Delaware
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000-30700
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84-1524410
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(State
or other Jurisdiction of Incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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[ ]
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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[ ]
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[ ]
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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[ ]
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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ITEM
1.01
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ENTRY
INTO A MATERIAL DEFINITIVE
AGREEMENT
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ITEM
2.03
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CREATION
OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE
SHEET ARRANGEMENT OF A REGISTRANT
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·
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$315.0
million principal amount of the HCC Debt will be restructured into new
debt instruments on the terms summarized below (the “New Debt”), $185.0
million principal amount of the HCC Debt will be converted into an equal
amount of convertible preferred stock of the Company on the terms
summarized below (the “Convertible Preferred Stock”), and the balance of
the HCC Debt as of the closing of the Recapitalization (the “Closing
Date”) will be converted into shares of Class A Common Stock at the
Conversion Price (as described below). As a result of the
Recapitalization, immediately following the closing of the
Recapitalization transactions, all of the HCC Debt, except to the extent
converted and continued as New Debt, will be extinguished and
discharged.
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o
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“HCC
Debt” means (i) the aggregate principal amount of all indebtedness owed to
Hallmark Cards, HCC and their controlled affiliates, including accrued and
unpaid interest thereon through the Closing Date, but excluding accrued
but unpaid interest with respect to the 2001 Note, the 2005 Note and the
2006 Note; (b) all accounts payable and open intercompany accounts of the
Company and its subsidiaries owed to HCC and Hallmark Cards and their
controlled affiliates (other than the Company and its subsidiaries); and
(c) any amounts due to Hallmark Cards or its affiliates under the Tax
Sharing Agreement (as defined below) through December 31, 2009; provided
that for the avoidance of doubt the following shall not constitute HCC
Debt: (i) Reimbursement Obligations (as defined in the Master
Recapitalization Agreement), (ii) Ordinary Course of Business Obligations
(as defined in the Master Recapitalization Agreement), and (iii) any
amounts due to Hallmark Cards or its affiliates under the Tax Sharing
Agreement accruing on or after January 1, 2010. “2001 Note”
means the Promissory Note, dated as of December 14, 2001, of the Company
in the original principal amount of $75.0 million payable to HCC; “2005
Note” means the Promissory Note, dated as of October 1, 2005, of a
wholly-owned subsidiary of the Company in the original principal amount of
$132,785,424 payable to HCC; and “2006 Note” means the Promissory Note,
dated as of March 21, 2006, of the Company in the original principal
amount of $70,414,087.87 payable to
HCC.
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o
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“Conversion
Price” means the amount equal to (x) the quantity of (i) the total HCC
Debt as of the Date of Determination, less (ii) $500 million, divided by
(y) the Conversion Price Shares. “Conversion Price Shares”
means a notional number of shares of Class A Common Stock which, when
combined with the number of shares of Class A Common Stock directly or
indirectly owned by Hallmark Cards as of the Date of Determination (for
purposes of such calculation (x) including with respect to shares of Class
A Common Stock owned directly by Hallmark Entertainment Investments Co.
(“HEIC”) only HEH’s pro rata portion of the Class A Common Stock owned by
HEIC, and (y) excluding the shares of Class A Common Stock that will be
receivable by HCC upon conversion of the Convertible Preferred Stock),
will equal 90.1% of the sum of (i) all outstanding shares of Class A
Common Stock on the Date of Determination prior to the Closing Date, (ii)
the Conversion Price Shares and (iii) all shares potentially issuable upon
exercise of all outstanding options as of the Date of
Determination.
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·
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The
terms of the New Debt as set forth in the Credit Agreement will include
without limitation the following:
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o
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Maturity: December
31, 2013.
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o
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Tranches:
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§
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Term
A Loan of $200 million will be cash-pay in terms of interest and will bear
interest at the rate of 9.5% per annum through December 31, 2011,
increasing to 12% on and after January 1, 2012 through December 31,
2013.
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§
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Term
B Loan of $115 million will be payable-in-kind, by adding interest to the
principal (“PIK”), through December 31, 2010 and will become cash-pay for
the quarterly period beginning on January 1, 2011 and for all quarterly
periods thereafter. The interest rate will be 11.5% through December 31,
2011, increasing to 14% on and after January 1, 2012 and continuing
through December 31, 2013.
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o
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PIK
Toggle: The Company will have the option to PIK up to three quarterly cash
payments in the aggregate for the Term A Loan and the Term B
Loan. For the avoidance of doubt, contractual PIK payments
under the Term B Loan will not reduce the number of optional PIK payments
available to the Company, and if the Company opts to PIK both the Term A
Loan and the Term B Loan cash payments in a single quarter then that will
count as two of the Company’s three quarterly PIK
options.
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o
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Prepayment:
The New Debt will be pre-payable at any time at par plus accrued
interest.
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o
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Mandatory
Prepayments: 100% of net cash proceeds from asset sales or other
dispositions, except to the extent such net cash proceeds are reinvested
in productive assets of a kind then used or usable in the business of the
Company or its subsidiaries within 180 days of the sale or other
disposition; 100% of net cash proceeds from equity issuances; 100% of net
cash proceeds from debt issuances (exclusive of the Revolver as described
below); 75% of Excess Cash Flow (as defined in the New Debt agreements);
and upon the sale of assets in advance of a condemnation proceeding, or
following the occurrence of a casualty or condemnation for which the
Company or its subsidiaries have received proceeds, after such proceeds
have been used to replace the subject assets. Prepayments must
be applied in the following order (i) first to PIK interest on the Term A
Loan (ii) then to principal on the Term A Loan (iii) then to PIK interest
on the Term B Loan, and (iv) finally to principal on the Term B
Loan.
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o
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Change
in Control: The principal and interest on the New Debt will
become immediately due and payable upon a change in control (as defined in
the Credit Agreement) arising from (i) a Premium Transaction (as described
below) or (ii) a transaction approved by a special committee of the
Company's Board of Directors.
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o
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Collateral: An
existing lien on substantially all of the Company’s assets will be
modified so it secures obligations under the Credit
Agreement. It is contemplated that this security interest will
be subordinate to the lender under the bank revolving credit
facility.
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o
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NICC
Reserve Account: The Company is required to redeem the preferred
interest held by a wholly-owned subsidiary of National Interfaith Cable
Coalition ("NICC") in Crown Media United States, LLC for $25.0
million by December 31, 2010. Prior to closing of the Credit
Agreement, the Company will establish with a financial institution a NICC
Reserve Account in the Company's name and deposit in that account amounts
which the Company chooses as a sinking fund for the mandatory redemption
of that preferred interest. The funds in the NICC Reserve Account
are to be used to make any scheduled payments on the NICC preferred
interest and at no time is the amount to exceed $25.0
million.
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o
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Covenants: Negative
covenants include limitations on debt incurrence; dividends; liens;
capital expenditures; investments; restricted payments; sale/leaseback
transactions; creation of subsidiaries; changes in business conducted;
execution or amendment of material agreements in such a way as could be
reasonably be expected to be materially disadvantageous to the Hallmark
lenders; transactions with affiliates; and dispositions of
property.
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·
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The
terms of the Convertible Preferred Stock will include without limitation
the following:
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o
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Liquidation
preference: In the event of any liquidation or winding up of
the Company, the holders of the Convertible Preferred Stock will be
entitled to receive, in preference to the holders of the common stock of
the Company, an amount equal to the greater of (x) $1,000 per share plus
accrued but unpaid dividends thereon, or (y) that amount that would be
received by such holders on an “as converted” basis (the “Liquidation
Preference”). A consolidation, merger, reorganization or other
form of acquisition of the Company or a sale of all or substantially all
of its assets will be deemed to be a liquidation or winding up for
purposes of the liquidation
preference.
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o
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Dividends:
No dividends will accrue or be payable from the date of issue of the
Convertible Preferred Stock through December 31, 2010; cumulative PIK
dividends will accrue from and after January 1, 2011 through December 31,
2011 at a rate per annum of 14%; cumulative PIK dividends will accrue from
and after January 1, 2012 through December 31, 2014 at a rate per annum of
16%; and cumulative cash-pay dividends will accrue for all periods
thereafter at a rate per annum of 16%, in each case payable solely out of
lawfully available surplus. The Convertible Preferred Stock
will participate with the common stock of the Company as to dividends on
an “as converted” basis. The Company may elect to pay
accumulated PIK dividends in cash at any time, subject to lawfully
available surplus.
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o
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Optional
Conversion: At the option of the holder, each share of
Convertible Preferred Stock becomes and remains convertible at the earlier
of December 31, 2013, or upon a payment or refinancing by the Company
of all or substantially all of the New Debt, into such number of shares of
common stock of the Company as is determined by dividing the Liquidation
Preference of $1,000 plus accrued and unpaid dividends with respect to
such shares of Convertible Preferred Stock by the conversion
price, with anti-dilution protection, including, among other things, an
adjustment for certain issuances of common stock of the Company without
consideration or for a consideration per share less than the then
Conversion Price.
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o
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Redemption: The
Company must redeem (to the extent funds are lawfully available) the
Convertible Preferred Stock when and as the Company receives, upon a
refinancing of the New Debt, net proceeds from such refinancing in excess
of the aggregate outstanding principal and interest amounts of New Debt
(“Excess Refinancing Proceeds”). The Company may voluntarily
redeem the Convertible Preferred Stock at the Liquidation Preference at
any time upon 10-days written
notice.
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o
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Voting: The
Convertible Preferred Stock will vote together with the common stock of
the Company on an “as-converted” basis. In addition, the
consent of holders of more than 50% of the Convertible Preferred Stock,
voting as a separate class, will be required for the Company to do any of
the following, among other things: (i) Authorize or sell any
equity securities pari
passu or senior in right of liquidation to the Preferred Stock;
(ii) except for certain indebtedness permitted by the Credit Agreement,
authorize or issue any debt security unless the debt security has received
the prior approval of the Board of Directors, or amend the terms of any
agreement regarding material indebtedness of the Company unless the
amendment has been approved by the Board of Directors; (iii) repurchase or
redeem equity securities (other than from an employee following
termination pursuant to an arrangement or agreement), or declare or pay
any dividend on the common stock of the Company; (iv) sell, merge,
recapitalize, reorganize, liquidate or dissolve the Company; (v) make any
acquisitions greater than $5,000,000; (vi) amend organizational documents
or enter into an agreement that adversely affects or alters the rights,
preferences or privileges of the Convertible Preferred Stock; and (vii)
issue any additional shares of common stock of the Company (other than
pursuant to options outstanding on the Closing Date) or options or rights
to acquire common stock of the
Company.
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o
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Hallmark
Cards will not pay any Crown Tax Benefits (defined in the Tax Sharing
Agreement) in cash and instead will carry forward any such amounts to
offset future Crown Tax Liability (defined in the Tax Sharing
Agreement);
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o
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the
Company will be allowed to deduct both cash-pay and PIK interest due to
Hallmark Cards in calculating tax-sharing
payments;
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o
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the
conversion of the HCC Debt pursuant to the Recapitalization will not be
deemed the payment of interest expense to Hallmark
Cards;
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o
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tax
attributable to the cancellation of indebtedness income will be excluded
from the calculation of tax sharing payments;
and
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o
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any
amounts related to taxes owed to Hallmark Cards prior to December 31,
2009, will be included in the HCC Debt, which will be converted into Class
A Common Stock.
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o
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additional
shares of Class A Common Stock resulting from the conversion of the
Convertible Preferred Stock;
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o
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acquisitions
pursuant to the subscription rights described in the next
paragraph;
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o
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with
the prior approval of a special committee of the Company’s Board of
Directors comprised solely of independent, disinterested directors;
and
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o
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from
January 1, 2012 through December 31, 2013, either (i) pursuant to a tender
offer for all of the Company’s shares of Class A Common Stock, which
tender offer is subject to a majority-of-a-minority tender condition, or
(ii) pursuant to a “Premium Transaction” as described below under “Co-Sale
Rights.”
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o
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Until
December 31, 2013, HCC may not sell or transfer its Class A Common Stock
to a third party, except:
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§
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from
the Closing Date through December 31, 2013, with the prior approval of a
special committee of the Company’s Board of Directors comprised solely of
independent, disinterested
directors;
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§
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on
or after January 1, 2012, (i) in a Premium Transaction or (ii) pursuant to
a public offering or block trade in which to the knowledge of HCC, no
purchaser (together with its affiliates and associates) acquires
beneficial ownership of a block of shares of the Company in excess of 5%
(in the case of a public offering) or 2% (in the case of any block trade)
of the outstanding Class A Common Stock;
and
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§
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to
an affiliate of Hallmark Cards or pursuant to a bona fide pledge of the
shares to a lender that is not an affiliate of Hallmark Cards
(collectively, a “Permitted
Transfer”).
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o
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From
and after January 1, 2014 until the earlier of December 31, 2020 and such
time as Hallmark and its controlled affiliates no longer beneficially own
a majority of the outstanding Class A Common Stock, HCC may not sell or
transfer, in one or a series of related transactions, a majority of the
outstanding shares of Class A Common Stock to a third party, unless (x) in
a Permitted Transfer, (y) with the prior approval of a special committee
of the Board of Directors or (z) all stockholders unaffiliated with
Hallmark will at Hallmark’s option be entitled to either (i) participate
in such transaction on the same terms as HCC or (ii) receive cash
consideration equivalent in value to the highest consideration per share
of Class A Common Stock received by HCC in connection with such
transaction.
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CROWN
MEDIA HOLDINGS, INC.
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(Registrant)
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Date
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March
1, 2010
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By
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/s/
Charles L. Stanford
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Charles
L. Stanford
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Executive
Vice President and General Counsel
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EXHIBIT
INDEX
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Exhibit
Number
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Description
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2.1
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Agreement
and Plan of Merger of Crown Media Holdings, Inc. and Hallmark
Entertainment Investments Co., dated as of February 26,
2010.
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2.2
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Agreement
and Plan of Merger of Crown Media Holdings, Inc. and Hallmark
Entertainment Holdings, Inc., dated as of February 26,
2010.
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3.1
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Form
of Second Amended and Restated Certificate of Incorporation of Crown Media
Holdings.
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3.2
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Form
of Certificate of Designation, Powers, Preferences, Qualifications,
Limitations, Restrictions and Relative Rights of Series A Convertible
Preferred Stock of Crown Media Holdings, Inc.
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3.3
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Form
of Third Amended and Restated Certificate of Incorporation of Crown Media
Holdings, Inc.
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4.1
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Form
of Stockholders Agreement by and among H C Crown Corp., Hallmark Cards,
Incorporated and Crown Media Holdings, Inc.
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4.2
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Form
of Registration Rights Agreement among H C Crown Corp., any Other HEIC
Stockholder and Crown Media Holdings, Inc.
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10.1
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Master
Recapitalization Agreement by and among Hallmark Cards, Incorporated, H C
Crown Corp., Hallmark Entertainment Holdings, Inc., Crown Media Holdings,
Inc., Crown Media United States, LLC, and The Subsidiaries of Crown Media
Holdings, Inc. Listed as Guarantors on the Credit Facility, dated as of
February 26, 2010.
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10.2
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Form
of Credit Agreement Among Crown Media Holdings, Inc. as
Borrower and HC Crown Corp., as Lender and Each of the Credit Parties
Identified on the Signature Pages Hereto.
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10.3
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Form
of Amendment No. 2 to Federal Income Tax Sharing Agreement between
Hallmark Cards, Incorporated and Crown Media Holdings,
Inc.
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99.1
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Press
Release regarding
Recapitalization.
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