** **

**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-K/A**

**(AmendmentNo. 1)**

 

**(Mark One)**

| **x** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------|------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2008**

 

**or**

 

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------|

 

**For thetransition period from           to           .**

 

**CommissionFile Number: 000-30700**

 

**Crown MediaHoldings, Inc.**

(ExactName of Registrant as Specified in Its Charter)

 

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

 

**12700 Ventura Boulevard,**

**Suite 200,**

**StudioCity, California  91604**

(Addressof Principal Executive Offices and Zip Code)

 

**(818)755-2400**

(Registrant’sTelephone Number, Including Area Code)

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

| ** **                                  | ** ** | **Name of Each Exchange**    |
|---------------------------------------------|------------|------------------------------|
| **Title of Each Class**                     | ** ** | **on Which Registered**      |
|                                        |       |                         |
| Class A  Common Stock, $0.01 par value |       | The  NASDAQ Stock Market LLC |

 

Securitiesregistered pursuant to Section 12(g) of the Act:  **None**

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act. Yes o  No x

 

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

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 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 informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.  o

 

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

 

Large accelerated filer o      Accelerated filer x         Non-accelerated filer o        Smaller reporting company o

 

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

 

The aggregate market value ofthe voting and non-voting common equity held by non-affiliates computed byreference to the price at which the common equity was last sold as of June 30,2008, the last business day of the registrant’s most recently completed secondfiscal quarter, was $98,674,130.

 

As of February 27, 2009, the number of shares of Class A CommonStock, $.01 par value outstanding was 74,117,654, and the number of shares of Class B CommonStock, $.01 par value, outstanding was 30,670,422.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

None.

 

 

 

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In this amendmentto our Annual Report on Form 10-K, the terms “Crown Media Holdings,” the “Company,” or“we” and “our” refer to Crown Media Holdings, Inc.  and, unless the context requires otherwise,subsidiaries of Crown Media Holdings that operate or have operated ourbusinesses, Crown Media United States, LLC (“Crown Media United States”) anduntil the completion of the sale of our film library in December 2006,Crown Media Distribution, LLC (“Crown Media Distribution”). The term “commonstock” refers to our Class A common stock and Class B common stock,unless the context requires otherwise.

 

The name Hallmark and otherproduct or service names are trademarks or registered trademarks of theirowners.

 

Crown MediaHoldings hereby amends its Annual Report on Form 10-K for the year ended December 31,2008, initially filed with the Securities and Exchange Commission on March 5,2009, by amending Part III to include information that was previouslyincorporated by reference to our proxy statement for our 2009 annual meeting ofstockholders.  Rules promulgatedunder the Securities Exchange Act of 1934, as amended, require that in order toincorporate this information by reference to the proxy statement, ourdefinitive proxy statement must be filed with the Securities and ExchangeCommission not later than 120 days after the end of our fiscal year ending December 31,2008.  Our definitive proxy statementwill not be filed within that time period, although we expect to file thedefinitive proxy statement and to make the proxy materials available to ourstockholders on or about June 12, 2009. The statements made below are made as of the date of the initial filing.

 

The Company will hold itsannual meeting of stockholders on July 23, 2009.  

 

**PART III**

 

**ITEM 10. Directors, Executive Officers and CorporateGovernance**

 

**BOARD OF DIRECTORS**

 

**General**

 

Our currentdirectors, consisting of 14 persons, are listed and described below.  The term of the directors continues until thenext annual meeting of stockholders or until their successors are duly electedand qualified.  Our Board currently has15 member positions, one of which positions is vacant.  Directors are elected annually.

 

Nominations to ourBoard are governed by our bylaws and our Second Amended and RestatedStockholders Agreement, dated August 30, 2001, as amended (“StockholdersAgreement”), by and among the Company, Hallmark Entertainment Investments Co., a subsidiary of Hallmark Cards,Incorporated (“HEIC”), VISN Management Corp. (“VISN”)and The DIRECTVGroup, Inc.  The StockholdersAgreement provides that the Board will consist of not less than 15 directors,with twelve nominated by HEIC, one nominated by VISN and two independentdirectors (who may not be officers, employees or directors of any of theparties to the Stockholders Agreement or their affiliates) to be nominated bythe Board. In addition, pursuant to a separate stockholders agreement whichconcerns HEIC and to which we are not a party, HEIC granted Liberty Crown, Inc.(“Liberty Crown”) and J.P. Morgan Partners (BHCA), L.P. (“JPMorgan”) each theright to designate one of our directors as part of HEIC’s twelve nominees.  In August 2006, JPMorgan surrendered itsnomination right granted under the Stockholders Agreement.  In January 2008 as part of an agreementwith us, VISN also surrendered its nomination right granted under theStockholders Agreement.  The right of anyparty to nominate a director pursuant to the Stockholders Agreement willterminate on the later of when such party (1) ceases to beneficially ownin the aggregate at least 5% of the shares of the Company’s common stock thenissued and outstanding and (2) ceases to beneficially own at least 75% ofthe Company’s common stock that the party (or predecessor holder) ownedimmediately following completion of our initial public offering on May 9,2000.  See Item 13.

 

Of the Boardmembers, Dwight C. Arn, William Cella, Steve Doyal, Brian E. Gardner, David E.Hall, Donald J. Hall, Jr., Irvine O. Hockaday, Jr., A. Drue Jennings,Brad R. Moore, Henry S. Schleiff and Deanne R. Stedem were nominated by HEIC;Glenn Curtis was designated as a nominee by Liberty Crown.  In addition, the Board nominated Peter A.Lund and Herbert Granath as independent directors.  Our Board of Directors also approved thenomination of each of these persons as directors.

 

Because HEIC holdsClass A Common Stock and all of the Class B Common Stock,representing approximately 95.7% of the voting power of the Company, its votein favor of nominees for directors will be sufficient to elect such nomineesregardless of the vote of any other stockholders.

 

2

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**Directors**

 

*Dwight C.Arn*, age 58, has been a director of Crown Media Holdingssince March 2008.  Mr. Arn hasbeen Associate General Counsel of Hallmark Cards, Incorporated since 1989.  Additionally, Mr. Arn has been servingas General Counsel of Hallmark International since 1992 and as General Counselof Crayola LLC since 1995.  Mr. Arnbegan his career at Hallmark Cards, Incorporated in 1976 and has served invarious attorney positions.

 

*WilliamCella*, age 59, has been a director of Crown Media Holdingssince March 2008.  Mr. Cella isthe Chairman and Chief Executive Officer of The Cella Group, a media salesrepresentation company.  Before formingThe Cella Group in 2008, Mr. Cella led MAGNA Global, a Media Negotiation,Research and Programming Unit of the Interpublic Group of Companies.  From 1997 through 2001, Mr. Cella servedas Executive Vice President and Director of Broadcast and Programming forUniversal McCann North America.  From1994 through 1997, Mr. Cella served as Director of National Broadcast andProgramming for McCann-Erickson and, in 1997, was named Executive VicePresident of McCann-Erickson for all of North America.

 

*GlennCurtis*, age 49, has been a director of Crown Media Holdingssince January 2005.  He has beenExecutive Vice President and Chief Financial Officer of Starz LLC since August 2006.  Prior to that, he was Vice President ofLiberty Media Corporation (a holding company with interests in electronicretailing, media, communications, and entertainment industries) from 2003 to August 2006.  Prior to that, he was Executive VicePresident and Chief Financial Officer of Starz Entertainment Group (asubsidiary of Liberty Media Corporation providing premium movie networks ontelevision) from 1995 to 2002.

 

*SteveDoyal*, age 60, has been a director of Crown Media Holdingssince December 2007.  Mr. Doyalhas been Senior Vice President of Public Affairs and Communications and acorporate officer at Hallmark Cards since 1995. In this position, he oversees the operations of the Hallmark Cards’communications programs, including internal communications and publications,audio-visual communications, media relations, government affairs, and theHallmark Visitors Center.  Prior to that,he served as Media Relations Director from 1993 to 1994 and as Corporate MediaRelations Manager from 1988 to 1993.

 

*BrianE. Gardner*, age 56, has been a director and Secretary ofCrown Media Holdings since January 2004. He has been Executive Vice President and General Counsel of HallmarkCards since January 2004.  From 1996to 2003, Mr. Gardner was a Managing Partner of Stinson Morrison Hecker,LLP (formerly known as Morrison & Hecker, LLP).

 

*HerbertA. Granath*, age 80, has been a director of Crown MediaHoldings since December 2004.  He has been a consultant for Telenetsince 2000 and a consultant for Accenture since 2006.  He has also been adirector of Central European Media since 2001.  Mr. Granath was theChairman of Disney/ABC International Television from 1995 to 2000.

 

*DavidE. Hall*, age 46, has been a director of Crown Media Holdingssince March 2003. He has been the President - Personal Expression Group ofHallmark Cards since January 1, 2005 and a member of the board ofdirectors of Hallmark Cards since 1996. He was Senior Vice President - Human Resources of Hallmark Cards from June 2002to January 2005.  Mr. Hall hasserved in a variety of positions for Hallmark Cards since 1981.  Mr. Hall was Vice President - U.S. Salesand Marketing for Crayola LLC (a wholly-owned subsidiary of Hallmark Cards)from 1999 to June 2002.

 

*DonaldJ. Hall, Jr.*, age 53, has been a director of Crown MediaHoldings since May 2000.  Mr. Hallhas been the President and Chief Executive Officer of Hallmark Cards since January 2002and a member of the board of directors of Hallmark Cards since 1996.  Mr. Hall has served in a variety ofpositions for Hallmark Cards since 1971. Mr. Hall was the Executive Vice President, Strategy and Developmentfrom September 1999 until December 2001.  Prior to that, Mr. Hall was the VicePresident, Product Development, of Hallmark Cards from September 1996until August 1999.  Mr. Hall isa member of the board of directors of Hallmark Entertainment Holdings andBusiness Men’s Assurance Company of America.

 

*IrvineO. Hockaday, Jr.*, age 72, has been a director of CrownMedia Holdings since May 2000. He is a member of the board of directors ofFord Motor Company, Sprint Corporation and Estee Lauder Companies Inc. and thechairman of the audit committees of Estee Lauder Companies Inc. and Ford MotorCo.  Mr. Hockaday is a trustee ofthe Hall Family Foundations and the Aspen Institute.  He was the President and Chief ExecutiveOfficer of Hallmark Cards from January 1986 to December 2001.

 

*A. DrueJennings*, age 62, has been a director of Crown Media Holdingssince June 2006.  He has been OfCounsel at the law firm of Polsinelli Shughart (formerly known as Shughart,Thomson & Kilroy, P.C.) since October 2004.  Mr. Jennings was the interim AthleticDirector at the University of Kansas from April 2003 until July 2003.  Prior to that, Mr. 

 

3

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Jennings was the Chief Executive Officer of Kansas City Power &Light Company from 1988 to 2000 and Chairman of the Board of Kansas City Power &Light Company from 1990 to 2001.

 

*PeterA. Lund*, age 68, has been a director of Crown Media Holdingssince May 2000. He is the former President and Chief Executive Officer ofCBS Inc.  He also serves as a director ofThe DIRECTV Group, Inc. and Emmis Communications Corporation.

 

*Brad R. Moore*, age 62, has been adirector of Crown Media Holdings since March 2008.  Mr. Moore has been President of HallmarkHall of Fame Productions since 1993 and Hallmark Publishing since 2007, both ofwhich are wholly-owned subsidiaries of Hallmark Cards.  Prior to that, Mr. Moore led the development,production and distribution of the Hallmark Hall of Fame series since1983.  Mr. Moore directed HallmarkCards’ U.S. advertising efforts from 1982 to 1998.

 

***Henry S. Schleiff, age***61, has been Presidentand Chief Executive Officer and a director of Crown Media Holdings since October 2006.  Prior to joining Crown Media Holdings, from December 1999to 2006, Mr. Schleiff served as Chairman and Chief Executive Officer ofCourt TV Network.  Prior to that, Mr. Schleiffserved as Court TV Network’s President and Chief Executive Officer from October 1998to December 1999.  Prior to joiningCourt TV Network, Mr. Schleiff was the Executive Vice President forStudios USA from 1996 to 1998.

** **

*DeanneR.  Stedem*, age 46, hasbeen a director of Crown Media Holdings since March 2003.  She has been Associate General Counsel forHallmark Cards since 1998, managing legal matters for the various entertainmentdivisions of Hallmark Cards, Incorporated. She served as Senior Attorney for Hallmark Cards from 1989 until 1998.

 

Mr. David E.Hall and Mr. Donald J. Hall, Jr. are brothers.  Mr. Hockaday is Mr. David E. Hall’sfather-in-law.  There are no other familyrelationships among the executive officers or directors of the Company.

 

**Executive Officers**

 

The following lists ourexecutive officers and information regarding their principal occupations duringat least the last five years.

 

*WilliamJ. Abbott,* age47, has been Executive Vice President, Advertising Sales, of Crown MediaHoldings since January 2000.  Priorto that, he was Senior Vice President, Advertising Sales, of Fox FamilyWorldwide from January 1997 to January 2000.

 

*DavidKenin,* age 68,has been Executive Vice President, Programming, Crown Media Holdings, Inc.since January 2007.  Before that hewas Executive Vice President, Programming for Crown Media United States,LLC.  Prior to joining Crown Media UnitedStates in January 2002, Mr. Kenin headed Kenin Partners, where herepresented clients in various media industries, including cable television,business development, international programming, international sports rightsand new technology.

 

*LauraMasse*, age 45,has been Executive Vice President for Crown Media Holdings, Inc. since February 2007.  Prior to that, Ms. Masse was Senior VicePresident, Marketing for Crown Media Holdings, Inc. from December 2001to February 2007.  Prior to joiningCrown Media Holdings, Inc., Ms. Masse was Vice President of Marketingfor American Movie Classics (AMC) from 1998 to 2001.

 

**For *Henry S.Schleiff,*please see information above under “Directors”.**

** **

*CharlesL. Stanford,*63, has been Executive Vice President, Legal and Business Affairs andGeneral Counsel of Crown Media Holdings since May 2001. Prior to that, hewas Senior Vice President, Business Affairs and General Counsel of Crown MediaHoldings from October 2000 to May 2001. He also served as Senior VicePresident, Legal and Business Affairs of Crown Media International from November 1999through October 2000.

 

*Brian C.Stewart*, 44, hasbeen Executive Vice President and Chief Financial Officer of Crown MediaHoldings since November 2006.  Priorto that, Mr. Stewart served as Senior Vice President and Chief FinancialOfficer of Crown Media United States, LLC since November 2002.  Prior to assuming the position of Chief FinancialOfficer of Crown Media United States, LLC, Mr. Stewart served as VicePresident, Finance, for Crown Media Holdings.

 

4

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**SECTION 16(a) BENEFICIALOWNERSHIP REPORTING COMPLIANCE**

 

Based on a reviewof reports filed by our directors, executive officers and beneficial holders of10% or more of our shares, and upon representations from those persons, allSecurities and Exchange Commission stock ownership reports required to be filedby those reporting persons during 2008 were made timely, except for a filing ofone Form 4 by Mr. Cella concerning one transaction.

 

**CODE OFBUSINESS CONDUCT AND ETHICS**

 

The Company hasadopted a Code of Business Conduct and Ethics that reflects long-standingpositions of the Company and contains additional provisions.  The Code applies to all employees, includingthe Company’s principal executive officer, principal financial officer andcontroller, and to directors.  Ashareholder can request a free copy ofthe Code of Business Conduct and Ethics by writing to the Executive VicePresident, Legal and Business Affairs and General Counsel of the Company atCrown Media Holdings, Inc., 12700 Ventura Boulevard, Studio City,California 91604.

 

**AUDITCOMMITTEE**

 

The members of theAudit Committee are Messrs. Jennings, Chairman, Granath and Lund, each ofwhom are believed by the Board to be independent directors as defined in Rule 5605of the listing standards for the Nasdaq Global Market (“Nasdaq ListingStandards”).  The Board has determined thateach of the members of the Audit Committee is financially literate inaccordance with the Nasdaq Listing Standards. The Board has also determined that Mr. Jennings qualifies as anaudit committee financial expert, as defined under Securities and ExchangeCommission (the “Commission”) rules.

 

Under the AuditCommittee Charter, the primary authority and responsibilities of the AuditCommittee are to:

 

·                  oversee theCompany’s financial reporting processes;

 

·                  provideoversight relating to the Company’s internal control over financial reportingand internal audit process and activities;

 

·                  review andapprove related party transactions;

 

·                  prepare the reportrequired by the Commission to be included in the Company’s annual proxystatement;

 

·                  be directlyresponsible for the appointment, compensation, retention, termination andoversight of the work of the independent auditors and ensure compliance withindependence requirements for auditors;

 

·                  pre-approve ofall audit and non-audit services; and

 

·                  establish andoversee the Company’s whistleblower policy regarding submission of reports ofquestionable accounting practices, internal accounting controls or auditingmatters and the investigation, disposition and retention of such reports.

 

5

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**Item II.  Executive Compensation**

 

###### **COMPENSATIONDISCUSSION AND ANALYSIS**

###### ** **

**Overview and Objectives of the Compensation Program**

 

The Company’scompensation packages to its executive officers, as determined by theCompensation Committee of the Company’s Board, are designed to enable theCompany to recruit, retain and motivate a talented and diverse group of peoplewho contribute to our success.  Thepackages are also intended to synchronize executive compensation with theCompany’s performance, motivate executive officers to achieve our businessobjectives and provide strong performance incentives.  The Company’s Chief Executive Officerprovides input on determining and recommending compensation packages toexecutive officers other than for himself. The Compensation Committee also consults, as provided in his employmentagreement, with the Chief Executive Officer in regard to his bonus.  The goal of the Compensation Committee isthat the packages are fair, reasonable and competitive with other companies inthe cable and television industry similar in size to the Company.

 

In addressingcompensation, the Compensation Committee attempts to balance the short term andlong term components, to properly reward and encourage retention and alignexecutive pay with that of executives at comparable companies in theindustry.  The Compensation Committee alsofocuses on aligning individual incentives with the Company’s strategic andfinancial goals. Key incentive-based components in executive compensationpackages are the annual individual performance-based incentive bonus, which isawarded in recognition of individual and Company performance each year, andawards granted under our Amended and Restated 2000 Long Term Incentive Plan(“LTIP”).

 

**Elements of ExecutiveCompensation Packages**

 

Compensationpackages awarded to the Company’s executive officers are comprised of basesalary, annual cash bonus awards, awards granted under our LTIP and perquisitesand other benefits.

 

*SalaryDeterminations*

 

Salary ranges forthe Chief Executive Officer and other executives are based on an individual’sexperience and prior performance, as well as the Company’s operatingperformance and the attainment of planned financial and strategic goals.  In addition, the Compensation Committeereviews compensation levels of similarly situated executives at companies inthe cable and television industry similar in size to the Company whendetermining the target range of salary payable to the executive officers.  In determining their salaries and salariesfor other officers, the Compensation Committee subjectively evaluates theexperience, performance and attainment of initiatives, and no particular weightis given to any particular factor. Annual salaries for the Named Executive Officers (as defined below) aresubject to the provisions of their respective employment agreements described belowunder the heading *“Compensation of Executive Officers andDirectors - Summary of Executive Employment Agreements”.*

 

*BonusDetermination*

 

The Company paysannual incentive bonuses in March of each year.  Employment agreements contain maximum and, insome cases, minimum percentages of base salary that are to be paid as annualbonuses.  In addition, the CompensationCommittee may, in its sole discretion, approve signing and discretionarybonuses for executive officers.  Annualbonus payments for fiscal year 2008 paid to the Named Executive Officers weredetermined and calculated in accordance with the below formula.  The Compensation Committee has the authorityto modify the below formula for subsequent years.

 

**BONUS OPPORTUNITY**: TargetIncentive was from 20% to 25% of an executive’s base pay.  Total bonus opportunity was 0% to 135% of theTarget Incentive.

 

**PLAN MEASURES**: The bonusplan measured performance of January 1 through December 31 of theplan year and used the following allocation of the Target Incentive for eachtarget:

 
| · | EBITDA (calculated  using the same formula as is used to calculate EBITDA in the Company’s  Operating Plan)   | — |   | 25 | % |
|--------|--------------------------------------------------------------------------------------------------------------------|--------|--------|----|---|
| · | Advertising Revenue  (recognized on an as-earned basis)                                                            | — |   | 30 | % |
| · | Demographic Achievement  (total daily average household delivery for adults ages 25-54, as determined  by Nielsen) | — |   | 10 | % |
| · | Operating Cash Flow  (cash flow before cash interest expense)                                                      | — |   | 25 | % |
| · | Top Ten Full Day  (household ranking in top ten each quarter of 2008)                                              | — |   | 10 | % |

 

6

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**PLAN TARGETS**: Targets areset each year based upon the Company’s Operating Plan.  The targets for 2008 were as follows:

 
| · | EBITDA                                           |   | — |   | $63.7 million      |
|--------|--------------------------------------------------|--------|--------|--------|--------------------|
| · | Advertising Revenue                              |   | — |   | $243.0 million     |
| · | Demographic Achievement                          |   | — |   | 148,000 Households |
| · | Top Ten Primetime  (household ranking quarterly) |   |   |   |               |

 

**CALCULATIONS**:

 
| · | The calculation for  payment of the EBITDA Target were as follows: |
|--------|--------------------------------------------------------------------|

 
| **Percentage  of EBITDA  Target Achieved** | ** ** | **Percentage of Allocated  Target Incentive Payable** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------|------------|
|                                       |       |                                                  |       |
| Below 85%                                  |       | 0                                                     | %          |
| 85% or more, but less  than 90%            |       | 80                                                    | %          |
| 90% or more, but less  than 95%            |       | 90                                                    | %          |
| 95% or more, but less  than 98%            |       | 95                                                    | %          |
| 98% or more, but less  than 102%           |       | 100                                                   | %          |
| 102% or more, but less  than 105%          |       | 110                                                   | %          |
| 105% or more, but less  than 110%          |       | 120                                                   | %          |
| 110% or more                               |       | 135                                                   | %          |

 

·                  The calculationfor payment of the Advertising Revenue Target were as follows:

 
| **Percentage  of Advertising Revenue   Target Achieved** | ** ** | **Percentage of Allocated   Target Incentive Payable** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                               | ** ** | ** **                                             | ** ** |
| Below 95%                                                |       | 0                                                      | %          |
| 95% or more, but less  than 98%                          |       | 95                                                     | %          |
| 98% or more, but less  than 102%                         |       | 100                                                    | %          |
| 102% or more, but less  than 105%                        |       | 110                                                    | %          |
| 105% or more, but less  than 110%                        |       | 120                                                    | %          |
| 110% or more                                             |       | 135                                                    | %          |

 

·                  The calculationfor payment of the Demographic Achievement for 2008 were as follows:

 
| **Total  Daily Average Households  (Women 25-54) Achieved** | ** ** | **Percentage of Allocated  Target Incentive Payable** |   |
|-------------------------------------------------------------|------------|-------------------------------------------------------|--------|
|                                                        |       |                                                  |   |
| Below 122,500                                               |       | 0                                                     | %      |
| 122,500 – 124,999                                      |       | 85                                                    | %      |
| 125,000 – 127,499                                      |       | 90                                                    | %      |
| 127,500 – 129,999                                      |       | 95                                                    | %      |
| 130,000 – 132,499                                      |       | 100                                                   | %      |
| 132,500 – 134,999                                      |       | 105                                                   | %      |
| 135,000 or more                                             |       | 110                                                   | %      |

 

**BONUS AMOUNT**: Actual bonus amount is dependent on thedegree to which the Company achieves the objective for each plan measureagainst performance ranges established for each metric.  The Compensation Committee has the discretionto adjust the total award and the result for each metric up or down by up to20%.  The actual bonus that was paid was 12.6% for those with a target of 20%and 15.75% for those with a target of 25%.

 

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*AwardsGranted Under Long Term Incentive Plan*

 

**GENERAL**

 

Under our LTIP, the Board and the Compensation Committee have thediscretion to grant incentive stock-based awards to our employees anddirectors, including, without limitation, Restricted Stock Units (“RSUs”) andShare Appreciation Rights (“SARs”). These awards, which are intended as incentives for future performance,combined with the executive’s salary and performance bonus, substantially forma total compensation package.  Indetermining the awards to executives, the Compensation Committee analyzesstock-based awards made to similarly situated executives at companies in thecable and television industry similar in size to the Company and assesses eachexecutive’s performance.  The Company didnot grant stock awards in 2007 and 2008.

 

**RESTRICTED STOCK UNITS**

 

The Company exchanged 94.8% of granted stock options for 2,050,693 RSUsin 2003.  Since this exchange, the Companyhas not awarded any stock options to its employees or directors, but hasgranted Performance RSUs and Employment RSUs. Each RSU represents the right to receive one share of the Company’s Class ACommon Stock or, in the discretion of the Compensation Committee, the cashequivalent to the fair market value of one share of the Company’s Class ACommon Stock (calculated by taking the average of the stock price for theimmediately preceding 14 business days). If any dividend is paid with respect to a share of Class A CommonStock while the RSUs are held, the Company will pay to each holder at itsdiscretion an amount in cash, Class A Common Stock or other property, ineach case having a value equal to the dividend. Such amounts of dividend shall vest and be paid at the same time as theunderlying RSUs are settled.  All RSUsare subject to forfeiture until certain conditions, including continuedemployment, have been met.

 

The Compensation Committee determines whether or not RSU grants will bemade, grant eligibility, vesting, the size of the grant pool and the grantranges for each executive level.  Withinthe parameters established by the Compensation Committee, the Chief ExecutiveOfficer then determines the size of the grant pool for each department withinthe Company.  Each Executive VicePresident then makes specific individual grants for each employee within thedepartment which he or she oversees. Below is a table summarizing certain key terms of the RSUs granted tothe Company’s executive officers that were outstanding in 2008.

 

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| **Year of** | ** ** | **Employment  RSUs** | ** ** | **Performance  RSUs**                                                                                                                                                           |
|-------------|------------|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Grant**   | ** ** | **Percentage**       | ** ** | **Vesting  Dates (1)**                                                                                                                                                          | ** ** | **Percentage** | ** ** | **Vesting  Dates** | ** ** | **Vesting  Criteria** |
| **2005**    |       | 50                   | %          | Vested  in equal one-third installments on the first, second and third anniversaries  of the grant date (August 17, 2006, August 17, 2007 and  August 17, 2008). |   | 50 | % | Vest  entirely on the third anniversary of the grant date (August 17, 2008). |   | The  fair market value of one share of the Company’s Class A Common Stock  equals or exceeds $14.00 (calculated by taking the average of the stock price  for the immediately preceding 14 business days of the vesting date). This  criteria was not met and, therefore, Performance RSUs were cancelled on  August 17, 2008. |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   |   |
| **2006**(2) |       | 35                   | %          | Vest entirely on the  third anniversary of the grant date (August 18, 2009).                                                                                               |   | 65 | % | See “Vesting  Criteria”(3) |   | First Tranche and  Vesting: 65% of  the Performance RSUs were eligible to vest as follows |
|        |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | ·    150% of Performance RSUs if  at least 3 of the major distribution agreements were renewed within 15 months  of the grant date and the fourth major distribution agreement was renewed  prior to its expiration date or within 120 days thereafter. |
|        |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | ·    100% of Performance RSUs if  at least three of the major distribution agreements were renewed within 15  months of the grant date and the fourth major distribution agreement was  renewed but not prior to its expiration date or within 120 days thereafter. |
|        |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | ·    100% of Performance RSUs if  all major distribution agreements were renewed on or prior to each  agreement’s expiration date. |
|        |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | ·    65% of Performance RSUs if  all major distribution agreements were renewed within 120 days after  expiration. |
|        |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | ·    0% of Performance RSUs if  all major distribution agreements were not renewed as described above.

 

The  Compensation Committee determined that 100% of the first tranche of  Performance RSUs were eligible to vest since all major distribution  agreements were renewed on or prior to each agreement’s expiration date. Such  Performance RSUs were vested and settled in cash in April 2008.

  |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | Second  Tranche and Vesting: The remaining Performance RSUs, 35%, were  eligible to vest on December 31, 2008 in accordance with the following  formula:

 

**Percentage of value of  the RSUs paid based on subscriber revenue achieved (the “Modifier”)**

  |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | Less than $47.86 million | 65% |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | $47.86 mil. to $55.17 mil | 85% |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | $55.17 mil. to $61.93 mil | 100% |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | $61.93 mil. or more | 135% |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   |   |
| ** **  |       |                 |       |                                                                                                                                                                            |   |   |   |   |   | The  Compensation Committee determined that 100% of the second tranche of the  Performance RSUs were eligible to vest since the Company achieved the number  of subscriber revenue. Such Performance RSUs were vested in  December 2008 and settled in cash in February 2009. |

 

9

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----

(1)           Employment RSUs willvest if the employee is employed with the Company on the vesting date.

(2)           Withrespect to Mr. Schleiff only, (a) 50% of RSUs granted in 2006 areEmployment RSUs and the remaining 50% are Performance RSUs and (b) EmploymentRSUs vest entirely on the fourth anniversary of the date of grant (October 2,2010).  Mr. Schleiff’s PerformanceRSUs have the same terms as set forth in the table above.

(3)           TheCompensation Committee had the discretion to increase or decrease the Modifierby 20% and had the authority to extend the deadlines for satisfaction of thevesting conditions in the event that a renewal of the major distributionagreements was delayed for factors beyond the control of the Company.

 

**SHARE APPRECIATION RIGHTS**

 

The only employee with whom the Company has agreed togrant SARs is Henry Schleiff under the Share Appreciation Rights Agreementdated October 3, 2006.  The value ofeach SAR corresponds to the value of one share of Class A common stock andwill be settled at the Company’s discretion in Class A common stock orcash.  SARs will be granted during theterm of employment the day after the fair market value of the Company’s stockreaches the “threshold price” and stays at the threshold price or higher for 60consecutive calendar days.  SARs willthen be granted each time that the fair market value of the Company’s stockincreases another incremental five dollars over the previous price at which anSAR grant was triggered and stays at such price or higher for 60 consecutivecalendar days.  Upon the occurrence ofeach event which triggers an SAR grant, Mr. Schleiff will be granted thatnumber of SARs with a value equal to 0.8% of the Enterprise Growth as of thegrant date divided by the triggering Company stock price.  “Enterprise Growth” equals the increase inmarket capitalization (compared to the market capitalization based on the StartPrice (defined below) or the last price triggering a grant of an SAR), adjustedupward or downward by the amount of debt incurred or paid down since the lasttrigger date.  “Start Price” is $4.43,the average of the fair market value for the 5 business days prior to the dateof public announcement of Mr. Schleiff’s employment with the Company.  “Threshold price” is $9.43, the Start Priceplus $5.  The vesting schedules andsettlement provisions are described below in *“PotentialPayments Upon Termination or Change in Control.”*

 

*Perquisites and Other Benefits*

 

All Company executives are also entitled, subject tomeeting certain eligibility requirements, to participate in the Company’sbenefit programs, including the Company’s 401(k) plan and its medical,dental and other benefits plans.  Certainexecutive officers are entitled to additional benefits, such as car allowance,reimbursement for financial consulting fees and particular travel conditions asagreed to under their respective employment agreements.

 

*Compensation Consultants*

 

From time to time, the Compensation Committee engagesand consults with Towers Perrin, a human resources consulting firm, whendeveloping, analyzing and reviewing compensation packages to be awarded to itsexecutive officers.  Towers Perrin hasprovided to the Compensation Committee relevant executive compensation datarelated to companies in the cable and television industry similar in size tothe Company, such as base salaries, termination payments and the level orformula for performance-based cash bonuses and other incentive awards.  Additionally, Towers Perrin has assisted theCompensation Committee in structuring various incentive compensationplans.  The Compensation Committee andthe Board also seek advice and recommendations from the human resource andcompensation departments of its parent company, Hallmark Cards, on executiveand director compensation matters.  Suchservices are rendered by Hallmark Cards pursuant to a services agreement whichit has with the Company.

 

In the past, the board has also engaged Pearl Meyer &Partners, an executive compensation consulting firm, to assist with theCompany’s LTIP and to recommend awards to be made to the Company’s employeesunder such plan.

 

10

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**DeferredCompensation Plan**

 

The Company offers a Deferred Compensation Plan to itsexecutive officers and directors.  The DeferredCompensation Plan offers an opportunity for the executive officers to deferpayment, on a pre-tax basis, of portions of his or her salary, bonuscompensation and such deferred payment will be deposited in an interest-bearingaccount until distribution.  With respectto the interest rate earned, as of January 1, 2009, the Company appliesMoody’s Average Corporate Bond Yield as in effect on the first day of eachmonth and no longer prime plus 1%.  RSUcompensation may be deposited in an interest-bearing account or in a stocktracking fund at the option of the participant of the Plan.  Under the terms of the Deferred CompensationPlan, an executive officer may elect to defer the following compensation:

 
| **Type of Compensation**                  | ** ** | **Maximum Deferral** | ** ** |
|-----------------------------------------------------|------------|---------------------------|------------|
| Base Salary                                         |       | 50                        | %          |
| Incentive Compensation                              |       | 100                       | %          |
| RSU Compensation (whether settled in cash or stock) |       | 100                       | %          |

 

The amount oftotal compensation deferred must be at least $5,000.

 

An executive officer may elect to receive payment ofall or part of that Plan year’s deferral amount in a future year that is atleast two years beyond the end of that Plan year.  If such scheduled in-service distribution ismore than $25,000, the distribution may be made in annual installments over 5 years.  If such distribution is $25,000 or less, itmust be taken as a lump sum.  Allscheduled in-service withdrawals will be paid in January.  In some circumstances, hardship withdrawalsof account balances are allowed without penalty.  Hardship withdrawals are limited tounforeseeable emergencies, such as illness or casualty losses.

 

TheCompany suspended the Plan for 2006 and no deferrals of employee compensationearned were allowed in 2006. The Company continued to pay interest on amountsdeferred in previous years and paid out these amounts in accordance with theterms of the plan.  The Plan has beenreactivated since 2007.

 

**ChiefExecutive Officer Compensation**

 

The provisions of our Chief Executive Officer’semployment agreement and related agreements which have been approved by theBoard, determined the salary and stock-based awards granted to him duringfiscal year 2008.  In approving thecompensation levels contained in Mr. Schleiff’s employment agreements, theBoard reviewed and considered the expected value of his leadership that he wouldbring to the Company.  The Board then sethis compensation during the term of his employment agreement in levels thatreflected his potential achievements and quality of the Company under hisleadership.

 

**TaxDeductibility of Executive Compensation**

 

Under Section 162(m) of the Internal RevenueCode and IRS Notice 2007-49, the Company may not be able to deduct certainforms of compensation in excess of $1,000,000 paid per year to its chiefexecutive officer and its three most highly compensated officers (other thanits CEO and CFO) who are employed by the Company at year-end.  The Committee believes that it is generallyin the Company’s best interest to satisfy the requirements for deductibilityunder Internal Revenue Code Section 162(m).  Accordingly, the Committee has takenappropriate actions, to the extent it believes feasible, to preserve thedeductibility of annual incentive and long-term performance awards.  However, notwithstanding this general policy,the Committee also believes that there may be circumstances in which theCompany’s interests are best served by maintaining flexibility in the waycompensation is provided, whether or not compensation is fully deductible underInternal Revenue Code Section 162(m).

 

The InternalRevenue Code exempts qualifying performance-based compensation from thededuction limit if certain conditions are met.  One of the conditions isstockholder approval of the performance-based compensation provisions.  Atthe 2007 Annual Meeting of Stockholders of the Company, the stockholdersapproved (1) the performance-based cash bonuses payable in 2007 and lateryears to Henry Schleiff and the other executive officers under their thenemployment agreements and (2) provisions in their then existing RSUagreements that could be settled in cash or stock in 2007 and later years.

 

11

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###### **COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS**

###### ** **

**SummaryCompensation Table**

 

The following table summarizes the cash and non-cashcompensation earned in 2006, 2007 and 2008 awarded to or earned by individualswho served as our Chief Executive Officer, Chief Financial Officer and threeother most highly compensated executive officers serving during and/or at theend of 2008 (each, a “Named Executive Officer, collectively, the “NamedExecutive Officers”).

 
| **Name and Principal Position** | ** ** | **Year** | ** ** | **Salary($)** | ** ** | **Bonus  ($)(1)** | ** ** | **Stock  Awards($)  (2)** | ** ** | **Option  Awards($)  (3)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Changes in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings ($)(4)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total ($)** | ** ** |
|------------------------------------------------|------------|----------|------------|---------------|------------|-------------------|------------|---------------------------|------------|----------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|
| **(a)**                                        | ** ** | **(b)**  | ** ** | **(c)**       | ** ** | **(d)**           | ** ** | **(e)**                   | ** ** | **(f)**                    | ** ** | **(g)**                                                | ** ** | **(h)**                                                                                                  | ** ** | **(i)**                               | ** ** | **(j)**            | ** ** |
| **William Abbott,**                            |       | 2008     |       | 578,048       |       | 91,043            |       | 58,902                    |       | —                     |       | —                                                 |       | 11,097                                                                                                   |       | 10,000                                | (5)        | 747,090            |       |
| Executive Vice President,                      |       | 2007     |       | 546,154       |       | 152,923           |       | 372,367                   |       | —                     |       | —                                                 |       | 26,180                                                                                                   |       | 10,000                                | (5)        | 1,107,624          |       |
| Advertising Sales                              |       | 2006     |       | 520,139       |       | 148,079           |       | -18,293                   |       | —                     |       | —                                                 |       | 19,969                                                                                                   |       | 10,000                                | (5)        | 679,894            |       |
| **David Kenin,**                               |       | 2008     |       | 823,251       |       | 103,730           |       | 57,029                    |       |                       |       |                                                   |       | 13,686                                                                                                   |       | 11,400                                | (5)        | 1,009,097          |       |
| Executive Vice President,                      |       | 2007     |       | 788,111       |       | 177,325           |       | 406,436                   |       | —                     |       | —                                                 |       | 18,425                                                                                                   |       | 11,400                                | (5)        | 1,401,696          |       |
| Programming                                    |       | 2006     |       | 749,580       |       | 176,250           |       | 15,154                    |       | —                     |       | —                                                 |       | 16,609                                                                                                   |       | 11,400                                | (5)        | 968,993            |       |
| **Henry S. Schleiff,**                         |       | 2008     |       | 1,064,173     |       | 670,429           |       | 78,728                    |       | -1,180,438                 |       | —                                                 |       | —                                                                                                   |       | 20,004                                | (5)        | 652,896            |       |
| President and                                  |       | 2007     |       | 1,011,212     |       | 1,668,499         |       | 486,800                   |       | 1,368,145                  |       | —                                                 |       | —                                                                                                   |       | 20,004                                | (5)        | 4,554,660          |       |
| Chief Executive Officer                        |       | 2006     |       | 202,692       |       | 437,500           |       | 98,114                    |       | 59,115                     |       | —                                                 |       | —                                                                                                   |       | 8,847                                 | (6)        | 806,268            |       |
| **Charles L. Stanford,**                       |       | 2008     |       | 491,684       |       | 61,952            |       | 59,706                    |       | —                     |       | —                                                 |       | —                                                                                                   |       | —                                |       | 613,342            |       |
| Executive Vice President                       |       | 2007     |       | 457,800       |       | 103,005           |       | 356,627                   |       | —                     |       | —                                                 |       | —                                                                                                   |       | —                                |       | 917,432            |       |
| and General Counsel                            |       | 2006     |       | 439,186       |       | 102,460           |       | -31,254                   |       | —                     |       | —                                                 |       | —                                                                                                   |       | —                                |       | 510,392            |       |
| **Brian C. Stewart,**                          |       | 2008     |       | 397,885       |       | 50,134            |       | 74,580                    |       | —                     |       | —                                                 |       | 23,884                                                                                                   |       | —                                |       | 546,483            |       |
| Executive Vice President                       |       | 2007     |       | 350,000       |       | 78,750            |       | 266,049                   |       | —                     |       | —                                                 |       | 30,957                                                                                                   |       | —                                |       | 725,757            |       |
| and Chief Financial Officer                    |       | 2006     |       | 311,695       |       | 66,736            |       | -708                      |       | —                     |       | —                                                 |       | 27,906                                                                                                   |       | —                                |       | 405,629            |       |

 

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(1)     Representsperformance bonus under the terms of employment agreements with theCompany.  See *“CompensationDiscussion and Analysis - Elements of Executive Compensation Package — BonusDetermination.”*

(2)     The amountsin this column are calculated based on FAS 123R and equal to financialstatement compensation costs for RSUs as reported in our consolidated statementof income for the applicable year. Under FAS 123R, compensation cost is based on the fair value of our stock price atthe end of each reporting period.  The Companyrecognizes the compensation cost, net of estimated forfeitures, over thevesting term and includes changes in fair value at each reporting period.

(3)     Representscompensation expense recognized in accordance with FAS 123R with respect toSARs.  No actual SARs were granted in2006, 2007 and 2008.

(4)     Representsinterest earned on deferred compensation.

(5)     Representscar allowance.

(6)     Representscar allowance of $3,846 and reimbursement of financial consulting fee of$5,000.

 

**Grantsof Plan-Based Awards**

 

The Company did not grant any SARs, RSUs or other stock-based awards to its Named Executive Officers in 2007 or 2008.

 

12

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**Outstanding Equity Awards at Fiscal Year-End**

 

The following table shows the number of unexercised stock options and unvested RSUs held by the Company’s Named Executive Officers on December 31, 2008.

 
| ** **                                                                 | ** ** | **Option  Awards**                                                                                    | ** ** | **Stock  Awards**                                                                                             | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|
| **Name**                                                                   | ** ** | **Number of  Securities   Underlying  Unexercised  Options   (#)   Exerciseable** | ** ** | **Number of  Securities   Underlying   Unexercised  Options   (#)   Unexerciseable** | ** ** | **Equity   Incentive Plan  Awards:  Number of  Securities   Underlying  Unexercised  Unearned   Options   (#)** | ** ** | **Option  Exercise  Price ($)** | ** ** | **Option   Expiration  Date** | ** ** | **Number   of Shares   or Units of  Stock   That Have  Not  Vested   (#)(1)** | ** ** | **Market   Value of   Shares or   Units of   Stock   That Have  Not   Vested   ($)(2)** | ** ** | **Equity   Incentive   Plan   Awards:  Number of  Unearned   Shares,  Units or   Other   Rights That  Have Not   Vested   (#)(1)** | ** ** | **Equity   Incentive   Plan   Awards:  Market or  Payout   Value of   Unearned   Shares,   Units or   Other   Rights   That Have  Not   Vested   ($)(2)** | ** ** |
| **(a)**                                                                    | ** ** | **(b)**                                                                                               | ** ** | **(c)**                                                                                                       | ** ** | **(d)** | ** ** | **(e)** | ** ** | **(f)** | ** ** | **(g)** | ** ** | **(h)** | ** ** | **(i)** | ** ** | **(j)** | ** ** |
| **William Abbott,**Executive Vice  President, Advertising Sales            |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| 2006 RSUs                                                                  |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | 46,200 |   | 131,670 |   | — |   | — |   |
| **David Kenin,**Executive Vice  President, Programming                     |       | 200,000                                                                                               |       | —                                                                                                        |       | — |   | 11.29 |   | 01/02/2012 |   | — |   | — |   | — |   | — |   |
| 2006 RSUs                                                                  |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | 46,200 |   | 131,670 |   | — |   | — |   |
| **Henry S. Schleiff,**President and  Chief Executive Officer               |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Stock Appreciation Rights(3)                                               |       | —                                                                                                |       | —                                                                                                        |       | 31,663 |   | 2.85 |   | 10/03/2010 |   | — |   | — |   | — |   | — |   |
| 2006 RSUs                                                                  |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | 100,000 |   | 285,000 |   | — |   | — |   |
| **Charles L. Stanford,**Executive Vice  President and General Counsel      |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| 2006 RSUs                                                                  |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | 46,200 |   | 131,670 |   | — |   | — |   |
| **Brian C. Stewart,**Executive Vice  President and Chief Financial Officer |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| 2006 RSUs                                                                  |       | —                                                                                                |       | —                                                                                                        |       | — |   | — |   | — |   | 46,200 |   | 131,670 |   | — |   | — |   |

 

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(1)   Vestingdates of Employment RSUs are set forth above under heading “*Compensation Discussion & Analysis — Elements of ExecutiveCompensation Packages — Awards Under Long Term Incentive Plan*.”

(2)   Theamounts in this column are calculated using a value of $2.85 per share, whichis the closing market price for our Class A Common Stock on December 31,2008.

(3)   Representscompensation expense recognized in accordance with FAS 123R with respect toSARs.  No actual SARs were granted in2008.  Grant and vesting terms are setforth below under heading *“Compensation of ExecutiveOfficers and Directors — “Summary of Executive Employment Agreements” and“Potential Payments Upon Termination or Change-In-Control.”*

 

13

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**OptionExercises and Stock Vested**

 

The following table shows the number of stock options or RSUs issued to the Company’s Named Executive Officers that were exercised or vested in fiscal year 2008.

 
| ** **                                                                | ** ** | **Option Awards(1)**                                                                | ** ** | **Stock Awards**                               | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| **Name**                                                                  | ** ** | **Number of   Shares   Acquired on   Exercise   (#)** | ** ** | **Value Realized  on Exercise  ($)** | ** ** | **Number of Shares  Acquired on   Vesting   (#)(2)** | ** ** | **Value Realized on   Vesting   ($)(3)** | ** ** |
| **(a)**                                                                   | ** ** | **(b)**                                                                             | ** ** | **(c)**                                        | ** ** | **(d)** | ** ** | **(e)** | ** ** |
| **William Abbott,**Executive Vice President, Advertising Sales            |       | —                                                                              |       | —                                         |       | 96,800 |   | 429,108 |   |
| **David Kenin,**Executive Vice President, Programming                     |       | —                                                                              |       | —                                         |       | 99,133 |   | 439,849 |   |
| **Henry S. Schleiff,**President and Chief Executive Officer               |       | —                                                                              |       | —                                         |       | 100,000 |   | 441,100 |   |
| **Charles L. Stanford,**Executive Vice President and General Counsel      |       | —                                                                              |       | —                                         |       | 95,800 |   | 424,504 |   |
| **Brian C. Stewart,**Executive Vice President and Chief Financial Officer |       | —                                                                              |       | —                                         |       | 88,300 |   | 389,974 |   |

 

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(1)   Mr. Kenin is the onlyNamed Executive Officer who owns any stock options.  Mr. Kenin did not exercise any stock optionsin 2008.

(2)   Represents the number of RSUsvested during 2008.

(3)   Represents cash amounts paid tosettle vested RSUs in 2008.

 

**NonqualifedDeferred Compensation**

 

Please see above under the headings *“Compensation Discussion and Analysis — Deferred Compensation Plan”*for a description of material terms of the Company’s Nonqualified DeferredCompensation Plan summarized below.

 
| **Name**                                                               | ** ** | **Executive   Contributions in   Last FY ($)** | ** ** | **Registrant   Contributions in  Last FY ($)** | ** ** | **Aggregate   Earnings in Last   FY ($)** | ** ** | **Aggregate   Withdrawals /  Distributions in  Last FY ($)** | ** ** | **Aggregate  Balance at Last  FYE ($)** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(a)**                                                                | ** ** | **(b)**                                                                 | ** ** | **(c)**                                                            | ** ** | **(d)**                                                            | ** ** | **(e)**                                                                               | ** ** | **(f)**                                                | ** ** |
| **William Abbott,**Executive Vice President, Advertising Sales         |       | 96,852                                                                  | ** ** | **—**                                                         |       | 11,097                                                             | ** ** | **—**                                                                            |       | 221,279                                                |       |
| **David Kenin,**Executive Vice President, Programming                  | ** ** | **—**                                                              | ** ** | **—**                                                         |       | 13,687                                                             | ** ** | **—**                                                                            |       | 226,452                                                |       |
| **Henry S. Schleiff,**President and Chief Executive Officer            | ** ** | **—**                                                              | ** ** | **—**                                                         | ** ** | **—**                                                         | ** ** | **—**                                                                            | ** ** | **—**                                             | ** ** |
| **Charles L. Stanford,**Executive Vice President and General Counsel   | ** ** | **—**                                                              | ** ** | **—**                                                         | ** ** | **—**                                                         | ** ** | **—**                                                                            | ** ** | **—**                                             | ** ** |
| **Brian Stewart,**Executive Vice President and Chief Financial Officer |       | 30,754                                                                  | ** ** | **—**                                                         |       | 23,884                                                             | ** ** | **—**                                                                            |       | 412,124                                                |       |

 

14

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**Summaryof Employment Agreements with Named Executive Officers**

 

*EmploymentAgreement with William Abbott*

 

On August 8, 2006, the Company entered into anemployment agreement with William Abbott that provides for his employment asExecutive Vice President, Advertising Sales, which agreement replaced Mr. Abbott’sprior employment agreement and had a term through August 7, 2008.  Under the employment agreement, Mr. Abbott’sbase salary is at an annual rate of $523,688 for the term of employment,subject to annual increases at the discretion of the Company.   Mr. Abbott is also entitled to receivea bonus each year of up to 25% of his base salary, conditioned on the Company’sachievement of certain EBITDA, advertising revenue and ratings goals. (Seedetails pertaining to performance bonus below under heading *“Compensation Discussion and Analysis - Elements of ExecutiveCompensation Packages — Bonus Determination.”*)  On May 28,2007, the Company amended Mr. Abbott’s employment agreement and extendedthe term of his employment for an additional one year, through August 18,2009.  Additionally, under the amendment,in addition to participating in the bonus plan described above, Mr. Abbottis also eligible to participate in the Company’s advertising sales year-end commissionplan, although his compensation under the plan will be at reduced levels.  The amounts payable under the plan, forachievement of annual advertising sales revenue targets, are based on apercentage of base salary.  Mr. Abbott’spercentages are from 2.5% to 15% of his then-current base salary.

 

Under the employment agreement, Mr. Abbott maynot compete with the Company during the term of his employment. Additionally,for the one-year period following his termination of employment for any reason,Mr. Abbott may not employ any person who is working for the Company as anofficer, policymaker or in a high-level creative, development or distributionposition at the date of termination of Mr. Abbott’s employment.

 

*EmploymentAgreement with David Kenin*

 

On December 20, 2001, Crown Media United States,LLC entered into an employment agreement with David Kenin that provides for hisemployment as Executive Vice President, Programming.   The Employment Agreement, which was last amendedon June 21, 2007, has a term through December 31, 2009.  Mr. Kenin’s annual base salary duringthe period January 3, 2008 through January 2, 2009 is $825,000 and$850,000 during the period January 3, 2009 through December 31,2009.  Following the end of each calendaryear during the term, Mr. Kenin may be paid a bonus based on hisperformance during such calendar year if the Company so determines in its solediscretion.

 

Mr. Kenin’s employment agreement containsidentical non-compete and non-solicitation provisions to those contained in Mr. Abbott’semployment agreement and which are described above.

 

*Employment Agreement with Henry S. Schleiff*

 

On October 3, 2006, the Company entered in anemployment agreement with Henry S. Schleiff under which Mr. Schleiff hasagreed to serve as the Company’s President and Chief Executive Officer.  The term of the Employment Agreement is fouryears, commencing October 3, 2006. In December 2008, Mr. Schleiff’s Employment Agreement wasamended to comply with Internal Revenue Code Section 409A.  The Employment Agreement provides for anannual base salary of $1,000,000 with a minimum increase of at least 4% peryear on the anniversary date of employment. Additionally, Mr. Schleiff will be eligible to receive an annualperformance bonus.  The target annualperformance bonus will be 100% of the then-current base salary with a potentialpayout range of 0% to 200% and a minimum guarantee of 50% for each calendaryear of the term.  This performance bonuswill be based on achievement of criteria determined by the Company’sCompensation Committee in consultation with Mr. Schleiff and will includesuch factors as improved EBITDA, demographics, operating cash, renewal progressof contracts with distributors, advertising revenue and other appropriatediscretionary considerations.

 

Mr. Schleiff cannot compete with the Companyduring the term of his employment and, if Mr. Schleiff is terminated forcause or resigns other than for “good reason,” for a period of time ending onthe earlier of 12 months from the termination of employment or the fourthanniversary of the Employment Agreement.

 

15

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*Employment Agreement with Charles L. Stanford*

 

On August 8, 2006, the Company entered into a newemployment agreement with Charles L. Stanford, for his services as ExecutiveVice President, Legal and Business Affairs and General Counsel, which wasamended on January 29, 2008.  This agreement replaced Mr. Stanford’sprevious 3-year employment agreement which would have expired on October 24,2006.  The new agreement, as amended,expires on August 8, 2010 and provides for an annual base salary of$485,268, subject to a minimum increase of 3.0% in October of each year ofhis term.  Mr. Stanford is also entitled to receive a bonus each yearof up to 20% of his base salary, conditioned on the Company’s achievement ofcertain EBITDA, advertising revenue and ratings goals. (See details pertainingto performance bonus below under heading *“Compensation Discussionand Analysis - Elements of Executive Compensation Packages — BonusDetermination”*.)

 

Mr. Stanford’s employment agreement containsidentical non-compete and non-solicitation provisions to those contained in Mr. Abbott’semployment agreement and which are described above.

 

*Employment Agreement with Brian C. Stewart*

 

On July 24, 2006, the Company entered into anemployment agreement with Brian C. Stewart, for his services as Senior VicePresident, Finance and interim Chief Financial Officer.  The agreement was for a term of two years, expiringon July 23, 2008, and provided for an annual base salary of $340,000,subject to annual adjustment in the discretion of the Company.  Mr. Stewartis also entitled to receive a bonus each year of up to 20% of his base salary,conditioned on the Company’s achievement of certain EBITDA, advertising revenueand ratings goals  (See detailspertaining to performance bonus below under heading *“CompensationDiscussion and Analysis - Elements of Executive Compensation Packages — BonusDetermination”*.)  On November 8, 2006, the parties amendedMr. Stewart’s employment agreement. The amendment provides for his employment as the Company’s ExecutiveVice President, Finance and Chief Financial Officer and an increase of hisannual base salary to $350,000 through the remainder of the term.  On January 29, 2008, the parties furtheramended Mr. Stewart’s employment agreement and extended the term of hisemployment through July 24, 2010. Furthermore, pursuant to the amendment, Mr. Stewart receives anannual base salary of $400,000 effective January 1, 2008, subject toincreases in the Company’s discretion in January of each year of his term.

 

Mr. Stewart’s employment agreement containsidentical non-compete and non-solicitation provisions to those contained in Mr. Abbott’semployment agreement and which are described above.

 

**PotentialPayments Upon Termination or Change-in-Control**

 

*Employment Agreements - General*

 

Except as otherwise described for Mr. Schleiffbelow, in all of our employment agreements with our Named Executive Officers,if his employment is terminated other than for death, disability or cause priorto the expiration of the employment agreements, the following will be paid by theCompany:

 

·           the greater of twelve months base salary orthe remaining base salary for the remaining term of the employment agreement,paid in a lump sum and, except for Mr. Kenin, discounted at prime rates topresent value at the time of payment;

·           pro rata bonus through the termination date;

·           any amounts payable under the RSUAgreements;

·           vested ERISA benefits, such as those underthe 401(k) plan; and

·           benefits that may be required by law, suchas those under COBRA.

 

In the event of termination for the reason statedabove, the Named Executive Officer has no obligation to seek comparableemployment and, if the executive accepts employment during the severanceperiod, there will be no offset by the Company against the amounts paid fortermination.  Additionally, thenon-competition provision in the employment agreements will not apply from thetermination date.

 

If a Named Executive Officer’s employment isterminated as a result of death, disability or for cause, the following will bepaid by the Company:

 

·           the executive’s salary through the later ofthe expiration date of the 5 business after the event which triggered thetermination or the end of the month in which the triggering event occurred;

 

16

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·           any amounts payable under the RSUAgreements;

·           vested ERISA benefits, such as those underthe 401(k) plan; and

·           benefits that may be required by law, suchas those under COBRA.

 

*Employment Agreement — Henry S. Schleiff*

 

In the event of a change in control of the Companyduring the first year of employment, Mr. Schleiff will receive atransaction bonus of $6,000,000; provided that he stays with the Company or asuccessor company for 6 months.  Thetransaction bonus will be increased by $1,000,000 for each succeeding year Mr. Schleiffremains employed with the Company prior to a change in control through thefourth year of the term, up to a maximum of $9,000,000.  Under the December, 2008 amendment, anytransaction bonus is payable on the earlier of March 15 of the yearfollowing the transaction or 180 days after such transaction.  Mr. Schleiff is also entitled to thetransaction bonus if his employment is terminated as a result of death ordisability, by the Company without cause and (1) a change in control occurswithin 90 days of such termination or (2) a change in control contract isexecuted prior to such termination and the change in control occurs within 180days of such termination.  “Change incontrol” means (1) a sale of shares, or a merger or other businesscombination of the Company so that immediately thereafter, Hallmark Cards andits subsidiaries no longer own directly or indirectly 50% or more of theCompany’s stock or (2) a sale of all or substantially all of the assets ofthe Company to persons other than Hallmark Cards and its subsidiaries.

 

The Employment Agreement provides that, if Mr. Schleiff’semployment is terminated by the Company without cause, by Mr. Schleiff forgood reason (which includes a material breach of contract by the Company, a reductionof authority or a change in the location of employment) or by Mr. Schleiff6 months after a change in control, the Company then must pay: (1) hisbase salary for the balance of the term, paid in a lump sum discounted to thepresent value; (2) the pro rata portion of the bonus for the calendar yearin which the termination occurs; (3) a lump sum payment, discounted topresent value, of 50% of the target bonuses for the balance of the EmploymentAgreement; and (4) if a change in control has occurred, the transactionbonus to the extent described above.  Inthe event of termination, Mr. Schleiff has no obligation to seekcomparable employment and, if Mr. Schleiff accepts employment during theseverance period, there will be no offset by the Company against the amountspaid for termination.  If Mr. Schleiff’semployment is terminated because of disability, he will be paid the base salaryfor six months and, to the extent described above, the transaction bonus.

 

*RSU Agreements*

 

**GENERAL**

 

If an executive’s employment is terminated for anyreason except for those stated below, any outstanding unvested RSUs willimmediately terminate and no payment will be made in respect thereof.

 

**2005 RSU AGREEMENT**

 

**Employment RSUs** - If any of thefollowing occurred, any outstanding unvested Employment RSUs would have beenimmediately settled in stock or cash in an amount equal to the Vesting Price:

 

·      death or disability;

·      retirement at the “normal retirement age”;

·      involuntary termination without cause within 90days prior to or ending one year after a change-in-control (“terminationwithout cause” is deemed to have occurred it the executive is not offered a“comparable position” with the Company or its affiliated or successor companiesfollowing a change-in-control); or

·      involuntary termination without cause within 90days prior to any sale or merger of substantially all of the assets of theCompany.

 

**Performance RSUs**** *—*In the event of involuntary termination without cause within 90 days prior to achange-in-control, all unvested Performance RSUs would have been vested andsettled if (1)(a) the change-in-control occurs prior to the first anniversaryof the grant date and (b) the change-in-control price per share equals orexceeds $10.00; (2)(a) the change-in-control occurs after the firstanniversary of the grant date but prior to the second anniversary of the grantdate and (b) the change-in-control price per share equals or exceeds$12.00; or (3)(a) the change-in-control 

 

17

----

 

occurs after the second anniversary of the grant datebut prior to the third anniversary of the grant date and (b) the change-in-controlprice per share equals or exceeds $14.00. “Change-in-control price per share” means the highest price per share ofstock paid in the transaction resulting in a change-in-control(“Change-in-Control PPS”).

 

**2006 RSU AGREEMENT**

 

**Employment RSUs** - If any of thefollowing occurs, any outstanding unvested Employment RSUs will vestimmediately and be settled in stock or cash in an amount equal to the VestingPrice:

 

·      death or disability; or

·      involuntary termination without cause within 90days prior to or 90 days after a change-in-control.

 

**Performance RSUs** - In the eventof an involuntary termination without cause within 90 days prior to or 90 daysafter a change-in-control, any outstanding unvested Performance RSUs will vestimmediately and be settled in stock or cash in an amount equal to the VestingPrice.

 

**Henry S. Schleiff —**Anyoutstanding unvested Employment RSUs will vest immediately if Mr. Schleiff’semployment is terminated as a result of (1) death or disability or (2) terminationwithout cause or for a good reason within 90 days prior to or 90 days after achange-in-control.  If the Companyterminates employment without cause or Mr. Schleiff terminates for goodreason within 90 days priorto a vesting date for Performance RSUs, the Performance RSUs will vestimmediately.  All vested RSUs will besettled with either the Company’s stock or cash calculated with the VestingPrice.

 

*Henry S. Schleiff’s Share Appreciation RightsAgreement*

 

In the event of a changein control of the Company, then as of the change in control, (1) if therehas been no prior SAR trigger and the change in control price (price of theCompany’s stock less transaction costs and certain other amounts) exceeds theStart Price (defined below), then Mr. Schleiff shall be granted thatnumber of SARs equal to 0.8% of the Enterprise Growth (defined below) dividedby the change in control price; or (2) if there has been a previous SARtrigger and the change in control price exceeds the previous SAR trigger, then Mr. Schleiffshall be granted that number of SARs equal to 0.8% of the Enterprise Growthdivided by the change in control price. If Mr. Schleiff’s employment is terminated without cause by theCompany or by him for good reason or because of his death or disability, and ifa change in control occurs within 90 days after the termination of employmentor an agreement that will result in a change of control is executed prior tothe termination and the change of control occurs within 180 days after thetermination, Mr. Schleiff will receive a grant of SARs on the basisdescribed above.  “Start Price” is $4.43,the average of the fair market value for the 5 business days prior to the dateof public announcement of Mr. Schleiff’s employment with the Company.  “Enterprise Growth” equals the increase inmarket capitalization (compared to the market capitalization based on the StartPrice or the last price triggering a grant of an SAR), adjusted upward ordownward by the amount of debt (and the liquidation preference and accrued butunpaid dividends on any preferred stock) incurred or paid down since the lasttrigger date.

 

SARs will vest upon the earlier of (1) 3 years ofemployment after the grant date, (2) termination of employment withoutcause by the Company, (3) termination by Mr. Schleiff for good reasonor (4) upon a change in control of the Company.  The Company at its discretion may settle SARsin cash or in stock.

 

18

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*Summary of Potential Termination orChange-in-Control Payments*

 

The table below reflects the dollar amount ofcompensation to each Named Executive Officer in the event of termination ofsuch individual’s employment prior to the expiration of the employmentagreements.  The amounts shown assumethat the termination was effective December 31, 2008.

 

**WILLIAMABBOTT**

** **
| **Benefits and Payments   Upon Termination** | ** ** | **Voluntary   Termination   on   12/31/08($)** | ** ** | **Termination   for Cause on  12/31/08($)** | ** ** | **Involuntary   Termination   without Cause   on  12/31/08($)(1)** | ** ** | **Retirement at  “Normal   Retirement   Age” on   12/31/08($)** | ** ** | **Disability on  12/31/08($)** | ** ** | **Death on   12/31/08($)** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------|------------|
|                                                             |       |                                                          |       |                                                       |       |                                                                                   |       |                                                                                               |       |                                |       |                                 |       |
| Compensation:                                                    |       |                                                          |       |                                                       |       |                                                                                   |       |                                                                                               |       |                                |       |                                 |       |
| **Salary**(2)                                                    |       | —                                                        |       | —                                                     |       | 353,616                                                                                |       | —                                                                                             |       | —                              |       | —                               |       |
| **Bonus**(3)                                                     |       | —                                                        |       | —                                                     |       | 91,043                                                                                 |       | —                                                                                             |       | —                              |       | —                               |       |
| Incentives and Benefits:                                         |       |                                                          |       |                                                       |       |                                                                                   |       |                                                                                               |       |                                |       |                                 |       |
| **RSUs**(4)                                                      |       | —                                                        |       | —                                                     |       | —                                                                                 |       | —                                                                                             |       | —                              |       | —                               |       |
| 2006 Employment RSUs                                             |       | —                                                        |       | —                                                     |       | 103,488                                                                                |       | —                                                                                             |       | 103,488                             |       | 103,488                              |       |
| 2006 Performance RSUs                                            |       | —                                                        |       | —                                                     |       | 67,117                                                                                 |       | —                                                                                             |       | —                              |       | —                               |       |
| **Deferred Compensation Plan**(5)                                |       | 221,279                                                       |       | 221,279                                                    |       | 221,279                                                                                |       | 221,279                                                                                            |       | 221,279                             |       | 221,279                              |       |
| **Life Insurance Benefits**(6)                                   |       | —                                                        |       | —                                                     |       | —                                                                                 |       | —                                                                                             |       | —                              |       | 200,000                              |       |
| **Unused Vacation and/or Personal Time Pay**                     |       | 75,453                                                        |       | 75,453                                                     |       | 75,453                                                                                 |       | 75,453                                                                                             |       | 75,453                              |       | 75,453                               |       |

 

**DAVIDKENIN**

 
| **Benefits and Payments   Upon Termination** | ** ** | **Voluntary  Termination  on   12/31/08($)** | ** ** | **Termination   for Cause on  12/31/08($)** | ** ** | **Involuntary   Termination   without Cause  on   12/31/08($)(1)** | ** ** | **Retirement at  “Normal   Retirement   Age” on   12/31/08($)** | ** ** | **Disability   on   12/31/08($)** | ** ** | **Death on   12/31/08($)** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|
|                                                             |       |                                              |       |                                                       |       |                                                                                   |       |                                                                                               |       |                                        |       |                                 |       |
| Compensation:                                                    |       |                                              |       |                                                       |       |                                                                                   |       |                                                                                               |       |                                        |       |                                 |       |
| **Salary**(2)                                                    |       | —                                            |       | —                                                     |       | 850,000                                                                                |       | —                                                                                             |       | —                                      |       | —                               |       |
| **Bonus**(3)                                                     |       | —                                            |       | —                                                     |       | 103,730                                                                                |       | —                                                                                             |       | —                                      |       | —                               |       |
| Incentives and Benefits:                                         |       |                                              |       |                                                       |       |                                                                                   |       |                                                                                               |       |                                        |       |                                 |       |
| **RSUs**(4)                                                      |       | —                                            |       | —                                                     |       | —                                                                                 |       | —                                                                                             |       | —                                      |       | —                               |       |
| 2006 Employment RSUs                                             |       | —                                            |       | —                                                     |       | 103,488                                                                                |       | —                                                                                             |       | 103,488                                     |       | 103,488                              |       |
| 2006 Performance RSUs                                            |       | —                                            |       | —                                                     |       | 67,117                                                                                 |       | —                                                                                             |       | —                                      |       | —                               |       |
| **Deferred Compensation Plan**(5)                                |       | 226,452                                           |       | 226,452                                                    |       | 226,452                                                                                |       | 226,452                                                                                            |       | 226,452                                     |       | 226,452                              |       |
| **Life Insurance Benefits**(6)                                   |       | —                                            |       | —                                                     |       | —                                                                                 |       | —                                                                                             |       | —                                      |       | 200,000                              |       |
| **Unused Vacation and/or Personal Time Pay**                     |       | 96,519                                            |       | 96,519                                                     |       | 96,519                                                                                 |       | 96,519                                                                                             |       | 96,519                                      |       | 96,519                               |       |

 

**HENRY S.SCHLEIFF**

 
| **Benefits and Payments  Upon Termination** | ** ** | **Voluntary  Termination for  Good Reason or  on Change-in-  Control on   12/31/08($)** | ** ** | **Termination  for Cause  on 12/31/08  ($)** | ** ** | **Involuntary   Termination   without Cause  on   12/31/08($)(1)** | ** ** | **Retirement   at “Normal  Retirement   Age” on   12/31/08($)** | ** ** | **Disability   on 12/31/08   ($)** | ** ** | **Death   on 12/31/08   ($)** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------|------------|
|                                                       |       |                                                                                                                  |       |                                                   |       |                                                                                   |       |                                                                                               |       |                                              |       |                                         |       |
| Compensation:                                              |       |                                                                                                                  |       |                                                   |       |                                                                                   |       |                                                                                               |       |                                              |       |                                         |       |
| **Salary**(2)                                              |       | 1,850,605                                                                                                             |       | —                                                 |       | 1,850,605                                                                              |       | —                                                                                             |       | 527,500                                           |       | —                                       |       |
| **Bonus**(7)                                               |       | 1,202,516                                                                                                             |       | —                                                 |       | 1,202,516                                                                              |       | —                                                                                             |       | —                                            |       | —                                       |       |
| **Transaction Bonus**(8)                                   |       | 7,000,000                                                                                                             |       | —                                                 |       | 7,000,000                                                                              |       | —                                                                                             |       | 7,000,000                                         |       | 7,000,000                                    |       |
| Incentives and Benefits:                                   |       |                                                                                                                  |       |                                                   |       |                                                                                   |       |                                                                                               |       |                                              |       |                                         |       |
| **RSUs**(4)                                                |       | —                                                                                                                |       | —                                                 |       | —                                                                                 |       | —                                                                                             |       | —                                            |       | —                                       |       |
| 2006 Employment RSUs                                       |       | 224,000                                                                                                               |       | —                                                 |       | 224,000                                                                                |       | —                                                                                             |       | 224,000                                           |       | 224,000                                      |       |
| 2006 Performance RSUs                                      |       | 78,400                                                                                                                |       | —                                                 |       | 78,225                                                                                 |       | —                                                                                             |       | —                                            |       | —                                       |       |
| **Stock Appreciation Rights**                              |       | 0                                                                                                                     | (9)        | —                                                 |       | 0                                                                                      | (9)        | —                                                                                             |       | —                                            |       | —                                       |       |
| **Deferred Compensation Plan**(5)                          |       | —                                                                                                                |       | —                                                 |       | —                                                                                 |       | —                                                                                             |       | —                                            |       | —                                       |       |
| **Life Insurance Benefits**(6)                             |       | —                                                                                                                |       | —                                                 |       | —                                                                                 |       | —                                                                                             |       | —                                            |       | 200,000                                      |       |
| **Unused Vacation and/or Personal Time Pay**               |       | 86,016                                                                                                                |       | 86,016                                                 |       | 86,016                                                                                 |       | 86,016                                                                                             |       | 86,016                                            |       | 86,016                                       |       |

 

19

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**CHARLES L. STANFORD**

 
| **Benefits and Payments   Upon Termination** | ** ** | **Voluntary   Termination   on   12/31/08($)** | ** ** | **Termination   for Cause on  12/31/08($)** | ** ** | **Involuntary   Termination   without   Cause on   12/31/08($)(1)** | ** ** | **Retirement at  “Normal   Retirement   Age” on   12/31/08($)** | ** ** | **Disability on   12/31/08($)** | ** ** | **Death on   12/31/08($)** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------|------------|
|                                                             |       |                                                          |       |                                                       |       |                                                                                         |       |                                                                                               |       |                                      |       |                                 |       |
| Compensation:                                                    |       |                                                          |       |                                                       |       |                                                                                         |       |                                                                                               |       |                                      |       |                                 |       |
| **Salary**(2)                                                    |       | —                                                        |       | —                                                     |       | 778,660                                                                                      |       | —                                                                                             |       | —                                    |       | —                               |       |
| **Bonus**(3)                                                     |       | —                                                        |       | —                                                     |       | 61,952                                                                                       |       | —                                                                                             |       | —                                    |       | —                               |       |
| Incentives and Benefits:                                         |       |                                                          |       |                                                       |       |                                                                                         |       |                                                                                               |       |                                      |       |                                 |       |
| **RSUs**(4)                                                      |       | —                                                        |       | —                                                     |       | —                                                                                       |       | —                                                                                             |       | —                                    |       | —                               |       |
| 2006 Employment RSUs                                             |       | —                                                        |       | —                                                     |       | 103,488                                                                                      |       | —                                                                                             |       | 103,488                                   |       | 103,488                              |       |
| 2006 Performance RSUs                                            |       | —                                                        |       | —                                                     |       | 67,117                                                                                       |       | —                                                                                             |       | —                                    |       | —                               |       |
| **Deferred Compensation Plan**(5)                                |       | —                                                        |       | —                                                     |       | —                                                                                       |       | —                                                                                             |       | —                                    |       | —                               |       |
| **Life Insurance Benefits**(6)                                   |       | —                                                        |       | —                                                     |       | —                                                                                       |       | —                                                                                             |       | —                                    |       | 200,000                              |       |
| **Unused Vacation and/or Personal Time Pay**                     |       | 58,594                                                        |       | 58,594                                                     |       | 58,594                                                                                       |       | 58,594                                                                                             |       | 58,594                                    |       | 58,594                               |       |

 

**BRIAN C.STEWART**

 
| **Benefits and Payments   Upon Termination** | ** ** | **Voluntary   Termination   on   12/31/08($)** | ** ** | **Termination   for Cause on  12/31/08($)** | ** ** | **Involuntary   Termination   without Cause   on   12/31/08($)(1)** | ** ** | **Retirement at  “Normal   Retirement   Age” on   12/31/08($)** | ** ** | **Disability on  12/31/08($)** | ** ** | **Death on  12/31/08($)** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
|                                                             |       |                                                          |       |                                                       |       |                                                                                         |       |                                                                                               |       |                                |       |                           |       |
| Compensation:                                                    |       |                                                          |       |                                                       |       |                                                                                         |       |                                                                                               |       |                                |       |                           |       |
| **Salary**(2)                                                    |       | —                                                        |       | —                                                     |       | 611,805                                                                                      |       | —                                                                                             |       | —                              |       | —                         |       |
| **Bonus**(3)                                                     |       | —                                                        |       | —                                                     |       | 50,134                                                                                       |       | —                                                                                             |       | —                              |       | —                         |       |
| Incentives and Benefits:                                         |       |                                                          |       |                                                       |       |                                                                                         |       |                                                                                               |       |                                |       |                           |       |
| **RSUs**(4)                                                      |       | —                                                        |       | —                                                     |       | —                                                                                       |       | —                                                                                             |       | —                              |       | —                         |       |
| 2006 Employment RSUs                                             |       | —                                                        |       | —                                                     |       | 103,488                                                                                      |       | —                                                                                             |       | 103,488                             |       | 103,488                        |       |
| 2006 Performance RSUs                                            |       | —                                                        |       | —                                                     |       | 67,117                                                                                       |       | —                                                                                             |       | —                              |       | —                         |       |
| **Deferred Compensation Plan**(5)                                |       | 412,124                                                       |       | 412,124                                                    |       | 412,124                                                                                      |       | 412,124                                                                                            |       | 412,124                             |       | 412,124                        |       |
| **Life Insurance Benefits**(6)                                   |       | —                                                        |       | —                                                     |       | —                                                                                       |       | —                                                                                             |       | —                              |       | 200,000                        |       |
| **Unused Vacation and/or Personal Time Pay**                     |       | 51,596                                                        |       | 51,596                                                     |       | 51,596                                                                                       |       | 51,596                                                                                             |       | 51,596                              |       | 51,596                         |       |

 

----

| (1) | “Involuntary  termination without cause” with respect to the 2006 Employment &  Performance RSUs assumes a change-in-control and means the following: Termination  within 90 days prior to or 90 days after a change-in-control. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Remaining salary  for the balance of the term of the employment agreements.                                                                                                                                                                         |
| (3) | Actual amount of  bonus earned in 2008 and paid in 2009.                                                                                                                                                                                            |
| (4) | Cash settlement  amounts of RSUs vested pursuant to their respective RSU Agreements,  calculated with a vesting price of $2.24 (average stock price for the  immediately preceding 14 business days of December 31, 2008).                     |
| (5) | Balance of  deferred compensation plus accrued interest.                                                                                                                                                                                            |
| (6) | Proceeds payable  to Named Executive Officer’s beneficiaries upon his death.                                                                                                                                                                   |
| (7) | Consists of  actual amount of bonus earned in 2008 and 50% of bonus due through the end of  the term calculated at target of 100% of his annual salary.                                                                                             |
| (8) | Transaction  Bonus is only payable if a change-in-control occurs. This amount assumes a  change-in-control on December 31, 2008.                                                                                                               |
| (9) | Assumes that any  change in control price as of December 31, 2008 is less than the “Start  Price” stated in the SAR Agreement.                                                                                                            |

 

20

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**DirectorCompensation**

 

We do not compensate directors who are employees ofthe Company or Hallmark Cards or its subsidiaries for services as members ofour Board or any of its committees.  In2008, Directors who are not employees of the Company or Hallmark Cards and itssubsidiaries received the following for serving on the Company’s Board: (1) anannual retainer of $35,000 and $1,000 per meeting for each extraordinarymeeting or meeting in excess of the number of regularly scheduled meetings, (2) RSUsvalued at $40,000 are granted annually, (3) the chairman of the AuditCommittee is paid $5,000 annually, and (4) chairmen of each othercommittee are paid $3,000 annually. Effective 2009, directors who are not employees of the Company orHallmark Cards and its subsidiaries receive the following for serving on theCompany’s Board: (1) an annual retainer of $40,000 and $1,000 per meetingfor each extraordinary meeting or meeting in excess of the number of regularlyscheduled meetings, (2) an additional annual retainer of $40,000 forCo-Chairman of the Board, (3) RSUs valued at $45,000 are granted annually,(4) the chairman of the Audit Committee is paid $6,000 annually, and (5) chairmenof each other committee are paid $4,000 annually.

 

All directors receive reimbursement of expensesincurred in connection with participation in Board meetings.

 

The table below summarizes the compensation paid bythe Company to its directors who are not employees of the Company or HallmarkCards or its subsidiaries for the fiscal year ended in December 31, 2008:

 
| **Name**                     | ** ** | **Fees   Earned   or Paid   in Cash   ($)** | ** ** | **Stock   Awards($)  (1)** | ** ** | **Option   Awards($)** | ** ** | **Non-Equity  Incentive   Plan Comp.  ($)** | ** ** | **Changes in  Pension Value  and   Nonqualified  Deferred   Compensation   Earnings($)(2)** | ** ** | **All Other  Compensation   ($)** | ** ** | **Total ($)** | ** ** |
|------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|-------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|--------------------|------------|
| **(a)**                      | ** ** | **(b)**                                                                   | ** ** | **(c)**                         | ** ** | **(d)**                     | ** ** | **(e)**                                               | ** ** | **(f)**                                                                                                              | ** ** | **(g)**                                     | ** ** | **(h)**            | ** ** |
| William Cella                |       | 30,849                                                                    |       | —                          |       | —                      |       | —                                                |       | —                                                                                                               |       | —                                      |       | 30,849             |       |
| Glenn Curtis(3)              |       | 40,000                                                                    |       | 31,634                          |       | —                      |       | —                                                |       | —                                                                                                               |       | —                                      |       | 71,634             |       |
| Herbert A. Granath           |       | 85,500                                                                    |       | 31,634                          |       | —                      |       | —                                                |       | —                                                                                                               |       | —                                      |       | 117,134            |       |
| Irvine O. Hockaday, Jr. |       | 36,000                                                                    |       | 31,634                          |       | —                      |       | —                                                |       | 7,271                                                                                                                |       | —                                      |       | 74,905             |       |
| A. Drue Jennings             |       | 57,000                                                                    |       | 24,714                          |       | —                      |       | —                                                |       | —                                                                                                               |       | —                                      |       | 81,714             |       |
| Peter A. Lund                |       | 43,000                                                                    |       | 31,634                          |       | —                      |       | —                                                |       | 12,837                                                                                                               |       | —                                      |       | 87,471             |       |

 

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(1)           Represent2008 RSUs valued and settled in accordance with FAS 123R and RSU agreements.

(2)           Represents interestearned on deferred compensation.

(3)           Mr. Curtisassigned all of his board compensation to Liberty Media Corporation pursuanthis contract with Liberty Media Corporation.

 

**COMPENSATIONCOMMITTEE INTERLOCKS AND INSIDER PARTICIPATION**

 

During 2008, none of our executive officers served onthe board or compensation committee of another company which had one of itsexecutive officers serve as one of our directors or a member of our CompensationCommittee.

 

21

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**COMPENSATION COMMITTEE REPORT**

 

TheCompensation Committee has reviewed and discussed the above CompensationDiscussion and Analysis with the Company’s management.  Based on the Compensation Committee’s reviewand discussions with management, the Compensation Committee recommended to theBoard of Directors that the Compensation Discussion and Analysis be included inthe Company’s Annual Report on Form 10-K for the year ended December 31,2008 and the Company’s proxy statement for the 2009 annual meeting.

 

Thisreport is submitted by the members of the Compensation Committee and themembers of the Board for the fiscal year 2008.

 

THE COMPENSATION COMMITTEE:

 

David E. Hall, Chairman

Herbert Granath

A. Drue Jennings

Deanne R. Stedem

 

###### ***The preceding information under the caption “Compensation CommitteeReport” shall be deemed to be “furnished” but not “filed” with the Securitiesand Exchange Commission.***

###### ** **

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

 

# **SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITYCOMPENSATION PLANS**

# ** **

Information related toour Amended and Restated 2000 Long Term Incentive Plan, our only equitycompensation plan, is presented as of December 31, 2008 in the followingtable.

 

## Equity Compensation PlanInformation

 
| **Plan Category**                                       | ** ** | **Number of Securities  to be Issued  Upon Exercise of  Outstanding Options,  Warrants and Rights** | ** ** | **Weighted-Average  Exercise Price of  Outstanding Options,  Warrants and Rights** | ** ** | **Number of Securities  Remaining Available  for Future Issuance  Under Equity  Compensation Plans  (Excluding the Number of  Securities to be Issued Upon  Exercise of Outstanding  Options)** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **(In thousands)**                                                                                  | ** ** | ** **                                                                         | ** ** | **(In thousands)**                                                                                                                                                                              | ** ** |
| Equity compensation plans approved by security  holders |       | 341                                                                                                 |       | $                                                                                  | 11.60      |                                                                                                                                                                                            | 9,659      |   |
|                                                         |            |                                                                                                     |            |                                                                                    |            |                                                                                                                                                                                                 |            |  |

 

22

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**SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

Thefollowing table sets forth certain information, as of April 27, 2009, withrespect to beneficial ownership of our Class A Common Stock and Class BCommon Stock, by each of the Named Executive Officer (defined above), eachdirector, each holder of more than 5% of either Class A or Class BCommon Stock, and all current directors and executive officers as a group.

 

Except as indicated in the footnotes to this table,the persons named each have sole voting and investment power over the sharesshown as owned by them.  The percentageof beneficial ownership is based on 74,117,654 shares of our Class ACommon Stock and 30,670,422 shares of our Class B Common Stock outstandingas of April 27, 2009.

 

**Amount of Nature of Beneficial Ownership**(1)

 
| ** **                                                                                                                          | ** ** | **Class A  Common  Stock** | ** ** | **% of  Class** | ** ** | **Class B  Common  Stock** | ** ** | **% of  Class** | ** ** | **% of  Total  Voting  Power** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-----------------|------------|---------------------------------|------------|-----------------|------------|--------------------------------|------------|
| **Name and Address of Beneficial Owner 5%  Stockholders:**                                                                          | ** ** | ** **                      | ** ** | ** **      | ** ** | ** **                      | ** ** | ** **      | ** ** | ** **                     | ** ** |
| Hallmark Entertainment Investments Co.(2)(3)  2501 McGee Street, Kansas City, MO 64108                                              |       | 57,586,336                      |       | 77.7            | %          | 30,670,422                      |       | 100             | %          | 95.7                           | %          |
| Liberty Media Corporation(3)(4)  9197 South Peoria Street, Englewood, CO 80112                                                      |       | 57,586,336                      |       | 77.7            | %          | 30,670,422                      |       | 100             | %          | 95.7                           | %          |
| National Interfaith Cable Coalition, Inc.(3)(5)  74 Trinity Place, Suite 1550, New York, NY 10006                              |       | 57,586,336                      |       | 77.7            | %          | 30,670,422                      |       | 100             | %          | 95.7                           | %          |
| J.P. Morgan Partners (BHCA), L.P.(3)(6)  390 Madison Avenue, New York, NY 10017                                                     |       | 57,586,336                      |       | 77.7            | %          | 30,670,422                      |       | 100             | %          | 95.7                           | %          |
| The DIRECTV Group, Inc.(7)  (formerly known as Hughes Electronics Corporation)  2230 E. Imperial Highway, El Segundo, CA 90245 |       | 5,360,202                       |       | 7.2             | %          | —                          |       | —          |       | 1.4                            | %          |
| S. Muoio & Co. LLC and Salvatore Muoio(8)  509 Madison Avenue, Suite 406, New York, NY 10022                          |       | 3,882,027                       |       | 5.2             | %          | —                          |       | —          |       | 1.0                            | %          |
| **Directors and Named Executive Officers (defined  above):**                                                                        | ** ** | ** **                      | ** ** | ** **      | ** ** | ** **                      | ** ** | ** **      | ** ** | ** **                     | ** ** |
| William Abbott                                                                                                                      |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| Dwight C. Arn                                                                                                                       |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| William Cella                                                                                                                       |       | 4,300                           |       | *               |       | —                          |       | —          |       | *                              |       |
| Glenn Curtis                                                                                                                        |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| Steve Doyal                                                                                                                         |       | 1,500                           |       | *               |       | —                          |       | —          |       | *                              |       |
| Brian E. Gardner                                                                                                                    |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| Herbert A. Granath                                                                                                                  |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| David E. Hall                                                                                                                       |       | 2,500                           |       | *               |       | —                          |       | —          |       | *                              |       |
| Donald J. Hall, Jr.(9)                                                                                                         |       | 57,588,836                      |       | 77.7            | %          | 30,670,422                      |       | 100             | %          | 95.7                           | %          |
| Irvine O. Hockaday, Jr.(10)                                                                                                    |       | 40,795                          |       | *               |       | —                          |       | —          |       | *                              |       |
| A. Drue Jennings                                                                                                                    |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| David Kenin(11)                                                                                                                     |       | 205,500                         |       | *               |       | —                          |       | —          |       | *                              |       |
| Peter A. Lund (12)                                                                                                                  |       | 14,190                          |       | *               |       | —                          |       | —          |       | *                              |       |
| Brad R. Moore                                                                                                                       |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| Henry S. Schleiff                                                                                                                   |       | 0                               |       | *               |       | —                          |       | —          |       | *                              |       |
| Charles L. Stanford                                                                                                                 |       | 12,750                          |       | *               |       | —                          |       | —          |       | *                              |       |
| Deanne R. Stedem                                                                                                                    |       | 1,000                           |       | *               |       | —                          |       | —          |       | *                              |       |
| Brian C. Stewart                                                                                                                    |       | 10,500                          |       | *               |       | —                          |       | —          |       | *                              |       |
| All directors and executive officers as a group (19  persons)                                                                       |       | 57,881,871                      |       | 77.9            | %          | 30,670,422                      |       | 100             | %          | 95.7                           | %          |

 

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*                                       The percentage of shares orvoting power beneficially owned does not exceed 1% of the class.

 

(1)                                Pursuant to Rule 13d-3 under theSecurities and Exchange Act of 1934, as amended, a person has beneficialownership of any securities as to which such person, directly or indirectly,through any contract, arrangement, undertaking, relationship, or otherwise hasor shares voting power and/or investment power or as to which such 

 

23

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person has the right toacquire such voting and/or investment power within 60 days from April 27,2008.  Percentage of beneficial ownershipas to any person as of a particular date is calculated by dividing the numberof shares beneficially owned by such person by the sum of the number of sharesoutstanding as of such date and the number of unissued shares as to which theperson has the right to acquire voting and/or investment power within 60days.  The number of shares shownincludes outstanding shares of common stock owned as of April 27, 2008 bythe person indicated and shares underlying options owned by such person on April 27,2008 that were exercisable within 60 days of that date.

 

(2)                                Based on a Schedule 13D/A filed on April 18,2006, jointly by Hallmark Cards, HEIC and Hallmark Entertainment Holdings, whoas of that date shared voting and dispositive power with respect to 30,670,422shares of Class B Common Stock, which are convertible at the option of theholder into an equivalent number of shares of Class A Common Stock, and53,215,080 shares of Class A Common Stock. Does not include, under the column headed “Class A Common Stock,”the number of shares of Class A Common Stock that HEIC would hold if itconverted all of its shares of Class B Common Stock into shares of Class ACommon Stock, which, if so converted, together with its shares of Class ACommon Stock would equal approximately 80% of the total outstanding Class ACommon Stock.  HEIC is a majority ownedsubsidiary of Hallmark Entertainment Holdings and Hallmark EntertainmentHoldings is a wholly-owned subsidiary of Hallmark Cards.

 

(3)                                On March 11,2003, Hallmark Entertainment Holdings, Liberty Crown and J.P. Morgan Partnerscontributed 100% of their Company shares in return for HEIC sharesrepresenting the following percentage interest in HEIC: Hallmark EntertainmentHoldings, 83.4%; Liberty Crown, 11.2%; and J.P. Morgan Partners, 4.6%. In addition,VISN contributed 10% of its Company shares in return for HEIC sharesrepresenting an 0.8% interest in HEIC. Each of the HEIC stockholders enteredinto the stockholders agreement concerning HEIC and Crown shares. As a result,each of the above parties may be deemed to beneficially own Company shares heldby HEIC described in note (2) above.

 

The total number of shares shown as beneficially ownedby HEIC includes 4,357,066 shares of Class A Common Stock we believe to bebeneficially owned by VISN and 14,190 shares beneficially owned by JP MorganPartners outside of HEIC because the parties to the HEIC stockholders agreementmay be deemed to be acting as a group. Beneficial ownership of these 4,371,256 shares of Class A CommonStock has been disclaimed by the other HEIC stockholders.

 

Each of Hallmark Entertainment Holdings and LibertyCrown has the right to nominate directors to the HEIC Board; and VISN isentitled to designate a non-voting observer to HEIC’s Board.  In addition, Liberty Crown has the right tonominate a director to the Company’s Board. J.P. Morgan had the right to nominate a director on the Company’s Boardand on the board of HEIC but has formally surrendered such nomination rights.  VISN also had the right to nominate adirector on the Company’s Board but has relinquished such nominationrights.  Under the HEIC stockholdersagreement, Hallmark Entertainment Holdings directs the voting of the Companyshares owned by HEIC.  Pursuant to theHEIC stockholders agreement, HEIC may not sell, pledge, distribute or transferits Company common stock without the consent of Liberty Crown and J.P. MorganPartners, except for mergers and other combinations approved in accordance withthe Company stockholders agreement. This requirement terminates on the later ofsuch date as each party (1) ceases to own beneficially at least 2.5% ofthe outstanding HEIC common stock and (2) ceases to own beneficially 75%of the HEIC stock owned by the party at March 11, 2003.

 

(4)                                Based on a Schedule 13D/A filed on March 12,2003 by Liberty Media Corporation and Liberty Crown.

 

(5)                                The National Interfaith CableCoalition, Inc. is a not-for-profit coalition of faith groups.  To our knowledge, NICC is governed by a board ofsixteen trustees appointed by the major faith groups who are members of NICC.

 

(6)                                Includes 14,190shares of Class A Common Stock underlying options that have vested and areheld by J.P. Morgan Partners, LLC.  Such options were initially issued to anindividual designated by J.P. Morgan for serving on the Company’s Board.  Since issuance, the individual transferredsuch options to J.P. Morgan Partners, LLC pursuant to his contract with J.P.Morgan Partners, LLC.  Although the individualresigned from our board in December 2006, such options will remain outstandingfor 3 years after such date of termination in accordance with our LTIP.  The general partner of J.P. Morgan Partners(BHCA), L.P. is JPMP Master Fund Manager, L.P., and the general partner of JPMPMaster Fund is JPMP Capital Corp. JPMP Capital Corp. is a wholly-ownedsubsidiary of J.P. Morgan Chase & Co. which is a publicly-held companyengaged in the commercial banking business.

 

(7)                                Based on aSchedule 13G filed on January 22, 2009 by The DIRECTV Group, Inc.

 

24

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(8)                                Based on a Schedule 13G/A filed onFebruary 17, 2009 by S. Muoio & Co. LLC.

 

(9)                                Donald J. Hall, Jr., may also bedeemed to be a beneficial owner of the shares beneficially owned by HEICbecause Mr. Hall is a co-trustee of a voting trust which controls allof the voting securities of Hallmark Cards and he is Vice Chairman of the boardof directors, Chief Executive Officer and President of Hallmark Cards. See note(2).  Mr. Hall disclaims beneficialownership of such shares, except to the extent of his pecuniary interesttherein.

 

(10)                          Includes 4,098 shares of Class A CommonStock underlying options that have vested.

 

(11)                          Includes 200,000 shares of Class ACommon Stock underlying options that have vested.

 

(12)                          Consists of 14,190 shares of Class ACommon Stock underlying options that have vested.

 

### **ITEM13. Certain Relationships and Related Transactions and Director Independence**

### ** **

**TRANSACTIONS WITH RELATED PERSONS, PROMOTERS ANDCERTAIN CONTROL PERSONS**

 

The information required by this Item 13 is set forthin the Company’s Form 10-K Report previously filed on March 5, 2009in Item 13 under the heading “Certain Relationships and Related Transactions”and is incorporated by reference herein.

 

**DIRECTORINDEPENDENCE**

 

 **Board of Directors**

 

Based on theNasdaq Listing Standards, the Board has determined that the following directorsare independent and have no relationship with the Company, except as directorsof the Company: William Cella, Herbert A. Granath, A. Drue Jennings and PeterA. Lund.

 

Also based on theNasdaq Listing Standards, the Board has determined that the following directorsare not independent because they are employees of Hallmark Cards, the Company’sparent company: Dwight C. Arn, Steve Doyal, Brian E. Gardner, David E. Hall, DonaldJ. Hall, Jr., Brad R. Moore and Deanne R. Stedem.  Furthermore, the Board has determined that (1) HenrySchleiff is not independent because he is the President and Chief ExecutiveOfficer of the Company, (2) Glenn Curtis is not independent because he isan executive officer of Starz LLC, a subsidiary of Liberty Media Corporationwhich beneficially owns more than 5% of the Company’s Class A Common Stockand (3) Irvine O. Hockaday, Jr. is not independent because he has afamily member who is employed by Hallmark Cards as an executive officer andalso possibly because of his positions in the past with Hallmark Cards.

 

**Audit Committee**

 

Basedon the Nasdaq Listing Standards, the Board has determined that all members ofthe Audit Committee are independent.

 

**CompensationCommittee**

 

Based on theNasdaq Listing Standards, the Board has determined that the following membersof the Compensation Committee are not independent for the reasons stated above:David E. Hall and Deanne R. Stedem.

 

**Nominating Committee**

 

Based on theNasdaq Listing Standards, the Board has determined that the following member ofthe Nominating Committee is not independent for the reason stated above: BrianE. Gardner.

 

**Controlled-Company Exemption**

 

HEIC holds Class A Common Stock and all of the Class BCommon Stock, representing approximately 95.7% of the voting power of theCompany.  Therefore, notwithstanding thedisclosures made herein under*“Director Independence”*,

 

25

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the Board has determined that the Company is a “controlled company”, asthat term is defined under Rule 5615(c) of the Nasdaq ListingStandards.  Consequently, the Company isexempt from independent director requirements of Rule 5605(b) of theNasdaq Listing Standards, except for the requirements pertaining to thecomposition of the audit committee and the executive sessions of independentdirectors, with which the Company has been complying.  In 2008, all independent directors have metwithout management present after each regularly scheduled Audit Committeemeeting, which meeting is held quarterly.

 

**ITEM 14.  PrincipalAccountant Fees and Services**

 

**AUDITFEES**

 

Thefollowing table presents aggregate fees billed for professional servicesrendered by KPMG LLP, our principal accountant in fiscal years 2007 and 2008:

 
| ** **         | ** ** | **Fiscal Year** | ** ** |
|--------------------|------------|-----------------|------------|
| **Type of Fee**    | ** ** | **2007**        | ** ** | **2008** | ** ** |
| Audit Fees(1)      |       | $               | 1,169,844  |   | $ | 1,150,890 |   |
| Audit-Related Fees |       | —          |       |   |   |
| Tax Fees           |       | —          |       | — |   |
| All Other Fees     |       | —          |       | — |   |
| Total Fees         |       | $               | 1,169,844  |   | $ | 1,150,890 |   |

 

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(1)          *Audit Fees* are for the audit of our annualfinancial statements, review of financial statements included in our Forms 10-Qand services rendered in connection with management’s assessment of internalcontrols over financial reporting and the related report in accordance with therequirements of Section 404 of the Sarbanes-Oxley Act of 2002.

 

**PRE-APPROVALPOLICY AND PROCEDURES FOR SERVICESOF INDEPENDENT PUBLIC ACCOUNTANTS**

 

As part of its duties under the Audit Committee Charter, the AuditCommittee annually pre-approves all audit and non-audit services performed bythe Company’s auditors in order to assure that the auditors are independentfrom the Company.  If a type of serviceto be provided by the auditors has not been pre-approved during this annualprocess, the Audit Committee pre-approves such service on a case-by-casebasis.  The Audit Committee does notdelegate to management its responsibilities to pre-approve services performedby the auditors.

 

26

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**SIGNATURES**

 

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

 
|   | CROWN MEDIA HOLDINGS, INC. |
|--------|----------------------------|
|   |                       |   |
|   | By:                        | /s/  HENRY S. SCHLEIFF |
|   |                       | Henry  S. Schleiff |
|   |                       | *President and Chief Executive  Officer* |

 

April 30, 2009

 

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

 
| **Signature**                | ** ** | **Title**               | ** ** | **Date**            |
|------------------------------|------------|-------------------------|------------|---------------------|
|                         |       |                    |       |                |
| /s/ HENRY S. SCHLEIFF        |       | Director and Principal  |       | April 30, 2009 |
| Henry S. Schleiff            |       | Executive  Officer      |       |                |
|                         |       |                    |       |                |
| /s/ BRIAN C. STEWART         |       | Principal Financial and |       | April 30, 2009 |
| Brian C. Stewart             |       | Accounting  Officer     |       |                |
|                         |       |                    |       |                |
| /s/ DWIGHT C. ARN            |       | Director                |       | April 30, 2009 |
| Dwight C. Arn                |       |                    |       |                |
|                         |       |                    |       |                |
|                         |       | Director                |       |                |
| William Cella                |       |                    |       |                |
|                         |       |                    |       |                |
|                         |       | Director                |       |                |
| Glenn Curtis                 |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ STEVE DOYAL              |       | Director                |       | April 30, 2009 |
| Steve Doyal                  |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ BRIAN GARDNER            |       | Director                |       | April 30, 2009 |
| Brian Gardner                |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ HERBERT A. GRANATH       |       | Director                |       | April 30, 2009 |
| Herbert A. Granath           |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ DAVID E. HALL            |       | Director                |       | April 30, 2009 |
| David E. Hall                |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ DONALD J. HALL, JR.      |       | Director                |       | April 30, 2009 |
| Donald J. Hall, Jr.     |       |                    |       |                |
|                         |       |                    |       |                |
|                         |       | Director                |       |                |
| Irvine O. Hockaday, Jr. |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ A. DRUE JENNINGS         |       | Director                |       | April 30, 2009 |
| A. Drue Jennings             |       |                    |       |                |
|                         |       |                    |       |                |
|                         |       | Director                |       |                |
| Peter A. Lund                |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ BRAD R. MOORE            |       | Director                |       | April 30, 2009 |
| Brad R. Moore                |       |                    |       |                |
|                         |       |                    |       |                |
| /s/ DEANNE R. STEDEM         |       | Director                |       | April 30, 2009 |
| Deanne R. Stedem             |       |                    |       |                |

 

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