**Exhibit10.11**

 

**EXECUTIONVERSION**
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SECURITYAGREEMENT

 

DATEDAS OF JUNE 29, 2010

 

AMONG

 

CROWNMEDIA HOLDINGS, INC.

 

ASDEBTOR

 

AND

 

HCCROWN CORP.

 

ASSECURED PARTY

 
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TABLEOF CONTENTS

 
| ** ** | ** **                                                                 | **Page**   |
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| ** ** | ** **                                                                 | ** ** |
| 1.         | Definitions                                                                | 1          |
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| 2.         | Grant of Security Interest                                                 | 1          |
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| 3.         | Authorization to File Financing Statements                                 | 2          |
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| 4.         | Other Actions                                                              | 2          |
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| 5.         | Relation to Other Security Documents                                       | 5          |
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| 6.         | Representations and Warranties Concerning  Grantor’s Legal Status     | 5          |
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| 7.         | Covenants Concerning Grantor’s Legal Status                           | 5          |
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| 8.         | Representations and Warranties Concerning  Collateral, etc.                | 6          |
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| 9.         | Covenants Concerning Collateral, etc.                                      | 6          |
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| 10.        | Insurance                                                                  | 7          |
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| 11.        | Collateral Protection Expenses;  Preservation of Collateral                | 7          |
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| 12.        | Securities and Deposits                                                    | 7          |
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| 13.        | Notification to Account Debtors and Other  Persons Obligated on Collateral | 7          |
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| 14.        | Power of Attorney                                                          | 8          |
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| 15.        | Rights and Remedies                                                        | 9          |
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| 16.        | Standards for Exercising Rights and  Remedies                              | 9          |
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| 17.        | No Waiver by Secured Party, etc.                                           | 10         |
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| 18.        | Suretyship Waivers by Grantor                                              | 10         |
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| 19.        | Marshalling                                                                | 10         |
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| 20.        | Proceeds of Dispositions; Expenses                                         | 11         |
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| 21.        | Overdue Amounts                                                            | 11         |
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| 22.        | Amendments, Etc.                                                           | 11         |
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| 23.        | Notices                                                                    | 11         |

 

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| 24.    | Governing Law; Consent to Jurisdiction | 12     |
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| 25.    | Waiver of Jury Trial                   | 13     |
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| 26.    | Miscellaneous                          | 13     |
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| 27.    | Intercreditor                          | 13     |

 

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THIS SECURITY AGREEMENT,(this “Agreement”) dated as of June 29, 2010 between Crown MediaHoldings, Inc, a Delaware corporation (the “Debtor”), each of theGuarantors listed on the signature pages hereto (the “Guarantors”and together with the Debtor, the “Grantors”) and HC Crown Corp., aDelaware corporation (the “Secured Party”).

 

WHEREAS, the Debtor and theSecured Party are each a party to that certain Security and Pledge Agreement,dated July 27, 2007 (as amended, supplemented or modified from time totime the “2007 Security Agreement”) by and among the Debtor, thesubsidiaries of the Debtor listed as Guarantors on that certain Credit,Security, Guarantee and Pledge Agreement dated as of August 31, 2001, assubsequently amended, among Debtor, the Guarantors named therein, the Lendersnamed therein and JPMorgan Chase as Agent and Hallmark Cards, Incorporatedon behalf of itself and as agent for each of the Secured Party and HallmarkEntertainment Holdings, Inc., and the Debtor and the Secured party wishto, and hereby do, continue and extend the security interest granted therein;

 

WHEREAS, the Grantors have enteredinto a Credit Agreement dated as of June 29, 2010 (as amended and ineffect from time to time, the “Credit Agreement”), with the SecuredParty, pursuant to which the Secured Party, subject to the terms and conditionscontained therein, is deemed to make loans to the Debtor; and

 

WHEREAS, it is a conditionprecedent to the Secured Party’s entry into the Credit Agreement that theGrantors execute and deliver to the Secured Party a security agreement insubstantially the form hereof; and

 

WHEREAS, the each of theGrantors wishes to grant a security interest in favor of the Secured Party asherein provided;

 

NOW, THEREFORE, inconsideration of the promises contained herein and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged,the parties hereto agree as follows:

 

1.*          *Definitions. Allcapitalized terms used herein without definitions shall have the respectivemeanings provided therefor in the Credit Agreement. The term “State,” as usedherein, means the State of New York. All terms defined in the UniformCommercial Code of the State and used herein shall have the same definitionsherein as specified therein. However, if a term is defined in Article 9 ofthe Uniform Commercial Code of the State differently than in anotherArticle of the Uniform Commercial Code of the State, the term has themeaning specified in Article 9.

 

2.           Grant of Security Interest. The Grantorshereby continue and extend the security interest granted pursuant to the 2007Security Agreement and grants to the Secured Party, to secure the payment andperformance in full of all of the Obligations, a security interest in and sopledges and assigns to the Secured Party the following properties, assets andrights of the Grantors, wherever located, whether now owned or hereafteracquired or arising, and all proceeds and products thereof (all of the samebeing hereinafter called the “Collateral”): all personal and fixtureproperty of every kind and nature including without limitation all goods (includinginventory,

 

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equipment and any accessions thereto), instruments(including promissory notes), documents, accounts (includinghealth-care-insurance receivables), chattel paper (whether tangible orelectronic), deposit accounts, letter-of-credit rights (whether or not theletter of credit is evidenced by a writing), commercial tort claims, securitiesand all other investment property, supporting obligations, any other contractrights or rights to the payment of money, insurance claims and proceeds, andall general intangibles (including all payment intangibles). The Secured Partyacknowledges that the attachment of its security interest in any additionalcommercial tort claim as original collateral is subject to the Grantor’scompliance with Section 4.7.

 

3.             Authorization to FileFinancing Statements. The Grantors hereby irrevocably authorize theSecured Party at any time and from time to time to file in any filing office inany Uniform Commercial Code jurisdiction any initial financing statements andamendments thereto that (a) indicate the Collateral (i) as all assetsof the Grantors or words of similar effect, regardless of whether anyparticular asset comprised in the Collateral falls within the scope ofArticle 9 of the Uniform Commercial Code of the State or suchjurisdiction, or (ii) as being of an equal or lesser scope or with greaterdetail, and (b) provide any other information required by part 5 ofArticle 9 of the Uniform Commercial Code of the State, or such otherjurisdiction, for the sufficiency or filing office acceptance of any financingstatement or amendment, including (i) whether the Grantor is anorganization, the type of organization and any organizational identification numberissued to the Grantor and, (ii) in the case of a financing statement filedas a fixture filing or indicating Collateral as as-extracted collateral ortimber to be cut, a sufficient description of real property to which theCollateral relates. The Grantors agree to furnish any such information to theSecured Party promptly upon the Secured Party’s request. The Grantors each alsoratify their authorization for the Secured Party to have filed in any UniformCommercial Code jurisdiction any like initial financing statements oramendments thereto if filed prior to the date hereof.

 

4.             Other Actions. To furtherthe attachment, perfection and first priority of, and the ability of theSecured Party to enforce, the Secured Party’s security interest in theCollateral, and without limitation on the Grantor’s other obligations in thisAgreement, each Grantor agrees, in each case at such Grantor’s expense, to takethe following actions with respect to the following Collateral:

 

4.1           Promissory Notes andTangible Chattel Paper. If any Grantor shall at any time hold oracquire any promissory notes or tangible chattel paper, such Grantor shallforthwith endorse, assign and deliver the same to the Secured Party, or for solong as the Credit, Security, Guaranty and Pledge Agreement, dated as ofAugust 31, 2001, (as amended the “Revolver”), the Borrower, theGuarantors named therein, the Lenders referred to therein and JPMorgan ChaseBank, N.A., as Administrative Agent (the “Revolver Agent”) and asIssuing Bank for the Lenders is outstanding, the Revolver Agent, in accordancewith the Intercreditor Agreement, accompanied by such instruments of transferor assignment duly executed in blank as the Secured Party or the Revolver Agentmay from time to time specify.

 

4.2           Deposit Accounts. For eachdeposit account that the any Grantor may at any time open or maintain, suchGrantor shall, at the Secured Party’s request and option, pursuant to anagreement in form and substance satisfactory to the Secured Party, either(a) cause the depositary bank to comply at any time with instructions fromthe Secured Party to such depositary bank directing the disposition of fundsfrom time to time credited to such deposit account, without

 

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further consent of the Grantor, or (b) arrangefor the Secured Party to become the customer of the depositary bank withrespect to the deposit account, with the Grantor being permitted, only with theconsent of the Secured Party, to exercise rights to withdraw funds from suchdeposit account. The provisions of this paragraph shall not apply to(i) any deposit account for which the Grantor the depositary bank and theSecured Party have entered into a cash collateral agreement speciallynegotiated among the Grantor, the depositary bank and the Secured Party for thespecific purpose set forth therein, (ii) a deposit account for which theSecured Party is the depositary bank and is in automatic control, and(iii) deposit accounts specially and exclusively used for payroll, payrolltaxes and other employee wage and benefit payments to or for the benefit of theGrantor’s salaried employees.

 

4.3           Investment Property. If anyGrantor shall at any time hold or acquire any certificated securities, theGrantor shall forthwith endorse, assign and deliver the same to the SecuredParty, or provided the Revolver is still in effect, accompanied by suchinstruments of transfer or assignment duly executed in blank as the SecuredParty may from time to time specify. If any securities now or hereafteracquired by the Grantor are uncertificated and are issued to the Grantor or itsnominee directly by the issuer thereof, the Grantor shall immediately notifythe Secured Party thereof and, at the Secured Party’s request and option,pursuant to an agreement in form and substance satisfactory to the SecuredParty, either (a) cause the issuer to agree to comply with instructionsfrom the Secured Party as to such securities, without further consent of theGrantor or such nominee, or (b) arrange for the Secured Party to becomethe registered owner of the securities. If any securities, whether certificatedor uncertificated, or other investment property now or hereafter acquired byany Grantor are held by the Grantor or its nominee through a securities intermediaryor commodity intermediary, the Grantor shall immediately notify the SecuredParty thereof and, at the Secured Party’s request and option, pursuant to anagreement in form and substance satisfactory to the Secured Party, either(i) cause such securities intermediary or (as the case may be) commodityintermediary to agree to comply with entitlement orders or other instructionsfrom the Secured Party to such securities intermediary as to such securities orother investment property, or (as the case may be) to apply any valuedistributed on account of any commodity contract as directed by the SecuredParty to such commodity intermediary, in each case without further consent ofthe Grantor or such nominee, or (ii) in the case of financial assets orother investment property held through a securities intermediary, arrange forthe Secured Party to become the entitlement holder with respect to suchinvestment property, with the Grantor being permitted, only with the consent ofthe Secured Party, to exercise rights to withdraw or otherwise deal with suchinvestment property. The provisions of this paragraph shall not apply to anyfinancial assets credited to a securities account for which the Secured Partyis the securities intermediary.

 

4.4           Collateral in the Possessionof a Bailee. If any Collateral is at any time in the possessionof a bailee, the Grantor shall promptly notify the Secured Party thereof and,at the Secured Party’s request and option, shall promptly obtain anacknowledgement from the bailee, in form and substance satisfactory to theSecured Party, that the bailee holds such Collateral for the benefit of theSecured Party, and that such bailee agrees to comply, without further consentof the Grantor, with instructions from the Secured Party as to such Collateral.

 

4.5           Electronic Chattel Paper andTransferable Records. If the Grantor at any time holds or acquires aninterest in any electronic chattel paper or any “transferable record,” as 

 

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that term is defined in Section 201 of thefederal Electronic Signatures in Global and National Commerce Act, or inSection 16 of the Uniform Electronic Transactions Act as in effect in anyrelevant jurisdiction, the Grantor shall promptly notify the Secured Partythereof and, at the request and option of the Secured Party, shall take suchaction as the Secured Party may reasonably request to vest in the Secured Partycontrol, under Section 9-105 of the Uniform Commercial Code, of suchelectronic chattel paper or control under Section 201 of the federalElectronic Signatures in Global and National Commerce Act or, as the case maybe, Section 16 of the Uniform Electronic Transactions Act, as so in effectin such jurisdiction, of such transferable record.

 

4.6           Letter-of-Credit Rights. If anyGrantor is at any time a beneficiary under a letter of credit, the Grantorshall promptly notify the Secured Party thereof and, at the request and optionof the Secured Party, the Grantor shall, pursuant to an agreement in form andsubstance satisfactory to the Secured Party, either (i) arrange for theissuer and any confirmer or other nominated person of such letter of credit toconsent to an assignment to the Secured Party of the proceeds of the letter ofcredit, or (ii) arrange for the Secured Party to become the transfereebeneficiary of the letter of credit.

 

4.7           Commercial Tort Claims. If anyGrantor shall at any time hold or acquire a commercial tort claim, the Grantorshall immediately notify the Secured Party in a writing signed by the Grantorof the particulars thereof and grant to the Secured Party in such writing asecurity interest therein and in the proceeds thereof, all upon the terms ofthis Agreement, with such writing to be in form and substance satisfactory tothe Secured Party.

 

4.8           Other Actions as to Any andAll Collateral. Each Grantor further agrees, at the request andoption of the Secured Party, to take any and all other actions the SecuredParty may determine to be necessary or useful for the attachment, perfectionand first priority of, and the ability of the Secured Party to enforce, theSecured Party’s security interest in any and all of the Collateral, including,without limitation, (a) executing, delivering and, where appropriate,filing financing statements and amendments relating thereto under the UniformCommercial Code, to the extent, if any, that the Grantor’s signature thereon isrequired therefor, (b) causing the Secured Party’s name to be noted assecured party on any certificate of title for a titled good if such notation isa condition to attachment, perfection or priority of, or ability of the SecuredParty to enforce, the Secured Party’s security interest in such Collateral,(c) complying with any provision of any statute, regulation or treaty ofthe United States as to any Collateral if compliance with such provision is acondition to attachment, perfection or priority of, or ability of the SecuredParty to enforce, the Secured Party’s security interest in such Collateral,(d) obtaining governmental and other third party waivers, consents andapprovals in form and substance satisfactory to Secured Party, including,without limitation, any consent of any licensor, lessor or other personobligated on Collateral, (e) obtaining waivers from mortgagees andlandlords in form and substance satisfactory to the Secured Party and(f) taking all actions under any earlier versions of the UniformCommercial Code or under any other law, as reasonably determined by the SecuredParty to be applicable in any relevant Uniform Commercial Code or otherjurisdiction, including any foreign jurisdiction.

 

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5.             Relation to Other SecurityDocuments.

 

5.1           Pledge Agreement. Concurrentlyherewith each Grantor is executing and delivering to the Secured Party, pledgeagreement(s) pursuant to which the Grantor is pledging to the SecuredParty all the Equity Interests of the Borrower’s subsidiaries. Such pledgesshall be governed by the terms of such pledge agreements and not by the termsof this Agreement.

 

5.2           Trademark and CopyrightSecurity Agreements. Concurrently herewith each Grantor is alsoexecuting and delivering to the Secured Party the Trademark and CopyrightSecurity Agreements in the form attached hereto as Exhibit A, pursuantto which the Grantor is granting to the Secured Party security interests incertain Collateral consisting of trademarks, service marks and trademark andservice mark rights, together with the goodwill appurtenant thereto,copyrights, and copyright registrations. The provisions of the Trademark andCopyright Security Agreements are supplemental to the provisions of thisAgreement, and nothing contained in the Trademark and Copyright SecurityAgreements shall derogate from any of the rights or remedies of the SecuredParty hereunder. Neither the delivery of, nor anything contained in, theTrademark and Copyright Security Agreements shall be deemed to prevent orpostpone the time of attachment or perfection of any security interest in suchCollateral created hereby.

 

5.3           Copyright Memorandum. Concurrentlyherewith each Grantor is executing and delivering to the Secured Party forrecording in the United States Copyright Office (the “Copyright Office”)a Memorandum of Grant of Security Interest in Copyrights. Each Grantorrepresents and warrants to the Secured Party that such Memorandum identifiesall now existing material copyrights and other rights in and to all materialcopyrightable works of the Grantor, identified, where applicable, by title,author and/or Copyright Office registration number and date. Each Grantorcovenants, promptly following the Grantor’s acquisition thereof, to provide tothe Secured Party like identifications of all material copyrights and otherrights in and to all material copyrightable works hereafter acquired by theGrantor, to register such copyrights with the Copyright Office, and to executeand deliver to the Secured Party a supplemental Memorandum of Grant of SecurityInterest in Copyrights, in form and substance satisfactory to the SecuredParty, modified to reflect such subsequent acquisitions and registrations.

 

6.             Representations andWarranties Concerning Grantor’s Legal Status. The Grantors havepreviously delivered to the Secured Party a certificate signed by the Grantorsand entitled “Perfection Certificate”, substantially in the form of Schedule 1to this Agreement (the “Perfection Certificate”). Each Grantorrepresents and warrants to the Secured Party as follows: (a) the Grantor’sexact legal name is that indicated on the Perfection Certificate and on thesignature page hereof, (b) the Grantor is an organization of thetype, and is organized in the jurisdiction set forth in the PerfectionCertificate, (c) the Perfection Certificate accurately sets forth theGrantor’s organizational identification number or accurately states that theGrantor has none, (d) the Perfection Certificate accurately sets forth theGrantor’s place of business or, if more than one, its chief executive office,as well as the Grantor’s mailing address, if different, (e) all otherinformation set forth on the Perfection Certificate pertaining to the Grantoris accurate and complete, and (f) that there has been no change in anyinformation provided in the Perfection Certificate since the date on which itwas executed by the Grantor.

 

7.             Covenants ConcerningGrantor’s Legal Status. Each Grantor covenants with the SecuredParty as follows: (a) without providing at least thirty (30) days priorwritten notice to the Secured Party, the Grantor will not change its name, itsplace of business or, if more than one, chief

 

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executive office, or its mailing address ororganizational identification number if it has one, (b) if the Grantordoes not have an organizational identification number and later obtains one,the Grantor shall forthwith notify the Secured Party of such organizationalidentification number, and (c) the Grantor will not change its type oforganization, jurisdiction of organization or other legal structure.

 

8.             Representations andWarranties Concerning Collateral, etc. Each Grantor furtherrepresents and warrants to the Secured Party as follows: (a) the Grantoris the owner of the Collateral, free from any right or claim or any person orany adverse lien, security interest or other encumbrance, except for thesecurity interest created by this Agreement and other liens permitted by theCredit Agreement, (b) none of the Collateral constitutes, or is theproceeds of, “farm products” as defined in Section 9-102(a)(34) of theUniform Commercial Code of the State, (c) none of the account debtors orother persons obligated on any of the Collateral is a governmental authoritycovered by the Federal Assignment of Claims Act or like federal, state or localstatute or rule in respect of such Collateral, (d) the Grantor holdsno commercial tort claim except as indicated on the Perfection Certificate, and(e) the Grantor has at all times operated its business in compliance withall applicable provisions of the federal Fair Labor Standards Act, as amended,and with all applicable provisions of federal, state and local statutes andordinances dealing with the control, shipment, storage or disposal of hazardousmaterials or substances, (f) all other information set forth on thePerfection Certificate pertaining to the Collateral is accurate and complete,and (g) that there has been no change in any information provided in thePerfection Certificate since the date on which it was executed by the Grantor.

 

9.             Covenants ConcerningCollateral, etc. Each Grantor further covenants with the SecuredParty as follows: (a) the Collateral, to the extent not delivered to theSecured Party pursuant to Section 4, will be kept at those locationslisted on the Perfection Certificate and the Grantor will not remove theCollateral from such locations, without providing at least thirty days priorwritten notice to the Secured Party, (b) except for the security interestherein granted and liens permitted by the Credit Agreement, the Grantor shallbe the owner of the Collateral free from any right or claim of any otherperson, lien, security interest or other encumbrance, and the Grantor shalldefend the same against all claims and demands of all persons at any timeclaiming the same or any interests therein adverse to the Secured Party,(c) the Grantor shall not pledge, mortgage or create, or suffer to existany right of any person in or claim by any person to the Collateral, or anysecurity interest, lien or encumbrance in the Collateral in favor of anyperson, other than the Secured Party except for liens permitted by the CreditAgreement, (d) the Grantor will keep the Collateral in good order andrepair and will not use the same in violation of law or any policy of insurancethereon, (e) the Grantor will permit the Secured Party, or its designee,to inspect the Collateral at any reasonable time, wherever located,(f) the Grantor will pay promptly when due all taxes, assessments,governmental charges and levies upon the Collateral or incurred in connectionwith the use or operation of such Collateral or incurred in connection withthis Agreement, (g) the Grantor will continue to operate, its business incompliance with all applicable provisions of the federal Fair Labor StandardsAct, as amended, and with all applicable provisions of federal, state and localstatutes and ordinances dealing with the control, shipment, storage or disposalof hazardous materials or substances, and (h) the Grantor will not sell orotherwise dispose, or offer to sell or otherwise dispose, of the Collateral orany interest therein except for (i) sales of inventory and licenses ofgeneral intangibles in the ordinary course of business and(ii) dispositions permitted by Section 6.6 of the Credit Agreement.

 

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10.           Insurance. Each Grantorshall at all times comply with the insurance covenants set forth inSection 5.5 of the Credit Agreement.

 

11.           Collateral ProtectionExpenses; Preservation of Collateral.

 

11.1         Expenses Incurred by SecuredParty. In the Secured Party’s discretion, if any Grantor fails to do so, theSecured Party may discharge taxes and other encumbrances at any time levied orplaced on any of the Collateral, maintain any of the Collateral, make repairsthereto and pay any necessary filing fees or insurance premiums. Each Grantoragrees to reimburse the Secured Party on demand for all expenditures so made.The Secured Party shall have no obligation to the Grantor to make any suchexpenditures, nor shall the making thereof be construed as the waiver or cureof any Default or Event of Default.

 

11.2         Secured Party’s Obligationsand Duties. Anything herein to the contrary notwithstanding,each Grantor shall remain obligated and liable under each contract or agreementcomprised in the Collateral to be observed or performed by the Grantorthereunder. The Secured Party shall not have any obligation or liability underany such contract or agreement by reason of or arising out of this Agreement orthe receipt by the Secured Party of any payment relating to any of theCollateral, nor shall the Secured Party be obligated in any manner to performany of the obligations of the Grantor under or pursuant to any such contract oragreement, to make inquiry as to the nature or sufficiency of any paymentreceived by the Secured Party in respect of the Collateral or as to thesufficiency of any performance by any party under any such contract oragreement, to present or file any claim, to take any action to enforce anyperformance or to collect the payment of any amounts which may have beenassigned to the Secured Party or to which the Secured Party may be entitled atany time or times. The Secured Party’s sole duty with respect to the custody,safe keeping and physical preservation of the Collateral in its possession,under Section 9-207 of the Uniform Commercial Code of the State orotherwise, shall be to deal with such Collateral in the same manner as theSecured Party deals with similar property for its own account.

 

12.           Securities and Deposits. The SecuredParty may at any time following and during the continuance of an Event ofDefault, at its option, transfer to itself or any nominee any securitiesconstituting Collateral, receive any income thereon and hold such income as additionalCollateral or apply it to the Obligations. Whether or not any Obligations aredue, the Secured Party may following and during the continuance of an Event ofDefault demand, sue for, collect, or make any settlement or compromise which itdeems desirable with respect to the Collateral. Regardless of the adequacy ofCollateral or any other security for the Obligations, any deposits or othersums at any time credited by or due from the Secured Party to any Grantor mayat any time be applied to or set off against any of the Obligations.

 

13.           Notification to AccountDebtors and Other Persons Obligated on Collateral. If an Eventof Default shall have occurred and be continuing, each Grantor shall, at therequest and option of the Secured Party, notify account debtors and otherpersons obligated on any of the Collateral of the security interest of theSecured Party in any account, chattel paper, general intangible, instrument orother Collateral and that payment thereof is to be made directly to the SecuredParty or to any financial institution designated by the Secured Party as theSecured Party’s agent therefor, and the Secured Party may itself, if an Eventof Default shall have occurred and be

 

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continuing, without notice to or demand upon the Grantor, so notifyaccount debtors and other persons obligated on Collateral. After the making ofsuch a request or the giving of any such notification, the Grantor shall holdany proceeds of collection of accounts, chattel paper, general intangibles,instruments and other Collateral received by the Grantor as trustee for theSecured Party without commingling the same with other funds of the Grantor andshall turn the same over to the Secured Party in the identical form received,together with any necessary endorsements or assignments. The Secured Partyshall apply the proceeds of collection of accounts, chattel paper, generalintangibles, instruments and other Collateral received by the Secured Party tothe Obligations, such proceeds to be immediately credited after final paymentin cash or other immediately available funds of the items giving rise to them.

 

14.           Power of Attorney.

 

14.1         Appointment and Powers of Secured Party. Each Grantorhereby irrevocably constitutes and appoints the Secured Party and any officeror agent thereof, with full power of substitution, as its true and lawfulattorneys-in-fact with full irrevocable power and authority in the place andstead of the Grantor or in the Secured Party’s own name, for the purpose ofcarrying out the terms of this Agreement, to take any and all appropriateaction and to execute any and all documents and instruments that may benecessary or useful to accomplish the purposes of this Agreement and, without limitingthe generality of the foregoing, hereby gives said attorneys the power andright, on behalf of the Grantor, without notice to or assent by the Grantor, todo the following:

 

(a)           upon the occurrence and during the continuance of anEvent of Default, generally to sell, transfer, pledge, make any agreement withrespect to or otherwise dispose of or deal with any of the Collateral in suchmanner as is consistent with the Uniform Commercial Code of the State and asfully and completely as though the Secured Party were the absolute ownerthereof for all purposes, and to do, at the Grantor’s expense, at any time, orfrom time to time, all acts and things which the Secured Party deems necessaryor useful to protect, preserve or realize upon the Collateral and the SecuredParty’s security interest therein, in order to effect the intent of thisAgreement, all at least as fully and effectively as the Grantor might do,including, without limitation, (i) the filing and prosecuting ofregistration and transfer applications with the appropriate federal, state,local or other agencies or authorities with respect to trademarks, copyrightsand patentable inventions and processes, (ii) upon written notice to theGrantor, the exercise of voting rights with respect to voting securities, whichrights may be exercised, if the Secured Party so elects, with a view to causingthe liquidation of assets of the issuer of any such securities, and(iii) the execution, delivery and recording, in connection with any saleor other disposition of any Collateral, of the endorsements, assignments orother instruments of conveyance or transfer with respect to such Collateral;and

 

(b)           to the extent that the Grantor’s authorization givenin Section 3 is not sufficient, to file such financing statements withrespect hereto, with or without the Grantor’s signature, or a photocopy of thisAgreement in substitution for a financing statement, as the Secured Party maydeem appropriate and to execute in the Grantor’s name such financing statementsand amendments thereto and continuation statements which may require theGrantor’s signature.

 

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14.2         Ratification Grantors. To the extent permitted bylaw, each Grantor hereby ratifies all that said attorneys shall lawfully do orcause to be done by virtue hereof. This power of attorney is a power coupledwith an interest and is irrevocable.

 

14.3         No Duty on Secured Party. The powersconferred on the Secured Party hereunder are solely to protect its interests inthe Collateral and shall not impose any duty upon it to exercise any suchpowers. The Secured Party shall be accountable only for the amounts that itactually receives as a result of the exercise of such powers, and neither itnor any of its officers, directors, employees or agents shall be responsible tothe Grantor for any act or failure to act, except for the Secured Party’s owngross negligence or willful misconduct.

 

15.           Rights and Remedies. If an Event of Defaultshall have occurred and be continuing, the Secured Party, without any othernotice to or demand upon any Grantor have in any jurisdiction in whichenforcement hereof is sought, in addition to all other rights and remedies, therights and remedies of a secured party under the Uniform Commercial Code of theState and any additional rights and remedies which may be provided to a securedparty in any jurisdiction in which Collateral is located, including, withoutlimitation, the right to take possession of the Collateral, and for that purposethe Secured Party may, so far as the Grantor can give authority therefor, enterupon any premises on which the Collateral may be situated and remove the sametherefrom. The Secured Party may in its discretion require the Grantor toassemble all or any part of the Collateral at such location or locations withinthe jurisdiction(s) of the Grantor’s principal office(s) or at suchother locations as the Secured Party may reasonably designate. Unless theCollateral is perishable or threatens to decline speedily in value or is of atype customarily sold on a recognized market, the Secured Party shall give tothe Grantor at least five (5) Business Days prior written notice of thetime and place of any public sale of Collateral or of the time after which anyprivate sale or any other intended disposition is to be made. The Grantorhereby acknowledges that five (5) Business Days prior written notice ofsuch sale or sales shall be reasonable notice. In addition, the Grantor waivesany and all rights that it may have to a judicial hearing in advance of theenforcement of any of the Secured Party’s rights and remedies hereunder,including, without limitation, its right following an Event of Default to takeimmediate possession of the Collateral and to exercise its rights and remedieswith respect thereto.

 

16.           Standards for Exercising Rights and Remedies. To the extentthat applicable law imposes duties on the Secured Party to exercise remedies ina commercially reasonable manner, the Grantor acknowledges and agrees that itis not commercially unreasonable for the Secured Party (a) to fail toincur expenses reasonably deemed significant by the Secured Party to prepareCollateral for disposition or otherwise to fail to complete raw material orwork in process into finished goods or other finished products for disposition,(b) to fail to obtain third party consents for access to Collateral to bedisposed of, or to obtain or, if not required by other law, to fail to obtaingovernmental or third party consents for the collection or disposition ofCollateral to be collected or disposed of, (c) to fail to exercisecollection remedies against account debtors or other persons obligated onCollateral or to fail to remove liens or encumbrances on or any adverse claimsagainst Collateral, (d) to exercise collection remedies against accountdebtors and other persons obligated on Collateral directly or through the useof collection agencies and other collection specialists, (e) to advertisedispositions of Collateral through publications or media of generalcirculation, whether or not the Collateral is of a specialized nature,(f) to contact other persons, whether or not in the same business as theGrantor, for expressions of interest in acquiring all or any portion of the

 

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Collateral, (g) to hire one or more professional auctioneers toassist in the disposition of Collateral, whether or not the collateral is of aspecialized nature, (h) to dispose of Collateral by utilizing Internetsites that provide for the auction of assets of the types included in theCollateral or that have the reasonable capability of doing so, or that matchbuyers and sellers of assets, (i) to dispose of assets in wholesale ratherthan retail markets, (j) to disclaim disposition warranties, (k) topurchase insurance or credit enhancements to insure the Secured Party againstrisks of loss, collection or disposition of Collateral or to provide to theSecured Party a guaranteed return from the collection or disposition ofCollateral, or (l) to the extent deemed appropriate by the Secured Party,to obtain the services of other brokers, investment bankers, consultants andother professionals to assist the Secured Party in the collection ordisposition of any of the Collateral. The Grantor acknowledges that the purposeof this Section 16 is to provide non-exhaustive indications of whatactions or omissions by the Secured Party would fulfill the Secured Party’sduties under the Uniform Commercial Code or other law of the State or any otherrelevant jurisdiction in the Secured Party’s exercise of remedies against theCollateral and that other actions or omissions by the Secured Party shall notbe deemed to fail to fulfill such duties solely on account of not beingindicated in this Section 16. Without limitation upon the foregoing,nothing contained in this Section 16 shall be construed to grant anyrights to the Grantor or to impose any duties on the Secured Party that wouldnot have been granted or imposed by this Agreement or by applicable law in theabsence of this Section 16.

 

17.           No Waiver by Secured Party, etc. The SecuredParty shall not be deemed to have waived any of its rights or remedies inrespect of the Obligations or the Collateral unless such waiver shall be in writingand signed by the Secured Party. No delay or omission on the part of theSecured Party in exercising any right or remedy shall operate as a waiver ofsuch right or remedy or any other right or remedy. A waiver on any one occasionshall not be construed as a bar to or waiver of any right or remedy on anyfuture occasion. All rights and remedies of the Secured Party with respect tothe Obligations or the Collateral, whether evidenced hereby or by any otherinstrument or papers, shall be cumulative and may be exercised singularly,alternatively, successively or concurrently at such time or at such times asthe Secured Party deems expedient.

 

18.           Suretyship Waivers by Grantor. The Grantorwaives demand, notice, protest, notice of acceptance of this Agreement, noticeof loans made, credit extended, Collateral received or delivered or otheraction taken in reliance hereon and all other demands and notices of anydescription. With respect to both the Obligations and the Collateral, theGrantor assents to any extension or postponement of the time of payment or anyother indulgence, to any substitution, exchange or release of or failure toperfect any security interest in any Collateral, to the addition or release ofany party or person primarily or secondarily liable, to the acceptance ofpartial payment thereon and the settlement, compromising or adjusting of anythereof, all in such manner and at such time or times as the Secured Party maydeem advisable. The Secured Party shall have no duty as to the collection orprotection of the Collateral or any income therefrom, the preservation ofrights against prior parties, or the preservation of any rights pertainingthereto beyond the safe custody thereof as set forth in Section 11.2. TheGrantor further waives any and all other suretyship defenses.

 

19.           Marshalling. The Secured Party shallnot be required to marshal any present or future collateral security (includingbut not limited to the Collateral) for, or other assurances of payment of, theObligations or any of them or to resort to such collateral security or other

 

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assurances of payment in any particular order, and all of its rightsand remedies hereunder and in respect of such collateral security and other assurancesof payment shall be cumulative and in addition to all other rights andremedies, however existing or arising. To the extent that it lawfully may, theGrantor hereby agrees that it will not invoke any law relating to themarshalling of collateral which might cause delay in or impede the enforcementof the Secured Party’s rights and remedies under this Agreement or under anyother instrument creating or evidencing any of the Obligations or under whichany of the Obligations is outstanding or by which any of the Obligations issecured or payment thereof is otherwise assured, and, to the extent that itlawfully may, the Grantor hereby irrevocably waives the benefits of all suchlaws.

 

20.           Proceeds of Dispositions; Expenses. The Grantorshall pay to the Secured Party on demand any and all expenses, includingreasonable attorneys’ fees and disbursements, incurred or paid by the SecuredParty in protecting, preserving or enforcing the Secured Party’s rights andremedies under or in respect of any of the Obligations or any of theCollateral. After deducting all of said expenses, the residue of any proceedsof collection or sale or other disposition of the Collateral shall, to theextent actually received in cash, be applied to the payment of the Obligations insuch order or preference as the Secured Party may determine. Upon the finalpayment and satisfaction in full of all of the Obligations and after making anypayments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the UniformCommercial Code of the State, any excess shall be returned to the Grantor. Inthe absence of final payment and satisfaction in full of all of theObligations, the Grantor shall remain liable for any deficiency.

 

21.         Overdue Amounts. Until paid, all amountsdue and payable by the Grantor hereunder shall be a debt secured by theCollateral and shall bear, whether before or after judgment, interest at therate of interest for overdue principal set forth in the Credit Agreement.

 

22.         Amendments, Etc. No amendment or waiver ofany provision of this Agreement nor consent to any departure by any Grantorherefrom shall in any event be effective unless the same shall be in writingand signed by the Debtor and the Secured Party, and then such waiver or consentshall be effective only in the specific instance and for the specific purposefor which given. No failure on the part of Secured Party to exercise, and nodelay in exercising any right under this Agreement, any other FundamentalDocument, or otherwise with respect to any of the Secured Obligations, shalloperate as a waiver thereof; nor shall any single or partial exercise of anyright under this Agreement, any other Fundamental Document, or otherwise withrespect to any of the Secured Obligations preclude any other or further exercisethereof or the exercise of any other right. The remedies provided for in thisAgreement or otherwise with respect to any of the Secured Obligations arecumulative and not exclusive of any remedies provided by law.

 

23.         Notices.

 

Unless otherwise specifically provided herein, allnotices shall be in writing addressed to the respective party as set forthbelow: and may be personally served, faxed, telecopied or sent by overnightcourier service or United States mail:

 

If to any Grantor:

 

Crown Media Holdings, Inc.

 

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12700 Ventura Blvd.

 

Studio City, California 91604 

 

Attention: William J. Abbott

 

If to Secured Party:

 

Hallmark Cards, Inc.

 

2501 McGee, Mail Drop 342 

 

Kansas City, MO 64108 

 

Attention: Tim Griffith

 

with a copy to:

 

Willkie Farr & Gallagher LL 

 

787 Seventh Avenue

 

New York, New York 10019 

 

Attention: Maurice M. Lefkort

 

Any notice given pursuant to this section shall bedeemed to have been given: (a) if delivered in person, when delivered; (b) ifdelivered by fax, on the date of transmission if transmitted on a Business Daybefore 4:00 p.m. at the place of receipt or, if not, on the next succeedingBusiness Day; (c) if delivered by overnight courier, two (2) daysafter delivery to such courier properly addressed; or (d) if by UnitedStates mail, four (4) Business Days after depositing in the United Statesmail, with postage prepaid and properly addressed. Any party hereto may changethe address or fax number at which it is to receive notices hereunder by noticeto the other party in writing in the foregoing manner.

 

24.         Governing Law; Consent to Jurisdiction. THISAGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BEGOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEWYORK. The Grantor agrees that any action or claim arising out of, or anydispute in connection with, this Agreement, any rights, remedies, obligations,or duties hereunder, or the performance or enforcement hereof or thereof, maybe brought in the courts of the State or any federal court sitting therein, orin the courts of the State of Delaware sitting in New Castle county Delaware orof the United States District Court of the District of Delaware and consents tothe non-exclusive jurisdiction of such court and to service of process in anysuch suit being made upon the Grantor by mail at the address specified inSection 9.1 of the Credit Agreement. The Grantor hereby waives

 

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any objection that it may now or hereafter have to the venue of anysuch suit or any such court or that such suit is brought in an inconvenientcourt.

 

25.           Waiver of Jury Trial. THE GRANTOR WAIVES ITSRIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANYDISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS,OR DUTIES HEREUNDER, OR THE PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF.Except as prohibited by law, the Grantor waives any right which it may have toclaim or recover in any litigation referred to in the preceding sentence anyspecial, exemplary, punitive or consequential damages or any damages otherthan, or in addition to, actual damages. The Grantor (i) certifies that neitherthe Secured Party nor any representative, agent or attorney of the SecuredParty has represented, expressly or otherwise, that the Secured Party wouldnot, in the event of litigation, seek to enforce the foregoing waivers or otherwaivers contained in this Agreement, and (ii) acknowledges that, in enteringinto the Credit Agreement and the other Fundamental Documents to which theSecured Party is a party, the Secured Party is relying upon, among otherthings, the waivers and certifications contained in this Section 23.

 

26.           Miscellaneous. The headings of eachsection of this Agreement are for convenience only and shall not define orlimit the provisions thereof. This Agreement and all rights and obligationshereunder shall be binding upon the Grantor and its respective successors andassigns, and shall inure to the benefit of the Secured Party and its successorsand assigns. If any term of this Agreement shall be held to be invalid, illegalor unenforceable, the validity of all other terms hereof shall in no way beaffected thereby, and this Agreement shall be construed and be enforceable asif such invalid, illegal or unenforceable term had not been included herein.The Grantor acknowledges receipt of a copy of this Agreement.

 

27.           Intercreditor. The terms and conditionsof this Agreement are subject to the terms and conditions of the IntercreditorAgreement. In the event of any conflict between the terms and conditions ofthis Agreement and the terms, conditions and provisions of the IntercreditorAgreement, the terms, conditions and provisions of the Intercreditor Agreementshall control. The rights and remedies of the Secured Party under thisAgreement will be subject to the terms, conditions and provisions of theIntercreditor Agreement. Notwithstanding anything to the contrary in thisAgreement, prior to the discharge of the First Priority Obligations (as definedin the Intercreditor Agreement), any obligation of the Grantors in thisAgreement that requires delivery of Collateral to, possession or control ofCollateral with, the pledge, assignment, endorsement or transfer of Collateralto or the registration of Collateral in the name of, the Secured Party shall bedeemed complied with and satisfied if such delivery of collateral is made to,such possession or control of Collateral is with, or such Collateral beassigned, endorsed or transferred to or registered in the name of, theRevolving Lender; provided that, notwithstanding the foregoing, nothingcontained in this Section shall limit or otherwise adversely effect thegrant of a lien on or a security interest in any Collateral underSection 2 of this Agreement. To the extent that any Covenants,representations or warranties set forth in this Agreement are untrue orincorrect solely as a result of the delivery to, or grant of possession orcontrol to, the Revolving Lender in accordance with this Section, suchrepresentation or warranty shall not be deemed to be untrue or incorrect forpurposes of this Agreement.

 

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IN WITNESS WHEREOF, intending to be legally bound,the Grantor has caused this Agreement to be duly executed as of the date firstabove written.

 
|   | DEBTOR:                        |
|--------|--------------------------------|
|   |                           |
|   | **CROWN MEDIA HOLDINGS, INC.** |
|   |                           |
|   | By:                            | /s/ Brian Stewart |
|   |                           | Name: | Brian Stewart |
|   |                           | Title: | EVP/CFO |
|   |                           |
|   | GUARANTORS:                    |
|   |                           |
|   | CROWN MEDIA UNITED STATES, LLC |
|   |                           |
|   |                           |
|   | By:                            | /s/ Brian Stewart |
|   |                           | Name: | Brian Stewart |
|   |                           | Title: | EVP/CFO |
|   |                           |
|   | CM INTERMEDIARY, LLC           |
|   |                           |
|   |                           |
|   | By:                            | /s/ Brian Stewart |
|   |                           | Name: | Brian Stewart |
|   |                           | Title: | EVP/CFO |
|   |                           |
|   | CITI TEEVEE, LLC               |
|   |                           |
|   |                           |
|   | By:                            | /s/ Brian Stewart |
|   |                           | Name: | Brian Stewart |
|   |                           | Title: | EVP/CFO |
|   |                           |
|   | DOONE CITY PICTURES, LLC       |
|   |                           |
|   |                           |
|   | By:                            | /s/ Brian Stewart |
|   |                           | Name: | Brian Stewart |
|   |                           | Title: | EVP/CFO |

 

[SignaturePage to the Security Agreement]

 

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|   | ACCEPTED AND AGREED BY |
|--------|------------------------|
|   |                   |
|   | SECURED PARTY:         |
|   |                   |
|   | **HC CROWN CORP.**     |
|   |                   |
|   | By:                    | /s/ Timothy Griffith |
|   |                   | Name: | Timothy Griffith |
|   |                   | Title: | Vice President |

 

[SignaturePage to the Security Agreement]

 

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