##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION



Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


(Mark One)





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2000

or



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from
          to
          .

Commission File Number: 0-29109

Crown Media Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

|                                                                       |  |                                             
|---------------------------------------------------------------------- |  | --------------------------------------------
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Delaware                                                               |  | 84-1524410                                  
|(State or Other Jurisdiction
        of Incorporation or Organization) |  | (I.R.S. Employer
        Identification No.)

6430 S. Fiddlers Green Circle,

Suite 500,


Greenwood Village, Colorado 80111




(303) 220-7990



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

Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value

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 

  No

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.

As of March 2, 2001, the
aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was
$175,303,064. This excludes shares held by persons who may be
considered affiliates.

As of March 2, 2001, the
number of shares of Class A Common Stock, $.01 par
value outstanding was 29,373,157, and the number of shares of
Class B Common Stock, $.01 par value, outstanding was
30,670,422.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement
for the 2001 Annual Meeting of Stockholders, to be filed, of the
registrant are incorporated by reference in Part III of
this report.



---






---

TABLE OF CONTENTS



|                                                                                                            |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                                                                          
|PART I                                                                                                     
|PART II                                                                                                    
|CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|PART III                                                                                                   
|PART IV                                                                                                    
|SIGNATURES                                                                                                 
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                                 
|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                                   
|CONSOLIDATED BALANCE SHEETS                                                                                
|CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS                                               
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)                                                  
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                      
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                 
|PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)                                                
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS                                                           
|INDEX TO EXHIBITS                                                                                          
|Ex-2.2 Contribution Agreement dated 3/15/01                                                                
|Ex-10.1 Stockholders Agreement dated 3/15/01                                                               
|EX-10.7 Amend/Restated Trademark License Agrmt.                                                            
|Ex-10.8 Amend/Restated Trademark License Agrmt.                                                            
|EX-10.9 Trademark License Agreement dated 5/1/00                                                           
|EX-10.13 Amend/Restated Long Term Incentive Plan                                                           
|EX-10.20 Third Amendment to Lease dated 9/26/00                                                            
|EX-10.21 Fourth Amendment to Lease dated 2/6/01                                                            
|EX-10.23 Employment Agreement - David Evans                                                                
|EX-10.24 Employment Agreement - Lana Corbi                                                                 
|EX-10.25 Employment Agreement - Andre Carey                                                                
|EX-10.26 Employment Agreement - Chris Moseley                                                              
|EX-10.27 Employment Agreement - Charles Stanford                                                           
|Ex-10.32 $150,000,000 Promissory Noted - 2/12/01                                                           
|Ex-10.33 $150,000,000 Irrevocable Standby Letter                                                           
|EX-21.1 List of Subsidiaries                                                                               
|Ex-23.1 Consent of Arthur Andersen LLP                                                                     
|EX-99 Press Releases                                                                                       



---






TABLE OF CONTENTS

|           |          |  |                                                                                               |      |  |    | 
|---------- | -------- |  | --------------------------------------------------------------------------------------------- | ---- |  | -- | 
|           |          |  |                                                                                               | Page
|           |          |  |                                                                                               |     
|          
|          
|          
|          
|Part I     |          |  | 1                                                                                             |     
|          
|          
|          
|          
|           | Item 1   |  | Business                                                                                      |      |  | 1  | 
|          
|          
|          
|          
|           | Item 2   |  | Properties                                                                                    |      |  | 25 | 
|          
|          
|          
|          
|           | Item 3   |  | Legal Proceedings                                                                             |      |  | 26 | 
|          
|          
|          
|          
|           | Item 4   |  | Submission of Matters to a Vote of Security Holders                                           |      |  | 26 | 
|          
|          
|          
|          
|Part II    |          |  | 27                                                                                            |     
|          
|          
|          
|          
|           | Item 5   |  | Market for Our Common Equity and Related Stockholder Matters                                  |      |  | 27 | 
|          
|          
|          
|          
|           | Item 6   |  | Selected Financial Data                                                                       |      |  | 28 | 
|          
|          
|          
|          
|           | Item 7   |  | Managements Discussion and Analysis of Financial Condition
        and Results of Operations |      |  | 33 | 
|          
|          
|          
|          
|           | Item  7A |  | Quantitative and Qualitative Disclosures About Market Risk                                    |      |  | 41 | 
|          
|          
|          
|          
|           | Item 8   |  | Consolidated Financial Statements and Supplementary Data                                      |      |  | 42 | 
|          
|          
|          
|          
|           | Item 9   |  | Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure  |      |  | 42 | 
|          
|          
|          
|          
|Part III   |          |  | 42                                                                                            |     
|          
|          
|          
|          
|           | Item  10 |  | Directors and Executive Officers of the Company                                               |      |  | 42 | 
|          
|          
|          
|          
|           | Item  11 |  | Executive Compensation                                                                        |      |  | 42 | 
|          
|          
|          
|          
|           | Item  12 |  | Security Ownership of Certain Beneficial Owners and Management                                |      |  | 42 | 
|          
|          
|          
|          
|           | Item  13 |  | Certain Relationships and Related Transactions                                                |      |  | 42 | 
|          
|          
|          
|          
|Part IV    |          |  | 54                                                                                            |     
|          
|          
|          
|          
|           | Item  14 |  | Exhibits, Financial Statement Schedules and Reports on
        Form  8-K                      |      |  | 54 | 
|          
|          
|          
|          
|Signatures |          |  | 58                                                                                            |     

i



---



##### Table of Contents



The discussions set forth in this Annual Report on
Form 10-K contain statements concerning potential future
events. Such forward-looking statements are based on assumptions
by Crown Media Holdings, Inc.s (Crown Media
Holdings) management, as of the date of this Annual Report
on Form 10-K, including assumptions about risks and
uncertainties faced by Crown Media Holdings. 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, Crown Media Holdings 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 in other parts of this
Annual Report on Form 10-K. Crown Media Holdings will not
update any forward-looking statements in this Annual Report on
Form 10-K to reflect future events or developments.

In this Annual Report on Form 10-K, the terms
we, us and our refer to
Crown Media Holdings, and, unless the context requires
otherwise, Crown Media International, Inc. (Crown
Media International) and Odyssey Holdings, L.L.C.
(Odyssey Holdings), subsidiaries of Crown Media
Holdings that operate our business. The term common
stock refers to our Class A common stock and
Class B common stock, unless the context requires
otherwise.




PART I

ITEM 1.  Business



| |                 
| | ----------------
| | Company Overview

We own and operate pay television channels dedicated to high
quality family programming, which we believe represents one of
the most popular television formats. We believe that, with the
programming we license from Hallmark Entertainment, Inc.
(Hallmark Entertainment) and The Jim Henson
Company, Inc. (The Jim Henson Company), we are
establishing the Hallmark Entertainment Network and the Odyssey
Network as destinations for viewers seeking high quality family
entertainment and as attractive outlets for advertisers seeking
to target these viewers. We have distribution agreements with
leading pay television distributors in each of our markets. The
following table shows, for each of our channels, programming
sources, selected pay television distributors, territories in
which we operate and the total number of our subscribers as of
December 31, 2000.

|                                     |  |                                                                                                                                                          |  |                                                                                                                             
|------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------
|                                     |  | Hallmark                                                                                                                                                 |  |                                                                                                                             
|                                     |  | Entertainment                                                                                                                                            |  | Odyssey                                                                                                                     
|                                     |  | Network                                                                                                                                                  |  | Network                                                                                                                     
|                                     |  |                                                                                                                                                          |  |                                                                                                                             
|Programming Sources                  |  |  Hallmark Entertainment, Inc.
	 The Jim Henson Company, Inc.
	 Third-party sources                                                                    |  |  Hallmark Entertainment, Inc.
	 The Jim Henson Company, Inc.
	 National Interfaith Cable Coalition
	 Third-party sources
|Selected Pay Television Distributors |  |  BSkyB
	 Cablevision
	 Modi Entertainment
	 United Pan-Europe Communications
	 Videoland
	 Via Digital
	 PCTV
	 Foxtel
	 Telepiu
	 Multichoice |  |  AT&T
	 Time Warner
	 DirecTV
	 Charter
	 Adelphia
	 EchoStar                                                         
|Territories                          |  | International                                                                                                                                            |  | Domestic                                                                                                                    
|Total Subscribers                    |  | 33.5 million                                                                                                                                             |  | 26.5 million                                                                                                                

1



---



##### Table of Contents



As of March 2, 2001, our total number of subscribers had
increased to approximately 65.0 million. For a more
detailed description of our channels, see
 Channels  The Hallmark
Entertainment Network and
 Channels  The Odyssey Network.



| |                        
| | -----------------------
| | Development of Business

On May 9, 2000, Crown Media Holdings completed a
reorganization in which Crown Media Holdings shares were
exchanged for 100% of Crown Media International, formerly known
as Crown Media, Inc., and 77.5% of Odyssey Holdings. At the
same time, Crown Media Holdings completed a public offering of
10,000,000 shares of Class A Common Stock at
$14 per share. The net proceeds from this offering, after
expenses and underwriting discounts and commissions, were
approximately $125.4 million. We are a holding company,
and, prior to the completion of the reorganization and the
offering on May 9, 2000, we had no material assets,
liabilities, contingent liabilities or operations. Crown Media
Holdings considers Crown Media International as a predecessor
corporation for financial reporting purposes.

Our consolidated financial statements include the assets and
liabilities of Crown Media International at their historical
carrying values since both we and Crown Media International are
entities under common control before and after the
reorganization. The accompanying consolidated financial
statements also include the assets and liabilities and results
of operations of Crown Media Holdings other indirect,
wholly and majority-owned subsidiaries.

The assets and liabilities of Odyssey Holdings and its
subsidiaries relating to Crown Media Internationals 22.5%
interest in Odyssey Holdings, acquired as part of the
reorganization, and the 22.5% interest acquired by us in March
2001, are included in Crown Media Holdings consolidated
financial statements at their historical carrying values. The
acquisition of Liberty Media Corporations (Liberty
Media) 32.5% interest in Odyssey Holdings and the National
Interfaith Cable Coalitions (NICC) 22.5%
interest in Odyssey Holdings, both of which were transferred to
us as part of the reorganization, are included in our
consolidated financial statements at their fair market value
using purchase accounting as of the date of the reorganization.

In February 2000, EM.TV Merchandising AG (EM.TV)
acquired The Jim Henson Company. In July 2000, we agreed in
principle with EM.TV to acquire EM.TVs 22.5% ownership
interest in Odyssey Holdings and its 50% interest in the Kermit
Channel. On March 15, 2001, we completed the transaction,
and we now own 100% of the members common interests in
Odyssey Holdings and 100% of the Kermit Channel. In
consideration for these ownership interests, we issued
5,377,721 shares of our Class A Common Stock to The
Jim Henson Company, a wholly owned subsidiary of EM.TV. The
newly issued shares to EM.TV represent after the transaction
approximately 8.2% of our outstanding Class A and
Class B Common Stock and 15.5% of our Class A Common
Stock based on our outstanding shares at March 15, 2001.
The Jim Henson Company became a party to the stockholders
agreement among our original stockholders, but does not have the
right to designate a Board member pursuant to that agreement.
The stockholders agreement contains, among other things, certain
restrictions on the transfer of common stock by the parties
until May 9, 2002. See a description of this agreement in
Part III of this Report. In connection with the
acquisition, we and EM.TV entered into a license agreement
providing for our use of family programming of EM.TV on the
Hallmark Entertainment Network or the Odyssey Network.

During the fourth quarter of 2000, we and Hallmark Cards,
Incorporated (Hallmark Cards) agreed to rebrand our
international channel operated by Crown Media International from
the Hallmark Entertainment Network to the Hallmark Channel. The
new branding is being rolled out during 2001.

In November 2000, we announced that we were investigating the
possibility of acquiring certain film assets from Hallmark
Entertainment. We formed an independent committee of directors
to review this potential transaction.

We have recently launched a test of Crown Interactive. Crown
Interactive is designed to use a wide array of products and
services from us, Hallmark Cards and Hallmark Entertainment in
the interactive television marketplace. The Crown Interactive
model is intended to allow consumers to view full screen
streaming video of some of the best titles from the Hallmark
Entertainment library. We are currently testing Crown Interactive

2



---



##### Table of Contents





Liberty Media and UnitedGlobalCom, Inc. (United),
the parent company of United Pan-Europe Communications, have
announced that they entered into an agreement pursuant to which
Liberty Media would transfer to United its interests in various
international broadband distribution and programming assets and
cash in exchange for convertible preferred stock of United. Upon
closing of the entire transaction, which may occur in stages but
which the parties anticipate will occur in the second quarter of
2001, Liberty Media would have a 43% economic interest and,
following the occurrence of certain specified events, an
81% voting interest in United. Until such events occur,
Liberty Medias voting interest would be limited to 50%. As
part of this transaction, United will acquire Liberty
Medias interest in us.



| |        
| | -------
| | General

Each of our channels benefits from a long-term program agreement
with a subsidiary of Hallmark Entertainment, our parent company.
These program agreements generally provide exclusive pay
television access to Hallmark Entertainments first-run
presentations and extensive library of original
made-for-television movies and miniseries. Hallmark
Entertainments library consists of more than
4,000 hours of programming, including eight of the 10 most
highly rated made-for-television movies for the 1993 through
1999 television seasons, based on A.C. Nielson ratings. Programs
contained in this library have won more than 110 Emmy Awards,
Golden Globe Awards and Peabody Awards. The Odyssey Network also
licenses a substantial amount of programming produced by The Jim
Henson Company, a producer of popular family and childrens
programming, through a long-term program agreement. Programs
contained within The Jim Henson Companys library have won
more than 40 Emmy Awards and Peabody Awards.

We believe that with the programming we license from Hallmark
Entertainment and The Jim Henson Company, we are establishing
the Hallmark Entertainment Network and the Odyssey Network as
destinations for viewers seeking high quality family
entertainment and as attractive outlets for advertisers seeking
to target these viewers. We believe our programming will
continue to drive the growth in the number of our worldwide
subscribers and the growth of our revenues.

We have distribution agreements with leading pay television
distributors in each of our markets. Internationally, for the
Hallmark Entertainment Network, some of these include British
Sky Broadcasting, Ltd., Multicanal, and United Pan-Europe
Communications. In the United States, the nine largest pay
television distributors account for approximately 90% of all pay
cable and television subscribers in 2000. We currently
distribute the Odyssey Network on cable systems operated by each
of these nine pay television distributors, and at
December 31, 2000, we had long-term distribution agreements
with six of the top nine pay television distributors. Although
there can be no assurance that we will be able to reach
agreement with any of them, we are in discussions to sign
long-term distribution agreements with the remaining top three
pay television distributors. No individual pay television
distributor accounted for more than 10% of our consolidated
revenues or 15% of our consolidated subscribers for the year
ended December 31, 2000.

All of our material operations are part of the domestic and
international pay television programming service industry.
Information concerning revenues, operating losses and
identifiable assets attributable separately to each of our
domestic and international operations may be found in
Note 14 of our Notes to Consolidated Financial Statements
located on page F-28.



| |                  
| | -----------------
| | Industry Overview

The pay television industry is comprised of program suppliers,
pay television channel providers and distributors. Program
suppliers, from whom we license our programming, include all of
the major production studios and independent production
companies, such as Hallmark Entertainment, The Jim Henson
Company and NICC. These program suppliers create, develop and
finance the production of movies, television miniseries, series
and other programming. Program suppliers receive revenues by
licensing this programming to broadcasters and channel providers
around the world. These licenses are typically specific by
territory and are limited to a certain number of showings within
specified periods of time.

3



---



##### Table of Contents



We are a pay television channel provider. Pay television channel
providers include all channel providers except free-to-air
broadcasters, such as ABC, NBC, CBS, FOX and the BBC. These pay
television channel providers acquire or license programming from
program suppliers and generally package the programming
according to an overriding theme. Pay television channel
providers compete with each other for distribution and to
attract viewers and advertisers. Pay television providers
generally target an audience with a certain demographic
composition, so that they can then sell that audience to
advertisers.

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 reduce subscriber
turnover. More recently, distributors have begun to offer
additional broadband services such as Internet access, telephony
and video-on-demand over their systems.

As a result of the recently increased competition for limited
analog channel space in the United States, pay television
channel providers are often required to pay up-front subscriber
acquisition fees to pay television distributors for carriage on
their systems. These subscriber acquisition fees are paid to
television distributors on a per subscriber basis and generally
in advance of the receipt of subscriber fee revenues from such
pay television distributors.



| |                       
| | ----------------------
| | 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
broadcast systems (such as DTH) use satellite transponders to
broadcast television programming to individual dwellings with
satellite reception equipment, including a dish and a decoder.
Third, terrestrial television broadcasters (DTT) typically
broadcast locally or through regional or national ground-based
transmission networks. In general, such broadcasters use
landline, microwave or satellite transmission systems to
distribute programming to terrestrial transmission facilities
for broadcast directly to viewers homes. Finally, channels
can also be distributed through satellite master antenna
television (SMATV). SMATV is used primarily for buildings, such
as apartments and other buildings, that receive programming from
satellites by means of a single antenna that is connected to a
pay television distributors headend. The television
signals are then distributed to individual units in the building
by cable.



| |                   
| | ------------------
| | Sources of Revenue



| |                
| | ---------------
| | Subscriber Fees

Pay television customers subscribe for basic services by paying
monthly fees for basic channels. The customers can also
subscribe to additional packages of premium or pay-per-view
services upon payment of additional fees. In most markets, pay
television distributors generally pay a fee per subscriber to
channel providers.



| |                    
| | -------------------
| | Advertising Revenue

The advertising market differs greatly around the world. In the
United States, the most developed television market, it was
estimated by Advertising Age in 1999 that 39% of all advertising
expenditures were spent on television. In other parts of the
world, the amount spent by advertisers on television varies
according to the development of each countrys television
market. Program ratings systems in many non-United States
markets are also less developed, and as a result, advertisers
rely largely on subscriber counts rather than empirical
measurements when buying advertising time.

Television advertising is sold in a variety of formats. Many pay
television channels largely rely 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 broadcasts or to deliver a certain number of

4



---



##### Table of Contents





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. Typically,
in the United States and some other markets, 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.

Historically, advertisers have spent more on advertising through
traditional broadcast television than through pay television. We
believe that as pay television continues to gain viewership
relative to broadcast television, it should attract a larger
percentage of the total available dollars spent on television
advertising.



| |         
| | --------
| | Channels



| |                                   
| | ----------------------------------
| | The Hallmark Entertainment Network



| |         
| | --------
| | Overview

The Hallmark Entertainment Network commenced 2000 with
20.8 million subscribers and ended the year with
33.5 million subscribers, an increase of 61%. We currently
distribute the Hallmark Entertainment Network to 18 geographic
markets covering more than 100 countries, dubbed or subtitled
into more than 24 languages according to local market practices,
viewer preferences and cost considerations. Our largest markets
include Asia Pacific, with more than 11 million
subscribers, Latin America, with more than 10 million
subscribers, United Kingdom, with more than four million
subscribers, and Central Europe, with more than two million
subscribers. We also have a significant presence in Italy,
Spain, Sweden, Denmark and Africa.



| |            
| | -----------
| | Programming

The Hallmark Entertainment Network offers a range of
award-winning family programming including made-for-television
movies and miniseries from the Hallmark Entertainment library.
This library consists of epics, historical dramas, literary
classics, romances and contemporary stories. We seek programming
that is consistent with our programming theme to provide
great stories, well told. The high quality family
programming we offer is based on classic literature and
universal themes, includes world-renowned actors and actresses,
such as Katherine Hepburn, Paul Newman, Gregory Peck, Glenn
Close, Peter OToole, Robert Duvall, Sidney Poitier, Whoopi
Goldberg, Jon Voight, Anjelica Huston, Sam Neill, Patrick
Stewart, James Earl Jones, Tommy Lee Jones and James Coburn and
is often filmed in international locations.

Our primary source for programming is Hallmark Entertainment,
our parent company. Hallmark Entertainment is a worldwide leader
in the production of movies for television. Hallmark
Entertainment produces approximately 45-50 movies each year, and
has an extensive library with more than 4,000 hours of
quality family programming, including eight of the 10 most
highly rated made-for-television movies for the 1993 through
1999 television seasons, based on Nielsen Media Research
ratings. Programs contained in this library have won more than
110 Emmy Awards, Golden Globe Awards and Peabody Awards.
Hallmark Entertainment productions generally account for between
50% and 60% of the programming on the Hallmark Entertainment
Network. We license the remaining portion of the Hallmark
Entertainment Networks programming line-up from third
parties. This third party programming is consistent with the
themes and quality of the material licensed from Hallmark
Entertainment. We license programming from third party suppliers
such as Carlton International Media Limited, Granada Media Group
Limited, CBS Broadcast International, Pearson Television
International Ltd., Alliance Atlantis International
Television Distribution Limited, Can West Entertainment
International Distribution (formerly Endemol International
Distribution B.V., Beyond Distribution Pty Ltd., Chrysalis
TV & Film (Overseas) Ltd., Southern Star Sales
Limited and Hearst Entertainment, Inc. We enjoy access to
Hallmark Entertainments programming through a five-year
program agreement with a subsidiary of Hallmark Entertainment.
For more information regarding the program agreements with
Hallmark Entertainment, please see Part III below.

5



---



##### Table of Contents



Examples of programming from the Hallmark Entertainment library
include Arabian Nights, Cleopatra, Don Quixote, Jason and The
Argonauts, Hound of the Baskervilles, On The Beach, Prince and
the Pauper and David Copperfield, as well as
programming from The Collection, from the Hallmark
Hall of Fame library, such as Season For Miracles, Love
Letter, Cupid & Cate and The Lost Child.
Examples of third party productions on the Hallmark
Entertainment Network include The Audrey Hepburn Story, Joan
of Arc, Love Is Strange, Moby Dick and Time and Tide.



| |             
| | ------------
| | Distribution

In the countries where we offer the Hallmark Entertainment
Network, we distribute the channel through a variety of
distribution platforms, such as cable, DTH and SMATV. We partner
with international pay television distributors such as BSkyB,
Multicanal, United Pan-Europe Communications, Cablevision,
Foxtel, Telepiu, PCTV, Multichoice, Via Digital and United
Communication Group (Videoland), and our
international distribution agreements with such distributors
generally last two to five years.

We regularly review existing and potential markets to assess
their prospects. As the number of Hallmark Entertainment Network
subscribers increases in a market, we assess our ability to
increase revenue or develop new revenue sources by subdividing
the market through the addition of satellite signals to
individual countries within that market as opportunities,
particularly advertising, arise. When we subdivide a market, we
are able to customize the channel to appeal to a more specific
audience. The delivery of the Hallmark Entertainment Network to
more targeted audiences also increases the number of potential
advertisers on the channel by creating more targeted advertising
opportunities for local or regional businesses in the markets in
which we operate.

The following chart shows the Hallmark Entertainment Network
launch date, the approximate number of television households and
pay television households, as estimated by Kagan World Media at
December 31, 2000 (except where noted), and the number of
Hallmark Entertainment Network subscribers at year end 1999 and
2000.

|                     |  |        |         |            |  |            |        |             |  |                |        |               |  |            |      |   |  |  |       |  |  |  |       |  |  |  |      |  
|-------------------- |  | ------ | ------- | ---------- |  | ---------- | ------ | ----------- |  | -------------- | ------ | ------------- |  | ---------- | ---- | - |  |  | ----- |  |  |  | ----- |  |  |  | ---- | -
|                     |  |        |         |            |  |            |        |             |  |                |        |              
|                     |  |        |         |            |  |            |        |             |  | Hallmark       |        |              
|                     |  |        |         |            |  |            |        |             |  | Entertainment  |        | Hallmark     
|                     |  |        |         |            |  |            |        |             |  | Network        |        | Entertainment
|                     |  |        |         |            |  |            |        |             |  | Subscribers(1) |        | Network 2000 
|                     |  | Launch |         | Total TV   |  | Pay TV     |        | % Pay TV-   |  |                |        | % of Pay TV  
|Markets              |  | Date   |         | Households |  | Households |        | Penetration |  | 1999           |        | 2000          |  | Households
|                     |  |        |         |            |  |            |        |             |  |                |        |               |  |           
|                     |  |        |         |            |  |            |        |             |  |                |        |              
|                     |  |        |         | (000s)    |  | (000s)    |        |             |  | (000s)        |        |              
|                    
|                    
|                    
|                    
|Latin America:       |  |        |         |            |  |            |        |             |  |                |        |               |  |            |      |   |  |  |       |  |  |  |       |  |  |  |      |  
|                    
|                    
|                    
|                    
|Argentina            |  |        | 1999    |            |  |            | 10,200 |             |  |                | 5,416  |               |  |            | 53.1 | % |  |  | 3,592 |  |  |  | 3,875 |  |  |  | 71.5 | %
|                    
|                    
|                    
|                    
|Mexico               |  |        | 1995    |            |  |            | 17,700 |             |  |                | 3,896  |               |  |            | 22.0 |   |  |  | 1,985 |  |  |  | 2,611 |  |  |  | 67.0 |  
|                    
|                    
|                    
|                    
|Brazil               |  |        | 1997    |            |  |            | 37,400 |             |  |                | 3,950  |               |  |            | 10.6 |   |  |  | 511   |  |  |  | 920   |  |  |  | 23.3 |  
|                    
|                    
|                    
|                    
|Venezuela            |  |        | 1997    |            |  |            | 3,800  |             |  |                | 945    |               |  |            | 24.9 |   |  |  | 439   |  |  |  | 698   |  |  |  | 73.9 |  
|                    
|                    
|                    
|                    
|Chile                |  |        | 1998    |            |  |            | 4,200  |             |  |                | 896    |               |  |            | 21.3 |   |  |  | 320   |  |  |  | 353   |  |  |  | 39.4 |  
|                    
|                    
|                    
|                    
|Colombia             |  |        | 1997    |            |  |            | 8,200  |             |  |                | 527    |               |  |            | 6.4  |   |  |  | 301   |  |  |  | 256   |  |  |  | 48.6 |  
|                    
|                    
|                    
|                    
|Other Latin America  |  |        | Various |            |  |            | 14,700 |             |  |                | 2,377  |               |  |            | 16.2 |   |  |  | 699   |  |  |  | 889   |  |  |  | 37.4 |  
|                     |  |        |         |            |  |            |        |             |  |                |        |               |  |            |      |   |  |  |       |  |  |  |       |  |  |  |      |  
|Subtotal             |  |        |         |            |  |            | 96,200 |             |  |                | 18,007 |               |  |            | 18.7 |   |  |  | 7,847 |  |  |  | 9,602 |  |  |  | 53.3 |  
|                    
|                    
|                    
|                    
|Asia Pacific:        |  |        |         |            |  |            |        |             |  |                |        |               |  |            |      |   |  |  |       |  |  |  |       |  |  |  |      |  
|                    
|                    
|                    
|                    
|India                |  |        | 1999    |            |  |            | 74,900 |             |  |                | 29,693 |               |  |            | 39.6 |   |  |  | 5,200 |  |  |  | 5,990 |  |  |  | 20.2 |  
|                    
|                    
|                    
|                    
|Taiwan               |  |        | 1998    |            |  |            | 6,050  |             |  |                | 4,912  |               |  |            | 81.2 |   |  |  | 1,200 |  |  |  | 1,960 |  |  |  | 39.9 |  
|                    
|                    
|                    
|                    
|Korea                |  |        | 2000    |            |  |            | 16,300 |             |  |                | 1,908  |               |  |            | 11.7 |   |  |  |      |  |  |  | 1,000 |  |  |  | 52.4 |  
|                    
|                    
|                    
|                    
|Philippines          |  |        | 1999    |            |  |            | 8,880  |             |  |                | 1,220  |               |  |            | 13.7 |   |  |  | 457   |  |  |  | 765   |  |  |  | 62.7 |  
|                    
|                    
|                    
|                    
|Australia            |  |        | 1996    |            |  |            | 6,923  |             |  |                | 1,467  |               |  |            | 21.2 |   |  |  | 335   |  |  |  | 463   |  |  |  | 31.6 |  
|                    
|                    
|                    
|                    
|Malaysia             |  |        | 1998    |            |  |            | 3,450  |             |  |                | 652    |               |  |            | 18.9 |   |  |  | 237   |  |  |  | 396   |  |  |  | 60.7 |  
|                    
|                    
|                    
|                    
|Thailand             |  |        | 1998    |            |  |            | 13,490 |             |  |                | 595    |               |  |            | 4.4  |   |  |  | 286   |  |  |  | 324   |  |  |  | 54.5 |  
|                    
|                    
|                    
|                    
|Indonesia/ Singapore |  |        | Various |            |  |            | 30,460 |             |  |                | 1,909  |               |  |            | 6.3  |   |  |  | 248   |  |  |  | 324   |  |  |  | 17.0 |  

6



---



##### Table of Contents



|                          |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 
|------------------------- |  | ------ | ------- | ---------- |  | ---------- | ------- | ----------- |  | -------------- | ------- | ------------- |  | ---------- | ---- | - |  |  | ------ |  |  |  | ------ |  |  |  | ----- | 
|                          |  |        |         |            |  |            |         |             |  |                |         |              
|                          |  |        |         |            |  |            |         |             |  | Hallmark       |         |              
|                          |  |        |         |            |  |            |         |             |  | Entertainment  |         | Hallmark     
|                          |  |        |         |            |  |            |         |             |  | Network        |         | Entertainment
|                          |  |        |         |            |  |            |         |             |  | Subscribers(1) |         | Network 2000 
|                          |  | Launch |         | Total TV   |  | Pay TV     |         | % Pay TV-   |  |                |         | % of Pay TV  
|Markets                   |  | Date   |         | Households |  | Households |         | Penetration |  | 1999           |         | 2000          |  | Households
|                          |  |        |         |            |  |            |         |             |  |                |         |               |  |           
|                          |  |        |         |            |  |            |         |             |  |                |         |              
|                          |  |        |         | (000s)    |  | (000s)    |         |             |  | (000s)        |         |              
|                         
|                         
|                         
|                         
|Japan                     |  |        | 1998    |            |  |            | 47,550  |             |  |                | 25,460  |               |  |            | 53.5 |   |  |  | 114    |  |  |  | 130    |  |  |  | 0.5   | 
|                         
|                         
|                         
|                         
|New Zealand               |  |        | 1996    |            |  |            | 1,260   |             |  |                | 632     |               |  |            | 50.2 |   |  |  | 79     |  |  |  | 210    |  |  |  | 33.2  | 
|                         
|                         
|                         
|                         
|China                     |  |        | 1998    |            |  |            | 261,340 |             |  |                | 76,700  |               |  |            | 29.3 |   |  |  |       |  |  |  | 103    |  |  |  | 0.1   | 
|                         
|                         
|                         
|                         
|Other Asia Pacific(2)     |  |        | Various |            |  |            | 14,029  |             |  |                | 228     |               |  |            | 1.6  |   |  |  | 103    |  |  |  | 28     |  |  |  | 12.3  | 
|                          |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 
|Subtotal                  |  |        |         |            |  |            | 484,632 |             |  |                | 145,376 |               |  |            | 30.0 |   |  |  | 8,259  |  |  |  | 11,693 |  |  |  | 8.0   | 
|                         
|                         
|                         
|                         
|Europe:                   |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 
|                         
|                         
|                         
|                         
|United Kingdom            |  |        | 2000    |            |  |            | 24,017  |             |  |                | 9,256   |               |  |            | 38.5 |   |  |  |       |  |  |  | 4,208  |  |  |  | 45.5  | 
|                         
|                         
|                         
|                         
|Israel                    |  |        | 2000    |            |  |            | 1,600   |             |  |                | 1,100   |               |  |            | 68.8 |   |  |  |       |  |  |  | 1,262  |  |  |  | 114.7 | 
|                         
|                         
|                         
|                         
|Poland                    |  |        | 1998    |            |  |            | 12,468  |             |  |                | 6,356   |               |  |            | 51.0 |   |  |  | 912    |  |  |  | 1,193  |  |  |  | 18.8  | 
|                         
|                         
|                         
|                         
|Italy                     |  |        | 1997    |            |  |            | 20,742  |             |  |                | 2,441   |               |  |            | 11.8 |   |  |  | 600    |  |  |  | 986    |  |  |  | 40.4  | 
|                         
|                         
|                         
|                         
|Spain/ Portugal           |  |        | 1997    |            |  |            | 12,979  |             |  |                | 3,395   |               |  |            | 26.2 |   |  |  | 513    |  |  |  | 844    |  |  |  | 24.9  | 
|                         
|                         
|                         
|                         
|Russia/ Middle East       |  |        | 1997    |            |  |            | 58,617  |             |  |                | 8,005   |               |  |            | 13.7 |   |  |  | 233    |  |  |  | 449    |  |  |  | 5.6   | 
|                         
|                         
|                         
|                         
|Czech Republic            |  |        | 1998    |            |  |            | 4,022   |             |  |                | 1,682   |               |  |            | 41.8 |   |  |  | 330    |  |  |  | 356    |  |  |  | 21.2  | 
|                         
|                         
|                         
|                         
|Romania                   |  |        | 1999    |            |  |            | 7,609   |             |  |                | 3,507   |               |  |            | 46.1 |   |  |  | 655    |  |  |  | 344    |  |  |  | 9.8   | 
|                         
|                         
|                         
|                         
|Slovakia/ Croatia         |  |        | Various |            |  |            | 1,862   |             |  |                | 1,158   |               |  |            | 62.2 |   |  |  | 170    |  |  |  | 321    |  |  |  | 27.7  | 
|                         
|                         
|                         
|                         
|Turkey                    |  |        | 2000    |            |  |            | 16,100  |             |  |                | 1,200   |               |  |            | 7.5  |   |  |  |       |  |  |  | 170    |  |  |  | 14.2  | 
|                         
|                         
|                         
|                         
|Hungary                   |  |        | 2000    |            |  |            | 3,600   |             |  |                | 2,800   |               |  |            | 77.8 |   |  |  |       |  |  |  | 166    |  |  |  | 5.9   | 
|                         
|                         
|                         
|                         
|Bulgaria                  |  |        | 1999    |            |  |            | 2,949   |             |  |                | 979     |               |  |            | 33.2 |   |  |  | 30     |  |  |  | 142    |  |  |  | 14.5  | 
|                          |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 
|Subtotal                  |  |        |         |            |  |            | 166,565 |             |  |                | 41,879  |               |  |            | 25.1 |   |  |  | 3,443  |  |  |  | 10,441 |  |  |  | 24.9  | 
|                         
|                         
|                         
|                         
|Scandinavia/ Benelux:     |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 
|                         
|                         
|                         
|                         
|Sweden                    |  |        | 1996    |            |  |            | 4,142   |             |  |                | 2,804   |               |  |            | 67.7 |   |  |  | 290    |  |  |  | 417    |  |  |  | 14.9  | 
|                         
|                         
|                         
|                         
|Denmark                   |  |        | 1996    |            |  |            | 2,438   |             |  |                | 1,844   |               |  |            | 75.6 |   |  |  | 151    |  |  |  | 219    |  |  |  | 11.9  | 
|                         
|                         
|                         
|                         
|Norway                    |  |        | 1996    |            |  |            | 1,869   |             |  |                | 1,169   |               |  |            | 62.5 |   |  |  | 105    |  |  |  | 304    |  |  |  | 26.0  | 
|                         
|                         
|                         
|                         
|Finland                   |  |        | 1996    |            |  |            | 2,070   |             |  |                | 1,181   |               |  |            | 57.1 |   |  |  | 99     |  |  |  | 49     |  |  |  | 4.1   | 
|                         
|                         
|                         
|                         
|Belgium/ Holland/ Iceland |  |        | Various |            |  |            | 10,665  |             |  |                | 10,353  |               |  |            | 97.1 |   |  |  | 125    |  |  |  | 196    |  |  |  | 1.9   | 
|                          |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 
|Subtotal                  |  |        |         |            |  |            | 21,184  |             |  |                | 17,351  |               |  |            | 81.9 |   |  |  | 770    |  |  |  | 1,185  |  |  |  | 6.8   | 
|                         
|                         
|                         
|                         
|South Africa(3)           |  |        | 1996    |            |  |            | 6,074   |             |  |                | 1,343   |               |  |            | 22.1 |   |  |  | 475    |  |  |  | 600    |  |  |  | 44.7  | 
|                          |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 
|Total                     |  |        |         |            |  |            | 774,655 |             |  |                | 223,956 |               |  |            | 28.9 | % |  |  | 20,794 |  |  |  | 33,521 |  |  |  |       | 
|                          |  |        |         |            |  |            |         |             |  |                |         |               |  |            |      |   |  |  |        |  |  |  |        |  |  |  |       | 



---



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | Total subscribers includes promotional (free) subscribers
	at December 31 of each period presented.   
|   
|(2) | Represents Bangladesh, Pakistan and Middle East Subscribers;
	television household data not available.
|   
|(3) | Source: Baskerville Communications Corporation.                                                       



| |                     
| | --------------------
| | Significant Launches

United Kingdom.The United Kingdom is a developed
television market with nearly 2.4 million television
households. Cable penetration is approximately 25% of television
households with three million basic subscribers. However, DTH
continues to be the primary platform with approximately five
million subscribers.

In August 1999, we completed a distribution agreement with
BSkyB, a large pay television distributor in the United Kingdom.
Pursuant to this agreement, the Hallmark Entertainment Network
will be carried on BSkyBs digital DTH service for five
years following the launch of the service. The contract provides
the Hallmark Entertainment Network a minimum number of
subscribers as a percent of BSkyBs total basic digital
residential subscribers, and provides BSkyB an 18-month period
of exclusive distribution of the

7



---



##### Table of Contents





BSkyB launched its digital package in October 1998 and reduced
the pricing of its service to consumers in mid-1999. Following
the October 1998 launch of its BSkyBs digital package of
over 140 channels, and the reduction in the pricing of its
service to consumers in mid-1999, BSkyB has converted a
significant portion of its analog subscribers to digital, and
had at December 31, 2000, approximately five million
digital subscribers.

Israel.Israel is a technologically advanced market with
1.6 million television households. We launched the Hallmark
Entertainment Network in Israel in July 2000 with Tevel
International Communications Ltd., Golden Channels, and
Matav, providing the Company with significant cable coverage in
Israel and access to approximately 1.2 million subscribers.
In addition we have entered into an agreement with YES, the
national DTH provider.

Taiwan and South Korea.In 2000, the Hallmark
Entertainment Network expanded its affiliate network in the Asia
Pacific by signing with two major new partners, Videoland in
Taiwan and Koreas World Event Network Co. Ltd.
(WENTV). As of January 1, 2001, Videoland
distributes the Hallmark Entertainment Network on a 24-hour
basis to Taiwans four million cable TV homes, which
represents approximately 80% of the markets total TV
households. Since January 1, 2001, Videoland has also
represented Hallmark Entertainment Networks advertising
sales efforts in Taiwan.

Launched on October 1, 2000, WENTV is one of 15 new cable
TV channels licensed by the Korean government. Under the terms
of the agreement with Hallmark Entertainment Network, WENTV
began carrying four hours of our programming every night during
primetime, from 8 p.m.  midnight, in December
2000. The programming carries Korean subtitles in addition to an
English-language soundtrack. WENTV had one million subscribers,
which represents approximately 60% of Koreas cable TV
homes as of December 31, 2000.



| |               
| | --------------
| | Other Launches

Four other Asia Pacific affiliates joined the Hallmark
Entertainment Network during the fourth quarter of
2000  Sri Lankas Grant Cable (Pvt.), Saarc
Media Services Ltd. in Bangladesh, and Macau Cable TV and
Home Cable in the Philippines. We also signed agreements with
pay television distributors in Hungary and Turkey and launched
the channel in these territories in July 2000 to approximately
336,000 subscribers.



| |                    
| | -------------------
| | Sources of Revenues

Like most pay television channels, we currently derive
substantially all of our international revenues from subscriber
fees and advertising sales. Subscriber fees are currently our
primary source of revenue at Crown Media International. We
generally charge our pay television distributors a fee per
subscriber for the right to broadcast the Hallmark Entertainment
Network. We have significantly increased the number of
subscribers to the Hallmark Entertainment Network in the past
year, and have consequently seen an increase in revenues
generated from subscriber fees. As international subscriber fees
continue to experience downward pressure and our subscriber base
expands, we continue to focus on increasing advertising
revenues. For the years ended December 31, 2000 and 1999,
subscriber fees revenues were $39.8 million and
$27.7 million, respectively, an increase of
$12.1 million and $7.1 million from the year ended
December 31, 1999 and 1998, respectively.

We also derive revenues from the sale of advertising time on the
Hallmark Entertainment Network. We generate revenues directly
from advertisers as well as from our pay television distributors
under distribution agreements that typically provide for a
sharing of net revenues from advertising. We believe that the
increasing number of subscribers to the Hallmark Entertainment
Network and the favorable demographics of its family audience
provide us with the opportunity to substantially increase
revenues from the sale of advertising time. Currently
advertising revenues of Crown Media International are derived
primarily from activities in a limited number of countries,
including the United Kingdom, Argentina, certain countries in
Latin America, East Asia, Poland and South Africa.

8



---



##### Table of Contents



We continue to expand our advertising sales staff to take
advantage of the opportunities that have been created through
our growing family-oriented subscriber base. We have a core
advertising staff that has developed and is implementing our
advertising sales strategy. They have identified key markets,
opened sales offices in these key markets and identified
potential clients in these markets. We have advertising sales
offices in Miami, New York, Singapore, Hong Kong, Taipei City,
and London, and have entered into representation agreements with
third parties for advertising sales in Argentina, Poland,
Malaysia, Mexico, Brazil, South Africa and the United Kingdom.

As a result of initiatives begun in 2000, we expect to have
growing revenues. First, we increased the number of satellite
feeds delivering our channel, which enabled us to further
customize our channel in specific markets. For example, we now
send multiple signals to Latin America which have been
customized to cater to certain key countries of Latin America,
rather than sending a single feed to all of Latin America. We
believe localized feeds will lead to more opportunities for the
sale of advertising to local businesses or to multinational
advertisers interested in reaching customers in specific
countries. Second, we have built a Network Operations Center
which will allow us to originate the channel. We will be able to
insert commercials into our programming, instead of relying on
our affiliates for that service.

For the years ended December 31, 2000 and 1999, revenues
from the sale of advertising on the Hallmark Entertainment
Network were $6.0 million and $1.7 million,
respectively. We expect that figure to grow as we become more
focused on advertising sales as a source of revenue.



| |                    
| | -------------------
| | Sales and Marketing

Hallmark Entertainment Network focuses its marketing efforts to
maximize our two revenue streams in the individual markets in
which the channel is distributed. Hallmark Entertainment
Networks marketing efforts vary by market depending on the
maturity of the local television industry, the level of
distribution of the Hallmark Entertainment Network and the
potential for the sale of advertising.

In markets where the Hallmark Entertainment Network has not
maximized its carriage with pay television distributors,
marketing efforts are primarily directed toward potential new
distributors. These marketing efforts include advertising in
trade publications and participating in industry trade shows, as
well as direct mail and public relations campaigns. In these
markets, efforts are also made to market the channel to
potential viewers to drive consumer demand for carriage of the
channel by local affiliates.

In markets where the Hallmark Entertainment Network has obtained
substantial distribution or has exclusive agreements with
primary distributors, marketing efforts are primarily directed
toward maintaining and increasing subscribers and viewership.
Our efforts in these markets are directed toward men and women
ages 18 to 49. These consumer directed marketing efforts
are coordinated with and are often partially funded by our pay
television distributors in each market. These efforts often
include traditional marketing campaigns consisting of print,
billboard, cross-channels, radio and television advertising.
Additionally, we emphasize our unique relationship with our
primary content supplier, Hallmark Entertainment, through the
use of premier screening events, press tours with actors and
actresses and viewer trips to movie sets. We also use Hallmark
Entertainment Networks website to market and promote the
channel through schedule information, movie synopses, games and
contests.

In markets where we are developing Hallmark Entertainment
Networks advertising business, marketing efforts are also
directed toward potential advertisers. When marketing the
Hallmark Entertainment Network to potential advertisers, we
focus on media planners and buyers and on regional and
international advertisers.

9



---



##### Table of Contents





| |                    
| | -------------------
| | The Odyssey Network



| |         
| | --------
| | Overview

As of December 31, 2000, we distribute the Odyssey Network
in the United States to 26.5 million subscribers through
more than 25 cable operators and satellite providers.
Subscribers of the Odyssey Network decreased from
27.4 million in 1999 to 26.5 million in 2000 due to
the acquisition of one of the leading pay television
distributors by another distributor and to the expiration of
agreements we had with other pay television distributors. During
2000, we renegotiated or signed agreements with the AT&T,
Time Warner, DirecTV, Charter, Adelphia and EchoStar
distribution systems, six of the top nine largest distributors,
and are seeking to increase our subscriber base by signing
long-term distribution agreements with the other three of the
top nine multi-system operators and satellite providers. The
nine largest pay television distributors in the United States
accounted for approximately 90.0% of all cable and satellite
television subscribers in 2000. In late 2000, we also signed an
agreement with MediaCom, the tenth largest multi-system operator
in the United States.



| |            
| | -----------
| | Programming

The Odyssey Network offers a range of high quality family and
values-based programming including historical dramas, romances,
literary classics, contemporary stories and animated series that
is consistent with its programming theme to provide
magical, mystical, spiritual and always entertaining
programming. Our primary sources for programming on the Odyssey
Network are Hallmark Entertainment, The Jim Henson Company and
NICC. We also license programming from third parties for
exhibition on the Odyssey Network. Programming from Hallmark
Entertainment accounted for 50% of the Odyssey Networks
programming in 2000, and programming from The Jim Henson Company
accounted for 18% of the Odyssey Networks programming
in 2000.

Examples of programming from the Hallmark Entertainment library
include, Scarlett, True Women, Neil Simons Sunshine
Boys, Gypsy, The Ascent, Larry McMurtrys Streets of
Laredo and Captive Heart: The James Mink Story as
well as programming from The Collection from the
Hallmark Hall of Fame library such as What the Deaf Man
Heard, Anne Tylers Saint Maybe, Sarah, Plain and Tall,
and Summer of Ben Tyler. In addition to the Hallmark
Entertainment library of movies and miniseries, we license
programming from the extensive and popular library of The Jim
Henson Company, which includes award-winning theatrical and
childrens productions. Programs contained within The Jim
Henson Company library have won more than 40 Emmy Awards
and Peabody Awards. Examples of The Jim Henson Company
programming include The Muppet Show, The Muppet Movie and
Fraggle Rock. We also have the benefit of a selection of
values-based programming, such as News Odyssey, and
programming from NICC, such as Todays Life Choices.
Examples of third party programming shown on the Odyssey Network
include the popular drama series Dr. Quinn Medicine
Woman, Christy, Happy Days, Rescue 911, and My Three
Sons. Other examples of our third party programming include
acquired movies and miniseries such as Roots, Alex
Haleys Queen, Winds of War, James Micheners Texas,
Houdini, Amelia Earhart: Final Flight, Tecumseh: The Last
Warrior, and Crazy Horse.

We also benefit from premiering and airing original movies,
miniseries and series on the Odyssey Network. Hallmark
Entertainment, The Jim Henson Company and NICC each produce
original programs that premier, and sometimes air exclusively,
on the Odyssey Network. For example, the Odyssey Network
features new episodes of the award-winning creative parenting
series Donnas Day, produced by The Jim Henson
Company, and new episodes of the inspiring Quiet
Triumphs, hosted by Mary Alice Williams and produced by
Odyssey Holdings. Other original Odyssey Network series include
Sunday Dinner and America!. In addition, the
Odyssey Network recently aired The Hound of Baskervilles
and Hamlet, produced exclusively for the Odyssey Network
by Hallmark Entertainment.

Our program agreements with a subsidiary of Hallmark
Entertainment and The Jim Henson Company typically provide for a
one-time license fee for the right to exhibit a program in the
United States within a specified period of time. Generally, our
program agreements with third parties are similarly structured.

10



---



##### Table of Contents





| |             
| | ------------
| | Distribution

We currently distribute the Odyssey Network to approximately
32.1% of all United States pay television subscribers. The
following table shows the approximate number of pay television
households and Odyssey Network subscribers for each of the nine
largest pay television distributors, and all other pay
television distributors as a group, in the United States as of
December 31, 2000.

|                           |       |                                    |        |                |  |             |       |        |  |  |      |      |  
|-------------------------- | ----- | ---------------------------------- | ------ | -------------- |  | ----------- | ----- | ------ |  |  | ---- | ---- | -
|                           |       |                                    |        |                |  | Odyssey    
|                           |       | Total US                           |        | Odyssey        |  | Network    
|                           |       | Pay TV                             |        | Network        |  | % of Pay TV
|Pay Television Distributor |       | Households(1)                      |        | Subscribers(1) |  | Households 
|                           |       |                                    |        |                |  |            
|                           |       |                                   
|                           |       | (In thousands, except percentages)
|                          
|                          
|                          
|                          
|AT&T                       |       |                                    | 17,331 |                |  |             | 7,778 |        |  |  | 44.9 | %   
|                          
|                          
|                          
|                          
|Time Warner Cable          |       |                                    | 12,840 |                |  |             | 7,431 |        |  |  | 57.9 | %   
|                          
|                          
|                          
|                          
|Cox                        |       |                                    | 6,157  |                |  |             | 1,801 |        |  |  | 29.2 | %   
|                          
|                          
|                          
|                          
|Comcast                    |       |                                    | 6,789  |                |  |             | 1,483 |        |  |  | 21.8 | %   
|                          
|                          
|                          
|                          
|DirecTV                    |       |                                    | 9,544  |                |  |             | 1,441 |        |  |  | 15.1 | %   
|                          
|                          
|                          
|                          
|Charter                    |       |                                    | 6,549  |                |  |             | 1,185 |        |  |  | 18.1 | %   
|                          
|                          
|                          
|                          
|Adelphia                   |       |                                    | 5,788  |                |  |             | 978   |        |  |  | 16.9 | %   
|                          
|                          
|                          
|                          
|Cablevision                |       |                                    | 3,162  |                |  |             | 932   |        |  |  | 29.5 | %   
|                          
|                          
|                          
|                          
|Echostar                   |       |                                    | 5,295  |                |  |             | 225   |        |  |  | 4.2  | %   
|                          
|                          
|                          
|                          
|All others                 |       |                                    | 8,936  |                |  |             | 3,234 |        |  |  | 36.2 | %   
|                           |       |                                    |        |                |  |             |       |        |  |  |      |     
|                           | Total |                                    |        | 82,390         |  |             |       | 26,488 |  |  |      | 32.1 | %
|                           |       |                                    |        |                |  |             |       |        |  |  |      |     



---



|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(1) | Sources: Nielsen Media Research and Media Business Corp. and Sky
	Report December 2000.



| |                    
| | -------------------
| | Sources of Revenues

We currently derive substantially all of our revenues from
subscriber fees and advertising sales. We charge our pay
television distributors a monthly per subscriber fee for the
right to broadcast the Odyssey Network. Generally, these
distribution agreements last for five to 10 years, and
include annual increases of both subscribers and per subscriber
fees. A distribution agreement may also involve a payment by us
for the establishment of the relationship or, together with or
in lieu of any payment, the free carriage of our channel to
subscribers for a period of time. For the years ended
December 31, 2000, 1999 and 1998 revenues derived from
subscriber fees for the Odyssey Network were approximately
$11.1 million, $7.8 million and $6.5 million,
respectively.

As a result of the Odyssey Networks demographically
favorable subscriber base we generate significant revenues from
the sale of advertising time on the channel. We have also
established an advertising infrastructure with sales offices in
New York, Los Angeles and Chicago. In addition, we have made
significant investments in programming, research, marketing and
promotions, all specifically designed to support the sale of
advertising time on the Odyssey Network. For the years ended
December 31, 2000, 1999 and 1998 revenues from the sale of
advertising time on the Odyssey Network were approximately
$13.7 million, $9.3 million and $11.5 million,
respectively.



| |                    
| | -------------------
| | Sales and Marketing

In 1998, we began targeting younger demographics with a family
friendly strategy. Extensive market research indicated an
opportunity for quality programming targeted to adults yet also
appealing to children. We believe that such programming
encourages families to watch television together, resulting in
larger audiences and viewer demographics more attractive to
advertisers. In addition, based on a 1998 television viewers
survey, consumers told us it was important to have television
that the whole family could watch together.

As a result, we began operating the Odyssey Network in November
1998 and relaunched the channel in April 1999, featuring family
friendly programming from the Hallmark Entertainment and The Jim
Henson

11



---



##### Table of Contents





Our access to the Hallmark Entertainment and The Jim Henson
Company libraries and their future output provides guaranteed
access to high quality family programming that is consistent
with our brand positioning. In addition, our association with
these known and trusted brands:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | provides our viewers with tangible evidence of our commitment to
	provide entertainment appropriate for the entire family;                                              
|
| |  | significantly enhances our ability to attract advertising
	commitments from the largest advertisers. We were able to
	attract 67 of the leading advertisers in 2000; and
|
| |  | provides a competitive advantage in negotiating long-term
	distribution agreements with pay television distributors.                                                    

We focus our marketing efforts on consumers, advertising
decision-makers, pay television distributors and other persons
influential in the television industry (regulators, educators,
trade and consumer journalists, etc.) Our strategy is to be
clearly branded, differentiated and relevant to the targeted
audiences. We reflect brand attributes of aspirational,
entertaining, in good taste, wholesome and high-quality in all
of our communications. We articulate family friendly without
being exclusively family focused in order to draw in as wide as
audience as possible from our target demographics. Our target
audience is men and women ages 18 to 49.

Our marketing mix for viewers spotlights original events as
high profile programming to drive sampling by views,
advertising revenues and distribution. These original programs
are appealing to broad audiences and are marketing friendly for
key advertisers. On-air promotion is critical in attracting
viewers to programs, and off-air media across print,
out-of-home, spot cable and radio advertising is essential to
attract new audiences. When marketing the Odyssey Network to
advertisers, we focus on media planners and buyers and on
national and regional brands.

Our primary marketing goals in the first two years since our
relaunch have been to build the Odyssey Network brand, increase
awareness of the Odyssey Network, retain existing viewers, grow
our distribution, build a solid base of advertisers, and
maintain and grow ratings. Our Odyssey Network marketing staff
is working closely with the other Odyssey Network departments to
help achieve all of these goals.

The Kermit Channel

During 2000, we operated the Kermit Channel, which was formed in
1998, as a joint venture with The Jim Henson Company. Kermit
Channel revenues were primarily from subscriber fees, and the
channel was distributed and marketed in a manner similar to the
Hallmark Entertainment Network in the Asia Pacific region and
India.

In October 2000, we collapsed the Kermit Channel in Asia, but
maintained the channel in India, and in lieu of a separate
channel, we introduced a six-hour programming block dedicated to
the childrens market on the Hallmark Entertainment Network
in our Asian feed. As of January 1, 2001, following the
positive reception from subscribers, distributors and
advertisers, we completed the collapse of the Kermit channel,
introducing a block of childrens programming on the
Hallmark Entertainment Network in India. The Hallmark
Entertainment Network throughout Asia now offers programming on
one channel that is targeted at all of its key demographics.

12



---



##### Table of Contents



We received management fees from the Kermit Channel during 2000.
As a result of the purchase of EM.TVs interests and the
collapsing of the Kermit Channel into a block on the Hallmark
Entertainment Network, we do not expect to earn management fee
revenues in the future. See Note 5 to Notes to Consolidated
Financial Statements.



| |                   
| | ------------------
| | Channel Operations



| |                 
| | ----------------
| | Channel Creation

The programming departments at each of our channels are
responsible for ensuring the consistent quality of the family
programming we offer. The programming, scheduling and
acquisitions departments work in conjunction with the creative
services and traffic departments to create the distinctive
appearance of our channels.

The creation of our channels begins with the acquisition of
programming. The acquisitions department licenses programming
from Hallmark Entertainment, The Jim Henson Company, NICC and
other program suppliers. The acquisitions departments
screening staff reviews and summarizes all potential programming
to ensure compliance with our quality and content standards. The
acquisitions department licenses programming based on the amount
of new programming required on our channels as well as cost
considerations.

In most of our international markets, we customize the Hallmark
Entertainment Network by dubbing or subtitling program elements
into local languages. The decision to customize the channel into
local languages is based on local market practices, viewer
preferences and cost considerations. Language preparation is
coordinated by our program operations department. Program
language elements are typically shipped to the specific region
to ensure that nuances in dialect of the particular language are
captured. The elements are then returned to our Denver
headquarters, where the language elements are combined with the
other programming elements.

The Brand Creative Services department of the Hallmark
Entertainment Network is responsible for creating on-air
promotional segments or interstitials which are broadcast
between the feature movies, miniseries and series on the
Hallmark Entertainment Network. Promotional segments are
prepared in more than 24 languages for broadcast worldwide.
These interstitials invite viewership, guide viewers to specific
programming, and promote a Brand Awareness image for
the Hallmark Entertainment Network. The Brand Creative Services
design group creates special graphics for broadcast
interstitials and marketing print materials for use in sales,
promotion, and advertising worldwide. They also develop channel
internet web site graphics and animation art broadcast in
multiple countries and languages.

The Odyssey Network has an in-house production group, which is a
film unit that produces original interstitial programming as
well as image and promotional campaigns. The graphic design
group is responsible for the look of the Odyssey Network.

The scheduling department creates the playlist which contains a
list of daily programming. The scheduling department works with
the creative services and marketing personnel to continuously
monitor the programming mix. The playlist is then forwarded to
the traffic department.

The traffic department inserts promotional segments into the
playlist and creates the daily log, which is the stream of
programming that will ultimately be viewed by the subscriber.
The daily log, together with digital tapes that contain the
corresponding programming, are then forwarded to an origination
and playback facility, which is operated by a third party.
Digital tapes that contain the promotional segments are
forwarded to the third party origination and playback facility
separately.



| |                 
| | ----------------
| | Channel Delivery

We deliver the daily log and digital tapes to our Network
Operations Center or to a third party origination and playback
facility for each market, where the programming, promotional and
advertising elements are combined and compressed into a single
signal, and delivered to an uplink facility. The uplink facility
then transmits the signal to the satellite transponder that
covers the relevant geographic market, and the

13



---



##### Table of Contents





We built an advanced global Network Operations Center at our
Greenwood Village, Colorado headquarters, which commenced
operations in February 2001 and has the ability to perform
origination and playback services for the Hallmark Entertainment
Network and the Odyssey Network for up to 32 programming
channels. The Network Operations Center is an efficient, state
of the art broadcasting operation. The facility enables
us to:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | efficiently expand distribution into new markets;                                                                                                                            
|
| |  | control on air quality and reliability while containing cost;                                                                                                                
|
| |  | and distribute programming in digital and other formats as
	required in the rapidly evolving broadband distribution
	environment, while consolidating our library management.

In February 2001, the Central Europe, Turkey and Scandilux feeds
were launched from the Network Operations Center. We intend to
consolidate origination and playback for most of Hallmark
Entertainment Networks Latin America and European signals
into our headquarters by mid-2001. The remaining signals will be
brought into our facilities as the current playback vendor
contracts expire.

The following chart summarizes, for each of our markets, the
distribution platforms through which we deliver our channels,
our primary pay television distributors, the various languages
in which our channels are broadcast, and the uplink and
satellites we currently use to deliver our channels.

|               |         |              |       |                |  |                   |         |                   |         |                |      |            |           
|-------------- | ------- | ------------ | ----- | -------------- |  | ----------------- | ------- | ----------------- | ------- | -------------- | ---- | ---------- | ----------
|               |         | Primary      |       |                |  |                   |         |                   |         |               
|               |         | Distribution |       | Primary Pay TV |  |                   |         | Uplink Providers/ |         |               
|Market         |         | Platforms    |       | Distributors   |  | Languages         |         | Locations         |         | Satellites    
|               |         |              |       |                |  |                   |         |                   |         |               
|Latin America  |         |              | Cable |                |  | DirecTV           |         | Spanish           |         | Hero           |      | NSS 806   
|               |         |              | DTH   |                |  | Sky Latin America |         | Portuguese        |         | Productions    |      |           
|               |         |              |       |                |  | Cablevision       |         | English           |         | Miami, Florida |      |           
|              
|              
|              
|              
|Asia Pacific   |         |              | Cable |                |  | Modi              |         | Mandarin          |         | NDTC           |      | Apstar IIR
|               |         |              | DTH   |                |  | Rebar MSO         |         | Thai              |         | Hong Kong      |      |           
|               |         |              |       |                |  | UBC MSO           |         | English           |         |                |      |           
|               |         |              |       |                |  | SCV               |         | Japanese          |         | SkyPerfect     |      | JCSat-3   
|               |         |              |       |                |  | CATV              |         | Korean            |         | Tokyo, Japan   |      |           
|              
|              
|              
|              
|Central Europe |         |              | Cable |                |  | United Pan-Europe |         | Polish            |         | Hero           |      | Telstar 12
|               |         |              | DTH   |                |  | Communications    |         | Hungarian         |         | Productions    |      |           
|               |         |              |       |                |  |                   |         | Croatian          |         | Miami, Florida |      |           
|               |         |              |       |                |  |                   |         | Romanian          |         |                |      |           
|               |         |              |       |                |  |                   |         | Slovakian         |         |                |      |           
|               |         |              |       |                |  |                   |         | Slovenian         |         |                |      |           
|               |         |              |       |                |  |                   |         | Bulgarian         |         |                |      |           
|               |         |              |       |                |  |                   |         | English           |         |                |      |           
|Scandinavia/   |         |              |       |                |  |                   |         |                   |         |                |      |           
|              
|              
|              
|              
|               | Benelux |              |       | Cable          |  |                   | Via Sat |                   | Swedish |                | Hero |            | Telstar 12
|               |         |              | DTH   |                |  | Stjarn-TV         |         | Dutch             |         | Productions    |      |           
|               |         |              |       |                |  |                   |         | Norwegian         |         | Miami, Florida |      |           
|               |         |              |       |                |  |                   |         | Danish            |         |                |      |           
|               |         |              |       |                |  |                   |         | English           |         |                |      |           
|              
|              
|              
|              
|Italy          |         |              | DTH   |                |  | Telepiu           |         | Italian           |         | Telepiu        |      | Hot Bird  
|               |         |              |       |                |  |                   |         | English           |         | Milan, Italy   |      |           
|              
|              
|              
|              
|Spain          |         |              | DTH   |                |  | Via Digital       |         | Castillian        |         | Via Digital    |      | Hispasat  
|               |         |              |       |                |  |                   |         | Portuguese        |         | Madrid, Spain  |      |           
|               |         |              |       |                |  |                   |         | English           |         |                |      |           

14



---



##### Table of Contents



|               |             |              |       |                |  |                   |       |                   |        |                |      |              |           
|-------------- | ----------- | ------------ | ----- | -------------- |  | ----------------- | ----- | ----------------- | ------ | -------------- | ---- | ------------ | ----------
|               |             | Primary      |       |                |  |                   |       |                   |        |               
|               |             | Distribution |       | Primary Pay TV |  |                   |       | Uplink Providers/ |        |               
|Market         |             | Platforms    |       | Distributors   |  | Languages         |       | Locations         |        | Satellites    
|               |             |              |       |                |  |                   |       |                   |        |               
|Africa         |             |              | DTH   |                |  | Multichoice       |       | English           |        | Multichoice    |      | PanAmSat 4  
|               |             |              |       |                |  |                   |       |                   |        | Johannesburg,  |      |             
|               |             |              |       |                |  |                   |       |                   |        | SAF            |      |             
|              
|              
|              
|              
|Czech Republic |             |              | Cable |                |  | Kabel Plus        |       | Czech             |        | Kabel Plus     |      | Kopernicus 2
|               |             |              |       |                |  | Cable Association |       | Slovak            |        | Prague, Czech  |      |             
|               |             |              |       |                |  |                   |       | English           |        |                |      |             
|              
|              
|              
|              
|Australia      |             |              | Cable |                |  | Foxtel            |       | English           |        | Foxtel         |      | Optus B3    
|               |             |              | DTH   |                |  | Austar            |       |                   |        | Sidney,        |      |             
|               |             |              |       |                |  |                   |       |                   |        | Australia      |      |             
|              
|              
|              
|              
|Russia         |             |              | Cable |                |  | NTV               |       | Russian           |        | Hero           |      | Telstar 12  
|               |             |              | DTH   |                |  | Metromedia        |       |                   |        | Productions    |      |             
|               |             |              |       |                |  |                   |       |                   |        | Miami, Florida |      |             
|              
|              
|              
|              
|United Kingdom |             |              | DTH   |                |  | BSkyB             |       | English           |        | BSkyB          |      | Telstar 12  
|               |             |              |       |                |  |                   |       |                   |        | London         |      |             
|Israel and     |             |              |       |                |  |                   |       |                   |        |                |      |             
|              
|              
|              
|              
|               | Middle East |              |       | Cable          |  |                   | Tevel |                   | Hebrew |                | Hero |              | Telstar 12
|               |             |              |       |                |  | Golden Channels   |       | Arabic            |        | Productions    |      |             
|               |             |              |       |                |  | Matav             |       | Russian           |        | Miami, Florida |      |             
|               |             |              |       |                |  |                   |       | English           |        |                |      |             
|              
|              
|              
|              
|United States  |             |              | Cable |                |  | AT&T              |       | English           |        | AT&T           |      | GE C-3      
|               |             |              |       |                |  | Time Warner       |       |                   |        | Los Angeles,   |      |             
|               |             |              |       |                |  |                   |       |                   |        | California     |      |             
|              
|              
|              
|              
|New Zealand    |             |              | DTH   |                |  | Sky New Zealand   |       | English           |        | Sky Auckland   |      | Optus B1    

Business Strategy

Our principal objective is to be the destination of choice for
viewers who seek high quality family programming and for
advertisers who target these viewers, with the goal of
maximizing the profitability of our existing business and
leveraging our opportunities to develop new sources of revenue.
The key elements of our business strategy to achieve



We intend to pursue the following strategies, which are aimed at
maximizing our opportunities for additional growth, increasing
our revenues and improving our operating performance.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Capitalize on Our Unique Brands by Marketing to Pay
	Television Distributors, Viewers and Advertisers

We intend to capitalize on our unique branded content by
marketing to pay television distributors, viewers and
advertisers. We believe family programming represents one of the
most popular television formats. Based on a 1998 television
viewers survey, we believe that viewers consider it important to
have television that the whole family can watch together. We
believe our branded content attracts these viewers and makes us
attractive to pay television distributors who seek these
viewers. We also believe our branded content attracts
advertisers because of the demographic attributes of these
viewers.



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Expand Distribution of Our Channels Worldwide through
	Distributors in Each Market

We seek to gain access to the largest number of potential
subscribers. To do this, we intend to expand the distribution of
our channels by capitalizing on our brands and the popularity of
our programming. We also intend to expand distribution by
targeting pay television distributors in each of the markets we
serve. We tailor

15



---



##### Table of Contents





For a more detailed description of how we distribute our
channels, see Channels  The Hallmark
Entertainment Network  Distribution and
Channels  The Odyssey Network in this
Item 1.



| |                                              
| | ---------------------------------------------
| | Increase Revenue from the Sale of Advertising

We intend to increase revenue from the sale of advertising time
by targeting leading advertisers, localizing our channels and
expanding our sales staff. We have opened advertising sales
offices in New York, Chicago, Los Angeles, Miami, Florida,
Singapore, Hong Kong, Taipei City and London. We also have
representation agreements with leading advertising sales
representatives in Argentina, Poland, Malaysia, Mexico, Brazil,
South Africa and the United Kingdom, to provide us with
advertising and marketing services. We believe their leadership
position will enable us to sell advertising in these markets.

We intend to continue to invest in programming designed to
maximize advertising opportunities. Since the relaunch of the
Odyssey Network in April 1999 and the implementation of our
advertising strategy, we have attracted 67 of the leading
advertisers in the United States based on total advertising
expenditures, including Hallmark Cards, America Online,
AT&T, Coca-Cola and Procter & Gamble. Hallmark
Cards accounted for approximately 3.0% of total consolidated
revenues for the year ended December 31, 2000. As we
continue to implement our strategy, we intend to leverage our
relationships with these advertisers in our international
markets. Our international focus is primarily in Latin America,
Asia Pacific and the United Kingdom.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Continue to Refine the Attractiveness of Our Channels to
	Viewers and Advertisers

We intend to continue to refine the attractiveness of our
channels. We believe we can capitalize on our access to the high
quality programming produced by Hallmark Entertainment, The Jim
Henson Company and NICC. In addition, we will refine the
appearance of our channels and tailor them to meet local market
preferences by adjusting our programming mix and schedule,
reducing the number of repeat program broadcasts on our
channels, and improving the quality of our promotional segments.
We believe these efforts will increase viewership and further
attract advertisers in each of our markets.



| |                                     
| | ------------------------------------
| | Capitalize on Broadband Distribution

We intend to capitalize on our unique branded content and
established audience base to expand the distribution of our
channels and to create new revenue opportunities through the use
of new technologies created by broadband distribution. Digital
technology, the Internet and interactive television will allow
us to provide many more channels and create additional ways for
people to view our programming and to interact with us. We
believe the convergence of these new technologies will enable
audiences to have a better experience than is currently
possible, using interactive features available through advanced
analog or digital set-top boxes. Pioneers in the delivery of
interactive television features have independently proven that
the opportunity exists for us to keep the attention of our
audiences longer and to create additional revenue streams for
our business such as e-commerce, interactive advertising and
video-on-demand. We believe we are positioned to capitalize on
these opportunities because we can format our programming
content such that it can be distributed in formats that these
technologies require.

In 2000, we commenced development of a new interactive model,
currently referred to as Crown Digital. This division is part of
our long-range plan to capitalize on our unique and familiar
product brand and strategic relationships with Hallmark
Cards, Inc., in conjunction with new interactive
content-based technology currently under development. This
division earned no revenue during the year ended
December 31, 2000, and is not expected to do so in 2001. In
January 2001, Crown Interactive commenced its beta testing stage
in Singapore, offering video-on-demand (VOD) on a non-exclusive
basis in conjunction with Sharkstream, a streaming portal
specializing in interactive multimedia entertainment for the
Asia Pacific region.

16



---



##### Table of Contents



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. Our domestic
channel competes with other family oriented programming from
TNT, USA Network, Discovery, A&E, Fox Family, Lifetime and
other similarly targeted channels. Our international channel
competes with HBO, Star Movies, AXN, I-SAT, Discover, Canal Fox,
TNT, USA Network, Cinecanal, Romantica, and Wija Jeden. We
compete with these channels for carriage on cable and satellite
systems that may have limited capacity. We also compete with
these channels for viewers and advertising dollars based upon
quality of programming, number of subscribers, ratings and
subscriber demographics.

Competition recently has intensified as the industry shifts from
analog distribution to digital distribution. Many pay television
distributors are in the process of upgrading their physical
infrastructures to accommodate digital delivery, which will
provide significantly more channel capacity. We believe that it
will take several years for the majority of current subscribers
to convert to, and begin paying for, upgraded services. In an
effort to accelerate the conversion, pay television distributors
are attempting to place channels on their digital tier as
opposed to their limited, yet more widely distributed, analog
tiers. As a result, the competition for the remaining widely
distributed analog channel space is intense. However, as more
and more subscribers are converted, the digital tier is expected
to become the dominant platform.

Competitive Strengths

We have established a track record of providing high quality
family programming throughout the world. We believe that our
primary competitive strengths include the following:



| |                                                                      
| | ---------------------------------------------------------------------
| | Unique Collection of Branded Programming and Pay
	Television Channels

Our channels benefit from high quality family programming
licensed from Hallmark Entertainment and The Jim Henson Company.
Our programming distinguishes our channels as destinations for
viewers seeking high quality family entertainment and as
attractive outlets for advertisers seeking to target these
viewers. We believe our branded channels will differentiate us
as new digital technologies provide many more channels and
create additional ways to distribute programming to viewers.

Guaranteed Access to High Quality
Programming

We have renewable five-year program agreements under which we
license substantially all of the programming Hallmark
Entertainment owns or controls. We have also signed long-term
program agreements with The Jim Henson Company for programming
for the Hallmark Entertainment Network and the Odyssey Network.
The Odyssey Network also has access to family and values-based
programming from NICC. See Business 
Channels  The Hallmark Entertainment
Network  Programming and  The
Odyssey Network  Programming.



| |                                                                
| | ---------------------------------------------------------------
| | Significant Strategic Benefits from Our Principal
	Stockholders

We receive significant benefits from our principal stockholders:
Hallmark Entertainment, Liberty Media, and NICC. For example, we
gain access to programming from Hallmark Entertainment, and
NICC. Liberty Medias industry contacts facilitate our
relationships with certain pay television distributors. We
believe we are able to attract advertisers who seek companies
associated with established brand names like those of our
principal stockholders.



| |                       
| | ----------------------
| | Experienced Management

Members of our senior management team have experience launching,
promoting and operating channels both domestically and
internationally, having held senior positions at Fox Kids
Network, HBO and ESPN.

17



---



##### Table of Contents





Research

During the year ended December 31, 2000, we substantially
increased our commitment to serving the needs of our various
markets by establishing research departments at Crown Media
International and the Odyssey Network. The departments provide
data on the size and demographics of our audience to our
advertising sales group, and information about our audiences,
competitors, markets and industry to decision makers in our
Company.

Several critical research initiatives were undertaken during the
year, including a large, two-phase study to help the Hallmark
Entertainment Network develop a fresh, appealing and unique
brand identity. One result of the study was the redesign of our
graphic look and promotional messages, an effort that has been
well received by cable operators, advertisers, viewers and the
trade press.

Currently the Odyssey Network research department is involved in
conducting a series of national branding studies (focus groups)
and has contracted a nationally recognized firm to conduct a
national phone study to confirm the findings of the brand
research. Together these studies will provide overall strategic
guidance to the Odyssey Networks executives in
programming, re-branding and providing promotional messages to
viewers, advertisers, cable operators and the trade press.

Employees

We had 420 employees as of December 31, 2000. Neither we
nor any of our subsidiaries are parties to collective bargaining
agreements. We believe that our relations with our employees are
good.

Substantially all of our Hallmark Entertainment Network
employees work at our headquarters in Greenwood Village,
Colorado. Substantially all of our Odyssey Network employees
work at our offices in Studio City, California and New York, New
York.

Regulation

The provision of television channels in the markets in which we
operate, including the United States, is regulated. The scope of
regulation varies from country to country, although in many
significant respects a similar approach is taken to the
regulation of broadcasting across all of the markets in which we
operate. For example, throughout most of our Western European
markets broadcasting regulation has been formally harmonized to
a substantial degree under the regulatory structure of the
European Union. Typically, broadcasting regulation in each of
the countries in which we operate requires that domestic
broadcasters and platform providers secure broadcasting licenses
from the domestic broadcasting authority. Additionally, most
nations have broadcasting legislation and regulations which set
minimum standards regarding program content, prescribe minimum
standards for the content and scheduling of television
advertisements and provide that a certain portion of programming
carried by broadcasters be produced domestically and to some
degree be sourced from domestic production companies who are
independent of the broadcaster.

Local pay television distributors in foreign countries typically
have a statutory duty to ensure that the programming and
advertising that they re-transmit on behalf of foreign
broadcasters conforms to the regulatory scheme under which each
local platform provider is licensed. Our contracts with many of
our local platform providers require that our programming comply
with domestic broadcasting regulations. Generally, each of our
pay television distributors and thus our programming carried on
their systems must adhere to the broadcasting and advertising
regulations of each platform providers licensing
jurisdiction.

Within the United States program access rules applicable to
channel providers with ownership ties to pay television
distributors limit business combinations between these two types
of companies that do not comply with these rules.

18



---



##### Table of Contents



Financial Information about Geographic
Areas

Information concerning revenues and long-lived assets
attributable to external customers, domestically and
internationally, may be found in Note 14 of our Notes to
Consolidated Financial Statements located on page F-25.

Forward-Looking Statements and Risk
Factors

We have made some statements which constitute forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be
materially different from any results, levels of activity,
performance or achievements expressed or implied by any
forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as
may, will, should,
could, expects, intends,
plans, anticipates,
believes, estimates,
predicts, potential, or
continue or the negative of these terms or other
comparable terminology. Although we believe that the
expectations reflected in forward-looking statements are
reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Actual results could
differ materially from those in the forward-looking statements.
Among the factors that could cause actual results to differ
materially are those discussed below and in other parts of this
Report. We are under no duty to update any of the
forward-looking statements.

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 Class A 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.

The Hallmark Entertainment Network and the Odyssey Network both
have a history of net losses and we expect to continue to report
net losses for the foreseeable future. As of December 31,
2000, we had an accumulated deficit of approximately
$250.5 million and net goodwill of approximately
$240.1 million. Amortization of goodwill resulted in an
$8.6 million charge to earnings for the year ended
December 31, 2000.

As a result of the foregoing, we may not achieve or sustain
profitability. If we are not able to achieve or sustain
profitability, the trading price of our Class A common
stock may fall significantly. In addition, we could experience
increased capital needs in the future if our losses are greater,
or continue for longer, than we anticipate. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Crown Media
Holdings and Its Subsidiaries  Liquidity and Capital
Resources.

In order to diminish our losses and become profitable, it is
imperative that we substantially increase our revenues,
particularly advertising revenues. This in turn involves the
distribution of our channels, attracting viewers to our channels
and marketing our channels to advertisers, among other things.
Risks associated with these areas of our business are described
below.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | We may need in the next 12 months or thereafter to raise
	additional funds, which may not be available.

We currently have in place a line of credit with a subsidiary of
Hallmark Cards for up to $150 million. The obligations of
the Hallmark Cards subsidiary under this line is supported by an
irrevocable letter of credit with Bank of America. We
contemplate replacement of this line of credit with a credit
facility from a group of banks on or before March 31, 2002.
We may also need to raise other external funds to operate and
expand our business. We may not be able to obtain the
replacement line of credit or obtain the needed additional
funds, through borrowings or the issuance of additional equity,
on acceptable terms or at all. If we cannot raise needed funds
on acceptable terms, we may not be able to:



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | expand our domestic and international distribution as
	anticipated;
|
| |  | grow our advertising revenues;                                     

19



---



##### Table of Contents





| |   |                                                 
| | - | ------------------------------------------------
| |  | continue our current operations;                
|
| |  | remain current with evolving industry standards;
|
| |  | take advantage of future opportunities; or      
|
| |  | respond to competitive pressure.                



| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we depend on Hallmark Entertainment, Inc. for a
	significant portion of our programming, the loss or interruption
	of that programming would severely disrupt our operations and
	services.

We may be unable to implement our operating strategy
successfully without the continued availability and commercial
success of programming from Hallmark Entertainment, Inc.
Under our program agreements with a subsidiary of Hallmark
Entertainment, Inc., we are required to license
substantially all of the programming owned or controlled by
Hallmark Entertainment, Inc. for the markets in which we
operate during the five-year term of the agreements. If this
programming were to become unavailable or unsuccessful for any
reason during the term of the program agreements, we could be
unable to obtain alternative programming of equivalent quality
and popularity or on terms as favorable to us. Consequently, any
significant interruption in the supply of programming from
Hallmark Entertainment, Inc. for any reason could hinder
our ability to attract and retain subscribers, generate revenues
and achieve profitability.



| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to obtain programming from parties other
	than Hallmark Entertainment, Inc., we may be unable to
	increase our subscriber base.

We compete with other pay television channel providers for the
acquisition of 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 of acquiring alternative programming and the growth of our
subscriber base could be hindered.



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

The success of our programming depends partly upon unpredictable
and volatile factors beyond our control, such as viewer
preferences, competing programming and the availability of other
entertainment activities. A shift in viewer preferences could
cause our programming to decline in popularity, which could
cause a decline in both advertising and subscriber fee revenues.
We may not be able to anticipate and react effectively to shifts
in tastes and interests in our markets. In particular, our
ability to react effectively may be limited by our obligation to
license programming from Hallmark Entertainment, Inc., The
Jim Henson Company and the National Interfaith Cable Coalition,
each of which has standards that limit the types of programming
that they will provide to us. In addition, our competitors may
have more flexible programming arrangements, as well as greater
volumes of production, distribution and capital resources, and
may be able to react more quickly to shifts in tastes and
interests. 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.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | If we are unable to increase our advertising revenue, we may
	be unable to achieve profitability.

If we fail to increase our advertising revenue, we may be unable
to achieve and sustain profitability, or expand our business. We
expect that over time the portion of our revenues derived from
the sale of advertising time on our channels will increase. We
have a limited history of marketing and selling advertising
time. Our ability to achieve advertising revenue growth in the
future will depend in large part on our ability to expand our
sales and marketing organization. We may be unable to identify,
attract and retain experienced sales and marketing personnel
with relevant experience, and 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. Success in
increasing our advertising revenue also depends upon the number
and coverage of distributors who make available our channels,
our number of subscribers, and the viewership ratings for our
programming.

20



---



##### Table of Contents





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Hallmark Entertainment, Inc. controls us and this
	control could create conflicts of interest or inhibit potential
	changes of control.

Hallmark Entertainment, Inc. controls all of our
outstanding shares of Class B common stock, representing
approximately 90% of the voting power on all matters submitted
to our stockholders. Hallmark Entertainment, Inc.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
Class A common stock. As a result, the market price of our
Class A common stock or our business could suffer. Hallmark
Entertainment, Inc.s control relationship with us
also could give rise to conflicts of interest, including:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | conflicts between Hallmark Entertainment, Inc., as our
	controlling stockholder, and our other stockholders, whose
	interests may differ with respect to, among other things, our
	strategic direction or significant corporate transactions;
|
| |  | conflicts related to corporate opportunities that could be
	pursued by us, on the one hand, or by Hallmark
	Entertainment, Inc. or its other affiliates, on the other
	hand; or                                                              
|
| |  | conflicts related to existing or new contractual relationships
	between us, on the one hand, and Hallmark
	Entertainment, Inc. and its affiliates, on the other hand.                                                                        

In addition, persons serving as directors, officers or employees
of both us and Hallmark Entertainment, Inc. may have
conflicting duties to each. For example, it is currently
contemplated that Robert A. Halmi, Jr. will continue
in his current positions as our Chairman of the Board and as
President and Chief Executive Officer of Hallmark
Entertainment, Inc., which could create potential conflicts
of interest. As a result, it is possible that we may receive
less favorable contractual terms from Hallmark
Entertainment, Inc. than if none of our officers or
directors had any affiliation with Hallmark
Entertainment, Inc.



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

We license various uses of the name Hallmark from
Hallmark Cards for our international channel under a two-year
trademark license agreement dated as of December 1, 2000.
Many of our international subscribers may now associate our
programming with the name Hallmark
Entertainment, Inc. If Hallmark Cards fails to renew
the trademark license agreement for any reason, including our
failure to meet minimum programming thresholds dependent on
programming provided by its affiliates or to comply with
Hallmark Cards programming standards as determined in its
sole discretion, we would be forced to significantly revise our
business plan and operations, and could experience a significant
erosion of our subscriber base and revenues. See Part III
of this Report.



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our third-party suppliers fail to provide us with network
	infrastructure services on a timely basis or if our Network
	Operations Center fails, 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, which are available only
from limited sources. We have occasionally experienced 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 revenues and
profitability.

We commenced operations at our National Operations Center (the
NOC) in February 2001. We intend to use the NOC for
the origination and playback of signals for our channels as
existing contracts with vendors expire. Like other single-point
facilities, the NOC is subject to interruption from fire,
tornados, lightning and other unexpected natural causes.
Although we have redundant systems in place, equipment

21



---



##### Table of Contents







| |                                                                         
| | ------------------------------------------------------------------------
| | Our contract with a third-party supplier includes a
	preemptable clause.

Our C-3 satellite (transponder 5) is currently the
only integrated domestic source for our domestic signal. Our use
of transponder 5 can be preempted by users of other
so-called protected transponders on the
C-3 satellite. Thus, it is possible that our domestic
signal could be removed from time to time from the
C-3 satellite. Any such interruptions could materially
affect viewership of our channels and thus have a material
adverse effect on our revenues.

Our C-3 satellite has currently a projected end of life in
late 2004 or early 2005. We will need to replace this satellite
with an equally reliable satellite. Further, although the
C-3 satellite has been stable and reliable since commencing
operation in 1992, any technological or other issues with the
satellite could affect our ability to transmit our programming.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We do not have complete control over Odyssey Holdings, which
	could hinder our ability to expand that business.

A stockholders agreement signed prior to the completion of our
May 9, 2000, initial public offering requires:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | that we broadcast at least 10 hours weekly of faith and
	values-based programming                                  
|
| |  | that we broadcast at least 30 hours weekly of programming
	provided by the National Interfaith Cable Coalition; and
|
| |  | that the National Interfaith Cable Coalition consent to the
	transfer of our interests in Odyssey Holdings.        

Our ability to implement strategies may be limited if we do not
receive these required consents from the National Interfaith
Cable Coalition.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Our programming could be affected by a possible strike of
	Writers Guild of America or the Screen Actors Guild.

The current contract of the Screen Actors Guild and American
Federation of Television and Radio Artists with the motion
picture and television producers expires on June 30, 2001.
The parties have discussed issues involved in the contract,
including residuals and other economic issues. Writers Guild of
Americas contract with producers expires May 1, 2001.
We do not know whether renewal agreements can be negotiated
without a strike. Others in the entertainment business might
join any strike. If the Guild, AFTRA or writers strike, the
strike could affect our ability to acquire programs or the costs
of those programs. Any interruption in programming or an
increase in costs could have a material adverse affect on our
results in financial condition.



| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We may have to incur significant capital expenditures in
	order to adapt to technological change.

The pay television industry has been, and is likely to continue
to be, subject to:



| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | rapid and significant technological change, including continuing
	developments in technology which do not presently have widely
	accepted standards;  and
|
| |  | frequent introductions of new services and alternative
	technologies, including new technologies for providing video
	services.                          

22



---



##### Table of Contents



We expect that new technologies will emerge that may be superior
to, or may not be compatible with, some of our current
technologies, which may require us to make significant capital
expenditures to remain competitive. 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. We
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. If we fail to adapt successfully to
any technological change or obsolescence, or fail to obtain
access to important technologies, our business, prospects,
financial condition or results of operations could be materially
adversely affected.



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | 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,
and on our ability to hire additional personnel to accommodate
our anticipated growth. 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. We do not
carry key person life insurance on all of our personnel, nor is
the insurance that we do carry necessarily sufficient to cover
the losses that we would incur in the event we lose one of our
key executives to death or disability.



| |                                                                          
| | -------------------------------------------------------------------------
| | We are subject to the risks of doing business outside the
	United States.

Historically, a significant portion of our revenues have been
generated from foreign operations. In order to maintain or
expand our presence in foreign markets, we have entered and may
in the future enter into joint ventures or other strategic
relationships with local operators in those markets. Such
relationships may, among other things, require us to issue
additional equity, make minimum capital contributions, or
inhibit our ability to make decisions with respect to operations
in those markets. Certain foreign laws, regulations and judicial
procedures may not be as protective of programmer rights as
those which apply in the United States. In addition, many
foreign countries have currency and exchange laws regulating the
international transfer of currencies. To the extent that
significant currency fluctuations result in materially higher
costs to any of our foreign customers, those customers may be
unable or unwilling to make the required payments. We are
subject to delays in access to courts and to the remedies local
laws impose in order to collect our payments and recover our
assets. In the future, we may experience problems with
collecting accounts due from foreign customers, which would
adversely affect our revenues and income. Our growth and
profitability may suffer also as a result of, among other
matters, competitive pressures on video delivery, labor
stoppages, recessions and other political or economic events
adversely affecting world or regional trading markets or
affecting a particular customer.



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Our current and future operations in emerging markets may be
	harmed by the increased political and economic risks associated
	with these markets.

We currently broadcast in several foreign markets where market
economies have only recently begun to develop, and we may expand
these operations in the future. If the governments in these
markets adopt more restrictive economic policies, we may not be
able to continue operating, or to implement our expansion plans,
in those markets. More generally, we are exposed to certain
risks, many of which are beyond our control, inherent in
operating in emerging market countries. These risks include
changes in laws and policies affecting trade, investment and
taxes (including laws and policies relating to the repatriation
of funds and to withholding taxes), differing degrees of
protection for intellectual property and the instability of
emerging market economies, currencies and governments.



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

As a result of the reorganization, at the time of our initial
public offering in May 2000 and our acquisition in March 2001 of
the remaining common ownership interests in Odyssey Holdings, we
generated a significant amount of goodwill which we are
amortizing on a straight-line basis over the 20 years. The
amount of goodwill

23



---



##### Table of Contents







| |                               
| | ------------------------------
| | Risks Relating To Our Industry



| |                                                                      
| | ---------------------------------------------------------------------
| | Competition could reduce our channel revenues and our
	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,
compete for viewers and advertisers with pay television
channels, broadcast television networks, radio, the Internet and
print media. We also compete, in varying degrees, with other
leisure-time activities such as movie theaters, television, the
Internet, radio, print media, personal computers and other
alternative sources of entertainment and information. In
addition, future technological developments may affect
competition within this business.

A continuing trend towards business combinations and alliances
in both the domestic and foreign communications industry may
create significant new competitors for us. Many of these
combined entities will have 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. These entities may also offer
services sooner and at more competitive rates than we do. In
addition, these alliances may benefit from both localized
content and the local political climate.

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.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | New distribution technologies may fundamentally change the
	way we distribute our channels and could significantly decrease
	our revenues.

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 profitability, and may require us to
significantly change our operations. There is a risk that our
business and prospects will be harmed by these changes or that
we will not identify or adapt to them as quickly as our
competitors do.



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The expansion of digital distribution in our markets may
	increase competition for viewers, ratings and related
	advertising revenues.

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.
Therefore, increased digital capacity could lower barriers to
entry for competing channels, and place pressure on our
operating margins and market position. A greater number of
channels would likely increase competition among channels for
viewers and advertisers, which could affect our ability to
attract advertising and new distribution at desired pricing
levels, and could therefore hinder or prevent the growth of our
subscriber base.

24



---



##### Table of Contents





| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | If we fail to comply with applicable government regulations,
	our business could be harmed.

If, as a provider of television channels, we fail to comply with
applicable present or future government regulations in any
markets in which we operate, we could be prohibited from
operating in those markets and could be subject to monetary
fines, either of which would increase our operating costs,
reduce our revenues and limit our ability to achieve
profitability. The scope of regulation to which we are subject
varies from country to country, although in many significant
respects a similar approach is taken to the regulation of
broadcasting across all of the markets in which we operate.
Typically, broadcasting regulation in each of the countries in
which we operate requires that domestic broadcasters and
platform providers secure broadcasting licenses from the
domestic broadcasting authority. Additionally, most nations have
broadcasting legislation and regulations which set minimum
standards regarding program content, prescribe minimum standards
for the content and scheduling of television advertisements and
provide that a certain portion of programming carried by
broadcasters be produced domestically and to some degree be
sourced from domestic production companies who are independent
of the broadcaster.

Moreover, broadcasting regulations are generally subject to
periodic and on-going governmental review and legislative
initiatives which may, in the future, affect the nature of
programming we are able to offer and the means by which it is
distributed. The timing, scope or outcome of these reviews could
be unfavorable to us, and any changes to current broadcasting
legislation or regulations could require adjustments to our
operations.

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 May 2003 and June 2010. The
Company believes the facilities, office space and other real
properties leased are adequate for its current operations.



| |                               
| | ------------------------------
| | Hallmark Entertainment Network

|                                                              |  |                                                                                                            |  |             |        | 
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | 
|                                                              |  |                                                                                                            |  | Approximate
|                                                              |  |                                                                                                            |  | Area in    
|Location                                                      |  | Use                                                                                                        |  | Square Feet
|                                                              |  |                                                                                                            |  |            
|6430 South Fiddlers Green Circle
	Greenwood Village, Colorado |  | Executive and administrative office, post production and editing
	facilities and Network Operations Center |  |             | 52,988 | 
|                                                             
|                                                             
|                                                             
|                                                             
|12700 Ventura Blvd.
	Studio City, California                  |  | Executive and administrative office                                                                        |  |             | 13,455 | 
|                                                             
|                                                             
|                                                             
|                                                             
|1325 Avenue of the Americas
	New York, New York               |  | Sales and program acquisition office                                                                       |  |             | 3,781  | 
|                                                             
|                                                             
|                                                             
|                                                             
|95 Merrick Way
	Coral Gables, Florida                         |  | Sales and administrative office                                                                            |  |             | 3,939  | 
|                                                             
|                                                             
|                                                             
|                                                             
|234 A Kings Road
	London, England                             |  | Sales and scheduling office                                                                                |  |             | 5,786  | 
|                                                             
|                                                             
|                                                             
|                                                             
|51 Sung Chiang Road
	Taipei, Taiwan                           |  | Sales office                                                                                               |  |             | 1,600  | 
|                                                             
|                                                             
|                                                             
|                                                             
|25 Canton Road
	Hong Kong                                     |  | Sales office                                                                                               |  |             | 1,600  | 
|                                                             
|                                                             
|                                                             
|                                                             
|4 Loyang Way
	Singapore                                       |  | Sales office                                                                                               |  |             | 3,224  | 

25



---



##### Table of Contents





| |                
| | ---------------
| | Odyssey Network

|                                                |  |                                                                                 |  |             |        | 
|----------------------------------------------- |  | ------------------------------------------------------------------------------- |  | ----------- | ------ | 
|                                                |  |                                                                                 |  | Approximate
|                                                |  |                                                                                 |  | Area in    
|Location                                        |  | Use                                                                             |  | Square Feet
|                                                |  |                                                                                 |  |            
|12700 Ventura Blvd.
	Studio City, California    |  | Executive and administrative office and post production and
	editing facilities |  |             | 36,905 | 
|                                               
|                                               
|                                               
|                                               
|1177 Avenue of the Americas
	New York, New York |  | Sales and administrative office and advertising traffic                         |  |             | 19,128 | 
|                                               
|                                               
|                                               
|                                               
|205 N. Michigan Ave.
	Chicago, Illinois         |  | Sales office                                                                    |  |             | 3,048  | 
|                                               
|                                               
|                                               
|                                               
|6007 Financial Plaza
	Shreveport, Louisiana     |  | Sales office                                                                    |  |             | 678    | 

We own most of the equipment and furnishings used in our
businesses, except for satellite transponders, which are leased.
See Note 11 of Notes to Consolidated financial Statements
for information on our leasing of property and equipment.

ITEM 3.  Legal Proceedings

We are not currently engaged in any material legal proceedings.

ITEM 4.  Submission of Matters to a Vote of
Security Holders

None.



| |                                 
| | --------------------------------
| | Executive Officers of Registrant

The following lists our executive officers and information
regarding their principal occupations during at least the last
five years.

David J. Evans, 60, has been the President and Chief
Executive Officer of Crown Media Holdings and a Director of
Crown Media Holdings since May 2000. Prior to that, he
served as President and Chief Executive Officer of Crown Media
International from March 1999 to May 2000, the
Non-Executive Chairman of the Governance Committee of Odyssey
Holdings since March 1999, and a Director of Crown Media
International from July 1999 until May 2000. Prior to
that, he was the President and Chief Executive Officer of
Telecommunications International, Inc. from September 1997
until February 1999. From July 1996 until August 1997,
Mr. Evans was the Executive Vice President of News Corp.
and also the President and Chief Executive Officer of Sky Latin
America. Prior to that, he was the President and Chief Operating
Officer for Fox Television from August 1994 until June 1996.

William J. Aliber, 39, has been the Executive Vice
President and Chief Financial Officer of Crown Media Holdings
since May 2000. Prior to that, he was Executive Vice President
and Chief Financial Officer of Crown Media International from
March 1997 through May 2000 and a Director of Crown Media
International from May 1998 through May 2000. He also served as
the Vice President and Chief Financial Officer of Hallmark
Entertainment, Inc., Inc. from June 1996 through May
2000. Prior to that, he was the Director of Corporate Finance
for Hallmark Cards from January 1995 until June 1996.

Lana E. Corbi, 46, has been Executive Vice President
and Chief Operating Officer of Crown Media Holdings since June
2000. Prior to that, she was the Chief Operating Officer of
Odyssey Holdings from April 1999 through June 2000. She was
President, Network Distribution, of Fox Broadcasting Company
from May 1997 until April 1999. Ms. Corbi was the Executive
Vice President, Network Distribution of Fox Broadcasting Company
from May 1996 until May 1997. She was the President and Chief
Operating Officer of Blackstar, L.L.C. from September 1995
until May 1996. Ms. Corbi was Senior Vice President,
Network Distribution, for Fox Broadcasting Company from
October 1994 until September 1995.

26



---



##### Table of Contents



Andre P. Carey, 38, has been Executive Vice
President, Worldwide Production and Original Programming of
Crown Media Holdings, Inc. since July 2000. Mr. Carey
jointed Turner Network Television (TNT) in 1993 as
Senior Director of Business Affairs. He was promoted to Vice
President of TNT in 1995. In 1997, Mr. Carey was named Vice
President of Original Programming at TNT. Prior to joining TNT,
Mr. Carey was Vice President of Business Affairs with the
Writers and Artists Agency from 1992-1993.

Chris R. Moseley, 50, has been Executive Vice
President, Worldwide Marketing of Crown Media
Holdings, Inc. since July 2000. Prior to joining Crown
Media Holdings, Ms. Moseley worked as Executive Vice
President of ABC, Inc. Network Marketing. From 1989 to
October 1999, Ms. Moseley worked as Senior Vice President
of Marketing for Discovery Communications, Inc.

Charles L. Stanford, 55, has been Senior Vice
President, Business Affairs and General Counsel of Crown Media
Holdings since October 2000. Prior to that, Mr. Stanford
served as Senior Vice President, Legal and Business Affairs of
Crown Media International from November 1999 through October
2000. Mr. Stanford served as Vice President, Legal and
Business Affairs of Cable and New Media of ABC, Inc. from
January 1996 until October 1999.



|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|(1) | Mr. Carey voluntarily terminated his employment with Crown Media
	Holdings effective March 22, 2001.




PART II

ITEM 5.  Market for Our Common Equity and
Related Stockholder Matters

Market Information

Our Class A common stock is listed on the Nasdaq National
Market System (NASDAQ) under the ticker symbol
CRWN. Set forth below are the high and low sales
prices for our Class A common stock for the period
May 9, 2000, the date of our initial public offering, to
June 30, 2000, and for each subsequent quarterly period in
2000, as reported on the Nasdaq National Market System.

|               |  |             |        |     |  |   |        | 
|-------------- |  | ----------- | ------ | --- |  | - | ------ | 
|               |  |            
|               |  | Price Range
|               |  |            
|Common Stock   |  | High        |        | Low
|               |  |             |        |    
|First Quarter  |  | $           |       |     |  | $ |       | 
|              
|              
|              
|              
|Second Quarter |  | $           | 16.250 |     |  | $ | 10.000 | 
|              
|              
|              
|              
|Third Quarter  |  | $           | 18.125 |     |  | $ | 13.875 | 
|              
|              
|              
|              
|Fourth Quarter |  | $           | 18.375 |     |  | $ | 10.750 | 

On August 8, 2000, trading of our Class A common stock
began on the Stock Market of Amsterdam Exchanges
(ASE) under the ticker symbol CRWN.

Holders

As of March 2, 2001, there were approximately
29 record holders of the Class A common stock and one
record holder of the Class B common stock.

Dividends

We have not paid any cash dividends on our common stock since
inception. We anticipate that we will retain all of our
earnings, if any, in the foreseeable future to finance the
continued growth and expansion of our business, and we have no
current intention to pay cash dividends.

Use of Proceeds from Registered
Securities

On May 9, 2000, we completed an initial public offering of
10,000,000 shares of our Class A common stock. All of
the shares were sold pursuant to a registration statement on
Form S-1 (File No. 333-95573) that was declared
effective by the SEC on May 3, 2000. The managing
underwriters for the offering were Donaldson, Lufkin &
Jenrette, Lehman Brothers, Salomon Smith Barney and
DLJdirect Inc. All of the shares

27



---



##### Table of Contents





Since the effective date of the registration statement through
March 2, 2001, we have used approximately
$125.4 million of the net proceeds. The aforementioned
amount was used to pay outstanding programming obligations of
$30.0 million to Hallmark Entertainment, an affiliate, and
to purchase additional programming, to enhance our Network
Operations Center at our Denver facilities, to expand our
distribution capabilities, to expand our advertising staff, and
to fund other general corporate expenditures. These uses of
proceeds from our offering do not represent a material change
from the anticipated uses described in the prospectus included
in our registration statement.

ITEM 6.  Selected Financial Data

The Consolidated Financial Statements of Crown Media Holdings
include the assets, liabilities and results of Crown Media
International for all periods presented. The assets, liabilities
and results of Odyssey Holdings are included in the Consolidated
Financial Statements from May 9, 2000. On that date, Crown
Media Holdings completed a reorganization which included the
acquisition of 100% of Crown Media International and 77.5% of
Odyssey Holdings. Crown Media Holdings considers Crown Media
International as a predecessor corporation for financial
reporting purposes. Unaudited pro forma information combining
the results of operations of Crown Media Holdings, Crown Media
International, and Odyssey Holdings, as if a reorganization and
acquisition involving these entities had occurred on January 1st
of the periods presented is contained in Note 6 to the
Consolidated Financial Statements.

A summary of Crown Media Holdings unaudited Pro Forma
Consolidated Statements of Operations and related
Managements Discussion and Analysis of Pro Forma Financial
Condition and Results of Operations have been included to
provide a comparative basis for users of Crown Media
Holdings financial information. The aforementioned summary
and related discussion immediately follow these introductory
comments.

The following unaudited pro forma information presents a summary
of the condensed consolidated results of operations of Crown
Media Holdings, Crown Media International, and Odyssey Holdings
as if the reorganization and acquisition had occurred on January
1st of the periods presented, along with certain pro forma
adjustments to give effect to amortization of goodwill, equity
in net losses of unconsolidated entities, minority interests,
and other adjustments. The pro forma financial information is
not necessarily indicative of the results of operations as they
would have been had the transaction been effected on the assumed
dates.

28



---



##### Table of Contents






CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

(In thousands, except per share amounts)


|                                                                         |                                              |                          |                              |        |        |          |        |        |        |          |  
|------------------------------------------------------------------------ | -------------------------------------------- | ------------------------ | ---------------------------- | ------ | ------ | -------- | ------ | ------ | ------ | -------- | -
|                                                                         |                                              |                         
|                                                                         |                                              | Years Ended December 31,
|                                                                         |                                              |                         
|                                                                         |                                              | 1999                     |                              | 2000  
|                                                                         |                                              |                          |                              |       
|Revenues:                                                                |                                              |                          |                              |        |        |          |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Subscriber fees                              |                          | $                            | 35,514 |        |          | $      | 50,904 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising                                  |                          |                              | 10,687 |        |          |        | 16,933 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising by Hallmark Cards                |                          |                              | 375    |        |          |        | 2,788  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Management fees from unconsolidated entity   |                          |                              | 3,216  |        |          |        | 2,892  |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Total revenues               |        |        | 49,792   |        |        |        | 73,517   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cost of Services:                                                        |                                              |                          |                              |        |        |          |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Programming costs:                           |                          |                              |        |        |          |        |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                              | Affiliates               |                              |        | 28,261 |          |        |        | 44,852 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                              | Non-affiliates           |                              |        | 16,334 |          |        |        | 15,352 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Amortization of subscriber acquisition costs |                          |                              | 1,600  |        |          |        | 4,801  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Operating costs                              |                          |                              | 32,751 |        |          |        | 40,837 |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Total cost of services       |        |        | 78,946   |        |        |        | 105,842  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                                              |                          | 45,744                       |        |        |          | 62,469 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Marketing expenses                                                       |                                              |                          | 18,185                       |        |        |          | 24,378 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of goodwill                                                 |                                              |                          | 12,528                       |        |        |          | 12,528 |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Loss from operations         |        |        | (105,611 | )      |        |        | (131,700 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Equity in net losses of unconsolidated entities and investment
	expenses |                                              |                          | (4,954                       | )      |        |          | (4,493 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Minority interest in net loss                                            |                                              |                          | 12,389                       |        |        |          | 4,241  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Interest income, net                                                     |                                              |                          | 1,980                        |        |        |          | 957    |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Net loss before income taxes |        |        | (96,196  | )      |        |        | (130,995 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income tax provision                                                     |                                              |                          | (956                         | )      |        |          | (1,743 | )     
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Net loss                     |        | $      | (97,152  | )      |        | $      | (132,738 | )
|                                                                         |                                              |                          |                              |        |        |          |        |       
|Weighted average number of Class A and Class B shares
	outstanding       |                                              |                          | 60,000                       |        |        |          | 60,007 |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|Net loss per share                                                       |                                              | $                        | (1.62                        | )      |        | $        | (2.21  | )     
|                                                                         |                                              |                          |                              |        |        |          |        |       



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Pro Forma
	Financial Condition and Results of Operations



| |                                                                       
| | ----------------------------------------------------------------------
| | Year Ended December 31, 2000 Compared to Year Ended
	December 31, 1999

Revenues.Total revenues for the year ended
December 31, 2000 increased by $23.7 million, which
represents an increase of 47.6% over the comparable period in
1999. Subscriber fees revenue increased by $15.4 million
for the year ended December 31, 2000, which represents an
increase of 43.3% over the comparable period in 1999. The
increased subscriber fees revenues resulted from new market
launches and expanded distribution in existing markets. The
number of subscribers to Hallmark Entertainment Network and
Odyssey Network as of December 31, 2000 increased by 24.5%
to 60.0 million, compared to 48.2 million as of
December 31, 1999. As international subscriber fees
continue to experience downward pressure (for the reasons
described below) and our subscriber base expands, we continue to
focus on increasing advertising revenues. Advertising revenues
increased by $8.7 million for the year ended
December 31, 2000, which represents an increase of 78.3%
over the comparable period in 1999. The increase in advertising
revenues reflect our growing subscriber base, expanding sales of
advertising time primarily in the United States and the United
Kingdom and higher advertising rates. Sixty-seven of the leading
domestic advertisers advertised on the Odyssey Network during
2000. We received management fees from the Kermit Channel during
2000. As a result of the purchase of EM.TVs interests and
the collapsing of the Kermit Channel into a block on the
Hallmark Entertainment Network, we do not expect to earn
management fee revenues in the future.

29



---



##### Table of Contents



Subscribers of the Hallmark Entertainment Network increased at a
higher rate than subscriber revenues primarily because a number
of new subscribers were added with promotional periods. During
2000, the Hallmark Entertainment Network was launched in the
United Kingdom to approximately 3.5 million subscribers, in
Israel to approximately 1.2 million subscribers and in
Hungary to approximately 250,000 subscribers. During 1999, we
launched the Hallmark Entertainment Network in Argentina, India,
Philippines, Romania and Russia. Sixty-two percent of total
revenues in 2000 and 59.0% of total revenues in 1999 were earned
internationally. Subscribers of the Odyssey Network decreased
from 27.4 million in 1999 to 26.5 million in 2000 due
to the acquisition of one of the leading pay television
distributors by another distributor and to the expiration of
agreements we had with other pay television distributors. By the
end of 2000, we had renegotiated agreements with six of the top
nine leading pay television distributors. Additionally, rates
negotiated for domestic subscriber fees and advertising revenues
increased as we continue to sign new distribution agreements.
International fees per subscriber are expected to experience
downward pressure in the future due to the competitive nature of
the industry, the growth of digital cable, and the shift in the
industry from subscriber fees revenue to advertising revenue.

Cost of services. Cost of services for the year ended
December 31, 2000 increased by $26.9 million, which
represents an increase of 34.1% over the comparable period in
1999. Cost of services as a percent of total revenue decreased
to 144.0% for the year ended 2000 as compared to 158.6% for the
year ended 1999. This decrease was due primarily to the 47.6%
increase in total revenue noted above and to pre-launch costs
incurred during 1999. Programming costs rose 35.0% as we
invested in additional and higher quality programming, including
the greater use of Hallmark Entertainment titles necessary to
fulfill our programming strategy. Also during 2000, the Odyssey
Network purchased rights to the series Dr. Quinn,
Medicine Woman from a third-party supplier. Additionally,
operating costs rose as we expanded existing markets and
launched the Hallmark Entertainment Network in the United
Kingdom, Israel, Turkey and Hungary during 2000. Total cost of
services increased reflecting the increased infrastructure,
certain key senior management additions, and costs associated
with supporting new markets.

Amortization of subscriber acquisition costs.Amortization of subscriber acquisition costs, a component of
cost of services, increased by $3.2 million for the year
ended December 31, 2000, or 200.0%, over the comparable
period in 1999. Higher subscriber acquisition costs were
primarily attributable to full year amortization of costs
related to a domestic distribution contract commencing during
the third quarter of 1999. Additionally, we negotiated other
distribution contracts, which required payment of subscriber
acquisition costs, during the fourth quarter of 2000. Subscriber
acquisition costs and related amortization are likely to
increase in the future as we expand our distribution.

Selling, general and administrative expenses.Selling, general and administrative expenses for the
year ended December 31, 2000 increased by
$16.7 million, which represents an increase of 36.6% over
the comparable period in 1999. This increase primarily reflects
increased costs associated with supporting expanded distribution
in existing markets, supporting new markets and the continued
development of a corporate infrastructure to support increased
distribution and advertising, including expansion of the
management team and increased staffing levels. This increase
also includes $4.2 million in salaries and benefits
primarily related to compensatory stock option expense for the
year 2000. Selling, general and administrative expenses as a
percent of total revenue decreased to 85.0% for the year ended
December 31, 2000 as compared to 91.9% for the year ended
December 31, 1999. This decrease is due to the 47.6%
increase in total revenue noted above and decreases in travel
and entertainment, consulting and pre-launch costs in the third
and fourth quarters of 2000.

Marketing expenses.Marketing expenses for the year ended
December 31, 2000, increased by $6.2 million, which
represents an increase of 34.1% over the comparable period in
1999. Marketing expenses increased in 2000 and are expected to
increase in at least the first and second quarters of 2001 due
to the introduction of our new brand package, which includes
branded theme blocks, a new positioning line, on-air graphics
and signature music. The newly redesigned brand began a
worldwide rollout on November 1, 2000.

30



---



##### Table of Contents



Goodwill amortization expense.Goodwill amortization
expense for each of the years ended December 31, 2000 and
1999, was $12.5 million. In conjunction with the
acquisition of Odyssey Holdings on May 9, 2000, we recorded
goodwill in the amount of $248.8 million, which is being
amortized over 20 years.

Loss from operations. Loss from operations for the year
ended December 31, 2000, increased by $26.1 million,
which represents an increase of 24.7% over the comparable period
in 1999. This increase in the loss from operations for the year
ended December 31, 2000, was attributable to a combination
of the factors discussed above.

Interest income, net.Net interest income of $957,000 and
$2.0 million was earned for the years ended
December 31, 2000 and 1999, respectively, primarily from
short-term investments of initial public offering proceeds in
2000 and a note receivable from Hallmark Entertainment in 1999.
Net interest income decreased in 2000 due to lower available
funds for investment and interest expense.

Income tax provision.Income tax provision for the year
ended December 31, 2000, increased by $787,000, which
represents an increase of 82.3% over the comparable period in
1999. This increase was due to the tax on the foreign-based
income resulting from increased international subscriber fees
revenues discussed above.

Net loss. Net loss for the year ended December 31,
2000, increased by $35.6 million, which represents an
increase of 36.6% over the comparable periods in 1999. This
increase in net loss for the year ended December 31, 2000,
was attributable to a combination of the factors discussed above.

31



---



##### Table of Contents





| |                                                                         
| | ------------------------------------------------------------------------
| | 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, 1996, 1997, 1998, 1999, and 2000 and the
consolidated balance sheet data as of December 31, 1996,
1997, 1998, 1999, and 2000 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 included elsewhere in
this Form 10-K.

The consolidated financial data of Crown Media Holdings include
the assets, liabilities and results of Crown Media International
for all periods presented. The assets, liabilities and results
of Odyssey Holdings are included in the consolidated financial
data from May 9, 2000. On that date, we completed a
reorganization which included the acquisition of 100% of Crown
Media International and 77.5% of Odyssey Holdings. We consider
Crown Media International as a predecessor corporation for
financial reporting purposes. Unaudited pro forma information
combining the results of operations of Crown Media Holdings,
Crown Media International, and Odyssey Holdings, as if a
reorganization and acquisition involving these entities had
occurred on January 1st of the periods presented is contained in
Note 6 to the Consolidated Financial Statements.

|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |        |        |          |  
|------------------------------------------------------------------------ | ------------------------------------------ | ---------------------------------------- | ---------------------------- | ----- | ----- | ------- | ------ | ----- | ------ | ------- | ------ | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------ | ------ | ------ | -------- | -
|                                                                         |                                            |                                         
|                                                                         |                                            | Years Ended December 31,                
|                                                                         |                                            |                                         
|                                                                         |                                            | 1996                                     |                              | 1997  |       | 1998    |        | 1999  |        | 2000   
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |        
|                                                                         |                                            |                                         
|                                                                         |                                            | (In thousands, except per share amounts)
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Statement of Operations Data:                                            |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Revenues:                                                                |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Subscriber fees                            |                                          | $                            | 3,048 |       |         | $      | 9,100 |        |         | $      | 20,648 |        |         | $       | 27,670 |        |         | $      | 47,921 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising                                |                                          |                              |      |       |         |        | 176   |        |         |        | 84     |        |         |         | 1,729  |        |         |        | 16,016 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Management fees from unconsolidated entity |                                          |                              |      |       |         |        | 526   |        |         |        | 2,955  |        |         |         | 2,510  |        |         |        | 2,879  |       
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                         |                                            |                                          | Total revenues               |       |       | 3,048   |        |       |        | 9,802   |        |        |        | 23,687  |         |        |        | 31,909  |        |        |        | 66,816   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cost of Services:                                                        |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Programming costs:                         |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                            | Affiliates                               |                              |       | 5,125 |         |        |       | 10,322 |         |        |        | 12,307 |         |         |        | 12,331 |         |        |        | 36,853 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                            | Non-affiliates                           |                              |       | 1,380 |         |        |       | 7,770  |         |        |        | 14,187 |         |         |        | 10,452 |         |        |        | 13,387 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of subscriber acquisition costs                             |                                            |                                          |                             |       |       |         |       |       |        |         |       |        |        |         |        |        |        |         | 3,214  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Operating costs                                                          |                                            |                                          | 2,894                        |       |       |         | 6,990  |       |        |         | 16,831 |        |        |         | 18,796  |        |        |         | 37,230 |       
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                         |                                            |                                          | Total cost of services       |       |       | 9,399   |        |       |        | 25,082  |        |        |        | 43,325  |         |        |        | 41,579  |        |        |        | 90,684   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                                            |                                          | 3,970                        |       |       |         | 5,741  |       |        |         | 9,916  |        |        |         | 22,851  |        |        |         | 51,791 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Marketing expenses                                                       |                                            |                                          | 141                          |       |       |         | 378    |       |        |         | 1,634  |        |        |         | 3,426   |        |        |         | 21,280 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of goodwill                                                 |                                            |                                          |                             |       |       |         |       |       |        |         |       |        |        |         |        |        |        |         | 8,639  |       
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                         |                                            |                                          | Loss from operations         |       |       | (10,462 | )      |       |        | (21,399 | )      |        |        | (31,188 | )       |        |        | (35,947 | )      |        |        | (105,578 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Equity in net losses of unconsolidated entities and investment
	expenses |                                            |                                          |                             |       |       |         |       |       |        |         | (4,918 | )      |        |         | (18,992 | )      |        |         | (9,328 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Interest income, net                                                     |                                            |                                          |                             |       |       |         |       |       |        |         | 1,273  |        |        |         | 798     |        |        |         | 523    |       
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                         |                                            |                                          | Net loss before income taxes |       |       | (10,462 | )      |       |        | (21,399 | )      |        |        | (34,833 | )       |        |        | (54,141 | )      |        |        | (114,383 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income tax provision                                                     |                                            |                                          | (29                          | )     |       |         | (179   | )     |        |         | (632   | )      |        |         | (2,556  | )      |        |         | (1,743 | )     
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|                                                                         |                                            |                                          | Net loss                     |       | $     | (10,491 | )      |       | $      | (21,578 | )      |        | $      | (35,465 | )       |        | $      | (56,697 | )      |        | $      | (116,126 | )
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|Weighted average number of Class A and Class B shares
	outstanding       |                                            |                                          | 27,603                       |       |       |         | 27,603 |       |        |         | 29,637 |        |        |         | 32,989  |        |        |         | 50,786 |       
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       
|Net loss per share                                                       |                                            | $                                        | (0.38                        | )     |       | $       | (0.78  | )     |        | $       | (1.27  | )      |        | $       | (1.84   | )      |        | $       | (2.32  | )     
|                                                                         |                                            |                                          |                              |       |       |         |        |       |        |         |        |        |        |         |         |        |        |         |        |       

32



---



##### Table of Contents



|                                                   |                                |                    |         |       |  |      |         |       |  |      |         |       |  |   |         |        |  |   |         |        | 
|-------------------------------------------------- | ------------------------------ | ------------------ | ------- | ----- |  | ---- | ------- | ----- |  | ---- | ------- | ----- |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                   |                                |                   
|                                                   |                                | As of December 31,
|                                                   |                                |                   
|                                                   |                                | 1996               |         | 1997  |  | 1998 |         | 1999  |  | 2000
|                                                   |                                |                    |         |       |  |      |         |       |  |     
|                                                   |                                |                   
|                                                   |                                | (In thousands)    
|                                                  
|                                                  
|                                                  
|                                                  
|Balance Sheet Data:                                |                                |                    |         |       |  |      |         |       |  |      |         |       |  |   |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|Cash and cash equivalents                          |                                | $                  | 5       |       |  | $    | 209     |       |  | $    | 2,877   |       |  | $ | 3,865   |        |  | $ | 34,274  |       
|                                                  
|                                                  
|                                                  
|                                                  
|Goodwill                                           |                                |                    |        |       |  |      |        |       |  |      |        |       |  |   |        |        |  |   | 240,141 |       
|                                                  
|                                                  
|                                                  
|                                                  
|Total assets                                       |                                |                    | 13,560  |       |  |      | 30,276  |       |  |      | 117,674 |       |  |   | 80,003  |        |  |   | 530,078 |       
|                                                  
|                                                  
|                                                  
|                                                  
|Total long-term debt, excluding current maturities |                                |                    |        |       |  |      |        |       |  |      | 10,000  |       |  |   |        |        |  |   |        |       
|                                                  
|                                                  
|                                                  
|                                                  
|Stockholders equity (deficit)                     |                                |                    | (13,236 | )     |  |      | (34,813 | )     |  |      | (20,197 | )     |  |   | (62,967 | )      |  |   | 246,808 |       
|                                                  
|                                                  
|                                                  
|                                                  
|Other Data:                                        |                                |                    |         |       |  |      |         |       |  |      |         |       |  |   |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|Capital expenditures                               |                                | $                  | 1,921   |       |  | $    | 1,031   |       |  | $    | 6,665   |       |  | $ | 2,569   |        |  | $ | 22,809  |       
|                                                  
|                                                  
|                                                  
|                                                  
|Total subscribers at year end:                     |                                |                    |         |       |  |      |         |       |  |      |         |       |  |   |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Hallmark Entertainment Network |                    |         | 1,942 |  |      |         | 5,121 |  |      |         | 8,710 |  |   |         | 20,794 |  |   |         | 33,531 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Odyssey Network                |                    |         |      |  |      |         |      |  |      |         |      |  |   |         |       |  |   |         | 26,488 | 
|                                                   |                                |                    |         |       |  |      |         |       |  |      |         |       |  |   |         |        |  |   |         |       
|                                                   | Total subscribers              |                    |         | 1,942 |  |      |         | 5,121 |  |      |         | 8,710 |  |   |         | 20,794 |  |   |         | 60,019 | 



|        |                                                                                                  
|------- | -------------------------------------------------------------------------------------------------
|ITEM 7. | Managements Discussion and Analysis of Historical
	Financial Condition and Results of Operations

Overview

The following discussion should be read in conjunction with the
attached consolidated financial statements.

The reported financial statements and data for 1998 and 1999 are
comprised of the predecessor entity, Crown Media International
and its wholly-owned subsidiaries. Therefore, significant
variances between 1998, 1999 and 2000 financial information
exist and are, to a large extent, the result of the acquisition
of Odyssey Holdings on May 9, 2000. Please refer to
Managements Discussion and Analysis of Pro Forma
Financial Condition and Results of Operations included in
Item 6: Selected Financial Data for further
information.

Crown Media International and Odyssey Holdings have historically
operated as separate entities. The results of Odyssey Holdings
are reported on a consolidated basis with us from the effective
date of the reorganization and offering. Crown Media Holdings
accounts for H&H Programming-Asia, of which it owns a 50%
interest, and accounted for Odyssey Holdings, of which it owned
a 22.5% interest through May 9, 2000, in the consolidated
financial statements using the equity method of accounting.

Crown Media Holdings acquisition of Crown Media
International has been accounted for as a reorganization of
entities under common control. Our acquisition of the additional
55% interest in Odyssey Holdings has been accounted for using
the purchase method of accounting. With the completion of our
initial public offering and the reorganization, Odyssey Holdings
has been consolidated with us and is no longer accounted for
using the equity method of accounting.



| |         
| | --------
| | Revenues

Our revenues consist primarily of subscriber fees and
advertising revenues. Subscriber fees are generally payable to
us on a per subscriber basis by pay television distributors for
the right to carry our channels. Subscriber fees revenues are
recorded net of promotional subscribers. Prices vary according
to:



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | market;                                                                 
|
| |  | the relative position in the market of the distributor and the
	channel;
|
| |  | the packaging arrangements for the channel; and                         
|
| |  | other commercial terms such as platform exclusivity and length
	of term.

In some circumstances, distributors provide minimum revenue
guarantees.

33



---



##### Table of Contents



Our channels growth in subscriber fees has been driven
primarily by:



| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | expansion of our channels into new markets;                           
|
| |  | new distribution agreements for our channels in existing
	markets; and
|
| |  | growth in the number of multi-channel homes.                          

Advertising sales are generally made on the basis of a price per
advertising spot or per unit of audience measurement (for
example, a ratings point). Prices vary on a market-by-market
basis. Rates differ within markets depending on audience
demographics.

In markets where regular audience measurements are available,
our advertising rates are calculated on the basis of an agreed
upon price per unit of audience measurement in return for a
guaranteed investment level by the advertiser. In these
countries, we commit to provide advertisers certain rating
levels in connection with their advertising. Revenue is recorded
net of estimated shortfalls, which are usually settled by
providing the advertiser additional advertising time. In other
markets, our advertising rates are calculated on the basis of
cost per advertising spot or package of advertising spots, and
the price varies by audience level expected (but not measured)
during a particular time slot. This is the predominant
arrangement in the countries outside the United States in which
we sell advertising time. Advertising rates also vary by time of
year based on seasonal changes in television viewership.



| |                 
| | ----------------
| | Cost of Services

Crown Media Holdings cost of services consists primarily
of program license fees and the cost of signal distribution,
dubbing and subtitling, and creating the promotional segments
that are aired between programs. In the United States, we pay
certain television distributors one-time subscriber acquisition
fees to carry our channels. However, internationally, the
markets generally do not require us to pay these fees.
Subscriber acquisition fees paid are capitalized and amortized
over the term of the applicable distribution agreement. At the
time we sign a distribution agreement, and periodically
thereafter, we evaluate the recoverability of the costs we incur
against the revenues directly associated with each agreement.
New market launches can require significant up front investments
in program license fees, signal distribution, dubbing and
subtitling, marketing, and promotional segments and creative
production. Initial revenues from new market launches generally
trail expenses by three to six months. We expect cost of
services to continue to increase in the future as we enter new
markets and expand programming to support our advertising
strategy.



| |         
| | --------
| | Goodwill

As a result of the reorganization, we have generated a
significant amount of goodwill, which we are amortizing on a
straight-line basis over 20 years. The amount of goodwill
that we amortize in any given year will be treated as a charge
against earnings under the accounting principles generally
accepted in the United States. If we are required to write-off
our goodwill or accelerate the amortization of our goodwill, our
results of operations, stockholders equity or
profitability could be materially adversely affected.

We engaged an independent firm to complete a valuation of
Odyssey Holdings as a basis for the allocation of its purchase
price. Our calculation of goodwill reflects estimated fair
values as of the acquisition date; however, the calculation is
subject to further adjustments under the provisions of
Accounting Principles Board Opinion 16 and related accounting
pronouncements.



| |                     
| | --------------------
| | Income Tax Provision

We account for income taxes using the liability method. Under
this method, we recognize deferred tax assets and liabilities
for future tax consequences attributable to the difference
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.

34



---



##### Table of Contents



Prior to the reorganization on May 9, 2000, Crown Media
Holdings did not record a tax benefit for federal or state tax
losses since these losses were used by our parent and were not
available to us. Crown Media Holdings has recorded a tax
provision related to foreign taxes and established a deferred
tax liability as required for certain timing items.

Subscriber fees are subject to withholding tax in many of the
foreign jurisdictions in which we currently operate at rates
ranging from 5% to 20%. Crown Media Holdings attempts to take
advantage of reduced withholding rates pursuant to any treaties
between the United States and foreign taxing jurisdictions to
the extent available.

Foreign withholding tax may be claimed as a credit against Crown
Media Holdings U.S. tax liability, subject to certain
limitations. Any amounts not allowed as a credit in the year
generated may be carried back to the two preceding tax years and
then forward to the five succeeding tax years. Alternatively, if
taxes cannot be claimed as a credit during these carry back and
carryover periods, an election may be made to claim these taxes
as a deduction, thus resulting in a tax benefit to the extent of
Crown Media Holdings tax rate and its ability to use such
deductions. Tax losses may only be used to offset taxable
income. To the extent losses are limited, such excess losses may
be carried back to the two preceding tax years and then forward
to the 20 succeeding tax years.

Crown Media Holdings has generated tax losses since its
inception and there is no certainty that Crown Media Holdings
will generate taxable income in the future. Crown Media
Holdings policy is to establish a valuation allowance
against its tax credits and tax losses until such time that
realization is reasonably assured.

Goodwill generated as a result of the acquisition of Odyssey
Holdings and any amortization of such goodwill for financial
reporting purposes is not deductible for tax purposes.
Consequently, our effective tax rate will be higher than the
statutory rate as a result of such non-deductible goodwill.

As a result of the acquisition, Odyssey Holdings is consolidated
for financial reporting purposes but not for tax purposes.
Odyssey Holdings is treated as a partnership for tax purposes,
and members of Odyssey Holdings will be allocated income and
losses pursuant to the amended and restated company agreement of
Odyssey Holdings.

Significant Accounting Policies

Subscriber fees revenues derived from pay television
distributors are recognized when services are provided.
Subscriber fees are recognized based upon the reported level of
subscribers by the pay television distributors and are recorded
net of promotional subscribers.

Advertising revenues are recognized as earned in the period in
which the advertising commercials are telecast. Advertising
revenues are recorded net of agency commissions and estimated
advertising deficiency reserves.

The asset, program license fees, represents costs paid for the
rights to air programming licensed from others. In accordance
with SFAS No. 63, Financial Reporting by
Broadcasters, program license fees are capitalized and
amortized over each programs license period or anticipated
usage, whichever is shorter.

The asset, subtitling and dubbing costs, represent costs
incurred to prepare programming for airing in international
markets. These costs are capitalized as incurred and are
amortized over each programming license period or anticipated
usage, whichever is shorter.

In the United States, we pay some television distributors
one-time subscriber acquisition fees to carry our channels.
Subscriber acquisition fees are capitalized and amortized over
the term of the applicable distribution agreement.



| |                          
| | -------------------------
| | New Accounting Principles

In June 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities was issued. This
statement was subsequently amended by SFAS No. 137,
Accounting for Derivative Instruments

35



---



##### Table of Contents





In December 1999, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements
(SAB 101), which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met in order to recognize revenue and
provides guidance for disclosures related to revenue recognition
policies. Crown Media Holdings believes that the adoption of
SAB 101 did not have a material effect on its business,
financial position or results of operations.

In 1999, EITF Issue No. 99-17, Accounting for
Advertising Barter Transactions was issued. EITF
No. 99-17 establishes accounting and reporting standards
for bartering transactions. Crown Media Holdings records
advertising revenue and expenses in barter deals at fair value
only if the fair value of the advertising to be provided is
determined based upon the Companys historical practice of
receiving cash for similar ads from buyers unrelated to the
other party in the current barter transaction. When barter
advertising revenue does not meet the requirements of the rule,
no revenue is recognized.



| |                                        
| | ---------------------------------------
| | Foreign Currency Exchange and Inflation

We have not entered into hedging transactions to reduce our
exposure to foreign currency exchange rate risks. Accordingly,
we may experience economic loss and a negative effect on
earnings and equity with respect to our holdings solely as a
result of foreign currency exchange rate fluctuations. We plan
to enter into hedging transactions during second quarter 2001.
See Risk Factors  We are subject to the risks
of doing business outside the United States in
Item 1, Business.

The functional currency for our operations generally is the
United States dollar. Assets and liabilities of foreign
subsidiaries are translated at the exchange rates in effect at
year-end, and the statements of operations are translated at the
average exchange rates during the period. Exchange rate
fluctuations in translating foreign currency financial
statements into United States dollars result in unrealized gains
or losses that are not material. Cumulative translation
adjustments are not material. Transactions denominated in
currencies other than the local currency are recorded based on
exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses
which are reflected in income as realized upon settlement of the
transactions.

We have not been materially affected by inflation.

Results of Operations



| |                                                                       
| | ----------------------------------------------------------------------
| | Year Ended December 31, 2000 Compared to Year Ended
	December 31, 1999

Overview. The actual results of operations reflect the
predecessor entity, Crown Media International, for the year
ended December 31, 1999 and for the period of
January 1, 2000 through May 9, 2000. Therefore,
significant variances exist as a result of the acquisition of
Odyssey Holdings as of May 9, 2000. See Item 6,
Selected Financial Data, which contains pro forma consolidated
statements of operations.

Revenues.Total revenues for the year ended
December 31, 2000 increased by $34.9 million, which
represents an increase of 109.4% over the comparable period in
1999. Part of the increase in total revenues was due to the
acquisition of Odyssey Holdings on May 9, 2000. Crown Media
Holdings recorded $18.7 million, or 100%, of Odyssey
Holdings revenue for the period May 9 through
December 31, 2000. Subscriber fees revenue increased by
$20.3 million for the year ended December 31, 2000,
which represents an increase of 73.2% over the comparable period
in 1999. The increased subscriber fees revenues resulted from
new market launches and expanded distribution in existing
markets. The number of subscribers to Hallmark Entertainment
Network and Odyssey Network as of December 31, 2000
increased by 188.5% to 60 million, compared to
20.8 million as of December 31, 1999. As international
subscriber fees continue to experience downward

36



---



##### Table of Contents





Subscribers of the Hallmark Entertainment Network increased at a
higher rate than subscriber revenues as a number of new
subscribers were added with promotional periods. During 2000,
the Hallmark Entertainment Network was launched in the United
Kingdom to approximately 3.5 million subscribers, in Israel
to approximately 1.2 million subscribers, and in Hungary to
approximately 250,000 subscribers. During 1999, we launched the
Hallmark Entertainment Network in Argentina, India, Philippines,
Romania and Russia. Subscribers of the Odyssey Network increased
by 100.0%, or 26.5 million, due to our May 9, 2000,
acquisition of Odyssey Holdings. Rates negotiated for domestic
subscriber fees and advertising revenues increased as we
continue to sign new distribution agreements. During 2000, we
signed agreements with six of the top nine leading pay
television distributors. Sixty-nine percent of total revenues in
2000 and 92% of total revenues in 1999 were earned
internationally. International fees per subscriber are expected
to experience downward pressure in the future due to the
competitive nature of the industry, the growth of digital cable,
and the shift in the industry from subscriber fees revenue to
advertising revenue.

Cost of services. Cost of services for the year ended
December 31, 2000 increased by $49.1 million, which
represents an increase of 118.1% over the comparable period in
1999. This increase was primarily due to the acquisition of
Odyssey Holdings on May 9, 2000. We recorded
$34.6 million, or 100%, of Odyssey Holdings cost of
services for the period May 9 through December 31, 2000.
Cost of services as a percentage of total revenue increased to
135.7% for the year ended 2000, as compared to 130.3% for the
year ended 1999. This increase was due primarily to a
$27.5 million increase in programming costs and a
$18.4 million increase in operating costs for the
aforementioned period. Programming costs rose as we invested in
additional and higher quality programming, including the greater
use of Hallmark Entertainment titles necessary to fulfill our
programming strategy. Also during 2000, the Odyssey Network
purchased rights to the series Dr. Quinn, Medicine
Woman from a third-party supplier. Additionally, operating
costs rose as we expanded existing markets and launched the
Hallmark Entertainment Network in the United Kingdom, Israel,
Turkey and Hungary during 2000. Total cost of services increased
reflecting the increased infrastructure, certain key senior
management additions, and costs associated with supporting new
markets.

Amortization of subscriber acquisition costs.Amortization of subscriber acquisition costs, a component of
cost of services, increased by $3.2 million for the year
ended December 31, 2000, or 100.0%, partly because of our
May 9, 2000, acquisition of Odyssey Holdings. Higher
subscriber acquisition costs were primarily attributable to
amortization of costs related to a domestic distribution
contract commencing during the third quarter of 1999.
Additionally, we negotiated other distribution contracts, which
required payment of subscriber acquisition costs, during the
fourth quarter of 2000. Subscriber acquisition costs and related
amortization are likely to increase in the future as we expand
our distribution.

Selling, general and administrative expenses. Selling,
general and administrative expenses for the year ended
December 31, 2000 increased by $28.9 million, which
represents an increase of 126.6% over the comparable period in
1999. This increase was primarily due to the acquisition of
Odyssey Holdings on May 9, 2000. We recorded
$17.0 million, or 100%, of Odyssey Holdings general
and administrative expenses for the period May 9 through
December 31, 2000. Selling, general and administrative
expenses as a percent of total revenue increased to 77.5% for
the year ended December 31, 2000, as compared to 71.6% for
the year ended December 31, 1999. This increase primarily
reflects increased costs associated with supporting new markets
and the continued development of a corporate infrastructure to
support increased distribution and advertising, including
expansion of the management team and increased staffing levels.
This increase also includes $4.2 million in salaries and
benefits primarily related to compensatory stock option expense
for the year 2000.

37



---



##### Table of Contents



Marketing expenses.Marketing expenses for the year ended
December 31, 2000, increased by $17.9 million, which
represents an increase of 521.1% over the comparable period in
1999. This increase was primarily due to the acquisition of
Odyssey Holdings on May 9, 2000. Additionally, marketing
expenses increased in 2000 and are expected to increase the
first and second quarters of 2001 due to the introduction of our
new brand package, which includes branded theme blocks, a new
positioning line, on-air graphics and signature music. The newly
redesigned brand began a worldwide rollout on November 1,
2000.

Goodwill amortization expense. Goodwill amortization
expense for the years ended December 31, 2000, was
$8.6 million. In conjunction with the acquisition of
Odyssey Holdings on May 9, 2000, we recorded goodwill in
the amount of $248.8 million, which is being amortized over
20 years.

Loss from operations. Loss from operations for the year
ended December 31, 2000, increased by $69.6 million,
which represents an increase of 193.7% over the comparable
period in 1999. This increase in the loss from operations for
the year ended December 31, 2000, was attributable to a
combination of the factors discussed above.

Equity in net losses of unconsolidated entities and
investment expenses. Equity in net losses of unconsolidated
entities and investment expenses for the year ended
December 31, 2000, decreased $9.7 million which
represents a decrease of 50.9% over the comparable period in
1999. This decrease was primarily due to the acquisition of
Odyssey Holdings on May 9, 2000. We commenced consolidation
of Odyssey Holdings on the date of the acquisition. Net losses
derived from Odyssey Holdings were recorded under the equity
method of accounting through May 9, 2000, and consolidated
thereafter. Odyssey Holdings net losses continue to
increase due to the ongoing implementation of its growth
strategy to reach new subscribers and advertisers.

Interest income, net. Net interest income of $523,000 and
$798,000 was earned for the years ended December 31, 2000
and 1999, respectively, primarily from short-term investments of
initial public offering proceeds in 2000 and a note receivable
from Hallmark Entertainment in 1999. Net interest income
decreased in 2000 due to lower available funds for investment
and interest expense.

Income tax provision. Income tax provision for the year
ended December 31, 2000, decreased by $813,000, which
represents a decrease of 31.8% over the comparable period in
1999. This decrease was attributable to a reversal of deferred
tax liabilities related to the increase in ownership of Odyssey
Holdings.

Net loss. Net loss for the year ended December 31,
2000, increased by $59.4 million, which represents an
increase of 104.8% over the comparable periods in 1999. This
increase in net loss for the year ended December 31, 2000,
was attributable to a combination of the factors discussed above.



| |                                                                       
| | ----------------------------------------------------------------------
| | Year Ended December 31, 1999 Compared to Year Ended
	December 31, 1998

Revenues.Total revenues increased by $8.2 million,
or 34.7%, to $31.9 million for the year ended
December 31, 1999, from $23.7 million for the year
ended December 31, 1998. This increase was due primarily to
a $7.0 million increase in subscriber fees resulting from
new market launches and expanded distribution in existing
markets. The number of subscribers increased to
20.8 million at December 31, 1999 from
8.7 million at December 31, 1998, representing an
increase of 139.1%. During 1999, we launched the Hallmark
Entertainment Network in the following new territories:
Argentina, India, Philippines, Romania and Russia. Our average
international monthly per subscriber fees decreased from $0.25
in 1998 to $0.16 in 1999, due primarily to the addition of a
large number of promotional subscribers in Latin America and
Asia. Additionally, advertising revenue increased
$1.6 million as we began the implementation of our new
advertising strategy in 1999. During 1999, 92% of total revenues
were earned internationally.

Cost of services.Cost of services decreased by
$1.7 million, or 4.0%, to $41.6 million for the year
ended December 31, 1999, down from $43.3 million for
the year ended December 31, 1998. Cost of services as a
percent of total revenue decreased from 182.9% in 1998 to 130.3%
in 1999. This decrease was due primarily to a $3.7 million
decrease in programming costs which was partially offset by a
$2.0 million increase in signal distribution and language
preparation costs. Programming costs decreased as a result of
the refinement of our program acquisition and scheduling
processes which enabled us to more efficiently utilize our
licensed program rights.

38



---



##### Table of Contents



Selling, general and administrative expenses.Selling,
general and administrative expenses increased by
$12.9 million, or 130.4%, to $22.9 million for the
year ended December 31, 1999, from $9.9 million for
the year ended December 31, 1998. General and
administrative expenses as a percent of total revenue increased
from 41.9% in 1998 to 71.6% in 1999. This increase was due to a
$4.0 million severance charge related to a former executive
of the company, $2.8 million of expenses related to an
SAR plan and the balance due to new market launches and the
continued development of a corporate infrastructure to support
increased distribution and advertising, including expansion of
the management team and increased staffing levels.

Marketing expenses. Marketing expenses increased by
$1.8 million, or 109.7%, to $3.4 million for the year
ended December 31, 1999, from $1.6 million for the
year ended December 31, 1998. During 1999, we entered into
many new territories, therefore, requiring increased marketing
efforts.

Loss from operations.Loss from operations was
$35.9 million for the year ended December 31, 1999, as
compared to a loss from operations of $31.2 million for the
year ended December 31, 1998. This increase in the loss
from operations was attributable to a combination of the factors
discussed above.

Equity in net losses of unconsolidated entities and
investment expenses. Equity in net losses of unconsolidated
entities and investment expenses of $19.0 million
represented our proportionate share of losses for 1999 for the
Odyssey Network and the Kermit Channel and amortization of the
step-up in basis of our proportionate share of all of the
underlying assets and liabilities of Odyssey Holdings.

Interest income, net.Net interest income of $798,000 for
the year ended December 31, 1999 was generated from an
interest-bearing note receivable from Hallmark
Entertainment, Inc. The net interest income decreased for
the year ended December 31, 1999 as a result of the
repayment of the note.

Income tax provision.Income tax provision increased by
$2.0 million to $2.6 million for the year ended
December 31, 1999, from $632,000 for the year ended
December 31, 1998. The increase was attributable to higher
foreign taxes based on higher revenues derived from foreign tax
jurisdictions and the establishment of a deferred tax liability
resulting from the allocation of Odyssey Holdings tax losses in
excess of book losses. During 1999, 29% of total revenues were
subject to foreign withholding taxes.

Net loss.Net loss was $56.7 million for the year
ended December 31, 1999, as compared to a net loss of
$35.5 million for the year ended December 31, 1998.
This increase in the net loss for the year ended
December 31, 1999 was attributable to the combined effect
of the factors discussed above.

Liquidity and Capital Resources

As of December 31, 2000, we had obligations representing
license fees for programming to Hallmark Entertainment
Distribution and The Jim Henson Company of $109.9 million
and $10.0 million, respectively. Additionally, we also had
obligations as of December 31, 2000, representing notes and
interest payable to H.C. Crown Corporation, a subsidiary of
Hallmark Cards, of $37.5 million. We also incurred
subscriber acquisition fees payable of $27.8 million. As of
December 31, 2000, receivables were $18.2 million, the
current portion of program license fees was $45.0 million
and cash and cash equivalents were $34.3 million.

Cash used in operating activities was $106.0 million,
$29.1 million and $12.2 million for the years ended
December 31, 2000, 1999 and 1998, respectively. Net cash
used was used primarily to fund operating expenditures related
to net losses of $116.1 million, $56.7 million and
$35.5 million for the years ended December 31, 2000,
1999 and 1998, respectively. The increase in cash used was also
impacted by the $105.2 million addition to program license
fees and the $30.0 million payment to Hallmark
Entertainment Distribution for license fees payable.
Additionally, our accounts receivable increased
$13.1 million for the year ended December 31, 2000.

Cash used in investing activities was $14.1 million and
$55.1 million for the years ended December 31, 2000
and 1998, respectively. Cash provided by investing activities
was $17.3 million for the year ended December 31,
1999. The decrease in cash provided was due to the
$22.8 million increase in purchases of property and
equipment for the year ended December 31, 2000. During
2000, we purchased a significant amount of equipment to aid in
the completion of our Network Operations Center. In 1999, cash
provided by

39



---



##### Table of Contents





Cash provided by financing activities was $150.4 million,
$12.8 million and $70.0 million for the years ended
December 31, 2000, 1999 and 1998, respectively. The cash
provided by financing activities in 2000 was comprised largely
of the $125.4 million net proceeds from our initial public
offering on May 9, 2000. Prior to the initial public
offering, we obtained an additional $24.8 million in
borrowings from an affiliate and $10.0 million in capital
contributions to fund our pre-acquisition obligation to Odyssey
Holdings. During 1998, Crown Media Holdings received
$70.0 million in capital contributions, $50.0 million
in conjunction with the issuance of Class B Common Stock to
Chase Equity Associates now JP Morgan Partners
(BHCA), L.P. and $20.0 million from Hallmark
Entertainment. The decrease in cash provided by financing
activities in 1999 was due to reduced borrowings from
affiliates, as the 1998 capital contributions continued to
finance operations in 1999.

In connection with our growth strategy, we expect that we will
continue to make significant investments in programming,
distribution and technology, as well as additional investments
in infrastructure and facilities. We are currently committed to
spend more than $50.0 million for programming and more than
$25.0 million for distribution over the next
12 months. We are also committed to four quarterly payments
of $6.8 million commencing on April 1, 2001, for
subscriber acquisition fees payable. Without taking into account
the proposed acquisition of films from the Hallmark
Entertainment library, and in addition to cash which we expect
from operations and the remaining proceeds of our initial public
offering, we anticipate the need for external financing of up to
$150 million for our liquidity needs through March 31,
2002. A temporary line of credit with a subsidiary of Hallmark
Cards for this amount is in place to cover this need.

In the third quarter of 2000, in order to maintain our liquidity
over at least 18 months, we negotiated with a group of
banks to obtain a $100 million credit facility and entered
into a non-binding term sheet for such a credit facility. In
November 2000, we announced that we had begun exploring the
possibility of acquiring the film library of Hallmark
Entertainment. Because the possible purchase could affect the
level and terms of the bank line of credit, we, in consultation
with our bank syndicate, delayed taking additional steps toward
closing a line of credit.

Subsequently, we reviewed our financing needs with a view to
having liquidity through March 31, 2002. Rather than put in
place a line of credit with the bank group that might change if
we purchase films from Hallmark Entertainment, we discussed with
Hallmark Cards financing alternatives. Hallmark Cards was
willing to provide a temporary line of credit of up to
$150 million. This line of credit with H.C. Crown
Corporation is payable no later than April 1, 2002. The
lenders obligation to make loans under the line of credit
is supported by an irrevocable letter of credit issued by Bank
of America. Information regarding this line of credit is
contained in Part III, Item 13. We believe that the
line of credit, together with cash generated from operations and
cash on hand, will be sufficient for our liquidity needs through
March 31, 2002.

Further, looking ahead to continued liquidity, we may seek
during the next 12 months and thereafter additional funds
to operate and expand our businesses. Any additional equity
financings could result in dilution to our existing investors.
Any debt financings will likely increase our interest expense
and may impose restrictive covenants.

The impact of inflation on our operations has not been
significant to date. There can be no assurance that a high rate
of inflation in the future would not have an adverse effect on
our operations.

40



---



##### Table of Contents



ITEM 7A.  Quantitative and Qualitative
Disclosures About Market Risk

We do not use derivative financial instruments in our investment
portfolio. 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 fall in value if there were an increase in
interest rates. If market interest rates were to increase
immediately and uniformly by 10% from levels as of
December 31, 2000, the decline of the fair value of the
fixed income portfolio would not be material. We do not
currently engage in any currency hedging transactions.

As of December 31, 2000, our cash, restricted cash, cash
equivalents and short-term investments had a fair value of
$34.3 million. Of that amount, all was invested in cash and
debt instruments of the U.S. Government and its agencies.
The primary purpose of these investing activities has been to
preserve principal until the cash is required to fund
operations. Consequently, the size of this portfolio fluctuates
significantly as cash is raised and used in our business.

The value of certain of investments in this portfolio can be
impacted by the risk of adverse changes in securities and
economic markets and interest rate fluctuations. At
December 31, 2000, all of our investments in this category
were in fixed rate instruments or money market type accounts. A
decrease in interest rates has the effect of reducing our future
annual interest income from this portfolio, since funds would be
reinvested at lower rates as the instruments mature. Over time,
any net percentage decrease in our interest rates could be
reflected in a corresponding net percentage decrease in our
interest income. During 1999 and 2000, 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. We have not hedged or otherwise protected
against risks associated with any of our investing or financing
activities.

As of December 31, 2000, we estimated the fair value of our
debt and other notes payable, excluding accrued interest, to be
approximately $36.8 million using quoted market prices
where available, or discounted cash flow analyses. The fair
value of our debt is affected by fluctuations in interest rates.
A hypothetical 10% decrease in assumed interest rates would
increase the fair value of our debt by approximately $400,000. A
hypothetical 10% increase in assumed interest rates would
increase our interest expense by $293,000. These calculations
include the assumption that the balance of our outstanding debt
as of December 31, 2000, would not change during the year
and that a yearly interest rate was used. To the extent interest
rates increase, our costs of financing would increase at such
time as we are required to refinance our debt.



| |                               
| | ------------------------------
| | We are exposed to market risk.

We are exposed to market risk, including changes to interest
rates, foreign currency exchange rates and equity investment
prices. To reduce the volatility relating to these exposures, we
plan to enter into various derivative investment transactions
during second quarter 2001 pursuant to our investment and risk
management policies and procedures in areas such as hedging and
counterparty exposure practices. We will not use derivatives for
speculative purposes.

Though we intend to 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, foreign currency exchange rates or equity
investment prices.

The estimated exposure discussed below is intended to measure
the maximum amount we could lose from adverse market movements
in interest rates, foreign currency exchange rates and equity
investment prices, given a specified confidence level, over a
given period of time. Loss is defined in the value at risk
estimation as fair market value loss.



| |                                                                   
| | ------------------------------------------------------------------
| | Our interest income is subject to fluctuations in interest
	rates.

Our material interest bearing assets, or interest bearing
portfolio consisted of cash equivalents, restricted cash, and
short-term investments. The balance of our interest bearing
portfolio was $34.3 million or 6.5% of

41



---



##### Table of Contents







| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | We are exposed to risks relating to foreign currency exchange
	rates and foreign economic conditions.

We will evaluate our foreign currency exposure on a net basis.
We receive subscriber fees revenues from countries throughout
the world. Increasingly however, these revenues are being offset
by expenses arising from our foreign facilities as well as
non-U.S. dollar expenses. Currently, our foreign expenses
exceed our revenues. As a result, our financial results could be
significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the
foreign markets in which our services are sold. We are exposed
to changes in exchange rates in Latin America, Europe, Asia, and
Africa. Our exposure to foreign exchange rates primarily exists
with the British pound. When the U.S. dollar strengthens
against the currencies in these countries, the U.S. dollar
value of non-U.S. dollar-based revenues decreases; when the
U.S. dollar weakens, the U.S. dollar value of
non-U.S. dollar-based revenues increases. Accordingly,
changes in exchange rates, and in particular a strengthening of
the U.S. dollar, may adversely affect our revenues as
expressed in U.S. dollars.

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.




PART III

The information required by this Part III is incorporated
by reference to information in the definitive proxy statement
for our 2001 annual meeting of stockholders under the headings
Election of Directors, Board
Information, Executive Compensation and Other
Information, Section 16(a) Beneficial Ownership
Reporting Compliance, and Crown Media Holdings Share
Ownership. We intend to file the definitive proxy
statement with the Securities and Exchange Commission on or
prior to April 30, 2001.



|         |                                                
|-------- | -----------------------------------------------
|ITEM 10. | Directors and Executive Officers of the Company

The information required by this Item 10 is set forth in
the Proxy Statement to be delivered to stockholders in
connection with our Annual Meeting of Stockholders to be held on
or about May 9, 2001 under the headings Election of
Directors, Board Information, and
Executive Compensation and Other Information, and is
incorporated by reference herein.

ITEM 11.  Executive Compensation

The information required by this Item 11 is set forth in
the Proxy Statement under the headings Board
Information and Executive Compensation and Other
Information, and is incorporated by reference herein.



|         |                                                                
|-------- | ---------------------------------------------------------------
|ITEM 12. | Security Ownership of Certain Beneficial Owners and
	Management

The information required by this Item 12 is set forth in
the Proxy Statement under the heading Crown Media Holdings
Share Ownership, and is incorporated by reference herein.

ITEM 13.  Certain Relationships and Related
Transactions

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 Securities and Exchange
Commission.

42



---



##### Table of Contents



Initial Public Offering and Simultaneous
Reorganization

On May 9, 2000, we completed an initial public offering
(IPO) of 10,000,000 shares of our Class A Common
Stock for net proceeds of approximately $125.4 million.
Simultaneously with the closing of the IPO, we completed a
reorganization that included the following transactions as
contemplated by the contribution agreement that we entered into
on January 27, 2000, with Hallmark
Entertainment, Inc., Liberty Media Corporation, Vision
Group Incorporated, VISN Management Corp., the National
Interfaith Cable Coalition, Inc. and J.P. Morgan
Partners (BHCA), L.P. (formerly known as Chase Equity
Associates, L.L.C.):



| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hallmark Entertainment, Inc. transferred to us its
	interests in Crown Media International, Inc. in exchange
	for shares of our Class B Common Stock, which represents
	100% of our outstanding Class B Common Stock, approximately
	2% of our outstanding Class A Common Stock and
	approximately 91% of present total voting power as of
	December  31, 2000;
|
| |  | J.P. Morgan Partners (BHCA), L.P. to us its interests
	in Crown Media International, Inc. in exchange for shares
	of our Class A Common Stock representing approximately 13%
	of our outstanding Class A Common Stock and approximately
	1% of present total voting power as of December 31, 2000;                                                             
|
| |  | Liberty Media Corporation transferred to us its interests in
	Vision Group Incorporated in exchange for shares of our
	Class A Common Stock representing approximately 32% of our
	outstanding Class A Common Stock and approximately 2% of
	present total voting power as of December 31, 2000; and                                                           
|
| |  | National Interfaith Cable Coalition, Inc. transferred to us
	its common interests in Odyssey Holdings, L.L.C. in
	exchange for shares of our Class A Common Stock
	representing approximately 22% of our outstanding Class A
	Common Stock and approximately 2% of present total voting power.                                                                 

Under the contribution agreement, we agreed to indemnify, during
the period of the applicable statute of limitations, the other
parties and certain of their affiliates, other than Hallmark
Entertainment, Inc., against any liabilities resulting from
(1) any untrue statement of a material fact made in our IPO
prospectus or (2) any omission of a material fact from the
prospectus required to make the statements made in the
prospectus, in light of the circumstances under which they were
made, not misleading. In addition, the parties to the
contribution agreement agreed to indemnify other parties and
certain of their affiliates against liabilities resulting from
the breach or inaccuracy of representations made by them
regarding corporate existence, power and authority to sign the
contribution agreement, capitalization and the retention of
brokers. Hallmark Entertainment, Inc. has agreed to
indemnify us against consolidated, combined or unitary income
taxes of Crown Media International, Inc. for the period
prior to the completion of the reorganization, and Liberty Media
has agreed to indemnify us against all taxes of Vision Group
Incorporated for the period prior to the completion of the
reorganization. If we or any of our subsidiaries actually
realize a tax benefit as the result of an adjustment of a tax
for which Hallmark Entertainment, Inc. or Liberty Media
Corporation is required to indemnify us, we are required under
the contribution agreement to pay Hallmark
Entertainment, Inc. or Liberty Media Corporation, as
applicable, the amount of such tax benefit.

We agreed to reimburse each of the other parties to the
contribution agreement for reasonable costs and expenses related
to the contribution agreement, up to $150,000 for parties other
than Hallmark Entertainment, Inc., and up to
$2.0 million for Hallmark Entertainment, Inc. We
reimbursed Hallmark Entertainment, Inc. $1.9 million
for costs and expenses related to the contribution agreement for
the year ended December 31, 2000.

43



---



##### Table of Contents



Program Agreements



| |                            
| | ---------------------------
| | Hallmark Program Agreements

Crown Media International. Crown Media International
licenses programming from Hallmark Entertainment
Distribution, Inc., a subsidiary of Hallmark
Entertainment, Inc. for distribution on a
country-by-country basis outside the United States and Canada.
Under a program agreement dated as of July 1, 1999, Crown
Media International is required to license from Hallmark
Entertainment Distribution, and Hallmark Entertainment
Distribution is required to license to them, for the term of the
agreement, ending on December 31, 2004, substantially all
of the television motion pictures and miniseries Hallmark
Entertainment Distribution owns. The program agreement is
renewable at Hallmark Entertainment Distributions option
for an additional period beginning on January 1, 2005 and
ending on December 31, 2009. Hallmark Entertainment
Distribution has agreed to renew the program agreement unless
Crown Media International is in default under the program
agreement or any other agreement it has with Hallmark
Entertainment Distribution.

Hallmark Entertainment Distribution has existing contractual
relationships with distributors that preclude Crown Media
International from obtaining programming under the program
agreement in several territories in which it does not currently
operate, the most significant of which is Germany. Hallmark
Entertainment Distribution is expressly permitted to renew
indefinitely its contracts with distributors in Germany, Italy
and Spain and may renew contracts with other distributors to the
extent the existing contracts afford the distributor renewal
rights.

Crown Media International has the right to distribute the
programming it licenses under the program agreement through
cable and DTH systems. However, it does not license programming
for distribution on a pay-per-view basis. In addition, Crown
Media International and Hallmark Entertainment Distribution have
agreed to negotiate in good faith on a product-by-product basis
for pay television license rights to programming not covered
under the program agreement, including documentaries, series and
specials.

Under the program agreement Crown Media International generally
licenses each movie or miniseries for a minimum of three time
periods each of 18 months or 12 months duration, with
each 18- or 12-month period separated by a period of one to
three years depending on whether Hallmark Entertainment
Distribution licenses the programming to a third party during
the interim periods. The first 18- or 12-month time period
begins on the later of the date specified in the program
agreement or the date Crown Medial International launches in a
country. The number of times we can telecast a movie or
miniseries is determined by viewer preferences and industry
practices on a country-by-country basis.

Crown Media International pays license fees to Hallmark
Entertainment Distribution on a country-by-country,
program-by-program basis for each of the three time periods for
which it licenses programming. The fees generally increase
5% per year and are payable in four equal installments for
the first time period and six equal installments for subsequent
time periods. During the year ended December 31, 2000,
Crown Media International paid Hallmark Entertainment
Distribution $30.0 million in fees under the program
agreement with a portion of the proceeds from our initial public
offering. As of December 31, 2000, there were
$35.3 million, in accrued and unpaid fees.

Odyssey Holdings. Odyssey Holdings licenses programming
from Hallmark Entertainment Distribution under a program
agreement, dated as of November 13, 1998, for distribution
within the United States. Under the program agreement, Odyssey
Holdings generally licenses made-for-television movies and
miniseries owned or controlled by Hallmark Entertainment
Distribution, as well as all programming produced by or on
behalf of Hallmark Entertainment Distribution for Odyssey
Holdings. The agreement has a term of five years, and is
automatically renewable for additional three-year periods
subject to rate adjustments, so long as Hallmark
Entertainment, Inc. or its affiliates own 10% or more of
Odyssey Holdings. In the event that Hallmark
Entertainment, Inc. owns less than 10% of Odyssey Holdings,
the remaining term of the program agreement will be two years
from the date of that event.

Odyssey Holdings has the right to telecast the programming it
licenses under the program agreement through all forms of
television, except on a pay-per-view basis. Under the program
agreement, Odyssey Holdings generally licenses each movie or
miniseries for a period of five years and has the right to
telecast the

44



---



##### Table of Contents





Odyssey Holdings pays license fees to Hallmark Entertainment
Distribution in equal annual installments over the five-year
period that it telecasts the movie or miniseries. The fees
generally increase 5% per year. During the year ended
December 31, 2000, Odyssey Holdings paid Hallmark
Entertainment Distribution $4.0 million, in fees under the
program agreement. As of December 31, 2000, Odyssey
Holdings had $74.6 million, in accrued and unpaid program
license fees under the program agreement.

National Interfaith Cable Coalition Program
Agreement

Odyssey Holdings licenses programming owned or controlled by the
National Interfaith Cable Coalition, under a program agreement
dated as of November 13, 1998, for distribution within the
United States. The National Interfaith Cable Coalition is
obligated to furnish a minimum of 200 hours of programming
each year under the programming agreement. The agreement
terminates upon termination of the Odyssey Holdings amended and
restated company agreement discussed below.

Under the program agreement, Odyssey Holdings has agreed to pay
any required residual or step-up payments if it telecasts any
over-the-air programming. In addition, Odyssey Holdings pays the
National Interfaith Cable Coalition fees under the Odyssey
Holdings amended and restated company agreement to be used
solely for programming related purposes. See
 Odyssey Holdings Amended and Restated Company
Agreement.

Odyssey Holdings Amended And Restated Company
Agreement

In connection with an investment by Crown Medial International
in Odyssey Holdings on November 13, 1998, HEN Domestic
Holdings, Inc., a wholly owned subsidiary of Crown Media
International, and Vision Group, VISN Management Corp. and
Henson Cable Networks, Inc. signed an amended and restated
company agreement governing the operation of Odyssey Holdings.

VISN Management, a subsidiary of the National Interfaith Cable
Coalition, owns a $25.0 million preferred interest in
Odyssey Holdings. Under the amended and restated company
agreement, the members agreed that if during any year ending
after January 1, 2005 and prior to December 31, 2009,
Odyssey Holdings has net profits in excess of
$10.0 million, and the preferred interest has not been
redeemed, Odyssey Holdings will redeem the preferred interest in
an amount equal to the lesser of:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | such excess;                                                                        
|
| |  | $5.0 million; or                                                                    
|
| |  | the amount equal to the preferred liquidation preference on the
	date of redemption.

The members also agreed that Odyssey Holdings will redeem the
preferred interest at the preferred interest liquidation
preference on the date of redemption of December 31, 2010.

Under the amended and restated company agreement, Odyssey
Holdings will pay to the National Interfaith Cable Coalition
annually in equal quarterly installments an amount equal to
$5.0 million and, so long as VISN Management owns the
preferred interest, $1.5 million multiplied by the quotient
of the preferred liquidation preference divided by
$25.0 million. The $5.0 million portion of the fees
described above is increased annually based on the Consumer
Price Index. The National Interfaith Cable Coalition is required
to use these payments solely for programming related activities.
For the year ended December 31, 2000, Odyssey Holdings paid
$5.1 million to the National Interfaith Cable Coalition in
accordance with the amended and restated company agreement.

45



---



##### Table of Contents



In addition, Odyssey Holdings must broadcast a minimum of
30 hours of programming from the National Interfaith Cable
Coalition and an additional 10 hours of values-based
programming.

Under the amended and restated company agreement, Crown Media
International may not transfer its interests in Odyssey Holdings
until the fifth anniversary of the agreement, except to one of
our affiliates or to another member or one of its affiliates. In
addition, any transaction between us or any of our affiliates
and Odyssey Holdings must be approved by the Odyssey Holdings
governance committee.

In March 2001, we purchased from EM.TV Merchandising AG,
EM.TVs 22.5% common ownership interests in Odyssey
Holdings and its 50% interest in the Kermit Channel. As a
result, we own 100% of the common interests in Odyssey Holdings
and 100% of the Kermit Channel. In consideration for these
interests, we issued 5,377,721 shares of our Class A
Common Stock to EM.TV.

Hallmark Advertising

Hallmark Cards, Inc. made a $2.5 million advertising
commitment to Odyssey Holdings covering a one-year period from
the fourth quarter of 1999 through the third quarter of 2000.
Hallmark Cards purchased $2.8 million of advertising time
on the Odyssey Network during 2000. Hallmark Cards has made a
$5.0 million advertising commitment to the Odyssey Network
for 2001.

Hallmark Demand Notes and Line of Credit

On November 19, 1999, Crown Media International entered
into an agreement with HC Crown Corporation, an affiliate of
Hallmark Cards, under which HC Crown agreed to lend Crown Media
International up to $20.0 million. Amounts borrowed under
this agreement bear interest at 130% of the applicable federal
rate, as set forth in the Internal Revenue Code, and are payable
on demand. Either party can terminate this agreement at any time.

On February 23, 2000, Crown Media Holdings entered into
another agreement, as amended on April 14, 2000, with HC
Crown under which HC Crown agreed to lend Crown Media Holdings
up to an additional $20.0 million, on terms similar to the
November 19, 1999 agreement. The aggregate balance
outstanding as of December 31, 2000, under this note was
$37.5 million, including accrued interest.

In March, 2001, we executed a promissory note in the amount of
$150 million payable to HC Crown Corporation, which
represents a line of credit in that amount for us. Amounts may
be borrowed under this line through April 1, 2002. The
lenders obligation to make loans under the line of credit
is supported by an irrevocable letter of credit issued by Bank
of America. Funds borrowed under this note bear an interest rate
equal to the London Interbank Offered Rate published on the
first day of each quarter in The Wall Street Journal, plus 1.2%
to 2.2% depending on the ratio of our total debt to EBITDA. The
interest rate increases by .25% if the note has not been fully
repaid by September 1, 2001 and by .5% if the note has not
been paid by December 31, 2001. Interest is payable
quarterly, and the principal amount with any accrued interest is
due April 1, 2002. The note also contains a covenant
regarding financial information and limitations on additional
indebtedness in excess of $10 million, liens for amounts in
excess of $5 million, sales or other disposition of assets
other than in the ordinary course of business and a merger or
consolidation with a third party. The covenants also provide
that the Company is to obtain minimum quarterly levels of
subscribers, revenues and EBITDA. In addition, in the note, we
grant to HC Crown Corporation and its affiliates a royalty-free
right to utilize technology which we develop at any time prior
to the fifth anniversary of the note. H.C. Crown
Corporations obligations under the line of credit is
supported by an irrevocable letter of credit of Bank of America.

Real Property Leases

In connection with our lease of office facilities at
6430 S. Fiddlers Green Circle, Greenwood Village,
Colorado, Hallmark Entertainment, Inc. signed a guaranty of
lease obligations on June 1, 1998. Under the guaranty,
Hallmark Entertainment, Inc. agreed to guarantee full and
timely performance of all of our obligations during our lease
term. The lease is for 52,988 square feet and has a term of
10 years that ends in

46



---



##### Table of Contents





During the year ended December 31, 2000, we sublet office
space and our post-production and editing facilities at 5670
Greenwood Plaza, Greenwood Village, Colorado from Hallmark
Entertainment, Inc. Under three separate leases, we paid a
total of approximately $117,000 for the year ended
December 31, 2000, on the same terms as the underlying
lease. We did not renew these leases, which expired on
July 31, 2000, as we relocated our operations into our
facilities at 6430 S. Fiddlers Green Circle.

Stockholders Agreement And Registration Rights



| |        
| | -------
| | General

We are parties to a stockholders agreement date as of
March 15, 2001, as amended, with Hallmark
Entertainment, Inc., Liberty Crown Inc. (an affiliate
of Liberty Media Corporation), Liberty Media Corporation, VISN
Management Corp. and Chase Equity Associates, L.P. (now
known as JP Morgan Partners (BHCA), L.P. and The Jim Henson
Company, Inc). In March 2001, The Jim Henson
Company, Inc., a subsidiary of EM.TV, became a party to the
stockholders agreement in connection with our purchase of their
interests in Odyssey Holdings and the Kermit Channel. The
stockholders agreement provides that our Board of Directors will
consist of not less than 11 directors, with six nominated by
Hallmark Entertainment, Inc., one nominated by each of
Liberty Media, VISN Management and J.P. Morgan Partners and
two independent directors, who must not be officers or employees
of any of the parties or their affiliates, nominated by the
Board of Directors. The rights of the parties to nominate a
director will terminate on the later of (1) such party
owning less than 5% of our common stock then outstanding or
(2) such party ceasing to own at least 75% of the number of
shares of our common stock held by them immediately after the
reorganization on May 9, 2000.

The stockholders agreement also provides that we will not enter
into any material transaction, except for specified
transactions, with any of the other parties or their affiliates
involving an aggregate value of (1) $35.0 million or
less, unless such transaction is approved by a majority of our
independent directors and (2) more than $35.0 million,
unless such transaction is approved by a majority of the members
of our Board of Directors not nominated by the interested party.

The other parties to the stockholders agreement agreed not to
transfer more than 25% of our common stock owned by them as of
March 15, 2001 (the date of adding The Jim Henson Company
to the Agreement) until after the second anniversary of the
stockholders agreement, except to their affiliates, another
party to the stockholders agreement or their affiliates, to
their executives under a stock-based compensation package, or in
a transaction involving a merger, consolidation or business
combination with, or sale of all of our common stock to, a third
party that is not affiliated with us.

In addition, the stockholders agreement provides that, in the
event Hallmark Entertainment, Inc. proposes to transfer 20%
or more of our outstanding common stock to an unaffiliated third
party, each other party to the stockholders agreement will have
the right to participate on the same terms in that transaction
with respect to a proportionate number of such other
partys shares. The stockholders agreement also provides
that if we issue for cash an amount of our common stock, in
either a public offering or private transaction, that causes
Liberty Media and its affiliates to own, in the aggregate, less
than 10% of our outstanding common stock, Liberty Media will
have the right to purchase, at such public offering price or the
average closing price of the Class A common stock over a
five-day period prior to the closing of such private
transaction, as applicable, an amount of our Class A common
stock so as to restore its 10% ownership interest. Liberty Media
must exercise such right not less than seven days prior to the
closing of such issuance.



| |                    
| | -------------------
| | Registration Rights

Under the stockholders agreement, Hallmark
Entertainment, Inc. has the right to require us on four
occasions, and the other parties, as a group, have the right to
require us on two occasions, to register for sale their shares
of our common stock, so long as the number of shares they
require us to register in each case is at

47



---



##### Table of Contents





We are obligated to pay all expenses that result from the
registration of the other parties common stock under the
stockholders agreement, other than registration and filing fees,
attorneys fees, underwriter fees or expenses and underwriting
discounts and commissions. We have also indemnified the other
parties against any liabilities that may result from their sale
of common stock, including Securities Act liabilities.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Rights Relating To Odyssey Holdings Amended And Restated
	Company Agreement

Under the stockholders agreement, so long as we or any of our
affiliates are entitled to have a representative on the Odyssey
Holdings governance committee, and VISN Management and its
affiliates either:



| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | are entitled to nominate to, or designate a member of, our Board
	of Directors  or                                                            
|
| |  | beneficially own any preferred interests in Odyssey Holdings,
	are entitled to nominate to, or designate a member of, our Board
	of Directors,

Neither we nor any of our affiliates will, without the consent
of the member of our Board of Directors nominated by VISN
Management or a representative of the National Interfaith Cable
Coalition, vote in favor of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any specified change in, or action described in, the Odyssey
	Holdings amended and restated company agreement that relates to
	VISN Managements preferred interest in Odyssey Holdings or
	that relates to VISN Managements rights to programming on
	the Odyssey Network or its programming budget;                                                                                                                                                                       
|
| |  | any repayment or redemption of specified equity interests in
	Odyssey Holdings;                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | any transfer of all of Odyssey Holdings assets or any
	business combination involving Odyssey Holdings where Odyssey
	Holdings is not the surviving entity, unless the transferee
	assumes specified obligations under the Odyssey Holdings amended
	and restated company agreement until the later of the fifth
	anniversary of this offering or the second anniversary of the
	transfer or business combination;                                                          
|
| |  | the dissolution of Odyssey Holdings, except in connection with a
	complete liquidation;                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | any transfer of all of Odyssey Holdings assets to, or any
	business combination involving Odyssey Holdings with, us
	or any of our affiliates, or any other material transaction with
	us or any of our affiliates, unless we comply with specified
	restrictions relating to any financial benefit we receive from
	the transaction that is more than what we would have received
	had the transaction been on an arms-length basis or on
	commercially reasonable terms;
|
| |  | any transfer of all of Odyssey Holdings assets or any
	business combination involving Odyssey Holdings where Odyssey
	Holdings is not the surviving entity, prior to the second
	anniversary of the IPO;  or                                                                                                                                                                                                                                                                
|
| |  | any amendment to the Odyssey Holdings amended and restated
	company agreement that would result in none of us or our
	affiliates having the right to consent to take any of the
	actions listed in the above bullet points.                                                                                                                                                                                                                                                 

We have agreed under the stockholders agreement not to transfer
any of our interests in Odyssey Holdings prior to the second
anniversary of the IPO without the consent of VISN Management or
the National Interfaith Cable Coalition. In addition, we have
agreed not to transfer any of our interests in Odyssey Holdings
after the second anniversary of the IPO unless the transfer is
conditioned on the requirement that the transferee assume our
obligations described above. Under the terms of the stockholders
agreement, the transferees obligations will generally
expire on the later of (1) the fifth anniversary of the
IPO, (2) the second anniversary of the transfer or
(3) the repayment of VISN Managements preferred
interest in Odyssey Holdings, except that the obligations of the
transferee will expire upon dissolution of Odyssey Holdings.

48



---



##### Table of Contents





| |                                                                             
| | ----------------------------------------------------------------------------
| | Corporate Opportunities Policy Established by Hallmark
	Entertainment,  Inc.

The following is a description of a general policy adopted by
the Hallmark Entertainment, Inc. board of directors in
connection with the stockholders agreement and our IPO. The
policy provides that we will be the primary (but not exclusive)
vehicle for the pursuit of corporate opportunities relating to
the ownership and operation of pay television channels dedicated
to family programming, Pay Television Opportunities,
that are provided or otherwise made available to Hallmark
Entertainment, Inc. and its subsidiaries. However, Pay
Television Opportunities do not include opportunities:
(1) developed by or made available to any public company
that is a subsidiary of Hallmark Entertainment, Inc. or any
of Hallmark Entertainment, Inc.s subsidiaries (other
than us and our subsidiaries), (2) relating to the
production or distribution of programming that is developed by,
or provided or made available to, a subsidiary of Hallmark
Entertainment, Inc. that does not own or operate pay
television channels dedicated to family programming and whose
primary business is the production or distribution of
programming, (3) arising out of or relating to Pay
Television Opportunities that have been provided or made
available to us but which we have determined not to pursue or
have failed to pursue within the applicable time period
reasonably specified by Hallmark Entertainment, Inc. or
(4) that Hallmark Entertainment, Inc. or any of its
subsidiaries is legally or contractually obligated to provide or
make available to a person other than us.

Under the policy, we are not obligated to pursue any Pay
Television Opportunity presented to us by Hallmark
Entertainment, Inc. If we determine not to pursue or fail
to pursue an opportunity, in each case within such time as
Hallmark Entertainment, Inc. may reasonably specify (taking
into account the type and nature of the Pay Television
Opportunity provided or made available) in its communication to
us relating to such Pay Television Opportunity, then Hallmark
Entertainment, Inc. and its subsidiaries may pursue such
Pay Television Opportunity.

The policy became effective upon completion of the IPO. The
policy automatically terminates upon the first to occur of:
(1) Hallmark Entertainment, Inc. and its subsidiaries
ceasing to beneficially own, in the aggregate, at least a
majority in voting power of our outstanding voting securities
entitled to vote generally upon all matters submitted to common
stockholders and (2) the third anniversary of the
completion of the IPO.

The policy provides that the Hallmark Entertainment, Inc.
board of directors is required to act in accordance with its
fiduciary duties owed to Hallmark Entertainment, Inc. and
Hallmark Entertainment, Inc.s fiduciary duties, if
any, to its subsidiaries in making all determinations in
connection with the policy. With respect to any Pay Television
Opportunity that may be subject to the policy and any obligation
(fiduciary or otherwise) to one or more other subsidiaries, the
Hallmark Entertainment, Inc. board of directors will have
discretion to determine, without reference to the policy, to
which of us or such other subsidiary of Hallmark
Entertainment, Inc. such Pay Television Opportunity will be
provided or made available. Notwithstanding anything set forth
in the policy, Hallmark Entertainment, Inc. will have no
obligation to exercise any rights it may have as a stockholder,
partner or member of any entity that is not a wholly owned
subsidiary or to exercise any rights available to it under
agreements with other stockholders, partners or members, in
order to implement determinations under the policy. All
determinations of the Hallmark Entertainment, Inc. board of
directors with respect to the Hallmark Entertainment, Inc.
policy and the interpretation of the Hallmark
Entertainment, Inc. policy are conclusive and binding.

The policy further provides that Hallmark
Entertainment, Inc.s board of directors from time to
time may amend, modify or rescind the policy or adopt additional
or other policies or make exceptions with respect to the
application of the policy in connection with particular facts
and circumstances, all as the Hallmark Entertainment, Inc.
board of directors may determine, consistent with its fiduciary
duties and in accordance with the stockholders agreement.

The policy provides that the transactions contemplated by the
contribution agreement shall not create any inference or course
of dealing as to the opportunities to which the policy applies.

49



---



##### Table of Contents



Intercompany Services Agreement

We signed an intercompany services agreement dated as of
January 1, 2000 with Hallmark Cards under which Hallmark
Cards has agreed for a term of three years to provide us with
the following services:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | tax services;                                                             
|
| |  | risk management, health, safety and environmental services and
	insurance;
|
| |  | legal services;                                                           
|
| |  | treasury and cash management services; and                                
|
| |  | real estate consulting services.                                          

We have agreed to pay Hallmark Cards $500,000 per year for
these services, plus out-of-pocket expenses and third party
fees, payable in arrears on the last business day of each
quarter.

In addition to the services described above, we have incurred
costs that have been paid by Hallmark Entertainment, Inc.
on our behalf related to payroll and benefits, insurance,
operating, financial and capital expenditures. These costs are
reflected on our financial statements, and to the extent that we
have not reimbursed Hallmark Entertainment, Inc., the costs
are included in payables to affiliates on the face of our
balance sheet. We reimbursed Hallmark Entertainment, Inc.
$3.8 million, for the year ended December 31, 2000.
The balance of the payable as of December 31, 2000 was
approximately $5.4 million.

Hallmark Trademark License Agreements

We are permitted to use the Hallmark and
Hallmark Entertainment trademarks in accordance with
the terms of a royalty-free two-year trademark license agreement
dated as of December 1, 2000, between Hallmark Cards and
Crown Media International. Under that agreement, we may use the
Hallmark and Hallmark Entertainment trademarks outside the
United States and Canada only for so long as Hallmark Cards and
its wholly owned subsidiaries collectively own at least 51% of
the voting interest and at least 35% of the equity interest of
Crown Media Holdings, and designate a majority of our Board of
Directors and so long as there is no event of default under the
agreement.

Crown Media International has the non-exclusive right to use the
Hallmark and Hallmark Entertainment trademarks to promote,
market, advertise, distribute and sell television motion
pictures and miniseries produced by or at the direction of
Hallmark Entertainment Productions, LLC or its
subsidiaries. Crown Media International also has the
non-exclusive right to use the Hallmark and Hallmark
Entertainment trademarks to promote, market, advertise,
distribute and sell its network and channel so long as these
television motion pictures and miniseries along with other
television motion pictures and miniseries acquired under our
program agreement with Hallmark Entertainment Distribution
represent at least 50% of the monthly programming of that
network or channel or 20% of the monthly programming during the
first six months that we launch the Hallmark Entertainment
Network in a territory. The program license agreement with
Hallmark Entertainment Distribution does not require it to make
available a minimum amount of programming. If Hallmark
Entertainment Distribution fails to provide sufficient
programming to meet the minimum thresholds required under the
trademark license agreement, that failure could cause a default
under the trademark license agreement.

Except for the uses permitted by the trademark license agreement
of Crown Media International, we are not permitted to use the
Hallmark name alone or with any other names.

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 must stop any
non-complying activity within 10 days of that notice or we
will be in default of the agreement. We will also 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 will be a default under the agreement
if we fail to cure any breach of the program agreement with
Hallmark Entertainment

50



---



##### Table of Contents





The license agreement can be terminated immediately and without
notice if we transfer in any way our rights under the license
agreement, if we have an event of default under the agreement or
in events of bankruptcy, insolvency or similar proceedings. With
respect to a particular country in which we use the Hallmark
Entertainment trademark, the license agreement will terminate if
the television motion pictures and miniseries produced by
Hallmark Entertainment or its subsidiaries and other motion
pictures and miniseries acquired under the program agreement
with Hallmark Entertainment comprise less than 50% of the
programming of the network or channel based on actual hours of
broadcast in the country.

There is a similar trademark license agreement between Hallmark
Cards and a subsidiary of Crown Media International that permits
the use of the Hallmark and Hallmark Entertainment, Inc.
trademarks in the United Kingdom for two years from
December 1, 2000.

Tax Sharing Agreement

Hallmark Entertainment, Inc. has entered into a tax sharing
agreement with us and certain of our subsidiaries (collectively,
Crown Group) that provides for tax sharing payments between
Hallmark Entertainment, Inc. and the Crown Group with
respect to any consolidated, combined or unitary tax return in
which the Crown Group, or any member of the Crown Group, joins
Hallmark Cards or certain of its subsidiaries (collectively,
Hallmark Group) filed after the closing of the IPO. Such tax
sharing payments are not made in respect of United States
federal income taxes of the Crown Group because the Crown Group
is not part of the Hallmark Cards affiliated group of
corporations filing consolidated returns for United States
federal income tax purposes.

Under the tax sharing agreement, where the Hallmark Group and
the Crown Group do file consolidated, combined or unitary tax
returns, Crown Group makes tax sharing payments to Hallmark
Entertainment, Inc. (or receive from Hallmark
Entertainment, Inc.) equal to the taxes (or tax refunds)
that Crown Group would have paid (or received) if it filed on a
stand-alone basis. Such payments are computed based upon Crown
Groups income, loss and other tax items after the day
following the closing of the IPO.

The Crown Group has appointed Hallmark Entertainment, Inc.
as its agent in connection with any tax return or proceeding
involving both one or more members of the Hallmark Group and one
or more members of the Crown Group for any pre-IPO or post-IPO
period.

Securities Purchase Agreements

Crown Media International signed three securities purchase
agreements dated as of February 18, 1999, June 17,
1999 and February 15, 2000, respectively, with Hallmark
Entertainment, Inc. and J.P. Morgan Partners
(BHCA), L.P. (formerly know as Chase Equity Associates),
under which Hallmark Entertainment, Inc. paid Crown Media
International on February 18, 1999, June 17, 1999 and
February 15, 2000, approximately $17.8 million,
$17.8 million, and $8.9 million, respectively, in
exchange for approximately 44.4 shares, 44.4 shares
and 22.2 shares, respectively, of Crown Media International
predecessor Class A Common Stock and J.P. Morgan
Partners paid Crown Media International approximately
$2.2 million, $2.2 million and $1.1 million,
respectively, in exchange for approximately 5.6 shares,
5.6 shares and 2.8 shares, respectively, of Crown
Media International predecessor Class B Common Stock. Crown
Media International signed similar agreements dated as of
June 17, 1999 and February 15, 2000, with Hallmark
Entertainment, Inc. and J.P. Morgan Chase and Company,
under which J.P. Morgan Chase and Company paid Crown Media
International approximately $2.2 million and
$1.1 million, respectively, in exchange for approximately
5.6 shares and 2.8 shares, respectively, of Crown
Media International Class B Common Stock.

All of these shares of Crown Media International Class A
and Class B common stock were converted into shares of
Crown Media Holdings Class B and Class A Common Stock,
respectively, in the reorganization completed on May 9,
2000.

51



---



##### Table of Contents



Certain Business Relationships and
Conflicts of Interest

Hallmark Entertainment, Inc. controls all of our
outstanding shares of Class B Common Stock, representing
approximately 90% of the voting power on all matters submitted
to our stockholders. Hallmark Entertainment, Inc.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
Class A Common Stock. As a result, the market price of our
Class A Common Stock or our business could suffer.

Hallmark Entertainment, Inc.s control relationship
with us also could give rise to conflicts of interest, including:



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | conflicts between Hallmark Entertainment, Inc., as our
	controlling stockholder, and our other stockholders, whose
	interests may differ with respect to, among other things, our
	strategic direction or significant corporate transactions;
|
| |  | conflicts related to corporate opportunities that could be
	pursued by us, on the one hand, or by Hallmark
	Entertainment, Inc. or its other affiliates, on the other
	hand; or                                                              
|
| |  | conflicts related to existing or new contractual relationships
	between us, on the one hand, and Hallmark
	Entertainment, Inc. and its affiliates, on the other hand.                                                                        

In addition, our directors, who are also officers or directors
of Hallmark Entertainment, Inc., 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. For example, Robert A. Halmi,
Jr. is our Chairman of the Board and also President and Chief
Executive Officer of Hallmark Entertainment, Inc., which
could create potential conflicts of interest. As a result, it is
possible that we may receive less favorable contractual terms
from Hallmark Entertainment, Inc. than if none of our
officers or directors had any affiliation with Hallmark
Entertainment, Inc.

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:



| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a corporate opportunity offered to any person who is one of our
	officers, and who is also a director but not an officer of
	Hallmark Cards, will belong to us;                                                                                                                                                                                
|
| |  | a corporate opportunity offered to any person who is one of our
	directors but not one of our officers, and who is also a
	director or officer of Hallmark Cards, will belong to us if that
	opportunity is expressly offered to that person in his or her
	capacity as one of our directors, and otherwise will belong to
	Hallmark Cards; and
|
| |  | a corporate opportunity offered to any person who is one of our
	officers and an officer of Hallmark Cards will belong to us if
	that opportunity is expressly offered to that person in his or
	her capacity as one of our officers, and otherwise will belong
	to Hallmark Cards.                                                            

52



---



##### Table of Contents



For purposes of the policy:



| |   |                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a director who is our Chairman of the Board of Directors or
	Chairman of a committee of the Board of Directors will not be
	deemed to be one of our officers by reason of holding that
	position, unless that person is one of our full-time employees;                                                                                                                           
|
| |  | references to us shall mean us and all corporations,
	partnerships, joint ventures, associations and other entities in
	which we beneficially own, directly or indirectly, 50% or more
	of the outstanding voting stock, voting power, partnership
	interests or similar voting interests; and                                                                                    
|
| |  | the term Hallmark Cards shall mean Hallmark Cards
	and all corporations, partnerships, joint ventures, associations
	and other entities, other than us, as we are defined in this
	paragraph, in which Hallmark Cards beneficially owns, directly
	or indirectly, 50% or more of the outstanding voting stock,
	voting power, partnership interests or similar voting interests.

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.

Other than as disclosed above and under
 Stockholders Agreement and Registration
Rights  Corporate Opportunities Policy, there
are no specific policies in place with respect to any conflicts
that may arise. We expect conflicts to be resolved on a
case-by-case basis, and in a manner consistent with
applicable law.

53



---



##### Table of Contents






PART IV

ITEM 14.  Exhibits, Financial Statement
Schedules and Reports on Form 8-K

(A)  List of Documents Filed as Part of This Report



| |     |                                  
| | --- | ---------------------------------
| | (1) | Consolidated Financial Statements

Report of Independent Public Accountants















(2)  Exhibits

|        |      |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | ---- | ------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |              
|Number  |      | Exhibit Title
|        |      |              
|        | 2.1  |               |  |  Contribution Agreement, dated as of January 27,
	2000, by and among Hallmark Entertainment, Inc., Crown
	Media,  Inc. (now known as Crown Media
	International, Inc.), Liberty Media Corporation, Vision
	Group Incorporated, VISN Management Corp., National Interfaith
	Cable Coalition, Inc., Chase Equity Associates, LP
	(now known as J.P. Morgan Partners (BHCA), L.P.) and
	Crown Media Holdings, Inc. (previously filed as
	Exhibit 2.1 to our Registration Statement on Form S-1/
	A (Amendment No.  1), Commission File No. 333-95573,
	and incorporated herein by reference).
|        | 2.2  |               |  |  Contribution Agreement, dated as of March 15,
	2001, by and among The Jim Henson Company, Inc.,
	Crown Media International, Inc., and Crown Media
	Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 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  |               |  |  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).                                                                                                                                                                                                                                                                                                                                                                                   
|        | 4.1  |               |  |  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 |               |  |  Stockholders Agreement dated March 15, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.2 |               |  |  Securities Purchase Agreement, dated as of
	May 29, 1998, by and among Hallmark Entertainment
	Network, Inc. (now known as Crown Media
	International, Inc.), Hallmark Entertainment Distribution
	Company, Hallmark Entertainment, Inc., and Chase Equity
	Associates, LP (now known as J.P. Morgan Partners
	(BHCA), L.P.) (previously filed as Exhibit 10.2 to our
	Registration Statement on Form S-1/ A (Amendment
	No. 1), Commission File No. 333-95573, and
	incorporated herein by reference).                                                                                  

54



---



##### Table of Contents



|        |       |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ----- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 10.3  |               |  |  Securities Purchase Agreement, dated as of
	February 18, 1999, Hallmark Entertainment
	Network, Inc. (now known as Crown Media
	International, Inc.), Hallmark Entertainment Distribution
	Company, Hallmark Entertainment, Inc., and Chase Equity
	Associates, LP (now known as J.P. Morgan Partners
	(BHCA), L.P.) (previously filed as Exhibit  10.3 to
	our Registration Statement on Form S-1/ A (Amendment
	No. 1), Commission File No. 333-95573, and
	incorporated herein by reference).        
|        | 10.4  |               |  |  Securities Purchase Agreement, dated as of
	June 17, 1999, by and among Hallmark Entertainment
	Network, Inc. (now known as Crown Media
	International, Inc.), Hallmark Entertainment Distribution
	Company, Hallmark Entertainment, Inc., and Chase Equity
	Associates, LP (now known as J.P. Morgan Partners
	(BHCA), L.P.) (previously filed as Exhibit 10.4 to our
	Registration Statement on Form S-1/ A (Amendment
	No. 1), Commission File No. 333-95573, and
	incorporated herein by reference).
|        | 10.5  |               |  |  Securities Purchase Agreement, dated as of
	February 15, 2000, by and among Crown Media, Inc. (now
	known as Crown Media International, Inc.), Hallmark
	Entertainment,  Inc., and Chase Equity Associates, LP
	(now known as J.P. Morgan Partners (BHCA), L.P.)
	(previously filed as Exhibit 10.5 to our Registration
	Statement on Form S-1/ A (Amendment No. 1), Commission
	File No. 333-95573, and incorporated herein by reference).                                                             
|        | 10.6  |               |  |  Program License Agreement, dated as of July 1,
	1999, between Hallmark Entertainment Distribution, L.L.C.,
	successor to Hallmark Entertainment Distribution Company and
	Hallmark Entertainment Networks, Inc. (now known as Crown
	Media International, Inc.) (previously filed as
	Exhibit 10.6 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No. 333-95573, and incorporated herein by reference).                                                              
|        | 10.7  |               |  |  Amended and Restated Trademark License Agreement,
	dated as of December 1, 2000, by and between Hallmark
	Cards, Incorporated and Crown Media International, Inc.                                                                                                                                                                                                                                                                                                                                       
|        | 10.8  |               |  |  Amended and Restated Trademark License Agreement
	(UK), dated as of December 1, 2000, by and between Hallmark
	Cards, Incorporated and Hallmark Entertainment Limited (formerly
	known as Hallmark Entertainment Networks (UK)  Ltd.).                                                                                                                                                                                                                                                                  
|        | 10.9  |               |  |  Trademark License Agreement, dated as of May 1,
	2000, by and between Hallmark Licensing, Inc. and Odyssey
	Holdings, L.L.C.                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.10 |               |  |  Security Agreement, dated as of August 1, 1999,
	by and between Hallmark Entertainment Networks, Inc. (now
	known as Crown Media International, Inc.) and Hallmark
	Cards, Incorporated (previously filed as Exhibit 10.10 to
	our Registration Statement on Form S-1/ A (Amendment
	No.  1), Commission File No. 333-95573, and
	incorporated herein by reference).                                                                                                                                    
|        | 10.11 |               |  |  Amended and Restated Company Agreement of Odyssey
	Holdings, L.L.C. (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).                                                                                                                                                                                                                                                         

55



---



##### Table of Contents



|        |       |               |  |                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ----- | ------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 10.12 |               |  |  Amended and Restated Intercompany Service Agreement,
	dated as of January 1, 2000, between Crown Media
	Holdings, Inc. and Hallmark Cards, Incorporated (previously
	filed as Exhibit 10.12 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No. 333-95573, and incorporated herein by reference).                                                    
|        | 10.13 | *             |  |  Amended and Restated Crown Media Holdings, Inc.
	2000 Long Term Incentive Plan.                                                                                                                                                                                                                                                                                                        
|        | 10.14 |               |  |  Program License Agreement, dated as of
	November 13, 1998, between Hallmark Entertainment
	Distribution Co. and Odyssey Holdings, L.L.C.
	(previously filed as Exhibit 10.15 to our Registration
	Statement on Form  S-1/ A (Amendment No. 1),
	Commission File No.  333-95573, and incorporated herein by
	reference).                                                                
|        | 10.15 |               |  |  Program License Agreement, dated as of
	November 13, 1998, between The Jim Henson
	Company, Inc. and Odyssey Holdings, L.L.C. (previously
	filed as Exhibit 10.16 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No. 333-95573, and incorporated herein by reference).                                                                              
|        | 10.16 |               |  |  Program License Agreement, dated as of
	November 13, 1998, between National Interfaith Cable
	Coalition, Inc. and Odyssey Holdings, L.L.C.
	(previously filed as Exhibit 10.17 to our Registration
	Statement on Form  S-1/ A (Amendment No. 1),
	Commission File No.  333-95573, and incorporated herein by
	reference).                                                              
|        | 10.17 |               |  |  Lease, dated as of June 1, 1998, by and between
	High Pointe I Development Group L.L.C. and Hallmark
	Entertainment Network, Inc. (now known as Crown Media
	International, Inc.) (previously filed as
	Exhibit 10.20 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No. 333-95573, and incorporated herein by reference).                          
|        | 10.18 |               |  |  First Amendment to Lease, dated as of March 23,
	1999, by and between High Pointe I Development
	Group L.L.C. and Hallmark Entertainment Network, Inc.
	(now known as Crown Media International, Inc.) (previously
	filed as Exhibit  10.21 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No. 333-95573, and incorporated herein by reference).    
|        | 10.19 |               |  |  Second Amendment to Lease, dated as of
	August 17, 1999, by and between High Pointe I
	Development Group L.L.C. and Hallmark Entertainment
	Network, Inc. (now known as Crown Media
	International, Inc.) (previously filed as
	Exhibit 10.22 to our Registration Statement on Form 
	S-1/ A (Amendment No. 1), Commission File No. 
	333-95573, and incorporated herein by reference).
|        | 10.20 |               |  |  Third Amendment to Lease, dated as of
	September 26, 2000, by and between High Pointe 1
	Development Group  L.L.C. and Crown Media
	International, Inc. (formerly known as Hallmark
	Entertainment Network, Inc.).                                                                                                                                                                     
|        | 10.21 |               |  |  Fourth Amendment to Lease, dated as of
	February 6, 2001, by and between High Pointe 1
	Development Group, L.L.C. and Crown Media Inc. (now
	known as Crown Media International, Inc.).                                                                                                                                                                                                
|        | 10.22 |               |  |  Guaranty of Lease Obligations, dated June 1,
	1998, by Hallmark Entertainment, Inc. for High
	Pointe I Development Group L.L.C. (previously filed as
	Exhibit  10.23 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No. 333-95573, and incorporated herein by reference).                                                                           
|        | 10.23 | *             |  |  Employment Agreement, dated as of March 1,
	2000, between Crown Media Holdings, Inc. and David Evans.                                                                                                                                                                                                                                                                                  
|        | 10.24 | *             |  |  Employment Agreement, dated as of June 21,
	2000, between Crown Media Holdings, Inc. and Lana Corbi.                                                                                                                                                                                                                                                                                   

56



---



##### Table of Contents



|        |       |               |  |                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- | ------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 10.25 | *             |  |  Employment Agreement, dated as of June 15,
	2000, between Crown Media Holdings, Inc. and Andre Carey.                                                                                                                                                                                                                                           
|        | 10.26 | *             |  |  Employment Agreement, dated as of July 5, 2000,
	between Crown Media Holdings, Inc. and Chris Moseley.                                                                                                                                                                                                                                          
|        | 10.27 | *             |  |  Employment Agreement, dated as of October 25,
	2000, by and between Crown Media Holdings, Inc. and Charles
	Stanford.                                                                                                                                                                                                                           
|        | 10.28 | *             |  |  Separation Agreement, dated January 28, 1999,
	between Hallmark Entertainment Networks, Inc. (now known as
	Crown Media International, Inc.) and George Stein
	(previously filed as Exhibit 10.29 to our Registration
	Statement on Form S-1/A (Amendment No. 1), Commission
	File No. 333-95573, and incorporated herein by reference).        
|        | 10.29 |               |  |  $20,000,000 Promissory Note, dated November 19,
	1999, of Crown Media, Inc. (now known as Crown Media
	International, Inc.) to HC Crown Corporation (previously
	filed as Exhibit 10.30 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No.  333-95573, and incorporated herein by reference).                
|        | 10.30 |               |  |  $10,000,000 Promissory Note, dated February 23,
	2000, of Crown Media, Inc. (now known as Crown Media
	International, Inc.) to HC Crown Corporation
	(previously filed as Exhibit 10.31 to our Registration
	Statement on Form S-1/ A (Amendment No. 1), Commission
	File No. 333-95573, and incorporated herein by reference).                 
|        | 10.31 |               |  |  Amendment to $10,000,000 Promissory Note, dated
	April  14, 2000, between Crown Media, Inc. (now known
	as Crown Media International, Inc.) and HC Crown
	Corporation (previously filed as Exhibit 10.1 to our
	Registration Statement on Form S-1/ A (Amendment
	No. 4), Commission File No. 333-95573, and
	incorporated herein by reference).
|        | 10.32 |               |  |  $150,000,000 Promissory Noted, dated
	February 12, 2001, of Crown Media Holdings to HC Crown
	Corporation.                                                                                                                                                                                                                                      
|        | 10.33 |               |  |  $150,000,000 Irrevocable Standby Letter of Credit,
	dated February 12, 2001, of Crown Media Holdings to Bank of
	America, N.A.                                                                                                                                                                                                                  
|        | 21.1  |               |  |  List of our Subsidiaries.                                                                                                                                                                                                                                                                                                                       
|        | 23.1  |               |  |  Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                  
|        | 99    |               |  |  Press Releases of Crown Media Holdings, Inc.
	and Odyssey Holdings, L.L.C., dated November 6, 2000,
	December 12, 2000, December 12, 2000, January 23,
	2001, and March  15, 2001.                                                                                                                                                              



---



|  |                                                         
|- | --------------------------------------------------------
|* | Management contract or compensating plan or arrangement.

(B)  Reports on Form 8-K

None.

57



---



##### 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/ DAVID J. EVANS

| |                                      
| | -------------------------------------
| |                                      
| | David J. Evans                       
| | President and Chief Executive Officer

March 27, 2001

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/ DAVID J. EVANSDavid J. Evans                   |  | Director and Principle Executive Officer   |  | March 27, 2001
|/s/ WILLIAM J. ALIBERWilliam J. Aliber             |  | Principle Financial and Accounting Officer |  | March 27, 2001
|/s/ WILFORD V. BANE, JR.Wilford V. Bane, Jr.       |  | Director                                   |  | March 27, 2001
|Arnold L. Chavkin                                  |  | Director                                   |  | March 27, 2001
|/s/ ROBERT J. DRUTENRobert J. Druten               |  | Director                                   |  | March 27, 2001
|William M. Haber                                   |  | Director                                   |  | March 27, 2001
|/s/ DONALD J. HALL, JR.Donald J. Hall, Jr.         |  | Director                                   |  | March 27, 2001
|/s/ ROBERT A. HALMI, JR.Robert A. Halmi, Jr.       |  | Director                                   |  | March 27, 2001
|/s/ IRVINE O. HOCKADAY, JR.Irvine O. Hockaday, Jr. |  | Director                                   |  | March 27, 2001
|David B. Koff                                      |  | Director                                   |  | March 27, 2001
|/s/ PETER A. LUNDPeter A. Lund                     |  | Director                                   |  | March 27, 2001
|                                                  
|/s/ JOHN P. MASCOTTEJohn P. Mascotte               |  | Director                                   |  | March 27, 2001

58



---



##### Table of Contents






INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                   |  |      |     | 
|------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                                   |  | Page
|                                                                                                                   |  |     
|Crown Media Holdings, Inc. and Its Subsidiaries                                                                    |  |      |     | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Report of Independent Public Accountants                                                                           |  |      | F-3 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Consolidated Balance Sheets as of December 31, 1999 and 2000                                                       |  |      | F-4 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Consolidated Statements of Operations and Comprehensive Loss for
	the Years Ended December 31, 1998, 1999 and 2000 |  |      | F-5 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Consolidated Statements of Stockholders Equity (Deficit)
	for the Years Ended December 31, 1998, 1999 and 2000    |  |      | F-6 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Consolidated Statements of Cash Flows for the Years Ended
	December 31, 1998, 1999 and 2000                        |  |      | F-7 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Notes to Consolidated Financial Statements                                                                         |  |      | F-9 | 

F-1



---



##### Table of Contents



(This page intentionally left blank)

F-2



---



##### Table of Contents






REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Crown Media Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of
Crown Media Holdings, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 1999 and 2000, and the
related consolidated statements of operations and comprehensive
income, stockholders equity (deficit) and cash flows
for each of the three years in the period ended
December 31, 2000. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the 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 financial
position of Crown Media Holdings, Inc. and its subsidiaries
as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the years in the
period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Denver, Colorado







F-3



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


(In thousands, except share and per share amounts)


|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------ | -------- | ------- | - | - | -------- | ------- | 
|                                                                                                                                                                                  |                                                      |                   
|                                                                                                                                                                                  |                                                      | As of December 31,
|                                                                                                                                                                                  |                                                      |                   
|                                                                                                                                                                                  |                                                      | 1999               |          | 2000   
|                                                                                                                                                                                  |                                                      |                    |          |        
|ASSETS                                                                                                                                                                           
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Cash and cash equivalents                                                                                                                                                         |                                                      | $                  | 3,865    |         |   | $ | 34,274   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accounts receivable, less allowance for doubtful accounts of
	$695 and $2,917, respectively                                                                                       |                                                      |                    | 7,185    |         |   |   | 18,159   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Program license fees  affiliates, net of accumulated
	amortization                                                                                                               |                                                      |                    | 2,499    |         |   |   | 25,130   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Program license fees  non-affiliates, net of
	accumulated amortization                                                                                                           |                                                      |                    | 8,347    |         |   |   | 19,885   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Subtitling and dubbing, net of accumulated amortization                                                                                                                           |                                                      |                    | 976      |         |   |   | 1,525    |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Prepaids and other assets                                                                                                                                                         |                                                      |                    | 886      |         |   |   | 3,181    |        
|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |        
|                                                                                                                                                                                  | Total current assets                                 |                    |          | 23,758  |   |   |          | 102,154 | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Restricted cash                                                                                                                                                                   |                                                      |                    |         |         |   |   | 340      |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accounts receivable, net of current portion                                                                                                                                       |                                                      |                    |         |         |   |   | 3,074    |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Program license fees  affiliates, net of current
	portion                                                                                                                        |                                                      |                    | 4,719    |         |   |   | 86,640   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Program license fees  non-affiliates, net of current
	portion                                                                                                                    |                                                      |                    | 3,017    |         |   |   | 28,750   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Subtitling and dubbing, net of current portion                                                                                                                                    |                                                      |                    | 3,595    |         |   |   | 4,227    |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Subscriber acquisition fees, net of accumulated amortization                                                                                                                      |                                                      |                    |         |         |   |   | 29,670   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Property and equipment, net of accumulated depreciation                                                                                                                           |                                                      |                    | 7,985    |         |   |   | 31,067   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Investment in Odyssey Holdings                                                                                                                                                    |                                                      |                    | 35,363   |         |   |   |         |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Investment in/ advances to unconsolidated entity                                                                                                                                  |                                                      |                    | 585      |         |   |   | 611      |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Goodwill, net of accumulated amortization                                                                                                                                         |                                                      |                    |         |         |   |   | 240,141  |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Prepaids and other assets, net of current portion                                                                                                                                 |                                                      |                    | 981      |         |   |   | 3,404    |        
|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |        
|                                                                                                                                                                                  | Total assets                                         |                    | $        | 80,003  |   |   | $        | 530,078 | 
|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |        
|LIABILITIES                                                                                                                                                                      
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accounts payable and accrued liabilities                                                                                                                                          |                                                      | $                  | 4,932    |         |   | $ | 22,027   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Subscriber acquisition fees payable                                                                                                                                               |                                                      |                    |         |         |   |   | 27,770   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|License fees payable to affiliates                                                                                                                                                |                                                      |                    | 34,606   |         |   |   | 92,589   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|License fees payable to non-affiliates                                                                                                                                            |                                                      |                    | 561      |         |   |   | 16,851   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Payable to affiliates                                                                                                                                                             |                                                      |                    | 9,243    |         |   |   | 7,023    |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Notes and interest payable to H.C. Crown                                                                                                                                          |                                                      |                    | 12,711   |         |   |   | 37,549   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Note payable to Odyssey Holdings                                                                                                                                                  |                                                      |                    | 10,000   |         |   |   |         |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Deferred compensation                                                                                                                                                             |                                                      |                    | 3,250    |         |   |   | 4,000    |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Deferred programming revenue                                                                                                                                                      |                                                      |                    | 2,154    |         |   |   | 713      |        
|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |        
|                                                                                                                                                                                  | Total current liabilities                            |                    |          | 77,457  |   |   |          | 208,522 | 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accrued liabilities, net of current portion                                                                                                                                       |                                                      |                    | 18       |         |   |   | 18       |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|License fees payable to affiliates, net of current portion                                                                                                                        |                                                      |                    |         |         |   |   | 27,309   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|License fees payable to non-affiliates, net of current portion                                                                                                                    |                                                      |                    |         |         |   |   | 22,421   |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Deferred compensation, net of current portion                                                                                                                                     |                                                      |                    | 3,557    |         |   |   |         |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Deferred income taxes                                                                                                                                                             |                                                      |                    | 1,600    |         |   |   |         |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Preferred minority interest                                                                                                                                                       |                                                      |                    |         |         |   |   | 25,000   |        
|Commitments and contingencies (Notes 1, 2 and 11)                                                                                                                                 |                                                      |                    |          |         |   |   |          |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Predecessor Class B common stock subject to put and call,
	$.01 par value; 1,000 shares authorized; issued and
	outstanding shares of 136.1 as of December 31, 1999               |                                                      |                    | 60,338   |         |   |   |         |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|STOCKHOLDERS EQUITY (DEFICIT):                                                                                                                                                  
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Class A common stock, $.01 par value;
	150,000,000 shares authorized; issued shares of 34,730,505;
	outstanding shares of 29,352,784 as of
	December 31, 2000                     |                                                      |                    |         |         |   |   | 294      |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Class B common stock, $.01 par value;
	120,000,000 shares authorized; issued and outstanding
	shares of 30,057,006 and 30,670,422 as of December 31, 1999
	and 2000, respectively |                                                      |                    | 300      |         |   |   | 307      |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Paid-in capital                                                                                                                                                                   |                                                      |                    | 69,601   |         |   |   | 496,697  |        
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accumulated other comprehensive loss                                                                                                                                              |                                                      |                    |         |         |   |   | (12      | )      
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|                                                                                                                                                                                 
|Accumulated deficit                                                                                                                                                               |                                                      |                    | (132,868 | )       |   |   | (250,478 | )      
|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |        
|                                                                                                                                                                                  | Total stockholders equity (deficit)                 |                    |          | (62,967 | ) |   |          | 246,808 | 
|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |        
|                                                                                                                                                                                  | Total liabilities and stockholders equity (deficit) |                    | $        | 80,003  |   |   | $        | 530,078 | 
|                                                                                                                                                                                  |                                                      |                    |          |         |   |   |          |        

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

F-4



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS


(In thousands, except per share amounts)


|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |        |        |          |  
|------------------------------------------------------------------------ | -------------------------------------------- | ------------------------ | ---------------------------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------ | ------ | ------ | -------- | -
|                                                                         |                                              |                         
|                                                                         |                                              | Years Ended December 31,
|                                                                         |                                              |                         
|                                                                         |                                              | 1998                     |                              | 1999   |        | 2000   
|                                                                         |                                              |                          |                              |        |        |        
|Revenues:                                                                |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Subscriber fees                              |                          | $                            | 20,648 |        |         | $       | 27,670 |        |         | $      | 47,921 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising                                  |                          |                              | 84     |        |         |         | 1,729  |        |         |        | 13,972 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising by Hallmark Cards                |                          |                              |       |        |         |         |       |        |         |        | 2,044  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Management fees from unconsolidated entity   |                          |                              | 1,529  |        |         |         | 2,510  |        |         |        | 2,879  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Sublicensing fees                            |                          |                              | 1,426  |        |         |         |       |        |         |        |       |       
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                         |                                              |                          | Total revenues               |        |        | 23,687  |         |        |        | 31,909  |        |        |        | 66,816   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cost of Services:                                                        |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Programming costs:                           |                          |                              |        |        |         |         |        |        |         |        |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                              | Affiliates               |                              |        | 12,307 |         |         |        | 12,331 |         |        |        | 36,853 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                              | Non-affiliates           |                              |        | 14,187 |         |         |        | 10,452 |         |        |        | 13,387 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Amortization of subscriber acquisition costs |                          |                              |       |        |         |         |       |        |         |        | 3,214  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Operating costs                              |                          |                              | 16,831 |        |         |         | 18,796 |        |         |        | 37,230 |       
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                         |                                              |                          | Total cost of services       |        |        | 43,325  |         |        |        | 41,579  |        |        |        | 90,684   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                                              |                          | 9,916                        |        |        |         | 22,851  |        |        |         | 51,791 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Marketing expenses                                                       |                                              |                          | 1,634                        |        |        |         | 3,426   |        |        |         | 21,280 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of goodwill                                                 |                                              |                          |                             |        |        |         |        |        |        |         | 8,639  |       
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                         |                                              |                          | Loss from operations         |        |        | (31,188 | )       |        |        | (35,947 | )      |        |        | (105,578 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Equity in net losses of unconsolidated entities and
	investment expenses |                                              |                          | (4,918                       | )      |        |         | (18,992 | )      |        |         | (9,328 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Interest income, net                                                     |                                              |                          | 1,273                        |        |        |         | 798     |        |        |         | 523    |       
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                         |                                              |                          | Net loss before income taxes |        |        | (34,833 | )       |        |        | (54,141 | )      |        |        | (114,383 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income tax provision                                                     |                                              |                          | (632                         | )      |        |         | (2,556  | )      |        |         | (1,743 | )     
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                         |                                              |                          | Net loss                     |        | $      | (35,465 | )       |        | $      | (56,697 | )      |        | $      | (116,126 | )
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|Other comprehensive loss:                                                |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Foreign currency translation adjustment      |                          |                              |       |        |         |         |       |        |         |        | (12    | )     
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|                                                                         |                                              |                          | Comprehensive loss           |        | $      | (35,465 | )       |        | $      | (56,697 | )      |        | $      | (116,138 | )
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|Weighted average number of Class A and Class B shares
	outstanding       |                                              |                          | 29,637                       |        |        |         | 32,989  |        |        |         | 50,786 |       
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       
|Net loss per share                                                       |                                              | $                        | (1.27                        | )      |        | $       | (1.84   | )      |        | $       | (2.32  | )     
|                                                                         |                                              |                          |                              |        |        |         |         |        |        |         |        |       

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

F-5



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


(In thousands)


|                           |                                                                                          |         |        |         |  |         |     |         |  |         |        |               |  |             |     |               |  |   |         |         |  |   |     |     |   |   |          |          |   |   |         |          |  
|-------------------------- | ---------------------------------------------------------------------------------------- | ------- | ------ | ------- |  | ------- | --- | ------- |  | ------- | ------ | ------------- |  | ----------- | --- | ------------- |  | - | ------- | ------- |  | - | --- | --- | - | - | -------- | -------- | - | - | ------- | -------- | -
|                           |                                                                                          |         |        |         |  |         |     |         |  |         |        | Accumulated   |  |             |     | Total        
|                           |                                                                                          |         |        | Class A |  |         |     | Class B |  |         |        | Other         |  |             |     | Stockholders
|                           |                                                                                          | Class A |        | Common  |  | Class B |     | Common  |  | Paid-in |        | Comprehensive |  | Accumulated |     | Equity       
|                           |                                                                                          | Shares  |        | Stock   |  | Shares  |     | Stock   |  | Capital |        | Loss          |  | Deficit     |     | (Deficit)    
|                           |                                                                                          |         |        |         |  |         |     |         |  |         |        |               |  |             |     |              
|Balance, December 31, 1997 |                                                                                          |         |       |         |  | $       |    |         |  |         | 27,603 |               |  | $           | 276 |               |  | $ | (276    | )       |  | $ |    |     |   | $ | (34,813  | )        |   | $ | (34,813 | )       
|                          
|                          
|                          
|                          
|                           | Conversion of Hallmark Entertainment debt into equity                                    |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         | 34,346  |  |   |     |    |   |   |          |         |   |   |         | 34,346   |  
|                          
|                          
|                          
|                          
|                           | Hallmark Entertainment capital contribution related to
	investment in Odyssey Holdings   |         |        |        |  |         |     |        |  |         |        | 1,227         |  |             |     | 12            |  |   |         | 17,766  |  |   |     |    |   |   |          |         |   |   |         | 17,778   |  
|                          
|                          
|                          
|                          
|                           | Accretion related to predecessor Class B common stock
	subject to put and  call          |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         |        |  |   |     |    |   |   |          | (2,043   | ) |   |         | (2,043   | )
|                          
|                          
|                          
|                          
|                           | Net loss                                                                                 |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         |        |  |   |     |    |   |   |          | (35,465  | ) |   |         | (35,465  | )
|                           |                                                                                          |         |        |         |  |         |     |         |  |         |        |               |  |             |     |               |  |   |         |         |  |   |     |     |   |   |          |          |   |   |         |         
|Balance, December 31, 1998 |                                                                                          |         |       |         |  |         |    |         |  |         | 28,830 |               |  |             | 288 |               |  |   | 51,836  |         |  |   |    |     |   |   | (72,321  | )        |   |   | (20,197 | )       
|                          
|                          
|                          
|                          
|                           | Hallmark Entertainment capital contribution related to
	investment in Odyssey Holdings   |         |        |        |  |         |     |        |  |         |        | 1,227         |  |             |     | 12            |  |   |         | 17,765  |  |   |     |    |   |   |          |         |   |   |         | 17,777   |  
|                          
|                          
|                          
|                          
|                           | Accretion related to predecessor Class B common stock
	subject to put and  call          |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         |        |  |   |     |    |   |   |          | (3,850   | ) |   |         | (3,850   | )
|                          
|                          
|                          
|                          
|                           | Net loss                                                                                 |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         |        |  |   |     |    |   |   |          | (56,697  | ) |   |         | (56,697  | )
|                           |                                                                                          |         |        |         |  |         |     |         |  |         |        |               |  |             |     |               |  |   |         |         |  |   |     |     |   |   |          |          |   |   |         |         
|Balance, December 31, 1999 |                                                                                          |         |       |         |  |         |    |         |  |         | 30,057 |               |  |             | 300 |               |  |   | 69,601  |         |  |   |    |     |   |   | (132,868 | )        |   |   | (62,967 | )       
|                          
|                          
|                          
|                          
|                           | Hallmark Entertainment capital contribution related to
	investment in Odyssey Holdings   |         |        |        |  |         |     |        |  |         |        | 613           |  |             |     | 7             |  |   |         | 8,882   |  |   |     |    |   |   |          |         |   |   |         | 8,889    |  
|                          
|                          
|                          
|                          
|                           | Accretion related to predecessor Class B common stock
	subject to put and  call          |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         |        |  |   |     |    |   |   |          | (1,484   | ) |   |         | (1,484   | )
|                          
|                          
|                          
|                          
|                           | Conversion of Chase predecessor Class B common stock to
	Class A common stock            |         |        | 3,837   |  |         |     | 38      |  |         |        |              |  |             |     |              |  |   |         | 62,896  |  |   |     |    |   |   |          |         |   |   |         | 62,934   |  
|                          
|                          
|                          
|                          
|                           | Issuance of Class A common stock in connection with the
	initial public offering         |         |        | 10,000  |  |         |     | 100     |  |         |        |              |  |             |     |              |  |   |         | 125,251 |  |   |     |    |   |   |          |         |   |   |         | 125,351  |  
|                          
|                          
|                          
|                          
|                           | Issuance of Class A common stock in connection with the
	acquisition of Odyssey Holdings |         |        | 15,493  |  |         |     | 155     |  |         |        |              |  |             |     |              |  |   |         | 216,746 |  |   |     |    |   |   |          |         |   |   |         | 216,901  |  
|                          
|                          
|                          
|                          
|                           | Issuance of stock for exercise of options                                                |         |        | 23      |  |         |     | 1       |  |         |        |              |  |             |     |              |  |   |         | 193     |  |   |     |    |   |   |          |         |   |   |         | 194      |  
|                          
|                          
|                          
|                          
|                           | Stock-based compensation                                                                 |         |        |         |  |         |     |         |  |         |        |               |  |             |     |               |  |   |         | 13,128  |  |   |     |    |   |   |          |         |   |   |         | 13,128   |  
|                          
|                          
|                          
|                          
|                           | Foreign currency translation adjustment                                                  |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         |        |  |   |     | (12 | ) |   |          |         |   |   |         | (12      | )
|                          
|                          
|                          
|                          
|                           | Net loss                                                                                 |         |        |        |  |         |     |        |  |         |        |              |  |             |     |              |  |   |         |        |  |   |     |    |   |   |          | (116,126 | ) |   |         | (116,126 | )
|                           |                                                                                          |         |        |         |  |         |     |         |  |         |        |               |  |             |     |               |  |   |         |         |  |   |     |     |   |   |          |          |   |   |         |         
|Balance, December 31, 2000 |                                                                                          |         | 29,353 |         |  | $       | 294 |         |  |         | 30,670 |               |  | $           | 307 |               |  | $ | 496,697 |         |  | $ | (12 | )   |   | $ | (250,478 | )        |   | $ | 246,808 |         
|                           |                                                                                          |         |        |         |  |         |     |         |  |         |        |               |  |             |     |               |  |   |         |         |  |   |     |     |   |   |          |          |   |   |         |         

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

F-6



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)


|                                      |                                                                              |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |          |        |          |          |  
|------------------------------------- | ---------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | -------- | ------ | -------- | -------- | -
|                                      |                                                                              |                                                    
|                                      |                                                                              | Years Ended December 31,                           
|                                      |                                                                              |                                                    
|                                      |                                                                              | 1998                                                |                                                                 | 1999                                                |        | 2000   
|                                      |                                                                              |                                                     |                                                                 |                                                     |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                              |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |         
|                                     
|                                     
|                                     
|                                     
|                                      | Net loss                                                                     |                                                     | $                                                               | (35,465                                             | )      |         | $       | (56,697 | )      |         | $       | (116,126 | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net loss to net cash used in operating
	activities: |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |          |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Loss on sale of property and equipment              |                                                                 |                                                     |       |         |         |         |       |         |         |          | 5      |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Amortization and depreciation                       |                                                                 |                                                     | 29,508 |         |         |         | 29,340 |         |         |          | 66,562 |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Provision for losses on accounts receivable         |                                                                 |                                                     | 38     |         |         |         | 672    |         |         |          | 3,440  |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Equity in net losses of unconsolidated subsidiaries |                                                                 |                                                     | 3,481  |         |         |         | 17,343 |         |         |          | 9,328  |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Deferred and stock-based compensation               |                                                                 |                                                     |       |         |         |         | 6,806  |         |         |          | 15,128 |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Provision for deferred taxes                        |                                                                 |                                                     |       |         |         |         | 1,600  |         |         |          |       |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Changes in operating assets and liabilities:        |                                                                 |                                                     |        |         |         |         |        |         |         |          |        |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Increase in accounts receivable                                 |                                                     |        | (2,416  | )       |         |        | (3,214  | )       |          |        | (13,137  | )       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | (Increase) decrease in interest receivable                      |                                                     |        | (450    | )       |         |        | 417     |         |          |        | 34       |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Additions to program license fees                               |                                                     |        | (25,669 | )       |         |        | (21,184 | )       |          |        | (105,151 | )       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Increase in subtitling and dubbing                              |                                                     |        | (3,156  | )       |         |        | (2,596  | )       |          |        | (3,278   | )       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Additions to subscriber acquisition fees                        |                                                     |        |        |         |         |        |        |         |          |        | (8,462   | )       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | (Increase) decrease in prepaids and other assets                |                                                     |        | (820    | )       |         |        | 427     |         |          |        | (2,640   | )       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Increase (decrease) in accounts payable and accrued liabilities |                                                     |        | 1,991   |         |         |        | (3,774  | )       |          |        | 30,682   |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Increase in subscriber acquisition fees payable                 |                                                     |        |        |         |         |        |        |         |          |        | 560      |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Increase in affiliate license fees payable                      |                                                     |        | 6,718   |         |         |        | 4,361   |         |          |        | 20,847   |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Increase (decrease) in payables to affiliates                   |                                                     |        | 18,637  |         |         |        |        |         |          |        | (2,220   | )       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                     | Decrease in deferred revenue                                    |                                                     |        | (4,601  | )       |         |        | (2,632  | )       |          |        | (1,536   | )       
|                                      |                                                                              |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |         
|                                      |                                                                              |                                                     |                                                                 | Net cash used in operating activities               |        | $       | (12,204 | )       |        | $       | (29,131 | )        |        | $        | (105,964 | )
|                                      |                                                                              |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |         
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                              |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchases of property and equipment                                          |                                                     | $                                                               | (6,665                                              | )      |         | $       | (2,569  | )      |         | $       | (22,809  | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from disposition of property and equipment                          |                                                     |                                                                 |                                                    |        |         |         |        |        |         |         | 117      |       
|                                     
|                                     
|                                     
|                                     
|                                      | Investment in Odyssey Holdings                                               |                                                     |                                                                 | (20,000                                             | )      |         |         |        |        |         |         |         |       
|                                     
|                                     
|                                     
|                                     
|                                      | Investment in the Kermit Channel                                             |                                                     |                                                                 | (3,463                                              | )      |         |         | (5,094  | )      |         |         | (4,318   | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Other investments in and issuance of note receivable                         |                                                     |                                                                 |                                                    |        |         |         |        |        |         |         | (180     | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Cash acquired from the purchase of Odyssey Holdings                          |                                                     |                                                                 |                                                    |        |         |         |        |        |         |         | 13,055   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from (investment in) note receivable from Hallmark
	Entertainment   |                                                     |                                                                 | (25,000                                             | )      |         |         | 25,000  |        |         |         |         |       
|                                      |                                                                              |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |         
|                                      |                                                                              |                                                     |                                                                 | Net cash provided by (used in) investing activities |        |         | (55,128 | )       |        |         | 17,337  |          |        |          | (14,135  | )
|                                      |                                                                              |                                                     |                                                                 |                                                     |        |         |         |         |        |         |         |         

F-7



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Continued)

(In thousands)


|                                                         |                                                                                                         |                                          |                                           |        |   |        |       |         |   |        |        |         |         |         | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------------- | ------ | - | ------ | ----- | ------- | - | ------ | ------ | ------- | ------- | ------- | 
|                                                         |                                                                                                         |                                         
|                                                         |                                                                                                         | Years Ended December 31,                
|                                                         |                                                                                                         |                                         
|                                                         |                                                                                                         | 1998                                     |                                           | 1999   |   | 2000  
|                                                         |                                                                                                         |                                          |                                           |        |   |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                                                                         |                                          |                                           |        |   |        |       |         |   |        |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from the issuance of common stock, net of issuance costs                                       |                                          |                                           |       |   |        |       |        |   |        |        | 125,351 |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from the issuance of common stock due to exercise of
	stock options                            |                                          |                                           |       |   |        |       |        |   |        |        | 194     |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from the issuance of predecessor common stock                                                  |                                          |                                           | 70,000 |   |        |       | 20,000  |   |        |        | 10,000  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Borrowings from H.C. Crown note payable                                                                 |                                          |                                           |       |   |        |       | 12,782  |   |        |        | 24,838  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Payments on Odyssey Holdings note payable                                                               |                                          |                                           |       |   |        |       | (20,000 | ) |        |        | (10,000 | )      
|                                                         |                                                                                                         |                                          |                                           |        |   |        |       |         |   |        |        |        
|                                                         |                                                                                                         |                                          | Net cash provided by financing activities |        |   | 70,000 |       |         |   | 12,782 |        |         |         | 150,383 | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Effect of exchange rate changes on cash                                                                 |                                          |                                           |       |   |        |       |        |   |        |        | 125     |        
|                                                         |                                                                                                         |                                          |                                           |        |   |        |       |         |   |        |        |        
|                                                         |                                                                                                         |                                          | Net increase in cash and cash equivalents |        |   | 2,668  |       |         |   | 988    |        |         |         | 30,409  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Cash and cash equivalents, beginning of period           |                                                                                                         |                                          | 209                                       |        |   |        | 2,877 |         |   |        | 3,865  |        
|                                                         |                                                                                                         |                                          |                                           |        |   |        |       |         |   |        |        |        
|Cash and cash equivalents, end of period                 |                                                                                                         | $                                        | 2,877                                     |        |   | $      | 3,865 |         |   | $      | 34,274 |        
|                                                         |                                                                                                         |                                          |                                           |        |   |        |       |         |   |        |        |        
|Supplemental disclosure of cash and non-cash activities: |                                                                                                         |                                          |                                           |        |   |        |       |         |   |        |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Interest paid                                                                                           |                                          | $                                         |       |   |        | $     | 21      |   |        | $      | 3,039   |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Investment in Odyssey Holdings through issuance of note payable                                         |                                          | $                                         | 30,000 |   |        | $     |        |   |        | $      |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Income taxes paid                                                                                       |                                          | $                                         | 632    |   |        | $     | 956     |   |        | $      | 1,743   |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Accretion related to Class B common stock subject to put
	and
	call                                     |                                          | $                                         | 2,043  |   |        | $     | 3,850   |   |        | $      | 1,484   |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Conversion of Hallmark Entertainment Distribution program
	license fee payable into contributed capital |                                          | $                                         | 34,346 |   |        | $     |        |   |        | $      |        |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Stock-based compensation                                                                                |                                          | $                                         |       |   |        | $     |        |   |        | $      | 13,128  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Conversion of predecessor Class B common stock to
	Class  A common stock                                |                                          | $                                         |       |   |        | $     |        |   |        | $      | 62,934  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Purchase of Odyssey Holdings, net of cash acquired:                                                     |                                          |                                           |        |   |        |       |         |   |        |        |         |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Program license fees                     |                                           | $      |  |        |       | $       |  |        |        | $       | 84,079  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Subscriber acquisition fees              |                                           |        |  |        |       |         |  |        |        |         | 24,422  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Goodwill                                 |                                           |        |  |        |       |         |  |        |        |         | 248,780 |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Other assets                             |                                           |        |  |        |       |         |  |        |        |         | 12,571  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Accounts payable and accrued liabilities |                                           |        |  |        |       |         |  |        |        |         | 18,951  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Subscriber acquisition fees payable      |                                           |        |  |        |       |         |  |        |        |         | 27,210  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Affiliate license fees payable           |                                           |        |  |        |       |         |  |        |        |         | 64,317  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Minority interest                        |                                           |        |  |        |       |         |  |        |        |         | 25,000  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                                         | Issuance of Class A common stock         |                                           |        |  |        |       |         |  |        |        |         | 216,901 |        

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

F-8



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the Years Ended December 31, 1998, 1999 and 2000


1.  Business and Organization



| |             
| | ------------
| | Organization

On May 9, 2000, Crown Media Holdings, Inc.
(Crown Media Holdings) completed a reorganization in
which all of Crown Media Holdings outstanding shares were
exchanged for 100% of Crown Media International, Inc.
(Crown Media International), formerly known as Crown
Media, Inc., and 77.5% of Odyssey Holdings, L.L.C.
(Odyssey Holdings). At the same time, Crown Media
Holdings completed a public offering of 10,000,000 shares
of Class A Common Stock at $14 per share. The net
proceeds from this offering, after expenses and underwriting
discounts and commissions, were approximately
$125.4 million. We are a holding company, and, prior to the
completion of the reorganization and the offering on May 9,
2000, we had no material assets, liabilities, contingent
liabilities or operations. Crown Media Holdings considers Crown
Media International as a predecessor corporation.

Our consolidated financial statements include the assets and
liabilities of Crown Media International at their historical
carrying values since both we and Crown Media International are
entities under common control before and after the
reorganization. The accompanying consolidated financial
statements also include the assets and liabilities and results
of operations of Crown Media Holdings other indirect,
wholly and majority-owned subsidiaries.

Crown Media International, a Delaware corporation, owns and
operates the Hallmark Entertainment Network, a pay television
channel dedicated to high quality family programming that is
distributed in more than 100 countries. Crown Media
International also owns 50% of, and operates, the Kermit
Channel, a pay television channel featuring popular family and
childrens programming distributed primarily in India.
Crown Media International began operations in June 1995 and was
a majority-owned subsidiary of Hallmark Entertainment, Inc.
(Hallmark Entertainment).

National Interfaith Cable Coalition, Inc.
(NICC), VISN Management Corp. (VISN Management
Corp.), a wholly-owned subsidiary of NICC, Liberty Media
Corporation (Liberty Media) and Vision
Group Inc. (VGI), a wholly-owned subsidiary of
Liberty Media, entered into an agreement, effective July 1,
1995, to form The F&V Channel, L.L.C.
(F&V) as a Delaware limited liability company.
At that time, VISN Management Corp. and VGI transferred their
assets and liabilities to F&V in exchange for 51% and 49%,
respectively, of the membership interests in F&V. In
November 1996, F&V formed a wholly-owned subsidiary, Odyssey
Productions, Ltd., to produce a number of its television
programs. During 1997, F&V changed its name to Odyssey
Holdings, L.L.C.

On November 13, 1998, Odyssey Holdings entered into an
amended and restated operating agreement (the Company
Agreement) with its members. The Company Agreement
provided for the admittance of Henson Cable Networks, Inc.
(HCN), a wholly-owned subsidiary of The Jim Henson
Company, Inc. (The Jim Henson Company), and
Crown Media International, through a wholly-owned subsidiary.
Under the terms of the Company Agreement, HCN and Crown Media
International each agreed to pay $50.0 million, payable in
installments, for a 22.5% common equity interest in Odyssey
Holdings. As a result of these transactions, the common equity
interest for VISN Management Corp., VGI, The Jim Henson Company
and Crown Media International (collectively the
Members) were 22.5%, 32.5%, 22.5% and 22.5%,
respectively.

Odyssey Holdings initially operated the Odyssey Network as a pay
television channel in the United States dedicated primarily to
religious programming. In April 1999, Odyssey Holdings
relaunched the Odyssey Network as a channel dedicated to
high-quality family programming.

The assets and liabilities of Odyssey Holdings and its
subsidiaries relating to Crown Media Internationals 22.5%
interest in Odyssey Holdings which are owned indirectly by us
following the reorganization, as well as The Jim Henson
Companys 22.5% interest in Odyssey Holdings, are included
in Crown Media Holdings

F-9



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

consolidated financial statements at their historical carrying
values. The acquisition of Liberty Medias 32.5% interest
in Odyssey Holdings and NICCs 22.5% interest in Odyssey
Holdings, both of which were acquired in connection with the
reorganization, are included in our consolidated financial
statements at their fair market value using purchase accounting
as of the date of the reorganization. No minority interest is
reflected in the accompanying consolidated statements of
operations for the year ended December 31, 2000, as the
common minority shareholders interest is in a deficit
position and the minority shareholder is not obligated to
further fund the losses or obligations of Odyssey Holdings.

In February 2000, EM.TV Merchandising AG (EM.TV)
acquired The Jim Henson Company. In July 2000, we agreed in
principle with EM.TV to acquire EM.TVs 22.5% ownership
interest in Odyssey Holdings and its 50% interest in the Kermit
Channel. On March 15, 2001 we completed the transaction and
we now own 100% of the members common interests in Odyssey
Holdings and 100% of EM.TVs interest in the Kermit
Channel. In consideration for these ownership interests, we
issued 5,377,721 shares of our Class A Common Stock to
The Jim Henson Company, a wholly owned subsidiary of EM.TV. The
newly issued shares to EM.TV represent after the transaction
approximately 8.2% of our combined outstanding Class A and
Class B Common Stock and 15.5% of our Class A Common
Stock based on our outstanding shares at March 15, 2001.
The Jim Henson Company became a party to the stockholders
agreement among our original stockholders, but does not have the
right to designate a Board member pursuant to that agreement.
The stockholders agreement contains, among other things, certain
restrictions on the transfer of common stock by the parties
until May 9, 2002. In connection with the acquisition, we
and EM.TV entered into a license agreement providing for our use
of family programming of EM.TV on the Hallmark Entertainment
Network or Odyssey Network.



| |          
| | ---------
| | Liquidity

In connection with our growth strategy, we expect that we will
continue to make significant investments in programming,
distribution and technology, as well as additional investments
in infrastructure and facilities. We are currently committed to
spend more than $50.0 million for programming and more than
$25.0 million for distribution over the next
12 months. We are also committed to four quarterly payments
of $6.8 million commencing on April 1, 2001, for
subscriber acquisition fees payable. Without taking into account
the proposed acquisition of films from the Hallmark
Entertainment library, and in addition to cash which we expect
from operations and the remaining proceeds of our initial public
offering, we anticipate the need for external financing of up to
$150 million for our liquidity needs through March 31,
2002. A temporary line of credit with a subsidiary of Hallmark
Cards for this amount is in place to cover this need.

In the third quarter of 2000, in order to maintain our liquidity
over at least 18 months, we negotiated with a group of
banks to obtain a $100 million credit facility and entered
into a non-binding term sheet for such a credit facility. In
November 2000, we announced that we had begun exploring the
possibility of acquiring the film library of Hallmark
Entertainment. Because the possible purchase could affect the
level and terms of the bank line of credit, we, in consultation
with our bank syndicate, delayed taking additional steps toward
closing a line of credit.

Subsequently, we reviewed our financing needs with a view to
having liquidity through March 31, 2002. Rather than put in
place a line of credit with the bank group that might change if
we purchase films from Hallmark Entertainment, we discussed with
Hallmark Cards financing alternatives. Hallmark Cards was
willing to provide a temporary line of credit of up to
$150 million. This line of credit with a subsidiary of
Hallmark Cards is payable no later than April 1, 2002. The
lenders obligation to make loans under the line of credit
is backed up by a letter of credit issued by Bank of America. We
believe that the line of credit, together with cash generated
from operations and cash on hand, will be sufficient for our
liquidity needs through March 31, 2002.

F-10



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Further, looking ahead to continued liquidity, we may seek
during the next 12 months and thereafter additional funds
to operate and expand our businesses. Any additional equity
financings could result in dilution to our existing investors.
Any debt financings will likely increase our interest expense
and may impose restrictive covenants.

2.  Summary of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the consolidated
accounts of Crown Media Holdings and those of its majority-owned
and controlled subsidiaries. Investments in entities that are
not majority-owned and controlled by Crown Media Holdings are
accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated in
consolidation.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Crown Media Holdings considers all highly liquid instruments
purchased with an initial maturity of three months or less to be
cash equivalents. The carrying value of Crown Media
Holdings cash equivalents approximates cost at each
balance sheet date.



| |                
| | ---------------
| | Restricted Cash

Restricted cash includes amounts deposited to secure letters of
credit in accordance with certain lease agreements.



| |                            
| | ---------------------------
| | Subscriber Acquisition Fees

Crown Media Holdings has entered into distribution agreements
with six of the top nine United States pay television
distributors which carry the Odyssey Network on some of their
cable systems. The terms of the agreements range from June 1999
through February 2007. Crown Media Holdings is obligated to pay
subscriber acquisition fees if certain subscriber levels are
met, as defined in certain of these agreements and one-time
subscriber fees to carry Crown Media Holdings channels.

As of December 31, 2000, the balance sheet reflected
subscriber acquisition fees payable of $27.8 million,
$27.2 million of which was incurred prior to our
May 9, 2000, initial public offering and $0.6 million
incurred subsequent to our offering. The $27.2 million is
due in four quarterly installments of $6.8 million
commencing on April 1, 2001. Crown Media Holdings believes
that the subscriber levels will be met. Certain subscriber
acquisition fees are capitalized and amortized on a
straight-line basis over the term of the distribution agreement.
At the time Crown Media Holdings enters into a distribution
agreement, and periodically thereafter, Crown Media Holdings
evaluates the recoverability of the subscriber acquisition fees
against the revenues directly associated with each agreement.
During 2000, Crown Media Holdings paid approximately
$8.5 million in subscriber acquisition fees, acquired the
other $24.4 million in such fees when it acquired 55% of
Odyssey Holdings and recorded amortization of $3.2 million
for such fees.



| |                     
| | --------------------
| | Program License Fees

Program license fees are the rights to air programs acquired
from others. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 63,
Financial Reporting by Broadcasters, program rights
are deferred and then amortized on a straight-line basis over
their license periods (the airing windows) or
anticipated usage, whichever is shorter. At the inception of
these contracts and periodically thereafter, Crown Media
Holdings evaluates the recoverability of these costs versus the
revenues directly associated with the programming and related
expense. Where an evaluation indicates that a programming
contract will ultimately result in a loss, additional
amortization is provided to currently recognize that loss.

F-11



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

SFAS No. 63 also requires an entity providing programming
to report an asset and liability for the rights licensed under a
programming agreement only when the license period begins and
when certain other defined requirements are met. As such, the
accompanying consolidated balance sheets do not reflect assets
and liabilities of $42.8 million and $122.2 million as
of December 31, 1999 and 2000, respectively, related to
committed program license fees with airing windows to begin
subsequent to period-end.



| |                       
| | ----------------------
| | Subtitling and Dubbing

Subtitling and dubbing costs represent costs incurred to prepare
programming for airing in international markets. These costs are
capitalized as incurred and are amortized over the shorter of
the programs airing window for programming licensed from
unaffiliated third-parties, the programs estimated life
for programming licensed from Hallmark Entertainment
Distribution LLC (Hallmark Entertainment
Distribution, a wholly-owned subsidiary of Hallmark
Entertainment) or 10 years. Accumulated amortization
related to subtitling and dubbing as of December 31, 1999
and 2000 was $2.4 million and $2.9 million,
respectively.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost. Depreciation of
property and equipment are provided for by the straight-line
method over the estimated useful lives of the respective assets,
ranging from three to five years. Leasehold improvements are
depreciated over the life of the lease. When property is sold or
otherwise disposed of, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain
or loss is included in income. The costs of normal maintenance
and repairs are charged to expense when incurred.



| |                    
| | -------------------
| | Revenue Recognition

Subscriber fees are recognized as revenue when programming is
provided to pay television distributors and collectibility is
reasonably assured.

Advertising revenues are recognized as earned in the period in
which the advertising commercials or infomercials are telecast.
Advertising revenues are recorded net of agency commissions and
estimated advertising deficiency reserves.

In 1999, the Emerging Issues Tax Force (EITF) Issue
No. 99-17, Accounting for Advertising Barter
Transactions was issued. EITF No. 99-17 establishes
accounting and reporting standards for bartering advertising
transactions. Crown Media Holdings records advertising revenue
and expenses in barter transactions at the fair value of the
advertising to be provided. The fair value is determined based
upon the Companys historical practice of receiving cash
for similar ads from buyers unrelated to the other party in the
current barter transaction. When the barter advertising revenue
does not meet the requirements of the rule, no revenue is
recognized. No barter advertising revenue or corresponding
barter expense was recognized for the years ended
December 31, 1998 and 1999. For the year ended
December 31, 2000, Crown Media Holdings reported revenue
from advertising barter transactions of $2.2 million and
corresponding barter expenses of $2.2 million included as a
component of advertising revenue and marketing expenses,
respectively, in the accompanying consolidated statements of
operations.

Revenues from foreign sources for the years ended
December 31, 1998, 1999 and 2000, represented 100%, 100%,
and 82%, respectively, of total subscriber fee revenues. Such
revenues, generally denominated in United States dollars, were
primarily from sales to customers in Australia, Benelux, Italy,
New Zealand, South Africa, Spain and certain countries in Asia,
the Middle East and Latin America.

F-12



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)



| |                 
| | ----------------
| | Cost of Services

Cost of services includes programming distribution expenses and
amortization of program license fees, subtitling and dubbing.



| |                  
| | -----------------
| | Minority Interest

The minority interest in the net income or loss of Crown Media
Holdings non wholly-owned, consolidated subsidiaries is
insignificant and therefore not separately reflected in the
accompanying consolidated financial statements. To the extent
the minority interest in the net losses of Crown Media
Holdings consolidated subsidiaries exceeds the minority
investment in those subsidiaries, such excess losses are charged
to Crown Media Holdings. See Note 5 for a discussion of
minority interest related to the preferential interest in
Odyssey Holdings.



| |                   
| | ------------------
| | Comprehensive Loss

Crown Media Holdings adopted SFAS No. 130, Reporting
Comprehensive Income, during 1998. This statement
establishes standards for the reporting and presentation of
comprehensive income (loss) and its components in financial
statements and thereby reports a measure of all changes in
equity of an enterprise that result from transactions and other
economic events other than transactions with owners. No tax
benefit has been provided on the foreign currency translation
loss component for any period.



| |                                
| | -------------------------------
| | Translation of Foreign Currency

The balance sheets and statements of operations of certain Crown
Media Holdings foreign subsidiaries are measured using
local currency as the functional currency. Revenues and expenses
of such subsidiaries are translated into U.S. dollars at
the average exchange rates prevailing during the period. Assets
and liabilities are translated at the rates of exchange at the
balance sheet date. Translation gains and losses are deferred as
a component of stockholders equity. Aggregate foreign
currency transaction gains and losses are included in
determining net income.



| |                   
| | ------------------
| | Net Loss Per Share

Basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted
average number of common shares outstanding during the period.
Diluted net loss per share is computed based on the weighted
average number of common shares and potentially dilutive common
shares outstanding. The calculation of diluted net loss per
share excludes potential common shares if the effect is
anti-dilutive. Potential common shares consist of incremental
common shares issuable upon the exercise of stock options.
Approximately four million stock options have been excluded from
the calculations below for the year ended December 31,
2000, as their effect would have been anti-dilutive.
Accordingly, diluted loss per share equals basic loss per share.
No stock options were outstanding for the years ended
December 31, 1998 and 1999.

F-13



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The computation of basic and diluted net loss per share consists
of the following:

|                                                                                                   |                                               |                                          |         |        |   |      |         |        |   |   |          |        |  
|-------------------------------------------------------------------------------------------------- | --------------------------------------------- | ---------------------------------------- | ------- | ------ | - | ---- | ------- | ------ | - | - | -------- | ------ | -
|                                                                                                   |                                               |                                         
|                                                                                                   |                                               | Years Ended December 31,                
|                                                                                                   |                                               |                                         
|                                                                                                   |                                               | 1998                                     |         | 1999   |   | 2000
|                                                                                                   |                                               |                                          |         |        |   |     
|                                                                                                   |                                               |                                         
|                                                                                                   |                                               | (In thousands, except per share amounts)
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Net loss                                                                                           |                                               | $                                        | (35,465 | )      |   | $    | (56,697 | )      |   | $ | (116,126 | )     
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Accretion related to predecessor Class B common stock
	subject to put and call through May 9, 2000 |                                               |                                          | (2,043  | )      |   |      | (3,850  | )      |   |   | (1,484   | )     
|                                                                                                   |                                               |                                          |         |        |   |      |         |        |   |   |          |       
|                                                                                                   |                                               | $                                        | (37,508 | )      |   | $    | (60,547 | )      |   | $ | (117,610 | )     
|                                                                                                   |                                               |                                          |         |        |   |      |         |        |   |   |          |       
|Denominator:                                                                                       |                                               |                                          |         |        |   |      |         |        |   |   |          |       
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Weighted average common shares outstanding(1) |                                          |         | 29,637 |   |      |         | 32,989 |   |   |          | 50,786 |  
|                                                                                                   |                                               |                                          |         |        |   |      |         |        |   |   |          |       
|Net loss per share:                                                                                |                                               |                                          |         |        |   |      |         |        |   |   |          |       
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                   | Basic and diluted loss per share              |                                          | $       | (1.27  | ) |      | $       | (1.84  | ) |   | $        | (2.32  | )
|                                                                                                   |                                               |                                          |         |        |   |      |         |        |   |   |          |       



---



|    |                                                                          
|--- | -------------------------------------------------------------------------
|(1) | Number of shares recalculated to include initial public offering
	shares.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for stock-based awards to employees using
the intrinsic value method in accordance with APB Opinion
No. 25, Accounting For Stock Issued to Employees.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires Crown Media Holdings 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 revenues
and expenses during the reporting period. Actual results could
differ from those estimates.



| |           
| | ----------
| | Fair Value

The carrying amounts of financial instruments, including amounts
payable and receivable, are reasonable estimates of their fair
value. The fair values were estimated using the current rates at
which loans would be made to Crown Media Holdings for similar
remaining maturities. Investments in private companies and
partnerships are recorded at fair value as of the date of
investment. Crown Media Holdings periodically reviews the fair
value of its investments. If a review indicates that the
carrying value of an asset is not recoverable, the carrying
value is reduced to its estimated fair value.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments, which potentially subject Crown Media
Holdings to a concentration of credit risk, consist primarily of
cash, restricted cash, cash equivalents and accounts receivable.
Generally, Crown Media Holdings does not require collateral to
secure receivables. The Company has no significant financial
instruments with off-balance sheet risk of accounting losses,
such as foreign exchange contracts, options contracts, or other
foreign currency hedging arrangements.



| |                                          
| | -----------------------------------------
| | Recently Issued Accounting Pronouncements

In June 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities was issued. This
statement was subsequently amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB
Statement No. 133, which changed the

F-14



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

effective date to fiscal years beginning after June 15,
2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. Crown Media Holdings has not used derivative
instruments nor does it engage in hedging activities and thus
the adoption in 2001 of this standard will not have a material
effect on its financial statements.

In December 1999, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements
(SAB 101), which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic
criteria that must be met in order to recognize revenue and
provides guidance for disclosures related to revenue recognition
policies. Crown Media Holdings believes that the adoption of
SAB 101 did not have a material effect on its business,
financial position or results of operations.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to conform prior
periods data to the current presentation. These
reclassifications have no effect on reported net loss.

3.  Program license fees

Program license fees are comprised of the following:

|                                                            |                               |                    |         |        |  |   |         |         | 
|----------------------------------------------------------- | ----------------------------- | ------------------ | ------- | ------ |  | - | ------- | ------- | 
|                                                            |                               |                   
|                                                            |                               | As of December 31,
|                                                            |                               |                   
|                                                            |                               | 1999               |         | 2000  
|                                                            |                               |                    |         |       
|                                                            |                               |                   
|                                                            |                               | (In thousands)    
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  Hallmark Entertainment
	Distribution |                               | $                  | 17,362  |        |  | $ | 107,028 |        
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  The Jim Henson Company               |                               |                    |        |        |  |   | 20,846  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  other affiliates                     |                               |                    |        |        |  |   | 10,622  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Program license fees  non-affiliates                       |                               |                    | 11,196  |        |  |   | 53,148  |        
|                                                           
|                                                           
|                                                           
|                                                           
|Prepaid program license fees                                |                               |                    | 6,750   |        |  |   | 6,870   |        
|                                                            |                               |                    |         |        |  |   |         |        
|                                                            | Program license fees, at cost |                    |         | 35,308 |  |   |         | 198,514 | 
|                                                           
|                                                           
|                                                           
|                                                           
|Accumulated amortization                                    |                               |                    | (16,726 | )      |  |   | (38,109 | )      
|                                                            |                               |                    |         |        |  |   |         |        
|                                                            | Program license fees, net     |                    | $       | 18,582 |  |   | $       | 160,405 | 
|                                                            |                               |                    |         |        |  |   |         |        

On May 9, 2000, Crown Media Holdings acquired
$84.1 million of program license fees as part of its
acquisition of Odyssey Holdings.

License fees payable are comprised of the following:

|                                                            |                      |                    |        |        |  |   |         |         | 
|----------------------------------------------------------- | -------------------- | ------------------ | ------ | ------ |  | - | ------- | ------- | 
|                                                            |                      |                   
|                                                            |                      | As of December 31,
|                                                            |                      |                   
|                                                            |                      | 1999               |        | 2000  
|                                                            |                      |                    |        |       
|                                                            |                      |                   
|                                                            |                      | (In thousands)    
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  Hallmark Entertainment
	Distribution |                      | $                  | 34,606 |        |  | $ | 109,859 |        
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  The Jim Henson Company               |                      |                    |       |        |  |   | 10,039  |        
|                                                           
|                                                           
|                                                           
|                                                           
|License fees payable  non-affiliates                       |                      |                    | 561    |        |  |   | 39,272  |        
|                                                            |                      |                    |        |        |  |   |         |        
|                                                            | License fees payable |                    | $      | 35,167 |  |   | $       | 159,170 | 
|                                                            |                      |                    |        |        |  |   |         |        

F-15



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

4.  Property and Equipment

Property and equipment are comprised of the following:

|                                  |                                 |                    |        |        |  |   |        |        | 
|--------------------------------- | ------------------------------- | ------------------ | ------ | ------ |  | - | ------ | ------ | 
|                                  |                                 |                   
|                                  |                                 | As of December 31,
|                                  |                                 |                   
|                                  |                                 | 1999               |        | 2000  
|                                  |                                 |                    |        |       
|                                  |                                 |                   
|                                  |                                 | (In thousands)    
|                                 
|                                 
|                                 
|                                 
|Technical equipment and computers |                                 | $                  | 10,330 |        |  | $ | 19,702 |       
|                                 
|                                 
|                                 
|                                 
|Furniture, fixtures and equipment |                                 |                    | 966    |        |  |   | 1,765  |       
|                                 
|                                 
|                                 
|                                 
|Leasehold improvements            |                                 |                    | 461    |        |  |   | 2,485  |       
|                                 
|                                 
|                                 
|                                 
|Construction-in-progress          |                                 |                    | 1,065  |        |  |   | 15,109 |       
|                                  |                                 |                    |        |        |  |   |        |       
|                                  | Property and equipment, at cost |                    |        | 12,822 |  |   |        | 39,061 | 
|                                 
|                                 
|                                 
|                                 
|Accumulated depreciation          |                                 |                    | (4,837 | )      |  |   | (7,994 | )     
|                                  |                                 |                    |        |        |  |   |        |       
|                                  | Property and equipment, net     |                    | $      | 7,985  |  |   | $      | 31,067 | 
|                                  |                                 |                    |        |        |  |   |        |       

On May 9, 2000, Crown Media Holdings acquired
$5.6 million of property and equipment as part of the
acquisition of Odyssey Holdings. Construction-in-progress as of
December 31, 2000 consisted primarily of costs incurred for
an advanced global Network Operations Center at our Greenwood
Village, Colorado, headquarters. Depreciation expense for the
years ended December 31, 1998, 1999, and 2000 was
$1.5 million, $2.4 million and $5.2 million,
respectively.

5.  Investments in and Advances to Unconsolidated
Entities



| |                   
| | ------------------
| | The Kermit Channel

In May 1998, Crown Media International formed two New York
limited liability companies, H&H Programming-Latin
America, L.L.C. (HHPLA) and H&H
Programming-Asia, L.L.C. (collectively operating as the
Kermit Channel) with The Jim Henson Company, a New
York corporation, for the purpose of developing, owning and
operating pay television programming services in Latin America
and Asia. HHPLA was dissolved in December 1999. Each of Crown
Media International and The Jim Henson Company held a 50%
interest in each of the limited liability companies and each
held a 50% interest in the Kermit Channel. The Kermit Channel is
reflected in Crown Media Holdings financial statements
using the equity method of accounting for investments. Crown
Media Holdings equity in the net loss of the Kermit
Channel was approximately $3.0 million, $5.0 million
and $4.5 million for the years ended December 31,
1998, 1999 and 2000, respectively.

Crown Media Holdings provides services to the Kermit Channel in
exchange for a management fee as provided in an agreement
between Crown Media International and the Kermit Channel. This
fee, which was approximately $1.5 million,
$2.5 million, and $2.9 million for the years ended
December 31, 1998, 1999 and 2000, respectively, includes
direct and indirect costs incurred on behalf of the Kermit
Channel, as provided by the agreements. Additionally, Hallmark
Entertainment Distribution provides programming to the Kermit
Channel in exchange for a fee through a license agreement.

Effective December 1998, HHPLA discontinued all operations and
committed to a plan of dissolution. HHPLA was dissolved in
December 1999. All dissolution costs were accrued and included
in equity in net losses of unconsolidated entities in the
accompanying 1998 consolidated statement of operations to the
extent of Crown Media Internationals economic interest.
Crown Media International also incurred $1.3 million in
costs on behalf of HHPLA in 1998. These costs were not charged
to HHPLA and were in equity in net losses of unconsolidated
subsidiaries and investment expenses for the year ended
December 31, 1998.

Crown Media International made capital contributions, through
cash advances and/or conversion of receivables in the Kermit
Channel, of $4.0 million and $2.5 million during 1999
and 2000, respectively.

F-16



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

In October 2000, we collapsed the Kermit Channel in Asia, but
maintained the channel in India, and in lieu of a separate
channel, we introduced a six-hour programming block dedicated to
the childrens market on the Hallmark Entertainment Network
in our Asian feed. As of January 1, 2001, we completed the
collapse of the Kermit channel, introducing a block of
childrens programming on the Hallmark Entertainment
Network in India. As a result of the purchase of EM.TVs
interests in March 2001 and the collapsing of the Kermit Channel
into a block on the Hallmark Entertainment Network, we do not
expect to earn management fee revenues in the future.



| |                                       
| | --------------------------------------
| | Investment in Odyssey Holdings, L.L.C.

In November 1998, Crown Media International, through its
wholly-owned subsidiary Hallmark Domestic Holdings, Inc.,
entered into an agreement to acquire a 22.5% common equity
interest in Odyssey Holdings. Odyssey Holdings was formed to
develop, own and operate the Odyssey Network. The purchase price
for Crown Media Internationals interest in Odyssey
Holdings was $50.0 million. Pursuant to the terms of the
agreement, Crown Media International paid $20.0 million of
this purchase price in November 1998, an additional
$20.0 million in May 1999 and the final payment of
$10.0 million in February 2000. Consequently, at
December 31, 1999, Crown Media had an outstanding note
payable related to this investment, included in notes and
interest payable to affiliates in the accompanying consolidated
balance sheets, of $10.0 million.

Crown Media International funded its 1998 capital contribution
to Odyssey Holdings with the proceeds of additional investments
of $17.8 million and $2.2 million in Crown Media
International by its stockholders, Hallmark Entertainment and
Chase Equity Associates, LP (Chase),
respectively. Hallmark Entertainment and Chase were issued
44.444 shares of predecessor Class A common stock and
5.555 shares of predecessor Class B common stock,
respectively, related to the additional funding. In May 1999,
Hallmark Entertainment and Chase provided Crown Media
International with additional funding of $17.8 million and
$2.2 million, respectively, to fund Crown Media
Internationals additional capital contribution to Odyssey
Holdings. In connection with this funding, Crown Media
International issued 44.444 shares of predecessor
Class A common stock to Hallmark Entertainment and
5.555 shares of predecessor Class B common stock to
Chase. The predecessor Class B shares issued in connection
with this funding provided by Chase were subject to the put and
call arrangement.

Crown Media International funded its February 2000 capital
contribution to Odyssey Holdings with the proceeds of additional
investments of $8.9 million and $1.1 million in Crown
Media International by its stockholders, Hallmark Entertainment
and Chase Equity Associates, LP (Chase), now
JP Morgan Partners (BHCA), L.P., respectively.
Hallmark Entertainment and Chase were issued 22.222 shares
of predecessor Class A common stock and 2.7775 shares
of predecessor Class B common stock, respectively, related
to the additional funding.

Crown Media Holdings investment in Odyssey Holdings was
reflected in the consolidated financial statements using the
equity method of accounting until May 9, 2000, the date of
the reorganization (see note 1), at which time it became a
consolidated subsidiary. Crown Media Holdings equity in
the net loss of Odyssey Holdings was approximately
$12.4 million and $4.8 million for the year ended
December 31, 1999 and for approximately the four months
ended May 9, 2000, respectively. These amounts are included
in the consolidated statements of operations as a component of
equity in net losses of unconsolidated entities. Crown Media
Holdings investment in Odyssey Holdings, through the date
of the reorganization, exceeded the underlying equity in the net
assets of Odyssey Holdings as of the date of the investment.
This goodwill was being amortized over 20 years. For the
years ended December 31, 1998 and 1999, approximately
$137,000 and $1.6 million, respectively, was amortized
related to this difference and was reflected in equity in net
losses of unconsolidated entities in the accompanying
consolidated statements of operations.

In connection with the November 1998 investments by Crown Media
International and The Jim Henson Company, VISN Management Corp.
received a redeemable preferred interest of $25.0 million,
which ranks

F-17



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

senior to the common equity interests of Odyssey Holdings.
Odyssey Holdings has the right to redeem the preferred interest
in whole (but not in part) for cash at 100% of the Preferred
Liquidation Preference, as defined by the agreement. This amount
is classified as preferred minority interest in the accompanying
balance sheet. If during any fiscal year subsequent to
January 1, 2005 and prior to December 31, 2009,
Odyssey Holdings has net profits in excess of $10.0 million
and the preferred interest has not been redeemed, Odyssey
Holdings will redeem the preferred interest in an amount equal
to the lesser of such excess, or $5.0 million, or the
Preferred Liquidation Preference. Odyssey Holdings shall redeem
the entire preferred interest at the Preferred Liquidation
Preference on the redemption date of December 31, 2010.

6.  Acquisition and Summarized Financial Information of
Odyssey Holdings

The acquisition of the additional 55% interest in Odyssey
Holdings in the reorganization on May 9, 2000 has been
accounted for using the purchase method of accounting. The
results of operations of Odyssey Holdings have been included in
the consolidated financial statements since May 9, 2000.
The purchase price of the 55% interest in Odyssey Holdings has
been allocated among net assets of Odyssey Holdings based on the
estimated fair values of net assets acquired at the date of
acquisition. The excess of purchase price over identifiable net
assets acquired of $217.0 million has been allocated to
goodwill and is being amortized using the straight-line method
over the estimated useful life of 20 years. Minority interest is
reflected in the accompanying pro forma consolidated statements
of operations for the years ended December 31, 1999 and
2000, only to the extent of the minority shareholders
capital contributions. The minority shareholder is not obligated
to fund losses or obligations of Odyssey Holdings which exceed
its capital contribution.

F-18



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The following unaudited pro forma information presents a summary
of consolidated results of operations (in thousands) of Crown
Media Holdings, Crown Media International, and Odyssey Holdings
as if the acquisition had occurred on January 1st of the
periods presented, along with certain pro forma adjustments to
give effect to amortization of goodwill, equity in net losses of
unconsolidated subsidiaries, minority interests, and other
adjustments. The pro forma financial information is not
necessarily indicative of the results of operations as they
would have been had the transaction been effected on the assumed
dates.

CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES






PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


(In thousands, except per share amounts)


|                                                                         |                                              |                          |                              |        |        |          |        |        |        |          |  
|------------------------------------------------------------------------ | -------------------------------------------- | ------------------------ | ---------------------------- | ------ | ------ | -------- | ------ | ------ | ------ | -------- | -
|                                                                         |                                              |                         
|                                                                         |                                              | Years Ended December 31,
|                                                                         |                                              |                         
|                                                                         |                                              | 1999                     |                              | 2000  
|                                                                         |                                              |                          |                              |       
|Revenues:                                                                |                                              |                          |                              |        |        |          |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Subscriber fees                              |                          | $                            | 35,514 |        |          | $      | 50,904 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising                                  |                          |                              | 10,687 |        |          |        | 16,933 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Advertising by Hallmark Cards                |                          |                              | 375    |        |          |        | 2,788  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Management fees from unconsolidated entity   |                          |                              | 3,216  |        |          |        | 2,892  |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Total revenues               |        |        | 49,792   |        |        |        | 73,517   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cost of Services:                                                        |                                              |                          |                              |        |        |          |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Programming costs:                           |                          |                              |        |        |          |        |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                              | Affiliates               |                              |        | 28,261 |          |        |        | 44,852 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                              | Non-affiliates           |                              |        | 16,334 |          |        |        | 15,352 |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Amortization of subscriber acquisition costs |                          |                              | 1,600  |        |          |        | 4,801  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Operating costs                              |                          |                              | 32,751 |        |          |        | 40,837 |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Total cost of services       |        |        | 78,946   |        |        |        | 105,842  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                                              |                          | 45,744                       |        |        |          | 62,469 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Marketing expenses                                                       |                                              |                          | 18,185                       |        |        |          | 24,378 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of goodwill                                                 |                                              |                          | 12,528                       |        |        |          | 12,528 |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Loss from operations         |        |        | (105,611 | )      |        |        | (131,700 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Equity in net losses of unconsolidated entities and investment
	expenses |                                              |                          | (4,954                       | )      |        |          | (4,493 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Minority interest in net loss                                            |                                              |                          | 12,389                       |        |        |          | 4,241  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Interest income, net                                                     |                                              |                          | 1,980                        |        |        |          | 957    |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Net loss before income taxes |        |        | (96,196  | )      |        |        | (130,995 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income tax provision                                                     |                                              |                          | (956                         | )      |        |          | (1,743 | )     
|                                                                         |                                              |                          |                              |        |        |          |        |       
|                                                                         |                                              |                          | Net loss                     |        | $      | (97,152  | )      |        | $      | (132,738 | )
|                                                                         |                                              |                          |                              |        |        |          |        |       
|Weighted average number of Class A and Class B shares
	outstanding       |                                              |                          | 60,000                       |        |        |          | 60,007 |       
|                                                                         |                                              |                          |                              |        |        |          |        |       
|Net loss per share                                                       |                                              | $                        | (1.62                        | )      |        | $        | (2.21  | )     
|                                                                         |                                              |                          |                              |        |        |          |        |       

F-19



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Summarized Financial Information of Odyssey
Holdings

(In thousands)


|                                          |                                                 |                    |        |         |  |   |        |         | 
|----------------------------------------- | ----------------------------------------------- | ------------------ | ------ | ------- |  | - | ------ | ------- | 
|                                          |                                                 |                   
|                                          |                                                 | As of December 31,
|                                          |                                                 |                   
|                                          |                                                 | 1998               |        | 1999   
|                                          |                                                 |                    |        |        
|ASSETS                                   
|                                         
|                                         
|                                         
|                                         
|                                         
|Current assets                            |                                                 | $                  | 55,328 |         |  | $ | 46,287 |        
|                                         
|                                         
|                                         
|                                         
|Long-term assets                          |                                                 |                    | 45,246 |         |  |   | 90,825 |        
|                                          |                                                 |                    |        |         |  |   |        |        
|                                          | Total assets                                    |                    | $      | 100,574 |  |   | $      | 137,112 | 
|                                          |                                                 |                    |        |         |  |   |        |        
|                                         
|LIABILITIES AND MEMBERS EQUITY (DEFICIT)
|                                         
|                                         
|                                         
|                                         
|                                         
|Current liabilities                       |                                                 | $                  | 18,870 |         |  | $ | 47,423 |        
|                                         
|                                         
|                                         
|                                         
|Long-term liabilities                     |                                                 |                    | 43,103 |         |  |   | 65,842 |        
|                                         
|                                         
|                                         
|                                         
|Redeemable preferred interest             |                                                 |                    | 25,000 |         |  |   | 25,000 |        
|                                         
|                                         
|                                         
|                                         
|Members equity (deficit)                 |                                                 |                    | 13,601 |         |  |   | (1,153 | )      
|                                          |                                                 |                    |        |         |  |   |        |        
|                                          | Total liabilities and members equity (deficit) |                    | $      | 100,574 |  |   | $      | 137,112 | 
|                                          |                                                 |                    |        |         |  |   |        |        

|                                             |                    |                        |       |        |        |   |        |        |         |  
|-------------------------------------------- | ------------------ | ---------------------- | ----- | ------ | ------ | - | ------ | ------ | ------- | -
|                                             |                    |                       
|                                             |                    | Years Ended           
|                                             |                    | December 31,          
|                                             |                    |                       
|                                             |                    | 1998                   |       | 1999  
|                                             |                    |                        |       |       
|Revenues:                                    |                    |                        |       |        |        |   |        |       
|                                            
|                                            
|                                            
|                                            
|                                             | Subscriber fees    |                        | $     | 6,599  |        |   | $      | 8,550  |        
|                                            
|                                            
|                                            
|                                            
|                                             | Advertising        |                        |       | 11,542 |        |   |        | 9,333  |        
|                                             |                    |                        |       |        |        |   |        |       
|                                             |                    | Total revenues         |       |        | 18,141 |   |        |        | 17,883  |  
|                                            
|                                            
|                                            
|                                            
|Cost of Services:                            |                    |                        |       |        |        |   |        |       
|                                            
|                                            
|                                            
|                                            
|                                             | Programming costs: |                        |       | 3,754  |        |   |        | 21,811 |        
|                                            
|                                            
|                                            
|                                            
|                                             | Operating costs    |                        |       | 8,021  |        |   |        | 15,556 |        
|                                             |                    |                        |       |        |        |   |        |       
|                                             |                    | Total cost of services |       |        | 11,775 |   |        |        | 37,367  |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |                    |                        | 9,488 |        |        |   | 36,760 |       
|                                             |                    |                        |       |        |        |   |        |       
|                                             |                    | Loss from operations   |       |        | (3,122 | ) |        |        | (56,244 | )
|                                            
|                                            
|                                            
|                                            
|Interest income (expense), net               |                    |                        | (48   | )      |        |   | 1,181  |       
|                                             |                    |                        |       |        |        |   |        |       
|                                             |                    | Net loss               |       | $      | (3,170 | ) |        | $      | (55,063 | )
|                                             |                    |                        |       |        |        |   |        |       

7.  Deferred Programming Revenue

In December 1997, Crown Media International renegotiated a
distribution agreement with a pay television distributor, which
was extended through December 2000. As a result of the
renegotiation, the pay television distributor paid Crown Media
International $5.0 million and agreed to provide Crown
Media International with approximately $4.3 million in
future transponder services and playback and uplink services.
The entire $9.3 million from the renegotiated agreement was
initially included in deferred revenue. At December 31,
1999 and 2000 amounts deferred were approximately
$2.2 million and $713,000, respectively. Revenue is
recognized in subscriber fees as services are provided and over
the life of the contract. Revenues recognized under the
renegotiated agreement were approximately $4.5 million,
$2.6 million and $1.5 million for the years ended
December 31, 1998, 1999 and 2000, respectively.

F-20



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

8.  Predecessor Class B Common Stock Subject to Put
and Call

On May 28, 1998, Crown Media International obtained
financing through the sale and issuance of 125 shares of
predecessor Class B Common Stock to Chase. The
125 shares of nonvoting predecessor Class B common
stock, comprising 100% of the total predecessor Class B
common stock issued and outstanding and representing an 11.11%
equity interest in Crown Media International, were sold to Chase
for $50.0 million. Prior to the transaction, Hallmark
Entertainment was the sole stockholder of Crown Media
International, and Hallmark Entertainment continues to hold
1,088.9 shares of the total outstanding predecessor
Class A common stock, representing an 88.89% equity
interest in Crown Media International.

Chase had the option to put its predecessor Class B common
stock to Crown Media International within 120 days after
December 31, 2001, at the then fair market value of the
shares or at a price to provide Chase with a defined rate of
return. Chase was able to also put the shares at any time upon
the occurrence of certain triggering events, as defined by the
Securities Purchase Agreement. At December 31, 1998, 1999
and 2000, $2.0 million, $3.9 million and
$1.5 million, respectively, had been cumulatively accreted
related to this put.

Pursuant to the terms of the Securities Purchase Agreement,
Crown Media International had the right to call the securities
held by Chase at the then fair market value.

Based on the put and call features, these securities have been
presented outside the equity section in the consolidated balance
sheets for the applicable prior periods. The put and call
options expired upon the completion of the initial public
offering on May 9, 2000.

9.  Related Party Transactions



| |                                               
| | ----------------------------------------------
| | Costs Incurred on Crown Media Holdings Behalf

Since inception, Hallmark Entertainment has paid certain costs
related to payroll and benefits, insurance, operational and
financing expenditures and capital expenditures on behalf of
Crown Media International. These transactions are recorded in
the books and records of Crown Media International. For the
years ended December 31, 1999 and 2000,
approximately $0 and $3.8 million, respectively, was
paid to Hallmark Entertainment. Unreimbursed costs of
$9.2 million and $5.4 million are included in payable
to affiliates in the accompanying consolidated balance sheets as
of December 31, 1999 and 2000, respectively.



| |                                         
| | ----------------------------------------
| | Note Receivable  Hallmark Entertainment

During 1998, Crown Media International invested $25 million
in a note receivable from Hallmark Entertainment. The interest
rate on this note is 7%, and payment of the outstanding
principal and interest is due on demand. For the years ended
December 31, 1998 and 1999, approximately $957,000 and
$691,000, respectively, of interest income was recorded related
to interest earned under this note. Interest receivable of
$34,000 is included in demand note and prepaids and other in the
accompanying consolidated balance sheets as of December 31,
1999. This note was repaid in full in 1999.



| |                                                                    
| | -------------------------------------------------------------------
| | Program License Agreement with Hallmark Entertainment
	Distribution

The primary supplier of programming to Crown Media Holdings is
Hallmark Entertainment Distribution. Crown Media International
has a program agreement with Hallmark Entertainment Distribution
through December 31, 2004, which is renewable through
December 31, 2009 at Hallmark Entertainment
Distributions option. Under the terms of the agreement,
Crown Media International has the exclusive right to exhibit
Hallmark Entertainment Distributions programming in the
territories in which Crown Media International operates during
three distinct 18-month time periods. Crown Media
International also has the exclusive right to exhibit
programming in markets where it does not currently operate,
subject to any third party agreement existing at the time Crown
Media International launches in those markets. In addition,
under the agreement,

F-21



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Hallmark Entertainment Distribution is generally obligated to
sell to Crown Media International and Crown Media International
is obligated to purchase all of the programming it produces
during the term of the agreement.

Odyssey Holdings also licenses programming for distribution in
the United States from Hallmark Entertainment Distribution under
a program license agreement, dated November 13, 1998. Under
the program agreement, Odyssey Holdings generally licenses
made-for-television movies and miniseries owned or controlled by
Hallmark Entertainment Distribution, as well as all programming
produced by or on behalf of Hallmark Entertainment Distribution
for Odyssey Holdings. The program agreement has a term of five
years and is automatically renewable for additional three-year
periods, subject to rate adjustments, so long as Hallmark
Entertainment Distribution, as applicable, or its affiliates,
own 10% or more of Odyssey Holdings. In the event that Hallmark
Entertainment Distribution owns less than 10% of Odyssey
Holdings, the remaining term of the applicable program agreement
will be two years from the date its ownership reaches that level.

Programming costs related to the program agreement were
$12.3 million, $12.3 million and $36.9 million,
respectively, for the years ended December 31, 1998, 1999
and 2000, respectively. As of December 31, 1999 and 2000,
$34.6 million and $109.9 million, respectively, are
included in license fees payable to affiliates in the
accompanying consolidated balance sheets. During 2000, we did
not pay Hallmark Entertainment Distribution under the terms of
our agreements.



| |                                 
| | --------------------------------
| | Services Agreement with Hallmark

Hallmark, its subsidiaries and various affiliates, provide Crown
Media Holdings with services that include payroll, legal,
financial, tax and other general corporate services. For the
years ended December 31, 1998, 1999 and 2000, Crown Media
Holdings has accrued $1.0 million, $500,000 and $500,000,
respectively, under the agreement. At both December 31,
1999 and 2000, unpaid accrued service fees of $3.5 million
were included in payable to affiliates in the accompanying
consolidated balance sheets.



| |                          
| | -------------------------
| | Employee Health Insurance

All risk of loss related to employee health insurance of Crown
Media Holdings and Crown Media International was borne by
Hallmark Entertainment or its reinsurers through June 30,
2000. Crown Media International paid Hallmark Entertainment
$443,000, $1.1 million and $426,000 for the years ended
December 31, 1998, 1999 and 2000, respectively, as
consideration to Hallmark Entertainment for the transfer of risk
related to health insurance provided to employees of Crown Media
International.



| |            
| | -----------
| | Demand Note

From November 1999 through April 2000, Crown Media Holdings
entered into a series of agreements with HC Crown
Corporation, an affiliate of Hallmark Cards, under which
HC Crown agreed to lend Crown Media Holdings up to
$40.0 million. Amounts borrowed under this agreement bear
interest at 130% of the Applicable Federal Rate as set forth in
the Internal Revenue Code (7.50% and 7.96% as of
December 31, 1999 and 2000, respectively), with the
interest compounding on an annual basis. Amounts outstanding are
due on demand. As of December 31, 1999 and 2000, principal
borrowings under the note were approximately $12.7 million
and $36.8 million, respectively, with accrued interest of
$49,000 and $749,000, respectively, both of which are included
in notes and interest payable to H.C. Crown on the
accompanying consolidated balance sheets.



| |                               
| | ------------------------------
| | Conversion of Debt Into Equity

Pursuant to the Securities Purchase Agreement, in May 1998
Hallmark Entertainment Distribution (for the benefit of Hallmark
Entertainment) converted $34.3 million of amounts due from
Crown Media

F-22



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

International related to program license fees and operating
advances into equity in Crown Media International.



| |                     
| | --------------------
| | Class B Common Stock

Hallmark Entertainment controls all of our outstanding shares of
Class B common stock, representing approximately 90% of the
voting power on all matters submitted to our stockholders. The
Class B common stock has certain preferential rights with
respect to the conversion and voting. Each share of Class B
common stock is convertible at the option of the holder into one
share of Class A common stock. Shares of Class B
common stock are generally automatically convertible into
Class A common stock upon sale or other transfer by the
selling stockholder. In addition, Class B common
stockholders are entitled to 10 votes per share as compared
to the holders of Class A common stock, who receive one
vote per share of Class A common stock. With the exception
of the voting and conversion rights, share of Class A
common stock and shares of Class B common stock are
identical.



| |                        
| | -----------------------
| | NICC License Agreements

On November 13, 1998, Odyssey Holdings entered into an
amended and restated operating agreement (the Company
Agreement) with its members. On November 13, 1999,
Odyssey Holdings entered into a program license agreement with
NICC (NICC Program License Agreement) under which
Odyssey Holdings licenses programming from NICC for distribution
within the United States. The NICC Program License Agreement
terminates upon termination of the Company Agreement. NICC is
obligated to furnish a minimum of 200 hours of programming
each year under the program license agreement.

Under the NICC Program License Agreement, Odyssey Holdings has
agreed to advance an annual program license fee of
$5.0 million, payable in quarterly installments and subject
to adjustment in accordance with the terms of the Company
Agreement as discussed below. The advance is treated as an
advance payment against programs undertaken to be produced or
acquired by the National Interfaith Cable Coalition.

Under the Company Agreement, the advance will be an amount equal
to the sum of $5.0 million and, so long as VISN Management
Corp. owns the preferred interest in Odyssey Holdings,
$5.0 million multiplied by the quotient of the preferred
liquidation preference (as adjusted under certain circumstances)
divided by $25.0 million. The advance is increased annually
based on the Consumer Price Index. NICC is required to use these
payments solely for the production of programming for Odyssey
Holdings.

Odyssey Holdings also licenses programming for distribution in
the United States from The Jim Henson Company under a program
license agreement, dated November 13, 1998. Under the
program agreement, Odyssey Holdings generally licenses
made-for-television movies and miniseries owned or controlled by
The Jim Henson Company, as well as all programming produced by
or on behalf of The Jim Henson Company for Odyssey Holdings. The
program agreement has a term of five years and is automatically
renewable for an additional three-year period, subject to rate
adjustments, so long as The Jim Henson Company, as
applicable, or its affiliates, own 10% or more of Odyssey
Holdings. In the event that The Jim Henson Company
owns less than 10% of Odyssey Holdings, the remaining term of
the applicable program agreement will be two years from the
date its ownership reaches that level. At December 31,
2000, license fees payable to The Jim Henson Company
of $10.0 million were included in license fees payable to
affiliates in the accompanying balance sheet.

10.  Income Taxes

Crown Media Holdings accounts for income taxes using the
liability method. Under this method, Crown Media Holdings
recognizes deferred tax assets and liabilities for future tax
consequences attributable to the difference between the
financial statement carrying amounts of existing assets and
liabilities and their

F-23



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.

Since its inception and through May 9, 2000, Crown Media
Holdings and its predecessor were included in the consolidated
federal income tax return of Hallmark Cards. Crown Media
Holdings and its predecessor were also included in combined
state income tax returns of Hallmark or Hallmark Entertainment.
Crown Media Holdings and its predecessor did not have a tax
sharing agreement with Hallmark or Hallmark Entertainment.
Hallmark has used all federal tax losses and foreign tax credits
relating to Crown Media Holdings and its predecessor. Hallmark
and Hallmark Entertainment have used state tax losses relating
to Crown Media Holdings and its predecessor in combined state
income tax returns. Hallmark and Hallmark Entertainment will not
reimburse Crown Media Holdings for the use of such tax benefits.

Effective May 10, 2000, Crown Media Holdings is no longer
included in the consolidated federal income tax return of
Hallmark. Crown Media Holdings may be included in certain
combined state income tax returns of Hallmark or Hallmark
Entertainment. Consequently, Hallmark Entertainment and Crown
Media Holdings entered into a tax sharing agreement. Under the
tax sharing agreement, where Hallmark and Crown Media Holdings
do file consolidated, combined or unitary tax returns, Crown
Media Holdings will make tax sharing payments to (or receive
payments from) Hallmark Entertainment equal to the taxes (or tax
refunds) that Crown Media Holdings would have paid (or received)
if it filed on a stand-alone basis. Such payments will be
computed based on Crown Media Holdings income (loss) and
other tax items beginning the day following the May 9, 2000
reorganization.

Crown Media Holdings has not recorded a tax benefit for federal
or state tax losses. Crown Media Holdings has recorded a tax
provision related to foreign taxes. Crown Media Holdings has
established a deferred tax asset, consisting primarily of net
operating losses generated after May 9, 2000, and a
deferred tax liability as required for certain timing items.
Crown Media Holdings has provided a full valuation allowance on
the net deferred tax asset because of uncertainty regarding its
realizability.

The income tax provision is comprised of the following:

|          |                 |                          |   |      |     |      |   |       |       |  |   |       |       | 
|--------- | --------------- | ------------------------ | - | ---- | --- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|          |                 |                         
|          |                 | Years Ended December 31,
|          |                 |                         
|          |                 | 1998                     |   | 1999 |     | 2000
|          |                 |                          |   |      |     |     
|          |                 |                         
|          |                 | (In thousands)          
|         
|         
|         
|         
|Current:  |                 |                          |   |      |     |      |   |       |       |  |   |      
|         
|         
|         
|         
|          | Federal         |                          | $ |     |     |      | $ |      |       |  | $ |      |      
|         
|         
|         
|         
|          | Foreign         |                          |   | 632  |     |      |   | 956   |       |  |   | 1,743 |      
|         
|         
|         
|         
|          | State and local |                          |   |     |     |      |   |      |       |  |   |      |      
|          |                 |                          |   |      |     |      |   |       |       |  |   |      
|          |                 | Total current            |   |      | 632 |      |   |       | 956   |  |   |       | 1,743 | 
|         
|         
|         
|         
|Deferred: |                 |                          |   |      |     |      |   |       |       |  |   |      
|         
|         
|         
|         
|          | Federal         |                          |   |     |     |      |   | 1,600 |       |  |   |      |      
|         
|         
|         
|         
|          | State and local |                          |   |     |     |      |   |      |       |  |   |      |      
|          |                 |                          |   |      |     |      |   |       |       |  |   |      
|          |                 | Total deferred           |   |      |    |      |   |       | 1,600 |  |   |       |      | 
|          |                 |                          |   |      |     |      |   |       |       |  |   |      
|          |                 | Total                    |   | $    | 632 |      |   | $     | 2,556 |  |   | $     | 1,743 | 
|          |                 |                          |   |      |     |      |   |       |       |  |   |      

F-24



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

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,
|                                    |                      |                         
|                                    |                      | 1998                     |         | 1999   |     | 2000
|                                    |                      |                          |         |        |     |     
|                                    |                      |                         
|                                    |                      | (In thousands)          
|                                   
|                                   
|                                   
|                                   
|Taxes computed at 35%               |                      | $                        | (12,192 | )      |     | $    | (18,949 | )      |       | $ | (40,034 | )    
|Net operating losses not benefiting |                      |                          |         |        |     |      |         |        |       |   |         |      
|                                   
|                                   
|                                   
|                                   
|                                    | Crown Media Holdings |                          |         | 12,192 |     |      |         | 20,549 |       |   |         | 8,441 |      
|                                   
|                                   
|                                   
|                                   
|Valuation allowance                 |                      |                          |        |        |     |      |        |        |       |   | 31,593  |      
|                                    |                      |                          |         |        |     |      |         |        |       |   |         |      
|Additional tax on foreign income    |                      |                          | 632     |        |     |      | 956     |        |       |   | 1,743   |      
|                                    |                      |                          |         |        |     |      |         |        |       |   |         |      
|                                    |                      | Income tax provision     |         | $      | 632 |      |         | $      | 2,556 |   |         | $     | 1,743 | 
|                                    |                      |                          |         |        |     |      |         |        |       |   |         |      

The components of Crown Media Holdings deferred tax assets
and liabilities are comprised of the following:

|                          |                              |                                |   |        |        |   |   |         |      |  
|------------------------- | ---------------------------- | ------------------------------ | - | ------ | ------ | - | - | ------- | ---- | -
|                          |                              |                               
|                          |                              | As of December 31,            
|                          |                              |                               
|                          |                              | 1999                           |   | 2000  
|                          |                              |                                |   |       
|                          |                              |                               
|                          |                              | (In thousands)                
|                         
|                         
|                         
|                         
|Deferred tax assets:      |                              |                                |   |        |        |   |   |        
|                         
|                         
|                         
|                         
|                          | Deferred revenue             |                                | $ | 862    |        |   | $ | 285     |     
|                         
|                         
|                         
|                         
|                          | Bad debt reserve             |                                |   | 278    |        |   |   | 941     |     
|                         
|                         
|                         
|                         
|                          | Accrued compensation         |                                |   | 1,923  |        |   |   | 2,314   |     
|                         
|                         
|                         
|                         
|                          | Net operating loss           |                                |   |       |        |   |   | 25,463  |     
|                         
|                         
|                         
|                         
|                          | Unconsolidated entity losses |                                |   |       |        |   |   | 2,699   |     
|                         
|                         
|                         
|                         
|                          | Other                        |                                |   |       |        |   |   | 399     |     
|                         
|                         
|                         
|                         
|                          | Valuation allowance          |                                |   |       |        |   |   | (31,593 | )   
|                          |                              |                                |   |        |        |   |   |        
|                          |                              | Total deferred tax assets      |   |        | 3,063  |   |   |         | 508  |  
|                         
|                         
|                         
|                         
|Deferred tax liabilities: |                              |                                |   |        |        |   |   |        
|                         
|                         
|                         
|                         
|                          | Depreciation                 |                                |   | (556   | )      |   |   | (508    | )   
|                         
|                         
|                         
|                         
|                          | Unconsolidated entity losses |                                |   | (4,015 | )      |   |   |        |     
|                         
|                         
|                         
|                         
|                          | Other                        |                                |   | (92    | )      |   |   |        |     
|                          |                              |                                |   |        |        |   |   |        
|                          |                              | Total deferred tax liabilities |   |        | (4,663 | ) |   |         | (508 | )
|                          |                              |                                |   |        |        |   |   |        
|                          |                              | Net deferred taxes             |   | $      | (1,600 | ) |   | $       |     |  
|                          |                              |                                |   |        |        |   |   |        

As of December 31, 2000, net operating losses are
approximately $63.7 million and expire in 2020.

F-25



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

11.  Commitments and Contingencies



| |                  
| | -----------------
| | Lease Commitments

Crown Media Holdings leases transponders, office facilities and
various office equipment under operating leases that generally
are not cancelable. These leases expire at various dates through
January 2011, and some contain escalation clauses and renewal
options.

Rent expense under these agreements was $5.6 million,
$6.7 million and $16.1 million, respectively, for the
years ended December 31, 1998, 1999 and 2000. At
December 31, 2000, the minimum annual rental commitments
(in thousands) under the leases are as follows:

|                         |  |   |         | 
|------------------------ |  | - | ------- | 
|Years Ended December 31, |  |  
|                         |  |  
|2001                     |  | $ | 18,283  | 
|                        
|                        
|                        
|                        
|2002                     |  |   | 18,369  | 
|                        
|                        
|                        
|                        
|2003                     |  |   | 16,876  | 
|                        
|                        
|                        
|                        
|2004                     |  |   | 15,390  | 
|                        
|                        
|                        
|                        
|2005                     |  |   | 14,499  | 
|                        
|                        
|                        
|                        
|Thereafter               |  |   | 26,149  | 
|                         |  |   |         | 
|                         |  | $ | 109,566 | 
|                         |  |   |         | 



| |                    
| | -------------------
| | Severance Agreement

In January 1999, under the terms of a severance agreement with a
former senior executive, Crown Media International recorded
$4.0 million of expense which is reflected in selling,
general and administrative expenses for the year ended
December 31, 1999. In accordance with the agreement, a
payment of $2.0 million was made on January 18, 2000.
On May 9, 2000, in conjunction with the initial public
offering and in accordance with the agreement, Crown Media
Holdings recorded an additional $2.0 million of expense,
which has not yet been paid. As of December 31, 1999 and
2000, $4.0 million remains accrued in deferred
compensation. The agreement requires a payment of
$1.0 million in both February 2001 and 2002. The terms of
the agreement do not specify when the additional
$2.0 million payment must be made.

12.  Share Appreciation Rights Plan and Stock Options
Plan

In March 1999, Crown Media International adopted a Share
Appreciation Rights Plan (the SAR Plan) to provide
key officers of Crown Media International incentives linked to
the increase in Crown Media Internationals market value.
The Crown Media International SAR Plan allowed for the issuance
of up to three million rights that accrete value over an initial
valuation and vest over a period of thirty-six months. The
maximum distributions under the Crown Media International SAR
Plan were $15.0 million in aggregate and $10.0 million
to any individual. As of December 31, 1999, Crown Media
Holdings had issued three million rights and accrued
$2.8 million in deferred compensation under the Crown Media
International SAR Plan. The Crown Media International SAR Plan
expired on May 10, 2000, in conjunction with the initial
public offering, as the shares were converted to stock options
based upon calculated pricing models. Crown Media Holdings
granted one million non-qualified stock options with an exercise
price of $8.33 and recognized additional compensation expense of
$5.67 per option.

In November 1998, Odyssey Holdings adopted the Odyssey
Holdings, L.L.C. Share Appreciation Rights Plan (the
SAR Plan) to provide key officers and employees with
incentives linked to the increase in Odyssey Holdings
market value. The Odyssey Holdings SAR Plan allowed for the
issuance of up to five million rights that were to vest over a
three to five year period. The Odyssey Holdings SAR Plan expired
on August 1, 2000, as the five million SARs were converted
to stock options based upon calculated pricing

F-26



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

models. Crown Media Holdings granted 1.3 million
non-qualified stock options with an exercise price of $8.94 and
recognized additional compensation expense of $6.93 per
option.

Crown Media Holdings has one stock option plan, the Amended and
Restated Crown Media Holdings, Inc. 2000 Long Term
Incentive Plan (the Plan). Crown Media Holdings
accounts for the Plan under APB 25, under which compensation
cost of $4.2 million was recognized for the year ended
December 31, 2000.

Had compensation costs for these plans been determined
consistent with Statement 123, Crown Media Holdings net
loss and loss per share would have been increased to the
following pro forma amounts for the year ended December 31,
2000:

Pro Forma Effects

(In thousands, except per share amounts)


|                                      |                         |   |          |          |  
|------------------------------------- | ----------------------- | - | -------- | -------- | -
|                                     
|                                     
|                                     
|                                     
|Net loss before stock options expense |                         | $ | (116,126 | )       
|                                     
|                                     
|                                     
|                                     
|Accretion                             |                         |   | (1,484   | )       
|                                     
|                                     
|                                     
|                                     
|Stock options expense                 |                         |   | (16,178  | )       
|                                      |                         |   |          |         
|                                      | Net loss                |   | $        | (133,788 | )
|                                      |                         |   |          |         
|                                      | Weighted average shares |   |          | 50,786   |  
|                                      |                         |   |          |         
|                                      | Net loss per share      |   | $        | (2.63    | )
|                                      |                         |   |          |         

Crown Media Holdings may grant options for up to
10.0 million shares under the Plan and has granted options
on 3.9 million shares through December 31, 2000. For
options issued in conjunction with the initial public offering,
the option exercise price equals the stocks market price
on date of grant. Options converted from the Crown Media
International SAR Plan and the Odyssey Holdings SAR Plan have
exercise prices of $8.33 and $8.94, respectively, which do not
equal the stocks market price on the date of grant. Crown
Media Holdings has recorded expense related to the
aforementioned difference. The stock options expire
10 years from the date of grant and vest over service
periods that range from date of grant to four years.

A summary of the status of the Plan at December 31, 2000
and changes during the year then ended is presented in the table
and narrative below:

|                           |                   |                |       |            |   |            |   |            |  |   |       |       | 
|-------------------------- | ----------------- | -------------- | ----- | ---------- | - | ---------- | - | ---------- |  | - | ----- | ----- | 
|                           |                   |                |       |            |   | Weighted  
|                           |                   |                |       |            |   | Average   
|                           |                   |                |       | Exercise   |   | Exercise  
|                           |                   |                |       | Price      |   | Price     
|                           |                   | Shares         |       | Per Option |   | Per Option
|                           |                   |                |       |            |   |           
|                           |                   | (In thousands) |       |            |   |           
|                          
|                          
|                          
|                          
|Balance, January 1, 2000   |                   |                |      |            |   |            |  |            |  |   |      |      
|                          
|                          
|                          
|                          
|                           | Options granted   |                |       | 3,952      |   |            | $ | 8.33-17.00 |  |   | $     | 10.98 | 
|                          
|                          
|                          
|                          
|                           | Options exercised |                |       | (23        | ) |            | $ | 8.33       |  |   | $     | 8.33  | 
|                          
|                          
|                          
|                          
|                           | Options canceled  |                |       | (8         | ) |            | $ | 14.00      |  |   | $     | 14.00 | 
|                           |                   |                |       |            |   |            |   |            |  |   |       |      
|Balance, December 31, 2000 |                   |                | 3,921 |            |   |            |   |            |  | $ | 10.99 |      
|                           |                   |                |       |            |   |            |   |            |  |   |       |      

F-27



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

|                    |             |                     |  |                  |       |            |  |                    |     |            |  |   |       |  |  |  |       |  |  |   |       | 
|------------------- | ----------- | ------------------- |  | ---------------- | ----- | ---------- |  | ------------------ | --- | ---------- |  | - | ----- |  |  |  | ----- |  |  | - | ----- | 
|                    |             |                    
|Options Outstanding |             | Options Exercisable
|                    |             |                    
|Range of            |             | Weighted Average    |  | Weighted Average |       |            |  | Weighted Average  
|Exercise Prices     |             | Remaining           |  | Exercise Price   |       |            |  | Exercise Price    
|Per Option          |             | Shares Outstanding  |  | Contractual Life |       | Per Option |  | Exercisable Shares |     | Per Option
|                    |             |                     |  |                  |       |            |  |                    |     |           
|                    |             | (In thousands)      |  |                  |       |            |  | (In thousands)     |     |           
|$                   | 8.33-8.94   |                     |  |                  | 2,304 |            |  |                    | 9.4 |            |  | $ | 8.67  |  |  |  | 1,036 |  |  | $ | 8.57  | 
|$                   | 14.00-17.00 |                     |  |                  | 1,617 |            |  |                    | 9.3 |            |  | $ | 14.30 |  |  |  | 23    |  |  | $ | 14.00 | 
|                    |             |                     |  |                  |       |            |  |                    |     |            |  |   |       |  |  |  |       |  |  |   |       | 
|                    |             |                     |  |                  | 3,921 |            |  |                    |     |            |  |   |       |  |  |  | 1,059 |  |  |   |       | 
|                    |             |                     |  |                  |       |            |  |                    |     |            |  |   |       |  |  |  |       |  |  |   |       | 

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions used for grants in 2000: risk-free
interest rates of 6.5% for the options with a two year vesting
period, 6.38% for the options with a three year vesting period
and 6.3% for the options with a four year vesting period; no
expected dividend yield; expected lives of two, four and six
years, respectively; and expected volatility of 38%, 34%, 33%,
respectively. Expected volatility was calculated using the
average volatilities of comparable public companies.

13.  Benefit Plans

Certain Crown Media Holdings employees may participate in the
Companys 401(k) Plan (the 401(k) Plan).
Employees that qualify for participation can contribute up to
15% of their salary, on a before tax basis, subject to a maximum
contribution limit as determined by the Internal Revenue Service.

Crown Media Holdings may make matching contributions on behalf
of all participants who make elective deferrals in an amount
equal to a variable percentage of participants pre-tax
contributions. This percentage is decided upon annually by the
401(k) Plan administration committee. Crown Media Holdings
contributed $34,000, $32,000 and $54,000 for the years ended
December 31, 1998, 1999 and 2000, respectively. In
addition, Crown Media Holdings may make profit sharing
contributions on behalf of employees, other than highly
compensated employees, in an amount determined by Crown Media
Holdings, to be allocated in proportion to each employees
compensation as a percentage of total employee compensation. For
the years ended December 31, 1998, 1999 and 2000, there
were no profit sharing contributions.

Odyssey Holdings employees may participate in its 401(k) Plan
covering most of the employees of Odyssey Holdings. Odyssey
Holdings makes contributions to the 401(k) Plan based on a
percentage of employee contributions. Maximum employee and
company contributions are limited by the Internal Revenue Code
regulations and by the terms of the 401(k) Plan. For the year
ended December 31, 2000, Odyssey Holdings contributed
$658,000 to the 401(k) Plan.

14.  Operations in Different Geographic Areas

Crown Media Holdings adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related
Information in 1998. This statement requires companies to
report in their financial statements certain information about
operating segments, their services, the geographic areas in
which they operate and their major customers.

All of Crown Media Holdings material operations are part
of the domestic and international pay television programming
service industry and, therefore, Crown Media Holdings reports as
two industry segments. Crown Media Holdings did not have
operating decision authority through its minority investment in
the Kermit Channel (see note 5). Consequently, selected
operating and asset data of the Kermit Channel are not included
in the following table.

F-28



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Information relating to Crown Media Holdings continuing
operations is set forth in the following table (operating loss
is defined as total revenues less cost of services; selling,
general and administrative expenses; and amortization of
goodwill. Home office costs are reflected in the domestic
operating losses and are not allocated internationally):

|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |       |       | 
|--------------------------------- | ------------------------------------------------- | ------------------------- | ---- | ------------ |  | --------- | --- | ------------ |  | - | ------ | ----- | - |  | ----- | ----- | ----- | 
|                                  |                                                   | Revenue from              |      | Revenue from |  |           |     |             
|                                  |                                                   | Unrelated                 |      | Related      |  | Operating |     | Identifiable
|                                  |                                                   | Entities                  |      | Entities     |  | Loss      |     | Assets      
|                                  |                                                   |                           |      |              |  |           |     |             
|                                  |                                                   |                          
|                                  |                                                   | (In millions)            
|                                 
|                                 
|                                 
|                                 
|Year ended December 31, 1998:     |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                 
|                                 
|                                 
|                                 
|                                  | Domestic                                          |                           | $    |             |  |           | $   | 1.5          |  |   | $      | (18.6 | ) |  | $     | 11.5  |      
|                                 
|                                 
|                                 
|                                 
|                                  | International                                     |                           |      | 22.2         |  |           |     |             |  |   |        | (12.6 | ) |  |       | 23.2  |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                  |                                                   | $                         | 22.2 |              |  | $         | 1.5 |              |  | $ | (31.2  | )     |   |  | 34.7  |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|Assets not allocated to segments: |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                 
|                                 
|                                 
|                                 
|                                  | Cash and cash equivalents                         |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 2.9   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Accounts and other receivables                    |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 5.2   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Demand note                                       |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 25.5  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Investment in/advances to unconsolidated entity   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 49.4  |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                  |                                                   | Consolidated total assets |      |              |  |           |     |              |  |   |        |       |   |  |       | $     | 117.7 | 
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|Year ended December 31, 1999:     |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                 
|                                 
|                                 
|                                 
|                                  | Domestic                                          |                           | $    |             |  |           | $   | 2.5          |  |   | $      | (30.1 | ) |  | $     | 8.2   |      
|                                 
|                                 
|                                 
|                                 
|                                  | International                                     |                           |      | 29.4         |  |           |     |             |  |   |        | (5.8  | ) |  |       | 24.8  |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                  |                                                   | $                         | 29.4 |              |  | $         | 2.5 |              |  | $ | (35.9  | )     |   |  | 33.0  |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|Assets not allocated to segments: |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                 
|                                 
|                                 
|                                 
|                                  | Cash and cash equivalents                         |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 3.9   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Accounts receivable                               |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 7.2   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Investment in/advances to unconsolidated entities |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 35.9  |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                  |                                                   | Consolidated total assets |      |              |  |           |     |              |  |   |        |       |   |  |       | $     | 80.0  | 
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|Year ended December 31, 2000:     |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                 
|                                 
|                                 
|                                 
|                                  | Domestic                                          |                           | $    | 18.1         |  |           | $   | 2.9          |  |   | $      | (94.3 | ) |  | $     | 159.6 |      
|                                 
|                                 
|                                 
|                                 
|                                  | International                                     |                           |      | 45.8         |  |           |     |             |  |   |        | (11.3 | ) |  |       | 44.2  |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                  |                                                   | $                         | 63.9 |              |  | $         | 2.9 |              |  | $ | (105.6 | )     |   |  | 203.8 |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|Assets not allocated to segments: |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                 
|                                 
|                                 
|                                 
|                                  | Cash and cash equivalents                         |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 34.6  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Accounts receivable                               |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 21.2  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Subscriber acquisition fees                       |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 29.7  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Investment in/advances to unconsolidated entity   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 0.6   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Goodwill                                          |                           |      |              |  |           |     |              |  |   |        |       |   |  |       | 240.1 |      
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      
|                                  |                                                   | Consolidated total assets |      |              |  |           |     |              |  |   |        |       |   |  |       | $     | 530.0 | 
|                                  |                                                   |                           |      |              |  |           |     |              |  |   |        |       |   |  |       |      

The countries in the Asia Pacific market and Latin America
market have experienced illiquidity, volatile currency exchange
rates and interest rates, volatile political and economic
conditions, and reduced economic

F-29



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

activity. Crown Media Holdings will be affected in the
foreseeable future by economic conditions in these regions,
although it is not possible to predict the extent of such impact.

No customer accounted for more than 10% of Crown Media
Holdings total revenues for the years ended
December 31, 1999 and 2000.

15.  Quarterly Information (Unaudited)

The following tables contain unaudited quarterly financial data
(in thousands, except per share amounts) for the years ended
December 31, 1999 and 2000. The loss per share for 1999 and
2000 has been recalculated to reflect the initial public
offering.

|                                                                         |                      |                |        |         |   |      |        |         |   |           |         |         |   |   |        |         |   |   |         |         |  
|------------------------------------------------------------------------ | -------------------- | -------------- | ------ | ------- | - | ---- | ------ | ------- | - | --------- | ------- | ------- | - | - | ------ | ------- | - | - | ------- | ------- | -
|                                                                         |                      |               
|                                                                         |                      | Quarters Ended
|                                                                         |                      |               
|1999                                                                     |                      | 3/31           |        | 6/30    |   | 9/30 |        | 12/31   |   | Full Year
|                                                                         |                      |                |        |         |   |      |        |         |   |          
|Total revenues                                                           |                      | $              | 7,308  |         |   | $    | 7,354  |         |   | $         | 9,250   |         |   | $ | 7,997  |         |   | $ | 31,909  |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Programming costs                                                        |                      |                | (6,533 | )       |   |      | (6,439 | )       |   |           | (5,149  | )       |   |   | (4,662 | )       |   |   | (22,783 | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Operating costs                                                          |                      |                | (4,103 | )       |   |      | (5,117 | )       |   |           | (5,558  | )       |   |   | (4,018 | )       |   |   | (18,796 | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                      |                | (4,478 | )       |   |      | (5,181 | )       |   |           | (10,041 | )       |   |   | (6,577 | )       |   |   | (26,277 | )      
|                                                                         |                      |                |        |         |   |      |        |         |   |           |         |         |   |   |        |         |   |   |         |        
|                                                                         | Loss from operations |                |        | (7,806  | ) |      |        | (9,383  | ) |           |         | (11,498 | ) |   |        | (7,260  | ) |   |         | (35,947 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Equity in net losses of unconsolidated entities and investment
	expenses |                      |                | (2,572 | )       |   |      | (4,560 | )       |   |           | (3,645  | )       |   |   | (8,215 | )       |   |   | (18,992 | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Interest income, net                                                     |                      |                | 370    |         |   |      | 245    |         |   |           | 158     |         |   |   | 25     |         |   |   | 798     |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income tax provision                                                     |                      |                | (626   | )       |   |      | (512   | )       |   |           | (630    | )       |   |   | (788   | )       |   |   | (2,556  | )      
|                                                                         |                      |                |        |         |   |      |        |         |   |           |         |         |   |   |        |         |   |   |         |        
|                                                                         | Net loss             |                | $      | (10,634 | ) |      | $      | (14,210 | ) |           | $       | (15,615 | ) |   | $      | (16,238 | ) |   | $       | (56,697 | )
|                                                                         |                      |                |        |         |   |      |        |         |   |           |         |         |   |   |        |         |   |   |         |        
|                                                                         | Net loss per share   |                | $      | (0.36   | ) |      | $      | (0.46   | ) |           | $       | (0.49   | ) |   | $      | (0.53   | ) |   | $       | (1.84   | )
|                                                                         |                      |                |        |         |   |      |        |         |   |           |         |         |   |   |        |         |   |   |         |        

|                                                                         |                      |                |        |         |   |      |         |         |   |           |         |         |   |   |         |         |   |   |         |          |  
|------------------------------------------------------------------------ | -------------------- | -------------- | ------ | ------- | - | ---- | ------- | ------- | - | --------- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | -------- | -
|                                                                         |                      |               
|                                                                         |                      | Quarters Ended
|                                                                         |                      |               
|2000                                                                     |                      | 3/31           |        | 6/30(A) |   | 9/30 |         | 12/31   |   | Full Year
|                                                                         |                      |                |        |         |   |      |         |         |   |          
|Total revenues                                                           |                      | $              | 9,293  |         |   | $    | 13,512  |         |   | $         | 19,366  |         |   | $ | 24,645  |         |   | $ | 66,816  |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Programming costs                                                        |                      |                | (4,979 | )       |   |      | (10,020 | )       |   |           | (14,936 | )       |   |   | (20,305 | )       |   |   | (50,240 | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of subscriber acquisition costs                             |                      |                |       |         |   |      | (597    | )       |   |           | (1,147  | )       |   |   | (1,470  | )       |   |   | (3,214  | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Operating costs                                                          |                      |                | (5,857 | )       |   |      | (13,240 | )       |   |           | (15,151 | )       |   |   | (2,982  | )       |   |   | (37,230 | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Selling, general and administrative expenses                             |                      |                | (7,345 | )       |   |      | (18,799 | )       |   |           | (18,245 | )       |   |   | (28,682 | )       |   |   | (73,071 | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Amortization of goodwill                                                 |                      |                |       |         |   |      | (1,962  | )       |   |           | (3,132  | )       |   |   | (3,545  | )       |   |   | (8,639  | )       
|                                                                         |                      |                |        |         |   |      |         |         |   |           |         |         |   |   |         |         |   |   |         |         
|                                                                         | Loss from operations |                |        | (8,888  | ) |      |         | (31,106 | ) |           |         | (33,245 | ) |   |         | (32,339 | ) |   |         | (105,578 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Equity in net losses of unconsolidated entities and investment
	expenses |                      |                | (5,194 | )       |   |      | (2,378  | )       |   |           | (954    | )       |   |   | (802    | )       |   |   | (9,328  | )       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Interest income (expense), net                                           |                      |                | (303   | )       |   |      | 18      |         |   |           | 626     |         |   |   | 182     |         |   |   | 523     |         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Income tax provision                                                     |                      |                | (2,134 | )       |   |      | (317    | )       |   |           | (468    | )       |   |   | 1,176   |         |   |   | (1,743  | )       
|                                                                         |                      |                |        |         |   |      |         |         |   |           |         |         |   |   |         |         |   |   |         |         
|                                                                         | Net loss             |                | $      | (16,519 | ) |      | $       | (33,783 | ) |           | $       | (34,041 | ) |   | $       | (31,783 | ) |   | $       | (116,126 | )
|                                                                         |                      |                |        |         |   |      |         |         |   |           |         |         |   |   |         |         |   |   |         |         
|                                                                         | Net loss per share   |                | $      | (0.52   | ) |      | $       | (0.70   | ) |           | $       | (0.57   | ) |   | $       | (0.53   | ) |   | $       | (2.32    | )
|                                                                         |                      |                |        |         |   |      |         |         |   |           |         |         |   |   |         |         |   |   |         |         



---



|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|(A) |  | Reflects the acquisition and consolidation of Odyssey Holdings
	beginning May 10, 2000.

16.  Subsequent Events

On February 12, 2001, Crown Media Holdings entered into an
agreement with H.C. Crown Corporation, an affiliate of Hallmark
Cards, under which H.C. Crown agreed to lend Crown Media
Holdings up to

F-30



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

$150.0 million. H.C. Crowns obligation to make loans
under this agreement is supported by an irrevocable letter of
credit from Bank of America. The note bears an interest rate
equal to the London Interbank Offered Rate published on the
first day of each quarter in The Wall Street Journal, plus 1.2%
to 2.2% depending on the ratio of Crown Media Holdings
total debt to EBITDA. The interest rate increases by 0.25% if
the note has not been fully repaid by September 1, 2001 and
by 0.5% if the note has not been paid by December 31, 2001.
Interest is payable quarterly, and the principal amount with any
accrued interest is due April 1, 2002.

On March 15, 2001, we completed the acquisition from EM.TV
Merchandising AG (EM.TV) of its 22.5% interest in
Odyssey Holdings and its 50% interest in the Kermit Channel, and
we now own 100% of the members common interests in Odyssey
Holdings and 100% of the Kermit Channel. In consideration for
these ownership interests, we issued 5,377,721 shares of
our Class A Common Stock to The Jim Henson Company, a
wholly owned subsidiary of EM.TV. The newly issued shares to
EM.TV represent after the transaction approximately 8.2% of our
combined outstanding Class A and Class B Common Stock
and 15.5% of our Class A Common Stock based on our
outstanding shares at March 15, 2001. The Jim Henson
Company became a party to the stockholders agreement among our
original stockholders, but does not have the right to designate
a Board member pursuant to that agreement. The stockholders
agreement contains, among other things, certain restrictions on
the transfer of common stock by the parties until May 9,
2002. In connection with the acquisition, we and EM.TV entered
into a license agreement providing for our use of family
programming of EM.TV on the Hallmark Entertainment Network or
Odyssey Network.

F-31



---



##### Table of Contents



CROWN MEDIA HOLDINGS, INC. AND ITS SUBSIDIARIES




SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS

Years Ended December 31, 1998, 1999, and 2000


(In thousands)


|                                |      |           |   |            |  |            |   |             |  |               |   |   |  |  |   |       |  |  |   |       | 
|------------------------------- | ---- | --------- | - | ---------- |  | ---------- | - | ----------- |  | ------------- | - | - |  |  | - | ----- |  |  | - | ----- | 
|                                |      |           |   |            |  |            |   |            
|                                |      |           |   | Additions  |  |            |   |            
|                                |      |           |   |            |  |            |   |            
|                                |      | Balance   |   |            |  | Charged to |   |             |  |              
|                                |      | at        |   | Charged to |  | Other      |   | Write-Offs  |  |              
|                                |      | Beginning |   | Costs and  |  | Accounts  |   | of Accounts |  | Balance at   
|Description                     |      | of Period |   | Expenses   |  | Describe   |   | Receivable  |  | End of Period
|                                |      |           |   |            |  |            |   |             |  |              
|Allowance for doubtful accounts |      |           |   |            |  |            |   |             |  |               |   |   |  |  |   |       |  |  |   |      
|                               
|                               
|                               
|                               
|                                | 1998 |           | $ | 49         |  |            | $ | 38          |  |               | $ |  |  |  | $ | 16    |  |  | $ | 71    | 
|                               
|                               
|                               
|                               
|                                | 1999 |           |   | 71         |  |            |   | 672         |  |               |   |  |  |  |   | 48    |  |  |   | 695   | 
|                               
|                               
|                               
|                               
|                                | 2000 |           |   | 695        |  |            |   | 3,440       |  |               |   |  |  |  |   | 1,218 |  |  |   | 2,917 | 



---



##### Table of Contents






INDEX TO EXHIBITS

|        |      |               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ---- | ------------- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |              
|Number  |      | Exhibit Title
|        |      |              
|        | 2.1  |               |  | Contribution Agreement, dated as of January 27,
        2000, by and among Hallmark Entertainment, Inc., Crown
        Media,  Inc. (now known as Crown Media
        International, Inc.), Liberty Media Corporation, Vision
        Group Incorporated, VISN Management Corp., National Interfaith
        Cable Coalition, Inc., Chase Equity Associates, LP
        (now known as J.P. Morgan Partners (BHCA), L.P.) and
        Crown Media Holdings, Inc. (previously filed as
        Exhibit 2.1 to our Registration Statement on Form S-1/
        A (Amendment No.  1), Commission File No. 333-95573,
        and incorporated herein by reference).
|        | 2.2  |               |  | Contribution Agreement, dated as of March 15,
        2001, by and among The Jim Henson Company, Inc.,
        Crown Media International, Inc., and Crown Media
        Holdings, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 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  |               |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4.1  |               |  | 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 |               |  | Stockholders Agreement dated March 15, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.2 |               |  | Securities Purchase Agreement, dated as of
        May 29, 1998, by and among Hallmark Entertainment
        Network, Inc. (now known as Crown Media
        International, Inc.), Hallmark Entertainment Distribution
        Company, Hallmark Entertainment, Inc., and Chase Equity
        Associates, LP (now known as J.P. Morgan Partners
        (BHCA), L.P.) (previously filed as Exhibit 10.2 to our
        Registration Statement on Form S-1/ A (Amendment
        No. 1), Commission File No. 333-95573, and
        incorporated herein by reference).                                                                                         
|        | 10.3 |               |  | Securities Purchase Agreement, dated as of
        February 18, 1999, Hallmark Entertainment
        Network, Inc. (now known as Crown Media
        International, Inc.), Hallmark Entertainment Distribution
        Company, Hallmark Entertainment, Inc., and Chase Equity
        Associates, LP (now known as J.P. Morgan Partners
        (BHCA), L.P.) (previously filed as Exhibit  10.3 to
        our Registration Statement on Form S-1/ A (Amendment
        No. 1), Commission File No. 333-95573, and
        incorporated herein by reference).                                                                                                
|        | 10.4 |               |  | Securities Purchase Agreement, dated as of
        June 17, 1999, by and among Hallmark Entertainment
        Network, Inc. (now known as Crown Media
        International, Inc.), Hallmark Entertainment Distribution
        Company, Hallmark Entertainment, Inc., and Chase Equity
        Associates, LP (now known as J.P. Morgan Partners
        (BHCA), L.P.) (previously filed as Exhibit 10.4 to our
        Registration Statement on Form S-1/ A (Amendment
        No. 1), Commission File No. 333-95573, and
        incorporated herein by reference).                                                                                        



---



##### Table of Contents



|        |       |               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ----- | ------------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 10.5  |               |  | Securities Purchase Agreement, dated as of
        February 15, 2000, by and among Crown Media, Inc. (now
        known as Crown Media International, Inc.), Hallmark
        Entertainment,  Inc., and Chase Equity Associates, LP
        (now known as J.P. Morgan Partners (BHCA), L.P.)
        (previously filed as Exhibit 10.5 to our Registration
        Statement on Form S-1/ A (Amendment No. 1), Commission
        File No. 333-95573, and incorporated herein by reference).
|        | 10.6  |               |  | Program License Agreement, dated as of July 1,
        1999, between Hallmark Entertainment Distribution, L.L.C.,
        successor to Hallmark Entertainment Distribution Company and
        Hallmark Entertainment Networks, Inc. (now known as Crown
        Media International, Inc.) (previously filed as
        Exhibit 10.6 to our Registration Statement on
        Form S-1/ A (Amendment No. 1), Commission File
        No. 333-95573, and incorporated herein by reference). 
|        | 10.7  |               |  | Amended and Restated Trademark License Agreement,
        dated as of December 1, 2000, by and between Hallmark
        Cards, Incorporated and Crown Media International, Inc.                                                                                                                                                                                                                                                                                                             
|        | 10.8  |               |  | Amended and Restated Trademark License Agreement
        (UK), dated as of December 1, 2000, by and between Hallmark
        Cards, Incorporated and Hallmark Entertainment Limited (formerly
        known as Hallmark Entertainment Networks (UK)  Ltd.).                                                                                                                                                                                                                                 
|        | 10.9  |               |  | Trademark License Agreement, dated as of May 1,
        2000, by and between Hallmark Licensing, Inc. and Odyssey
        Holdings, L.L.C.                                                                                                                                                                                                                                                                                                                                                  
|        | 10.10 |               |  | Security Agreement, dated as of August 1, 1999,
        by and between Hallmark Entertainment Networks, Inc. (now
        known as Crown Media International, Inc.) and Hallmark
        Cards, Incorporated (previously filed as Exhibit 10.10 to
        our Registration Statement on Form S-1/ A (Amendment
        No.  1), Commission File No. 333-95573, and
        incorporated herein by reference).                                                                              
|        | 10.11 |               |  | Amended and Restated Company Agreement of Odyssey
        Holdings, L.L.C. (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).                                                                                                                                                                                                                 
|        | 10.12 |               |  | Amended and Restated Intercompany Service Agreement,
        dated as of January 1, 2000, between Crown Media
        Holdings, Inc. and Hallmark Cards, Incorporated (previously
        filed as Exhibit 10.12 to our Registration Statement on
        Form S-1/ A (Amendment No. 1), Commission File
        No. 333-95573, and incorporated herein by reference).                                                                                                                      
|        | 10.13 | *             |  | Amended and Restated Crown Media Holdings, Inc.
        2000 Long Term Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.14 |               |  | Program License Agreement, dated as of
        November 13, 1998, between Hallmark Entertainment
        Distribution Co. and Odyssey Holdings, L.L.C.
        (previously filed as Exhibit 10.15 to our Registration
        Statement on Form  S-1/ A (Amendment No. 1),
        Commission File No.  333-95573, and incorporated herein by
        reference).                                                                                                                           
|        | 10.15 |               |  | Program License Agreement, dated as of
        November 13, 1998, between The Jim Henson
        Company, Inc. and Odyssey Holdings, L.L.C. (previously
        filed as Exhibit 10.16 to our Registration Statement on
        Form S-1/ A (Amendment No. 1), Commission File
        No. 333-95573, and incorporated herein by reference).                                                                                                                                                



---



##### Table of Contents



|        |       |               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ----- | ------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 10.16 |               |  | Program License Agreement, dated as of
        November 13, 1998, between National Interfaith Cable
        Coalition, Inc. and Odyssey Holdings, L.L.C.
        (previously filed as Exhibit 10.17 to our Registration
        Statement on Form  S-1/ A (Amendment No. 1),
        Commission File No.  333-95573, and incorporated herein by
        reference).                                                                     
|        | 10.17 |               |  | Lease, dated as of June 1, 1998, by and between
        High Pointe I Development Group L.L.C. and Hallmark
        Entertainment Network, Inc. (now known as Crown Media
        International, Inc.) (previously filed as
        Exhibit 10.20 to our Registration Statement on
        Form S-1/ A (Amendment No. 1), Commission File
        No. 333-95573, and incorporated herein by reference).                                 
|        | 10.18 |               |  | First Amendment to Lease, dated as of March 23,
        1999, by and between High Pointe I Development
        Group L.L.C. and Hallmark Entertainment Network, Inc.
        (now known as Crown Media International, Inc.) (previously
        filed as Exhibit  10.21 to our Registration Statement on
        Form S-1/ A (Amendment No. 1), Commission File
        No. 333-95573, and incorporated herein by reference).           
|        | 10.19 |               |  | Second Amendment to Lease, dated as of
        August 17, 1999, by and between High Pointe I
        Development Group L.L.C. and Hallmark Entertainment
        Network, Inc. (now known as Crown Media
        International, Inc.) (previously filed as
        Exhibit 10.22 to our Registration Statement on Form 
        S-1/ A (Amendment No. 1), Commission File No. 
        333-95573, and incorporated herein by reference).
|        | 10.20 |               |  | Third Amendment to Lease, dated as of
        September 26, 2000, by and between High Pointe 1
        Development Group  L.L.C. and Crown Media
        International, Inc. (formerly known as Hallmark
        Entertainment Network, Inc.).                                                                                                                                                                                          
|        | 10.21 |               |  | Fourth Amendment to Lease, dated as of
        February 6, 2001, by and between High Pointe 1
        Development Group, L.L.C. and Crown Media Inc. (now
        known as Crown Media International, Inc.).                                                                                                                                                                                                                            
|        | 10.22 |               |  | Guaranty of Lease Obligations, dated June 1,
        1998, by Hallmark Entertainment, Inc. for High
        Pointe I Development Group L.L.C. (previously filed as
        Exhibit  10.23 to our Registration Statement on
        Form S-1/ A (Amendment No. 1), Commission File
        No. 333-95573, and incorporated herein by reference).                                                                                         
|        | 10.23 | *             |  | Employment Agreement, dated as of March 1,
        2000, between Crown Media Holdings, Inc. and David Evans.                                                                                                                                                                                                                                                                                                                            
|        | 10.24 | *             |  | Employment Agreement, dated as of June 21,
        2000, between Crown Media Holdings, Inc. and Lana Corbi.                                                                                                                                                                                                                                                                                                                             
|        | 10.25 | *             |  | Employment Agreement, dated as of June 15,
        2000, between Crown Media Holdings, Inc. and Andre Carey.                                                                                                                                                                                                                                                                                                                            
|        | 10.26 | *             |  | Employment Agreement, dated as of July 5, 2000,
        between Crown Media Holdings, Inc. and Chris Moseley.                                                                                                                                                                                                                                                                                                                           
|        | 10.27 | *             |  | Employment Agreement, dated as of October 25,
        2000, by and between Crown Media Holdings, Inc. and Charles
        Stanford.                                                                                                                                                                                                                                                                                                     
|        | 10.28 | *             |  | Separation Agreement, dated January 28, 1999,
        between Hallmark Entertainment Networks, Inc. (now known as
        Crown Media International, Inc.) and George Stein
        (previously filed as Exhibit 10.29 to our Registration
        Statement on Form S-1/A (Amendment No. 1), Commission
        File No. 333-95573, and incorporated herein by reference).                                                             



---



##### Table of Contents



|        |       |               |  |                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- | ------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 10.29 |               |  |  $20,000,000 Promissory Note, dated November 19,
	1999, of Crown Media, Inc. (now known as Crown Media
	International, Inc.) to HC Crown Corporation (previously
	filed as Exhibit 10.30 to our Registration Statement on
	Form S-1/ A (Amendment No. 1), Commission File
	No.  333-95573, and incorporated herein by reference).                
|        | 10.30 |               |  |  $10,000,000 Promissory Note, dated February 23,
	2000, of Crown Media, Inc. (now known as Crown Media
	International, Inc.) to HC Crown Corporation
	(previously filed as Exhibit 10.31 to our Registration
	Statement on Form S-1/ A (Amendment No. 1), Commission
	File No. 333-95573, and incorporated herein by reference).                 
|        | 10.31 |               |  |  Amendment to $10,000,000 Promissory Note, dated
	April  14, 2000, between Crown Media, Inc. (now known
	as Crown Media International, Inc.) and HC Crown
	Corporation (previously filed as Exhibit 10.1 to our
	Registration Statement on Form S-1/ A (Amendment
	No. 4), Commission File No. 333-95573, and
	incorporated herein by reference).
|        | 10.32 |               |  |  $150,000,000 Promissory Noted, dated
	February 12, 2001, of Crown Media Holdings to HC Crown
	Corporation.                                                                                                                                                                                                                                      
|        | 10.33 |               |  |  $150,000,000 Irrevocable Standby Letter of Credit,
	dated February 12, 2001, of Crown Media Holdings to Bank of
	America, N.A.                                                                                                                                                                                                                  
|        | 21.1  |               |  |  List of our Subsidiaries.                                                                                                                                                                                                                                                                                                                       
|        | 23.1  |               |  |  Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                  
|        | 99    |               |  |  Press Releases of Crown Media Holdings, Inc.
	and Odyssey Holdings, L.L.C., dated November 6, 2000,
	December 12, 2000, December 12, 2000, January 23,
	2001, and March  15, 2001.                                                                                                                                                              



|  |                                                         
|- | --------------------------------------------------------
|* | Management contract or compensating plan or arrangement.