Exhibit10.1

 

 

 
CROWN MEDIA HOLDINGS, INC.
 

MASTER RECAPITALIZATION AGREEMENT
 
by and among
 
HALLMARK CARDS, INCORPORATED,
 
H C CROWN CORP.,
 
HALLMARK ENTERTAINMENT HOLDINGS, INC.,
 
CROWN MEDIA HOLDINGS, INC.,
 
CROWN MEDIA UNITED STATES, LLC,
 
and
 

THE SUBSIDIARIES OF CROWN MEDIA HOLDINGS, INC. LISTED
 
AS GUARANTORS ON THE CREDIT FACILITY
 

 
_________________________
 

 
Dated as of February 26, 2010
 

_________________________
 

 

 
 

--------------------------------------------------------------------------------

 

 
TABLE OF CONTENTS
 

 
ARTICLE I.
DEFINITIONS 

 
Section 1.1.
Definitions 

 
Section 1.2.
Accounting Terms and Determinations 

 
ARTICLE II.
RECAPITALIZATION 

 
Section 2.1.
Acknowledgement of Indebtedness. 

 
Section 2.2.
Mergers and Recapitalization 

 
Section 2.3.
Reverse Stock Split 

 
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 
Section 3.1.
Organization of the Company 

 
Section 3.2.
Authorization and Validity of Agreement. 

 
Section 3.3.
Capitalization of the Company. 

 
Section 3.4.
No Conflict or Violation; Consents. 

 
Section 3.5.
Other Approvals. 

 
Section 3.6.
SEC Reports and Other Information 

 
Section 3.7.
Litigation 

 
Section 3.8.
Brokers and Fees 

 
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF CERTAIN ENTITIES 

 
Section 4.1.
Representations and Warranties of HCC 

 
ARTICLE V.
CERTAIN COVENANTS AND AGREEMENTS 

 
Section 5.1.
Conduct of Business. 

 
Section 5.2.
Information and Access 

 
Section 5.3.
Notices of Certain Events 

 
Section 5.4.
Waiver Agreement and Interim Payment on the HCC Debt. 

 
Section 5.5.
Information Statement 

 
Section 5.6.
Certain Provisions Relating to Consents 

 
Section 5.7.
Stockholder Approvals 

 
Section 5.8.
Commercially Reasonable Efforts 

 
Section 5.9.
Further Assurances 

 
ARTICLE VI.
MUTUAL CONDITIONS 

 
Section 6.1.
No Injunction or Action 

 
Section 6.2.
Regulatory Compliance 

 
ARTICLE VII.
CONDITIONS TO THE DEBTORS' OBLIGATIONS 

 
Section 7.1.
Representations and Warranties 

 
Section 7.2.
Compliance with Agreement 

 
Section 7.3.
Revolving Credit Facility 

 
Section 7.4.
Corporate Documents 

 
ARTICLE VIII.
CONDITIONS TO THE HCC LENDERS' OBLIGATIONS 

 
Section 8.1.
Representations and Warranties 

 
Section 8.2.
Compliance with Agreement 

 
Section 8.3.
Proceedings 

 
Section 8.4.
Corporate Documents 

 
Section 8.5.
Effective Credit Agreement 

 
ARTICLE IX.
THE CLOSING 

 
Section 9.1.
The Closing 

 
Section 9.2.
Deliveries by the Company at the Closing 

 
Section 9.3.
Deliveries by HCC at the Closing 

 
ARTICLE X.
TERMINATION 

 
Section 10.1.
Termination 

 
Section 10.2.
Effect of Termination 

 
ARTICLE XI.
MISCELLANEOUS PROVISIONS 

 
Section 11.1.
Notices 

 
Section 11.2.
Amendments 

 
Section 11.3.
No Waiver 

 
Section 11.4.
Assignment and Parties in Interest. 

 
Section 11.5.
Expenses 

 
Section 11.6.
Entire Agreement 

 
Section 11.7.
Descriptive Headings 

 
Section 11.8.
Counterparts 

 
Section 11.9.
Governing Law; Jurisdiction. 

 
Section 11.10.Construction

 
Section 11.11.Severability

 
Section 11.12.Specific Performance

 

()
 

 
 
 

--------------------------------------------------------------------------------

 

SCHEDULE
 
NUMBER                                SCHEDULE NAME
 
1.1(a)
Sample Calculation of the Conversion Price, the Conversion Price Shares and the
Shares to be issued pursuant to Section 2.2(b)(iii)

1.1(b)                                Knowledge
3.4                               Conflicts or Violations
3.7                                Litigation
3.8                                Brokers

 

 
EXHIBIT                                EXHIBIT NAME
 
A                                Form of Credit Agreement
B                                Form of Second Amended Charter
C                                Form of Certificate of Designation
D                                Form of Stockholders Agreement
E                                Form of HEIC Merger Agreement
F                                Form of HEH Merger Agreement
G                                Form of Third Amended Charter
H                                Form of Registration Rights Agreement
I                                Form of Tax Sharing Agreement Amendment

()
 

 
 
 

--------------------------------------------------------------------------------

 

 
MASTER RECAPITALIZATION AGREEMENT
 
THIS MASTER RECAPITALIZATION AGREEMENT (the "Agreement"), dated as of February
26, 2010, is entered into by and among Hallmark Cards, Incorporated, a Missouri
corporation ("Hallmark Cards"), H C Crown Corp., a Delaware corporation ("HCC"
and, together with Hallmark Cards, the "HCC Lenders"), Hallmark Entertainment
Holdings, Inc., a Delaware corporation ("HEH"), Crown Media Holdings, Inc., a
Delaware corporation (the "Company"), Crown Media United States, LLC, a Delaware
limited liability company ("CMUS"), and the subsidiaries of the Company listed
as Guarantors on the Credit Facility (the "Guarantors," and, together with the
Company and CMUS, the "Debtors").
 
PRELIMINARY STATEMENT
 
WHEREAS, pursuant to the Existing Credit Documents, the Debtors have substantial
obligations owing to the HCC Lenders;
 
WHEREAS, the Debtors and the HCC Lenders have entered into an Amended and
Restated Waiver and Standby Purchase Agreement, dated as of March 10, 2008 (as
amended through immediately prior to the execution hereof, the "Waiver
Agreement"), pursuant to which the HCC Lenders extended certain accommodations
to the Debtors;
 
WHEREAS, the Waiver Agreement automatically terminates on May 1, 2010 and, as
set forth herein, this Agreement amends the Waiver Agreement to provide, among
other things, that the Waiver (as defined therein) shall terminate on August 31,
2010;
 
WHEREAS, pursuant to the Waiver Agreement, each of the Debtors was obligated to
use its commercially reasonable efforts to refinance the obligations that were
the subject of the Waiver Agreement, and the Debtors have been unable to obtain
such refinancing;
 
WHEREAS, the Company desires to refinance the obligations subject to the
Existing Credit Documents and to reduce the amount of its aggregate indebtedness
by restructuring a portion of such obligations and exchanging the balance of
such obligations for equity in the Company and, in connection therewith, to
effect certain additional transactions, all on the terms set forth herein and in
the Ancillary Documents;
 
WHEREAS, the Company formed a special committee of the board of directors of the
Company to negotiate and review the terms of the Transactions (the "Special
Committee"), and the Special Committee has engaged its own counsel and financial
advisors in connection therewith;
 
WHEREAS, the Special Committee has unanimously recommended to the Board of
Directors of the Company that the Board of Directors of the Company approve the
Transactions and recommend such Transactions to the holders of Class A Common
Stock not affiliated with HCC;
 
WHEREAS, the boards of directors of the parties hereto have approved the terms
of the Transactions, this Agreement and the Ancillary Documents;
 
WHEREAS, immediately prior to the execution of this Agreement, the Company and
Hallmark Entertainment Investments Co., a Delaware corporation ("HEIC") have
entered into the HEIC Merger Agreement and the Company and HEH have entered into
the HEH Merger Agreement;
 
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
 
ARTICLE I.
 
DEFINITIONS
 
Section 1.1. Definitions.  In addition to the terms defined elsewhere herein,
the terms defined in the introductory paragraph and the Recitals to this
Agreement shall have the respective meanings specified therein, and the
following terms shall have the meanings specified below when used herein with
initial capital letters:
 
"10.25% Note" has the meaning set forth in Section 2.1.
 
"2001 Note" has the meaning set forth in Section 2.1.
 
"2005 Note" has the meaning set forth in Section 2.1.
 
"2006 Note" has the meaning set forth in Section 2.1.
 
"Affiliate" means "affiliate" as defined in Rule 405 promulgated under the
Securities Act of 1933, as amended.  For purposes of this Agreement, the Company
and its Subsidiaries shall not be deemed to be Affiliates of HCC.
 
"Agreement" has the meaning set forth in the preamble, and shall include all
schedules and exhibits hereto.
 
"Ancillary Documents" means the documents listed in Section 2.2, the Certificate
of Designation, the Third Amended Charter, the Registration Rights Agreement and
the Tax Sharing Agreement Amendment.
 
"Business Day" means a day other than a Saturday, a Sunday or any other day on
which commercial banks are not required or authorized to close in the City of
New York.
 
"Certificate of Designation" means the Form of Certificate of Designation
attached hereto as Exhibit C.
 
"Class A Common Stock" means the Company's Class A common stock, par value $0.01
per share.
 
"Class B Common Stock" means the Company's Class B common stock, par value $0.01
per share.
 
"Closing" has the meaning set forth in Section 9.1.
 
"CMUS" has the meaning set forth in the preamble hereto.
 
"Closing Date" has the meaning set forth in Section 9.1.
 
"Common Stock" means the Company's Class A Common Stock, par value $.01 per
share, the terms of which shall be as set forth in the Second Amended Charter.
 
"Company" has the meaning set forth in the preamble hereto and, except where the
context otherwise requires, includes the Company and the Company's Subsidiaries.
 
"Company Organizational Documents" means the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws, each as amended
to the date hereof.
 
"Contracts" as of any date means, collectively, all contracts, agreements,
commitments, instruments and guaranties to which the Company or any of its
Subsidiaries is a party as of such date.
 
"Conversion Price" shall mean the amount equal to (a) the quantity of (i) the
total HCC Debt as of the Date of Determination, less (ii) $500 million, divided
by (b) the Conversion Price Shares.  The Conversion Price shall be rounded to
the nearest ten-thousandth.  For the avoidance of doubt, Schedule 1.1(a) sets
forth a sample calculation of the Conversion Price.
 
"Conversion Price Shares" shall mean a notional number of shares of Common Stock
which, when combined with the number of shares of Common Stock owned directly or
indirectly by the HCC Parties as of the Date of Determination (for purposes of
such calculation (x) with respect to shares of Common Stock owned directly by
HEIC, including only HEH’s pro rata portion of the Common Stock owned by HEIC,
and (y) excluding the shares of Common Stock that will be receivable by HCC upon
conversion of the Series A Preferred Stock and pursuant to Section 2.2(b)(iii)),
will equal 90.1% of the sum of (i) all outstanding shares of Common Stock on the
Date of Determination prior to the Closing, (ii) the Conversion Price Shares and
(iii) all shares potentially issuable upon exercise of all Outstanding Options
as of the Date of Determination.  The Conversion Price Shares shall be rounded
to the nearest whole share.  For the avoidance of doubt, Schedule 1.1(a) sets
forth a sample calculation of the Conversion Price Shares.
 
"Date of Determination" shall mean the Closing Date, provided that if the
Closing Date occurs on or after March 31, 2010, the "Date of Determination"
shall be deemed to be March 31, 2010.
 
"Debtors" has the meaning set forth in the preamble hereto.
 
"Designated Court" has the meaning set forth in Section 11.9.
 
"DGCL" means the General Corporation Law of the State of Delaware.
 
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
 
"Existing Credit Documents" means (a) that certain Credit, Security, Guaranty
and Pledge Agreement, dated August 31, 2001, by and among the Company, its
Subsidiaries named therein, the lenders named therein and The Chase Manhattan
Bank (now known as JPMorgan Chase Bank) ("JPMorgan"), as administrative agent
and issuing bank, (b) that certain Amended and Restated Subordination and
Support Agreement, dated July 27, 2007, by and among the Company, Hallmark Cards
and JPMorgan, (c) that certain Guarantee Agreement, dated March 2, 2009, between
Hallmark Cards and JPMorgan, (d) the 10.25% Note, (e) the 2001 Note, (f) the
2005 Note, (g) the 2006 Note and (h) the Tax Sharing Agreement.
 
"Governmental Entity" means any federal, state, local or foreign governmental,
regulatory or administrative authority, branch, agency or commission or any
court, tribunal or judicial body.
 
"Guarantors" has the meaning set forth in the preamble hereto.
 
"Hallmark Cards" has the meaning set forth in the preamble hereto.
 
"HCC" has the meaning set forth in the preamble hereto.
 
"HCC Debt" means (a) the aggregate principal amount of all Indebtedness,
including accrued and unpaid interest thereon through the Closing Date, but
excluding accrued but unpaid interest with respect to the 2001 Note, the 2005
Note and the 2006 Note; (b) all accounts payable and open intercompany accounts
of the Company and its Subsidiaries owed to the HCC Lenders and their controlled
Affiliates (other than the Company and its Subsidiaries); and (c) any amounts
due to Hallmark Cards or its Affiliates under the Tax Sharing Agreement through
December 31, 2009; provided that for the avoidance of doubt the following shall
not constitute HCC Debt:  (i) Reimbursement Obligations, (ii) Ordinary Course of
Business Obligations, and (iii) any amounts due to Hallmark Cards or its
Affiliates under the Tax Sharing Agreement accruing on or after January 1, 2010.
 
"HCC Lenders" has the meaning set forth in the preamble hereto.
 
"HCC Parties" means collectively the HCC Lenders and HEH.
 
"HEH" has the meaning set forth in the preamble hereto.
 
"HEH Merger Agreement" has the meaning set forth in Section 2.2.
 
"HEIC" has the meaning set forth in the recitals hereto.
 
"HEIC Merger Agreement" has the meaning set forth in Section 2.2.
 
"Indebtedness" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (a) the principal
of and premium, if any, in respect of any indebtedness of such Person for money
borrowed, (b) the principal, premium, if any, and interest of such Person with
respect to obligations evidenced by bonds, debentures, notes or obligations
incurred in connection with the acquisition of property, assets or businesses
(other than trade payables which are not overdue or in default), (c) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) but only
to the extent of drawings thereunder, (d) every obligation of such Person issued
or assumed as the deferred purchase price of property or services (excluding
trade accounts payable or accrued liabilities arising in the Ordinary Course of
Business which are not overdue or in default), (e) every capital lease
obligation (determined in accordance with GAAP) of such Person, (f) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, provided, however,
that the amount of such Indebtedness shall be the lesser of (i) the fair market
value of such asset at such date of determination and (ii) the amount of such
Indebtedness of such other Persons, and (g) every obligation of the type
referred to in clauses (a) through (f) of another Person the payment of which,
in any case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise.
 
"Information Statement" means an information statement prepared in accordance
with the requirements of Regulation 240.14c-101 promulgated under the Securities
Exchange Act of 1934, as amended.
 
"Knowledge" as applied to the Company, means the actual knowledge, after
reasonable inquiry, of any person listed on Schedule 1.1(b) hereto.
 
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
rule, ordinance, permit, principle of common law, regulation, statute, treaty or
legally enforceable requirement enacted, issued, adopted, promulgated or applied
by any Governmental Entity.
 
"Lien" means any mortgage, pledge, security interest, encumbrance or title
defect, lease, lien (statutory or other), conditional sale agreement, claim,
charge, limitation or restriction.
 
"Material Adverse Effect" means any change or effect that (a) has a materially
adverse effect on the business, assets, properties, operations or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole;
provided, however, with respect solely to subsection (a) of this definition,
that no effect, change, event, occurrence, development, condition or state of
facts arising or resulting from any of the following, either alone or in
combination, shall constitute or be taken into account in determining whether
there has been a Material Adverse Effect: (i) changes in general economic
conditions or changes affecting the industry generally in which the Company and
its Subsidiaries operate, except to the extent such changes have a
disproportionate effect on the Company and its Subsidiaries, (ii) the
announcement or performance of the Transactions, (iii) acts of war or terrorism
or natural disasters, unless such acts of war or terrorism or natural disasters
have a disproportionate effect on the Company and its Subsidiaries, (iv) the
fact, in and of itself (and not the underlying causes thereof) that the Company
failed to meet any projections, forecasts, or revenue or earnings predictions
for any period, (v) changes in any applicable Legal Requirement or generally
accepted accounting principles or the interpretation thereof, or (vi) any
change, in and of itself (and not the underlying causes thereof) in the price of
the common stock of the Company; (b) materially impairs the ability of any of
the Debtors to perform its obligations under this Agreement; or (c) materially
impairs the validity or enforceability of, or materially impairs the security
interests, rights, remedies or benefits available to the HCC Parties under, this
Agreement.
 
"Mergers" has the meaning set forth in Section 2.2.
 
"New Credit Agreement" has the meaning set forth in Section 2.2.
 
"New Debt" has the meaning set forth in Section 2.2.
 
"New Securities" has the meaning set forth in Section 2.2.
 
"New Stockholders Agreement" has the meaning set forth in Section 2.2.
 
"Ordinary Course of Business" means an action which is both:  (a) consistent
with the past practices of the Company and is taken in the ordinary course of
the normal day-to-day operations of the Company; and (b) similar in nature and
magnitude to actions customarily taken, without any authorization by the board
of directors, in the ordinary course of the normal day-to-day operations of
other Persons that are in the same line of business as the Company.
 
"Ordinary Course Of Business Obligations" means all obligations of the Company
and its Subsidiaries owed to Hallmark Cards and its controlled Affiliates (other
than the Company and its Subsidiaries) relating to (x) the licensing of
programming or intellectual property or (y) the provisions of goods or services
on an arms’ length basis, and in either case first accruing on or after January
1, 2010 (including pursuant to agreements existing prior to such date).
 
"Outstanding Options" has the meaning set forth in Section 3.3.
 
"Permit" means any permit, approval, consent, authorization, license, variance,
or permission required by a Governmental Entity under any Legal Requirement.
 
"Permitted Liens" means (a) Liens for utilities and current Taxes not yet due
and payable, (b) statutory Liens of landlords, banks (and rights of set-off), of
carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other
Liens imposed by law (other than any such Lien imposed pursuant to Section
401(a)(29) or 430(k) of the Internal Revenue Code of 1986, as amended, or by the
Employee Retirement Income Security Act of 1974, as amended), in each case
incurred in the ordinary course of business (i) for amounts not yet overdue or
(ii) for amounts that are overdue and that (in the case of any such amounts
overdue for a period in excess of five days) are being contested in good faith
by appropriate proceedings, so long as such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made for any
such contested amounts, (c) Liens for Taxes being contested in good faith by
appropriate proceedings and for which appropriate reserves have been included on
the Company's balance sheet, (d) easements, restrictive covenants and similar
encumbrances or impediments against any assets or properties of the Company and
which individually or in the aggregate do not materially interfere with the
business of the Company or its Subsidiaries or the operation of the property to
which they apply or materially detract from the value of the Company's or any of
its Subsidiaries' assets, (e) minor irregularities and defects of title which
individually or in the aggregate do not materially interfere with the business
of the Company or its Subsidiaries or the operation of the property to which
they apply or materially detract from the value of the Company's or any of its
Subsidiaries' assets, (f) Liens disclosed on the existing title policies, title
commitments and/or surveys which have been previously provided or made available
to a party hereto, none of which materially interfere with the business of the
Company or its Subsidiaries or the operation of the property to which they apply
or materially detract from the value of the Company's or any of its
Subsidiaries' assets, (g) with respect to real property that is leased by the
Company or its Subsidiaries, any Liens or other matters caused by or placed upon
real property by the owners thereof, which would not otherwise be in violation
of such owner's obligations under the applicable lease, other than as a result
of the Company's or its Subsidiaries' breach of or default under the lease in
respect of such leased real property, (h) purported Liens evidenced by the
filing of precautionary UCC financing statements relating solely to operating
leases or consignments of personal property entered into in the ordinary course
of business and (i) any Liens securing the Company's existing revolving credit
facility with JPMorgan Chase Bank, N.A. or any replacement facility in respect
thereof.
 
"Person" means any individual, partnership, corporation, trust, association,
limited liability company, Governmental Entity or any other entity.
 
"Preferred Shares" has the meaning set forth in Section 2.2.
 
"Recapitalization" has the meaning set forth in Section 2.2.
 
"Recommendation" has the meaning set forth in Section 3.2.
 
"Registration Rights Agreement" has the meaning set forth in Section 9.2(e).
 
"Reimbursement Obligations" means all obligations of the Company and its
Subsidiaries to reimburse Hallmark Cards and its controlled Affiliates (other
than the Company and its Subsidiaries) for obligations which are primarily the
obligation of the Company and its Subsidiaries, but which have been satisfied by
Hallmark Cards or its controlled Affiliates on or after January 1, 2010
(including pursuant to agreements existing prior to such date) pursuant to any
guarantees, letters of credit, make-whole agreements, co-obligor arrangements or
similar arrangement or agreement.
 
"Released Matters" has the meaning set forth in Section 2.4.
 
"Released Parties" has the meaning set forth in Section 2.4.
 
"Representatives" has the meaning set forth in Section 5.2.
 
"Reverse Stock Split" has the meaning set forth in Section 2.3.
 
"Revolver" has the meaning set forth in Section 7.3.
 
"SEC" has the meaning set forth in Section 3.5.
 
"SEC Report" has the meaning set forth in Section 3.5.
 
"Second Amended Charter" means the Form of Second Amended and Restated
Certificate of Incorporation attached hereto as Exhibit B.
 
"Series A Preferred Stock" means the Company's Series A Convertible Preferred
Stock, par value $.01 per share, the terms of which shall be as set forth in
Certificate of Designation.
 
"Special Committee" has the meaning set forth in the recitals hereto.
 
"Subsidiary" means "subsidiary" as defined in Rule 405 promulgated under the
Securities Act of 1933, as amended.
 
"Tax Return" means any report, return, information return, forms, declarations,
claims for refund, statements or other information (including any amendments
thereto and including any schedule or statement thereto) required to be supplied
to a Governmental Entity in connection with Taxes.
 
"Tax Sharing Agreement" means the Federal Income Tax Sharing Agreement between
HCC and Crown Holdings dated as of March 11, 2003, as amended to date.
 
"Tax Sharing Agreement Amendment" has the meaning set forth in Section 9.2(f).
 
"Taxes" means all federal, state, local, foreign and other taxes, assessments
and water and sewer charges and rents, including without limitation, income,
gross receipts, excise, employment, sales, use, transfer, license, payroll,
franchise, severance, stamp, withholding, Social Security, unemployment, real
property, personal property, property gains, registration, capital stock, value
added, single business, occupation, workers' compensation, alternative or add-on
minimum, estimated, or other tax, including without limitation any interest,
penalties or additions thereto.
 
"Third Amended Charter" means the Form of Third Amended and Restated Certificate
of Incorporation attached hereto as Exhibit H.
 
"Transactions" means all of the transactions contemplated by this Agreement and
by the Ancillary Documents.
 
"Waiver Agreement" has the meaning set forth in the recitals hereto.
 
Section 1.2. Accounting Terms and Determinations.  All references in this
Agreement to "generally accepted accounting principles" or "GAAP" means
generally accepted accounting principles in effect in the United States of
America at the time of application thereof, applied on a consistent
basis.  Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all determinations with respect to accounting matters
hereunder shall be made, and all financial statements and certificates and
reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles, applied
on a consistent basis.
 
ARTICLE II.
 
RECAPITALIZATION
 
Section 2.1. Acknowledgement of Indebtedness.
 
(a) Each of the Company and CMUS acknowledges that it is validly indebted to HCC
pursuant to the Promissory Note, dated as of December 14, 2001, of the Company,
and guaranteed by CMUS, in the original principal amount of $75 million payable
to HCC (the "2001 Note"), and that the outstanding amount of the 2001 Note
(including accrued interest and interest which has been added to
principal):  (i) was $110,048,399 as of December 31, 2009 and (ii) is estimated
to be $108,581,366 as of March 31, 2010 (not including interest that is required
to be paid in cash prior to Closing).
 
(b) The Company acknowledges that it is validly indebted to HCC pursuant to the
10.25% Note, and that the outstanding principal amount of the 10.25% Senior
Unsecured Discount Note, issue date August 5, 2003, of the Company, in the
initial accreted value of $400 million, payable to HCC (the "10.25% Note")
(including accrued interest and interest which has been added to
principal):  (i) was $758,755,048 as of December 31, 2009 and (ii) is estimated
to be $778,012,072 as of March 31, 2010 ( including interest that is required to
be paid in kind prior to Closing).
 
(c) The Company acknowledges that it is validly indebted to HCC pursuant to the
Promissory Note, dated as of March 21, 2006, of the Company in the original
principal amount of $70,414,087.87 payable to HCC (formerly payable to Hallmark
Entertainment Holdings, Inc.) (the "2006 Note"), and that the outstanding amount
of the 2006 Note (including accrued interest and interest which has been added
to principal):  (i) was $62,844,768 as of December 31, 2009 and (ii) is
estimated to be $62,006,997 as of March 31, 2010 (not including interest that is
required to be paid in cash prior to Closing).
 
(d) CMUS acknowledges that it is validly indebted to HCC pursuant to the
Promissory Note, dated as of October 1, 2005, of CMUS, in the original principal
amount of $132,785,424, payable to HCC (formerly payable to Hallmark
Entertainment Holdings, Inc.) (the "2005 Note"), and that the outstanding amount
of the 2005 Note (including accrued interest and interest which has been added
to principal):  (i) was $172,407,147 as of December 31, 2009 and (ii) is
estimated to be $170,108,821 as of March 31, 2010 (not including interest that
is required to be paid in cash prior to Closing).
 
(e) The Company acknowledges that it and its Subsidiaries were validly indebted
to HCC and its Affiliates with respect to the Tax Sharing Agreement as of
December 31, 2009 in the amount of $8,525,319 and that such amount of
indebtedness HCC and its Affiliates is not expected to change through March 31,
2010.
 
(f) The Company acknowledges that it and its Subsidiaries are validly indebted
to HCC and its Affiliates with respect to accounts payable and open intercompany
accounts as of December 31, 2009 in the amount of $15,233,814 and that any
change to such amount of indebtedness to HCC and its Affiliates through March
31, 2010, if any, is expected to be immaterial.
 
Section 2.2. Mergers and
Recapitalization.  (a)                                                                On
the Closing Date the following transactions shall occur in the following order:
 
(i) First, the Company shall file the Second Amended Charter and then the
Certificate of Designation with the Secretary of State of the State of Delaware.
 
(ii) Second, the HCC Lenders shall exchange the HCC Debt for the following (the
"Recapitalization"):
 
(A) $315,000,000 principal amount of indebtedness of the Debtors (the "New
Debt") on the terms and subject to the conditions set forth in the Credit
Agreement in the form attached hereto as Exhibit A (including the exhibits
thereto, the "New Credit Agreement").
 
(B) 185,000 shares of the Series A Preferred Stock, with an initial liquidation
preference of $185,000,000, issued to HCC (the "Preferred Shares");
 
(C) A number of shares of the Common Stock (the "Common Shares" and, together
with the Preferred Shares, the "New Securities") issued to HCC equal to (x) the
quantity of the HCC Debt as of the Closing Date less $500 million, divided by
(y) the Conversion Price, such result rounded to the nearest whole share (for
the avoidance of doubt, Schedule 1.1(a) sets forth a sample calculation of such
number of shares of Common Stock), and HCC and the Company shall enter into the
stockholders agreement in the form attached hereto as Exhibit D (the "New
Stockholders Agreement").
 
(D) A cash payment equal to all accrued but unpaid interest on the 2001 Note,
the 2005 Note and the 2006 Note.
 
(iii) Third, HEIC shall be merged with and into the Company on the terms and
subject to the conditions set forth in the merger agreement in the form attached
hereto as Exhibit E (the "HEIC Merger Agreement"), which the Company and HEIC
executed immediately prior to the execution of this Agreement.
 
(iv) Fourth, HEH shall be merged (together with the merger described in
Section 2.2(c), the "Mergers") with and into the Company on the terms and
subject to the conditions set forth in the merger agreement in the form attached
hereto as Exhibit F (the "HEH Merger Agreement"), which the parties executed
immediately prior to the execution of this Agreement.
 
(b)           As a result of the Transactions, immediately following the Closing
of the Transactions, all of the HCC Debt, except to the extent converted and
continued as New Debt, shall be extinguished and discharged.
 
Section 2.3. Reverse Stock Split.  At any time prior to December 31, 2013, at
the request of the Special Committee or any other special committee of the
Company's Board of Directors comprised of disinterested directors who are
independent of the HCC Parties, the Company shall file the Third Amended Charter
with the Secretary of State of the State of Delaware no later than three (3)
Business Days following such request.  The exact ratio of the reverse stock
split referenced in the Third Amended Charter shall be determined by the Board
of Directors (upon the recommendation of the Special Committee or such other
special committee) immediately prior to the filing of the Third Amended Charter
and shall be included in a public announcement to all stockholders distributed
on the date of such filing.
 
ARTICLE III.
 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
The Company hereby represents and warrants to the HCC Lenders and HEH as
follows:
 
Section 3.1. Organization of the Company.  Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has all requisite corporate,
limited liability company or limited partnership power (as the case may be) to
own its properties and assets and to conduct its business as now
conducted.  Each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation, limited liability company or partnership (as
the case may be) and is in good standing in every jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not, individually or in the aggregate,
have a Material Adverse Effect.
 
Section 3.2. Authorization and Validity of Agreement.
 
(a) Each Debtor has all requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder.
 
(b) As of the date of this Agreement, the Special Committee has received:  (x) 
Morgan Stanley & Co.'s advice and recommendation regarding the Transactions, and
(y) the opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to the
effect that, subject to certain assumptions, qualifications, limitations and
other matters, the aggregate consideration to be issued or paid by the Company
or its wholly owned subsidiary, CMUS, in exchange for the HCC Debt in the
Recapitalization pursuant to this Agreement and the outstanding shares of common
stock of HEIC and HEH in the Mergers pursuant to the HEIC Merger Agreement and
the HEH Merger Agreement is, in the aggregate, fair to the Company from a
financial point of view.  The Special Committee has unanimously passed
resolutions:  (i) determining that the terms of the Transactions are fair to,
and in the best interests of, the Company and its stockholders (other than the
HCC Parties); and (ii) recommending (the "Recommendation") to the Company's
Board of Directors that such Board:  (x) approve the execution, delivery and
performance of this Agreement and the Ancillary Documents and the consummation
of the Transactions and (y) declare this Agreement (and, to the extent
applicable, the Ancillary Agreements) advisable.
 
(c) The Company's Board of Directors has adopted resolutions reflecting the
Recommendation by the Special Committee.
 
(d) The affirmative vote of the holders of a majority of the voting power of the
issued and outstanding shares of the Class A Common Stock and the Class B Common
Stock voting together as a single class (and, in the case of the Second Amended
Charter, voting separately by class) is the only vote required by the
stockholders of the Company to approve the Transactions and adopt this Agreement
under the DGCL and the Company Organizational Documents, and no other corporate
proceedings on the part of the Company are necessary to authorize the execution,
delivery and performance of this Agreement.
 
(e) This Agreement has been duly executed by each Debtor and, assuming due
execution and delivery by the HCC Lenders, shall constitute its valid and
binding obligation, enforceable against it in accordance with its terms, subject
to (i) the effect of bankruptcy, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally and (ii) general equitable principles (whether
considered in a proceeding in equity or at law).
 
Section 3.3. Capitalization of the Company.
 
(a) The authorized capital stock of the Company consists of (i) 200,000,000
shares of Class A Common Stock, of which 74,117,654 shares are outstanding, (ii)
120,000,000 shares of Class B Common Stock, of which 30,670,422 shares are
outstanding, and (iii) 10,000,000 shares of preferred stock, par value $.01 per
share, none of which is issued or outstanding.  All outstanding capital stock of
the Company has been duly authorized and validly issued, is fully paid and
nonassessable and is not subject to and was not issued in violation of any
preemptive or similar right, purchase option, call or right of first refusal or
similar right, and no personal liability attaches to the ownership thereof.  The
capital stock described as outstanding in clauses (i) and (ii) above are the
sole outstanding shares of capital stock of the Company.  As of the date hereof,
there are options to acquire 87,238 shares of Class A Common Stock outstanding
(the "Outstanding Options").  The number of Outstanding Options is expected to
be reduced to 85,813 Outstanding Options after March 17, 2010 as a result of the
anticipated expiration of 1,425 Outstanding Options.  Except as set forth in the
preceding sentence and for this Agreement, there are no outstanding options,
warrants, agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire any capital stock of the Company.
 
(b) Assuming the Closing Date is April 30, 2010, immediately following the
consummation of the transactions contemplated by Section 2.2, the authorized
capital stock of the Company will consist of (i) 500,000,000 shares of Common
Stock, par value $.01 per share, of which 354,715,466 shares will be outstanding
(excluding 85,813 shares which may be issued upon the exercise of Outstanding
Options), and (ii) 1,000,000 shares of preferred stock, par value $.01 per
share, of which 400,000 will be designated as Series A Preferred Stock, of which
185,000 will be outstanding.  The capital stock described as outstanding in
clauses (i) and (ii) above will be the sole outstanding shares of capital stock
of the Company at such time, and, except for the rights under this Agreement and
for Outstanding Options to the extent not surrendered, forfeited, expired or
exercised prior to such date, there will be no outstanding options, warrants,
agreements, conversion rights, preemptive rights or other rights to subscribe
for, purchase or otherwise acquire any capital stock of the Company.
 
(c) The shares of Common Stock to be issued to HCC pursuant to the terms of this
Agreement or upon conversion of the Series A Preferred Stock, when so issued
will be duly authorized and validly issued, will be fully paid and nonassessable
and will not be subject to (except to the extent expressly set forth in the New
Stockholders Agreement) and will not have been issued in violation of any
preemptive or similar right, purchase option, call or right of first refusal or
similar right, and no personal liability will attach to the ownership thereof.
 
(d) The shares of Series A Preferred Stock to be issued to HCC pursuant to the
terms of this Agreement, when so issued will be duly authorized and validly
issued, will be fully paid and nonassessable, will be entitled to all of the
rights provided for in the Certificate of Designation and will not be subject to
and will not have been issued in violation of any preemptive or similar right,
purchase option, call or right of first refusal or similar right, and no
personal liability will attach to the ownership thereof.
 
Section 3.4. No Conflict or Violation; Consents.
 
(a) The execution, delivery and performance by the Debtors of this Agreement
does not and will not (i) violate or conflict with any provision of any Company
Organizational Document or any of the organizational documents of the
Subsidiaries of the Company, (ii) violate any Legal Requirement or (iii) except
as set forth on Schedule 3.4, violate or result in a breach of or constitute
(with due notice or lapse of time or both) a default under any Contract or
Permit or result in the creation or imposition of any Lien upon any of the
assets, properties or rights of either of the Company or any of its Subsidiaries
or result in or give to others any rights of cancellation, modification,
amendment, acceleration, revocation or suspension of any of the Contracts,
Permits or obligations thereunder.
 
(b) Except for the approval of the Company's stockholders as described in
Section 3.2, no consent, waiver, authorization or approval of any Governmental
Entity or any other Person, and no declaration or notice to or filing or
registration with any Governmental Entity or any other Person, is required in
connection with the execution and delivery of this Agreement by the Debtors or
the performance by the Company or its Subsidiaries of their obligations
hereunder.
 
Section 3.5. Other Approvals.
 
(a) Section 203.  The Board of Directors has taken all action necessary to
render the limitations on business combinations contained in Section 203 of the
DGCL inapplicable to this Agreement, the Ancillary Documents and the
Transactions.  Neither the execution and delivery of this Agreement nor the
consummation of Transactions will prohibit for any period of time, or impose any
stockholder approval requirement with respect to, the Common Stock to be issued
to HCC.
 
(b) Takeover Laws.  Other than as described in Section 3.5(a), no anti-takeover
Legal Requirement prohibits the consummation of the Transactions or imposes any
additional stockholder approvals or conditions with respect to the Transactions
or the Common Stock.
 
Section 3.6. SEC Reports and Other Information. Since December 31, 2005, the
Company, to the Company's Knowledge, has filed, with the Securities and Exchange
Commission (the "SEC"), all filings required by the Securities Exchange Act of
1934, as amended, and the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder (the "SEC Reports").  As of their
respective dates, each of the SEC Reports (a) complied as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading, other than any
misstatements or omissions in an SEC filing that were corrected in a subsequent
SEC Report filed prior to the date hereof.  The Company, to the Company's
Knowledge, is in compliance in all material respects with the applicable listing
and corporate governance rules and regulations of the Nasdaq Global Market.  All
financial projections and other forecasts furnished by the Company to HCC or any
of its Affiliates or to the Special Committee and its advisors were prepared in
good faith based on reasonable assumptions and represent the Company's good
faith estimate of future results based on information available as of the date
such information was furnished.
 
Section 3.7. Litigation.  Except as set forth in Schedule 3.7, there are no
claims, actions, suits or other proceedings pending or, to the Company's
Knowledge, threatened before any Governmental Entity that would prevent the
consummation of all or any part of the Transactions or otherwise relating to
this Agreement or the Transactions.
 
Section 3.8. Brokers and Fees.  Except to the extent set forth in Schedule 3.8,
no broker, finder, financial advisor or similar intermediary has acted for or on
behalf of, or is entitled to any broker's, finder's or similar fee, success or
contingency fee or other commission from, the Company or its Subsidiaries in
connection with this Agreement or the Transactions.
 
ARTICLE IV.
 
REPRESENTATIONS AND WARRANTIES OF CERTAIN ENTITIES
 
Section 4.1. Representations and Warranties of HCC.  HCC hereby represents and
warrants to the Company with respect to Hallmark Cards, HCC and HEH as follows:
 
(a) Organization.  Each such Person is duly organized, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power to own its properties and assets and to conduct its business as
now conducted.  Each such Person is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction in which the character
of the properties owned or leased by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so
qualified or in good standing would not, individually or in the aggregate,
materially impair such Person's ability to consummate the Transactions.
 
(b) Authorization and Validity of Agreement.  Each such Person has all requisite
power and authority to enter into this Agreement and to carry out its
obligations hereunder.  Each of the HCC Parties has taken all necessary
corporate action to approve the execution of this Agreement and the
Transactions. This Agreement has been duly executed by each such Person and,
assuming due execution and delivery by the other parties hereto, shall
constitute its valid and binding obligation, enforceable against it in
accordance with its terms, subject to (i) the effect of bankruptcy, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting the enforcement of creditors' rights generally and (ii) general
equitable principles (whether considered in a proceeding in equity or at law).
 
(c) Investment Intent.  The New Debt, Common Stock and Series A Preferred Stock
will be acquired hereunder solely for the account of HCC for investment, and not
with a view to the resale or distribution thereof in violation of the Securities
Act of 1933, as amended.
 
(d) Ownership.  As of the date hereof, the HCC Lenders own directly or
indirectly 69,997,656 shares of Class A Common Stock (including, for these
purposes, shares of Class A Common Stock issuable upon conversion of shares of
Class B Common Stock) of the Company (including for purposes hereof with respect
to HEIC only HEH’s pro rata portion of the shares of the Company's common stock
owned by HEIC).
 
(e) Indebtedness.  None of the Company or its Subsidiaries has any outstanding
Indebtedness to Hallmark Cards or its controlled Affiliates, other than (i)
prior to the Closing, the HCC Debt, (ii) accrued but unpaid interest through the
Closing Date with respect to the 2001 Note, the 2005 Note and the 2006 Note, and
(iii) for the avoidance of doubt, (x) Reimbursement Obligations, (y) Ordinary
Course of Business Obligations, and (z) any amounts due to Hallmark Cards or its
Affiliates under the Tax Sharing Agreement accruing on or after January 1, 2010.
 
(f) Consents and Approvals; No Violations.  None of the execution, delivery or
performance of this Agreement or the HEH Merger Agreement by HEH will:
(i) conflict with or result in any breach of any provision of the organizational
documents of HEH, (ii) require any filing by HEH with, notice to, or permit,
authorization, consent or approval of, any Governmental Entity other than the
Secretary of State of the State of Delaware, (iii) result in a violation or
breach by HEH of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any agreement
or other instrument or obligation to which HEH is a party or by which its
properties or assets may be bound, or (iv) violate any Legal Requirements,
excluding from the foregoing clauses (ii), (iii) and (iv) such filings, notices,
permits, authorizations, consents, approvals, violations, breaches or defaults
which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of HEH to perform its obligations
under this Agreement or the HEH Merger Agreement.
 
(g) No Liabilities.  Except for (a) liabilities incurred pursuant to the
transactions contemplated by this Agreement and the HEH Merger Agreement, and
(b) liabilities or obligations discharged or paid in full prior to the date of
this Agreement in the ordinary course of business consistent with past practice,
HEH does not have any liabilities or obligations of any nature whatsoever
(whether accrued, absolute, matured, determined, contingent or otherwise) other
than non-material liabilities related to the maintenance of its existence as a
corporation.  There are no proceedings pending or, to the knowledge of the HCC
Lenders, threatened against HEH, other than any such proceedings that would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company following the Mergers.  Neither HEH nor any of its
properties is or are subject to any order, writ, judgment, injunction, decree or
award, except for those that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company
following the Mergers.
 
ARTICLE V.
 
CERTAIN COVENANTS AND AGREEMENTS
 
Section 5.1. Conduct of Business.
 
(a) From the date hereof through the Closing Date, the Company shall, and shall
cause its Subsidiaries to:
 
(i) operate only in the Ordinary Course of Business and continue to maintain, in
all material respects, its assets, properties, rights and operations in
accordance with present practices in a condition suitable for their current use;
 
(ii) use commercially reasonable efforts to keep available generally the
services of its present officers and employees and preserve generally the
present relationships with Persons having business dealings with it;
 
(iii) use commercially reasonable efforts to keep in full force and effect
insurance comparable in amount and scope to coverage maintained by it (or on
behalf of it) on the date hereof;
 
(iv) keep its books of account, files and records in the Ordinary Course of
Business;
 
(v) pay in cash, when due, all accrued but unpaid interest on the 2001 Note, the
2005 Note and the 2006 Note;
 
(vi) file, when due or required, all SEC Reports, all Tax Returns and other
reports required to be filed and pay when due all Taxes lawfully levied or
assessed against it, unless the validity thereof is contested in good faith and
by appropriate proceedings diligently conducted; and
 
(vii) inform HCC of the occurrence of any event which could reasonably be
expected to result in a breach of any representation or warranty contained in
Article III.
 
(b) From the date hereof through the Closing Date, except as expressly
contemplated by this Agreement, the Company shall not, and shall not permit its
Subsidiaries to:
 
(i) make any change in any Company Organizational Document;
 
(ii) sell, assign, lease, transfer, abandon, sublease or otherwise convey its
assets, properties or rights, other than in the Ordinary Course of Business;
 
(iii) incur, or suffer to exist, any Lien on the assets of the Company other
than Permitted Liens;
 
(iv) acquire, lease, sublease, license or dispose of any material assets or
properties other than in accordance with past practices, including, if
applicable, upon approval by a duly authorized committee of the Company's Board
of Directors;
 
(v) settle, release or forgive any material claim or litigation or waive any
material right for an amount greater than $1,000,000 in the aggregate;
 
(vi) make, change or revoke, or permit to be made, changed or revoked, without
the consent of HCC, any material election or method of accounting with respect
to Taxes;
 
(vii) enter into, or permit to be entered into, any closing or other agreement
or settlement with respect to Taxes affecting or relating to the Company;
 
(viii) enter into, amend or terminate any material lease or any material
Contract or commitment outside of the Ordinary Course of Business or except in
accordance with past practices, including, if applicable, upon approval by a
duly authorized committee of the Company's Board of Directors;
 
(ix) enter into any employment Contract with any director, officer or employee
of the Company or make any payment, advance or loan to, or enter into any
material transaction of any other nature with, any director, officer or employee
of the Company, other than the payment, in the Ordinary Course of Business, of
salary, bonus and fringe benefits to the directors, officers and employees of
the Company or its Subsidiaries required pursuant to any documentation filed
with the SEC prior to the date of this Agreement;
 
(x) issue, sell or pledge, or authorize or propose the issuance, sale or pledge
of additional shares or units of any class of capital stock, membership
interests or partnership interests, or securities convertible into or
exchangeable for shares or units of capital stock, membership interests or
partnership interests, or any rights, warrants or options to acquire any such
shares or units of capital stock, membership interests or partnership interests,
or other convertible securities of the Company or its Subsidiaries;
 
(xi) redeem, retire, repurchase or otherwise acquire, directly or indirectly, or
split, combine or reclassify any shares of the capital stock of the Company or
its Subsidiaries, or declare, set aside for payment or pay any dividend or
distribution, payable in cash, stock, property or otherwise, with respect to any
of the capital stock, membership interests or partnership interests of the
Company or its Subsidiaries;
 
(xii) (A) except as may be required by applicable Legal Requirement, or, in
respect of any severance agreement, as may be required by any existing employee
benefit plan or employee pension plan (but without regard to any changes to such
plans after the date hereof), enter into any new (or amend any existing)
employee benefit plan, or materially amend any such plan or agreement; (B)
except with respect to an employee or consultant first hired subsequent to the
date of this Agreement, enter into any new (or amend any existing) employment,
severance or consulting agreement; (C) except as may be required by any existing
employee benefit plan or employee pension plan (but without regard to any
changes to such plans after the date hereof), pay or agree to pay any pension,
retirement allowance or other employee benefit (and, in the case of clauses (A),
(B) and (C) of this subsection, other than in accordance with past practices,
including, if applicable, upon approval by a duly authorized committee of the
Company's Board of Directors); (D) increase in any manner the rate or terms of
salary, wage, bonus or other compensation of any director, officer or employee,
except, in each case, as required by law, required pursuant to pre-existing
contractual provisions or, with respect to annual performance bonuses and salary
increases, to the extent made in the Ordinary Course of Business; or (E) grant
any stock-based or other incentive compensation other than in the Ordinary
Course of Business;
 
(xiii) make, enter into, modify, amend, terminate or waive any right or remedy,
in any manner that would be reasonably expected to have a Material Adverse
Effect, under any Contract;
 
(xiv) make or commit to make any capital expenditures or programming
acquisitions which are not in the Ordinary Course of Business;
 
(xv) incur any Indebtedness (other than pursuant to refinancing the Company's
existing revolving credit facility with JPMorgan Chase Bank, N.A.) or on or
after March 31, 2010 pay, redeem, retire, repurchase or otherwise satisfy, in
whole or in part, the HCC Debt;
 
(xvi) enter into an agreement or adopt a plan with respect to any merger,
consolidation, liquidation or business combination involving the Company or its
Subsidiaries or any acquisition or disposition of all or substantially all of
the assets, properties or rights or any securities of the Company or its
Subsidiaries;
 
(xvii) acquire (whether by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof;
 
(xviii) except for travel and other business expense-related advances to
employees made in the Ordinary Course of Business and intercompany loans, make
any loans, advances or capital contributions to, or investments in, any Person;
 
(xix) make or change any Tax election, change an annual accounting period, adopt
or change any accounting method except as required by GAAP, file any amended Tax
Return, enter into any closing agreement, settle any material Tax claim or
assessment relating to the Company or any of its Subsidiaries or surrender any
right to claim a refund of Taxes;
 
(xx) take any action that would cause any of the representations and warranties
made by the Company in this Agreement not to remain true and correct; or
 
(xxi) commit to do any of the foregoing or authorize or enter into any Contract
to do any of the actions prohibited by the foregoing.
 
Section 5.2. Information and Access. Upon reasonable advance notice, the Company
shall, and shall cause its Subsidiaries to, afford to the officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives (collectively, "Representatives") of the HCC Lenders
reasonable access throughout the period prior to the Closing Date, to all of its
employees, agents, accountants, properties, books, contracts, commitments and
records (including, but not limited to, Tax Returns) and, during such period,
the Company shall, and shall cause its Subsidiaries to, furnish promptly to the
HCC Lenders and their Representatives, (i) access to each report, schedule and
other document filed or received by the Company or any of the Company's
Subsidiaries pursuant to the requirements of federal or state securities laws or
filed with or sent to the SEC or any other federal or state regulatory agency or
commission and (ii) access to all information concerning the Company, the
Company's Subsidiaries and their respective directors, officers, stockholders,
operations, facilities, properties and such other matters as may be reasonably
requested by the HCC Lenders or their Representatives in connection with any
filings, applications or approvals required or contemplated by this Agreement or
for any other reason related to the Transactions; provided, that all such access
shall be coordinated through the Company or its designated representatives, in
accordance with such reasonable procedures as the Company may establish.  During
any visit to the business or property sites of the Company or any of the
Company's Subsidiaries, the HCC Lenders shall, and shall cause their
Representatives accessing such properties to, conduct itself in a manner that is
consistent with such reasonable procedures as are established by the Company and
would not be reasonably expected to interfere with the operation of the
Company's business.  The Company acknowledges that time is of the essence with
respect to its compliance with its covenants in this Section 5.2.  No
investigation pursuant to this Section 5.2 shall affect any representation,
warranty or covenant of the Company in this Agreement or any condition on the
obligations of the HCC Lenders in this Agreement.
 
Section 5.3. Notices of Certain Events. The Company shall promptly notify the
HCC Lenders of (i) any communication from any Person alleging that the consent
of such Person (or another Person) is or may be required in connection with the
Transactions (and the response thereto from the Company or its Representatives),
(ii) any communication from any Governmental Entity in connection with the
Transactions (and the response thereto from the Company or its Representatives),
(iii) any claims, actions, suits or other proceedings commenced or, to the
Company's Knowledge, threatened before any Governmental Entity that would
prevent the consummation of all or any part of the Transactions or otherwise
relating to this Agreement or the Transactions (and the response thereto from
the Company or its Representatives), (iv) any material events, changes,
discussions, notices, changes or developments relating to the litigation set
forth on Schedule 3.7 and (v) any event, change, occurrence, circumstance or
development between the date of this Agreement and the Closing Date which causes
or is reasonably likely to cause the conditions set forth in Article VIII of
this Agreement not to be satisfied or result in such satisfaction being
materially delayed; provided, however, that the delivery of any notice pursuant
to this Section 5.3 shall not, and shall not be deemed to, cure any breach of
any representation or warranty requiring disclosure of such matter at or prior
to the date of this Agreement or affect any of the closing conditions or
otherwise limit or affect the remedies available.  With respect to any of the
foregoing, the Company will consult with HCC and its Affiliates and their
Representatives so as to permit HCC and its Affiliates and their Representatives
to cooperate to take appropriate measures to avoid or mitigate any adverse
consequences that may result from any of the foregoing.
 
Section 5.4. Waiver Agreement and Interim Payment on the HCC Debt.
 
(a) Section 2(c) of the Waiver Agreement shall be amended by replacing the first
sentence thereof with the following:
 
This Waiver shall terminate automatically on August 31, 2010.
 
(b) Section 7(e) of the Waiver Agreement shall be amended to add the following
as the last sentence thereof:
 
Notwithstanding the foregoing, no amounts otherwise due and payable pursuant to
this Section 7(e) for the year ended December 31, 2009 shall become due and
payable; provided, that such amounts shall become due and payable on August 31,
2010 if the “Closing” under the Master Recapitalization Agreement, dated
February 26, 2010, shall not have occurred by such date.
 
(c) From the date hereof through the Closing, the Debtors shall pay interest on
the 2001 Note, the 2005 Note, and the 2006 Note in cash when due, and all other
interest on the HCC Debt shall accrue and be added to principal.
 
(d) Hallmark Cards will use its best efforts to ensure that the Company will
have continued access to up to $30 million under the Company's existing
revolving credit facility with JPMorgan Chase Bank, N.A. (or any other revolving
credit facility) while the Waiver Agreement is in effect.
 
Section 5.5. Information Statement.  The Company will use its best efforts to
prepare and file with the SEC as promptly as is reasonably practicable (but in
any event not later than March 20, 2010) the Information Statement in a form
that complies in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder.  HCC and its Affiliates
shall furnish to the Company all information requested concerning itself which
is required or customary for inclusion in the Information Statement.  The
Company and HCC each agrees to respond as promptly as is practicable to any
comments of the SEC on the Information Statement, and the Company agrees to mail
the Information Statement to all of the Company's stockholders promptly after
the Company learns that the Information Statement will not be reviewed or that
the SEC staff has no further comments thereon.  The Company covenants and agrees
that the Information Statement and any amendment thereof or supplement thereto
to be sent to the stockholders of the Company in connection with the
Transactions will comply in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations thereunder.  The
information provided by any party hereto for use in or incorporation by
reference in the Information Statement shall be true and correct in all material
respects, at the date mailed to stockholders of the Company, without omission of
any material fact which is required to make such information not false or
misleading.  All financial projections and other forecasts prepared by the
Company for use in or incorporation by reference in the Information Statement
were, or shall be, as applicable, prepared in good faith based on reasonable
assumptions and represent the Company's good faith estimate of future results
based on information available as of the date of the Information Statement.  No
representation, covenant or agreement is made by any party hereto with respect
to information supplied in writing by any other party specifically for inclusion
in the Information Statement.  If at any time prior to the Closing Date any
information relating to the Company or HCC, or any of their respective
Affiliates, officers or directors, should be discovered by the Company or HCC
which should be set forth in an amendment or supplement to the Information
Statement, so that the Information Statement would not include any misstatement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party which discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and, to the extent
required by Law, disseminated to the shareholders of the Company.
 
Section 5.6. Certain Provisions Relating to Consents. The Company shall use
commercially reasonable efforts prior to and after the Closing Date to obtain
all consents that are required in connection with the transactions contemplated
by this Agreement.
 
Section 5.7. Stockholder Approvals.  The Second Amended Charter and the Third
Amended Charter having been approved by the Company's Board of Directors, and
the HEH Merger Agreement and the HEIC Merger Agreement having each been approved
by the board of directors of each of the applicable constituent corporations and
executed and delivered by each of the applicable constituent corporations:
 
(a) HEH as:  (i) a stockholder of HEIC hereby approves the HEIC Merger Agreement
and the consummation of the transactions contemplated thereby and intends that
this Agreement shall constitute its written consent as a stockholder of HEIC to
such matters pursuant to Section 228 of the DGCL; and (ii) a stockholder of the
Company immediately following the HEIC Merger hereby approves the HEH Merger
Agreement, the Third Amended Charter and the consummation of the transactions
contemplated thereby and the share issuances contemplated by this Agreement, and
intends that this Agreement shall constitute its written consent as a
stockholder of the Company to such matters pursuant to Section 228 of the DGCL.
 
(b) HCC as:  (i) a stockholder of HEH hereby approves the HEH Merger Agreement
and the consummation of the transactions contemplated thereby and intends that
this Agreement shall constitute its written consent as a stockholder of HEH to
such matters pursuant to Section 228 of the DGCL; and (ii) as a stockholder of
the Company (both presently and as a successor to HEH) hereby approves the
Second Amended Charter, the HEIC Merger Agreement, the HEH Merger Agreement, the
Third Amended Charter and the consummation of the transactions contemplated
thereby and the share issuances contemplated by this Agreement, and intends that
this Agreement shall constitute its written consent as a stockholder of the
Company to such matters pursuant to Section 228 of the DGCL.
 
Section 5.8. Commercially Reasonable Efforts.  Upon the terms and subject to the
conditions of this Agreement, each of the parties hereto shall use commercially
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable consistent with
applicable law to consummate and make effective in the most expeditious manner
practicable the Transactions, including, without limitation, obtaining all
necessary actions or nonactions, waivers, consents and approvals from all
applicable Governmental Entities in connection with the Transactions.
 
Section 5.9. Further Assurances.  Upon the request of HCC or any of its
Affiliates at any time after the Closing Date, the Company shall forthwith
execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as HCC
or its Affiliate may reasonably request in order to perfect title of such entity
and its successors and assigns to the New Debt, Series A Preferred Stock or
Common Stock or otherwise to effectuate the purposes of this Agreement.
 
ARTICLE VI.
 
MUTUAL CONDITIONS
 
The respective obligations of each party to consummate the Transactions is
subject to the satisfaction (unless waived in writing by the party against whom
enforcement is being sought) of each of the following conditions on or prior to
the Closing Date:
 
Section 6.1. No Injunction or Action.  No order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction shall have been enacted,
entered, promulgated or enforced by any court or other Governmental Entity which
prohibits or prevents the consummation of the Transactions which has not been
vacated, dismissed or withdrawn prior to the Closing Date.
 
Section 6.2. Regulatory Compliance.  Twenty (20) calendar days shall have
elapsed since the date on which the Company shall have mailed the Information
Statement to all of its stockholders as required by the Exchange Act.
 
ARTICLE VII.
 
CONDITIONS TO THE DEBTORS' OBLIGATIONS
 
The obligation of each Debtor to consummate the Transactions is subject to the
satisfaction (unless waived in writing by the Company with the consent of the
Special Committee) of each of the following conditions on or prior to the
Closing Date:
 
Section 7.1. Representations and Warranties.  The representations and warranties
of the HCC Lenders contained in this Agreement which are qualified as to
materiality shall be true and correct on and as of the Closing Date as though
such representations and warranties were made anew on and as of the Closing
Date, and all other representations and warranties of the HCC Lenders contained
in this Agreement shall be true and correct in all material respects on and as
of the Closing Date as though such representations and warranties were made anew
on and as of the Closing Date.  HCC shall have delivered to the Company a
certificate of its President or a Vice President, dated the Closing Date, to the
foregoing effect.
 
Section 7.2. Compliance with Agreement.  Each HCC Lender shall have performed
and complied, in all material respects, with all covenants to be performed or
complied with by it on or prior to the Closing Date.  HCC shall have delivered
to the Company a certificate of its President or a Vice President, dated the
Closing Date, to the foregoing effect.
 
Section 7.3. Revolving Credit Facility.  The Company shall have obtained a
revolving credit facility from a third-party lender (the "Revolver") (with a
term of not less than 360 days from the Closing Date) with availability of at
least $30 million and on other terms and conditions reasonably acceptable to the
Company, and Hallmark Cards shall have guaranteed, or caused one or more of its
Affiliates to guarantee, the Revolver.
 
Section 7.4. Corporate Documents.  The Company shall have received from HCC
certified copies of the resolutions duly adopted by the board of directors of
HCC and its Affiliates party hereto, as applicable, approving the execution and
delivery of this Agreement and the Ancillary Documents and the consummation of
the Transactions, and such resolutions shall be in full force and effect as of
the Closing Date.
 
ARTICLE VIII.
 
CONDITIONS TO THE HCC LENDERS' OBLIGATIONS
 
The obligation of each HCC Lender to consummate the Transactions is subject to
the satisfaction (unless waived in writing by HCC) of each of the following
conditions on or prior to the Closing Date:
 
Section 8.1. Representations and Warranties.  The representations and warranties
of the Debtors contained in this Agreement which are qualified as to materiality
shall be true and correct on and as of the Closing Date as though such
representations and warranties were made anew on and as of the Closing Date, and
all other representations and warranties of the Debtors contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as though such representations and warranties were made anew on and
as of the Closing Date.  The Company shall have delivered to HCC a certificate
of its President or a Vice President, dated the Closing Date, to the foregoing
effect.
 
Section 8.2. Compliance with Agreement.  Each Debtor shall have performed and
complied, in all material respects, with all covenants to be performed or
complied with by it on or prior to the Closing Date.  The Company shall have
delivered to HCC a certificate of its President or a Vice President, dated the
Closing Date, to the foregoing effect.
 
Section 8.3. Proceedings.  Hallmark Cards shall not have delivered a written
notice to the Company certifying that Hallmark Cards, in its sole discretion
(but only after consultation with outside legal counsel), shall have determined
that the status of any pending or threatened litigation (including, without
limitation, the action styled S. Muoio & Co. LLC v. Abbott et al, C.A. No.
4729-CC (Del. Ch.)) or regulatory proceeding involving the Company or its
Subsidiaries in connection with this Agreement and/or the Transactions shall be
unsatisfactory to Hallmark Cards.
 
Section 8.4. Corporate Documents.  HCC shall have received from the Company
certified copies of the resolutions duly adopted by the board of directors or
similar governing body of each Debtor approving the execution and delivery of
this Agreement and the Ancillary Documents and the consummation of the
Transactions, and such resolutions shall be in full force and effect as of the
Closing Date.
 
Section 8.5. Effective Credit Agreement.  All conditions to the effectiveness of
the New Credit Agreement shall have been satisfied or waived by the party or
parties, as applicable, entitled to the benefit thereof.
 
ARTICLE IX.
 
THE CLOSING
 
Section 9.1. The Closing.  The Closing of the transactions contemplated hereby
(the "Closing") shall be held no later than ten (10) Business Days after each of
the conditions precedent set forth in Articles VI, VII and VIII have been
satisfied or waived by the party entitled to the benefit thereof or on such
other date as the Company and HCC shall agree (the "Closing Date").  The Closing
shall be held at the offices of Willkie Farr & Gallagher LLP, 787 Seventh
Avenue, New York, New York 10019 or at such other place as the parties may
mutually agree.
 
Section 9.2. Deliveries by the Company at the Closing.  At the Closing, the
Company shall deliver, or cause to be delivered, to HCC, copies of the following
items:
 
(a) the certificates referred to in Sections 8.1 and 8.2, duly executed by the
Company;
 
(b) the certified resolutions referred to in Section 8.4;
 
(c) the New Credit Agreement and all documents and agreements contemplated by
the Credit Agreement, duly executed by the Debtors party thereto;
 
(d) the Revolving Credit Agreement, duly executed by the Company and the lender
thereunder;
 
(e) the Registration Rights Agreement in the form attached hereto as Exhibit H
(the "Registration Rights Agreement"), duly executed by the Company;
 
(f) the Amendment to the Tax Sharing Agreement in the form attached hereto as
Exhibit I (the "Tax Sharing Agreement Amendment"), duly executed by the Company;
 
(g) evidence of filing of the Second Amended Charter with the Secretary of State
of the State of Delaware;
 
(h) evidence of filing of the Certificate of Designation with the Secretary of
State of the State of Delaware;
 
(i) stock certificates representing the New Securities to be issued pursuant to
Section 2.2 hereof, duly executed by the Company; and
 
(j) all other previously undelivered documents that the Company is required to
deliver to HCC or its Affiliates pursuant to this Agreement.
 
Section 9.3. Deliveries by HCC at the Closing.  At the Closing, HCC shall
deliver, or cause to be delivered, to the Company, the following items:
 
(a) the certificates referred to in Sections 7.1 and 7.2, duly executed by HCC;
 
(b) the certified resolutions referred to in Section 7.4;
 
(c) the New Credit Agreement, duly executed by HCC;
 
(d) the Registration Rights Agreement, duly executed by HCC;
 
(e) the Tax Sharing Agreement Amendment, duly executed by Hallmark Cards; and
 
(f) all other previously undelivered documents that HCC is required to deliver
to the Company pursuant to this Agreement.
 
ARTICLE X.
 
TERMINATION
 
Section 10.1. Termination.  Anything in this Agreement to the contrary
notwithstanding, this Agreement and the Transactions may be terminated in any of
the following ways at any time before the Closing and in no other manner:
 
(a) By mutual written consent of all of the parties hereto;
 
(b) By either HCC or the Company upon written notice if a Governmental Entity of
competent jurisdiction shall have enacted, issued or entered any restraining
order, preliminary or permanent injunction or similar order or legal restraint
or prohibition that enjoins or otherwise prohibits consummation of all or any
part of the Transactions; or
 
(c) After the later of (i) June 30, 2010 and (ii) 45 days following receipt of
notice that the Information Statement will not be reviewed by the SEC or that
the SEC staff has no further comments thereon, by HCC or the Company (if such
terminating party or any of its Affiliates is not then in default of any
obligation hereunder), if the Closing has not occurred on or before such date;
 
provided, however, that the termination of this Agreement by the Company
pursuant to this Section 10.1 shall not be effective unless it is first approved
by the Special Committee.
 
Section 10.2. Effect of Termination.  In the event this Agreement is terminated
pursuant to Section 10.1, all further obligations of the parties hereunder shall
terminate, except that Section 5.4 and Articles X and XI shall survive
termination and except that nothing in this Section 10.2 shall relieve any party
hereto of any liability for breach of any of the covenants or any of the
representations or warranties contained in this Agreement prior to such
termination.
 
ARTICLE XI.
 
MISCELLANEOUS PROVISIONS
 
Section 11.1. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (a) when delivered personally to
the recipient, (b) when sent to the recipient by telecopy (receipt
electronically confirmed by sender's telecopy machine) if during normal business
hours of the recipient, otherwise on the next Business Day, (c) one (1) Business
Day after the date when sent to the recipient by reputable express courier
service (charges prepaid), or (d) seven (7) Business Days after the date when
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid.  Such notices, demands and other communications
shall be sent to the parties at the addresses indicated below:
 
If to the Debtors:
Crown Media Holdings, Inc.
12700 Ventura Boulevard
Studio City, California 91604
Attention: Chief Executive Officer
 
With a copy to:
(which shall not constitute notice)
Crown Media Holdings, Inc.
12700 Ventura Boulevard
Studio City, California 91604
Attention: Chief Financial Officer
 
Crown Media Holdings, Inc.
12700 Ventura Boulevard
Studio City, California 91604
Attention: General Counsel
 
Richards, Layton & Finger, P.A.
920 N. King Street
Wilmington, Delaware 19801
Attention: Mark J. Gentile
Facsimile No. (302) 498-7722
 
If to the HCC Lenders:
Hallmark Cards, Incorporated
2501 McGee Trafficway
Kansas City, MO 64108
Attention:  Chief Financial Officer
MD 319
With a copy to:
(which shall not constitute notice)
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
Attention:  Maurice M. Lefkort
Facsimile No. (212) 728-8111

or to such other address as either party hereto may, from time to time,
designate in writing delivered pursuant to the terms of this Section.
 
Section 11.2. Amendments.  The terms, provisions and conditions of this
Agreement may not be changed, modified or amended in any manner except by an
instrument in writing duly executed by all of the parties hereto.  Any change,
modification or amendment by the Company shall only be effective with the
consent of the Special Committee.
 
Section 11.3. No Waiver.  No failure on the part of the parties hereto to
exercise, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy.
 
Section 11.4. Assignment and Parties in Interest.
 
(a) Neither this Agreement nor any of the rights, duties, or obligations of any
party hereunder may be assigned or delegated (by operation of law or otherwise)
by any of the parties hereto except with the prior written consent of the other
parties hereto; provided, however, that prior to or after the Closing, the HCC
Lenders may assign any or all of their rights hereunder to any of their
Affiliates, provided that no such assignment shall relieve such parties of their
obligations hereunder.
 
(b) Except as provided in Section 2.3, this Agreement shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective permitted successors and assigns.
 
Section 11.5. Expenses.  Except as expressly set forth in this Agreement, each
party to this Agreement shall bear all legal, accounting, investment banking and
other expenses incurred by it or on its behalf in connection with this Agreement
and the Transactions.
 
Section 11.6. Entire Agreement.  This Agreement and the Ancillary Documents
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof, supersedes and is in full substitution for any and all
prior agreements and understandings among them relating to such subject matter,
and no party shall be liable or bound to the other party hereto in any manner
with respect to such subject matter by any warranties, representations,
indemnities, covenants, or agreements except as specifically set forth
herein.  The exhibits and schedules to this Agreement are hereby incorporated
and made a part hereof and are an integral part of this Agreement.
 
Section 11.7. Descriptive Headings.  The 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 11.8. Counterparts.  For the convenience of the parties, any number of
counterparts of this Agreement may be executed by any one or more parties
hereto, and each such executed counterpart shall be, and shall be deemed to be,
an original, but all of which shall constitute, and shall be deemed to
constitute, in the aggregate but one and the same instrument.  Facsimile
signatures will be treated as originals.
 
Section 11.9. Governing Law; Jurisdiction.
 
(a) This Agreement and the legal relations between the parties hereto shall be
governed by and construed in accordance with the laws of the State of Delaware,
applicable to contracts made and performed therein.
 
(b) Any and all claims arising out of, relating to or in connection with  this
Agreement or any of the Transactions or the subject matter hereof, shall be
brought exclusively in the Court of Chancery of the State of Delaware or, if
under applicable law exclusive jurisdiction over the matter is vested in the
federal courts, the United States District Court for the District of Delaware
(the "Designated Court").  Each of the parties hereto hereby irrevocably submits
with regard to any such action or proceeding for itself and in respect of its
property, generally and unconditionally, to the personal jurisdiction of the
Designated Court and agrees that it will not bring any action whether in tort,
contract or otherwise arising out of, relating to or in connection with this
Agreement or any of the Transactions or the subject matter hereof in any court
other than the Designated Court.  Each of the parties hereto hereby irrevocably
waives, and agrees not to assert as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement, (a) any claim that it is
not personally subject to the jurisdiction of the Designated Court, (b) any
claim that it or its property is exempt or immune from jurisdiction of the
Designated Court or from any legal process commenced in such the Designated
Court (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (c) to the fullest extent permitted by applicable law, any claim that (i)
the suit, action or proceeding in such Designated Court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper or (iii) this Agreement, or the subject matter hereof, may not be
enforced in or by such Designated Court.
 
(c) Each party acknowledges and agrees that any controversy which 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
Transactions.  Each party certifies and acknowledges that (i) no representative,
agent or attorney of any other party has represented, expressly or otherwise,
that such other party would not, in the event of litigation, seek to enforce the
foregoing waiver, (ii) each party understands and has considered the
implications of this waiver, (iii) each party makes this waiver voluntarily, and
(iv) each party has been induced to enter into this agreement by, among other
things, the mutual waivers and certifications in this Section 11.9.
 
Section 11.10. Construction.  The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rule of strict construction will be applied against any party.  Any references
to any federal, state, local or foreign statute or law will also refer to all
rules and regulations promulgated thereunder, unless the context requires
otherwise.  Unless the context otherwise requires:  (a) a term has the meaning
assigned to it by this Agreement; (b) including means "including but not limited
to"; (c) "or" is disjunctive but not exclusive; (d) words in the singular
include the plural, and in the plural include the singular; and (e) "$" means
the currency of the United States of America.  No specific provision,
representation or warranty shall limit the applicability of a more general
provision, representation or warranty.  It is the intent of the parties that
each representation, warranty, covenant, condition and agreement contained in
this Agreement shall be given full, separate, and independent effect and that
such provisions are cumulative.
 
Section 11.11. Severability.  In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.  Furthermore, in lieu of any such
invalid or unenforceable term or provision, the parties hereto intend that there
shall be added as a part of this Agreement a provision as similar in terms to
such invalid or unenforceable provision as may be possible and be valid and
enforceable.
 
Section 11.12. Specific Performance.  Without limiting or waiving in any respect
any rights or remedies of the HCC Lenders under this Agreement now or
hereinafter existing at law or in equity or by statute, each of the parties
hereto shall be entitled to seek specific performance of the obligations to be
performed by the other in accordance with the provisions of this Agreement.
 
[Remainder of page intentionally left blank.]
 

 
 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written above.
 
HALLMARK PARTIES
HALLMARK CARDS, INCORPORATED

 
 
By:
 /s/ TIMOTHY GRIFFITH

 
 
Name:  TIMOTHY GRIFFITH

 
 
Title:  EXECUTIVE VICE PRESIDENT - CFO

 
H C CROWN CORP.
 
 
By:
 /s/ TIMOTHY GRIFFITH

 
 
Name:  TIMOTHY GRIFFITH

 
 
Title:  VICE PRESIDENT

 
HALLMARK ENTERTAINMENT HOLDINGS, INC.
 
 
By:
 /s/ TIMOTHY GRIFFITH

 
 
Name:  TIMOTHY GRIFFITH

 
 
Title:  PRESIDENT

 

 
THE DEBTORS
CROWN MEDIA HOLDINGS, INC.

 
 
By:
 /s/ CHARLES STANFORD

 
 
Name:  CHARLES STANFORD

 
 
Title:  EXECUTIVE VICE PRESIDENT

 
CROWN MEDIA UNITED STATES, LLC
 
 
By:
 /s/ CHARLES STANFORD

 
 
Name:  CHARLES STANFORD

 
 
Title:  VICE PRESIDENT

 
CM INTERMEDIARY, LLC
 
 
By:
 /s/ CHARLES STANFORD

 
 
Name:  CHARLES STANFORD

 
 
Title:  VICE PRESIDENT

 
CITI TEEVEE, LLC
 
 
By:
 /s/ CHARLES STANFORD

 
 
Name:  CHARLES STANFORD

 
 
Title:  VICE PRESIDENT

 
DOONE CITY PICTURES, LLC
 
 
By:
 /s/ CHARLES STANFORD

 
 
Name: CHARLES STANFORD

 
 
Title:  VICE PRESIDENT

 

 

 
 

--------------------------------------------------------------------------------

 

Schedule 1.1(a)
 
Sample Calculation of the Conversion Price, the Conversion Price Shares and
 
the Shares to be issued pursuant to Section 2.2(b)(iii)
 

 
Assumptions:
 
Closing Date:  April 30, 2010
 
HCC DebtDetermination is the HCC Debt as of the Determination
Date: $1,142,468,389.
 
HCC DebtClosing is the HCC Debt as of the Closing Date:  $1,149,011,446.
 
Step One:  Calculate the Conversion Price Shares:
 
Conversion Price Shares + HCC SharesDetermination= 90.1% (Shares
OutstandingDetermination + Conversion Price Shares + Option SharesDetermination)
 
Where:
 
HCC SharesDetermination are the shares owned directly or indirectly by the HCC
Parties on the Date of Determination calculated pursuant to the definition of
Conversion Price Shares = 69,997,656.
 
Shares OutstandingDetermination are the shares outstanding on the Date of
Determination prior to the Closing = 104,788,076.
 
Option SharesDetermination = shares issuable upon exercise of all Outstanding
Options on the Date of Determination = 85,813.
 
Solving that formula yields Conversion Price Shares of 247,411,294.
 
Step Two:  Calculate the Conversion Price = (HCC DebtDetermination –
500,000,000)/Conversion Price Shares
 
Solving the formula yields a Conversion Price of $2.5968.
 
Step Three:  Calculate the number of shares of Common Stock to be issued
pursuant to Section 2.2(b)(iii).
 
= (HCC DebtClosing -500,000,000)/Conversion Price
 
Solving the formula yields 249,927,390 shares of Common Stock to be issued
pursuant to Section 2.2(b)(iii).
 

 
 

--------------------------------------------------------------------------------

 

 

 
 

--------------------------------------------------------------------------------

 

 
 

--------------------------------------------------------------------------------

 

Schedule 1.1(b)

Knowledge

William Abbott, President & Chief Executive Officer

Charles Stanford, Executive Vice President & General Counsel

Brian Stewart, Executive Vice President & Chief Financial Officer

 
 

--------------------------------------------------------------------------------

 

 
 

--------------------------------------------------------------------------------

 

Schedule 3.4
 
Conflicts or Violations
 
None.
 
 
 
 

 

 

 

 
 

--------------------------------------------------------------------------------

 

 
 

--------------------------------------------------------------------------------

 

Schedule 3.7

Litigation

On July 13, 2009, a lawsuit was brought in the Delaware Court of Chancery
against each member of the Board of Directors of the Borrower, Hallmark Cards
and its affiliates, as well as the Borrower as a nominal defendant, by a
minority stockholder of the Borrower regarding the recapitalization proposal
(the “Proposal”) which the Borrower received from Hallmark Cards.  The plaintiff
is S. Muoio & Co. LLC which owns beneficially approximately 5.8% of the
Borrower's Class A common stock, according to the complaint and filings with the
Securities and Exchange Commission. The Proposal, which the Borrower publicly
announced on May 28, 2009, provides for a recapitalization of its outstanding
debt to Hallmark Cards affiliates in exchange for new debt and convertible
preferred stock of the Borrower. The lawsuit claims to be a derivative action
and a class action on behalf of the plaintiff and other minority stockholders of
the Borrower. The lawsuit alleges, among other things, that, the defendants have
breached fiduciary duties owed to the Borrower and minority stockholders in
connection with the Proposal. The lawsuit includes allegations that if the
Proposal is consummated, an unfair amount of equity would be issued to the
majority stockholder, thereby reducing the minority stockholders' equity and
voting interests in the Borrower, and that the majority stockholder would be
able to eliminate the minority stockholders through a short-form merger. The
complaint requests the court to enjoin the defendants from consummating the
Proposal and to award plaintiff fees and expenses incurred in bringing the
lawsuit.

On July 22, 2009, a Stipulation Providing for Notice of Transaction (the
“Stipulation”) was filed with the Delaware Court of Chancery.  The Stipulation
provided that the Borrower cannot consummate the transaction contemplated in the
Proposal until not less than seven weeks after providing the plaintiff with a
notice of the terms of the proposed transaction, including copies of the final
transaction agreements.  If the plaintiff moves for preliminary injunctive
relief with respect to any such transaction, the parties will establish a
schedule with the Court of Chancery to resolve such motion during the seven week
period.  In addition, following the decision of the Court of Chancery, the
Borrower will not consummate any transaction for a period of at least one week,
during which time any party may seek an expedited appeal.  The Stipulation
further provides that the plaintiff shall withdraw its motion for preliminary
injunction filed on July 13, 2009 and that the action shall be stayed until the
earlier of providing the notice of a transaction or an announcement by the
Borrower that it is no longer considering a transaction.  

 
 
 
 
 

 
 

--------------------------------------------------------------------------------

 

 
 

--------------------------------------------------------------------------------

 

 
 

--------------------------------------------------------------------------------

 

Schedule 3.8

Brokers & Fees

 
 

Morgan Stanley & Co.

Houlihan Lokey Howard & Zukin

 
 

--------------------------------------------------------------------------------

 

 

 

 

 
 

--------------------------------------------------------------------------------