and for purposes of Section 4.02 only, Discovery Programming Investment, Inc. (the "Shareholders Agreement") provides for amendment of the Shareholders Agreement; NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as follows: 1. Article I of the Shareholders Agreement shall be amended to include the following: "Hendricks Charitable Foundation" shall mean the John and Maureen Hendricks Charitable Foundation under Agreement dated April 27, "Hendricks Charitable Remainder Trust" shall mean any charitable remainder trust of which Hendricks is a grantor and to which the Company has given its advance written consent to Hendricks' transfer or assignment of Shares. "Hendricks Family Foundation" shall mean the John S. Hendricks Family Foundation under Agreement dated September 21, Article VI of the Shareholders Agreement shall be amended by inserting at the end of Section 6.01(a)(i) the following: and in the case of Hendricks to any of the Hendricks Charitable Remainder Trust(s), the Hendricks Family Foundation, the Hendricks Charitable Foundation and/or to a member of Hendricks' Immediate Family or to Hendricks' estate. 3. Article VI of the Shareholders Agreement shall be amended by inserting in Section 6.01(a)(ii) after "Shares" the following: or by the Hendricks Charitable Remainder Trust(s), the Hendricks Family Foundation or the Hendricks Charitable Foundation. 4. Article X of the Shareholders Agreement shall be amended by inserting at the end of the first sentence of Section after "estate" the following: and to any of the Hendricks Charitable Remainder Trust(s), the Hendricks Family Foundation and the Hendricks Charitable Foundation to which Hendricks shall have transferred Shares.

158 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]HM1445A.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 2 User: BSKELLE EFW: Doc # 9 5. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to such terms in the Shareholders Agreement. 6. This Second Amendment shall become effective immediately upon the execution of this Second Amendment by all parties hereto. 7. Except as expressly amended hereby, the Shareholders Agreement shall remain in full force and effect. 8. This Second Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties herein have executed this instrument as of the date first set forth above. August 16, 2000 /s/ DISCOVERY COMMUNICATIONS, INC August 16, 2000 /s/ COX COMMUNICATIONS HOLDINGS, INC. August 16, 2000 /s/ ADVANCE/NEWHOUSE PROGRAMMING PARTNERSHIP By: ADVANCE COMMUNICATION CORP. A General Partner August 16, 2000 /s/ TCI CABLE EDUCATION, INC. August 16, 2000 /s/ JOHN S. HENDRICKS

159 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: Doc # 9 QuickLinks SECOND AMENDMENT TO SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC.

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161 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: Doc # 10 <DOCUMENT> <TYPE> EX-10.4 <DESCRIPTION> Ex 10.4 <FILENAME> a zex-10_4.htm <TEXT>

162 File: DISK015:[05DEN5.05DEN1445]JA1445A.;5 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 1 Folio: BLANK Doc # 10 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.4 THIRD AMENDMENT TO SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC. THIRD AMENDMENT TO SHAREHOLDERS AGREEMENT, dated as of September, 2001 (the "Third Amendment"), by and among Discovery Communications, Inc., a Delaware close corporation (the "Company"), Cox Communications Holdings, Inc., a Delaware corporation (as successor in interest to Cox Discovery, Inc., "Cox"), Advance/Newhouse Programming Partnership, a New York general partnership (as successor in interest to Newhouse Broadcasting Corporation, "Newhouse"), LMC Discovery, Inc., a Colorado corporation (formerly known as TCI Cable Education, Inc., "LMC"), John S. Hendricks ("Hendricks"; and together with Cox, LMC and Newhouse, the "Existing Stockholders"), and Advance Programming Holdings Corp., a New York corporation ("Advance", and together with the Existing Stockholders, collectively the "Stockholders" and each individually as a "Stockholder"). RECITALS A. The Existing Stockholders are parties to that certain Shareholders Agreement, dated as of November 30, 1991, of the Company (as the same has been and shall be amended from time to time, the "Shareholders Agreement"). Unless otherwise defined herein, capitalized terms used herein which are defined in the Shareholders Agreement shall have the same meanings when used herein as therein defined. B. The Company has offered for sale that certain Class B Non-voting common stock, $0.01 par value (the "Class B Stock") to each of the Existing Stockholders, pro rata, based on the equity held thereby in the Company. Newhouse has requested that in lieu of Newhouse, Advance be permitted to acquire the pro rata portion of the Class B Stock that Newhouse would otherwise be entitled to acquire (the "Newhouse Portion"). In connection therewith, and as a precondition thereto, Advance shall be admitted as a party to the Shareholders Agreement. The Existing Stockholders, which constitute the holders of all of the issued and outstanding equity of the Company, have agreed that Advance may acquire the Newhouse Portion and be admitted as a party to the Shareholders Agreement. C. In accordance with Section of the Shareholders Agreement, the parties hereto desire to evidence the agreement of each of the Existing Stockholders to the acquisition by Advance of the Newhouse Portion, to amend the Shareholders Agreement to provide for the addition of Advance as a party thereto and to otherwise reflect the issuance of the Class B Stock. NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as follows: 1. By execution and delivery of this Third Amendment thereby, each of the Existing Stockholders hereby consents to the acquisition by Advance of the Newhouse Portion. 2. By execution and delivery of this Third Amendment, Advance is hereby admitted as a party to the Shareholders Agreement and Advance agrees to be bound by and subject to the terms and provisions thereof. 3. The definitions of "Stockholder" and "Stockholders" as set forth in the preamble of the Shareholders Agreement are hereby amended to include Advance as a "Stockholder". 4. Article I of the Shareholders Agreement is hereby amended to delete the definition of "Capital Stock" therefrom, to insert the following definition of "Capital Stock" in lieu thereof, and include the following additional definitions therein: "Advance" shall mean Advance Programming Holdings Corp., a New York corporation. "Capital Stock" shall mean the Class A Stock and the Class B Stock.

163 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]JA1445A.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 2 User: BSKELLE EFW: Doc # 10 "Class A Stock" shall mean the Class A Common Stock, par value $0.01 per share, of the Company. "Class B Stock" shall mean the Class B Non-voting Common Stock, par value $0.01 per share, of the Company." 5. Article II of the Shareholders Agreement is hereby amended by deleting Section 2.02 therefrom and inserting the following Section 2.02 in lieu thereof: "2.02 Voting Rights. a. Each Stockholder shall be entitled to one (1) vote (or fraction thereof) for each share of Class A Stock (or fraction thereof) owned by such Stockholder. b. Each Stockholder shall not be entitled to any vote for any share of Class B Stock (or fraction thereof) owned by such Stockholder, except as may otherwise be required by the laws of the State of Delaware." 6. Schedule I to the Shareholders Agreement is herby deleted from therefrom and Schedule I attached hereto is hereby inserted in lieu thereof. 7. This Third Amendment shall become effective immediately upon the execution of this Third Amendment by all parties hereto. 8. Except as expressly amended hereby, the Shareholders Agreement shall remain in full force and effect in accordance with its terms. 9. This Third Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties herein have executed this Third Amendment as of the date first set forth above. /s/ DISCOVERY COMMUNICATIONS, INC. /s/ COX COMMUNICATIONS HOLDINGS, INC. /s/ ADVANCE/NEWHOUSE PROGRAMMING PARTNERSHIP By: ADVANCE PROGRAMMING HOLDINGS CORP. A General Partner /s/ LMC DISCOVERY, INC. /s/ JOHN S. HENDRICKS /s/ ADVANCE PROGRAMMING HOLDINGS CORP.

164 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]JA1445A.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 3 User: BSKELLE EFW: Doc # 10 Stockholder Schedule I Class A Common Stock Class B Non-voting Stock LMC Discovery, Inc. 25,200 Shares 25,200 Shares Advance/Newhouse Programming Partnership 12,600 Shares 0 Shares Advance Programming Holdings Corp. 0 Shares 12,600 Shares Cox Communications Holdings, Inc. 12,600 Shares 12,600 Shares John S. Hendricks 215 Shares 215 Shares

165 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: Doc # 10 QuickLinks THIRD AMENDMENT TO SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC.

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167 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: Doc # 11 <DOCUMENT> <TYPE> EX-10.5 <DESCRIPTION> Ex 10.5 <FILENAME> a zex-10_5.htm <TEXT>

168 File: DISK015:[05DEN5.05DEN1445]KA1445A.;6 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 1 Folio: BLANK Doc # 11 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.5 FOURTH AMENDMENT TO SHAREHOLDERS AGREEMENT OF DISCOVERY COMMUNICATIONS, INC. FOURTH AMENDMENT TO SHAREHOLDERS AGREEMENT, dated as of June 23, 2003 (this "Fourth Amendment"), by and among Discovery Communications, Inc., a Delaware close corporation (the "Company"), Cox Communications Holdings, Inc., a Delaware corporation (as successor in interest to Cox Discovery, Inc., "Cox"), Advance/Newhouse Programming Partnership, a New York general partnership (as successor in interest to Newhouse Broadcasting Corporation, "Newchannels"), LMC Discovery, Inc., a Colorado corporation (formerly known as TCI Cable Education, Inc., "TCID"), Liberty Animal, Inc., a Delaware corporation (as successor in interest to LMC Animal Planet Inc., "LAI") for the purposes stated in the First Amendment to the Shareholders Agreement (as defined below) for so long as LAI owns a Partnership Interest, and John S. Hendricks ("Hendricks"). RECITALS A. The Company, Cox, Newchannels, TCID and Hendricks (and for the purposes stated in the First Amendment thereto, LAI) are parties to that certain Shareholders Agreement, dated as of November 30, 1991, of the Company (as the same has been amended prior to the date hereof, the "Shareholders Agreement"). Unless otherwise defined herein, capitalized terms used herein that are defined in the Shareholders Agreement shall have the same meanings when used herein as therein defined. B. Simultaneously with the execution and delivery by the parties hereto of this Fourth Amendment, the Company has redeemed from Hendricks all of the Capital Stock owned by Hendricks (the "Hendricks Shares"), under and pursuant to the terms of the Amended and Restated Option Agreement, dated as of September 29, 2000, between the Company and Hendricks (the "Option Agreement") and as set forth in that certain Redemption Agreement, dated as of even date herewith, between the Company and Hendricks (the "Redemption Agreement"). C. In addition, simultaneously with the execution and delivery of this Fourth Amendment, and pursuant to the consent by and waiver of each of TCID and Cox to the transactions referred to above, Hendricks is purchasing from Newchannels (the "Hendricks Purchase") one share of the Class A Common Stock, par value $0.01 per share, of the Company (the "NH Purchased Share"), pursuant to that certain Stock Purchase Agreement, dated as of even date herewith (the "Stock Purchase Agreement"), by and among Hendricks, Newchannels, Cox, TCID and the Company. Pursuant to the Stock Purchase Agreement, Hendricks is also granting to Newchannels a proxy to vote the NH Purchased Share, and Hendricks and Newchannels are each granting to the other certain rights to put and call the NH Purchased Share. D. To reflect the foregoing, and in connection with the realignment of the ownership interests held by the Stockholders as a result of the transactions contemplated by the Redemption Agreement and the Hendricks Purchase, in accordance with Section of the Shareholders Agreement, the parties hereto desire to amend the Shareholders Agreement as set forth below.

169 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]KA1445A.;6 Created: 21-JUN-2005;19:58 Chksum: Folio: 2 User: BSKELLE EFW: Doc # 11 NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: I. AMENDMENTS TO AGREEMENT 1. The preamble of the Shareholders Agreement is hereby deleted in its entirety and the following inserted in lieu thereof: "This SHAREHOLDERS AGREEMENT made as of November 30, 1991 (the "Agreement") by and among Discovery Communications, Inc., a Delaware corporation (the "Company", which term shall include CEN, as the predecessor in interest of the Company), Cox Communications Holdings, Inc., a Delaware corporation, as successor in interest to Cox Discovery, Inc, a Delaware corporation ("Cox"), Advance/Newhouse Programming Partnership, a New York general partnership, as successor in interest to Newchannels TDC Investments, Inc., a New York corporation ("Newchannels"), LMC Discovery, Inc., f/k/a TCI Cable Education, Inc., a Colorado corporation ("TCID") and John S. Hendricks ("Hendricks"), and for the purposes stated in the First Amendment to this Agreement only, Liberty Animal, Inc., a Delaware corporation ("LAI"), as successor in interest to LMC Animal Planet Inc., Cox, Newchannels, and TCID and their permitted assignees and transferees are referred to herein collectively as the "Stockholders" and individually as a "Stockholder"; provided, however, that, so long as LAI or any of its Affiliates owns any Partnership Interest (as defined herein), LAI and its permitted assignees and transferees will be deemed to be a "Stockholder" for purposes of Article VI and any Transfer of a Partnership Interest by any Stockholder." 2. Article I of the Shareholders Agreement is hereby amended to delete the definitions of "Capital Stock", "Immediate Family" and "Shares" therefrom and to insert the following definitions of "Capital Stock", "Immediate Family" and "Shares" in lieu thereof, and Article I is further amended to insert therein the following additional definitions: "Affiliated Persons" shall have the meaning set forth in Section 3.01(b). "Arbitrator" shall have the meaning set forth in Section 3.03(a). "Capital Stock" shall mean any of the Class A Stock, the Class B Stock and Seller's Stock Purchase Agreement Rights. "Deadlock" shall have the meaning set forth in Section 3.03(a). "Deadlock Matter" shall have the meaning set forth in Section 3.03(a). "Fourth Amendment" shall mean the Fourth Amendment to this Agreement, dated as of June 23, 2003, by and among the Stockholders, LAI, Hendricks and the Company. "Hendricks Purchase" shall have the meaning set forth in Recital C to the Fourth Amendment. "LAI" shall have the meaning set forth in the preamble to this Agreement. "NH Proxy" shall have the meaning set forth in Section "NH Purchased Share" shall have the meaning set forth in Recital C to the Fourth Amendment. "Immediate Family" shall mean, with respect to Hendricks and to any Stockholder who is an individual, the spouse, the siblings (by birth or adoption), and any lineal ascendants and descendants thereof and of the spouse and siblings (by birth or adoption) thereof.

170 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]KA1445A.;6 Created: 21-JUN-2005;19:58 Chksum: Folio: 3 User: BSKELLE EFW: Doc # 11 "Seller's Stock Purchase Agreement Rights" shall mean all the rights and obligations of Seller (as defined in the Stock Purchase Agreement), which may be assigned by Seller in accordance with Section 5.08 of the Stock Purchase Agreement. "Shares" shall mean any and all Capital Stock and any and all other equity securities or Company Convertible Securities of the Company which any Stockholder or any Affiliate thereof now holds or has the right to acquire or which any Stockholder or any Affiliate thereof hereafter acquires or has the right to acquire, irrespective of the manner of such acquisition, including, without limitation, any Capital Stock, equity securities or Company Convertible Securities of the Company (whether issued by the Company or otherwise) acquired by reason of any split-up, recapitalization, preemptive rights, stock dividend, combination, conversion or exchange of shares of Capital Stock or other equity securities or Company Convertible Securities of the Company, or acquired by reason of any purchases by, or transfer or issuance to, any such Stockholder or any Affiliate thereof, together with any Partnership Interest of such Stockholder or Affiliate. "Stock Purchase Agreement" shall mean the Stock Purchase Agreement, dated as of June 23, 2003, among Hendricks, Newchannels, Cox, TCID and the Company. 3. Section 2.01 of the Shareholders Agreement is hereby deleted in its entirety and the following Section 2.01 inserted in lieu thereof: "2.01 Management of the Company. The Company shall be managed by the Stockholders pursuant to the provisions of the General Corporation Law of the State of Delaware, and specifically Section 351 thereof, and in accordance with the terms and provisions of this Agreement." 4. Section 2.03 of the Shareholders Agreement is hereby deleted in its entirety and the following Section 2.03 inserted in lieu thereof: "Except as expressly authorized by this Agreement, including without limitation by Section 2.04 below, none of the parties hereto shall enter into a voting trust or voting agreement with any other Person, give a proxy to any other Person, or otherwise agree with any other Person to restrict or limit the power to vote its Shares. Subject to Section 10.14, this Section shall not be deemed to preclude any Stockholder or any of such Stockholder's officers or agents from freely discussing at any time affairs of the Company with any other Person and disclosing to such Person the position of such Stockholder with respect to any issue concerning the Company, provided that, except as expressly authorized by this Agreement, including, without limitation, as authorized by Section 2.04 below, such Stockholder does not enter into a binding agreement concerning its voting with respect to such affairs or issues. Except as expressly authorized by this Agreement, the Arbitrator, if any, shall not enter into a voting trust or voting agreement with any other Person, give a proxy to any other Person, or otherwise agree with any other Person to restrict or limit the power to make determinations as Arbitrator pursuant to Section 3.03(a). Subject to Section 10.14, this Section shall not be deemed to preclude the Arbitrator, if any, from freely discussing at any time affairs of the Company with any Person and disclosing to such Person the position of the Arbitrator with respect to any issue concerning a Deadlock Matter, provided that, except as expressly authorized by this Agreement, the Arbitrator does not enter into a binding agreement concerning his/her determinations as Arbitrator pursuant to Section 3.03(a) with respect to such affairs or issues."

171 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]KA1445A.;6 Created: 21-JUN-2005;19:58 Chksum: Folio: 4 User: BSKELLE EFW: Doc # Article II of the Shareholders Agreement is hereby further amended to insert therein the following Sections 2.04 and 2.05: "2.04 Hendricks Proxy. Notwithstanding Section 2.03 above, upon the acquisition by Hendricks from Newchannels of one Share of the Class A Stock (the "NH Purchased Share"), under and pursuant to the terms of the Stock Purchase Agreement simultaneously with the execution and delivery of the Fourth Amendment, Hendricks shall give to Newchannels a proxy to vote the NH Purchased Share (the "NH Proxy") at any time and from time to time in accordance with the terms of the Stock Purchase Agreement. Unless earlier terminated in accordance with the terms of the Stock Purchase Agreement, the NH Proxy shall be and remain in effect for so long as Hendricks shall be the record owner of the NH Purchased Share. Newchannels may assign the NH Proxy only in accordance with the terms of the Stock Purchase Agreement Deemed Share of Newchannels. Prior to the exercise of the "Put" or "Call" under and as such terms are defined in the Stock Purchase Agreement, the books and records of the Company will reflect that Hendricks owns of record the NH Purchased Share. Notwithstanding such record ownership of the NH Purchased Share, for all purposes of this Agreement, (i) Newchannels will be deemed to be the beneficial owner of the NH Purchased Share, and (ii) the Company will be entitled to rely upon any and all written directions and instructions from Newchannels regarding the exercise of, or failure to exercise, any and all rights and benefits associated with the NH Purchased Share, and other than a direction with respect to an assignment of record ownership made in accordance with the Stock Purchase Agreement, the Company shall not rely on or follow any such written directions or instructions from Hendricks with respect to the NH Purchased Share. So long as Hendricks is the record owner of the NH Purchased Share, (x) no party hereto shall be prohibited or otherwise restricted in any manner from making any public communication (written or oral) that Hendricks is a stockholder of the Company (notwithstanding that Hendricks has ceased to be the beneficial owner of any Capital Stock) and (y) unless otherwise required by law, no party hereto shall disclose in any public communication that Hendricks is anything less than a full stockholder of the Company (notwithstanding that Hendricks has ceased to be the beneficial owner of any Capital Stock). 6. Section 3.01(b) of the Shareholder Agreement is hereby deleted in its entirety and the following Section 3.01(b) inserted in lieu thereof: "b. Any transaction, except as provided in Section 3.02(f), entered into subsequent to the date hereof between (x) the Company or any of its Subsidiaries, and (y) either (i) a Stockholder or an Affiliate thereof, or, if applicable, a member of the Immediate Family thereof, or (ii) Hendricks, an Affiliate thereof or a member of the Immediate Family thereof (the Persons specified in (i) and (ii) of this clause (y) the "Affiliated Persons"), including, without limitation, the amendment of any currently outstanding agreement between the Company or any of its Subsidiaries and an Affiliated Person, other than an Affiliation Agreement with any of the MSOs or an Affiliate thereof as long as the Affiliation Agreement of each MSO or its Affiliate is substantially identical (except for differences in the effective rates charged to each MSO or its Affiliate provided such differences are based upon the number of Subscribers of such MSO and its Affiliates) to the Affiliation Agreement of each other MSO or its Affiliate; provided that on and after such time as Hendricks ceases to be the Arbitrator hereunder, the provisions of this Section 3.01 shall cease to apply to any transactions between the Company or any of its Subsidiaries, on the one hand, and Hendricks or any Affiliated Person thereof on the other hand."

172 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]KA1445A.;6 Created: 21-JUN-2005;19:58 Chksum: Folio: 5 User: BSKELLE EFW: Doc # Section 3.01(c) of the Shareholders Agreement is hereby deleted in its entirety and the following Section 3.01(c) inserted in lieu thereof: "(i) the election or the removal (other than for cause) of the Chairman and Chief Executive Officer of the Company, or (ii) the election or the removal (other than for cause) of the chief operating officer of the Company or of any operating division or Subsidiary thereof, provided that if at the time of such election or removal of any such chief operating officer, Hendricks is the Chief Executive Officer of the Company, such election or removal of any such chief operating officer shall not be effective unless Hendricks shall have consented in writing to such election or removal (other than for cause) of any such chief operating officer;" 8. Section 3.01 of the Shareholders Agreement is hereby amended by deleting the "or" at the end of subsection (p), by deleting the period at the end of subsection (q) and inserting "";" in lieu thereof, and by adding after subsection (q) the following new subsections (r), (s) and (t): "r. the removal of an individual from his/her position as the Arbitrator and/or the designation of an individual as the Arbitrator; s. the appointment of the Arbitrator as a member of, and the extension of an invitation to the Arbitrator to attend, any meeting of any committee of the Stockholders; or t. notwithstanding anything contained in Section 3.02(f), (i) any amendment to, or modification of, the Unit Appreciation and Incentive Agreement, dated as of April 22, 1994, between the Company and Hendricks, and (ii) the grant of or extension to Hendricks of any shares of Capital Stock, phantom equity or unit appreciation plan rights or benefits under any such unit appreciation plan or phantom equity plan." 9. Article III of the Shareholders Agreement is hereby further amended by inserting the following Section 3.03 at the end of Article III: "3.03 Deadlock Resolution. (a) In the event that any action requiring approval by the holders of a majority of the issued and outstanding shares of the Company entitled to vote thereon pursuant to Section 3.02 of this Agreement is proposed, and such action is approved by the holders of fifty percent (50%) (but not more than fifty percent (50%)) of the issued and outstanding shares of the Company entitled to vote thereon, and is therefore not initially approved pursuant to Section 3.02 of this Agreement (a "Deadlock"), the Stockholders agree that the proposed action which resulted in such Deadlock (the "Deadlock Matter") will be submitted to Hendricks, in his capacity as the Arbitrator, as specified in this Section 3.03(a), or if Hendricks is no longer the Arbitrator, the individual, if any, who has been designated by the Stockholders in accordance with Section 3.01(r) as the arbitrator for Deadlock Matters (Hendricks, or any such successor acting in such capacity, the "Arbitrator") under this Section Any Deadlock Matter will be resolved at a meeting of the Stockholders. In the event the Deadlock arises with respect to any matter upon which the written consent of Stockholders is sought, either the Company (to the extent the Chairman, President or General Counsel of the Company has actual knowledge of the proposed written consent request and the resulting Deadlock), or the Stockholder seeking such consent, as applicable, shall notify the Chairman of the Deadlock and the Chairman shall call and the Stockholders shall attend, a meeting of Stockholders as soon thereafter as is reasonably practical, at which meeting such Deadlock Matter will be proposed and discussions related thereto shall be conducted among the Stockholders and the Arbitrator with respect thereto. At the meeting of Stockholders (at which the Deadlock arose, or in the event the Deadlock arose in connection with a solicitation of written consents, at the Stockholder meeting held to address such Deadlock) and following such discussions, if applicable, the Arbitrator shall, at his/her option, but without obligation, approve the proposed action, not approve the proposed action or determine not to take any position with

173 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]KA1445B.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 6 User: BSKELLE EFW: Doc # 11 respect to the proposed action. In the event that the Arbitrator approves the proposed action, then such action shall be deemed approved and adopted by the Company for all purposes of Section 3.02 of this Agreement, the Certificate of Incorporation and Bylaws of the Company and the General Corporation Law of the State of Delaware. In the event that the Arbitrator does not approve the proposed action or determines not to take any position with respect to the proposed action, then such proposed action shall be deemed not approved for purposes of Section 3.02 of this Agreement. (b) Any determination made (or election not to make a determination) by the Arbitrator pursuant to this Section 3.03 will be final and binding upon the Company and the Stockholders. Nothing herein will require the Arbitrator to approve or disapprove any Deadlock Matter, and the Stockholders expressly acknowledge and agree that the Arbitrator may, from time to time, elect not to take any position and not to make any determination with respect to a Deadlock Matter. (c) Hendricks, as Chairman of the Company as of the date of the Fourth Amendment, is hereby designated by all of the Stockholders to serve as the initial Arbitrator until such time as (x) he ceases to be Chairman of the Company, (y) he voluntarily resigns from the position of Arbitrator (which resignation may be effected by Hendricks at any time with prior written notice to the Company and the Stockholders (which notice will be effective when given), without any liability to or obligation of, Hendricks, and without the resignation by Hendricks from any other position with the Company held at such time); or (z) he is removed as Arbitrator in accordance with the provisions of Section 3.01(r). In order for any Person thereafter to be selected as Arbitrator, such Person must be selected as Arbitrator in accordance with Section 3.01(r) of this Agreement. The Arbitrator need not be a holder of any Shares. (d) In the event there is a vacancy in the position of Arbitrator, the provisions of this Section 3.03 shall not be applicable to any Deadlock Matter occurring during the period of such vacancy. (e) The provisions of this Section 3.03 will be effective notwithstanding any personal or financial interest of the Arbitrator in any Deadlock Matter that concerns actions or matters described in Sections 3.02(d) and 3.02(f). (f) In connection with all acts and/or omissions taken by the Arbitrator pursuant to this Section 3.03, the Arbitrator will be entitled to all of the benefits and protections of the indemnification and other provisions set forth in Article 8 of the Company's Certificate of Incorporation, as amended, and Article 8 of the Company's Bylaws, as amended, as if the Arbitrator were a stockholder of the Company and as if any determination made by the Arbitrator with respect to a Deadlock Matter constituted an action taken by a Stockholder with respect to Shares voted thereby. The Stockholders shall not take or bring any action, claim or proceeding against the Arbitrator, nor permit the Company to bring any such action or proceeding, or make any claim or demand, directly or indirectly, against the Arbitrator, nor cause or permit the Company to bring any such claim or demand against the Arbitrator, based upon, as a result of or in connection with, the acts or omissions of the Arbitrator, including, without limitation, the Arbitrator's unconditional right to resign from such position at any time without liability or obligation provided that the foregoing agreement by the Stockholders to not take and to not permit the Company to take or bring any such action, claim or proceeding against the Arbitrator shall not be effective in the event of any breach by the Arbitrator of the covenant in the third sentence of Section (g) The Arbitrator will be entitled to receive notice of and to attend all meetings of Stockholders and to receive all written materials prepared for or distributed to the Stockholders at or prior to such meetings at the same time such materials are distributed to the Stockholders. The Arbitrator will be entitled to participate in all discussions among the Stockholders occurring at any

174 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]KA1445B.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 7 User: BSKELLE EFW: Doc # 11 meeting of Stockholders. Notwithstanding the foregoing, the Arbitrator will not be entitled to receive notice of, or attend or participate in, any meeting of any committee of the Stockholders unless the Stockholders appoint or invite the Arbitrator to such committee in accordance with Section 3.01(s)." 10. Article VI of the Shareholders Agreement shall be amended by deleting therefrom Section 6.01(a) and inserting the following Section 6.01(a) in lieu thereof: "(a) There shall be no Transfer by any Stockholder of any Shares in any manner or by any means whatsoever, except for the following Transfers which shall be permitted, provided that the Transfer is made in accordance with the applicable requirements of this Article VI: (i) any Transfer by a Stockholder of Shares to an Affiliate thereof; (ii) any Transfer by a Stockholder of Shares pursuant to a Third Party Offer in compliance with the provisions of Section 6.02; (iii) any Transfer of Shares by Cox or any of its Affiliates to Newchannels or any of its Affiliates (provided that Newchannels or any of its Affiliates is then a Stockholder), or any Transfer of Shares by Newchannels or any of its Affiliates to Cox or any of its Affiliates (provided that Cox or any of its Affiliates is then a Stockholder); provided, that a Transfer resulting in either (x) Cox together with its Affiliates, or (y) Newchannels together with its Affiliates holding in excess of fifty percent (50%) of the Capital Stock shall not be permitted under this Section 6.01(a)(iii); and (iv) any Transfer of the NH Purchased Share by Hendricks to Newchannels or any of its Affiliates, or to any transferee of the rights of Newchannels under the Stock Purchase Agreement, in each case in accordance with the terms and conditions of the Stock Purchase Agreement." 11. Article VI of the Shareholders Agreement is hereby further amended by deleting from Section 6.02(a) the first parenthetical clause in the first sentence thereof and inserting the following in lieu thereof: "(other than a Transfer described in subparagraph (i), subparagraph (iii) or subparagraph (iv) of Section 6.01(a))." 12. Article VI of the Shareholders Agreement is hereby further amended by deleting the first sentence of Section 6.02(b) and inserting in lieu thereof the following: "(b) So long as (i) Cox or any of its Affiliates, and (ii) Newchannels or any of its Affiliates are then Stockholders, any proposed Transfer of Offered Shares under Section 6.02(a) by either Cox or any of its Affiliates or Newchannels or any of its Affiliates (other than Transfers under Section 6.01(a)(i), Transfers under Section 6.01(a)(iii) and Transfers under Section 6.01(a)(iv))shall be subject to an initial right of first refusal by whichever of Cox or any of its Affiliates and Newchannels or any of its Affiliates is not the Transferor." 13. Article VI of the Shareholders Agreement is hereby further amended by deleting Section 6.05 therefrom in its entirety and inserting the following Section 6.05 in lieu thereof: "6.05 Restrictions on Voting Stock Ownership. Unless Shares have been acquired in compliance with the provisions of Article VI or VII, in no event shall (i) TCID together with its Affiliates, hold in excess of fifty percent (50%) of the Capital Stock, (ii) Cox, together with its Affiliates, hold in excess of fifty percent (50%) of the Capital Stock, (iii) Newchannels, together with its Affiliates, hold in excess of fifty percent (50%) of the Capital Stock, or (iv) Cox, Cox's Affiliates, Newchannels and Newchannels' Affiliates, collectively, hold in excess of fifty percent (50%) of the Capital Stock."

175 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]KA1445B.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 8 User: BSKELLE EFW: Doc # Article VI of the Shareholders Agreement is hereby further amended by deleting Section 6.07 in its entirety, and inserting in lieu thereof "Reserved". 15. Section to the Shareholders Agreement is hereby amended by deleting the word "Stockholder" in the third sentence and inserting in lieu thereof "party to this Agreement." 16. Section of the Shareholders Agreement is hereby amended by deleting the second sentence therefrom and inserting the following in lieu thereof: "If any Stockholder or LAI shall no longer own any Shares, such Stockholder or LAI, as applicable, shall thereupon cease to have any rights or obligations under this Agreement, except to the extent that the same has violated any of the terms or provisions hereof and except as otherwise provided herein. If Hendricks shall be neither Chairman of the Company nor the Arbitrator, he shall thereupon cease to have any rights or obligations under this Agreement, except to the extent that the same has violated any of the terms or provisions hereof and except as otherwise provided herein." II. CONSENTS AND WAIVERS By execution and delivery of this Fourth Amendment, each of the Stockholders (i) hereby consents to the Hendricks Purchase pursuant to and in accordance with the terms and conditions of the Stock Purchase Agreement, (ii) hereby consents to the granting of and the exercise of put and call options granted by each of Hendricks and Newchannels to the other, and to the granting of and the exercise of the NH Proxy, in each case under and pursuant to the terms of the Stock Purchase Agreement, and (iii) hereby waives compliance by Newchannels and Hendricks of the terms of provisions of Sections 6.01, 6.02, 6.03 and 6.04(i) in connection with the Hendricks Purchase. III. SCHEDULE I Schedule I to the Shareholders Agreement is hereby deleted in its entirety and Schedule I attached hereto is inserted in lieu thereof. The Company hereby represents and warrants that Schedule I to this Fourth Amendment accurately reflects the record ownership of issued and outstanding Capital Stock after giving effect to the transactions contemplated by the Redemption Agreement and the Stock Purchase Agreement. IV. MISCELLANEOUS Except as expressly amended hereby, the Shareholders Agreement shall remain in full force and effect in accordance with its terms. This Fourth Amendment may be executed in one or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that each party hereto need not sign the same counterpart. Facsimile copies of original signatures by either party hereto shall be deemed to be originals of such signatures.

176 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]KA1445B.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 9 User: BSKELLE EFW: Doc # 11 IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as of the date first set forth above. DISCOVERY COMMUNICATIONS, INC. By: /s/ MARK HOLLINGER Name: Mark Hollinger Title: Executive Vice President COX COMMUNICATIONS HOLDINGS, INC. By: /s/ JIMMY W. HAYES Name: Jimmy W. Hayes Title: Vice President ADVANCE/NEWHOUSE PROGRAMMING PARTNERSHIP By: ADVANCE PROGRAMMING HOLDINGS CORP. A General Partner By: /s/ ROBERT MIRON Name: Robert Miron Title: Vice President LMC DISCOVERY, INC. By: /s/ CHARLES Y. TANABE Name: Charles Y. Tanabe Title: Senior Vice President /s/ JOHN S. HENDRICKS JOHN S. HENDRICKS LIBERTY ANIMAL, INC. For purposes stated in the First Amendment to this Agreement. By: /s/ CHARLES Y. TANABE Name: Charles Y. Tanabe Title: Senior Vice President

177 Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]KA1445B.;5 Created: 21-JUN-2005;19:58 Chksum: Folio: 10 User: BSKELLE EFW: Doc # 11 Record Holder* Schedule I Class A Common Stock LMC Discovery, Inc. 25,200 Advance/Newhouse Programming Partnership 12,599 Cox Communications Holdings, Inc. 12,600 John S. Hendricks 1 * After the redemption of Hendricks' Capital Stock as described in Recital B and the purchase by Hendricks of the NH Purchased Share as described in Recital C.

178 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: Doc # 11 QuickLinks Exhibit 10.5

179 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: Doc # 11 </TEXT> </DOCUMENT>

180 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:33 (v.162) HTML Page: Doc # 12 <DOCUMENT> <TYPE> EX-10.6 <DESCRIPTION> Ex 10.6 <FILENAME> a zex-10_6.htm <TEXT>

181 File: DISK015:[05DEN5.05DEN1445]MA1445A.;3 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 1 Folio: BLANK Doc # 12 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.6 FORM OF TAX SHARING AGREEMENT BETWEEN LIBERTY MEDIA CORPORATION AND DISCOVERY HOLDING COMPANY

182 File: DISK015:[05DEN5.05DEN1445]MC1445A.;5 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) Created: 21-JUN-2005;19:58 Chksum: TABLE OF CONTENTS HTML Page: 2 Folio: I Doc # 12 SECTION 1. Definition of Terms 1 SECTION 2. Allocation of Income Tax Liabilities Federal Income Taxes State Income Taxes Foreign Income Taxes Other Taxes Special Rules Tax Payments 7 SECTION 3. Preparation and Filing of Tax Returns Combined Returns and Consolidated Returns Separate Returns and Other Returns Special Rules Relating to the Preparation of Tax Returns Reliance on Exchanged Information 9 SECTION 4. Tax Benefits, Refunds, and Carrybacks Tax Benefits Resulting from Carrybacks Other Tax Benefits 9 SECTION 5. Tax Payments Indemnification Payments Payment of Refunds Interest on Late Payments Initial Determinations and Subsequent Adjustments Tax Consequences of Payments 10 SECTION 6. Assistance and Cooperation 11 SECTION 7. Tax Records Retention of Tax Records Access to Tax Records 11 SECTION 8. Tax Contests Notices Control of Tax Contests Cooperation 12 SECTION 9. Restriction on Certain Actions of DHC; Indemnity Restrictive Covenants Indemnity Indemnification Procedures 14 Page

183 File: DISK015:[05DEN5.05DEN1445]MC1445A.;5 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:33 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 3 Folio: II Doc # 12 SECTION 10. General Provisions Termination Expenses Breach of Agreement Disputes and Jurisdiction Waiver of Jury Trial Notices Counterparts Binding Effect; Assignment Severability Amendment Effective Time Change in Law Authorization, Etc No Third Party Beneficiaries Entire Agreement 17

184 File: DISK015:[05DEN5.05DEN1445]ME1445A.;4 User: EROWE EFW: Printed: 24-Jun-2005;20:03:35 (v.162) Created: 23-JUN-2005;22:20 Chksum: TAX SHARING AGREEMENT HTML Page: 4 Folio: BLANK Doc # 12 THIS TAX SHARING AGREEMENT (this "Agreement") is entered into as of [ ], 2005, between Liberty Media Corporation, a Delaware corporation ("LMC"), and Discovery Holding Company, a Delaware corporation ("DHC"). Capitalized terms used in this Agreement are defined herein. Unless otherwise indicated, all "Section" references in this Agreement are to sections of this Agreement. RECITALS WHEREAS, DHC is a direct wholly owned subsidiary of LMC; and WHEREAS, the Board of Directors of LMC has determined that it would be appropriate and desirable for LMC to separate the DHC Group from the LMC Group; and WHEREAS, the Board of Directors of DHC has also approved such transaction; and WHEREAS, following the contribution of certain assets to DHC, LMC intends to distribute its entire interest in the stock of DHC to LMC's shareholders, pro rata, in what is intended to qualify as a tax-free reorganization described under Sections 368(a)(1)(D) and 355 of the Code or any corresponding provisions of any successor statute and that as a result of such transaction, DHC and its eligible Subsidiaries will cease to be members of the LMC Consolidated Group; and WHEREAS, the parties set forth in a Reorganization Agreement the principal arrangements between them regarding the separation of the DHC Group from the LMC Group; and WHEREAS, the parties desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the Contribution and Distribution, and to provide for and agree upon other matters relating to Taxes. NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: SECTION 1. Definition of Terms. terms have the following meanings: For purposes of this Agreement (including the recitals hereof), the following "Adjustment" means the deemed increase in a Tax, determined using the assumptions set forth in the next sentence, resulting from an adjustment made with respect to any amount reflected or required to be reflected on any Tax Return relating to such Tax. For purposes of determining such deemed increase in Tax, the following assumptions will be used: (a) the relevant party is, in the case of any Income Tax, subject to the highest applicable marginal Tax rate or, in the case of any other Tax, subject to the highest applicable Tax rate, in each case in effect with respect to that Tax for the Tax period to which the adjustment relates; (b) such determination shall be made without regard to whether any actual increase (or the full increase) in such Tax will in fact be realized with respect to the Tax Return to which such adjustment relates (as a result, for example, of losses, credits, or other offsets against Tax); (c) such determination shall take into account any actual increase in Tax comprising interest or penalties; and (d) in the case of any amount reflected or required to be reflected on an original Tax Return (as opposed to any amended Tax Return) relating to such Tax, the amount of the adjustment shall be determined based upon the change to any amount that otherwise would have been reflected or would have been required to be reflected on such Tax Return if none of the covenants set forth in Section 9.1 had been breached. "Agreement" has the meaning set forth in the first paragraph hereof. "AT&T Tax Sharing Agreement" means the Tax Sharing Agreement dated as of March 9, 1999, as amended, by and among AT&T Corp., LMC, for itself and each member of the Liberty Group (as defined therein), Tele-Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings, Inc., each Covered Entity (as defined therein) listed on the signature pages thereof, and any entities which became parties thereto pursuant to Section 23 thereof.

185 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]ME1445A.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 2 User: EROWE EFW: Doc # 12 "AT&T TSA Liabilities" means any obligation or liability to make any payment to AT&T Corp. or any member of the Common Stock Group (as defined in the AT&T Tax Sharing Agreement) or to any Tax Authority pursuant to the terms of the AT&T Tax Sharing Agreement. "Carryback" means any net operating loss, net capital loss, tax credit or other similar Tax Item which may or must be carried from one Tax Year to a prior Tax Year under applicable Tax Law. "Code" means the U.S. Internal Revenue Code of 1986, as amended from time to time, or any successor law. "Combined Return" means any State or Foreign Income Tax Return that includes one or more members of the LMC Group and one or more members of the DHC Group or in which income, deductions, or credits of any member of the LMC Group may be combined with, or offset against, income, deductions, or credits of any member of the DHC Group. "Combined Year" means, with respect to any State Income Tax or Foreign Income Tax, as applicable, any Tax Year for which a Combined Return is filed; provided, however, that Combined Year means only that portion of such Tax Year in which one or more members of the DHC Group are included in the Combined Return. "Company" means LMC or DHC or one of their Subsidiaries, as the context requires. "Consolidated Return" means any Federal Income Tax Return that is filed on a consolidated basis and includes one or more members of the LMC Group and one or more members of the DHC Group. "Consolidated Year" means, with respect to any Federal Income Tax, any Tax Year for which a Consolidated Return is filed; provided, however, that Consolidated Year means only that portion of such Tax Year in which one or more members of the DHC Group are included in the Consolidated Return. "Contribution" means the contribution by Liberty Programming Company LLC, a Delaware limited liability company that is treated as a disregarded entity of LMC for U.S. federal income tax purposes, of all of the outstanding stock of Ascent Media Holdings, Inc., a Delaware corporation formerly known as Ascent Media Debt, Inc., LMC Discovery, Inc., a Colorado corporation, and Liberty Animal, Inc., a Delaware corporation to DHC in exchange for shares of DHC stock. "Cox" means Cox Communications Holdings, Inc., a Delaware corporation and includes any successor entity. "DHC" has the meaning set forth in the first paragraph hereof and includes any predecessor or successor entity. "DHC Asset Successor" has the meaning set forth in Section "DHC Group" means DHC, all Persons that are Subsidiaries of DHC immediately after the Distribution, and Persons that become Subsidiaries of DHC thereafter; provided, however, (a) if any Person that is a member of the DHC Group becomes a Subsidiary of LMC at any time after the Distribution, such Person will not be treated as a member of the DHC Group with respect to any Tax Year or portion thereof beginning after the date such Person becomes a Subsidiary of LMC; and (b) if any Person that is a member of the LMC Group becomes a Subsidiary of DHC at any time after the Distribution, such Person will only be treated as a member of the DHC Group with respect to any Tax Year or portion thereof beginning after the date such Person becomes a Subsidiary of DHC; and

186 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]ME1445A.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 3 User: EROWE EFW: Doc # 12 (c) during any Tax Year or portion thereof beginning immediately after the Distribution that any Person is both a Subsidiary of LMC and a Subsidiary of DHC, such Person shall be a member of the DHC Group. "DHC Indemnitees" has the meaning set forth in Section "DHC Successors" has the meaning set forth in Section "DHC Successor Entity" has the meaning set forth in Section "DHC Successor Parent" has the meaning set forth in Section "Distribution" means the distribution by LMC, pro rata, to its Series A common stockholders of all of its DHC Series A common stock, and to its Series B common stockholders of all of its DHC Series B common stock. "Distribution Date" means the date on which the Distribution occurs. "Federal Income Tax" means any Income Tax imposed by the United States federal government (including, without limitation, the Taxes imposed by Sections 11, 55, 59A and 1201(a) of the Code). "Federal Income Tax Return" means any report of Federal Income Taxes due, any claims for refund of Federal Income Taxes paid, any information return with respect to Federal Income Taxes, or any other similar report, statement, declaration, or document required to be filed under U.S. federal income Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing. "Foreign Country" means any country other than the United States. "Foreign Income Tax" means any Income Tax imposed by any Foreign Country or any possession of the United States or by any political subdivision of any Foreign Country or possession of the United States. "Group" means the LMC Group or the DHC Group, as the context requires. "Income Tax" means all Taxes (i) based upon, measured by, or calculated with respect to, net income, net profits or deemed net profits (including, without limitation, any capital gains Tax, minimum Tax based upon, measured by, or calculated with respect to, net income, net profits or deemed net profits, any Tax on items of Tax preference and depreciation recapture or clawback, but not including sales, use, real or personal property, gross or net receipts, gross profits, transfer and similar Taxes), (ii) imposed by a Foreign Country which qualify under Section 903 of the Code or (iii) based upon, measured by, or calculated with respect to multiple bases (including, but not limited to, corporate franchise and occupation Taxes) if such Taxes may be based upon, measured by, or calculated with respect to one or more bases described in clause (i) above. Notwithstanding the above, the Taxes described in clause (iii) shall be considered Income Taxes only to the extent that such Taxes exceed the hypothetical amount of such Taxes that would have been imposed had all of the bases described in clause (i) on which such Taxes are based, measured, or calculated been equal to zero. "IRS" means the Internal Revenue Service. "IRS Submission" means the Ruling Request and any supplemental materials submitted to the IRS relating thereto. "LMC" has the meaning set forth in the first paragraph hereof and includes any predecessor or successor entity. "LMC Consolidated Group" means LMC and its eligible Subsidiaries (as determined under Section 1504(a) of the Code or any successor provision) that file a Federal Income Tax Return on a consolidated basis.

187 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]ME1445B.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 4 User: EROWE EFW: Doc # 12 "LMC Group" means LMC, all Persons that are Subsidiaries of LMC immediately after the Distribution, and Persons that become Subsidiaries of LMC thereafter; provided, however, (a) if any Person that is a member of the LMC Group becomes a Subsidiary of DHC at any time after the Distribution, such Person will not be treated as a member of the LMC Group with respect to any Tax Year or portion thereof beginning after the date such Person becomes a Subsidiary of DHC; and (b) if any Person that is a member of the DHC Group becomes a Subsidiary of LMC at any time after the Distribution, such Person will only be treated as a member of the LMC Group with respect to any Tax Year or portion thereof beginning after the date such Person becomes a Subsidiary of LMC; and (c) during any Tax Year or portion thereof beginning immediately after the Distribution that any Person is both a Subsidiary of LMC and a Subsidiary of DHC, such Person shall not be a member of the LMC Group. "LMC Indemnitees" has the meaning set forth in Section 9.2. "Long Position" means, with respect to shares of capital stock or other equity interests of a Person, any security, instrument, agreement or arrangement (including any "derivative security" within the meaning of Rule 16a-1(c) under the Securities Exchange Act of 1934, as amended), the value of which (a) is determined principally by reference to such shares or interests and (b) fluctuates in the same direction, as opposed to the opposite direction, as the value of such shares or interests; and a "Long Position" includes, without limitation, stock appreciation rights, phantom shares or phantom equity interests or other similar rights with respect to such shares or interests; a forward contract to purchase such shares or interests; an equity future with respect to such shares or interests; a swap agreement pursuant to which a person acquires any economics of ownership in such shares or interests; rights under a Call Equivalent Position (defined below) with respect to such shares or interests; obligations under a short Put Equivalent Position (defined below) with respect to such shares or interests; or any similar transaction which has the effect of any of the foregoing. For purposes hereof, the term "Call Equivalent Position" shall mean a derivative security position that increases in value as the value of the underlying security increases. For purposes hereof, the term "Put Equivalent Position" shall mean a derivative security position that increases in value to the holder thereof, as opposed to the obligee thereon, as the value of the underlying security decreases. "Losses" means any and all damages, losses, deficiencies, liabilities, obligations, penalties, judgments, settlements, claims, payments, fines, interest, costs and expenses (including, without limitation, the costs and expenses of any and all actions and demands, assessments, judgments, settlements and compromises relating thereto and the costs and expenses of attorneys', accountants', consultants' and other professionals' fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), including direct and consequential damages. "Newhouse" means Advance/Newhouse Programming Partnership, a New York general partnership and includes any successor entity. "Other Return" means any Tax Return which is not a Federal, State, or Foreign Income Tax Return. "Other Tax" means any Tax that is not an Income Tax. "Payment Date" means (x) with respect to any Consolidated Return, the due date for any required installment of estimated taxes determined under Code Section 6655, the due date (determined without regard to extensions) for filing the return determined under Code Section 6072, and the date the return is filed, and (y) with respect to any Combined Return, Separate Return, or Other Return the corresponding dates determined under the applicable Tax Law.

188 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]ME1445B.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 5 User: EROWE EFW: Doc # 12 "Payment Period" has the meaning set forth in Section 5.3. "Person" means any individual, corporation, company, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind, and for the avoidance of doubt, includes any predecessor or successor entity of any of the foregoing. "Reorganization Agreement" means the Reorganization Agreement dated June Ascent Media Group, Inc., a Delaware corporation., 2005, between LMC, DHC and "Ruling" means the private letter ruling to be obtained by LMC from the IRS in connection with the Contribution and the Distribution. "Ruling Request" means the request submitted to the IRS for the Ruling and any other ruling in connection with the Contribution and the Distribution that LMC deems to be appropriate. "Separate Return" means any Federal, State, or Foreign Income Tax Return which is not a Consolidated Return or Combined Return. "Separate Return Year" means, with respect to any Federal Income Tax, State Income Tax or Foreign Income Tax, as applicable, a Tax Year or portion thereof which is not a Consolidated Year or Combined Year. "State Income Tax" means any Income Tax imposed by any State of the United States (or the District of Columbia) or by any political subdivision of any such State (or the District of Columbia). "Subsidiary" means, as to any Person, any other Person of which at least (i) 50 percent of the total voting power or (ii) 50 percent of the total value of the equity of such other Person is owned, directly or by attribution under the principles of Section 318 of the Code, by such first Person. "Tax" or "Taxes" means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any Tax Authority and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing. "Tax Authority" means, with respect to any Tax, the governmental entity or political subdivision, agency, commission or authority thereof that imposes such Tax, and the agency, commission or authority (if any) charged with the assessment, determination or collection of such Tax for such entity or subdivision. "Tax Benefit" means a reduction in the Tax liability of a taxpayer, including a refund of Taxes previously paid. "Tax Contest" means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes of any member of either Group (including any administrative or judicial review of any claim for refund). "Tax Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to LMC. "Tax Item" means, with respect to any Income Tax, any item of income, gain, loss, deduction, credit or other attribute that may have the effect of increasing or decreasing any Tax. "Tax Law" means the law of any governmental entity or political subdivision thereof, and any controlling judicial or administrative interpretations of such law, relating to any Tax. "Tax Materials" means (i) the Ruling and any other rulings issued by the IRS in connection with the Contribution and the Distribution, (ii) the Tax Opinion, (iii) each IRS Submission, (iv) the representation letters relating to the Tax Opinion, and (v) any other materials delivered or deliverable

189 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]ME1445B.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 6 User: EROWE EFW: Doc # 12 by LMC and others in connection with the rendering by Tax Counsel of the Tax Opinion and the issuance by the IRS of the Ruling and such other rulings. "Tax Opinion" means the opinion to be delivered by Tax Counsel to LMC in connection with the Contribution and the Distribution to the effect that the Contribution and the Distribution will qualify as a tax-free reorganization described under Sections 368(a)(1)(D) and 355 of the Code to LMC and the LMC shareholders (except, in the case of the LMC shareholders, with respect to cash received in lieu of fractional shares of DHC stock). "Tax Records" means Tax Returns, Tax Return work papers, documentation relating to any Tax Contests, and any other books of account or records required to be maintained under applicable Tax Laws (including but not limited to Section 6001 of the Code) or under any record retention agreement with any Tax Authority. "Tax-Related Party" means, with respect to any Person, (i) any Person related to such first Person within the meaning of Section 267(b) or Section 707(b)(1) of the Code, as determined by taking into account the applicable attribution rules set forth in Section 355(e)(4)(C)(ii) of the Code, and (ii) any Person acting as an agent for or at the behest of such first Person or any Person described in clause (i). "Tax Return" means any report of Taxes due, any claims for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under any applicable Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing. "Tax Year" means, with respect to any Tax, the year, or shorter period, if applicable, for which the Tax is reported as provided under applicable Tax Law. "Third Party Claim" has the meaning set forth in Section 9.3(a). "Treasury Regulations" means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Year. SECTION 2. Allocation of Income Tax Liabilities. 2.1 Federal Income Taxes. Except as provided in Section 2.5, liability for Federal Income Taxes shall be allocated as follows: (a) Taxes Reported on Consolidated Returns. The LMC Group shall be liable for, and LMC shall pay, or cause the appropriate member of the LMC Group to pay, all Federal Income Taxes that are attributable to members of the LMC Group and the DHC Group and reported on, or required to be reported on, a Consolidated Return. (b) Taxes Reported on Separate Returns. The DHC Group shall be liable for, and DHC shall pay, or cause the appropriate member of the DHC Group to pay, all Federal Income Taxes that are attributable to members of the DHC Group and reported on, or required to be reported on, a Separate Return, and the LMC Group shall be liable for, and LMC shall pay, or cause the appropriate member of the LMC Group to pay, all Federal Income Taxes that are attributable to members of the LMC Group and reported on, or required to be reported on, a Separate Return. 2.2 State Income Taxes. Except as provided in Section 2.5, liability for State Income Taxes shall be allocated as follows: (a) Taxes Reported on Combined Returns. The LMC Group shall be liable for, and LMC shall pay, or cause the appropriate member of the LMC Group to pay, all State Income Taxes that are attributable to members of the LMC Group and the DHC Group and reported on, or required to be reported on, a Combined Return.

190 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]ME1445B.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 7 User: EROWE EFW: Doc # 12 (b) Taxes Reported on Separate Returns. The DHC Group shall be liable for, and DHC shall pay, or cause the appropriate member of the DHC Group to pay, all State Income Taxes that are attributable to members of the DHC Group and reported on, or required to be reported on, a Separate Return, and the LMC Group shall be liable for, and LMC shall pay, or cause the appropriate member of the LMC Group to pay, all State Income Taxes that are attributable to members of the LMC Group and reported on, or required to be reported on, a Separate Return. 2.3 Foreign Income Taxes. Except as provided in Section 2.5, liability for Foreign Income Taxes shall be allocated as follows: (a) Taxes Reported on Combined Returns. The LMC Group shall be liable for, and LMC shall pay, or cause the appropriate member of the LMC Group to pay, all Foreign Income Taxes that are attributable to members of the LMC Group and the DHC Group and reported on, or required to be reported on, a Combined Return. (b) Taxes Reported on Separate Returns. The DHC Group shall be liable for, and DHC shall pay, or cause the appropriate member of the DHC Group to pay, all Foreign Income Taxes that are attributable to members of the DHC Group and reported on, or required to be reported on, a Separate Return, and the LMC Group shall be liable for, and LMC shall pay, or cause the appropriate member of the LMC Group to pay, all Foreign Income Taxes that are attributable to members of the LMC Group and reported on, or required to be reported on, a Separate Return. 2.4 Other Taxes. The DHC Group shall be liable for, and DHC shall pay, or cause the appropriate member of the DHC Group to pay, any Other Tax attributable to members of the DHC Group, and the LMC Group shall be liable for, and LMC shall pay, or cause the appropriate member of the LMC Group to pay, any Other Tax attributable to members of the LMC Group. 2.5 Special Rules. (a) AT&T Tax Sharing Agreement. Notwithstanding any other provision in this Section 2, LMC shall be liable for, and shall indemnify and hold harmless each member of the DHC Group from and against, any AT&T TSA Liabilities. (b) Adjustments Resulting from a Breach of the Restrictive Covenants. Notwithstanding any other provision in this Section 2, DHC shall be liable for, and shall indemnify and hold harmless each member of the LMC Group from and against, any Adjustments resulting from any breach by DHC or any other member of the DHC Group of any of the covenants set forth in Section 9.1 hereof. 2.6 Tax Payments. Each party shall pay the Taxes or Adjustments allocated to it by this Section 2 either to the applicable Tax Authority or to the other appropriate party in accordance with Section 5. SECTION 3. Preparation and Filing of Tax Returns. 3.1 Combined Returns and Consolidated Returns. (a) Preparation by LMC. LMC shall be responsible for preparing and filing (or causing to be prepared and filed) all Consolidated Returns and Combined Returns (other than any Consolidated Returns or Combined Returns which are prepared by AT&T in accordance with the AT&T Tax Sharing Agreement). (b) Provision of Information and Assistance by DHC. (i) Information with Respect to Final Returns. DHC shall provide LMC with all information necessary for the LMC Group to properly and timely file all Consolidated Returns and Combined Returns. In the event that DHC fails to provide information in the form and within the time period reasonably requested by LMC to permit the timely filing of

191 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]ME1445B.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 8 User: EROWE EFW: Doc # 12 any Consolidated Return or Combined Return, then notwithstanding any other provision of this Agreement, DHC shall be liable for, and shall indemnify and hold harmless each member of the LMC Group from and against, any penalties, interest, or other payment obligation assessed against any member of the LMC Group or the DHC Group by reason of a delay in filing such return. If DHC provides information in the form and within the time period reasonably requested by LMC to permit the timely filing of a particular Consolidated Return or Combined Return, then notwithstanding any other provision of this Agreement, the LMC Group shall be liable for, and LMC shall indemnify and hold harmless each member of the DHC Group from and against, any penalties, interest, or other payments assessed against any member of the LMC Group or the DHC Group by reason of delay in filing such return. (ii) Information with Respect to Estimated Payments and Extension Payments. DHC shall provide LMC with all information relating to members of the DHC Group which LMC needs to determine the amount of Taxes due on any Payment Date. The indemnification principles of Section 3.1(b)(i) shall apply with respect to any penalties, interest, or other payments assessed against any member of the LMC Group or the DHC Group by reason of a delay in paying the Taxes due on any Payment Date. (iii) Assistance. At the request of LMC, DHC shall take (at its own cost and expense), and shall cause the members of the DHC Group to take (at their own cost and expense), any reasonable action ( e.g., filing a ruling request with the relevant Tax Authority or executing a power of attorney) that is reasonably necessary in order for LMC, or any other member of the LMC Group, to prepare, file, amend or take any other action with respect to any Consolidated Return or Combined Return. 3.2 Separate Returns and Other Returns. (a) Tax Returns to be Prepared by LMC. LMC shall be responsible for preparing and filing (or causing to be prepared and filed) all Separate Returns and Other Returns which relate solely to one or more members of the LMC Group for any Tax Year. (b) Tax Returns to be Prepared by DHC. DHC shall be responsible for preparing and filing (or causing to be prepared and filed) all Separate Returns and Other Returns which relate solely to one or more members of the DHC Group for any Tax Year. In preparing such Separate Returns and Other Returns, (i) DHC may not take (and shall cause the members of the DHC Group not to take) any positions that it knows, or reasonably should know, would adversely affect any member of the LMC Group; and (ii) DHC and the other members of the DHC Group must (x) allocate Tax Items between a Separate Return Year and any related Consolidated Year or Combined Year that is part of the same Tax Year in a manner that is consistent with the reporting of such Tax Items on the related Consolidated Return or Combined Return and (y) make any applicable elections required under Treasury Regulations Section (b)(2), or any other applicable Tax Law, necessary to effect such allocation. (c) Provision of Information. LMC shall provide to DHC, and DHC shall provide to LMC, any information about members of the LMC Group or the DHC Group, respectively, which the party receiving such information needs to properly and timely file all Separate Returns and Other Returns pursuant to Section 3.2(a) or (b).

192 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]MG1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 9 User: BSKELLE EFW: Doc # Special Rules Relating to the Preparation of Tax Returns. (a) General Rule. Except as otherwise provided in this Agreement, the party responsible for filing (or causing to be filed) a Tax Return pursuant to Sections 3.1 or 3.2 shall have the exclusive right, in its sole discretion, with respect to such Tax Return to determine (1) the manner in which such Tax Return shall be prepared and filed, including the elections, methods of accounting, positions, conventions and principles of taxation to be used and the manner in which any Tax Item shall be reported, (2) whether any extensions may be requested, (3) whether an amended Tax Return shall be filed, (4) whether any claims for refund shall be made, (5) whether any refunds shall be paid by way of refund or credited against any liability for the related Tax and (6) whether to retain outside firms to prepare or review such Tax Return. (b) Election to File Consolidated Returns or Combined Returns. LMC shall have the sole discretion of filing any Consolidated Return or Combined Return, if the filing of such return is elective under the relevant Tax Law. 3.4 Reliance on Exchanged Information. If a member of the DHC Group supplies information to a member of the LMC Group, or a member of the LMC Group supplies information to a member of the DHC Group, and an officer of the requesting member intends to sign a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then a duly authorized officer of the member supplying such information shall certify, to the best of such officer's knowledge, the accuracy and completeness of the information so supplied. SECTION 4. Tax Benefits, Refunds, and Carrybacks. 4.1 Tax Benefits Resulting from Carrybacks. (a) Filing Claims and Making Payments for Carrybacks. If the DHC Group generates a Carryback to a Consolidated Year or Combined Year, then, upon the request of DHC, LMC may, in its sole discretion, file a claim for refund arising from such Carryback and pay such refund to DHC in accordance with Section 5.2(a). (b) Adjustment of Tax Items. In the event that a Carryback by the DHC Group to a Consolidated Year or Combined Year increases the amount of Taxes for which LMC is otherwise liable under this Agreement, the amount of the refund to which the DHC Group shall be entitled to receive, in accordance with Section 5.2(a), shall be net of LMC's increased liability. 4.2 Other Tax Benefits. Except as provided in this Section 4 or in Section 5, neither LMC nor DHC shall be obligated to reimburse the other for any Tax Benefit received either before or after the Distribution. SECTION 5. Tax Payments. 5.1 Indemnification Payments. If any member of one Group is required to make a payment to a Tax Authority for any Taxes or Adjustments for which a Company belonging to the other Group is wholly or partially liable under this Agreement, the Company which is liable for such Taxes or Adjustments under this Agreement will remit all amounts for which it is liable to the appropriate other Company within thirty days after receiving notification requesting such amount. 5.2 Payment of Refunds. (a) Refund Received by LMC Group. If a member of the LMC Group receives a Tax refund with respect to Taxes for which a member of the DHC Group is liable hereunder or receives a Tax Benefit for which DHC is entitled to reimbursement hereunder, LMC shall pay to DHC, within thirty days following the receipt of the Tax refund or Tax Benefit, an amount equal to such Tax refund or Tax Benefit. Unless specified otherwise in this Agreement, a Tax Benefit or Tax refund

193 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 13 File: DISK015:[05DEN5.05DEN1445]MG1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 10 User: BSKELLE EFW: Doc # 12 will be considered received for purposes of this Agreement at the time the Tax Return is filed with respect to such Tax Benefit or Tax refund. (b) Refund Received by DHC Group. If a member of the DHC Group receives a Tax refund with respect to Taxes for which a member of the LMC Group is liable hereunder, DHC shall pay to LMC, within thirty days after the receipt of the Tax refund, an amount equal to such Tax refund. 5.3 Interest on Late Payments. Payments pursuant to this Agreement that are not made within the period prescribed in this Agreement or, if no period is prescribed, within fifteen business days after demand for payment is made (the "Payment Period") shall bear interest for the period from and including the date immediately following the last date of the Payment Period through and including the date of payment at a per annum rate equal to the "annualized six month LIBOR rate" plus seventy-five basis points. Unless the parties otherwise agree, the annualized six month LIBOR rate used shall be the per annum rate for deposits in U.S. dollars for a six-month period that appears on Bridge's Telerate Service display at page 3750 (or such other page as may replace such page) as of 11:00 A.M. London time on the last day of the Payment Period. Such interest will be payable at the same time as the payment to which it relates and shall be calculated on the basis of a year of 365 days and the actual number of days for which due. 5.4 Initial Determinations and Subsequent Adjustments. The initial determination of the amount of any payment that one Company is required to make to another under this Agreement shall be made on the basis of the Tax Return as filed, or, if the Tax to which the payment relates is not reported in a Tax Return, on the basis of the amount of Tax initially paid to the Tax Authority. Payments will be made, as appropriate, if as a result of an audit by a Tax Authority or for any other reason (x) additional Taxes to which such determination relates are subsequently paid, (y) a refund of such Taxes or a Tax Benefit relating to such Taxes is received, or (z) the amount or character of any Tax Item is adjusted or redetermined. Each payment required by the immediately preceding sentence (i) as a result of a payment of additional Taxes will be due thirty days after the date on which the additional Taxes were paid or, if later, fifteen days after the date of a request from the other Company for the payment, (ii) as a result of the receipt of a refund or Tax Benefit will be due thirty days after the refund or Tax Benefit was received, or (iii) as a result of an adjustment or redetermination of the amount or character of a Tax Item will be due thirty days after the date on which the final action resulting in such adjustment or redetermination is taken by a Tax Authority or either Company. If a payment is made as a result of an audit by a Tax Authority which does not conclude the matter, further adjusting payments will be made, as appropriate, to reflect the outcome of subsequent administrative or judicial proceedings. Nothing in this Agreement shall obligate LMC to compensate DHC with respect to an adjustment to any Tax Item on any Separate Return of any members of the DHC Group or LMC Group that results from an adjustment to any Tax Item on a Consolidated Return or Combined Return. 5.5 Tax Consequences of Payments. For all Tax purposes and to the extent permitted by applicable Tax Law, the parties hereto shall treat any payment made pursuant to this Agreement as a capital contribution or a distribution, as the case may be, immediately prior to the Distribution Date and, accordingly, as not includible in the taxable income of the recipient (or any of the members of its Group). Notwithstanding the immediately preceding sentence, if any such payment (or portion thereof) causes, directly or indirectly, an increase in the taxable income of the recipient (or any of the members of its Group) under one or more applicable Tax Laws, the payor's payment obligation (or portion thereof) under this Agreement shall be grossed up to take into account the deemed Taxes owed by the recipient (or any of the members of its Group). For purposes of the immediately preceding sentence, the grossed-up amount equals a fraction, the numerator of which is the original payment obligation (or portion thereof), and the denominator of which is 1.0 minus the sum of the highest marginal tax rates of each applicable Tax Law under which such payment causes an increase in the taxable income of the recipient (or any of the members of its Group).

194 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 14 File: DISK015:[05DEN5.05DEN1445]MG1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 11 User: BSKELLE EFW: Doc # 12 SECTION 6. Assistance and Cooperation. The parties will cooperate (and cause their respective affiliates to cooperate) with each other and with each other's agents, including accounting firms and legal counsel, in connection with Tax matters, including provision of relevant documents and information in their possession and making available to each other, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Companies or their affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes. Any information or documents provided under this Agreement shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. However, the preceding sentence shall not be construed to prevent the sharing of information by the parties with their respective legal advisors. SECTION 7. Tax Records. 7.1 Retention of Tax Records. Each of the parties shall preserve, and shall cause its affiliates to preserve, all Tax Records that are in their possession, and that could affect the liability of any member of the other Group for Taxes, for so long as the contents thereof may become material in the administration of any matter under applicable Tax Law, but in any event until the later of (x) the expiration of any applicable statutes of limitation, as extended, and (y) seven years after the Distribution Date. 7.2 Access to Tax Records. DHC shall make available, and cause its Subsidiaries to make available, to members of the LMC Group for inspection and copying all Tax Records in their possession that relate to Tax Years beginning on or before the Distribution Date. LMC shall make available, and cause its Subsidiaries to make available, to members of the DHC Group for inspection and copying that portion of any Tax Record in their possession that relates to Tax Years beginning on or before the Distribution Date and which is reasonably necessary for the preparation of a Separate Return or Other Return of a member of the DHC Group or with respect to an audit or litigation by a Tax Authority of such return. SECTION 8. Tax Contests. 8.1 Notices. Each of the parties shall provide prompt notice to the other party of any pending or threatened Tax audit, assessment or proceeding or other Tax Contest of which it becomes aware relating to Taxes or Adjustments for which it is or may be indemnified by the other party hereunder. Such notice shall contain factual information (to the extent known) describing any asserted Tax liability or Adjustment in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. If (1) an indemnified party has knowledge of an asserted Tax liability or Adjustment with respect to a matter for which it is to be indemnified hereunder, (2) such party fails to give the indemnifying party prompt notice of such asserted Tax liability or Adjustment, and (3) the indemnifying party has the right, pursuant to Section 8.2(a), to control the Tax Contest relating to such Tax liability or Adjustment, then (x) if the indemnifying party is precluded from contesting the asserted Tax liability or Adjustment in any forum as a result of the failure to give prompt notice, the indemnifying party shall have no obligation to indemnify the indemnified party for any Taxes or Adjustments arising out of such asserted Tax liability or Adjustment, and (y) if the indemnifying party is not precluded from contesting the asserted Tax liability or Adjustment in any forum, but such failure to give prompt notice results in a monetary detriment to the indemnifying party, then any amount which the indemnifying party is otherwise required to pay the indemnified party pursuant to this Agreement shall be reduced by the amount of such detriment.

195 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 15 File: DISK015:[05DEN5.05DEN1445]MG1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 12 User: BSKELLE EFW: Doc # Control of Tax Contests. (a) General Rule. Except as provided in Section 8.2(b), each party (or the appropriate member of their Group) shall have full responsibility, control and discretion in handling, settling or contesting any Tax Contest involving a Tax or Adjustment which relates to a Tax Return for which it is responsible for preparing and filing (or causing to be prepared and filed) pursuant to Section 3 of this Agreement. LMC shall have full responsibility, control and discretion in handling, settling or contesting any Tax Contest involving any AT&T TSA Liabilities. (b) DHC Participation Rights. With respect to a Tax Contest of any Consolidated Return or Combined Return which involves a Tax or Adjustment for which DHC is liable pursuant to this Agreement, (i) DHC shall, at its own cost and expense, be entitled to participate in such Tax Contest, (ii) LMC shall keep DHC updated and informed, and shall consult with DHC, and (iii) LMC shall act in good faith with a view to the merits in connection with the Tax Contest. 8.3 Cooperation. The indemnified party shall provide the party controlling any Tax Contest pursuant to Section 8.2 with all information relating to the indemnified party and its Subsidiaries which the party controlling the Tax Contest needs to handle, settle or contest the Tax Contest. At the request of the party controlling the Tax Contest, the indemnified party shall take any action ( e.g., executing a power of attorney) that is reasonably necessary in order for the party controlling the Tax Contest to handle, settle or contest the Tax Contest. DHC shall assist LMC, and LMC shall assist DHC, in taking any remedial actions which are necessary or desirable to minimize the effects of any adjustment made by a Tax Authority. The indemnifying party shall reimburse the indemnified party for any reasonable out-of-pocket costs and expenses incurred in complying with this Section 8.3. SECTION 9. Restriction on Certain Actions of DHC; Indemnity. 9.1 Restrictive Covenants. (a) General Restrictions. DHC shall not, and shall cause the members of the DHC Group not to, take any action that, or fail to take any action the failure of which, (i) would be inconsistent with the Contribution and the Distribution qualifying, or preclude the Contribution and the Distribution from qualifying, as a tax-free reorganization described under Sections 368(a)(1)(D) and 355 of the Code (or any corresponding provisions of any successor statute) or (ii) would cause LMC, any Person that is a Subsidiary of LMC immediately prior to the Distribution, or the shareholders of LMC that receive DHC stock in the Distribution to recognize gain or loss, or otherwise include any amount in income, as a result of the Contribution and/or the Distribution for U.S. federal income tax purposes (except, in the case of the shareholders of LMC, with respect to gain or loss recognized with respect to cash received in lieu of fractional shares of DHC stock). (b) Restricted Actions Relating to Cox and Newhouse. Without limiting the provisions of Sections 9.1(a) or (c) hereof, from the date hereof until the day after the first anniversary of the Distribution Date, DHC shall not, and shall cause the members of the DHC Group not to, enter into (or give any Person or Persons the implicit or explicit permission to enter into), or permit any of its officers or directors to enter into (or permit any of its officers or directors to give any Person or Persons the implicit or explicit permission to enter into) any agreement, understanding, arrangement or substantial negotiations with any Person or Persons with respect to any transaction or series of transactions pursuant to which Cox, Newhouse or any Tax-Related Party of Cox or Newhouse would acquire directly or indirectly (as determined by reference to Section 355(e) of the Code, taking into account applicable constructive ownership rules and any final or temporary Treasury Regulations promulgated thereunder) (i) any shares of capital stock or other equity interests of DHC, (ii) any instrument that is treated for purposes of Section 355(e) of the Code (taking into account any final or temporary Treasury Regulations promulgated thereunder) as an

196 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 16 File: DISK015:[05DEN5.05DEN1445]MG1445B.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 13 User: BSKELLE EFW: Doc # 12 option to acquire any shares of capital stock or other equity interests of DHC or (iii) any Long Position with respect to any shares of capital stock or other equity interests of DHC. (c) Restricted Actions Relating to the Tax Materials. Without limiting the provisions of Section 9.1(a) hereof, DHC shall not, and shall cause the members of the DHC Group not to, take any action that, or fail to take any action the failure of which, would be reasonably likely to be inconsistent with, or cause any Person to be in breach of, any representation or covenant made in the Tax Materials. (d) Permitted Actions. Any action otherwise prohibited by this Section 9.1 shall nevertheless be permitted if: (1) LMC has determined, in its sole and absolute discretion, which discretion shall be exercised in good faith, that such action would not (i) preclude the Contribution and the Distribution from qualifying as a tax-free reorganization described under Sections 368(a)(1)(D) and 355 of the Code (or any corresponding provisions of any successor statute) or (ii) cause LMC, any Person that is a Subsidiary of LMC immediately prior to the Distribution, or the shareholders of LMC that receive DHC stock in the Distribution to recognize gain or loss, or otherwise include any amount in income, as a result of the Contribution and/or the Distribution for U.S. federal income tax purposes (except, in the case of the shareholders of LMC, with respect to gain or loss recognized with respect to cash received in lieu of fractional shares of DHC stock), and LMC has delivered its written consent to DHC; or (2) a ruling has been obtained from the IRS, in form and substance reasonably satisfactory to LMC, that such action would not (i) preclude the Contribution and the Distribution from qualifying as a tax-free reorganization described under Sections 368(a)(1)(D) and 355 of the Code (or any corresponding provisions of any successor statute) or (ii) cause LMC, any Person that is a Subsidiary of LMC immediately prior to the Distribution, or the shareholders of LMC that receive DHC stock in the Distribution to recognize gain or loss, or otherwise include any amount in income, as a result of the Contribution and/or the Distribution for U.S. federal income tax purposes (except, in the case of the shareholders of LMC, with respect to gain or loss recognized with respect to cash received in lieu of fractional shares of DHC stock); or (3) DHC provides LMC with an unqualified opinion of nationally recognized tax counsel, in form and substance satisfactory to LMC in its sole and absolute discretion, that such action would not (i) preclude the Contribution and the Distribution from qualifying as a tax-free reorganization described under Sections 368(a)(1)(D) and 355 of the Code (or any corresponding provisions of any successor statute) or (ii) cause LMC, any Person that is a Subsidiary of LMC immediately prior to the Distribution, or the shareholders of LMC that receive DHC stock in the Distribution to recognize gain or loss, or otherwise include any amount in income, as a result of the Contribution and/or the Distribution for U.S. federal income tax purposes (except, in the case of the shareholders of LMC, with respect to gain or loss recognized with respect to cash received in lieu of fractional shares of DHC stock), and LMC has delivered its written consent to DHC. In determining whether an opinion is satisfactory, LMC may consider, among other factors, the appropriateness of any underlying assumptions and management's representations if used as a basis for the opinion, and LMC may determine that no opinion would be acceptable to LMC. 9.2 Indemnity. DHC agrees to indemnify and hold harmless each member of the LMC Group and their respective directors, officers, employees, affiliates, agents, successors and assigns (the "LMC Indemnitees") from and against any and all Losses, other than any Adjustments for which indemnification is provided pursuant to Section 2.5(b), resulting from, based upon, arising out of or

197 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 17 File: DISK015:[05DEN5.05DEN1445]MG1445B.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 14 User: BSKELLE EFW: Doc # 12 otherwise in respect of, and all claims, actions, suits, proceedings, demands, judgments, assessments, fines, interest, penalties, costs and expenses (including without limitation attorneys' fees and expenses) incident or relating to or resulting from, any breach by DHC or any other member of the DHC Group of any of the covenants set forth in Section Indemnification Procedures. The procedure for indemnification shall be as follows: (a) The LMC Indemnitee (or LMC on behalf of all LMC Indemnitees) claiming indemnification under this Section 9 shall promptly give written notice to DHC of any pending or threatened claim, action, suit, investigation or proceeding brought by a third party (a "Third Party Claim"), specifying (i) the factual basis for such claim, including copies of any documents relating to the claim, and (ii) the amount of the claim. Such notice shall be given by such LMC Indemnitee (or by LMC on behalf of all LMC Indemnitees) within a reasonable period of time after notice thereof was received by such LMC Indemnitee, but any failure to give timely notice shall not affect the indemnities given hereunder. The LMC Indemnitee (or LMC on behalf of all LMC Indemnitees) shall have the right to control any Third Party Claim; provided however, that (x) DHC shall, at its own cost and expense, be entitled to participate in such Third Party Claim, (y) the LMC Indemnitee (or LMC on behalf of all LMC Indemnitees) shall keep DHC updated and informed, and shall consult with DHC, and (z) the LMC Indemnitee (or LMC on behalf of all LMC Indemnitees) shall act in good faith with a view to the merits in connection with such Third Party Claim. (b) In the event any LMC Indemnitee should have a claim against DHC under this Section 9 that does not involve a third party action, such LMC Indemnitee (or LMC on behalf of all LMC Indemnitees) shall as promptly as practical notify DHC of such claim, describing such claim and the factual basis thereof, the amount of such claim (if known) and the method of computation of such amount, all with reasonable particularity. Any failure to give such timely notice shall not affect the indemnities given hereunder. (c) The provisions of this Section 9 are intended to be for the benefit of, and shall be enforceable by, each LMC Indemnitee and its successors in interest. SECTION 10. General Provisions Termination. This Agreement shall terminate at such time as all obligations and liabilities of the parties hereto have been satisfied. The obligations and liabilities of the parties arising under this Agreement shall continue in full force and effect until all such obligations have been met and such liabilities have been paid in full, whether by expiration of time, operation of law, or otherwise. The obligations and liabilities of each party are made for the benefit of, and shall be enforceable by, the other parties and their successors and permitted assigns Expenses. Except as otherwise expressly provided for herein, each party and its affiliates shall bear their own expenses incurred in connection with preparation of Tax Returns and other matters related to Taxes under the provisions of this Agreement for which they are liable Breach of Agreement. LMC shall indemnify and hold harmless each member of the DHC Group and their respective directors, officers, employees, affiliates, agents, successors and assigns (the "DHC Indemnitees") from and against any Losses incurred by the DHC Indemnitees by reason of a breach by any member of the LMC Group of its obligations or covenants hereunder, and DHC shall indemnify and hold harmless each of the LMC Indemnitees from and against any Losses incurred by the LMC Indemnitees by reason of a breach by any member of the DHC Group of its obligations or covenants hereunder; in each case including, without limitation, the costs and expenses of any and all actions relating to, and the costs and expenses of attorneys', accountants', consultants' and other professionals' fees and expenses incurred in, the enforcement of rights hereunder and/or any investigation relating thereto.

198 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 18 File: DISK015:[05DEN5.05DEN1445]MG1445B.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 15 User: BSKELLE EFW: Doc # Disputes and Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO APPLIED TO CONTRACTS MADE AND WHOLLY PERFORMED IN SUCH STATE. Each of the parties hereto (i) will submit itself to the exclusive jurisdiction of any United States federal court located in the State of Colorado or any Colorado State court having subject matter jurisdiction in the event any dispute arises out of this Agreement, (ii) agrees that venue will be proper as to proceedings brought in any such court with respect to such a dispute, (iii) will not attempt to deny or defeat such personal jurisdiction or venue by motion or other request for leave from any such court and (iv) agrees to accept service of process at its address for notices pursuant to this Agreement in any such action or proceeding brought in any such court Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT. THIS SECTION 10.5 HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT Notices. All notices and other communications hereunder shall be in writing and shall be delivered in person, by telecopy, by express or overnight mail delivered by a nationally recognized air courier (delivery charges prepaid), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows: (a) If to LMC to: Liberty Media Corporation Liberty Boulevard Englewood, Colorado Attn: Albert Rosenthaler Facsimile: (720) (b) If to DHC to: Discovery Holding Company Liberty Boulevard Englewood, Colorado Attn: Albert Rosenthaler Facsimile: (720) or to such other address as the party to whom notice is given may have previously furnished to the others in writing in the manner set forth above. Any notice or communication delivered in person shall be deemed effective on delivery or when delivery is refused. Any notice or communication sent by telecopy or by air courier shall be deemed effective on the first business day at the place at which such

199 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 19 File: DISK015:[05DEN5.05DEN1445]MG1445B.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 16 User: BSKELLE EFW: Doc # 12 notice or communication is received following the day on which such notice or communication was sent Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. The Agreement may be delivered by facsimile transmission of a signed copy thereof Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except with respect to a merger of a party, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed; provided, however, that LMC and DHC may assign their respective rights, interests, duties, liabilities and obligations under this Agreement to any other member of their Group, but such assignment shall not relieve LMC or DHC, as the assignor, of its obligations hereunder. In the event of any sale, assignment, transfer or other disposition of all or substantially all the assets of DHC and its controlled affiliates (on a consolidated basis) to any person or group (collectively, a "DHC Asset Successor"), in one or a series of related transactions, or any merger, consolidation, statutory share exchange, conversion of DHC from a corporation to a limited liability company or other legal entity or other transaction affecting DHC, that results in the exchange or conversion of equity securities of DHC for or into equity securities or other consideration of (a) the successor to DHC in such transaction (a "DHC Successor Entity") or (b) any Person of which DHC or such successor is a controlled affiliate after giving effect to such transaction (a "DHC Successor Parent" and, together with any DHC Asset Successor and/or DHC Successor Entity, the "DHC Successors"), then (i) all references herein to DHC shall mean and refer to such DHC Successors, as applicable, (ii) all references herein to capital stock or other equity interests of DHC shall mean and refer to the equivalent securities of or ownership interest in the DHC Successor, as applicable, (iii) DHC shall cause each such DHC Successor, as applicable, to sign a counterpart of this Agreement or otherwise agree to be bound hereby, to the same extent as DHC, as if such Person were a signatory hereto, and (iv) each such DHC Successor, as applicable, shall become a party to this Agreement, and be bound hereby, to the same extent as DHC, as if such Person were a signatory hereto, whether or not such Person signs a counterpart of this Agreement or enters into a joinder agreement or similar instrument with respect hereto Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction Amendment. This Agreement may not be amended or modified in any respect except by a written agreement signed by all of the parties hereto Effective Time. This Agreement shall become effective on the date recited above on which the parties entered into this Agreement Change in Law. Any reference to a provision of the Code or any other Tax Law shall include a reference to any applicable successor provision or law Authorization, Etc. Each of the parties hereto hereby represents and warrants that it has the power and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party, that this Agreement constitutes a legal, valid and binding obligation of each such party and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision of law or of its charter or bylaws or any agreement, instrument or order binding such party.

200 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 20 File: DISK015:[05DEN5.05DEN1445]MG1445B.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 17 User: BSKELLE EFW: Doc # No Third Party Beneficiaries. Except as provided in Sections 9.2 and 10.3 of this Agreement, this Agreement is solely for the benefit of LMC, DHC and their Subsidiaries and is not intended to confer upon any other Person any rights or remedies hereunder. Notwithstanding anything in this Agreement to the contrary, this Agreement is not intended to confer upon any DHC Indemnitees any rights or remedies against DHC hereunder, and this Agreement is not intended to confer upon any LMC Indemnitees any rights or remedies against LMC hereunder Entire Agreement. This Agreement embodies the entire understanding among the parties relating to its subject matter and supersedes and terminates any prior agreements and understandings among the parties with respect to such subject matter, and no party to this Agreement shall have any right, responsibility, obligation or liability under any such prior agreement or understanding. Any and all prior correspondence, conversations and memoranda are merged herein and shall be without effect hereon. No promises, covenants or representations of any kind, other than those expressly stated herein, have been made to induce either party to enter into this Agreement.

201 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 21 File: DISK015:[05DEN5.05DEN1445]MG1445B.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 18 User: BSKELLE EFW: Doc # 12 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by the respective officers as of the date set forth above. LIBERTY MEDIA CORPORATION By: Name: Title: DISCOVERY HOLDING COMPANY By: Name: Title:

202 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: Doc # 12 QuickLinks FORM OF TAX SHARING AGREEMENT BETWEEN LIBERTY MEDIA CORPORATION AND DISCOVERY HOLDING COMPANY

203 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: Doc # 12 </TEXT> </DOCUMENT>

204 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: Doc # 13 <DOCUMENT> <TYPE> EX-10.7 <DESCRIPTION> Ex 10.7 <FILENAME> a zex-10_7.htm <TEXT>

205 File: DISK015:[05DEN5.05DEN1445]MM1445A.;4 User: EROWE EFW: Printed: 24-Jun-2005;20:03:35 (v.162) Created: 23-JUN-2005;22:20 Chksum: HTML Page: 1 Folio: BLANK Doc # 13 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.7 DISCOVERY HOLDING COMPANY 2005 INCENTIVE PLAN ARTICLE I Purpose of Plan 1.1 Purpose. The purpose of the Plan is to promote the success of the Company by providing a method whereby (i) eligible employees of the Company and its Subsidiaries and (ii) independent contractors providing services to the Company and its Subsidiaries may be awarded additional remuneration for services rendered and encouraged to invest in capital stock of the Company, thereby increasing their proprietary interest in the Company's businesses, encouraging them to remain in the employ of the Company or its Subsidiaries, and increasing their personal interest in the continued success and progress of the Company and its Subsidiaries. The Plan is also intended to aid in (i) attracting Persons of exceptional ability to become officers and employees of the Company and its Subsidiaries and (ii) inducing independent contractors to agree to provide services to the Company and its Subsidiaries. 1.2 Effective Date. The Plan is effective as of May 3, ARTICLE II Definitions 2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in the Plan shall have the following meanings (whether used in the singular or plural): "Affiliate" of the Company means any corporation, partnership or other business association that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Company. "Agreement" means a stock option agreement, stock appreciation rights agreement, restricted shares agreement, stock units agreement, cash award agreement or an agreement evidencing more than one type of Award, specified in Section 11.5, as any such Agreement may be supplemented or amended from time to time. "Approved Transaction" means any transaction in which the Board (or, if approval of the Board is not required as a matter of law, the stockholders of the Company) shall approve (i) any consolidation or merger of the Company, or binding share exchange, pursuant to which shares of Common Stock of the Company would be changed or converted into or exchanged for cash, securities, or other property, other than any such transaction in which the common stockholders of the Company immediately prior to such transaction have the same proportionate ownership of the Common Stock of, and voting power with respect to, the surviving corporation immediately after such transaction, (ii) any merger, consolidation or binding share exchange to which the Company is a party as a result of which the Persons who are common stockholders of the Company immediately prior thereto have less than a majority of the combined voting power of the outstanding capital stock of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors immediately following such merger, consolidation or binding share exchange, (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Company, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company. "Award" means a grant of Options, SARs, Restricted Shares, Stock Units, Performance Awards, Cash Awards and/or cash amounts under the Plan. "Board" means the Board of Directors of the Company.

206 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]MM1445A.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 2 User: EROWE EFW: Doc # 13 "Board Change" means, during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board cease for any reason to constitute a majority thereof unless the election, or the nomination for election, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. "Cash Award" means an Award made pursuant to Section 10.1 of the Plan to a Holder that is paid solely on account of the attainment of one or more Performance Objectives that have been preestablished by the Committee. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute or statutes thereto. Reference to any specific Code section shall include any successor section. "Committee" means the committee of the Board appointed pursuant to Section 3.1 to administer the Plan. "Common Stock" means each or any (as the context may require) series of the Company ' s common stock. "Company" means Discovery Holding Company, a Delaware corporation. "Control Purchase" means any transaction (or series of related transactions) in which (i) any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other than the Company, any Subsidiary of the Company or any employee benefit plan sponsored by the Company or any Subsidiary of the Company) shall purchase any Common Stock of the Company (or securities convertible into Common Stock of the Company) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, without the prior consent of the Board, or (ii) any person (as such term is so defined), corporation or other entity (other than the Company, any Subsidiary of the Company, any employee benefit plan sponsored by the Company or any Subsidiary of the Company or any Exempt Person (as defined below)) shall become the " beneficial owner " (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) under the Exchange Act in the case of rights to acquire the Company's securities), other than in a transaction (or series of related transactions) approved by the Board. For purposes of this definition, " Exempt Person " means each of (a) the Chairman of the Board, the President and each of the directors of Discovery Holding Company as of the Distribution Date, and (b) the respective family members, estates and heirs of each of the persons referred to in clause (a) above and any trust or other investment vehicle for the primary benefit of any of such persons or their respective family members or heirs. As used with respect to any person, the term " family member " means the spouse, siblings and lineal descendants of such person. "Disability" means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. "Distribution Date" means the date on which the Company ceased to be a wholly-owned subsidiary of Liberty Media Corporation, a Delaware corporation. "Dividend Equivalents" means, with respect to Restricted Shares to be issued at the end of the Restriction Period, to the extent specified by the Committee only, an amount equal to all dividends and other distributions (or the economic equivalent thereof) which are payable to

207 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]MM1445A.;4 Created: 23-JUN-2005;22:20 Chksum: Folio: 3 User: EROWE EFW: Doc # 13 stockholders of record during the Restriction Period on a like number and kind of shares of Common Stock. "Domestic Relations Order" means a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. "Effective Date" has the meaning ascribed thereto in Section 1.2. "Equity Security" shall have the meaning ascribed to such term in Section 3(a)(11) of the Exchange Act, and an equity security of an issuer shall have the meaning ascribed thereto in Rule 16a-1 promulgated under the Exchange Act, or any successor Rule. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute or statutes thereto. Reference to any specific Exchange Act section shall include any successor section. "Fair Market Value" of a share of any series of Common Stock on any day means the last sale price (or, if no last sale price is reported, the average of the high bid and low asked prices) for a share of such series of Common Stock on such day (or, if such day is not a trading day, on the next preceding trading day) as reported on the consolidated transaction reporting system for the principal national securities exchange on which shares of such series of Common Stock are listed on such day or if such shares are not then listed on a national securities exchange, then as reported on Nasdaq. If for any day the Fair Market Value of a share of the applicable series of Common Stock is not determinable by any of the foregoing means, then the Fair Market Value for such day shall be determined in good faith by the Committee on the basis of such quotations and other considerations as the Committee deems appropriate. "Free Standing SAR" has the meaning ascribed thereto in Section 7.1. "Holder" means a person who has received an Award under the Plan. "Nasdaq" means The NASDAQ Stock Market. "Nonqualified Stock Option" means a stock option granted under Article VI. "Option" means a Nonqualified Stock Option. "Performance Award" means an Award made pursuant to Article X of the Plan to a Holder that is subject to the attainment of one or more Performance Objectives. "Performance Objective" means a standard established by the Committee to determine in whole or in part whether a Performance Award shall be earned. "Person" means an individual, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind. "Plan" means this Discovery Holding Company 2005 Incentive Plan. "Restricted Shares" means shares of any series of Common Stock or the right to receive shares of any specified series of Common Stock, as the case may be, awarded pursuant to Article VIII. "Restriction Period" means a period of time beginning on the date of each Award of Restricted Shares and ending on the Vesting Date with respect to such Award. "Retained Distribution" has the meaning ascribed thereto in Section 8.3. "SARs" means stock appreciation rights, awarded pursuant to Article VII, with respect to shares of any specified series of Common Stock.

208 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]MM1445B.;6 Created: 23-JUN-2005;22:20 Chksum: Folio: 4 User: EROWE EFW: Doc # 13 "Stock Unit Awards" has the meaning ascribed thereto in Section 9.1. "Subsidiary" of a Person means any present or future subsidiary (as defined in Section 424(f) of the Code) of such Person or any business entity in which such Person owns, directly or indirectly, 50% or more of the voting, capital or profits interests. An entity shall be deemed a subsidiary of a Person for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained. "Tandem SARs" has the meaning ascribed thereto in Section 7.1. "Vesting Date," with respect to any Restricted Shares awarded hereunder, means the date on which such Restricted Shares cease to be subject to a risk of forfeiture, as designated in or determined in accordance with the Agreement with respect to such Award of Restricted Shares pursuant to Article VIII. If more than one Vesting Date is designated for an Award of Restricted Shares, reference in the Plan to a Vesting Date in respect of such Award shall be deemed to refer to each part of such Award and the Vesting Date for such part. ARTICLE III Administration 3.1 Committee. The Plan shall be administered by the Compensation Committee of the Board unless a different committee is subsequently appointed by the Board. The Committee shall be comprised of not less than two Persons. The Board may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed, may fill vacancies in the Committee and may remove members of the Committee. The Committee shall select one of its members as its chairman and shall hold its meetings at such times and places as it shall deem advisable. A majority of its members shall constitute a quorum and all determinations shall be made by a majority of such quorum. Any determination reduced to writing and signed by all of the members shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. 3.2 Powers. The Committee shall have full power and authority to grant to eligible persons Options under Article VI of the Plan, SARs under Article VII of the Plan, Restricted Shares under Article VIII of the Plan, Stock Units under Article IX of the Plan, Cash Awards under Article X of the Plan and/or Performance Awards under Article X of the Plan, to determine the terms and conditions (which need not be identical) of all Awards so granted, to interpret the provisions of the Plan and any Agreements relating to Awards granted under the Plan and to supervise the administration of the Plan. The Committee in making an Award may provide for the granting or issuance of additional, replacement or alternative Awards upon the occurrence of specified events, including the exercise of the original Award. The Committee shall have sole authority in the selection of persons to whom Awards may be granted under the Plan and in the determination of the timing, pricing and amount of any such Award, subject only to the express provisions of the Plan. In making determinations hereunder, the Committee may take into account the nature of the services rendered by the respective employees and independent contractors, their present and potential contributions to the success of the Company and its Subsidiaries, and such other factors as the Committee in its discretion deems relevant. 3.3 Interpretation. The Committee is authorized, subject to the provisions of the Plan, to establish, amend and rescind such rules and regulations as it deems necessary or advisable for the proper administration of the Plan and to take such other action in connection with or in relation to the Plan as it deems necessary or advisable. Each action and determination made or taken pursuant to the Plan by the Committee, including any interpretation or construction of the Plan, shall be final and conclusive for all purposes and upon all persons. No member of the Committee shall be liable for any action or determination made or taken by him or the Committee in good faith with respect to the Plan.

209 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]MM1445B.;6 Created: 23-JUN-2005;22:20 Chksum: Folio: 5 User: EROWE EFW: Doc # 13 ARTICLE IV Shares Subject to the Plan 4.1 Number of Shares; Award Limits. Subject to the provisions of this Article IV, the maximum number of shares of Common Stock with respect to which Awards may be granted during the term of the Plan shall be 20 million shares. Shares of Common Stock will be made available from the authorized but unissued shares of the Company or from shares reacquired by the Company, including shares purchased in the open market. The shares of Common Stock subject to (i) any Award granted under the Plan that shall expire, terminate or be annulled for any reason without having been exercised (or considered to have been exercised as provided in Section 7.2), (ii) any Award of any SARs granted under the Plan that shall be exercised for cash, and (iii) any Award of Restricted Shares or Stock Units that shall be forfeited prior to becoming vested (provided that the Holder received no benefits of ownership of such Restricted Shares or Stock Units other than voting rights and the accumulation of Retained Distributions and unpaid Dividend Equivalents that are likewise forfeited) shall again be available for purposes of the Plan. Except for Awards described in Section 11.1, no person may be granted in any calendar year Awards covering more than 2 million shares of Common Stock (as such amount may be adjusted from time to time as provided in Section 4.2). No person shall receive payment for Cash Awards during any calendar year aggregating in excess of $10,000, Adjustments. If the Company subdivides its outstanding shares of any series of Common Stock into a greater number of shares of such series of Common Stock (by stock dividend, stock split, reclassification, or otherwise) or combines its outstanding shares of any series of Common Stock into a smaller number of shares of such series of Common Stock (by reverse stock split, reclassification, or otherwise) or if the Committee determines that any stock dividend, extraordinary cash dividend, reclassification, recapitalization, reorganization, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase such series of Common Stock or other similar corporate event (including mergers or consolidations other than those which constitute Approved Transactions, adjustments with respect to which shall be governed by Section 11.1(b)) affects any series of Common Stock so that an adjustment is required to preserve the benefits or potential benefits intended to be made available under the Plan, then the Committee, in its sole discretion and in such manner as the Committee may deem equitable and appropriate, may make such adjustments to any or all of (i) the number and kind of shares of stock which thereafter may be awarded, optioned or otherwise made subject to the benefits contemplated by the Plan, (ii) the number and kind of shares of stock subject to outstanding Awards, and (iii) the purchase or exercise price and the relevant appreciation base with respect to any of the foregoing, provided, however, that the number of shares subject to any Award shall always be a whole number. Notwithstanding the foregoing, if all shares of any series of Common Stock are redeemed, then each outstanding Award shall be adjusted to substitute for the shares of such series of Common Stock subject thereto the kind and amount of cash, securities or other assets issued or paid in the redemption of the equivalent number of shares of such series of Common Stock and otherwise the terms of such Award, including, in the case of Options or similar rights, the aggregate exercise price, and, in the case of Free Standing SARs, the aggregate base price, shall remain constant before and after the substitution (unless otherwise determined by the Committee and provided in the applicable Agreement). The Committee may, if deemed appropriate, provide for a cash payment to any Holder of an Award in connection with any adjustment made pursuant to this Section 4.2. ARTICLE V Eligibility 5.1 General. The persons who shall be eligible to participate in the Plan and to receive Awards under the Plan shall, subject to Section 5.2, be such persons who are employees (including officers) of or independent contractors providing services to the Company or its Subsidiaries as the Committee shall select. Awards may be made to employees or independent contractors who hold or have held

210 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]MM1445B.;6 Created: 23-JUN-2005;22:20 Chksum: Folio: 6 User: EROWE EFW: Doc # 13 Awards under the Plan or any similar or other awards under any other plan of the Company or any of its Affiliates. 5.2 Ineligibility. No member of the Committee, while serving as such, shall be eligible to receive an Award. ARTICLE VI Stock Options 6.1 Grant of Options. Subject to the limitations of the Plan, the Committee shall designate from time to time those eligible persons to be granted Options, the time when each Option shall be granted to such eligible persons, the series and number of shares of Common Stock subject to such Option, and, subject to Section 6.2, the purchase price of the shares of Common Stock subject to such Option. 6.2 Option Price. The price at which shares may be purchased upon exercise of an Option shall be fixed by the Committee and may be no less than the Fair Market Value of the shares of the applicable series of Common Stock subject to the Option as of the date the Option is granted. 6.3 Term of Options. Subject to the provisions of the Plan with respect to death, retirement and termination of employment, the term of each Option shall be for such period as the Committee shall determine as set forth in the applicable Agreement. 6.4 Exercise of Options. An Option granted under the Plan shall become (and remain) exercisable during the term of the Option to the extent provided in the applicable Agreement and the Plan and, unless the Agreement otherwise provides, may be exercised to the extent exercisable, in whole or in part, at any time and from time to time during such term; provided, however, that subsequent to the grant of an Option, the Committee, at any time before complete termination of such Option, may accelerate the time or times at which such Option may be exercised in whole or in part (without reducing the term of such Option). 6.5 Manner of Exercise. (a) Form of Payment. An Option shall be exercised by written notice to the Company upon such terms and conditions as the Agreement may provide and in accordance with such other procedures for the exercise of Options as the Committee may establish from time to time. The method or methods of payment of the purchase price for the shares to be purchased upon exercise of an Option and of any amounts required by Section 11.9 shall be determined by the Committee and may consist of (i) cash, (ii) check, (iii) promissory note (subject to applicable law), (iv) whole shares of any series of Common Stock, (v) the withholding of shares of the applicable series of Common Stock issuable upon such exercise of the Option, (vi) the delivery, together with a properly executed exercise notice, of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the purchase price, or (vii) any combination of the foregoing methods of payment, or such other consideration and method of payment as may be permitted for the issuance of shares under the Delaware General Corporation Law. The permitted method or methods of payment of the amounts payable upon exercise of an Option, if other than in cash, shall be set forth in the applicable Agreement and may be subject to such conditions as the Committee deems appropriate. (b) Value of Shares. Unless otherwise determined by the Committee and provided in the applicable Agreement, shares of any series of Common Stock delivered in payment of all or any part of the amounts payable in connection with the exercise of an Option, and shares of any series of Common Stock withheld for such payment, shall be valued for such purpose at their Fair Market Value as of the exercise date.

211 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]MM1445B.;6 Created: 23-JUN-2005;22:20 Chksum: Folio: 7 User: EROWE EFW: Doc # 13 (c) Issuance of Shares. The Company shall effect the transfer of the shares of Common Stock purchased under the Option as soon as practicable after the exercise thereof and payment in full of the purchase price therefor and of any amounts required by Section 11.9, and within a reasonable time thereafter, such transfer shall be evidenced on the books of the Company. Unless otherwise determined by the Committee and provided in the applicable Agreement, (i) no Holder or other person exercising an Option shall have any of the rights of a stockholder of the Company with respect to shares of Common Stock subject to an Option granted under the Plan until due exercise and full payment has been made, and (ii) no adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such due exercise and full payment. 6.6 Nontransferability. Unless otherwise determined by the Committee and provided in the applicable Agreement, Options shall not be transferable other than by will or the laws of descent and distribution or pursuant to a Domestic Relations Order, and, except as otherwise required pursuant to a Domestic Relations Order, Options may be exercised during the lifetime of the Holder thereof only by such Holder (or his or her court-appointed legal representative). ARTICLE VII SARs 7.1 Grant of SARs. Subject to the limitations of the Plan, SARs may be granted by the Committee to such eligible persons in such numbers, with respect to any specified series of Common Stock, and at such times during the term of the Plan as the Committee shall determine. A SAR may be granted to a Holder of an Option (hereinafter called a " related Option " ) with respect to all or a portion of the shares of Common Stock subject to the related Option (a " Tandem SAR " ) or may be granted separately to an eligible employee (a " Free Standing SAR " ). Subject to the limitations of the Plan, SARs shall be exercisable in whole or in part upon notice to the Company upon such terms and conditions as are provided in the Agreement. 7.2 Tandem SARs. A Tandem SAR may be granted either concurrently with the grant of the related Option or at any time thereafter prior to the complete exercise, termination, expiration or cancellation of such related Option. Tandem SARs shall be exercisable only at the time and to the extent that the related Option is exercisable (and may be subject to such additional limitations on exercisability as the Agreement may provide) and in no event after the complete termination or full exercise of the related Option. Upon the exercise or termination of the related Option, the Tandem SARs with respect thereto shall be canceled automatically to the extent of the number of shares of Common Stock with respect to which the related Option was so exercised or terminated. Subject to the limitations of the Plan, upon the exercise of a Tandem SAR and unless otherwise determined by the Committee and provided in the applicable Agreement, (i) the Holder thereof shall be entitled to receive from the Company, for each share of the applicable series of Common Stock with respect to which the Tandem SAR is being exercised, consideration (in the form determined as provided in Section 7.4) equal in value to the excess of the Fair Market Value of a share of the applicable series of Common Stock with respect to which the Tandem SAR was granted on the date of exercise over the related Option purchase price per share, and (ii) the related Option with respect thereto shall be canceled automatically to the extent of the number of shares of Common Stock with respect to which the Tandem SAR was so exercised. 7.3 Free Standing SARs. Free Standing SARs shall be exercisable at the time, to the extent and upon the terms and conditions set forth in the applicable Agreement. The base price of a Free Standing SAR may be no less than the Fair Market Value of the applicable series of Common Stock with respect to which the Free Standing SAR was granted as of the date the Free Standing SAR is granted. Subject to the limitations of the Plan, upon the exercise of a Free Standing SAR and unless otherwise determined by the Committee and provided in the applicable Agreement, the Holder thereof

212 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]MM1445B.;6 Created: 23-JUN-2005;22:20 Chksum: Folio: 8 User: EROWE EFW: Doc # 13 shall be entitled to receive from the Company, for each share of the applicable series of Common Stock with respect to which the Free Standing SAR is being exercised, consideration (in the form determined as provided in Section 7.4) equal in value to the excess of the Fair Market Value of a share of the applicable series of Common Stock with respect to which the Free Standing SAR was granted on the date of exercise over the base price per share of such Free Standing SAR. 7.4 Consideration. The consideration to be received upon the exercise of a SAR by the Holder shall be paid in the applicable series of Common Stock with respect to which the SAR was granted (valued at Fair Market Value on the date of exercise of such SAR). No fractional shares of Common Stock shall be issuable upon exercise of a SAR, and unless otherwise provided in the applicable Agreement, the Holder will receive cash in lieu of fractional shares. Unless the Committee shall otherwise determine, to the extent a Free Standing SAR is exercisable, it will be exercised automatically on its expiration date. 7.5 Limitations. The applicable Agreement may provide for a limit on the amount payable to a Holder upon exercise of SARs at any time or in the aggregate, for a limit on the time periods during which a Holder may exercise SARs, and for such other limits on the rights of the Holder and such other terms and conditions of the SAR, including a condition that the SAR may be exercised only in accordance with rules and regulations adopted from time to time, as the Committee may determine. Unless otherwise so provided in the applicable Agreement, any such limit relating to a Tandem SAR shall not restrict the exercisability of the related Option. Such rules and regulations may govern the right to exercise SARs granted prior to the adoption or amendment of such rules and regulations as well as SARs granted thereafter. 7.6 Exercise. For purposes of this Article VII, the date of exercise of a SAR shall mean the date on which the Company shall have received notice from the Holder of the SAR of the exercise of such SAR (unless otherwise determined by the Committee and provided in the applicable Agreement). 7.7 Nontransferability. Unless otherwise determined by the Committee and provided in the applicable Agreement, (i) SARs shall not be transferable other than by will or the laws of descent and distribution or pursuant to a Domestic Relations Order, and (ii) except as otherwise required pursuant to a Domestic Relations Order, SARs may be exercised during the lifetime of the Holder thereof only by such Holder (or his or her court-appointed legal representative). ARTICLE VIII Restricted Shares 8.1 Grant. Subject to the limitations of the Plan, the Committee shall designate those eligible persons to be granted Awards of Restricted Shares, shall determine the time when each such Award shall be granted, shall determine whether shares of Common Stock covered by Awards of Restricted Shares will be issued at the beginning or the end of the Restriction Period and whether Dividend Equivalents will be paid during the Restriction Period in the event shares of the applicable series of Common Stock are to be issued at the end of the Restriction Period, and shall designate (or set forth the basis for determining) the Vesting Date or Vesting Dates for each Award of Restricted Shares, and may prescribe other restrictions, terms and conditions applicable to the vesting of such Restricted Shares in addition to those provided in the Plan. The Committee shall determine the price, if any, to be paid by the Holder for the Restricted Shares; provided, however, that the issuance of Restricted Shares shall be made for at least the minimum consideration necessary to permit such Restricted Shares to be deemed fully paid and nonassessable. All determinations made by the Committee pursuant to this Section 8.1 shall be specified in the Agreement.

213 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]MO1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 9 User: BSKELLE EFW: Doc # Issuance of Restricted Shares at Beginning of the Restriction Period. If shares of the applicable series of Common Stock are issued at the beginning of the Restriction Period, the stock certificate or certificates representing such Restricted Shares shall be registered in the name of the Holder to whom such Restricted Shares shall have been awarded. During the Restriction Period, certificates representing the Restricted Shares and any securities constituting Retained Distributions shall bear a restrictive legend to the effect that ownership of the Restricted Shares (and such Retained Distributions), and the enjoyment of all rights appurtenant thereto, are subject to the restrictions, terms and conditions provided in the Plan and the applicable Agreement. Such certificates shall remain in the custody of the Company or its designee, and the Holder shall deposit with the custodian stock powers or other instruments of assignment, each endorsed in blank, so as to permit retransfer to the Company of all or any portion of the Restricted Shares and any securities constituting Retained Distributions that shall be forfeited or otherwise not become vested in accordance with the Plan and the applicable Agreement. 8.3 Restrictions. Restricted Shares issued at the beginning of the Restriction Period shall constitute issued and outstanding shares of the applicable series of Common Stock for all corporate purposes. The Holder will have the right to vote such Restricted Shares, to receive and retain such dividends and distributions, as the Committee may designate, paid or distributed on such Restricted Shares, and to exercise all other rights, powers and privileges of a Holder of shares of the applicable series of Common Stock with respect to such Restricted Shares; except, that, unless otherwise determined by the Committee and provided in the applicable Agreement, (i) the Holder will not be entitled to delivery of the stock certificate or certificates representing such Restricted Shares until the Restriction Period shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled or waived; (ii) the Company or its designee will retain custody of the stock certificate or certificates representing the Restricted Shares during the Restriction Period as provided in Section 8.2; (iii) other than such dividends and distributions as the Committee may designate, the Company or its designee will retain custody of all distributions ( " Retained Distributions " ) made or declared with respect to the Restricted Shares (and such Retained Distributions will be subject to the same restrictions, terms and vesting, and other conditions as are applicable to the Restricted Shares) until such time, if ever, as the Restricted Shares with respect to which such Retained Distributions shall have been made, paid or declared shall have become vested, and such Retained Distributions shall not bear interest or be segregated in a separate account; (iv) the Holder may not sell, assign, transfer, pledge, exchange, encumber or dispose of the Restricted Shares or any Retained Distributions or his interest in any of them during the Restriction Period; and (v) a breach of any restrictions, terms or conditions provided in the Plan or established by the Committee with respect to any Restricted Shares or Retained Distributions will cause a forfeiture of such Restricted Shares and any Retained Distributions with respect thereto. 8.4 Issuance of Stock at End of the Restriction Period. Restricted Shares issued at the end of the Restriction Period shall not constitute issued and outstanding shares of the applicable series of Common Stock, and the Holder shall not have any of the rights of a stockholder with respect to the shares of Common Stock covered by such an Award of Restricted Shares, in each case until such shares shall have been transferred to the Holder at the end of the Restriction Period. If and to the extent that shares of Common Stock are to be issued at the end of the Restriction Period, the Holder shall be entitled to receive Dividend Equivalents with respect to the shares of Common Stock covered thereby either (i) during the Restriction Period or (ii) in accordance with the rules applicable to Retained Distributions, as the Committee may specify in the Agreement. 8.5 Cash Payments. In connection with any Award of Restricted Shares, an Agreement may provide for the payment of a cash amount to the Holder of such Restricted Shares after such Restricted Shares shall have become vested. Such cash amounts shall be payable in accordance with such additional restrictions, terms and conditions as shall be prescribed by the Committee in the

214 Printed: 24-Jun-2005;20:03:35 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]MO1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 10 User: BSKELLE EFW: Doc # 13 Agreement and shall be in addition to any other salary, incentive, bonus or other compensation payments which such Holder shall be otherwise entitled or eligible to receive from the Company. 8.6 Completion of Restriction Period. On the Vesting Date with respect to each Award of Restricted Shares and the satisfaction of any other applicable restrictions, terms and conditions, (i) all or the applicable portion of such Restricted Shares shall become vested, (ii) any Retained Distributions and any unpaid Dividend Equivalents with respect to such Restricted Shares shall become vested to the extent that the Restricted Shares related thereto shall have become vested, and (iii) any cash amount to be received by the Holder with respect to such Restricted Shares shall become payable, all in accordance with the terms of the applicable Agreement. Any such Restricted Shares, Retained Distributions and any unpaid Dividend Equivalents that shall not become vested shall be forfeited to the Company, and the Holder shall not thereafter have any rights (including dividend and voting rights) with respect to such Restricted Shares, Retained Distributions and any unpaid Dividend Equivalents that shall have been so forfeited. The Committee may, in its discretion, provide that the delivery of any Restricted Shares, Retained Distributions and unpaid Dividend Equivalents that shall have become vested, and payment of any related cash amounts that shall have become payable under this Article VIII, shall be deferred until such date or dates as the recipient may elect. Any election of a recipient pursuant to the preceding sentence shall be filed in writing with the Committee in accordance with such rules and regulations, including any deadline for the making of such an election, as the Committee may provide, and shall be made in compliance with Section 409A of the Code. ARTICLE IX Stock Units 9.1 Grant. In addition to granting Awards of Options, SARs and Restricted Shares, the Committee shall, subject to the limitations of the Plan, have authority to grant to eligible persons Awards of Stock Units which may be in the form of shares of any specified series of Common Stock or units, the value of which is based, in whole or in part, on the Fair Market Value of the shares of any specified series of Common Stock. Subject to the provisions of the Plan, including any rules established pursuant to Section 9.2, Awards of Stock Units shall be subject to such terms, restrictions, conditions, vesting requirements and payment rules as the Committee may determine in its discretion, which need not be identical for each Award. The determinations made by the Committee pursuant to this Section 9.1 shall be specified in the applicable Agreement. 9.2 Rules. The Committee may, in its discretion, establish any or all of the following rules for application to an Award of Stock Units: (a) Any shares of Common Stock which are part of an Award of Stock Units may not be assigned, sold, transferred, pledged or otherwise encumbered prior to the date on which the shares are issued or, if later, the date provided by the Committee at the time of the Award. (b) Such Awards may provide for the payment of cash consideration by the person to whom such Award is granted or provide that the Award, and any shares of Common Stock to be issued in connection therewith, if applicable, shall be delivered without the payment of cash consideration; provided, however, that the issuance of any shares of Common Stock in connection with an Award of Stock Units shall be for at least the minimum consideration necessary to permit such shares to be deemed fully paid and nonassessable. (c) Awards of Stock Units may provide for deferred payment schedules, vesting over a specified period of employment, the payment (on a current or deferred basis) of dividend equivalent amounts with respect to the number of shares of Common Stock covered by the Award, and elections by the employee to defer payment of the Award or the lifting of restrictions on the Award, if any, provided that any such deferrals shall comply with the requirements of Section 409A of the Code.

215 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]MO1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 11 User: BSKELLE EFW: Doc # 13 (d) In such circumstances as the Committee may deem advisable, the Committee may waive or otherwise remove, in whole or in part, any restrictions or limitations to which a Stock Unit Award was made subject at the time of grant. ARTICLE X Cash Awards and Performance Awards 10.1 Cash Awards. In addition to granting Options, SARs, Restricted Shares and Stock Units, the Committee shall, subject to the limitations of the Plan, have authority to grant to eligible persons Cash Awards. Each Cash Award shall be subject to such terms and conditions, restrictions and contingencies as the Committee shall determine. Restrictions and contingencies limiting the right to receive a cash payment pursuant to a Cash Award shall be based upon the achievement of single or multiple Performance Objectives over a performance period established by the Committee. The determinations made by the Committee pursuant to this Section 10.1 shall be specified in the applicable Agreement Designation as a Performance Award. The Committee shall have the right to designate any Award of Options, SARs, Restricted Shares or Stock Units as a Performance Award. All Cash Awards shall be designated as Performance Awards Performance Objectives. The grant or vesting of a Performance Award shall be subject to the achievement of Performance Objectives over a performance period established by the Committee based upon one or more of the following business criteria that apply to the Holder, one or more business units, divisions or Subsidiaries of the Company or the applicable sector of the Company, or the Company as a whole, and if so desired by the Committee, by comparison with a peer group of companies: increased revenue; net income measures (including income after capital costs and income before or after taxes); stock price measures (including growth measures and total stockholder return); price per share of Common Stock; market share; earnings per share (actual or targeted growth); earnings before interest, taxes, depreciation, and amortization (EBITDA); economic value added (or an equivalent metric); market value added; debt to equity ratio; cash flow measures (including cash flow return on capital, cash flow return on tangible capital, net cash flow and net cash flow before financing activities); return measures (including return on equity, return on average assets, return on capital, risk-adjusted return on capital, return on investors' capital and return on average equity); operating measures (including operating income, funds from operations, cash from operations, after-tax operating income; sales volumes, production volumes and production efficiency); expense measures (including overhead cost and general and administrative expense); margins; stockholder value; total stockholder return; proceeds from dispositions; total market value and corporate values measures (including ethics compliance, environmental and safety). Unless otherwise stated, such a Performance Objective need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria). The Committee shall have the authority to determine whether the Performance Objectives and other terms and conditions of the Award are satisfied, and the Committee's determination as to the achievement of Performance Objectives relating to a Performance Award shall be made in writing Section 162(m) of the Code. Notwithstanding the foregoing provisions, if the Committee intends for a Performance Award to be granted and administered in a manner designed to preserve the deductibility of the compensation resulting from such Award in accordance with Section 162(m) of the Code, then the Performance Objectives for such particular Performance Award relative to the particular period of service to which the Performance Objectives relate shall be established by the Committee in writing (i) no later than 90 days after the beginning of such period and (ii) prior to the completion of 25% of such period.

216 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]MO1445A.;3 Created: 21-JUN-2005;19:58 Chksum: Folio: 12 User: BSKELLE EFW: Doc # Waiver of Performance Objectives. The Committee shall have no discretion to modify or waive the Performance Objectives or conditions to the grant or vesting of a Performance Award unless such Award is not intended to qualify as qualified performance-based compensation under Section 162(m) of the Code and the relevant Agreement provides for such discretion Acceleration of Awards. ARTICLE XI General Provisions (a) Death or Disability. If a Holder's employment shall terminate by reason of death or Disability, notwithstanding any contrary waiting period, installment period, vesting schedule or Restriction Period in any Agreement or in the Plan, unless the applicable Agreement provides otherwise: (i) in the case of an Option or SAR, each outstanding Option or SAR granted under the Plan shall immediately become exercisable in full in respect of the aggregate number of shares covered thereby; (ii) in the case of Restricted Shares, the Restriction Period applicable to each such Award of Restricted Shares shall be deemed to have expired and all such Restricted Shares, any related Retained Distributions and any unpaid Dividend Equivalents shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement; and (iii) in the case of Stock Units, each such Award of Stock Units shall become vested in full. (b) Approved Transactions; Board Change; Control Purchase. In the event of any Approved Transaction, Board Change or Control Purchase, notwithstanding any contrary waiting period, installment period, vesting schedule or Restriction Period in any Agreement or in the Plan, unless the applicable Agreement provides otherwise: (i) in the case of an Option or SAR, each such outstanding Option or SAR granted under the Plan shall become exercisable in full in respect of the aggregate number of shares covered thereby; (ii) in the case of Restricted Shares, the Restriction Period applicable to each such Award of Restricted Shares shall be deemed to have expired and all such Restricted Shares, any related Retained Distributions and any unpaid Dividend Equivalents shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement; and (iii) in the case of Stock Units, each such Award of Stock Units shall become vested in full, in each case effective upon the Board Change or Control Purchase or immediately prior to consummation of the Approved Transaction. The effect, if any, on a Cash Award of an Approved Transaction, Board Change or Control Purchase shall be prescribed in the applicable Agreement. Notwithstanding the foregoing, unless otherwise provided in the applicable Agreement, the Committee may, in its discretion, determine that any or all outstanding Awards of any or all types granted pursuant to the Plan will not vest or become exercisable on an accelerated basis in connection with an Approved Transaction if effective provision has been made for the taking of such action which, in the opinion of the Committee, is equitable and appropriate to substitute a new Award for such Award or to assume such Award and to make such new or assumed Award, as nearly as may be practicable, equivalent to the old Award (before giving effect to any acceleration of the vesting or exercisability thereof), taking into account, to the extent applicable, the kind and amount of securities, cash or other assets into or for which the applicable series of Common Stock may be changed, converted or exchanged in connection with the Approved Transaction Termination of Employment. (a) General. If a Holder's employment shall terminate prior to an Option or SAR becoming exercisable or being exercised (or deemed exercised, as provided in Section 7.2) in full, or during the Restriction Period with respect to any Restricted Shares or prior to the vesting or complete exercise of any Stock Units, then such Option or SAR shall thereafter become or be exercisable,

217 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 13 File: DISK015:[05DEN5.05DEN1445]MO1445B.;4 Created: 21-JUN-2005;19:58 Chksum: Folio: 13 User: BSKELLE EFW: Doc # 13 such Stock Units to the extent vested shall thereafter be exercisable, and the Holder's rights to any unvested Restricted Shares, Retained Distributions, unpaid Dividend Equivalents and related cash amounts and any such unvested Stock Units shall thereafter vest, in each case solely to the extent provided in the applicable Agreement; provided, however, that, unless otherwise determined by the Committee and provided in the applicable Agreement, (i) no Option or SAR may be exercised after the scheduled expiration date thereof; (ii) if the Holder's employment terminates by reason of death or Disability, the Option or SAR shall remain exercisable for a period of at least one year following such termination (but not later than the scheduled expiration of such Option or SAR); and (iii) any termination of the Holder ' s employment for cause will be treated in accordance with the provisions of Section 11.2(b). The effect on a Cash Award of the termination of a Holder's employment for any reason, other than for cause, shall be prescribed in the applicable Agreement. (b) Termination for Cause. If a Holder's employment with the Company or a Subsidiary of the Company shall be terminated by the Company or such Subsidiary for "cause" during the Restriction Period with respect to any Restricted Shares or prior to any Option or SAR becoming exercisable or being exercised in full or prior to the vesting or complete exercise of any Stock Unit or the payment in full of any Cash Award (for these purposes, "cause" shall have the meaning ascribed thereto in any employment agreement to which such Holder is a party or, in the absence thereof, shall include insubordination, dishonesty, incompetence, moral turpitude, other misconduct of any kind and the refusal to perform his duties and responsibilities for any reason other than illness or incapacity; provided, however, that if such termination occurs within 12 months after an Approved Transaction or Control Purchase or Board Change, termination for "cause" shall mean only a felony conviction for fraud, misappropriation, or embezzlement), then, unless otherwise determined by the Committee and provided in the applicable Agreement, (i) all Options and SARs and all unvested or unexercised Stock Units and all unpaid Cash Awards held by such Holder shall immediately terminate, and (ii) such Holder's rights to all Restricted Shares, Retained Distributions, any unpaid Dividend Equivalents and any related cash amounts shall be forfeited immediately. (c) Miscellaneous. The Committee may determine whether any given leave of absence constitutes a termination of employment; provided, however, that for purposes of the Plan, (i) a leave of absence, duly authorized in writing by the Company for military service or sickness, or for any other purpose approved by the Company if the period of such leave does not exceed 90 days, and (ii) a leave of absence in excess of 90 days, duly authorized in writing by the Company provided the employee's right to reemployment is guaranteed either by statute or contract, shall not be deemed a termination of employment. Unless otherwise determined by the Committee and provided in the applicable Agreement, Awards made under the Plan shall not be affected by any change of employment so long as the Holder continues to be an employee of the Company Right of Company to Terminate Employment. Nothing contained in the Plan or in any Award, and no action of the Company or the Committee with respect thereto, shall confer or be construed to confer on any Holder any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any Subsidiary of the Company to terminate the employment of the Holder at any time, with or without cause, subject, however, to the provisions of any employment agreement between the Holder and the Company or any Subsidiary of the Company Nonalienation of Benefits. Except as set forth herein, no right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the Person entitled to such benefits.

218 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 14 File: DISK015:[05DEN5.05DEN1445]MO1445B.;4 Created: 21-JUN-2005;19:58 Chksum: Folio: 14 User: BSKELLE EFW: Doc # Written Agreement. Each Award of Options shall be evidenced by a stock option agreement; each Award of SARs shall be evidenced by a stock appreciation rights agreement; each Award of Restricted Shares shall be evidenced by a restricted shares agreement; each Award of Stock Units shall be evidenced by a stock units agreement; and each Performance Award shall be evidenced by a performance award agreement (including a cash award agreement evidencing a Cash Award), each in such form and containing such terms and provisions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve; provided, however, that if more than one type of Award is made to the same Holder, such Awards may be evidenced by a single Agreement with such Holder. Each grantee of an Option, SAR, Restricted Shares, Stock Units or Performance Award (including a Cash Award) shall be notified promptly of such grant, and a written Agreement shall be promptly executed and delivered by the Company. Any such written Agreement may contain (but shall not be required to contain) such provisions as the Committee deems appropriate (i) to insure that the penalty provisions of Section 4999 of the Code will not apply to any stock or cash received by the Holder from the Company or (ii) to provide cash payments to the Holder to mitigate the impact of such penalty provisions upon the Holder. Any such Agreement may be supplemented or amended from time to time as approved by the Committee as contemplated by Section 11.7(b) Designation of Beneficiaries. Each person who shall be granted an Award under the Plan may designate a beneficiary or beneficiaries and may change such designation from time to time by filing a written designation of beneficiary or beneficiaries with the Committee on a form to be prescribed by it, provided that no such designation shall be effective unless so filed prior to the death of such person Termination and Amendment. (a) General. Unless the Plan shall theretofore have been terminated as hereinafter provided, no Awards may be made under the Plan on or after the tenth anniversary of the Effective Date. The Plan may be terminated at any time prior to the tenth anniversary of the Effective Date and may, from time to time, be suspended or discontinued or modified or amended if such action is deemed advisable by the Committee. (b) Modification. No termination, modification or amendment of the Plan may, without the consent of the person to whom any Award shall theretofore have been granted, adversely affect the rights of such person with respect to such Award, except as otherwise permitted by Section No modification, extension, renewal or other change in any Award granted under the Plan shall be made after the grant of such Award, unless the same is consistent with the provisions of the Plan. With the consent of the Holder, or as otherwise permitted under Section 11.18, and subject to the terms and conditions of the Plan (including Section 11.7(a)), the Committee may amend outstanding Agreements with any Holder, including any amendment which would (i) accelerate the time or times at which the Award may be exercised and/or (ii) extend the scheduled expiration date of the Award. Without limiting the generality of the foregoing, the Committee may, but solely with the Holder's consent unless otherwise provided in the Agreement, agree to cancel any Award under the Plan and grant a new Award in substitution therefore, provided that the Award so substituted shall satisfy all of the requirements of the Plan as of the date such new Award is made. Nothing contained in the foregoing provisions of this Section 11.7(b) shall be construed to prevent the Committee from providing in any Agreement that the rights of the Holder with respect to the Award evidenced thereby shall be subject to such rules and regulations as the Committee may, subject to the express provisions of the Plan, adopt from time to time or impair the enforceability of any such provision Government and Other Regulations. The obligation of the Company with respect to Awards shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including the effectiveness of any registration statement required under the Securities Act of 1933, and the rules and regulations of any securities exchange or association on

219 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 15 File: DISK015:[05DEN5.05DEN1445]MO1445B.;4 Created: 21-JUN-2005;19:58 Chksum: Folio: 15 User: BSKELLE EFW: Doc # 13 which the Common Stock may be listed or quoted. For so long as any series of Common Stock are registered under the Exchange Act, the Company shall use its reasonable efforts to comply with any legal requirements (i) to maintain a registration statement in effect under the Securities Act of 1933 with respect to all shares of the applicable series of Common Stock that may be issued to Holders under the Plan and (ii) to file in a timely manner all reports required to be filed by it under the Exchange Act Withholding. The Company's obligation to deliver shares of Common Stock or pay cash in respect of any Award under the Plan shall be subject to applicable federal, state and local tax withholding requirements. Federal, state and local withholding tax due at the time of an Award, upon the exercise of any Option or SAR or upon the vesting of, or expiration of restrictions with respect to, Restricted Shares or Stock Units or the satisfaction of the Performance Objectives applicable to a Performance Award, as appropriate, may, in the discretion of the Committee, be paid in shares of the applicable series of Common Stock already owned by the Holder or through the withholding of shares otherwise issuable to such Holder, upon such terms and conditions (including the conditions referenced in Section 6.5) as the Committee shall determine. If the Holder shall fail to pay, or make arrangements satisfactory to the Committee for the payment to the Company of, all such federal, state and local taxes required to be withheld by the Company, then the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to such Holder an amount equal to any federal, state or local taxes of any kind required to be withheld by the Company with respect to such Award Nonexclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases Exclusion from Pension and Profit-Sharing Computation. By acceptance of an Award, unless otherwise provided in the applicable Agreement, each Holder shall be deemed to have agreed that such Award is special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan, program or policy of the Company or any Subsidiary of the Company. In addition, each beneficiary of a deceased Holder shall be deemed to have agreed that such Award will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of the Holder which is payable to such beneficiary under any life insurance plan covering employees of the Company or any Subsidiary of the Company Unfunded Plan. Neither the Company nor any Subsidiary of the Company shall be required to segregate any cash or any shares of Common Stock which may at any time be represented by Awards, and the Plan shall constitute an "unfunded" plan of the Company. Except as provided in Article VIII with respect to Awards of Restricted Shares and except as expressly set forth in an Agreement, no employee shall have voting or other rights with respect to the shares of Common Stock covered by an Award prior to the delivery of such shares. Neither the Company nor any Subsidiary of the Company shall, by any provisions of the Plan, be deemed to be a trustee of any shares of Common Stock or any other property, and the liabilities of the Company and any Subsidiary of the Company to any employee pursuant to the Plan shall be those of a debtor pursuant to such contract obligations as are created by or pursuant to the Plan, and the rights of any employee, former employee or beneficiary under the Plan shall be limited to those of a general creditor of the Company or the applicable Subsidiary of the Company, as the case may be. In its sole discretion, the Board may authorize the creation of trusts or other arrangements to meet the obligations of the Company under the Plan, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

220 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 16 File: DISK015:[05DEN5.05DEN1445]MO1445B.;4 Created: 21-JUN-2005;19:58 Chksum: Folio: 16 User: BSKELLE EFW: Doc # Governing Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware Accounts. The delivery of any shares of Common Stock and the payment of any amount in respect of an Award shall be for the account of the Company or the applicable Subsidiary of the Company, as the case may be, and any such delivery or payment shall not be made until the recipient shall have paid or made satisfactory arrangements for the payment of any applicable withholding taxes as provided in Section Legends. Each certificate evidencing shares of Common Stock subject to an Award shall bear such legends as the Committee deems necessary or appropriate to reflect or refer to any terms, conditions or restrictions of the Award applicable to such shares, including any to the effect that the shares represented thereby may not be disposed of unless the Company has received an opinion of counsel, acceptable to the Company, that such disposition will not violate any federal or state securities laws Company's Rights. The grant of Awards pursuant to the Plan shall not affect in any way the right or power of the Company to make reclassifications, reorganizations or other changes of or to its capital or business structure or to merge, consolidate, liquidate, sell or otherwise dispose of all or any part of its business or assets Interpretation. The words "include," "includes," "included" and "including" to the extent used in the Plan shall be deemed in each case to be followed by the words "without limitation." Section 409A. Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an additional tax under Code Section 409A and related regulations and United States Department of the Treasury pronouncements ("Section 409A"), that Plan provision or Award will be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Holder's rights to an Award or require the consent of the Holder.

221 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: Doc # 13 QuickLinks DISCOVERY HOLDING COMPANY 2005 INCENTIVE PLAN

222 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: Doc # 13 </TEXT> </DOCUMENT>

223 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: Doc # 14 <DOCUMENT> <TYPE> EX-10.8 <DESCRIPTION> Ex 10.8 <FILENAME> a zex-10_8.htm <TEXT>

224 File: DISK015:[05DEN5.05DEN1445]NA1445A.;6 User: EROWE EFW: Printed: 24-Jun-2005;20:03:36 (v.162) Created: 23-JUN-2005;22:21 Chksum: HTML Page: 1 Folio: BLANK Doc # 14 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.8 DISCOVERY HOLDING COMPANY 2005 NON-EMPLOYEE DIRECTOR INCENTIVE PLAN (Effective May 3, 2005) ARTICLE I Purpose of Plan 1.1 Purpose. The purpose of the Plan is to provide a method whereby eligible Nonemployee Directors of the Company may be awarded additional remuneration for services rendered and encouraged to invest in capital stock of the Company, thereby increasing their proprietary interest in the Company's businesses and increasing their personal interest in the continued success and progress of the Company. The Plan is also intended to aid in attracting Persons of exceptional ability to become Nonemployee Directors of the Company. 1.2 Effective Date. The Plan is effective as of May 3, ARTICLE II Definitions 2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in the Plan shall have the following meanings (whether used in the singular or plural): "Affiliate" of the Company means any corporation, partnership or other business association that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Company. "Agreement" means a stock option agreement, stock appreciation rights agreement, restricted shares agreement, stock units agreement or an agreement evidencing more than one type of Award, specified in Section 10.5, as any such Agreement may be supplemented or amended from time to time. "Approved Transaction" means any transaction in which the Board (or, if approval of the Board is not required as a matter of law, the stockholders of the Company) shall approve (i) any consolidation or merger of the Company, or binding share exchange, pursuant to which shares of Common Stock of the Company would be changed or converted into or exchanged for cash, securities or other property, other than any such transaction in which the common stockholders of the Company immediately prior to such transaction have the same proportionate ownership of the Common Stock of, and voting power with respect to, the surviving corporation immediately after such transaction, (ii) any merger, consolidation or binding share exchange to which the Company is a party as a result of which the Persons who are common stockholders of the Company immediately prior thereto have less than a majority of the combined voting power of the outstanding capital stock of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors immediately following such merger, consolidation or binding share exchange, (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Company, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company. "Award" means a grant of Options, SARs, Restricted Shares, Stock Units and/or cash under the Plan. "Board" means the Board of Directors of the Company. "Board Change" means, during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board cease for any reason to constitute a majority

225 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]NA1445A.;6 Created: 23-JUN-2005;22:21 Chksum: Folio: 2 User: EROWE EFW: Doc # 14 thereof unless the election, or the nomination for election, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute or statutes thereto. Reference to any specific Code section shall include any successor section. "Common Stock" means each or any (as the context may require) series of the Company's common stock. "Company" means Discovery Holding Company, a Delaware corporation. "Control Purchase" means any transaction (or series of related transactions) in which (i) any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other than the Company, any Subsidiary of the Company or any employee benefit plan sponsored by the Company or any Subsidiary of the Company) shall purchase any Common Stock of the Company (or securities convertible into Common Stock of the Company) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, without the prior consent of the Board, or (ii) any person (as such term is so defined), corporation or other entity (other than the Company, any Subsidiary of the Company, any employee benefit plan sponsored by the Company or any Subsidiary of the Company or any Exempt Person (as defined below)) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) under the Exchange Act in the case of rights to acquire the Company's securities), other than in a transaction (or series of related transactions) approved by the Board. For purposes of this definition, " Exempt Person" means each of (a) the Chairman of the Board, the President and each of the directors of Discovery Holding Company as of the Distribution Date, and (b) the respective family members, estates, and heirs of each of the persons referred to in clause (a) above and any trust or other investment vehicle for the primary benefit of any of such persons or their respective family members or heirs. As used with respect to any person, the term "family member" means the spouse, siblings and lineal descendants of such person. "Disability" means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. "Distribution Date" means the date on which the Company ceases to be a wholly-owned subsidiary of Liberty Media Corporation, a Delaware corporation. "Dividend Equivalents" means, with respect to Restricted Shares to be issued at the end of the Restriction Period, to the extent specified by the Board only, an amount equal to all dividends and other distributions (or the economic equivalent thereof) which are payable to stockholders of record during the Restriction Period on a like number and kind of shares of Common Stock. "Domestic Relations Order" means a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. "Effective Date" has the meaning ascribed thereto in Section 1.2. "Equity Security" shall have the meaning ascribed to such term in Section 3(a)(11) of the Exchange Act, and an equity security of an issuer shall have the meaning ascribed thereto in Rule 16a-1 promulgated under the Exchange Act, or any successor Rule.

226 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]NA1445A.;6 Created: 23-JUN-2005;22:21 Chksum: Folio: 3 User: EROWE EFW: Doc # 14 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute or statutes thereto. Reference to any specific Exchange Act section shall include any successor section. "Fair Market Value" of a share of any series of Common Stock on any day means the last sale price (or, if no last sale price is reported, the average of the high bid and low asked prices) for a share of such series of Common Stock on such day (or, if such day is not a trading day, on the next preceding trading day) as reported on the consolidated transaction reporting system for the principal national securities exchange on which shares of such series of Common Stock are listed on such day or if such shares are not then listed on a national securities exchange, then as reported on Nasdaq. If for any day the Fair Market Value of a share of the applicable series of Common Stock is not determinable by any of the foregoing means, then the Fair Market Value for such day shall be determined in good faith by the Board on the basis of such quotations and other considerations as the Board deems appropriate. "Free Standing SAR" has the meaning ascribed thereto in Section 7.1. "Holder" means a person who has received an Award under the Plan. "Nasdaq" means The NASDAQ Stock Market. "Nonemployee Director" means an individual who is a member of the Board and who is not an employee of the Company or any Subsidiary. "Nonqualified Stock Option" means a stock option granted under Article VI. "Option" means a Nonqualified Stock Option. "Person" means an individual, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind. "Plan" means this Discovery Holding Company 2005 Non-Employee Director Incentive Plan." "Restricted Shares" means shares of any series of Common Stock or the right to receive shares of any specified series of Common Stock, as the case may be, awarded pursuant to Article VIII. "Restriction Period" means a period of time beginning on the date of each Award of Restricted Shares and ending on the Vesting Date with respect to such Award. "Retained Distribution" has the meaning ascribed thereto in Section 8.3. "SARs" means stock appreciation rights, awarded pursuant to Article VII, with respect to shares of any specified series of Common Stock. "Stock Unit Awards" has the meaning ascribed thereto in Section 9.1. "Subsidiary" of a Person means any present or future subsidiary (as defined in Section 424(f) of the Code) of such Person or any business entity in which such Person owns, directly or indirectly, 50% or more of the voting, capital or profits interests. An entity shall be deemed a subsidiary of a Person for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained. "Tandem SARs" has the meaning ascribed thereto in Section 7.1. "Vesting Date," with respect to any Restricted Shares awarded hereunder, means the date on which such Restricted Shares cease to be subject to a risk of forfeiture, as designated in or determined in accordance with the Agreement with respect to such Award of Restricted Shares pursuant to Article VIII. If more than one Vesting Date is designated for an Award of Restricted

227 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]NA1445A.;6 Created: 23-JUN-2005;22:21 Chksum: Folio: 4 User: EROWE EFW: Doc # 14 Shares, reference in the Plan to a Vesting Date in respect of such Award shall be deemed to refer to each part of such Award and the Vesting Date for such part. ARTICLE III Administration 3.1 Administration. The Plan shall be administered by the Board, provided that it may delegate to employees of the Company certain administrative or ministerial duties in carrying out the purposes of the Plan. 3.2 Powers. The Board shall have full power and authority to grant to eligible persons Options under Article VI of the Plan, SARs under Article VII of the Plan, Restricted Shares under Article VIII of the Plan and/or Stock Units under Article IX of the Plan, to determine the terms and conditions (which need not be identical) of all Awards so granted, to interpret the provisions of the Plan and any Agreements relating to Awards granted under the Plan and to supervise the administration of the Plan. The Board in making an Award may provide for the granting or issuance of additional, replacement or alternative Awards upon the occurrence of specified events, including the exercise of the original Award. The Board shall have sole authority in the selection of persons to whom Awards may be granted under the Plan and in the determination of the timing, pricing, and amount of any such Award, subject only to the express provisions of the Plan. In making determinations hereunder, the Board may take into account such factors as the Board in its discretion deems relevant. 3.3 Interpretation. The Board is authorized, subject to the provisions of the Plan, to establish, amend and rescind such rules and regulations as it deems necessary or advisable for the proper administration of the Plan and to take such other action in connection with or in relation to the Plan as it deems necessary or advisable. Each action and determination made or taken pursuant to the Plan by the Board, including any interpretation or construction of the Plan, shall be final and conclusive for all purposes and upon all persons. No member of the Board shall be liable for any action or determination made or taken by him or the Board in good faith with respect to the Plan. ARTICLE IV Shares Subject to the Plan 4.1 Number of Shares. Subject to the provisions of this Article IV, the maximum number of shares of Common Stock with respect to which Awards may be granted during the term of the Plan shall be 5 million shares. Shares of Common Stock will be made available from the authorized but unissued shares of the Company or from shares reacquired by the Company, including shares purchased in the open market. The shares of Common Stock subject to (a) any Award granted under the Plan that shall expire, terminate or be annulled for any reason without having been exercised (or considered to have been exercised as provided in Section 7.2), (b) any Award of any SARs granted under the Plan that shall be exercised for cash, and (c) any Award of Restricted Shares or Stock Units that shall be forfeited prior to becoming vested (provided that the Holder received no benefits of ownership of such Restricted Shares or Stock Units other than voting rights and the accumulation of Retained Distributions and unpaid Dividend Equivalents that are likewise forfeited) shall again be available for purposes of the Plan. 4.2 Adjustments. If the Company subdivides its outstanding shares of any series of Common Stock into a greater number of shares of such series of Common Stock (by stock dividend, stock split, reclassification, or otherwise) or combines its outstanding shares of any series of Common Stock into a smaller number of shares of such series of Common Stock (by reverse stock split, reclassification, or otherwise) or if the Board determines that any stock dividend, extraordinary cash dividend, reclassification, recapitalization, reorganization, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase such series of Common Stock or other similar corporate event

228 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]NA1445B.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 5 User: EROWE EFW: Doc # 14 (including mergers or consolidations other than those which constitute Approved Transactions, adjustments with respect to which shall be governed by Section 10.1(b)) affects any series of Common Stock so that an adjustment is required to preserve the benefits or potential benefits intended to be made available under the Plan, then the Board, in its sole discretion and in such manner as the Board may deem equitable and appropriate, may make such adjustments to any or all of (a) the number and kind of shares of stock which thereafter may be awarded, optioned, or otherwise made subject to the benefits contemplated by the Plan, (b) the number and kind of shares of stock subject to outstanding Awards, and (c) the purchase or exercise price and the relevant appreciation base with respect to any of the foregoing, provided, however, that the number of shares subject to any Award shall always be a whole number. Notwithstanding the foregoing, if all shares of any series of Common Stock are redeemed, then each outstanding Award shall be adjusted to substitute for the shares of such series of Common Stock subject thereto the kind and amount of cash, securities or other assets issued or paid in the redemption of the equivalent number of shares of such series of Common Stock and otherwise the terms of such Award, including, in the case of Options or similar rights, the aggregate exercise price, and, in the case of Free Standing SARs, the aggregate base price, shall remain constant before and after the substitution (unless otherwise determined by the Board and provided in the applicable Agreement). The Board may, if deemed appropriate, provide for a cash payment to any Holder of an Award in connection with any adjustment made pursuant to this Section 4.2. ARTICLE V Eligibility 5.1 General. The persons who shall be eligible to participate in the Plan and to receive Awards under the Plan shall, subject to Section 5.2, be such persons who are Nonemployee Directors as the Board shall select. Awards may be made to Nonemployee Directors who hold or have held Awards under the Plan or any similar or other awards under any other plan of the Company or any of its Affiliates. 5.2 Ineligibility. No person who is not a Nonemployee Director shall be eligible to receive an Award. ARTICLE VI Stock Options 6.1 Grant of Options. Subject to the limitations of the Plan, the Board shall designate from time to time those eligible persons to be granted Options, the time when each Option shall be granted to such eligible persons, the series and number of shares of Common Stock subject to such Option, and, subject to Section 6.2, the purchase price of the shares of Common Stock subject to such Option. 6.2 Option Price. The price at which shares may be purchased upon exercise of an Option shall be fixed by the Board and may be no less than the Fair Market Value of the shares of the applicable series of Common Stock subject to the Option as of the date the Option is granted. 6.3 Term of Options. Subject to the provisions of the Plan with respect to death, retirement and termination of service, the term of each Option shall be for such period as the Board shall determine as set forth in the applicable Agreement. 6.4 Exercise of Options. An Option granted under the Plan shall become (and remain) exercisable during the term of the Option to the extent provided in the applicable Agreement and the Plan and, unless the Agreement otherwise provides, may be exercised to the extent exercisable, in whole or in part, at any time and from time to time during such term; provided, however, that subsequent to the grant of an Option, the Board, at any time before complete termination of such Option, may accelerate the time or times at which such Option may be exercised in whole or in part (without reducing the term of such Option).

229 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]NA1445B.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 6 User: EROWE EFW: Doc # Manner of Exercise. (a) Form of Payment. An Option shall be exercised by written notice to the Company upon such terms and conditions as the Agreement may provide and in accordance with such other procedures for the exercise of Options as the Board may establish from time to time. The method or methods of payment of the purchase price for the shares to be purchased upon exercise of an Option and of any amounts required by Section 10.9 shall be determined by the Board and may consist of (i) cash, (ii) check, (iii) whole shares of any series of Common Stock, (iv) the withholding of shares of the applicable series of Common Stock issuable upon such exercise of the Option, (v) the delivery, together with a properly executed exercise notice, of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the purchase price, or (vi) any combination of the foregoing methods of payment, or such other consideration and method of payment as may be permitted for the issuance of shares under the Delaware General Corporation Law. The permitted method or methods of payment of the amounts payable upon exercise of an Option, if other than in cash, shall be set forth in the applicable Agreement and may be subject to such conditions as the Board deems appropriate. (b) Value of Shares. Unless otherwise determined by the Board and provided in the applicable Agreement, shares of any series of Common Stock delivered in payment of all or any part of the amounts payable in connection with the exercise of an Option, and shares of any series of Common Stock withheld for such payment, shall be valued for such purpose at their Fair Market Value as of the exercise date. (c) Issuance of Shares. The Company shall effect the transfer of the shares of Common Stock purchased under the Option as soon as practicable after the exercise thereof and payment in full of the purchase price therefor and of any amounts required by Section 10.9, and within a reasonable time thereafter, such transfer shall be evidenced on the books of the Company. Unless otherwise determined by the Board and provided in the applicable Agreement, (i) no Holder or other person exercising an Option shall have any of the rights of a stockholder of the Company with respect to shares of Common Stock subject to an Option granted under the Plan until due exercise and full payment has been made, and (ii) no adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such due exercise and full payment. 6.6 Nontransferability. Unless otherwise determined by the Board and provided in the applicable Agreement, Options shall not be transferable other than by will or the laws of descent and distribution or pursuant to a Domestic Relations Order, and, except as otherwise required pursuant to a Domestic Relations Order, Options may be exercised during the lifetime of the Holder thereof only by such Holder (or his or her court-appointed legal representative). ARTICLE VII SARs 7.1 Grant of SARs. Subject to the limitations of the Plan, SARs may be granted by the Board to such eligible persons in such numbers, with respect to any specified series of Common Stock, and at such times during the term of the Plan as the Board shall determine. A SAR may be granted to a Holder of an Option (hereinafter called a "related Option") with respect to all or a portion of the shares of Common Stock subject to the related Option (a "Tandem SAR") or may be granted separately to an eligible Nonemployee Director (a "Free Standing SAR"). Subject to the limitations of the Plan, SARs shall be exercisable in whole or in part upon notice to the Company upon such terms and conditions as are provided in the Agreement. 7.2 Tandem SARs. A Tandem SAR may be granted either concurrently with the grant of the related Option or at any time thereafter prior to the complete exercise, termination, expiration or

230 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]NA1445B.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 7 User: EROWE EFW: Doc # 14 cancellation of such related Option. Tandem SARs shall be exercisable only at the time and to the extent that the related Option is exercisable (and may be subject to such additional limitations on exercisability as the Agreement may provide) and in no event after the complete termination or full exercise of the related Option. Upon the exercise or termination of the related Option, the Tandem SARs with respect thereto shall be canceled automatically to the extent of the number of shares of Common Stock with respect to which the related Option was so exercised or terminated. Subject to the limitations of the Plan, upon the exercise of a Tandem SAR and unless otherwise determined by the Board and provided in the applicable Agreement, (a) the Holder thereof shall be entitled to receive from the Company, for each share of the applicable series of Common Stock with respect to which the Tandem SAR is being exercised, consideration (in the form determined as provided in Section 7.4) equal in value to the excess of the Fair Market Value of a share of the applicable series of Common Stock with respect to which the Tandem SAR was granted on the date of exercise over the related Option purchase price per share, and (b) the related Option with respect thereto shall be canceled automatically to the extent of the number of shares of Common Stock with respect to which the Tandem SAR was so exercised. 7.3 Free Standing SARs. Free Standing SARs shall be exercisable at the time, to the extent and upon the terms and conditions set forth in the applicable Agreement. The base price of a Free Standing SAR may be no less than the Fair Market Value of the applicable series of Common Stock with respect to which the Free Standing SAR was granted as of the date the Free Standing SAR is granted. Subject to the limitations of the Plan, upon the exercise of a Free Standing SAR and unless otherwise determined by the Board and provided in the applicable Agreement, the Holder thereof shall be entitled to receive from the Company, for each share of the applicable series of Common Stock with respect to which the Free Standing SAR is being exercised, consideration (in the form determined as provided in Section 7.4) equal in value to the excess of the Fair Market Value of a share of the applicable series of Common Stock with respect to which the Free Standing SAR was granted on the date of exercise over the base price per share of such Free Standing SAR. 7.4 Consideration. The consideration to be received upon the exercise of a SAR by the Holder shall be paid in the applicable series of Common Stock with respect to which the SAR was granted (valued at Fair Market Value on the date of exercise of such SAR). No fractional shares of Common Stock shall be issuable upon exercise of a SAR, and unless otherwise provided in the applicable Agreement, the Holder will receive cash in lieu of fractional shares. Unless the Board shall otherwise determine, to the extent a Free Standing SAR is exercisable, it will be exercised automatically on its expiration date. 7.5 Limitations. The applicable Agreement may provide for a limit on the amount payable to a Holder upon exercise of SARs at any time or in the aggregate, for a limit on the time periods during which a Holder may exercise SARs, and for such other limits on the rights of the Holder and such other terms and conditions of the SAR, including a condition that the SAR may be exercised only in accordance with rules and regulations adopted from time to time, as the Board may determine. Unless otherwise so provided in the applicable Agreement, any such limit relating to a Tandem SAR shall not restrict the exercisability of the related Option. Such rules and regulations may govern the right to exercise SARs granted prior to the adoption or amendment of such rules and regulations as well as SARs granted thereafter. 7.6 Exercise. For purposes of this Article VII, the date of exercise of a SAR shall mean the date on which the Company shall have received notice from the Holder of the SAR of the exercise of such SAR (unless otherwise determined by the Board and provided in the applicable Agreement). 7.7 Nontransferability. Unless otherwise determined by the Board and provided in the applicable Agreement, (a) SARs shall not be transferable other than by will or the laws of descent and distribution or pursuant to a Domestic Relations Order, and (b) except as otherwise required pursuant

231 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]NA1445B.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 8 User: EROWE EFW: Doc # 14 to a Domestic Relations Order, SARs may be exercised during the lifetime of the Holder thereof only by such Holder (or his or her court-appointed legal representative). ARTICLE VIII Restricted Shares 8.1 Grant. Subject to the limitations of the Plan, the Board shall designate those eligible persons to be granted Awards of Restricted Shares, shall determine the time when each such Award shall be granted, shall determine whether shares of Common Stock covered by Awards of Restricted Shares will be issued at the beginning or the end of the Restriction Period and whether Dividend Equivalents will be paid during the Restriction Period in the event shares of the applicable series of Common Stock are to be issued at the end of the Restriction Period, and shall designate (or set forth the basis for determining) the Vesting Date or Vesting Dates for each Award of Restricted Shares, and may prescribe other restrictions, terms and conditions applicable to the vesting of such Restricted Shares in addition to those provided in the Plan. The Board shall determine the price, if any, to be paid by the Holder for the Restricted Shares; provided, however, that the issuance of Restricted Shares shall be made for at least the minimum consideration necessary to permit such Restricted Shares to be deemed fully paid and nonassessable. All determinations made by the Board pursuant to this Section 8.1 shall be specified in the Agreement. 8.2 Issuance of Restricted Shares at Beginning of the Restriction Period. If shares of the applicable series of Common Stock are issued at the beginning of the Restriction Period, the stock certificate or certificates representing such Restricted Shares shall be registered in the name of the Holder to whom such Restricted Shares shall have been awarded. During the Restriction Period, certificates representing the Restricted Shares and any securities constituting Retained Distributions shall bear a restrictive legend to the effect that ownership of the Restricted Shares (and such Retained Distributions), and the enjoyment of all rights appurtenant thereto, are subject to the restrictions, terms and conditions provided in the Plan and the applicable Agreement. Such certificates shall remain in the custody of the Company or its designee, and the Holder shall deposit with the custodian stock powers or other instruments of assignment, each endorsed in blank, so as to permit retransfer to the Company of all or any portion of the Restricted Shares and any securities constituting Retained Distributions that shall be forfeited or otherwise not become vested in accordance with the Plan and the applicable Agreement. 8.3 Restrictions. Restricted Shares issued at the beginning of the Restriction Period shall constitute issued and outstanding shares of the applicable series of Common Stock for all corporate purposes. The Holder will have the right to vote such Restricted Shares, to receive and retain such dividends and distributions, as the Board may designate, paid or distributed on such Restricted Shares, and to exercise all other rights, powers and privileges of a Holder of shares of the applicable series of Common Stock with respect to such Restricted Shares; except, that, unless otherwise determined by the Board and provided in the applicable Agreement, (a) the Holder will not be entitled to delivery of the stock certificate or certificates representing such Restricted Shares until the Restriction Period shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled or waived; (b) the Company or its designee will retain custody of the stock certificate or certificates representing the Restricted Shares during the Restriction Period as provided in Section 8.2; (c) other than such dividends and distributions as the Board may designate, the Company or its designee will retain custody of all distributions ("Retained Distributions") made or declared with respect to the Restricted Shares (and such Retained Distributions will be subject to the same restrictions, terms and vesting, and other conditions as are applicable to the Restricted Shares) until such time, if ever, as the Restricted Shares with respect to which such Retained Distributions shall have been made, paid or declared shall have become vested, and such Retained Distributions shall not bear interest or be segregated in a separate account; (d) the Holder may not sell, assign, transfer, pledge, exchange, encumber or dispose of the Restricted Shares or any Retained Distributions or his interest in any of

232 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]NA1445B.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 9 User: EROWE EFW: Doc # 14 them during the Restriction Period; and (e) a breach of any restrictions, terms or conditions provided in the Plan or established by the Board with respect to any Restricted Shares or Retained Distributions will cause a forfeiture of such Restricted Shares and any Retained Distributions with respect thereto. 8.4 Issuance of Stock at End of the Restriction Period. Restricted Shares issued at the end of the Restriction Period shall not constitute issued and outstanding shares of the applicable series of Common Stock, and the Holder shall not have any of the rights of a stockholder with respect to the shares of Common Stock covered by such an Award of Restricted Shares, in each case until such shares shall have been transferred to the Holder at the end of the Restriction Period. If and to the extent that shares of Common Stock are to be issued at the end of the Restriction Period, the Holder shall be entitled to receive Dividend Equivalents with respect to the shares of Common Stock covered thereby either (a) during the Restriction Period or (b) in accordance with the rules applicable to Retained Distributions, as the Board may specify in the Agreement. 8.5 Cash Payments. In connection with any Award of Restricted Shares, an Agreement may provide for the payment of a cash amount to the Holder of such Restricted Shares after such Restricted Shares shall have become vested. Such cash amounts shall be payable in accordance with such additional restrictions, terms and conditions as shall be prescribed by the Board in the Agreement and shall be in addition to any other compensation payments which such Holder shall be otherwise entitled or eligible to receive from the Company. 8.6 Completion of Restriction Period. On the Vesting Date with respect to each Award of Restricted Shares and the satisfaction of any other applicable restrictions, terms and conditions, (a) all or the applicable portion of such Restricted Shares shall become vested, (b) any Retained Distributions and any unpaid Dividend Equivalents with respect to such Restricted Shares shall become vested to the extent that the Restricted Shares related thereto shall have become vested, and (c) any cash amount to be received by the Holder with respect to such Restricted Shares shall become payable, all in accordance with the terms of the applicable Agreement. Any such Restricted Shares, Retained Distributions and any unpaid Dividend Equivalents that shall not become vested shall be forfeited to the Company, and the Holder shall not thereafter have any rights (including dividend and voting rights) with respect to such Restricted Shares, Retained Distributions and any unpaid Dividend Equivalents that shall have been so forfeited. The Board may, in its discretion, provide that the delivery of any Restricted Shares, Retained Distributions and unpaid Dividend Equivalents that shall have become vested, and payment of any cash amounts that shall have become payable, shall be deferred until such date or dates as the recipient may elect. Any election of a recipient pursuant to the preceding sentence shall be filed in writing with the Board in accordance with such rules and regulations, including any deadline for the making of such an election, as the Board may provide, and shall be made in compliance with Section 409A of the Code. ARTICLE IX Stock Units 9.1 Grant. In addition to granting Awards of Options, SARs and Restricted Shares, the Board shall, subject to the limitations of the Plan, have authority to grant to eligible persons Awards of Stock Units which may be in the form of shares of any specified series of Common Stock or units, the value of which is based, in whole or in part, on the Fair Market Value of the shares of any specified series of Common Stock. Subject to the provisions of the Plan, including any rules established pursuant to Section 9.2, Awards of Stock Units shall be subject to such terms, restrictions, conditions, vesting requirements and payment rules as the Board may determine in its discretion, which need not be identical for each Award. The determinations made by the Board pursuant to this Section 9.1 shall be specified in the applicable Agreement.

233 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]NA1445C.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 10 User: EROWE EFW: Doc # Rules. The Board may, in its discretion, establish any or all of the following rules for application to an Award of Stock Units: (a) Any shares of Common Stock which are part of an Award of Stock Units may not be assigned, sold, transferred, pledged or otherwise encumbered prior to the date on which the shares are issued or, if later, the date provided by the Board at the time of the Award. (b) Such Awards may provide for the payment of cash consideration by the person to whom such Award is granted or provide that the Award, and any shares of Common Stock to be issued in connection therewith, if applicable, shall be delivered without the payment of cash consideration; provided, however, that the issuance of any shares of Common Stock in connection with an Award of Stock Units shall be for at least the minimum consideration necessary to permit such shares to be deemed fully paid and nonassessable. (c) Awards of Stock Units may relate in whole or in part to performance or other criteria established by the Board at the time of grant. (d) Awards of Stock Units may provide for deferred payment schedules, vesting over a specified period of service, the payment (on a current or deferred basis) of dividend equivalent amounts with respect to the number of shares of Common Stock covered by the Award, and elections by the Holder to defer payment of the Award or the lifting of restrictions on the Award, if any, provided that any such deferrals shall comply with the requirements of Section 409A of the Code. (e) In such circumstances as the Board may deem advisable, the Board may waive or otherwise remove, in whole or in part, any restrictions or limitations to which a Stock Unit Award was made subject at the time of grant Acceleration of Awards. ARTICLE X General Provisions (a) Death or Disability. If a Holder's service shall terminate by reason of death or Disability, notwithstanding any contrary waiting period, installment period, vesting schedule or Restriction Period in any Agreement or in the Plan, unless the applicable Agreement provides otherwise: (i) in the case of an Option or SAR, each outstanding Option or SAR granted under the Plan shall immediately become exercisable in full in respect of the aggregate number of shares covered thereby; (ii) in the case of Restricted Shares, the Restriction Period applicable to each such Award of Restricted Shares shall be deemed to have expired and all such Restricted Shares, any related Retained Distributions and any unpaid Dividend Equivalents shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement; and (iii) in the case of Stock Units, each such Award of Stock Units shall become vested in full. (b) Approved Transactions; Board Change; Control Purchase. In the event of any Approved Transaction, Board Change or Control Purchase, notwithstanding any contrary waiting period, installment period, vesting schedule or Restriction Period in any Agreement or in the Plan, unless the applicable Agreement provides otherwise: (i) in the case of an Option or SAR, each such outstanding Option or SAR granted under the Plan shall become exercisable in full in respect of the aggregate number of shares covered thereby; (ii) in the case of Restricted Shares, the Restriction Period applicable to each such Award of Restricted Shares shall be deemed to have expired and all such Restricted Shares, any related Retained Distributions and any unpaid Dividend Equivalents shall become vested and any related cash amounts payable pursuant to the applicable Agreement shall be adjusted in such manner as may be provided in the Agreement; and

234 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]NA1445C.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 11 User: EROWE EFW: Doc # 14 (iii) in the case of Stock Units, each such Award of Stock Units shall become vested in full, in each case effective upon the Board Change or Control Purchase or immediately prior to consummation of the Approved Transaction. Notwithstanding the foregoing, unless otherwise provided in the applicable Agreement, the Board may, in its discretion, determine that any or all outstanding Awards of any or all types granted pursuant to the Plan will not vest or become exercisable on an accelerated basis in connection with an Approved Transaction if effective provision has been made for the taking of such action which, in the opinion of the Board, is equitable and appropriate to substitute a new Award for such Award or to assume such Award and to make such new or assumed Award, as nearly as may be practicable, equivalent to the old Award (before giving effect to any acceleration of the vesting or exercisability thereof), taking into account, to the extent applicable, the kind and amount of securities, cash or other assets into or for which the applicable series of Common Stock may be changed, converted or exchanged in connection with the Approved Transaction Termination of Service. (a) General. If a Holder's service shall terminate prior to an Option or SAR becoming exercisable or being exercised (or deemed exercised, as provided in Section 7.2) in full, or during the Restriction Period with respect to any Restricted Shares or prior to the vesting or complete exercise of any Stock Units, then such Option or SAR shall thereafter become or be exercisable, such Stock Units to the extent vested shall thereafter be exercisable, and the Holder's rights to any unvested Restricted Shares, Retained Distributions, unpaid Dividend Equivalents and related cash amounts, and any such unvested Stock Units shall thereafter vest, in each case solely to the extent provided in the applicable Agreement; provided, however, that, unless otherwise determined by the Board and provided in the applicable Agreement, (i) no Option or SAR may be exercised after the scheduled expiration date thereof; (ii) if the Holder's service terminates by reason of death or Disability, the Option or SAR shall remain exercisable for a period of at least one year following such termination (but not later than the scheduled expiration of such Option or SAR); and (iii) any termination of the Holder ' s service for cause will be treated in accordance with the provisions of Section 10.2(b). (b) Termination for Cause. If a Holder's service on the Board shall be terminated by the Company for "cause" during the Restriction Period with respect to any Restricted Shares, or prior to any Option or SAR becoming exercisable or being exercised in full or prior to the vesting or complete exercise of any Stock Unit (for these purposes, "cause" shall include dishonesty, incompetence, moral turpitude, other misconduct of any kind and the refusal to perform his duties and responsibilities for any reason other than illness or incapacity; provided, however, that if such termination occurs within 12 months after an Approved Transaction or Control Purchase or Board Change, termination for "cause" shall mean only a felony conviction for fraud, misappropriation or embezzlement), then, unless otherwise determined by the Board and provided in the applicable Agreement, (i) all Options and SARs and all unvested or unexercised Stock Units held by such Holder shall immediately terminate, and (ii) such Holder's rights to all Restricted Shares, Retained Distributions, any unpaid Dividend Equivalents and any related cash amounts shall be forfeited immediately Nonalienation of Benefits. Except as set forth herein, no right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits.

235 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]NA1445C.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 12 User: EROWE EFW: Doc # Written Agreement. Each Award of Options shall be evidenced by a stock option agreement; each Award of SARs shall be evidenced by a stock appreciation rights agreement; each Award of Restricted Shares shall be evidenced by a restricted shares agreement; and each Award of Stock Units shall be evidenced by a stock units agreement, each in such form and containing such terms and provisions not inconsistent with the provisions of the Plan as the Board from time to time shall approve; provided, however, that if more than one type of Award is made to the same Holder, such Awards may be evidenced by a single Agreement with such Holder. Each grantee of an Option, SAR, Restricted Shares or Stock Units shall be notified promptly of such grant, and a written Agreement shall be promptly executed and delivered by the Company. Any such Agreement may be supplemented or amended from time to time as approved by the Board as contemplated by Section 10.6(b) Designation of Beneficiaries. Each person who shall be granted an Award under the Plan may designate a beneficiary or beneficiaries and may change such designation from time to time by filing a written designation of beneficiary or beneficiaries with the Board on a form to be prescribed by it, provided that no such designation shall be effective unless so filed prior to the death of such person Termination and Amendment. (a) General. Unless the Plan shall theretofore have been terminated as hereinafter provided, no Awards may be made under the Plan on or after the tenth anniversary of the Effective Date. The Plan may be terminated at any time prior to the tenth anniversary of the Effective Date and may, from time to time, be suspended or discontinued or modified or amended if such action is deemed advisable by the Board. (b) Modification. No termination, modification or amendment of the Plan may, without the consent of the person to whom any Award shall theretofore have been granted, adversely affect the rights of such person with respect to such Award, except as otherwise permitted by Section No modification, extension, renewal or other change in any Award granted under the Plan shall be made after the grant of such Award, unless the same is consistent with the provisions of the Plan. With the consent of the Holder, or as otherwise permitted under Section 10.17, and subject to the terms and conditions of the Plan (including Section 10.6(a)), the Board may amend outstanding Agreements with any Holder, including any amendment which would (i) accelerate the time or times at which the Award may be exercised and/or (ii) extend the scheduled expiration date of the Award. Without limiting the generality of the foregoing, the Board may, but solely with the Holder's consent unless otherwise provided in the Agreement, agree to cancel any Award under the Plan and grant a new Award in substitution therefor, provided that the Award so substituted shall satisfy all of the requirements of the Plan as of the date such new Award is made. Nothing contained in the foregoing provisions of this Section 10.6(b) shall be construed to prevent the Board from providing in any Agreement that the rights of the Holder with respect to the Award evidenced thereby shall be subject to such rules and regulations as the Board may, subject to the express provisions of the Plan, adopt from time to time or impair the enforceability of any such provision Government and Other Regulations. The obligation of the Company with respect to Awards shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including the effectiveness of any registration statement required under the Securities Act of 1933, and the rules and regulations of any securities exchange or association on which the Common Stock may be listed or quoted. For so long as any series of Common Stock are registered under the Exchange Act, the Company shall use its reasonable efforts to comply with any legal requirements (a) to maintain a registration statement in effect under the Securities Act of 1933 with respect to all shares of the applicable series of Common Stock that may be issued to Holders under the Plan and (b) to file in a timely manner all reports required to be filed by it under the Exchange Act.

236 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 13 File: DISK015:[05DEN5.05DEN1445]NA1445C.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 13 User: EROWE EFW: Doc # Withholding. The Company's obligation to deliver shares of Common Stock or pay cash in respect of any Award under the Plan shall be subject to applicable federal, state and local tax withholding requirements. Federal, state and local withholding tax due at the time of an Award, upon the exercise of any Option or SAR or upon the vesting of, or expiration of restrictions with respect to, Restricted Shares or Stock Units, as appropriate, may, in the discretion of the Board, be paid in shares of the applicable series of Common Stock already owned by the Holder or through the withholding of shares otherwise issuable to such Holder, upon such terms and conditions (including the conditions referenced in Section 6.5) as the Board shall determine. If the Holder shall fail to pay, or make arrangements satisfactory to the Board for the payment to the Company of, all such federal, state and local taxes required to be withheld by the Company, then the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to such Holder an amount equal to any federal, state or local taxes of any kind required to be withheld by the Company with respect to such Award Nonexclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases Exclusion from Other Plans. By acceptance of an Award, unless otherwise provided in the applicable Agreement, each Holder shall be deemed to have agreed that such Award is special incentive compensation that will not be taken into account, in any manner, as compensation or bonus in determining the amount of any payment under any pension, retirement or other benefit plan, program or policy of the Company or any Subsidiary of the Company. In addition, each beneficiary of a deceased Holder shall be deemed to have agreed that such Award will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of the Holder which is payable to such beneficiary under any life insurance plan of the Company or any Subsidiary of the Company Unfunded Plan. Neither the Company nor any Subsidiary of the Company shall be required to segregate any cash or any shares of Common Stock which may at any time be represented by Awards, and the Plan shall constitute an "unfunded" plan of the Company. Except as provided in Article VIII with respect to Awards of Restricted Shares and except as expressly set forth in an Agreement, no Holder shall have voting or other rights with respect to the shares of Common Stock covered by an Award prior to the delivery of such shares. Neither the Company nor any Subsidiary of the Company shall, by any provisions of the Plan, be deemed to be a trustee of any shares of Common Stock or any other property, and the liabilities of the Company to any Holder pursuant to the Plan shall be those of a debtor pursuant to such contract obligations as are created by or pursuant to the Plan, and the rights of any Holder under the Plan shall be limited to those of a general creditor of the Company. In its sole discretion, the Board may authorize the creation of trusts or other arrangements to meet the obligations of the Company under the Plan, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan Governing Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware Accounts. The delivery of any shares of Common Stock and the payment of any amount in respect of an Award shall be for the account of the Company or the applicable Subsidiary of the Company, as the case may be, and any such delivery or payment shall not be made until the recipient shall have paid or made satisfactory arrangements for the payment of any applicable withholding taxes as provided in Section Legends. Each certificate evidencing shares of Common Stock subject to an Award shall bear such legends as the Board deems necessary or appropriate to reflect or refer to any terms, conditions

237 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 14 File: DISK015:[05DEN5.05DEN1445]NA1445C.;3 Created: 23-JUN-2005;22:21 Chksum: Folio: 14 User: EROWE EFW: Doc # 14 or restrictions of the Award applicable to such shares, including any to the effect that the shares represented thereby may not be disposed of unless the Company has received an opinion of counsel, acceptable to the Company, that such disposition will not violate any federal or state securities laws Company's Rights. The grant of Awards pursuant to the Plan shall not affect in any way the right or power of the Company to make reclassifications, reorganizations or other changes of or to its capital or business structure or to merge, consolidate, liquidate, sell or otherwise dispose of all or any part of its business or assets Interpretation. The words "include," "includes," "included" and "including" to the extent used in the Plan shall be deemed in each case to be followed by the words "without limitation." Section 409A. Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an additional tax under Code Section 409A and related regulations and United States Department of the Treasury pronouncements ("Section 409A"), that Plan provision or Award will be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Holder's rights to an Award or require the consent of the Holder.

238 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: Doc # 14 QuickLinks DISCOVERY HOLDING COMPANY 2005 NON-EMPLOYEE DIRECTOR INCENTIVE PLAN (Effective May 3, 2005)

239 File: [05DEN1433]DOCUMENT-END EFW: Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: Doc # 14 </TEXT> </DOCUMENT>

240 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: Doc # 15 <DOCUMENT> <TYPE> EX-10.9 <DESCRIPTION> Ex 10.9 <FILENAME> a zex-10_9.htm <TEXT>

241 File: DISK015:[05DEN5.05DEN1445]NM1445A.;5 User: EROWE EFW: Printed: 24-Jun-2005;20:03:36 (v.162) Created: 23-JUN-2005;22:23 Chksum: HTML Page: 1 Folio: BLANK Doc # 15 QuickLinks-- Click here to rapidly navigate through this document Exhibit 10.9 FORM OF DISCOVERY HOLDING COMPANY TRANSITIONAL STOCK ADJUSTMENT PLAN ARTICLE I Purpose Of Plan The purpose of the Plan is to provide for the supplemental grant of both stock options to purchase the common stock of Discovery Holding Company (the "Company") and of restricted shares of the Company's common stock to holders of certain outstanding options, stock appreciation rights and restricted shares issued under certain stock-based plans administered by Liberty Media Corporation ("LMC") in connection with adjustments made to outstanding LMC stock incentive awards and restricted shares of LMC common stock as a result of the spin off of the Company from LMC. ARTICLE II Definitions 2.1 Definitions. For purposes of the Plan, the following terms shall have the meanings below stated. " Approved Transaction " means any transaction in which the Board (or, if approval of the Board is not required as a matter of law, the stockholders of the Company) shall approve (i) any consolidation or merger of the Company, or binding share exchange, pursuant to which shares of Common Stock of the Company would be changed or converted into or exchanged for cash, securities, or other property, other than any such transaction in which the common stockholders of the Company immediately prior to such transaction have the same proportionate ownership of the Common Stock of, and voting power with respect to, the surviving corporation immediately after such transaction, (ii) any merger, consolidation or binding share exchange to which the Company is a party as a result of which the Persons who are common stockholders of the Company immediately prior thereto have less than a majority of the combined voting power of the outstanding capital stock of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors immediately following such merger, consolidation or binding share exchange, (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Company, or (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company. " Board " means the Board of Directors of the Company. " Board Change " means, during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board cease for any reason to constitute a majority thereof unless the election, or the nomination for election, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. " Code " means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute or statutes thereto. Reference to any specific Code section shall include any successor section. " Committee " means the committee of the Board appointed to administer this Plan pursuant to Article VII. " Common Stock " each or any (as the context may require) series of the Company's common stock.

242 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]NM1445A.;5 Created: 23-JUN-2005;22:23 Chksum: Folio: 2 User: EROWE EFW: Doc # 15 " Company " means Discovery Holding Company, a Delaware corporation, and any successor thereto. " Control Purchase " means any transaction (or series of related transactions) in which (1) any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other than the Company, any Subsidiary of the Company or any employee benefit plan sponsored by the Company or any Subsidiary of the Company) shall purchase any Common Stock of the Company (or securities convertible into Common Stock of the Company) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, without the prior consent of the Board, or (2) any person (as such term is so defined), corporation or other entity (other than the Company, any Subsidiary of the Company, any employee benefit plan sponsored by the Company or any Subsidiary of the Company or any Exempt Person (as defined below)) shall become the " beneficial owner " (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) under the Exchange Act in the case of rights to acquire the Company's securities), other than in a transaction (or series of related transactions) approved by the Board. For purposes of this definition, " Exempt Person " means each of (a) the Chairman of the Board, the President and each of the directors of the Company as of the Distribution Date, and (b) the respective family members, estates and heirs of each of the persons referred to in clause (a) above and any trust or other investment vehicle for the primary benefit of any of such persons or their respective family members or heirs. As used with respect to any person, the term " family member " means the spouse, siblings and lineal descendants of such person. " Distribution " means the distribution by LMC to the holders of LMC Common Stock of all of the issued and outstanding shares of Common Stock. " Distribution Date " means the date on which the Distribution occurs. " Exchange Act " means the Securities Exchange Act of 1934, as amended. " Fair Market Value " of a share of any series of Common Stock on any day means the last sale price (or, if no last sale price is reported, the average of the high bid and low asked prices) for a share of such series of Common Stock on such day (or, if such day is not a trading day, on the next preceding trading day) as reported on the consolidated transaction reporting system for the principal national securities exchange on which shares of such series of Common Stock are listed on such day or if such shares are not then listed on a national securities exchange, then as reported on Nasdaq. If for any day the Fair Market Value of a share of the applicable series of Common Stock is not determinable by any of the foregoing means, then the Fair Market Value for such day shall be determined in good faith by the Committee on the basis of such quotations and other considerations as the Committee deems appropriate. " Incentive Plan " means the Liberty Media Corporation 2000 Incentive Plan (As Amended and Restated Effective April 19, 2004) and any other stock option or incentive plan assumed by LMC pursuant to which any Participant holds an outstanding LMC Award as of the Record Date. Depending on the context, "Incentive Plan" shall mean all of such plans or a particular one of such plans. " LMC " means Liberty Media Corporation, a Delaware corporation. " LMC Award " means (1) an unexercised and unexpired option to purchase LMC Common Stock, (2) an LMC SAR or (3) an unvested award of restricted shares of LMC Common Stock.

243 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]NM1445A.;5 Created: 23-JUN-2005;22:23 Chksum: Folio: 3 User: EROWE EFW: Doc # 15 " LMC Committee " means the Incentive Plan Committee of the Board of Directors of LMC. " LMC Common Stock " means each or any (as the context may require) series of LMC's common stock. " LMC Corporate Holder " means an individual who, as of Record Date, is (1) an LMC employee, (2) a member of the Board of Directors of LMC or (3) a holder of unvested restricted shares of LMC Common Stock. The Committee may, in its discretion, determine that (i) an individual who does not meet any of the foregoing criteria should be classified as an LMC Corporate Holder or (ii) an individual who otherwise would qualify as an LMC Corporate Holder, should not be classified as such. " LMC SAR " means a stock appreciation right with respect to any series of LMC Common Stock. " Nasdaq " means The NASDAQ Stock Market. " Option " means an option to purchase Common Stock, granted by the Company to a Participant pursuant to Section 6.1 of the Plan. " Participant " means a person who is an LMC Corporate Holder and who, as of the Record Date, holds an outstanding LMC Award. " Person " means an individual, corporation, limited liability company, partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind. " Plan " means the Discovery Holding Company Transitional Stock Adjustment Plan, as set forth herein and as from time to time amended. " Record Date " means 5:00 p.m., New York City time, on [ ], " Restricted Stock Award " means an award of restricted shares of Common Stock, granted by the Company to a Participant pursuant to Section 5.1. " Stock Incentives " refers collectively to Restricted Stock Awards and Options. " Subsidiary " of a Person means any present or future subsidiary (as defined in Section 424(f) of the Code) of such Person or any business entity in which such Person owns, directly or indirectly, 50% or more of the voting, capital or profits interests. An entity shall be deemed a subsidiary of a Person for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained. ARTICLE III Reservation of Shares The aggregate number of shares of Common Stock which may be issued under this Plan shall not exceed [ ] shares, subject to adjustment as hereinafter provided. Any part of such [ ] shares may be issued pursuant to Restricted Stock Awards. The shares of Common Stock which may be granted pursuant to Stock Incentives will consist of either authorized but unissued shares of Common Stock or shares of Common Stock which have been issued and reacquired by the Company, including shares purchased in the open market. The total number of shares authorized under this Plan shall be subject to increase or decrease in order to give effect to the adjustment provision of Section 9.3 and to give effect to any amendment adopted as provided in Section 8.1.

244 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]NM1445A.;5 Created: 23-JUN-2005;22:23 Chksum: Folio: 4 User: EROWE EFW: Doc # 15 ARTICLE IV Participation in Plan 4.1 Eligibility to Receive Stock Incentives. Stock Incentives under this Plan may be granted only to persons who are Participants. 4.2 Participation Not Guarantee of Employment. Nothing in this Plan or in the instrument evidencing the grant of a Stock Incentive shall in any manner be construed to limit in any way the right of the Company, LMC or any of their respective Subsidiaries to terminate a Participant's employment at any time, without regard to the effect of such termination on any rights such Participant would otherwise have under the Plan or any Incentive Plan, or give any right to such a Participant to remain employed by the Company, LMC or any of their respective Subsidiaries in any particular position or at any particular rate of compensation. 5.1 Grant of Restricted Stock Awards. ARTICLE V Stock Awards (a) Grant. Restricted Stock Award(s) shall be granted to each Participant who, as of the Record Date, holds an outstanding LMC Award(s) consisting of unvested restricted shares of LMC Common Stock. (b) Award of Shares. Each Restricted Stock Award shall be for the same series of Common Stock as the corresponding award of restricted shares of LMC Common Stock to which such Restricted Stock Award relates. The number of shares of Common Stock covered by a Restricted Stock Award shall be 0.10 shares of Common Stock for each share of LMC Common Stock under the corresponding award of restricted shares of LMC Common Stock which such Restricted Stock Award replaces; provided, however, no fractional shares of Common Stock shall be awarded under a Restricted Stock Award, and, if the foregoing adjustment results in any fractional shares, LMC will deliver cash in lieu of such fractional share interest to the applicable Participant in the same manner as cash in lieu of fractional share interests is paid to record holders of LMC Common Stock in the Distribution. Each Restricted Stock Award and the restricted shares of Common Stock issued thereunder shall continue to be subject to all the terms and conditions of the applicable Incentive Plan and associated instrument under which the corresponding award of restricted shares of LMC Common Stock was made and any such terms, conditions and restrictions as may be determined to be appropriate by the Committee. (c) Lapse of Restrictions. The restrictions on each Restricted Stock Award shall lapse in accordance with the terms and conditions of the applicable Incentive Plan and associated instrument under which the corresponding award of restricted shares of LMC Common Stock was made; provided, however, that a Participant's employment or service with the Company, LMC or any of their respective Subsidiaries shall be deemed to be employment or service with the Company and LMC for all purposes under a Restricted Stock Award. (d) Award Documentation. Restricted Stock Awards shall be evidenced in such form as the Committee shall approve and contain such terms and conditions as shall be contained therein or incorporated by way of reference to the Incentive Plan or any associated instrument governing the corresponding award of restricted shares of LMC Common Stock, which need not be the same for all Restricted Stock Awards. (e) Rights with Respect to Shares. No Participant who is granted a Restricted Stock Award shall have any rights as a stockholder by virtue of such grant until shares are actually issued or delivered to the Participant.

245 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]NM1445B.;4 Created: 23-JUN-2005;22:23 Chksum: Folio: 5 User: EROWE EFW: Doc # Grant of Options. ARTICLE VI Options (a) Grant. Option(s) shall be granted to each Participant who, as of the Record Date, holds an outstanding LMC Award(s) consisting of an option to purchase shares of LMC Common Stock or an LMC SAR. Except as otherwise provided in this Plan, each Option shall continue to be subject to all the terms and conditions of the applicable Incentive Plan and associated instrument under which the corresponding option to purchase LMC Common Stock or LMC SAR (to the extent such terms and conditions would be applicable to the grant of an Option) was made and any such terms, conditions and restrictions as may be determined to be appropriate by the Committee. (b) Option Shares. Each Option shall be for the same series of Common Stock as the corresponding option for LMC Common Stock or LMC SAR to which such Option relates. The number of shares of Common Stock exercisable under an Option shall be the number of shares of Common Stock that a Participant would have received in the Distribution if the applicable option for LMC Common Stock had been exercised immediately prior to the Record Date or, in the case of an LMC SAR, the same number of shares of Common Stock that would have been received in the Distribution if the LMC SAR has been an option exercised immediately prior to the Record Date for the number of shares of LMC Common Stock, subject to the LMC SAR; provided, however, no fractional shares of Common Stock shall be awarded under an Option, and, if the conversion of an option to purchase shares of LMC Common Stock or an LMC SAR into an Option results in any fractional shares, the number of shares of Common Stock to be exercisable under an Option shall be rounded up to the nearest whole number of shares. (c) Option Price. The purchase price per share of Common Stock under each Option shall be established by the Committee. The Option price shall be subject to adjustment in accordance with the provisions of Section 9.3 hereof. (d) Option Documentation. Options shall be evidenced in such form as the Committee shall approve and contain such terms and conditions as shall be contained therein or incorporated by way of reference to the Incentive Plan or any associated instrument governing the corresponding option to purchase LMC Common Stock or LMC SAR (to the extent such terms and conditions would be applicable to the grant of an Option), which need not be the same for all Options. 6.2 Exercise and/or Termination of Options. (a) Terms of Option. Options granted under this Plan may be exercised at the same time and in the same manner as the corresponding option to purchase LMC Common Stock or LMC SAR (to the extent applicable to the grant of an Option). Options granted under this Plan shall expire at the same time and in the same manner as the corresponding option to purchase LMC Common Stock or LMC SAR (to the extent applicable to the grant of an Option), as provided in the applicable Incentive Plan and any associated instrument governing such option to purchase LMC Common Stock or LMC SAR; provided, however, that a Participant's employment or service with the Company, LMC or any of their respective Subsidiaries shall be deemed to be employment or service with the Company and LMC for all purposes under an Option. (b) Payment on Exercise. No shares of Common Stock shall be issued on the exercise of an Option unless paid for in full at the time of purchase. Payment for shares of Common Stock purchased upon the exercise of an Option and any amounts required under Section 9.4 shall be determined by the Committee and may consist of (i) cash, (ii) check, (iii) promissory note (subject to applicable law), (iv) whole shares of any series of Common Stock, (v) the withholding of shares of the applicable series of Common Stock issuable upon such exercise of the Option, (vi) the

246 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]NM1445B.;4 Created: 23-JUN-2005;22:23 Chksum: Folio: 6 User: EROWE EFW: Doc # 15 delivery, together with a properly executed exercise notice, of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds required to pay the purchase price, or (vii) any combination of the foregoing methods of payment, or such other consideration and method of payment as may be permitted for the issuance of shares under the Delaware General Corporation Law. The permitted method or methods of payment of the amounts payable upon exercise of an Option, if other than in cash, shall be set forth in the applicable Option agreement and may be subject to such conditions as the Committee deems appropriate. (c) Value of Shares. Unless otherwise determined by the Committee and provided in the applicable Option agreement, shares of any series of Common Stock delivered in payment of all or any part of the amounts payable in connection with the exercise of an Option, and shares of any series of Common Stock withheld for such payment, shall be valued for such purpose at their Fair Market Value as of the exercise date. (d) Issuance of Shares. The Company shall effect the transfer of the shares of Common Stock purchased under the Option as soon as practicable after the exercise thereof and payment in full of the purchase price therefor and of any amounts required by Section 9.4, and within a reasonable time thereafter, such transfer shall be evidenced on the books of the Company. Unless otherwise determined by the Committee and provided in the applicable Option agreement, (i) no Participant or other person exercising an Option shall have any of the rights of a stockholder of the Company with respect to shares of Common Stock subject to an Option granted under the Plan until due exercise and full payment has been made, and (ii) no adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such due exercise and full payment. ARTICLE VII Administration of Plan 7.1 The Committee. This Plan shall be administered solely by the Compensation Committee of the Board or such other committee of the Board as the Board shall designate to administer the Plan. A majority of the Committee shall constitute a quorum thereof and the actions of a majority of the Committee at a meeting at which a quorum is present, or actions unanimously approved in writing by all members of the Committee, shall be the actions of the Committee. Vacancies occurring on the Committee shall be filled by the Board. The Committee shall have full and final authority to interpret this Plan and any instruments evidencing Stock Incentives granted hereunder, to prescribe, amend and rescind rules and regulations, if any, relating to this Plan and to make all determinations necessary or advisable for the administration of this Plan. The Committee's determination in all matters referred to herein shall be conclusive and binding for all purposes and upon all persons including, but without limitation, the Company, LMC, the shareholders of the Company, the shareholders of LMC, the Committee and each of the members thereof, and the Participants, and their respective successors in interest. The Committee may delegate any of its rights, powers and duties to any one or more of its members, or to any other person, by written action as provided herein, acknowledged in writing by the delegate or delegates, except that the Committee may not delegate to any person the authority to grant Stock Incentives to, or take other action with respect to, Participants who are subject to Section 16 of the Exchange Act. Such delegation may include, without limitation, the power to execute any documents on behalf of the Committee. 7.2 Liability of Committee. No member of the Committee shall be liable for any action or determination made or taken by him or the Committee in good faith with respect to the Plan. The Committee shall have the power to engage outside consultants, auditors or other professionals to assist in the fulfillment of the Committee's duties under this Plan at the Company's expense.

247 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]NM1445B.;4 Created: 23-JUN-2005;22:23 Chksum: Folio: 7 User: EROWE EFW: Doc # Determinations of the Committee. The Committee may, in its sole discretion, waive any provisions of any Stock Incentive, provided such waiver is not inconsistent with the terms of the applicable Incentive Plan, any associated instrument or this Plan as then in effect. ARTICLE VIII Amendment and Termination of Plan 8.1 Amendment, Modification, Suspension or Termination. The Board may from time to time amend, modify, suspend or terminate the Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law except that (i) subject to Section 9.6, no amendment or alteration that would impair the rights of any Participant under any Stock Incentive awarded to such Participant shall be made without such Participant's consent and (ii) no amendment or alteration shall be effective prior to approval by the Company's shareholders to the extent such approval is then required pursuant to applicable legal requirements or the applicable requirements of the securities exchange on which the Company's Common Stock is listed. With the consent of the Participant, or as otherwise permitted under Section 9.6, and subject to the terms and conditions of the Plan, the Committee may amend outstanding Stock Incentive agreements with any Participant, including any amendment which would (i) accelerate the time or times at which the Stock Incentive may be exercised and/or (ii) extend the scheduled expiration date of the Stock Incentive. 8.2 Termination. The Board may at any time terminate this Plan as of any date specified in a resolution adopted by the Board. If not earlier terminated, this Plan shall terminate on the last date that any Option granted hereunder may be exercised or any restriction applicable to a Restricted Stock Award granted hereunder has lapsed, whichever occurs later. ARTICLE IX Miscellaneous Provisions 9.1 Exclusion from Pension and Profit-Sharing Computation. By acceptance of a Stock Incentive, unless otherwise provided in the applicable Stock Incentive agreement, each Participant shall be deemed to have agreed that such Stock Incentive is special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan, program or policy of the Company or any Subsidiary of the Company. In addition, each beneficiary of a deceased Participant shall be deemed to have agreed that such Stock Incentive will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of the Participant which is payable to such beneficiary under any life insurance plan covering employees of the Company or any Subsidiary of the Company. 9.2 Government and Other Regulations. The obligation of the Company with respect to Stock Incentives shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including the effectiveness of any registration statement required under the Securities Act of 1933, and the rules and regulations of any securities exchange or association on which the Common Stock may be listed or quoted. For so long as any series of Common Stock is registered under the Exchange Act, the Company shall use its reasonable efforts to comply with any legal requirements (i) to maintain a registration statement in effect under the Securities Act of 1933 with respect to all shares of the applicable series of Common Stock that may be issued to Participants under the Plan and (ii) to file in a timely manner all reports required to be filed by it under the Exchange Act. 9.3 Adjustments. (a) If the Company subdivides its outstanding shares of any series of Common Stock into a greater number of shares of such series of Common Stock (by stock dividend, stock split,

248 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]NM1445B.;4 Created: 23-JUN-2005;22:23 Chksum: Folio: 8 User: EROWE EFW: Doc # 15 reclassification, or otherwise) or combines its outstanding shares of any series of Common Stock into a smaller number of shares of such series of Common Stock (by reverse stock split, reclassification, or otherwise) or if the Committee determines that any stock dividend, extraordinary cash dividend, reclassification, recapitalization, reorganization, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase such series of Common Stock or other similar corporate event (including mergers or consolidations other than those which constitute Approved Transactions, adjustments with respect to which shall be governed by Section 9.3(b)) affects any series of Common Stock so that an adjustment is required to preserve the benefits or potential benefits intended to be made available under the Plan, then the Committee, in its sole discretion and in such manner as the Committee may deem equitable and appropriate, may make such adjustments to any or all of (i) the number and kind of shares of stock subject to outstanding Stock Incentives, and (ii) the purchase or exercise price with respect to any of the foregoing, provided, however, that the number of shares subject to any Stock Incentive shall always be a whole number. Notwithstanding the foregoing, if all shares of any series of Common Stock are redeemed, then each outstanding Stock Incentive shall be adjusted to substitute for the shares of such series of Common Stock subject thereto the kind and amount of cash, securities or other assets issued or paid in the redemption of the equivalent number of shares of such series of Common Stock and otherwise the terms of such Stock Incentive, including, in the case of Options or similar rights, the aggregate exercise price, shall remain constant before and after the substitution (unless otherwise determined by the Committee and provided in the applicable Stock Incentive agreement). The Committee may, if deemed appropriate, provide for a cash payment of a Stock Incentive to a Participant in connection with any adjustment made pursuant to this Section 9.3(a). (b) Approved Transactions; Board Change; Control Purchase. In the event of any Approved Transaction, Board Change or Control Purchase, notwithstanding any contrary waiting period, installment period, vesting schedule or restriction period in any Stock Incentive agreement or in the Plan, unless the applicable Stock Incentive agreement provides otherwise: (i) in the case of an Option, each such outstanding Option granted under the Plan shall become exercisable in full in respect of the aggregate number of shares covered thereby; and (ii) in the case of Common Stock awarded under a Restricted Stock Award, any restriction period applicable to each such Common Stock shall be deemed to have expired and all such Common Stock shall become vested. Notwithstanding the foregoing, unless otherwise provided in the applicable Stock Incentive agreement, the Committee may, in its discretion, determine that any or all outstanding Stock Incentives of any or all types granted pursuant to the Plan will not vest or become exercisable on an accelerated basis in connection with an Approved Transaction if effective provision has been made for the taking of such action which, in the opinion of the Committee, is equitable and appropriate to substitute a new Stock Incentive or to assume such Stock Incentive and to make such new or assumed Stock Incentive, as nearly as may be practicable, equivalent to the old Stock Incentive (before giving effect to any acceleration of the vesting or exercisability thereof), taking into account, to the extent applicable, the kind and amount of securities, cash or other assets into or for which the applicable series of Common Stock may be changed, converted or exchanged in connection with the Approved Transaction. 9.4 Withholding of Taxes. The Company's obligation to deliver shares of Common Stock or pay cash in respect of any Stock Incentives under the Plan shall be subject to applicable federal, state and local tax withholding requirements. Federal, state and local withholding tax due upon the exercise of any Option or upon the vesting of, or expiration of restrictions with respect to Common Stock granted under Restricted Stock Awards, may, in the discretion of the Committee, be paid in shares of the applicable series of Common Stock already owned by the Participant or through the withholding of shares otherwise issuable to such Participant, upon such terms and conditions (including the conditions referenced in Section 6.2) as the Committee shall determine. If the Participant shall fail to pay, or

249 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]NM1445B.;4 Created: 23-JUN-2005;22:23 Chksum: Folio: 9 User: EROWE EFW: Doc # 15 make arrangements satisfactory to the Committee for the payment of, all such federal, state and local taxes required to be withheld with respect to a Stock Incentive, then the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to such Participant an amount equal to any federal, state or local taxes of any kind required to be withheld with respect to such Stock Incentive. 9.5 Restrictions on Benefit. Notwithstanding any provision of this Plan to the contrary, the provisions of any Incentive Plan concerning restrictions on benefits (in order to avoid excise taxes on the Participant under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 280G of the Code) are specifically incorporated by this reference. 9.6 Section 409A. Notwithstanding any provision in this Plan or the Incentive Plan to the contrary, if any Plan or Incentive Plan provision or any Stock Incentive thereunder would result in the imposition of an additional tax under Code Section 409A and related regulations and United States Department of the Treasury pronouncements ("Section 409A"), that Plan or Incentive Plan provision and/or that Stock Incentive will be reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Participant's right to a Stock Incentive or require the consent of the Participant.

250 Printed: 24-Jun-2005;20:03:36 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]NM1445B.;4 Created: 23-JUN-2005;22:23 Chksum: Folio: 10 User: EROWE EFW: Doc # 15 IN WITNESS WHEREOF, this document has been executed effective as of the Record Date. DISCOVERY HOLDING COMPANY By: Name: Title:

251 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: Doc # 15 QuickLinks FORM OF DISCOVERY HOLDING COMPANY TRANSITIONAL STOCK ADJUSTMENT PLAN

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253 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: Doc # 16 <DOCUMENT> <TYPE> EX <DESCRIPTION> Ex <FILENAME> a zex-10_10.htm <TEXT>

254 File: DISK015:[05DEN5.05DEN1445]OA1445A.;5 User: EROWE EFW: Printed: 24-Jun-2005;20:03:38 (v.162) Created: 23-JUN-2005;22:23 Chksum: HTML Page: 1 Folio: BLANK Doc # 16 QuickLinks-- Click here to rapidly navigate through this document Exhibit AGREEMENT This AGREEMENT (this " Agreement ") is made and entered into as of [ ], 2005, by and between Discovery Holding Company, a Delaware corporation (the " Company ") and John C. Malone (" Stockholder "). RECITALS A. Liberty Media Corporation (" Liberty "), the ultimate parent corporation of the Company prior to the distribution of all of the capital stock of the Company to the stockholders of Liberty (the " Distribution "). B. In connection with the Distribution, holders of common stock of Liberty will receive shares of Series A Common Stock, par value $.01, of the Company (" Company Series A Common Stock "), and shares of Series B common stock, par value $.01, of the Company (the " Company Series B Common Stock "; together with the Company Series A Common Stock and the Company Series C Common Stock (as defined below), if and when issued, the " Common Stock "). C. In the Distribution, it is anticipated that the Stockholder will receive approximately million shares of Company Series B Common Stock. D. It is also anticipated that the Stockholder will receive or otherwise be granted non-transferable options to purchase shares of Company Series B Common Stock (the " Company Series B Options," which term will include any options pursuant to which the holder may elect to acquire shares of Company Series B Common Stock or Company Series A Common Stock). E. The Board of Directors of the Company (" Company Board ") has requested that Stockholder enter into this Agreement, and Stockholder is willing to enter into this Agreement. AGREEMENTS In consideration of the foregoing and the mutual agreements and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: 1. Definitions. As used herein, capitalized terms shall have the meanings set forth below or elsewhere in this Agreement (terms defined in the singular shall have the same meanings when used in the plural and vice versa): " Affiliate " means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries Controls, is Controlled by, or is under common Control with such first Person. A " Change of Control of the Company " will be deemed to have occurred upon any Person (other than Stockholder, a Stockholder Affiliate or a Permitted Stockholder Transferee) becoming the beneficial owner of equity securities of the Company representing 50% or more of the voting power of the outstanding capital stock of the Company. " Common Stock " has the meaning set forth in the recitals to this Agreement. " Company " has the meaning set forth in the preamble to this Agreement. " Company Board " has the meaning set forth in the recitals to this Agreement. " Company Control Transaction " means any transaction (including, without limitation, a merger, tender offer or other business combination) that, if consummated, would result in a Change in Control of the Company. " Company Series A Common Stock " has the meaning set forth in the recitals to this Agreement.

255 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]OA1445A.;5 Created: 23-JUN-2005;22:23 Chksum: Folio: 2 User: EROWE EFW: Doc # 16 " Company Series B Common Stock " has the meaning set forth in the recitals to this Agreement. " Company Series B Options " has the meaning set forth in the recitals to this Agreement. " Company Series C Common Stock " means the Series C common stock, par value $.01 per share, of the Company. " Control " means the direct or indirect power to direct, or cause the direction of, the management and policies of any Person, whether through the ownership of voting securities, by contract, by membership or involvement in the board of directors, management committee or other management structure of such Person or otherwise. " Controlled Affiliate " means, with respect to any Person, any Affiliate of such Person which such Person possesses the affirmative power to Control. " Distribution " has the meaning set forth in the recitals to this Agreement. " Distribution Date " means the date on which the Distribution occurs. " Hedge " means any swap, hedge or similar arrangement or transaction that Transfers, in whole or in part, any of the economic consequences of ownership of a security. " Immediate Family " means, with respect to any natural Person, the spouse, the siblings (by birth or adoption), and any lineal ascendants and descendants thereof and of the spouse and siblings (by birth or adoption) thereof, and the estate or heirs of any of the foregoing. " Liberty " has the meaning set forth in the recitals to this Agreement. " Permitted Stockholder Transferee " means any entity (i) the equity securities of which are listed or traded on a national securities exchange or market, (ii) Stockholder and the Stockholder Affiliates collectively own or, immediately after giving effect to the proposed Transfer, would own, and have the right to vote securities of such entity representing 20% or more of the outstanding voting power of such entity (based upon votes entitled to be cast in the election of directors) and (iii) no other Person owns and has the right to vote securities of such entity representing a percentage of the outstanding voting power of such entity greater than the voting power of the securities owned by Stockholder and the Stockholder Affiliates collectively. " Person " means any human being, corporation, partnership (general or limited), limited liability company, association, joint venture, trust, estate, governmental authority or other entity or organization. " Stockholder " has the meaning set forth in the preamble to this Agreement. " Stockholder Affiliate " means any of Affiliate of Stockholder, any member of Stockholder's Immediate Family or any Affiliate thereof, or any trust Controlled by Stockholder and established primarily for the benefit of Stockholder or any member of his Immediate Family; provided, however, that the Company will be deemed not to be a Stockholder Affiliate. " Stockholder Shares " means all of the shares of Company Series B Common Stock owned by Stockholder or any Stockholder Affiliate as of any date of determination, whether acquired in connection with the Distribution, upon exercise of Company Series B Options or otherwise. " Transfer " means any sale, assignment, transfer, pledge, hypothecation, grant of security interest, or other disposition, direct or indirect (including by merger or sale of stock of a holding company or otherwise), and whether voluntary or by operation of law; provided, that (x) the conversion of any shares of Company Series B Common Stock into shares of Company Series A Common Stock or any exchange of shares of Company Series B Common Stock for shares of Company Series A Common Stock in a transaction with the Company or any Controlled Affiliate of the Company, will not

256 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]OA1445A.;5 Created: 23-JUN-2005;22:23 Chksum: Folio: 3 User: EROWE EFW: Doc # 16 constitute a Transfer of shares of Company Series B Common Stock and (y) the election by Stockholder or any Stockholder Affiliate in accordance with the terms of an instrument evidencing any Company Series B Options to receive shares of Company Series A Common Stock upon exercise of any Company Series B Option will not constitute a Transfer of the shares of Company Series B Common Stock that could have been received upon such exercise. 2. Restrictions on Transfers of Stockholder Shares; Permitted Transfers. (a) Stockholder will not, and will not permit any Stockholder Affiliate to, Transfer any Stockholder Shares, or enter into any agreement with any Person to Transfer Stockholder Shares, except for the following Transfers, which shall be permitted subject to compliance with the provisions of this Agreement: (i) any Transfer to a Stockholder Affiliate; (ii) any Transfer to (x) trusts, foundations, limited and general partnerships, limited liability companies and other entities in connection with good faith estate planning and similar wealth management programs and arrangements, or (y) foundations, charitable organizations and similar entities in connection with charitable giving; (iii) any Transfer of Stockholder Shares to the Company in connection with the exercise by Stockholder of Company Series B Options or in connection with any "cash-less" type exercise; (iv) any Transfer to a Permitted Stockholder Transferee so long as neither Stockholder nor any Stockholder Affiliate is, at the time of such Transfer of Stockholder Shares, a party to any agreement, arrangement or understanding with any Person (other than Stockholder or a Stockholder Affiliate) pursuant to which Stockholder or such Stockholder Affiliate is to Transfer a number of shares of such Permitted Stockholder Transferee such that, after giving effect to such Transfer, Stockholder and the Stockholder Affiliates collectively would cease to own and have the power to vote shares of such Permitted Stockholder Transferee representing 20% or more of the outstanding voting power of such Permitted Stockholder Transferee; (v) any Transfer constituting a pledge of or grant of a security interest in Stockholder Shares in connection with a bona fide financing or Hedge with a commercial bank or other financial institution in which Stockholder or a Stockholder Affiliate is the borrower or counter-party, so long as (x) Stockholder or any Stockholder Affiliate retains the right to vote such Stockholder Shares at all times prior to a default or, in the case of a Hedge, delivery of the underlying shares, and (y) any pledgee, secured party or counter-party in such transaction agrees, for the benefit of the Company. that, in the event of a default, foreclosure or other acquisition of Stockholder Shares by such pledgee, secured party or counter-party, such pledgee, secured party or counter-party will convert all Stockholder Shares into shares of Company Series A Common Stock in connection with any subsequent Transfer by such pledgee, secured party or counter-party to any Person other than Stockholder or a Stockholder Affiliate; (vi) any Transfer pursuant to a divorce proceeding or settlement or the terms of a pre-nuptial agreement to which Stockholder is a party, to a Person who is a party to such proceeding, settlement or agreement; and (vii) any Transfer in connection with the consummation of a Company Control Transaction (x) that has been approved by the Company Board or (y) in connection with which the Company Board, or any court of competent jurisdiction, has taken actions that would terminate, neutralize or otherwise render ineffective or inapplicable any shareholder rights plan of the Company or redeem any purchase rights issued thereunder.

257 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]OA1445B.;3 Created: 23-JUN-2005;22:23 Chksum: Folio: 4 User: EROWE EFW: Doc # 16 (b) Any Transfer of Stockholder Shares permitted under this Section 2 (other than any Transfer pursuant to Sections 2(a)(iii) (provided that the shares issuable upon such exercise are subject to this Agreement), (v) (provided that the pledgee, secured party or counter-party has entered into the agreement contemplated thereby) or (vii)) shall be subject to the condition that the proposed transferee of such Stockholder Shares shall, prior to such transferee's acquisition of Stockholder Shares, execute and deliver a written agreement, reasonably acceptable to the Company, pursuant to which such transferee will agree to be bound by the restrictions set forth in this Agreement. 3. Representations and Warranties. Each party hereto hereby represents and warrants to the other party as follows (with such representations and warranties surviving the execution, delivery and performance of this Agreement): (a) Such party has the legal right and all requisite power and authority to make and enter into this Agreement and to perform his or its obligations hereunder and comply with the provisions hereof. If such party is the Company, the execution, delivery and performance of this Agreement by the Company has been duly authorized by all necessary action on its part. This Agreement has been duly executed and delivered by such party and constitutes the valid and binding obligation of such party enforceable against him or it in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought; (b) The execution, delivery and performance of this Agreement by such party, and the compliance by such party with the provisions hereof, do not and will not (with or without notice or lapse of time, or both) conflict with, or result in any violation of, or default under, or give rise to any right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to such party or any of his or its properties or assets, other than any such conflicts, violations, defaults, or other effects which individually or in the aggregate do not and will not prevent, restrict or impede such party's performance of his or its obligations under and compliance with the provisions of this Agreement. If such party is the Company, the execution, delivery and performance of and compliance with this Agreement by it do not and will not contravene its charter, by-laws or other organizational document; and (c) No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental or regulatory authority or any other person is required by such party in connection with the execution, delivery or performance of this Agreement by such party, other than as may be required under applicable Federal and state securities laws. 4. Effective Date; Termination. (a) This Agreement may not be revoked by any party prior to its effectiveness and shall become effective automatically without any further action by the parties as of the Distribution Date and shall continue in full force and effect until the earliest of (i) the termination of this Agreement pursuant to a writing signed by the parties hereto; (ii) 5 p.m. Mountain Standard Time on the eighteen month anniversary of the date hereof; (iii) the death of Stockholder; and (iv) upon the consummation of a Company Control Transaction. (b) Notwithstanding the foregoing, in the event the Distribution Date has not occurred prior to the [ ] day following the date hereof, this Agreement will automatically terminate and be deemed void ab initio and will not be of any further force or effect. Upon the termination or

258 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]OA1445B.;3 Created: 23-JUN-2005;22:23 Chksum: Folio: 5 User: EROWE EFW: Doc # 16 expiration of this Agreement as provided herein, all of the covenants and agreements set forth in this Agreement applicable to any party shall terminate and be of no further force and effect. 5. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles or rules of conflicts of laws to the extent that such principles or rules would require or permit the application of the law of another jurisdiction. (b) Jurisdiction. Each of the parties hereto irrevocably and unconditionally agrees that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement will be brought exclusively in the Delaware Chancery Courts, or, if the Delaware Chancery Courts do not have subject matter jurisdiction, in the state courts of the State of Delaware located in Wilmington, Delaware or, in the federal courts located in the State of Delaware. Each of the parties hereto consents to personal jurisdiction in any such action, suit or proceeding brought in any such court (and of the appropriate appellate courts therefrom) and irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party at the address specified in Section 5(h) shall be deemed effective service of process on such party. (c) WAIVER OF JURY TRIAL. EACH OF THE PARTIES AGREES AND ACKNOWLEDGES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT. (d) Specific Performance. Stockholder acknowledges and agrees that (i) the obligations and agreements of Stockholder contained in this Agreement relate to special, unique and extraordinary matters, (ii) the Company is and will be relying on such covenants and agreements, and (iii) a violation of any of the obligations or agreements of Stockholder in this Agreement will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Stockholder agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) as a court of competent jurisdiction may deem necessary or appropriate to restrain Stockholder from committing any violation of its covenants, obligations or agreements set forth herein. These injunctive remedies are cumulative and in addition to any other rights and remedies the Company may have. (e) Amendment, Waivers, etc. Neither this Agreement nor any term hereof may be amended or otherwise modified other than by an instrument in writing signed by the parties hereto. No provision of this Agreement may be waived, discharged or terminated other than by an instrument in writing signed by the party against whom the enforcement of such waiver, discharge or termination is sought. (f) Assignment; No Third Party Beneficiaries. This Agreement shall not be assignable or otherwise transferable by a party without the prior consent of the other party, and any attempt to so assign or otherwise transfer this Agreement without such consent shall be void and of no effect.

259 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]OA1445B.;3 Created: 23-JUN-2005;22:23 Chksum: Folio: 6 User: EROWE EFW: Doc # 16 This Agreement shall be binding upon the parties and their respective successors and permitted assigns. Nothing in this Agreement shall be construed as giving any person, other than the parties hereto and their respective successors, legal representatives and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any provision hereof. (g) Expenses. Except as otherwise provided herein, all costs and expenses incurred in connection with the transactions contemplated by this Agreement shall be paid by the party incurring such costs and expenses. (h) Notices. All notices, consents, requests, instructions, approvals and other communications provided for in this Agreement shall be in writing and shall be deemed validly given upon personal delivery or one day after being sent by overnight courier service or by telecopy (so long as for notices or other communications sent by telecopy, the transmitting telecopy machine records electronic confirmation of the due transmission of the notice), at the following address or telecopy number, or at such other address or telecopy number as a party may designate to the other parties: (i) if to DHC to: Discovery Holding Company Liberty Boulevard Englewood, CO Attn: Charles Y. Tanabe, Esq. Fax: (720) with copies to: Frederick H. McGrath Baker Botts L.L.P. 30 Rockefeller Plaza New York, New York Fax: (212) (ii) if to Stockholder to: John C. Malone Liberty Boulevard Englewood, CO Fax: (720) (i) Remedies. No failure or delay by any party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided herein shall be cumulative and not exclusive of any rights or remedies provided by law. (j) Severability. If any term or provision of this Agreement is held to be invalid, illegal, incapable of being enforced by any rule of law, or public policy, or unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties hereto to the maximum extent possible. In any event, the invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a

260 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]OA1445B.;3 Created: 23-JUN-2005;22:23 Chksum: 8843 Folio: 7 User: EROWE EFW: Doc # 16 mutually acceptable manner in order that the terms of this Agreement remain as originally contemplated to the fullest extent possible. (k) Integration. This Agreement constitutes the full and entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes any and all prior understandings or agreements relating to the subject matter hereof. (l) Section Headings. The article and section headings of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. (m) Further Assurances. From time to time at the request of the Company, and without further consideration, Stockholder shall execute and deliver or cause to be executed and delivered such additional documents and instruments and shall take all such further action as may be reasonably necessary or desirable to effect the matters contemplated by this Agreement. (n) Counterparts; Effectiveness. This Agreement may be executed in two or more counterparts, all of which shall be considered the same agreement. Signature pages from separate identical counterparts may be combined with the same effect as if the parties signing such signature page had signed the same counterpart. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. [Remainder of page intentionally left blank.]

261 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]OA1445B.;3 Created: 23-JUN-2005;22:23 Chksum: Folio: 8 User: EROWE EFW: Doc # 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. DISCOVERY HOLDING COMPANY By: Name: Title: JOHN C. MALONE

262 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: Doc # 16 QuickLinks AGREEMENT

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265 File: DISK015:[05DEN5.05DEN1445]OM1445A.;3 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:38 (v.162) Created: 24-JUN-2005;18:30 Chksum: HTML Page: 1 Folio: BLANK Doc # 17 QuickLinks-- Click here to rapidly navigate through this document Exhibit Discovery Holding Company Liberty Boulevard Englewood, Colorado June 24, 2005 Discovery Communications, Inc. One Discovery Place Silver Spring, MD Dear Sir: Re: Discovery Holding Company Information Requirements Reference is made to the Shareholders Agreement of Discovery Communications, Inc., dated as of November 30, 1991 (as amended, the " Shareholders Agreement "), among Discovery Communications, Inc. (" Discovery "), John S. Hendricks, Advance/Newhouse Programming Partnership (" Newhouse "), Cox Communications Holdings, Inc. (" Cox ") and LMC Discovery, Inc., and, for certain limited purposes, Liberty Animal, Inc. and Liberty Media Corporation (" LMC "). As we have previously discussed, LMC is proceeding with its plans to distribute (the " Distribution ") to its stockholders shares of common stock of Discovery Holding Company (" DHC "). Among other assets, DHC will hold all of the capital stock of LMC Discovery, Inc., which holds LMC's interest in Discovery, and Liberty Animal, Inc., which holds LMC's interest in Animal Planet, L.P., a subsidiary of Discovery. Following the Distribution, DHC will be a separate public company with its common stock registered pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the " Exchange Act "), and listed and traded on a national security exchange or NASDAQ. This letter agreement (" Letter Agreement ") sets forth certain arrangements relating to the provision of financial and other information regarding Discovery and its subsidiaries (collectively, the " Discovery Group ") in connection with certain public filings and disclosures of DHC. The parties, intending to be bound, hereby agree as follows: 1. Financial and Other Information. (a) (1) Discovery agrees to use commercially reasonable efforts to provide to DHC, not later than the dates to be specified pursuant to this Letter Agreement, (x) the applicable historical financial information regarding the Discovery Group set forth on Exhibit A hereto (the " Required Discovery Information ") and (y) such other and additional financial and other business information regarding the Discovery Group reasonably requested from time to time by DHC and reasonably necessary for DHC to comply with its reporting and disclosure obligations under applicable securities laws (the " Additional Discovery Information," and together with the Required Discovery Information, the " Discovery Information "), for use and inclusion in DHC's filings, reports and disclosure documents and related meetings and conference calls (the " DHC Reports "), including the following: (i) periodic, interim and other reports of DHC required to be filed with or furnished to the Securities and Exchange Commission (the " SEC ") pursuant to the Exchange Act; (ii) registration statements, prospectuses and private placement memoranda (including any related exhibits) for use in connection with the offering and sale of DHC securities registered under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the " Securities Act ", and together with the Exchange Act, the " Securities Laws "), or exempt from such registration under the Securities Act; (iii) listing applications and reports required to be filed with or furnished to any securities exchange or market upon which the securities of DHC are listed or traded;

266 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]OM1445A.;3 Created: 24-JUN-2005;18:30 Chksum: Folio: 2 User: BSKELLE EFW: Doc # 17 (iv) annual reports, proxy statements, information statements and other communications required to be transmitted to the holders of DHC's securities; (v) earnings releases and related conference calls; and (vi) the Form 10 filed by DHC with the SEC on March 15, 2005, as amended as of May 9, 2005, in connection with the registration of DHC's securities under the Exchange Act, and any further amendments thereto. (2) The Discovery Information will not include (x) forecasts or projections, unless required pursuant to the Securities Laws or by the staff of the SEC to be included in any DHC Report or otherwise made public by Discovery or (y) so long as Discovery is not a subsidiary of DHC for purposes of the Exchange Act, certifications or representations by any member of the Discovery Group, any of such member's officers (which, with respect to Discovery will, for purposes of this Letter Agreement, include the Chairman of Discovery, whether or not an officer), employees, agents or directors (if any), or any Discovery stockholder (other than John Hendricks) or director, officer, employee or agent of any such Discovery stockholder (collectively, a " Discovery Stockholder ") related to or in connection with any certification provided by any officer of DHC pursuant to the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder (" SOX ") or the Securities Laws. Nothing in this Letter Agreement will require any member of the Discovery Group or any of its directors, officers, employees or agents or any Discovery Stockholder to comply with any provision of SOX or the Securities Laws, including, without limitation, (i) any provision related to reports by management on disclosure controls and procedures or reports by management or Discovery's independent auditors on internal control over financial reporting ( provided, that to the extent such information is prepared in the ordinary course of business or is part of any auditor report and such information is required by the Securities Laws or SOX to be included in any DHC Report, then subject to any required consent of Discovery's independent auditor, such information will, subject to Section 1(b)(ii) (for purposes of which, such information will be deemed Additional Discovery Information), be made available to DHC and may be used in the DHC Reports, but no management certification will be required), (ii) certifications under sections 302 or 906 of SOX, (iii) prohibitions on loans to directors and officers under section 402 of SOX, (iv) audit committee requirements or (v) section 16 of the Exchange Act, in each case, except in the event and to the extent that Discovery becomes subject to SOX or the Exchange Act other than as a result of its obligations under this Letter Agreement. DHC acknowledges that, under the Exchange Act as currently in effect, Discovery is not considered a subsidiary of DHC. (b) (i) Notwithstanding anything to the contrary set forth in this Letter Agreement, Discovery will be required to deliver to DHC as provided herein, and DHC will be entitled to use and disclose in the DHC Reports, the Required Discovery Information. Such use and disclosure of the Required Discovery Information will be in a manner consistent with the Securities Laws and any stock exchange and stock market rules or regulations in each case applicable to the particular DHC Report in which it is to be used and DHC will be permitted to include, in whole or in part, all Required Discovery Information in the applicable DHC Report, including any analyses or derivations based upon such Required Discovery Information. The Required Discovery Information will not be subject to the restrictions or limitations set forth in subsection (ii) of this Section 1(b). (ii) In the event that Discovery determines, in its reasonable business judgment, that the disclosure in a DHC Report of Additional Discovery Information provided or being provided to DHC (other than (x) any information that has previously been disclosed publicly or made publicly available (other than by DHC in breach of its obligations hereunder) or which Discovery or any member of the Discovery Group is required to disclose publicly by law, rule or regulation and (y) information with respect to Potential Discovery Transactions (as defined below), the disclosure of which information is provided for in Section 1(d) hereof) could reasonably be expected to have an adverse effect on

267 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]OM1445A.;3 Created: 24-JUN-2005;18:30 Chksum: Folio: 3 User: BSKELLE EFW: Doc # 17 Discovery in any material respect, it will so notify DHC in writing (stating the reasons for its determination that such disclosure would have such an adverse effect) and DHC will not be permitted to disclose the specified Additional Discovery Information in the DHC Reports unless and until (x) such information becomes publicly available (other than as a result of DHC's breach of its obligations hereunder), or (y) the parties reasonably determine that such disclosure would not result in such adverse effect on Discovery. Further, (i) in the event that any portion of the Additional Discovery Information to be provided to DHC pursuant to this Letter Agreement includes non-public information which Discovery reasonably determines is proprietary or otherwise confidential, and which is material to Discovery, it will mark such portions of the information "confidential" and notify DHC in writing, stating the reasons it believes such information is confidential; (ii) to the extent such information is proposed to be included in the DHC Reports, then Discovery may request that DHC not include such confidential information or, to the extent DHC reasonably determines that such information is required to be included in any DHC Report, request that DHC seek confidential treatment for such information; (iii) if DHC and its Advisors (as defined below) determine that such information is not required to be included, DHC will keep such information confidential and not disclose it; (iv) in the event DHC and its Advisors reasonably determine that such information is required to be included in the DHC Reports and so notify Discovery, then upon the prompt request of Discovery, management of DHC, together with its Advisors and in consultation with Discovery, and with Discovery's good faith cooperation, will prepare and file appropriate requests for confidential treatment with the applicable regulatory agencies, and DHC will use all its commercially reasonable efforts to obtain confidential treatment of such information; and (v) the costs and expenses relating to such request for confidential treatment will be borne by DHC (without duplication of amounts payable by DHC pursuant to Section 2 hereof). Notwithstanding the foregoing, nothing herein will obligate DHC to exclude such information deemed proprietary or confidential by Discovery, seek such confidential treatment or delay filing of any DHC Report, if such exclusion, seeking such confidential treatment or delaying such filing would cause DHC to be in violation of any law, rule or regulation (including stock exchange or stock market regulations); provided, however, that to the extent practicable, DHC agrees to provide Discovery with at least two business days' advance notice of its decision to include such information in order to permit Discovery to seek such relief as it deems appropriate. The term " Advisors " means the attorneys, accountants, consultants and other agents of DHC or Discovery, as applicable. (c) Not later than December 31 of each year, DHC will deliver to Discovery a schedule (the " Filing Schedule ") setting forth the anticipated dates for the filing of DHC's periodic and other regularly scheduled reports (including the proxy statement for its annual meeting of stockholders for the following year), a description of the type of financial and other information regarding the Discovery Group which DHC expects to include in each such report, and proposed dates for Discovery to deliver initial drafts of such information. DHC will provide Discovery with prompt notice of any changes in the Filing Schedule and any additional DHC Reports not specified in the Filing Schedule (such as any special meetings of stockholders), the Discovery Information that DHC believes to be required in connection with such additional or changed DHC Reports, the proposed or revised date of filing of such DHC Reports, and the dates by which Discovery Information is to be delivered to DHC for inclusion therein. Discovery will use commercially reasonable efforts to cause the Discovery Information to be provided on a timely basis (but no later than the dates specified in the Filing Schedule or by supplemental notice to Discovery, provided, that, with respect to additional filings or changes to the Filing Schedule, reasonable advance notice of such changed or additional filing dates has been given). DHC acknowledges and agrees that delivery of the Additional Discovery Information to it will not constitute a waiver of any rights of Discovery pursuant to Section 1(b) to restrict or limit the Additional Discovery Information to be included in the DHC Reports. (d) Upon the request of DHC and as reasonably necessary to satisfy DHC's obligations under the Securities Laws, Discovery will use commercially reasonable efforts to make, and to cause its subsidiaries to make, those of its officers having responsibility for its financial reporting and business

268 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]OM1445A.;3 Created: 24-JUN-2005;18:30 Chksum: Folio: 4 User: BSKELLE EFW: Doc # 17 areas which relate to the matters included in the Discovery Information (" Applicable Officers ") and (subject to professional standards and practices applicable to any such Advisor, including, without limitation, attorney-client privilege and auditing standards and practices to the extent applicable) its Advisors reasonably available at reasonable times and places for consultations and discussions with DHC and its Advisors regarding the Discovery Information to be included in the DHC Reports. The parties acknowledge that DHC's independent auditor may be required by the Securities Laws and applicable auditing standards and practices to rely on procedures performed by Discovery's independent auditor with respect to Discovery's quarterly and annual financial statements. Discovery will use its commercially reasonable efforts to cause its independent auditor to perform an audit of its annual financial statements and quarterly review of its interim financial statements, and provide the results thereof to DHC and its independent auditor in accordance with the applicable Filing Schedule. In addition, Discovery will use commercially reasonable efforts to cause its independent auditor to cooperate with DHC and DHC's independent auditor to provide the necessary accountants' consents required under the Securities Laws to be filed or included in any DHC Report and to respond to questions related thereto. Upon the request of DHC, Discovery will use commercially reasonable efforts to make, and to cause its subsidiaries to make, their Applicable Officers reasonably available at reasonable times and places for DHC's presentations to securities analysts and at industry trade meetings and conferences unless Discovery determines, in its reasonable business judgment, that such Applicable Officers should not be made available for such purposes. Discovery also will use commercially reasonable efforts to provide information to DHC regarding potential material transactions involving the Discovery Group (" Potential Discovery Transactions "), and unless Discovery determines (and so notifies DHC) that the disclosure of information regarding a Potential Discovery Transaction or the timing of any such disclosure could, in Discovery's reasonable business judgment, (i) have an adverse effect on Discovery in any material respect or (ii) jeopardize Discovery's ability to enter into or complete such Potential Discovery Transaction (in either such case DHC will not be permitted to disclose such information), DHC will be permitted to include such information in the DHC Reports to the extent reasonably necessary to comply with the Securities Laws, provided that Discovery retains its rights with respect to such information pursuant to the provisions of Section 1(b)(ii) hereof with respect to proprietary or other confidential information. In addition, Discovery will notify DHC prior to public announcement by Discovery of such a Potential Discovery Transaction and will consider in good faith a request to coordinate such announcement with any related filing of a DHC Report. Managements of DHC and Discovery will apprise each other prior to engaging any accountants, consultants or other non-legal professional advisors (other than Outside Counsel (as defined below)) in connection with compliance with this Letter Agreement and the obligations of the parties hereunder in order to avoid potential conflicts of interest or other regulatory restrictions relating to accountants and consultants to each company. (e) Discovery agrees that the provision of financial and other business information concerning Discovery and the members of the Discovery Group to be made to each holder of Discovery common stock will be made to each such holder on a non-discriminatory basis such that information provided to one such stockholder will be provided to all such stockholders, and unless approved by the holders of Discovery common stock in accordance with the Shareholders Agreement, Discovery will not withhold from any one stockholder information concerning Discovery and the members of the Discovery Group provided to any other holder of Discovery common stock. In addition, Discovery acknowledges and agrees that nothing in this Letter Agreement will limit or restrict the information concerning or relating to the Discovery Group required to be provided by Discovery to DHC or one or more of DHC's subsidiaries in its or their capacities as a Discovery Stockholder or to which DHC or one or more of DHC's subsidiaries is otherwise entitled; provided, that any public disclosure or dissemination of such information by DHC or any subsidiary of DHC will be subject to the terms of this Letter Agreement. (f) Discovery will use commercially reasonable efforts to cause the financial information to be included in the Discovery Information that is required or purports to be prepared in accordance with

269 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 5 User: BSKELLE EFW: Doc # 17 United States generally accepted accounting principles as in effect from time to time (" GAAP ") to be prepared in accordance with GAAP. In addition, Discovery will use its commercially reasonable efforts to cause such financial information to fairly present, in all material respects, the financial position and results of operations of Discovery and its subsidiaries as of the dates specified and for the periods covered thereby. In addition, Discovery will not, and will not permit any member of the Discovery Group or their respective directors, officers or employees to, and will use commercially reasonable efforts to cause its agents or Advisors not to, publicly disclose or announce information concerning Discovery or any member of the Discovery Group, which could reasonably be expected to cause the Discovery Information set forth in a DHC Report to be untrue or incomplete in any material respect, unless Discovery has provided DHC with prior written notice thereof. 2. Reimbursement. DHC will reimburse Discovery for any and all Expenses (as defined below) incurred by any member of the Discovery Group in connection with Discovery's performance of its obligations pursuant to this Letter Agreement. DHC will pay such reimbursement amounts on a monthly basis in arrears not later than the 10th day following delivery to DHC of notice from Discovery setting forth in reasonable detail the calculation of such Expenses for such prior month, which notice will include copies of invoices or statements from Advisors or other third party service providers. The term " Expenses " means, as reasonably determined by Discovery, the reasonable fees, costs and expenses, including, without limitation, (x) a reasonable allocation of the internal costs and expenses (including, without limitation, a portion of the salary and benefits of and overhead attributable to employees of any member of the Discovery Group preparing such Discovery Information), (y) to the extent any member of the Discovery Group or any director, officer, employee or agent thereof is or becomes subject to any provision of SOX or the Securities Laws as a result of DHC's SEC reporting obligations, all fees, costs and expenses related to compliance with SOX or the Securities Laws and (z) fees, costs and expenses for the audits and quarterly reviews of Discovery's annual and interim financial statements and cooperation with DHC and its independent auditor by Discovery's independent auditor described in the third and fourth sentences of Section 1(d) hereof, incurred by Discovery or any other member of the Discovery Group in connection with Discovery's performance of its obligations pursuant to this Letter Agreement, in each case which are in addition to the fees, costs and expenses incurred by Discovery or such other member of the Discovery Group in connection with its preparation of financial and other information in the ordinary course of business. Notwithstanding the foregoing, DHC will not be obligated to reimburse Discovery for (i) Expenses required to be incurred by Discovery in the ordinary course of business irrespective of this Letter Agreement, including, without limitation, fees and expenses of its independent auditor incurred in connection with the audit of financial statements required to be delivered to lenders or persons other than DHC and Expenses incurred in preparing financial and other information delivered to Discovery Stockholders consistent with past practice and necessary for such Discovery Stockholders to satisfy their obligations under Delaware law, and (ii) the reasonable fees and disbursements of more than one outside counsel representing the members of the Discovery Group and the Discovery Stockholders, collectively, in connection with the performance of Discovery's obligations under Section 1 hereof, which counsel will be selected by Discovery, subject to approval by Discovery's stockholders pursuant to the Shareholders Agreement (such counsel, " Outside Counsel "). 3. Exculpation; Indemnification; Contribution; Insurance; Costs and Expenses of Actions. (a) Notwithstanding any other provision of this Letter Agreement to the contrary, DHC agrees that no member of the Discovery Group, or any officer, individual director, employee or agent of any such member or, for so long as he owns any shares of common stock of Discovery, John Hendricks in his capacity as a stockholder of Discovery (in such capacity, the " Hendricks Stockholder "), will be liable to DHC or any of DHC's wholly owned subsidiaries for any monetary loss, liability, cost, claim, damage or expense based upon, arising out of or related to any DHC Report or information about Discovery or

270 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 6 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 6 User: BSKELLE EFW: Doc # 17 other information disseminated by DHC, any Discovery Information furnished by Discovery to DHC or the performance by any member of the Discovery Group or any of its directors, officers, employees or agents of Discovery's obligations hereunder (including, without limitation, any statement or performance by any Applicable Officer pursuant to the fifth sentence of Section 1(d) hereof); provided, however, that the provisions of this Section 3(a) will not limit or be deemed to release any member of the Discovery Group or any officer, director, employee or agent of any such member of the Discovery Group or the Hendricks Stockholder, from any liability based upon, arising out of or resulting from (i) any such person's gross negligence (it being agreed that negligence will be covered by this exculpation), reckless conduct or willful misconduct with respect to such person's obligations hereunder (including such obligations as an officer, director, employee or agent of a member of the Discovery Group) or (ii) the dissemination, disclosure or use of information concerning the Discovery Group by any such person, other than in a DHC Report, at DHC's request or direction or in accordance with Discovery's obligations under this Letter Agreement. (b) Notwithstanding any other provision of this Letter Agreement to the contrary, DHC hereby agrees to indemnify and hold harmless each member of the Discovery Group and their respective officers, individual directors, employees and agents and the Hendricks Stockholder (the " Discovery Indemnitees ") from and against any loss, liability, cost, claim, damage or expense (including, without limitation, reasonable attorneys' fees) (collectively, " Losses " (which term will not include Expenses subject to reimbursement pursuant to Section 2 hereof)), as incurred, based upon, arising out of or related to any claims, actions, proceedings, lawsuits or investigations (collectively, " Actions ") commenced or brought by any person (including, without limitation, DHC or any Affiliate of DHC) other than any Discovery Indemnitee (other than a Discovery Indemnitee in its capacity, if applicable, as a stockholder of DHC), or Cox, Newhouse or any Affiliate (as defined below) of either or both of Cox or Newhouse based upon, arising out of or related to any DHC Report or information about Discovery or other information disseminated by DHC, any Discovery Information furnished by Discovery to DHC or the performance by any member of the Discovery Group or any of its directors, officers, employees or agents of Discovery's obligations hereunder (including, without limitation, any statement or performance by any Applicable Officer pursuant to the fifth sentence of Section 1(d) hereof); provided, however, that DHC will not be obligated to indemnify any Discovery Indemnitee with respect to any Losses which arise out of or result from (x) the gross negligence (it being agreed that negligence will be covered by this indemnity), reckless conduct or willful misconduct of any such Discovery Indemnitee or (y) the dissemination, disclosure or use, other than in a DHC Report, at DHC's request or direction or in compliance with Discovery's obligations under this Letter Agreement, by any Discovery Indemnitee, a Discovery Stockholder (other than DHC) or any Affiliate of any Discovery Indemnitee or Discovery Stockholder (other than an Affiliate of DHC) of information concerning the Discovery Group. In connection with any such Action for which it is obligated to indemnify such Discovery Indemnitees, DHC will assume and control the defense thereof, and, following such assumption by DHC, any fees and expenses of counsel incurred by any Discovery Indemnitee in connection with its or their continued participation in the defense of any such Action will be for such Discovery Indemnitee's account and will not be subject to indemnification pursuant to this Section 3(b); provided, however, that in the event Discovery, on behalf of the Discovery Indemnitees, reasonably determines, based upon advice of Outside Counsel, that there are one or more legal defenses available to the Discovery Indemnitees in such Action which are different from or in addition to those available to DHC which would cause a conflict of interest between the Discovery Indemnitees and DHC in the conduct of the defense of such Action, then the reasonable fees and expenses of separate counsel for the Discovery Indemnitees will be borne by DHC, which counsel will be selected by Discovery subject to approval by Discovery's stockholders pursuant to the Shareholders Agreement, on behalf of the Discovery Indemnitees; provided, that (x) DHC will not be obligated to pay the fees and expenses of more than one counsel for all Discovery Indemnitees with respect to any Action or separate but substantially similar or related Action or Actions arising out of the same general

271 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 7 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 7 User: BSKELLE EFW: Doc # 17 allegations or circumstances (collectively, " Related Actions ") and (y) to the extent that DHC is required to indemnify any other persons in connection with the Action or Related Actions pursuant to a separate indemnification agreement (such other persons, the " Other Indemnitees ") and to pay the fees and expenses of separate counsel to represent such Other Indemnitees, DHC will not be required to pay the reasonable fees and expenses of separate counsel for the Discovery Indemnitees and any such Other Indemnitees unless Discovery, on behalf of the Discovery Indemnitees, reasonably determines, based upon advice of Outside Counsel, that there are additional or different legal defenses available to the Discovery Indemnitees, on the one hand, and the Other Indemnitees, on the other hand, in such Action or Related Actions which would cause a conflict of interest between the Discovery Indemnitees and such Other Indemnitees in the conduct of the defense of such Action or Related Actions. For purposes of this Letter Agreement, the term " Affiliate " shall mean, with respect to any person or entity, any other person or entity that, directly or indirectly, controls, is controlled by or is under common control with such first-named person or entity, whether by ownership of voting securities, contract or otherwise; provided, that in the case of Newhouse, each of Newhouse Programming Holdings Corp. (and any successor in interest to its general partnership interest in Newhouse), Advance Programming Holdings Corp. (and any successor in interest to its general partnership interest in Newhouse) and any of their respective Affiliates shall be deemed an Affiliate of Newhouse. (c) If the indemnification provided for in this Letter Agreement is for any reason held unenforceable or otherwise unavailable to a Discovery Indemnitee (other than pursuant to the terms hereof), then DHC will contribute to the amount paid or payable by a Discovery Indemnitee as a result of such Loss in such proportion as is appropriate to reflect the relative benefits to DHC on the one hand and Discovery on the other hand, in connection with the matters covered by this Letter Agreement or, if the foregoing allocation is not permitted by applicable law, not only such relative benefits but also the relative faults of such Persons as well as any relevant equitable considerations. (d) In the event DHC maintains a directors and officers liability insurance policy covering DHC or the directors, officers, employees or agents thereof, DHC will use its commercially reasonable efforts to cause (i) each member of the Discovery Group to be covered by such policy (to the extent such member can be insured under such policy without the incurrence of extraordinary expense and is otherwise permitted to be covered under the terms of such policy) to substantially the same effect as the most favorably insured of the equity affiliates of DHC and (ii) the directors, officers, employees and agents of the members of the Discovery Group to be covered by such policy (to the extent such person can be insured under such policy without the incurrence of extraordinary expense and is otherwise permitted to be covered under the terms of such policy) to substantially the same effect as the most favorably insured of DHC's directors, officers and employees. Nothing in this Letter Agreement will be construed as requiring DHC to maintain any insurance policy of the nature described in this Section 3(d). (e) In the event of any claim, action or proceeding commenced by a party to enforce its rights hereunder or in connection with a breach or threatened breach by the other party, the costs and expenses (including reasonable legal fees and expenses related to such claim, action or proceeding) of the party prevailing in such claim, action or proceeding will be paid by the other party. In the event that neither party is the prevailing party as to all elements of such claim, action or proceeding, such costs and expenses will be allocated between the parties in such manner as the court involved in such claim, action or proceeding deems equitable. (f) For purposes of this Letter Agreement, the term "person" shall mean any human being, corporation, partnership (general or limited), limited liability company, joint venture, trust, business trust or other entity.

272 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 8 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 8 User: BSKELLE EFW: Doc # Successors and Assigns. Neither this Letter Agreement nor any of the rights, interests or obligations hereunder may be assigned by either party hereto without the prior written consent of the other party. Any such assignment in contravention of this Letter Agreement will be void and will not relieve the assigning party of any obligation hereunder. Subject to the foregoing, this Letter Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 5. Amendments. (a) This Letter Agreement may not be amended or modified except pursuant to a writing executed by the parties hereto. Any consent given by a party hereunder will be in writing. For the avoidance of doubt, any amendment or modification of, or consent by Discovery pursuant to or under, this Letter Agreement will be subject to the provisions of Section 3.01(b) of the Shareholders Agreement. (b) Each of Cox Communications Holdings, Inc. and Newhouse and any of its assignees in accordance with Article IX of the Shareholders Agreement will be, and will be deemed to be, a third party beneficiary of the last sentence of Section 5(a) and such provision may be enforced by any such third party beneficiary as if a party to this Letter Agreement. 6. Third Parties. Except for any person designated as a third party beneficiary in Section 5(b) hereof with respect to the matters referred to in Section 5 hereof and any Discovery Indemnitee, nothing in this Letter Agreement, whether express or implied, will be construed to give any person (including, without limitation, the stockholders of DHC), other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Letter Agreement. 7. Governing Law. This Letter Agreement will be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws rules of such State to the extent such rules would require the application of the law of another jurisdiction. 8. Jury Trial Waiver. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THIS LETTER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 9. Suspension; Termination. (a) If, at any time after the date of this Letter Agreement, separate audited financial statements of Discovery are not required to be included in DHC Reports filed with the SEC pursuant to Rule 3-09 of Regulation S-X under the Exchange Act (or any successor regulation or provision thereunder), DHC's rights to include such financial statements in the DHC Reports for filing with the SEC will be suspended during any such period during which such separate financial statements are not so required to be included in the DHC Reports filed with the SEC; it being acknowledged, however, that the foregoing will not limit the right of DHC (or one or more of its subsidiaries) to receive the Required Discovery Information pursuant to this Agreement or otherwise. (b) This Letter Agreement may be terminated (i) by mutual written consent of the parties hereto; (ii) by Discovery, if DHC has failed to perform in any material respect any of its covenants or other agreements contained in this Letter Agreement, which breach or failure to perform has not been cured by DHC within 30 days of notice to it by Discovery of such breach or failure to perform; or (iii) by DHC, if Discovery has failed to perform in any material respect any of its covenants or other

273 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 9 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 9 User: BSKELLE EFW: Doc # 17 agreements contained in this Letter Agreement, which breach or failure to perform has not been cured by Discovery within 30 days of notice to it by DHC of such breach or failure to perform. Upon any termination of this Letter Agreement pursuant to this Section 9(b), the provisions of this Letter Agreement will be of no further force and effect, provided that no such termination will affect the liabilities and obligations of the parties with respect to matters arising in respect of periods prior to such termination. 10. Counterparts. This Letter Agreement may be executed in one or more counterparts, all of which will be considered one and the same instrument and will become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. 11. Notices. All notices and other communications required or permitted to be given by any provision of this Letter Agreement will be in writing and sent (a) by hand or overnight courier, or (b) by facsimile or transmission (with acknowledgment received) confirmed by regular first class mail addressed to the intended recipient as follows, or to such other address as may be specified from time to time by like notice to the parties: If to DHC: Discovery Holding Company Liberty Boulevard Englewood, Colorado Telecopy: (720) Attention: Legal Department [email protected] with copies to: Baker Botts L.L.P. 30 Rockefeller Plaza New York, New York Telecopy: (212) Attention: Frederick H. McGrath, Esq. [email protected] If to Discovery: Discovery Communications, Inc. One Discovery Place Silver Spring, MD Telecopy: (240) Attention: Mark Hollinger, Esq. [email protected] with copies to: Cox Communications, Inc Lake Hearn Drive Atlanta, GA Telecopy: (404) Attention: General Counsel [email protected]

274 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 10 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 10 User: BSKELLE EFW: Doc # 17 and Sabin, Bermant & Gould Four Times Square 23rd Floor New York, NY Telecopy: (212) Attention: Craig D. Holleman, Esq. [email protected] Either party may from time to time specify a different address for notices by like notice to the other party. All notices and other communications given in accordance with the provisions of this Letter Agreement will be deemed to have been given and received (i) when delivered by hand or transmitted by facsimile or (subject to acknowledgment of receipt) and, in the case of facsimile or only, a copy of such notice is sent to the recipients no later than the next business day by a reliable overnight courier service, with acknowledgment or receipt) or (ii) one (1) business day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. 12. Severability. If any provision of this Letter Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Letter Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to replace such void or unenforceable provision of this Letter Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 13. Force Majeure. If Discovery is unable, in whole or in part, by reason of force majeure to carry out any obligation under this Letter Agreement, the performance of such obligation, to the extent and during the time that it is so affected, will be suspended and, to the extent and for the time so suspended, Discovery will have no liability whatsoever for the performance of such obligation. For purposes of this Letter Agreement, the term "force majeure" will mean any cause preventing such performance, including, without limitation, any act of God, breakdown or destruction of plant or equipment, sabotage, shortage of or inability to secure fuel, power, water, materials or labor, inability to secure or shortage of transportation, delay in transportation, strike, lockout or other labor dispute, public protest, civil unrest, war, invasion, acts of foreign enemies, hostilities (whether war or undeclared war), rebellion, revolution, insurrection of military, usurped power, requisition, confiscation, seizure or other expropriation by governmental authority, acts of terrorism, civil war, flood, earthquake, storms, typhoons, hurricanes, tsunamis, tornados, other natural disasters, government act or regulation, blockade, riot, accident, lightning, fire, explosion, epidemic, quarantine restriction or any other cause (whether of the kind specified herein or otherwise), but only to the extent any of the foregoing is beyond the control of Discovery. No event of force majeure will relieve Discovery from those of its obligations as are not suspended as provided above. Discovery will use its commercially reasonable efforts to ensure resumption of normal performance of the Letter Agreement as soon as practicable after the occurrence of any event constituting force majeure (except that Discovery will have no obligation hereunder to settle or cause to be settled any strike, lockout or other labor dispute affecting employees of the Discovery Group).

275 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 11 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 11 User: BSKELLE EFW: Doc # Entire Letter Agreement. This Letter Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties with respect to the subject matter hereof, other than the Shareholders Agreement. 15. Specific Performance. DHC agrees that its sole remedy for any breach or threatened breach by any member of the Discovery Group of its obligations under this Letter Agreement, other than in the case of the gross negligence, reckless conduct or willful misconduct by any member of the Discovery Group, will be in the form of an order for specific performance, injunction, restraining order or other form of equitable relief not involving the payment of monies. In connection therewith, each party acknowledges and agrees that a breach by such party (and in the case of Discovery, any member of the Discovery Group) of this Letter Agreement will cause the other party hereto irreparable injury for which an adequate remedy at law is not available. Therefore, the parties agree that in the event of any such breach or threatened breach, the non-breaching party will be entitled to an order for specific performance, injunction, restraining order or other form of equitable relief from any court of competent jurisdiction restraining the breaching party (and, in the case of Discovery the applicable member of the Discovery Group) from committing any breach or threatened breach of, or otherwise specifically to enforce, any such provision of this Letter Agreement, in addition to any other remedies that such party may have at law or in equity (in the case of DHC, as limited by the first sentence of this Section 15). If the foregoing is in accordance with your understanding please indicate your agreement by signing below, at which time this Letter Agreement will constitute a binding agreement between us. Accepted and Agreed as of the date first above written: DISCOVERY COMMUNICATIONS, INC. By: /s/ MARK HOLLINGER Name: Mark Hollinger Title: Senior Executive Vice President, General Counsel Very truly yours, DISCOVERY HOLDING COMPANY By: /s/ CHARLES Y. TANABE Charles Y. Tanabe Senior Vice President

276 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 12 File: DISK015:[05DEN5.05DEN1445]OM1445B.;7 Created: 24-JUN-2005;18:30 Chksum: Folio: 12 User: BSKELLE EFW: Doc # 17 EXHIBIT A Required Discovery Information 1. Audited consolidated balance sheet of Discovery, as at the end of each calendar year, and the related audited statements of income and retained earnings and related audited statement of cash flows, together with all related notes and schedules thereto, which financial statements will set forth in comparative form such figures as at the end of and for the previous calendar year, and Discovery will use commercially reasonable efforts to have such materials accompanied by an opinion on the financial statements (without any qualifications or explanatory paragraphs) of independent certified accountants selected by Discovery, subject to approval by Discovery's stockholders pursuant to the Shareholders Agreement, with PricewaterhouseCoopers LLP deemed pre-approved. 2. Consolidated balance sheet of Discovery, as at the end of each of the first three quarters of each calendar year, and the related statements of income and retained earnings, related statement of cash flows and related statement of changes in shareholders equity for such quarter and related year to date periods which financial statements will set forth in comparative form such figures as at the end of and for such quarter and year to date periods in the previous calendar year. 3. Statements of income for each operating division (currently reported by Discovery as US Networks, International Networks, Commerce and Education). Such divisional income statements will be provided for each quarter on a comparative basis with the corresponding prior year period. Corresponding comparative divisional income statements for the related year to date periods will also be provided for each quarter. 4. Commitments and contractual obligations table for Discovery as of the end of each fiscal year and as of each quarter and information concerning any material changes to Discovery's commitments and contractual obligations, in each case, substantially in the form previously provided to LMC.

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280 File: DISK015:[05DEN5.05DEN1445]OQ1445A.;5 User: MBRADT EFW: Printed: 24-Jun-2005;20:03:38 (v.162) Created: 24-JUN-2005;17:51 Chksum: HTML Page: 1 Folio: BLANK Doc # 18 QuickLinks-- Click here to rapidly navigate through this document Exhibit INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (this " Agreement "), dated as of June 24, 2005, is entered into by and among Discovery Holding Company, a Delaware corporation (" DHC "), and Cox Communications Holdings, Inc., a Delaware corporation (" Cox "). The term " parties " shall be deemed to refer to the parties to this Agreement. Capitalized terms not otherwise defined in this Agreement shall have the respective meanings set forth in the Letter Agreement (as defined below). RECITALS WHEREAS, each of Cox, Advance/Newhouse Programming Partnership, a New York partnership (" Newhouse "), and LMC Discovery, Inc. (" LMC Discovery ") own shares of the common stock of Discovery Communications, Inc., a Delaware close corporation (" Discovery "), and are parties to that certain Shareholders Agreement of Discovery, dated as of November 30, 1991, as amended (the " Shareholders Agreement "); WHEREAS, at the time of the Distribution (as defined below), LMC Discovery will be an indirect wholly-owned subsidiary of DHC; WHEREAS, Liberty Media Corporation, the ultimate parent corporation of DHC prior to the Distribution, plans to distribute (the " Distribution ") to its stockholders the shares of common stock of DHC; WHEREAS, following the Distribution, DHC will be a separate public company with its common stock registered pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the " Exchange Act "), and listed and traded on a national security exchange or NASDAQ; WHEREAS, concurrently herewith DHC and Discovery are entering into a letter agreement (the " Letter Agreement ") which provides for certain arrangements relating to the provision of financial and other information regarding Discovery and its subsidiaries in connection with certain public filings and disclosures of DHC; WHEREAS, pursuant to the Shareholders Agreement, Discovery is required to obtain the consent of the stockholders of Discovery prior to entering into the Letter Agreement; and WHEREAS, Cox has requested that DHC provide indemnification to Cox, its Affiliates and their respective directors, stockholders or other equity holders, officers, employees and agents with respect to Losses (as defined below) arising out of or resulting from the disclosure or dissemination of certain information by DHC. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I EXCULPATION; INDEMNIFICATION; CONSENT 1.1 Exculpation. DHC agrees that neither Cox nor any of its Affiliates or any of their respective officers, directors, stockholders or other equity holders, employees or agents will be liable to DHC or any wholly owned subsidiaries of DHC for any loss, liability, claim, cost, damage or expense based upon, arising out of or related to any DHC Report or information about Discovery or other information disseminated by DHC, any Discovery Information furnished by Discovery to DHC or the performance by any member of the Discovery Group or any of its directors, Chairman, officers, employees or agents of Discovery's obligations under the Letter Agreement; provided, however, that the provisions of this Section 1.1 will not limit or be deemed to release, Cox, its Affiliates or any of their

281 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]OQ1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 2 User: MBRADT EFW: Doc # 18 respective directors, stockholders or other equity holders, officers, employees or agents, from any liability based upon, arising out of or resulting from (x) the dissemination, disclosure or use of information concerning the Discovery Group made by any such person, (y) any such person's willful misconduct or (z) the purchase or sale by any such person of securities issued by DHC (or any right to purchase or sell such securities, or any other right the value of which is determined by reference to any securities issued by DHC (collectively, " DHC Derivative Securities ")). For purposes of this Agreement, the term "person" shall mean any human being, corporation, partnership (general or limited), limited liability company, joint venture, trust, business trust or other entity. 1.2 Indemnification by DHC. (a) DHC hereby agrees to indemnify and hold harmless each of Cox and its Affiliates and their respective directors, stockholders or other equity holders, officers, employees and agents (each, an " Indemnitee ") from and against any Losses, as incurred, based upon, arising out of or related to any claims, actions, proceedings, lawsuits or investigations (collectively, " Actions ") commenced or brought by any person (including, without limitation, DHC or any Affiliate of DHC) other than any Discovery Indemnitee (other than a Discovery Indemnitee in its capacity, if applicable, as a stockholder of DHC), or Cox, Newhouse or any Affiliate of either or both of Cox or Newhouse, against such Indemnitee based upon, arising out of or related to any DHC Report or information about Discovery or other information disseminated by DHC, any Discovery Information furnished by Discovery to DHC or the performance by any member of the Discovery Group or any of its directors, Chairman, officers, employees or agents of Discovery's obligations under the Letter Agreement; provided, however, that DHC will not be obligated to indemnify any Indemnitee with respect to any Losses which are based upon, arise out of or result from (x) the willful misconduct of any Indemnitee, (y) any purchase or sale by any Indemnitee of securities issued by DHC or DHC Derivative Securities, or (z) the dissemination, disclosure or use by any Indemnitee of information concerning the Discovery Group. In connection with any such Action for which it is obligated to indemnify any Indemnitee, DHC will assume and control the defense thereof, and, following such assumption by DHC, any fees and expenses of counsel incurred by such Indemnitee in connection with its participation in the defense of any such Action will be for such Indemnitee's account and will not be subject to indemnification pursuant to this Section 1.2(a); provided, however, that in the event that Cox, on behalf of the Indemnitees, reasonably determines, based upon advice of outside counsel who is reasonably acceptable to DHC, that there are one or more legal defenses available to the Indemnitees in such Action which are different from or in addition to those available to DHC which would cause a conflict of interest between the Indemnitees and DHC in the conduct of the defense of such Action, then the reasonable fees and expenses of separate counsel for the Indemnitees will be borne by DHC, which counsel will be selected by Cox subject to the reasonable approval of DHC, on behalf of the Indemnitees; provided, that (x) DHC will not be obligated to pay the fees and expenses of more than one counsel for all Indemnitees with respect to any Action or separate but substantially similar or related Actions or Actions arising out of the same general allegations or circumstances (collectively, " Related Actions ") and (y) to the extent that DHC is required to indemnify any Discovery Indemnitees or Other Indemnitees that are not Indemnitees (together with the Discovery Indemnitees, the " Additional Discovery Indemnitees ") in connection with any such Action or Related Action and to pay the fees and expenses of separate counsel for any Additional Discovery Indemnitees, DHC will not be required to pay the reasonable fees and expenses of separate counsel for the Indemnitees and separate counsel for the Additional Discovery Indemnitees, unless Discovery, on behalf of the Indemnitees and the Additional Discovery Indemnitees, reasonably determines, based upon advice of Outside Counsel, that there are additional or different legal defenses available to the Additional Discovery Indemnitees, on the one hand, and the Indemnitees, on the other hand, in such Action or Related Actions which would cause a conflict of interest between the Indemnitees and the Additional Discovery Indemnitees in the conduct of the defense of such Action or Related Actions.. " Losses " means any loss, liability, cost, damage or expense (including, without limitation, reasonable attorneys' fees) related to an Action for which an Indemnitee

282 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]OQ1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 3 User: MBRADT EFW: Doc # 18 is entitled to indemnification pursuant to this Agreement and will not include any loss, liability, claim, cost, damage or expense paid, payable or incurred by any member of the Discovery Group or any diminution in value of the Discovery Group or a Discovery Stockholder's or its Affiliate's interest, direct or indirect, in the value of the Discovery Group. (b) If the indemnification provided for in this Agreement is for any reason held unenforceable or otherwise unavailable to an Indemnitee (other than pursuant to the terms hereof), then DHC will contribute to the amount paid or payable by an Indemnitee as a result of such Loss in such proportion as is appropriate to reflect the relative benefits to DHC on the one hand and such Indemnitee on the other hand, in connection with the matters covered by this Agreement or, if the foregoing allocation is not permitted by applicable law, not only such relative benefits but also the relative faults of such persons as well as any relevant equitable considerations. 1.3 Cox Consent. Cox, on behalf of itself and its successors and assigns, hereby irrevocably consents to and approves the execution, delivery and performance of the Letter Agreement by Discovery for purposes of the Shareholders Agreement. ARTICLE II GENERAL PROVISIONS 2.1 Successors and Assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party hereto without the prior written consent of the other party; provided that Cox or any Affiliate thereof to which this Agreement has been assigned hereunder may assign this Agreement and any of its rights, interests and obligations hereunder to an Affiliate thereof without such consent. Any such assignment in contravention of this Agreement will be void and will not relieve the assigning party of any obligation hereunder. Subject to the foregoing, this Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 2.2 Amendments. This Agreement may not be amended or modified except pursuant to a writing executed by the parties hereto. Any consent given by a party hereunder will be in writing. 2.3 Third Parties. Except with respect to the exculpation and indemnification of any Indemnitee pursuant to Sections 1.1 and 1.2, nothing in this Agreement, whether express or implied, will be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement. 2.4 Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws rules of such State to the extent such rules would require the application of the law of another jurisdiction. 2.5 Jury Trial Waiver. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 2.6 Termination. This Agreement may be terminated (i) by mutual written consent of the parties hereto or (ii) by DHC, in the event that the Letter Agreement is terminated by DHC pursuant to Section 9(b)(iii) of the Letter Agreement. Upon any termination of this Agreement pursuant to this Section 2.6, the provisions of this Agreement will be of no further force and effect (other than Section 1.3 which shall remain in full force and effect), provided that no such termination will affect the liabilities and obligations of the parties with respect to matters arising in respect of periods prior to such termination. 2.7 Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same instrument and will become effective when counterparts have been signed by each of

283 Printed: 24-Jun-2005;20:03:38 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]OQ1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 4 User: MBRADT EFW: Doc # 18 the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. 2.8 Notices. All notices and other communications required or permitted to be given by any provision of this Agreement will be in writing and sent (a) by hand or overnight courier, or (b) by facsimile or transmission (with acknowledgment received) confirmed by regular first class mail addressed to the intended recipient as follows, or to such other address as may be specified from time to time by like notice to the parties: If to DHC: Discovery Holding Company Liberty Boulevard Englewood, Colorado Telecopy: (720) Attention: Legal Department [email protected] with copies to: Baker Botts L.L.P. 30 Rockefeller Plaza New York, New York Telecopy: (212) Attention: Frederick H. McGrath, Esq. [email protected] If to Cox: Cox Communications, Inc Lake Hearn Drive Atlanta, GA Telecopy: (404) Attention: General Counsel [email protected] with copies to: Dow, Lohnes & Albertson, PLLC Suite New Hampshire Avenue, N.W. Washington, D.C Telecopy: (202) Attention: Stuart A. Sheldon, Esq. [email protected] Any party may from time to time specify a different address for notices by like notice to the other party. All notices and other communications given in accordance with the provisions of this Agreement will be deemed to have been given and received (i) when delivered by hand or transmitted by facsimile or (subject to acknowledgment of receipt) and, in the case of facsimile or only, a copy of such notice is sent to the recipients no later than the next business day by a reliable overnight courier service, with acknowledgment or receipt) or (ii) one business day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. 2.9 Severability. If any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this

284 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]OQ1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 5 User: MBRADT EFW: Doc # 18 Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision Entire Agreement. This Agreement contain the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above. DISCOVERY HOLDING COMPANY By: /s/ CHARLES Y. TANABE Charles Y. Tanabe Senior Vice President COX COMMUNICATIONS HOLDINGS, INC. By: /s/ JAMES O. ROBBINS James O. Robbins President

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288 File: DISK015:[05DEN5.05DEN1445]OV1445A.;5 User: MBRADT EFW: Printed: 24-Jun-2005;20:03:40 (v.162) Created: 24-JUN-2005;17:51 Chksum: HTML Page: 1 Folio: BLANK Doc # 19 QuickLinks-- Click here to rapidly navigate through this document Exhibit INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (this " Agreement "), dated as of June 24, 2005, is entered into by and among Discovery Holding Company, a Delaware corporation (" DHC "), and Advance/Newhouse Programming Partnership, a New York partnership (" Newhouse "). The term " parties " shall be deemed to refer to the parties to this Agreement. Capitalized terms not otherwise defined in this Agreement shall have the respective meanings set forth in the Letter Agreement (as defined below). RECITALS WHEREAS, each of Newhouse, Cox Communications Holdings, Inc., a Delaware corporation (" Cox "), and LMC Discovery, Inc. (" LMC Discovery ") own shares of the common stock of Discovery Communications, Inc., a Delaware close corporation (" Discovery "), and are parties to that certain Shareholders Agreement of Discovery, dated as of November 30, 1991, as amended (the " Shareholders Agreement "); WHEREAS, at the time of the Distribution (as defined below), LMC Discovery will be an indirect wholly-owned subsidiary of DHC; WHEREAS, Liberty Media Corporation, the ultimate parent corporation of DHC prior to the Distribution, plans to distribute (the " Distribution ") to its stockholders the shares of common stock of DHC; WHEREAS, following the Distribution, DHC will be a separate public company with its common stock registered pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the " Exchange Act "), and listed and traded on a national security exchange or NASDAQ; WHEREAS, concurrently herewith DHC and Discovery are entering into a letter agreement (the " Letter Agreement ") which provides for certain arrangements relating to the provision of financial and other information regarding Discovery and its subsidiaries in connection with certain public filings and disclosures of DHC; WHEREAS, pursuant to the Shareholders Agreement, Discovery is required to obtain the consent of the stockholders of Discovery prior to entering into the Letter Agreement; WHEREAS, Newhouse Programming Holdings Corp. (the " Newhouse Partner ") owns a 65% general partner interest in Newhouse, and Advance Programming Holdings Corp. (the " Advance Partner " and, together with the Newhouse Partner and any successor in interest to the general partner interest in Newhouse of the Newhouse Partner or the Advance Partner, the " Partners " and each a " Partner ") owns a 35% general partner interest in Newhouse; and WHEREAS, Newhouse has requested that DHC provide indemnification to Newhouse, its Partners and the Affiliates of its Partners and their respective directors, stockholders or other equity holders, officers, employees and agents with respect to Losses (as defined below) arising out of or resulting from the disclosure or dissemination of certain information by DHC. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I EXCULPATION; INDEMNIFICATION; CONSENT 1.1 Exculpation. DHC agrees that none of Newhouse, either Partner or any Affiliate of either Partner, or any of their respective officers, directors, stockholders or other equity holders, employees or

289 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 2 File: DISK015:[05DEN5.05DEN1445]OV1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 2 User: MBRADT EFW: Doc # 19 agents will be liable to DHC or any wholly owned subsidiaries of DHC for any loss, liability, claim, cost, damage or expense based upon, arising out of or related to any DHC Report or information about Discovery or other information disseminated by DHC, any Discovery Information furnished by Discovery to DHC or the performance by any member of the Discovery Group or any of its directors, Chairman, officers, employees or agents of Discovery's obligations under the Letter Agreement; provided, however, that the provisions of this Section 1.1 will not limit or be deemed to release, Newhouse, either Partner or any Affiliate of a Partner or any of their respective directors, stockholders or other equity holders, officers, employees or agents, from any liability based upon, arising out of or resulting from (x) the dissemination, disclosure or use of information concerning the Discovery Group made by any such person, (y) any such person's willful misconduct or (z) the purchase or sale by any such person of securities issued by DHC (or any right to purchase or sell such securities, or any other right the value of which is determined by reference to any securities issued by DHC (collectively, " DHC Derivative Securities ")). For purposes of this Agreement, the term "person" shall mean any human being, corporation, partnership (general or limited), limited liability company, joint venture, trust, business trust or other entity. 1.2 Indemnification by DHC. (a) DHC hereby agrees to indemnify and hold harmless each of Newhouse, each Partner and the Affiliates of each Partner and their respective directors, stockholders or other equity holders, officers, employees and agents (each, an " Indemnitee ") from and against any Losses, as incurred, based upon, arising out of or related to any claims, actions, proceedings, lawsuits or investigations (collectively, " Actions ") commenced or brought by any person (including, without limitation, DHC or any Affiliate of DHC) other than any Discovery Indemnitee (other than a Discovery Indemnitee in its capacity if applicable, as a stockholder of DHC), or Newhouse, Cox or any Affiliate of either or both of Cox or Newhouse (or an Affiliate of a Partner), against such Indemnitee based upon, arising out of or related to any DHC Report or information about Discovery or other information disseminated by DHC, any Discovery Information furnished by Discovery to DHC or the performance by any member of the Discovery Group or any of its directors, Chairman, officers, employees or agents of Discovery's obligations under the Letter Agreement; provided, however, that DHC will not be obligated to indemnify any Indemnitee with respect to any Losses which are based upon, arise out of or result from (x) the willful misconduct of any Indemnitee, (y) any purchase or sale by any Indemnitee of securities issued by DHC or DHC Derivative Securities, or (z) the dissemination, disclosure or use by any Indemnitee of information concerning the Discovery Group. In connection with any such Action for which it is obligated to indemnify any Indemnitee, DHC will assume and control the defense thereof, and, following such assumption by DHC, any fees and expenses of counsel incurred by such Indemnitee in connection with its participation in the defense of any such Action will be for such Indemnitee's account and will not be subject to indemnification pursuant to this Section 1.2(a); provided, however, that in the event that Newhouse, on behalf of the Indemnitees, reasonably determines, based upon advice of outside counsel who is reasonably acceptable to DHC, that there are one or more legal defenses available to the Indemnitees in such Action which are different from or in addition to those available to DHC which would cause a conflict of interest between the Indemnitees and DHC in the conduct of the defense of such Action, then the reasonable fees and expenses of separate counsel for the Indemnitees will be borne by DHC, which counsel will be selected by Newhouse subject to the reasonable approval of DHC, on behalf of the Indemnitees; provided, that (x) DHC will not be obligated to pay the fees and expenses of more than one counsel for all Indemnitees with respect to any Action or separate but substantially similar or related Actions or Actions arising out of the same general allegations or circumstances (collectively, " Related Actions ") and (y) to the extent that DHC is required to indemnify any Discovery Indemnitees or Other Indemnitees that are not Indemnitees (together with the Discovery Indemnitees, the " Additional Discovery Indemnitees ") in connection with any such Action or Related Action and to pay the fees and expenses of separate counsel for any Additional Discovery Indemnitees, DHC will not be required to pay the reasonable fees and expenses

290 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 3 File: DISK015:[05DEN5.05DEN1445]OV1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 3 User: MBRADT EFW: Doc # 19 of separate counsel for the Indemnitees and separate counsel for the Additional Discovery Indemnitees, unless Discovery, on behalf of the Indemnitees and the Additional Discovery Indemnitees, reasonably determines, based upon advice of Outside Counsel, that there are additional or different legal defenses available to the Additional Discovery Indemnitees, on the one hand, and the Indemnitees, on the other hand, in such Action or Related Actions which would cause a conflict of interest between the Indemnitees and the Additional Discovery Indemnitees in the conduct of the defense of such Action or Related Actions. " Losses " means any loss, liability, cost, damage or expense (including, without limitation, reasonable attorneys' fees) related to an Action for which an Indemnitee is entitled to indemnification pursuant to this Agreement and will not include any loss, liability, claim, cost, damage or expense paid, payable or incurred by any member of the Discovery Group or any diminution in value of the Discovery Group or a Discovery Stockholder's or its Affiliate's (which, in the case of Newhouse, includes the Affiliates of a Partner) interest, direct or indirect, in the value of the Discovery Group. (b) If the indemnification provided for in this Agreement is for any reason held unenforceable or otherwise unavailable to an Indemnitee (other than pursuant to the terms hereof), then DHC will contribute to the amount paid or payable by an Indemnitee as a result of such Loss in such proportion as is appropriate to reflect the relative benefits to DHC on the one hand and such Indemnitee on the other hand, in connection with the matters covered by this Agreement or, if the foregoing allocation is not permitted by applicable law, not only such relative benefits but also the relative faults of such persons as well as any relevant equitable considerations. 1.3 Newhouse Consent. Newhouse, on behalf of itself and its successors and assigns, hereby irrevocably consents to and approves the execution, delivery and performance of the Letter Agreement by Discovery for purposes of the Shareholders Agreement. ARTICLE II GENERAL PROVISIONS 2.1 Successors and Assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party hereto without the prior written consent of the other party; provided that Newhouse or any Affiliate thereof to which this Agreement has been assigned hereunder may assign this Agreement and any of its rights, interests and obligations hereunder to an Affiliate thereof without such consent. Any such assignment in contravention of this Agreement will be void and will not relieve the assigning party of any obligation hereunder. Subject to the foregoing, this Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 2.2 Amendments. This Agreement may not be amended or modified except pursuant to a writing executed by the parties hereto. Any consent given by a party hereunder will be in writing. 2.3 Third Parties. Except with respect to the exculpation and indemnification of any Indemnitee pursuant to Sections 1.1 and 1.2, nothing in this Agreement, whether express or implied, will be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement. 2.4 Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflict of laws rules of such State to the extent such rules would require the application of the law of another jurisdiction. 2.5 Jury Trial Waiver. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

291 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 4 File: DISK015:[05DEN5.05DEN1445]OV1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 4 User: MBRADT EFW: Doc # Termination. This Agreement may be terminated (i) by mutual written consent of the parties hereto or (ii) by DHC, in the event that the Letter Agreement is terminated by DHC pursuant to Section 9(b)(iii) of the Letter Agreement. Upon any termination of this Agreement pursuant to this Section 2.6, the provisions of this Agreement will be of no further force and effect (other than Section 1.3 which shall remain in full force and effect), provided that no such termination will affect the liabilities and obligations of the parties with respect to matters arising in respect of periods prior to such termination. 2.7 Counterparts. This Agreement may be executed in counterparts, all of which will be considered one and the same instrument and will become effective when counterparts have been signed by each of the parties hereto and delivered to the other parties hereto, it being understood that all parties hereto need not sign the same counterpart. 2.8 Notices. All notices and other communications required or permitted to be given by any provision of this Agreement will be in writing and sent (a) by hand or overnight courier, or (b) by facsimile or transmission (with acknowledgment received) confirmed by regular first class mail addressed to the intended recipient as follows, or to such other address as may be specified from time to time by like notice to the parties: If to DHC: Discovery Holding Company Liberty Boulevard Englewood, Colorado Telecopy: (720) Attention: Legal Department [email protected] with copies to: Baker Botts L.L.P. 30 Rockefeller Plaza New York, New York Telecopy: (212) Attention: Frederick H. McGrath, Esq. [email protected] If to Newhouse: Advance/Newhouse Programming Partnership 5015 Campus Drive East Syracuse, New York Telecopy: (315) Attention: Robert Miron [email protected] with copies to: Sabin, Bermant & Gould Four Times Square 23rd Floor New York, NY Telecopy: (212) Attention: Craig D. Holleman, Esq. [email protected]

292 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 5 File: DISK015:[05DEN5.05DEN1445]OV1445A.;5 Created: 24-JUN-2005;17:51 Chksum: Folio: 5 User: MBRADT EFW: Doc # 19 Any party may from time to time specify a different address for notices by like notice to the other party. All notices and other communications given in accordance with the provisions of this Agreement will be deemed to have been given and received (i) when delivered by hand or transmitted by facsimile or (subject to acknowledgment of receipt) and, in the case of facsimile or only, a copy of such notice is sent to the recipients no later than the next business day by a reliable overnight courier service, with acknowledgment or receipt) or (ii) one business day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. 2.9 Severability. If any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties hereto further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision Entire Agreement. This Agreement contain the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above. DISCOVERY HOLDING COMPANY By: /s/ CHARLES Y. TANABE Charles Y. Tanabe Senior Vice President ADVANCE/NEWHOUSE PROGRAMMING PARTNERSHIP By: ADVANCE PROGRAMMING HOLDINGS CORP., a General Partner By: /s/ WILLIAM A. FUTERA William A. Futera Executive Vice President

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295 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: Doc # 20 <DOCUMENT> <TYPE> EX-21.1 <DESCRIPTION> Ex 21.1 <FILENAME> a zex-21_1.htm <TEXT>

296 File: DISK015:[05DEN5.05DEN1445]PA1445A.;6 User: EROWE EFW: Printed: 24-Jun-2005;20:03:40 (v.162) Created: 23-JUN-2005;22:37 Chksum: HTML Page: 1 Folio: BLANK Doc # 20 QuickLinks-- Click here to rapidly navigate through this document EXHIBIT 21.1 A list of subsidiaries of Discovery Holding Company is set forth below, indicating as to each the state or jurisdiction of organization and the names under which such subsidiaries do business. Subsidiaries not included in the list are inactive or, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. At the time of the spin off, the following subsidiaries will be owned 100% by Discovery Holding Company: 1. Ascent Media Holdings, Inc., a Delaware corporation At the time of the spin off, the following subsidiaries willbe owned 100% by Ascent Media Holdings, Inc.: 1. LMC Discovery, Inc., a Colorado corporation 2. Liberty Animal, Inc., a Delaware corporation 3. Ascent Media Group, LLC, a Delaware limited liability company The following subsidiaries are owned 100% by Ascent Media Group, LLC, except as otherwise noted: 1. Four Media Company, LLC, a Delaware limited liability company 2. Ascent Media Holdings Ltd., a company incorporated under the laws of the Republic of Singapore 3. Liberty Livewire LLC, a Delaware limited liability company The following subsidiaries are owned 100% by Ascent Media Holdings Ltd.: 1. Ascent Media Pte. Ltd., a company incorporated under the laws of the Republic of Singapore The following subsidiaries are owned 100% by Four Media Company, LLC, except as otherwise noted: 1. Ascent Media Network Services, LLC, a California limited liability company Fictitious Business Names: 1. Video Rentals 2. Ascent Media Management Services, Inc., a Delaware corporation Fictitious Business Names: 1. Ascent Media DVD Burbank 2. Ascent Media Laboratory 3. Ascent Media Management Services: Burbank 4. Ascent Media Management Services: Hollywood 5. Ascent Media Syndication Services 6. Ascent Media Digital Media Center 7. Ascent Media Vault 8. Ascent Media Management Services East 9. Blink Digital 10. Cinetech

297 File: DISK015:[05DEN5.05DEN1445]PA1445A.;6 User: EROWE EFW: Printed: 24-Jun-2005;20:03:40 (v.162) Created: 23-JUN-2005;22:37 Chksum: HTML Page: 2 Folio: BLANK Doc # Ascent Media Creative Services, Inc., a California corporation Fictitious Business Names: 1. R!OT Santa Monica 2. R!OT Manhattan 3. R!OT Atlanta 4. Digital Symphony 5. Encore Hollywood 6. Level 3 Post 7. Method 8. POP Sound 9. FilmCore Editorial Santa Monica 10. FilmCore Distribution Hollywood 11. FilmCore Editorial San Francisco 12. FilmCore Distribution San Francisco 4. Ascent Media Creative Sound Services, Inc., a New York corporation Fictitious Business Names: 1. Modern Music 2. Signet Sound 3. Soundelux Design Music Group 4. Soundelux 5. The Hollywood Edge 6. Todd-AO Burbank 7. Todd-AO Hollywood 8. Todd-AO Radford 9. Todd-AO Vine Street Studios 10. Todd-AO West 5. Ascent Media Holdings Limited, a company organized under the laws of England 6. Ascent Media (Singapore) Pte. Ltd., a private company limited by shares organized under the laws of Singapore 7. Todd-AO, Espana, a California corporation 8. VSC MAL CORP., a Delaware corporation The following subsidiaries are owned 100% by Ascent Media Network Services, LLC: 1. Ascent Media Systems & Technology Services, LLC, a Delaware limited liability company 2. Ascent Media Systems & Technology Group, Inc., a Delaware corporation 3. AFA Products Group, Inc., a New Jersey corporation

298 File: DISK015:[05DEN5.05DEN1445]PA1445A.;6 User: EROWE EFW: Printed: 24-Jun-2005;20:03:40 (v.162) Created: 23-JUN-2005;22:37 Chksum: HTML Page: 3 Folio: BLANK Doc # 20 The following subsidiaries are owned 100% by Ascent Media Creative Services, Inc.: 1. Company 3, Inc., a Delaware corporation (dba Company 3; CO3 ) 2. Company 3 New York, Inc., a Delaware corporation The following subsidiary is owned 100% by Ascent Media Creative Sound Services, Inc.: 1. Sound One Corporation, a New York corporation The following subsidiaries are owned 100% by Ascent Media Holdings Limited: 1. Ascent Media Limited, a company organized under the laws of England 2. Rushes Televisión, S.A de C.V., a company organized under the laws of Mexico 3. Servicios Administrativos de Post Produccion S.A. de C.V., a company organized under the laws of Mexico 4. Ascent Media GP Ltd., a company organized under the laws of England Ascent Media GP Ltd. (as General Partner) and Ascent Media Holdings Ltd (as Limited Partner) are partners of the following limited partnership: 1. Ascent Media UK Limited Partnership The following subsidiary is owned 100% by Ascent Media Limited: 1. Ascent Media Group Limited, a company organized under the laws of England 2. Soho Group Limited, a company organized under the laws of England 3. Visiontext Limited, a company organized under the laws of England 4. Todd-AO Filmatic Limited, a company organized under the laws of England The following subsidiaries are owned 100% by Ascent Media Group Limited: 1. SVC Television Limited, a company organized under the laws of England 2. Rushes PostProduction Limited, a company organized under the laws of England 3. One Post Limited, a company organized under the laws of England 4. Ascent Media Network Services Europe Limited, a company organized under the laws of England The following subsidiaries are owned 100% by Liberty Livewire Limited: 1. Tele-Cine Limited, a company organized under the laws of England 2. XTV Limited, a company organized under the laws of England 3. Todd-AO UK Limited (fka Ascent Media Group Limited; fka XTV Cell Limited), a company organized under the laws of England The following subsidiaries are owned 100% by 4MC Limited: 1. TVP Videodubbing Limited, a company organized under the laws of England 2. R!OT London Limited, a company organized under the laws of England 3. POP Sound London Limited, a company organized under the laws of England 4. Co 3 London Limited, a company organized under the laws of England 5. Soundelux London Limited, a company organized under the laws of England 6. Stream Digital Media Limited, a company organized under the laws of England

299 File: DISK015:[05DEN5.05DEN1445]PA1445A.;6 User: EROWE EFW: Printed: 24-Jun-2005;20:03:40 (v.162) Created: 23-JUN-2005;22:37 Chksum: HTML Page: 4 Folio: BLANK Doc # Method London Limited, a company organized under the laws of England 8. The London Switch Limited, a company organized under the laws of England The following subsidiaries are owned 100% by SVC Television Limited: 1. Pilot Programme Investments Limited, a company organized under the laws of England 2. London Playout Centre Limited, a company organized under the laws of England 3. St. Anne's Post Limited, a company organized under the laws of England The following subsidiaries are owned 100% by Studio Film and Video Holdings Limited: 1. Soho Images Limited, a company organized under the laws of England The following subsidiaries are owned 100% by TVI Limited: 1. Soho 601 Digital Productions Limited, a company organized under the laws of England

300 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: Doc # 20 QuickLinks EXHIBIT 21.1

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302 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: Doc # 21 <DOCUMENT> <TYPE> EX-99.1 <DESCRIPTION> Ex 99.1 <FILENAME> a zex-99_1.htm <TEXT>

303 File: DISK112:[05DEN2.05DEN1432]BC1432A.;18 User: JBELANG EFW: Printed: 24-Jun-2005;20:03:40 (v.162) Created: 23-JUN-2005;22:09 Chksum: HTML Page: 1 Folio: BLANK Doc # 21 Use these links to rapidly review the document TABLE OF CONTENTS INDEX TO FINANCIAL STATEMENTS Exhibit 99.1 Information contained herein is subject to completion or amendment. A registration statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission. Subject to Completion, dated June 27, 2005 INFORMATION STATEMENT [Logo] DISCOVERY HOLDING COMPANY Liberty Boulevard Englewood, Colorado We are currently a subsidiary of Liberty Media Corporation, which we refer to as "LMC." Our assets and businesses consist of 100% of Ascent Media Group, Inc. and LMC's 50% ownership interest in Discovery Communications, Inc. LMC has determined to spin off our company by distributing to LMC's shareholders, as a dividend, all of our common stock. For each share of LMC Series A common stock or LMC Series B common stock held by you as of 5:00 p.m., New York City time, on [ ], 2005, the record date for the distribution, you will receive 0.10 of a share of the same series of our common stock. If as a result of the foregoing ratio you would be entitled to a fraction of a share of our common stock, you will receive cash in lieu of a fractional share interest. We expect the shares of our common stock to be distributed by LMC to you on or about [ ], 2005, which we refer to as the distribution date. No vote of LMC's shareholders is required in connection with the spin off. No action is required of you to receive your shares of our common stock. There is no current trading market for our common stock. We have applied to list our Series A common stock and Series B common stock on the Nasdaq National Market under the symbols "DISCA" and "DISCB," respectively, following the distribution date. In reviewing this information statement, you should carefully consider the matters described under the caption "Risk Factors" beginning on page 5. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense. The date of this information statement is [ ], 2005.

304 File: DISK112:[05DEN2.05DEN1432]BG1432A.;22 User: EROWE EFW: Printed: 24-Jun-2005;20:03:40 (v.162) Created: 23-JUN-2005;23:18 Chksum: HTML Page: 2 Folio: I Doc # 21 TABLE OF CONTENTS SUMMARY RISK FACTORS CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS THE SPIN OFF CAPITALIZATION SELECTED FINANCIAL DATA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DESCRIPTION OF OUR BUSINESS MANAGEMENT CERTAIN INTER-COMPANY AGREEMENTS DESCRIPTION OF OUR CAPITAL STOCK INDEMNIFICATION OF DIRECTORS AND OFFICERS INDEPENDENT AUDITORS WHERE YOU CAN FIND MORE INFORMATION FINANCIAL STATEMENTS i

305 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 3 File: DISK112:[05DEN2.05DEN1432]CA1432A.;38 Created: 23-JUN-2005;22:55 Chksum: Folio: 1 User: EROWE EFW: Doc # 21 Our Company SUMMARY We are currently a subsidiary of LMC, and our assets and businesses consist of 100% of Ascent Media Group, Inc., which we consolidate, and LMC's 50% interest in Discovery Communications, Inc. which we account for using the equity method of accounting. Prior to the spin off, LMC will transfer $50 million in cash to a subsidiary of our company. Following the spin off, we will be an independent publicly traded company, and LMC will not retain any ownership interest in us. In connection with the spin off, we and LMC are entering into certain agreements pursuant to which we will obtain certain management and other services, and we and LMC will indemnify each other against certain liabilities that may arise from our respective businesses. See "Certain Inter-Company Agreements." Ascent Media Group, Inc., which we refer to as Ascent Media, is a wholly owned subsidiary of ours. As part of its internal restructuring to effect the spin off, LMC intends to convert Ascent Media to a Delaware limited liability company. Ascent Media provides creative, media management and network services to the media and entertainment industries. Its clients include major motion picture studios, independent producers, broadcast networks, cable programming networks, advertising agencies and other companies that produce, own and/or distribute entertainment, news, sports, corporate, educational, industrial and advertising content. Discovery Communications, Inc., which we refer to as Discovery, is a global media and entertainment company whose operations are organized into three business units: Discovery networks U.S., Discovery international networks and Discovery commerce, education and other. Through one of our subsidiaries, we own 50% of Discovery. Discovery has grown from its core property, Discovery Channel, to current global operations in over 160 countries with over 1 billion total cumulative subscription units. As used in this document, the term "subscription units" means, for each separate network or other programming service that we offer, the number of television households that are able to receive that network or programming service from their cable, satellite or other television provider, and the term "cumulative subscription units" refers to the sum of such figures for multiple networks and/or programming services, including: (1) multiple networks received in the same household, (2) subscription units for joint venture networks, (3) subscription units for branded programming blocks, which are generally provided without charge, and (4) households that receive Discovery programming networks from pay-television providers without charge pursuant to various pricing plans that include free periods and/or free carriage. Discovery produces original programming and acquires content from numerous producers worldwide that is tailored to the specific needs of viewers around the globe. Discovery has 21 network entertainment brands, including Discovery Channel, TLC, Animal Planet, Travel Channel, Discovery Health Channel, Discovery Kids and a family of digital channels. Discovery's networks are carried by the largest cable television and satellite distributors in the United States and abroad. Discovery also distributes BBC America to cable and satellite operators in the United States. When we refer to "our businesses" in this information statement, we are referring to the businesses of Ascent Media and Discovery and their subsidiaries and equity affiliates. Our principal executive offices are located at Liberty Boulevard, Englewood, Colorado Our main telephone number is (720) The Spin Off The following is a brief summary of the terms of the spin off. Please see "The Spin Off" for a more detailed description of the matters described below. 1

306 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 4 File: DISK112:[05DEN2.05DEN1432]CA1432A.;38 Created: 23-JUN-2005;22:55 Chksum: Folio: 2 User: EROWE EFW: Doc # 21 Q: What is the spin off? A: In the spin off, LMC will distribute to its shareholders all of the shares of our common stock that it owns. Following the spin off, we will be a separate company from LMC, and LMC will not have any ownership interest in us. The number of shares of LMC common stock you own will not change as a result of the spin off. Q: What is being distributed in the spin off? A: Approximately 268 million shares of our Series A common stock and 12 million shares of our Series B common stock will be distributed in the spin off, based upon the number of shares of LMC Series A common stock and LMC Series B common stock outstanding on April 29, The shares of our common stock to be distributed by LMC will constitute all of the issued and outstanding shares of our common stock immediately after the distribution. Q: What is the record date for the spin off? A: The record date is [ ], 2005, and record ownership will be determined as of 5:00 p.m., New York City time, on that date. When we refer to the "record date," we are referring to the foregoing time and date. Q: What will I receive in the spin off? A: Holders of LMC Series A common stock will receive a dividend of 0.10 of a share of our Series A common stock for each share of LMC Series A common stock held by them on the record date, and holders of LMC Series B common stock will receive a dividend of 0.10 of a share of our Series B common stock for every share of LMC Series B common stock held by them on the record date. At the time of the spin off, each share of our Series A common stock and our Series B common stock will have attached to it one preferred share purchase right of the corresponding series, as more fully described in this information statement. See "Description of Our Capital Stock Shareholder Rights Plan." Q: What is the reason for the spin off? A: The potential benefits considered by LMC's board of directors in making the determination to consummate the spin off included the following: enhancing the ability of LMC to issue equity and equity-linked securities, by reducing the perceived discount from net asset value reflected in the trading prices of LMC's common stock; and enabling investors to invest more directly in our interest in Discovery, thereby facilitating our ability to raise capital and pursue acquisitions using our securities as consideration. See "The Spin Off Reasons for the Spin Off. Q: What do I have to do to participate in the spin off? A: Nothing. Shareholders of LMC on the record date for the spin off are not required to pay any cash or deliver any other consideration, including any shares of LMC common stock, for the shares of our common stock distributable to them in the spin off. Q: How will LMC distribute shares of Discovery Holding common stock to me? A: Holders of shares of either series of LMC common stock on the record date will receive shares of the same series of our common stock in the same form, certificated or book entry, as the form in which the recipient shareholder held its shares of LMC common stock on the record date. 2

307 Printed: 24-Jun-2005;20:03:40 (v.162) HTML Page: 5 File: DISK112:[05DEN2.05DEN1432]CA1432A.;38 Created: 23-JUN-2005;22:55 Chksum: Folio: 3 User: EROWE EFW: Doc # 21 Q: If I sell, on or before the distribution date, shares of LMC common stock that I held on the record date, am I still entitled to receive shares of Discovery Holding common stock distributable with respect to the shares of LMC common stock I sold? A: No. No ex-dividend market will be established in LMC common stock until the first trading day following the distribution date. Therefore, if you own shares of either series of LMC common stock on the record date and thereafter sell those shares on or prior to the distribution date, you will also be selling the shares of our common stock that would have been distributed to you in the spin off with respect to the shares of LMC common stock you sell. Q: How will fractional shares be treated in the spin off? A: If you would be entitled to receive a fractional share of our common stock in the spin off, you will instead receive a cash payment. See "The Spin Off Treatment of Fractional Shares" for an explanation of how the cash payments will be determined. Q: What is the distribution date for the spin off? A: Shares of our common stock will be distributed by the distribution agent, on behalf of LMC, on or about [ ], Q: What are the federal income tax consequences to me of the spin off? A: LMC has obtained a private letter ruling from the IRS to the effect that the spin off will qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code and that, accordingly, for U.S. federal income tax purposes, no gain or loss will be recognized by, and no amount will be included in the income of, a holder of LMC common stock upon the receipt of shares of our common stock pursuant to the spin off. In addition, the spin off is conditioned upon the receipt by LMC of the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, to similar effect. A holder of LMC common stock will generally recognize gain or loss with respect to cash received in lieu of a fractional share of our common stock. Please see "The Spin Off Material U.S. Federal Income Tax Consequences of the Spin Off" and "Risk Factors Factors Relating to the Spin Off The spin off could result in significant tax liability" for more information regarding the private letter ruling and the tax opinion and the potential tax consequences to you of the spin off. Q: Does Discovery Holding intend to pay cash dividends? A: No. We currently intend to retain future earnings, if any, to finance the expansion of our businesses. As a result, we do not expect to pay any cash dividends in the foreseeable future. All decisions regarding the payment of dividends by our company will be made by our board of directors, from time to time, in accordance with applicable law. Q: Where will Discovery Holding common stock trade? A: Currently, there is no public market for our common stock. We have applied to list our Series A common stock and Series B common stock on the Nasdaq National Market under the symbols "DISCA" and "DISCB," respectively. We anticipate that trading will commence on a when-issued basis shortly before the record date. When-issued trading in the context of a spin off refers to a transaction effected on or before the distribution date and made conditionally because the securities of the spun off entity have not yet been distributed. When-issued trades generally settle within three days after the distribution date. On the first trading day following the distribution date, any when-issued trading in respect of our common stock will end and regular way trading will begin. Regular way trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full 3

308 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 6 File: DISK112:[05DEN2.05DEN1432]CA1432A.;38 Created: 23-JUN-2005;22:55 Chksum: Folio: 4 User: EROWE EFW: Doc # 21 trading day following the date of the sale transaction. We cannot predict the trading prices for our common stock before or after the distribution date. Q: Do I have appraisal rights? A: No. Holders of LMC common stock are not entitled to appraisal rights in connection with the spin off. Q: Who is the transfer agent for your common stock? A: EquiServe Trust Company, N.A. Q: Who is the distribution agent for the spin off? A: EquiServe Trust Company, N.A. Summary Selected Financial Data The following tables present selected historical information relating to our combined financial condition and results of operations for the three months ended March 31, 2005 and 2004 and for the three years ended December 31, The quarterly information is derived from our unaudited condensed combined financial statements, and the annual information is derived from our audited combined financial statements for the corresponding periods. The data should be read in conjunction with our combined financial statements and " Management's Discussion and Analysis of Financial Condition and Results of Operations " included elsewhere herein. March 31, December 31, amounts in thousands Summary Balance Sheet Data: Investment in Discovery $ 2,966,139 2,945,782 2,863,003 2,816,513 Property and equipment, net $ 261, , , ,496 Intangible assets, net $ 2,140,551 2,140,355 2,136,667 2,112,544 Total assets $ 5,577,710 5,564,828 5,396,627 5,373,150 Debt, including current portion $ 401,984 Subordinated notes payable to LMC $ 205,299 Parent's investment $ 4,360,610 4,347,279 4,260,269 3,617,417 Three months ended March 31, Years ended December 31, amounts in thousands, except per share amounts Summary Statement of Operations Data: Revenue $ 174, , , , ,333 Operating income (loss) $ 2,877 5,914 16,935 (2,404) (61,452) Share of earnings (losses) of Discovery $ 22,814 10,449 84,011 37,271 (32,046) Net earnings (loss) $ 16,825 11,920 66,108 (52,394) (129,275) Unaudited pro forma basic and diluted net earnings (loss) per common share(1) $ (0.19) (0.46) (1) Unaudited pro forma basic and diluted net earnings (loss) per common share is based on 280,001,000 common shares for the three months ended March 31, 2005 and 2004 and 279,996,000 common shares for the years ended December 31, 2004, 2003 and 2002, which is the number of shares that would have been issued on March 31, 2005 and December 31, 2004, respectively, if the spin off had been completed on such dates. 4

309 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 7 File: DISK112:[05DEN2.05DEN1432]DE1432A.;31 Created: 23-JUN-2005;22:56 Chksum: Folio: 5 User: EROWE EFW: Doc # 21 RISK FACTORS An investment in our common stock involves risk. You should carefully consider the risks described below, together with all of the other information included in this information statement in evaluating our company and our common stock. Any of the following risks, if realized, could have a material adverse effect on the value of our common stock. Factors Relating to our Business We are a holding company, and we could be unable in the future to obtain cash in amounts sufficient to service our financial obligations or meet our other commitments. Our ability to meet our financial obligations and other contractual commitments depends upon our ability to access cash. We are a holding company, and our sources of cash include our available cash balances, net cash from the operating activities of our subsidiaries, any dividends and interest we may receive from our investments, availability under any credit facilities that we may obtain in the future and proceeds from any asset sales we may undertake in the future. We currently have no plans with respect to any credit facilities or asset sales. The ability of our operating subsidiaries to pay dividends or to make other payments or advances to us depends on their individual operating results and any statutory, regulatory or contractual restrictions to which they may be or may become subject. We do not have access to the cash that Discovery generates from its operating activities. Discovery generated approximately $125 million, $154 million and $139 million of cash from its operations during the years ended December 31, 2004, 2003 and 2002, respectively. Discovery uses the cash it generates from its operations to fund its investing activities and to service its debt and other financing obligations. We do not have access to the cash that Discovery generates unless Discovery declares a dividend on its capital stock payable in cash, redeems any or all of its outstanding shares of capital stock for cash or otherwise distributes or makes payments to its stockholders, including us. Historically, Discovery has not paid any dividends on its capital stock or, with limited exceptions, otherwise distributed cash to its stockholders and instead has used all of its available cash in the expansion of its business and to service its debt obligations. Covenants in Discovery's existing debt instruments also restrict the payment of dividends and cash distributions to stockholders. We expect that Discovery will continue to apply its available cash to the expansion of its business. We do not have sufficient voting control to cause Discovery to pay dividends or make other payments or advances to its stockholders, or otherwise provide us access to Discovery's cash. We have no operating history as a separate company upon which you can evaluate our performance. Although our subsidiary Ascent Media was a separate public company prior to June 2003 (when LMC acquired the outstanding shares of Ascent Media that it did not already own), we do not have an operating history as a separate public company. Accordingly, there can be no assurance that our business strategy will be successful on a long-term basis. We may not be able to grow our businesses as planned and may not be profitable. Our historical financial information may not be representative of our results as a separate company. The historical financial information included in this information statement may not necessarily reflect what our results of operations, financial condition and cash flows would have been had we been a separate, stand-alone entity pursuing independent strategies during the periods presented. We do not have the right to manage Discovery, which means we cannot cause Discovery to operate in a manner that is favorable to us. Discovery is managed by its stockholders rather than a board of directors. Generally, all actions to be taken by Discovery require the approval of the holders of a majority of Discovery's shares; however, pursuant to a Stockholders' Agreement described below, the taking of certain actions (including, among other things, a merger of Discovery, or the issuance of additional shares of Discovery capital stock or approval of annual business plans) require the approval 5

310 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 8 File: DISK112:[05DEN2.05DEN1432]DE1432A.;31 Created: 23-JUN-2005;22:56 Chksum: Folio: 6 User: EROWE EFW: Doc # 21 of the holders of at least 80% of Discovery's shares. Because we do not own a majority of the outstanding equity interests of Discovery, we do not have the right to manage the businesses or affairs of Discovery. Although our status as a 50% stockholder of Discovery enables us to exercise influence over the management and policies of Discovery, such status does not enable us to cause any actions to be taken. A subsidiary of Cox Communications, which we refer to as Cox Communications, and Advance/Newhouse Programming Partnership, which we refer to as Advance/Newhouse, each hold a 25% interest in Discovery, which ownership interest enables each such company to prevent Discovery from taking actions requiring 80% approval. Actions to be taken by Discovery that require the approval of a majority of Discovery's shares may, under certain circumstances, result in a deadlock. Because we own a 50% interest in Discovery and each of Cox Communications and Advance/Newhouse own a 25% interest in Discovery, a deadlock may occur when the stockholders vote to approve an action that requires majority approval. Accordingly, unless either Cox Communications or Advance/Newhouse elects to vote with us on items that require majority action, such actions may not be taken. Pursuant to the terms of the Stockholders' Agreement, if an action that requires approval by a majority of Discovery's shares is approved by 50%, but not more than 50%, of the outstanding shares then the proposed action will be submitted to an arbitrator designated by the stockholders. Currently, the arbitrator is John Hendricks, the founder and Chairman of Discovery. Mr. Hendricks, as arbitrator, is entitled to cast the deciding vote on matters where the stockholders have deadlocked because neither side has a majority. Mr. Hendricks, however, is not obligated to take action to break such a deadlock. In addition, Mr. Hendricks may elect to approve actions we have opposed, if such a deadlock exists. In the event of a dispute among the stockholders of Discovery, the possibility of such a deadlock could have a material adverse effect on Discovery's business. The liquidity and value of our interest in Discovery may be adversely affected by a Stockholders' Agreement to which we are a party. Our 50% interest in Discovery is subject to the terms of a Stockholders' Agreement among the holders of Discovery capital stock. Among other things, the Stockholders' Agreement restricts our ability to directly sell or transfer our interest in Discovery or to borrow against its value. These restrictions impair the liquidity of our interest in Discovery and may make it difficult for us to obtain full value for our interest in Discovery should such a need arise. In the event we chose to sell all or a portion of our direct interest in Discovery, we would first have to obtain an offer from an unaffiliated third party and then offer to sell such interest to Cox Communications and Advance/Newhouse on substantially the same terms as the third party had agreed to pay. If either Cox Communications or Advance/Newhouse decided to sell their respective interests in Discovery, then the other of such two stockholders would have a right to acquire such interests on the terms set by a third party offer obtained by the selling stockholder. If the non-selling stockholder elects not to exercise this acquisition right, then we would have the opportunity to acquire such interests on the terms set by a third party offer obtained by the selling stockholder. We anticipate that the purchase price to acquire the interests held by Cox Communications or Advance/Newhouse would be significant and could require us to obtain significant funding in order to raise sufficient funds to purchase one or both of their interests. This opportunity to purchase the Discovery interests held by Cox Communications and/or Advance/Newhouse may arise (if at all) at a time when it would be difficult for us to raise the funds necessary to purchase such interests. LMC has had discussions from time to time with Cox Communications and Advance/Newhouse regarding the acquisition of their interests in Discovery, including a potential exchange of their Discovery interests for shares of our common stock. The discussions, which were preliminary in nature, did not result in any agreement, arrangement or understanding regarding such a transaction. Prior to the spin off, we elected to terminate such discussions and there are no current plans to resume such discussions. We do not have the ability to require Cox Communications or Advance/Newhouse to sell 6

311 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 9 File: DISK112:[05DEN2.05DEN1432]DE1432A.;31 Created: 23-JUN-2005;22:56 Chksum: Folio: 7 User: EROWE EFW: Doc # 21 their interests in Discovery to us, nor do they have the ability to require us to sell our interest to them. Accordingly, the current governance relationships affecting Discovery may continue indefinitely. Because we do not control the business management practices of Discovery, we rely on Discovery for the financial information that we use in accounting for our ownership interest in Discovery. We account for our 50% ownership interest in Discovery using the equity method of accounting and, accordingly, in our financial statements we record our share of Discovery's net income or loss. Because we do not control Discovery's decision-making process or business management practices, within the meaning of U.S. accounting rules, we rely on Discovery to provide us with financial information prepared in accordance with generally accepted accounting principles, which we use in the application of the equity method. We have entered into an agreement with Discovery regarding the use by us of certain information regarding Discovery in connection with our financial reporting and disclosure requirements as a public company. See "Certain Inter-Company Agreements Information Agreement with Discovery." However, such agreement limits the public disclosure by us of certain non-public information regarding Discovery (other than specified historical financial information), and also restricts our ability to enforce the agreement against Discovery with a lawsuit seeking monetary damages, in the absence of gross negligence, reckless conduct or willful misconduct on the part of Discovery. In addition, we cannot change the way in which Discovery reports its financial results or require Discovery to change its internal controls over financial reporting. We cannot be certain that we will be successful in integrating businesses we may acquire with our existing businesses. Our businesses may grow through acquisitions in selected markets. Integration of new businesses may present significant challenges, including: realizing economies of scale in programming and network operations; eliminating duplicative overheads; and integrating networks, financial systems and operational systems. We cannot assure you that, with respect to any acquisition, we will realize anticipated benefits or successfully integrate any acquired business with our existing operations. In addition, while we intend to implement appropriate controls and procedures as we integrate acquired companies, we may not be able to certify as to the effectiveness of these companies' disclosure controls and procedures or internal control over financial reporting (as required by recent amendments to U.S. federal securities laws and regulations) until we have fully integrated them. Acquisitions to be made by Discovery will require our approval; however, we do not unilaterally have the power to cause Discovery to acquire any particular business or asset. The management of Discovery has responsibility for integrating the operations of any acquired businesses and establishing internal control over financial reporting and for other purposes, and we do not have the power to mandate that Discovery follow the same procedures and internal controls that we require of our subsidiaries. A loss of any of Ascent Media's large customers would reduce our revenue. Although Ascent Media serviced over 4,000 customers during the year ended December 31, 2004, its ten largest customers accounted for approximately 45% percent of its consolidated revenue and Ascent Media's single largest customer accounted for approximately 7% percent of its consolidated revenue during that period. The loss of, and the failure to replace, any significant portion of the services provided to any significant customer could have a material adverse effect on the business of Ascent Media. Ascent Media's business depends on certain client industries. Ascent Media derives much of its revenue from services provided to the motion picture and television production industries and from the data transmission industry. Fundamental changes in the business practices of any of these client industries could cause a material reduction in demand by Ascent Media's clients for the services offered by Ascent Media. Ascent Media's business benefits from the volume of content being created and distributed rather than the success or popularity (in itself) of an individual television show, commercial or feature film. Accordingly, a decrease in either the supply of, or demand for, original entertainment content would have a material adverse effect on Ascent Media's results of operations. 7

312 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 10 File: DISK112:[05DEN2.05DEN1432]DE1432A.;31 Created: 23-JUN-2005;22:56 Chksum: Folio: 8 User: EROWE EFW: Doc # 21 Because spending for television advertising drives the production of new television programming, as well as the production of television commercials and the sale of existing content libraries for syndication, a reduction in television advertising spending would adversely affect Ascent Media's business. Factors that could impact television advertising and the general demand for original entertainment content include the growing use of personal video recorders and video-on-demand services, continued fragmentation of and competition for the attention of television audiences, and general economic conditions. Changes in technology may limit the competitiveness of and demand for our services. The post-production industry is characterized by technological change, evolving customer needs and emerging technical standards, and the data transmission industry is currently saturated with companies providing services similar to Ascent Media's. Obtaining access to any new technologies that may be developed in Ascent Media's industries will require capital expenditures, which may be significant and may have to be incurred in advance of any revenue that may be generated by such new technologies. In addition, the use of some technologies may require third party licenses, which may not be available on commercially reasonable terms. Although we believe that Ascent Media will be able to continue to offer services based on the newest technologies, we cannot assure you that Ascent Media will be able to obtain any of these technologies, that Ascent Media will be able to effectively implement these technologies on a cost-effective or timely basis or that such technologies will not render obsolete Ascent Media's role as a provider of motion picture and television production services. If Ascent Media's competitors in the data transmission industry have technology that enables them to provide services that are more reliable, faster, less expensive, reach more customers or have other advantages over the data transmission services Ascent Media provides, then the demand for Ascent Media's data transmission services may decrease. Technology in the video, telecommunications and data services industry is changing rapidly. Advances in technologies such as personal video recorders and video-on-demand and changes in television viewing habits facilitated by these or other technologies could have an adverse effect on Discovery's advertising revenue and viewership levels. The ability to anticipate changes in, and adapt to, changes in technology and consumer tastes on a timely basis and exploit new sources of revenue from these changes will affect the ability of Discovery to continue to grow, increase its revenue and number of subscribers and remain competitive. A labor dispute may disrupt our business. The cost of producing and distributing entertainment programming has increased substantially in recent years due to, among other things, the increasing demands of creative talent and industry-wide collective bargaining agreements. Ascent Media employs approximately 3,800 persons, some on a project-by-project basis. Approximately 310 of Ascent Media's creative and technical personnel in the United States are subject to one of five collective bargaining agreements with the International Alliance of Theatrical Stage Employees, although the number of personnel subject to such agreements varies from time to time for specific client projects. Three of these agreements are due to be renegotiated in the near future, a fourth is finalized and in draft form waiting final execution by both parties and the remaining agreement, which covers a majority of Ascent Media's union employees, is due to expire in January Additionally, approximately 40 members of the Broadcasting Entertainment Cinematograph and Theatre Union are currently employed at various facilities of Ascent Media in the United Kingdom, although the collective bargaining agreements governing such employees have expired. An Ascent Media subsidiary is also a signatory to an agreement with the Screen Actors Guild, which governs employment terms for voice-over performers that may be hired by the company from time to time for specific client projects. Ascent Media has not had any strikes or significant work stoppages in over five years and generally believes that its relations with union and non-union employees are excellent. However, if Ascent Media is unable to renegotiate its existing and/or expired collective bargaining agreements, it is possible that the affected union could take action in the form of 8

313 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 11 File: DISK112:[05DEN2.05DEN1432]DE1432A.;31 Created: 23-JUN-2005;22:56 Chksum: Folio: 9 User: EROWE EFW: Doc # 21 a strike or work stoppage. It is likely that any such action would disrupt production at the particular facilities where members of such union work; however, Ascent Media does not believe that any such disruption would have a material adverse effect on its business. A significant labor dispute in Ascent Media's client industries could have a material adverse effect on its business. An industry-wide strike or other job action by or affecting the Writers Guild, Screen Actors Guild or other major entertainment industry union could reduce the supply of original entertainment content, which would in turn, reduce the demand for Ascent Media's services. Ascent Media's Creative Services Group experienced volatility in its workflow from the combined effects of the Screen Actors Guild strike in 2000 and the threatened Writers Guild strike in Discovery airs certain entertainment programs that are dependent on specific on-air talent, and Discovery's ability to continue to produce these series is dependent on keeping that on-air talent under contract. Risk of loss from earthquakes or other catastrophic events could disrupt Ascent Media's business. Some of Ascent Media's specially equipped and acoustically designed facilities are located in Southern California, a region known for seismic activity. Due to the extensive amount of specialized equipment incorporated into the specially designed recording and scoring stages, editorial suites, mixing rooms and other post-production facilities, Ascent Media's operations in this region may not be able to be temporarily relocated to mitigate the occurrence of a catastrophic event. Ascent Media carries insurance for property loss and business interruption resulting from such events, including earthquake insurance, subject to deductibles, and has facilities in other geographic locations. Although we believe Ascent Media has adequate insurance coverage relating to damage to its property and the temporary disruption of its business from casualties, and that it could provide services at other geographic locations, there can be no assurance that such insurance and other facilities would be sufficient to cover all of Ascent Media's costs or damages or Ascent Media's loss of income resulting from its inability to provide services in Southern California for an extended period of time. Discovery is dependent upon advertising revenue. Discovery earns a substantial portion of its revenue from the sale of advertising time on its networks and web sites. Discovery's advertising revenue is affected by viewer demographics, viewer ratings and market conditions for advertising. The overall cable and broadcast television industry is facing several issues with regard to its advertising revenue, including (1) audience fragmentation caused by the proliferation of other television networks, video-on-demand offerings from cable and satellite companies and broadband content offering, (2) the deployment of digital video recording devices (DVRs), allowing consumers to time shift programming and skip or fast-forward through advertisements and (3) consolidation within the advertising industry, shifting more leverage to the bigger agencies and buying groups. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective advertisers' spending priorities. In addition, the public's reception toward programs or programming genres can decline. An adverse change in any of these factors could have a negative effect on Discovery's revenues in any given period. Ascent Media's business is also dependent in part on the advertising industry, as a significant portion of Ascent Media's revenue is derived from the sale of services to agencies and/or the producers of television advertising. Discovery's revenue is dependent upon the maintenance of affiliation agreements with cable and satellite distributors on acceptable terms. Discovery earns a substantial portion of its revenue from per-subscriber license fees paid by cable operators, direct-to-home (DTH) satellite television operators and other channel distributors. Discovery's five core networks, Discovery Channel, TLC, Animal Planet, Travel Channel and Discovery Health, and the other networks in which Discovery has an ownership interest, maintain affiliation arrangements that enable them to reach a large percentage of cable and direct broadcast satellite households across the United States, Asia, Europe and Latin America. These 9

314 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 12 File: DISK112:[05DEN2.05DEN1432]DE1432A.;31 Created: 23-JUN-2005;22:56 Chksum: Folio: 10 User: EROWE EFW: Doc # 21 arrangements are generally long-term arrangements ranging from 3 to 10 years. These affiliation arrangements usually provide for payment to Discovery based on the numbers of subscribers that receive the Discovery networks. Discovery's core networks depend on achieving and maintaining carriage within the most widely distributed cable programming tiers to maximize their subscriber base and revenue. The loss of a significant number of affiliation arrangements on basic programming tiers could reduce the distribution of Discovery's networks, thereby adversely affecting such networks' revenue from per-subscriber fees and their ability to sell advertising or the rates they are able to charge for such advertising. Those Discovery networks that are carried on digital tiers are dependent upon the continued upgrade of cable systems to digital capability and the public's continuing acceptance of, and willingness to pay for upgrades to, digital cable, as well as Discovery's ability to negotiate favorable carriage agreements on widely accepted digital tiers. Our businesses are subject to risks of adverse government regulation. Programming services, satellite carriers, television stations, Internet and data transmission companies are subject to varying degrees of regulation in the United States by the Federal Communications Commission and other entities and in foreign countries by similar entities. Such regulation and legislation are subject to the political process and have been in constant flux over the past decade. Moreover, substantially every foreign country in which our subsidiaries or business affiliates have, or may in the future make, an investment regulates, in varying degrees, the distribution, content and ownership of programming services and foreign investment in programming companies. Further material changes in the law and regulatory requirements must be anticipated, and there can be no assurance that our business and the business of our affiliates will not be adversely affected by future legislation, new regulation or deregulation. Failure to obtain renewal of FCC licenses could disrupt our business. Ascent Media holds licenses, authorizations and registrations from the FCC required for the conduct of its network services business, including earth station and various classes of wireless licenses and an authorization to provide certain services. Most of the FCC licenses held by Ascent Media are for transmit/receive earth stations, which cannot be operated without individual licenses. The licenses for these stations are granted for a period of fifteen years and, while the FCC generally renews licenses for satellite earth stations routinely, there can be no assurance that Ascent Media's licenses will be renewed at their expiration dates. Registration with the FCC, rather than licensing, is required for receiving transmissions from domestic satellites from points within the United States. Ascent Media relies on third party licenses or authorizations when it transmits domestic satellite traffic through earth stations operated by third parties. Our failure, and the failure of third parties, to obtain renewals of such FCC licenses could disrupt the network services segment of Ascent Media and have a material adverse effect on Ascent Media. Further material changes in the law and regulatory requirements must be anticipated, and there can be no assurance that our businesses will not be adversely affected by future legislation, new regulation, deregulation or court decisions. Our businesses operate in an increasingly competitive market, and there is a risk that our businesses may not be able to effectively compete with other providers in the future. The entertainment and media services and programming businesses in which we compete are highly competitive and service-oriented. Ascent Media has few long-term or exclusive service agreements with its creative services and media management services customers. Business generation in these groups is based primarily on customer satisfaction with reliability, timeliness, quality and price. The major motion picture studios, which are Ascent Media's customers, such as Paramount Pictures, Sony Pictures Entertainment, Twentieth Century Fox, Universal Pictures, The Walt Disney Company, Metro-Goldwyn-Mayer and Warner Brothers, have the capability to perform similar services in-house. These studios also have substantially greater financial resources than Ascent Media's, and in some cases significant marketing advantages. Thus, depending on the in-house capacity available to some of these studios, a studio may be not only a customer but also a competitor. There are also numerous independent providers of services similar to Ascent Media's. Thomson, a French corporation, is also a major competitor of Ascent Media, 10

315 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 13 File: DISK112:[05DEN2.05DEN1432]DE1432B.;37 Created: 23-JUN-2005;22:56 Chksum: Folio: 11 User: EROWE EFW: Doc # 21 particularly under its Technicolor brand. We also actively compete with certain industry participants that have a unique operating niche or specialty business. If there were a significant decline in the number of motion pictures or the amount of original television programming produced, or if the studios or Ascent Media's other clients either established in-house post-production facilities or significantly expanded their in-house capabilities, Ascent Media's operations could be materially and adversely affected. Discovery is primarily an entertainment and programming company that competes with other programming networks for viewers in general, as well as for viewers in special interest groups and specific demographic categories. In order to compete for these viewers, Discovery must obtain a regular supply of high quality category-specific programming. To the extent Discovery seeks third party suppliers of such programming, it competes with other cable and broadcast television networks for programming. The expanded availability of digital cable television and the introduction of direct-to-home satellite distribution has greatly increased the amount of channel capacity available for new programming networks, resulting in the launch of a number of new programming networks by Discovery and its competitors. This increase in channel capacity has also made competitive niche programming networks viable, because such networks do not need to reach the broadest possible group of viewers in order to be moderately successful. Discovery's program offerings must also compete for viewers and advertisers with other entertainment media, such as home video, online activities and movies. Increasing audience fragmentation could have an adverse effect on Discovery's advertising and subscription revenue. In addition, the cable television and direct-to-home satellite industries have been undergoing a period of consolidation. As a result, the number of potential buyers of the programming services offered by Discovery is decreasing. In this more concentrated market, there can be no assurance that Discovery will be able to obtain or maintain carriage of its programming services by distributors on commercially reasonable terms or at all. Factors Relating to the Spin Off We may incur material costs as a result of our separation from LMC. We may incur costs and expenses greater than those we currently incur as a result of our separation from LMC. These increased costs and expenses may arise from various factors, including financial reporting, costs associated with complying with the federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002), tax administration and human resources related functions. Although LMC will continue to provide many of these services for us under the services agreement, we cannot assure you that the services agreement will continue or that these costs will not be material to our business. Prior to the spin off, we have been operated as part of LMC and not as an independent company and we may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company. Prior to the spin off, our business was operated by LMC as part of its broader corporate organization, rather than as an independent company. LMC's senior management oversaw the strategic direction of our businesses and LMC performed various corporate functions for us, including, but not limited to: selected human resources related functions; tax administration; selected legal functions (including compliance with the Sarbanes-Oxley Act of 2002), as well as external reporting; treasury administration, investor relations, internal audit and insurance functions; and selected information technology and telecommunications services. 11

316 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 14 File: DISK112:[05DEN2.05DEN1432]DE1432B.;37 Created: 23-JUN-2005;22:56 Chksum: Folio: 12 User: EROWE EFW: Doc # 21 Following the spin off, neither LMC nor any of its affiliates will have any obligation to provide these functions to us other than those services that will be provided by LMC pursuant to the services agreement between us and LMC. See "Certain Inter-Company Arrangements Services Agreement." If, once our services agreement terminates, we do not have in place our own systems and business functions, we do not have agreements with other providers of these services or we are not able to make these changes cost effectively, we may not be able to operate our business effectively and our profitability may decline. If LMC does not continue to perform effectively the services that are called for under the services agreement, we may not be able to operate our business effectively after the spin off. We will have potential conflicts of interest with LMC and Liberty Global, Inc. after the spin off. We have overlapping directors and management with LMC and Liberty Global, Inc., which may lead to conflicting interests. At the time of the spin off, six of our executive officers will continue to serve as executive officers of LMC and one of our executive officers will continue to serve as an executive officer of Liberty Global, Inc., or LGI. LGI is an independent, publicly traded company, which was formed in connection with the business combination between UnitedGlobalCom, Inc. and Liberty Media International, Inc., or LMI. All of the shares of LMI were distributed by LMC to its shareholders in June Our board of directors will include persons who are members of the board of directors of LMC and/or LGI. We do not own any interest in LMC or LGI, and to our knowledge LGI does not own, and immediately following the spin off, LMC will not own any interest in us. The executive officers and the members of our board of directors will have fiduciary duties to our stockholders. Likewise, any such persons who serve in similar capacities at LMC and/or LGI will have fiduciary duties to such company's stockholders. Therefore, such persons may have conflicts of interest or the appearance of conflicts of interest with respect to matters involving or affecting each company. For example, there will be the potential for a conflict of interest when we, LMC or LGI look at acquisitions and other corporate opportunities that may be suitable for each of us. Moreover, after the spin off, most of our directors and officers, will continue to own LMC and/or LGI stock and options to purchase LMC and/or LGI stock, which they acquired prior to the spin off. These ownership interests could create, or appear to create, potential conflicts of interest when these individuals are faced with decisions that could have different implications for our company and LMC or LGI. On June 1, 2005, the board of directors of LMC adopted a policy statement that, subject to certain qualifications, including the fiduciary duties of LMC's board of directors, LMC will use its commercially reasonable efforts to make available to us any corporate opportunity relating to the acquisition of all or substantially all of the assets of, or equity securities representing "control" (as defined in the policy statement) of, any entity whose primary business is the acquisition, creation and/or distribution of television programming consisting primarily of science and nature programming for distribution primarily in the "basic" service provided by cable and satellite television distributors. This policy statement of LMC's board of directors can be amended, modified or rescinded by LMC's board of directors in its sole discretion at any time, and the policy automatically terminates without any further action of the board of directors of LMC on the second anniversary of the distribution date. From time to time, LMC or LGI or their respective affiliates may enter into transactions with us or our subsidiaries or other affiliates. Although the terms of any such transactions will be established based upon negotiations between employees of the companies involved, there can be no assurance that the terms of any such transactions will be as favorable to us or our subsidiaries or affiliates as would be the case where the parties are completely at arms' length. Our inter-company agreements were negotiated when we were a subsidiary of LMC. We have entered into agreements with LMC pursuant to which LMC will provide to us certain management, administrative, financial, treasury, accounting, tax, legal and other services, for which we will reimburse LMC on a cost basis. In addition, we have entered into a number of inter-company agreements covering matters such as tax sharing and our responsibility for certain liabilities previously undertaken by LMC for certain of our businesses. The terms of these agreements were established while we were a 12

317 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 15 File: DISK112:[05DEN2.05DEN1432]DE1432B.;37 Created: 23-JUN-2005;22:56 Chksum: Folio: 13 User: EROWE EFW: Doc # 21 wholly owned subsidiary of LMC, and hence were not the result of arms' length negotiations. However, we and LMC believe that such terms are commercially reasonable and fair to both parties under the circumstances. Nevertheless, conflicts could arise in the interpretation or any extension or renegotiation of the foregoing agreements after the spin off. See "Certain Inter-Company Agreements." We and LMC or LGI may compete for business opportunities. LMC will retain its interests in, and LGI owns interests in, various U.S. and international programming companies that have subsidiaries or controlled affiliates that own or operate domestic or foreign programming services that may compete with the programming services offered by our businesses. We will have no rights in respect of U.S. or international programming opportunities developed by or presented to the subsidiaries or controlled affiliates of LMC or LGI, and the pursuit of these opportunities by such subsidiaries or affiliates may adversely affect the interests of our company and its shareholders. In addition, a subsidiary of LGI operates a playout facility that competes with Ascent Media's London playout facility, and it is likely that other competitive situations will arise in the future. Because we, LMC and LGI have some overlapping directors and officers, the pursuit of these opportunities may serve to intensify the conflicts of interest or appearance of conflicts of interest faced by our respective management teams. Our restated certificate of incorporation provides that no director or officer of ours who is also a director, officer or employee of LMC will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such individual directs a corporate opportunity to LMC instead of us, or does not communicate information regarding such corporate opportunity to us, if such director or officer acts in a manner consistent with a specified policy. See "Description of Our Capital Stock Corporate Opportunities." The spin off could result in significant tax liability. LMC has obtained a private letter ruling from the IRS to the effect that, among other things, the spin off will qualify as a tax-free distribution for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the Code), and the transfer to us of assets and the assumption by us of liabilities in connection with the spin off will not result in the recognition of any gain or loss for U.S. federal income tax purposes to LMC. In addition, the spin off is conditioned upon the receipt by LMC of the opinion of Skadden, Arps, Slate, Meagher & Flom LLP to the effect that, among other things, the spin off will qualify as a tax-free transaction to LMC's shareholders and to LMC for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. See "The Spin Off Material U.S. Federal Income Tax Consequences of the Spin Off." Although the private letter ruling relating to the qualification of the spin off under Sections 355 and 368(a)(1)(D) of the Code is generally binding on the IRS, the continuing validity of such ruling will be subject to the accuracy of factual representations and assumptions made in the ruling request. Also, as part of the IRS's general policy with respect to rulings on spin off transactions under Section 355 of the Code, the private letter ruling obtained by LMC is not based upon a determination by the IRS that certain conditions which are necessary to obtain tax-free treatment under Section 355 of the Code have been satisfied. Rather, such private letter ruling is based upon representations by LMC that these conditions have been satisfied, and any inaccuracy in such representations could invalidate the ruling. As a result of this IRS policy, LMC has made it a condition to the spin off that LMC obtain the opinion of counsel described above. The opinion will be based upon various factual representations and assumptions, as well as certain undertakings made by LMC and us. If any of those factual representations or assumptions were untrue or incomplete in any material respect, any undertaking was not complied with, or the facts upon which the opinion is based were materially different from the facts at the time of the spin off, the spin off may not qualify for tax-free treatment. Opinions of counsel are not binding on the IRS. As a result, the conclusions expressed in the opinion of counsel could be challenged by the IRS, and if the IRS prevails in such challenge, the tax consequences to you could be materially less favorable. See "The Spin Off Material U.S. Federal 13

318 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 16 File: DISK112:[05DEN2.05DEN1432]DE1432B.;37 Created: 23-JUN-2005;22:56 Chksum: Folio: 14 User: EROWE EFW: Doc # 21 Income Tax Consequences of the Spin Off" for more information regarding the private letter ruling and the tax opinion. If the spin off does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, LMC would be subject to tax as if it had sold the common stock of our company in a taxable sale for its fair market value. LMC's shareholders would be subject to tax as if they had received a taxable distribution equal to the fair market value of our common stock that was distributed to them. It is expected that the amount of any such taxes to LMC's shareholders and LMC would be substantial. See "The Spin Off Material U.S. Federal Income Tax Consequences of the Spin Off." A potential indemnity liability to LMC if the spin off is treated as a taxable transaction could materially adversely affect our company. In the tax sharing agreement with LMC, we have agreed to indemnify LMC and its subsidiaries, and their respective officers and directors, for any loss, including any adjustment to taxes of LMC, resulting from (1) any action or failure to act by us or any of our subsidiaries following the completion of the spin off that would be inconsistent with or prohibit the spin off from qualifying as a tax-free transaction to LMC and to you under Sections 355 and 368(a)(1)(D) of the Code, (2) any agreement, understanding, arrangement or substantial negotiations entered into by us or any of our subsidiaries prior to the day after the first anniversary of the distribution date, with respect to any transaction pursuant to which any of Cox Communications, Advance/Newhouse or certain persons related to Cox Communications or Advance/Newhouse would acquire shares of, or other interests (including options) in our capital stock or (3) any action or failure to act by us or any of our subsidiaries following the completion of the spin off that would be inconsistent with, or otherwise cause any person to be in breach of, any representation or covenant made in connection with the tax opinion delivered to LMC by Skadden, Arps, Slate, Meagher & Flom LLP or the private letter ruling obtained by LMC from the IRS, in each case relating to, among other things, the qualification of the spin off as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code. For a more detailed discussion, see "Certain Inter-Company Agreements Agreements with LMC Tax Sharing Agreement." Our indemnification obligations to LMC and its subsidiaries, officers and directors are not limited in amount or subject to any cap. If we are required to indemnify LMC and its subsidiaries and their respective officers and directors under the circumstances set forth in the tax sharing agreement, we may be subject to substantial liabilities. Factors Relating to our Common Stock and the Securities Market We cannot be certain that an active trading market will develop or be sustained after the spin off, and following the spin off our stock price may fluctuate significantly. We cannot assure you that an active trading market will develop or be sustained for our common stock after the spin off. Nor can we predict the prices at which either series of our common stock may trade after the spin off. Similarly, we cannot predict the effect of the spin off on the trading prices of LMC's common stock or whether the market value of the shares of a series of our common stock and the shares of the same series of LMC's common stock held by a shareholder after the spin off will be less than, equal to or greater than the market value of the shares of that series of LMC's common stock held by such shareholder prior to the spin off. The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: actual or anticipated fluctuations in our operating results; changes in earnings estimated by securities analysts or our ability to meet those estimates; the operating and stock price performance of comparable companies; and domestic and foreign economic conditions. 14

319 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 17 File: DISK112:[05DEN2.05DEN1432]DE1432B.;37 Created: 23-JUN-2005;22:56 Chksum: Folio: 15 User: EROWE EFW: Doc # 21 If, following the spin off, we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned and our stock price may suffer. Section 404 of the Sarbanes-Oxley Act of 2002 requires any company subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its consolidated subsidiaries' internal control over financial reporting. To comply with this statute, we will be required to document and test our internal control procedures; our management will be required to assess and issue a report concerning our internal control over financial reporting; and our independent auditors will be required to issue an opinion on management's assessment of those matters. Our compliance with Section 404 of the Sarbanes-Oxley Act will first be tested in connection with the filing of our Annual Report on Form 10-K for the fiscal year ending December 31, The rules governing the standards that must be met for management to assess our internal control over financial reporting are new and complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. If our management cannot favorably assess the effectiveness of our internal control over financial reporting or our auditors identify material weaknesses in our internal control, investor confidence in our financial results may weaken, and our stock price may suffer. In addition, our internal controls must necessarily rely in large part upon the adequacy of Discovery's internal controls. However, Discovery, as a private company, is not subject to the requirements of the Sarbanes-Oxley Act in this regard, and we cannot control, or require Discovery to change, its internal controls. It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders. Certain provisions of our restated certificate of incorporation and bylaws may discourage, delay or prevent a change in control of our company that a shareholder may consider favorable. These provisions include the following: authorizing a capital structure with multiple series of common stock: a Series B that entitles the holders to ten votes per share, a Series A that entitles the holders to one vote per share and a Series C that, except as otherwise required by applicable law, entitles the holders to no voting rights; authorizing the issuance of "blank check" preferred stock, which could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; classifying our board of directors with staggered three-year terms, which may lengthen the time required to gain control of our board of directors; limiting who may call special meetings of shareholders; prohibiting shareholder action by written consent (subject to certain exceptions), thereby requiring shareholder action to be taken at a meeting of the shareholders; establishing advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings; requiring shareholder approval by holders of at least 80% of our voting power or the approval by at least 75% of our board of directors with respect to certain extraordinary matters, such as a merger or consolidation of our company, a sale of all or substantially all of our assets or an amendment to our restated certificate of incorporation; requiring the consent of the holders of at least 75% of the outstanding Series B common stock (voting as a separate class) to certain share distributions and other corporate actions in which 15

320 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 18 File: DISK112:[05DEN2.05DEN1432]DE1432B.;37 Created: 23-JUN-2005;22:56 Chksum: Folio: 16 User: EROWE EFW: Doc # 21 the voting power of the Series B common stock would be diluted by, for example, issuing shares having multiple votes per share as a dividend to holders of Series A common stock; and the existence of authorized and unissued stock which would allow our board of directors to issue shares to persons friendly to current management, thereby protecting the continuity of its management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us. Our board of directors has approved the adoption of a shareholder rights plan in order to encourage anyone seeking to acquire our company to negotiate with our board of directors prior to attempting a takeover. While the plan is designed to guard against coercive or unfair tactics to gain control of our company, the plan may have the effect of making more difficult or delaying any attempts by others to obtain control of our company. See "Description of Our Capital Stock Shareholder Rights Plan." After the spin off, we may be controlled by one principal shareholder. John C. Malone beneficially owns shares of LMC common stock representing approximately 29.7% of LMC's voting power. Following the consummation of the spin off, Dr. Malone will beneficially own shares of our common stock that may represent up to approximately 29.7% of our voting power, based upon his beneficial ownership of LMC common stock, as of April 29, 2005 (as reflected under "Management Security Ownership of Management" below), and the distribution ratio. By virtue of Dr. Malone's voting power in our company as well as his positions as our Chairman of the Board and Chief Executive Officer, Dr. Malone may be deemed to control our operations. In connection with the spin off, Dr. Malone agreed, subject to certain exceptions, not to transfer any shares of our Series B common stock that he beneficially owns for a specified period of time after the spin off. See "Management Lock-Up Agreement." Holders of any single series of our common stock may not have any remedies if any action by our directors or officers has an adverse effect on only that series of our common stock. Principles of Delaware law and the provisions of our restated certificate of incorporation may protect decisions of our board of directors that have a disparate impact upon holders of any single series of our common stock. Under Delaware law, the board of directors has a duty to act with due care and in the best interests of all of our shareholders, including the holders of all series of our common stock. Principles of Delaware law established in cases involving differing treatment of multiple classes or series of stock provide that a board of directors owes an equal duty to all common shareholders regardless of class or series and does not have separate or additional duties to any group of shareholders. As a result, in some circumstances, our directors may be required to make a decision that is adverse to the holders of one series of our common stock. Under the principles of Delaware law referred to above, you may not be able to challenge these decisions if our board of directors is disinterested and adequately informed with respect to these decisions and acts in good faith and in the honest belief that it is acting in the best interests of all of our shareholders. 16

321 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 19 File: DISK112:[05DEN2.05DEN1432]DG1432A.;10 Created: ;8-JUN-2005;19:03 Chksum: Folio: 17 User: MCROWE EFW: Doc # 21 CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS This information statement contains certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. In particular, information included under "The Spin Off," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of our Business" contain forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. In addition to the risk factors described herein under the headings "Risk Factors" the following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated: general economic and business conditions and industry trends including the timing of, and spending on, feature film and television production; consumer spending levels, including the availability and amount of individual consumer debt; spending on domestic and foreign television advertising and spending on domestic and foreign first run and existing content libraries; the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate; continued consolidation of the broadband distribution and movie studio industries; uncertainties inherent in the development and integration of new business lines, acquired operations and business strategies; changes in the distribution and viewing of television programming, including the expanded deployment of personal video recorders and other technology and their impact on television advertising revenue; rapid technological changes; uncertainties associated with product and service development and market acceptance, including the development and provision of programming for new television and telecommunications technologies; future financial performance, including availability, terms and deployment of capital; fluctuations in foreign currency exchange rates and political unrest in international markets; the ability of suppliers and vendors to deliver products, equipment, software and services; the outcome of any pending or threatened litigation; availability of qualified personnel; the possibility of an industry-wide strike or other job action by or affecting a major entertainment industry union; changes in, or failure or inability to comply with, government regulations, including regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings; changes in the nature of key strategic relationships with partners and joint venturers; 17

322 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 20 File: DISK112:[05DEN2.05DEN1432]DG1432A.;10 Created: ;8-JUN-2005;19:03 Chksum: Folio: 18 User: MCROWE EFW: Doc # 21 competitor responses to our products and services, and the products and services of the entities in which we have interests; and threatened terrorist attacks and ongoing military action in the Middle East and other parts of the world. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this information statement, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based. Neither the Private Securities Litigation Reform Act of 1995 nor Section 21E of the Securities Exchange Act of 1934 provides any protection for forward-looking statements made in this information statement. 18

323 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 21 File: DISK112:[05DEN2.05DEN1432]DI1432A.;37 Created: 23-JUN-2005;22:23 Chksum: Folio: 19 User: JBELANG EFW: Doc # 21 Background THE SPIN OFF We are currently a wholly owned subsidiary of LMC, and our assets and businesses consist of Ascent Media, which is a wholly owned subsidiary of ours, a 50% ownership interest in Discovery and $50 million in cash. Ascent Media provides creative, media management and network services to the media and entertainment industries. Discovery is a global entertainment and media company, which produces original programming and acquires content from numerous vendors worldwide. Discovery's 65 networks of distinctive programming represent 21 entertainment brands including Discovery Channel, TLC, Animal Planet, Travel Channel, Discovery Health Channel, Discovery Kids and a family of digital channels. The board of directors of LMC has determined to separate its interest in Ascent Media and Discovery from its other businesses and assets by means of a spin off. To accomplish the spin off, LMC is distributing all of its equity interest in our company, consisting of shares of our Series A common stock and our Series B common stock, to LMC's shareholders on a pro rata basis. Following the spin off, LMC will cease to own any equity interest in our company, and we will be an independent, publicly traded company. No vote of LMC's shareholders is required or being sought in connection with the spin off, and LMC's shareholders have no appraisal rights in connection with the spin off. Reasons for the Spin Off The board of directors of LMC considered the following potential benefits in making its determination to consummate the spin off: Enhancing the ability of LMC to issue equity and equity-linked securities, by reducing LMC's holding company discount. LMC believes that LMC common stock has been trading at a significant discount to the value of LMC's businesses and other assets. Although it is not uncommon for the equity of public companies, and in particular holding companies, to trade at a discount to their net asset value, based on what each asset might be expected to bring in a private sale, LMC believes that, in the case of LMC, this "holding company discount" is excessive. LMC believes that the excess discount reflects a perception in the market that the complex ownership structures through which it holds many of its businesses and investments, the diversity and complexity of those interests and the inability of LMC to exercise control over a portion of its assets held in joint ventures or through investments in other publicly traded companies results in a lack of financial transparency. We and LMC believe that the spin off will make it easier for investors to understand and evaluate the financial performance and businesses of LMC and us, and that, following the spin off, the holding company discounts for our company and LMC will be less than the holding company discount of LMC prior to the spin off. The anticipated reduction in LMC's holding company discount is expected to benefit the businesses of LMC by (1) permitting LMC to issue equity and convertible securities on more favorable terms, (2) making the stock of LMC a more attractive and efficiently priced acquisition currency and (3) increasing the value of equity and equity-linked compensation of the employees and management of LMC. Enabling investors to invest more directly in our interest in Discovery, thereby facilitating our ability to raise capital and pursue acquisitions using our securities as consideration. We believe that our common stock may appeal to investors who desire a relatively "pure play" investment in the cable programming sector. By contrast, although LMC will continue to own interests in programming networks after the spin off (such as Starz Entertainment, Court TV and GSN), its largest business segment is expected to be its Interactive Group, which offers a wide array of interactive services, such as electronic retailing and interactive technology services. In addition, Discovery's business model, which relies heavily on advertising revenues and anticipates 19

324 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 22 File: DISK112:[05DEN2.05DEN1432]DI1432A.;37 Created: 23-JUN-2005;22:23 Chksum: Folio: 20 User: JBELANG EFW: Doc # 21 continued global growth, is different from the subscription fee-based business model of Starz Entertainment. Accordingly, investments in our company and LMC may appeal to investors with different goals, interests and concerns. Establishing separate equity securities will allow investors to make separate investment decisions with respect to our company's and LMC's respective businesses. We believe the spin off will also allow us to raise capital and pursue acquisitions on more favorable terms than would currently be possible as a subsidiary of LMC. In addition, as a separate company, we will be able to incur additional indebtedness as may be required for the growth of our businesses or potential strategic opportunities, without affecting LMC's target capital structure. The board of directors of LMC also considered the costs and risks associated with the spin off, including any potential negative impact on LMC's credit profile as a result of the divestiture of our assets, and the additional legal, accounting and administrative costs associated with our becoming a public company, and determined that such costs and risks were meaningfully outweighed by the anticipated benefits of the spin off. Neither we nor LMC can assure you that, following the spin off, any of these benefits will be realized to the extent we anticipate or at all. Manner of Effecting the Spin Off LMC will effect the spin off by distributing to its shareholders as a dividend: 0.10 of a share of our Series A common stock for every share of LMC Series A common stock, and 0.10 of a share of our Series B common stock for every share of LMC Series B common stock, in each case, owned of record by each shareholder on the record date. Prior to the spin off, LMC will deliver all of the issued and outstanding shares of our Series A common stock and Series B common stock to the distribution agent. On or about [ ], 2005 (which we refer to as the distribution date), the distribution agent will effect delivery of the shares of our common stock issuable in the spin off in the same form, certificated or book-entry, as the form in which the recipient shareholder held its shares of LMC common stock on the record date. Please note that if any shareholder of LMC on the record date sells shares of LMC common stock after the record date but on or before the distribution date, the buyer of those shares, and not the seller, will become entitled to receive the shares of our common stock issuable in respect of the shares sold. See " Trading between the Record Date and the Distribution Date" below for more information. Shareholders of LMC are not being asked to take any action in connection with the spin off. No shareholder approval of the spin off is required or being sought. We are not asking you for a proxy, and you are requested not to send us a proxy. You are also not being asked to surrender any of your shares of LMC common stock for shares of our common stock. The number of outstanding shares of LMC common stock will not change as a result of the spin off. Treatment of Fractional Shares If any shareholder would be entitled to receive a fractional share of our common stock in the spin off, that shareholder will instead receive a cash payment from LMC. As soon as practicable following the record date, the distribution agent will determine the fractional share interests in our common stock that would be attributable to each holder of record of LMC common stock on the record date as a result of the spin off, but such fractional shares will not be issued. In lieu thereof, each such holder will receive a cash amount equal to the product of such applicable fraction multiplied by the average of the closing prices of the applicable series of our common stock on the Nasdaq National Market over 20

325 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 23 File: DISK112:[05DEN2.05DEN1432]DI1432A.;37 Created: 23-JUN-2005;22:23 Chksum: Folio: 21 User: JBELANG EFW: Doc # 21 the first ten consecutive trading days that our common stock trades in the regular way market. The distribution agent will calculate such amounts and distribute a check to each such record holder as soon as practicable following such ten trading day period. No interest will be paid on any cash distributed in lieu of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient shareholders. See " Material U.S. Federal Income Tax Consequences of the Spin Off" below for more information. Treatment of LMC Stock Incentive Awards Options to purchase shares of LMC common stock, stock appreciation rights (or SARs) with respect to shares of LMC common stock and shares of LMC restricted stock have been granted to various directors, officers, employees and consultants of LMC and certain of its subsidiaries pursuant to the Liberty Media Corporation 2000 Incentive Plan (as amended and restated effective April 19, 2004) and various other stock incentive plans administered by the incentive plan committee of LMC's board of directors. Under the anti-dilution provisions of the applicable plans, the LMC incentive plan committee has the authority to make equitable adjustments to outstanding LMC options, LMC SARs and shares of LMC restricted stock in the event of certain transactions, including the distribution of our common stock in the spin off. Such committee has determined that holders of LMC restricted stock awards will receive awards of our restricted stock in connection with the spin off, as described below. The committee has also determined to make various adjustments to outstanding LMC options and LMC SARs, as described below, to preserve the economic benefits of the original award following the spin off. Any options to purchase shares of our common stock issued in connection with such adjustments will be obligations of our company. All options which remain LMC Options, regardless of any adjustment, will remain obligations of LMC. The terms and conditions of the grant of stock options to purchase shares of our common stock and of restricted shares of our common stock, in each case, as contemplated below, are set forth in the Discovery Holding Company Transitional Stock Adjustment Plan, a form of which is included as an exhibit to the Form 10 registration statement of which this information statement is a part. In October 2004, The American Jobs Creation Act of 2004, which we refer to as the AJCA, was signed into law. The AJCA significantly alters the rules relating to the taxation of deferred compensation, and may affect outstanding awards such as the LMC options and LMC SARs, and adjustments to such awards, as well as the issuance of any options to acquire our stock. The IRS is expected to promulgate regulations and additional guidelines for employers seeking to comply with the AJCA but has not yet promulgated regulations applicable to certain transactions such as the spin off. To the extent that the methods described below for the adjustment of existing LMC awards in connection with the spin off would result in these incentive awards not complying with the requirements of the AJCA, LMC intends to take any further actions it determines to be necessary in order to satisfy the requirements of the deferred compensation provisions of the AJCA. Option Awards As of the record date, each outstanding LMC option held by individuals who are directors, officers or employees of LMC (such individuals being referred to as LMC Holders) will be divided into two options as follows: an option (which we refer to as a Discovery Holding option) to purchase shares of the same series of our common stock as the series of LMC common stock for which the outstanding LMC option is exercisable, exercisable for the number of shares of such series of our common stock that would have been issued in the spin off in respect of the shares of LMC common stock subject to the applicable LMC option, if such LMC option had been exercised in full immediately prior to the record date; and 21

326 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 24 File: DISK112:[05DEN2.05DEN1432]DI1432A.;37 Created: 23-JUN-2005;22:23 Chksum: Folio: 22 User: JBELANG EFW: Doc # 21 an option (which we refer to as an adjusted LMC option) to purchase shares of the same series of LMC common stock as the series of LMC common stock for which the outstanding LMC option is exercisable, exercisable for the same number of shares of such series of LMC common stock as is the outstanding LMC option. The aggregate exercise price of each outstanding LMC option held by an LMC Holder will be allocated between the Discovery Holding option and the adjusted LMC option. All other terms and conditions of the Discovery Holding option and the adjusted LMC option will generally be the same as the outstanding LMC option, in all material respects. All other holders of outstanding LMC options will retain their LMC options subject to the terms thereof and subject to an adjustment to increase the number of LMC shares for which such option is exercisable and a corresponding adjustment to decrease the exercise price per share of such option, in each case to reflect the distribution of our common stock in the spin off. All other terms of the outstanding LMC option will in all material respects be retained. As a result of these adjustments, certain persons who are employed by or associated with LMC immediately following the distribution date will hold Discovery Holding options, and certain persons who will be employed by or associated with our company immediately following the distribution date may hold adjusted LMC options. Regardless of these employment or other relationships, LMC will not be responsible for the exercise or settlement of any Discovery Holding option, and we will not be responsible for the exercise or settlement of any LMC option (including an adjusted LMC option). Any exercising holder of a Discovery Holding option must exercise the security directly with us. Similarly, any exercising holder of an LMC option must exercise the security directly with LMC. In this regard, we will enter into an option agreement with each holder of a Discovery Holding option, and, if necessary, LMC will amend its existing option agreement with each holder of an outstanding LMC option, in each case to reflect the provisions described above. On May 24, 2005, LMC commenced an offer to purchase for cash certain outstanding LMC options held by employees, consultants and independent contractors of Ascent Media, which expired at 9:00 p.m., Pacific time, on June 21, The LMC options that LMC purchased pursuant to such offer were not subject to any adjustment as a result of the spin off. As contemplated by the offer to purchase, such purchased LMC options were cancelled and terminated. SAR Awards While stock appreciation rights will not be issued by our company in connection with the spin off, each stock appreciation right related to LMC common stock, outstanding as of the record date (which we refer to as an outstanding LMC SAR), will be adjusted similar to the adjustment to outstanding LMC options described under " Option Awards" above. Therefore, individuals who are LMC Holders and who hold outstanding LMC SARs as of the record date will receive an adjusted LMC SAR and a Discovery Holding option in replacement of an outstanding LMC SAR, as follows: the number of shares for which the Discovery Holding option will be exercisable will be determined in the same manner described under " Option Awards" above for awarding Discovery Holding options to LMC Holders, determined as if the LMC SAR were instead an LMC option exercisable for the kind and number of shares of LMC common stock to which the LMC SAR relates; and the base price of the outstanding LMC SAR will be divided between (i) the base price of the adjusted LMC SAR and (ii) the exercise price of the Discovery Holding option. 22

327 Printed: 24-Jun-2005;20:03:41 (v.162) HTML Page: 25 File: DISK112:[05DEN2.05DEN1432]DI1432B.;25 Created: 23-JUN-2005;22:23 Chksum: Folio: 23 User: JBELANG EFW: Doc # 21 Following the record date, Discovery Holding options received by an LMC Holder as an adjustment to such LMC Holder's LMC SAR will continue to vest for so long as his or her adjusted LMC SARs continue to vest. Except as otherwise provided herein, all other holders of outstanding LMC SARs will retain their LMC SAR subject to the terms thereof and subject to an adjustment to increase the number of LMC shares underlying such LMC SAR and a corresponding adjustment to decrease the base price per share of such LMC SAR, in each case to reflect the distribution of our common stock in the spin off. All other terms of the outstanding LMC SAR will in all material respects be retained. The exercise or settlement of any Discovery Holding option or LMC SAR will be addressed in a manner similar to the exercise or settlement of any Discovery Holding option, LMC option or adjusted LMC option as described under " Option Awards" above. In this regard, as soon as practicable following the distribution date, we will enter into an option agreement with each LMC Holder receiving a DHC option in respect of his LMC SAR, and, if necessary, LMC will amend its existing stock appreciation rights agreement with such LMC Holders, in each case to reflect the foregoing adjustments. Restricted Stock Awards For each unvested LMC restricted stock award outstanding as of the record date, the holder of such restricted stock award will be entitled to receive, for each share of restricted LMC common stock awarded thereunder, an award of 0.10 of a share of the same series of our common stock as the shares of LMC common stock to which such LMC restricted stock award relates. The distribution will not have any other effect on the outstanding LMC restricted stock awards, and the restricted stock awards relating to our common stock will be subject to the same terms and conditions as apply to the LMC restricted stock award with respect to which the distribution is made. In the case of any holders of LMC restricted stock who will be officers or directors of our company at the time of the spin off, the foregoing grants of our restricted stock shall be subject to any approvals that may be required by our board of directors, or by the members of our board who are independent directors, as applicable. We intend to file a Form S-8 registration statement with respect to shares of our common stock issuable upon vesting of awards of our restricted stock as soon as practicable following the distribution date. Material U.S. Federal Income Tax Consequences of the Spin Off The following is a summary of certain material U.S. federal income tax consequences to LMC and the holders of LMC common stock resulting from the spin off. This discussion is based upon the Internal Revenue Code of 1986, as amended (the Code), existing and proposed Treasury Regulations promulgated thereunder and current administrative rulings and court decisions, all as in effect as of the date of this information statement, and all of which are subject to change. Any such change, which may or may not be retroactive, could materially alter the tax consequences to LMC or the holders of LMC common stock as described in this information statement. This summary does not discuss all U.S. federal income tax considerations that may be relevant to particular shareholders in light of their particular circumstances, such as shareholders who are dealers in securities, banks, insurance companies, tax-exempt organizations and non-united States persons. In addition, the following discussion does not address the tax consequences of the spin off under U.S. state or local and non-u.s. tax laws or the tax consequences of transactions effectuated prior to or after the spin off (whether or not such transactions are undertaken in connection with the spin off). ACCORDINGLY, HOLDERS OF LMC COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE SPIN OFF TO THEM. 23

328 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 26 File: DISK112:[05DEN2.05DEN1432]DI1432B.;25 Created: 23-JUN-2005;22:23 Chksum: Folio: 24 User: JBELANG EFW: Doc # 21 LMC has obtained a private letter ruling from the IRS, and it is a condition to the spin off that LMC receive the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, in each case to the effect that the spin off will qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code and that, accordingly, for U.S. federal income tax purposes, among other things: no gain or loss will be recognized by LMC upon the distribution of (a) shares of our Series A common stock to holders of LMC Series A common stock and (b) shares of our Series B common stock to holders of LMC Series B common stock pursuant to the spin off; other than with respect to fractional shares of our common stock, no gain or loss will be recognized by, and no amount will be included in the income of, a holder of LMC common stock upon the receipt of shares of our common stock pursuant to the spin off or upon receipt of the rights that will be attached to our common stock pursuant to the shareholder rights plan described in "Description of our Capital Stock Shareholder Rights Plan;" an LMC shareholder who receives shares of our common stock in the spin off will have an aggregate adjusted basis in its shares of our common stock (including any fractional share in respect of which cash is received) and its shares of LMC common stock immediately after the spin off equal to the aggregate adjusted basis of the shareholder's LMC common stock held prior to the spin off, which will be allocated in accordance with their relative fair market values; and the holding period of the shares of our common stock received in the spin off by an LMC shareholder will include the holding period of its shares of LMC common stock, provided that such shares of LMC common stock were held as a capital asset on the distribution date. The private letter ruling obtained from the IRS also generally provides that if an LMC shareholder holds different blocks of LMC common stock (generally shares of LMC common stock purchased or acquired on different dates or at different prices), the aggregate basis for each block of LMC common stock purchased or acquired on the same date and at the same price will be allocated, to the greatest extent possible, between the shares of our common stock (including any fractional share) received in the spin off in respect of such block of LMC common stock and such block of LMC common stock, in proportion to their respective fair market values, and the holding period of the shares of our common stock (including any fractional share) received in the spin off in respect of such block of LMC common stock will include the holding period of such block of LMC common stock, provided that such block of LMC common stock was held as a capital asset on the distribution date. If an LMC shareholder is not able to identify which particular shares of our common stock (including any fractional share) are received in the spin off with respect to a particular block of LMC common stock, the shareholder may designate which shares of our common stock (including any fractional share) are received in the spin off in respect of a particular block of LMC common stock, provided that such designation is consistent with the terms of the spin off. Holders of LMC common stock are urged to consult their own tax advisors regarding the application of these rules to their particular circumstances. If you receive cash in lieu of a fractional share of our common stock as part of the spin off, you will be treated as though you first received a distribution of the fractional share in the spin off and then sold it for the amount of such cash. You will generally recognize capital gain or loss, provided that the fractional share is considered to be held as a capital asset, measured by the difference between the cash you receive for such fractional share and your tax basis in that fractional share, as determined above. Such capital gain or loss will be a long-term capital gain or loss if your holding period for such fractional share of LMC common stock is more than one year on the distribution date. Although the private letter ruling relating to the qualification of the spin off under Sections 355 and 368(a)(1)(D) of the Code is generally binding on the IRS, the continuing validity of such ruling is subject to the accuracy of factual representations and assumptions. Further, as part of the IRS's general 24

329 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 27 File: DISK112:[05DEN2.05DEN1432]DI1432B.;25 Created: 23-JUN-2005;22:23 Chksum: Folio: 25 User: JBELANG EFW: Doc # 21 ruling policy with respect to spin off transactions under Section 355 of the Code, the private letter ruling is not based upon a determination by the IRS that certain conditions which are necessary to obtain tax-free treatment under Section 355 of the Code have been satisfied. Rather, the private letter ruling is based upon representations by LMC that these conditions have been satisfied. If any of the representations or assumptions upon which the private letter ruling obtained by LMC is based are incorrect or untrue in any material respect, or the facts upon which the ruling is based were materially different from the facts at the time of the spin off, the private letter ruling could be invalidated. As a result of this IRS ruling policy with respect to spin off transactions under Section 355 of the Code, LMC has made it a condition to the spin off that LMC receive an opinion from Skadden, Arps, Slate, Meagher & Flom LLP to the effect that the spin off will qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code. Opinions of counsel are not binding upon the IRS, and the conclusions in the tax opinion could be challenged by the IRS. The opinion of counsel will be based upon the Code, Treasury Regulations, administrative rulings and court decisions, all as in effect as of the date on which the opinion is issued, and all of which are subject to change, possibly with retroactive effect. In addition, the opinion of counsel will be based upon certain factual representations made by the officers of LMC and certain of its affiliates, certain assumptions and certain undertakings by us and LMC. If any of those factual representations or assumptions were incorrect or untrue in any material respect, any undertaking was not complied with, or the facts upon which the opinion is based were materially different from the facts at the time of the spin off, the spin off may not qualify for tax-free treatment. If the spin off did not qualify for tax-free treatment, then LMC would recognize taxable gain in an amount equal to the excess of the value of the shares of our common stock held by LMC immediately prior to the spin off over LMC's tax basis in such shares of our common stock. In addition, a holder of LMC's common stock would be subject to tax as if it had received a taxable distribution in an amount equal to the fair market value of the shares of our common stock received in the spin off by such holder. See "Risk Factors Factors Relating to the Spin Off The spin off could result in significant tax liability." Even if the spin off otherwise qualifies for tax-free treatment to the shareholders of LMC, it may be disqualified as tax-free to LMC under Section 355(e) of the Code if 50% or more of either the total combined voting power or the total fair market value of the stock of LMC or our company is acquired as part of a plan or series of related transactions that includes the spin off. For this purpose, any acquisitions of LMC stock or our stock after the spin off are generally part of such a plan only if there was an agreement, understanding, arrangement or substantial negotiations regarding the acquisition or a similar acquisition at some time during the two-year period ending on the date of the spin off. All of the facts and circumstances must be considered to determine whether the spin off and any acquisition of stock are part of such a plan, and certain acquisitions of stock pursuant to public sales are exempted by applicable regulations. If Section 355(e) applies as a result of such an acquisition of LMC stock or our stock, LMC would recognize taxable gain, but the spin off would nevertheless generally be tax-free to each holder of LMC stock who received shares of our stock in the spin off. Under the tax sharing agreement between our company and LMC, LMC and its subsidiaries, officers and directors will be entitled to indemnification from us for any loss, including any adjustment to taxes of LMC, resulting from (1) any action or failure to act by us or any of our subsidiaries following the completion of the spin off that would be inconsistent with or prohibit the spin off from qualifying as a tax-free transaction to LMC and to you under Sections 355 and 368(a)(1)(D) of the Code (including any action or failure to act that results in an acquisition of 50% or more of either the total combined voting power or the total fair market value of our stock as described in the preceding paragraph), (2) any agreement, understanding, arrangement or substantial negotiations entered into by us or any of our subsidiaries prior to the day after the first anniversary of the distribution date, with respect to any transaction pursuant to which any of Cox Communications, Advance/Newhouse or 25

330 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 28 File: DISK112:[05DEN2.05DEN1432]DI1432B.;25 Created: 23-JUN-2005;22:23 Chksum: 2856 Folio: 26 User: JBELANG EFW: Doc # 21 certain persons related to Cox Communications or Advance/Newhouse would acquire shares of, or other interests (including options) in our capital stock or (3) any action or failure to act by us or any of our subsidiaries following the completion of the spin off that would be inconsistent with, or otherwise cause any person to be in breach of, any representation or covenant made in connection with the tax opinion delivered to LMC by Skadden, Arps, Slate, Meagher & Flom LLP or the private letter ruling obtained by LMC from the IRS, in each case relating to, among other things, the qualification of the spin off as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code. Please see "Certain Inter Company Agreements Agreements with LMC Tax Sharing Agreement" for a more detailed discussion of the tax sharing agreement between our company and LMC. Treasury Regulations under Section 355 of the Code require that each LMC shareholder who receives shares of our common stock pursuant to the spin off attach a statement to the U.S. federal income tax return that will be filed by the shareholder for the taxable year in which such shareholder receives the shares of our common stock in the spin off, which statement shows the applicability of Section 355 of the Code to the spin off. LMC will provide each holder of LMC common stock with the information necessary to comply with this requirement. Results of the Spin Off Immediately following the spin off, we expect to have outstanding approximately 268 million shares of our Series A common stock and approximately 12 million shares of our Series B common stock, based upon the number of shares of LMC Series A common stock and LMC Series B common stock outstanding on April 29, The actual number of shares of our Series A common stock and Series B common stock to be distributed in the spin off will depend upon the actual number of shares of LMC Series A common stock and LMC Series B common stock outstanding on the record date. Immediately following the spin off, we expect to have approximately 4,583 holders of record of shares of our common stock, based upon the number of record holders of LMC common stock on April 29, 2005 (which amount does not include the number of shareholders whose shares are held of record by banks, brokerage houses or other institutions, but includes each such institution as one shareholder). Listing and Trading of our Common Stock On the date of this information statement, we are a wholly owned subsidiary of LMC. Accordingly, there is currently no public market for our common stock. We have applied to list our shares of Series A common stock and Series B common stock on the Nasdaq National Market under the symbols "DISCA" and "DISCB," respectively. Following the spin off, LMC Series A common stock and LMC Series B common stock will continue to trade on the New York Stock Exchange under the symbols "L" and "LMC.B," respectively. Neither we nor LMC can assure you as to the trading price of either series of our common stock after the spin off or as to whether the combined trading prices of a series of our common stock and the same series of LMC's common stock after the spin off will be less than, equal to or greater than the trading prices of that series of LMC's common stock prior to the spin off. See "Risk Factors Factors Relating to Our Common Stock and the Securities Market." The shares of our common stock distributed to LMC's shareholders will be freely transferable, except for shares received by individuals who are our affiliates and any shares distributed in respect of any LMC restricted stock. Individuals who may be considered our affiliates after the spin off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. This may include some or all of our executive officers and directors. Individuals who are our affiliates will be permitted to sell their shares of our common stock only pursuant to an effective registration statement under the Securities Act of 26

331 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 29 File: DISK112:[05DEN2.05DEN1432]DI1432B.;25 Created: 23-JUN-2005;22:23 Chksum: Folio: 27 User: JBELANG EFW: Doc # , as amended, or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(2) of the Securities Act or Rule 144 thereunder. Our affiliates will not be permitted to sell shares of our common stock under Rule 144 until 90 days after the date on which the registration statement of which this information statement forms a part became effective. Trading Between the Record Date and Distribution Date Between the record date and the distribution date, LMC common stock will continue to trade on the NYSE in the regular way market. During this time, shares of either series of LMC common stock that trade on the regular way market will trade with an entitlement to receive shares of the same series of our common stock distributable in the spin off. No ex-dividend market will be established until the first trading day following the distribution date. Therefore, if you own shares of either series of LMC common stock on the record date and thereafter sell those shares on or prior to the distribution date, you will also be selling the shares of our common stock that would have been distributed to you in the spin off with respect to the shares of LMC common stock you sell. On the first trading day following the distribution date, shares of LMC Series A common stock and LMC Series B common stock will begin trading without any entitlement to receive shares of our common stock. Shares of LMC Series A common stock and LMC Series B common stock trade under the symbols "L" and "LMC.B," respectively. Between the record date and the distribution date, a when-issued trading market in each series of our common stock may develop. Our common stock is expected to be listed for trading on the Nasdaq National Market. The when-issued trading market would be a market for the shares of our common stock that will be distributed in the spin off. If you own shares of either series of LMC common stock on the record date (and do not sell those shares of LMC common stock on or before the distribution date), then you are entitled to a number of shares of the same series of our common stock based upon the number of shares of such series of LMC common stock you held at that time. You may trade this entitlement to receive shares of our common stock, without the shares of LMC common stock you own, on the when-issued trading market. We expect when-issued trades of our common stock to settle within three trading days after the distribution date. On the first trading day following the distribution date, any when-issued trading with respect to our common stock will end and regular way trading will begin. If when-issued trading occurs, the listing for our common stock is expected to be under trading symbols different from our regular way trading symbols. We will announce our when-issued trading symbols when and if they become available. Following the distribution date, shares of our Series A common stock and Series B common stock are expected to be listed under the trading symbols "DISCA" and "DISCB," respectively. If the spin off does not occur, all when-issued trading will be null and void. Reasons for Furnishing this Information Statement This information statement is being furnished solely to provide information to LMC shareholders who will receive shares of our common stock in the spin off. It is not and is not to be construed as an inducement or encouragement to buy or sell any of our securities or any securities of LMC. We believe that the information contained in this information statement is accurate as of the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and neither our company nor LMC undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices. 27

332 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 30 File: DISK112:[05DEN2.05DEN1432]DK1432A.;18 Created: 21-JUN-2005;19:14 Chksum: Folio: 28 User: BSKELLE EFW: Doc # 21 CAPITALIZATION The following table sets forth (1) our historical capitalization as of March 31, 2005 and (2) our adjusted capitalization assuming the spin off was effective on March 31, The table should be read in conjunction with our historical combined financial statements, including the notes thereto, and " Management's Discussion and Analysis of Financial Condition and Results of Operations " included elsewhere herein. Historical March 31, 2005 As adjusted amounts in thousands Cash(1) $ 15,181 65,181 Payables, accruals and other liabilities $ 125, ,115 Deferred tax liabilities 1,091,985 1,091,985 Total liabilities 1,217,100 1,217,100 Equity: Common Stock ($.01 par value): Series A; 600,000,000 shares authorized; 267,895,063 assumed issued on a pro forma basis 2,679 Series B; 50,000,000 shares authorized; 12,106,282 assumed issued on a pro forma basis 121 Series C; 600,000,000 shares authorized; no shares assumed issued on a pro forma basis Additional paid-in capital 5,555,074 Accumulated other comprehensive earnings 7,008 7,008 Accumulated deficit (1,154,272) (1,154,272) Parent's investment 5,507,874 Total equity(1) 4,360,610 4,410,610 Total liabilities and equity $ 5,577,710 5,627,710 (1) LMC has agreed to transfer to a subsidiary of our company $50 million of cash prior to the spin off. 28

333 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 31 File: DISK112:[05DEN2.05DEN1432]DM1432A.;22 Created: 17-JUN-2005;19:22 Chksum: Folio: 29 User: KSEAMON EFW: Doc # 21 SELECTED FINANCIAL DATA The following tables present selected historical information relating to our combined financial condition and results of operations for the three months ended March 31, 2005 and 2004 and for the past five years. The financial data for the three years ended December 31, 2004 has been derived from our audited combined financial statements for the corresponding periods. Data for the other periods presented has been derived from unaudited information. The data should be read in conjunction with our combined financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. March 31, December 31, amounts in thousands Summary Balance Sheet Data: Investment in Discovery $ 2,966,139 2,945,782 2,863,003 2,816,513 2,899,824 3,117,877 Property and equipment, net $ 261, , , , , ,944 Intangible assets, net $ 2,140,551 2,140,355 2,136,667 2,112,544 2,043,011 2,315,164 Total assets $ 5,577,710 5,564,828 5,396,627 5,373,150 5,399,702 5,954,668 Debt, including current portion $ 401, , ,437 Subordinated notes payable to LMC $ 205, ,685 92,454 Parent's investment $ 4,360,610 4,347,279 4,260,269 3,617,417 3,578,364 4,093,150 Three months ended March 31, Years ended December 31, (1) amounts in thousands Summary Statement of Operations Data: Revenue $ 174, , , , , , ,717 Operating income (loss)(2) $ 2,877 5,914 16,935 (2,404) (61,452) (350,628) (62,209) Share of earnings (loss) of Discovery(3) $ 22,814 10,449 84,011 37,271 (32,046) (277,919) (326,710) Net earnings (loss)(2) $ 16,825 11,920 66,108 (52,394) (129,275) (608,261) (303,757) Unaudited pro forma basic and diluted net earnings (loss) per common share(4) $ (0.19) (0.46) (2.17) (1.08) (1) Ascent Media was initially formed by LMC in connection with its acquisitions of Four Media Company in April 2000 and The Todd-AO Corporation in June Accordingly, the 2000 statement of operations data includes amounts from those dates. See "Description of our Business Ascent Media". (2) Includes impairment of goodwill and other long-lived assets of $51,000, $562,000, $83,718,000 and $307,932,000 for the years ended December 31, 2004, 2003, 2002 and 2001, respectively. (3) Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which among other matters, provides that excess costs that are considered equity method goodwill are no longer amortized, but are evaluated for impairment 29

334 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 32 File: DISK112:[05DEN2.05DEN1432]DM1432A.;22 Created: 17-JUN-2005;19:22 Chksum: Folio: 30 User: KSEAMON EFW: Doc # 21 under APB Opinion No. 18. Share of losses of affiliates includes excess basis amortization of $188,570,000 and $186,563,000 for the years ended December 31, 2001 and 2000, respectively. (4) Unaudited pro forma basic and diluted net earnings (loss) per common share is based on 280,001,000 common shares for the three months ended March 31, 2005 and 2004 and 279,996,000 common shares for the years ended December 31, 2004, 2003 and 2002, which is the number of shares that would have been issued on March 31, 2005 and December 31, 2004, respectively, if the spin off had been completed on such dates. 30

335 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 33 File: DISK112:[05DEN2.05DEN1432]DO1432A.;35 Created: 23-JUN-2005;22:26 Chksum: Folio: 31 User: JBELANG EFW: Doc # 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying combined financial statements and the notes thereto included elsewhere herein. Management's Discussion and Analysis of Financial Condition and Results of Operations of Discovery Holding Overview We are a holding company and our businesses and assets include Ascent Media, which we consolidate, and a 50% ownership interest in Discovery, which we account for using the equity method of accounting. Accordingly, as described below, Discovery's revenue is not reflected in the revenue we report in our financial statements. In addition to the foregoing assets, immediately prior to the spin off, LMC will transfer to a subsidiary of our company $50 million in cash. On March 15, 2005, LMC announced its intention to spin off all of our capital stock to the holders of LMC Series A and Series B common stock. The spin off will be effected as a distribution by LMC to holders of its Series A and Series B common stock of shares of our Series A and Series B common stock. The spin off will not involve the payment of any consideration by the holders of LMC common stock and is intended to qualify as a tax-free spinoff. The spin off is expected to be accounted for at historical cost due to the pro rata nature of the distribution. The spin off is expected to occur in the third quarter of 2005, on a date to be determined by LMC's board, and will be made as a dividend to holders of record of LMC common stock as of the close of business on the record date for the spin off. Following the spin off, we and LMC will operate independently, and neither will have any stock ownership, beneficial or otherwise, in the other. Ascent Media provides creative, media management and network services to the media and entertainment industries. Ascent Media's clients include major motion picture studios, independent producers, broadcast networks, cable programming networks, advertising agencies and other companies that produce, own and/or distribute entertainment, news, sports, corporate, educational, industrial and advertising content. Ascent Media's operations are organized into the following four groups: creative services, media management services, network services and corporate and other. Ascent Media has few long-term or exclusive agreements with its creative services and media management services customers. In 2005, Ascent Media intends to focus on leveraging its broad array of media services to market itself as a full service provider to new and existing customers within the feature film and television production industry. With facilities in the U.S., the United Kingdom and Asia, Ascent Media also hopes to increase its services to multinational companies. The challenges that Ascent Media faces include differentiating its products and services to help maintain or increase operating margins and financing capital expenditures for equipment and other items to satisfy customers' desire for services using the latest technology. Our most significant asset is Discovery, in which we do not have a controlling financial interest. Discovery is a global media and entertainment company that provides original and purchased video programming in the United States and over 160 other countries. We account for our interest in Discovery using the equity method of accounting. Accordingly, our share of the results of operations of Discovery is reflected in our combined results as earnings or losses of Discovery. To assist the reader in better understanding and analyzing our business, we have included a separate discussion and analysis of Discovery's results of operations. See " Management's Discussion and Analysis of Financial Condition and Results of Operations of Discovery." 31

336 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 34 File: DISK112:[05DEN2.05DEN1432]DO1432A.;35 Created: 23-JUN-2005;22:26 Chksum: Folio: 32 User: JBELANG EFW: Doc # 21 Acquisitions and Dispositions Cinetech. On October 20, 2004, Ascent Media acquired substantially all of the assets of Cinetech, Inc., a film laboratory and still image preservation and restoration company, for $10,000,000 in cash plus contingent compensation of up to $1,500,000 to be paid based on the satisfaction of certain contingencies as set forth in the purchase agreement. Cinetech is included in Ascent Media's media management services group. London Playout Centre. On March 12, 2004, Ascent Media acquired the entire issued share capital of London Playout Centre Limited, which we refer to as LPC, a UK-based television channel origination facility. LPC is included in Ascent Media's network services group. Sony Electronics' System Integration Center. On December 31, 2003, Ascent Media acquired the operations of Sony Electronic's systems integration center business and related assets, which we refer to as SIC. In exchange, Sony received the right to be paid an amount equal to 20% of the value of the combined business of Ascent Media's wholly owned subsidiary, AF Associates, Inc. and SIC. The value of 20% of the combined business of AF Associates and SIC was estimated at $6,000,000. SIC is included in Ascent Media's network services group. Triumph. On December 23, 2002, Ascent Media sold to Leafco Communications, Inc. all of its equity interest in Triumph Communications, Inc. and certain related entities for nominal consideration plus the assumption of net liabilities in the amount of $4,000,000. Triumph was included in Ascent Media's network services group. Operating Cash Flow We evaluate the performance of our operating segments based on financial measures such as revenue and operating cash flow. We define operating cash flow as revenue less cost of services and selling, general and administrative expense (excluding stock and other equity-based compensation). We believe this is an important indicator of the operational strength and performance of our businesses, including the ability to invest in ongoing capital expenditures and service of any debt. In addition, this measure allows management to view operating results and perform analytical comparisons and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock and other equity-based compensation, restructuring and impairment charges that are included in the measurement of operating income pursuant to U.S. generally accepted accounting principles, or GAAP. Accordingly, operating cash flow should be considered in addition to, but not as a substitute for, operating income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Results of Operations Our combined results of operations include general and administrative expenses incurred at the DHC corporate level, 100% of Ascent Media's results and our 50% share of earnings of Discovery. Ascent Media's creative services group revenue is primarily generated from fees for video and audio post production, special effects and editorial services for the television, feature film and advertising industries. Generally, these services pertain to the completion of feature films, television programs and advertisements. These projects normally span from a few days to three months or more in length, and fees for these projects typically range from $10,000 to $1,000,000 per project. The media management services group provides owners of film libraries a broad range of restoration, preservation, archiving, professional mastering and duplication services. The scope of media management services vary in duration from one day to several months depending on the nature of the service, and fees typically range from less than $1,000 to $100,000 per project. Additionally, the media management services group includes Ascent Media's digital media center which is developing new products and 32

337 Printed: 24-Jun-2005;20:03:42 (v.162) HTML Page: 35 File: DISK112:[05DEN2.05DEN1432]DO1432A.;35 Created: 23-JUN-2005;22:26 Chksum: Folio: 33 User: JBELANG EFW: Doc # 21 businesses in areas such as digital imaging, digital media and interactive media. The network services group's revenue consists of fees relating to facilities and services necessary to assemble and transport programming for cable and broadcast networks across the world via fiber, satellite and the Internet. Additionally, the group's revenues are also driven by systems integration and field support services, technology consulting services, design and implementation of advanced video systems, engineering project management, technical help desk and field service. Approximately 40% of network services group's revenue relates to broadcast services, satellite operations and fiber services that are earned monthly under long-term contracts ranging generally from one to seven years. Additionally, approximately 30% of revenue relates to systems integration and engineering services that are provided on a project basis over terms generally ranging from three to twelve months. Corporate related items and expenses are reflected in Corporate and Other, below. Cost of services and operating expenses consists primarily of production wages, facility costs and other direct costs and selling, general and administrative expenses. Three months ended March 31, 2005 and 2004 Three months ended March 31, amounts in thousands Segment Revenue Creative services group $ 74,228 75,166 Media management services group 28,776 25,450 Network services group 71,286 45,327 Corporate and other $ 174, ,943 Segment Operating Cash Flow Creative services group $ 13,051 14,381 Media management services group 3,691 4,687 Network services group 15,006 13,108 Corporate and other (11,897) (9,688) $ 19,851 22,488 Revenue. Ascent Media's total revenue increased 19.4% for the three months ended March 31, 2005, as compared to the corresponding prior year period. The creative services group revenue decreased $938,000 as a result of lower sound services for feature films and TV and the sluggish commercial market in the U.K. partially offset by increased feature film related revenue driven by the expansion of digital intermediate services, growth in TV post production and changes in foreign currency exchange rates of $408,000. The media management services group revenue increased $3,326,000 as a result of higher lab revenue of $3,439,000 due to the acquisition of Cinetech, higher demand for DVD compression, authoring and menu design services from the large film studios and changes in foreign currency exchange rates of $229,000, partially offset by competitive pressure in the UK. The network services group revenue increased $25,959,000, reflecting the impact of the LPC acquisition of $9,423,000 and changes in foreign currency exchange rates of $593,000. The remaining increase is primarily driven by the timing of various large engineering and systems integration projects and higher installation services activity. Cost of Services. Ascent Media's costs of services increased 26.3% for the three months ended March 31, 2005, as compared to the corresponding prior year period. The increase is attributable in part to the 2004 acquisitions discussed above which contributed $8,810,000 of the increase in cost of services. The remaining increase is primarily attributable to the change in revenue mix driven by higher 33

338 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 36 File: DISK112:[05DEN2.05DEN1432]DO1432A.;35 Created: 23-JUN-2005;22:26 Chksum: Folio: 34 User: JBELANG EFW: Doc # 21 systems engineering and integration projects in the network services group resulting in higher production and engineering labor and production material costs. Media management services group cost of services increased $1,495,000. In recent years, expenses for the media management services group have increased at a faster rate than revenue. Media management's projects have become increasingly more integrated, with complex work flows requiring higher levels of production labor and project management. This increase in labor costs, combined with increased spending on continued development of digital technologies and services, has resulted in higher cost of services and decreasing operating cash flow margin. Selling, General and Administrative. Ascent Media's selling, general and administrative expenses increased 18.6% for the three months ended March 31, 2005, as compared to the corresponding prior year period. This increase is primarily attributable to the impact of the 2004 acquisitions of $4,278,000, the growth in the revenue driving higher labor, facility and selling costs and changes in foreign currency exchange rates of $382,000. Corporate and Other operating cash flow (which includes DHC corporate general and administrative expenses of $1,242,000 in 2005) decreased $2,209,000 in 2005 primarily due to higher DHC corporate expenses and higher Ascent Media corporate expenses in the U.K. as a result of higher labor, facility and professional services costs. Depreciation and Amortization. Ascent Media's depreciation and amortization expense increased 4.4% for the quarter ended March 31, 2005, as compared to the prior year period. The increase was driven by an increase in the depreciable base due to capital expenditures and the 2004 acquisitions. Stock Compensation. In 2001, Ascent Media granted to certain of its officers and employees stock options with exercise prices that were less than the market price of Ascent Media common stock on the date of grant. Those options became exercisable for LMC shares in connection with LMC's acquisition in 2003 of the Ascent Media shares that it did not already own. Ascent Media is amortizing the "in-the-money" value of these options over the 5-year vesting period. Compensation expense for the three months ended March 31, 2005 was comprised of $566,000 related to "in-the-money" stock options offset by $353,000 related to a decline in the value of the underlying stock price used to value employee stock appreciation rights, or SARs. The stock compensation expense recorded for the quarter ended March 31, 2004 related primarily to "in-the-money" stock options of $590,000 offset by $68,000 related to a decline in the value of the underlying stock price used to value employee SARs. Share of Earnings of Discovery. Our share of earnings of Discovery increased in 2005 due to increases in the net income of Discovery. Discovery's net income improved primarily due to higher revenue. For a more detailed discussion of Discovery's results of operations, see " Management's Discussion and Analysis of Financial Condition and Results of Operations of Discovery." Income Taxes. Our effective tax rate was 35.3% and 26.7% for the three months ended March 31, 2005 and 2004, respectively. Our income tax expense was lower than the federal income tax rate of 35% in 2004 primarily due to a reduction in our valuation allowance. Years ended December 31, 2004, 2003 and 2002 Ascent Media's consolidated results of operations for the year ended December 31, 2004, include twelve months of results for SIC, approximately nine months of results of LPC and approximately 34

339 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 37 File: DISK112:[05DEN2.05DEN1432]DO1432A.;35 Created: 23-JUN-2005;22:26 Chksum: Folio: 35 User: JBELANG EFW: Doc # 21 two months of results of Cinetech. The consolidated results for the year ended December 31, 2002 include twelve months of the results of Triumph, which was sold in December Year ended December 31, amounts in thousands Segment Revenue Creative services group $ 295, , ,119 Media management services group 109, , ,091 Network services group 225, , ,123 Corporate and other $ 631, , ,333 Segment Operating Cash Flow Creative services group $ 55,847 43,786 50,150 Media management services group 17,430 22,074 27,682 Network services group 62,163 43,221 45,673 Corporate and other (38,074) (34,319) (34,450) $ 97,366 74,762 89,055 Revenue. Ascent Media's total revenue increased 24.7% and decreased 6.2% for the years ended December 31, 2004 and 2003, respectively, as compared to the corresponding prior year. In 2004, the creative services group revenue increased $25,011,000 as a result of higher feature film related revenue driven by the expansion in digital intermediate services in the U.S. and UK, expansion of creative sound services in the UK, growth in television post production activity and changes in foreign currency exchange rates of $6,382,000. The media management services group revenue increased $2,912,000 in 2004 as a result of higher lab revenue of $2,229,000 due to the acquisition of Cinetech, higher demand for DVD mastering services and changes in foreign currency exchange rates of $3,684,000, offset by the commoditization of traditional media services leading to a decline in rates and difficult market conditions primarily in the United Kingdom. While competition for traditional media services remains strong, we are currently unable to predict what impact, if any, this competition will have on rates for these services in the future. The network services group's 2004 revenue increased $97,189,000, reflecting the full year impact of acquisition of SIC of $27,100,000, the nine month impact of the LPC acquisition of $39,619,000 and changes in foreign currency exchange rates of $1,979,000. The remaining increase is driven by the timing of various large systems integration projects, higher network origination and installation projects. The creative services group revenue decreased $4,289,000 in 2003 due to early television show cancellations, competitive rate pressures in both television and commercial markets, the expiration of market subsidy for high definition services impacting rates, offset by an improved feature film market in sound services, digital intermediate and visual effects services and changes in foreign currency exchange rates of $3,438,000. The media management services group 2003 revenue increased $1,979,000 as a result of higher volumes from the larger movie studios, increased DVD authoring, recording and subtitling activity and changes in foreign currency exchange rates of $2,752,000 offset by fewer mid level and smaller clients due to sluggish media recovery. The network services group revenue decreased $30,920,000 resulting from the divestiture of Triumph in 2002 of $23,118,000, the renegotiation of certain large existing contracts of $14,000,000 and higher volume of systems integration projects in 2002, offset by growth in the network origination business and changes in foreign currency exchange rates of $1,560,000. Cost of Services. Ascent Media's costs of services increased 26.3% and decreased 6.5% for the years ended December 31, 2004 and 2003, respectively, as compared to the corresponding prior 35

340 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 38 File: DISK112:[05DEN2.05DEN1432]DO1432A.;35 Created: 23-JUN-2005;22:26 Chksum: Folio: 36 User: JBELANG EFW: Doc # 21 year. The 2004 increase is attributed to the 2004 acquisitions discussed above, which contributed $48,331,000 of the increase in cost of services, higher costs across all of its groups primarily in production material, production personnel and equipment expenses as a result of the increased revenue and production activity noted above and changes in foreign currency exchange rates, which resulted in an increase of $6,321,000. In recent years, expenses for the media management services group have increased at a faster rate than revenue. The projects of the media management services group have become increasingly more integrated, with complex work flows requiring higher levels of production labor and project management. This increase in labor costs, combined with increased spending on continued development of digital technologies and services and the decline in rates for traditional media services noted above, has resulted in higher cost of services and decreasing operating cash flow. The 2003 decrease in cost of services is due to the divestiture of Triumph of $29,072,000, offset by higher costs for the media management services and creative services groups primarily in production material and production personnel expenses and the impact of changes in foreign currency exchange rates of $4,530,000. Selling, General and Administrative. Ascent Media's selling, general and administrative expenses increased 17.8% and 1.6% for the years ended December 31, 2004 and 2003, respectively, as compared to the corresponding prior year. The 2004 increase is primarily attributable to growth in the business driving higher personnel, facility and selling costs, the impact of the 2004 acquisitions of $5,528,000 and changes in foreign currency exchange rates of $4,222,000. The 2003 increase is primarily due to slightly higher personnel and facility costs in the groups and changes in foreign currency exchange rates of $2,051,000, offset by the divestiture of Triumph, which decreased selling, general and administrative expenses by $3,136,000. Corporate and Other operating cash flow decreased $3,755,000 in 2004 due to higher corporate expenses in the U.K. from the continued development of corporate infrastructure and acquisition of LPC, higher management incentive plan costs and changes in foreign currency exchange rates of $872,300, offset by lower severance and lease abandonment charges. Depreciation and Amortization. The increases in depreciation and amortization expense in 2004 and 2003 are due to an increase in the depreciable asset base due to capital expenditures and acquisitions. Stock Compensation. In 2001, Ascent Media granted to certain of its officers and employees stock options with exercise prices that were less than the market price of Ascent Media common stock on the date of grant. Those options became exercisable for LMC shares in connection with LMC's acquisition in 2003 of the Ascent Media shares that it did not already own. Ascent Media is amortizing the "in-the-money" value of these options over the 5-year vesting period. Compensation expense increased $173,000 and $2,650,000 for the years ended December 31, 2004 and 2003, respectively. Results for the year ended December 31, 2004 primarily included compensation expense of $2,268,000 relating to "in-the-money" stock options and $507,000 increase in the value of the underlying stock price used to value employee stock appreciation rights, or SARs. The expense recorded for the year ended December 31, 2003 related primarily to "in-the-money" stock options of $2,491,000. The income recorded for the year ended December 31, 2002 primarily included $3,102,000 relating to a decline in the value of the SARs, and unearned stock compensation income of $135,000, offset by compensation expense of $3,189,000 relating to "in-the-money" stock options. Impairment of Goodwill. Ascent Media recorded an $83,718,000 impairment charge in fiscal 2002 resulting from its annual impairment test. Ascent Media obtained estimates of the fair value of its reporting units from an independent valuation consultant, which used income and market approaches to estimate fair value. The impairment charges represented the excess of the carrying value of the goodwill over the estimated fair value. Impairment of goodwill charges in 2004 and 2003 were not significant. 36

341 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 39 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: Folio: 37 User: JBELANG EFW: Doc # 21 Restructuring Charges. During the year ended December 31, 2003, Ascent Media recorded a restructuring charge of $3,476,000 related to the closing of certain facilities and corresponding reductions in headcount. These restructuring activities were implemented to improve operating efficiencies and effectiveness primarily in its creative services group. Restructuring charges were not significant in 2004 or Interest Expense. Interest expense in 2003 and 2002 related primarily to interest on Ascent Media's bank debt and subordinated notes payable due to LMC. In December 2003, Ascent Media repaid all principal and interest under its bank credit facility with cash provided by LMC. In addition, LMC contributed all amounts due under the subordinated notes payable to the equity of Ascent Media. As a result of the cancellation of the bank credit facility and the subordinated notes payable, Ascent Media incurred no interest expense in Share of Earnings of Discovery. Our share of earnings of Discovery increased in 2004 and 2003 due primarily to increases in the net income of Discovery. Discovery's net income improved primarily due to higher revenue and improved operating margins. Prior to June 2003, John Hendricks, Discovery's Founder and Chairman, held shares of Discovery common stock that were redeemable on demand. Changes in the redemption value of such shares were recorded by Discovery as adjustments to equity similar to dividends on preferred stock. We included in our share of earnings (losses) of Discovery 50% of the equity adjustments related to the redeemable common stock as those adjustments represented an adjustment in earnings available to common shareholders. The redeemable common stock was redeemed in June Our share of earnings (losses) of Discovery included gains of $5,700,000 and losses of $7,414,000 for the years ended December 31, 2003 and 2002, respectively, related to changes in the redemption value of the redeemable common stock and other equity transactions. For a more detailed discussion of Discovery's results of operations, see " Management's Discussion and Analysis of Financial Condition and Results of Operations of Discovery." Income Taxes. Our effective tax rate was 34.6% and 21.8% for the years ended December 31, 2004 and 2002, respectively, and was not meaningful in Our income tax benefit was lower than the federal income tax rate of 35% in 2002 primarily due to the impairment of goodwill, which is not deductible for income tax purposes. In 2003, we had a pre-tax loss of $32,238,000 and we recorded tax expense of $20,156,000 primarily due to a reduction in our valuation allowance and interest expense that is not deductible for tax purposes. Cumulative Change in Accounting Principle. Effective January 1, 2002, we adopted SFAS No. 142 and, in accordance with its provisions, we recorded a transitional impairment charge of goodwill of $20,227,000 during the first quarter of fiscal This charge has been reflected as a cumulative effect of a change in accounting principle. Liquidity and Capital Resources Historically our primary sources of funds have been from operating activities and borrowed funds under a senior credit facility and a subordinated debt agreement with LMC. During the three months ended March 31, 2005, our primary use of cash was capital expenditures ($20,921,000), which we funded with our available cash and cash generated by operating activities ($11,005,000). For the year ended December, 31, 2004, our primary uses of cash were acquisitions ($44,238,000) and capital expenditures ($49,292,000). We funded these investing activities with cash from operating activities of $84,322,000 and capital contributions from LMC of $30,999,000. Prior to the spin off, LMC has agreed to transfer to one of our subsidiaries $50 million in cash. Subsequent to the spin off, LMC will no longer be a long-term source of liquidity for us. For the foreseeable future, we expect to have sufficient available cash balances and net cash from operating activities to meet our working capital needs and 37

342 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 40 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: Folio: 38 User: JBELANG EFW: Doc # 21 capital expenditure requirements. We intend to seek external equity or debt financing after our spin off in the event new investment opportunities, additional capital expenditures or increased operations require additional funds, but there can be no assurance that we will be able to obtain equity or debt financing on terms that are acceptable to us. Our ability to seek additional sources of funding depends on our future financial position and results of operations, which, to a certain extent, are subject to general conditions in or affecting our industry and our customers and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control. We do not have access to the cash Discovery generates from its operations, unless Discovery pays a dividend on its capital stock or otherwise distributes cash to its stockholders. Historically, Discovery has not paid any dividends on its capital stock and we do not have sufficient voting control to cause Discovery to pay dividends or make other payments or advances to us. Contractual Obligations Information concerning the amount and timing of required payments under our contractual obligations at December 31, 2004 is summarized below: Payments due by Period Less than 1 year 1-3 years 4-5 years amounts in thousands After 5 years Total Contractual Obligations Operating leases $ 25,682 45,824 37,273 52, ,302 Purchase obligations 8,152 8,152 Other 6,100 6,100 Total Contractual Obligations $ 33,834 45,824 43,373 52, ,554 We have contingent liabilities related to legal proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible we may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements. New Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments" ("Statement 123R"). Statement 123R, which is a revision of Statement 123 and supersedes APB Opinion No. 25, establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on transactions in which an entity obtains employee services. Statement 123R generally requires companies to measure the cost of employee services received in exchange for an award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the award, and to recognize that cost over the period during which the employee is required to provide service (usually the vesting period of the award). Statement 123R also requires companies to measure the cost of employee services received in exchange for an award of liability instruments (such as stock appreciation rights) based on the current fair value of the award, and to remeasure the fair value of the award at each reporting date. Public companies were originally required to adopt Statement 123R as of the beginning of the first interim period that begins after June 15, On April 14, 2005, the Securities and Exchange Commission amended the effective date to the beginning of a registrant's next fiscal year, or January 1, 38

343 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 41 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: Folio: 39 User: JBELANG EFW: Doc # for calendar-year companies, such as us. Accordingly, the provisions of Statement 123R will affect the accounting for all awards granted, modified, repurchased or cancelled after January 1, The accounting for awards granted, but not vested, prior to January 1, 2006 will also be impacted. The provisions of Statement 123R allow companies to adopt the standard on a prospective basis or to restate all periods for which Statement 123 was effective. We expect to adopt Statement 123R on a prospective basis, and will provide pro forma information as though the standard had been adopted for all periods presented. While we have not yet quantified the impact of adopting Statement 123R, we believe that such adoption could have a significant effect on our operating income and net earnings in the future. Critical Accounting Estimates Valuation of Long-lived Assets and Amortizable Other Intangible Assets. We perform impairment tests for our long-lived assets if an event or circumstance indicates that the carrying amount of our long-lived assets may not be recoverable. In response to changes in industry and market conditions, we may also strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses. Such activities could result in impairment of our long-lived assets or other intangible assets. We are subject to the possibility of impairment of long-lived assets arising in the ordinary course of business. We regularly consider the likelihood of impairment and recognize impairment if the carrying amount of a long-lived asset or intangible asset is not recoverable from its undiscounted cash flows in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Impairment is measured as the difference between the carrying amount and the fair value of the asset. We use both the income approach and market approach to estimate fair value. Our estimates of fair value are subject to a high degree of judgment. Accordingly, any value ultimately derived from our long-lived assets may differ from our estimate of fair value. Valuation of Goodwill and Non-amortizable Other Intangible Assets. We assess the impairment of goodwill annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include significant underperformance to historical or projected future operating results, substantial changes in our strategy or the manner of use of our assets, and significant negative industry or economic trends. Effective January 1, 2002, we adopted SFAS No In accordance with its provisions, during the first quarter of fiscal year 2002, we recorded a transitional impairment charge of $20,227,000 against goodwill related to our entertainment television reporting unit, which is part of our creative service group. Such charge was reflected as a cumulative effect of a change in accounting principle. Additionally, as a result of our annual impairment testing, we recorded a goodwill impairment charge of $83,718,000 during the fourth quarter of fiscal Of this impairment charge, $56,818,000 of impairment related to our entertainment television reporting unit and $26,900,000 related to our commercial television reporting unit, both part of our creative services group. As a result of our annual impairment testing, during fiscal 2004 and 2003, we recorded goodwill impairment charges of $51,000 and $562,000, respectively. The impairment charge in fiscal 2004 was in Ascent Media's audio reporting unit and the impairment charge in fiscal 2003 was in Ascent Media's entertainment television reporting unit, both of which are part of Ascent Media's creative services group. Fair value of each reporting unit was determined through the use of an outside independent valuation consultant. The consultant used both the income approach and market approach in determining fair value. Valuation of Trade Receivables. We must make estimates of the collectibility of our trade receivables. Our management analyzes the collectibility based on historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. We record an allowance for doubtful accounts based upon specifically identified receivables that we believe are uncollectible. In addition, we also record an amount based upon a percentage of each aged category of our trade receivables. These percentages are estimated based upon 39

344 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 42 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: Folio: 40 User: JBELANG EFW: Doc # 21 our historical experience of bad debts. Our trade receivables balance was $151,120,000, net of allowance for doubtful accounts of $12,104,000, as of December 31, Valuation of Deferred Tax Assets. In accordance with SFAS No. 109, Accounting for Income Taxes, we review the nature of each component of our deferred income taxes for reasonableness. We have determined that it is more likely than not that we will not realize a portion of our tax benefits associated with certain cumulative net operating loss carry forwards and impairment reserves, and as such, we have reserved for a portion of our deferred income tax assets. The valuation allowance as of December 31, 2004 and 2003 was $76,452,000 and $101,470,000, respectively. Quantitative and Qualitative Disclosures about Market Risk Foreign Currency Risk We continually monitor our economic exposure to changes in foreign exchange rates and may enter into foreign exchange agreements where and when appropriate. Substantially all of our foreign transactions are denominated in foreign currencies, including the liabilities of our foreign subsidiaries. Although our foreign transactions are not generally subject to significant foreign exchange transaction gains or losses, the financial statements of our foreign subsidiaries are translated into United States dollars as part of our consolidated financial reporting. As a result, fluctuations in exchange rates affect our financial position and results of operations. Management's Discussion and Analysis of Financial Condition and Results of Operations of Discovery Overview We hold a 50% ownership interest in Discovery and account for this investment using the equity method of accounting. Accordingly, in our financial statements we record our share of Discovery's net income or loss available to common shareholders and reflect this activity in one line item in the statement of operations as "Share of earnings (losses) of Discovery." The following financial information of Discovery for the three months ended March 31, 2005 and March 31, 2004 and the years ended December 31, 2004, 2003 and 2002 and related discussion is presented to provide the reader with additional analysis of the operating results and financial position of Discovery. Because we do not control the decision-making process or business management practices of Discovery, we rely on Discovery to provide us with financial information prepared in accordance with GAAP that we use in the application of the equity method. The information included in this section should be read in conjunction with the audited financial statements of Discovery for the year ended December 31, 2004 included elsewhere herein. The following discussion and analysis of Discovery's operations and financial position has been prepared based on information that we receive from Discovery and represents our views and understanding of their operating performance and financial position based on such information. Discovery is not a separately traded public company, and we do not have the ability to cause Discovery's management to prepare their own management's discussion and analysis for our purposes. Accordingly, we note that the material presented in this section might be different if Discovery's management had prepared it. Three months ended March 31, 2005 and 2004 The following discussion of Discovery's results of operations is presented on a consolidated basis. In order to provide a better understanding of Discovery's operations, we have also included a summarized presentation of revenue and operating cash flow of Discovery's three operating groups: Discovery networks U.S., or U.S. networks, Discovery networks international, or international networks, and Discovery commerce, education & other. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Discovery Holding Operating Cash Flow" for our definiton of operating cash flow. 40

345 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 43 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: Folio: 41 User: JBELANG EFW: Doc # 21 The U.S. networks is Discovery's largest division which owns and operates 12 cable and satellite channels and provides distribution and advertising sales services for BBC America. International networks manages a portfolio of channels, led by the Discovery Channel and Animal Planet brands, that are distributed in virtually every pay-television market in the world via an infrastructure that includes major operational centers in London, Singapore, New Delhi and Miami. Discovery commerce, education & other includes Discovery's retail chain store operations and other direct consumer marketing activities as well as Discovery education which was recently formed to manage Discovery's distribution of education content. Consolidated Results Three months ended March 31, amounts in thousands Revenue Advertising $ 273, ,284 Subscriber fees 281, ,297 Other 46,443 37,781 Total revenue 601, ,362 Expenses Cost of revenue (218,259) (181,737) Selling, general & administrative ("SG&A") expense (234,758) (208,208) Operating cash flow 148, ,417 Expenses arising from long-term incentive plans (22,867) (28,780) Depreciation & amortization (28,821) (30,833) Operating income 96,766 77,804 Other Income (Expense) Interest expense, net (44,908) (40,734) Unrealized gains from derivative instruments, net 12,253 1,441 Minority interests in consolidated subsidiaries 2,252 (2,793) Other 12, Income before income taxes 79,258 36,186 Income tax expense (33,629) (15,335) Net income $ 45,629 20,851 41

346 Printed: 24-Jun-2005;20:03:43 (v.162) HTML Page: 44 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: 8241 Folio: 42 User: JBELANG EFW: Doc # 21 Business Segment Results Three months ended March 31, amounts in thousands Revenue U.S. networks $ 416, ,015 International networks 158, ,000 Discovery commerce, education & other 26,429 19,347 Total revenue $ 601, ,362 Operating Cash Flow U.S. networks $ 147, ,209 International networks 24,549 16,295 Discovery commerce, education & other (23,532) (18,087) Total operating cash flow $ 148, ,417 Note: Discovery commerce, education & other includes intercompany eliminations. Revenue. Discovery's consolidated revenue increased 14% for the three months ended March 31, 2005, as compared to the corresponding prior year period. Increased revenue was primarily due to a 24% increase in subscriber fee revenue. Advertising revenue increased 4% during the same period. Other revenue increased 23% due to increased commerce revenue and growth in Discovery's education business. Subscriber fee revenue grew 24% and 23% at the U.S. networks and the international networks, respectively, for the three months ended March 31, 2005, as compared to the corresponding prior year period. The increase in subscriber fees at the U.S. networks is due to a 14% increase in paying subscription units combined with lower launch support amortization. Free viewing periods related to a number of U.S. networks, principally networks that are carried on the digital tier, expired in 2004 and Discovery is now recognizing subscriber fees for those networks. U.S. networks subscriber fee increases were helped by reduced launch fee amortization, a contra-revenue item, as a result of extensions of certain affiliation agreements. Launch amortization at the U.S. networks declined from $25.8 million during the first quarter of 2004 to $20.2 million in 2005 primarily due to these extensions. Increases in subscriber fees at the international networks were driven principally by increases in subscription units in Europe and the international joint venture channels due to recently launched networks. The increase in advertising revenue, which includes revenue from paid programming, was primarily due to a 40% increase at the international networks. More than half of the international networks' advertising revenue is generated by its operations in the U.K. and Europe. The increase in international networks advertising revenue was due primarily to higher advertising rates and audience growth in the U.K., combined with advertising revenue generated by new channels launched in Europe. Advertising revenue at the U.S. networks was essentially flat as higher advertising rates at substantially all of the U.S. networks were offset by lower audience delivery at certain networks. Paid programming, where Discovery sells blocks of time primarily for infomercials that are aired during the overnight hours on certain networks, represented 7% and 8% of total advertising revenue for the three months ended March 31, 2005 and 2004, respectively. The increase in other revenue was primarily due to an increase in education revenue due to growth in the business and acquisitions combined with a 12% increase in store revenue. The increase in store revenue was due to a 20% increase in same store sales offset by a 7% decrease in the average number of stores. 42

347 Printed: 24-Jun-2005;20:03:44 (v.162) HTML Page: 45 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: Folio: 43 User: JBELANG EFW: Doc # 21 Cost of Revenue. Cost of revenue increased 20% for the three months ended March 31, 2005 as compared to the corresponding prior year period. As a percent of revenue, cost of revenue was 36% and 35% for the three months ended March 31, 2005 and 2004, respectively. This increase resulted primarily from higher programming expense due to continued investment across all U.S. networks in original productions and high profile specials. At the international networks, Discovery began investing in an initiative to highlight and strengthen its lifestyles category, particularly in Europe during the fourth quarter of 2004, which has resulted in increased programming costs. SG&A Expenses. SG&A expense increased 13% for the three months ended March 31, 2005, as compared to the corresponding prior year period. Within the different groups, SG&A expenses increased 3%, 23% and 42% at the U.S. networks, international networks and Discovery commerce, education & other, respectively. The increase at the international networks was caused by increases in personnel expense resulting from adding headcount as the business expanded combined with higher marketing expense associated with branding and awareness efforts in association with the lifestyles category initiative. The increase in SG&A expenses at Discovery commerce, education & other is primarily due to the growth in Discovery's education business, resulting from both acquisitions and organic growth. Expenses Arising from Long-term Incentive Plans. Expenses arising from long-term incentive plans are related to Discovery's unit-based, long-term incentive plan, or LTIP, for its employees who meet certain eligibility criteria. Units are awarded to eligible employees and generally vest at a rate of 25% per year. Upon exercise, participants receive a cash payment for the increase in value of the units from the unit value on the date of issuance. Unit value is determined annually by the year over year change in Discovery's aggregate equity value as estimated by an external investment firm, using a consistent methodology. The appreciation in unit value of LTIP awards outstanding is recorded as compensation expense over the vesting periods. The aggregate number of units that are currently authorized to be granted under the LTIP plan approximates an 8% sharing in the change in Discovery's equity value. The 21%, or $5,913,000, decrease in LTIP expense in 2005 is the result of units being exercised in 2004, which increased the weighted average exercise price of vested options. Depreciation and Amortization. The decrease in depreciation and amortization for the quarter ended March 31, 2005 is primarily due to a decrease in the depreciable asset base resulting from a reduction in the number of retail stores. Other Income and Expense Interest Expense. The increase in interest expense for the quarter ended March 31, 2005 is primarily due to a higher average outstanding debt balance during the first quarter of 2005, as compared to the first quarter of 2004, combined with an increase in average interest rates. Unrealized Gains from Derivative Instruments, net. Unrealized gains from derivative transactions relate primarily to Discovery's use of derivative instruments to modify its exposure to interest rate fluctuations on its debt. These derivative contracts include a combination of swaps, caps, collars and other structured instruments. As a result of unrealized mark to market adjustments, Discovery recognized $12,253,000 and $1,441,000 in gains on these instruments during the quarters ended March 31, 2005 and 2004, respectively. The foreign exchange hedging instruments used by Discovery are spot, forward and option contracts. Additionally, Discovery enters into forward contracts to hedge non-dollar denominated cash flows and foreign currency balances. The unrealized gains were primarily driven by increases in interest rates during the quarter resulting in an increase in value of the underlying derivatives. Minority Interests in Consolidated Subsidiaries. Minority interest represents increases and decreases in the estimated redemption value of mandatory redeemable interests in subsidiaries which are initially 43

348 Printed: 24-Jun-2005;20:03:44 (v.162) HTML Page: 46 File: DISK112:[05DEN2.05DEN1432]DO1432B.;25 Created: 23-JUN-2005;22:26 Chksum: Folio: 44 User: JBELANG EFW: Doc # 21 recorded at fair value. Discovery accretes or decretes the mandatorily redeemable interest in a subsidiary to its estimated redemption value through the redemption date. Based on its most recent estimates, Discovery recorded a net minority interest decretion of $1,650,000 during the three months ended March 31, 2005, compared to a net minority accretion of $2,793,000 for the three months ended March 31, Other. Other represents Discovery's share of earnings (losses) of affiliates and gains (losses) on sales of investments. During the first quarter of 2005, Discovery recognized a gain of $11,961,000 related to a sale of an available for sale investment. Income Taxes. Discovery's effective tax rate was 42% for both the three months ended March 31, 2005 and 2004, respectively. Discovery's effective tax rate differed from the federal income tax rate of 35% primarily due to foreign and state taxes. Years ended December 31, 2004, 2003 and 2002 The following discussion of Discovery's results of operations is presented in two parts to assist the reader in better understanding Discovery's operations. The first section is an overall discussion of Discovery's consolidated operating results. The second section includes a more detailed discussion of revenue and operating cash flow activity of Discovery's three operating groups: Discovery networks U.S., or U.S. networks, Discovery networks international, or international networks, and Discovery commerce, education & other. Consolidated Results Years ended December 31, amounts in thousands Revenue Advertising $ 1,133,807 1,010, ,936 Subscriber fees 976, , ,500 Other 255, , ,339 Total revenue 2,365,346 1,995,047 1,716,775 Expenses Cost of revenue (846,316) (751,578) (699,737) SG&A expense (856,340) (735,017) (638,405) Operating cash flow 662, , ,633 Expenses arising from long-term incentive plans (71,515) (74,119) (96,865) Depreciation & amortization (129,011) (120,172) (112,841) Gain on sale of patents 22,007 Operating income 484, , ,927 Other Income (Expense) Interest expense, net (167,420) (159,409) (163,315) Unrealized gains (losses) from derivative instruments, net 45,540 21,405 (11,607) Minority interests in consolidated subsidiaries (54,940) (35,965) (45,977) Other 2,470 (2,170) (6,141) Income (loss) before income taxes 309, ,022 (58,113) Income tax (expense) benefit (141,799) (74,785) 10,057 Net income (loss) $ 168,022 63,237 (48,056) 44

349 Printed: 24-Jun-2005;20:03:44 (v.162) HTML Page: 47 File: DISK112:[05DEN2.05DEN1432]DQ1432A.;36 Created: ;8-JUN-2005;19:03 Chksum: Folio: 45 User: MCROWE EFW: Doc # 21 Revenue. Discovery's consolidated revenue increased 19% and 16% for the years ended December 31, 2004 and 2003, respectively, as compared to the corresponding prior year. Increased revenue was primarily due to increases of 31% and 16% in subscriber fee revenue for 2004 and 2003, respectively, as well as increases of 12% and 22% in advertising revenue for the same periods. Changes in other revenue did not have a significant impact on the overall revenue increase for either year. Increased subscriber fee revenue is primarily due to contractual rate increases, subscriber growth and a reduction in launch support amortization as certain affiliation agreements were extended. Subscriber fees also benefited from contractual arrangements whereby certain subscribers that were previously covered under free carriage periods with distributors were converted to paying subscribers. Increases in advertising revenue, which includes revenue from paid programming, were primarily due to increased advertising rates at the U.S. networks combined with positive developments in international networks advertising sales resulting from continued growth in subscription units. Paid programming, where Discovery sells blocks of time primarily for infomercials that are aired during the overnight hours on certain networks, represented 6%, 6% and 7% of total advertising revenue for the years ended December 31, 2004, 2003, and 2002, respectively. Cost of revenue and SG&A Expenses. Consolidated operating expenses, which for purposes of this discussion includes cost of revenue and SG&A expenses, increased 15% and 11% for the years ended December 31, 2004 and 2003, respectively, as compared to the corresponding prior year. Operating expenses increased primarily as a result of higher programming costs for Discovery's U.S. networks as well as higher personnel and marketing costs at both the U.S. and international networks. Expenses related to programming, personnel and marketing made up approximately 64% of Discovery's consolidated operating expenses in Historically, these costs have not increased at the same rate as revenue due to the benefits of scale economics, combined with ongoing cost management initiatives, as described below. As a result, Discovery has been able to increase its operating cash flow as a percent of revenue from 22% in 2002 to 25% in 2003 and 28% in Expenses Arising from Long-term Incentive Plans. Expenses arising from long-term incentive plans are related to Discovery's unit-based, long-term incentive plan, or LTIP, for its employees who meet certain eligibility criteria. Units are awarded to eligible employees and generally vest at a rate of 25% per year. Upon exercise, participants receive a cash payment for the increase in value of the units from the unit value on the date of issuance. Unit value is determined by the year over year change in Discovery's aggregate equity value as estimated by an external investment firm, using a consistent methodology. The appreciation in unit value of LTIP awards outstanding is recorded as compensation expense over the vesting periods. The aggregate number of units that are currently authorized to be granted under the LTIP plan approximates an 8% sharing in the change in Discovery's equity value. Depreciation and Amortization. The increase in depreciation and amortization in both 2004 and 2003 is due to an increase in intangible assets resulting from acquisitions combined with increases in Discovery's depreciable asset base resulting from capital expenditures. Gain on Sale of Patents. In 2004, Discovery recorded a gain on the sale of certain of its television technology patents. The $22 million gain represents the sale price less the costs incurred to sell the patents. The cost of developing the technology had been expensed in prior years to SG&A expense. Discovery does not expect a significant amount of income from patent sales in the future. Ongoing Cost Management Initiatives. Discovery has an extensive library of programming and footage that provides a high quality programming resource for launching new services quickly while minimizing incremental costs. Existing programming is re-edited and updated to provide topical programming content in a cost-effective manner. In addition, Discovery has expanded its internal post-production capacity to contain programming costs further. Marketing efficiencies have been achieved through the use of internal promotion time. Growth in personnel has been contained through economies of scale and workflow improvements. 45

350 Printed: 24-Jun-2005;20:03:44 (v.162) HTML Page: 48 File: DISK112:[05DEN2.05DEN1432]DQ1432A.;36 Created: ;8-JUN-2005;19:03 Chksum: Folio: 46 User: MCROWE EFW: Doc # 21 Other Income and Expense Interest Expense. The increase in interest expense in 2004 is primarily due to higher levels of outstanding debt in 2004 as well as a slight increase in interest rates. Interest expense was lower in 2003, as compared with 2002 due primarily to a modest reduction in average interest rates. Unrealized Gains (Losses) from Derivative Instruments, net. Unrealized gains and losses from derivative transactions relate, primarily, to Discovery's use of derivative instruments to modify its exposure to interest rate fluctuations on its debt. These instrument contracts include a combination of swaps, caps, collars and other structured instruments. At December 31, 2004, the variable to fixed interest rate instruments have a notional principal amount of $800,000,000 and have a weighted average interest rate of 5.93%. At December 31, 2004, the fixed to variable interest rate agreements have a notional principal amount of $240,000,000 and have a weighted average interest rate of 6.46%. As a result of unrealized mark to market adjustments, Discovery recognized $44,060,000, $21,548,000 and $(13,375,000) in gains (losses) on these instruments during the years ended December 31, 2004, 2003 and 2002, respectively. The foreign exchange hedging instruments used by Discovery are spot, forward and option contracts. Additionally, Discovery enters into forward contracts to hedge non-dollar denominated cash flows and foreign currency balances. At December 31, 2004, the notional amount of foreign exchange derivative contracts was $92,800,000. Minority Interests in Consolidated Subsidiaries. Minority interest represents increases and decreases in the estimated redemption value of mandatory redeemable interests in subsidiaries which are initially recorded at fair value. Income Taxes. Discovery's effective tax rate was 46%, 54% and 17% for 2004, 2003 and 2002, respectively. Discovery's effective tax rate differed from the federal income tax rate of 35% primarily due to foreign and state taxes. Business Segment Results As noted above, we have classified Discovery's operations into three groups: U.S. networks, international networks and Discovery commerce, education & other. Years ended December 31, amounts in thousands Revenue U.S. networks $ 1,605,032 1,351,336 1,121,149 International networks 583, , ,221 Discovery commerce, education & other 177, , ,405 Total revenue $ 2,365,346 1,995,047 1,716,775 Operating Cash Flow U.S. networks $ 599, , ,946 International networks 97,073 68,439 15,744 Discovery commerce, education & other (34,337) (46,567) (54,057) Total operating cash flow $ 662, , ,633 Note : Discovery commerce, education & other includes intercompany eliminations. 46

351 Printed: 24-Jun-2005;20:03:44 (v.162) HTML Page: 49 File: DISK112:[05DEN2.05DEN1432]DQ1432A.;36 Created: ;8-JUN-2005;19:03 Chksum: Folio: 47 User: MCROWE EFW: Doc # 21 U.S. Networks Years ended December 31, amounts in thousands Revenue Advertising $ 943, , ,684 Subscriber fees 611, , ,614 Other 50,120 41,144 18,851 Total revenue 1,605,032 1,351,336 1,121,149 Cost of revenue (501,313) (420,251) (349,898) SG&A expense (503,765) (444,505) (354,305) Operating cash flow $ 599, , ,946 Revenue In 2004, advertising revenue increased 9%, subscriber fees increased 37% and other revenue increased 22%. Substantially all of the U.S. networks saw increases in advertising revenue. Such increases were principally due to higher advertising sell-out and rates. While overall subscription units increased 5%, subscriber fees increased at a higher rate primarily due to contractual rate increases at most U.S. networks combined with a 14% increase in paying subscribers. Free viewing periods related to a number of U.S. networks, principally networks that are carried on the digital tier, expired in 2004 and Discovery began to recognize subscriber fees for those networks. Subscriber fee increases were also helped by reduced launch fee amortization, a contra-revenue item, as a result of extensions of certain affiliation agreements. Launch amortization declined from $118,888,000 in 2003 to $93,763,000 in 2004 primarily due to these extensions. Other revenue primarily increased as a result of increased revenue from Discovery's representation of BBC America. Revenue increased 21% in 2003 primarily due to a 21% increase in advertising revenue and a 16% increase in subscriber fees. Higher advertising revenue was primarily attributable to gains in rates and ratings across nearly all of the U.S. networks. Increased subscriber fees were due to a 20% increase in cumulative subscription units as well as a modest reduction in launch support amortization from $122,429,000 to $118,888,000. Other revenue increased as a result of increased revenue from Discovery's representation of BBC America due to increased distribution of that channel. The U.S. networks group has five networks (Discovery Channel, TLC, Animal Planet, Travel Channel and Discovery Health), which are currently, or pursuant to contractual launch commitments are reasonably anticipated to be, among the most widely-distributed networks in the U.S. pay television industry. Discovery's other U.S. networks are distributed primarily in DTH systems and the digital packages of cable systems and have been successful in maximizing their distribution within this more limited universe. There is, however, no guarantee that these digital networks will ever be able to gain the distribution levels or advertising rates of Discovery's five major networks. Discovery's contractual arrangements with U.S. distributors are renewed or renegotiated from time to time in the ordinary course of business. Discovery has renewed long-term contracts with distributors representing approximately 75% of the U.S. pay television universe, the majority of which have terms through Only 1% of the U.S. networks aggregate subscription units are carried under agreements that are either expired or expire in the next twelve months. 47

352 Printed: 24-Jun-2005;20:03:44 (v.162) HTML Page: 50 File: DISK112:[05DEN2.05DEN1432]DQ1432A.;36 Created: ;8-JUN-2005;19:03 Chksum: Folio: 48 User: MCROWE EFW: Doc # 21 Cost of revenue and SG&A expense In 2004, cost of revenue increased 19%, due primarily to an increase in programming costs. Programming expense increased due to continued investment across all U.S. networks in original productions and high profile specials. The U.S. networks increased the number of hours related to first run premiere programming and exhibited one high profile special production in each quarter on the Discovery Channel. SG&A expenses increased 13% due to an increase in marketing and other variable expenses. Marketing expense increased as the company continued to invest in brand promotion, gaining audience share in a highly competitive market, and securing quality distribution of the U.S. networks. Other variable expenses increased as a result of the increase in revenue. In 2003, cost of revenue increased 20%, primarily due to a 19% increase in programming costs. The increase in programming costs was primarily due to Discovery's renewed emphasis on original productions with a significant increase in the number of programming hours dedicated to first run premiere programming. SG&A expense increased 25% due to a 16% increase in personnel costs and a 41% increase in marketing costs. Personnel costs increased across all of the U.S. networks resulting from the growth of the division. Marketing costs increased at most of the U.S. networks as Discovery invested in campaigns designed to raise channel awareness and increase ratings. International Networks Years ended December 31, amounts in thousands Revenue Advertising $ 190, , ,110 Subscriber fees 364, , ,887 Other 27,966 25,946 35,224 Total revenue 583, , ,221 Cost of revenue (258,108) (236,555) (225,595) SG&A expenses (227,881) (168,896) (167,882) Operating cash flow $ 97,073 68,439 15,744 Revenue In 2004, Discovery's international networks revenue increased 23% primarily as a result of a 20% increase in subscriber fees and a 31% increase in advertising revenue. Increases in subscriber fees were driven principally by increases in subscription units in Europe and the international joint venture channels. More than half of the international networks' advertising revenue is generated by its operations in the United Kingdom with the remainder principally coming from Asia, Latin America and Continental Europe. Specific reasons for the increase in advertising revenue include: (1) higher advertising rates and higher viewership ratings in the U.K. and Latin America and (2) increased distribution in Asia. In 2003, revenue increased 16% as a result of a 16% increase in subscriber fees and a 29% growth in advertising revenue offset slightly by a decrease in other revenue. Subscriber fees increased due to subscription unit growth of 24% and subscription rate increases on paying subscription units across substantially all of its regions. Subscriber fee revenue grew at a slower rate than the overall increase in subscription units due to many of the new subscription units initially being in free preview status. Advertising revenue increased as a result of audience growth in the U.K. and Europe partially offset by 48

353 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 51 File: DISK112:[05DEN2.05DEN1432]DQ1432B.;31 Created: ;8-JUN-2005;19:03 Chksum: Folio: 49 User: MCROWE EFW: Doc # 21 weakness in Latin America. Other revenue decreased due to a reduction in programming sales to third parties. During the years ended December 31, 2004, 2003 and 2002, the international networks group's fluctuations in revenue and operating cash flow were impacted favorably by changes in the exchange rates of various foreign currencies. In the event the U.S. dollar strengthens against certain foreign currencies in the future, the international networks group's revenue and operating cash flow will be negatively impacted. Had there been no impact from changes in exchange rates of foreign currencies, the international networks would have increased revenue and operating cash flow 16% and 35% during the year ended December 31, 2004 and 9% and 208% during the year ended December 31, Cost of revenue and SG&A expense In 2004, cost of revenue increased primarily due to a 2% increase in programming costs combined with the effects of foreign currency fluctuations. Discovery's ability to leverage its U.S. programming library in international markets at minimal translation costs has helped reduce programming expense as a percentage of revenue. SG&A expense for Discovery's international networks increased 35% due to a 20% increase in personnel costs and a 40% increase in marketing expenses. Increases in personnel expense are the result of adding headcount as the business expands particularly in the U.K. and Europe. Higher marketing expenses were experienced across all of the regions as the division continues to brand and create awareness for the channels. Discovery also began investing in an initiative to highlight and strengthen its lifestyles category, particularly in Europe, in the fourth quarter of Increases in other expenses were primarily due to the continued expansion of the business and unfavorable foreign currency exchange rates. Cost of revenue increased 5% in 2003 due to small increases in programming expense due primarily to the effects of foreign currency fluctuations. SG&A expenses were relatively consistent, only increasing 1% during the year ended December 31, Relatively modest increases in expense items despite the larger increase in revenue reflects the benefits of scale economics achieved by the international networks in Discovery's international businesses are subject to a number of risks including fluctuation in currency exchange rates and political unrest. In addition, the economies in many of the regions where Discovery's international businesses operate have recently experienced moderate to severe recessionary conditions, including among others, Argentina, Germany and Japan. These recessionary conditions have strained consumer and corporate spending and financial systems and financial institutions in these areas. As a result, Discovery's operations in these areas have experienced a reduction in consumer spending and demand for services. Discovery Commerce, Education & Other Years ended December 31, amounts in thousands Revenue Other $ 202, , ,641 Eliminations (25,334) (19,845) (7,236) Total revenue 177, , ,405 Cost of revenue (86,895) (94,772) (123,779) SG&A expense (124,694) (121,616) (116,683) Operating Cash Flow $ (34,337) (46,567) (54,057) 49

354 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 52 File: DISK112:[05DEN2.05DEN1432]DQ1432B.;31 Created: ;8-JUN-2005;19:03 Chksum: Folio: 50 User: MCROWE EFW: Doc # 21 The majority of the financial results included in Discovery commerce, education & other are derived from Discovery's chain of retail stores in the United States. Over the past several years, pursuant to an initiative that began at the beginning of 2003, Discovery has closed retail outlets that were not profitable. The average number of retail stores was 122, 144 and 167 for the years ended December 31, 2004, 2003 and 2002, respectively. Revenue The increase in revenue of 4% for Discovery commerce, education & other for the year ended December 31, 2004 was primarily due to an increase in education revenue due to acquisitions, offset by a 5% decrease in store revenue. The decrease in store revenue was due to the closure of unprofitable stores, which resulted in a 15% reduction in the average number of stores. Discovery began an initiative in 2003 to close stores that were not profitable. Lower revenue as a result of fewer stores was partially offset by a 4% improvement in same store sales. In 2003, overall revenue declined slightly due to 14% fewer retail stores, offset by a 30% increase in sales through Discovery's website and catalog. Store revenue was also negatively impacted by a 1% decline in same store sales. Expenses In 2004, cost of revenue declined 8% due to fewer stores. This decrease was offset slightly by disposals of obsolete inventory. SG&A expenses increased due to additional expenses associated with acquired businesses within Discovery's education division combined with store closure costs offset by a reduction in store personnel costs due to lower headcount at the stores as a result of store closures throughout 2004 and In 2003, cost of revenue declined as a result of fewer stores as well as improvements in gross margin from changes in product mix. In 2003, Discovery increased its focus on proprietary products which typically yield higher gross margins. As a result of certain acquisitions and other initiatives in 2004 Discovery believes it will incur additional operating losses in its education division, which could be significant over the next several years. Liquidity & Capital Resources Discovery generated $30,152,000 of cash from operations during the three months ended March 31, 2005 and used $202,435,000 of cash from operations during the comparable prior year period. The company's source of cash from operations during the three months ended March 31, 2005 was its operating cash flow offset by interest expense of $44,908,000 and working capital fluctuations. During the three months ended March 31, 2004, the company's use of cash from operations resulted from operating cash flow less cash paid for interest expense, working capital fluctuations and payments associated with the company's long-term incentive plan in the amount of $207,504,000. During the three months ended March 31, 2005, Discovery paid $92,874,000 to acquire mandatorily redeemable securities related to minority interests in certain consolidated subsidiaries. Discovery also spent $35,459,000 on capital expenditures during the period. Cash flows used for investing purposes during the first quarter of 2004 were not significant. In addition to cash provided by operations, Discovery funds its activities with proceeds borrowed under various debt facilities, including a term loan, a revolving loan facility and various senior notes payable. During the three months ended March 31, 2005 and 2004, net incremental borrowings under debt facilities aggregated $102,000,000 and $254,000,000, respectively. Total commitments of these 50

355 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 53 File: DISK112:[05DEN2.05DEN1432]DQ1432B.;31 Created: ;8-JUN-2005;19:03 Chksum: Folio: 51 User: MCROWE EFW: Doc # 21 facilities were $3,490,000,000 at March 31, Debt outstanding on these facilities aggregated $2,580,000,000 at March 31, 2005, providing excess debt availability of $910,000,000. All term and revolving loans and senior notes are unsecured. They contain covenants that require Discovery to meet certain financial ratios and place restrictions on the payment of dividends, sale of assets, additional borrowings, mergers, and purchases of capital stock, assets and investments. Discovery has indicated they are in compliance with all debt covenants at March 31, In 2005, including amounts discussed above, Discovery expects to spend approximately $125,000,000 for capital expenditures, $170,000,000 for interest expense, and approximately $50,000,000 for LTIP obligations. Amounts expensed and payable under the LTIP are dependent on future annual calculations of unit values which in turn are affected primarily by changes in Discovery's value as estimated by an external investment banking firm, annual grants of additional units, redemptions of existing units, and changes to the plan. Discovery believes that its cash flow from operations and borrowings available under its credit facilities will be sufficient to fund its working capital requirements, including LTIP obligations. Discovery generated $124,690,000, $154,191,000 and $139,010,000 of cash from operations during the years ended December 31, 2004, 2003 and 2002, respectively. In 2004, the decrease in cash provided by operations was due to payments of LTIP obligations partially offset by improved net income. Additionally, Discovery paid $148,880,000 for the acquisition of a minority interest in Discovery Health. As part of his long-term incentive plan with Discovery, John Hendricks, Discovery's Founder and Chairman, had a ten-year incentive agreement that granted him a cash award equal to 1.6% of the difference between Discovery's value at December 31, 1993 and December 31, 2003 for his services as Chairman and Chief Executive Officer during the period. This cash award was paid out to Mr. Hendricks in two installments, one in December 2003 and one in February The portion of the cash award that was paid out in February 2004 along with payments to other members of the Discovery management team during 2004 totaled $240,752,000 in connection with the redemption of units pursuant to the terms of the LTIP. For a further discussion of Discovery's LTIP, please see Note 15 to the Discovery consolidated financial statements on pages F-57 to F-58. In addition to previous long-term incentive plans that have expired and have been paid out as described herein, Mr. Hendricks has been awarded long-term compensation units, which provide Mr. Hendricks with a total 2.5% participation in Discovery's increase in valuation in accordance with Discovery's LTIP. In 2003, the increase in cash provided by operations was principally attributed to Discovery reporting net income of $63,237,000 in 2003 compared to a net loss of $48,056,000 in In 2003, Discovery paid the first installment of the previously mentioned cash payment under John Hendricks' LTIP, along with payments to other members of management, in the amount of $51,023,000. Additionally, Discovery repurchased $55,334,000 of its common equity pursuant to a put right held by John Hendricks, the Founder, Chairman and then Chief Executive Officer of Discovery. Other than obligations under Discovery's LTIP, Discovery is not obligated under any other put rights with respect to Discovery equity securities and does not have any additional obligations to repurchase equity or equity-based securities of Discovery. However, under certain circumstances, Discovery may be required to buy out the minority interests in certain channels that are not currently wholly owned by Discovery. See " Contractual Obligations." Contractual Obligations. Discovery has agreements covering leases of satellite transponders, facilities and equipment. These agreements expire at various dates through Discovery is obligated to license programming under agreements with content suppliers that expire over various dates. Discovery also has other contractual commitments arising in the ordinary course of business. 51

356 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 54 File: DISK112:[05DEN2.05DEN1432]DQ1432B.;31 Created: ;8-JUN-2005;19:03 Chksum: Folio: 52 User: MCROWE EFW: Doc # 21 A summary of all of the expected payments for these commitments as well as future principal payments under the current debt arrangements and minimum payments under capital leases at December 31, 2004 is as follows: Payments due by period(2) Total Less than 1 year 1-3 years 4-5 years After 5 years amounts in thousands Long-term debt $ 2,478, ,000 1,488, ,000 Capital leases 32,267 5,063 11,206 7,583 8,415 Operating leases 477,755 80, ,987 88, ,748 Program license fees 638, , , , ,898 Launch incentives 67,837 33,509 34,328 Other(1) 241,185 66, ,458 63,477 4,080 Total $ 3,935, , ,018 1,760, ,141 (1) Represents Discovery's obligations to purchase goods and services whereby the underlying agreements are enforceable, legally binding and specify all significant terms. The more significant purchase obligations include: agreements related to audience ratings, market research, contracts for entertainment talent and other education and service project agreements. (2) Table does not include certain long-term obligations reflected in the Discovery consolidated balance sheet as the timing of the payments cannot be predicted or the amounts will not be settled in cash. The most significant of these obligations is the $322.4 million accrued under Discovery's LTIP plans. In addition, amounts accrued in the Discovery consolidated balance sheet related to derivative financial instruments are not included in the table as such amounts may not be settled in cash or the timing of the payments cannot be predicted. Discovery is subject to certain contractual agreements that may require Discovery to acquire the ownership interests of minority partners. At the end of 2004, Discovery estimates its aggregate obligations thereunder at approximately $319,567,000. The put rights are exercisable at various dates, certain of which have already been exercised at December 31, The amounts due associated with the put rights that have already been exercised is $142,874,000. In connection with the execution of long-term distribution agreements for certain of its European cable networks, Discovery is committed to pay a distributor a percentage increase in the value of these networks, if any, at the termination of the contract on December 31, Discovery adjusts its recorded liability for changes in the value of these networks each period. However, Discovery is currently unable to predict the likelihood or the terms and conditions of any renewal or extension of the distribution agreements. Discovery will record the effect of a renewed or extended distribution agreement when such terms are in place. The effect of a renewed or extended agreement could result in a payment for an amount significantly greater than the amount currently accrued. 52

357 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 55 File: DISK112:[05DEN2.05DEN1432]DS1432A.;17 Created: ;8-JUN-2005;19:04 Chksum: Folio: 53 User: MCROWE EFW: Doc # 21 OVERVIEW DESCRIPTION OF OUR BUSINESS Discovery Holding is a holding company. Through our wholly owned subsidiary, Ascent Media, and our 50% owned equity affiliate Discovery, we are engaged primarily in (1) the production, acquisition and distribution of entertainment, educational and information programming and software, (2) the retail sale and licensing of branded and other specialty products and (3) the provision of creative, media management and network services to the media and entertainment industries. Our subsidiaries and affiliates operate in the United States, Europe, Latin America and Asia. We are currently a wholly owned subsidiary of LMC. LMC is a holding company, which through its ownership of interests in subsidiaries and other companies is primarily engaged in the electronic retailing, media, communications and entertainment industries. LMC is separating its interests in Ascent Media and Discovery from its other businesses by means of a spin off of our company. Following the spin off, we will be an independent, publicly traded company, and LMC will not retain any ownership interest in us. ASCENT MEDIA Through our subsidiary, Ascent Media, we provide a wide variety of creative, media management and network services to the media and entertainment industries. Ascent Media's clients include the major motion picture studios, independent producers, broadcast networks, programming networks, advertising agencies and other companies that produce, own and/or distribute entertainment, news, sports, corporate, educational, industrial and advertising content. The assets and operations of Ascent Media are composed primarily of the assets and operations of 13 companies acquired from 2000 through 2004, including The Todd-AO Corporation, Four Media Company, certain assets of SounDelux Entertainment Group, Video Services Corporation, Group W Network Services, London Playout Centre and Sony Electronics' systems integration business. The combination and integration of these and other acquired entities allow Ascent Media to offer integrated outsourcing solutions for the technical and creative requirements of its clients, from content creation and other post-production services to media management and transmission of the final product to broadcast television stations, cable system head-ends and other destinations and distribution points. LMC acquired a controlling equity interest in Ascent Media, then known as The Todd-AO Corporation, on June 9, From 2000 through 2003, LMC obtained additional voting stock and convertible promissory notes of Ascent Media through the contributions of certain assets and operations acquired by LMC, as well as cash investments. The assets acquired by LMC and contributed to Ascent Media included: 100% of the common stock of Four Media Company (June 2000); the post-production and related assets and operations of SounDelux Entertainment Group (July 2000); and 100% of the common stock of Video Services Corporation (December 2000). On July 1, 2003, LMC acquired all the outstanding capital stock of Ascent Media that it did not already own, in exchange for shares of LMC Series A common stock, through the merger of Amethyst Merger Sub, Inc., an indirect subsidiary of LMC, with and into Ascent Media. Because, prior to the closing of such merger, that entity held more than 90% of the common stock of Ascent Media, the transaction was able to be consummated as a "short-form" merger under Delaware law, which meant that no vote of Ascent Media's minority stockholders was held or required. 53

358 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 56 File: DISK112:[05DEN2.05DEN1432]DS1432A.;17 Created: ;8-JUN-2005;19:04 Chksum: Folio: 54 User: MCROWE EFW: Doc # 21 Ascent Media's operations are organized into three main categories: creative services, media management services and network services. Creative Services Ascent Media's creative services group provides various technical and creative services necessary to complete principal photography into final products, such as feature films, movie trailers, documentaries and independent films, episodic television, TV movies and mini-series, television commercials, music videos, interactive games and new digital media, promotional and identity campaigns and corporate communications. These services are referred to generally in the entertainment industry as "post-production" services. Ascent Media markets its creative services under various well-known brand names, including Company 3, Digital Symphony, Encore Hollywood, FilmCore, Level 3 Post, Method, One Post, POP Sound, R!OT, Rushes, Soho Images, Soundelux, Sound One, St. Anne's Post, Modern Music and Todd-AO. The creative services client base comprises the major domestic film studios, independent television production companies, broadcast networks, advertising agencies, creative editorial companies and corporate media producers. The principal facilities of the creative services group are in Los Angeles, New York, Atlanta, San Francisco, Mexico City and London. Key services provided by Ascent Media's creative services group include the following: Dailies. Clients require daily screening of their previous day's recorded work in order to evaluate technical and aesthetic qualities of the production and begin the creative editorial process. Ascent Media provides the film development, digital transfer from film to video, and video processing necessary for clients to view principal photography on a daily basis, also known as "dailies." For clients that record their productions on film, Ascent Media processes and prints film negatives for film projection in a linear manner. The company also delivers dailies that are transferred from film to digital media using telecine equipment. The transfer process is technically challenging and is used to integrate various forms of audio and encode the footage with feet and frame numbers from the original film. Dailies delivered as a digital file can be processed in high definition or standard definition video and can be screened in a nonlinear manner on a variety of playback equipment. Telecine. Telecine is the process of transferring film into video (in either analog or digital medium). During this process, a variety of parameters can be manipulated, such as color and contrast. Because the color spectrum of film and digital media are different, Ascent Media has creative talent who utilize creative colorizing techniques, equipment and processes to enable its clients to achieve a desired visual look and feel for television commercials and music videos, as well as feature films and television shows. Ascent Media also provides live telecine services via satellite, using a secure closed network able to accurately transmit subtle color changes to connect its telecine artists with client offices or other affiliated post-production facilities. Digital intermediates. Ascent Media's digital intermediates service provides customers with the ability to convert film to a high resolution digital master file for color correction, creative editorial and electronic assembly of masters in other formats. If needed, the digital file can then be converted back to film. Creative Editorial. After principal photography has been completed, Ascent Media's editors assemble the various elements into a cohesive story consistent with the messaging, branding and creative direction by Ascent Media's clients, which are mainly advertising agencies. Ascent Media provides the tools and talent required to support its clients through all stages of the editing process, beginning with the low-resolution digital images and off-line editing workstations used to create an edit decision list, through the high-resolution editorial process used to complete a final product suitable for broadcast. In addition, Ascent Media is able to offer expanded communications infrastructure to 54

359 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 57 File: DISK112:[05DEN2.05DEN1432]DS1432A.;17 Created: ;8-JUN-2005;19:04 Chksum: Folio: 55 User: MCROWE EFW: Doc # 21 provide digital images directly from the film-to-tape transfer process to a workstation through dedicated data lines. Visual effects. Visual effects are used to enhance the viewing audience's experience by supplementing images obtained in principal photography with computer-generated imagery and graphical elements. Visual effects are typically used to create images that cannot be created by any other cost-effective means. Ascent Media also provides services on an array of graphics and animation workstations using a variety of software to accomplish unique effects, including three-dimensional animation. Assembly, formatting and duplication. Ascent Media implements clients' creative decisions, including decisions regarding the integration of sound and visual effects, to assemble source material into its final form. In addition, Ascent Media uses sophisticated computer graphics equipment to generate titles and character imagery and to format a given program to meet specific network requirements, including time compression and commercial breaks. Finally, Ascent Media creates multiple master videotapes for delivery to the network for broadcast, archival and other purposes designated by the customer. Distribution. Once a television commercial has been completed, Ascent Media provides broadcast and support services, including complete video and audio duplication, distribution, and storage and asset management, for advertising agencies, corporate advertisers and entertainment companies. Ascent Media uses domestic and international satellite, fiber and Integrated Services Digital Network, or ISDN, Internet access, and conventional air freight for the delivery of television and radio spots. Ascent Media currently houses over 85,000 commercial production elements in its vaults for future use by its clients. Ascent Media's commercial television distribution facilities in Los Angeles and San Francisco, California and its satellite hub facilities in New York, enable Ascent Media to service any regional or national client. Sound Supervision, Sound Design and Sound Editorial. Ascent Media provides creative talent, state of the art facilities and support services to create sound for feature films, television content, commercials and trailers, interactive multimedia games and special live venues. Sound supervisors ensure that all aspects of sound, dialogue, sound effects and music are properly coordinated. Ascent Media's sound services include, but are not limited to, sound editing, sound design, sound effect libraries, ADR (automated dialogue replacement, a process for editing the spoken portion of a film) and Foley (non-digital sound effects). Music Services. Music services are an essential component of post-production sound. Ascent Media has the technology and talent to handle all types of music-related services, including original music composition, music supervision, music editing, scoring/recording, temporary sound tracks, composer support and preparing music for soundtrack album release. Re-recording / Mixing. Once the sound editors, sound designers, composers, music editors, ADR and Foley crews, and many others, have prepared all the elements that will make up the finished product, the final component of the creative sound post production process is the mix (or re-recording). Mixing a film involves the process of combining multiple elements, such as tracks of sound effects, dialogue and music, to complete the final product. Ascent Media maintains a significant number of mixing stages, purpose-built and provisioned with advanced recording equipment, capable of handling any type of project, from major motion pictures to smaller independent films. Sound Effects and Music Libraries. Through its Soundelux brand, Ascent Media maintains an extensive sound effects library with over 300,000 unique sounds, which editors and clients access through the company's intranet and remotely via the Internet. The company also owns several production music libraries through its Hollywood Edge brand. Ascent Media's clients use the sound 55

360 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 58 File: DISK112:[05DEN2.05DEN1432]DS1432A.;17 Created: ;8-JUN-2005;19:04 Chksum: Folio: 56 User: MCROWE EFW: Doc # 21 effects and music libraries in feature films, television shows, commercials, interactive and multimedia games. The company actively continues to add new, original recordings to its library. Media Management Services Ascent Media's media management services group provides owners of content libraries with a full complement of facilities and services necessary to optimize, archive, manage and repurpose media assets for global distribution via freight, satellite, fiber and the Internet. Ascent Media's media facilities are located in Burbank, Hollywood and Santa Monica, California; Northvale, New Jersey; and London, England. The media management services client base includes the major motion picture studios and their international divisions as well as independent owners of television and film libraries and emerging new media distribution channels. Key services provided by Ascent Media's media management services group include the following: Negative developing and cutting. Ascent Media's film laboratories provide negative developing for television shows such as one-hour dramas and movie-length programming, including negative developing of "dailies" (the original negative shot during each production day), as well as the often complex and technically demanding commercial work and motion picture trailers. Ascent Media also provides negative cutting services for the distribution of commercials on film. Restoration, preservation and asset protection of existing and damaged content. Through its recently-acquired facility, Cinetech, and its other laboratory facilities, Ascent Media is now a leader in film restoration, preservation and asset protection. Ascent Media's technicians use photochemical and digital processes to clean, repair and rebuild a film's elements in order to return the content to its original and sometimes improved image quality. Ascent Media also protects film element content from future degradation by transferring the film's image to newer archival film stocks. Ascent Media also provides asset protection services for its client's color library titles, which is a preservation process whereby B/W, silver image, polyester, positive and color separation masters are created, sufficiently protecting the images of new and older films. Transferring film to analog video or digital media. A considerable amount of film content is ultimately distributed to the home video, broadcast, cable or pay-per-view television markets. This requires film images to be transferred to an analog video or digital file format. Each frame must be color corrected and adapted to the size and aspect ratio of a television screen in order to ensure the highest level of conformity to the original film version. Because certain film formats require transfers with special characteristics, it is not unusual for a motion picture to be mastered in many different versions. Technological developments, such as the domestic introduction of television sets with a 16 9 aspect ratio and the implementation of advanced and high definition digital television systems for terrestrial and satellite broadcasting, are expected to contribute to the growth of Ascent Media's film transfer business. Ascent Media also digitally removes dirt and scratches from a damaged film master that is transferred to a digital file format. Professional duplication and standards conversion. Ascent Media provides professional duplication, which is the process of creating broadcast quality and resolution independent sub-masters for distribution to professional end users. Ascent Media uses master elements to make sub-masters in numerous domestic and international broadcast standards as well as up to 22 different tape formats. Ascent Media also provides standards conversion, which is the process of changing the frame rate of a video signal from one video standard, such as the United States standard (NTSC), to another, such as a European standard (PAL or SECAM). Content is regularly copied, converted and checked by quality control for use in intermediate processes, such as editing, on-air backup and screening and for final delivery to cable and pay-per-view programmers, broadcast networks, television stations, airlines, home video duplicators and foreign distributors. Ascent Media's duplication and standards conversion 56

361 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 59 File: DISK112:[05DEN2.05DEN1432]DS1432B.;11 Created: ;8-JUN-2005;19:04 Chksum: Folio: 57 User: MCROWE EFW: Doc # 21 facilities are technically advanced with unique characteristics that significantly increase equipment capacity while reducing error rates and labor cost. Syndicated Television Distribution. Ascent Media's syndication services provide AMOL-encoding and closed-captioned sub-mastering, commercial integration, library distribution, station list management and v-chip encoding. Ascent Media distributes syndicated television content by freight, satellite, fiber or the Internet, in formats ranging from low-resolution proxy streams to full-bandwidth high-definition television and streaming media. DVD Compression and Authoring and Menu Design. Ascent Media also provides all stages of DVD production, including creative menu design, special feature production, project management, encoding, 5.1 surround editing and quality control. Ascent Media also prepares and optimizes content for evolving formats of digital distribution, such as video-on-demand and interactive television. Storage of original elements and working masters. Ascent Media's archives are designed to store working master videotapes and film elements in a highly controlled environment protected from temperature and humidity variation, seismic disturbance, fire, theft and other external events. In addition to the physical security of the archive, content owners require frequent and regular access to their libraries. Physical elements stored in Ascent Media's archive are uniquely bar-coded and maintained in a library management database offering rapid access to elements, concise reporting of element status and element tracking throughout its travel through Ascent Media's operations. Network Services Ascent Media's network services group provides services to broadcast, cable and satellite programming networks, local television channels, broadcast syndicators, satellite broadcasters, other broadband telecommunications companies and corporations that operate private networks. Ascent Media's network services group operates from facilities located in California, Connecticut, Florida, Minnesota, New York, New Jersey, the United Kingdom and Singapore. Key services provided by Ascent Media's network services group include the following: Network origination and master control. Ascent Media provides videotape and file-based playback and origination to cable, satellite and pay-per-view programming networks. Ascent Media accepts daily program schedules, programs, promotional materials and advertising and transmits 24 hours of seamless daily programming to cable operators, direct broadcast satellite systems and other destinations, over fiber and satellite, using automated systems for broadcast playback. Ascent Media also operates industry-standard encryption and/or compression systems as needed for customer satellite transmission and offers quality control, tape storage and trafficking services. Ascent Media operates television production studios with live-to-satellite interview services, cameras, production and audio control rooms, videotape playback and record, multi-language prompters, computerized lighting, dressing and makeup rooms and field and teleconferencing services. Ascent Media offers complete post-production services for on-air promotions, including graphics, editing, voice-over record, sound effects editing, sound mixing and music composition. For programming designed for export to other markets, Ascent Media provides language translation, subtitling and voice dubbing. Currently, over two hundred 24/7 programming feeds are supported by Ascent Media's facilities in the United States, London and Singapore. Satellite transport. Ascent Media operates satellite earth station facilities in Singapore, California, New York, New Jersey, Minnesota, Connecticut and Florida. Ascent Media's facilities are staffed 24 hours a day and may be used for uplink, downlink and turnaround services. Ascent Media accesses various "satellite neighborhoods," including basic and premium cable, broadcast syndication, direct-to-home and DBS markets. Ascent Media resells transponder capacity for occasional and full-time use and bundles its transponder capacity with other broadcast and syndication services to 57

362 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 60 File: DISK112:[05DEN2.05DEN1432]DS1432B.;11 Created: ;8-JUN-2005;19:04 Chksum: Folio: 58 User: MCROWE EFW: Doc # 21 provide a complete broadcast package at a fixed price. Ascent Media's "teleports" are high-bandwidth communications gateways with video switches and facilities for satellite, optical fiber and microwave transmission. Ascent Media's facilities offer satellite antennae capable of transmitting and receiving feeds in both C-Band and Ku-Band frequencies. Ascent Media also provides transportable services, including point-to-point microwave transmission, transportable up-link and downlink transmission and broadcast quality teleconference services. Engineering and systems integration. Ascent Media designs, builds, installs and services advanced video systems for the broadcast, cable television and other broadband telecommunications industries and other professional and corporate markets. Ascent Media's engineering and systems integration clients include major broadcast networks, numerous cable channels, corporate television networks, a major telecommunications company and numerous production and post-production facilities. Strategy The entertainment services industry has been historically fragmented with numerous providers offering discrete, geographically-limited, non-integrated services. Ascent Media's services, however, span the entirety of the value chain from the creation and management of content to the delivery of content via multiple transmission paths including satellite, fiber and Internet Protocol-based networks. Ascent Media believes the breadth and range of its services uniquely provide Ascent Media the scale and flexibility necessary to realize significant operating and marketing efficiencies: a global, scaleable media services platform integrating preparation, management and transmission services; common "best practices" operations management across the Ascent Media enterprise; and integration of financial and administrative functions. In Ascent Media's media management and network services businesses, and with large institutional clients that utilize a broad range of its services, Ascent Media intends to build awareness of the Ascent Media enterprise and promote Ascent Media as a global brand name for integrated suites of services, while continuing to support the identity and customer loyalty associated with Ascent Media's established "boutique" brands in the creative services industry. Ascent Media's objective is to be a leading provider of services to the media and entertainment industry and to provide customers quality solutions for the creation, management and transmission of content, individually and as part of a package solution on a global basis. Ascent Media intends to achieve this objective by pursuing the following strategies: Establish centralized, scalable financial and operating infrastructure. Ascent Media is building technical, operational, financial and internal control systems to improve financial administration. Ascent Media is reducing overhead through centralization and has begun to restructure its operations to improve margins and financial performance. Develop and grow its core businesses. Ascent Media intends to leverage its opportunities of scale, its technical capacities, its breadth of services and its global reach in order to broaden its relationships within the organizational structure of its client base. Ascent Media intends to further integrate its facilities and operations to establish "best practices" and increase scale and capacity to drive growth. Ascent Media's goal is to deploy proven, leading technologies in a consistent manner across all of its operations. Ascent Media also expects to spend approximately $9 million in 2005 to build a digital media distribution center, in order to consolidate the digital services provided by Ascent Media's media management group, which Ascent Media believes will expand its capacity by streamlining the manufacturing processes used in Ascent Media's traditional media management businesses. Leverage its core businesses in the developing digital media service platform. Ascent Media intends to leverage its existing client relationships, technological expertise and digital infrastructure to build new revenue streams in emerging new media markets. Ascent Media intends to develop new business opportunities in areas such as digital imaging, digital media management and interactive media, and, in 58

363 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 61 File: DISK112:[05DEN2.05DEN1432]DS1432B.;11 Created: ;8-JUN-2005;19:04 Chksum: Folio: 59 User: MCROWE EFW: Doc # 21 connection with that objective, Ascent Media has created a digital asset management system to store and allow clients to manipulate, repurpose and direct Ascent Media to perform services on their digital assets. Ascent Media believes this technology can be exploited both for commercial clients (for management of advertising and marketing content) and for Ascent Media's major studio clients (for management of film and television libraries). Drive the convergence of traditional and new media. Ascent Media intends to create joint ventures, partnerships and alliances with technology providers, content creators and multichannel video programming distributors to create cost effective scalable infrastructure to drive new media revenue streams. Ascent Media intends to assist in the development of industry standards and business models to help develop new media opportunities. No assurance can be given that any such new products and services will achieve market acceptance. Seasonality The demand for Ascent Media's core motion picture services, primarily in its creative services group, has historically been seasonal, with higher demand in the spring (second fiscal quarter) and fall (fourth fiscal quarter), and lower in the winter and summer. Similarly, demand for Ascent Media's television program services, primarily in its creative services group, is higher in the first and fourth quarters and lower in the summer, or third quarter. Demand for Ascent Media's commercial services, primarily in its creative services group, are fairly consistent with slightly higher activity in the third quarter. However, recent trends in the demand for television program services may result in increased business for Ascent Media in the summer. In addition, the timing of projects in Ascent Media's media management services group and network services group are beginning to offset the quarters in which there has been historically lower demand for Ascent Media's motion picture and television services. Accordingly, Ascent Media expects to experience less dramatic quarterly fluctuations in its operating performance in the future. DISCOVERY Discovery Communications, Inc. is a leading global media and entertainment company. Discovery has grown from the 1985 launch in the United States of its core property, Discovery Channel, to current global operations in over 160 countries across six continents, with over 1 billion total cumulative subscription units. The company operates its businesses in three groups: Discovery networks U.S., Discovery networks international, and Discovery commerce, education and other. Discovery's relationships and agreements with the distributors of its channels are critical to its business as they provide Discovery's subscription revenue stream and access to an audience for advertising sales purposes. There has been a great deal of consolidation among cable and satellite television operators in the United States in recent years, with over 90% of the pay television households in the country now controlled by the top eight distributors. Discovery also operates in certain overseas markets which have experienced similar industry consolidation. Industry consolidation has generally provided more leverage to the distributors in their relationships with programmers. Accordingly, as its carriage agreements expire, Discovery may not be able to obtain terms in new carriage agreements that are comparable to terms in its existing agreements. Discovery earns revenue from the sale of advertising on its networks, from delivery of its programming pursuant to affiliation agreements with cable television and direct-to-home satellite operators (which is described as subscriber fees throughout this document), from licensing its programs for international distribution and from product sales in its retail outlets. Subscriber fees, as described, includes all components of revenue earned through affiliation agreements. Discovery's affiliation agreements typically have terms of 3 to 10 years and provide for payments based on the number of subscribers that receive Discovery's services. No single distributor represented more than 10% of 59

364 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 62 File: DISK112:[05DEN2.05DEN1432]DS1432B.;11 Created: ;8-JUN-2005;19:04 Chksum: Folio: 60 User: MCROWE EFW: Doc # 21 Discovery's consolidated revenue for the year ended December 31, Discovery has grown its global network business by securing as broad a subscriber base as possible for each of its channels by entering into affiliate agreements. After obtaining scalable distribution of its networks, Discovery invests in programming and marketing in order to build a viewing audience to support advertising sales. In certain cases, Discovery has made cash payments to distributors in exchange for carriage or has entered into contractual arrangements that allow the distributors to show certain of Discovery's channels for extended free periods. In the United States, Discovery has developed the necessary audience and ratings for its programming such that advertising sales now provide more revenue than channel subscriptions. In 2004, approximately 59% of the revenue for Discovery's U.S. networks came from advertising sales and approximately 38% was subscription revenue. Subscription revenue still accounts for the majority of the international networks' revenue base (in 2004, approximately 63% of the division's revenue came from subscriptions), and this is anticipated to be the case for the foreseeable future. As a result, growing the distribution base for existing and newly launched international networks will continue to be the primary focus of the international division. Discovery's principal operating costs consist of programming expense, sales and marketing expense, personnel expense and general and administrative expenses. Programming is Discovery's largest expense, representing 29% of Discovery's total operating costs in Costs incurred and capitalized for the direct production of programming content are amortized over varying periods based on the expected realization of revenue from the underlying programs. This methodology generally results in an accelerated amortization for developed U.S. networks over a four-year period and straight-line amortization for all international networks (over three years) and developing U.S. networks (over three to five years). Licensed programming is amortized over the contract period based on the expected realization of revenue. Discovery incurs sales and marketing expense to promote brand recognition and to secure quality distribution channels worldwide. Discovery produces original programming and acquires content from numerous producers worldwide that is tailored to the specific needs of viewers around the globe. Discovery believes it is generally well positioned for continued access to a broad range of high-quality programming for both its U.S. and international networks. It has assembled one of the largest libraries of non-fiction programming and footage in the world, due both to the aggregate purchasing power of its many networks and a policy to own as many rights as possible in the programs aired on its networks. Discovery also has long-term relationships with some of the world's most significant non-fiction program producers, including the BBC. Discovery believes the broad international appeal of its content combined with its ability to adapt its significant programming library to international markets for relatively low costs is one of its competitive advantages. Discovery is also developing programming applications designed to position the company to take advantage of emerging distribution technologies including subscription video-on-demand, IP-delivered programming, wireless and mobile. Discovery's other properties consist of Discovery.com and over 100 retail outlets that offer lifestyle, health, science and education oriented products, as well as products related to other programming offered by Discovery. Additionally, Discovery's newest division, Discovery education, distributes educational materials to over 85,000 schools in the United States and to schools in many countries around the world. Discovery is a leader in offering solutions to advertisers that allow them to reach a broad range of audience demographics in the face of increasing fragmentation of audience share. The overall industry is facing several issues with regard to its advertising revenue, including (1) audience fragmentation caused by the proliferation of other television networks, video-on-demand offerings from cable and satellite companies and broadband content offerings; (2) the deployment of digital video recording devices (DVRs), allowing consumers to time shift programming and skip or fast-forward through advertisements; and (3) consolidation within the advertising industry, shifting more leverage to the bigger agencies and buying groups. 60

365 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 63 File: DISK112:[05DEN2.05DEN1432]DU1432A.;36 Created: ;8-JUN-2005;19:04 Chksum: Folio: 61 User: MCROWE EFW: Doc # 21 Discovery Networks U.S. Discovery networks U.S. currently operates 13 channels and provides distribution and advertising sales services for BBC America. The division's channels include Discovery Channel, TLC, Animal Planet, Travel Channel, Discovery Health, Fit TV and the following emerging digital tier networks: The Science Channel, Discovery Kids, The Military Channel, Discovery Home, Discovery Times, Discovery en Español and Discovery HD Theater, which we refer to collectively as the emerging networks. All of these channels are wholly owned by Discovery other than Animal Planet, in which Discovery's shareholders, collectively, and the British Broadcasting Corporation (BBC) each own 20%, and Discovery Times, in which The New York Times Company owns 50%. At December 31, 2004, News Corporation, Inc. owned 10% of each of Discovery Health and Fit TV, however, Discovery acquired their remaining ownership interests and settled other obligations for $97,772,000 in the first half of The division also operates web sites related to its channel businesses and various other new media businesses, including a video-on-demand offering distributed by various cable operators. Following is a summary of subscription units for the U.S. network's primary channels as well as the aggregate subscription units associated with its emerging networks: Subscription units at December 31, (amounts in thousands) Discovery Channel 89,500 88,500 87,000 TLC(1) 87,900 87,000 85,000 Animal Planet 86,400 84,500 81,100 Travel Channel 77,000 74,100 68,400 Discovery Health 54,900 48,300 41,000 Fit TV 35,900 31,900 29,000 Emerging networks 187, ,600 97,000 Cumulative subscription units 618, , ,500 (1) Excludes 6.9 million, 6.7 million and 6.6 million subscription units associated with the U.S. feed of TLC into certain markets in Canada. Note Regarding BBC America Representation: The above subscription units information excludes 40.9 million, 37.6 million and 33.2 million subscription units for BBC America, a service in which Discovery does not have an ownership interest but is responsible for distribution and advertising sales services in the United States. Discovery Networks International Discovery networks international, or the international networks, manages a portfolio of channels, led by Discovery Channel and Animal Planet, that are distributed in virtually every pay-television market in the world via an infrastructure that includes major operational centers in London, Singapore, New Delhi and Miami. Discovery networks international currently operates over 85 separate feeds in 33 languages with channel feeds customized according to language needs and advertising sales opportunities. Most of the division's channels are wholly owned by Discovery with the exception of (1) the international Animal Planet channels, which are generally joint ventures in which the BBC owns 50%, (2) People + Arts, which operates in Latin America and Iberia as a joint venture with the BBC and (3) several channels in Japan and Canada, which operate as joint ventures with strategically important local partners. As with the U.S. networks division, the international networks operate web sites and other new media businesses. In 2004, the group undertook a major new initiative to re-launch 61

366 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 64 File: DISK112:[05DEN2.05DEN1432]DU1432A.;36 Created: ;8-JUN-2005;19:04 Chksum: Folio: 62 User: MCROWE EFW: Doc # 21 certain existing networks and launch several new networks to create a package of three lifestyle-focused networks for distribution on a global basis. Following is a summary of subscription units for the international networks by geographic region as estimated by Discovery's management: Subscription Units at December 31, (amounts in thousands) Europe* 153, , ,000 Latin America 80,100 71,000 64,800 Asia 331, , ,400 Cumulative subscription units 565, , ,200 * Europe includes Middle East and Africa Note: A significant number of the subscription units included above, particularly in Asia, represent subscribers that are reached through branded programming blocks on other networks, which are provided without charge. Discovery Commerce, Education & Other This group includes Discovery commerce, which operates a chain of retail stores in the United States that offer lifestyle, health, science and education-oriented products, as well as products specifically related to programming on Discovery's networks. This division also operates a catalog and electronic commerce business selling products similar to that sold in the Discovery Channel Stores, as well as a licensing business that licenses Discovery trademarks and intellectual property to third parties for the purpose of creating and selling retail merchandise. This group also includes Discovery education. Since 2003, Discovery has acquired three companies which were involved in the streaming business. In 2004, the company expanded beyond its traditional education businesses of airing educational programming on its networks and selling hard copies of such programs to schools and began streaming educational video material into schools via the internet. Discovery education now operates United Streaming, a leading educational broadband streaming service in the United States. This service earns revenue through annual subscription fees paid by schools and school districts which use the service. Discovery Stockholders' Agreement A subsidiary of ours, together with Cox Communications and Advance/Newhouse, and John Hendricks, the founder and Chairman of Discovery, are parties to a Stockholders' Agreement. We own 50%, and Cox Communications and Advance/Newhouse each own 25%, of Discovery. Mr. Hendricks is the record holder of one share of capital stock of Discovery; however, Mr. Hendricks cannot transfer this share, the share is subject to an irrevocable proxy in favor of Advance/Newhouse and the share is subject to a call arrangement pursuant to which Advance/Newhouse can purchase the share. Accordingly, we treat such share as being owned by Advance/Newhouse for purposes of Advance/Newhouse's percentage ownership of Discovery as described in this information statement. As a "close corporation" under Delaware law, the stockholders manage the business of Discovery, rather than a board of directors. The Stockholders' Agreement provides that a number of decisions affecting Discovery, such as, among other things, a decision to effect a fundamental change in its business, a merger or other business combination, issuance of Discovery's equity securities, approval of transactions between Discovery, on the one hand, and any of its stockholders, on the other hand, and adoption of 62

367 Printed: 24-Jun-2005;20:03:45 (v.162) HTML Page: 65 File: DISK112:[05DEN2.05DEN1432]DU1432A.;36 Created: ;8-JUN-2005;19:04 Chksum: Folio: 63 User: MCROWE EFW: Doc # 21 Discovery's annual business plan, must be approved by the holders of 80% of its outstanding capital stock. In addition, other matters, such as the declaration and payment of dividends on its capital stock, require the approval of the holders of a majority of Discovery's outstanding capital stock. Because we own 50%, Cox Communications owns 25% and Advance/Newhouse owns 25% of the stock of Discovery, any one of us may block Discovery from taking any action that requires 80% approval. In addition, because Cox Communications and Advance/Newhouse, on the one hand, and our company, on the other, each owns 50% of the outstanding stock of Discovery, there is the possibility that the stockholders could deadlock over various other matters, which require the approval of the holders of a majority of its capital stock. To reduce the possibility that this could occur, the stockholders have given John Hendricks, the founder and Chairman of Discovery, the right (but not the obligation), subject to certain limitations, to cast a vote to break a deadlock on certain matters requiring a majority vote for approval. The Stockholders' Agreement also restricts, subject to certain exceptions, the ability of a stockholder to transfer its shares in Discovery to a third party. Any such proposed transfer is subject to a pro rata right of first refusal in favor of the other stockholders. If all of the offered shares are not purchased by the other stockholders, then the selling stockholder may sell all of the offered shares to the third party that originally offered to purchase such shares at the same price and on the same terms, provided that such third party agrees to be bound by the restrictions contained in the Stockholders' Agreement. In addition, in the event that either Cox Communications or Advance/Newhouse proposes to transfer shares, Cox Communications or Advance/Newhouse, whichever is not proposing to transfer, would have the right to buy the other's shares, and if it does not elect to purchase all such shares, we would have the right to purchase any shares not purchased pursuant to that right. The Stockholders' Agreement also prohibits Cox Communications, Advance/Newhouse and our company from starting, or acquiring a majority of the voting power of, a basic programming service carried in the United States that consists primarily of documentary, science and nature programming, subject to certain exceptions. In connection with the spin off, LMC contributed to us 100% of an entity that owns a 10% interest in the Animal Planet limited partnership. The other partners of the Animal Planet include Discovery, Cox Communications, Advance/Newhouse and the BBC. The Stockholders' Agreement prohibits us from selling, transferring or otherwise disposing of either of the subsidiaries that hold the Discovery interest or Animal Planet interest, respectively, unless, after such transaction, such subsidiaries are controlled by the same person or entity. The foregoing summary of the Discovery Stockholders' Agreement is qualified by reference to the full text of the agreement and amendments, which are filed as exhibits to the Form 10 registration statement of which this information statement is a part. GEOGRAPHIC AREAS Please see Note 15 Information about Operating Segments of our Combined Financial Statements included in this information statement for certain financial information in each geographic area in which we conduct business. CUSTOMERS For the year ended December 31, 2004, no single customer accounted for more than 10% of Ascent Media's consolidated revenue. Although Ascent Media serviced over 4,000 customers during the year ended December 31, 2004, its ten largest customers accounted for approximately 45% of its consolidated revenue and its single largest customer accounted for approximately 7% of its 63

368 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 66 File: DISK112:[05DEN2.05DEN1432]DU1432A.;36 Created: ;8-JUN-2005;19:04 Chksum: Folio: 64 User: MCROWE EFW: Doc # 21 consolidated revenue during the period. The loss of, and failure to replace, any significant portion of the services provided to any significant customer could have a material adverse effect on Ascent Media. For the year ended December 31, 2004, no single customer accounted for more than 10% of Discovery's consolidated revenue. REGULATORY MATTERS Ascent Media Some of Ascent Media's subsidiary companies hold licenses and authorizations from the Federal Communications Commission, or FCC, required for the conduct of their businesses, including earth station and various classes of wireless licenses and an authorization to provide certain services pursuant to Section 214 of the Communications Act. Most of the FCC licenses held by such subsidiaries are for transmit/receive earth stations, which cannot be operated without individual licenses. The licenses for these stations are granted for a period of fifteen years and, while the FCC generally renews licenses for satellite earth stations, there can be no assurance that these licenses will be renewed at their expiration dates. Registration with the FCC, rather than licensing, is required for receiving transmissions from domestic satellites from points within the United States. Ascent Media relies on third party licenses or authorizations when it and its subsidiaries transmit domestic satellite traffic through earth stations operated by third parties. The FCC establishes technical standards for satellite transmission equipment that change from time to time and requires coordination of earth stations with land-based microwave systems at certain frequencies to assure non-interference. Transmission equipment must also be installed and operated in a manner that avoids exposing humans to harmful levels of radio-frequency radiation. The placement of earth stations or other antennae also is typically subject to regulation under local zoning ordinances. Discovery In the United States, the FCC regulates the providers of satellite communications services and facilities for the transmission of programming services the cable television systems that carry such services and, to some extent, the availability of the programming services themselves through its regulation of program licensing. Cable television systems in the United States are also regulated by municipalities or other state and local government authorities and are currently subject to federal rate regulation on the provision of basic service. Continued rate regulation or other franchise conditions could place downward pressure on the fees cable television companies are willing or able to pay for the Discovery networks. Regulatory carriage requirements also could adversely affect the number of channels available to carry the Discovery networks. The Cable Television Consumer Protection and Competition Act of 1992 (the 1992 Cable Act) directed the FCC to promulgate regulations regarding the sale and acquisition of cable programming between multi-channel video programming distributors (including cable operators) and satellite-delivered programming services in which a cable operator has an attributable interest. Because cable operators have an attributable interest in Discovery, the Discovery networks are subject to these rules. The legislation and the implementing regulations adopted by the FCC preclude virtually all exclusive programming contracts between cable operators and satellite programmers affiliated with any cable operator and the 1992 Cable Act requires that such affiliated programmers make their programming services available to cable operators and competing multi-channel video programming distributors on terms and conditions that do not unfairly discriminate among distributors. As a result, Discovery has not been, and will not be, able to enter into exclusive distribution agreements, which could provide more favorable terms than non-exclusive agreements. The 1992 Cable Act required the FCC, among other things, to prescribe rules and regulations establishing reasonable limits on the number of channels on a cable system that will be allowed to carry 64

369 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 67 File: DISK112:[05DEN2.05DEN1432]DU1432B.;20 Created: ;8-JUN-2005;19:04 Chksum: Folio: 65 User: MCROWE EFW: Doc # 21 programming in which the owner of such cable system has an attributable interest. In 1993, the FCC adopted such channel carriage limits. However, in 2001, the United States Court of Appeals for the District of Columbia Circuit found that the FCC had failed to justify adequately the channel carriage limit, vacated the FCC's decision and remanded the rule to the FCC for further consideration. In response to the Court's decision, the FCC issued a further notice of proposed rulemaking in 2001 to consider channel carriage limitations, which remains pending. If such channel carriage limitations are implemented, the ability of Cox Communications and Advance/Newhouse to carry the full range of Discovery's networks could be limited. The 1992 Cable Act granted broadcasters a choice of must carry rights or retransmission consent rights. The rules adopted by the FCC generally provided for mandatory carriage by cable systems of all local full-power commercial television broadcast signals selecting must carry rights and, depending on a cable system's channel capacity, non-commercial television broadcast signals. Such statutorily mandated carriage of broadcast stations coupled with the provisions of the Cable Communications Policy Act of 1984, which require cable television systems with 36 or more "activated" channels to reserve a percentage of such channels for commercial use by unaffiliated third parties and permit franchise authorities to require the cable operator to provide channel capacity, equipment and facilities for public, educational and government access channels, could adversely affect the Discovery networks by limiting their carriage of such services in cable systems with limited channel capacity. In 2001, the FCC adopted rules relating to the cable carriage of digital television signals. Among other things, the rules clarify that a digital-only television station can assert a right to analog or digital carriage on a cable system. The FCC initiated a further proceeding to determine whether television stations may assert rights to carriage of both analog and digital signals during the transition to digital television and to carriage of all digital signals. On February 10, 2005, the FCC denied mandatory dual carriage of a television station's analog and digital signals during the digital television transition and mandatory carriage of all digital signals, other than its "primary" signal. Television station owners may seek judicial review of the FCC's decision or legislative change. In 2004, the FCC's Media Bureau conducted a notice of inquiry proceeding regarding the feasibility of selling video programming services "a la carte", i.e. on an individual or small tier basis. The Media Bureau released a report on November 19, 2004, which concluded that a la carte sales of video programming services would not result in lower video programming costs for most consumers and that they would adversely affect video programming networks. Although the FCC concluded this proceeding, it is possible that Congress may consider a la carte proposals in the future. In general, authorization from the FCC must be obtained for the construction and operation of a communications satellite. Satellite orbital slots are finite in number, thus limiting the number of carriers that can provide satellite transponders and the number of transponders available for transmission of programming services. At present, however, there are numerous competing satellite service providers that make transponders available for video services to the cable industry. The FCC also regulates the earth stations uplinking to and/or downlinking from such satellites. The regulation of programming services is subject to the political process and has been in constant flux over the past decade. Further material changes in the law and regulatory requirements must be anticipated and there can be no assurance that our business will not be adversely affected by future legislation, new regulation or deregulation. International Regulatory Matters Video distribution and content businesses are regulated in each of the countries in which we operate. The scope of regulation varies from country to country, although in some significant respects regulation in Western European markets is harmonized under the regulatory structure of the European Union, which we refer to as the EU. Adverse regulatory developments could subject our businesses to 65

370 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 68 File: DISK112:[05DEN2.05DEN1432]DU1432B.;20 Created: ;8-JUN-2005;19:04 Chksum: Folio: 66 User: MCROWE EFW: Doc # 21 a number of risks. See "Risk Factors Factors Relating to our Business Our businesses are subject to risks of adverse government regulation." Regulations could limit growth, revenues and the number and types of services offered. In addition, regulation may restrict our operations and subject them to further competitive pressure, including restrictions imposed on foreign programming distributors that could limit the content they may carry in ways that affect us adversely. Failure to comply with current or future regulation of our businesses could expose our businesses to various penalties. COMPETITION The creative media services industry is highly competitive, with much of the competition centered in Los Angeles, California, the largest and most competitive market, particularly for domestic television and feature film production as well as for the management of content libraries. We expect that competition will increase as a result of industry consolidation and alliances, as well as from the emergence of new competitors. In particular, major motion picture studios such as Paramount Pictures, Sony Pictures Corporation, Twentieth Century Fox, Universal Pictures, The Walt Disney Company, Metro-Goldwyn-Mayer and Warner Brothers, while Ascent Media's customers, can perform similar services in-house with substantially greater financial resources than Ascent Media's, and in some cases significant marketing advantages. These studios may also outsource their requirements to other independent providers like us or to other studios. Thomson, a French corporation, is also a major competitor of Ascent Media, particularly under its Technicolor brand. Ascent Media also actively competes with certain industry participants that have a unique operating niche or specialty business. There is no assurance that Ascent Media will be able to compete effectively against these competitors, but we believe that Ascent Media's breadth of services is unique among most of its competitors in the entertainment services industry, particularly in terms of the range of service offerings Ascent Media provides within each business segment. We believe that Ascent Media's reputation and brand names are acknowledged and recognized for their contribution to creating quality content, and that Ascent Media's ability to offer integrated solutions within and across its business segments sets it apart from its competitors. We believe that Ascent Media's competitive advantages lie in the breadth and scalability of its services and the ability to package those services in a cost effective manner, the reputation and accessibility of its creative talent, its relationships with its client base and Ascent Media's ability to distribute content worldwide. The business of distributing programming for cable and satellite television is highly competitive, both in the United States and in foreign countries. Discovery competes with other programmers for distribution on a limited number of channels. Increasing concentration in the multichannel video distribution industry could adversely affect Discovery by reducing the number of distributors available to carry Discovery's networks, subjecting more of Discovery's subscriber fees to volume discounts and increasing the distributors' bargaining power in negotiating new affiliation agreements. Once distribution is obtained, Discovery's programming services compete, in varying degrees, for viewers and advertisers with other cable and off-air broadcast television programming services as well as with other entertainment media, including home video, pay-per-view services, online activities, movies and other forms of news, information and entertainment. Discovery also competes, to varying degrees, for creative talent and programming content. Our management believes that important competitive factors include the prices charged for programming, the quantity, quality and variety of the programming offered and the effectiveness of marketing efforts. PROPERTIES We share our executive offices in Englewood, Colorado under a services agreement with LMC. All of our other real or personal property is owned or leased by our subsidiaries or affiliates. Ascent Media's operations are conducted at over 100 properties. In the United States, Ascent Media occupies owned and leased properties in California, Connecticut, Florida, Georgia, New Jersey 66

371 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 69 File: DISK112:[05DEN2.05DEN1432]DU1432B.;20 Created: ;8-JUN-2005;19:04 Chksum: Folio: 67 User: MCROWE EFW: Doc # 21 and New York; the network services group also operates a satellite earth station and related facilities in Minnesota. Internationally, Ascent Media has owned and leased properties in London, England. In addition, the creative services group operates a leased facility in Mexico City, Mexico, the media management services group has a 50% owned equity affiliate with facilities in Barcelona and Madrid, Spain, and the network services group operates two leased facilities in the Republic of Singapore. Worldwide, Ascent Media leases approximately 1.3 million square feet and owns another 370,000 square feet. In the United States, Ascent Media's leased properties total approximately 1 million square feet and have terms expiring between September 2005 and December Several of these agreements have extension options. The leased properties are used for our technical operations, office space and media storage. Ascent Media's international leases have terms that expire between September 2005 and August 2019, and are also used for technical operations, office space and media storage. Over half of the international leases have extension clauses. Approximately 240,000 square feet of Ascent Media's owned properties are located in Southern California, with another 80,000 square feet located in Northvale, New Jersey, Atlanta, Georgia, Minneapolis, Minnesota and Stamford, Connecticut. In addition, Ascent Media owns approximately 50,000 square feet in London, England. Nearly all of Ascent Media's owned properties are purpose-built for its technical and creative service operations. Ascent Media's facilities are adequate to support its current near term growth needs. Discovery's operations are conducted from over 35 facilities in 18 countries. Discovery owns its global corporate headquarters in Silver Spring, Maryland and owns an origination facility and data center in Sterling, Virginia. In addition, Discovery leases regional office space elsewhere in the North America, Europe, Latin America, Asia, Australia and India. Discovery leases retail space for its Discovery Channel Stores. EMPLOYEES We currently have no corporate employees. We anticipate that subsequent to the spin off, LMC will provide us with certain management and administrative services pursuant to the services agreement, which will include the services of our executive officers who will remain executive officers of LMC after the spin off. See "Inter-Company Agreements Services Agreement." As of December 31, 2004, Ascent Media had approximately 3,800 employees, most of which worked on a full-time basis. Approximately 2,400 of Ascent Media's employees were employed in the United States, with the remaining 1,400 employed outside the United States, principally in the United Kingdom and the Republic of Singapore. Approximately 350 of Ascent Media's employees belong to either the International Alliance of Theatrical Stage Employees in the United States or the Broadcasting Entertainment Cinematograph and Theatre Union in the United Kingdom. As of December 31, 2004, Discovery had approximately 3,800 employees. LEGAL PROCEEDINGS Ascent Media On November 30, 2001, Paul Dujardin filed a complaint against LMC and Ascent Media in the U.S. District Court for the Southern District of New York, alleging violations of Section 10(b), Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934, common law fraud, negligent misrepresentation, breach of the earnout provisions of an acquisition agreement involving the sale of Mr. Dujardin's company, Triumph Communications, Inc., to Ascent Media in July 2000, and breach of contract for failure to make Mr. Dujardin head of what was then known as Ascent Media's "networks group." Mr. Dujardin claims in excess of $15 million in compensatory damages, plus unspecified punitive damages. On February 13, 2002, Ascent Media and LMC filed a motion to dismiss Mr. Dujardin's complaint in its entirety. On March 15, 2005, the court issued an order granting in substantial part the motion to dismiss. Specifically, the court dismissed with prejudice the securities 67

372 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 70 File: DISK112:[05DEN2.05DEN1432]DU1432B.;20 Created: ;8-JUN-2005;19:04 Chksum: Folio: 68 User: MCROWE EFW: Doc # 21 fraud claims based on allegations that Ascent Media and LMC engaged in transactions designed to conceal the value of Ascent Media's stock. The court also dismissed with prejudice the breach of contract claim for failure to make Mr. Dujardin head of the networks group. The court then dismissed, but without prejudice, the securities fraud and common law fraud claims based on allegations that Ascent Media falsely promised to appoint Mr. Dujardin president of the networks group and granted Mr. Dujardin permission to reassert these fraud claims in an amended complaint. On April 4, 2005, Mr. Dujardin filed an amended complaint against Ascent Media and LMC alleging a violation of Section 10(b), Rule 10b-5 and Section 20 of the Securities Exchange Act of 1934, and a common law fraud claim, each based solely on allegations that Ascent Media falsely promised to appoint Mr. Dujardin president of the networks group. Mr. Dujardin claims in excess of $10 million in compensatory damages, plus unspecified punitive damages, on his fraud claims. Mr. Dujardin also seeks damages of approximately $1,050,000 against Ascent Media arising out of a breach of contract claim involving the earnout provisions of the Triumph acquisition agreement. On May 4, 2005, Ascent Media filed its answer to the amended complaint. Ascent Media contends that it has satisfied its obligations to Mr. Dujardin by delivering to him the earnout shares at issue and that, in any event, any alleged monetary damages are substantially less than the amounts sought by Mr. Dujardin in the amended complaint. Ascent Media believes that Mr. Dujardin's remaining claims are without merit and intends to vigorously defend its rights. However, no assurance can be given that Ascent Media will prevail in such litigation. Pursuant to the reorganization agreement to be entered into prior to the spin off, we will agree to indemnify LMC from any liability and expenses relating to this matter. See "Certain Inter-Company Agreements Reorganization Agreement." In addition, Ascent Media, or its operating entities, is a defendant and may be a potential defendant (or may be obligated to indemnify or reimburse a named defendant), in lawsuits and claims arising in the ordinary course of business. While the outcomes of such claims, lawsuits, or other proceedings cannot be predicted with certainty, management expects that such liability, to the extent not provided for by insurance or otherwise, will not have a material adverse effect on the financial condition of Ascent Media. Discovery Discovery is involved in litigation incidental to the conduct of its business. While the outcome of such litigation cannot be predicted with certainty, Discovery does not expect that the outcome of such litigation will have a material adverse effect on the financial condition of Discovery. 68

373 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 71 File: DISK112:[05DEN2.05DEN1432]DW1432A.;32 Created: 17-JUN-2005;19:27 Chksum: Folio: 69 User: KSEAMON EFW: Doc # 21 Directors and Executive Officers MANAGEMENT The following table sets forth certain information concerning our directors and executive officers, including a five year employment history and any directorships held in public companies: Name John C. Malone Born March 7, 1941 Robert R. Bennett Born April 19, 1958 David J.A. Flowers Born May 17, 1954 Paul A. Gould Born September 27, 1945 M. LaVoy Robison Born September 6, 1935 Albert E. Rosenthaler Born August 29, 1959 Christopher W. Shean Born July 16, 1965 Positions Chief Executive Officer and Chairman of the Board of our company since March 9, 2005, and a director of our company since May 3, Dr. Malone has served as Chairman of the Board and a director of LMC since Dr. Malone served as Chairman of the Board and a director of Liberty Satellite & Technology, Inc. from December 1996 to August Dr. Malone also served as Chairman of the Board of Tele-Communications, Inc. ("TCI") from November 1996 to March 1999; and Chief Executive Officer of TCI from January 1994 to March Dr. Malone is Chairman of the Board of LGI and a director of The Bank of New York. President of our company since March 9, 2005, and director of our company since May 3, Mr. Bennett has served as President and Chief Executive Officer of LMC since April 1997 and has held various executive positions since LMC's inception in Mr. Bennett is a director of LMC and OpenTV Corp. Senior Vice President and Treasurer of our company since March 9, Mr. Flowers has served as Senior Vice President of LMC since October 2000 and Treasurer of LMC since April Mr. Flowers served as a Vice President of LMC from June 1995 to October A Director of our company since May 3, Mr. Gould has also served as a Managing Director and Executive Vice President of Allen & Company Incorporated, an investment banking services company, for more than the last five years. Mr. Gould is a director of LMC, Ampco-Pittsburgh Corporation and LGI. A Director of our company since May 3, Mr. Robison has been executive director and a board member of The Anschutz Foundation (a private foundation) since January Mr. Robison is a director of LMC. Senior Vice President of our company since March 9, Mr. Rosenthaler has served as a Senior Vice President of LMC since April Prior to joining LMC, Mr. Rosenthaler was a tax partner in the accounting firm of Arthur Andersen LLP for more than five years. Senior Vice President and Controller of our company since March 9, Mr. Shean has served as Senior Vice President of LMC since January 2002 and Controller of LMC since October Mr. Shean served as a Vice President of LMC from October 2000 until January Prior to joining LMC, Mr. Shean served in the assurance practice of the accounting firm of KPMG LLP for more than five years, most recently as a partner. 69

374 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 72 File: DISK112:[05DEN2.05DEN1432]DW1432A.;32 Created: 17-JUN-2005;19:27 Chksum: Folio: 70 User: KSEAMON EFW: Doc # 21 Charles Y. Tanabe Born November 27, 1951 Senior Vice President, General Counsel and Secretary of our company since March 9, Mr. Tanabe has served as Secretary of LMC since April 2001 and a Senior Vice President and General Counsel of LMC since January J. David Wargo Born October 1, 1953 A Director of our company since May 3, Mr. Wargo has served as President of Wargo & Company, Inc., a private investment company specializing in the communications industry, since January Mr. Wargo is a director of Strayer Education, Inc., OpenTV Corp. and LGI. The executive officers named above will serve in such capacities until the next annual meeting of our board of directors, or until their respective successors have been duly elected and have been qualified, or until their earlier death, resignation, disqualification or removal from office. There is no family relationship between any of the directors, by blood, marriage or adoption. During the past five years, none of the above persons has had any involvement in such legal proceedings as would be material to an evaluation of his or her ability or integrity. Board Composition Our board of directors currently consists of five directors, divided among three classes. Our Class I director, whose term will expire at the annual meeting of our shareholders in 2006, is J. David Wargo. Our Class II directors, whose term will expire at the annual meeting of our shareholders in 2007, are Paul A. Gould and M. LaVoy Robison. Our Class III directors, whose term will expire at the annual meeting of our shareholders in 2008, are Robert R. Bennett and John C. Malone. At each annual meeting of our shareholders, the successors of that class of directors whose term(s) expire at that meeting shall be elected to hold office for a term expiring at the annual meeting of our shareholders held in the third year following the year of their election. The directors of each class will hold office until their respective death, resignation or removal and until their respective successors are elected and qualified. Committees of the Board Our board of directors has established an executive committee, whose members are Robert R. Bennett, Paul A. Gould and John C. Malone. Except as specifically prohibited by the General Corporation Law of the State of Delaware, the executive committee may exercise all the powers and authority of our board in the management of our business and affairs, including the power and authority to authorize the issuance of shares of our capital stock. Our board of directors has also established an audit committee, whose members are Mr. Gould, Mr. Robison and Mr. Wargo. The audit committee will review and monitor the corporate financial reporting and the internal and external audits of our company. The committee's functions will include, among other things: appointing or replacing our independent auditors; reviewing and approving in advance the scope and the fees of our annual audit and reviewing the results of our audits with our independent auditors; reviewing and approving in advance the scope and the fees of non-audit services of our independent auditors; reviewing compliance with and the adequacy of our existing major accounting and financial reporting policies; 70

375 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 73 File: DISK112:[05DEN2.05DEN1432]DW1432A.;32 Created: 17-JUN-2005;19:27 Chksum: Folio: 71 User: KSEAMON EFW: Doc # 21 reviewing our management's procedures and policies relating to the adequacy of our internal accounting controls and compliance with applicable laws relating to accounting practices; reviewing compliance with applicable Securities and Exchange Commission, stock exchange and national association of securities dealers rules regarding audit committees; and preparing a report for our annual proxy statement. Our board of directors has established a compensation committee, whose members are Mr. Gould, Mr. Robison and Mr. Wargo. The compensation committee will review and make recommendations to our board regarding all forms of compensation provided to our executive officers and directors. In addition, the compensation committee will review and make recommendations on bonus and stock compensation arrangements for all of our employees and will have sole responsibility for the administration of our incentive plan. The board, by resolution, may from time to time establish certain other committees of the board, consisting of one or more of our directors. Any committee so established will have the powers delegated to it by resolution of the board, subject to applicable law. Executive Compensation We have not yet paid any compensation to any of our executive officers and, for the immediate future, our executive officers will not receive any compensation directly from us. After the spin off, each of our executive officers will continue to be employed and compensated by LMC. Pursuant to the services agreement between us and LMC, we will make payments to LMC based upon a portion of LMC's cost for our executive officers (taking into account wages and benefits) based upon the anticipated percentages of time to be spent by our executive officers performing services for us. See "Certain Inter-Company Agreements Services Agreement." The following tables set forth information relating to compensation from LMC to our Chief Executive Officer and each of the other persons who we anticipate will serve as our four other most highly compensated executive officers following the spin off, who we refer to as our "named executive officers." The compensation set forth below does not necessarily reflect the compensation to be paid by our company to our named executive officers in the future. 71

376 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 74 File: DISK112:[05DEN2.05DEN1432]DW1432A.;32 Created: 17-JUN-2005;19:27 Chksum: Folio: 72 User: KSEAMON EFW: Doc # 21 Summary Compensation Table Annual Compensation Name and Principal Position with Liberty Year Salary(1) Bonus John C. Malone Chief Executive Officer $ $ $ 2,700 2,600 4,200 $ $ $ $ $ $ Other Annual Compensation 642,071(3) 435,857(3) 207,050(3) Long-Term Compensation Securities Underlying Options/SARs $ $ $ All Other Compensation 270(6) 260(6) 410(6) Robert R. Bennett President $ $ $ 1,038,462 1,000,000 1,000,000 $ $ $ 1,000,000 $ $ $ 235,026(4) 200,022(4) 251,432(4) 1,000,000 1,000,000 $ $ $ 20,500(6) 817,521(6)(7) 20,000(6) David J.A. Flowers Senior Vice President and Treasurer $ $ $ 516, , ,000 $ $ $ $ $ $ 250, ,000 $ $ 20,500(6) 20,000(6) 20,000(6) Albert E. Rosenthaler Senior Vice President $ $ $ 550, , ,692(2) $ $ $ $ $ $ 250, , ,000(5) $ $ $ 20,500(6) 20,000(6) 17,307(6) Charles Y. Tanabe Senior Vice President and General Counsel $ $ $ 676, , ,000 $ $ $ $ $ $ 225, ,000 $ $ 20,500(6) 20,000(6) 20,000(6) (1) In 2002 and 2003, LMC's executive officers' annual salaries were based on 26 bi-weekly pay periods per year. In 2004, due to the timing of LMC's pay days, the executive officers' annual salaries were based on 27 bi-weekly pay periods. (2) Mr. Rosenthaler's employment with LMC commenced on April 1, Accordingly, the 2002 compensation included in the table represents nine months of employment. (3) Includes $216,236, $317,970 and $240,443 of compensation related to Dr. Malone's personal use of LMC's aircraft and flight crew during 2004, 2003 and 2002, respectively, which compensation has been calculated based upon the aggregate incremental cost of such usage to LMC. In accordance with applicable Treasury Regulations, LMC included in Dr. Malone's reportable income for 2004, 2003 and 2002 $74,163, $111,997 and $76,735, respectively, of compensation related to his personal use of LMC's aircraft and flight crew. Also includes $425,835, $213,219 and $188,127 in 2004, 2003 and 2002, respectively, related to reimbursement of Dr. Malone's legal and accounting fees for tax and estate planning purposes. Dr. Malone's employment agreement with LMC was amended in 2003 to provide for payment or reimbursement of professional fees and other expenses incurred by Dr. Malone for estate, tax planning and other services, and for personal use of LMC's aircraft and flight crew. The aggregate amount of such payments or reimbursements and the value of his personal use of LMC's aircraft is limited to $500,000 per year. For purposes of Dr. Malone's employment agreement, the value of his aircraft use is determined in accordance with applicable Treasury Regulations. (4) Includes $184,359, $187,809 and $245,763 of compensation related to Mr. Bennett's personal use of LMC's aircraft and flight crew during 2004, 2003 and 2002, respectively, which compensation has been calculated based upon the aggregate incremental cost of such usage to LMC. In accordance 72

377 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 75 File: DISK112:[05DEN2.05DEN1432]DW1432B.;21 Created: 17-JUN-2005;19:27 Chksum: Folio: 73 User: KSEAMON EFW: Doc # 21 with applicable Treasury Regulations, LMC included in Mr. Bennett's reportable income for 2004, 2003 and 2002 $71,926, $68,525 and $66,525, respectively, of compensation related to his personal use of our aircraft and flight crew. During calendar years 2003 through 2008, Mr. Bennett is entitled to compensation relating to his personal use of LMC's aircraft and flight crew averaging $250,000 per year. The value of this usage will be calculated based upon the aggregate incremental cost of this usage to LMC. (5) The numbers of shares reflect adjustments for LMC's rights offering which concluded in December (6) Amounts represent contributions to the Liberty Media 401(k) Savings Plan (the "Liberty Savings Plan"). The Liberty Savings Plan provides employees with an opportunity to save for retirement. The Liberty Savings Plan participants may contribute up to 10% of their compensation, and LMC contributes a matching contribution of 100% of the participants' contributions. Participant contributions to the Liberty Savings Plan are fully vested upon contribution. Generally, participants acquire a vested right in LMC contributions as follows: Years of service Vesting Percentage Less than 1 0% % % 3 or more 100% With respect to LMC contributions made to the Liberty Savings Plan in 2004, 2003 and 2002, all of the named executive officers are fully vested. Directors who are not employees of LMC are ineligible to participate in the Liberty Savings Plan. Under the terms of the Liberty Savings Plan, employees are eligible to participate after three months of service. (7) Pursuant to the terms of an agreement entered into in 1991, from January 1992 through December 2001, LMC paid the premiums due on two $1,250,000 split-dollar, whole life insurance policies for the benefit of Mr. Bennett, and Mr. Bennett granted an assignment of policy benefits in LMC's favor in the amounts of the premiums we paid. Consistent with the terms of the agreement, in 2003, the compensation committee of LMC's board of directors determined to terminate the assignment in LMC's favor of, and all LMC's obligations under, these policies. In connection with this termination, Mr. Bennett is not required to repay any premiums LMC paid on these policies. LMC has treated the termination of assignment of policy benefits in its favor as a compensatory bonus to Mr. Bennett in an amount equal to the aggregate cash surrender value of the policies ($397,835), and LMC paid Mr. Bennett an amount equal to the remaining premium payments necessary to fully fund the unfunded policy ($48,777), together with an additional $350,909 "gross-up" to account for taxes due on the total bonus. In addition, LMC reimbursed Mr. Bennett for the September 2002 premium payment he made on the unfunded policy in an amount equal to $16,259. Option and SAR Grants in Last Fiscal Year We did not grant any stock options or stock appreciation rights to our named executive officers during the year ended December 31, The grant of any stock options or stock appreciation rights following the spin off will be determined by the compensation committee of our board of directors. The following table sets forth certain information concerning stock options and stock appreciation rights granted under the Liberty Media Corporation 2000 Incentive Plan (as amended and restated 73

378 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 76 File: DISK112:[05DEN2.05DEN1432]DW1432B.;21 Created: 17-JUN-2005;19:27 Chksum: Folio: 74 User: KSEAMON EFW: Doc # 21 effective April 19, 2004) during its fiscal year ended December 31, 2004, to our named executive officers: Number of securities underlying SARs granted Percent of total SARs granted to employees in fiscal year Exercise or base price ($/sh)(1) Expiration Date Grant date present value(2) John C. Malone $ Robert R. Bennett 1,000, % $ 8.45 August 6, 2014 $ 4,364,715 David J.A. Flowers 250, % $ 8.45 August 6, 2014 $ 1,091,179 Albert E. Rosenthaler 250, % $ 8.45 August 6, 2014 $ 1,091,179 Charles Y. Tanabe 225, % $ 8.45 August 6, 2014 $ 982,061 (1) Represents the closing market price per share of Liberty Series A common stock on August 6, (2) The value shown is based upon the Black-Scholes model and is stated on a present value basis. The key assumptions used in the model for purposes of this calculation include the following: (a) a 4.2% discount rate; (b) a 32.0% volatility factor; (c) the 10-year option term; (d) the closing price of LMC Series A common stock on August 6, 2004; and (e) a per share exercise price of $8.45. The actual value realized will depend upon the extent to which the stock price exceeds the exercise price on the date the SAR is exercised. Accordingly, the realized value, if any, will not necessarily be the value determined by the model. Each option and stock appreciation right with respect to LMC common stock outstanding as of the record date will be adjusted in connection with the spin off. See "The Spin Off Treatment of LMC Stock Incentive Awards" for a discussion of such adjustments. LMI Spin Off Adjustment Option Grants In connection with the spin off of its then-wholly owned subsidiary, LMI, in June 2004 and pursuant to the antidilution provisions of the Liberty Media Corporation 2000 Incentive Plan (as Amended and Restated Effective April 19, 2004), LMC's incentive plan committee determined to make adjustments to outstanding LMC options and stock appreciation rights (collectively, Awards). As of the record date for the LMI spin off, which was 5:00 p.m., New York City time, on June 1, 2004, each outstanding Award held by LMC employees who work in departments that were expected to provide services to LMI were divided into (A) an option to purchase shares of the corresponding series of LMI common stock equal to 0.05 times the number of Awards held by the option holder and (B) an Award to purchase shares of LMC common stock equal to the same number and series of shares of LMC common stock for which the outstanding Award was exercisable prior to the adjustment. The aggregate exercise price of each Award was allocated between the new LMI option and the adjusted LMC Award, such that the new LMI option had an exercise price equal to the fair value of the applicable series of LMI common stock on the adjustment date and the remaining portion of the exercise or base price of the Award was allocated to the adjusted LMC Award. As a result of these adjustments, our named executive officers received LMI options, which were subsequently adjusted by LMI in 74

379 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 77 File: DISK112:[05DEN2.05DEN1432]DW1432B.;21 Created: 17-JUN-2005;19:27 Chksum: Folio: 75 User: KSEAMON EFW: Doc # 21 connection with the LMI rights offering that commenced on July 26, These LMI options, as so adjusted, are set forth in the table below: Number of securities underlying options granted Series of LMI Common Stock Exercise price Expiration date John C. Malone 610,927 Series B $ February 28, Series A $ December 31, Series A $ February 3, 2007 Robert R. Bennett 887,227 Series B $ February 28, Series A $ November 17, ,364 Series A $ July 11, ,192 Series A $ July 31, 2013 David J.A. Flowers 78,558 Series A $ February 28, ,639 Series A $ July 31, 2013 Albert E. Rosenthaler 27,277 Series A $ April 1, ,298 Series A $ July 31, 2013 Charles Y. Tanabe 104,743 Series A $ February 28, ,298 Series A $ July 31, 2013 Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values None of our named executive officers held options to purchase our common stock during the year ended December 31, The following table sets forth certain information concerning exercises of options and/or stock appreciation rights for LMC's common stock during the year ended December 31, 2004, by our named executive officers: 75

380 Printed: 24-Jun-2005;20:03:46 (v.162) HTML Page: 78 File: DISK112:[05DEN2.05DEN1432]DW1432B.;21 Created: 17-JUN-2005;19:27 Chksum: Folio: 76 User: KSEAMON EFW: Doc # 21 Name Aggregated Option/SAR Exercises in the Last Fiscal Year and Fiscal Year-End Option/SAR Values Shares Acquired on Exercise (#) Value Realized ($) Number of Securities Underlying Unexercised Options/SARs at December 31, 2004 (#) Exercisable/ Unexercisable Value of Unexercised In-the-Money Options/SARs at December 31, 2004 Exercisable/ Unexercisable ($) John C. Malone Series A Exercisable $ 4,125 $ Unexercisable $ $ Series B Exercisable $ 7,465,891 $ Unexercisable $ 4,019,891 $ Robert R. Bennett Series A Exercisable $ 225,640 $ 340,000 Unexercisable $ 1,800,000 $ 3,890,000 Series B Exercisable $ 10,841,904 $ Unexercisable $ 5,837,949 $ David J.A. Flowers Series A Exercisable $ 999,961 $ 68,000 Unexercisable $ $ 68,000 $ 904,500 Albert E. Rosenthaler Series A Exercisable $ 178,200 $ 143,972 Unexercisable $ 834,600 $ 1,149,416 Charles Y. Tanabe Series A Exercisable $ 1,329,948 $ 85,000 Unexercisable $ 1,114,204 $ 909,250 Compensation of Directors Each of our directors who is not an officer or employee of our company will be entitled to a retainer of $50,000 per year, payable quarterly in arrears, plus a fee of $1,000 for each board meeting he attends. In addition, the chairman and each other member of the audit committee of our board of directors will be entitled to a fee of $5,000 and $2,000, respectively, for each audit committee meeting he attends. Each member of the executive committee and the compensation committee who is not an employee of our company will be entitled to a fee of $1,000 for each committee meeting he attends. Fees to our directors will be payable in cash. In addition, we will reimburse members of our board for travel expenses incurred to attend any meetings of our board or any committee thereof. 76

381 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 79 File: DISK112:[05DEN2.05DEN1432]DY1432A.;25 Created: 23-JUN-2005;22:27 Chksum: Folio: 77 User: JBELANG EFW: Doc # 21 Employment Contracts and Termination of Employment and Change in Control Arrangements Except as described below, we will have no employment contracts, termination of employment agreements or change of control agreements with any of our named executive officers at the time of the spin off. Lock-Up Agreement The following is a summary of the terms of the lock-up agreement between our company and the Chairman of our board of directors, John C. Malone. This summary may not contain all of the information that is important to you. It is qualified in its entirety by reference to the full text of the lock-up agreement, a copy of which is included as Exhibit to the Form 10 registration statement of which this information statement is a part. In connection with the spin off, our board of directors requested that John C. Malone enter into a lock-up agreement pursuant to which he would agree not to transfer shares of our Series B common stock or any options to purchase shares of our Series B common stock for a period of time after the spin off. Accordingly, we entered into an agreement with Dr. Malone on [ ], 2005, pursuant to which Dr. Malone agreed, subject to certain exceptions, not to transfer any shares of our Series B common stock or any options to purchase shares of our Series B common stock owned by him (whether acquired in connection with the spin off or later), or enter into any agreement to transfer the shares or options. These transfer restrictions are subject to a number of exceptions including: transfers to certain of Dr. Malone's family members or entities he or they control, transfers in connection with estate planning and charitable giving, transfers to us in connection with the exercise of options to purchase Series B common stock, and transfers to any entity that (i) has equity securities traded on a national securities exchange or market, (ii) Dr. Malone, his family members and entities he or they control collectively own, or after the permitted transfer would own, and have the right to vote, securities representing twenty percent or more of the outstanding voting power of the entity and (iii) no other person owns or has the right to vote securities of the entity representing a greater percentage of the outstanding voting power of the entity than Dr. Malone, his family members and the entities he or they control. We refer to the entities described in this bullet point as "Permitted Malone Transferees." In connection with transfers pursuant to certain of these exceptions, the applicable transferee will be required to enter into an agreement with our company having similar restrictions as the lock-up agreement. In addition, Dr. Malone may convert shares of our Series B common stock into shares of our Series A common stock in accordance with our restated certificate of incorporation and he may pledge or grant a security interest in his shares or options in connection with a bona fide financing or hedging transaction so long as he retains the right to vote the shares and the pledgee, grantee or counter party in the transaction agrees to convert any shares of our Series B common stock it receives in the event of a default, foreclosure or other acquisition of Dr. Malone's shares or options into shares of our Series A common stock. The transfer restrictions will not apply to any transfer of shares or options in connection with a transaction pursuant to which a person (other than Dr. Malone, his family members, entities he or they control or a Permitted Malone Transferee) acquires beneficial ownership of fifty percent or more of the voting power of our outstanding capital stock so long as our board of directors has approved the transaction or in connection with the transaction the board or a court has taken actions that would terminate or render ineffective our shareholder rights plan or redeem the rights issued under the plan. We refer to such a transaction as a "Company Control Transaction." 77

382 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 80 File: DISK112:[05DEN2.05DEN1432]DY1432A.;25 Created: 23-JUN-2005;22:27 Chksum: Folio: 78 User: JBELANG EFW: Doc # 21 The lock-up agreement will terminate upon the earliest to occur of the eighteen month anniversary of the date of the agreement, the death of Dr. Malone and the consummation of a Company Control Transaction. Equity Compensation Plan Information Discovery Holding Incentive Plan General The compensation committee is currently comprised of three members: Paul Gould, LaVoy Robison and J. David Wargo. As of the distribution date, each member will be a "non-employee director" within the meaning of Rule 16b-3 of the Exchange Act and an "outside director" within the meaning of Section 162(m) of the Code. The compensation committee has the full power and authority to grant eligible persons the awards described below and determine the terms and conditions under which any awards are made. The incentive plan is designed to provide additional remuneration to certain employees and independent contractors for exceptional service and to encourage their investment in our company. The incentive plan is also intended to (1) attract persons of exceptional ability to become officers and employees of our company and (2) induce independent contractors to provide services to our company. Our employees (including employees who are officers or directors of our company or any of our subsidiaries) and independent contractors are eligible to participate and may be granted awards under the incentive plan. Awards may be made to any such employee, officer or contractor whether or not he or she holds or has held awards under this plan or under any other plan of our company or any of our affiliates. The number of individuals who will receive awards under the incentive plan will vary from year to year and will depend on various factors, such as the number of promotions and our hiring needs during the year, and thus we cannot determine future award recipients. The compensation committee may grant non-qualified stock options, stock appreciation rights (SARs), restricted shares, stock units, cash awards, performance awards or any combination of the foregoing under the incentive plan (collectively, awards). The maximum number of shares of any series of our common stock with respect to which awards may be issued under the incentive plan is 20 million. No person may be granted in any calendar year awards covering more than 2 million shares of our common stock. In addition, no person may receive payment for performance awards during any calendar year in excess of $10 million. Shares of our common stock will be made available from either our authorized but unissued shares or shares that have been issued but reacquired by our company. Shares of our common stock that are subject to (1) any award that expires, terminates or is annulled for any reason without having been exercised and (2) any award of restricted shares or stock units that is forfeited prior to becoming vested, will once again be available for distribution under the incentive plan. The compensation committee also has the power to: interpret the incentive plan and adopt any rules, regulations and guidelines for carrying out the incentive plan that it believes are proper; correct any defect or supply any omission or reconcile any inconsistency in the incentive plan or related documents; determine the form and terms of the awards made under the incentive plan, including persons eligible to receive the award and the number of shares or other consideration subject to awards; 78

383 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 81 File: DISK112:[05DEN2.05DEN1432]DY1432A.;25 Created: 23-JUN-2005;22:27 Chksum: Folio: 79 User: JBELANG EFW: Doc # 21 provide that option exercises may be paid in cash, by check, by promissory note (subject to applicable law), in common stock, by cashless exercise, by broker-assisted exercise or any combination of the foregoing; and delegate to any subcommittee its authority and duties under the incentive plan unless a delegation would adversely impact the availability of transaction exemptions under Rule 16b-3 of the Exchange Act, and the deductibility of compensation for federal income tax purposes. Options Non-qualified stock options entitle the holder to purchase a specified number of shares of common stock at a specified exercise price subject to the terms and conditions of the option grant. The price at which options may be exercised under the incentive plan will be no less than the fair market value of the applicable series of our common stock as of the day the option is granted. The compensation committee determines, in connection with each option awarded to a holder, (1) the exercise price, (2) whether that price is payable in cash, by check, by promissory note, in whole shares of any series of our common stock, by the withholding of shares of our common stock issuable upon exercise of the option, by cashless exercise, or any combination of the foregoing, (3) other terms and conditions of exercise, (4) restrictions on transfer of the option and (5) other provisions not inconsistent with the incentive plan. Options granted under the incentive plan are generally non-transferable during the lifetime of an option holder, except as permitted by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. Stock Appreciation Rights SARs entitle the recipient to receive a payment in stock equal to the excess value of the stock (on the day the right is exercised) over the price specified in the grant. A SAR may be granted to an option holder with respect to all or a portion of the shares of common stock subject to the related option (a tandem SAR) or granted separately to an eligible employee (a free-standing SAR). Tandem SARs are exercisable only to the extent that the related option is exercisable. Upon the exercise or termination of the related option, the related tandem SAR will be automatically cancelled to the extent of the number of our shares of common stock with respect to which the related option was so exercised or terminated. Free-standing SARs are exercisable at the time and upon the terms and conditions as provided in the relevant agreement. The base price of a free-standing SAR will be no less than the fair market value of the applicable series of our common stock as of the day the free-standing SAR is granted. SARs granted under the incentive plan are also generally non-transferable during the lifetime of a SAR holder, except as permitted by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. Restricted Shares Restricted shares are shares of our common stock that become vested and may be transferred upon completion of the restriction period. Restricted shares may be issued at either the beginning or end of the restriction period. Individual agreements may provide that dividend equivalents will be paid during the restriction period in the event that shares are to be issued at the end of the restriction period. An agreement under which restricted shares are issued may provide that the holder of the shares may be paid a cash amount any time after the shares become vested. Upon the applicable vesting date, all or the applicable portion of restricted shares will vest, any retained distributions or unpaid dividend equivalents with respect to the such restricted shares will vest to the extent that the restricted shares related thereto have vested, and any cash award to be received by the holder with respect to such restricted shares will become payable. 79

384 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 82 File: DISK112:[05DEN2.05DEN1432]DY1432A.;25 Created: 23-JUN-2005;22:27 Chksum: Folio: 80 User: JBELANG EFW: Doc # 21 Stock Units Shares of our common stock or units based upon the fair market value of our common stock may also be awarded under the incentive plan. The compensation committee has the power to determine the terms, conditions, restrictions, vesting requirements and payment rules for awards of stock units. Cash Awards The compensation committee may also provide for the grant of cash awards. A cash award is a bonus paid in cash that is based solely upon the attainment of one or more performance goals that have been established by the compensation committee. The terms, condition and limitations applicable to any cash awards will be determined by the compensation committee. Performance Awards At the discretion of the compensation committee, performance awards payable in cash may be granted and any of the other above-described awards may be designated a performance award. Performance awards will be contingent upon performance measures applicable to a particular period, as established by the compensation committee, based upon any one or more of the following: increased revenue; net income measures (including, but not limited to, income after capital costs and income before or after taxes); stock price measures (including, but not limited to, growth measures and total stockholder return); price per share of common stock; market share; earnings per share (actual or targeted growth); earnings before interest, taxes, depreciation and amortization; economic value added (or an equivalent metric); market value added; debt to equity ratio; cash flow measures (including, but not limited to, cash flow return on capital, cash flow return on tangible capital, net cash flow and net cash flow before financing activities); return measures (including, but not limited to, return on equity, return on average assets, return on capital, risk-adjusted return on capital, return on investors' capital and return on average equity); operating measures (including operating income, funds from operations, cash from operations, after-tax operating income, sales volumes, production volumes and production efficiency); expense measures (including, but not limited to, overhead costs and general and administrative expense); margins; stockholder value; total stockholder return; 80

385 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 83 File: DISK112:[05DEN2.05DEN1432]DY1432A.;25 Created: 23-JUN-2005;22:27 Chksum: Folio: 81 User: JBELANG EFW: Doc # 21 proceeds from dispositions; total market value; and corporate values measures (including ethics compliance, environmental and safety). Such performance measures may apply to the holder, to one or more business units or divisions of our company or the applicable sector, or to our company as a whole. Goals may also be based upon performance relative to a peer group of companies. If the compensation committee intends for the performance award to be granted and administered in a manner that preserves the deductibility of the compensation resulting from such award in accordance with Section 162(m) of the Code, the performance goals must be established (1) no later than 90 days after the commencement of the period of service to which the performance goals relate and (2) prior to the completion of 25% of such period of service. The compensation committee may modify or waive the performance goals or conditions to the granting or vesting of a performance award unless the performance award is intended to qualify as performance-based compensation under Section 162(m) of the Code. Section 162(m) of the Code generally disallows deductions for compensation in excess of $1 million for some executive officers unless the awards meet the requirements for being performance-based. Awards Generally The awards described above may be granted either individually, in tandem or in combination with each other. Under certain conditions, including the occurrence of an approved transaction, a board change or a control purchase (all as defined in the incentive plan), options and SARs will become immediately exercisable, the restrictions on restricted shares will lapse and stock units will become fully vested, unless individual agreements state otherwise. In addition, if a holder's service terminates due to death or disability (as defined in the incentive plan), options and SARs will become immediately exercisable, the restrictions on restricted shares will lapse and stock units will become fully vested, unless individual agreements state otherwise. Adjustments The number and kind of shares of common stock which may be awarded, optioned or otherwise made subject to awards under the incentive plan, the number and kind of shares of common stock covered by outstanding awards and the purchase or exercise price and any relevant appreciation base with respect to any of the foregoing are subject to appropriate adjustment in the compensation committee's discretion, as the compensation committee deems equitable, in the event (1) we subdivide our outstanding shares of any series of our common stock into a greater number of shares of such series of common stock, (2) we combine our outstanding shares of any series of common stock into a smaller number of shares of such series of common stock or (3) there is a stock dividend, extraordinary cash dividend, reclassification, recapitalization, reorganization, split-up, spin off, combination, exchange of shares, warrants or rights offering to purchase such series of common stock, or any other similar corporate event (excluding approved transactions (as defined in the incentive plan)). Amendment and Termination of the Incentive Plan The compensation committee may terminate the incentive plan at any time prior to the tenth anniversary of the date on which the incentive plan became effective. The compensation committee may also suspend, discontinue, modify or amend the incentive plan any time prior to the tenth anniversary of the date on which the incentive plan became effective. However, before an amendment can be made that would adversely affect a participant who has already been granted an award, the participant's consent must be obtained, unless the change is necessary to comply with section 409A of the Code. No awards can be made under the incentive plan after the tenth anniversary of the date on which the incentive plan became effective. 81

386 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 84 File: DISK112:[05DEN2.05DEN1432]DY1432A.;25 Created: 23-JUN-2005;22:27 Chksum: Folio: 82 User: JBELANG EFW: Doc # 21 Discovery Holding Non-Employee Director Incentive Plan The director plan is designed to encourage investment in our company by our non-employee directors and to more fully align their interests with the interests of our existing shareholders. The director plan is administered by the full board of directors. The board has the full power and authority to grant eligible non-employee directors the awards described below and determine the terms and conditions under which any awards are made, and may delegate certain administrative duties to our employees. The board may grant non-qualified stock options, stock appreciation rights, restricted shares, stock units, any combination of the foregoing or cash under the director plan (collectively, awards). Only non-employee members of our board of directors are eligible to receive awards under the director plan. The maximum number of shares of any series of our common stock with respect to which awards may be issued under the director plan and which may be issued in lieu of director compensation under the director plan is 5 million. Shares of our common stock will be made available from either our authorized but unissued shares or shares that have been issued but reacquired by our company. Shares of our common stock that are subject to (1) any award that expires, terminates or is annulled for any reason without having been exercised and (2) any award of restricted shares or stock units that is forfeited prior to becoming vested, will once again be available for distribution under the director plan. The board also reserves the power to: interpret the director plan and adopt any rules, regulations and guidelines for carrying out the director plan that it believes are proper; correct any defect or supply any omission or reconcile any inconsistency in the director plan or related documents; determine the form and terms of awards made under the director plan, including directors eligible to receive awards and the number of shares or other consideration subject to awards; provide that option exercises may be paid in cash, by check, in common stock, by cashless exercise, by broker-assisted exercise or any combination of the foregoing; and delegate to company employees certain administrative or ministerial duties in carrying out the purposes of the director plan. Options Non-qualified stock options entitle the holder to purchase a specified number of shares of common stock at a specified exercise price subject to the terms and conditions of the option grant. The price at which options may be exercised under the director plan will be no less than the fair market value of the applicable series of our common stock as of the day the option is granted. The board determines, in connection with each option awarded to a holder, (1) the exercise price, (2) whether that price is payable in cash, by check, by promissory note, in whole shares of any series of our common stock, by the withholding of shares of our common stock issuable upon exercise of the option, by cashless exercise or any combination of the foregoing or other legal consideration, (3) other terms and conditions of exercise, (4) restrictions on transfer of the option and (5) other provisions not inconsistent with the director plan. Options granted under the director plan are generally non-transferable during the lifetime of an option holder, except as permitted by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. 82

387 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 85 File: DISK112:[05DEN2.05DEN1432]DY1432A.;25 Created: 23-JUN-2005;22:27 Chksum: Folio: 83 User: JBELANG EFW: Doc # 21 Stock Appreciation Rights SARs entitle the recipient to receive a payment in stock equal to the excess value of the stock (on the day the right is exercised) over the price specified in the grant. A SAR may be granted to an option holder with respect to all or a portion of the shares of common stock subject to the related option (a tandem SAR) or granted separately to an eligible director (a free-standing SAR). Tandem SARs are exercisable only to the extent that the related option is exercisable. SARs are also generally non-transferable during the lifetime of a SAR holder, subject to prescribed exceptions. Upon the exercise or termination of the related option, the related tandem SAR will be automatically cancelled to the extent of the number of our shares of common stock with respect to which the related option was so exercised or terminated. Free-standing SARs are exercisable at the time and upon the terms and conditions as provided in the relevant agreement. The base price of a free-standing SAR will be no less than the fair market value of the applicable series of our common stock as of the day the free-standing SAR is granted. SARs granted under the director plan are also generally non-transferable during the lifetime of a SAR holder, except as permitted by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. Restricted Shares Restricted shares are shares of our common stock that become vested and may be transferred upon completion of the restriction period. Restricted shares may be issued at either the beginning or end of the restriction period. Individual agreements may provide that dividend equivalents will be paid during the restriction period in the event that shares are to be issued at the end of the restriction period. An agreement under which restricted shares are issued may provide that the holder of the shares may be paid a cash amount any time after the shares become vested. Upon the applicable vesting date, all or the applicable portion of restricted shares will vest, any retained distributions or unpaid dividend equivalents with respect to the such restricted shares will vest to the extent that the restricted shares related thereto have vested, and any cash award to be received by the holder with respect to such restricted shares will become payable. Stock Units Shares of our common stock or units based upon the fair market value of our common stock may also be distributed as an award under the director plan. The board has the power to determine the terms, conditions, restrictions, vesting requirements and payment rules for awards of stock units. Awards Generally The awards described above may be granted either individually, in tandem or in combination with each other. Under certain conditions, including the occurrence of an approved transaction, a board change or a control purchase (all as defined in the director plan), options and SARs will become immediately exercisable, the restrictions on restricted shares will lapse and stock units will become fully vested, unless individual agreements state otherwise. In addition, if a holder's service terminates due to death or disability (as defined in the director plan), options and SARs will become immediately exercisable, the restrictions on restricted shares will lapse and stock units will become fully vested, unless individual agreements state otherwise. Adjustments The number and kind of shares of common stock which may be awarded, optioned or otherwise made subject to awards under the director plan, the number and kind of shares of common stock covered by outstanding awards and the purchase or exercise price and any relevant appreciation base with respect to any of the foregoing are subject to appropriate adjustment in the board's discretion, as 83

388 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 86 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 84 User: JBELANG EFW: Doc # 21 the board deems equitable, in the event (1) we subdivide our outstanding shares of any series of our common stock into a greater number of shares of such series of common stock, (2) we combine our outstanding shares of any series of common stock into a smaller number of shares of such series of common stock or (3) there is a stock dividend, extraordinary cash dividend, reclassification, recapitalization, reorganization, split-up, spin off, combination, exchange of shares, warrants or rights offering to purchase such series of common stock, or any other similar corporate event (excluding approved transactions (as defined in the director plan)). Amendment and Termination of the Director Plan The board of directors may terminate the director plan at any time prior to the tenth anniversary of the date on which the director plan became effective. The board may also suspend, discontinue, modify or amend the director plan any time prior to the tenth anniversary of the date on which the director plan became effective. However, before an amendment can be made that would adversely affect a non-employee director who has already been granted an award, the non-employee director's consent must be obtained, unless the change is necessary to comply with section 409A of the Code. No awards can be made under the director plan after the tenth anniversary of the date on which the director plan became effective. U.S. Federal Income Tax Consequences The following is a summary of the general rules of present U.S. federal income tax law relating to the tax treatment of non-qualified stock options, SARs, restricted shares, stock units and cash awards issued under the incentive plan and the director plan. The discussion is general in nature and does not take into account a number of considerations that may apply based upon the circumstances of a particular holder under the incentive plan and the director plan, including the possibility that a holder may not be subject to U.S. federal income taxation. Non-Qualified Stock Options; SARs Holders will not realize taxable income upon the grant of a non-qualified stock option or a SAR. Upon the exercise of a non-qualified stock option or a SAR, the holder will recognize ordinary income (subject to withholding, if applicable) in an amount equal to the excess of (1) the fair market value on the date of exercise of the shares received over (2) the exercise price (if any) he or she paid for the shares. The holder will generally have a tax basis in any shares of our common stock received pursuant to the exercise of a SAR, or pursuant to the cash exercise of a non-qualified stock option, that equals the fair market value of such shares on the date of exercise. Subject to the discussion under " Certain Tax Code Limitations on Deductibility" below, we will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the holder under the foregoing rules. The disposition of the shares of our common stock acquired upon exercise of a non-qualified stock option will ordinarily result in capital gain or loss. Under current rulings, if a holder transfers previously held shares in satisfaction of part or all of the exercise price of a non-qualified stock option, the holder will recognize income with respect to the shares received, but no additional gain will be recognized as a result of the transfer of such previously held shares in satisfaction of the non-qualified stock option exercise price. Moreover, that number of shares received upon exercise that equals the number of previously held shares surrendered in satisfaction of the non-qualified stock option will have a tax basis that equals, and a holding period that includes, the tax basis and holding period of the previously held shares surrendered in satisfaction of the non-qualified stock option exercise price. Any additional shares received upon exercise will have a tax basis that equals the amount of cash (if any) paid by the holder, plus the amount of ordinary income recognized by the holder with respect to the shares received. 84

389 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 87 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 85 User: JBELANG EFW: Doc # 21 Cash Awards; Stock Units; Restricted Shares A holder will recognize ordinary compensation income upon receipt of cash pursuant to a cash award or, if earlier, at the time such cash is otherwise made available for the holder to draw upon it. A holder will not have taxable income upon the grant of a stock unit but rather will generally recognize ordinary compensation income at the time the holder receives cash in satisfaction of such stock unit or shares of common stock in satisfaction of such stock unit in an amount equal to the fair market value of the shares received. Generally, a holder will not recognize taxable income upon the grant of restricted shares, and we will not be entitled to any federal income deduction upon the grant of such award. The value of the restricted shares will generally be taxable to the holder as compensation income in the year or years in which the restrictions on the shares of common stock lapse. Such value will equal the fair market value of the shares on the date or dates the restrictions terminate. A holder, however, may elect pursuant to Section 83(b) of the Code to treat the fair market value of the shares subject to the restricted share award on the date of such grant as compensation income in the year of the grant of the restricted share award. The holder must make such an election pursuant to Section 83(b) of the Code within 30 days after the date of grant. If such an election is made and the holder later forfeits the restricted shares to us, the holder will not be allowed to deduct, at a later date, the amount such holder had earlier included as compensation income. A holder who is an employee will be subject to withholding for federal, and generally for state and local, income taxes at the time the holder recognizes income under the rules described above with respect to the cash or the shares of our common stock received pursuant to awards. Dividends that are received by a holder prior to the time that the restricted shares are taxed to the holder under the rules described in the preceding paragraph are taxed as additional compensation, not as dividend income. The tax basis of a holder in the shares of our common stock received will equal the amount recognized by the holder as compensation income under the rules described in the preceding paragraph, and the holder's holding period in such shares will commence on the date income is so recognized. Subject to the discussion under " Certain Tax Code Limitations on Deductibility" below, we will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the holder under the foregoing rules. Section 409A Awards under our incentive plans have features that could cause them to be treated as deferred compensation arrangements. The AJCA significantly alters the tax law relating to nonqualified deferred compensation arrangements, through the adoption of the new section 409A of the Code, and imposes significant penalties for noncompliance. Specifically, if a deferred compensation arrangement does not comply with section 409A, deferred amounts will be taxed currently at the employee's marginal rate, interest will be assessed at the underpayment rate established by the IRS plus one percent, measured from the later of the deferral date or the vesting date, and a penalty will be assessed equal to 20% of the taxable amount of compensation. The IRS is expected to promulgate additional regulations and guidelines for employers seeking to comply with new Code section 409A, but such regulations and guidelines are still evolving. The incentive plan and the director plan will be administered in a manner that is in good faith compliance with section 409A and applicable regulations. We intend that any awards under the incentive plan and the director plan satisfy the applicable requirements of section 409A. If any plan provision or award would result in the imposition of an additional tax under section 409A, such plan provision or award will be amended to avoid imposition of the additional tax. No action taken to comply with section 409A will be deemed to adversely affect the employee's rights under any award. 85

390 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 88 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 86 User: JBELANG EFW: Doc # 21 Certain Tax Code Limitations on Deductibility In order for us to deduct the amounts described above, such amounts must constitute reasonable compensation for services rendered or to be rendered and must be ordinary and necessary business expenses. Our ability to obtain a deduction for future payments under the incentive plan could also be limited by Section 280G of the Code, which provides that certain excess parachute payments made in connection with a change of control of an employer are not deductible. Our ability to obtain a deduction for amounts paid under the incentive plan could also be affected by Section 162(m) of the Code, which limits the deductibility, for U.S. federal income tax purposes, of compensation paid to certain employees to $1 million during any taxable year. However, certain exceptions apply to this limitation in the case of performance-based compensation. It is intended that the incentive plan will satisfy certain of the requirements for the performance-based exception and that we will be able to comply with the requirements of the Code and Treasury Regulation Section with respect to the grant and payment of certain performance-based awards (including certain options and stock appreciation rights) under the incentive plan so as to be eligible for the performance-based exception. However, it may not be possible in all cases to satisfy all of the requirements for the exception and we may, in our sole discretion, determine that in one or more cases it is in our best interests not to satisfy the requirements for the performance-based exception. The incentive plan will be administered by the compensation committe of our board of directors and the incentive plan and the director plan will each be submitted for shareholder approval at our 2006 annual meeting of shareholders. Security Ownership of Certain Beneficial Owners The following table sets forth information, to the extent known by us or ascertainable from public filings, concerning shares of LMC's common stock beneficially owned by each person or entity (excluding any of our directors and any of our executive officers) known by us to own more than five percent of the outstanding shares of LMC's common stock. The percentage of LMC common stock beneficially owned by each person or entity reflects the percentage of our common stock that would have been beneficially owned by such persons on April 29, 2005, had the record date for the spin off occurred on that date. The percentage ownership information is based upon 2,679,967,732 shares of LMC Series A common stock and 121,062,825 shares of LMC Series B common stock outstanding as of April 29, Name and Address of Beneficial Owner Series of Stock Number of Shares Percent of Class Voting Power (in thousands) Capital Research and Management Company 333 South Hope Street Los Angeles, CA Citigroup Global Markets Holdings Inc. 388 Greenwich Street New York, NY Citigroup Inc. 399 Park Avenue New York, NY Series A 141,455* 5.3% 3.6% Series A 135,892** 5.1% 3.5% Series A 145,024** 5.4% 3.7% * The number of shares of common stock in the table is based upon the Schedule 13G dated December 31, 2004, filed by Capital Research and Management Company with respect to LMC 86

391 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 89 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 87 User: JBELANG EFW: Doc # 21 Series A common stock. Capital Research, an investment advisor, is the beneficial owner of 141,454,800 shares of LMC Series A common stock, as a result of acting as investment advisor to various investments companies, but disclaims beneficial ownership pursuant to Rule 13d-4. The Schedule 13G reflects that Capital Research has no voting power over and sole dispositive power over these shares. ** This number of shares of common stock is based upon the Schedule 13G dated December 31, 2004, filed jointly by Citigroup Global Markets Holdings, Inc. and Citigroup Inc. with respect to LMC Series A common stock. Citigroup Global is the beneficial owner of 135,892,163 shares of LMC Series A common stock and Citigroup is the beneficial owner of 145,023,975 shares of LMC Series A common stock. The number of shares owned by Citigroup Global includes certain shares as to which beneficial ownership is disclaimed. The number of shares owned by Citigroup includes the shares beneficially owned by Citigroup Global and certain shares as to which beneficial ownership is disclaimed. Security Ownership of Management The following table sets forth information with respect to the ownership by each director and each of our named executive officers and by all of our directors and executive officers as a group of shares of LMC Series A common stock and LMC Series B common stock, as of April 29, The percentage of LMC common stock beneficially owned by each named executive officer and by all of our directors and executive officers as a group reflects the percentage of our common stock that would have been beneficially owned by such persons on April 29, 2005, had the record date for the spin off occurred on that date. The security ownership information is given as of April 29, 2005 and, in the case of percentage ownership information, is based upon 2,679,967,732 shares of LMC Series A common stock and 121,062,825 shares of LMC Series B common stock outstanding on that date. Shares of common stock issuable upon exercise or conversion of options, warrants and convertible securities that were exercisable or convertible on or within 60 days after April 29, 2005, are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. For purposes of the following presentation, beneficial ownership of shares of LMC Series B common stock, though convertible on a one-for-one basis into shares of LMC Series A common stock, is reported as beneficial ownership of LMC Series B common stock only, and not as beneficial ownership of LMC Series A 87

392 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 90 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 88 User: JBELANG EFW: Doc # 21 common stock. So far as is known to us, the persons indicated below have sole voting power with respect to the shares indicated as owned by them, except as otherwise stated in the notes to the table. Name of Beneficial Owner Title of Class Amount and Nature of Beneficial Ownership Percent of Class Voting Power (in thousands) John C. Malone LMC Series A LMC Series B 15,817(1)(2)(3)(4) 116,671(1)(4)(5) * 89.4% 29.7% Robert R. Bennett LMC Series A LMC Series B 4,007(6)(7)(8) 13,761(7)(8) * 10.2% 3.5% Paul A. Gould LMC Series A LMC Series B M. LaVoy Robison LMC Series A LMC Series B J. David Wargo LMC Series A LMC Series B David J.A. Flowers LMC Series A LMC Series B Albert E. Rosenthaler LMC Series A LMC Series B Christopher W. Shean LMC Series A LMC Series B Charles Y. Tanabe LMC Series A LMC Series B 1,707(9) * * (10) * * 0 168(11)(12) * * 0 1,681(13)(14)(15) * * 0 313(16)(17) * * 0 333(18)(19) * * 0 1,971(20)(21)(22) * * 0 All directors and executive officers as a group (9 persons) LMC Series A LMC Series B 26,022(3)(8)(12)(15)(23)(24)(25) 131,032(5)(8)(24)(25) 1.0% 90.8% 32.4% * Less than one percent (1) Includes 1,505,043 shares of LMC Series A common stock and 3,409,436 shares of LMC Series B common stock held by Dr. Malone's wife, Mrs. Leslie Malone, as to which shares Dr. Malone has disclaimed beneficial ownership. (2) Includes 766,203 shares of LMC Series A common stock held by the Liberty 401(k) Savings Plan. (3) Includes 3,300 shares of LMC Series A common stock held by a trust with respect to which Dr. Malone is the sole trustee and, with his wife, retains a unitrust interest in the trust. (4) Includes beneficial ownership of 4,125 shares of LMC Series A common stock and 9,475,457 shares of LMC Series B common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock options. Dr. Malone has the right to convert the options to purchase shares of LMC Series B common stock into options to purchase shares of LMC Series A common stock.

393 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 90.1 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 88 User: JBELANG EFW: Doc # 21 (5) In February 1998, in connection with the settlement of certain legal proceedings relative to the Estate of Bob Magness, the late founder and former Chairman of the Board of our former parent company, TCI, TCI entered into a call agreement with Dr. Malone and Dr. Malone's wife and a call agreement with the Magness Group. In connection with AT&T's acquisition of TCI, TCI 88

394 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 91 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 89 User: JBELANG EFW: Doc # 21 assigned to LMC its rights under these call agreements. As a result, LMC has the right, under certain circumstances, to acquire shares of LMC Series B common stock owned by the Malones. The call agreement also prohibits the Malones from disposing of their shares of LMC Series B common stock, except for certain exempt transfers (such as transfers to related parties or to the other group or public sales of up to an aggregate of 5% of their shares of LMC Series B common stock after conversion to shares of LMC Series A common stock) and except for a transfer made in compliance with LMC's call rights. The call agreement does not apply to any shares of our common stock that the Malones acquire in the spin off or otherwise. (6) Includes 29,904 shares of LMC Series A common stock held by the Liberty 401(k) Savings Plan. (7) Includes beneficial ownership of 225,640 shares of LMC Series A common stock and 13,760,879 shares of LMC Series B common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock options. Mr. Bennett has the right to convert the options to purchase shares of LMC Series B common stock into options to purchase shares of LMC Series A common stock. (8) Includes 1,246,596 shares of LMC Series A common stock and 400 shares of LMC Series B common stock owned by Hilltop Investments, Inc., which is jointly owned by Mr. Bennett and his wife, Mrs. Deborah Bennett. (9) Includes beneficial ownership of 30,750 shares of LMC Series A common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock options and stock appreciation rights. (10) Includes beneficial ownership of 22,000 shares of LMC Series A common stock, which may be acquired within 60 days of April 29, 2005 pursuant to stock appreciation rights. (11) Includes beneficial ownership of 8,750 shares of LMC Series A common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock appreciation rights. (12) Includes 157,873 shares of LMC Series a common stock held in various accounts managed by Mr. Wargo, as to which shares Mr. Wargo has disclaimed beneficial ownership. (13) Includes 13,338 shares of LMC Series A common stock held by the Liberty 401(k) Savings Plan. (14) Includes beneficial ownership of 1,258,413 shares of LMC Series A common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock options and stock appreciation rights. (15) Includes 27,000 shares of LMC Series A common stock owned by AIKD Investment, Inc., which is solely owned by Mr. Flowers. (16) Includes 6,168 shares of LMC Series A common stock held by the Liberty 401(k) Savings Plan. (17) Includes beneficial ownership of 306,400 shares of LMC Series A common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock options and stock appreciation rights. (18) Includes 13,060 shares of LMC Series A common stock held by the Liberty 401(k) Savings Plan. (19) Includes beneficial ownership of 317,938 shares of LMC Series A common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock options and stock appreciation rights. (20) Includes 7,573 shares of LMC Series A common stock held by the Liberty 401(k) Savings Plan. (21) Includes 3,068 shares of LMC Series A common stock held by Mr. Tanabe's wife, Arlene Bobrow, as to which shares Mr. Tanabe has disclaimed beneficial ownership. 89

395 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 92 File: DISK112:[05DEN2.05DEN1432]DY1432B.;20 Created: 23-JUN-2005;22:27 Chksum: Folio: 90 User: JBELANG EFW: Doc # 21 (22) Includes beneficial ownership of 1,674,550 shares of LMC Series A common stock, which may be acquired within 60 days of April 29, 2005 pursuant to stock options. (23) Includes 830,682 shares of LMC Series A common stock held by the Liberty 401(k) Savings Plan. (24) Includes 1,508,111 shares of LMC Series A common stock and 3,409,436 shares of LMC Series B common stock held by relatives of certain directors and executive officers, as to which shares beneficial ownership by such directors and executive officers has been disclaimed. (25) Includes beneficial ownership of 3,826,566 shares of LMC Series A common stock and 23,236,336 shares of LMC Series B common stock, which may be acquired within 60 days after April 29, 2005 pursuant to stock options and stock appreciation rights. The options to purchase shares of LMC Series B common stock may be converted, at the option of the holder, into options to purchase shares of LMC Series A common stock. 90

396 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 93 File: DISK112:[05DEN2.05DEN1432]EA1432A.;33 Created: 24-JUN-2005;18:30 Chksum: Folio: 91 User: BSKELLE EFW: Doc # 21 Agreements with LMC CERTAIN INTER-COMPANY AGREEMENTS Following the spin off, our company and LMC will operate independently, and neither will have any ownership interest in the other. In order to govern certain of the ongoing relationships between our company and LMC after the spin off and to provide mechanisms for an orderly transition, we and LMC are entering into certain agreements pursuant to which we will obtain services from LMC, and we and LMC will indemnify each other against certain liabilities arising from our respective businesses. The following is a summary of the terms of the material agreements we are entering into with LMC. This summary is qualified by reference to the full text of the agreements to be filed as exhibits to the Form 10 registration statement of which this information statement is a part. Reorganization Agreement Prior to the record date, we will enter into a reorganization agreement with LMC and Ascent Media to provide for, among other things, the principal corporate transactions required to effect the spin off, certain conditions to the spin off and provisions governing the relationship between our company and LMC with respect to and resulting from the spin off. The reorganization agreement will provide that, on or prior to the record date, LMC will transfer to us, or cause its other subsidiaries to transfer to us, all of the interests in Ascent Media and LMC's 50% ownership interest in Discovery Communications. The reorganization agreement will also provide for mutual indemnification obligations, which are designed to make our company financially responsible for substantially all liabilities that may exist relating to the business of Ascent Media and LMC's ownership interest in Discovery prior to the spin off, as well as for all liabilities incurred by our company after the spin off, and to make LMC financially responsible for all potential liabilities of our company which are not related to our businesses, including, for example, any liabilities arising as a result of our company having been a subsidiary of LMC. In addition, the reorganization agreement will provide for each of our company and LMC to preserve the confidentiality of all confidential or proprietary information of the other party for three years following the spin off, subject to customary exceptions, including disclosures required by law, court order or government regulation. The reorganization agreement may be terminated, and the spin off may be abandoned, at any time prior to the date of the spin off, by and in the sole discretion of the LMC board of directors, without the approval of LMC's shareholders or anyone else. In such event, LMC will have no liability to any person under the reorganization agreement or any obligation to effect the spin off. Services Agreement On or before the date of the spin off, we will enter into a services agreement with LMC, pursuant to which, following the spin off, LMC will provide us with specified services and benefits, including: (1) shared office space, including furniture, furnishings and building services, at LMC's executive headquarters; (2) technical assistance (including management information systems, network maintenance and data storage), computers, office supplies, postage, courier service and other office services; (3) insurance administration and risk management services; (4) other services typically performed by LMC's treasury, legal, investor relations, tax and accounting personnel; and 91

397 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 94 File: DISK112:[05DEN2.05DEN1432]EA1432A.;33 Created: 24-JUN-2005;18:30 Chksum: Folio: 92 User: BSKELLE EFW: Doc # 21 (5) such other services as we and LMC may from time to time mutually determine to be necessary or desirable. We will make payments to LMC under the services agreement based upon a portion of LMC's personnel costs (taking into account wages and benefits) of the LMC officers and employees who are expected to provide services to us, including the executive officers of LMC who will also act as our executive officers. These personnel costs will be based upon the anticipated percentages of time to be spent by LMC personnel performing services for us under the services agreement. We will also reimburse LMC for direct out-of-pocket costs incurred by LMC for third party services provided to us. We and LMC will evaluate all charges for reasonableness semi-annually and make any adjustments to these charges as we and LMC mutually agree upon. Based upon the current personnel costs of the affected LMC personnel and our anticipated percentage usage thereof, the fees payable to LMC for the first year of the services agreement are expected to be approximately $1 million. The services agreement will continue in effect until the close of business on December 31, 2005, and will be renewed automatically for successive one-year periods thereafter, unless earlier terminated (1) by us at any time on at least 30 days' prior written notice, (2) by LMC at the end of the initial term or any renewal term, upon at least 180 days' prior notice, (3) by LMC upon written notice to our company, following certain changes in control of our company or our company being the subject of certain bankruptcy or insolvency-related events or (4) by us upon written notice to LMC, following certain changes in control of LMC or LMC being the subject of certain bankruptcy or insolvency-related events. Tax Sharing Agreement On or before the date of the spin off, we will enter into a tax sharing agreement with LMC that governs LMC's and our respective rights, responsibilities and obligations with respect to taxes and tax benefits, the filing of tax returns, the control of audits and other tax matters. References in this summary description of the tax sharing agreement to the terms "tax" or "taxes" mean taxes as well as any interest, penalties, additions to tax or additional amounts in respect of such taxes. We and our eligible subsidiaries currently join with LMC in the filing of a consolidated return for U.S. federal income tax purposes and also join with LMC in the filing of certain consolidated, combined, and unitary returns for state, local, and foreign tax purposes. However, for periods (or portions thereof) beginning after the spin off, we will not join with LMC in the filing of any federal, state, local or foreign consolidated, combined or unitary tax returns. Under the tax sharing agreement, except as described below, LMC will be responsible for all U.S. federal, state, local and foreign income taxes reported on a consolidated, combined or unitary return that includes us or one of our subsidiaries, on the one hand, and LMC or one of its subsidiaries (other than us or any of our subsidiaries), on the other hand. In addition, LMC will indemnify us and our subsidiaries against any liabilities arising under its tax sharing agreement with AT&T Corp. We will be responsible for all other taxes (including income taxes not reported on a consolidated, combined, or unitary return by LMC or its subsidiaries) that are attributable to us or one of our subsidiaries, whether accruing before, on or after the spin off. We will have no obligation to reimburse LMC for the use, in any period following the spin off, of a tax benefit created before the spin off, regardless of whether such benefit arose with respect to taxes reported on a consolidated, combined or unitary basis. Notwithstanding the tax sharing agreement, under U.S. Treasury Regulations, each member of a consolidated group is severally liable for the U.S. federal income tax liability of each other member of the consolidated group. Accordingly, with respect to periods in which we (or our subsidiaries) have been included in LMC's, AT&T Corp.'s or Tele-Communications, Inc.'s consolidated group, we (or our subsidiaries) could be liable to the U.S. government for any U.S. federal income tax liability incurred, but not discharged, by any other member of such consolidated group. However, if any such liability 92

398 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 95 File: DISK112:[05DEN2.05DEN1432]EA1432A.;33 Created: 24-JUN-2005;18:30 Chksum: Folio: 93 User: BSKELLE EFW: Doc # 21 were imposed, we would generally be entitled to be indemnified by LMC for tax liabilities allocated to LMC under the tax sharing agreement. Our ability to obtain a refund from a carryback of a tax benefit to a year in which we and LMC (or any of our respective subsidiaries) joined in the filing of a consolidated, combined or unitary return will be at the discretion of LMC. Moreover, any refund that we may obtain will be net of any increase in taxes resulting from the carryback for which LMC is otherwise liable under the tax sharing agreement. To the extent permitted by applicable tax law, we and LMC will treat any payments made under the tax sharing agreement as a capital contribution or distribution (as applicable) immediately prior to the spin off, and accordingly, as not includible in the taxable income of the recipient. However, if any payment causes, directly or indirectly, an increase in the taxable income of the recipient (or its affiliates), the payor's payment obligation will be grossed up to take into account the deemed taxes owed by the recipient (or its affiliates). We will be responsible for preparing and filing all tax returns that include us or one of our subsidiaries other than any consolidated, combined or unitary income tax return that includes us or one of our subsidiaries, on the one hand, and LMC or one of its subsidiaries (other than us or any of our subsidiaries), on the other hand, and we will have the authority to respond to and conduct all tax proceedings, including tax audits, involving any taxes or any deemed adjustment to taxes reported on such tax returns. LMC will be responsible for preparing and filing all consolidated, combined or unitary income tax returns that include us or one of our subsidiaries, on the one hand, and LMC or one of its subsidiaries (other than us or any of our subsidiaries), on the other hand, and LMC will have the authority to respond to and conduct all tax proceedings, including tax audits, relating to taxes or any deemed adjustment to taxes reported on such tax returns. LMC will also have the authority to respond to and conduct all tax proceedings relating to any liability arising under its tax sharing agreement with AT&T Corp. We will be entitled to participate in any tax proceeding involving any taxes or deemed adjustment to taxes for which we are liable under the tax sharing agreement. The tax sharing agreement further provides for cooperation between LMC and our company with respect to tax matters, the exchange of information and the retention of records that may affect the tax liabilities of the parties to the agreement. Finally, the tax sharing agreement requires that neither we nor any of our subsidiaries will take, or fail to take, any action where such action, or failure to act, would be inconsistent with or prohibit the spin off from qualifying as a tax-free transaction to LMC and to you under Sections 355 and 368(a)(1)(D) of the Code. Moreover, we must indemnify LMC and its subsidiaries, officers and directors for any loss, including any deemed adjustment to taxes of LMC, resulting from (1) such action or failure to act, (2) any agreement, understanding, arrangement or substantial negotiations entered into by us or any of our subsidiaries prior to the day after the first anniversary of the distribution date, with respect to any transaction pursuant to which any of Cox Communications, Advance/Newhouse or certain persons related to Cox Communications or Advance/Newhouse would acquire shares of, or other interests (including options) in our capital stock or (3) any action or failure to act by us or any of our subsidiaries following the completion of the spin off that would be inconsistent with, or otherwise cause any person to be in breach of, any representation or covenant made in connection with the tax opinion delivered to LMC by Skadden, Arps, Slate, Meagher & Flom LLP or the private letter ruling obtained by LMC from the IRS, in each case relating to, among other things, the qualification of the spin off as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code. See "The Spin Off Material U.S. Federal Income Tax Consequences of the Spin Off." For purposes of the tax sharing agreement, the deemed adjustment to taxes generally will be an amount equal to the gain recognized by LMC multiplied by the highest applicable statutory rate for the applicable taxing jurisdiction, plus interest and any penalties. 93

399 Printed: 24-Jun-2005;20:03:47 (v.162) HTML Page: 96 File: DISK112:[05DEN2.05DEN1432]EA1432A.;33 Created: 24-JUN-2005;18:30 Chksum: Folio: 94 User: BSKELLE EFW: Doc # 21 Information Agreement with Discovery We have entered into an agreement with Discovery regarding the use by us of certain information regarding Discovery in connection with our financial reporting and disclosure requirements as a public company. We refer to this agreement as the Information Agreement. The Information Agreement provides that Discovery will use commercially reasonable efforts: to provide us, on a timely basis, with historical financial information regarding Discovery that we have identified as necessary for preparation of our annual and quarterly financial statements, and additional financial and business information regarding Discovery, as reasonably necessary for us to comply with our reporting and disclosure obligations under applicable securities laws and stock market rules for use and inclusion in our SEC filings, reports and other disclosure documents and related meetings and conference calls; and to make its officers and, subject to any applicable professional standards and practices, accountants, attorneys and other advisors reasonably available for consultations and discussions with us and our accountants, attorneys and other advisors regarding such information. With respect to information provided to us other than the historical financial information specified in the agreement, the Information Agreement limits the public disclosure by us of certain non-public information regarding Discovery, including information the disclosure of which could reasonably be expected to have an adverse effect on Discovery that is material in any respect, and provides procedures for resolving issues regarding such information. The Information Agreement provides that we will reimburse Discovery for the reasonable fees, costs and expenses incurred by Discovery to perform its obligations under the Information Agreement, to the extent such fees, costs and expenses exceed those that would otherwise have been incurred by Discovery in the ordinary course of business. The Information Agreement also provides that we will indemnify Discovery, its subsidiaries and their respective officers, directors, employees and agents from and against any losses incurred by them relating to any third-party claims or investigations related to Discovery's performance of its obligations under the Information Agreement or any disclosure by us of the information provided to us by Discovery pursuant to the Information Agreement (and will exculpate such persons from any liability to us relating thereto), other than any such losses and liabilities as may arise from the gross negligence, reckless conduct or willful misconduct of Discovery or any such indemnified person. In addition, we have entered into separate agreements with Cox Communications and Advance/Newhouse, pursuant to which we have agreed to indemnify such parties, their affiliates, and their respective officers, directors, employees and agents, from and against any losses incurred by them relating to any third-party claims related to Discovery's performance of its obligations under the Information Agreement or any disclosure by us of the information provided to us by Discovery pursuant to the Information Agreement (and will exculpate such persons from any liability to us relating thereto), other than any such losses and liabilities as may arise from the willful misconduct of, or any purchase or sale of our securities by, Cox Communications or Advance/Newhouse, as applicable, or any of such party's officers, directors, employees and agents. The foregoing summaries of the Information Agreement and of the indemnification agreements between us and each of Cox Communications and Advance/Newhouse are qualified by reference to the full texts of such agreements, each of which is filed as an exhibit to the Form 10 registration statement of which this information statement is a part. 94

400 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 97 File: DISK112:[05DEN2.05DEN1432]EA1432A.;33 Created: 24-JUN-2005;18:30 Chksum: Folio: 95 User: BSKELLE EFW: Doc # 21 Termination of Tax Agreement between Ascent Media and LMC Prior to the spin off, LMC and Ascent Media will enter into an agreement pursuant to which their existing tax allocation and indemnification agreement will be terminated and each of LMC and Ascent Media shall be released from all liabilities and obligations under such agreement. Services Agreement between Ascent Media and On Command Corporation Since October 1, 2002, Ascent Media has provided uplink and satellite transport services to On Command Corporation, a wholly owned subsidiary of LMC. Under the terms of a short-term services agreement and, later a content preparation and distribution services agreement, from October 1, 2002 through March 31, 2008, Ascent Media has provided, and will continue to provide, uplink and satellite transport services. The content preparation and distribution agreement also provides that Ascent Media may supply content preparation services. During the period from April 2003 to October 2004, Ascent Media also installed satellite equipment at On Command's downlink sites at hotels pursuant to a separate services agreement. As of December 31, 2004, Ascent Media charged On Command approximately $1,215,000 for services rendered under all agreements. All agreements were entered into in the ordinary course of business on arm's-length terms. HyperTV with Livewire A subsidiary of Ascent Media is party to a joint venture and related long-term, non-exclusive agreement with HyperTV Networks, Inc., an indirect majority-controlled subsidiary of LMC, to jointly market a process for synchronizing web content and video programming. During the last three fiscal years, the joint venture has not generated any significant revenue. Arrangements between Discovery and Ascent Media Discovery is a customer of Ascent Media and certain Discovery subsidiaries are parties to vendor agreements with Ascent Media. Such agreements and arrangements were entered into in the ordinary course of business on arm's-length terms. In that connection, Ascent Media's facilities in Singapore provide uplink and origination and other network services for Discovery's channels in Asia and Ascent Media's facilities in London provide uplink and origination and other network services for Discovery channels in the U.K. In addition, a subsidiary of Ascent Media provided certain integration services to Discovery in the U.S. during In 2004, Discovery and its subsidiaries were, collectively Ascent Media's third largest customer, generating $39,717,000 in sales (or 6% of Ascent Media's 2004 total revenue). 95

401 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 98 File: DISK112:[05DEN2.05DEN1432]EC1432A.;33 Created: 23-JUN-2005;23:14 Chksum: Folio: 96 User: GANDERSA EFW: Doc # 21 DESCRIPTION OF OUR CAPITAL STOCK The following information reflects our restated certificate of incorporation and bylaws as these documents will be in effect at the time of the spin off. Authorized Capital Stock Our authorized capital stock consists of one billion three hundred million (1,300,000,000) shares, of which one billion two hundred fifty million (1,250,000,000) shares are designated common stock, par value $0.01 per share, and fifty million (50,000,000) shares are designated preferred stock, par value $0.01 per share. Our common stock is divided into three series. We have authorized six hundred million (600,000,000) shares of Series A common stock, fifty million (50,000,000) shares of Series B common stock, and six hundred million (600,000,000) shares of Series C common stock. Immediately following the spin off, we expect to have approximately 267,895,000 shares of our Series A common stock and approximately 12,106,000 shares of our Series B common stock outstanding, based upon the number of shares of LMC Series A common stock and Series B common stock outstanding on March 31, No shares of our Series C common stock or preferred stock will be outstanding immediately following the spin off. Our Common Stock The holders of our Series A common stock, Series B common stock and Series C common stock have equal rights, powers and privileges, except as otherwise described below. Voting Rights The holders of our Series A common stock will be entitled to one vote for each share held, and the holders of our Series B common stock will be entitled to ten votes for each share held, on all matters voted on by our shareholders, including elections of directors. The holders of our Series C common stock will not be entitled to any voting powers, except as required by Delaware law. When the vote or consent of holders of our Series C common stock is required by Delaware law, the holders of our Series C common stock will be entitled to 1/100th of a vote for each share held. Our charter does not provide for cumulative voting in the election of directors. Dividends; Liquidation Subject to any preferential rights of any outstanding series of our preferred stock created by our board from time to time, the holders of our common stock will be entitled to such dividends as may be declared from time to time by our board from funds available therefor. Except as otherwise described under " Distributions," whenever a dividend is paid to the holders of one of our series of common stock, we shall also pay to the holders of the other series of our common stock an equal per share dividend. For a more complete discussion of our dividend policy, please see " Dividend Policy." Conversion Each share of our Series B common stock is convertible, at the option of the holder, into one share of our Series A common stock. Our Series A common stock and Series C common stock are not convertible. Distributions Subject to the exception provided below, distributions made in shares of our Series A common stock, our Series B common stock, our Series C common stock or any other security with respect to 96

402 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 99 File: DISK112:[05DEN2.05DEN1432]EC1432A.;33 Created: 23-JUN-2005;23:14 Chksum: Folio: 97 User: GANDERSA EFW: Doc # 21 our Series A common stock, our Series B common stock or our Series C common stock may be declared and paid only as follows: a share distribution (1) consisting of shares of our Series A common stock (or securities convertible therefor) to holders of our Series A common stock, Series B common stock and Series C common stock, on an equal per share basis; or (2) consisting of shares of our Series B common stock (or securities convertible therefor) to holders of our Series A common stock, Series B common stock and Series C common stock, on an equal per share basis; or (3) consisting of shares of our Series C common stock (or securities convertible therefor) to holders of our Series A common stock, Series B common stock and Series C common stock, on an equal per share basis; or (4) consisting of shares of our Series A common stock (or securities convertible therefor) to holders of our Series A common stock and, on an equal per share basis, shares of our Series B common stock (or securities convertible therefor) to holders of our Series B common stock and, on an equal per share basis, shares of our Series C common stock (or securities convertible thereof) to holders of our Series C common stock; and a share distribution consisting of shares of any class or series of securities of our company or any other person, other than our Series A common stock, Series B common stock or Series C common stock (or securities convertible therefor) on the basis of a distribution of (1) identical securities, on an equal per share basis, to holders of our Series A common stock, Series B common stock and Series C common stock; or (2) separate classes or series of securities, on an equal per share basis, to holders of our Series A common stock, Series B common stock and Series C common stock; or (3) a separate class or series of securities to the holders of one or more series of our common stock and, on an equal per share basis, a different class or series of securities to the holders of all other series of our common stock, provided that, in the case of (2) or (3) above, the securities so distributed do not differ in any respect other than their relative voting rights and related differences in designation, conversion and share distribution provisions, with the holders of shares of Series B common stock receiving securities of the class or series having the highest relative voting rights and the holders of shares of each other series of our common stock receiving securities of the class or series having lesser relative voting rights, and provided further that, if different classes or series of securities are being distributed to holders of our Series A common stock and Series C common stock, then such securities shall be distributed either as determined by our board of directors or such that the relative voting rights of the securities of the class or series of securities to be received by the holders of our Series A common stock and Series C common stock corresponds, to the extent practicable, to the relative voting rights of each such series of our common stock, and provided further that, in each case, the distribution is otherwise made on a equal per share basis. In addition, no share distribution of voting stock may be declared or paid if the securities (or securities convertible therefor) to be received by the holders of our Series B common stock consist of securities (or securities convertible therefor) having a per share voting power equal to less than ten times the per share voting power of the securities (or securities convertible therefor) received in such distribution by holders of our Series A and Series C common stock, unless such share distribution has been consented to by at least 75% of the outstanding shares of Series B common stock, voting as a separate class (who may for this purpose act by written consent). We may not reclassify, subdivide or combine any series of our common stock without reclassifying, subdividing or combining the other series of our common stock, on an equal per share basis. Any amendment of our restated certificate of incorporation which has the effect of reclassifying or recapitalizing our common stock in a manner which results in the holders of our Series B common stock receiving or holding securities having per share voting power of less than ten times the per share voting power of any other class or series of common stock having general voting rights will, in addition 97

403 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 100 File: DISK112:[05DEN2.05DEN1432]EC1432A.;33 Created: 23-JUN-2005;23:14 Chksum: Folio: 98 User: GANDERSA EFW: Doc # 21 to any other approval requirements necessary to amend our restated certificate of incorporation, also require the consent of the holders of at least 75% of the shares of Series B common stock outstanding (who may for this purpose act by written consent). Liquidation and Dissolution In the event of our liquidation, dissolution and winding up, after payment or provision for payment of our debts and liabilities and subject to the prior payment in full of any preferential amounts to which our preferred stock holders may be entitled, the holders of our Series A common stock, Series B common stock and Series C common stock will share equally, on a share for share basis, in our assets remaining for distribution to the holders of our common stock. Our Preferred Stock Our restated certificate of incorporation authorizes our board of directors to establish one or more series of our preferred stock and to determine, with respect to any series of our preferred stock, the terms and rights of the series, including: the designation of the series; the number of authorized shares of the series, which number our board may thereafter increase or decrease but not below the number of such shares then outstanding; the dividend rate or amounts, if any, payable on the shares and, in the case of cumulative dividends, the date or dates from which dividends on all shares of the series shall be cumulative; the rights of the series in the event of our voluntary or involuntary liquidation, dissolution or winding up; the rights, if any, of holders of the series to convert into or exchange for other classes or series of stock or indebtedness and the terms and conditions of any such conversion or exchange, including provision for adjustments within the discretion of our board; the voting rights, if any, of the holders of the series; the terms and conditions, if any, for us to purchase or redeem the shares; and any other relative rights, preferences and limitations of the series. We believe that the ability of our board of directors to issue one or more series of our preferred stock will provide us with flexibility in structuring possible future financings and acquisitions, and in meeting other corporate needs that might arise. The authorized shares of our preferred stock, as well as shares of our common stock, will be available for issuance without further action by our shareholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. If the approval of our shareholders is not required for the issuance of shares of our preferred stock or our common stock our board may determine not to seek shareholder approval. Two series of preferred stock have been authorized in connection with our Shareholder Rights Plan described below. In addition, although our board of directors has no intention at the present time of doing so, it could in the future issue an additional series of our preferred stock that could, depending on the terms of such series, impede the completion of a merger, tender offer or other takeover attempt. Our board of directors will make any determination to issue such shares based upon its judgment as to the best interests of our company and our shareholders. Our board of directors, in so acting, could issue our preferred stock having terms that could discourage an acquisition attempt through which an acquirer may be able to change the composition of our board of directors, including a tender offer or other transaction that some, or a majority, of our shareholders might believe to be in 98

404 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 101 File: DISK112:[05DEN2.05DEN1432]EC1432A.;33 Created: 23-JUN-2005;23:14 Chksum: Folio: 99 User: GANDERSA EFW: Doc # 21 their best interests or in which shareholders might receive a premium for their stock over the then-current market price of the stock. Shareholder Rights Plan Our board of directors has approved the adoption of a shareholder rights plan that will include the following terms and provisions. Accordingly, the distribution of our common stock to LMC stockholders of record on the record date for the spin off will include: one preferred share purchase right (which we refer to as a "Series A right") for each outstanding share of our Series A common stock, which Series A right will entitle the registered holder to purchase from us one one-thousandth of a share of our Series A Junior Participating Preferred Stock, par value $0.01 per share (which we refer to as the "Series A junior preferred stock"), at a purchase price of $ per one one-thousandth of a share, subject to adjustment; and one preferred share purchase right (which we refer to as a "Series B right") for each outstanding share of our Series B common stock, which Series B right will entitle the registered holder to purchase from us one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share (which we refer to as the "Series B junior preferred stock"), at a purchase price of $ per one one-thousandth of a share, subject to adjustment. In the event that we issue shares of our Series C common stock, such shares will include one preferred share purchase right (which we refer to as a Series C right and, collectively with the Series A rights and Series B rights, the "rights") for each share of Series C common stock issued, which Series C right will entitle the registered holder to purchase from us one one-thousandth of a share of Series C Junior Participating Preferred Stock, at a purchase price to be determined by our board of directors at the time of issuance. The description and terms of the rights will be set forth in a Rights Agreement, between us and EquiServe Trust Company, N.A., as Rights Agent a form of which has been filed as an exhibit to the Form 10 of which this information statement is a part. The following description of the rights is qualified in its entirety by reference to the Rights Agreement. Separation and Distribution of Rights; Exercisablility. The Series A rights will be attached to all certificates (or, in the case of uncertificated shares, all book-entry notations) representing shares of our Series A common stock then outstanding, the Series B rights will be attached to all Series B certificates (or, in the case of uncertificated shares, all book-entry notations) representing shares of our Series B common stock then outstanding and the Series C rights will be attached to all Series C certificates (or, in the case of uncertificated shares, all book-entry notations) representing shares of Series C Stock, if and when such shares are issued, and no separate rights certificates will be distributed with respect to any of the rights at such time. The rights will separate from our common stock on the rights distribution date, which will occur upon the earlier of: 10 days following a public announcement that a person or group of affiliated or associated persons has become an "acquiring person;" and 10 business days (or such later date as may be determined by action of our board of directors prior to such time as any person or group of affiliated persons becomes an "acquiring person") following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in any person or group of affiliated persons becoming an "acquiring person." Except in certain situations, a person or group of affiliated or associated persons becomes an "acquiring person" upon acquiring beneficial ownership of our outstanding common stock representing 99

405 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 102 File: DISK112:[05DEN2.05DEN1432]EC1432B.;27 Created: 23-JUN-2005;23:14 Chksum: Folio: 100 User: GANDERSA EFW: Doc # 21 in the aggregate ten percent or more of the shares of our common stock then outstanding. For purposes of the shareholder rights plan, "group" generally means any group within the meaning of Section 13(d)(3) of the Securities Exchange Act of In addition, the stockholders of Discovery (other than our company or any of our subsidiaries), each affiliate or associate of any such stockholder, any other person that has any agreement, arrangement or understanding with any such stockholder (or with any affiliate or associate of any such stockholder) for the purpose of acquiring, holding, voting (subject to a limited exception) or disposing of any equity securities of Discovery, and each affiliate or associate of any such person, shall together constitute a "group" for purposes of the shareholder rights plan. The rights agreement provides that, until the rights distribution date (or earlier expiration of the rights), the rights will be evidenced by and transferred with (and only with) the stock certificates or book-entry notation representing the Series A common stock, Series B common stock or Series C common stock to which they are attached. Until the rights distribution date (or earlier expiration of the rights), common stock certificates will contain a notation incorporating the rights agreement by reference. Until the rights distribution date (or earlier expiration of the rights), the transfer of any shares of Series A common stock, Series B common stock or Series C common stock outstanding will also constitute the transfer of the rights associated with the shares of common stock represented by such certificate or book-entry notation. As soon as practicable following any occurrence of a rights distribution date, separate certificates evidencing the rights related to the applicable series of common stock (which we refer to as right certificates) will be mailed to holders of record of our common stock as of the close of business on the rights distribution date and such separate right certificates alone will evidence the rights. The rights are not exercisable unless and until a rights distribution date occurs. The rights will expire ten years after the date of the spin off, unless such date is advanced or extended or unless the rights are earlier redeemed or exchanged by us, in each case as described below. Anti-dilution Adjustments. The applicable purchase price payable, the number of shares of the applicable series of junior preferred stock or other securities or property issuable upon the exercise of the rights, and the number of applicable rights outstanding are subject to adjustment from time to time to prevent dilution: in the event of a stock dividend on, or a subdivision, combination or reclassification of, the applicable series of junior preferred stock; if any person acquires, or obtains the right to subscribe for or purchase the applicable junior preferred stock at a price, or securities convertible into the applicable junior preferred stock with a conversion price, less than the then current market price of the applicable junior preferred stock; or upon the distribution to holders of the applicable series of junior preferred stock of evidences of indebtedness, cash (excluding regular quarterly cash dividends), assets (other than dividends payable in junior preferred stock) or subscription rights or warrants. The number of outstanding rights are also subject to adjustment in the event of a stock dividend on, or a subdivision, combination or reclassification of the applicable series of common stock, in each case until a rights distribution date occurs. Dividend and Liquidation Rights of the Junior Preferred Stock. No shares of any series of junior preferred stock purchasable upon exercise of the rights will be redeemable. Each share of the applicable series of junior preferred stock will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of the greater of (1) $10 per share and (2) an amount equal to 1,000 times the dividend (other than dividends payable in the related series of common stock) declared per share of our Series A common stock, Series B common stock or Series C common stock, as the 100

406 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 103 File: DISK112:[05DEN2.05DEN1432]EC1432B.;27 Created: 23-JUN-2005;23:14 Chksum: Folio: 101 User: GANDERSA EFW: Doc # 21 case may be. In the event of our liquidation, dissolution or winding up, the holders of each series of junior preferred stock will be entitled in priority to the holders of common stock to a minimum preferential payment equal to the greater of (1) $10 per share (plus any accrued but unpaid dividends and distributions) and (2) an amount equal to 1,000 times the payment made per share of our Series A common stock, Series B common stock or Series C common stock, as the case may be. Each share of the applicable series of junior preferred stock will have 1,000 times the number of votes as each share of the corresponding common stock on all matters which the corresponding common stock is entitled, voting together with the applicable series of common stock. Upon any merger, consolidation or other transaction in which shares of our Series A common stock or Series B common stock or Series C common stock are converted or exchanged, each share of the corresponding series of junior preferred stock will be entitled to receive 1,000 times the amount received per share of our Series A common stock, Series B common stock or Series C common stock, as the case may be. These rights are protected by customary anti-dilution provisions. Because of the nature of the dividend, liquidation and voting rights of each series of junior preferred stock, the value of the fractional share of Series A junior preferred stock purchasable upon exercise of each Series A right and the value of the fractional share of Series B junior preferred stock purchasable upon exercise of each Series B right, should approximate the value of one share of our Series A common stock and Series B common stock, respectively. Flip-in and Flip-Over Events. In the event that any person or group of affiliated or associated persons becomes an acquiring person, each holder of a Series A right (other than rights beneficially owned by the acquiring person, which will become void) will have the right to receive upon exercise of a Series A right shares of Series A common stock, each holder of a Series B right (other than rights beneficially owned by the acquiring person, which will become void) will have the right to receive upon exercise of a Series B right shares of Series B common stock, and if shares of Series C common stock are issued, each holder of a Series C right (other than rights beneficially owned by the acquiring person, which will become void) will have the right to receive upon exercise of a Series C right shares of Series C common stock, in each case, having a market value equal to two times the exercise price of the Series A right, Series B right or Series C right, as the case may be. The events described in this paragraph are referred to as "flip-in events." In the event that, after a person or group has become an acquiring person, we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Series A right, Series B right or a Series C right (other than rights beneficially owned by an acquiring person, which will have become void) will have the right to receive upon exercise of Series A rights, Series B rights or Series C rights shares of common stock of the person with whom we have engaged in the foregoing transaction (or its parent) that at the time of such transaction have a market value of two times the exercise price of the Series A right, the Series B right or the Series C right, as the case may be. The events described in this paragraph, are referred to as "flip-over" events. Exchange of the Rights. At any time after any person or group becomes an acquiring person and prior to the earlier of the occurrence of a flip-over event or the acquisition by the person or group of shares of our common stock representing, in the aggregate, 50% or more of our outstanding voting power, our board of directors may, without payment of the purchase price by the holder, cause the exchange of the rights (other than the rights beneficially owned by the acquiring person, which will become void), in whole or in part, for shares of the corresponding series of common stock (or in some circumstances junior preferred stock) at an exchange ratio of one share of the corresponding series of common stock (or junior preferred stock of equivalent value) for each right, subject to adjustment. 101

407 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 104 File: DISK112:[05DEN2.05DEN1432]EE1432A.;28 Created: 23-JUN-2005;23:14 Chksum: Folio: 102 User: GANDERSA EFW: Doc # 21 Redemption of Rights. At any time prior to the time a person or group becomes an acquiring person, our board of directors may redeem the rights in whole, but not in part, at a price of $.01 per right, subject to adjustment, payable, at our option, in cash, shares of common stock or other consideration deemed appropriate by our board of directors. The redemption of the rights may be made effective at the time, on the basis and with the conditions as our board of directors in its sole discretion may establish. Immediately upon any redemption of the rights, the right to exercise the rights will terminate and the only right of the holders of rights will be to receive the redemption price. Amendment of Rights. For so long as the rights are redeemable, we may, except with respect to the redemption price, amend the rights agreement in any manner without approval of the holders of our common stock. After the rights are no longer redeemable, we may, except with respect to the redemption price, amend the rights agreement in any manner that does not adversely affect the interests of holders of the rights. No Rights as Stockholder. Until a right is exercised or exchanged, the holder of the rights, as such, will not have any rights as a stockholder of Discovery Holding, including, without limitation, any right to vote or to receive dividends. Certain Tax Considerations. For U.S. federal income tax purposes, the distribution by us of the rights will not be taxable to us, and the receipt in the spin off of the rights which will be attached to our common stock will not be taxable to holders of LMC common stock. See "The Spin Off Material U.S. Federal Income Tax Consequences of the Spin Off." Depending upon the circumstances, holders of the rights could recognize taxable income or gain on or after the date that the rights become exercisable or in the event that the rights are redeemed by us as provided above. Dividend Policy We presently intend to retain future earnings, if any, to finance the expansion of our business. Therefore, we do not expect to pay any cash dividends in the foreseeable future. All decisions regarding the payment of dividends by our company will be made by our board of directors, from time to time, in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and possible loan covenants which may restrict or prohibit our payment of dividends. Anti-Takeover Effects of Provisions of our Restated Certificate of Incorporation and Bylaws Board of Directors Our restated certificate of incorporation and bylaws provide that, subject to any rights of the holders of any series of our preferred stock to elect additional directors, the number of our directors shall not be less than three or more than nine, with the exact number to be fixed from time to time by a resolution adopted by the affirmative vote of 75% of the members of our board then in office. Initially, the board will consist of five members. The members of our board are divided into three classes. Each class consists, as nearly as possible, of a number of directors equal to one-third of the then authorized number of board members. The term of office of our Class I directors expires at the annual meeting of our shareholders in The term of office of our Class II directors expires at the annual meeting of our shareholders in The term of office of our Class III directors expires at the annual meeting of our shareholders in At each annual meeting of our shareholders, the successors of that class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of our shareholders held in the third year following the year of their election. The directors of each class will hold office until their respective successors are elected and qualified. 102

408 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 105 File: DISK112:[05DEN2.05DEN1432]EE1432A.;28 Created: 23-JUN-2005;23:14 Chksum: Folio: 103 User: GANDERSA EFW: Doc # 21 Our restated certificate of incorporation provides that, subject to the rights of the holders of any series of our preferred stock, as to directors elected by such holders, directors may be removed from office only for cause upon the affirmative vote of the holders of at least a majority of the total voting power of our outstanding capital stock entitled to vote at an election of directors (including the holders of any preferred stock entitled to elect any directors), voting together as a single class. Our restated certificate of incorporation provides that, subject to the rights of the holders of any series of our preferred stock, vacancies on our board resulting from death, resignation, removal, disqualification or other cause, and newly created directorships resulting from any increase in the number of directors on our board, shall be filled only by the affirmative vote of a majority of the remaining directors then in office (even though less than a quorum) or by the sole remaining director. Any director so elected shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or to which the new directorship is assigned, and until that director's successor shall have been elected and qualified or until such director's earlier death, resignation or removal. No decrease in the number of directors constituting our board shall shorten the term of any incumbent director, except as may be provided in any certificate of designation with respect to a series of our preferred stock with respect to any additional director elected by the holders of that series of our preferred stock. These provisions would preclude a third party from removing incumbent directors and simultaneously gaining control of our board by filling the vacancies created by removal with its own nominees. Under the classified board provisions described above, it would take at least two elections of directors for any individual or group to gain control of our board. Accordingly, these provisions could discourage a third party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of us. No Shareholder Action by Written Consent; Special Meetings Our restated certificate of incorporation provides that, except by written consent or as otherwise provided in the terms of any series of preferred stock and in other limited circumstances, stockholder action may only be taken at an annual meeting or special meeting of shareholders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any series of our preferred stock, special meetings of our shareholders for any purpose or purposes may be called only by our Secretary at the request of at least 75% of the members of our board then in office. No business other than that stated in the notice of special meeting shall be transacted at any special meeting. Advance Notice Procedures Our bylaws establish an advance notice procedure for shareholders to make nominations of candidates for election as directors or to bring other business before an annual meeting of our shareholders. Shareholders must notify our corporate secretary in writing prior to the meeting at which the matters are to be acted upon or directors are to be elected. The notice must contain the information specified in our bylaws. To be timely, the notice must be received at our corporate headquarters not less than 90 days nor more than 120 days prior to the first anniversary of the date of the prior year's annual meeting of shareholders. If the annual meeting is advanced by more than 30 days, or delayed by more than 70 days, from the anniversary of the preceding year's annual meeting, or if no annual meeting was held in the preceding year or for the first annual meeting following the spin off, notice by the shareholder to be timely must be received not earlier than the 120th day prior to the annual meeting and not later than the later of the 90th day prior to the annual meeting or the 10th day following the day on which we notify shareholders of the date of the annual meeting, either by mail or 103

409 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 106 File: DISK112:[05DEN2.05DEN1432]EE1432A.;28 Created: 23-JUN-2005;23:14 Chksum: Folio: 104 User: GANDERSA EFW: Doc # 21 other public disclosure. In the case of a special meeting of shareholders called to elect directors, the shareholder notice must be received not earlier than 120 days prior to the special meeting and not later than the later of the 90th day prior to the special meeting or the 10th day following the day on which we notify shareholders of the date of the special meeting, either by mail or other public disclosure. The public announcement of an adjournment or postponement of a meeting of our shareholders does not commence a new time period (or extend any time period) for the giving of any such shareholder notice. However, if the number of directors to be elected to our board at an annual meeting is increased, and we do not make a public announcement naming all of the nominees for director or specifying the size of the increased board at least 100 days prior to the anniversary date of the immediately preceding annual meeting, a shareholder's notice shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to our Secretary at our offices not later than the close of business on the 10th day following the day on which we first make the relevant public announcement. Amendments Our restated certificate of incorporation provides that, subject to the rights of the holders of any series of our preferred stock and subject to obtaining the consent of the holders of 75% or more of the outstanding shares of Series B common stock (who may act by written consent in such circumstances) in the case of certain amendments described above under "Our Common Stock Distributions,", the affirmative vote of the holders of at least 80% of the voting power of our outstanding capital stock, voting together as a single class, is required to adopt, amend or repeal any provision of our restated certificate of incorporation or the addition or insertion of other provisions in the certificate, provided that the foregoing voting requirement shall not apply to any adoption, amendment, repeal, addition or insertion (1) as to which Delaware law does not require the consent of our shareholders or (2) which has been approved by at least 75% of the members of our board then in office. Our restated certificate of incorporation further provides that the affirmative vote of the holders of at least 80% of the voting power of our outstanding capital stock, voting together as a single class, is required to adopt, amend or repeal any provision of our bylaws, provided that the foregoing voting requirement shall not apply to any adoption, amendment or repeal approved by the affirmative vote of not less than 75% of the members of our board then in office. Supermajority Voting Provisions In addition to the supermajority voting provisions discussed under " Amendments" above, our restated certificate of incorporation provides that, subject to the rights of the holders of any series of our preferred stock, the affirmative vote of the holders of at least 80% of the voting power of our outstanding capital stock generally entitled to vote upon all matters submitted to our shareholders, voting together as a single class, is required for: our merger or consolidation with or into any other corporation or a business combination involving our company, provided, that the foregoing voting provision shall not apply to any such merger or consolidation (1) as to which the laws of the State of Delaware, as then in effect, do not require the consent of our shareholders, or (2) that at least 75% of the members of our board of directors then in office have approved; the sale, lease or exchange of all, or substantially all, of our assets, provided, that the foregoing voting provisions shall not apply to any such sale, lease or exchange that at least 75% of the members of our board of directors then in office have approved; or our dissolution, provided, that the foregoing voting provision shall not apply to such dissolution if at least 75% of the members of our board of directors then in office have approved such dissolution. 104

410 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 107 File: DISK112:[05DEN2.05DEN1432]EE1432A.;28 Created: 23-JUN-2005;23:14 Chksum: Folio: 105 User: GANDERSA EFW: Doc # 21 Corporate Opportunities Our restated certificate of incorporation contains provisions addressing the duty of our directors and officers who are also directors, officers or employees of LMC when presented with a transaction or matter that may be a business opportunity for both our company and LMC. In general, these provisions recognize that we and LMC may engage in the same or similar business activities and lines of business and have an interest in the same areas of business opportunities. Our restated certificate of incorporation provides that if one of our directors or officers who is also a director, officer or employee of LMC acquires knowledge of a potential transaction or matter that may be a business opportunity for both us and LMC, such director or officer will to the fullest extent permitted by law have no duty to us as a director, officer, stockholder or otherwise, to refer such potential business opportunity to us or otherwise notify us of the existence of such business opportunity, and we to the fullest extent permitted by law will have renounced our interest or expectancy in, or in being offered an opportunity to participate in, such business opportunity, if such director or officer acts in a manner consistent with the following policy: a corporate opportunity offered to any person who is a director or officer of our company or any of our subsidiaries, and who is also a director, officer or employee of LMC, shall belong to LMC, unless (A) such opportunity was expressly offered to such person solely in his or her capacity as a director or officer of our company or as a director or officer of any of our subsidiaries, and (B) such opportunity relates to a line of business in which our company or any of our subsidiaries is then directly engaged. Any person becoming a stockholder in our company will be deemed to have notice of and have consented to the provisions of our certificate of incorporation related to corporate opportunities that are described above. Section 203 of the Delaware General Corporation Law Section 203 of the Delaware General Corporation Law prohibits certain transactions between a Delaware corporation and an "interested stockholder." An "interested stockholder" for this purpose is a stockholder who is directly or indirectly a beneficial owner of 15% or more of the outstanding voting power of a Delaware corporation. This provision prohibits certain business combinations between an interested stockholder and a corporation for a period of three years after the date on which the stockholder became an interested stockholder, unless: (1) the transaction which resulted in the stockholder becoming an interested stockholder is approved by the corporation's board of directors before the stockholder became an interested stockholder, (2) the interested stockholder acquired at least 85% of the voting power of the corporation in the transaction in which the stockholder became an interested stockholder, or (3) the business combination is approved by a majority of the board of directors and the affirmative vote of the holders of two-thirds of the outstanding voting power not owned by the interested stockholder at or subsequent to the time that the stockholder became an interested stockholder. These restrictions do not apply if, among other things, the corporation's certificate of incorporation contains a provision expressly electing not to be governed by Section 203. In our restated certificate of incorporation, we have elected not to be governed by Section 203. Transfer Agent and Registrar EquiServe Trust Company, N.A. will be the transfer agent and registrar for our common stock. 105

411 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 108 File: DISK112:[05DEN2.05DEN1432]EG1432A.;25 Created: 23-JUN-2005;23:14 Chksum: Folio: 106 User: GANDERSA EFW: Doc # 21 INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses including attorneys' fees, judgments, fines and amounts paid in settlement in connection with various actions, suits or proceedings, whether civil, criminal, administrative or investigative other than an action by or in the right of the corporation, a derivative action, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses including attorneys' fees incurred in connection with the defense or settlement of such actions, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, bylaws, agreement, a vote of shareholders or disinterested directors or otherwise. Our restated certificate of incorporation provides that we will indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person, or a person for whom such person is the legal representative, is or was a director or officer of us or, while a director or officer of us, is or was serving at our request as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) incurred by such person in connection therewith. Our restated certificate of incorporation also provides that we will pay the expenses incurred by a director or officer in defending any such proceeding in advance of its final disposition, subject to such person providing us with certain undertakings. Notwithstanding the foregoing, our restated certificate of incorporation provides that we shall be required to indemnify or make advances to a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by our board of directors. Such rights are not exclusive of any other right that any person may have or thereafter acquire under any statute, provision of our restated certificate of incorporate, bylaws, agreement, vote of shareholders or disinterested directors or otherwise. No amendment, modification or repeal of such provision will in any way adversely affect any right or protection thereunder of any person in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. The Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability for: any breach of the director's duty of loyalty to the corporation or its shareholders; acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; payments of unlawful dividends or unlawful stock repurchases or redemptions; or any transaction from which the director derived an improper personal benefit. Our restated certificate of incorporation provides that, to the fullest extent permitted by applicable law, none of our directors will be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this provision will be prospective only and will not adversely affect any limitation, right or protection of a director of our company existing at the time of such repeal or modification. 106

412 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 109 File: DISK112:[05DEN2.05DEN1432]EG1432A.;25 Created: 23-JUN-2005;23:14 Chksum: Folio: 107 User: GANDERSA EFW: Doc # 21 INDEPENDENT AUDITORS The audit committee of LMC's board of directors has selected KPMG LLP as our independent auditors for the year ended December 31, WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to our company and our common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, at the SEC's public reference room, located at 450 Fifth Street, N.W., Washington, D.C , as well as on the Internet website maintained by the SEC at Information contained on any website referenced in this information statement is not incorporated by reference in this information statement. As a result of the distribution, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934 and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC. You may request a copy of any of our filings with the SEC at no cost, by writing or telephoning the office of: Investor Relations DISCOVERY HOLDING COMPANY Liberty Boulevard Englewood, Colorado Telephone: (866) We intend to furnish holders of our common stock with annual reports containing consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent public accounting firm. You should rely only on the information contained in this information statement or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement. 107

413 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 110 File: DISK112:[05DEN2.05DEN1432]EM1432A.;3 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-1 User: MCROWE EFW: Doc # 21 INDEX TO FINANCIAL STATEMENTS LMC Discovery Group Unaudited Condensed Combined Balance Sheets as of March 31, 2005 and December 31, 2004 Unaudited Condensed Combined Statements of Operations and Comprehensive Earnings for the three months ended March 31, 2005 and 2004 Unaudited Condensed Combined Statement of Parent's Investment for the three months ended March 31, 2005 Unaudited Condensed Combined Statements of Cash Flows for the three months ended March 31, 2005 and 2004 Notes to Condensed Combined Financial Statements (unaudited) Report of Independent Registered Public Accounting Firm Combined Balance Sheets as of December 31, 2004 and 2003 Combined Statements of Operations and Comprehensive Earnings (Loss) for the years ended December 31, 2004, 2003 and 2002 Combined Statements of Parent's Investment for the years ended December 31, 2004, 2003 and 2002 Combined Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 Notes to Combined Financial Statements Discovery Communications, Inc. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2004 and 2003 Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2004, 2003 and 2002 Notes to Consolidated Financial Statements F-1

414 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 111 File: DISK112:[05DEN2.05DEN1432]EO1432A.;3 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-2 User: MCROWE EFW: Doc # 21 LMC Discovery Group Condensed Combined Balance Sheets (unaudited) March 31, 2005 December 31, 2004 amounts in thousands Assets Current assets: Cash and cash equivalents $ 15,181 21,641 Trade receivables, net 153, ,120 Prepaid expenses and other current assets 23,547 26,208 Total current assets 192, ,969 Investment in Discovery Communications, Inc. ("DCI") 2,966,139 2,945,782 Property, plant, and equipment, net 261, ,741 Goodwill and other intangible assets, net 2,140,551 2,140,355 Other assets, net 17,366 20,981 Total assets $ 5,577,710 5,564,828 Liabilities and Parent's Investment Current liabilities: Accounts payable $ 36,165 33,327 Accrued payroll and related liabilities 22,784 23,632 Other accrued liabilities 22,546 29,606 Deferred revenue 18,299 20,858 Due to parent 1,247 1,104 Total current liabilities 101, ,527 Deferred income tax liabilities 1,091,985 1,083,964 Other liabilities 24,074 25,058 Total liabilities 1,217,100 1,217,549 Commitments and contingencies (see note 8) Parent's investment: Parent's investment 5,507,874 5,506,066 Accumulated deficit (1,154,272) (1,171,097) Accumulated other comprehensive earnings 7,008 12,310 Total parent's investment 4,360,610 4,347,279 Total liabilities and parent's investment $ 5,577,710 5,564,828 See accompanying notes to condensed combined financial statements. F-2

415 Printed: 24-Jun-2005;20:03:49 (v.162) HTML Page: 112 File: DISK112:[05DEN2.05DEN1432]EO1432B.;3 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-3 User: MCROWE EFW: Doc # 21 LMC Discovery Group Condensed Combined Statements of Operations and Comprehensive Earnings (unaudited) Three months ended March 31, amounts in thousands Net revenue $ 174, ,943 Cost of services (excluding depreciation shown below) 110,854 87,750 Gross profit 63,436 58,193 Operating expenses: Selling, general, and administrative 43,585 35,705 Stock compensation Depreciation and amortization 16,761 16,052 60,559 52,279 Operating income 2,877 5,914 Other income (expense): Share of earnings of DCI 22,814 10,449 Other, net 322 (111) 23,136 10,338 Earnings before income taxes 26,013 16,252 Income tax expense (9,188) (4,332) Net earnings $ 16,825 11,920 Other comprehensive earnings (loss), net of taxes: Unrealized holding gains arising during the period 39 Foreign currency translation adjustments (5,341) 1,001 Other comprehensive earnings (loss) (5,302) 1,001 Comprehensive earnings $ 11,523 12,921 Pro forma basic and diluted earnings per common share (note 4) $ See accompanying notes to condensed combined financial statements. F-3

416 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 113 File: DISK112:[05DEN2.05DEN1432]EO1432C.;3 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-4 User: MCROWE EFW: Doc # 21 LMC Discovery Group Condensed Combined Statement of Parent's Investment Three months ended March 31, 2005 (unaudited) Parent's investment Accumulated deficit Accumulated other comprehensive income amounts in thousands Total Balance at January 1, 2005 $ 5,506,066 (1,171,097) 12,310 4,347,279 Stock compensation Net cash transfers from parent 1,242 1,242 Other comprehensive loss (5,302) (5,302) Net earnings 16,825 16,825 Balance at March 31, 2005 $ 5,507,874 (1,154,272) 7,008 4,360,610 See accompanying notes to condensed combined financial statements. F-4

417 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 114 File: DISK112:[05DEN2.05DEN1432]EO1432D.;3 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-5 User: MCROWE EFW: Doc # 21 LMC Discovery Group Condensed Combined Statements of Cash Flows (unaudited) Three months ended March 31, amounts in thousands Cash flows from operating activities: Net earnings $ 16,825 11,920 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 16,761 16,052 Stock compensation Share of earnings of DCI (22,814) (10,449) Deferred income tax expense 8,898 3,566 Other non-cash credits, net (75) (154) Changes in assets and liabilities (net of acquisitions): Trade receivables (2,807) (10,262) Prepaid expenses and other current assets 2,710 (4,847) Payables and other liabilities (8,706) 7,812 Net cash provided by operating activities 11,005 14,160 Cash flows from investing activities: Capital expenditures (20,921) (5,925) Cash paid for acquisitions, net of cash acquired (33,717) Cash proceeds from dispositions 38 1,356 Other investing activities, net 2, Net cash used in investing activities (18,704) (38,262) Cash flows from financing activities: Net cash transfers from parent 1,242 30,998 Other financing activities, net (3) (43) Net cash provided by financing activities 1,239 30,955 Net increase (decrease) in cash and cash equivalents (6,460) 6,853 Cash and cash equivalents at beginning of period 21,641 8,599 Cash and cash equivalents at end of period $ 15,181 15,452 See accompanying notes to condensed combined financial statements. F-5

418 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 115 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-6 User: JBELANG EFW: Doc # 21 (1) Basis of Presentation LMC Discovery Group Notes to Combined Financial Statements March 31, 2005 (unaudited) The accompanying condensed combined financial statements of LMC Discovery Group or the "Company" represent a combination of the historical financial information of (1) Ascent Media Group, Inc. ("Ascent Media"), a wholly-owned subsidiary of Liberty Media Corporation ("Liberty"), and (2) Liberty's 50% ownership interest in DCI. Upon consummation of the spinoff transaction described in note 2, Discovery Holding Company will own the assets that comprise LMC Discovery Group. Ascent Media is comprised of three operating divisions or groups. Ascent Media's Creative Services group provides services necessary to complete the creation of original content, including feature films, mini-series, television shows, television commercials, music videos, promotional and identity campaigns, and corporate communications programming. The group manipulates or enhances original visual images or audio captured in principal photography or creates new three dimensional images, animation sequences, or sound effects. The Media Management Services group provides owners of content libraries with an entire complement of facilities and services necessary to optimize, archive, manage, and repurpose media assets for global distribution via freight, satellite, fiber, and the Internet. The Networks Services group provides the facilities and services necessary to assemble and distribute programming content for cable and broadcast networks via fiber, satellite, and the Internet to viewers in North America, Europe, and Asia. Additionally, the Networks Services group provides systems integration, design, consulting, engineering and project management services. DCI is a global media and entertainment company that provides original and purchased cable and satellite television programming in the United States and over 160 other countries. The accompanying interim condensed combined financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed combined financial statements should be read in conjunction with the Company's December 31, 2004 combined financial statements and notes thereto found elsewhere herein. The preparation of the combined financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses for each reporting period. The significant estimates made in preparation of the Company's consolidated financial statements primarily relate to valuation of goodwill, other intangible assets, long-lived assets, deferred tax assets, and the amount of the allowance for doubtful accounts. Actual results could differ from the estimates upon which the carrying values were based. (2) Spinoff Transaction During the first quarter of 2005, the Board of Directors of Liberty (the "Board") approved a resolution to spin off the capital stock of Discovery Holding Company to the holders of Liberty Series A and Series B common stock (the "Spin Off'). The Spin Off will be effected as a distribution by Liberty to holders of its Series A and Series B common stock of shares of Series A and Series B common stock of Discovery Holding Company. The Spin Off will not involve the payment of any F-6

419 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 116 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-7 User: JBELANG EFW: Doc # 21 consideration by the holders of Liberty common stock and is intended to qualify as a tax-free transaction. The Spin Off is expected to occur in the third quarter of 2005, on a date to be determined by the Board, and will be made as a dividend to holders of record of Liberty common stock as of the close of business on the date of record for the Spin Off. The Spin Off is expected to be accounted for at historical cost due to the pro rata nature of the distribution. Following the Spin Off, the Company and Liberty will operate independently, and neither will have any stock ownership, beneficial or otherwise, in the other. In connection with the Spin Off, the Company and Liberty will enter into certain agreements in order to govern certain of the ongoing relationships between the Company and Liberty after the Spin Off and to provide for an orderly transition. These agreements include a Reorganization Agreement, a Services Agreement and a Tax Sharing Agreement. The Reorganization Agreement provides for, among other things, the principal corporate transactions required to effect the Spin Off and cross indemnities. Pursuant to the Services Agreement, Liberty will provide the Company with certain general and administrative services including legal, tax, accounting, treasury and investor relations support. The Company will reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services and for the Company's allocable portion of costs associated with any shared services or personnel. Under the Tax Sharing Agreement, Liberty will generally be responsible for U.S. federal, state, local and foreign income taxes reported on a consolidated, combined or unitary return that includes the Company or one of its subsidiaries and Liberty or one of its subsidiaries. The Company will be responsible for all other taxes that are attributable to the Company or one of its subsidiaries, whether accruing before, on or after the Spin Off. The Tax Sharing Agreement requires that the Company will not take, or fail to take, any action where such action, or failure to act, would be inconsistent with or prohibit the Spin Off from qualifying as a tax-free transaction. Moreover, the Company will indemnify Liberty for any loss resulting from such action or failure to act, if such action or failure to act precludes the Spin Off from qualifying as a tax-free transaction. Liberty has also agreed to transfer $50 million in cash to a subsidiary of Discovery Holding Company prior to the Spin Off. (3) Stock-Based Compensation Employees of the Company hold stock options with respect to shares of Liberty Series A common stock. The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price and is recognized on a straight-line basis over the vesting period. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above and has adopted only the disclosure requirements of SFAS No F-7

420 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 117 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-8 User: JBELANG EFW: Doc # 21 The following table illustrates the effect on net earnings as if the fair-value-based method had been applied to all outstanding and unvested awards in each period. Three months ended March 31, amounts in thousands Net earnings, as reported $ 16,825 11,920 Add: Stock-based employee compensation expense included in reported net loss Deduct: Stock-based employee compensation expense determined under fair value based method for all awards (1,466) (2,902) Pro forma net earnings $ 15,925 9,608 Pro forma basic and diluted earnings per share: As reported $ Pro forma for fair value stock compensation $ On May 24, 2005, Liberty commenced an offer to purchase certain stock options to purchase shares of Liberty Series A common stock held by eligible employees of Ascent Media. The offer to purchase related to 1,173,028 options, and the aggregate offering price for such options was approximately $2.15 million. The offer to purchase expired at 9:00 p.m., Pacific time, on June 21, Eligible employees tendered options with respect to 1,112,421 shares of Liberty Series A common stock, and Liberty will purchase such options for aggregate cash payments of approximately $2.12 million. In connection with these purchases, Ascent Media will record a compensation charge of approximately $4.0 million. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), " Share-Based Payments " ("Statement 123R"). Statement 123R, which is a revision of Statement 123 and supersedes APB Opinion No. 25, establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on transactions in which an entity obtains employee services. Statement 123R generally requires companies to measure the cost of employee services received in exchange for an award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the award, and to recognize that cost over the period during which the employee is required to provide service (usually the vesting period of the award). Statement 123R also requires companies to measure the cost of employee services received in exchange for an award of liability instruments (such as stock appreciation rights) based on the current fair value of the award, and to remeasure the fair value of the award at each reporting date. Public companies were originally required to adopt Statement 123R as of the beginning of the first interim period that begins after June 15, On April 14, 2005, the Securities and Exchange Commission amended the effective date of Statement 123R to the beginning of a registrant's next fiscal year, or January 1, 2006 for calendar-year companies, such as the Company. The provisions of F-8

421 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 118 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-9 User: JBELANG EFW: Doc # 21 Statement 123R will affect the accounting for all awards granted, modified, repurchased or cancelled after January 1, The accounting for awards granted, but not vested, prior to January 1, 2006 will also be impacted. The provisions of Statement 123R allow companies to adopt the standard on a prospective basis or to restate all periods for which Statement 123 was effective. The Company expects to adopt Statement 123R on a prospective basis, and will include in its financial statements for periods that begin after December 31, 2005 pro forma information as though the standard had been adopted for all periods presented. While the Company has not yet quantified the impact of adopting Statement 123R, it believes that such adoption could have a significant impact on its operating income and net earnings in the future. (4) Pro Forma Earnings Per Common Share Pro forma basic earnings per common share ("EPS") is computed by dividing net earnings by the pro forma number of common shares outstanding for the period. The pro forma number of shares outstanding for all periods presented is 280,001,000 shares, which is the number of shares that would have been issued on March 31, 2005 if the Spin Off had been completed on such date. Dilutive EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented. Due to the relative insignificance of the dilutive securities in 2005 and 2004, their inclusion does not impact the EPS amount as reported in the accompanying condensed combined statement of operations. (5) Supplemental Disclosure of Cash Flow Information Three months ended March 31, amounts in thousands Cash paid for acquisitions: Fair value of assets acquired $ 49,757 Net liabilities assumed (16,040) Cash paid for acquisitions, net of cash acquired $ 33,717 (6) Investment in DCI The Company has a 50% ownership interest in DCI and accounts for its investment using the equity method of accounting. DCI is a global media and entertainment company, that provides original and purchased video programming in the United States and over 160 other countries. F-9

422 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 119 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-10 User: JBELANG EFW: Doc # 21 Summarized financial information for DCI is as follows: Consolidated Balance Sheets March 31, 2005 amounts in thousands December 31, 2004 Current assets $ 844, ,450 Property and equipment 396, ,290 Goodwill and intangible assets 433, ,221 Programming rights, long term 1,053,354 1,027,379 Other assets 463, ,346 Total assets $ 3,192,249 3,235,686 Current liabilities $ 1,112, ,353 Long term debt 2,294,070 2,498,287 Other liabilities 147, ,405 Mandatorily redeemable equity in subsidiaries 225, ,567 Stockholders' deficit (587,211) (627,926) Total liabilities and stockholders' deficit $ 3,192,249 3,235,686 Consolidated Statements of Operations Three months ended March 31, amounts in thousands Revenue $ 601, ,362 Cost of revenue (218,259) (181,737) Selling, general and administrative (234,758) (208,208) Equity-based compensation (22,867) (28,780) Depreciation and amortization (28,821) (30,833) Operating income 96,766 77,804 Interest expense (44,908) (40,734) Other income (expense) 27,400 (884) Income tax expense (33,629) (15,335) Net earnings $ 45,629 20,851 (7) Acquisitions London Playout Centre. On March 12, 2004, pursuant to an Agreement for the Sale and Purchase (the "Purchase Agreement"), Ascent Media acquired all of the issued share capital of London Playout Centre Limited ("LPC") from an independent third party (the "Seller") for a purchase price of (i) $36,573,000 paid at F-10

423 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 120 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-11 User: JBELANG EFW: Doc # 21 closing. In addition, in the event certain existing LPC contracts, which currently expire in 2005 through 2007, are renewed on terms similar to existing terms, Ascent Media may be required to pay up to an additional 5,000,000 ($9,453,000 at March 31, 2005). As the amount of the contingent consideration is not determinable at March 31, 2005, no liability has been recorded in the accompanying condensed combined balance sheets. At the point in time that the amount of contingent consideration is determinable, Ascent Media will record an increase to the LPC purchase price. LPC is a UK-based television channel origination facility. The purchase was funded, in part, by proceeds from Liberty. The following unaudited pro forma information for the three months ended March 31, 2004 was prepared assuming the acquisition of LPC occurred on January 1, However, those pro forma amounts are not necessarily indicative of operating results that would have occurred if the LPC acquisition had occurred on January 1, 2004 (amounts in thousands): Revenue $ 154,446 Net earnings $ 10,970 (8) Commitments and Contingencies The Company is involved in litigation and similar claims incidental to the conduct of its business. In management's opinion, none of the pending actions is likely to have a material adverse impact on the Company's financial position or results of operations. (9) Related Party Transactions Certain corporate general and administrative and spin off related costs have been paid by Liberty on behalf of the Company and reflected as expenses in the accompanying condensed consolidated statements of operations. Such expenses aggregated $1,242,000 for the three months ended March 31, Since October 1, 2002, Ascent Media has provided uplink and satellite transport services to On Command Corporation ("On Command"), a wholly owned subsidiary of LMC, pursuant to the terms of a short-term services agreement and a content preparation and distribution services agreement, which continues through March 31, The content preparation and distribution services agreement also provides that Ascent Media may supply content preparation services. During the period from April 2003 to October 2004, Ascent Media also installed satellite equipment at On Command's downlink sites at hotels pursuant to a separate services agreement, All agreements were entered into in the ordinary course of business on arm's-length terms. Ascent Media has provided $156,000 and $3,000 in services to On Command for the three months ended March 31, 2005 and 2004, respectively. Ascent Media provides services, such as satellite uplink, systems integration, origination, and post-production, to various affiliates of Liberty including DCI and Court Television Network, LLC. Revenue recorded by Ascent Media for these services for the three months ended March 31, 2005 and 2004 aggregated $11,141,000 and $2,676,000, respectively. (10) Information About Operating Segments The Company's business units have been aggregated into four reportable segments: the Creative Services Group, the Media Management Services Group, and the Network Services Group, which are F-11

424 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 121 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-12 User: JBELANG EFW: Doc # 21 all operating segments of Ascent Media, and DCI, which is an equity affiliate. Corporate related items and unallocated income and expenses are reflected in the Corporate and Other column listed below. The Creative Services Group provides post-production services, which are comprised of services necessary to complete the creation of original content including feature films, television shows, movies of the week/mini series, television commercials, music videos, promotional and identity campaigns and corporate communications programming. The Media Management Services Group provides content storage services, which are comprised of facilities and services necessary to optimize, archive, manage and repurpose media assets for global distribution via freight, satellite, fiber and the Internet; access to all forms of content, duplication and formatting services, language conversions and laybacks, restoration and preservation of old or damaged content, mastering from motion picture film to high resolution or data formats, digital audio and video encoding services and digital media management services for global home video, broadcast, pay-per-view and emerging new media distribution channels. The Network Services Group provides broadcast services, which are comprised of services necessary to assemble and distribute programming for cable and broadcast networks via fiber and satellite to viewers in North America, Europe and Asia. Additionally, the Networks Services Group provides systems integration, design, consulting, engineering and project management services. The Company's chief operating decision maker, or his designee (the "CODM"), has identified the Company's reportable segments based on (i) financial information reviewed by the CODM and (ii) those operating segments that represent more than 10% of the Company's combined revenue or earnings before taxes. In addition, those equity investments whose share of earnings represent more than 10% of the Company's earnings before taxes are considered reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies and are consistent with GAAP. The Company evaluates the performance of these operating segments based on financial measures such as revenue and operating cash flow. The Company defines operating cash flow as revenue less operating expenses and selling, general and administrative expense (excluding stock and other equity-based compensation). The Company believes this is an important indicator of the operational strength and performance of its businesses, including the ability to service debt and capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock and other equity-based compensation and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, operating cash flow should be considered in addition to, but not as a substitute for, operating income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. F-12

425 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 122 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-13 User: JBELANG EFW: Doc # 21 Summarized financial information concerning the Company's reportable segments is presented in the following tables: Creative Services Group Media Management Services Group Network Services Group(1) DCI Corporate and Other and eliminations Total amounts in thousands Three months ended March 31, 2005 Revenue from external customers $ 74,228 28,776 71, ,471 (601,471) 174,290 Operating cash flow $ 13,051 3,691 15, ,454 (160,351) 19,851 Capital expenditures $ 4,499 5,261 10,249 35,459 (34,547) 20,921 Depreciation and amortization $ 7,499 2,186 4,709 28,821 (26,454) 16,761 Total assets $ 295, , ,723 3,192,249 1,627,699 5,577,710 Three months ended March 31, 2004 Revenue from external customers $ 75,166 25,450 45, ,362 (527,362) 145,943 Operating cash flow $ 14,381 4,687 13, ,417 (147,105) 22,488 Capital expenditures $ 4, ,703 (5,703) 5,925 Depreciation and amortization $ 7,182 2,093 4,510 30,833 (28,566) 16,052 (1) Included in Network Services Group revenue is broadcast services revenue of $35,912,000 and $25,741,000 and systems integration revenue of $35,374,000 and $19,586,000 for the three months ended March 31, 2005 and 2004, respectively. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. The following table provides a reconciliation of segment operating cash flow to earnings before income taxes. Three months ended March 31, amounts in thousands Segment operating cash flow $ 19,851 22,488 Stock compensation (213) (522) Depreciation and amortization (16,761) (16,052) Share of earnings of DCI 22,814 10,449 Other, net 322 (111) Earnings before income taxes $ 26,013 16,252 F-13

426 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 123 File: DISK112:[05DEN2.05DEN1432]EQ1432A.;11 Created: 23-JUN-2005;22:31 Chksum: Folio: F-14 User: JBELANG EFW: Doc # 21 Information as to the Company's operations in different geographic areas is as follows: Three months ended March 31, amounts in thousands Revenue United States $ 132, ,042 United Kingdom 37,283 27,888 Other countries 4,508 6,013 $ 174, ,943 F-14

427 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 124 File: DISK112:[05DEN2.05DEN1432]FB1432A.;16 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-15 User: MCROWE EFW: Doc # 21 The Stockholders and Board of Directors Liberty Media Corporation: Report of Independent Registered Public Accounting Firm We have audited the accompanying combined balance sheets of LMC Discovery Group (a combination of certain assets and businesses owned by Liberty Media Corporation, as defined in note 1) as of December 31, 2004 and 2003, and the related combined statements of operations, parent's investment and cash flows for each of the years in the three-year period ended December 31, These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We did not audit the financial statements of Discovery Communications, Inc. (a 50 percent owned investee company). The Company's investment in Discovery Communications, Inc. at December 31, 2004 and 2003, was $2,945,782,000 and $2,863,003,000, respectively, and its equity in earnings (losses) of Discovery Communications, Inc. was $84,011,000, $37,271,000 and $(32,046,000) for the years 2004, 2003 and 2002, respectively. The financial statements of Discovery Communications, Inc. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included in the financial statements of Discovery Communications, Inc. that support the equity in earnings (losses) of Discovery Communications, Inc. and the accumulated equity earnings (loss) included within the Company's investment in Discovery Communications, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the combined financial statements referred to above present fairly, in all material respects, the financial position of LMC Discovery Group as of December, 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles. KPMG LLP Denver, Colorado March 14, 2005, except as to the last three paragraphs of note 3, which are as of April 15, 2005 F-15

428 Printed: 24-Jun-2005;20:03:50 (v.162) HTML Page: 125 File: DISK112:[05DEN2.05DEN1432]FC1432A.;9 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-16 User: MCROWE EFW: Doc # 21 LMC Discovery Group Combined Balance Sheets December 31, 2004 and amounts in thousands Assets Current assets: Cash and cash equivalents $ 34,441 8,599 Trade receivables, net 151, ,889 Prepaid expenses and other current assets 26,208 19,949 Total current assets 211, ,437 Investment in Discovery Communications, Inc. ("DCI") 2,945,782 2,863,003 Property, plant, and equipment, net 258, ,536 Goodwill and other intangible assets, net 2,140,355 2,136,667 Other assets, net 8,181 7,984 Total assets $ 5,564,828 5,396,627 Liabilities and Parent's Investment Current liabilities: Accounts payable $ 33,327 12,269 Accrued payroll and related liabilities 23,632 18,824 Other accrued liabilities 29,606 16,575 Deferred revenue 20,858 12,927 Due to parent 1,104 Total current liabilities 108,527 60,595 Deferred income tax liabilities 1,083,964 1,053,113 Other liabilities 25,058 22,650 Total liabilities 1,217,549 1,136,358 Commitments and contingencies (see note 13) Parent's investment: Parent's investment 5,506,066 5,490,799 Accumulated deficit (1,171,097) (1,237,205) Accumulated other comprehensive earnings 12,310 6,675 Total parent's investment 4,347,279 4,260,269 Total liabilities and parent's investment $ 5,564,828 5,396,627 See accompanying notes to combined financial statements. F-16

429 Printed: 24-Jun-2005;20:03:51 (v.162) HTML Page: 126 File: DISK112:[05DEN2.05DEN1432]FC1432B.;11 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-17 User: MCROWE EFW: Doc # 21 LMC Discovery Group Combined Statements of Operations Years ended December 31, 2004, 2003 and amounts in thousands Net revenue $ 631, , ,333 Cost of services (excluding depreciation shown below) 380, , ,007 Gross profit 250, , ,326 Operating expenses: Selling, general, and administrative 153, , ,271 Depreciation and amortization 77,605 70,526 67,272 Stock compensation 2,775 2,602 (48) Impairment of goodwill ,718 Restructuring and other charges 3,476 (435) 233, , ,778 Operating income (loss) 16,935 (2,404) (61,452) Other income (expense): Interest expense (47,489) (42,713) Interest to parent (24,689) (22,107) Share of earnings (losses) of DCI 84,011 37,271 (32,046) Unrealized gains on derivative instruments, net 406 6,444 12,416 Other, net (274) (3,623) 4,823 84,143 (32,086) (79,627) Earnings (loss) before income taxes, minority interest and change in accounting principle 101,078 (34,490) (141,079) Income tax benefit (expense) (34,970) (20,156) 30,479 Minority interests in losses of subsidiaries 2,252 1,552 Earnings (loss) before change in accounting principle 66,108 (52,394) (109,048) Change in accounting principle (20,227) Net earnings (loss) $ 66,108 (52,394) (129,275) Other comprehensive earnings, net of taxes: Unrealized holding gains (losses) arising during the period (1,162) 1,770 (6,501) Foreign currency translation adjustments 6,797 7,528 9,103 Other comprehensive earnings 5,635 9,298 2,602 Comprehensive earnings (loss) $ 71,743 (43,096) (126,673) Unaudited pro forma basic and diluted earnings (loss) per common share (note 3): Earnings (loss) before change in accounting principle $ 0.24 (0.19) (0.39) Change in accounting principle (0.07) Net Earnings (loss) $ 0.24 (0.19) (0.46) See accompanying notes to combined financial statements. F-17

430 Printed: 24-Jun-2005;20:03:51 (v.162) HTML Page: 127 File: DISK112:[05DEN2.05DEN1432]FE1432A.;8 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-18 User: MCROWE EFW: Doc # 21 LMC Discovery Group Combined Statements of Parent's Investment Years ended December 31, 2004, 2003 and 2002 Parent's investment Accumulated deficit Accumulated other comprehensive income (loss) amounts in thousands Total Balance at January 1, 2002 $ 4,638,486 (1,055,536) (4,586) 3,578,364 Issuance of stock 13,293 13,293 Issuance of stock for interest on convertible subordinated notes 21,268 21,268 Reallocation of enterprise level goodwill from parent 184, ,000 Net cash transfers to parent (54,267) (54,267) Other 1,432 1,432 Other comprehensive income 2,602 2,602 Net loss (129,275) (129,275) Balance at December 31, ,804,212 (1,184,811) (1,984) 3,617,417 Issuance of stock for interest on convertible subordinated notes 11,129 11,129 Conversion of debt to equity 654, ,330 Reallocation of enterprise level goodwill from parent 15,000 15,000 Acquisition of Ascent Media's minority interest 5,811 5,811 Other comprehensive income 9,298 9,298 Other 317 (639) (322) Net loss (52,394) (52,394) Balance at December 31, ,490,799 (1,237,205) 6,675 4,260,269 Stock compensation 2,268 2,268 Reallocation of enterprise level goodwill from parent (18,000) (18,000) Net cash transfers from parent 30,999 30,999 Other comprehensive income 5,635 5,635 Net earnings 66,108 66,108 Balance at December 31, 2004 $ 5,506,066 (1,171,097) 12,310 4,347,279 See accompanying notes to combined financial statements. F-18

431 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 128 File: DISK112:[05DEN2.05DEN1432]FE1432B.;10 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-19 User: MCROWE EFW: Doc # 21 LMC Discovery Group Combined Statements of Cash Flows Years ended December 31, 2004, 2003 and amounts in thousands (see note 4) Cash flows from operating activities: Net earnings (loss) $ 66,108 (52,394) (129,275) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 77,605 70,526 67,272 Stock compensation 2,775 2,602 (48) Impairment of goodwill ,718 Noncash interest expense 26,218 24,001 Amortization of discount 19,044 3,462 Share of losses (earnings) of DCI (84,011) (37,271) 32,046 Unrealized gains on derivative instruments (406) (6,444) (12,416) Deferred income tax expense (benefit) 31,692 17,653 (28,661) Change in accounting principle 20,227 Other non-cash charges, net 1,112 3,295 2,076 Changes in assets and liabilities (net of acquisitions): Trade receivables (36,405) (4,040) (838) Inventories and prepaid expenses (6,631) (3,069) (1,861) Payables and other liabilities 32,432 (7,000) 3,329 Net cash provided by operating activities 84,322 29,682 63,032 Cash flows from investing activities: Capital expenditures (49,292) (25,863) (56,358) Cash paid for acquisitions, net of cash acquired (44,238) Cash proceeds from dispositions 3,978 5,453 51,666 Other investing activities, net (6,318) Net cash used in investing activities (89,479) (20,233) (11,010) Cash flows from financing activities: Net cash transfers to/from parent 30,999 (54,267) Borrowings of long-term debt 2,945 8,955 Payments of long-term debt and capital lease obligations (406,820) (45,802) Borrowings under convertible subordinated notes with parent 391,027 18,151 Proceeds from issuance of common stock 13,293 Other financing activities, net (3,787) Net cash provided by (used in) financing activities 30,999 (12,848) (63,457) Net increase (decrease) in cash and cash equivalents 25,842 (3,399) (11,435) Cash and cash equivalents at beginning of year 8,599 11,998 23,433 Cash and cash equivalents at end of year $ 34,441 8,599 11,998 See accompanying notes to combined financial statements. F-19

432 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 129 File: DISK112:[05DEN2.05DEN1432]FG1432A.;25 Created: 21-JUN-2005;19:33 Chksum: Folio: F-20 User: BSKELLE EFW: Doc # 21 (1) Basis of Presentation LMC Discovery Group Notes to Combined Financial Statements December 31, 2004, 2003 and 2002 The accompanying combined financial statements of LMC Discovery Group or the "Company" represent a combination of the historical financial information of (1) Ascent Media Group, Inc. ("Ascent Media"), a wholly owned subsidiary of Liberty Media Corporation ("Liberty"), and (2) Liberty's 50% ownership interest in DCI. Upon consummation of the spinoff transaction described in note 2, Discovery Holding Company will own the assets that comprise LMC Discovery Group. Ascent Media is comprised of three operating divisions or groups. Ascent Media's Creative Services group provides services necessary to complete the creation of original content, including feature films, mini-series, television shows, television commercials, music videos, promotional and identity campaigns, and corporate communications programming. The group manipulates or enhances original visual images or audio captured in principal photography or creates new three dimensional images, animation sequences, or sound effects. The Media Management Services group provides owners of content libraries with an entire complement of facilities and services necessary to optimize, archive, manage, and repurpose media assets for global distribution via freight, satellite, fiber, and the Internet. The Networks Services group provides the facilities and services necessary to assemble and distribute programming content for cable and broadcast networks via fiber, satellite, and the Internet to viewers in North America, Europe, and Asia. Additionally, the networks services group provides systems integration, design, consulting, engineering and project management services. DCI is a global media and entertainment company that provides original and purchased cable and satellite television programming in the United States and over 160 other countries. (2) Spinoff Transaction During the first quarter of 2005, the Board of Directors of Liberty (the "Board") approved a resolution to spin off the capital stock of Discovery Holding Company to the holders of Liberty Series A and Series B common stock (the "Spin Off'). The Spin Off will be effected as a distribution by Liberty to holders of its Series A and Series B common stock of shares of Series A and Series B common stock of Discovery Holding Company. The Spin Off will not involve the payment of any consideration by the holders of Liberty common stock and is intended to qualify as a tax-free transaction. The Spin Off is expected to occur in the third quarter of 2005, on a date to be determined by the Board, and will be made as a dividend to holders of record of Liberty common stock as of the close of business on the date of record for the Spin Off. The Spin Off is expected to be accounted for at historical cost due to the pro rata nature of the distribution. Following the Spin Off, the Company and Liberty will operate independently, and neither will have any stock ownership, beneficial or otherwise, in the other. In connection with the Spin Off, the Company and Liberty will enter into certain agreements in order to govern certain of the ongoing relationships between the Company and Liberty after the Spin Off and to provide for an orderly transition. These agreements include a Reorganization Agreement, a Services Agreement and a Tax Sharing Agreement. The Reorganization Agreement provides for, among other things, the principal corporate transactions required to effect the Spin Off and cross indemnities. Pursuant to the Services Agreement, Liberty will provide the Company with certain general and administrative services including legal, tax, accounting, treasury and investor relations support. The Company will reimburse Liberty for direct, F-20

433 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 130 File: DISK112:[05DEN2.05DEN1432]FG1432A.;25 Created: 21-JUN-2005;19:33 Chksum: Folio: F-21 User: BSKELLE EFW: Doc # 21 out-of-pocket expenses incurred by Liberty in providing these services and for the Company's allocable portion of costs associated with any shared services or personnel. Under the Tax Sharing Agreement, Liberty will generally be responsible for U.S. federal, state, local and foreign income taxes reported on a consolidated, combined or unitary return that includes the Company or one of its subsidiaries and Liberty or one of its subsidiaries. The Company will be responsible for all other taxes that are attributable to the Company or one of its subsidiaries, whether accruing before, on or after the Spin Off. The Tax Sharing Agreement requires that the Company will not take, or fail to take, any action where such action, or failure to act, would be inconsistent with or prohibit the Spin Off from qualifying as a tax-free transaction. Moreover, the Company will indemnify Liberty for any loss resulting from such action or failure to act, if such action or failure to act precludes the Spin Off from qualifying as a tax-free transaction. (3) Summary of Significant Accounting Policies Cash and Cash Equivalents The Company considers investments with original purchased maturities of three months or less to be cash equivalents. Trade Receivables Trade receivables are shown net of an allowance based on historical collection trends and management's judgment on the collectibility of these accounts. These collection trends, as well as prevailing and anticipated economic conditions, are routinely monitored by management, and any adjustments required are reflected in current operations. The allowance for doubtful accounts as of December 31, 2004 and 2003 was $12,104,000 and $11,580,000, respectively. A summary of activity in the allowance for doubtful accounts is as follows: Balance beginning of year Charged (credited) to expense Acquired or charged to other accounts Deductions and other Balance end of year amounts in thousands 2004 $ 11, (403) , $ 9,013 (5) 2, , $ 11,951 (963) (1,858) (117) 9,013 Concentration of Credit Risk and Significant Customers For the years ended December 31, 2004, 2003 and 2002, no single customer accounted for more than 10% of combined revenue. Investment in Discovery LMC Discovery Group accounts for its 50% ownership interest in DCI using the equity method of accounting. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's share of the net earnings or losses of DCI as they occur, rather than as dividends or other distributions are received. The excess of the Company's carrying value over its proportionate share of F-21

434 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 131 File: DISK112:[05DEN2.05DEN1432]FG1432A.;25 Created: 21-JUN-2005;19:33 Chksum: Folio: F-22 User: BSKELLE EFW: Doc # 21 Discovery's equity is accounted for as equity method goodwill, and accordingly, is not amortized, but periodically reviewed for impairment. Changes in the Company's proportionate share of the underlying equity of DCI which result from the issuance of additional equity securities by DCI are recognized as increases or decreases in parent's investment. The Company periodically compares the carrying value of its investment in DCI to its estimated fair value to determine if there are any other-than-temporary declines in value, which would require an adjustment in the statement of operations. The estimated fair value of the investment in DCI exceeds its carrying value for all periods presented. Property and Equipment Property and equipment are carried at cost and depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the underlying lease. Estimated useful lives by class of asset are as follows: Buildings 20 years Leasehold improvements 15 years or lease term, if shorter Furniture and fixtures 7 years Computers 3 years Machinery and equipment 5 to 7 years Depreciation expense for property and equipment was $74,986,000, $68,032,000 and $64,134,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Goodwill and Nonamortizable Other Intangible Assets Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"), and ceased amortizing goodwill and nonamortizable other intangible assets. In accordance with SFAS No. 142, the Company reviews the impairment of goodwill annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The effect of the adoption was to record a transitional impairment of $20,227,000 during the first quarter of fiscal 2002 reflected as a change in accounting principle in the consolidated statements of operations. Other Intangible Assets Amortizable other intangible assets are amortized on a straight-line basis over their estimated useful lives of four to five years, and are reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). Long-Lived Assets In accordance with SFAS No. 144, management reviews the realizability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the value and future benefits of long-term assets, their carrying value is compared to management's best estimate of undiscounted future cash flows over the remaining amortization period. If such assets are considered to be impaired, the impairment to be recognized is F-22

435 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 132 File: DISK112:[05DEN2.05DEN1432]FG1432A.;25 Created: 21-JUN-2005;19:33 Chksum: Folio: F-23 User: BSKELLE EFW: Doc # 21 measured by the amount by which the carrying value of the assets exceeds the estimated fair value of the assets. Foreign Currency Translation The functional currencies of the Company's foreign subsidiaries are their respective local currencies. Assets and liabilities of foreign operations are translated into U.S. dollars using exchange rates on the balance sheet date, and revenues and expenses are translated into U.S. dollars using average exchange rates for the period. The effects of the foreign currency translation adjustments are deferred and are included in parent's investment as a component of accumulated other comprehensive earnings. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short-term maturity of these instruments. Interest Rate Swap Agreements From time to time, the Company may utilize interest rate swap agreements to manage interest rate exposure. The Company accounts for these swaps in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities an Amendment of SFAS No The Company records all derivatives on the balance sheet at fair value. At December 31, 2004 the Company had no interest rate swap agreements. Revenue Recognition Revenues from post-production and certain distribution related services are recognized when services are provided. Revenues on long-term contracts are recorded on the basis of the estimated percentage of completion of individual contracts. Estimated losses on long-term contracts are recognized in the period in which a loss becomes evident. Prepayments received for services to be performed at a later date are reflected in the combined balance sheets as deferred revenue until such services are provided. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). SFAS No. 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. In estimating future tax consequences, SFAS No. 109 generally considers all expected future events other than proposed changes in the tax law or rates. Advertising Costs Advertising costs generally are expensed as incurred. Advertising expense aggregated $3,303,000, $3,089,000 and $3,025,000 for the years ended December 31, 2004, 2003 and 2002, respectively. F-23

436 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 133 File: DISK112:[05DEN2.05DEN1432]FG1432A.;25 Created: 21-JUN-2005;19:33 Chksum: Folio: F-24 User: BSKELLE EFW: Doc # 21 Stock-Based Compensation Employees of the Company hold stock options with respect to shares of Liberty Series A common stock. The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price and is recognized on a straight-line basis over the vesting period. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above and has adopted only the disclosure requirements of SFAS No The following table illustrates the effect on net earnings (loss) if the fair-value-based method had been applied to all outstanding and unvested awards in each period. Years ended December 31, amounts in thousands, except per share amounts Net earnings (loss), as reported $ 66,108 (52,394) (129,275) Add: Stock-based employee compensation expense included in reported net loss 2,268 2,452 3,189 Deduct: Stock-based employee compensation expense determined under fair value based method for all awards (6,247) (4,817) (3,709) Pro forma net earnings (loss) $ 62,129 (54,759) (129,795) Unaudited pro forma basic and diluted net earnings (loss) per share: As reported $ 0.24 (0.19) (0.46) Pro forma for fair value stock compensation $ 0.22 (0.20) (0.46) Unaudited Pro Forma Earnings (Loss) Per Common Share Unaudited pro forma basic earnings (loss) per common share ("EPS") is computed by dividing net earnings (loss) by the pro forma number of common shares outstanding for the period. The pro forma number of shares outstanding for all periods presented is 279,996,000 shares, which is the number of shares that would have been issued on December 31, 2004 if the Spin Off had been completed on such date. Dilutive EPS presents the dilutive effect on a per shares basis of potential common shares as if they had been converted at the beginning of the periods presented. Due to the relative insignificance of the dilutive securities in 2004, their inclusion does not impact the EPS amount as reported in the accompanying combined statement of operations. F-24

437 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 134 File: DISK112:[05DEN2.05DEN1432]FG1432A.;25 Created: 21-JUN-2005;19:33 Chksum: Folio: F-25 User: BSKELLE EFW: Doc # 21 Use of Estimates The preparation of the combined financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses for each reporting period. The significant estimates made in preparation of the Company's consolidated financial statements primarily relate to valuation of goodwill, other intangible assets, long-lived assets, deferred tax assets, and the amount of the allowance for doubtful accounts. Actual results could differ from the estimates upon which the carrying values were based. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), " Share-Based Payments " ("Statement 123R"). Statement 123R, which is a revision of Statement 123 and supersedes APB Opinion No. 25, establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on transactions in which an entity obtains employee services. Statement 123R generally requires companies to measure the cost of employee services received in exchange for an award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the award, and to recognize that cost over the period during which the employee is required to provide service (usually the vesting period of the award). Statement 123R also requires companies to measure the cost of employee services received in exchange for an award of liability instruments (such as stock appreciation rights) based on the current fair value of the award, and to remeasure the fair value of the award at each reporting date. Public companies were originally required to adopt Statement 123R as of the beginning of the first interim period that begins after June 15, On April 14, 2005, the Securities and Exchange Commission amended the effective date to the beginning of a registrant's next fiscal year, or January 1, 2006 for calendar-year companies, such as the Company. The provisions of Statement 123R will affect the accounting for all awards granted, modified, repurchased or cancelled after January 1, The accounting for awards granted, but not vested, prior to January 1, 2006 will also be impacted. The provisions of Statement 123R allow companies to adopt the standard on a prospective basis or to restate all periods for which Statement 123 was effective. The Company expects to adopt Statement 123R on a prospective basis, and will include in its financial statements for periods that begin after December 31, 2005 pro forma information as though the standard had been adopted for all periods presented. While the Company has not yet quantified the impact of adopting Statement 123R, it believes that such adoption could have a significant impact on its operating income and net earnings in the future. F-25

438 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 135 File: DISK112:[05DEN2.05DEN1432]FI1432A.;28 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-26 User: MCROWE EFW: Doc # 21 (4) Supplemental Disclosure of Cash Flow Information Years ended December 31, amounts in thousands Cash paid for acquisitions: Fair value of assets acquired $ 60,950 11,811 Net liabilities assumed (17,073) (6,000) Deferred tax liability 361 Contribution from parent (5,811) Cash paid for acquisitions, net of cash acquired $ 44,238 (5) Investment in DCI Cash paid during the year for: Interest $ 25,206 35,748 Income taxes $ 1, ,874 Noncash investing and financing activities: Stock issued for payment of interest on convertible subordinated notes $ 11,129 21,268 Conversion of subordinated notes to parent's investment $ 654,330 The Company has a 50% ownership interest in DCI and accounts for its investment using the equity method of accounting. DCI is a global media and entertainment company, that provides original and purchased video programming in the United States and over 160 other countries. Included in the Company's share of earnings (losses) of DCI in 2003 and 2002 is the Company's 50% share of adjustments to the redemption value of redeemable common stock held by an officer of DCI. Such adjustments were recorded as reductions to equity by DCI. These shares were redeemed in June In 2001, the Company acquired 25,200 shares of DCI Class B non-voting common stock for an additional $49,788,000 cash investment. In 2002, DCI redeemed these shares for $54,269,000. The Company recorded the $4,481,000 difference between its 2001 investment and the redemption proceeds as interest income. F-26

439 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 136 File: DISK112:[05DEN2.05DEN1432]FI1432A.;28 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-27 User: MCROWE EFW: Doc # 21 Summarized financial information for DCI is as follows: Consolidated Balance Sheets December 31, amounts in thousands Current assets $ 835, ,383 Property and equipment 380, ,411 Goodwill and intangible assets 445, ,968 Programming rights, long term 1,027, ,735 Other assets 547, ,714 Total assets 3,235,686 3,194,211 Current liabilities 885,353 1,538,798 Long term debt 2,498,287 1,833,942 Other liabilities 160, ,984 Mandatorily redeemable equity in subsidiaries 319, ,252 Stockholders' deficit (627,926) (801,765) Total liabilities and stockholders' deficit 3,235,686 3,194,211 Consolidated Statements of Operations Years ended December 31, amounts in thousands Revenue $ 2,365,346 1,995,047 1,716,775 Cost of revenue (846,316) (751,578) (699,737) Selling, general and administrative (856,340) (735,017) (638,405) Equity-based compensation (71,515) (74,119) (96,865) Depreciation and amortization (129,011) (120,172) (112,841) Gain on sale of patents 22,007 Operating income 484, , ,927 Interest expense (167,420) (159,409) (163,315) Other expense (6,930) (16,730) (63,725) Income tax benefit (expense) (141,799) (74,785) 10,057 Net earnings (loss) $ 168,022 63,237 (48,056) F-27

440 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 137 File: DISK112:[05DEN2.05DEN1432]FI1432A.;28 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-28 User: MCROWE EFW: Doc # 21 (6) Property and Equipment Property and equipment at December 31, 2004 and 2003 consist of the following: amounts in thousands Property and equipment, net: Land $ 58,048 60,389 Buildings 183, ,861 Equipment 226, ,981 Accumulated depreciation (209,480) (136,695) $ 258, ,536 (7) Goodwill and Other Intangible Assets SFAS No. 142 prescribes the financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, the Company is no longer required to amortize goodwill and other intangible assets with indefinite lives, but is required to test such assets annually for impairment. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment in accordance with SFAS No Effective January 1, 2002, the Company adopted SFAS No. 142 and in accordance with its provisions, the Company recorded, during the first quarter of fiscal 2002, a transitional impairment charge of $20,227,000. Such charge has been reflected as a cumulative effect of a change in accounting principle. Also, the Company recorded a goodwill impairment charge of $83,718,000 during the fourth quarter of fiscal 2002 as a result of the annual impairment test of goodwill in accordance with SFAS No In fiscal 2004 and 2003, the Company recorded impairment charges of $51,000 and $562,000, respectively, as a result of the annual impairment test of goodwill in accordance with SFAS No The fair value of each reporting unit was determined through the use of an outside independent valuation consultant. The consultant used both the income approach and market approach in determining fair value. SFAS No. 142 requires the Company to consider equity method affiliates as separate reporting units. As a result, a portion of Liberty's enterprise-level goodwill balance has been allocated to a separate reporting unit which includes only its investment in DCI and has been included in these combined financial statements. This allocation is performed for goodwill impairment testing purposes only and does not change the reported carrying value of the investment. However, to the extent that all or a portion of an equity method investment which is part of a reporting unit containing allocated goodwill is disposed of in the future, the allocated portion of goodwill will be relieved and included in the calculation of the gain or loss on disposal. In addition, it has been necessary for Liberty to periodically reallocate its enterprise level goodwill due to changes in reporting units caused by transactions or by internal reorganizations. These reallocation adjustments were made based on the relative fair values of the remaining reporting units in accordance with SFAS No As a result, there have been adjustments to the enterprise level goodwill allocated to LMC Discovery during the years presented in these financial statements. Such adjustments are reflected in the Combined Statements of Parent's Investment. F-28

441 Printed: 24-Jun-2005;20:03:52 (v.162) HTML Page: 138 File: DISK112:[05DEN2.05DEN1432]FI1432A.;28 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-29 User: MCROWE EFW: Doc # 21 The following table provides the activity and balances of goodwill for the years ended December 31, 2004 and 2003: Creative Services Group Media Management Services Group Network Services Group DCI Total amounts in thousands Net balance at January 1, 2003 $ 105,761 86, ,425 1,774,000 2,104,705 Add: Acquisitions 2,092 1,337 7,776 11,205 Foreign exchange and other ,000 15,549 Deduct: 2003 Impairment (562) (562) Net balance at December 31, ,428 88, ,444 1,789,000 2,130,897 Add: Acquisitions 5,325 17,379 22,704 Foreign exchange and other (104) (18,000) (18,104) Deduct: 2004 Impairment (51) (51) Net balance at December 31, 2004 $ 107,377 93, ,719 1,771,000 2,135,446 Included in goodwill and other intangible assets at December 31, 2004 are amortizable intangibles with a net book value of $2,469,000 and tradename (which is not subject to amortization) of $2,440,000. For the years ended December 31, 2004, 2003 and 2002, the Company recorded $2,619,000, $2,494,000 and $3,138,000, respectively, of amortization expense for other intangible assets. (8) Restructuring Charges During 2003, the Company completed certain restructuring activities designed to improve operating efficiencies and effectiveness and to strengthen its competitive position in the marketplace primarily through cost and expense reductions. In connection with these integration and consolidation initiatives, the Company recorded a charge of $3,476,000. This restructuring charge is related to the consolidation of facilities and closure-related costs in the Creative Services group both domestically and in the United Kingdom. The restructuring charge includes $1,170,000 for employee severance, $2,130,000 related to excess lease commitments as a result of facility closures, and $176,000 for contract exit costs. F-29

442 Printed: 24-Jun-2005;20:03:53 (v.162) HTML Page: 139 File: DISK112:[05DEN2.05DEN1432]FI1432A.;28 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-30 User: MCROWE EFW: Doc # 21 The following table provides the activity and balances of the restructuring reserve. Opening balance Additions Deductions amounts in thousands Ending balance Excess facility costs $ 5,133 (2,906) 2,227 Employee separations 255 (255) December 31, 2002 $ 5,388 (3,161) 2,227 Excess facility costs $ 2,227 2,130 (980) 3,377 Employee separations 1,170 (1,170) Contract exit costs 176 (176) December 31, 2003 $ 2,227 3,476 (2,326) 3,377 Excess facility costs December 31, 2004 $ 3,377 (788) 2,589 (9) Acquisitions London Playout Centre. On March 12, 2004, pursuant to an Agreement for the Sale and Purchase (the "Purchase Agreement"), Ascent Media acquired all of the issued share capital of London Playout Centre Limited ("LPC") from an independent third party for a cash purchase price of $36,573,000 paid at closing. In addition, in the event certain existing LPC contracts, which currently expire in 2005 through 2007, are renewed on terms similar to existing terms, Ascent Media may be required to pay up to an additional 5,000,000 ($9,600,000 at December 31, 2004). As the amount of the contingent consideration is not determinable at December 31, 2004, no liability has been recorded in the accompanying combined balance sheet. At the point in time that the amount of contingent consideration is determinable, Ascent Media will record an increase to the LPC purchase price. LPC is a UK-based television channel origination facility. The purchase was funded, in part, by proceeds from Liberty. Sony Electronics' System Integration Center. On December 31, 2003, the Company acquired Sony Electronic's ("Sony's") systems integration center business and related assets ("SIC"). In exchange for SIC, Sony received the right to be paid 20% of the value of the combined business of the Company's wholly owned subsidiary, A.F. Associates, Inc. ("AFA") and SIC as set forth in agreements related to the asset purchase. The acquisition was accounted for using the purchase method of accounting, and the value of 20% of the combined business of AFA and SIC was estimated at $6,000,000. The following unaudited pro forma information was prepared assuming the acquisitions of LPC and SIC occurred on January 1, However, those pro forma amounts are not necessarily indicative F-30

443 Printed: 24-Jun-2005;20:03:53 (v.162) HTML Page: 140 File: DISK112:[05DEN2.05DEN1432]FI1432A.;28 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-31 User: MCROWE EFW: Doc # 21 of operating results that would have occurred if the LPC and SIC acquisitions had occurred on January 1, Years ended December 31, amounts in thousands, except per share amounts (10) Long-Term Debt Senior Credit Agreement Revenue $ 639, ,994 Net earnings (loss) $ 65,317 (54,530) Pro forma basic and diluted net earnings (loss) per common share $ 0.23 (0.19) On December 23, 2003, Ascent Media retired its Senior Credit Agreement with Bank of America by paying down in full the Term A loan, Term B loan, and Revolver, with cash provided by Liberty. Liberty Subordinated Credit Agreement In December 2000, when Ascent Media was a publicly traded company and had a senior bank credit facility, Liberty and Ascent Media entered into a subordinated credit agreement pursuant to which Liberty agreed to make subordinated convertible loans to Ascent Media. From December 2000 through December 2003, Ascent Media borrowed funds under the subordinated credit agreement as needed, and as agreed to by its senior lenders, for acquisitions, capital expenditures, working capital and payments under its senior bank credit facility. From December 2000 through June 2003, at which time Liberty acquired the minority interest in Ascent Media held by the public, Ascent Media paid interest at the rate of 10% per annum on the subordinated debt primarily with shares of its common stock. From June 2003 through December 2003, accrued interest was added to the principal amount of debt. In December 2003, Liberty contributed the total amount of debt and accrued interest of $654,330,000 to equity and the subordinated credit agreement was cancelled. Property Mortgages and Other Debt In December 2003, Ascent Media, through a capital contribution from Liberty, paid down all principal amounts outstanding on all property mortgages, capital loans, and other debt. (11) Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or F-31

444 Printed: 24-Jun-2005;20:03:53 (v.162) HTML Page: 141 File: DISK112:[05DEN2.05DEN1432]FI1432A.;28 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-32 User: MCROWE EFW: Doc # 21 minus the change during the period in deferred tax assets and liabilities. Components of the income tax provision are as follows: Years ended December 31, amounts in thousands Current Federal $ 2,918 State 502 (1,100) (1,302) Foreign (3,780) (1,403) 202 Current (3,278) (2,503) 1,818 Deferred Federal (25,221) (15,628) 24,536 State (7,774) (3,494) 4,522 Foreign 1,303 1,469 (397) Deferred (31,692) (17,653) 28,661 Total tax benefit (expense) $ (34,970) (20,156) 30,479 Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following: Years ended December 31, amounts in thousands Computed expected tax benefit (expense) $ (35,377) 11,283 48,834 Impairment charges and amortization of goodwill not deductible for income tax purposes (29,301) State and local income taxes, net of federal income taxes (5,311) (2,986) 2,225 Change in valuation allowance affecting tax expense 3,575 (14,719) (8,747) Disallowed interest expense (13,963) (8,655) Dividend received deduction 15,195 Disposition of nondeductible goodwill in sales transactions 8,590 Other, net 2, ,338 Income tax benefit (expense) $ (34,970) (20,156) 30,479 F-32

445 Printed: 24-Jun-2005;20:03:53 (v.162) HTML Page: 142 File: DISK112:[05DEN2.05DEN1432]FK1432A.;23 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-33 User: MCROWE EFW: Doc # 21 Components of pretax income (loss), excluding change in accounting principle, are as follows: Years ended December 31, amounts in thousands Domestic $ 96,470 (28,772) (149,476) Foreign 4,608 (3,466) 9,949 $ 101,078 (32,238) (139,527) Components of deferred tax assets and liabilities as of December 31 are as follows: amounts in thousands Current assets: Accounts receivable reserves $ 2,423 3,424 Accrued liabilities 11,987 8,552 14,410 11,976 Noncurrent assets: Net operating loss carryforwards 56,689 79,587 Impairment reserves 2,370 4,747 Intangible assets 5,775 9,559 Other 6,960 5,843 71,794 99,736 Total deferred tax assets, gross 86, ,712 Valuation allowance (76,452) (101,470) Total deferred tax assets, net 9,752 10,242 Current liabilities: Prepaid expenses (1,204) (1,362) Other (2,802) (2,040) (4,006) (3,402) Noncurrent liabilities: Property and equipment (2,760) (5,287) Investments (1,086,950) (1,054,666) (1,089,710) (1,059,953) Total deferred tax liabilities (1,093,716) (1,063,355) Net deferred tax liability $ (1,083,964) (1,053,113) At December 31, 2004, the Company has $119,474,000 and $371,840,000 in net operating loss carryforwards for federal and state tax purposes, respectively. These net operating losses expire, for federal purposes, in 2022 and F-33

446 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 143 File: DISK112:[05DEN2.05DEN1432]FK1432A.;23 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-34 User: MCROWE EFW: Doc # 21 The state NOL's begin expiring in 2005 and continue through In addition, the Company has approximately $600,000 of federal income tax credits, which may be carried forward indefinitely. The Company has $2,510,000 of state income tax credits, of which $2,342,000 will expire in the year During the current year, management has determined that it is more likely than not that the Company will not realize the tax benefits associated with certain cumulative net operating loss carryforwards and other deferred tax assets. As such, the Company continues to maintain a valuation allowance of $76,452,000. The total valuation allowance decreased during the year ended December 31, 2004 as a result of other members in the Liberty consolidated tax group utilizing fully reserved NOLs of Ascent Media of $21,442,000 and utilization by Ascent Media of fully reserved deferred tax assets of $3,576,000. Ascent Media has not recorded a receivable from Parent for the utilization of its NOL's since it is unlikely they will ever be reimbursed by Liberty for these benefits. During 2004, the Company provided $1,636,000 of U.S. tax expense for future repatriation of cash from its Asia operations pursuant to APB 23. This charge represents all undistributed earnings from Asia not previously taxed in the United States. Undistributed earnings of foreign subsidiaries, other than the Asia operations, aggregated $3,372,000 on December 31, 2004, which, under existing law, will not be subject to U.S. tax until distributed as dividends. Since the earnings have been, or are intended to be, indefinitely reinvested in foreign operations, no provision has been made for any U.S. taxes that may be applicable thereto. Furthermore, any taxes paid to foreign governments on those earnings may be used in whole or in part as credits against the U.S. tax on any dividends distributed from such earnings. It is not practicable to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings. (12) Employee Benefit Plans Ascent Media offers a 401(k) defined contribution plan covering most of its full-time domestic employees not covered by employees eligible to participate in the Motion Picture Industry Pension and Health Plan (MPIPHP), a multi-employer defined benefit pension plan. Contributions to the MPIPHP are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. Ascent Media also sponsors a pension plan for eligible employees of its foreign subsidiaries. Employer contributions are determined by Ascent Media's board of directors. The plans are funded by employee and employer contributions. Total pension plan expenses for the years ended December 31, 2004, 2003 and 2002 were $6,485,000, $6,380,000 and $5,794,000, respectively. (13) Commitments and Contingencies Future minimum lease payments under scheduled operating leases that have initial or remaining noncancelable terms in excess of one year are as follows (in thousands): Year ended December 31: 2005 $ 25, $ 23, $ 22, $ 19, $ 17,608 Thereafter $ 52,523 F-34

447 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 144 File: DISK112:[05DEN2.05DEN1432]FK1432A.;23 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-35 User: MCROWE EFW: Doc # 21 Rent expense for noncancelable operating leases for real property and equipment was $26,487,000, $21,909,000 and $29,632,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Various lease arrangements contain options to extend terms and are subject to escalation clauses. At December 31, 2004, the Company is committed to compensation under long-term employment agreements with its certain executive officers of Ascent Media as follows: 2005, $3,172,000; 2006, $1,778,000; and 2007, $296,000. The Company is involved in litigation and similar claims incidental to the conduct of its business. In management's opinion, none of the pending actions is likely to have a material adverse impact on the Company's financial position or results of operations. (14) Related Party Transactions Services Agreement Between Ascent Media and On Command Corporation Since October 1, 2002, Ascent Media has provided uplink and satellite transport services to On Command Corporation ("On Command"), a wholly owned subsidiary of LMC. Under the terms of short-term services agreement and a content preparation and distribution services agreement, from October 1, 2002 through March 31, 2008, Ascent Media has provided, and will continue to provide, uplink and satellite transport services. The content preparation and distribution services agreement also provides that Ascent Media may supply content preparation services. During the period from April 2003 to October 2004, Ascent Media also installed satellite equipment at On Command's downlink sites at hotels pursuant to a separate services agreement. All agreements were entered into in the ordinary course of business on arm's-length terms. Ascent Media has provided $449,000, $691,000 and $75,000 in services to On Command for the years ended December 31, 2004, 2003 and 2002, respectively. Other Related Party Balances and Transactions Ascent Media provides services, such as satellite uplink, systems integration, origination, and post-production, to various affiliates of Liberty including DCI and Court Television Network, LLC. Revenue recorded by Ascent Media for these services for the years ended December 31, 2004, 2003 and 2002 aggregated $41,785,000, $13,355,000 and $14,043,000, respectively. (15) Information About Operating Segments The Company's business units have been aggregated into four reportable segments: the Creative Services Group, the Media Management Services Group, and the Network Services Group, which are all operating segments of Ascent Media, and DCI, which is an equity affiliate. Corporate related items and unallocated income and expenses are reflected in the Corporate and Other column listed below. The Creative Services Group provides post-production services, which are comprised of services necessary to complete the creation of original content including feature films, television shows, movies of the week/mini series, television commercials, music videos, promotional and identity campaigns and corporate communications programming. The Media Management Services Group provides content storage services, which are comprised of facilities and services necessary to optimize, archive, manage and repurpose media assets for global distribution via freight, satellite, fiber and the Internet; access to all forms of content, duplication and formatting services, language conversions and laybacks, restoration and preservation of old or damaged content, mastering from motion picture film to high resolution or data formats, digital audio and video encoding services and digital media management services for F-35

448 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 145 File: DISK112:[05DEN2.05DEN1432]FK1432A.;23 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-36 User: MCROWE EFW: Doc # 21 global home video, broadcast, pay-per-view and emerging new media distribution channels. The Network Services Group provides broadcast services, which are comprised of services necessary to assemble and distribute programming for cable and broadcast networks via fiber and satellite to viewers in North America, Europe and Asia. Additionally, the networks services group provides systems integration, design, consulting, engineering and project management services. The Company's chief operating decision maker, or his designee (the "CODM"), has identified the Company's reportable segments based on (i) financial information reviewed by the CODM and (ii) those operating segments that represent more than 10% of the Company's combined revenue or earnings before taxes. In addition, those equity investments whose share of earnings represent more than 10% of the Company's earnings before taxes are considered reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies and are consistent with GAAP. The Company evaluates the performance of these operating segments based on financial measures such as revenue and operating cash flow. The Company defines operating cash flow as revenue less operating expenses and selling, general and administrative expenses (excluding stock and other equity-based compensation). The Company believes this is an important indicator of the operational strength and performance of its businesses, including the ability to service debt and capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock and other equity-based compensation and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, operating cash flow should be considered in addition to, but not as a substitute for, operating income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. F-36

449 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 146 File: DISK112:[05DEN2.05DEN1432]FK1432A.;23 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-37 User: MCROWE EFW: Doc # 21 Summarized financial information concerning the Company's reportable segments is presented in the following tables: Ascent Media Creative Services Group Media Management Services Group Network Services Group(1) DCI Corporate and Other and eliminations Total amounts in thousands Year Ended December 31, 2004 Revenue from external customers $ 295, , ,392 2,365,346 (2,365,346) 631,215 Operating cash flow $ 55,847 17,430 62, ,690 (700,764) 97,366 Capital expenditures $ 18,677 4,142 23,114 88,100 (84,741) 49,292 Depreciation and amortization $ 31,026 7,750 27, ,011 (117,256) 77,605 Total assets $ 298, , ,328 3,235,686 1,564,613 5,564,828 Year Ended December 31, 2003 Revenue from external customers $ 270, , ,203 1,995,047 (1,995,047) 506,103 Operating cash flow $ 43,786 22,074 43, ,452 (542,771) 74,762 Capital expenditures $ 13,132 4,751 5, ,956 (107,183) 25,863 Depreciation and amortization $ 28,975 11,481 22, ,172 (112,274) 70,526 Total assets $ 305, , ,939 3,194,211 1,481,985 5,396,627 Year Ended December 31, 2002 Revenue from external customers $ 275, , ,123 1,716,775 (1,716,775) 539,333 Operating cash flow $ 50,150 27,682 45, ,633 (413,083) 89,055 Capital expenditures $ 22,825 15,406 9, ,777 (130,608) 56,358 Depreciation and amortization $ 38,778 7,483 18, ,841 (110,693) 67,272 (1) Included in Network Services Group revenue is broadcast services revenue of $135,883,000, $89,065,000 and $114,400,000 and systems integration revenue of $89,509,000, $39,138,000 and $44,723,000 in 2004, 2003 and 2002, respectively. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. F-37

450 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 147 File: DISK112:[05DEN2.05DEN1432]FK1432A.;23 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-38 User: MCROWE EFW: Doc # 21 The following table provides a reconciliation of segment operating cash flow to earnings (loss) before income taxes, minority interest and change in accounting principle. Years ended December 31, amounts in thousands Segment operating cash flow $ 97,366 74,762 89,055 Stock compensation (2,775) (2,602) 48 Depreciation and amortization (77,605) (70,526) (67,272) Impairment of goodwill (51) (562) (83,718) Share of earnings (losses) of DCI 84,011 37,271 (32,046) Interest expense (72,178) (64,820) Other, net 132 (655) 17,674 Earnings (loss) before income taxes, minority interest and change in accounting principle $ 101,078 (34,490) (141,079) Information as to the Company's operations in different geographic areas is as follows: Years ended December 31, amounts in thousands Revenue United States $ 460, , ,827 United Kingdom 148,002 92,523 93,797 Other countries 23,143 23,360 24,709 $ 631, , ,333 F-38

451 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 148 File: DISK112:[05DEN2.05DEN1432]FO1432A.;9 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-39 User: MCROWE EFW: Doc # 21 To the Board of Directors and Stockholders of Discovery Communications, Inc.: Report of Independent Registered Public Accounting Firm In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' deficit, and of cash flows present fairly, in all material respects, the financial position of Discovery Communications, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP McLean, Virginia February 22, 2005 F-39

452 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 149 File: DISK112:[05DEN2.05DEN1432]FQ1432A.;7 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-40 User: MCROWE EFW: Doc # 21 Discovery Communications, Inc. Consolidated Balance Sheets December 31, In thousands, except share data ASSETS Current assets Cash and cash equivalents $ 24,282 $ 34,075 Accounts receivable, less allowances of $24,375 and $40, , ,747 Inventories 32,567 37,004 Deferred income taxes 144, ,693 Programming rights, net 50,578 46,364 Other current assets 55,758 41,500 Total current assets 835, ,383 Property and equipment, net 380, ,411 Programming rights, net, less current portion 1,027, ,735 Deferred launch incentives 314, ,579 Goodwill 257, ,308 Intangibles, net 187, ,660 Investments in and advances to unconsolidated affiliates 74,450 60,765 Deferred income taxes 114, ,768 Other assets 43,622 45,602 TOTAL ASSETS $ 3,235,686 $ 3,194,211 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable and accrued liabilities $ 338,182 $ 356,320 Launch incentives payable 33,509 62,841 Programming rights payable 94,969 73,340 Current portion of long-term incentive plan liabilities 261, ,755 Current portion of long-term debt 9, ,750 Income taxes payable 21,123 10,564 Other current liabilities 126,207 90,228 Total current liabilities 885,353 1,538,798 Long-term debt, less current portion 2,498,287 1,833,942 Derivative financial instruments, less current portion 46,541 88,781 Launch incentives payable, less current portion 34,328 45,422 Long-term incentive plan liabilities, less current portion 60,735 63,844 Programming rights payable, less current portion 8,027 3,668 Other liabilities 10,774 11,269 Total liabilities 3,544,045 3,585,724 Mandatorily redeemable interests in subsidiaries 319, ,252 Commitments and contingencies Stockholders' deficit Class A common stock; $.01 par value; 100,000 shares authorized; 51,119 shares issued, less 719 and 504 shares of treasury stock 1 1 Class B common stock; $.01 par value; 60,000 shares authorized; 50,615 shares issued and held in treasury stock at December 31, 2004 and 2003 Additional paid-in capital 21,093 21,093 Accumulated deficit (672,931 ) (840,953 ) Accumulated other comprehensive income 23,911 18,094 Total stockholders' deficit (627,926 ) (801,765 ) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,235,686 $ 3,194,211 The accompanying notes are an integral part of these consolidated financial statements. F-40

453 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 150 File: DISK112:[05DEN2.05DEN1432]FQ1432B.;3 Created: ;8-JUN-2005;19:04 Chksum: Folio: F-41 User: MCROWE EFW: Doc # 21 Discovery Communications, Inc. Consolidated Statements of Operations Year ended December 31, In thousands OPERATING REVENUE Advertising $ 1,133,807 $ 1,010,585 $ 829,936 Subscriber fees 976, , ,500 Other 255, , ,339 Total operating revenue 2,365,346 1,995,047 1,716,775 Cost of revenue 846, , ,737 Selling, general & administrative 856, , ,405 Expenses arising from long-term incentive plans 71,515 74,119 96,865 Depreciation & amortization 129, , ,841 Gain on sale of patents (22,007) Total operating expenses 1,881,175 1,680,886 1,547,848 INCOME FROM OPERATIONS 484, , ,927 OTHER INCOME (EXPENSE) Interest, net (167,420) (159,409) (163,315) Unrealized gains (losses) from derivative instruments, net 45,540 21,405 (11,607) Minority interests in consolidated subsidiaries (54,940) (35,965) (45,977) Equity in earnings (losses) of unconsolidated affiliates 171 (4,477) (2,716) Other 2,299 2,307 (3,425) Total other expense, net (174,350) (176,139) (227,040) INCOME (LOSS) BEFORE INCOME TAXES 309, ,022 (58,113) Income tax expense (benefit) 141,799 74,785 (10,057) NET INCOME (LOSS) $ 168,022 $ 63,237 $ (48,056) The accompanying notes are an integral part of these consolidated financial statements. F-41

454 Printed: 24-Jun-2005;20:03:54 (v.162) HTML Page: 151 File: DISK112:[05DEN2.05DEN1432]FS1432A.;8 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-42 User: MCROWE EFW: Doc # 21 Discovery Communications, Inc. Consolidated Statements of Cash Flows Year ended December 31, In thousands OPERATING ACTIVITIES Net income (loss) $ 168,022 $ 63,237 $ (48,056 ) Adjustments to reconcile net income (loss) to cash provided by operations Depreciation and amortization 129, , ,841 Amortization of deferred launch incentives and representation rights 107, , ,495 Provision for losses on accounts receivable, net ,413 20,787 Expenses arising from long-term incentive plans 71,515 74,119 96,865 Equity in (earnings) losses of unconsolidated affiliates (171 ) 4,477 2,716 Deferred income taxes 105,522 42,280 (37,801 ) Unrealized (gains) losses on derivative financial instruments, net (45,540 ) (21,405 ) 11,607 Non cash minority interest charges 54,940 35,965 45,977 Gain on sale of patents (22,007 ) Other non-cash charges 8,300 5,584 14,325 Changes in assets and liabilities, net of business combinations Accounts receivable (60,841 ) (52,753 ) (46,553 ) Inventories 4,555 22,978 (30,504 ) Other assets (14,706 ) (10,212 ) (8,435 ) Programming rights, net of payables (122,433 ) (139,387 ) (86,103 ) Accounts payable and accrued liabilities 55,734 27,646 79,565 Representation rights (479 ) (11,250 ) (10,750 ) Deferred launch incentives (74,696 ) (99,630 ) (72,963 ) Long-term incentive plan liabilities (240,752 ) (51,023 ) (37,003 ) Cash provided by operations 124, , ,010 INVESTING ACTIVITIES Acquisition of property and equipment (88,100 ) (109,956 ) (138,777 ) Business combinations, net of cash acquired (17,218 ) (46,541 ) Investments in and advances to unconsolidated affiliates (14,884 ) (11,754 ) (27,389 ) Contributions from minority shareholders 3,146 21,652 12,478 Issuance (redemption) of interests in subsidiaries (148,880 ) 92,874 Proceeds from sale of patents, net 22,007 Cash used by investing activities (243,929 ) (146,599 ) (60,814 ) FINANCING ACTIVITIES Proceeds from issuance of long-term debt 1,848, ,924 Principal payments of long-term debt (1,699,215 ) (12,638 ) (330,165 ) Deferred financing fees (8,499 ) (56 ) (1,358 ) Increase in note receivable from stockholder (5,238 ) (10,246 ) Collection of note receivable from stockholder 23,600 Repurchase of Class A common stock (55,334 ) Repurchase of Class B common stock (109,000 ) Other financing (30,840 ) 42,325 (23,415 ) Cash provided (used) by financing activities 109,446 (7,341 ) (82,260 ) CHANGE IN CASH AND CASH EQUIVALENTS (9,793 ) 251 (4,064 ) Cash and cash equivalents, beginning of year 34,075 33,824 37,888 CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,282 $ 34,075 $ 33,824 The accompanying notes are an integral part of these consolidated financial statements. F-42

455 Printed: 24-Jun-2005;20:03:55 (v.162) HTML Page: 152 File: DISK112:[05DEN2.05DEN1432]FS1432B.;3 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-43 User: MCROWE EFW: Doc # 21 Discovery Communications, Inc. Consolidated Statements of Changes in Stockholders' Deficit Class A Class B At Par Redeemable At Par Additional Paid-In Capital Accumulated Deficit Other Comprehensive Income (Loss) Foreign Currency Translation Unrealized Gain (Loss) on Investments TOTAL In thousands Balance, December 31, 2001 $ 1 $ 52,791 $ 1 $ 121,092 $ (852,707 ) $ (2,272 ) $ (334 ) $ (681,428 ) Comprehensive loss Net loss (48,056 ) Foreign currency translation, net of tax of $2.7 million 6,568 Realized loss on investments, net of tax of $0.2 million 334 Total comprehensive loss (41,154 ) Increase in loan to stockholder (10,246 ) (10,246 ) Compensation from redeemable Class A common stock 2,324 2,324 Accretion of redeemable Class A common stock 5,827 (5,827 ) Repurchase of Class B common stock treasury shares (1 ) (99,999 ) (9,000 ) (109,000 ) Balance, December 31, 2002 $ 1 $ 50,696 $ $ 21,093 $ (915,590 ) $ 4,296 $ $ (839,504 ) Comprehensive income Net income 63,237 Foreign currency translation, net of tax of $5.7 million 10,027 Unrealized gain on investments, net of tax of $2.4 million 3,771 Total comprehensive income 77,035 Decrease in loan to stockholder 18,362 18,362 Reduction of compensation from redeemable Class A common stock (2,324 ) (2,324 ) Decretion of redeemable Class A common stock (11,400 ) 11,400 Repurchase of Class A common stock treasury shares (55,334 ) (55,334 ) Balance, December 31, 2003 $ 1 $ $ $ 21,093 $ (840,953 ) $ 14,323 $ 3,771 $ (801,765 ) Comprehensive income Net income 168,022 Foreign currency translation, net of tax of $5.2 million 8,409 Unrealized loss on investments, net of tax of $1.7 million (2,592 ) Total comprehensive income 173,839 Balance, December 31, 2004 $ 1 $ $ $ 21,093 $ (672,931 ) $ 22,732 $ 1,179 $ (627,926 ) The accompanying notes are an integral part of these consolidated financial statements. F-43

456 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 153 File: DISK112:[05DEN2.05DEN1432]FU1432A.;21 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-44 User: MCROWE EFW: Doc # Description of Business Discovery Communications, Inc. Notes to Consolidated Financial Statements Discovery Communications, Inc. (the "Company") is a privately held, diversified worldwide entertainment company whose operations are organized into four business units: U.S. Networks, International Networks, Commerce and Education. U.S. Networks operates cable and satellite television networks in the United States, including Discovery Channel, TLC, Animal Planet, The Travel Channel and Discovery Health Channel. International Networks operates cable and satellite television networks worldwide, including regional variants of Discovery Channel, Animal Planet, People & Arts, Travel & Adventure, and Discovery Health Channel. Commerce operates 115 Discovery Channel retail stores as well as direct-to-consumer sales in the United States, and manages licensing for the Company. Education provides products and services to educational institutions. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned and controlled subsidiaries. The equity method of accounting is used for unconsolidated affiliates in which the Company's ownership interests range from 20% to 50% and the Company exercises significant influence over operating and financial policies. All significant intercompany transactions and balances among the consolidated entities have been eliminated. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results may differ from those estimates and could have a material impact on the consolidated financial statements. The Company has issued redeemable interests in a number of its consolidated subsidiaries for which the redemption events are outside of the Company's control. Estimating the redemption values of these interests requires making assumptions regarding fair value, future performance, comparing to similar transactions, and complex contract interpretation. Other significant estimates include the recoverability of programming rights, the amortization period and method of programming rights, valuation and recoverability of intangible assets and other long-lived assets, the fair value of derivative financial instruments, and the adequacy of reserves associated with accounts receivable and retail inventory. Recent Accounting Pronouncements In December 2003 the Financial Accounting Standards Board (FASB) issued Consolidation of Variable Interest Entities: an Interpretation of FASB No. 51 (FIN 46R), which was effective as of March 31, Variable interest entities (VIEs) are primarily entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders possess governance rights that are not proportionate with their equity holdings. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. F-44

457 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 154 File: DISK112:[05DEN2.05DEN1432]FU1432A.;21 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-45 User: MCROWE EFW: Doc # 21 The Company has minority interests in certain entities as discussed in Note 9. In connection with the adoption of FIN 46R, the Company's preliminary assessment is that certain of its immaterial unconsolidated international joint ventures may be VIEs in which the Company is the primary beneficiary. Pursuant to the transition provisions of FIN 46R, the Company will begin consolidating such ventures commencing 2005, however the impact on the consolidated financial statements is not expected to be material. See Note 9 for summarized balance sheets, statements of operations and cash flows of all equity method investments. FASB Statement No. 150 Financial Instruments with Characteristics of Both Liabilities and Equity, (FAS 150) establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have traditionally been characterized as equity. The Financial Accounting Standards Board delayed the FAS 150 effective date for nonpublic companies with respect to instruments that are mandatorily redeemable on fixed dates for amounts that are either fixed or determined by reference to an index to January 1, If the Company were a public registrant, mandatorily redeemable minority interests in the amount of $142.9 million would be classified as current liabilities. Revenue Recognition The Company derives revenues from five primary sources: (1) advertising revenue for commercial spots aired on the Company's networks, (2) subscriber revenue from cable system operators (affiliates), (3) retail sales of consumer product inventory, (4) licensing of the Company's programming and other intellectual property, and (5) product and service sales to educational institutions. Advertising revenue is recorded net of agency commissions and audience deficiency liabilities in the period when the advertising spots are broadcast. Subscriber revenue is recognized in the period the service is provided, net of launch incentives and other vendor consideration. Retail revenues are recognized either at the point-of-sale or upon product shipment. Program licensing revenues are recognized when the programming is available to broadcast and upon satisfaction of other revenue recognition conditions. Trademarks and other non-programming licensing are generally recognized ratably over the term of the agreement. Product and service sales to educational institutions are generally recognized ratably over the term of the agreement or as the product is delivered. Advertising Costs The Company expenses advertising costs as incurred. The Company incurred advertising costs of $170.3 million, $140.2 million and $111.9 million in 2004, 2003 and Cash and Cash Equivalents Highly liquid investments with original maturities of ninety days or less are recorded as cash equivalents. The Company had $4.3 million and $3.9 million in restricted cash included in other assets as of December 31, 2004 and 2003 due to foreign currency restrictions. Derivative Financial Instruments Derivative financial instruments are recorded on the balance sheet at fair value. The Company did not apply hedge accounting during 2004, 2003 and 2002, and therefore changes in the fair values of derivative financial instruments are recorded in the statements of operations. F-45

458 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 155 File: DISK112:[05DEN2.05DEN1432]FU1432A.;21 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-46 User: MCROWE EFW: Doc # 21 Inventories Inventories are carried at the lower of cost or market and include inventory acquisition costs. Cost is determined using the weighted average cost method. Programming Rights Costs incurred in the direct production or licensing of programming rights are capitalized and stated at the lower of unamortized cost, fair value, or net realizable value. The Company evaluates the net realizable value of programming by considering the fair value and net realizable values of the underlying produced and licensed programs, respectively. The costs of produced programming are capitalized and amortized based on the expected realization of revenues, resulting in an accelerated basis over four years for developed networks (Discovery Channel, TLC, Animal Planet, and The Travel Channel) in the United States, a straight-line basis over three to five years for developing networks in the United States, and a straight-line basis over three years for all International networks. The cost of licensed programming is capitalized and amortized over the term of the license period based on the expected realization of revenues, resulting in an accelerated basis for developed networks in the United States, and a straight-line basis for all International networks and developing networks in the United States. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is recognized on a straight-line basis over the estimated useful lives of three to seven years for equipment, furniture and fixtures, five to forty years for building structure and construction, and six to fifteen years for satellite transponders. Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the terms of the related leases. Equipment under capital lease represents the present value of the minimum lease payments at the inception of the lease, net of accumulated depreciation. Capitalized Software Costs Capitalization of software development costs occurs during the application development stage. Costs incurred during the pre and post implementation stages are expensed as incurred. Capitalized software is amortized on a straight-line basis over its estimated useful lives of one to five years. Unamortized computer software costs totaled $55.2 million and $49.6 million at December 31, 2004 and Recoverability of Long-Lived Assets, Goodwill, and Intangible Assets The Company periodically reviews the carrying value of its acquired intangible assets, including goodwill, and its other long-lived assets, including deferred launch incentives, to determine whether an impairment may exist. Goodwill impairment is determined by comparing the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than its carrying value. Intangible assets and other long-lived assets are grouped for purposes of evaluating recoverability at the lowest level for which independent cash flows are identifiable. If the carrying amount of an intangible asset, long-lived asset, or asset grouping exceeds its fair value, an impairment loss is recognized. Fair values for reporting units, goodwill and other intangible assets are F-46

459 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 156 File: DISK112:[05DEN2.05DEN1432]FU1432A.;21 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-47 User: MCROWE EFW: Doc # 21 determined based on discounted cash flows, market multiples, or comparable assets as appropriate. Generally, the Company's reporting units and asset groups consist of the individual networks or other operating units. The determination of recoverability of goodwill and other intangible and long lived assets requires significant judgment and estimates regarding future cash flows, fair values, and the appropriate grouping of assets. Such estimates are subject to change and could result in impairment losses being recognized in the future. If different reporting units, asset groupings, or different valuation methodologies had been used, the impairment test results could have differed. Deferred Launch Incentives Consideration issued to cable affiliates in connection with the execution of long-term network distribution agreements is deferred and amortized on a straight-line basis as a reduction to revenue over the terms of the agreements. Obligations for fixed launch incentives are recorded at the inception of the agreement. Obligations for performance-based arrangements are recorded when performance thresholds have been achieved. Following the extension or renewal of an original launch agreement, remaining deferred consideration is amortized over the new period. Amortization of deferred launch incentives and interest on unpaid deferred launch incentives was $98.4 million, $122.7 million and $122.8 million in 2004, 2003 and Foreign Currency Translation The Company's foreign subsidiaries' assets and liabilities are translated at exchange rates in effect at the balance sheet date, while results of operations are translated at average exchange rates for the respective periods. The resulting translation adjustments are included as a separate component of stockholders' equity in accumulated other comprehensive income. The effect of exchange rate changes on cash balances held in foreign currencies impacting the Consolidated Statements of Cash Flows totals $2.5 million, $1.2 million, and $0.2 million in 2004, 2003 and Long-term Compensation Programs The Company grants unit awards under its long-term incentive plans. These unit awards, which vest over a period of years, are granted to employees and increase or decrease in value based on a specified formula of certain business metrics of the Company. The Company accounts for these units similar to stock appreciation rights and applies the guidance in FASB Interpretation Number 28, "Accounting for Stock Issued to Employees." The Company adjusts compensation expense for the changes in the accrued value of these awards over the vesting period. Mandatorily Redeemable Interests in Subsidiaries Mandatorily redeemable interests in subsidiaries are initially recorded at fair value and accreted or decreted to the estimated redemption value ratably over the period to the redemption date, as appropriate. The Company records accretion and decretion on these instruments in minority interest expense. F-47

460 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 157 File: DISK112:[05DEN2.05DEN1432]FU1432A.;21 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-48 User: MCROWE EFW: Doc # 21 Treasury Stock Treasury stock is accounted for using the cost method. The repurchased shares are held in treasury and are presented as if retired. Treasury stock activity for the three years ended December 31, 2004 is presented in the Consolidated Statements of Stockholders' Deficit. Income Taxes Income taxes are recorded using the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not such assets will not be realized. Reclassifications Certain prior period financial statement amounts have been reclassified to conform to the 2004 presentation. During 2004, the Company reclassified book overdrafts at December 31, 2003 and These reclassifications increased cash and current liabilities by $42.9 million and $0.6 million at December 31, 2003 and Additionally, the Company reclassified approximately $15.5 million and $6.0 million in restricted cash and other assets previously reported as cash at December 31, 2003 and As a result of these reclassifications, cash flows from operating activities decreased $9.5 million and $1.9 million for the years ended December 31, 2003 and 2002, and cash flows from financing activities increased $42.3 million and decreased $23.4 million for the same year ends. 3. Supplemental Disclosures to Consolidated Statements of Cash Flows Year ended December 31, In thousands Cash paid for acquisitions: Fair value of assets acquired $ 21,414 $ 50,509 $ Net liabilities assumed (4,196) (3,968) Cash paid for acquisitions, net of cash 17,218 46,541 acquired Cash paid for interest, net of capitalized interest 166, , ,288 Cash paid for income taxes 28,999 32,395 25, Business Combinations During 2004, the Company completed two acquisitions in its Education division, in which the Company acquired customer lists valued at $14.6 million, covenants not to compete valued at $0.6 million and trademarks valued at $0.1 million, which are being amortized over their useful lives, of three years for the customer lists and covenants not to compete. During 2003, the Company completed two acquisitions, one in its Education division and one in its International Networks division. In connection with these acquisitions, the Company acquired customer lists valued at $27.7 million, which are being amortized over their useful lives of three years. The Company also acquired deferred launch incentives valued at $16.7 million. Of these, $13.2 million are F-48

461 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 158 File: DISK112:[05DEN2.05DEN1432]FU1432B.;7 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-49 User: MCROWE EFW: Doc # 21 being amortized over the five-year term of the agreements, and $3.5 million relate to a penalty for non-renewal in If no renewal is effectuated in 2008, the acquiree will refund the Company. If renewed, the Company will amortize this amount over the renewal period. Purchase price in excess of the fair value of the assets and liabilities acquired of $1.1 million and $6.0 million was recorded to goodwill in 2004 and Programming Rights Programming Rights, December 31, In thousands Produced programming rights Completed $ 1,099,483 $ 892,867 In process 100,086 77,062 Co-produced programming rights Completed 698, ,934 In process 38,575 44,464 Licensed programming rights Acquired 189, ,541 Prepaid 4,232 7,719 Programming rights, at cost 2,130,796 1,892,587 Accumulated amortization (1,052,839) (964,488) Programming rights, net 1,077, ,099 Current portion, licensed programming rights (50,578) (46,364) Non-current portion $ 1,027,379 $ 881,735 Amortization of programming rights was $494.2 million, $413.9 million and $365.4 million in 2004, 2003 and 2002, and is recorded as a cost of revenue. The Company estimates that 91.1% of unamortized costs of programming rights at December 31, 2004 will be amortized within the next three years. The Company expects to amortize $377.0 million of unamortized programming rights, not including in-process and prepaid productions, during the next twelve months. 6. Property and Equipment Property and Equipment, December 31, In thousands Equipment and software $ 344,525 $ 346,438 Land 28,781 27,575 Buildings 136, ,190 Furniture, fixtures, leasehold improvements and other assets 160, ,744 Assets in progress 60,806 29,582 Property and equipment, at cost 730, ,529 Accumulated depreciation and amortization (350,328) (341,118) Property and equipment, net $ 380,290 $ 360,411 F-49

462 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 159 File: DISK112:[05DEN2.05DEN1432]FU1432B.;7 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-50 User: MCROWE EFW: Doc # 21 The cost and accumulated depreciation of satellite transponders under capital leases were $23.5 million and $4.1 million at December 31, 2004, and $64.3 million and $45.4 million at December 31, Depreciation and amortization of property and equipment, including equipment under capital lease, was $85.4 million, $86.4 million and $96.3 million in 2004, 2003 and Through December 31, 2004, total capitalized costs associated with facility construction projects include land costs of $2.3 million, and building and leasehold improvement costs of $43.8 million. The Company expects these facilities to be completed in The Company completed construction of its worldwide headquarters facility in Silver Spring, Maryland, in the first quarter of The final facility is comprised of land costs of $26.5 million, building structure and construction costs of $121.4 million, and interest costs of $14.7 million. 7. Sale of Long-lived Assets In 2004, the Company recorded a net gain of $22.0 million on the sale of certain of the Company's television technology patents. The transaction closed August 19, 2004 and the gain represents the sale price less costs to sell. The Company expensed all of the costs to develop this technology in prior years. 8. Goodwill and Intangible Assets Goodwill and Intangible Assets, December 31, In thousands Goodwill $ 257,460 $ 253,308 Trademarks 13,383 13,230 Customer relationships and lists, net of amortization of $86,406 and $64,393 64,109 72,153 Non-compete and other, net of amortization of $43,021 and $33,229 33,068 42,343 Representation rights, net of amortization of $60,528 and $51,198 77,201 85,934 Goodwill and intangible assets, net $ 445,221 $ 466,968 Goodwill and trademarks are not amortized. Customer relationships and lists are amortized on a straight-line basis over estimated useful lives of three to seven years. Non-compete assets are amortized on a straight-line basis over the contractual term of five to seven years. Other intangibles are amortized on a straight-line basis over estimated useful lives of ten years. Representation rights are amortized on a straight-line basis over the contractual term of fifteen years. During 2004 and 2003 the Company reduced its estimate of certain pre-acquisition contingencies associated with certain subscriber contractual arrangements acquired as part of the acquisition of The Health Network. These revisions resulted in a reduction of goodwill of $8.0 million and $26.7 million at December 31, 2004 and The $4.2 million net increase in goodwill results from 1) a $8.0 million reduction related to an adjustment for pre-acquisition contingent liabilities (discussed above), 2) a $9.5 million adjustment to increase goodwill for recognition of certain deferred tax liabilities, 3) a $1.1 million addition related to current year acquisitions and 4) a $1.6 million increase for foreign currency translation effect. F-50

463 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 160 File: DISK112:[05DEN2.05DEN1432]FU1432B.;7 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-51 User: MCROWE EFW: Doc # 21 The Company has the exclusive rights to represent BBC America ("BBCA"), a cable network, in sales, marketing, distribution and other operational activities through As a part of this agreement, the Company will receive a percentage of revenues earned and collected by BBCA during the representation term. The cost of acquiring the representation rights is being amortized on a straight-line basis over the fifteen-year term of the agreement, and is reported as a reduction of revenue. Amortization of intangible assets amounted to $41.8 million, $33.8 million and $17.8 million in 2004, 2003 and The Company estimates that unamortized costs of intangible assets at December 31, 2004 will be amortized over the next five years as follows: $44.1 million in 2005, $41.1 million in 2006, $28.6 million in 2007, $20.1 million in 2008, and $9.8 million in Investments in Affiliated Companies Joint Ventures with the British Broadcasting Corporation ("BBC") The Company and the BBC have formed cable and satellite television network joint ventures, a venture to produce and acquire factual based programming ("JV Programs" or "JVP") and a venture to provide debt funding to the cable and satellite television network joint ventures and JV Programs venture ("JV Network"). In addition to its own funding requirements, the Company has assumed the BBC funding requirements for each of these ventures. As a result, the Company has preferential cash distribution agreements with these ventures. The ventures had no distributable cash in 2004 and distributed $1.7 million in accordance with the agreements in 2004 and Because the BBC does not have risk of loss, no losses were allocated to minority interest for consolidated joint ventures with the BBC. The Company recognizes both its own and the BBC's share of losses in equity method ventures with the BBC. Variable Interest Entities The Company is a partner in several joint ventures accounted for under the equity method in which it has a variable interest. JV Programs produces and acquires factual based programming that it then sells to the Company for use on many of the Company's joint venture and wholly owned networks. The Company's funding to JVP was $14.4 million, $5.4 million and $3.4 million during 2004, 2003 and The Company acquired and licensed $44.1 million, $43.9 million and $35.9 million of programming from JVP for its networks during 2004, 2003 and At December 31, 2004, the Company's maximum exposure to loss as a result of its involvement with JVP is the $55.1 million book value of its investment in JVP and future operating losses of JVP that the Company is obligated to fund. JVP has no third party debt. If JVP were to be consolidated under FIN 46R, the Company expects the net impact to the consolidated financial statements to be insignificant. Substantially all of JVP's activities are with the Company and those are already reflected in the financial statements. The Company is a partner in other international joint venture cable and satellite television networks in which the Company has a variable interest. The Company's funding to these joint ventures totaled $3.3 million, $7.5 million and $9.9 million during 2004, 2003 and At December 31, 2004, the Company's maximum exposure to loss as a result of its involvement with these joint ventures is the F-51

464 Printed: 24-Jun-2005;20:03:56 (v.162) HTML Page: 161 File: DISK112:[05DEN2.05DEN1432]FU1432B.;7 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-52 User: MCROWE EFW: Doc # 21 $19.3 million book value of its investments in these joint ventures and future operating losses of these joint ventures that the Company is obligated to fund. These joint ventures have no third party debt. The following table outlines the Company's joint ventures and the method of accounting during 2004, 2003 and 2002: Affiliates: Accounting Method Joint Ventures with the BBC: JV Network Consolidated JV Programs Equity Animal Planet United States (see Note 11) Consolidated Animal Planet Europe Consolidated Animal Planet Latin America Consolidated People & Arts Latin America Consolidated Animal Planet Asia Consolidated Animal Planet Japan Equity Animal Planet Canada Equity Other Ventures: Discovery Times Channel (see Note 11) Consolidated FitTV (f.k.a. The Health Network) (see Note 11) Consolidated Discovery Canada Equity Discovery Japan Equity Discovery Health Canada Equity Discovery Kids Canada Equity Discovery Civilization Canada Equity Meteor Studios Equity Combined financial information of the Company's unconsolidated ventures (amounts do not reflect any eliminations of activity with the Company): Operating Results, Year ended December 31, In thousands Revenue $ 163,630 $ 145,786 $ 106,598 Income from operations 26,201 13,278 4,806 Net income (loss) 8,688 1,155 (1,060) Balance Sheets, December 31, In thousands Current assets $ 68,554 $ 65,046 Total assets 136, ,772 Current liabilities 21,817 17,880 Total liabilities 46,683 42,382 Total shareholders' equity or partners' capital 90,020 75,390 F-52

465 Printed: 24-Jun-2005;20:03:57 (v.162) HTML Page: 162 File: DISK112:[05DEN2.05DEN1432]FU1432B.;7 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-53 User: MCROWE EFW: Doc # Long-Term Debt Long-Term Debt, December 31, In thousands $1,250.0 Term Loan, due quarterly from 2007 to 2009 $ 1,250,000 $ $1,250.0 Revolving Loan, due June ,000 $2,036.5 Term Loan and Revolving Loans, paid ,334, % Senior Notes, semi annual interest, due March , , % Senior Notes, semi annual interest, due March , , % Senior Notes, semi annual interest, due March , , % Senior Notes, semi annual interest, due September ,000 55, % Senior Notes, semi annual interest, due September , ,000 Obligations under capital leases 25,125 19,631 Other notes payable 4,898 8,061 Total long-term debt 2,508,023 2,351,692 Current portion (9,736) (517,750) Non-current portion $ 2,498,287 $ 1,833,942 In June 2004, the Company successfully refinanced the Term Loan and the Revolving Loans, maturing in 2004 and 2005, with a new Term Loan and Revolving Facility. The Company capitalized $8.5 million in deferred financing costs as part of the new term and revolving loan facility and expensed $6.3 million in capitalized costs associated with the previous term loan and revolving loans. All Term and Revolving Loans are unsecured. Interest, which is payable quarterly, is based on the London Interbank Offered Rate ("LIBOR") or prime rate plus a margin based on the Company's leverage ratios. The weighted average interest rate on these facilities was 3.7% and 2.5% at December 31, 2004 and 2003, and the interest rate averaged 2.9% and 2.7% during 2004 and The cost of the Revolving Loans includes a fee (ranging from 0.125% to 0.375%) based on the Company's leverage ratios. The Company uses derivative instruments to modify its exposure to interest rate fluctuations on its debt. The Term Loans, Revolving Loans, and Senior Notes contain covenants that require the Company to meet certain financial ratios and place restrictions on the payment of dividends, sale of assets, additional borrowings, mergers, and purchases of capital stock, assets, and investments. The Company was in compliance with all debt covenants at December 31, Future principal payments under the current debt arrangements, excluding obligations under capital leases and other notes payable, are as follows: no payments in 2005, $300 million in 2006, $234 million in 2007, $961 million in 2008, $527 million in 2009 and $456 million from 2011 to Future minimum payments under capital leases are as follows: $5.1 million in 2005, $5.5 million in 2006, $5.7 million in 2007, $3.8 million in 2008, $3.8 million in 2009 and $8.4 million thereafter. F-53

466 Printed: 24-Jun-2005;20:03:57 (v.162) HTML Page: 163 File: DISK112:[05DEN2.05DEN1432]FW1432A.;10 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-54 User: MCROWE EFW: Doc # Mandatorily Redeemable Interests in Subsidiaries Mandatorily Redeemable Interests in Subsidiaries, December 31, In thousands Discovery Times $ 125,763 $ 123,896 FitTV (f.k.a. The Health Network) 92,874 94,000 Discovery Health Channel 143,736 Animal Planet LLC 50,000 Animal Planet LP 48,730 48,620 People & Arts Latin America and Animal Planet Channel Group 2,200 Mandatorily redeemable interests in subsidiaries $ 319,567 $ 410,252 Discovery Times In April 2002, the Company sold a 50% interest in Discovery Times Channel to the New York Times ("NYT") for $100 million. Due to NYT redemption rights, this transaction resulted in no gain or loss to the Company. While the Company consolidates the financial results of Discovery Times, no losses of Discovery Times have been allocated to minority interest due to the NYT's redemption feature, and the Company has recorded the interest held by NYT as mandatorily redeemable interest in a subsidiary. NYT has the right, in April 2005, and again in April 2006, to put its interest back to the Company for a value determined by a specified formula, with a floor of $80 million and a ceiling of $125 million in April 2005, and a floor of $80 million and a ceiling of $135 million in April The Company accretes or decretes the mandatorily redeemable interest in a subsidiary to its estimated redemption value through the redemption date. The Company updates its estimate of the redemption value each period and based on its most recent calculations, the Company will decrete to an amount representing the estimated value of $101.1 million. The Company recorded decretion of $1.3 million in 2004 and accretion of $7.0 million and $6.5 million to minority interest expense in 2003 and After 2006, the NYT has certain other protective rights that, if triggered and not cured, could require the Company to repurchase the NYT interest for a value determined by a specified formula. FitTV (f.k.a. The Health Network) Fox Entertainment Group (FEG) had the right, from December 2003 to February 2004, to put its FitTV interests back to the Company. In December 2003, FEG notified the Company of its intention to put its interest in FitTV back to the Company. The Company estimates that it will acquire this interest for approximately $92.9 million in The Company recorded decretion of $1.1 million in 2004 and recorded accretion of $8.5 million and $11.1 million in 2003 and 2002 to minority interest expense. Discovery Health Channel (DHC) During the second quarter of 2004, Comcast put its DHC interests back to the Company for $148.9 million. The Company recorded accretion of $5.1 million, $20.4 million and $28.3 million to minority interest expense in 2004, 2003 and F-54

467 Printed: 24-Jun-2005;20:03:57 (v.162) HTML Page: 164 File: DISK112:[05DEN2.05DEN1432]FW1432A.;10 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-55 User: MCROWE EFW: Doc # 21 Animal Planet LLC Beginning March 2003, the BBC has the right to put its Animal Planet LLC ("APUS") interests back to the Company. In April 2004, the BBC notified the Company of its intention to put its interest in APUS back to the Company. The Company estimates a range of possible outcomes to acquire this interest. Given the uncertainty associated with the determination of the final redemption value of this interest (which will be based on the terms outlined in the agreement), the Company has recorded accretion of $50.0 million in 2004 to minority interest expense. At December 31, 2003, the Company determined there was no redemption value associated with this right. Animal Planet LP One of the Company's stockholders holds 44,000 senior preferred partnership units of Animal Planet LP ("APLP") that have a redemption value of $44.0 million and carry a rate of return ranging from 8.75% to 13%. Payments are made quarterly and totaled $4.6 million, $5.8 million and $4.4 million during 2004, 2003 and APLP's senior preferred partnership units may be called by APLP during the period January 2007 through December 2011 for $44.0 million, and may be put to the Company by the holder beginning in January 2012 for $44.0 million. At December 31, 2004, and 2003, the Company has recorded this security at the redemption value of $44.0 million plus accrued returns of $4.7 million and $4.6 million. Preferred returns are recorded as a component of interest expense and aggregated $4.7 million in 2004, 2003 and People & Arts Latin America and Animal Planet Channel Group The BBC has the right, upon a failure of the People & Arts Latin America or the Animal Planet Channel Group (comprised of Animal Planet Europe, Animal Planet Asia, and Animal Planet Latin America) to achieve certain financial performance benchmarks as of December 2005, and every three years thereafter, to put its interests back to the Company for a value determined by a specified formula. The Company accretes or decretes the mandatorily redeemable equity in a subsidiary to its estimated redemption value through the 2005 redemption date. The redemption value is based on a contractual formula utilizing projected results of each network within the channel group. At December 31, 2004, the Company has estimated a redemption value of $15.3 million. At December 31, 2003, the Company determined there was no redemption value associated with this right. Accretion to the redemption value has been recorded as a component of minority interest expense of $2.2 million in Stockholders' Deficit In September 2001, the Company sold 50,615 shares of Class B Non-voting Common Stock to its existing shareholders for $100.0 million. In September 2002, the Company repurchased these shares for $109.0 million. The appreciation of the shares represented a fair transition value as was confirmed in consultation with an investment bank. Stockholder Put Right In June 2003, the Company's founder, John Hendricks, put 215 outstanding shares of Class A Common Stock to the Company in exchange for $55.3 million. Concurrent with this transaction, outstanding loans, secured by Mr. Hendricks' shares and vested compensation units, of $23.6 million to Mr. Hendricks were repaid to the Company with interest. Prior to this purchase, the value of these F-55

468 Printed: 24-Jun-2005;20:03:57 (v.162) HTML Page: 165 File: DISK112:[05DEN2.05DEN1432]FW1432A.;10 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-56 User: MCROWE EFW: Doc # 21 shares had been recorded as redeemable common stock and changes in value had been recorded to stockholders' deficit. The Company received a third party valuation to record the transactions. The valuation reflected a lower value for the Company than had been previously estimated and, as a result, the Company decreased the carrying value of the stock by $13.7 million and reduced compensation expense recorded in prior years associated with the loans by $2.3 million in connection with the settlement. 13. Commitments and Contingencies The Company leases certain satellite transponders, facilities and equipment under operating leases that expire through The Company is obligated to license programming under agreements that expire through Future Minimum Payments, Year ending December 31, Leases Programming Other Total In thousands 2005 $ 80,088 $ 201,857 $ 66,170 $ 348, ,689 64,857 52, , ,298 55,155 54, , ,336 55,893 46, , ,596 57,010 16, ,513 Thereafter 178, ,898 4, ,726 Total $ 477,755 $ 535,670 $ 241,185 $ 1,254,610 Expenses recorded in connection with operating leases, including rent expense, were $127.8 million, $128.7 million and $131.7 million for the years ended December 31, 2004, 2003 and In connection with the long-term distribution agreements for certain of its European cable networks, the Company is committed to pay a satellite system operator 25% to 49% of the increase in value of these networks, if any, at the termination of the contract on December 31, The value of the networks at the termination date, and the Company's liability thereon, are materially impacted by the terms of future renewed or extended distribution agreements with the satellite system operator. The Commitment was designed as an incentive to enter into a renewed or extended agreement. However, the Company is currently unable to predict the terms and conditions of any renewal or extension of the distribution agreements. The Company has recorded a liability associated with this arrangement based on the estimated value of the networks at the termination of the agreement if no renewal is in place and adjusts such liability each period for changes in value. However, if the current distribution agreement is renewed or extended before the expiration of the existing agreement, amounts to be paid in 2007 to this system operator could be significantly higher than amounts currently accrued. The Company will record the effect of a renewed or extended distribution agreement when such terms are in place. The Company is solely responsible for providing financial, operational and administrative support to the JV Programs, JV Network, Animal Planet United States, Animal Planet Latin America, People & Arts Latin America, Animal Planet Asia, and Animal Planet Europe ventures and has committed to do so through at least fiscal F-56

469 Printed: 24-Jun-2005;20:03:57 (v.162) HTML Page: 166 File: DISK112:[05DEN2.05DEN1432]FW1432A.;10 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-57 User: MCROWE EFW: Doc # 21 The Company is involved in litigation incidental to the conduct of its business. In addition, the Company is involved in negotiations with organizations holding the rights to music used in the Company's programming. The Company believes the reserves related to these music rights are adequate and does not expect the outcome of such litigation and negotiations to have a material adverse effect on the Company's results of operations, cash flows, or financial position. 14. Employee Savings Plans The Company maintains two separate employee savings plans, a defined contribution savings plan for its employees and a Supplemental Deferred Compensation Plan (together, the "Savings Plans") for certain management employees. The Company matches participant contributions at a rate of 75% up to a maximum of 6% of the participant's annual compensation. The Company contributions to the Savings Plans were $6.8 million, $5.5 million and $5.7 million during 2004, 2003 and Long-term Compensation Programs The Company recorded expense of $71.5 million, $76.5 million, and $94.6 million in connection with these plans during 2004, 2003, and Long-term Incentive Plans The Company maintains unit-based, long-term incentive plans for its employees who meet certain eligibility criteria. Units are awarded to eligible employees upon their one-year anniversary of hire and vest at a rate of 25% per year thereafter. Upon exercise, participants receive the increase in value of the units from the unit value at the date of issuance. The Company has authorized the issuance of up to 33.1 million units under these plans. From the period April 1 to May 31, certain eligible participants have the option to exercise any portion of their vested units. All other employees may redeem some or all of their units during a window of time five years subsequent to the date of the award. The Company pays amounts for the exercise of units on September 30 of the year of exercise. However, the Company may defer, with interest, payment of up to 75% of any benefit for a period not longer than September 30 of the year subsequent to exercise. Upon voluntary termination of employment the Company distributes 75% of vested and exercisable benefits to certain senior executives. These employees are required to comply with post-employment obligations to receive payment of withheld benefits upon the one-year anniversary of employment termination. All other participants receive their full vested benefit upon voluntary termination. The 25% vested and exercisable employee benefits that would be withheld upon employee termination in the amount of $60.7 million, have been classified as long-term liability in the accompanying balance sheet. All other vested employee unit incentive compensation liabilities are classified as current liabilities in the accompanying balance sheet. Although classified as current liabilities, the Company's actual cash disbursements under the plans were $45.9 million, $27.9 million and $36.9 million during 2004, 2003 and F-57

470 Printed: 24-Jun-2005;20:03:57 (v.162) HTML Page: 167 File: DISK112:[05DEN2.05DEN1432]FW1432A.;10 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-58 User: MCROWE EFW: Doc # 21 All awards must be redeemed and applicable benefits paid by the Company on the tenth anniversary of each award. During 2004, the Company paid $8.5 million in awards, which had reached their tenth anniversary date. Unit appreciation is recorded as compensation expense over the vesting periods. Compensation expense was $68.8 million, $101.7 million and $61.7 million in 2004, 2003 and The accrued value of units based on the Company's vesting schedule was $322.4 million and $299.5 million at December 31, 2004 and The unaccrued value of awarded units was $15.4 million and $4.5 million at December 31, 2004 and During 2004, 2003 and 2002, the Company granted 8.7 million, 4.1 million and 2.3 million units with weighted average exercise prices of $34.22, $29.02, and $ Units redeemed or cancelled during 2004, 2003, and 2002 totaled 2.3 million, 2.1 million, and 3.5 million with weighted average exercise prices of $13.49, $14.18, and $ For the years ended December 31, 2004, 2003, and 2002, units outstanding totaled 25.6 million, 19.1 million, and 17.2 million with weighted average exercise prices of $24.10, $18.18, and $15.12, and units exercisable totaled 17.5 million, 16.5 million, and 13.9 million with weighted average exercise prices of $19.76, $16.65, and $ At the beginning of fiscal year 2002, outstanding units totaled 18.4 million with a weighted average exercise price of $ As of December 31, 2004, outstanding units had several ranges of exercise prices. The Company has 1.6 million units outstanding and exercisable at exercise prices ranging from $3.33 to $8.14 with a weighted average contractual life remaining of 1 year and a weighted average exercise price of $6.47. The Company has 9.5 million units outstanding and exercisable at exercise prices ranging from $10.96 to $22.18 with a weighted average contractual life remaining of 4.2 years and a weighted average exercise price of $ The Company has 14.5 million units outstanding at exercise prices ranging from $25.02 to $37.35 with a weighted average contractual life remaining of 8.5 years and weighted average exercise price of $ Of these, 6.4 million units, with a weighted average exercise price of $29.78, are exercisable. The value of units at the end of the year was $37.35, $34.06, and $28.60 for 2004, 2003, and The value of the units is determined based on changes in the Company's value as estimated by an external investment banking firm. The average assumptions used in the valuation model include adjusted projected operating cash flows segregated by business group. The valuation also includes a business group specific discount rate and terminal value based on business risk. Unit Appreciation and Incentive Agreement As part of his long-term incentive plan with the Company, the Company's founder, John Hendricks, had a 10-year incentive agreement with the Company that granted him a cash award equal to 1.6% of the difference between the Company's value at December 31, 1993 and December 31, 2003 for his services as Chairman and Chief Executive Officer during the period. This cash award was paid out to Mr. Hendricks in two installments, one in December 2003 and one in February The final determination of value was based on an appraisal from an investment banking firm using a consistent valuation methodology both at the beginning and the end of the 10-year term. The portion of the cash award that was paid out in February 2004 has been included as a current liability at December 31, The estimated change in value of this incentive has been recorded as a component of compensation expense during the term of the agreement. F-58

471 Printed: 24-Jun-2005;20:03:57 (v.162) HTML Page: 168 File: DISK112:[05DEN2.05DEN1432]FW1432B.;5 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-59 User: MCROWE EFW: Doc # Income Taxes Income Tax Expense (Benefit), Year ended December 31, In thousands Current Federal $ (231) $ 2,813 $ State 3,952 6,722 6,156 Foreign 32,556 22,970 21,588 Total current income tax provision 36,277 32,505 27,744 Deferred Federal 95,761 33,963 (25,189) State 7,723 5,175 (12,134) Total deferred income tax expense (benefit) 103,484 39,138 (37,323) Change in valuation allowance 2,038 3,142 (478) Total income tax expense (benefit) $ 141,799 $ 74,785 $ (10,057) Deferred Income Tax Assets and Liabilities December 31, Current Non-current Current Non-current In thousands Assets Loss carryforwards $ 1,148 $ 20,090 $ 21,077 $ 18,460 Compensation 102,595 22, ,003 24,216 Accrued expenses 26,474 30,857 Reserves and allowances 8,720 10,132 9,568 10,214 Tax credits 4,330 3,118 Derivative financial instruments 16,979 34,186 Investments 69,729 84,306 Intangibles 31,627 23,756 Other 3,066 8, , , , , ,618 Valuation allowance (19,554) (17,516) Total deferred income tax assets 146, , , ,102 Liabilities Accelerated depreciation (20,908) (18,263) Intangibles (788) Foreign currency translation (13,687) (7,193) Unrealized gains on investments (720) (2,343) Other (1,727) (10,102) (1,371) (4,747) Total deferred income tax liabilities (1,727) (45,417) (1,371) (33,334) Deferred income tax assets, net $ 144,606 $ 114,673 $ 232,693 $ 146,768 F-59

472 Printed: 24-Jun-2005;20:03:58 (v.162) HTML Page: 169 File: DISK112:[05DEN2.05DEN1432]FW1432B.;5 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-60 User: MCROWE EFW: Doc # 21 Reconciliation of Effective Tax Rate, Year ended December 31, Federal statutory rate 35.0% 35.0% 35.0% Increase (decrease) in tax rate arising from: State income taxes, net of Federal benefit Foreign withholding taxes, net of Federal benefit (24.1) Other 2.0 (0.9) (0.3) Effective income tax rate 45.8% 54.2% 17.3% The Company has Federal operating loss carryforwards of $3.3 million expiring in 2021 and state operating loss carryforwards of $526.9 million in various state jurisdictions available to offset future taxable income that expire in various amounts through The Company also has $4.3 million of alternative minimum tax credits that do not have an expiration date. Deferred tax assets are reduced by a valuation allowance relating to the state tax benefits attributable to net operating losses in certain jurisdictions where realizability is not more likely than not. Deferred taxes of $3.8 million have been provided for the excess book basis in the shares of certain foreign subsidiaries, because these are not permanent in nature as defined by Accounting Principles Board Opinion 23, Accounting for Income Taxes Special Areas. 17. Financial Instruments Derivative Financial Instruments The Company uses derivative financial instruments to modify its exposure to market risks from changes in interest rates and foreign exchange rates. The Company does not hold or enter into financial instruments for speculative trading purposes. The Company's interest expense is exposed to movements in short-term interest rates. Derivative instruments, including both fixed to variable and variable to fixed interest rate instruments, are used to modify this exposure. These instrument contracts include a combination of swaps, caps, collars, and other structured instruments to modify interest rate exposure. At December 31, 2004, the variable to fixed interest rate instruments have a notional principal amount of $800 million and have a weighted average interest rate of 5.93%. At December 31, 2004, the fixed to variable interest rate agreements have a notional principal amount of $240 million and have a weighted average interest rate of 6.46%. At December 31, 2004, an unexercised interest rate swap put right held by a bank had a notional amount of $25 million and a written rate of 5.4%. As a result of unrealized mark to market adjustments, the Company recognized $44.1 million, $21.6 million and $(13.4) million in gains and losses on these instruments during 2004, 2003 and The foreign exchange instruments used are spot, forward, and option contracts. Additionally, the Company enters into non-designated forward contracts to hedge non-dollar denominated cash flows and foreign currency balances. At December 31, 2004, the notional amount of foreign exchange derivative contracts was $92.8 million. As a result of unrealized mark to market adjustments, the Company recognized $(0.4) million, $(0.1) million and $1.8 million in losses and gains on these instruments during 2004, 2003 and The Company's derivative financial instruments are recorded at fair value as a component of long-term liabilities and other current liabilities in the consolidated balance sheets. F-60

473 Printed: 24-Jun-2005;20:03:58 (v.162) HTML Page: 170 File: DISK112:[05DEN2.05DEN1432]FW1432B.;5 Created: ;8-JUN-2005;19:05 Chksum: Folio: F-61 User: MCROWE EFW: Doc # 21 Fair Value of Financial Instruments The fair values of cash and cash equivalents, receivables, and accounts payable approximate their carrying values. Investments are carried at fair value and fluctuations in fair value are recorded through other comprehensive income. Losses on investments that are other than temporary declines in value are recorded in the statement of operations. The carrying amount of the Company's borrowings was $2,478 million and the fair value was $2,586 million at December 31, The carrying amount of the Company's borrowings was $2,324 million and the fair value was $2,440 million at December 31, The carrying amount of all derivative instruments represents their fair value. The net fair value of the Company's short and long-term derivative instruments is $(44.8) million at December 31, 2004; 8.9%, 6.5% and 84.6% of these derivative instrument contracts will expire in 2005, 2006, and thereafter. The fair value of the Company's derivative instruments totaled $(90.3) million at December 31, The fair value of derivative contracts was estimated by obtaining interest rate and volatility market data from brokers. As of December 31, 2004, an estimated 100 basis point parallel shift in the interest rate yield curve would change the fair value of the Company's portfolio by approximately $11.4 million. Credit Concentrations The Company continually monitors its positions with, and the credit quality of, the financial institutions that are counterparties to its financial instruments and does not anticipate nonperformance by the counterparties. In addition, the Company limits the amount of investment credit exposure with any one institution. The Company's trade receivables and investments do not represent a significant concentration of credit risk at December 31, 2004 due to the wide variety of customers and markets in which the Company operates and their dispersion across many geographic areas. 18. Related Party Transactions The Company identifies related parties as investors and their consolidated businesses, equity investment companies, and executive management. The most significant transactions with related parties result from companies that distribute networks, produce programming, or provide media uplink services. Gross revenue earned from related parties was $71.8 million, $209.2 million and $205.1 million in 2004, 2003 and Accounts receivable from these entities were $10.9 million and $33.3 million at December 31, 2004 and Purchases from related parties totaled $133.2 million, $164.7 million, and $144.7 million in 2004, 2003, 2002; of these $91.0 million, $101.1 million and $99.9 million relate to capitalized assets, principally programming. Amounts payable to these parties totaled $4.3 million and $52.6 million at December 31, 2004 and F-61

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475 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:58 (v.162) HTML Page: Doc # 22 <DOCUMENT> <TYPE> EX-99.2 <DESCRIPTION> EX-99.2 <FILENAME> a zex-99_2.htm <TEXT>

476 File: DISK015:[05DEN5.05DEN1445]VM1445A.;5 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:58 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 1 Folio: BLANK Doc # 22 QuickLinks-- Click here to rapidly navigate through this document Exhibit 99.2 Liberty Media Corporation Liberty Boulevard Englewood, Colorado [ ], 2005 Dear Fellow Shareholder of Liberty Media Corporation: We are pleased to inform you that we have completed the spin off of our wholly owned subsidiary, Discovery Holding Company (DHC). DHC's assets and businesses consist of 100% of Ascent Media Group, LLC and a 50% ownership interest in Discovery Communications, Inc. We encourage you to read the enclosed information statement to learn important information about DHC. We and DHC have separate and distinct growth prospects. We believe that the spin off will enhance our and DHC's ability to pursue unique and focused business strategies. The spin off also will enable you, as an investor, to invest more directly in DHC's businesses. We are pleased that DHC will be managed by an experienced team of leaders, including our Chairman of the Board, John C. Malone. We believe that DHC has a bright future as an independent, publicly traded company, and we look forward to your continued support as a shareholder of both our company and DHC. Sincerely, Robert R. Bennett President and Chief Executive Officer

477 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:58 (v.162) HTML Page: Doc # 22 QuickLinks Exhibit 99.2

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479 File: [05DEN1433]DOCUMENT-START EFW: Printed: 24-Jun-2005;20:03:58 (v.162) HTML Page: Doc # 23 <DOCUMENT> <TYPE> EX-99.3 <DESCRIPTION> EX-99.3 <FILENAME> a zex-99_3.htm <TEXT>

480 File: DISK015:[05DEN5.05DEN1445]VZ1445A.;5 User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:58 (v.162) Created: 21-JUN-2005;19:58 Chksum: HTML Page: 1 Folio: BLANK Doc # 23 QuickLinks-- Click here to rapidly navigate through this document Exhibit 99.3 Discovery Holding Company Liberty Boulevard Englewood, Colorado [ ], 2005 Dear Fellow Shareholder of Discovery Holding Company: It is my pleasure to welcome you as a shareholder of Discovery Holding Company. We are a holding company owning 100% of Ascent Media Group, LLC (Ascent) and a 50% interest in Discovery Communications, Inc. (Discovery). Through our subsidiaries Ascent and Discovery, we are engaged primarily in (1) the production, acquisition and distribution of entertainment, educational and information programming and software, (2) the retail sale and licensing of branded and other specialty products and (3) the provision of creative, media management and network services to the media and entertainment industries. Our Series A common stock and Series B common stock will trade on the Nasdaq National Market under the symbols "DISCA" and "DISCB," respectively, beginning on [ ], We invite you to learn more about our company by reviewing the enclosed information statement. We hope you share our excitement about our future as an independent, publicly traded company. Sincerely, John C. Malone Chief Executive Officer and Chairman of the Board

481 File: QUICKLINK User: BSKELLE EFW: Printed: 24-Jun-2005;20:03:58 (v.162) HTML Page: Doc # 23 QuickLinks Exhibit 99.3

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