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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                 to       
                          .


Commission File Number: 000-30700

Crown Media Holdings, Inc.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or Other Jurisdiction
of Incorporation or Organization)

84-1524410(I.R.S. Employer
Identification No.)


12700 Ventura Boulevard,
Suite 200,
Studio City, California 91604(Address of Principal Executive Offices and Zip Code)

(818) 755-2400(Registrant's Telephone Number, Including Area Code)

Securities
registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange
on Which RegisteredClass A Common Stock, $0.01 par value

The NASDAQ Stock Market LLC


Securities
registered pursuant to Section 12(g) of the Act:None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12 b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold as of June 30, 2010, the last business day of the registrant's most recently completed second fiscal quarter, was $61,095,061.

As
of February 28, 2011, the number of shares of Class A Common Stock, $.01 par value outstanding was 359,675,936.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2011 Annual Meeting of Stockholders, to be filed, are incorporated by reference in Part III of this
Form 10-K.



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TABLE OF CONTENTS



PagePart I


1Item 1

Business


1Item 1A

Risk Factors


21Item 1B

Unresolved Staff Comments


26Item 2

Properties


27Item 3

Legal Proceedings


27Part II


28Item 5

Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


28Item 6

Selected Financial Data


30Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operations


32Item 7A

Quantitative and Qualitative Disclosures About Market Risk


50Item 8

Financial Statements and Supplementary Data


51Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


51Item 9A

Controls and Procedures


51Item 9B

Other Information


52Part III


52Item 10

Directors, Executive Officers and Corporate Governance


52Item 11

Executive Compensation


53Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


53Item 13

Certain Relationships and Related Transactions, and Director Independence


53Item 14

Principal Accountant Fees and Services


59Part IV


60Item 15

Exhibits and Financial Statement Schedules


60Signatures


72


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In this Annual Report on Form 10-K the terms "Crown Media Holdings" or the "Company," refer to Crown Media
Holdings, Inc. and, unless the context requires otherwise, subsidiaries of Crown Media Holdings that operate or have operated our businesses, including Crown Media United States, LLC
("Crown Media United States"). The term "Common Stock" refers to our Class A Common Stock and Class B Common Stock, unless the context requires otherwise. As part of the recapitalization
transactions described below, each outstanding share of Class B Common Stock was reclassified as a share of Class A Common Stock and the Class B Common Stock was eliminated. The
term "Preferred Stock" refers to our Series A Convertible Preferred Stock.

The name "Hallmark" and other product or service names are trademarks or registered trademarks of entities owned by Hallmark Cards, Incorporated ("Hallmark
Cards").

PART I

ITEM 1.    Business

Company Overview

We own and operate pay television channels (the "Channels"), known as the Hallmark Channel and the Hallmark Movie Channel, each of
which is dedicated to high-quality entertainment programming for adults and families. The Hallmark Channel is a 24-hour television destination for family-friendly programming
and a leader in the production of original movies. The Hallmark Movie Channel is a 24-hour cable network dedicated to offering viewers a collection of movies appropriate for the entire
family. The Hallmark Movie Channel offers a mix of Hallmark Channel original movies, classical theatrical films, and Hallmark Hall of Fame presentations. Our Channels are distributed in the United
States of America and its territories and possessions, including Puerto Rico.

The
Channels offer compelling stories, masterfully written, directed and produced with talented and recognized actors. We believe that we have established these Channels as destinations
for viewers seeking high-quality entertainment for adults and families, and as attractive outlets for advertisers seeking to target these viewers. We have distribution agreements with
leading pay television distributors. The following table shows our Channels' programming sources, selected pay television distributors and the total number of subscribers as of December 31,
2010.

Hallmark Channel

Hallmark Movie ChannelProgramming Sources

Original Productions

Original ProductionsOther third-party sources

Other third-party sourcesHallmark Hall of Fame

Hallmark Hall of FameSelected Pay Television Distributors

Cablevision Cequel III Charter

Cablevision CharterComcastComcast

CoxCox

DIRECTVDIRECTV

Dish NetworkDish Network

NCTCNCTC

Time WarnerMediacom

Verizon Communication (FiOS)Time WarnerVerizon Communication (FiOS)Total Subscribers

87.3 million(1)

37.6 million(1)


(1)Source:
Nielsen Code and The Nielsen Public U.E. December 2010.


We view a "subscriber" as a household that receives, on a full or part-time basis, a channel on a program tier of a distributor. We
determine our Hallmark Channel subscribers from subscriber

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numbers
reported by Nielsen Media Research. Subscribers include both viewers who pay a monthly fee for the tier programming and so-called "promotional" subscribers who are given free
access to the tier by the distributor for a limited time.

Programming
acquired from third parties is an important component of our Channels as we continually develop and refine our programming strategy. This programming includes original movies
produced by a variety of experienced television production companies and "off network" television series. Our
production agreements cover one specific movie or a package of several movies. Typically under these agreements, our Channels have the right to exhibit the movies for an initial window of 5 to
8 years and have the right to extend the term for an additional 3 years, which we exercise based on the performance of the movies in their initial window. With respect to television
series which we acquire from third parties, we typically have the right to exhibit the series for a window of 3 to 5 years.

We
currently distribute (a) the Hallmark Channel through approximately 5,364 cable, satellite and other pay television distribution systems and (b) the Hallmark Movie
Channel through approximately 2,117 such systems. Four of our distributors each accounted for more than 10%, and together accounted for a total of 66%, of our consolidated subscriber revenue for the
year ended December 31, 2010. Three of our distributors each accounted for approximately 15% or more of our consolidated subscribers for the year ended December 31, 2010, and together
accounted for 60% of our consolidated subscribers on that date.

We
license the trademark "Hallmark" for use on our Channels pursuant to certain trademark license agreements with a subsidiary of Hallmark Cards. We believe that the use of this
trademark is extremely important for our Channels due to the substantial name recognition and favorable characteristics associated with the name in the United States. For further information
concerning these trademark license agreements, see Part IIItem 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsTrademark
Agreement with Hallmark Cards.

During
2008, 2009 and 2010, domestic channel operations comprised the Company's sole operating segment.

Recent Developments

Recapitalization

On June 29, 2010 the Company consummated a series of recapitalization transactions (the "Recapitalization") pursuant to a Master
Recapitalization Agreement dated February 26, 2010, by and among the Company, Hallmark Cards, H C Crown, LLC ("HCC"), a subsidiary of Hallmark Cards, and related entities.

Among
other things, the Recapitalization included the following:



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The
following were issued in exchange for HCC Debt:



Immediately
after consummation of the Mergers and issuance of Common Stock in partial exchange for HCC Debt, HCC owned approximately 90.3% of the Company's Class A Common Stock
and all of the outstanding Preferred Stock.

In
addition, the transactions resulted in the following:



Credit Agreement

Pursuant to the Recapitalization, the Company and HCC entered into a Credit Agreement providing for the restructuring of approximately
$315.0 million principal amount of the HCC Debt into new debt instruments on terms including the following:



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The
Company has the option to PIK up to three additional quarterly cash payments in the aggregate for the Term A Loan and the Term B Loan. Exercise of the 2010 PIK option under the
Term B Loan did not reduce the number of additional PIK options available to the Company. If the Company opts to PIK both the Term A Loan and the Term B Loan cash interest payments in a single
quarter, that will count as two of the Company's three additional PIK options.

Default Interest:The Company will be required to pay interest on its obligations to HCC at an interest rate equal to the original
interest rate
applicable to such obligations plus 2% if: (i) any amount of principal of the New Debt is not paid when due; (ii) any amount payable under any Fundamental Document (as defined in the
Credit Agreement) is not paid when due; or (iii) an Event of Default (as described below) exists.

Prepayment:The New Debt is prepayable at any time at par plus accrued interest.

Mandatory Prepayments:The following amounts must be used to prepay the New Debt: (1) all net cash proceeds from asset sales or
other
dispositions, except to the extent such net cash proceeds are reinvested in productive assets of a kind then used or usable in the business of the Company or its subsidiaries within 180 days of
the sale or other disposition; (2) 100% of net cash proceeds from equity issuances; (3) 100% of net cash proceeds from debt issuances (exclusive of the bank credit facility);
(4) 75% of Excess Cash Flow (as defined in the Credit Agreement); and (5) upon the sale of assets in advance of a condemnation proceeding, or following the occurrence of a casualty or
condemnation for which the Company or its subsidiaries have received proceeds, any such proceeds in excess of the amount used to replace the subject assets. Prepayments must be applied in the
following order (i) first to PIK interest on the Term A Loan (ii) then to principal on the Term A Loan (iii) then to PIK interest on the Term B Loan, and (iv) finally to
principal on the Term B Loan. In February 2011, HCC consented to modifying the definition of Excess Cash Flow by allowing the Company to deduct the following from Cash Flow from Operating Activities:
(i) all interest and principal paid pursuant to the Credit Agreement that is not otherwise captured in (a) or (e) of the definition of "Excess Cash Flow" and (ii) all
payments for debt restructuring costs under a troubled debt restructuring that are shown in the "Cash Flow from Financing Activities" section of Crown's Consolidated Statement of Cash Flows.

Acceleration:The principal and interest on the New Debt will become immediately due and payable upon a change in control arising from
(i) a
Premium Transaction (as described below under "Stockholders Agreement") or (ii) a transaction approved by the Company's Board of Directors. Upon an Event of Default, HCC may declare the
principal and interest on the New Debt due and payable, without presentment, demand, protest or other notice.

Collateral:The obligations under the Credit Agreement are secured by substantially all assets of the Company's and its subsidiary
guarantors' (each,
a "Credit Party", collectively, the "Credit Parties"). This security interest is subordinate to the lender's security interest under the JP Morgan Chase Bank revolving credit facility.

Affirmative Covenants:Under the Credit Agreement, the Credit Parties will, among other things:



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Negative Covenants:The Credit Agreement includes restrictions on the ability of the Credit Parties' to, among other things:



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Events of Default:The Credit Agreement defines "Events of Default" to include the following:



Stockholders Agreement

Pursuant to the Recapitalization, the Company, Hallmark Cards and HCC entered into the Stockholders Agreement which provides for, among
other things, the following.

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Standstill Provisions:Hallmark Cards will not, and will cause its controlled affiliates not to, acquire any additional shares of
Common Stock
(including pursuant to a short form merger) until December 31, 2013 except:



"Premium
Transaction" means a transaction involving the sale or transfer by HCC of its shares of Common Stock to a third party (by merger or otherwise) in which all stockholders
unaffiliated with Hallmark Cards are entitled to participate and are entitled to receive both (i) consideration equivalent in value to the highest consideration per share of Common Stock
received by HCC in connection with
such transaction, and (ii) a premium of $0.50 per share of Common Stock (subject to adjustment for any stock splits, combinations, reclassifications, adjustments, sale of Common Stock by the
Company, or sale of Common Stock by HCC pursuant to a public offering or block trade as described above, or any similar transaction). For the avoidance of doubt, the aggregate premium shall not exceed
$17,400,880, which is the product of the number of outstanding shares owned by minority stockholders as of the date of the Master Recapitalization Agreement multiplied by $0.50. Also, for the
avoidance of doubt, HCC may effectuate a Premium Transaction pursuant to a short-form merger (or other merger) between the Company and HCC or any purchaser of its shares, so long as the
holders of Class A Common Stock not affiliated with HCC receive the consideration provided for in this paragraph in connection with such merger.

Co-sale Provisions:Until December 31, 2013, HCC will not sell or transfer its Common Stock to a third party except:



From
and after January 1, 2014 until the earlier of December 31, 2020, or such time as Hallmark Cards and its controlled affiliates no longer beneficially own a majority of
the Common Stock, HCC will not sell or transfer, in one or a series of related transactions, a majority of the outstanding shares of Common Stock to a third party, unless (x) in a Permitted
Transfer, (y) with the prior approval of a special committee of the Board of Directors or (z) all stockholders unaffiliated with Hallmark Cards will at Hallmark Card's option be entitled
to either participate in such transaction on the same terms

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as
HCC or receive cash consideration equivalent in value to the highest consideration per share of Common Stock received by HCC in connection with such transaction.

Subscription Rights:Except as otherwise set forth below, any time the Company proposes to issue equity securities of any kind,
including any
warrants, options or other rights to acquire equity securities and debt securities convertible into equity securities ("Proposed Securities"), the Company will:



If
the Proposed Securities are to be issued to employees of the Company or its affiliates as compensation with the approval of the Board of Directors (the "Employee Proposed
Securities"), the Company must comply with the following:



The
Company did not issue any Proposed Securities to employees during 2010.

If
the Proposed Securities are options or rights to acquire capital stock of the Company but are not Employee Proposed Securities, then the issuance of the Proposed Securities will be
deemed to occur upon the exercise of the options or rights and not upon the issuance of the options or rights, and HCC and, if applicable, its affiliates have the right to purchase capital stock of
the same class as the underlying security. HCC or its affiliates may purchase up to the number of shares of capital stock equal to the number of shares of the underlying security to be issued upon the
exercise of such Proposed Securities multiplied by a fraction, the numerator of which is the Fully Diluted Ownership Percentage and the denominator of which is the quantity 100% minus the Fully
Diluted Ownership Percentage. The issuance price will be deemed to be the sum of the purchase price for such options or rights, plus any additional consideration paid upon exercise of such options or
rights.

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HCC and, if applicable, its affiliates, must exercise their purchase rights within ten (10) business days after receipt of such notice from the Company.
Upon the expiration of the offering period, the Company will be free to sell such Proposed Securities that HCC and its affiliates have not elected to purchase during the ninety (90) days
following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered HCC and its affiliates.

The
majority of the obligations of Hallmark Cards set forth in the Stockholders Agreement will terminate upon a payment default on the New Debt, subject to a 60-day cure
period. The Stockholders Agreement also terminates on the earliest of (i) such time as Hallmark Cards and its controlled affiliates cease to hold a majority of the Common Stock,
(ii) such time as Hallmark Cards and its affiliates own all of the outstanding Common Stock and (iii) December 31, 2020.

Prior Stockholders Agreement

Prior to the Recapitalization, we were a party to a stockholders agreement, amended and restated as of August 30, 2001, as
further amended, with VISN, The DIRECTV Group, Inc. ("DIRECTV"), and Hallmark Entertainment Investments. The stockholders agreement provided certain corporate governance rights, and limitations
on the Company's ability,
directly or indirectly, to enter into any material contracts or transactions with any affiliate of certain stockholders. As a result of the Recapitalization, this stockholders agreement is no longer
effective.

Registration Rights Agreement

In connection with the Recapitalization, the Company and HCC are parties to a Registration Rights Agreement (the "Registration Rights
Agreement") relating to the shares of Common Stock (i) issued to HCC or any joined party in connection with the Mergers, (ii) issuable to HCC upon conversion of the HCC Debt and upon
conversion of the Preferred Stock, (iii) acquired by HCC pursuant to its subscription rights as set forth in the Stockholders Agreement and (iv) issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of the shares of Common Stock referred to in clauses (i)(iii) (the shares described in
clauses (i)(iv) collectively, the "Registrable Securities"). The Registration Rights Agreement grants (i) 3 demand registration rights exercisable by the holders of a
majority of the Registrable Securities, (ii) 3 resale shelf demand rights exercisable by holders of a majority of the Registrable Securities and (iii) unlimited piggyback rights. The
expenses of any of these registrations will be borne by the Company.

Preferred Stock Terms

In connection with the Recapitalization, the Company issued to HCC 185,000 shares of Preferred Stock. The terms of the Preferred Stock
include the following:

Dividends:No dividends will accrue or be payable from the date of issue of the Preferred Stock through December 31, 2010.
Cumulative
dividends will accrue from and after January 1, 2011 through December 31, 2011 at the rate of 14% per annum of the Original Issue Price. The "Original Issue Price" is $1,000 per share
subject to adjustment in the event of any stock dividends, stock splits, stock distributions or combinations and other corporate actions having a similar effect with respect to the Preferred Stock.
Cumulative dividends will accrue from and after January 1, 2012 at the rate of 16% per annum of the Original Issue Price. Until December 31, 2014, dividends are payable in cash or in
additional shares of Preferred Stock, at the option of the Company. After December 31, 2014, dividends on the Preferred Stock are payable in cash only. The Preferred Stock will participate with
the Common Stock as to any declared dividends on an "as converted" basis.

Optional Conversion:Each share of Preferred Stock will become and remain convertible at the earlier of December 31, 2013, or upon
a payment
or refinancing of the New Debt (a "Refinancing") at the option of the holder into a share of Common Stock at the rate equal to the Original Issue Price

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plus
accrued and unpaid cash dividends with respect to such shares of Preferred Stock divided by the Preferred Conversion Price. "Preferred Conversion Price" was $2.5969 as of the closing of the
Recapitalization, which price is subject to adjustments for stock splits, combinations, dividends, mergers, recapitalizations and other corporate actions having a similar effect with respect to the
Preferred Stock and other adjustments as provided below under "Anti-Dilution Protection."

Anti-Dilution Protection:The Preferred Conversion Price will be subject to adjustment for stock splits, combinations, dividends,
mergers, recapitalizations and other corporate actions having a similar effect with respect to the Preferred Stock. The Preferred Conversion Price will also be subject to adjustment on a
full-ratchet basis in the event that the Company issues additional shares (other Board-approved employee options or shares in an acquisition, merger or joint venture) at a purchase price
less than the prevailing Preferred Conversion Price. Full-ratchet basis means an adjustment of the Preferred Conversion Price to the lowest consideration paid per share for the additional
shares. Shares subject to options, other rights to acquire and convertible securities are deemed issued at their then exercise or conversion price.

Mandatory Redemption:The Company must provide written notice (the "Excess Proceeds Notice") to holders of Preferred Stock, when and as
the Company
receives, upon a refinancing of the New Debt, net proceeds from such refinancing in excess of the aggregate outstanding principal and interest amounts of New Debt (the "Excess Refinancing Proceeds").
Upon receipt of such notice, the holders of Preferred Stock may elect to apply such Excess Refinancing Proceeds to redeem (to the extent of funds legally available for such redemption) at the
Redemption Price a number of the outstanding shares of Preferred Stock. The "Redemption Price" means a price per share equal to the Original Issue Price, plus an amount equal to any accrued but unpaid
cash dividends with respect to such share, together with any other dividends declared but unpaid. If the Company receives any such requests, it must redeem on the twentieth day after delivery of the
Excess Proceeds Notice, the number of outstanding shares of Preferred Stock set forth in all such notices received by the Company within fifteen days after delivery of the Excess Proceeds Notice. If
the Excess Refinancing Proceeds are not sufficient to redeem all shares of Preferred Stock to be redeemed, the Company will redeem a pro rata portion of redeemable shares based on the holders'
respective redemption requests.

Optional Redemption:The Company will be able to redeem the Preferred Stock at any time, upon 10-days written notice, at the Redemption
Price.

Voting Rights:The Preferred Stock will vote together with the Common Stock as a single class, with the Preferred Stock voting on an
"as converted"
basis.

Protective Provisions:The consent of holders of more than 50% of the Preferred Stock, voting as a separate class, will be required to
approve
certain actions, including without limitation:



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Liquidation Preference:In the event of any liquidation or winding up of the Company, the holders of the Preferred Stock will be
entitled to receive,
in preference to the holders of the Common Stock, an amount equal to the greater of (x) the Original Issue Price per share plus accrued but unpaid cash dividends thereon, or (y) that
amount that would be received by such holders on an "as converted" basis had all Preferred Stock been converted into Common Stock immediately prior to such liquidation or winding up. A consolidation,
merger or other form of acquisition of the Company or a sale of all or substantially all of its assets will be deemed to be a liquidation or winding up for purposes of the liquidation preference.

Tax Sharing Agreement

On March 11, 2003, the Company became a member of Hallmark Cards consolidated federal tax group and entered into a federal tax
sharing agreement with Hallmark Cards. Hallmark Cards includes the Company in its consolidated federal income tax return. Accordingly, Hallmark Cards has benefited from past tax losses and may benefit
from future tax losses, which may be generated by the Company. Based on the original tax sharing agreement, Hallmark Cards paid the Company all of the benefits realized by Hallmark Cards as a result
of consolidation, 75% in cash on a quarterly basis and the balance when the Company becomes a taxpayer. Under that tax sharing agreement, at Hallmark Cards' option, this 25% balance could be applied
as an offset against any amounts owed by the Company to any member of the Hallmark Cards consolidated group under any loan, line of credit or other payable, subject to any limitations under any loan
indentures or contracts restricting such offsets.

In
connection with the Recapitalization, the tax sharing agreement was amended, effective as of January 1, 2010. The amendment provides, among other things,
that:



The
Company received $21.3 million under the tax sharing agreement during 2008, which was offset against the tax note. At December 31, 2009, the Company owed Hallmark Cards
$8.5 million under the tax sharing agreement for 2009. The liability was satisfied on June 29, 2010, in connection with the Recapitalization. For the year ended December 31, 2010,
the Company owed Hallmark Cards $12.9 million for estimated tax as calculated pursuant to the amended tax sharing agreement and this amount was paid to Hallmark Cards in December 2010.

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Hallmark
Cards has agreed to waive the state tax liability associated with the cancellation of debt income in those states in which Hallmark Cards files a combined return.

Company History

Crown Media Holdings, Inc. was incorporated in the State of Delaware in December 1999. Its wholly-owned subsidiary, Crown Media
United States, LLC, owns, operates and distributes the Channels. As of June 29, 2010, following the recapitalization of the Company, the significant investor in the Company is HCC, a
subsidiary of Hallmark Cards. Prior to June 29, 2010, significant investors in Crown Media Holdings were HEIC, the National Interfaith Cable Coalition, Inc., The DIRECTV
Group, Inc. and, indirectly through their investments in HEIC, Liberty Media Corporation and J.P. Morgan Partners (BHCA), L. P.

Employees

We had 159 employees at December 31, 2009, and 170 employees at December 31, 2010. Neither we nor any of our subsidiaries
are parties to collective bargaining agreements. We believe that our relations with our employees are good. Most of our Channels' employees work at our offices in Studio City, California and New York,
New York.

Industry Overview

The pay television industry is comprised primarily of program suppliers, pay television channel providers and pay television
distributors. Program suppliers, from whom we acquire or license a portion of our programming, include many of the major production studios, independent production companies and other independent
owners of programming. These program suppliers create, develop and finance the production of, or control rights to, movies, television miniseries, series and other programming.

We
are a pay television channel provider. Pay television channel providers include all channel providers (except over-the-air broadcasters) and major U.S. cable
and satellite networks. Pay television channel providers often produce programming and acquire or license programming from program suppliers and generally package the programming according to an
overriding theme and brand strategy. Pay television providers and distributors generally restrict viewership through security encryption devices that limit viewership to paying subscribers. Pay
television channel providers compete with each other for distribution and to attract viewers and advertisers. Pay television providers generally target audiences with a certain demographic
composition, so that they can then sell advertising to advertisers seeking to reach the providers' demographic audiences.

Pay
television distributors own and operate the platforms used to deliver channels to subscribers. These distributors use several different technologies to reach their subscribers as
described below. Distributors attempt to create a mix of channels that will be attractive to their subscriber population in an attempt to gain new subscribers and to minimize subscriber turnover.
Distributors have different levels of service for subscribers, with each service level containing different package of channels. Pay television distributors often create "tiers" of programming
services, and our services occasionally are offered on family or movie programming tiers. Various distributors offer additional broadband services such as Internet access, telephony and
video-on-demand over their systems.

As
a result of the competition for use of the digital cable capacity for channels and broadband services, pay television channel providers are often required initially to pay subscriber
acquisition fees to pay television distributors for carriage on their systems or the addition of subscribers. These subscriber acquisition fees are paid to television distributors on a per subscriber
basis and generally in advance of any receipt of subscriber fee revenue from such pay television distributors.

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Distribution Platforms

Four major distribution platforms are currently used to transmit programming. First, cable television systems use coaxial or fiber
optic cable to transmit multiple channels between a central facility, known as a headend, and the individual subscriber's television set. Second, analog and digital satellite broadcast systems (such
as direct-to-home or "DTH") use satellite transponders to broadcast television programming to individual dwellings with satellite reception equipment, including a dish and a
decoder. Third, telephone companies ("Telcos") feature a combination of traditional cable and Protocol Television ("IPTV") technologies. For example, Verizon adopted a hybrid model combining
traditional cable and IPTV technologies while AT&T launched full-fledged IPTV networks. While traditional cable systems devote a slice of bandwidth for each channel and then cablecast them
all out at once, IPTV uses a "switched video" architecture in which only the channel being watched at that moment is sent over the network, freeing up capacity for other features and more
interactivity. Lastly, channels can also be distributed through satellite master antenna television ("SMATV"). SMATV is used primarily for buildings, such as apartments and hotels that receive
programming from satellites by means of a single antenna that is connected to the buildings' headend. The television signals are then distributed to individual units in the building by cable.

From
time to time, for promotional purposes, we exhibit excerpts of certain programming on our website. We currently exhibit the entire seasons 1 and 2 of Adoption, our original series, on our website.

Sources of Revenue



Subscriber fees are generally payable to us on a per subscriber basis by pay television distributors for the right to carry our
Channels. Rates we receive per subscriber vary with changes in the following factors, among others:



We
are in continuous negotiations with our existing distributors to increase our subscriber base in order to enhance our advertising revenue. We have been requested in the past by major
distributors to pay subscriber acquisition fees for additional subscribers or to waive or accept lower subscriber fees if certain numbers of additional subscribers are provided. We also may help fund
the distributors' efforts to market our Channels or we may permit distributors to offer limited promotional periods without payment of subscriber fees.

Our
Channels are usually offered as one of a number of channels on either a basic tier or part of other program packages and are not offered on a stand-alone basis. Thus, while a cable
or satellite customer may subscribe and unsubscribe to the tiers and program packages in which one of our Channels is placed, these customers do not subscribe and unsubscribe to our Channels alone. We
are not provided with information from the distributors on their overall subscriber churn and in what manner their churn rates affect our subscriber counts; instead, we are provided information on the
total number of subscribers who receive the Channels.

Our
subscriber count depends on the number of distributors carrying one of our Channels and the size of such distributors as well as the program tiers on which our Channel is carried by
these distributors. From time to time, we experience decreases in the number of subscribers as promotional periods end, or as a distributor arrangement is amended or terminated by us or the
distributor. The

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level
of subscribers could also be affected by a distributor repositioning our Channels from one tier to another tier. Management analyzes the estimated effect each new or amended distribution
agreement will have on revenue and costs. Based upon these analyses, if subscriber acquisition fees are needed, management endeavors to achieve a fair combination of subscriber commitments and
subscriber acquisition fees.

We
have generally paid certain television distributors up-front subscriber acquisition fees to obtain initial carriage on domestic pay distributor systems. Subscriber
acquisition fees that we pay are capitalized and amortized over the contractual term of the applicable distribution agreement as a reduction in subscriber fee revenue. If the amortization expense
exceeds the revenue recognized on a per distributor basis, the excess amortization is included as a component of cost of services. At the time we sign a distribution agreement and periodically
thereafter, we evaluate the recoverability of the costs we incur against the incremental revenue directly and indirectly associated with each agreement.

Generally,
our distribution agreements last from three to ten years, and usually include annual increases of subscriber fees. In the past, for the most part, these distribution
agreements also involved payments by us for the establishment of the relationship or, together with or in lieu of any payment, waived subscriber fees for our Channels to distributors for a period of
time. Please see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for information regarding subscriber fees.

Advertising Revenue

Television advertising is sold in a variety of formats. Most advertising supported cable networks rely largely upon the spot
advertisement format. Spot advertisements are normally 30 seconds long and air during or between programs. They are often sold in packages of a certain number of spots with a commitment to deliver a
certain number of viewers. An alternative to spot advertising is sponsorship, by which a company sponsors a program or selection of programs on a channel and receives enhanced exposure for its brand
and products in these programs. An additional form of television advertising is direct response advertising, which is designed to elicit a specific and quantifiable response from the viewer. Unlike
spot advertising, fees payable for this form of advertising are measured by viewer response to advertising, such as product purchases, rather than the viewer ratings which measures success in
programming. A majority of the Hallmark Channel advertising revenue is comprised of spot advertising. The Hallmark Movie Channel's revenue has been comprised of spot advertising commencing in April
2010 and primarily direct response revenue in previous years.

The
ability of a television channel to generate advertising revenue largely depends on estimated or actual viewing levels, primarily based on ratings, and on advertising rates. In the
United States, independent ratings systems on which advertising sales can be based are well established and widely accepted within the industry. In addition, pay television channel providers and
distributors may also provide estimated or actual subscriber information. Our rates for spot advertisements are generally calculated on the basis of an agreed upon price per unit of audience
measurement in return for a guaranteed commitment by the advertiser. We commit to provide advertisers certain rating levels in connection with their advertising. Advertising rates also vary by time of
year due to seasonal changes in television viewership. Advertising revenue is recorded net of estimated delivery shortfalls (often referred to as "audience deficiency units" or "ADUs"). ADUs are units
of inventory (rights to utilize future advertising timeframes) that are made available to advertisers as fulfillment for past advertisements in programs that under-delivered on the guaranteed
viewership ratings. ADUs are usually settled by providing the advertiser additional advertising time. Historically, there has been no cash paid to an advertiser to settle ADUs, but in 2009 and 2010,
the Company provided an immaterial amount of cash for settlements to certain advertisers. The remainder of the revenue is recognized as the "make-good" advertising time is delivered in
satisfaction of ADUs. Advertising revenue from direct response advertising depends largely upon actions of viewers.

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We
typically sell approximately 50% of our Channels' advertising in the "up-front" season, generally in June and July of each year, for the last quarter of the same year and
the first three quarters of the following year. We hold back a small percentage of our inventory for ADUs and sell the remainder in the spot or scatter market and to advertisers that purchase
up-front inventory on a calendar year basis. For information on the up-front 2010/2011 season,
see "Advertising Revenue" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Among
the 78 ad-supported cable channels in the United States market in 2010, the Hallmark Channel ranked 16th in total day viewership with an average
0.454 household rating for the year and 18th for prime time with an average 0.768 household rating for the year, according to Nielsen Media Research. In 2009, among the 76
ad-supported cable channels in the United States market, the Hallmark Channel ranked 14th in total day viewership with an average 0.589 household rating and
10th for prime time with an average 0.991 household rating, according to Nielsen Media Research. Total day means the time period measured from the time each day the broadcast of
commercially-sponsored programming commences to the time such commercially-sponsored programming ends.

We
have advertising sales offices in New York, Los Angeles, Chicago, and Atlanta. In addition, we have made significant investments in programming, research, marketing and promotions,
all specifically designed to support the sale of advertising time on our Channels.

See
Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation" for further information on advertising and ratings.

Programming

Our Channels offer a range of high-quality entertainment programming for adults and families including popular television
series, movies, miniseries, theatricals, romances, literary classics, and contemporary stories. Sources for programming on our Channels include programming (both movies and series) licensed from Buena
Vista Television, CBS Television Distribution, Hallmark Hall of Fame, Martha Stewart Living Omnimedia, Paramount Pictures, RHI Entertainment Distribution, and Twentieth Television.

Examples
of programming include, the Hallmark Channel original moviesA Family Thanksgiving, The Good Witch's Gift, You Lucky Dog, and Smooch. Examples of
programming from the RHI Entertainment Distribution library include,Journey to the Center of the Earth,
Gentle Ben, Talking to Heaven, andThe Five People You'll Meet in Heaven. We benefit from original productions, whether they
have aired on other networks or are premiered on our Channel. Examples of other third party programming shown on our Channels include the popular seriesLittle House on the
Prairie, Touched by an Angel, The Golden Girls, Who's the BossandCheers. Examples of Twentieth Television family-friendly
movies includeBig,Cheaper by the Dozen,Home Aloneand Mr. Magoriums Wonder
Emporium. Other examples of our third party programming include acquired movies and miniseries such as Jumanji, The Ultimate Gift, 101 DalmatiansandThe
Princess Diaries.Our license agreements with third
parties
typically provide for a license fee paid out over the term of the license for the right to exhibit a program in the United States within a specified period of time.

Our
Channels air, and benefit from, programming previously shown as Hallmark Hall of Fame such asThe Magic of Ordinary Days, Plainsong, Front of the Class,
Sarah, Plain and TallandWhat the Deaf Man Heard.

We
have occasionally sublicensed exhibition rights to third parties to select programs in order to reduce our programming costs.

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Distribution

The Hallmark Channel ended 2010 with 87.3 million subscribers, a decrease of 1% from 88.3 million at the
2009 year-end. We currently distribute the Hallmark Channel to approximately 83% of all United States pay television subscribers. The following table shows the approximate number of
pay television households and the Hallmark Channel subscribers for each of the twelve largest pay television distributors, and all other pay television distributors as a group, in the United States as
of December 31, 2010.

PAY TELEVISION DISTRIBUTOR

TOTAL U.S. PAY
TV
HOUSEHOLDS(1)

HALLMARK
CHANNEL
SUBSCRIBERS(1)

HALLMARK
CHANNEL
% OF PAY TV
HOUSEHOLDS(In thousands, except percentages)Comcast


26,145


21,198


81.1
%DIRECTV


18,934


18,577


98.1
%Time Warner


15,743


12,843


81.6
%Dish Network


14,289


11,925


83.5
%Cox


5,454


4,464


81.8
%Charter


5,266


4,154


78.9
%Cablevision


3,008


2,465


81.9
%AT&T (U-verse)


2,739





0.0
%Verizon Communications (FiOS)


2,511


2,058


82.0
%Mediacom


1,529


1,229


80.4
%Cequel III


1,406


1,066


75.8
%NCTC and all others


7,906


7,296


92.3
%Total


104,930


87,275


83.2
%


(1)Source:
Nielsen Code and The Nielsen Public U.E. December 2010.


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The
following table shows the approximate number of pay television households and the Hallmark Movie Channel subscribers for each of the twelve largest pay television distributors, and
all other pay television distributors as a group, in the United States as of December 31, 2010.

PAY TELEVISION DISTRIBUTOR

TOTAL U.S. PAY
TV
HOUSEHOLDS(1)

HALLMARK
MOVIE
CHANNEL
SUBSCRIBERS(1)

HALLMARK
MOVIE
CHANNEL
% OF PAY TV
HOUSEHOLDS(In thousands, except percentages)Comcast


26,145


16,779


64.2
%DIRECTV


18,934


1,102


5.8
%Time Warner


15,743


5,424


34.5
%Dish Network


14,289


4,882


34.2
%Cox


5,454


873


16.0
%Charter


5,266


1,923


36.5
%Cablevision


3,008


2,307


76.7
%AT&T (U-verse)


2,739





0.0
%Verizon Communications (FiOS)


2,511


1,926


76.7
%Mediacom


1,529





0.00
%Cequel III


1,406





0.00
%NCTC and all others


7,906


2,348


29.7
%Total


104,930


37,564


35.8
%


(1)Source:
Nielsen Code and The Nielsen Public U.E. December 2010.


Our
subscribers in the United States have grown from approximately 16.0 million full time subscribers at January 1, 2001.

Our
major distribution agreements have terms with options which extend from September 2011 through December 2023. Of these distribution agreements, an agreement accounting for
approximately 5% of our subscriber base at December 31, 2010, will expire and be the subject of renewal negotiations on or prior to December 31, 2011. A distribution agreement with AT&T
(U-verse) ended on August 31, 2010, and our Channels are no longer being distributed by AT&T (U-verse). A distribution agreement with Cox ended on December 31,
2010. Our Channels continue to be distributed by Cox under the terms of the expired agreement through an extension to that agreement while negotiations continue on a renewal.

At
December 31, 2010, the Hallmark Movie Channel was distributed to over 37.6 million subscribers, an increase of nearly 8.5 million subscribers from
29.1 million at December 31, 2009. As of December 31, 2010, the Hallmark Movie Channel was distributed in the nation's top 30 demographic measurement areas (DMA's).

Sales and Marketing

Our primary target demographic is women aged 25 to 54 and our secondary target is adults aged 25 to 54. Our
programming is targeted to adults, but is generally appropriate for viewing by the entire family, which is important to viewers, advertisers and affiliates.

For
over sixty years Hallmark has been a leader in high-quality original television production. Hallmark Channel and Hallmark Movie Channel have the exclusive cable license
to broadcast the movies previously shown as Hallmark Hall of Fame, a selection of movies from an award-winning entertainment series.

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The
power of the Hallmark brand and the quality of our programming combine to:



We
currently and primarily use the websites www.hallmarkchannel.com and www.hallmarkmoviechannel.com to promote the two networks, their programming and to provide information to
consumers. These websites promote major programming events, such as original movie premieres and program acquisitions as well as provide information regarding the Channels' programs and their talents.
Further, the sites provide platforms for viewer participation in the Channels' sweepstakes promotions and community areas. The sites have advertiser imaging including banner messages and video
content.

Channel Operations

The programming department has been responsible for ensuring the consistent quality of the programming we offer. The programming,
scheduling and acquisitions departments work in conjunction with the marketing and creative services departments to create the distinctive appearance of our Channels. Some of these functions are
outsourced on an as-needed basis.

The
creation of our Channels begins with the acquisition of programming and original production. Our staff or third parties review all potential programming to ensure compliance with our
quality and content standards.

The
creation of on-air promotional segments "interstitials," which are broadcast between the feature movies, miniseries and series, are typically created by the Company's
employees, but are occasionally outsourced to external vendors. These interstitials are intended to invite viewership, guide viewers to specific programming, and promote "brand awareness" for the
Channels. Occasionally, these interstitials are sponsored by advertisers, resulting in additional advertising revenue.

The
scheduling department creates the play list, which contains a list of daily programming. The scheduling department works with advertising sales, research and distributor sales and
marketing personnel to continuously monitor the effectiveness of programming content and sequence. The play list is then forwarded to the traffic department.

The
traffic department inserts promotional segments and advertising into the play list and creates the daily log, which contains a detailed schedule of the stream of programming,
commercials and promotional materials that will ultimately be distributed to the subscribers of the Channels.

Channel Delivery

We deliver the daily log and digital tapes of the Hallmark Channel and Hallmark Movie Channel programming, commercials and promotional
messages to a third party network operations center in Los Angeles, California, where the programming, advertising and promotional elements are combined and compressed. The Channels are compiled in
high definition ("HD") and then the same versions of the Channels are created in standard definition ("SD"). The Los Angeles facility transmits the combined signals to a satellite transponder that
covers the United States. The transponder transmits the signal back to cable head-end facilities, Telcos and direct-to-home satellite services operated by pay
television distributors who receive and decode our signal and transmit our Channels to their subscribers.

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The
following chart summarizes for the primary distribution platforms through which we deliver our Channels, our primary pay television distributors, and the uplink and satellites we
currently use to deliver our Channels.

Primary
Distribution
Platforms

Primary
Pay TV
Distributors

Channel
Origination
Providers/Locations

Uplink
Providers/
Locations

SatellitesCable

Cablevision

Encompass Digital Media

Encompass Digital Media

Hallmark Channel:SES World SkiesCequel III

Los Angeles, CA

Los Angeles, CACharterComcast





Hallmark Movie
Channel: AMC 11/T5CoxNCTCMediacomTime WarnerVerizon Communications (FiOS)Satellite

DirecTV

Encompass Digital Media

Encompass Digital Media

Hallmark Channel:SES World SkiesDirect-to-Home

Dish Network

Los Angeles, CA

Los Angeles, CA

Hallmark Movie
Channel: AMC 11/T5


The contracts with the parties providing origination, uplink, satellite and other services for the delivery of our Channels in the United States
expire from 2013 through 2019. Such contracts may be terminated by the vendors prior to the expiration of the contracts under conditions that are customary to contracts of this type. Amounts payable
under these contracts are reflected in "Operating and Capital Leases" in the schedule of contractual commitments as of December 31, 2010, as shown in Item 7 below.

Competition

The pay television industry is highly competitive. Our Channels compete for distribution, viewers and advertisers with other pay
television channels, broadcast television channels and with other general forms of entertainment.

There
are several sources of competition within our industry, each of which affects our business strategy. The Hallmark Channel competes with other general entertainment programming from
broadcast networks, TNT, USA Network, HGTV, TV Land, Lifetime, OWN, ABC Family and other similarly targeted channels. We compete with these channels for viewers and advertising dollars based upon
quality of programming, number of subscribers, ratings and subscriber demographics. We compete with all channels for carriage on cable, satellite and telephone systems that may have limited capacity.

Competition
continues to intensify as the industry shifts from analog distribution to digital distribution. Many pay television distributors have upgraded their physical infrastructures
to accommodate digital delivery, which provides significantly more channel capacity. In an effort to accelerate the conversion, pay television distributors are attempting to place new channels on
their digital tier as opposed to their limited, yet more widely-distributed, basic analog tiers. Although competition for the remaining analog
channel space is still intense, as more and more subscribers are converted, the digital tier is expected to become the dominant platform.



We believe that our primary competitive strengths include the following:



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We believe that our primary competitive risks include the following:



Research

The research department at the Company provides strategic and tactical guidance to decision-makers within the Company, as well as
supplying information about the Channels to our potential advertisers and affiliates. This department provides data on the size and demographics of our audience and information about our audiences,
competitors, markets and industry.

Currently,
our Channels' research department translates our overall business strategy into a cohesive research program. This information assists our executives to more effectively
target, brand, promote, program, and better understand where opportunities lie, in order to increase our Channels' market share.

The
research department has sophisticated research tools and competitive tracking database hardware and software. Trends and changes from these ratings systems are reported to top
management for short and long-term strategic planning.

Our
Channels' performance is tracked through an internal tracking study established in July 2001, which is a monthly telephone survey conducted among a national probability sample of
approximately 1,000 adults. The research department also subscribes to a number of other services, which are useful in obtaining information about viewers of our Channel.

Available Information

We will make available free of charge through our website, www.hallmarkchannel.com, this Annual Report on
Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to such reports, as soon as reasonably
practicable after we electronically file or furnish such material with the Securities and Exchange Commission.

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Additionally, we will make available, free of charge upon request, a copy of our Code of Business Conduct and Ethics, which is applicable to all of our employees,
including our senior financial officers. Requests for a copy of this Code should be addressed to the General Counsel at Crown Media Holdings, Inc., 12700 Ventura Boulevard, Studio City,
California 91604.

ITEM 1A.    Risk Factors

Risk Factors and Forward-Looking Statements

The discussion set forth in this Form 10-K contains statements concerning potential future events. Such
forward-looking statements are based on assumptions by our management, as of the date of this Form 10-K, including, without limitation, assumptions about risks and uncertainties
faced by us. Readers can identify these forward-looking statements by their use of such verbs as "expects," "anticipates," "believes," or similar verbs or conjugations of such verbs. If any of
management's assumptions prove incorrect or should unanticipated circumstances arise, our actual results, levels of activity, performance, or achievements could materially differ from those
anticipated by such forward-looking statements. Among the factors that could cause actual results to differ materially are those discussed below in this Form 10-K. We will not
update any forward-looking statements contained in this Form 10-K to reflect future events or developments.

If
we do not successfully address the risks described below, our business, prospects, financial condition, results of operations or cash flow could be materially adversely affected. The
trading price of our Common Stock could decline because of any of these risks.

Risks Relating to Our Business

Our business has incurred net losses since inception and may continue to incur losses.

Our business has a history of net losses. As of December 31, 2010, we had an accumulated deficit of approximately
$2.1 billion, total stockholders' deficit of approximately $151.0 million, and goodwill of approximately $314.0 million.

We
cannot assure you that we sustain an operating profit or a positive cash flow. If we are not able to do so, the trading price of our Common Stock may fall significantly. To diminish
our losses, to continue to be profitable before interest expense and to continue to generate a positive cash flow, we will need to increase our advertising and subscriber revenue. This will require,
among other things, maintaining or increasing the distribution of our Channels, attracting younger viewers to our channels, attracting more advertisers, increasing our ratings and maintaining or
increasing our subscriber and advertising rates. Risks associated with these areas of our business are described below.

Our substantial indebtedness could adversely affect our financial health, and the restrictions imposed by the terms of our debt instruments may severely limit our ability to
plan for or respond to changes in our business.

We have a substantial amount of indebtedness. As of December 31, 2010, our total debt was $417.7 million, and we had
$30.6 million of cash and cash equivalents and $30.0 million available under our bank credit facility to support our operations.

As
a result of our present level of debt and the terms of our debt instruments:



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Our
ability to meet our debt and other obligations will depend on our operating performance and on economic, financial, competitive and other factors. There can be no assurance that our
leverage and such restrictions will not materially and adversely affect our ability to finance our future operations or capital needs or to engage in other business activities.

We have significant interest payments, which may impact our future operations.

The Recapitalization significantly reduced our outstanding indebtedness and interest expense; nevertheless, even with the
Recapitalization, there is still substantial indebtedness. A substantial portion of our cash flow from operations has and will continue to be used to make interest payments and will not be available
for other business purposes. In addition, we may need to incur additional indebtedness in the future. We cannot be assured that our business will generate sufficient cash flow or that future
financings will be available to provide sufficient proceeds to meet our obligations or to service our total debt.

Our liquidity is dependent on external funds.

Although in the past twelve months we generated positive cash flow from operations, unanticipated significant expense or any
developments that hamper our growth in revenue or decreases any of our revenue, may result in the need for additional external funds in order to continue operations. Any new debt financing would
require the cooperation and agreement of existing lenders.

"Most Favored Nations" provisions may require modification of existing distribution agreements which could adversely affect subscriber revenue.

A number of our existing distribution agreements contain "most favored nations" or "MFN" clauses. These clauses typically provide that,
in the event we enter into an agreement with another distributor on more favorable terms, these terms must be offered to the distributor holding the MFN right, subject to certain exceptions and
conditions. These clauses cover matters such as subscriber fees, launch support, local advertising time and other financial and operating provisions. In the past, after entering into new distribution
agreements, we have been asked by some of the distributors holding MFN rights to modify their distribution agreements to incorporate financial terms similar to those in the new agreements. Any claims
of this type in the future could result in lower overall subscriber revenue or increased cash outlays; however, if our subscription base is increased as a result of such modifications, it could result
in higher advertising revenue.

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If we are unable to obtain programming from third parties, we may be unable to increase our subscriber base.

We compete with other pay television channel providers to acquire programming. If we fail to continue to obtain programming on
reasonable terms for any reason, including as a result of competition, we could be forced to incur additional costs to acquire such programming or look for alternative programming, which may hinder
the growth of our subscriber base.

If our programming declines in popularity, our subscriber fees and advertising revenue could fall.

Our success depends partly upon unpredictable and volatile factors beyond our control, such as viewer preferences, competing
programming and the availability of other entertainment activities. We may not be able to anticipate and react effectively to shifts in tastes and interests in our markets. Our competitors may have
greater numbers of original productions, better distribution, and greater capital resources, and may be able to react more quickly to shifts in tastes and interests. As a result, we may be unable to
maintain the commercial success of any of our current programming, or to generate sufficient demand and market acceptance for our new programming. A
shift in viewer preferences in programming or alternative entertainment activities could also cause a decline in both advertising and subscriber fees revenue. The decline in revenue could hinder or
prevent us from achieving profitability or maintaining a positive cash flow and could adversely affect the market price of our Common Stock.

We
experienced declines in viewer ratings across demographic categories, compared to the same periods of 2009, resulting in decreases in advertising revenues and cash flows. A number of
changes to our program schedule were implemented in the third quarter of 2010. These changes have caused a temporary disruption to established viewing patterns for our audience resulting in declines
in household ratings but over time are intended to increase our delivery of viewers in the women 25-54 demographic category. We are considering further changes in our programming that may
be helpful to our ratings. We must successfully implement the program rescheduling with an increase in ratings, which is uncertain, or otherwise address the decrease in ratings in order to maintain or
increase our advertising revenues, to maintain subscriber fees and to maintain or improve our cash flow from operations.

In
addition, our delivery of the Channels continues to be impacted by industry developments. One potentially significant factor is the continued growth of time-shifting
digital video recording devices (DVRs). DVRs heighten the impact of competition as viewers are able to increase their access to what they consider to be new, compelling content.

If we are unable to increase our advertising revenue, we may be unable to achieve improved results.

Although it is expected over time that our advertising revenue will increase, if we fail to significantly increase our advertising
revenue, we may be unable to achieve or sustain improved results or to expand our business. A failure to increase advertising revenue may be a result of any or all of the following: (i) a
continued decline in viewer ratings mentioned above; (ii) the current economic environment presents uncertainty regarding the condition of the advertising marketplace and the financial health
of many industry segments and individual companies, including those which advertise on our channels; (iii) we may be unable to reduce our average viewer age to be within our target audience of
viewers between the ages of 25 and 54; (iv) we may be unable to identify, attract and retain experienced sales and marketing personnel with relevant experience; (v) our sales and
marketing organization may be unable to successfully compete against the significantly more extensive and well-funded sales and marketing operations of our current or potential
competitors; (vi) the advancement of technologies such as Digital Video Recording may cause advertisers to shift their expenditures to media in which their commercial messages are not
circumvented by the technology; and/or (vii) we will not be able to increase our advertising sales rate-card or may be required to run additional advertising spots to fulfill
guaranteed delivery numbers which affect the availability of

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advertising
inventory for future sales. Success in increasing our advertising revenue also depends upon the number and coverage of the distributors who carry our channels and our number of
subscribers.

Hallmark Cards controls us and this control could create conflicts of interest or inhibit potential changes of control.

Hallmark Cards, through HCC, its wholly-owned subsidiary, owns all of our outstanding shares of Preferred Stock and owns approximately
90.3% of the outstanding shares of our Common Stock, representing in the aggregate approximately 91.9% of the outstanding voting power on all matters submitted to our stockholders. Additionally, a
significant portion of our overall indebtedness is held by Hallmark Cards or its wholly-owned affiliates. This control could discourage others from initiating potential merger, takeover or other
change of control transactions that may otherwise be beneficial to our business or holders of Common Stock. As a result, the market price of our Common Stock could suffer, and our business could
suffer. In addition, the control that Hallmark Cards and/or these specific wholly-owned affiliates may exert over us, either directly or indirectly, could give rise to conflicts of interest in certain
situations.

We could lose the right to use the name "Hallmark" because we have limited-duration license agreements, which could harm our business.

We license the name "Hallmark" from Hallmark Licensing, Inc., a subsidiary of Hallmark Cards, for use in the names of our
Channels. This license will expire on September 1, 2011. If Hallmark Cards determines not to renew the trademark license agreements for any reason, including failure to comply with Hallmark
Cards' programming standards, we would be forced to significantly revise our business plan and operations, and could experience a significant erosion of our subscriber base and advertising revenue.

If our third-party suppliers fail to provide us with network infrastructure services on a timely basis, our costs could increase and our growth could be hindered.

We currently rely on third parties to supply key network infrastructure services, including uplink, playback, transmission and
satellite services to our market, which are available only from limited sources. We have occasionally experienced outages, delays and other problems in receiving communications equipment, services and
facilities and may, in the future, be unable to obtain such services, equipment or facilities on the scale and within the time frames required by us on terms we find acceptable, or at all. If we are
unable to obtain, or if we experience a delay in the delivery of, such services, we may be forced to incur significant unanticipated expenses to secure alternative third party suppliers or adjust our
operations, which could hinder our growth and reduce our revenue and potential profitability.

If we are unable to retain key executives and other personnel, our growth could be inhibited and our business harmed.

Our success depends on the expertise and continued service of our executive officers and key employees of our subsidiaries. If we fail
to attract, hire or retain the necessary personnel, or if we lose the services of our key executives, we may be unable to implement our business plan or keep pace with developing trends in our
industry.

The amount of our goodwill may hinder our ability to achieve profitability.

As a result of our acquisitions of all the common interests in Crown Media United States, we have recorded a significant amount of
goodwill. We are required to periodically review whether the value of

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our
goodwill has been impaired. If we are required to write down our goodwill, our results of operations, stockholders' equity (deficit) could be materially adversely affected.

Our stock price may be volatile and could decline substantially.

The stock market has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for
our Common Stock to decline, including the following:



Additionally,
of the approximately 359.7 million shares of the Company's outstanding Common Stock, only 34.8 million shares (approximately 9.7%), are held by
non-affiliates of the Company. This stock ownership structure may also be a cause of volatility in the market price of the Company's Common Stock.

Risks Relating to Our Industry

The recent change in the television rating system in the United States could reduce our Channels revenue and our ability to achieve profitability.

Our domestic advertising revenue is partially dependent on television ratings provided by Nielsen Media Research. In 2007, Nielsen
modified its ratings system by increasing its household sample size. In the fourth quarter of 2007, Nielsen began measuring and providing performance data based on viewing of commercial content as
well as programming content. As the impact of the changes continue to take effect, our ratings could either be positively or negatively affected by these changes, depending on the demographic
characteristics of the households added to the Nielsen sample and the nature of the changes in the measurement systems. From the beginning of the fourth quarter of 2007 through the fourth quarter of
2008, we experienced a decrease in viewers of approximately 5% under the new ratings measurement system compared to the system previously in
use. We continue to factor the new rating information into our advertising rates as Nielsen is continually in the process of modifying its ratings system to accommodate emerging technologies.

Competition could reduce our Channels revenue and our ability to achieve profitability.

We operate in the pay television business, which is highly competitive. If we are unable to compete effectively with large diversified
entertainment companies that have substantially greater resources than we have, our operating margins and market share could be reduced, and the growth of our business inhibited. In particular, we
compete for distribution with other pay television channels and, when distribution is obtained, for viewers and advertisers with pay television channels, broadcast television networks, radio, the
Internet and other media. We also compete, to varying degrees, with other leisure-time activities such as movie theaters, the Internet, radio, print media, electronic games and

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other
alternative sources of entertainment and information. Future technological developments may affect competition within this business.

A
continuing trend towards business combinations and alliances in the communications industry may create significant new competitors for us or intensify existing competition. Many of
these combined entities have more than one channel and resources far greater than ours. These combined entities may provide bundled packages of programming, delivery and other services that compete
directly with the products we offer.

We
may need to reduce our prices or license additional programming to remain competitive, and we may be unable to sustain future pricing levels as competition increases. Our failure to
achieve or sustain market acceptance of our programming at desired pricing levels could impair our ability to achieve profitability or positive cash flow, which would harm our business.

Distributors
in the United States may attempt to pressure pay TV channels having lower viewership, such as our Channels, to accept decreasing amounts for subscriber fees, to pay higher
subscriber acquisition fees or to allow carriage of the Channels without the payment of subscriber fees. Factors that may lead to this pressure include the number of competing pay TV channels, the
limited space available on services of distributors in the United States and the desire of distributors to maintain or reduce costs. Any reduction in subscriber fees revenue now or in the future could
have a material impact on our operating results and cash flow.

New distribution technologies may fundamentally change the way we distribute our Channels and could significantly decrease our revenue or require us to incur significant
capital expenditures.

Our future success will depend, in part, on our ability to anticipate and adapt to technological changes and to offer, on a timely
basis, services that meet customer demands and evolving industry standards. The pay television industry has been, and is likely to continue to be, subject to:



For
example, the advent of digital technology is likely to accelerate the convergence of broadcast, telecommunications, Internet and other media and could result in material changes in
the economics, regulations, intellectual property usage and technical platforms on which our business relies, including lower retail rates for video services. These changes could fundamentally affect
the scale, source, and volatility of our revenue streams, cost structures, and operating results, and may require us to significantly change our operations.

We
also rely in part on third parties for the development of, and access to, communications and network technology. As a result, we may be unable to obtain access to new technology on a
timely basis or on satisfactory terms, which could harm our business and prospects.

Moreover,
the increased capacity of digital distribution platforms, including the introduction of digital terrestrial television, may reduce the competition for the right to carry
channels and allow development of extra services at low incremental cost. These lower incremental costs could lower barriers to entry for competing channels, and place pressure on our operating
margins and market position.

ITEM 1B.    Unresolved Staff Comments

Not applicable.

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Table of Contents

ITEM 2.    Properties

The following table provides certain summary information with respect to the principal real properties leased by the Company. We do not
own any real property. The leases for these offices and facilities expire between 2012 and 2016. The Company believes the facilities, office space and other real properties leased are adequate for its
current operations.

Location

Use

Approximate
Area in
Square Feet12700 Ventura Blvd.
Studio City, California

Executive and administrative office and post production and editing facilities


33,3101325 Avenue of the Americas
New York, New York

Advertising sales and administrative office and advertising traffic


16,9376430 S. Fiddlers Green Circle
Greenwood Village, Colorado

Administrative office


4,424205 N. Michigan Ave.
Chicago, Illinois

Advertising sales office


3,0481170 Peachtree Street
Atlanta, Georgia

Advertising sales office


193


We
own most of the equipment and furnishings used in our businesses, except for satellite transponders and compression and uplink facilities, which are leased. See Note 6 of Notes
to Consolidated Financial Statements for information on our leasing of property and equipment.

ITEM 3.    Legal Proceedings

On July 13, 2009, a lawsuit was brought in the Delaware Court of Chancery against each member of the Board of Directors of the
Company, Hallmark Cards and its
affiliates, as well as the Company as a nominal defendant, by a minority stockholder of the Company regarding the then proposed Recapitalization. The plaintiff is S.
Muoio & Co. LLC which owned beneficially approximately 5.8% of the Company's Class A Common Stock at the time of the complaint, according to the complaint and filings with
the SEC. The lawsuit claims to be a derivative action and a class action on behalf of the plaintiff and other minority stockholders of the Company. The lawsuit alleges, among other things, that, the
defendants have breached fiduciary duties owed to the Company and minority stockholders in connection with the Recapitalization transactions. The lawsuit includes allegations that the consummation of
the Recapitalization transactions would result in an unfair amount of equity issued to the majority stockholders, thereby reducing the minority stockholders' equity and voting interests in the
Company, and that the majority stockholders would be able to eliminate the minority stockholders through a short-form merger. The complaint requested the court enjoin the defendants from
consummating the Recapitalization transactions and 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 Company
could not consummate the transaction contemplated in the Recapitalization transactions 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 moved for preliminary injunctive relief with respect to any such transaction, the parties would 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 Company would not consummate any transaction for a
period of at least one week,

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Table of Contents

during
which time any party may seek an expedited appeal. The Stipulation further provided that the plaintiff would withdraw its motion for preliminary injunction filed on July 13, 2009 and
that the action would be stayed until the earlier of providing the notice of a transaction or an announcement by the Company that it was no longer considering a transaction.

By
a letter of February 28, 2010, the plaintiff in this lawsuit informed the Special Committee of the Board of Directors, which considered and negotiated the Recapitalization,
that the plaintiff objected to the proposed recapitalization on the terms set forth in the term sheet dated February 9, 2010. The plaintiff asserted, among other things, that the transactions
contemplated by the term sheet would unfairly dilute the economic and voting interests of the Company's minority stockholders, that the transactions should be subject to a vote of the majority of the
minority stockholders and that the proposed transactions remain inadequate. The plaintiff indicated that if the Company executed definitive documents for the Recapitalization, the plaintiff would
pursue the litigation. The February 26, 2010 agreements executed by the Company for the Recapitalization materially followed the provisions in the earlier term sheet.

Notice
of the terms of the proposed Recapitalization, including copies of the executed definitive documents for the Recapitalization, was provided to the plaintiff on March 1,
2010. On March 11, 2010, the plaintiff filed an amended complaint raising similar allegations of breach of fiduciary duty against Hallmark Cards and the director defendants and seeking
rescission of the Recapitalization rather than a preliminary injunction enjoining the consummation of the Recapitalization, or alternatively, an award
of rescissory damages. If the Company is forced to rescind the Recapitalization, short-term debt would increase to approximately $1.2 billion, plus accrued interest. A trial took
place in September 2010 and the parties submitted post trial briefs to the court. A decision of the court is expected to be issued in the first or second quarter of 2011.

PART II

ITEM 5.    Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Common Stock is listed on the NASDAQ Global Market under the ticker symbol "CRWN." There is no established public trading market
for our Preferred Stock, of which 100% is owned by Hallmark Cards. Set forth below are the high and low sales prices for our Common Stock for each quarterly period in 2009 and 2010, as reported on the
NASDAQ Global Market.

Price RangeCommon Stock

High

Low2009First Quarter

$
2.890

$
1.170Second Quarter

$
3.280

$
1.450Third Quarter

$
2.100

$
1.450Fourth Quarter

$
1.940

$
1.1902010First Quarter

$
2.060

$
1.280Second Quarter

$
2.010

$
1.590Third Quarter

$
2.930

$
1.650Fourth Quarter

$
3.890

$
2.260


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Holders

As of February 23, 2011, there were 56 record holders of our Common Stock and one record holder of our Preferred Stock.

Dividends

We have not paid any cash dividends on our Common Stock since inception. We anticipate that we will pay cash dividends on our
redeemable Preferred Stock in 2011.

Securities Authorized for Issuance under Equity Compensation Plans

Information related to our Amended and Restated 2000 Long Term Incentive Plan, our only equity compensation plan, is presented as of
December 31, 2010 in the following table.

Equity Compensation Plan Information

Plan Category

Number of Securities
to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding the Number of
Securities to be Issued Upon
Exercise of Outstanding
Options)(In thousands)



(In thousands)Equity compensation plans approved by security holders


65

$
13.82


9,935


Stock Purchases

We did not make any repurchases of our outstanding shares during the fourth quarter of 2010. None of our executive officers purchased
shares of our Common Stock in open market transactions during the fourth quarter of 2010.

There
were no unregistered issuances of securities, including to employees.

Performance Graph

The following graph presents the total stockholder return of $100 invested in our Class A Common Stock for the period from
December 31, 2005, through December 31, 2010. It also presents comparative results for (i) $100 invested in a peer group index comprising initially equal dollar investments in the
common stocks of Comcast Corp. (CMCSA), The Walt Disney Company (DIS) and Time Warner Inc. (TWX) and (ii) the relative performance of the NASDAQ Composite index, also relative to an
initial measure of $100. Dividends, if any, are assumed to have been reinvested in shares of the respective company's stock at the closing price on the related dividend payment date.

The
closing price of our stock on December 31, 2005, the last trading day of that year, was $9.17. The closing price of our stock on December 30, 2010, the last trading day
of that year, was $2.62.

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Table of Contents

Relative Performance of Crown Media Holdings, Inc.  Class A Common Stock

GRAPHIC

ITEM 6.    Selected Financial Data

Selected Historical Consolidated Financial Data of Crown Media Holdings

In the table below, we provide you with selected historical consolidated financial and other data of Crown Media Holdings and its
subsidiaries. The following selected consolidated statement of operations data for the years ended December 31, 2006, 2007, 2008, 2009 and 2010, and the consolidated balance sheet data as of
December 31, 2006, 2007, 2008, 2009 and 2010, are derived from the audited financial statements of Crown Media Holdings and its subsidiaries. This data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes for the years ended December 31, 2008, 2009
and 2010, included in this Annual Report on Form 10-K.

In
April 2005, the Company completed the sale of its international business and classified the operating results of the international business as discontinued operations in the
accompanying statements of operations for all periods presented. The Company's discontinued operations consisted of the international channel operations and the international rights to the film
library assets.

Included
in accounts payable and accrued liabilities are the estimated cost of residuals and participations that the buyer of our international business (which included the international
rights to our film library) would otherwise be obligated to pay to third parties in connection with international film library sales between the April 2005 sale and April 2015. The Company's actual
cost of this obligation will depend on the actual internal usage or sales of these films by the buyer. Any revisions to these estimated liabilities will be reflected as income (loss) from sale of
discontinued operations in future periods.

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Table of Contents

In
December 2006, the Company completed the sale of its film assets.

Years Ended December 31,2006

2007

2008

2009

2010(In thousands, except per share amounts)Revenue:Subscriber fees

$
24,869

$
27,812

$
57,153

$
63,597

$
68,819Advertising


172,950


205,666


222,967


213,770


217,656Advertising by Hallmark Cards


1,240


508


429


775


496Film asset license fees


1,815











Sublicense fees and other revenue


305


378


1,245


1,422


301Total revenue, net


201,179


234,364


281,794


279,564


287,272Cost of Services:Programming costsHallmark Cards affiliates


74


82


798


1,235


1,928Non-affiliates


152,119


164,287


139,900


126,293


123,321Amortization of film assets


14,739


(5,220
)

(745
)




Impairment of film assets


225,832





176





Subscriber acquisition fee amortization expense


31,044


30,996








Amortization of capital lease


1,157


1,158


1,158


1,158


1,158Contract termination fees expense











4,718


103Other costs of services


11,273


11,222


12,492


14,175


10,668Total cost of services


436,238


202,525


153,779


147,579


137,178Selling, general and administrative expense


43,968


61,452


46,706


47,069


50,324Marketing expense


16,021


19,733


19,603


6,551


10,152Depreciation and amortization expense


2,865


1,656


1,932


1,947


1,459Gain from sale of film assets


(8,238
)




(101
)

(682
)

(719
)(Loss) income from operations before interest


(289,675
)

(51,002
)

59,875


77,100


88,878Interest expense, net of interest income


(98,728
)

(108,144
)

(100,157
)

(100,539
)

(55,987
)(Loss) income before income taxes, discontinued operations and cumulative effect of change in accounting principle


(388,403
)

(159,146
)

(40,282
)

(23,439
)

32,891Income tax expense














(8,810
)(Loss) income before discontinued operations and cumulative effect of change in accounting principle


(388,403
)

(159,146
)

(40,282
)

(23,439
)

24,081Income from sale of discontinued operations, net of tax


1,530


114


3,064


847


(Loss) income before cumulative effect of changein accounting principle


(386,873
)

(159,032
)

(37,218
)

(22,592
)

24,081Cumulative effect of change in accounting principle


(2,099
)










Net (loss) income and comprehensive (loss) income


(388,972
)

(159,032
)

(37,218
)

(22,592
)

24,081Income allocable to Preferred Stockholder














(16,297
)Net (loss) income attributable to common stockholders

$
(388,972
)
$
(159,032
)
$
(37,218
)
$
(22,592
)
$
7,784Weighted average number of common shares outstanding, basic and diluted


104,788


104,038


104,776


104,788


234,676(Loss) income per share before discontinued operations and cumulative effect of change in accounting principle, basic and diluted

$
(3.71
)
$
(1.53
)
$
(0.39
)
$
(0.23
)
$
0.03Gain per share from discontinued operations, basic and diluted


0.02





0.03


0.01


Cumulative effect of change in accounting principle, basic and diluted


(0.02
)










Net (loss) income per common share, basic and diluted

$
(3.71
)
$
(1.53
)
$
(0.36
)
$
(0.22
)
$
0.03


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As of December 31,2006

2007

2008

2009

2010(In thousands)Balance Sheet Data:Cash and cash equivalents

$
13,965

$
1,974

$
2,714

$
10,456

$
30,565Goodwill


314,033


314,033


314,033


314,033


314,033Total assets


767,783


676,241


739,345


698,061


678,534Total long-term debt, excluding current maturities


975,007


1,044,772


1,090,616


771,814


391,746Stockholders' deficit


(478,944
)

(683,760
)

(666,933
)

(698,030
)

(150,965
)Other Unaudited Data:Capital expenditures

$
713

$
1,668

$
1,868

$
507

$
1,086Total subscribers at year end


74,641


83,915


85,540


88,320


87,275


ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company's consolidated financial statements and accompanying notes to consolidated financial statements included in Item 8
of this Annual Report on Form 10-K should be read in conjunction with the discussion and analysis that follows.

Current Challenges

The Company faces numerous operating challenges. Among them are increasing viewership ratings, maintaining and increasing advertising
revenue, maintaining and expanding the distribution of the Channels, broadening viewership demographics to meet our target audience, and controlling costs and expenses.



Ratings success plays a significant role in our ability to achieve our distribution and advertising goals. Our ratings declined from
14th in total day viewership and 10th for prime time in 2009 to 16th in total day viewership and 18th for prime time
in 2010. We believe our ratings are affected by our ability to (i) acquire and produce series and movies that appeal to our target demographic and (ii) develop a programming schedule
that attracts a high number of viewers. Original productions are our most high profile programs and generate the Hallmark Channel's highest ratings. In the past, the Company has typically incurred
additional marketing and promotional expenses surrounding original productions and certain acquired movies to drive higher ratings. Certain acquired series delivered historically strong ratings, but
recently they have been part of the decline experienced in viewer ratings. In order to reverse the recent decline in ratings, we plan to continue or increase the number of our original productions and
develop a programming schedule that attracts a greater number of viewers in our target demographic, all while controlling the costs and expenses relating to these actions.

Our
recent agreements with Martha Stewart Living Omnimedia, including the acquisition of exclusive rights to the live daytime lifestyle programThe Martha Stewart
Showand rights to the extensive library of Martha Stewart branded lifestyle programming, represent a key part of our strategy to attract viewers that appeal to relatively
higher CPM (i.e.,advertising rates per thousand viewers) advertisers. We introduced this lifestyle programming in various dayparts in the second
quarter of 2010, leading to the September 2010 premier ofThe Martha Stewart Showon the Hallmark Channel. Additionally in September, Hallmark Channel
premiered several other original lifestyle shows for the daytime lifestyle block. These program changes have resulted and may result at least initially in reductions in the ratings delivery of the
Channel, but our plan is that, over time, these changes will increase our revenue through the delivery of a more targeted demographic and attraction of higher CPM advertisers.

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Table of Contents

Prior
to the second quarter of 2010, the Hallmark Movie Channel had not been the subject of ratings measurement by Nielsen Media Research. Since then, however, the Hallmark Movie Channel
has had Nielsen ratings and we have been selling advertising inventory for the Hallmark Movie Channel based on a price per unit of audience measurement.



The overall improvement in the economy during 2010 had a favorable impact on cable advertising rates, including the rates for our
inventory. Our 2010 scatter market inventory was sold at rates 22% above rates in the 2009 scatter market and 79% above the rates for 2010 inventory sold in the upfront. Additionally, direct response
rates were down by 26% compared to that inventory sold in the same period of 2009. Although our CPMs in 2010 were higher than in 2009, our delivery of our key demographic, women
25-54, was substantially lower than prior periods. Our demographic delivery in 2010 was lower than in 2009. This lower demographic delivery more than offset gains in our
CPMs resulting in lower advertising revenue in 2010 compared to 2009.

In
the 2010/2011 upfront process representing the sale of our inventory for the last quarter of 2010 and the first three quarters of 2011, we entered into agreements with major
advertising firms representing approximately 40% of our advertising inventory. In the prior year 2009/2010 upfront we sold approximately 40% of our inventory. The 2010/2011 inventory was sold at
CPMs 25% higher than the inventory sold in the 2009/2010 upfront, including significant increases in rates related to our new lifestyle programming block. The Company will sell the balance of
the general rate inventory for the 2010/2011 broadcast season to advertisers that purchase upfront inventory on a calendar year basis, rather than an advertising year basis, and in the scatter
marketplace. Additionally, we sold approximately 39% of the Hallmark Movie Channel's available inventory in the 2010/2011 upfront.

Following
the upfront period, sales of our general rate, direct response and paid-programming inventory are made closer to the timing of the actual advertisement. As compared
to the upfront sales for the same periods, scatters rates in the third quarter of 2010 were 110% higher.

Advertisers
with upfront contracts have an option to terminate their contracts, as well as an option to expand the amount of inventory purchased under the contracts. In prior years,
cancellations of upfront contracts were unusual. During the twelve months period ended September 2010 comprising the 2009/2010 broadcast season, advertisers canceled approximately 6% of the inventory
covered by such contracts. The Company sold the balance of the 2008/2009 general rate inventory, including that resulting from the cancellations, in the scatter market.

The
Company was able to sell the Martha Stewart programming time block at rates 117% higher than prior year's rates during that same time block.



Distribution agreements with multiple systems operators are important because they affect our number of subscribers, which in turn has
a major impact on our subscriber fees, the number of persons viewing our programming, and the rates charged for advertising. Our long-term distribution challenge will be obtaining
favorable renewals of our major distribution agreements as they expire. Our major distribution agreements have terms which expire at various times from September 2011 through December 2023, inclusive
of renewal options.

We
renewed our agreement with National Cable Television Cooperative ("NCTC"), on December 7, 2010. The NCTC distribution agreement covers approximately 13% of our total Hallmark
Channel and 8% of our Hallmark Movie Channel subscribers.

The
Company's agreement with AT&T expired on August 31, 2010. On September 1, 2010, the Hallmark Channel and the Hallmark Movie Channel were dropped from AT&T's platform
because the

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Table of Contents

parties
had not agreed to the terms of a new distribution agreement. As a result, the overall subscriber numbers for the Hallmark Channel and the Hallmark Movie Channel decreased by approximately
2.5 million and 1.0 million, respectively. The Company accounted for subscriber revenue earned through August 31, 2010, on an accrual basis.

A
distribution agreement with Cox ended on December 31, 2010. Our Channels continue to be distributed by Cox under the terms of the expired agreement through two extensions to
that agreement that expired on February 28, 2011, while renewal negotiations continue. The Cox distribution agreement covers approximately 5% of our subscribers for the Hallmark Channel and 2%
of our subscribers for the Hallmark Movie Channel.

The
universe of cable and satellite TV subscribers in the United States is approximately 105 million homes. The top 30 cable TV networks in the United States, measured by the
number of subscribers, have 90 million or more subscribers. Our goal is for the Hallmark Channel to reach 93 million subscribers and the Hallmark Movie Channel to reach 44 million
subscribers by the end of 2011.



As pay television channels draw audience share, audience demographics (i.e., viewers categorized by characteristics such as age,
gender and income) become fragmented. As a result, advertisers are able to target the specific groups of viewers who are most likely to purchase their products by advertising on channels which attract
the desired viewer demographic.

We
believe that the key demographics for the Hallmark Channel are the viewers in the groups Adults aged 25 to 54 and Women aged 25 to 54. However, the average median age of a viewer of
the Hallmark Channel was 59.2 in 2010, and, in December 2010, the total day average median age of viewers of the Hallmark Channel and Hallmark Movie Channel was 57 and 63, respectively. In order to
achieve our revenue goals, we need to draw in our target audience. Broadcasts ofThe Martha Stewart Showand other Martha Stewart Living productions on
the Hallmark Channel, which commenced in September 2010, are key parts of our efforts to attract our target audience over time.

For
additional information on demographics and viewer ratings, please see "Sources of RevenueAdvertising Revenue" in Item 1, Business, and "Results of
OperationsYear Ended December 31, 2009 Compared to Year Ended December 31, 2010Revenue" in Item 7, Management's Discussion and Analysis of Financial
Condition and Operating Results.

Revenue from Continuing Operations

Our revenue consists primarily of subscriber fees and advertising fees. For the years ended December 31, 2008, 2009 and 2010
revenue derived from subscriber fees for the Channels was approximately $57.2 million, $63.6 million and $68.8 million, respectively. For the years ended December 31, 2008,
2009 and 2010 revenue from the sale of advertising time on our Channels was approximately $223.4 million, $214.5 million and $218.2 million, respectively. Information relating to
subscriber fees and advertising fees is presented above in "Item 1 BusinessSources of Revenue"

Cost of Services

Our cost of services consists primarily of the amortization of program license fees; the cost of signal distribution; and the cost of
promotional segments that are aired between programs. See the discussion of programming costs in "Results of Operations" below.

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Critical Accounting Policies, Judgments and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

For
further information regarding our critical accounting policies, judgments and estimates, please see the Notes to Consolidated Financial Statements contained in this Report.

The
following discussion concerns certain accounting estimates and assumptions that are considered to be material due to the levels of subjectivity and judgment necessary to account for
uncertain matters and the susceptibility of such matters to changes.

Program License Fees

Program license fees are paid in connection with the acquisition of the rights to air programs acquired from others. The cost of
program rights are deferred and then amortized on a straight-line basis over the shorter of their contractual license periods or anticipated usage. When necessary, the Company evaluates
the realizability of these deferred license fees in relation to the estimated future revenue. Estimates of net realizable value for program license fees are determined using future estimated
advertising revenue and anticipated patterns of programming usage on a day part basis (blocks of time during the day) as it pertains to programming licensed to a Channel. These estimates of expected
annual future estimated revenue are compared to net book value of the program license fee assets to determine if the programming assets are expected to be recovered. Where the analysis indicates the
costs are in excess of the estimated net realizable value, additional programming costs are immediately recognized in the amount of the excess.

Goodwill

At December 31, 2010, the Company had a stockholders' deficit of $151.0 million and a goodwill asset of
$314.0 million. All of our goodwill relates to our channel operations segment, which is also our only reporting unit. For the purpose of performing its annual goodwill impairment test, the
Company has included the book value of its redeemable Preferred Stock (otherwise classified as mezzanine for financial reporting purposes) in the calculation of Business Enterprise Value ("BEV.")

We
performed our annual impairment assessment for our goodwill and other non-amortizable intangible assets as of November 30 using a market approach to determine fair
value. BEV is equal to common equity at market value plus debt at market value plus preferred equity at market value less cash and cash equivalents. We estimated the fair values of the Term A and Term
B loans using discount rates of 11.2% and 11.5%, respectively. We believe that the carrying value of the capitalized lease obligation is not materially different from its fair value; further, the
effect of such difference, if any, is not material to the impairment test. Accordingly, we have used the carrying value. The full $25.0 million redemption value of the company obligated
mandatorily redeemable preferred interest was paid to VISN Management Corp. on December 1, 2010; therefore, the fair market value as of November 30, 2010, was $25.0 million. We
have valued our redeemable Preferred Stock at its liquidation preference based on a recent valuation. We valued our common shares using the November 30, 2010 closing NASDAQ stock price.

The
estimated fair value determined in our initial impairment test was in excess of the reporting unit's BEV, and accordingly no additional testing was performed and no impairment charge
was recorded. We note that if our fair value estimate was 50% lower, we would still not have failed the initial test and no impairment charge would be taken.

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Long-Lived Assets

The Company reviews long-lived assets, other than goodwill and other intangible assets with indefinite lives, for
impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. An impairment loss is recognized if the carrying amount of the asset is not
recoverable and exceeds its fair value. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future net cash flows
expected to be generated by the asset. If the asset's carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair
value. The Company determines fair values by using a combination of comparable market values and discounted cash flows, as appropriate.

Revenue Recognition

Subscriber revenue from pay television distributors is recognized as revenue when an agreement is executed, programming is provided,
the price is fixed and determinable, and collectibility is reasonably assured. Subscriber fees from pay television distributors are recorded net of amortization of subscriber acquisition costs.

Advertising
revenue, net of agency commissions, is recognized in the period in which related commercial spots or long form programming are aired and as ratings guarantees to advertisers
are achieved. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for the Company's broadcasting operations. Customers remit the gross billing amount to the
agency and the agency remits gross billings less their commission to the Company. Payments received in advance of being earned are recorded as deferred revenue or audience deficiency units.

Audience Deficiency Unit Liability

Audience deficiency units ("ADUs") are units of inventory that are made available to advertisers as fulfillment for the inventory the
advertiser purchased that ran in programs that under-delivered on the guaranteed ratings.

An
audience deficiency liability results when impressions delivered on guaranteed ratings are less than the impressions guaranteed to advertisers. The liability is reduced when the
Company airs the advertisement during another program to "make-good" on the under-delivery of impressions. The Company typically does not remit cash to advertisers in satisfaction of such
deficiencies.

Contracts
executed in the 2010/2011 upfront period require that the Company use its best efforts to run sufficient make-good advertising spots within 12 months to
achieve the impressions guarantees. If the Company does not make-good within 12 months, the Company is no longer obligated to satisfy the under-delivery of the guaranteed
impressions. Under previous contracts, the Company did not have the obligation to satisfy under-delivery of guaranteed impressions within 12 months and approximately $855,000 of the Company's
make-good obligations simply lapsed in 2010 due to the expiration of the applicable state's statute of limitations for contracts. While the Company now has an obligation to use its best
efforts to make-good on any under-delivery of guaranteed impressions within 12 months, it also has the benefit of being able to relieve the make-good obligations earlier
than it has been able to do historically.

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Effects of Transactions with Related and Certain Other Parties



In 2010 and in prior years, we entered into a number of significant transactions with Hallmark Cards and certain of its subsidiaries.
These transactions include, among other things, trademark licenses, program licenses, an administrative services agreement, a tax sharing agreement and the Recapitalization, including the loans under
the Credit Agreement, a registration rights agreement and a stockholders agreement. A summary of the terms and financial impact of these transactions is described above in Item 1
"BusinessRecent DevelopmentsRecapitalization" which is incorporated by reference into this Item 7.



For information regarding the amendment to our agreements with NICC including the required redemption of a preferred interest in Crown
Media United States, please see Item 13 "Certain Relationships and Related TransactionsVISN Preferred Interest" contained in this
Report.

Selected Historical Consolidated Financial Data of Crown Media Holdings

In the table below, we provide selected historical consolidated financial and other data of Crown Media Holdings and its subsidiaries.
The following selected consolidated statement of operations data for the years ended December 31, 2008, 2009 and 2010, are derived from the audited financial statements of Crown Media Holdings
and its subsidiaries. This data should be read together with the

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consolidated
financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Percent
ChangeYears ended December 31,2009
vs.
2008

2010
vs.
20092008

2009

2010Revenues:Subscriber fees

$
57,153

$
63,597

$
68,819


11
%

8
%Advertising


223,396


214,545


218,152


-4
%

2
%Sublicense fees and other revenue


1,245


1,422


301


14
%

-79
%Total revenues


281,794


279,564


287,272


-1
%

3
%Cost of Services:Programming costs


140,698


127,528


125,249


-9
%

-2
%Contract termination fees expense





4,718


103


100
%

-98
%Operating costs


13,081


15,333


11,826


17
%

-23
%Total cost of services


153,779


147,579


137,178


-4
%

-7
%Selling, general and administrative expense


48,638


49,016


51,783


1
%

6
%Marketing expense


19,603


6,551


10,152


-67
%

55
%Gain on sale of film assets


(101
)

(682
)

(719
)

575
%

5
%Income from continuing operations before interest and income tax expense


59,875


77,100


88,878


29
%

15
%Interest expense


(100,157
)

(100,539
)

(55,987
)

0
%

-44
%(Loss) income from continuing operations before income tax expense


(40,282
)

(23,439
)

32,891


-42
%

240
%Income tax expense








(8,810
)

0
%

100
%(Loss) income from continuing operations


(40,282
)

(23,439
)

24,081


-42
%

203
%Income from sale of discontinued operations


3,064


847





-72
%

-100
%Net (loss) income

$
(37,218
)
$
(22,592
)
$
24,081


-39
%

207
%Other Unaudited Data:Net cash provided by operating activities

$
48,078

$
37,566

$
67,111


-22
%

79
%Capital expenditures

$
(1,868
)
$
(507
)
$
(1,086
)

-73
%

114
%Net cash used in investing activities

$
(5,437
)
$
(1,443
)
$
(2,047
)

-73
%

42
%Net cash used in financing activities

$
(41,901
)
$
(28,381
)
$
(44,955
)

-32
%

58
%Total domestic day household ratings(1)(3)


0.695


0.589


0.454


-15
%

-23
%Total domestic primetime household ratings(2)(3)


1.168


0.991


0.768


-15
%

-23
%Hallmark Channel subscribers at year end


85,540


88,320


87,275


3
%

-1
%Hallmark Movie Channel subscribers at year end


13,338


29,061


37,564


118
%

29
%


(1)Total
day is the time period measured from the time each day the broadcast of commercially sponsored programming commences to the time such commercially
sponsored programming ends.(2)Primetime
is defined as 8:00 - 11:00 P.M. in the United States.(3)These
Nielsen ratings are for the time period January 1 through December 31.


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Results of Operations

Year Ended December 31, 2009 Compared to Year Ended December 31, 2010

Revenue.Our revenue, comprised primarily of subscriber and advertising fees, increased $7.7 million or 3% in 2010 over 2009. Our
subscriber
fee revenue increased $5.2 million or 8% due to increases in contractual rates and subscribers offset in part by on-going negotiations with one distributor. The amount of subscriber
acquisition fees that was recorded as a reduction of subscriber fee revenue was approximately $2.6 million and $2.0 million for 2009 and 2010, respectively.

The
$3.6 million or 2% increase in advertising revenue is primarily due to increases in CPMs offset in part by declines in viewer ratings across demographic categories for
2010 compared to 2009. For 2010, Nielsen ranked the Hallmark Channel 16th in total day viewership with a 0.454 household rating and 18th in primetime with a
0.768 household rating among the 78 cable channels in the United States market. The
ratings decline reduced the revenue from all inventory, including inventory used to satisfy deficiencies in audience delivery. Audience deficiency unit revenue decreased $2.7 million from
contra-revenue of $6.4 million for 2009, to contra-revenue of $9.1 million for the same period in 2010 as a result of such ratings declines, leading to a corresponding decrease in
revenue recognized by the Company.

Advertising
revenue from the Hallmark Movie Channel increased from $10.5 million for 2009 to $18.7 million for 2010. This is due to the increase in the number of
subscribers as the Company continues to expand distribution of this channel.

Cost of services.Cost of services as a percent of revenue decreased to 48% in 2010 as compared to 53% in 2009. This decrease results
primarily from
the effects of the $2.3 million or 2% decrease in programming costs, discussed below, and the 2% increase in advertising revenue discussed above. We may, however, incur additional programming
related costs in the future to obtain high definition versions of certain of our programming.

Operating
costs for 2010 decreased $3.5 million over 2009 due in part to the $1.1 million decrease in bad debt expense. The Company's bad debt expense was
$1.3 million for 2009, as compared to $183,000 for 2010. The decrease in bad debt expense is primarily due to certain advertising customers experiencing cash flow problems under generally poor
economic conditions during 2009 and being unable to make timely payments. Customer cash flow problems declined in 2010 and, therefore, payments were received on a timelier basis. Additionally, salary
and termination expense decreased $1.2 million and playback and transponder expense decreased $1.2 million due to terminations of employment during second quarter of 2009 and standard
definition provider contracts in the fourth quarter of 2009.

Selling, general and administrative expense.Our selling, general and administrative expense for 2010 increased $2.8 million over
2009.
Commission expense increased $1.3 million due to meeting advertising revenue expectations. Research expense increased $1.9 million due to the cost associated with the receipt of ratings
for the Hallmark Movie Channel. Benefits and bonus expense increased $3.5 million due to an increase in bonus expense based upon assumptions that certain performance metrics will be met and an
increase in insurance premiums. Additionally, the Company recorded $1.0 million of debt issuance costs in conjunction with the Recapitalization. The aforementioned increases were offset in part
by the decrease in salary and severance expense of $4.8 million primarily due to terminations of employment in 2009.

Marketing expense.Our marketing expense increased $3.6 million or 55% in 2010 versus 2009. The Company allocated significant
marketing
resources towards the third quarter launch of the Martha Stewart programming in 2010. During 2009, the Company had one significant marketing promotion in

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January
2009 centered on the original movie, "Taking a Chance on Love." The Company did not have a significant marketing promotion in 2010.

Gain from sale of film assets.In July 2010, the Company received notification of pending requests for payments of approximately
$8.0 million
related to exploitation of the film assets through mid-2010. Accordingly, the Company increased the carrying amount of the liability by $155,000 and recognized a corresponding loss from
sale of film assets in the second quarter of 2010. The Company has recently received requests for payments of an additional $2.0 million and expects to pay the total amount of approximately
$10.0 million in March 2011. Notwithstanding the acceleration of payments ahead of the Company's prior expectations, in December 2010 management revised its estimated payment stream because of
ongoing operating and financial difficulties being experienced by RHI, including reorganization in bankruptcy. As of December 31, 2010, management believes that fulfillment of its
indemnification obligation will occur over a period longer than previously estimated. Accordingly, in the fourth quarter of 2010, the Company decreased the carrying amount of the liability by $874,000
and recognized a corresponding gain from sale of film assets in the accompanying statement of operations.

In
December 2009 the Company had concluded that payments under this obligation would occur generally later than originally estimated in December 2006. Accordingly, the Company reduced
the carrying amount of the liability by $682,000 and recognized a corresponding gain from sale of film assets in the accompanying statement of operations.

Interest expense.Interest expense decreased $44.6 million in 2010 as compared to 2009 due to the Recapitalization.

Income tax expense.For tax purposes, the Recapitalization generated net cancellation of debt income which is estimated at
approximately
$147.0 million. Accordingly, the Company is expected to generate federal and state taxable income for both regular tax and alternative minimum tax ("AMT") purposes. For regular tax purposes,
this income will be fully offset by net operating loss carryforwards. However,
for federal AMT purposes, loss carryforwards can be used against AMT income but are limited to 90% of AMT income. As a result, the Company has recorded an income tax expense of approximately
$3.3 million for the estimated AMT in its consolidated statements of operations as it is not likely that any benefit of this AMT as a credit carryforward will be realized. Additionally, for
state tax purposes the Company also has a tax expense. Effective October 2010, California has suspended the use of tax loss carryovers for 2010 and 2011. Also, the state of New York has an alternative
minimum tax which allows only 90% of the tax loss carryforwards. The total federal and state tax provision is $8.8 million.

Gain on sale of discontinued operations.Termination of one agreement relating to channel delivery resulted in a change in the
estimated life of the
deferred credit for playback services. After termination of services, there was no longer a recurring monthly expense for compression and uplink services. Accordingly, the adjustment to eliminate the
unneeded portion of the deferred credit of approximately $847,000 was recognized during 2009.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2009

Revenue.Our revenue from continuing operations, comprised primarily of subscriber and advertising fees, decreased $2.2 million or
1% in 2009
over 2008. Our subscriber fee revenue increased $6.4 million or 11%. The amount of subscriber acquisition fees that was recorded as a reduction of subscriber fee revenue was approximately
$2.7 million and $2.6 million for 2008 and 2009, respectively. Subscriber revenue increased in 2009 primarily due to an increase in the number of Hallmark Channel pay subscribers and
small contractual rate increases.

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The $8.9 million or 4% decrease in advertising revenue is primarily due to declines in viewer ratings across demographic categories for 2009 compared 2008.
Audience deficiency unit revenue decreased $10.5 million from revenue of $4.1 million for 2008, to contra-revenue of $6.4 million for the same period in 2009 as a result of such
ratings declines, leading to a corresponding decrease in revenue recognized by the Company.

We
believe that changes to our program schedule, along with increased competition (including the availability of high definition distribution by competitors), contributed to a decline in
ratings. From 2005 until early 2009, our programming schedule did not change significantly. Beginning in 2008, a number of programs that had previously received strong ratings began to experience
ratings declines, and we placed television series in certain timeslots instead of movies or original productions. Also, a number of programs in the schedule provided strong household ratings
performance but less effective delivery of our key demographic, women age 25-54. In 2009, we began to introduce new content into the schedule with the objective of increasing the delivery
of women 25-54. The schedule changes likely resulted in some viewer confusion and did result in lower ratings.

The
fact that Hallmark Channel was not broadcast in high definition may have had a negative impact on ratings in 2009. Of the top 44 advertising supported cable networks with a 0.4
household rating or higher in prime time, only six of those networks (including Hallmark Channel) were not offered in high definition. Of those six networks, three experienced double-digit ratings
decreases in 2009 compared to 2008 and three experienced single digit increases. In 2009, 33% of viewers with access to high definition programming services tuned to those high definition services
first. The growth in popularity of high
definition programming is expected to continue in 2010 and beyond, and these high definition trends were part of our decision to launch Hallmark Channel in high definition in February 2010.

The
2009 year also represented a year of increased competition within cable television. The number of cable networks investing in original programming increased 74% in 2009, and
acquired (non-original) programming now represents only 33% of prime time cable programming. Although Hallmark Channel continues to invest in original programming, our increase in
investment for original content did not match the growth of the market or many of our competitors. The impact of the programming competition is heightened by the continued growth of
time-shifting digital video recording devices, or DVR's. With the proliferation of these devices, viewers are able to increase their access to the new, compelling content.

For
the year ended December 31, 2009, Nielsen ranked the Hallmark Channel 14th in total day viewership with a 0.589 household rating and
10th in primetime with a 0.991 household rating among the 76 cable channels in the United States market.

Cost of services.Cost of services as a percent of revenue decreased to 53% in 2009 as compared to 55% in 2008. This decrease results
primarily from
the effects of the 9% decrease in programming costs, discussed below, offset in part by the 4% decrease in advertising revenue discussed above.

Programming
costs decreased $13.2 million or 9% from 2008. In the second and third quarters of 2008, we entered into agreements to amend significant programming agreements which
added programs and deferred certain payments for programming content to periods beyond 2008. Some of the agreements resulted in the extension of related program licenses to cover slightly longer
periods of availability, the deferral of expected delivery of certain programming and the deferral of certain payments primarily from 2008 until 2009. Upon the amendment of the agreements, we
prospectively changed the amortization of program license fees for any changes in the period of expected usage and/or changes in license fees. The effects of these amendments on 2008 amortization were
not significant. Additionally, we returned our exclusivity rights to one title, which resulted in a lower asset and liability balance. During the first quarter of 2009, we also entered into amendments
to some of our original programming agreements which extended the current license period to those titles, and thus,

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resulted
in lower amortization in 2009 compared to 2008. Additionally, during 2009, we did not enter into any significant new third party license agreements, so expiring program rights and the related
amortization were not replaced in full with assets and amortization from newer license agreements.

Operating
costs for 2009 increased $2.3 million over 2008 due in part to the $1.2 million increase in bad debt expense and the $912,000 of severance expense recorded in May
2009 related to one executive's
resignation. The Company's bad debt expense was $1.3 million for 2009, as compared to $75,000 for 2008. The increase in bad debt expense is due to certain advertising customers experiencing
cash flow problems under poor economic conditions.

Additionally,
the Company recorded negative film amortization of $745,000 in 2008 that resulted principally from the Company's periodic reassessment and eventual payment of its
liabilities for residuals and participations associated with the Company's third-party licensing and self-use of the Company's film library prior to the sale of the Company's international
film rights in April 2005 and the Company's domestic film rights in December 2006.

During
the fourth quarter of 2009, we negotiated the termination of two channel delivery agreements related to the launch of the Hallmark Channel into high definition. The estimated
costs of termination were approximately $4.7 million.

Selling, general and administrative expense.Our selling, general and administrative expense increased slightly year over year. The
Company recorded
$2.5 million of severance expense associated with the resignation of its President on May 31, 2009. The Company also recorded $1.2 million of severance expense associated with the
termination of 15 employees in August 2009. These increases in expense were offset by decreases in the travel, communication, and RSU related expenses. Travel and communication events related expenses
decreased approximately $1.3 million period over period. Additionally, the Company recorded $1.1 million of compensation expense associated with RSUs during 2008, as compared to $269,000
of compensation benefit associated with RSUs for 2009. See Note 14 to the consolidated financial statements in this Report.

Marketing expense.Our marketing expense decreased 67% in 2009 versus 2008. During 2008, we invested in five significant marketing
promotions. The
five marketing promotions were centered around the original movies: "The Good Witch" in January 2008, "Bridal Fever" in February 2008, "A Gunfighter's Pledge" in July 2008, and both "Old Fashioned
Thanksgiving" and "Moonlight and Mistletoe" in November 2008. The Company had one significant marketing promotion in January 2009 centered around the original movie, "Taking a Chance on Love." As part
of our contingency cost reduction efforts, promotional and marketing efforts were reduced overall during 2009 compared to 2008.

Gain from sale of film assets.In December 2009 the Company concluded that payments for residuals and participations, which are
liabilities from the
Company's December 2006 sale of its film assets, would occur generally later than originally estimated in December 2006. Accordingly, the Company reduced the carrying amount of the liability by
$682,000 and recognized a corresponding gain from sale of film assets in the accompanying statement of operations.

Interest expense.Interest expense in 2009 increased $382,000 compared to 2008. The principal balance under our credit facility was
$28.6 million at December 31, 2008, and $1.0 million at December 31, 2009. The interest rate on our bank credit facility increased from 1.22% at December 31, 2008,
to 2.49% at December 31, 2009. Interest rates on our 2001, 2005 and 2006 notes decreased from 9.05% at December 31, 2008, to 5.29% at December 31, 2009. The benefit of these rate
decreases was offset by a higher principal balance on the Senior Secured Note, resulting in interest expense for 2009 being nearly the same as for 2008.

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Gain on sale of discontinued operations.The terms of our April 2005 sale of the international business require that we reimburse the
buyer for its
cost of residuals and participations incurred in connection with the its exploitation of the related international film rights through April 25, 2015. At the time of the sale, we recorded an
estimate of our liability for this obligation and considered the amount in our determination of our loss from the sale of discontinued operations as reported in 2005. During the fourth quarter of
2008, the buyer requested us to reimburse it for such obligations incurred in connection with its exploitation of these films through December 31, 2007. Using the historical information
provided by the buyer, we reduced the estimate of our remaining liability as of December 31, 2008, by $5.1 million. This change in estimate was reflected as a $3.1 million gain on
sale of discontinued operations and a $2.0 million decrease in interest expense.

Termination
of one agreement relating to channel delivery also resulted in a change in the estimated life of the deferred credit for playback services. After termination of services,
there is no longer a recurring monthly expense for compression and uplink services. Accordingly, the adjustment to eliminate the unneeded portion of the deferred credit of approximately $847,000 was
recognized during the fourth quarter of 2009. Through December 31, 2009, the aggregate loss on sale of the international business is $1.0 million.

Liquidity and Capital Resources

Year Ended December 31, 2009 Compared to Year Ended December 31, 2010

In 2009, our cash provided by operating activities was $37.6 million as compared to $67.1 million for 2010. The Company's
net loss for 2010 decreased $46.7 million to net income of $24.1 million from a net loss of $22.6 million for 2009. Our depreciation and amortization expense for 2010 decreased
$9.7 million to $123.4 million from $133.0 million in 2009. The Company made programming payments of $143.3 million and $115.5 million during 2009 and 2010,
respectively.

Cash
used in investing activities was $1.4 million and $2.0 million during 2009 and 2010, respectively. During 2009 and 2010, we purchased property and equipment of
$507,000 and $1.1 million, respectively. During 2009 and 2010, the Company paid $936,000 and $961,000, respectively, to the buyer of the international business for amounts due under the terms
of the sale agreement, primarily for reimbursement of transponder lease payments. The related liability was recognized in 2005 as part of the sale of our international business.

Cash
used in financing activities was $28.4 million and $45.0 million for 2009 and 2010, respectively. We borrowed $18.1 million and $0 under our credit facility to
supplement the cash requirements of our operating and investing activities during 2009 and 2010, respectively. We repaid principal of $45.6 million and $1.0 million under our bank credit
facility during 2009 and 2010, respectively. The Company redeemed the $25.0 million preferred interest in December 2010.

The
Company made its first cash payment through the fourth quarter of 2010 in December 2010, for tax liabilities incurred under the tax sharing agreement as amended of
$12.9 million. The Company may also have to make cash payments to Hallmark Cards during 2011 under the amended tax sharing agreement.

Additionally,
the Company may make a principal payment on its Term A loan of approximately $9.3 million during the first quarter of 2011. The Company anticipates making dividend
payments on its redeemable Preferred Stock in 2011 of approximately $25.9 million.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2009

In 2008, our operating activities provided $48.1 million of cash compared to $37.6 million of in 2009. The Company's net
loss for the year ended December 31, 2009, decreased $14.6 million to $22.6 million from $37.2 million for the year ended December 31, 2008. Our depreciation and

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amortization
expense for 2009 decreased $12.2 million to $133.0 million from $145.2 million in 2008. The Company had lower additions to program license fees in 2009 as compared to
2008 due to amendments to agreements with certain third party programming suppliers during 2008 to add programming content. Pursuant to the waiver and standby purchase agreement with Hallmark Cards,
the Company paid $19.6 million for interest on the 2001, 2005 and 2006 Notes that accrued November 16, 2008, through September 30, 2009. The Company made programming payments of
$138.4 million and $143.3 million in 2008 and 2009, respectively.

Cash
used in investing activities was $5.4 million and $1.4 million in 2008 and 2009, respectively. During 2008 and 2009, we purchased property and equipment of
$1.9 million and $507,000, respectively. During 2008 and 2009, the Company paid $3.6 million and $936,000, respectively, to the buyer of the international business for amounts due under
the terms of the sale agreement, primarily for reimbursement of transponder lease payments. The Company established a liability and recorded a related loss for these payments as part of the 2005 sale
of our international business.

Cash
used in financing activities was $41.9 million and $28.4 million in 2008 and 2009, respectively. We borrowed $30.5 million and $18.1 million under our
credit facility to supplement the cash requirements of our operating and investing activities in 2008 and 2009, respectively. We repaid principal of $71.5 million and $45.6 million under
our bank credit facility in 2008 and 2009, respectively.

Contractual Obligations

The following table summarizes the future cash disbursements to which we are contractually committed as of December 31, 2010:

Scheduled Payments by Period in MillionsContractual Obligations

Total

Less than
1 Year

1 - 3 Years

4 - 5 Years

After 5 YearsTerm A note due to HCC(1)

$
264.1

$
27.6

$
236.5

$


$
Term B note due to HCC(1)


160.4


13.2


147.2





Dividends on redeemable Preferred Stock(2)


85.1


25.9


59.2





Capital lease obligations(1)


19.6


2.2


4.5


4.3


8.6Operating leases


23.5


5.0


9.9


8.0


0.6Program license fees payable for current and future windows(3)(4)


397.3


134.0


185.7


61.6


16.0Subscriber acquisition fees


0.6


0.6








Deferred compensation and interest


2.0


0.5


0.5


0.6


0.4Other payables to buyer of international business


0.9


0.7


0.1


0.1


0.0Other payables to buyer of film assets


19.9


10.0





5.0


4.9Total Contractual Cash Obligations

$
973.4

$
219.7

$
643.6

$
79.6

$
30.5


(1)Includes
future interest.(2)Based
on assumed redemption date of December 31, 2013.(3)The
amounts and timing for certain of these commitments are contingent upon the future delivery date and type of programming produced, and, as such, the
estimated amount and timing may change.(4)Contains
airing windows that open subsequent to year end and, therefore, the liability is not included on the balance sheet as of December 31, 2010.


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As of December 31, 2010, the Company had $30.6 million in cash and cash equivalents on hand. Also available to the
Company was the full $30.0 million bank credit facility which expires June 30, 2011. Day-to-day cash disbursement requirements have typically been satisfied with
cash on hand and operating cash receipts supplemented with the borrowing capacity available under the bank credit facility and, prior to the Recapitalization, forbearance by Hallmark Cards and its
affiliates.

The
Company's management anticipates that the principal uses of cash during the twelve month period ending December 31, 2011, will include the payment of operating expenses,
accounts payable and accrued expenses, programming costs, nominal interest of approximately $30.0 million to $35.0 million and a principal payment of approximately $9.3 million
due under the New Debt issued in the Recapitalization. Subject to the legal availability of funds and approval by the Company's board of directors, the Company may also pay approximately
$25.9 million for cash dividends on Preferred Stock during the year ending December 31, 2011; at the option of the Company's board of directors, such dividends may be paid in the form of
additional shares of Preferred Stock.



Amendment No. 16 to the credit facility, entered into on March 2, 2010, set the maximum amount that may be borrowed under
the credit facility at $30.0 million (a reduction from $45.0 million) and extended the maturity date to August 31, 2010. In connection with the Recapitalization, the Company
entered into Amendment No. 17 to the Company's amended credit agreement with JP Morgan Chase Bank, effective June 29, 2010. Amendment No. 17, among other things, extended the
maturity date of the credit facility to June 30, 2011.

Amendment
No. 17 terminated the Hallmark Cards Subordination and Support Agreement. The Hallmark Cards Facility Guarantee remains in place and an intercreditor agreement among
HCC, JP Morgan Chase Bank and the Company was entered into which, among other things, defines the lien priorities and allowed for payments to HCC pursuant to the Recapitalization. The credit
facility is guaranteed by Hallmark Cards and the Company's subsidiaries and is secured by all tangible and intangible assets of the Company and its subsidiaries. Interest under the credit facility is
equal to the LIBOR Rate plus 2.25% in the case of a Eurodollar Loan and the Alternate Base Rate plus 1.25% in the case of an Alternate Base Rate Loan (with each named rate and loan as defined in
Amendment
No. 17). The Company's ability to borrow additional amounts under the credit facility is not limited or restricted.

The
credit facility, as amended, contains a number of affirmative and negative covenants, discussed below. The Company was in compliance with these covenants as of December 31,
2010.

At
December 31, 2009, and 2010, the Company had outstanding borrowings of $1.0 million and $0, respectively, under the credit facility and there were no letters of credit
outstanding. At December 31, 2009, all of the outstanding balance bore interest at the Eurodollar rate (2.49% weighted average rate at December 31, 2009). Interest expense on borrowings
under the credit facility for each of the years ended December 31, 2008, 2009 and 2010, was $2.1 million, $350,000 and $4,000, respectively.

Recapitalization

For financial reporting purposes, the Recapitalization has been accounted for as a troubled debt restructuring in accordance with the
guidance ofASC Topic 470-60 DebtTroubled Debt Restructurings. Identification of the Recapitalization as a troubled debt
restructuring involved both qualitative and quantitative aspects. Among the qualitative aspects considered were (i) the Company's expectations that it would have been unable to fulfill the debt
service requirements associated with approximately $342.2 million of principal and interest payable to HCC on May 1, 2010 upon the expiration of the

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waiver
agreement (which was extended to August 31, 2010 pursuant to the master recapitalization agreement), along with an additional $784.6 million of principal and interest that would
become immediately due pursuant to cross-default provisions, and (ii) the going concern opinion rendered by the Company's independent registered public accounting firm in connection with the
financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009. Quantitatively, Hallmark Cards is deemed to have granted a
"concession" within the meaning ofASC 470-60. Prior to consummation of the Recapitalization, the weighted average interest rate of
HCC debt was approximately 8.3%. After consideration of (x) the estimated fair values of Preferred Stock and Common Stock issued in the Recapitalization and (y) the debt service
requirements of New Debt, the overall effective interest rate on the New Debt resulting from the Recapitalization is less than 1%.

Pursuant
to the guidance in theASC, we (1) recorded the issuance of Preferred Stock and Common Stock at their respective estimated
fair values as of June 29, 2010 and (2) recorded New Debt in an amount equal to the residual of (i) the carrying value of HCC Debt less (ii) the estimated fair values of
such Preferred Stock and Common Stock. New Debt has been apportioned between the Term A and
Term B Loans on the basis of their relative fair values. The amounts by which the apportioned Term Loans exceeded the respective stated amounts of principal are being amortized over the terms of the
loans as reductions of the interest expense that otherwise would arise from the stated cash interest rates. The resulting effective interest rates are approximately 0.789% and 1.002%, for the Term A
Loan and Term B Loan, respectively. If, and when, any of the available pay-in-kind options (where interest is added to principal) are exercised, the effects of such elections
will be recognized prospectively.

The
Mergers of HEIC and HEH involved non-substantive subsidiaries of Hallmark Cards. The Mergers were recorded at carry-over basis pursuant to the guidance of ASC 805-50 Business CombinationsRelated Issues. HEIC and HEH did not have assets other than their investment in the Company.

The
following table summarizes the accounting for the Recapitalization:

In thousandsPre-RecapitalizationHCC Debt




$
1,161,918Deferred debt issuance costs





(475
)Transaction costs





(3,596
)$
1,157,847Post-RecapitalizationNew Debt




$
432,140Preferred Stock, 185,000 shares, $0.01 par value, $1,000 liquidation preference





185,000Common Stock, $0.01 par value





2,549Additional paid-in capitalFair values of new Preferred Stock and Common Stock, less liquidation preference and par value, respectively

$
541,754Transaction costs related to new Preferred Stock and Common Stock


(2,547
)

539,207Transaction costs related to the New Debt included in selling, general and administrative expense





(1,049
)$
1,157,847


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Senior Secured Note

In August 2003, the Company issued a senior note to HCC for $400.0 million. Cash payments for interest were not required from
inception through June 29, 2010. The principal amount of the senior secured note accreted at 10.25% per annum, compounding semi-annually, to June 29, 2010. At
December 31, 2009, $758.8 million of principal and interest were included in the senior note payable in the accompanying consolidated balance sheet. The Company's obligations under this
note, including $797.4 million of principal and accrued interest, were terminated in connection with the Recapitalization.

Notes and Interest Payable to HCC

On December 14, 2001, the Company executed a $75.0 million promissory note with HCC. Interest was payable in cash,
quarterly in arrears five days after the end of each calendar quarter. The rate of interest under this note was LIBOR plus 5% per annum (5.29% at
December 31, 2009). At December 31, 2009, $108.6 million of principal, including interest previously added to principal, and $1.5 million of accrued interest were reported
as notes and interest payable to HCC on the accompanying consolidated balance sheet. During 2009 and 2010 the Company paid $6.3 million and $4.3 million, respectively, for interest. The
Company's obligations under this note, including $108.6 million of principal, were terminated in connection with the Recapitalization.

On
October 1, 2005, the Company converted approximately $132.8 million of its license fees payable to a Hallmark Cards affiliate to a promissory note subsequently
transferred to HCC. The rate of interest under this note was LIBOR plus 5% per annum (5.29% at December 31, 2009). At December 31, 2009, $170.1 million of principal, including
interest previously added to principal, and $2.3 million of accrued interest were reported as notes and interest payable to HCC on the accompanying consolidated balance sheet. During 2009 and
2010 the Company paid $9.8 million and $6.8 million, respectively, for interest. The Company's obligations under this note, including $170.1 of principal, were terminated in connection
with the Recapitalization.

On
March 21, 2006, the Company converted approximately $70.4 million of its payable to a Hallmark Cards affiliate to a promissory note subsequently transferred to HCC. The
rate of interest under this note was LIBOR plus 5% per annum (5.29% at December 31, 2009). At December 31, 2009, $62.0 million of principal, including interest previously added to
principal, and $838,000 of accrued interest, were reported as notes and interest payable to HCC on the accompanying consolidated balance sheet. During 2009 and 2010 the Company paid
$3.6 million and $2.5 million, respectively, for interest. The Company's obligations under this note, including $62.0 million of principal, were terminated in connection with the
Recapitalization.

Hallmark Guarantee; Interest and Fee Reductions

Hallmark Cards has unconditionally guaranteed the Company's obligations to JPMorgan Chase Bank under the credit facility. Payments, if
any, under this guarantee will not reduce the Company's obligations under the credit facility but instead will convey to Hallmark Cards a subordinated participation interest in the Company's
obligations under the credit facility. Hallmark Cards also has an option to purchase the lender's entire interest in the credit facility. Prior to April 2009, Hallmark Cards' credit support for the
Company's bank credit facility consisted of supplying a letter of credit.

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The above mentioned credit support provided by Hallmark Cards resulted in reductions in the interest rate and commitment fees under the credit facility; however,
the Company agreed to pay and has paid an amount equal to the reductions in the interest rate and commitment fees to Hallmark Cards. On April 1, 2009, the interest rate and commitment fees
under the renewed credit facility increased and the Company began paying Hallmark Cards a smaller reduction amount of the interest rate and commitment fees equal to 0.75% and 0.125%. Interest expense
paid to HCC in connection with the JPMorgan Chase Bank credit facility was $1.1 million, $963,000, $1,000 for the years ended December 31, 2008, 2009 and 2010, respectively. Commitment
fee expense for the years ended December 31, 2008, 2009 and 2010, was $91,000, $50,000 and $41,000, respectively.

Tax Sharing Agreement



On March 11, 2003, the Company became a member of Hallmark Cards' consolidated federal tax group and entered into a federal tax
sharing agreement with Hallmark Cards (the "tax sharing agreement"). Hallmark Cards includes the Company in its consolidated federal income tax return. Accordingly, Hallmark Cards has benefited from
subsequent tax losses and may benefit from future federal tax losses, which may be generated by the Company. Based on the tax sharing agreement, Hallmark Cards has agreed to pay the Company all of the
benefits realized by Hallmark Cards as a result of including the Company in its consolidated income tax return. Through December 31, 2009, these benefits have been paid 75% in cash on a
quarterly basis with the balance applied as an offset against other amounts owed by the Company to any member of the Hallmark Cards consolidated group under any loan, line of credit or other payable,
subject to limitations under any loan indentures or contracts restricting such offsets. As a result of the Recapitalization, the tax agreement has been amended to provide that 100% of any such benefit
will be deferred for application against future tax liabilities of the Company. Pursuant to the amendment to the tax sharing agreement in August 2003, the benefit that would otherwise result from
interest accrued on the 10.25% senior secured note will not be available to the Company until such interest is paid in cash. As a result of the Recapitalization, such interest accrued from
January 1, 2010, through June 29, 2010, will be treated as a deduction under the amended tax sharing agreement.

The
Company received $21.3 million under the tax sharing agreement during 2008, which was offset against the tax note. At December 31, 2009, the Company owed Hallmark Cards
$8.5 million under the tax sharing agreement for 2009. The liability was satisfied on June 29, 2010, in connection with the Recapitalization. For the year ended December 31, 2010,
the Company owed Hallmark Cards $12.9 million for tax as calculated pursuant to the amended tax sharing agreement and this amount was paid to Hallmark Cards in December 2010.

Any
payments received from Hallmark Cards or credited against amounts owed by the Company to any member of the Hallmark Cards consolidated group under the tax sharing agreements have
been recorded as additions to paid-in capital in the accompanying consolidated statements of stockholders' (deficit) equity. Any amounts owed or payments made to Hallmark Cards or to any
member of the Hallmark Cards consolidated group under the tax sharing agreement have been recorded as reductions to paid-in capital.

Since
May 9, 2000, the Company has been included in certain combined state income tax returns of Hallmark Cards or Hallmark Entertainment Holdings. Consequently, Hallmark
Entertainment Holdings and the Company entered into a state tax sharing agreement. Under the state tax sharing agreement, Hallmark Entertainment Holdings and the Company file consolidated, combined or
unitary state tax returns. The Company makes tax-sharing payments to (or receives payments from) Hallmark Entertainment Holdings equal to the taxes (or tax refunds) that the Company would
pay (or receive) if it filed on a stand-alone basis. Such payments are computed based on the Company's taxable income

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(loss)
and other tax items beginning the day following the May 9, 2000, reorganization. Hallmark Cards has agreed to waive the state tax liability associated with the cancellation of debt
income in those states in which Hallmark Cards files a combined return. Accordingly, the Company has reduced the liability for the state taxes and credited paid-in capital for that
amount. For the year ending December 31, 2010, it is estimated that the Company will owe Hallmark Cards approximately $800,000 with respect to the state tax sharing payment primarily related to
changes in California tax law. This amount will be payable two days prior to the due date of the state tax returns in 2011.

Services Agreement with Hallmark Cards

Hallmark Cards provides us with tax, risk management, health safety, environmental, insurance, legal, treasury, human resources, cash
management and real estate consulting services. In exchange, the Company is obligated to pay Hallmark Cards a fee, plus out-of-pocket expenses and third party fees, in arrears
on the last business day of each quarter. Fees for Hallmark Cards' services were $541,000 for 2008, $455,000 for 2009 and $387,000 for 2010.

At
December 31, 2009, and 2010, non-interest bearing unpaid accrued service fees and unreimbursed expenses of $15.2 million and $648,000, respectively, were
included in payables to affiliates on the accompanying consolidated balance sheets. The $15.2 million outstanding at December 31, 2009, was satisfied on June 29, 2010, in
connection with the Recapitalization. For the years ended December 31, 2008, 2009 and 2010, out-of-pocket expenses and amounts paid to third parties on the Company's
behalf by Hallmark Cards were $1.1 million, $420,000 and $302,000, respectively.

Lease Guarantees with Hallmark Cards

On February 24, 2010, the Company executed a letter of credit/guaranty commitment with respect to a certain lease agreement with
12700 Investments, Ltd. for the office space at 12700 Ventura Boulevard, Studio City, California. The landlord required that Crown Media United States, the entity which executed the lease,
provide a letter of credit of $1.6 million securing certain obligations of Crown Media United States. Consequently, Hallmark Cards has agreed to guarantee the issuer of such letter of credit
against any loss thereon pursuant to the guaranty. As an inducement for Hallmark Cards to issue the guaranty, Crown Media United States has agreed to pay Hallmark Cards a fee which equals 0.75% per
annum of the outstanding letter of credit obligation. Additionally, in the event that Hallmark Cards is required to pay any amount under the guaranty, Crown Media United States must reimburse Hallmark
Cards for any such amount plus any fees and charges associated with making such payment, any interest applicable to such amount and any costs and expenses of Hallmark Cards in connection with
protecting its rights under the guaranty.

On
September 2, 2008, Hallmark Cards issued a guaranty for the benefit of Crown Media United States, which guaranty pertains to a lease agreement with Paramount Group, Inc.
for the office space at 1325 Avenue of the Americas, New York, New York. As a condition to executing the lease agreement, the landlord required Hallmark Cards to guaranty all obligations of Crown
Media United States under the lease agreement. As an inducement for Hallmark Cards to issue the guaranty, Crown Media United States has paid Hallmark Cards a fee which equals 0.28% per annum of the
outstanding obligation under the lease agreement. Additionally, in the event that Hallmark Cards is required to pay any amount under the guaranty, Crown Media United States must reimburse Hallmark
Cards for any such amount plus any fees and charges associated with making such payment, any interest applicable to such amount and any costs and expenses of Hallmark Cards in connection with
protecting its rights under the guaranty.

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"Hallmark Hall of Fame" Programming License Agreement

In 2008, Crown Media United States entered into an agreement with Hallmark Hall of Fame Productions, Inc. to license 58
"Hallmark Hall of Fame" movies, consisting of 16 contemporary Hallmark Hall of Fame titles (i.e., produced from 2003 to 2008) and 42 older titles, for exhibition on the Hallmark Channel and
Hallmark Movie Channel. These titles are licensed for ten year windows, with windows commencing at various times between 2007 and 2010, depending on availability. This agreement makes the Hallmark
Channel and Hallmark Movie Channel the exclusive
home for these movies. The total license fee for these movies is $17.2 million and is payable in equal monthly installments over the various 10-year exhibition windows.

Trademark Agreement with Hallmark Cards

Crown Media United States operates under the benefit of a limited trademark license agreement with Hallmark Licensing, Inc.,
dated March 27, 2001, which has been extended through September 1, 2011. The amended and restated Crown Media United States trademark agreement permits Crown Media United States to name
its network service as the "Hallmark Channel." The agreement contains usage standards, which limit certain types of programming and programming content aired on Crown Media United States' network.
Crown Media United States also has a similar trademark license agreement with Hallmark Licensing, Inc., which is effective January 1, 2004, and as extended expires September 1,
2011, to permit the use of the Hallmark trademark in the name of the "Hallmark Movie Channel."

Under
the agreement, if Hallmark Cards notifies us in writing that it has determined that we have failed to comply with the usage standards set forth in the agreement or have otherwise
breached our obligations under the agreement, we are required to stop any non-complying activity within 10 days of that notice or we may be in default of the agreement. We also may
be in default if Hallmark Cards delivers such a written notice to us with respect to its standards three or more times in any 12-month period. In addition, there may be a default under the
agreement if we fail to cure any breach of the program agreement with RHI Entertainment Distribution, if we fail to make any payments due under loan agreements within five days of the due date, or if
we receive an opinion from our auditors that shows that we no longer are a going concern. The Company obtained a waiver for the trademark license agreement dated March 3, 2010, from Hallmark
Cards related to its going concern opinion over its 2009 financial statements.

The
license agreements can be terminated immediately and without notice if we transfer in any way our rights under the license agreements, if we have an event of default under the
agreement or in events of bankruptcy, insolvency or similar proceedings.

The
Company has accounted for the agreement pursuant to the contractual terms of the arrangement, which is royalty free. Accordingly, no amounts have been reflected in the consolidated
balance sheets or consolidated statements of operations and of the Company.

ITEM 7A.    Quantitative and Qualitative Disclosures about Market Risk

We only invest in instruments that meet high credit and quality standards, as specified in our investment policy guidelines. These
instruments, like all fixed income instruments, are subject to interest rate risk. The fixed income portfolio will decline in value if there is an increase in interest rates. If market interest rates
were to increase immediately and uniformly by 10% from levels as of December 31, 2010, the decline of the fair value of the fixed income portfolio would not be material.

As
of December 31, 2010, our cash, cash equivalents and short-term investments had a fair value of $30.6 million, which was invested in cash and
short-term commercial paper. The primary purpose of these investing activities has been to preserve principal until the cash is required to fund operations or

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can
be used to reduce borrowings under our credit facility based on the maturity schedule of loans under that agreement. Consequently, the size of this portfolio is nominal and fluctuates as cash is
provided by and used in our business.

The
value of certain investments in this portfolio can be impacted by the risk of adverse changes in securities and economic markets and interest rate fluctuations. For the year ended
December 31, 2010, the impact of interest rate fluctuations, changed business prospects and all other factors did not have a material impact on the fair value of this portfolio, or on our
income derived from this portfolio.

We
have not used derivative financial instruments for speculative purposes. As of December 31, 2010, we are not hedged or otherwise protected against risks associated with any of
our investing or financing activities.

We are exposed to market risk.

We are exposed to market risk, including changes to interest rates. To reduce the volatility relating to these exposures, we may enter
into various derivative investment transactions in the near term pursuant to our investment and risk management policies and procedures
in areas such as hedging and counterparty exposure practices. We have not and will not use derivatives for speculative purposes.

If
we use risk management control policies, there will be inherent risks that may only be partially offset by our hedging programs should there be any unfavorable movements in interest
rates or equity investment prices.

ITEM 8.    Financial Statements and Supplementary Data

Our Consolidated Financial Statements begin at page F-1 of this Annual Report on Form 10-K.

ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A.    Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of
December 31, 2010. In performing its assessment of the Company's internal control over financial reporting, management used the criteria set forth inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of that date for purposes of recording, processing, summarizing and
timely reporting material information required to be disclosed in reports that the Company files under the Securities Exchange Act of 1934.

Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. A company's internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect

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misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

Management,
including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the Company's internal control over financial reporting
as of December 31, 2010, based on the criteria for effective internal control described inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that the Company's internal control over financial reporting was effective
as of December 31, 2010.

This
Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in
this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended
December 31, 2010, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or
have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitation in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B.    Other Information

Not applicable.

PART III

The information required by this Part III is incorporated by reference to information in the definitive proxy statement for our
2011 annual meeting of stockholders under the headings "Election of Directors," "Board Information," "Compensation of Directors and Executive Officers," "Section 16(a) Beneficial Ownership
Reporting Compliance," and "Security Ownership of Certain Beneficial Owners and Management."We intend to file the definitive proxy statement with the Securities and Exchange Commission on or prior to
April 30, 2011.

ITEM 10.    Directors, Executive Officers and Corporate Governance

The information required by this Item 10 is set forth in the Proxy Statement to be delivered to stockholders in connection with
our 2011 Annual Meeting of Stockholders ("the Proxy Statement") under the headings "Election of Directors," "Board Information," and "Compensation of Directors and Executive Officers," and is
incorporated by reference herein.

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ITEM 11.    Executive Compensation

The information required by this Item 11 is set forth in the Proxy Statement under the headings "Board Information," and
"Compensation of Directors and Executive Officers," and is incorporated by reference herein.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item 12 is set forth in the Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management," and is incorporated by reference herein.

ITEM 13.    Certain Relationships and Related Transactions and Director Independence

The information required by this Item 13 is set forth in the Proxy Statement under the headings "Certain Relationships and
Related Transactions" and is incorporated by reference herein. The descriptions of related party transactions below are stated in this Report because the transactions are referenced in other Items of
this Report.

The following summary descriptions of agreements to which we are a party are qualified in their entirety by reference to the agreement to which each summary
description relates, each of which we have filed with the SEC.

Policies and procedures for the review, approval or ratification of transactions with related persons

The Audit Committee, under its charter, has been delegated by the Board the authority to review and approve related party transactions.
To seek approval of marketing-related transactions with Hallmark Cards, management begins by providing the Audit Committee a summary of the transactions, together with researched data which supports
management's decision in selecting Hallmark Cards as a commercially reasonable and cost effective partner for such marketing activities. At its meetings, the Audit Committee discusses the
appropriateness of the transaction for the Company and renders a decision. For efficiency purposes, the Audit Committee has asked management to seek approval only if a transaction involves a financial
commitment on the part of the Company that is greater than $5,000 per transaction. Notwithstanding the foregoing, management seeks approval of transactions surrounding major holiday campaigns (for
example, Valentine's Day, Mother's Day and Christmas) regardless of the monetary value involved. These practices result from requirements in the Stockholders Agreement (described below), as well as
corporate governance principles, are reflected in minutes and are not otherwise the subject of written policies or procedures.

To
seek approval of any other related-party transactions, management begins by providing a summary of the transaction and any documents that are necessary for the independent directors
to review and approve the transactions. Such directors then conduct a meeting (or multiple meetings, if necessary) to discuss the appropriateness of the transactions for the Company and render their
decision. In certain cases, the Board may form a special committee of directors who are independent of the transaction at hand and delegate authority to such committee to review and approve the
transaction. Generally, such special committee would have authority to retain financial advisors and legal counsel who advise the committee on matters relating to the transaction.

Recapitalization

Please see "Recapitalization" under "Recent Developments" above in Part I, Item 1."

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"Hallmark Hall of Fame" Programming License Agreement

Please see "Hallmark Hall of Fame Program License Agreement" under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" above in Part II, Item 7."

Hallmark Advertising

Hallmark Cards purchased $429,000, $775,000 and $496,000 of advertising on the Hallmark Channel in the United States at negotiated
market rates, respectively, during the years ended December 31, 2008, 2009 and 2010.

During
November and December of 2009 and February of 2010, Hoops & Yoyo, popular animation characters created and owned by Hallmark Cards, hosted certain of our original movies
airing on Hallmark Channel. The characters appeared intermittently during the airing of the movies to provide commentaries and narratives pertinent to the movies. Hallmark Cards provided the content
and no license fee was paid by the Company to Hallmark Cards for such content.

Intercompany Services Agreement

Please see "Services Agreement with Hallmark Cards" under "Management's Discussion and Analysis of Financial Condition and Results of
Operations" above in Part II, Item 7."

Hallmark Trademark License Agreements

Please see "Trademark Agreement with Hallmark Cards" under "Management's Discussion and Analysis of Financial Condition and Results of
Operations" above in Part II, Item 7."

Lease Guarantees with Hallmark Cards

Please see "Lease Guarantees with Hallmark Cards" under "Management's Discussion and Analysis of Financial Condition and Results of
Operations" above in Part II, Item 7."

VISN Preferred Interest

VISN, a subsidiary of the National Interfaith Cable Coalition, Inc. ("NICC"), owned a $25.0 million preferred interest in
Crown Media United States. Under the Crown Media United States Amended and Restated Company Agreement, originally dated November 13, 1998, the members agreed that if during any year ending
after January 1, 2005 and prior to December 31, 2009, Crown Media United States had federal taxable income (with possible adjustments) in excess of $10.0 million, and the
preferred interest was redeemed, Crown Media United States would redeem the preferred interest in an amount equal to the lesser of:



Crown
Media United States did not have such taxable income in 2009. Crown Media United States could have voluntarily redeemed the preferred interest at any time, however, it was
obligated to do so on the date of redemption (December 31, 2010). The preferred interest had a liquidation preference of $25.0 million. Crown Media United States redeemed the
$25.0 million preferred interest in December 2010. Consequently, we no longer have any obligation to NICC.

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Crown Media United States Programming Agreement with NICC

On January 2, 2008, Crown Media Holdings entered into an agreement with NICC regarding termination of any right of NICC under
the agreement covering the operation of Crown Media United States (the "Company Agreement") to compel Crown Media Holdings to buy all of the outstanding shares of Class A Common Stock owned by
NICC and NICC's subsidiary VISN Management Corp. ("VMC") at the then current market value. The January 2008 agreement also covers other aspects of Crown Media Holdings' relationship with NICC.

The
January 2008 agreement provided for the following:



During
the year ended December 31, 2008, 2009, and 2010, Crown Media United States paid NICC $6.4 million, $4.6 million and $2.8 million, respectively,
related to the Company Agreement as amended. Consequently, we no longer have any obligation to NICC.

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DIRECTV Affiliation Agreement

On August 20, 2001, Crown Media United States entered into an Affiliation Agreement with DIRECTV, Inc., a wholly owned
subsidiary of DIRECTV Enterprises, Inc. Pursuant to the Affiliation Agreement, DIRECTV distributes the Hallmark Channel on the TOTAL CHOICE ® tier of its DBS distribution system in
the United States and pays us license fees for such distribution. At the same time we entered into a Stock Purchase Agreement with DIRECTV Enterprises whereby we issued 5,360,202 shares of our Common
Stock, which shares were subsequently transferred to its parent company, The DIRECTV Group, Inc. In March 2008, we renewed this distribution agreement for a multi-year term and
additionally provided DIRECTV with the right to distribute the Standard Definition and High Definition versions of the Hallmark Movie Channel. As of December 31, 2010, DIRECTV accounted for
18.6 million of our subscribers. Upon completion of the Recapitalization, The DIRECTV Group, Inc.'s ownership percentage of our Common Stock was reduced from approximately 7.2% to
approximately 1.5%.

Bank Credit Facility

In 2001, the Company entered into a credit agreement (which agreement has been amended subsequently, with the most recent amendment
dated June 29, 2010) with a syndicate of banks, led by JP Morgan Chase Bank, N.A. as Administrative Agent and Issuing Bank. In March 2008, JP Morgan Chase Bank became the sole lender under the
bank credit facility by acquiring the interests of all other lending banks. The facility is guaranteed by the Company's subsidiaries, is secured by all tangible and intangible property of the Company
and its subsidiaries, and is guaranteed by
Hallmark Cards. Interest on the credit facility is the Eurodollar rate plus 2.25% or the alternate base rate plus 1.25%.

As
a result of the most recent amendment executed in June 2010 (Amendment No. 17), the bank credit facility is a revolving line of credit in the amount of $30.0 million due
on June 30, 2011. Simultaneously with executing Amendment No. 17, Hallmark Cards Subordination and Support Agreement was terminated and an intercreditor agreement among HCC, JP Morgan
Chase Bank and the Company was entered into, which among other things defines the lien priorities and allows for payments to HCC pursuant to the Recapitalization.

Each
loan under the bank credit facility bears interest at a Eurodollar rate or an alternate base rate as we may request at the time of borrowing. The Eurodollar rate is based on the
London interbank market for Eurodollars, and remains in effect for the time period of the loan ranging from one, two, three, six or twelve months. The alternate rate is based upon the prime rate of JP
Morgan Chase Bank, a certificate of deposit rate or the Federal Funds effective rate, which is adjusted whenever the rates change. We were required to pay a commitment fee of 0.15% per annum of the
committed, but not outstanding, amounts under the revolving credit facility, payable in quarterly installments. Pursuant to Amendment No. 15, the commitment fee of 0.15% per annum was increased
to 0.375% per annum, which results in no increase to us because the difference was previously paid by us to Hallmark Cards.

The
credit agreement, as amended, contains a number of affirmative and negative covenants. Affirmative covenants include, without limitation, the following: (1) (a) within
90 days after the end of each fiscal year, submit to the banks audited consolidated financial statements of the Company required to be submitted to the S.E.C., and (b) within
45 days after the end of each of the first three fiscal quarters, submit to the banks unaudited consolidated financial statements of the Company required to be submitted to the S.E.C.;
(2) cause the Company's corporate existence to be effective; (3) keep tangible properties material to the Company's business in good condition; (4) provide notice of the following
material events: (a) any event of default, (b) material adverse change in the condition or operations of any credit party, (c) any action which could affect the performance of the
credit parties' obligations under the Credit Agreement, (d) any other event which could result in a material

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adverse
effect, (e) opening or change of any executive office, (f) change in the name of the credit parties, (g) any event which affects the collectibility of receivables or
decrease the value of the collateral, (h) proposed material amendment to any material agreement that are part of the collateral and (i) any notice which a credit party received with
respect to a claimed default; (5) (a) insure its assets adequately, (b) insure against other hazards and risks, (c) maintain distributor's "errors and omissions" insurance,
(d) maintain broadcaster's "errors and omissions" insurance, (e) cause all insurance to provide to the Lender a written notice of any termination or material change of coverage and
(f) upon request, provide to the Lender a statement of insurance coverage; (6) maintain true and complete books and records of financial operations and provide the Agent access to such
books and records; (7) observe and perform all material agreements with respect to the distribution/exploitation of the Products (as defined in the Credit Agreement); (8) pay all taxes
and other governmental charges and indebtedness in the ordinary course of business of the credit parties; (9) defend the collateral against all liens, other than permitted encumbrances;
(10) upon receipt of any (a) payment from any obligor which should be
remitted to the Agent or (b) the proceeds of any sale of Product, remit such payment or proceeds to the Agent; (11) comply with all applicable environmental laws, notify the Agent of any
material violation of any applicable environmental laws and indemnify the Agent and the Issuing Bank against any environmental law-related claims; and, (12) (a) upon request,
execute and deliver all necessary documents to perfect the liens on the collateral and to carry out the purpose of the Credit Agreement and its ancillary documents and (b) clarify, if
necessary, the chain of title for any item of the Products.

Negative
covenants include limitations on (1) indebtedness, (2) liens, (3) guaranties, (4) investments, (5) making "Restricted Payments," (Restricted
Payments include any distribution on our equity, any redemption or other acquisition of our equity including redemption of the company obligated mandatorily redeemable preferred interest, any payment
on debt of the Company which is subordinated to the bank loans, and any other payment to Hallmark Cards or any of its affiliates). The credit agreement, however, permits the Company to make payments
to Hallmark Cards or an affiliate in payment of a valid outstanding obligation with respect to certain payments related to the Recapitalization or any commercially reasonable fees in consideration for
Hallmark Cards having extended its guarantee for the bank credit facility under Amendment No. 15, (6) sale of assets, (7) sale of receivables, (8) entering into any sale
and leaseback transactions, (9) entering into transactions with affiliates, (10) amending any material agreement with a credit party, (11) creating negative pledge,
(12) mergers or acquisitions, (13) production of any item of Product in any fiscal year having an aggregate budgeted negative cost in excess of $5.0 million, (14) changing
our business activities, (15) entering into certain transactions that are prohibited under ERISA, (16) entering into any interest rate protection agreement or currency agreement,
(17) acquiring or creating any new subsidiary, (18) using or storing hazardous materials on our premises, (19) creating any first tier subsidiary other than CM Intermediary or
have any asset related to the Channel at a level above CM Intermediary and (20) creating any new liens.

Events
of default under the amended credit agreement include, among other things, (1) the failure to pay principal or interest, with the default continuing unremedied for five
days after receipt of a remittance advice, (2) a failure to observe covenants, (3) a change in control, (4) the Hallmark Cards' guarantee of the credit facility shall have expired
or otherwise terminated or Hallmark Cards shall have disavowed its obligations under the guarantee or default shall otherwise have occurred in accordance with the terms of the guarantee, (5) a
termination by Hallmark Cards or any of its affiliates of the right of the Company or its subsidiaries to use the names "Hallmark" or "Crown" in their television services or any Channels owned or
operated by them. For purposes of the credit facility, a change in control means that (a) HCC ceases to have sufficient voting power to elect a majority of the Company's board of directors or
beneficial ownership of over a majority of the outstanding equity interest of the Company having voting power, (b) the majority of the Board is not comprised of individuals who were either in
office or who were nominated by a two-third's vote of individuals in office or so nominated as

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at
December 17, 2001, or (c) the consummation by the Company of a Rule 13e-3 transaction (or a "going-private" transaction) as defined in the Securities Exchange Act.

Certain Business Relationships and Conflicts of Interest

HCC holds approximately 90.3% of our outstanding shares of Common Stock and 100% of our outstanding Preferred Stock. HCC's control
could discourage others from initiating potential merger, takeover or other change of control transactions that may otherwise be beneficial to our businesses or holders of Common Stock. As a result,
the market price of our Common Stock or our business could suffer.

HCC's
control relationship with us also could give rise to conflicts of interest, including:



In
addition, our directors, who may also be officers or directors of HCC or its affiliates, will have fiduciary duties, including duties of loyalty, to both companies and may have
conflicts of interest with respect to matters potentially involving or affecting us.

Our
certificate of incorporation provides that Hallmark Cards will have no duty to refrain from engaging in activities or lines of business that are the same as or similar to the
activities or lines of business in which we engage, and neither Hallmark Cards nor any officer or director of Hallmark Cards, except as provided below, will be liable to us or to our stockholders for
breach of any fiduciary duty by reason of any such activities of Hallmark Cards. In the event that Hallmark Cards acquires knowledge of a potential transaction or matter which may be a corporate
opportunity for both Hallmark Cards and us, Hallmark Cards will have no duty to communicate or offer that corporate opportunity to us and will not be liable to us or our stockholders for breach of any
fiduciary duty as a
stockholder by reason of the fact that Hallmark Cards pursues or acquires that corporate opportunity for itself, directs that corporate opportunity to another person, or does not communicate
information regarding that corporate opportunity to us.

In
the event that one of our directors or officers who is also a director or officer of Hallmark Cards acquires knowledge of a potential transaction or matter which may be a corporate
opportunity for both us and Hallmark Cards, that director or officer will have fully satisfied his or her fiduciary duty to us and our stockholders with respect to that corporate opportunity if that
director or officer acts in a manner consistent with the following policy:



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For
purposes of the policy:



The
foregoing provisions of our certificate of incorporation will expire on the date that Hallmark Cards ceases to own beneficially Common Stock representing at least 20% of the total
voting power of all of our classes of outstanding capital stock and no person who is one of our directors or officers is also a director or officer of Hallmark Cards or any of its subsidiaries.

ITEM 14.    Principal Accountant Fees and Services

The following table presents fees for professional audit services rendered by KPMG LLP for the audits of the Company's annual
financial statements for 2009 and 2010, and fees billed for other services rendered by KPMG LLP, our principal accountant in fiscal years 2009 and 2010:

Fiscal YearType of Fee

2009

2010Audit Fees(1)

$
951,469

$
904,780Audit-Related Fees





Tax Fees





All Other Fees





Total Fees

$
951,469

$
904,780


(1)Audit Feesare principally for the audit of our annual financial statements, internal controls over
financial reporting, and review of financial statements included in our Forms 10-Q.


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PART IV

ITEM 15.    Exhibits, Financial Statement Schedules



Report of KPMG LLP, Independent Registered Public Accounting Firm

F-3Consolidated Balance Sheets as of December 31, 2009 and 2010

F-4Consolidated Statements of Operations for the Years Ended December 31, 2008, 2009 and 2010

F-6Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 2008, 2009 and 2010

F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2009 and 2010

F-8Notes to Consolidated Financial Statements

F-10


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Exhibit Number

Exhibit Title2.1

Purchase and Sale Agreement, dated as of February 23, 2005, by and among CM Intermediary, LLC, Bagbridge Limited and, solely with respect to Section 10.14 of the Agreement, Crown Media Holdings, Inc.
(previously filed as Exhibit 2.1 to our Current Report on Form 8-K, filed on February 23, 2005 and incorporated herein by reference).2.2

Asset Purchase and Sale Agreement, dated as of February 23, 2005, by and among Crown Media Distribution, LLC, Bagbridge Limited and, solely with respect to Section 10.14 of the Agreement, Crown Media
Holdings, Inc. (previously filed as Exhibit 2.2 to our Current Report on Form 8-K, filed on February 23, 2005 and incorporated herein by reference).2.3

Recapitalization Term Sheet dated February 9, 2010 between the Special Committee of the Board of Directors of the Company and H C Crown Corp. (previously filed as Exhibit 99.1 to our Current Report on
Form 8-K filed on February 10, 2010 and incorporated herein by reference).2.4

Agreement and Plan of Merger of Crown Media Holdings, Inc. and Hallmark Entertainment Investments Co., dated as of February 26, 2010 (previously filed as Exhibit 2.1 to our Current Report on
Form 8-K filed on March 1, 2010 and incorporated herein by reference).2.5

Agreement and Plan of Merger of Crown Media Holdings, Inc. and Hallmark Entertainment Holdings, Inc., dated as of February 26, 2010 (previously filed as Exhibit 2.2 to our Current Report on
Form 8-K filed on March 1, 2010 and incorporated herein by reference).3.1

Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.1 to our Registration Statement on Form S-1/A (Amendment No. 2), Commission File No. 333-95573, and incorporated herein
by reference).3.2

Certificate of Amendment to the Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q filed on July 31, 2001 (Commission File
No. 000-30700 and Film No. 1693331) and incorporated herein by reference).3.3

Amended and Restated By-Laws (previously filed as Exhibit 3.2 to our Registration Statement on Form S-1/A (Amendment No. 3), Commission File No. 333-95573, and incorporated herein by
reference).3.4

Proposed form of Second Amended and Restated Certificate of Incorporation of Crown Media Holdings (previously filed as Exhibit 3.1 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated
herein by reference).3.5

Proposed form of Certificate of Designation, Powers, Preferences, Qualifications, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock of Crown Media Holdings, Inc. (previously
filed as Exhibit 3.2 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).3.6

Proposed form of Third Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.3 to our Current Report on Form 8-K filed on March 1, 2010 and
incorporated herein by reference).


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Exhibit Number

Exhibit Title4.1

Form of Specimen Certificate for our Class A Common Stock (previously filed as Exhibit 4.1 to our Registration Statement on Form S-1/A (Amendment No. 1), Commission File No. 333-95573, and
incorporated herein by reference).10.1

Credit, Security, Guaranty and Pledge Agreement, dated August 31, 2001, by and among Crown Media Holdings, Inc., its Subsidiaries named therein, the Lenders named therein and The Chase Manhattan Bank (now known
as JPMorgan Chase Bank) as Administrative Agent and Issuing Bank (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on October 3, 2001 (Commission File No. 000-30700 and Film No. 1751583) and
incorporated herein by reference).10.2

Amendment No. 1, dated as of December 14, 2001, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on December 18, 2001 (Commission File No. 000-30700
and Film No. 1816385) and incorporated herein by reference).10.3

Amendment No. 2, dated as of December 31, 2001, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.5 to our Annual Report on Form 10-K, filed on March 29, 2002 (Commission File No. 000-30700 and
Film No. 02594577) and incorporated herein by reference).10.4

Amendment No. 3, dated as of March 29, 2002, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed on May 15, 2002 (Commission File No. 000-30700
and Film No. 02652502) and incorporated herein by reference).10.5

Amendment No. 4, dated as of May 15, 2002, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q, filed on May 15, 2002 (Commission File No. 000-30700
and Film No. 02652502) and incorporated herein by reference).10.6

Amendment No. 5, dated as of February 5, 2003, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.15 to our Annual Report on Form 10-K, filed on March 28, 2003 (Commission File No. 000-30700
and Film No. 03626484) and incorporated herein by reference).


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Exhibit Number

Exhibit Title10.7

Amendment No. 6, dated as of August 4, 2003, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.3 to our Current Report on Form 8-K, filed on August 6, 2003 (Commission File No. 000-30700 and
Film No. 03825587) and incorporated herein by reference).10.8

Amendment No. 7, dated as of October 28, 2004, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed on November 15, 2004 and incorporated herein by
reference).10.9

Amendment No. 8, dated as of March 2, 2005, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001, among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JPMorgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on March 11, 2005 and incorporated herein by
reference).10.10

Amendment No. 9, dated as of March 21, 2006 to the Credit, Security, Guaranty and Pledge Agreement dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named therein,
 the Lenders named therein and JP Morgan Chase Bank as Administrative Agent and Issuing Bank. (previously filed as Exhibit 10.99 to our Annual Report on Form 10-K, filed March 29, 2006, and incorporated herein by reference.)10.11

Amendment No. 10, dated as of April 28, 2006 to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank. (previously filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q, filed May 10, 2006, and incorporated herein by
reference.)10.12

Amendment No. 11, dated as of December 8, 2006 to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.95 to our Annual Report on Form 10-K, filed March 8, 2007, and incorporated herein by
reference).10.13

Amendment No. 12, dated as of March 2, 2007, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.96 to our Annual Report on Form 10-K, filed March 8, 2007, and incorporated herein by
reference).


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Exhibit Number

Exhibit Title10.14

Amendment No. 13, dated as of July 27, 2007, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, the Lenders named therein and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q, filed August 8, 2007, and incorporated herein by
reference).10.15

Amendment No. 14, dated as of March 10, 2008, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.24 to our Annual Report on Form 10-K, filed March 12, 2008, and incorporated herein by reference).10.16

Amendment No. 15, dated as of March 2, 2009, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.25 to our Annual Report on Form 10-K filed March 5, 2009, and incorporated herein by reference).10.17

Amendment No. 16, dated as of March 2, 2010, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.26 to our Annual Report on Form 10-K filed on March 4, 2010 and incorporated herein by reference).10.18

Amendment No. 17, dated as of June 29, 2010, to the Credit, Security, Guaranty and Pledge Agreement, dated as of August 31, 2001 among Crown Media Holdings, Inc. as Borrower, the Guarantors named
therein, and JP Morgan Chase Bank as Administrative Agent and as Issuing Bank (previously filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 29, 2010 and incorporated herein by reference).10.19

Amended and Restated Subordination and Support Agreement, dated as of July 27, 2007, among Crown Media Holdings, Inc., Hallmark Cards, Incorporated and The Chase Manhattan Bank (now known as JP Morgan Chase
Bank) as agent for the Lenders and the Issuing Bank referred to in the Credit Agreement (previously filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q, filed August 8, 2007, and incorporated herein by reference).10.20

Guarantee Agreement, dated as of March 2, 2009 between Hallmark Cards Incorporated and JPMorgan Chase Bank as Administrative Agent (previously filed as Exhibit 10.27 to our Annual Report on Form 10-K filed
March 5, 2009, and incorporated herein by reference).10.21

Second Amended and Restated Program License Agreement, dated as of January 1, 2005, by and between Hallmark Entertainment Distribution, LLC (now RHI Entertainment Distribution, LLC) and Crown Media United
States, LLC (previously filed as Exhibit 99.1 to our Current Report on Form 8-K, filed on October 11, 2005, and incorporated herein by reference).


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Exhibit Number

Exhibit Title10.22

Amended and Restated Trademark License Agreement, dated as of March 27, 2001, by and between Hallmark Licensing, Inc. and Odyssey Holdings, LLC (now known as Crown Media United States, LLC) (previously
filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 7, 2001 (Commission File No. 000-30700 and Film No. 1623520), and incorporated herein by reference).10.23

Trademark License Extension Agreement, dated as of November 30, 2002, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.32 to our Annual Report
on Form 10-K filed on March 28, 2003 (Commission File No. 000-30700 and Film No. 03626484) and incorporated by reference herein).10.24

Trademark License Amendment and Extension Agreement, dated as of August 28, 2003, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.6 to our
Quarterly Report on Form 10-Q filed on November 10, 2003 (Commission File No. 000-30700 and Film No. 03988106) and incorporated by reference herein).10.25

Trademark License Extension Agreement, dated as of August 1, 2004, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.5 to our Quarterly Report
on Form 10-Q filed on November 15, 2004 and incorporated by reference herein).10.26

Trademark License Extension Agreement (Hallmark Channel), dated as of August 1, 2005, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.3 to our
Quarterly Report on Form 10-Q filed on November 7, 2005 and incorporated by reference herein).10.27

Trademark License Extension Agreement (Hallmark Channel), dated as of April 10, 2006, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC. (previously filed as Exhibit 10.3 to
our Quarterly Report on Form 10-Q, filed May 10, 2006, and incorporated herein by reference.)10.28

Trademark License Extension Agreement (Hallmark Channel), dated as of August 1, 2007, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.11 to
our Quarterly Report on Form 10-Q, filed August 8, 2007, and incorporated herein by reference).10.29

Trademark License Agreement (Hallmark Channel), dated as of August 1, 2008, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.3 to our Quarterly
Report on Form 10-Q, filed August 6, 2008, and incorporated herein by reference).10.30

Trademark License Extension Agreement (Hallmark Channel) dated August 15, 2009 by and between Hallmark Licensing Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.2 to our
Quarterly Report on Form 10-Q filed November 5, 2009, and incorporated herein by reference).10.31

Trademark License Extension Agreement (Hallmark Channel) dated June 29, 2010 by and between Hallmark Licensing Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.13 to our Quarter
Report on Form 10-Q filed on August 12, 2010, and incorporated herein by reference).


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Exhibit Number

Exhibit Title10.32

Trademark License Agreement (Hallmark Movie Channel), dated as of January 1, 2004, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.33 to our
Annual Report on Form 10-K, filed March 12, 2008, and incorporated herein by reference).10.33

Trademark License Extension Agreement (Hallmark Movie Channel), dated as of August 1, 2005, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.4
to our Quarterly Report on Form 10-Q filed on November 7, 2005 and incorporated by reference herein).10.34

Trademark License Extension Agreement (Hallmark Movie Channel), dated as of April 10, 2006, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.98
to our Annual Report on Form 10-K, filed March 8, 2007, and incorporated herein by reference).10.35

Trademark License Extension Agreement (Hallmark Movie Channel), dated as of August 1, 2007, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.10
to our Quarterly Report on Form 10-Q, filed August 8, 2007, and incorporated herein by reference).10.36

Trademark License Agreement (Hallmark Movie Channel), dated as of August 1, 2008, by and between Hallmark Licensing, Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.2 to our
Quarterly Report on Form 10-Q, filed August 6, 2008, and incorporated herein by reference).10.37

Trademark License Extension Agreement (Hallmark Movie Channel) dated August 15, 2009 by and between Hallmark Licensing Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.1 to our
Quarterly Report on Form 10-Q filed November 5, 2009, and incorporated herein by reference).10.38

Trademark License Extension Agreement (Hallmark Movie Channel) dated June 29, 2010 by and between Hallmark Licensing Inc. and Crown Media United States, LLC (previously filed as Exhibit 10.14 to our
Quarter Report on Form 10-Q filed on August 12, 2010, and incorporated herein by reference).10.39

Waiver to the Trademark License Extension Agreement (Hallmark Channel and Hallmark Movie Channel) dated March 3, 2010, by and between Hallmark Licensing Inc. and Crown Media United States, LLC. (previously
filed as Exhibit 10.46 to our Annual Report on Form 10-K filed on March 4, 2010, and incorporated herein by reference).10.40

Amended and Restated Company Agreement of Odyssey Holdings, L.L.C. (now known as Crown Media United States, LLC) (previously filed as Exhibit 10.11 to our Registration Statement on Form S-1/A (Amendment
No. 1), Commission File No. 333-95573, and incorporated herein by reference).10.41

Amendment to the Amended and Restated Company Agreement of Odyssey Holdings, LLC, dated March 15, 2001 (previously filed as Exhibit 10.22 to our Annual Report on Form 10-K, filed on March 29, 2002
(Commission File No. 000-30700 and Film No. 02594577) and incorporated herein by reference).


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Exhibit Number

Exhibit Title10.42

Agreement, dated as of February 22, 2001, by and among Odyssey Holdings, LLC, National Interfaith Cable Coalition, Inc. and VISN Management Corp. (previously filed as Exhibit 10.2 to our Quarterly
Report on Form 10-Q filed on May 7, 2001 (Commission File No. 000-30700 and Film No. 1623520) and incorporated herein by reference).10.43

Agreement, dated as of March 5, 2003, by and among Odyssey Holdings, LLC, National Interfaith Cable Coalition, Inc. and VISN Management Corp. (previously filed as Exhibit 10.5 to our Quarterly Report
on Form 10-Q filed on May 15, 2003 (Commission File No. 000-30700 and Film No. 03701984), and incorporated herein by reference).10.44

Intercompany Services Agreement, made as of December 23, 2002, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.38 to our Annual Report on
Form 10-K filed on March 28, 2003 (Commission File No. 000-30700 and Film No. 03626484) and incorporated herein by reference).10.45

Intercompany Services Extension Agreement, dated as of January 1, 2006, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.42 to our Annual Report on
Form 10-K filed on March 29, 2006, and incorporated herein by reference.)10.46

Intercompany Services Extension Agreement, dated as of January 1, 2007, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.99 to our Annual Report on
Form 10-K, filed March 8, 2007, and incorporated herein by reference).10.47

Intercompany Services Extension Agreement, dated as of January 1, 2008, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.45 to our Annual Report on
Form 10-K, filed March 12, 2008, and incorporated herein by reference).10.48

Intercompany Services Extension Agreement, dated as of January 1, 2009, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.54 to our Annual Report on
Form 10-K filed March 5, 2009, and incorporated herein by reference).10.49

Intercompany Services Extension Agreement, dated as of January 1, 2010, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.58 to our Annual Report on
Form 10-K filed on March 4, 2010 and incorporated herein by reference).10.50

Intercompany Services Extension Agreement, dated as of January 1, 2011, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc.10.51

Federal Income Tax Sharing Agreement, dated March 11, 2003, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.45 to our Annual Report on
Form 10-K filed on March 28, 2003 (Commission File No. 000-30700 and Film No. 03626484) and incorporated by reference herein).


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Exhibit Number

Exhibit Title10.52

Amendment No. 1 to Federal Income Tax Sharing Agreement, dated August 5, 2003, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.4 to our
Quarterly Report on Form 10-Q filed on August 14, 2003 (Commission File No. 000-30700 and Film No. 03846439) and incorporated by reference herein).10.53

Amendment No. 2 to Federal Income Tax Sharing Agreement between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as an exhibit to our Schedule 14C Information Statement filed on
May 21, 2010 and incorporated herein by reference).10.54

Promissory Note in the amount of $33,082,019, dated July 27, 2007, issued by Crown Media Holdings, Inc. in favor of Hallmark Cards, Incorporated (previously filed as Exhibit 10.3 to our Quarterly Report on
Form 10-Q, filed August 8, 2007, and incorporated herein by reference).10.55

Stock Purchase Agreement, dated as of August 20, 2001, by and between Crown Media Holdings, Inc. and DIRECTV Enterprises, Inc. (previously filed as Exhibit 10.7.1 to our Amendment No.1 to our Quarterly
Report on Form 10-Q/A filed on January 10, 2002 (Commission File No. 000-30700 and Film No. 2506612) and incorporated herein by reference).10.56

Affiliation Agreement for DBS Satellite Exhibition of Cable Network Programming, dated as of August 20, 2001, by and between Crown Media United States, LLC, and DIRECTV, Inc. (previously filed as
Exhibit 10.7.2 to our Amendment No.1 to our Quarterly Report on Form 10-Q/A filed on January 10, 2002 (Commission File No. 000-30700 and Film No. 2506612) and incorporated herein by reference).10.57

Affiliation Agreement for DBS Satellite Exhibition of Cable Network Programming, dated as of March 6, 2000, by and between Crown Media United States, LLC, and DIRECTV, Inc. (previously filed as
Exhibit 10.7.3 to our Amendment No.1 to our Quarterly Report on Form 10-Q/A filed on January 10, 2002 (Commission File No. 000-30700 and Film No. 2506612) and incorporated herein by reference).10.58

Letter, dated August 30, 2001, by and between DIRECTV, Inc. and Crown Media Holdings, Inc. (previously filed as Exhibit 10.7.4 to our Amendment No.1 to our Quarterly Report on Form 10-Q/A filed on
January 10, 2002 (Commission File No. 000-30700 and Film No. 2506612) and incorporated herein by reference).10.59
*
Amended and Restated Crown Media Holdings, Inc. 2000 Long Term Incentive Plan (previously filed as Exhibit 10.13 to Our Annual Report on Form 10-K filed on March 27, 2001 (Commission File
No. 000-30700 and Film No. 1580885), and incorporated herein by reference).10.60
*
2008 Deferred Compensation Plan of Crown Media Holdings, Inc. (previously filed as Exhibit 10.77 to our Annual Report on Form 10-K filed March 5, 2009, and incorporated herein by
reference).10.61

Amended and Restated Waiver and Standby Purchase Agreement dated March 10, 2008 by and between Hallmark Cards Incorporated, HC Crown Corp., Crown Media United States, LLC and Crown Media Holdings, Inc.
(previously filed as Exhibit 10.77 to our Annual Report on Form 10-K, filed March 12, 2008, and incorporated herein by reference).


68

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Table of Contents

Exhibit Number

Exhibit Title10.62

Amendment No. 1 to Amended and Restated Waiver and Standby Purchase Agreement dated March 10, 2008 by and between Hallmark Cards Incorporated, HC Crown Corp., Crown Media United States, LLC and Crown Media
Holdings, Inc. (previously filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed August 6, 2008, and incorporated herein by reference).10.63

Amendment No. 2 to Amended and Restated Waiver and Standby Purchase Agreement dated October 30, 2008, by and between Hallmark Cards Incorporated and Crown Media Holdings, Inc. (previously filed as
Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed November 6, 2008, and incorporated herein by reference).10.64

Amendment No. 3 to Amended and Restated Waiver and Standby Purchase Agreement dated March 2, 2009, by and between Hallmark Cards Incorporated and Crown Media Holdings, Inc. (previously filed as
Exhibit 10.82 to our Annual Report on Form 10-K filed March 5, 2009, and incorporated herein by reference).10.65

Amendment 4 to Amended and Restated Waiver and Standby Purchase Agreement dated May 4, 2009, by and between Hallmark Cards Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.1 to
our Quarterly Report on Form 10-Q filed May 7, 2009, and incorporated herein by reference).10.66

Copyright Security Agreement, dated July 27, 2007, executed by Crown Media Holdings, Inc. and its subsidiaries for the benefit of Hallmark Cards, Incorporated (previously filed as Exhibit 10.6 to our
Quarterly Report on Form 10-Q, filed August 8, 2007, and incorporated herein by reference).10.67

Security and Pledge Agreement, dated July 27, 2007, by and among Crown Media Holdings, Inc., its subsidiaries and Hallmark Cards, Incorporated (previously filed as Exhibit 10.7 to our Quarterly Report on
Form 10-Q, filed August 8, 2007, and incorporated herein by reference).10.68

Letter Agreement, dated May 2, 2006, by and between Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as Exhibit 10.6 to our Quarterly Report on Form 10-Q, filed May 10,
 2006, and incorporated herein by reference.)10.69
*
Employment Agreement dated as of May 7, 2009 between the Company and William Abbott (previously filed as Exhibit 10.1 to our Current Report on Form 8-K filed on May 6, 2009 and incorporated herein by
reference).10.70
*
Amendment to Employment Agreement, dated May 11, 2010 between the Company and William Abbott (previously filed as Exhibit 10.1 to our Current Report on Form 8-K filed on May 13, 2010 and incorporated
herein by reference).10.71
*
Employment Agreement dated August 8, 2006, between Crown Media Holdings, Inc. and Charles Stanford (previously filed as Exhibit 10.10 to our Quarterly Report on Form 10-Q, filed August 9, 2006,
and incorporated herein by reference.)10.72
*
Employment Agreement Amendment dated January 29, 2008 between Crown Media Holdings, Inc. and Charles Stanford (previously filed as Exhibit 10.85 to our Annual Report on Form 10-K, filed March 12,
2008, and incorporated herein by reference).10.73
*
Amendment to Employment Agreement, dated May 3, 2010 between the Company and Charles Stanford (previously filed as Exhibit 10.2 to our Current Report on Form 8-K filed on May 13, 2010 and incorporated
herein by reference).


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Table of Contents

Exhibit Number

Exhibit Title10.74

Purchase Agreement, dated as of October 3, 2006, by and among Crown Media Holdings, Inc., CM Intermediary, LLC, Crown Media Distribution, LLC and RHI Enterprises, LLC. (previously filed as
Exhibit 10.1 to our Current Report on Form 8-K, filed on October 6, 2006, and incorporated herein by reference).10.75

Amendment No. 1 to Purchase Agreement, dated as of December 15, 2006, by and among Crown Media Holdings, Inc., CM Intermediary, LLC, Crown Media Distribution, LLC and RHI Enterprises, LLC
(previously filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on December 21, 2006, and incorporated herein by reference).10.76

Intercreditor Agreement, dated as of October 3, 2006, by and among Hallmark Cards, Incorporated, Crown Media Holdings, Inc., CM Intermediary, LLC, Crown Media Distribution, LLC and RHI Enterprises,
 LLC. (previously filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on October 6, 2006, and incorporated herein by reference).10.77

Television License Agreement, dated as of January 1, 2008 between Hallmark Hall of Fame Productions, Inc. and the Company.** (previously filed as Exhibit 10.6 to our Quarterly Report on Form 10-Q,
filed August 6, 2008, and incorporated herein by reference).10.78

Lease Agreement, dated September 8, 2008, by and between Paramount Group, Inc., 1325 Avenue of the Americas, L.P., and Crown Media United States, LLC (previously filed as Exhibit 10.2 to our
Quarterly Report on Form 10-Q, filed November 6, 2008, and incorporated herein by reference).10.79

Guaranty Commitment, dated as of September 2, 2008, by and between Hallmark Cards, Incorporated and Crown Media United States, LLC (previously filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q,
 filed November 6, 2008, and incorporated herein by reference).10.80
*
Employment Agreement, dated as of June 15, 2009, by and between Crown Media Holdings, Inc. and Edward Georger (previously filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q filed
November 5, 2009, and incorporated herein by reference).10.81
*
Form of 2009 Long Term Incentive Compensation Agreement effective as of January 1, 2009 between the Company and employee (previously filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on
May 7, 2009 and incorporated herein by reference).10.82
*
Form of 2010 Long Term Incentive Compensation Agreement effective as of January 1, 2010 between the Company and employee.10.83

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 (previously filed as an exhibit to our Schedule 14C Information Statement filed on May 21, 2010 and incorporated
herein by reference).10.84

Credit Agreement Among Crown Media Holdings, Inc. as Borrower and HC Crown Corp., as Lender and Each of the Credit Parties Identified on the Signature Pages Hereto (previously filed as an exhibit to our
Schedule 14C Information Statement filed on May 21, 2010 and incorporated herein by reference).


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Exhibit Number

Exhibit Title10.85

Stockholders Agreement by and among H C Crown Corp., Hallmark Cards, Incorporated and Crown Media Holdings, Inc. (previously filed as an exhibit to our Schedule 14C Information Statement filed on May 21,
2010 and incorporated herein by reference)..10.86

Registration Rights Agreement among H C Crown Corp., any Other HEIC Stockholder and Crown Media Holdings, Inc. (previously filed as an exhibit to our Schedule 14C Information Statement filed on May 21, 2010
and incorporated herein by reference).10.87

Amendment by letter dated March 19, 2010 to Master Recapitalization Agreement (previously filed as Exhibit 10.10 to our Quarterly Report on Form 10-Q, filed August 12, 2010, and incorporated herein by
reference).10.88

Security Agreement, dated June 29, 2010, between the Company and HCC (previously filed as Exhibit 10.11 to our Quarterly Report on Form 10-Q, filed August 12, 2010, and incorporated herein by
reference).10.89

Pledge Agreement, dated June 29, 2010, between the Company and HCC (previously filed as Exhibit 10.12 to our Quarterly Report on Form 10-Q, filed August 12, 2010, and incorporated herein by
reference).10.90

Letter regarding the Credit Agreement dated February 15, 2011, between Crown Media Holdings, Inc. and HC Crown, LLC.21.1

List of Subsidiaries.23.2

Consent of Independent Registered Public Accounting Firm31.1

Rule 13a-14(a) Certification executed by the Company's President and Chief Executive Officer.31.2

Rule 13a-14(a) Certification executed by the Company's Executive Vice President and Chief Financial Officer.32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*Management
contract or compensating plan or arrangement.**Portions
of this exhibit have been omitted pursuant to a confidential treatment request filed with the Commission.


71

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

CROWN MEDIA HOLDINGS, INC.By:

/s/ WILLIAM J. ABBOTT William J. Abbott President and Chief Executive Officer


March 3,
2011

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/ WILLIAM J. ABBOTT William J. Abbott

Director and Principal Executive Officer

March 3, 2011/s/ MICHAEL J. HARMON Michael J. Harmon

Principal Financial and Accounting Officer

March 3, 2011/s/ DWIGHT C. ARN Dwight C. Arn

Director

March 3, 2011/s/ ROBERT BLOSS Robert Bloss

Director

March 3, 2011/s/ WILLIAM CELLA William Cella

Director

March 3, 2011Glenn Curtis

Director/s/ STEVE DOYAL Steve Doyal

Director

March 3, 2011


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Table of Contents

Signature

Title

Date/s/ BRIAN GARDNER Brian Gardner

Director

March 3, 2011/s/ HERBERT A. GRANATH Herbert A. Granath

Director

March 3, 2011/s/ DONALD J. HALL, JR. Donald J. Hall, Jr.

Director

March 3, 2011/s/ IRVINE O. HOCKADAY, JR. Irvine O. Hockaday, Jr.

Director

March 3, 2011/s/ A. DRUE JENNINGS A. Drue Jennings

Director

March 3, 2011Peter A. Lund

Director/s/ BRAD R. MOORE Brad R. Moore

Director

March 3, 2011/s/ DEANNE R. STEDEM Deanne R. Stedem

Director

March 3, 2011


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Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PageReport of Independent Registered Public Accounting Firm

F-3Consolidated Balance Sheets as of December 31, 2009 and 2010

F-4Consolidated Statements of Operations for the Years Ended December 31, 2008, 2009 and 2010

F-6Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 2008, 2009 and 2010

F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2009 and 2010

F-8Notes to Consolidated Financial Statements

F-10


F-1

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(This page intentionally left blank)

F-2

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Table of Contents

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
Crown Media Holdings, Inc.:

We
have audited the accompanying consolidated balance sheets of Crown Media Holdings, Inc. and subsidiaries (the Company) as of December 31, 2009 and 2010, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for each of the years in the three-year period ended December 31, 2010. These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Crown Media Holdings, Inc.
and subsidiaries as of December 31, 2009 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2010, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP


Denver,
Colorado
March 3, 2011

F-3

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CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In thousands, except par value and number of shares)

As of December 31,2009

2010ASSETSCash and cash equivalents

$
10,456

$
30,565Accounts receivable, less allowance for doubtful accounts of $476 and $141, respectively


68,817


77,684Program license fees


106,825


99,574Prepaid program license fees


1,778


4,099Prepaid and other assets


2,271


2,367Total current assets


190,147


214,289Program license fees


178,332


136,503Property and equipment, net


13,176


12,701Goodwill


314,033


314,033Prepaid and other assets


2,373


1,008Total assets

$
698,061

$
678,534


The
accompanying notes are an integral part of these consolidated balance sheets.

F-4

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS (Continued)        (In thousands, except par value and number of shares)

As of December 31,2009

2010LIABILITIES AND STOCKHOLDERS' DEFICITLIABILITIES:Accounts payable and accrued liabilities

$
19,642

$
27,835Audience deficiency reserve liability


17,872


26,954License fees payable


99,494


104,286Payables to Hallmark Cards affiliates


23,745


1,005Credit facility and interest payable


1,002


Notes and interest payable to HCC


345,314


38,174Company obligated mandatorily redeemable preferred interest


22,902


Total current liabilities


529,971


198,254Accrued liabilities


24,484


18,972License fees payable


82,881


33,818Notes payable to HCC





379,521Senior secured note to HCC, including accrued interest


758,755


Total liabilities


1,396,091


630,565COMMITMENTS AND CONTINGENCIESREDEEMABLE PREFERRED STOCK, $.01 par value; $1,000 liquidation preference; 10,000,000 and 1,000,000 shares authorized; 0 and 185,000 shares
issued and outstanding as of December 31, 2009 and 2010, respectively





198,934STOCKHOLDERS' DEFICIT:Class A common stock, $.01 par value; 200,000,000 and 500,000,000 shares authorized; 74,117,654 and 359,675,936 shares issued and outstanding as of
December 31, 2009 and 2010, respectively


741


3,597Class B common stock, $.01 par value; 120,000,000 and 0 shares authorized; 30,670,422 and 0 shares issued and outstanding as of December 31, 2009
and 2010, respectively


307


Paid-in capital


1,456,788


1,991,157Accumulated deficit


(2,155,866
)

(2,145,719
)Total stockholders' deficit


(698,030
)

(150,965
)Total liabilities and stockholders' deficit

$
698,061

$
678,534


The
accompanying notes are an integral part of these consolidated balance sheets.

F-5

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CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data)

Years Ended December 31,2008

2009

2010Revenue:Subscriber fees

$
57,153

$
63,597

$
68,819Advertising


222,967


213,770


217,656Advertising by Hallmark Cards


429


775


496Other revenue


1,245


1,422


301Total revenue, net


281,794


279,564


287,272Cost of Services:Programming costsHallmark Cards affiliates


798


1,235


1,928Non-affiliates


139,900


126,293


123,321Amortization of film assets


(745
)




Impairment of film assets


176





Amortization of capital lease


1,158


1,158


1,158Contract termination expense





4,718


103Other costs of services


12,492


14,175


10,668Total cost of services


153,779


147,579


137,178Selling, general and administrative expense (exclusive of depreciation and amortization expense shown separately below)


46,706


47,069


50,324Marketing expense


19,603


6,551


10,152Depreciation and amortization expense


1,932


1,947


1,459Gain from sale of film assets


(101
)

(682
)

(719
)Income from operations before interest, income tax expense and discontinued operations


59,875


77,100


88,878Interest income


723


481


45Interest expense


(100,880
)

(101,020
)

(56,032
)(Loss) income before income tax expense and discontinued operations


(40,282
)

(23,439
)

32,891Income tax expense








(8,810
)(Loss) income before discontinued operations


(40,282
)

(23,439
)

24,081Gain from sale of discontinued operations, net of tax


3,064


847


Net (loss) income and comprehensive (loss) income


(37,218
)

(22,592
)

24,081Income allocable to Preferred Stockholder








(16,297
)Net (loss) income attributable to common stockholders

$
(37,218
)
$
(22,592
)
$
7,784Weighted average number of common shares outstanding, basic and diluted


104,776


104,788


234,676(Loss) income per share before discontinued operations, basic and diluted

$
(0.39
)
$
(0.23
)
$
0.03Gain per share from discontinued operations, basic and diluted


0.03


0.01


Net (loss) income per share, basic and diluted

$
(0.36
)
$
(0.22
)
$
0.03


The accompanying notes are an integral part of these consolidated statements of operations.

F-6

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Table of Contents



CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT        (In thousands)

Class A
Shares

Class A
Common
Stock

Class B
Shares

Class B
Common
Stock

Paid-in
Capital

Accumulated
Deficit

Total
Stockholders'
DeficitBalances, December 31, 2007


69,761

$
698


30,670

$
307

$
1,411,291

$
(2,096,056
)
$
(683,760
)Reclassification of NICC mandatorily redeemable common stock as Class A common stock


4,357


43








32,722





32,765Contributions of additional paid-in capital under tax sharing agreement














21,280





21,280Net loss

















(37,218
)

(37,218
)Balances, December 31, 2008


74,118


741


30,670


307


1,465,293


(2,133,274
)

(666,933
)Reduction of additional paid-in capital for obligation under tax sharing agreement














(8,505
)




(8,505
)Net loss

















(22,592
)

(22,592
)Balances, December 31, 2009


74,118


741


30,670


307


1,456,788


(2,155,866
)

(698,030
)Conversion of HCC debt into equity


254,888


2,549








539,207





541,756Conversion of predecessor Class B common stock into Class A common stock


30,670


307


(30,670
)

(307
)







Reduction of additional paid-in capital for obligation under tax sharing agreement














(4,838
)




(4,838
)Imputed preferred stock dividends from amortization of discount on preferred stock

















(13,934
)

(13,934
)Net income

















24,081


24,081Balances, December 31, 2010


359,676

$
3,597




$


$
1,991,157

$
(2,145,719
)
$
(150,965
)


The
accompanying notes are an integral part of these consolidated statements of stockholders' deficit.

F-7

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Table of Contents



CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

Years Ended December 31,2008

2009

2010CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income

$
(37,218
)
$
(22,592
)
$
24,081Adjustments to reconcile net (loss) income to net cash provided by operating activities:Gain from sale of discontinued operations


(3,064
)

(847
)

Gain from sale of film assets


(101
)

(682
)

(719
)Depreciation and amortization


145,172


133,040


123,374Accretion on company obligated mandatorily redeemable preferred interest


2,132


2,080


2,098Provision for allowance for doubtful accounts


75


1,303


183Impairment of film assets


176





Loss on sale of property and equipment








2Debt issuance costs








1,049Income tax expense








8,810Stock-based compensation


(89
)

(516
)

324Changes in operating assets and liabilities:(Increase) decrease in accounts receivable


1,944


(3,610
)

(9,050
)Additions to program license fees


(210,123
)

(92,542
)

(69,460
)Additions to subscriber acquisition fees


(2,693
)

(1,000
)

(1,354
)(Increase) decrease in prepaid and other assets


2,354


11,582


(2,858
)Increase (decrease) in accounts payable, accrued and other liabilities


(18,506
)

(3,355
)

13,582Increase in interest payable


91,296


72,998


33,909Decrease in amounts payable under tax sharing agreement








(12,890
)Increase in payables to Hallmark Cards affiliates


1,533


420


302Increase in license fees payable to Hallmark Cards affiliates


9,321


538


1,320Increase (decrease) in license fees payables to non-affiliates


65,869


(59,251
)

(45,592
)Net cash provided by operating activities


48,078


37,566


67,111CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment


(1,868
)

(507
)

(1,086
)Purchases of film asset


35





Payments to buyer of international business


(3,604
)

(936
)

(961
)Net cash used in investing activities


(5,437
)

(1,443
)

(2,047
)CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under the credit facility


30,543


18,062


Principal payments on the credit facility


(71,478
)

(45,633
)

(1,000
)Payments on notes payable to HCC


(228
)




(14,445
)Redemption of company obligated mandatorily redeemable preferred interest








(25,000
)Payments of transaction costs under the troubled debt restructuring








(3,596
)Principal payments on capital lease obligations


(738
)

(810
)

(914
)Net cash used in financing activities


(41,901
)

(28,381
)

(44,955
)Net increase in cash and cash equivalents


740


7,742


20,109Cash and cash equivalents, beginning of year


1,974


2,714


10,456Cash and cash equivalents, end of year

$
2,714

$
10,456

$
30,565


The accompanying notes are an integral part of these consolidated statements of cash flows.

F-8

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)        (In thousands)

Years Ended December 31,2008

2009

2010Supplemental disclosure of cash and non-cash activities:Interest paid

$
4,800

$
22,537

$
17,005Tax sharing payment from Hallmark Cards applied to note payable to HCC

$
21,280

$


$
Reduction of additional paid-in capital for obligation under tax sharing agreement

$


$
8,505

$
4,838Reclassification of redeemable common stock to common stock and paid-in capital

$
32,765

$


$
Interest payable converted to principal on notes payable to HCC

$
47,490

$


$
Asset acquired through capital lease obligation

$


$


$
248Non-cash activities related to the disposal of film asset:Accounts receivable

$
74

$


$
Program license feenon-affiliate

$
1,110

$


$
Film asset, net

$
1,507

$


$
Accrued liabilities

$
573

$


$
Non-cash activities related to the troubled debt restructuring:Elimination of deferred debt issuance costs related to old notes payable to HCC

$


$


$
475Satisfaction of payable to Hallmark Cards' affiliates

$


$


$
(23,798
)Issuance of new notes payable to HCC

$


$


$
432,140Satisfaction of old notes payable to HCC

$


$


$
(340,697
)Satisfaction of senior secured note payable to HCC, including accrued interest

$


$


$
(797,423
)Issuance of redeemable preferred stock

$


$


$
185,000Issuance of common stock

$


$


$
2,549Additional paid-in capital from issuance of redeemable preferred and common stock

$


$


$
541,754


The accompanying notes are an integral part of these consolidated statements of cash flows.

F-9

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Table of Contents



CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        For the Years Ended December 31, 2008, 2009 and 2010

1. Business and Organization

Organization

Crown Media Holdings, Inc. ("Crown Media Holdings" or the "Company"), through its wholly-owned subsidiary, Crown Media United
States, LLC ("Crown Media United States"), owns and operates pay television channels (collectively the "Channels" or the "channels") dedicated to high quality, entertainment programming for
adults and families, in the United States. At June 29, 2010, following the recapitalization of the Company as described below, the significant investor in the Company was H C Crown Corp.
("HCC"), a subsidiary of Hallmark Cards, Incorporated ("Hallmark Cards").

The
Company's continuing operations are currently organized into one operating segment, the channels.

Recapitalization of the Company

On June 29, 2010 the Company consummated a series of recapitalization transactions (the "Recapitalization") pursuant to a Master
Recapitalization Agreement dated February 26, 2010, by and among the Company, Hallmark Cards, HCC and related entities.

Among
other things, the Recapitalization included the following:



The
following were issued in exchange for HCC Debt:



F-10

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

1. Business and Organization (Continued)

Immediately
after consummation of the Mergers and issuance of common stock in partial exchange for HCC Debt, HCC owned approximately 90.3% of the Company's Class A common stock
and all of the outstanding Preferred Stock.

In
addition, the transactions resulted in the following:



See
"Recapitalization" in Note 8 for the accounting treatment of the Recapitalization.

Liquidity

As of December 31, 2010, the Company had $30.6 million in cash and cash equivalents on hand. Also available to the
Company was the full $30.0 million bank credit facility which expires June 30, 2011. Day-to-day cash disbursement requirements have typically been satisfied with
cash on hand and operating cash receipts supplemented with the borrowing capacity available under the bank credit facility and, prior to the Recapitalization, forbearance by Hallmark Cards and its
affiliates.

The
Company's management anticipates that the principal uses of cash during the twelve month period ending December 31, 2011, will include the payment of operating expenses,
accounts payable and accrued expenses, programming costs, and nominal interest of approximately $30.0 million to
$35.0 million and a principal payment of approximately $9.3 million due under the New Debt issued in the Recapitalization. Subject to the legal availability of funds and approval by the
Company's board of directors, the Company may also pay approximately $25.9 million for cash dividends on Preferred Stock during the year ending December 31, 2011; at the option of the
Company's board of directors, such dividends may be paid in the form of additional shares of Preferred Stock.

F-11

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

2. Summary of Significant Accounting Policies and Estimates

Basis of Presentation

The consolidated financial statements include the accounts of Crown Media Holdings and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported,
disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the collectibility of accounts receivable, the valuation of goodwill,
intangible assets, and other long-lived assets, legal contingencies, indemnifications, and assumptions used in the calculation of income taxes, among others. A significant
non-recurring use of estimates occurred in the course of recording the Company's June 2010 troubled debt restructuring which required that the Company estimate the fair values of preferred
stock and common stock issued in the Recapitalization.

All
of the estimates that are employed are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical
experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when
facts and circumstances dictate. Illiquid credit markets, volatile equity, and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As
future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes, if any, in those estimates resulting from continuing
changes in the economic environment will be reflected in the financial statements in future periods.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less that are readily
convertible into cash and are not subject to significant risk from fluctuations in interest rates. As a result, the carrying amount of cash and cash equivalents approximates fair value.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based upon the Company's assessment of probable loss related to uncollectible accounts
receivable. The Company uses a number of factors in determining the allowance, including, among other things, collection trends.

F-12

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

2. Summary of Significant Accounting Policies and Estimates (Continued)

The
activity in the allowance for doubtful accounts for each of the three years ending December 31, 2008, 2009, and 2010, is as follows (in thousands):

Balance at
Beginning of
Year

Additions
Charged to
Expense

Deductions

Balance at End
of YearAllowance for doubtful accountsYear-ended December 31, 2008

$
242

$
75

$
(23
)
$
294Year-ended December 31, 2009

$
294

$
1,303

$
(1,121
)
$
476Year-ended December 31, 2010

$
476

$
183

$
(518
)
$
141


Program License Fees

Program license fees are incurred in connection with the Company's acquisition of rights to broadcast programs acquired from others.
The cost of individual program rights is deferred and then amortized on a straight-line basis over its contractual license period or, if shorter, the period of its anticipated use. As a
measure of recoverability, the Company, when
necessary, compares the aggregate carrying value of its program licenses to the estimated future revenue associated with their future broadcast use. If the measure indicated that the carrying value
exceeded estimated future revenue, the Company would reduce the carrying value to an amount equal to the estimated net realizable revenue with a corresponding impairment charge to programming costs.

Subscriber Acquisition Fees

In the past, under certain agreements with major domestic pay distributor systems, Crown Media United States was obligated to pay
subscriber acquisition fees if defined subscriber levels were met or in order to obtain additional carriage of the Hallmark Channel by those pay distributors.

Subscriber
acquisition fees are amortized over the contractual life of the distribution agreements (ranging from 1 to 9 years) as a reduction of subscriber fee revenue. Crown
Media Holdings assesses the recoverability of these costs periodically by comparing the net carrying amount to the estimates of future subscriber fee revenue. The Company also assesses the
recoverability of these fees whenever events such as changes in distributor relationships occur or other indicators suggest impairment.

Subscriber
acquisition fee assets are a component of prepaid and other assets and subscriber acquisition fee liabilities are a component of accounts payable and accrued liabilities in
the accompanying consolidated balance sheets.

Property and Equipment

Property and equipment is stated at historical cost, net of accumulated depreciation and amortization. Equipment under capital leases
are initially recorded at the present value of the minimum lease payments.

Depreciation
on equipment is calculated using the straight-line method over the estimated useful lives of the assets. Equipment held under capital leases and leasehold
improvements are amortized straight-line over the shorter of the lease term or estimated useful life of the asset.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

2. Summary of Significant Accounting Policies and Estimates (Continued)

When
property and equipment is sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss
is included in the results of operations. The costs of normal maintenance and repairs are charged to expense when incurred.

Long-Lived Assets

The Company reviews long-lived assets, other than goodwill and other intangible assets with indefinite lives, for
impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. Recoverability of assets to be held and used is evaluated by comparing the carrying
amount of an asset to the estimated undiscounted future net cash flows expected to be generated by the asset including its ultimate disposal. If the asset's carrying value is not recoverable, an
impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value. The Company estimates fair values by using a combination of comparable market values
and discounted cash flows, as appropriate.

Goodwill
is reviewed for impairment annually as of November 30 and whenever the occurrence of an event or a change in circumstances would suggest that the carrying value of
goodwill might be in excess of its fair value. In the event that the carrying value of goodwill was found to exceed its estimated fair value, the carrying value of goodwill would be reduced to its
estimated fair value through an impairment charge to the Company's consolidated statements of operations.

The
Company performed its annual impairment assessment for its goodwill and other non-amortizable intangible assets as of November 30 using a market approach to
determine fair value. Business enterprise value is equal to common equity at market value plus debt at market value plus preferred equity at market value less cash and cash equivalents. The Company
estimated the fair values of the Term A and Term B loans using discount rates of 11.2% and 11.5%, respectively. The full $25.0 million redemption value of the company obligated mandatorily
redeemable preferred interest was paid to VISN Management Corp. on December 1, 2010; therefore, the fair market value as of November 30, 2010, was $25.0 million. The Company has
valued its redeemable Preferred Stock at its liquidation preference based on a recent valuation. The Company valued its common shares using the November 30, 2010, closing NASDAQ stock price.

Legal Costs and Contingencies

In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory,
litigation and other matters. The Company expenses these costs as the related services are received.

If
a loss is considered probable and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss. If the Company has the potential to recover a
portion of the estimated loss from a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed probable.

Leases

The Company accrues rent expense on a straight line basis over the lease term.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

2. Summary of Significant Accounting Policies and Estimates (Continued)

Assets
subject to capital leases are capitalized as property and equipment at the inception of the lease. Capitalized lease assets are depreciated over their estimated useful lives; the
related liabilities are included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.

Fair Value of Financial Instruments

Financial Accounting Standards Board ("FASB")Accounting Standards Codification(the "ASC")Topic 820,Fair Value Measurements and
Disclosures, provides guidance which defines fair value, establishes a framework for measuring fair value and specifies disclosures about fair value measurements. On
January 1, 2008 we adopted that portion of the standard that relates to those financial assets and liabilities and nonfinancial assets and liabilities which are recognized or disclosed at
fair value on a recurring basis (that is, at least annually). On January 1, 2009, subject to the FASB's delayed implementation, we adopted the remaining provisions of the standard. After
adoption, we now determine fair value as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants.

The
Company does not have balance sheet items carried at fair value on a recurring basis as well as similar assets and liabilities. Significant balance sheet items which are subject to
non-recurring fair value measurements consist of impairment valuations of goodwill and property and equipment. In the course of recording the Company's June 2010 troubled debt
restructuring, the Company estimated the fair values of its preferred and common stock issued in the Recapitalization. The standard has not had a significant impact on the determination of fair value
related to non-financial assets and non-financial liabilities in 2010.

Revenue Recognition

Subscriber revenue from pay television distributors is recognized as revenue when an agreement is executed, programming is provided,
the price is fixed and determinable, and collectibility is reasonably assured. Subscriber fees from pay television distributors are recorded net of amortization of subscriber acquisition costs.

Advertising
revenue, net of agency commissions, is recognized in the period in which related commercial spots or long form programming are aired and as ratings guarantees to advertisers
are achieved. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for the Company's broadcasting operations. Customers remit the gross billing amount to
their agency and the agency remits gross billings less their commission to the Company. Payments received in advance of being earned are recorded as deferred revenue.

Audience Deficiency Unit Liability

Audience deficiency units ("ADUs") are units of inventory (rights to utilize future advertising timeframes) that are made available to
advertisers as fulfillment for past advertisements in programs that under-delivered on the guaranteed viewership ratings. The related liability results when impressions delivered on guaranteed ratings
are less than the impressions guaranteed to advertisers. The liability is reduced and revenue is recognized when the Company airs the advertisement during another program to "make-good" on
the under-delivery of impressions or the obligation expires

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

2. Summary of Significant Accounting Policies and Estimates (Continued)

contractually.
The Company typically does not remit cash to advertisers in satisfaction of such deficiencies.

Contracts
executed in the 2010/2011 upfront period require that the Company use its best efforts to run sufficient make-good advertising spots within 12 months to
achieve the impressions guarantees. If the Company does not make-good within 12 months, the Company is no longer obligated to satisfy the under-delivery of the guaranteed
impressions. Under previous contracts, the Company did not have the obligation to satisfy under-delivery of guaranteed impressions within 12 months and approximately $855,000 of the Company's
make-good obligations simply lapsed in 2010 due to the expiration of the applicable state's statute of limitations for contracts. While the Company now has an obligation to use its best
efforts to make-good on any under-delivery of guaranteed impressions within 12 months, it also will have the benefit of being able to relieve the make-good obligations
earlier than it has been able to do historically.

Marketing Expense

The Company expenses marketing costs as incurred. Marketing expense was $19.6 million, $6.6 million and
$10.2 million for the years ended December 31, 2008, 2009 and 2010, respectively.

Taxes on Income

Pursuant to the tax sharing agreement entered into with Hallmark Cards in March 2003, the Company's results of operations for tax
purposes became a part of the Hallmark Cards consolidated federal tax return as of and subsequent to March 2003. However, the Company continues to account for income taxes on a separate return basis.
Accordingly, the Company accounts for income taxes using an asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The Company reduces deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized without regard to the
Tax Sharing Agreement. All payments received from Hallmark Cards under the tax sharing agreement are recorded as increases in additional paid-in capital and amounts the Company owes
Hallmark Cards for its share of the consolidated federal tax liability caused by the inclusion of the Company in the consolidated group are treated as a reduction to paid-in capital.
Conversely, related payments made by the Company to Hallmark Cards are recorded as a reduction of additional paid-in capital but only to the extent of prior payments received.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a
straight-line basis over the period during which the holder is required to provide services in exchange for the award,i.e., usually the
vesting period. See Note 14 for further information regarding our stock-based compensation assumptions and expenses.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

2. Summary of Significant Accounting Policies and Estimates (Continued)

Net Income (Loss) per Share

Basic net income (loss) per share for each period is computed by dividing net income (loss) attributable to common stock by the
weighted average number of common shares outstanding during the period. Diluted net income (loss) per share for each period is computed by dividing net income (loss) attributable to common stock by
the weighted average number of common shares plus potentially dilutive common shares outstanding except whenever any such effect would be antidilutive. Potential common shares consist of incremental
common shares issuable upon the exercise of stock options and common shares issuable upon conversion of the preferred stock. Approximately 341,000, 87,000 and 65,000 stock options for the years ended
December 31, 2008, 2009 and 2010, respectively, and 71.2 million shares upon the conversion of the preferred stock for the year ended December 31, 2010, have been excluded from
the determination of diluted net income or loss per share because the individual effect in each instance was antidilutive.

Net
income attributable to common stockholders reflects allocations in favor of preferred stockholders for (i) imputed preferred stock dividends for financial reporting purposes
of $13.9 million and (ii) the potential participation in common stock dividends (equivalent to approximately 71.2 million shares of common stock) of $2.4 million.

Concentration of Credit Risk

Financial instruments, which potentially subject Crown Media Holdings to a concentration of credit risk, consist primarily of cash,
cash equivalents and accounts receivable. Generally, Crown Media Holdings does not require collateral to secure receivables. Crown Media Holdings has no significant off-balance sheet
financial instruments with risk of accounting losses.

Five,
five and four of our distributors each accounted for more than 10% of our subscriber revenue for the years ended December 31, 2008, 2009 and 2010, and together accounted for
a total of 77%, 75% and 66% of subscriber revenue during the years ended December 31, 2008, 2009 and 2010, respectively. Three of our distributors each accounted for approximately 15% or more
of our subscribers for the years ended December 31, 2008, 2009 and 2010, respectively, and together accounted for 61%, 61% and 60% of our Hallmark Channel subscribers during the years ended
December 31, 2008, 2009 and 2010, respectively.

Four
and three of our programming content providers accounted for more than 10% of our total license fees payable as of December 31, 2009 and 2010, respectively, and together
accounted for a total of 75% and 53% of the license fees payable, respectively.

Recently Issued Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (ASC
Topic 605):Multiple Deliverable Revenue ArrangementsA Consensus of the FASB Emerging Issues Task Force.This
update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting.
This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence,
if available, third-party evidence if vendor-specific objective evidence is not available, or

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

2. Summary of Significant Accounting Policies and Estimates (Continued)

estimated
selling price if neither vendor-specific nor third-party evidence is available. The Company will be required to apply this guidance for fiscal years beginning on or after June 15,
2010, prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The adoption of this guidance will not have a
material impact on our consolidated financial statements.

In
January 2010, the FASB issued guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including
significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation
of Level 3 fair value measurements. The guidance is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures that
are effective for annual periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on our consolidated financial statements.

3. Sale of Membership Interest in Crown Media Distribution, Residual and Participation Liability and Third Party Indemnity

In December 2006, the Company sold its film library consisting of domestic rights and certain international ancillary rights to approximately 620 television movies,
mini-series and series (the "Crown Library") to RHI Entertainment LLC ("RHI"). As a condition of the sale, the Company agreed to pay up to $22.5 million for residuals and
profit participations related to RHI's domestic exploitation of the Crown Library for a ten-year period ending December 14, 2016. The Company estimated the fair value of this
obligation to be approximately $10.6 million at December 15, 2006, assuming the maximum payout.

In
December 2009 the Company concluded that payments for residuals and participations under its liability to RHI would occur generally later than originally estimated in December 2006.
Accordingly, the Company reduced the carrying amount of the liability by $682,000 and recognized a corresponding gain from sale of film assets in the accompanying statement of operations. In July
2010, the Company received notification of pending requests for payments of approximately $8.0 million related to exploitation of the Crown Library through mid-2010. Accordingly,
the Company increased the carrying amount of the liability by $155,000 and recognized a corresponding loss from sale of film assets in the second quarter of 2010. The Company has recently received
requests for payments of an additional $2.0 million and expects to pay the total amount of approximately $10.0 million in March 2011. Notwithstanding the acceleration of payments ahead
of the Company's prior expectations, in December 2010 management revised its estimated payment stream because of ongoing operating and financial difficulties being experienced by RHI, including
reorganization in bankruptcy. As of December 31, 2010, management believes that fulfillment of its indemnification obligation will occur over a period longer than previously estimated.
Accordingly, in the fourth quarter of 2010, the Company decreased the carrying amount of the liability by $874,000 and recognized a corresponding gain from sale of film assets in the accompanying
statement of operations.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

3. Sale of Membership Interest in Crown Media Distribution, Residual and Participation Liability and Third Party Indemnity (Continued)

Carrying amounts of this liability of $13.9 million and $14.2 million as of December 31, 2009 and 2010, respectively, are included in accrued liabilities on the
accompanying consolidated balance sheets. The aggregate amount of payments that the Company will make under this obligation is dependent upon the relative success RHI achieves in exploiting these film
assets. However, in no event will the aggregate cash payments under this obligation exceed $22.5 million. At December 31, 2010, the maximum future payout remaining under this agreement
is $19.9 million. The timing of such payments is dependent upon not only the timing of RHI's exploitation of these film assets but RHI's administrative processes by which it will request
payments from the Company. Accordingly, it is likely that, during the remaining term of this liability, the carrying amount will be adjusted as additional information becomes available to the Company.

Also,
included in accounts payable and accrued liabilities as of December 31, 2009 and 2010, is $364,000 and $411,000, respectively, for the estimated cost of residuals and
participations that the buyer of our international business (which included the international rights to our film library) would otherwise be obligated to pay to third parties in connection with
international film library sales between the April 2005 sale and April 2015. The Company's actual cost of this obligation will depend on the actual internal usage or sales of these films by the buyer.

In
December 2008, the Company received information from the buyer of the international business related to the actual internal usage and sales of these films through December 31,
2007. As a result, the Company reduced its estimate of this liability by $5.1 million. The Company did so by recording a gain from sale of discontinued operations of $3.0 million and a
reduction of interest expense of $2.1 million.

In
December 2009, the Company concluded that payments for residuals and participations under its liability to the buyer of the international business would occur generally later than
estimated in December 2008. Accordingly, the Company reduced the carrying amount of the liability by $12,000 and recognized a corresponding decrease in interest expense in the accompanying statement
of operations.

4. Program License Fees

Program license fees are comprised of the following:

As of December 31,2009

2010(In thousands)Program license feesother non-affiliates

$
597,206

$
552,869Program license feesHallmark Cards affiliates


12,668


15,000Program license fees, at cost


609,874


567,869Accumulated amortization


(324,717
)

(331,792
)Program license fees, net

$
285,157

$
236,077


F-19

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

4. Program License Fees (Continued)

Programming
costs included in the accompanying consolidated statements of operations for the years ended December 31, 2008, 2009 and 2010, were $140.7 million,
$127.5 million and $125.2 million, respectively.

In
the regular course of evaluating the remaining usefulness of its various program licenses, the Company may determine that certain licenses may be of little future program value to it.
In such instances, the Company shortens the estimated remaining lives to zero, thereby accelerating amortization of the remaining net book values. The Company made no such changes in estimates
during the years ended December 31, 2008 and 2009. During the year ended December 31, 2010, such changes in estimates resulted in additional amortization of program license fees of
$227,000.

At
December 31, 2009 and 2010, $1.8 million and $4.1 million, respectively, of program license fees were included in prepaid and other assets on the accompanying
consolidated balance sheets as the Company made payments for the program license fees prior to commencement of the license period.

License
fees payable are comprised of the following:

As of December 31,2009

2010(In thousands)License fees payablenon-affiliates

$
171,966

$
126,375License fees payableHallmark Cards affiliates


10,409


11,729Total license fees payable


182,375


138,104Less current maturities


(99,494
)

(104,286
)Long-term license fees payable

$
82,881

$
33,818


5. Property and Equipment

Property and equipment are comprised of the following:

As of December 31,Depreciable Life
(In years)2009

2010(In thousands)Technical equipment and computers

$
6,614

$
7,505

3 - 5Leased assets


17,363


17,611

3 - 15Furniture, fixtures and equipment


652


679

5Leasehold improvements


1,127




3 - 7Construction-in-progress





368Property and equipment, at cost


25,756


26,163Accumulated depreciation


(12,580
)

(13,462
)Property and equipment, net

$
13,176

$
12,701


Depreciation
expense related to property and equipment was $2.4 million, $2.6 million and $2.2 million, for the years ended December 31, 2008, 2009 and 2010,
respectively.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

5. Property and Equipment (Continued)

Software
and other intangible assets of $507,000 and $515,000 as of December 31, 2009 and 2010, respectively, have been included in prepaid and other assets on the accompanying
consolidated balance sheets.

6. Leases

The Company leases uplink and transponder capacity and copiers under long-term lease agreements that are accounted for as capital leases. The capital lease liabilities are
included as a component of both accounts payable and accrued liabilities and non-current accrued liabilities in the accompanying consolidated balance sheets. In addition, the Company
leases uplink services and office facilities under operating leases that are generally non-cancelable. These leases expire at various dates through June 2019, and some contain escalation
clauses and renewal options. Future minimum lease payments under the agreements at December 31, 2010, are as follows:

Years Ended December 31,

Capital
Leases

Operating
Leases(1)(in thousands)2011

$
2,249

$
5,0182012


2,249


5,0452013


2,219


4,8822014


2,160


5,0512015


2,160


2,993Thereafter


8,550


632Total minimum lease payments


19,587

$
23,621Less amount representing interest (at implicit rates of 9.375% and 3.910%)


(6,303
)Present value of net minimum lease payments


13,284Less current maturities


(1,059
)Long term obligation

$
12,225


(1)Includes
cancellable amounts related to parking spaces for our Los Angeles, California, office in the amounts of $119,000 for 2011 through 2014 and $89,000
for 2015.


Rent
expense under the operating leases was $3.0 million, $2.9 million and $3.2 million, respectively, for the years ended December 31, 2008, 2009 and 2010.
Amortization of the uplink and transponder asset held under a capital lease is recorded as amortization of capital lease on the accompanying statements of operations.

The
Company accrues and recognizes rent expense on a straight line basis over the term of the lease, including rental holidays. The Company uses the initial lease term, including the
free rent holiday period, to determine the lease term.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

6. Leases (Continued)

The
Company recognizes revenue for selling excess digital channel capacity on a leased transponder to third parties as Other Revenue. Revenue for the excess capacity was $126,000 in 2010
and will be $252,000 in 2011 through 2013 and $105,000 in 2014.

7. Credit Facility

Amendment No. 16 to the credit facility, entered into on March 2, 2010, set the maximum amount that may be borrowed under the credit facility at $30.0 million (a
reduction from $45.0 million) and extended the maturity date to August 31, 2010. In connection with the Recapitalization, the Company entered into Amendment No. 17 to the
Company's amended credit agreement with JP Morgan Chase Bank, effective June 29, 2010. Amendment No. 17, among other things, extended the maturity date of the credit facility
June 30, 2011.

Amendment
No. 17 terminated the Hallmark Cards Subordination and Support Agreement. The Hallmark Cards Facility Guarantee remains in place and an intercreditor agreement among
HCC, JP Morgan Chase Bank and the Company was entered into which, among other things, defines the lien priorities and allowed for payments to HCC pursuant to the Recapitalization. The credit facility
is guaranteed by Hallmark Cards and the Company's subsidiaries and is secured by all tangible and intangible assets of the Company and its subsidiaries. Interest under the credit facility is equal to
the LIBOR Rate plus 2.25% in the case of a Eurodollar Loan and the Alternate Base Rate plus 1.25% in the case of an Alternate Base Rate Loan (with each named rate and loan as defined in Amendment
No. 17). The Company's ability to borrow additional amounts under the credit facility is not limited or restricted.

The
credit facility, as amended, contains a number of affirmative and negative covenants. The Company was in compliance with these covenants as of December 31, 2010.

At
December 31, 2009, and 2010, the Company had outstanding borrowings of $1.0 million and $0, respectively, under the credit facility and there were no letters of credit
outstanding. At December 31, 2009, all of the outstanding balance bore interest at the Eurodollar rate (2.49% weighted average rate at December 31, 2009). Interest expense on borrowings
under the credit facility for each of the years ended December 31, 2008, 2009 and 2010, was $2.1 million, $350,000 and $4,000, respectively.

8. Related Party Obligations

Recapitalization

For financial reporting purposes, the Recapitalization has been accounted for as a troubled debt restructuring in accordance with the
guidance ofASC Topic 470-60 DebtTroubled Debt Restructurings. Identification of the Recapitalization as a troubled debt
restructuring involved both qualitative and quantitative aspects. Among the qualitative aspects considered were (i) the Company's expectations that it would have been unable to fulfill the debt
service requirements associated with approximately $342.2 million of principal and interest payable to HCC on May 1, 2010 upon the expiration of the waiver agreement (which was extended
to August 31, 2010 pursuant to the master recapitalization agreement), along with an additional $784.6 million of principal and interest that would have become immediately due pursuant
to cross-default provisions, and (ii) the going concern opinion rendered by the Company's independent registered public accounting firm in connection with the financial

F-22

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

8. Related Party Obligations (Continued)

statements
included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009. Quantitatively, Hallmark Cards is deemed to have granted a "concession"
within the meaning ofASC 470-60. Prior to consummation of the Recapitalization, the weighted average interest rate of HCC debt was
approximately 8.3%. After consideration of (x) the estimated fair values of Preferred Stock and Common Stock issued in the Recapitalization and (y) the debt service requirements of New
Debt, the overall effective interest rate on the New Debt resulting from the Recapitalization is less than 1%.

Pursuant
to the guidance in theASC, we (1) recorded the issuance of Preferred Stock and Common Stock at their respective estimated
fair values as of June 29, 2010 and (2) recorded New Debt in an amount equal to the residual of (i) the carrying value of HCC Debt less (ii) the estimated fair values of
such Preferred Stock and Common Stock. New Debt has been apportioned between the Term A and Term B Loans on the basis of their relative fair values. The amounts by which the apportioned Term Loans
exceeded the respective stated amounts of principal are being amortized over the terms of the loans as reductions of the interest expense that otherwise would arise from the stated cash interest
rates. The resulting effective interest rates are approximately 0.789% and 1.002%, for the Term A Loan and Term B Loan, respectively. If, and when, any of the available
pay-in-kind options (where interest is added to principal) are exercised, the effects of such elections will be recognized prospectively.

The
Mergers of HEI and HEH involved non-substantive subsidiaries of Hallmark Cards. The Mergers were recorded at carry-over basis pursuant to the guidance of ASC Topic 805-50 Business CombinationsRelated
Issues. HEIC and HEH did not have assets other than their investment in the
Company.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

8. Related Party Obligations (Continued)

The
following table summarizes the accounting for the Recapitalization:

In thousandsPre-RecapitalizationHCC Debt




$
1,161,918Deferred debt issuance costs





(475
)Transaction costs





(3,596
)$
1,157,847Post-RecapitalizationNew Debt




$
432,140Preferred stock, 185,000 shares, $0.01 par value, $1,000 liquidation preference





185,000Common stock, $0.01 par value





2,549Additional paid-in capitalFair values of new preferred stock and common stock, less liquidation preference and par value, respectively

$
541,754Transaction costs related to new preferred stock and common stock


(2,547
)

539,207Transaction costs related to the New Debt included in selling, general and administrative expense





(1,049
)$
1,157,847


See
"Recapitalization of the Company" in Note 1 for information regarding the debt obligations owed to HCC immediately prior to the Recapitalization. See Note 11 for
information related to an imputed discount that arose with the issuance of Preferred Stock and the related effect on the determination of net income (loss) per share.

F-24

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

8. Related Party Obligations (Continued)

Related Party Long-Term Obligations

The aggregate maturities of nominal related party long-term debt and future interest (assuming no utilization of the
payment-in-kind options) for each of the five years subsequent to December 31, 2010, are as follows:

Payments Due by PeriodTotal

Less than
1 Year

2 Years

3 Years

4 Years

5 Years(In thousands)Term A note, due December 31, 2013, interest payable quarterly to HCC at 9.5% per annum through December 31, 2011 and 12% thereafter(1)

$
264,058

$
27,565

$
22,886

$
213,607

$


$
Term B note, due December 31, 2013, interest payable quarterly to HCC at 11.5% per annum through December 31, 2011 and 14%
thereafter


160,425


13,225


16,100


131,100





$
424,483

$
40,790

$
38,986

$
344,707

$


$



(1)The
Company anticipates making a principal payment on the Term A note of approximately $9.3 million, which is the Company's estimated principal
payment based on the excess cash flow provisions defined in the Credit Agreement.


The
nominal obligations noted in the table above differ from the obligations included in the accompanying balance sheet due to the treatment of the Term A and Term B notes under troubled
debt restructuring accounting. The Company paid principal and interest of $16.3 million during the year ended December 31, 2010, on the Term A and Term B notes.

Senior Secured Note

In August 2003, the Company issued a senior note to HCC for $400.0 million. Cash payments for interest were not required from
inception through June 29, 2010. The principal amount of the senior secured note accreted at 10.25% per annum, compounding semi-annually, to June 29, 2010. At
December 31, 2009, $758.8 million of principal and interest was included in the senior note payable in the accompanying consolidated balance sheet. The Company's obligations under this
note, including $797.4 million of principal and accrued interest, were terminated in connection with the Recapitalization.

Notes and Interest Payable to HCC

On December 14, 2001, the Company executed a $75.0 million promissory note with HCC. Interest was payable in cash,
quarterly in arrears five days after the end of each calendar quarter. The rate of interest under this note was LIBOR plus 5% per annum (5.29% at December 31, 2009). At December 31,
2009, $108.6 million of principal, including interest previously added to principal, and $1.5 million of accrued interest were reported as notes and interest payable to HCC on the

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

8. Related Party Obligations (Continued)

accompanying
consolidated balance sheet. During 2009 and 2010 the Company paid $6.3 million and $4.3 million, respectively, for interest. The Company's obligations under this note,
including $108.6 million of principal, were terminated in connection with the Recapitalization.

On
October 1, 2005, the Company converted approximately $132.8 million of its license fees payable to a Hallmark Cards affiliate to a promissory note subsequently
transferred to HCC. The rate of interest under this note was LIBOR plus 5% per annum (5.29% at December 31, 2009). At December 31, 2009, $170.1 million of principal, including
interest previously added to principal, and $2.3 million of accrued interest were reported as notes and interest payable to HCC on the accompanying consolidated balance sheet. During 2009 and
2010 the Company paid $9.8 million and $6.8 million, respectively, for interest. The Company's obligations under this note, including $170.1 of principal, were terminated in connection
with the Recapitalization.

On
March 21, 2006, the Company converted approximately $70.4 million of its payable to a Hallmark Cards affiliate to a promissory note subsequently transferred to HCC. The
rate of interest under this note was LIBOR plus 5% per annum (5.29% at December 31, 2009). At December 31, 2009, $62.0 million of principal, including interest previously added to
principal, and $838,000 of accrued interest, were reported as notes and interest payable to HCC on the accompanying consolidated balance sheet. During 2009 and 2010 the Company paid
$3.6 million and $2.5 million, respectively, for interest. The Company's obligations under this note, including $62.0 million of principal, were terminated in connection with the
Recapitalization.

Hallmark Guarantee; Interest and Fee Reductions

Hallmark Cards has unconditionally guaranteed the Company's obligations to JPMorgan Chase Bank under the credit facility. Payments, if
any, under this guarantee will not reduce the Company's obligations under the credit facility but instead will convey to Hallmark Cards a
subordinated participation interest in the Company's obligations under the credit facility. Hallmark Cards also has an option to purchase the lender's entire interest in the credit facility. Prior to
April 2009, Hallmark Cards' credit support for the Company's bank credit facility consisted of supplying a letter of credit.

The
above mentioned credit support provided by Hallmark Cards resulted in reductions in the interest rate and commitment fees under the credit facility; however, the Company agreed to
pay and has paid an amount equal to the reductions in the interest rate and commitment fees to Hallmark Cards. On April 1, 2009, the interest rate and commitment fees under the renewed credit
facility increased and the Company began paying Hallmark Cards a smaller reduction amount of the interest rate and commitment fees equal to 0.75% and 0.125%. Interest expense paid to HCC in connection
with the JPMorgan Chase Bank credit facility was $1.1 million, $963,000, $1,000 for the years ended December 31, 2008, 2009 and 2010, respectively. Commitment fee expense for the years
ended December 31, 2008, 2009 and 2010, was $91,000, $50,000 and $41,000, respectively.

Lease Guarantees with Hallmark Cards

On February 24, 2010, the Company executed a letter of credit/guaranty commitment with respect to a certain lease agreement with
12700 Investments, Ltd. for the office space at 12700 Ventura Boulevard, Studio City, California. The landlord required that Crown Media United States, the entity which executed the lease,
provide a letter of credit of $1.6 million securing certain obligations of Crown

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

8. Related Party Obligations (Continued)

Media
United States. Consequently, Hallmark Cards has agreed to guarantee the issuer of such letter of credit against any loss thereon pursuant to the guaranty. As an inducement for Hallmark Cards to
issue the guaranty, Crown Media United States has agreed to pay Hallmark Cards a fee which equals 0.75% per annum of the outstanding letter of credit obligation. Additionally, in the event that
Hallmark Cards is required to pay any amount under the guaranty, Crown Media United States must reimburse Hallmark Cards for any such amount plus any fees and charges associated with making such
payment, any interest applicable to such amount and any costs and expenses of Hallmark Cards in connection with protecting its rights under the guaranty.

On
September 2, 2008, Hallmark Cards issued a guaranty for the benefit of Crown Media United States, which guaranty pertains to a lease agreement with Paramount Group, Inc.
for the office space at 1325 Avenue of the Americas, New York, New York. As a condition to executing the lease agreement, the landlord required Hallmark Cards to guaranty all obligations of Crown
Media United States under the lease agreement. As an inducement for Hallmark Cards to issue the guaranty, Crown Media United States has paid Hallmark Cards a fee which equals 0.28% per annum of the
outstanding obligation under the lease agreement. Additionally, in the event that Hallmark Cards is required to pay any amount under the guaranty, Crown Media United States must reimburse Hallmark
Cards for any such
amount plus any fees and charges associated with making such payment, any interest applicable to such amount and any costs and expenses of Hallmark Cards in connection with protecting its rights under
the guaranty.

9. Related Party Transactions

Tax Sharing Agreement



On March 11, 2003, the Company became a member of Hallmark Cards' consolidated federal tax group and entered into a federal tax
sharing agreement with Hallmark Cards (the "tax sharing agreement"). Hallmark Cards includes the Company in its consolidated federal income tax return. Accordingly, Hallmark Cards has benefited from
subsequent tax losses and may benefit from future federal tax losses, which may be generated by the Company. Based on the original tax sharing agreement, Hallmark Cards agreed to pay the Company all
of the benefits realized by Hallmark Cards as a result of including the Company in its consolidated income tax return. Also, taxable income recognized by the Company that is included in the Hallmark
Cards consolidated tax return will result in a payment by the Company to Hallmark Cards.

Through
December 31, 2009, the benefit from losses generated have been paid 75% in cash on a quarterly basis with the balance applied as an offset against other amounts owed by
the Company to any member of the Hallmark Cards consolidated group under any loan, line of credit or other payable, subject to limitations under any loan indentures or contracts restricting such
offsets. As a result of the Recapitalization, the tax agreement has been amended to provide that 100% of any such benefit will be deferred for application against future tax liabilities of the
Company. Pursuant to the amendment to the tax sharing agreement in August 2003, the benefit that would otherwise result from interest accrued on the 10.25% senior secured note was not available to the
Company until such interest is paid in cash. As a result of the Recapitalization, such interest accrued from January 1, 2010, through June 29, 2010, will be treated as a deduction under
the amended tax sharing agreement.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

9. Related Party Transactions (Continued)

The
Company received $21.3 million under the tax sharing agreement during 2008, which was offset against the tax note. At December 31, 2009, the Company owed Hallmark Cards
$8.5 million under the tax sharing agreement for 2009. The liability was satisfied on June 29, 2010, in connection with the Recapitalization. For the year ended December 31, 2010,
the Company owed Hallmark Cards $12.9 million for tax as calculated pursuant to the amended tax sharing agreement and this amount was paid to Hallmark Cards in December 2010.

Any
payments received from Hallmark Cards or credited against amounts owed by the Company to any member of the Hallmark Cards consolidated group under the tax sharing agreements have
been recorded as additions to paid-in capital in the accompanying consolidated statements of stockholders' deficit. Any amounts owed or payments made to Hallmark Cards or to any member of
the Hallmark Cards consolidated group under the tax sharing agreement have been recorded as reductions to paid-in capital.

Since
May 9, 2000, the Company has been included in certain combined state income tax returns of Hallmark Cards or Hallmark Entertainment Holdings. Consequently, Hallmark
Entertainment Holdings and the Company entered into a state tax sharing agreement. Under the state tax sharing agreement, Hallmark Entertainment Holdings and the Company file consolidated, combined or
unitary state tax returns. The Company makes tax-sharing payments to (or receives payments from) Hallmark Entertainment Holdings equal to the taxes (or tax refunds) that the Company would
pay (or receive) if it filed on a stand-alone basis. Such payments are computed based on the Company's taxable income (loss) and other tax items beginning the day following the May 9, 2000,
reorganization. Hallmark Cards has agreed to waive the state tax liability associated with the cancellation of debt income in those states in which Hallmark Cards files a combined return.
Accordingly, the Company has reduced the liability for the state taxes and credited paid-in capital for that amount. For the year ending December 31, 2010, it is estimated that the
Company will owe Hallmark Cards approximately $800,000 with respect to the state tax sharing payment primarily related to changes in California tax law. This amount will be payable two days prior to
the due date of the state tax returns in 2011.

Services Agreement with Hallmark Cards

Hallmark Cards provides Crown Media Holdings with tax, risk management, health safety, environmental, insurance, legal, treasury, human
resources, cash management and real estate consulting services. In exchange, the Company is obligated to pay Hallmark Cards a fee, plus out-of-pocket expenses and third party
fees, in arrears on the last business day of each quarter. Fees for Hallmark Cards' services were $541,000 for 2008, $455,000 for 2009 and $387,000 for 2010.

At
December 31, 2009, and 2010, non-interest bearing unpaid accrued service fees and unreimbursed expenses of $15.2 million and $648,000, respectively, were
included in payable to affiliates on the accompanying consolidated balance sheets. The $15.2 million outstanding at December 31, 2009, was satisfied on June 29, 2010, in
connection with the Recapitalization. For the years ended December 31, 2008, 2009 and 2010, out-of-pocket expenses and amounts paid to third parties on the Company's
behalf by Hallmark Cards were $1.1 million, $420,000 and $302,000, respectively.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

9. Related Party Transactions (Continued)

"Hallmark Hall of Fame" Programming License Agreement

In 2008, Crown Media United States entered into an agreement with Hallmark Hall of Fame Productions, Inc. for the exclusive
license of 58 "Hallmark Hall of Fame" movies, consisting of 16 contemporary Hallmark Hall of Fame titles (i.e., produced from 2003 to 2008) and 42 older
titles, for exhibition on the Hallmark Channel and Hallmark Movie Channel. These titles are licensed for ten year windows, with windows commencing at various times between 2007 and 2010, depending on
availability. The total license fee for these movies is $17.2 million and is payable in equal monthly installments over the various 10-year exhibition windows.

Trademark Agreement with Hallmark Cards

Crown Media United States has a trademark license agreement with Hallmark Licensing, Inc. for use of the "Hallmark" mark for the
Hallmark Channel and for the Hallmark Movie Channel. In June 2010, Hallmark Cards extended the trademark license agreements for the Hallmark Channel and the Hallmark Movie Channel to
September 1, 2011. The Company is not required to pay any fees under the trademark license agreements.

The
Company has accounted for the agreement pursuant to the contractual terms of the arrangement, which is royalty free. Accordingly, no amounts have been reflected in the consolidated
balance sheets or consolidated statements of operations and of the Company.

Under
the license agreement, we would be in default if we (i) fail to make any payment due under any loan agreement within five days of its due date or (ii) receive an
opinion from our auditors that expresses their doubt with respect to our ability to continue as a going concern. The Company obtained a waiver for the trademark license agreement dated March 3,
2010, from Hallmark Cards related to its going concern opinion over its 2009 financial statements.

10. Company Obligated Mandatorily Redeemable Preferred Interest and NICC License Agreements

Pursuant to a 1998 agreement among the Company and others then owning membership interests in Crown Media United States (the "Company Agreement"), VISN Management Corp. ("VISN," a
wholly-owned subsidiary of National Interfaith Cable Coalition, Inc., "NICC") owned a $25.0 million mandatorily redeemable, preferred membership interest (the "preferred interest").
Until its December 2010 redemption, the preferred interest was reflected in the accompanying consolidated financial statements at its accreted fair value (which was established as of July 1,
2003 pursuant toASC Topic 480 Distinguishing Liabilities from Equity).

On
January 2, 2008, the Company and NICC executed an agreement (the "Modification Agreement") to resolve mutual disputes related to a December 2005 agreement (the "December 2005
NICC Agreement"). As part of the Modification Agreement, we agreed to pay NICC $3.8 million in equal installments on each January 20 of 2008, 2009 and 2010. We also agreed to provide
NICC a two-hour broadcast period granted each Sunday morning during the two year period ended December 31, 2009. We also agreed to pay NICC an estimated $3.7 million in
yearly installments at the rate of 6% of the outstanding liquidation preference of the preferred interest. These costs and the related liability were recorded in December 2007 at a discounted amount
of $8.2 million. At December 31, 2008, the Company recorded additional programming expense of approximately $744,000 to give effect to revisions of anticipated dates on which preferred
interest redemptions would occur.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

10. Company Obligated Mandatorily Redeemable Preferred Interest and NICC License Agreements (Continued)

Subsequent
to the execution of the Modification Agreement, NICC asserted that certain other provisions of the December 2005 NICC Agreement had not been resolved. In full settlement of
NICC's assertion, the Company assigned its ownership interest in a Hallmark Channel original movie which was previously co-owned by NICC and the Company, subject to the Company retaining
certain broadcast rights. Settlement expense of approximately $483,000 is included as a component of selling, general and administrative expense in the consolidated statement of operations for the
year ended December 31, 2008. The Company also recognized a gain of approximately $101,000 in connection with the disposition of its film asset.

In
addition to paying VISN $25.0 million in 2010 for the redemption of the preferred interest, the Company paid NICC $6.4 million, $4.6 million and
$2.8 million during the years ended December 31, 2008, 2009 and 2010, respectively, in connection with the provisions of the Company Agreement, the December 2005 NICC Agreement and the
Modification Agreement. Such payments fulfilled the Company's obligations to NICC and VISN.

11. Stockholders' Equity

The June 2010 Recapitalization caused changes to the Company's authorized shares of capital stock. The authorized number of shares of preferred stock was reduced from 10.0 million
to 1.0 million. The authorized number of shares of Class A common stock was increased from 200.0 million shares to 500.0 million shares. All shares of Class B common
were automatically reclassified to shares of Class A common stock. The authorized number of shares of Class B common stock was reduced from 120.0 million to zero.

The
Company has not paid any cash dividends on its common stock since inception and is prohibited from paying any cash dividends on its common stock so long as the Term A and Term B
notes are outstanding. Commencing in the first quarter of 2011, holders of Preferred Stock are entitled to mandatory, cumulative quarterly dividends at the following annual rates: 14% during 2011 and
16%, (the perpetual rate) during 2012 and all periods thereafter. There was no Preferred Stock dividend entitlement during 2010. At the Company's option, it may pay Preferred Stock dividends in the
form of additional shares of Preferred Stock for any dividend period occurring though December 31, 2014. If Preferred Stock dividends are paid only in cash, they would amount to approximately
(i) $25.9 million in 2011 and (ii) approximately $29.6 million in 2012 and each year thereafter. The Preferred Stock will also participate with the Common Stock as to any
declared dividends on an "as converted" basis.

The
Company has estimated that the absence of perpetual rate dividends during 2010 and 2011 resulted in an implicit discount of $17.4 million in the estimated fair value of
Preferred Stock upon issuance at June 29, 2010. Such discount is being amortized through December 31, 2011. Amortization is reflected in the accompanying consolidated balance sheets as
an increase in accumulated deficit and an increase in redeemable preferred stock. During the year ended December 31, 2010, amortization amounted to $14.0 million. The remaining
$3.4 million will be amortized during 2011.

Each
share of Preferred Stock will become and remain convertible at the earlier of December 31, 2013, or upon a payment or refinancing of the debt at the option of the holder into
a number of shares of Common Stock to be determined by dividing (i) its Original Issue Price plus accrued and unpaid cash dividends with respect to such share of Preferred Stock (ii) by
the Preferred Conversion Price. The

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

11. Stockholders' Equity (Continued)

"Preferred
Conversion Price" was $2.5969 as of the closing of the Recapitalization, which price is subject to adjustments for stock splits, combinations, dividends, mergers, recapitalizations and
other corporate actions having a similar effect with respect to the Preferred Stock and other adjustments such as the sale of additional shares for a price less than the Preferred Conversion Price.

If
the Company generates net proceeds from a refinancing in excess of the aggregate outstanding principal and interest amounts of New Debt (the "Excess Refinancing Proceeds"), the
holders of Preferred Stock may elect to apply such Excess Refinancing Proceeds to redeem (to the extent of funds legally available for such redemption) at the Redemption Price a number of the
outstanding shares of Preferred Stock. The "Redemption Price" means a price per share equal to the Original Issue Price, plus an amount equal to any accrued but unpaid cash dividends with respect to
such share, together with any other dividends declared but unpaid. If the Company receives any such requests, it must redeem on the twentieth day after delivery of the Excess Proceeds Notice, the
number of outstanding shares of Preferred Stock set forth in all such notices received by the Company within fifteen days after delivery of the Excess Proceeds Notice. If the Excess Refinancing
Proceeds are not sufficient to redeem all shares of Preferred Stock to be redeemed, the Company will redeem a pro rata portion of redeemable shares based on the holders' respective redemption
requests.

The
Company may redeem the Preferred Stock at any time, upon 10-days written notice, at the Redemption Price.

The
Preferred Stock will vote together with the Common Stock as a single class, with the Preferred Stock voting on an "as converted" basis. Holders, as a separate class, are also
required to approve certain specified actions that could negatively impact the holders of the Preferred Stock.

In
the event of any liquidation or winding up of the Company, the holders of the Preferred Stock will be entitled to receive, in preference to the holders of the Common Stock, an amount
equal to the greater of (x) the Original Issue Price per share plus accrued but unpaid cash dividends thereon, or (y) that amount that would be received by such holders on an "as
converted" basis had all Preferred Stock been converted into Common Stock immediately prior to such liquidation or winding up. A consolidation, merger or other form of acquisition of the Company or a
sale of all or substantially all of its assets will be deemed to be a liquidation or winding up for purposes of the liquidation preference. The redeemable Preferred Stock has a liquidation preference
of $185.0 million.

The
following table summarizes the issuance and transactions related to the redeemable Preferred Stock in 2010:

Redeemable
Preferred
Stock Shares

Redeemable
Preferred
Stock(In thousands)Balance, December 31, 2009




$
Issuance of redeemable preferred stock


185


185,000Imputed preferred stock dividends from amortization of discount on preferred stock





13,934Balance, December 31, 2010


185

$
198,934


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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

12. Income Taxes

Hallmark Cards will include the Company's 2010 taxable income in its 2010 consolidated federal tax return. Hallmark Cards has used approximately $738.6 million of the Company's
tax losses since entering into the tax sharing agreement. The Company has recorded a reduction in its deferred tax asset from net operating loss carryforwards of $61.1 million related to the
taxable income generated during the year ended December 31, 2010. The Company has recorded a net deferred tax asset of $547.4 million related to the cumulative losses generated. The
entire amount of the Company's net deferred tax assets have been offset with a valuation allowance. During 2010, the valuation allowance decreased by $54.7 million primarily related to the use
of net operating loss carryforwards, a change in the effective tax rate, and the difference between the book and tax basis of the new HC Crown debt as a result of the recapitalization. The Company may
ultimately reverse the valuation allowance and record a tax benefit if it is determined to be more likely than not that the Company could realize the tax benefit if it were treated as a stand-alone
taxpayer.

Historically,
the Company has accounted for income taxes as if it were a separate taxpayer not included in the consolidated tax return of Hallmark Cards. Because of this, the provision
and temporary differences, which are recorded as if the Company were a separate taxpayer may not exist on the consolidated tax return of Hallmark Cards. For tax purposes, the Recapitalization
generated net cancellation of debt income which is estimated at approximately $147.0 million. Accordingly, the Company is expected to generate federal and state taxable income in 2010 for both
regular tax and alternative minimum tax ("AMT") purposes. For regular tax purposes, this income will be fully offset by net operating loss carryforwards. However, for federal AMT purposes, loss
carryforwards can be used against AMT income but are limited to 90% of that income. As a result, the Company has recorded an income tax expense of approximately $3.3 million for the estimated
AMT in its consolidated statements of operations since the Company is not able to recognize an offsetting deferred tax benefit from the AMT credit carryforward because of its full valuation allowance
on deferred tax assets.

However,
as a result of being included in the consolidated tax return of Hallmark Cards, this AMT expense is not required to be paid to the Internal Revenue Service nor to Hallmark Cards
under the tax sharing agreement. Accordingly, the Company has reduced the liability for the aforementioned AMT and credited paid-in capital. The net result for AMT calculated as if the
Company is a separate taxpayer is a charge to the consolidated statements of operations and a corresponding credit to paid-in capital.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

12. Income Taxes (Continued)

For state income tax purposes the Company also has a tax expense on a separate company stand-alone basis. Effective October 2010, California has suspended the use of tax loss
carryforwards for 2010 and 2011. Additionally, the state of New York has an alternative minimum tax which allows only 90% of the tax loss carryforwards. There will be a state tax sharing payment to
Hallmark Cards in 2011.

The
stand-alone income taxes for the years ended December 31 are as follows:

Years Ended
December 31,2009

2010(In thousands)Continuing operations

$


$
8,810Income tax provision

$


$
8,810




Current

Deferred

Total(In thousands)2010:Federal

$
3,304

$


$
3,304State and local


5,506





5,506Total

$
8,810

$


$
8,8102009:Federal

$


$


$
State and local








Total

$


$


$



The
following table reconciles the income tax provision at the U.S. statutory rate to the provision per the financial statements:

Years Ended
December 31,2009

2010(In thousands)Tax computed at 35%

$
(8,204
)
$
11,512State taxes, net


(874
)

1,296Other


554


(171
)Change in tax rate





22,055Increase (decrease) in valuation allowance


8,524


(25,882
)Income tax provision

$


$
8,810


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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

12. Income Taxes (Continued)

The
components of Crown Media Holdings' stand-alone deferred tax assets and liabilities are comprised of the following:

Years Ended
December 31,2009

2010(In thousands)Deferred tax assets:Bad debt reserve

$
186

$
52Accrued compensation


1,656


1,898Net operating loss


644,531


547,417Depreciation


5,073


4,381Sale of international business and film assets


6,072


5,529Basis difference on HCC debt.





37,997Audience deficiency unit reserve


6,970


8,944Other


1,727


689AMT credit





3,304Valuation allowance


(664,912
)

(610,211
)Total deferred tax assets


1,303


Deferred tax liabilities:Program license fees


(485
)

Other


(818
)

Total deferred tax liabilities


(1,303
)

Net deferred taxes

$


$



As
of December 31, 2010, the Company's stand-alone cumulative federal net operating losses were approximately $1.4 billion, which would expire in 2022 through 2029 under
the carryforward provisions provided by the tax code. Of this amount, approximately $692 million is federal net operating losses that have not yet been utilized by Hallmark Cards in its
consolidated returns and will begin to expire in
2020 through 2023. The Company has apportioned state net operating losses of approximately $800 million which expire in 2011 through 2031.

Accounting for Uncertainty in Income Taxes

An evaluation process is required under applicable accounting standards for all tax positions taken. If the probability for sustaining
a tax position is at least more likely than not, then the tax position is warranted and recognition should be at the highest amount which is greater than 50% likely of being realized upon ultimate
settlement. At December 31, 2009 and 2010, the total amount of unrecognized tax benefits for uncertain tax positions was $0. The Company recognized no increase or decrease in the amount of
unrecognized tax benefits for uncertain tax positions.

The
Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2009 and 2010, we have no accrued interest related to
uncertain tax positions.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

12. Income Taxes (Continued)

By
virtue of its inclusion in Hallmark Cards consolidated tax returns, the Company is subject to examination by the Internal Revenue Service for periods subsequent to March 10,
2003. Further, net operating loss carryforwards ("NOL's") are subject to examination in the year they are utilized regardless of whether the tax year in which they were generated has
been closed by statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company is subject to examination for NOL's generated prior to
March 11, 2003 if and when such NOL's are utilized in future tax returns.

The
Company has separate company nexus in Colorado and Georgia and has also been included in the combined state tax returns of Hallmark or HC Crown for California, Illinois, and New
York. The state returns are generally subject to examination for years after 2005.

13. Fair Value

The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2009 and 2010.

December 31, 2009

December 31, 2010Carrying
Amount

Significant
Unobservable
Inputs
(Level 3)
Fair
Value

Carrying
Amount

Significant
Unobservable
Inputs
(Level 3)
Fair
Value(In thousands)Senior secured note to HCC,including accrued interest

$
758,755

$
641,635

$


$
Note and interest payable to HCC


110,062


93,074





Note and interest payable to HCC


62,845


53,144





Note and interest payable to HCC


172,407


145,795





Term A note and interest payable to HCC








261,433


199,361Term B note and interest payable to HCC








156,262


119,528Company obligated mandatorily redeemablepreferred interest


22,902


19,800








ASC Topic 820 Fair Value Measurements and Disclosuresdefines fair value of a liability as the price that would be paid to transfer a
liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which the
Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the liability, such as inherent risk, transfer restrictions, and credit risk.
Level 3 is defined as inputs that are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the liability.

The
carrying amounts shown in the table are included on the accompanying consolidated balance sheets under the indicated captions. The Company estimates the fair value of its debt to HCC
on a quarterly basis.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

13. Fair Value (Continued)

Accounts
payable and receivable are carried at reasonable estimates of their fair values because of the short-term nature of these instruments. Interest rates on borrowings
under the bank
credit facility are for relatively short periods and variable. Therefore, the fair value of this debt is not significantly affected by fluctuations in interest rates. The credit spread on the debt is
fixed, but the market rate will fluctuate.

Estimates
of the fair value of certain of the Company's financial instruments are presented in the tables above. As a result of recent market conditions, the Company's debt obligations
with HCC have limited or no observable market data available. Fair value measurements for these instruments are included in Level 3 of the fair value hierarchy ofASC
Topic 820. These fair value measurements are based primarily upon the Company's own estimates and are often based on its current pricing policy, the current economic and
competitive environment, the characteristics of the instrument, credit and interest rate risks, and other such factors. Therefore, the results cannot be determined with precision, cannot be
substantiated by comparison to quoted prices in active markets, and may not be realized in an immediate settlement of the liability. Additionally, there are inherent uncertainties in any fair value
measurement technique, and changes in the underlying assumptions used, including discount rates, liquidity risks, and estimates of future cash flows, could significantly affect the fair value
measurement amounts.

The
majority of the Company's debt has been transacted with HCC. Please see footnote 2 for additional fair value information regarding goodwill and footnote 8 for information regarding
the redeemable preferred shares.

14. Share-Based Compensation

Crown Media Holdings has one stock option plan, the Amended and Restated Crown Media Holdings, Inc. 2000 Long Term Incentive Plan (the "Plan"). The Plan covers three types of
share-based compensation: Stock Options, Restricted Stock Units ("RSU") and Share Appreciation Rights ("SAR").

Stock-Based Compensation

The Company recorded $1.1 million and $324,000 of compensation expense associated with the employment and performance RSUs
during the years ended December 31, 2008 and 2010, respectively, which has been included in selling, general and administrative expense on the accompanying consolidated statements of
operations. The Company recorded $269,000 of compensation benefit associated with the employment and performance RSUs during the year ended December 31, 2009, which has been included in
selling, general and administrative expense on the accompanying consolidated statements of operations. These awards are included as liabilities in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets due to the Company's history of settling these awards in cash.

As
of December 31, 2009 and 2010, there was no unrecognized compensation cost, related to non-vested stock options granted to the Company's employees. The closing
price of a share of the Company's common stock was $1.45 on December 31, 2009 and $2.62 on December 31, 2010, which is used to calculate the year end RSU and SAR liabilities. As of
December 31, 2009 and 2010, there was

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CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

14. Share-Based Compensation (Continued)

unrecognized
compensation cost, related to non-vested RSUs granted to the Company's directors, in the amount of $190,000 and $375,000, respectively, using the aforementioned stock prices.
Actual compensation costs recognized in future periods may vary based upon fluctuations in stock price and forfeitures.

General Stock Option Information

Crown Media Holdings may grant options for up to 10.0 million shares under the Plan. The stock options expire 10 years
from the date of grant and generally vest over service periods that range from date of grant to four years. Certain option and share awards provide for accelerated vesting if there is a change in
control (as defined in the Plan).

There
were no stock option grants in 2008, 2009 and 2010.

A
summary of the status of the Company's Stock Option Plan at December 31, 2009 and 2010, and changes during the years then ended is presented below:

Shares
(in thousands)

Exercise
Price
Per Option

Weighted-
Average
Exercise
Price
Per Option

Weighted-
Average
Remaining
Contractual
Term in Years

Aggregate
Intrinsic
ValueBalance, December 31, 2008


341




$
11.60


2.51

$
0.00Options cancelled


(254
)
$
8.94 - 16.38

$
10.81Balance, December 31, 2009


87




$
13.89


1.51

$
0.00Options cancelled


(22
)
$
12.50 - 16.38

$
14.09Balance, December 31, 2010


65




$
13.82


0.82

$
0.00Exercisable


65




$
13.82


0.82

$
0.00


General Restricted Stock Unit Information

The Company's restricted stock units ("RSUs") vest based on employment, performance and market conditions. Certain RSUs vest either in
one-third increments on the anniversary of the grant date in each of the three years following the grant or all at one time on the third year anniversary of the grant date, in both cases
based on continuing employment ("Employment RSUs"). The Company's RSUs are settled in either common stock or cash as determined by the Company's Board of Directors. The Company has historically
settled the RSUs in cash, and considering such past practices, has classified its RSUs as liability awards for accounting purposes.

We
recognize compensation cost, net of estimated forfeitures, over the vesting term and include changes in fair value at each reporting period.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

14. Share-Based Compensation (Continued)

The
following table shows the cash settlements for each of the following years ending December 31:

Settlement
Amount
(in thousands)2008

$
3,8482009


1,4992010


163Total

$
5,510


The
Company granted 52,129 RSUs in August 2008 to members of its Board of Directors who were not employees of the Company or Hallmark Cards and its subsidiaries. These RSUs are part of
the compensation of directors consisting of the annual grant of RSUs valued at $40,000.

Additionally,
the Company granted 147,540 RSUs in August 2009 to members of its Board of Directors who were not employees of the Company or Hallmark Cards and its subsidiaries. These
RSUs are part of the compensation of directors consisting of the annual grant of RSUs valued at $45,000.

Additionally,
the Company granted 125,581 RSUs in August 2010 to members of its Board of Directors who were not employees of the Company or Hallmark Cards and its subsidiaries. These
RSUs are part of the compensation of directors consisting of the annual grant of RSUs valued at $45,000.

Board of Directors RSUs

Units

Weighted-
Average
Remaining
Contractual
Term in YearsNonvested Balance, December 31, 2008


88,667


2.02Units issued


147,540Units settled in cash


(44,215
)Nonvested Balance, December 31, 2009


191,992


2.35Units issued


125,581Units settled in cash


(76,255
)Nonvested Balance, December 31, 2010


241,318


2.08


Chief Executive Officer ("CEO") Share Appreciation Rights Agreement

Under Share Appreciation Rights Agreement dated October 3, 2006, the Company agreed to grant stock appreciation rights ("SARs")
to the then CEO upon occurrence of certain events. The then CEO terminated his employment in May 2009 and his SARs were forfeited at that time.

Prior
to the CEO's termination, the fair value of the CEO's SAR grant was estimated at each reporting date using a Monte Carlo Lattice option pricing model. Valuation of this SAR grant
was

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

14. Share-Based Compensation (Continued)

based
upon market and service conditions. The Company recorded $1.2 million and $247,000 in compensation benefit related to SARs for the years ended December 31, 2008 and 2009,
respectively, on the Company's consolidated statement of operations as a component of selling, general and administrative expense.

15. Employee Benefits

Benefit Plans

Crown Media Holdings adopted a 401(k) retirement plan for all of its United States employees effective January 1, 2002. All
eligible employees not otherwise enrolled were automatically enrolled into the plan; thereafter, all eligible new hires and rehires will be automatically enrolled in the plan. Employees will have
90 days to terminate his or her participation in the plan and the plan will refund any contributions. Employees that qualify for participation can contribute up to 50% of their
pre-tax salary, subject to a maximum contribution limit as determined by the Internal Revenue Service, and up to 16% of after-tax salary, not to exceed 50% total of combined
and pre-tax and after-tax contributions. Additionally, for every dollar up to six percent of salary an employee contributes, Crown Media Holdings will contribute fifty cents.
Crown Media Holdings contributed and expensed $409,000, $481,000 and $417,000 for the years ended December 31, 2008, 2009 and 2010, respectively.

Deferred Compensation Plans

The Company sponsors a deferred compensation plan for its management. Participants in this plan earn interest on their deferred
compensation. Related liabilities of $2.2 million and $1.6 million at December 31, 2009 and 2010, respectively, are included on the accompanying consolidated balance sheets among
short and long-term accrued liabilities.

The
Company also sponsors a deferred compensation plan for its Board of Directors. Participants in this plan earn interest on their deferred compensation. Related liabilities of $355,000
and $375,000 at December 31, 2009 and 2010, respectively, are included on the accompanying consolidated balance sheets among short and long-term accrued liabilities.

Resignation Agreements

The individual then serving as the Company's chief executive officer resigned May 31, 2009. Pursuant to the resignation
agreement, in June 2009 the Company paid this individual $2.5 million, an amount representing the present value of the salary and bonus that otherwise would have been paid to him from
June 1, 2009 through October 2, 2010, the scheduled expiration of his employment contract. The Company was also obligated to provide him office space, an assistant and payment of COBRA
insurance benefits for periods that expire at various times through May 31, 2010. These expenses were recorded as selling, general and administrative expense on the accompanying consolidated
statements of operations in 2009.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

15. Employee Benefits (Continued)

The Executive Vice President of Programming resigned from his position effective May 31, 2009. The executive received continued payment of the regular installments of his salary
through December 31, 2009 ($523,000) and received his salary through May 31, 2010, in one lump sum paid on January 15, 2010 ($347,000). He also received a payment of a
pro-rated annual bonus of approximately $55,000, determined by the Company, for the 2009 calendar year for the period up to the resignation date. These expenses were recorded as other
operating costs on the accompanying consolidated statements of operations in 2009.

Long Term Incentive Compensation Agreements

In the second quarter of 2009, the Company granted Long Term Incentive Compensation Agreements ("LTI Agreements") to each vice
president, senior vice president and executive vice president of the Company. The target award under each LTI Agreements is a percentage of the employee's base salary and range from $26,000 to
$469,000. Of each award, 50% is an Employment Award and 50% is a Performance Award. The Employment Award will vest and be settled in cash on August 31, 2011, subject to earlier pro rata
settlement as provided in the LTI Agreement. A portion of the Performance Award vested on December 31, 2010, and the remaining 50% will be settled on December 31, 2011, in accordance
with the Company performance criteria concerning adjusted EBITDA and cash flow and subject to earlier pro rata settlement as provided in the LTI Agreement. Early settlement is provided in the case of
involuntary termination of employment without cause on or after January 1, 2010, death or disability. Potential payouts under the Performance Awards depend on achieving 90% or higher of a
target threshold and range from 0% to 150% of the target award. The Company's Compensation Committee has the ability to increase or decrease the payout based on an assessment of demographics achieved,
relative market conditions and management of expenses.

The
Company did not achieve the 2-year EBITDA target but did obtain 91% achievement of the 2-year Cash Flow target at December 31, 2010. Therefore, the
Company will settle the Cash Flow target during first quarter of 2011 in the amount of $157,000.

In
the first quarter of 2010, the Company granted LTI Agreements to each vice president, senior vice president and executive vice president of the Company. The target award under each
LTI Agreements is a percentage of the employee's base salary and range from $25,000 to $536,000. Of each award, 50% is an Employment Award and 50% is a Performance Award. The Employment Award
will vest on August 31, 2012, and be settled in cash within 30 days thereafter, subject to earlier pro rata settlement as provided in the LTI Agreement. The Performance Award will vest
on December 31, 2012, and be settled in cash the later of 30 days thereafter or 15 days after the Company issues its audited financials for 2012, but by no later than
March 15, 2013. Vesting of the Performance Award will be determined in accordance with the Company performance criteria concerning adjusted EBITDA and cash flow and subject to earlier pro rata
settlement as provided in the LTI Agreement. Early settlement is provided in the case of involuntary termination of employment without cause on or after January 1, 2011, death or disability.
Potential payouts under the Performance Awards depend on achieving 90% or higher of a
target threshold and range from 0% to 150% of the target award. The Company's Compensation Committee has the ability to increase or decrease the payout based on an assessment of demographics achieved,
relative market conditions and management of expenses.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

15. Employee Benefits (Continued)

The
Company recorded $540,000 and $1.3 million of expense included in selling, general and administrative expense in the accompanying consolidated statement of operations for the
years ended December 31, 2009 and 2010, related to these agreements. Additionally, the $540,000 and $1.9 million liability for these agreements was included in accounts payable and
accrued liabilities in the accompanying consolidated balance sheets at December 31, 2009 and 2010.

Employee Terminations

In August 2009, the Company terminated the employment of certain individuals. The Company recorded severance expense of approximately
$1.2 million during 2009 as part of selling, general and administrative expenses.

16. Commitments and Contingencies

In the normal course of business, the Company has entered into agreements that commit it to make cash payments in future periods with respect to non-cancelable leases and
programming contracts.

An
entity providing licensed programming is required to report an asset and liability for the rights licensed under a programming agreement only when the license period has begun and
when certain other defined requirements are met. As such, the accompanying consolidated balance sheets do not reflect both gross assets and liabilities of $146.7 million and
$259.2 million as of December 31, 2009 and 2010, respectively, related to committed program license fees payable with airing windows which begin subsequent to period-end.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

16. Commitments and Contingencies (Continued)

Contractual
maturities of long-term obligations over the next five years are as follows (in thousands):

Total

2011

2012

2013

2014

2015

ThereafterTerm A note due to HCC(1)

$
264,058

$
27,565

$
22,886

$
213,607

$


$


$
Term B note due to HCC(1)


160,425


13,225


16,100


131,100








Dividends on redeemable preferred stock(2)


85,100


25,900


29,600


29,600








Capital lease obligations(1)


19,587


2,249


2,249


2,219


2,160


2,160


8,550Operating leases


23,621


5,018


5,045


4,882


5,051


2,993


632License fees payable for current and future windows(3)(4)


397,257


134,014


106,705


78,927


44,406


17,236


15,969Subscriber acquisition fees


604


604














Deferred compensation and interest


1,976


466


229


320


173


387


401Other payables to buyer of international business


873


657


58


53


53


41


11Other payables to buyer of film assets


19,888


10,000








4,944





4,944Total Contractual Cash Obligations

$
973,389

$
219,698

$
182,872

$
460,708

$
56,787

$
22,817

$
30,507


(1)Includes
future interest.(2)Based
on assumed redemption date of December 31, 2013.(3)The
amounts and timing for certain of these commitments are contingent upon the future delivery date and type of programming produced, and, as such, the
estimated amount and timing may change.(4)Contains
airing windows that open subsequent to year end and, therefore, the liability is not included on the balance sheet as of December 31, 2010.


The
Company owes an amount on a quarterly basis under a program license agreement that is subject to fluctuation. The Company owed $3.3 million at December 31, 2010, under
this agreement. The Company has the obligation to remit these quarterly payments through the 2011/2012 broadcast season.

Lawsuit

On July 13, 2009, a lawsuit was brought in the Delaware Court of Chancery against each member of the Board of Directors of the
Company, Hallmark Cards and its affiliates, as well as the Company as a nominal defendant, by a minority stockholder of the Company regarding the then proposed Recapitalization. The plaintiff is S.
Muoio & Co. LLC which owned beneficially approximately 5.8% of the Company's Class A common stock at the time of the complaint, according to the complaint and filings with
the SEC. The lawsuit claims to be a derivative action and a class action on behalf of the

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

16. Commitments and Contingencies (Continued)

plaintiff
and other minority stockholders of the Company. The lawsuit alleges, among other things, that, the defendants have breached fiduciary duties owed to the Company and minority stockholders in
connection with the Recapitalization transactions. The lawsuit includes allegations that the consummation of the Recapitalization transactions would result in an unfair amount of equity issued to the
majority stockholders, thereby reducing the minority stockholders' equity and voting interests in the Company, and that the majority stockholders would be able to eliminate the minority stockholders
through a short-form merger. The complaint requested the court enjoin the defendants from consummating the Recapitalization transactions and 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 Company
could not consummate the transaction contemplated in the Recapitalization transactions 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 moved for preliminary injunctive relief with respect to any such transaction, the parties would 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 Company would 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 provided that the plaintiff would withdraw its motion for preliminary injunction filed on
July 13, 2009 and that the action would be stayed until the earlier of providing the notice of a transaction or an announcement by the Company that it was no longer considering a transaction.

By
a letter of February 28, 2010, the plaintiff in this lawsuit informed the Special Committee of the Board of Directors, which considered and negotiated the Recapitalization,
that the plaintiff objected to the proposed recapitalization on the terms set forth in the term sheet dated February 9, 2010. The plaintiff asserted, among other things, that the transactions
contemplated by the term sheet would unfairly dilute the economic and voting interests of the Company's minority stockholders, that the transactions should be subject to a vote of the majority of the
minority stockholders and that the proposed transactions remain inadequate. The plaintiff indicated that if the Company executed definitive documents for the Recapitalization, the plaintiff would
pursue the litigation. The February 26, 2010 agreements executed by the Company for the Recapitalization materially followed the provisions in the earlier term sheet.

Notice
of the terms of the proposed Recapitalization, including copies of the executed definitive documents for the Recapitalization, was provided to the plaintiff on March 1,
2010. On March 11, 2010, the plaintiff filed an amended complaint raising similar allegations of breach of fiduciary duty against Hallmark Cards and the director defendants and seeking
rescission of the Recapitalization rather than a preliminary injunction enjoining the consummation of the Recapitalization, or alternatively, an award of rescissory damages. If the Company is forced
to rescind the Recapitalization, short-term debt would increase to the pre-capitalization amount of approximately $1.2 billion, plus accrued interest. A trial took place
in September 2010 and the parties submitted post trial briefs to the court. A decision of the court is expected to be issued in the first or second quarter of 2011.

From
time to time, the Company, together with, in some instances, certain of its directors and officers is a defendant or codefendant in legal actions involving various claims incident
to the conduct

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CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

16. Commitments and Contingencies (Continued)

of
its business. It is not currently possible to predict the outcome of the proceeding discussed above. Legal fees incurred to defend the proceeding will be expensed as incurred. Approximately
$2.1 million has been recorded in accounts receivable and approximately $434,000 in accounts payable and accrued liabilities on the accompanying balance sheet at December 31, 2010,
related to amounts to be reimbursed by the insurance company.

Guarantee

MAT Movies & Television Production GMBH & Co. Project IV KG ("MAT IV") asserted a claim against HEH under a
continuing guaranty executed on or about June 24, 2002, for monies allegedly due in 2008 and 2009 under a distribution agreement between MAT IV and RHI. Hallmark Cards has assumed defense and
the Company has been fully indemnified by Hallmark Cards for this claim. On August 12, 2010, HEH was served with a demand for arbitration. RHI filed for bankruptcy on December 10, 2010.
The Company filed a protective proof of claim on January 19, 2011. A Settlement and Release Agreement has been executed by RHI, Hallmark Cards, the Company, and MAT IV and was approved by the
bankruptcy court on February 17, 2011.

Contract Termination

During the fourth quarter of 2009, we exercised our rights to terminate two agreements in connection with our February 2010 launch of
the Hallmark Channel in high definition. The Company estimated the costs of termination to be approximately $4.7 million and recorded them as a component of cost of services in the accompanying
consolidated statement of operations for 2009.

Termination
of one agreement for a standard definition version of the Channel also resulted in a change in the estimated life of a related deferred credit that arose in connection with
the sale of our international business in 2005. After launch of the high definition service, recurring monthly expenses under the terminated agreement ceased. Accordingly, in the fourth quarter of
2009, we reduced the deferred credit by approximately $847,000 and recognized a gain on the sale of discontinued operations. Through December 31, 2010, the aggregate loss on sale of the
international business is $983,000.

17. Segment Reporting

During 2008, 2009 and 2010, channel operations comprise the Company's sole operating segment. The Company has evaluated performance and allocated resources based on the results of this
segment. The key operating performance criteria used in this evaluation include revenue, loss from continuing operations and total assets.

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Table of Contents

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the Years Ended December 31, 2008, 2009 and 2010

18. Quarterly Information (Unaudited)

The following tables contain unaudited quarterly financial data (in thousands, except per share amounts) for the years ended December 31, 2009 and 2010.

Quarters Ended2009

March 31

June 30

September 30

December 31

Full YearTotal revenues

$
70,952

$
68,182

$
62,819

$
77,611

$
279,564Programming costs


(32,215
)

(31,301
)

(31,680
)

(32,332
)

(127,528
)Contract termination fees expense











(4,718
)

(4,718
)Operating costs


(4,012
)

(4,488
)

(3,405
)

(3,428
)

(15,333
)Selling, marketing, general and administrative expenses


(17,339
)

(12,037
)

(13,042
)

(13,149
)

(55,567
)Gain on sale of film library











682


682Income from operations


17,386


20,356


14,692


24,666


77,100Interest expense


(24,837
)

(25,678
)

(24,884
)

(25,140
)

(100,539
)Gain on sale of discontinued operations











847


847Net (loss) income

$
(7,451
)
$
(5,322
)
$
(10,192
)
$
373

$
(22,592
)Net (loss) income per share

$
(0.07
)
$
(0.05
)
$
(0.10
)
$


$
(0.22
)




Quarters Ended2010

March 31

June 30

September 30

December 31

Full YearTotal revenues

$
68,378

$
65,709

$
62,520

$
90,665

$
287,272Programming costs


(29,157
)

(30,214
)

(31,246
)

(34,632
)

(125,249
)Contract termination fees expense


(103
)










(103
)Operating costs


(2,594
)

(2,713
)

(3,092
)

(3,427
)

(11,826
)Selling, marketing, general and administrative expenses


(13,384
)

(13,106
)

(19,755
)

(15,690
)

(61,935
)Gain on sale of film library





(155
)




874


719Income from operations


23,140


19,521


8,427


37,790


88,878Interest expense


(25,464
)

(25,606
)

(2,509
)

(2,408
)

(55,987
)Income tax expense





(2,897
)




(5,913
)

(8,810
)Gain on sale of discontinued operations














Net (loss) income

$
(2,324
)
$
(8,982
)
$
5,918

$
29,469

$
24,081Net (loss) income per share

$
(0.02
)
$
(0.08
)
$


$
0.05

$
0.03


See
footnotes 3 and 16 above for discussions regarding non-routine quarterly activity.

F-45

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