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SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____ )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [   ]

      Check the appropriate box:

[X] Definitive Proxy Statement

[   ] Definitive Additional Materials

[   ] Soliciting Material Under Rule 14a-12

CROWN MEDIA HOLDINGS, INC.
(Name of Registrant as Specified in Its Charter)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[   ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

[   ] Fee paid previously with preliminary materials.

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CROWN MEDIA HOLDINGS, INC.

To the Stockholders of Crown Media Holdings, Inc.:

      We will hold the annual meeting of stockholders (the “Annual Meeting”) of Crown Media Holdings, Inc. (“Crown Media Holdings” or the “Company”) at The Denver Marriott Tech Center, 4900 South Syracuse Street, Denver, Colorado, on June 7, 2001, at 10:00 a.m., Mountain Daylight Time (MDT).

      The purpose of the meeting is to:

      Information concerning the matters to be acted upon at the Annual Meeting is set forth in the accompanying proxy statement.

      Only stockholders of record of Class A Common Stock and Class B Common Stock at the close of business on April 12, 2001 are entitled to receive notice of and to vote at the meeting. A list of the stockholders entitled to vote will be available for examination at the meeting by any stockholder for any purpose relevant to the meeting. The list will also be available on the same basis for ten days prior to the meeting at our principal executive office, Suite 500, 6430 S. Fiddlers Green Circle, Greenwood Village, Colorado 80111.

      If you wish to vote shares held in your name in person at the meeting, please bring your proxy card or proof of identification to the meeting. If you hold your shares in street name (that is, through a broker or other nominee) you must request a proxy card from your broker in order to vote in person at the meeting.

      Please date, sign and mail the enclosed proxy card as soon as possible to ensure that you are represented at the meeting. We have enclosed a return envelope, which requires no postage if mailed in the United States, for that purpose. Alternatively, you may vote by using the toll-free telephone number or the Internet address, as explained on the enclosed proxy card.

PLEASE VOTE. YOUR VOTE IS IMPORTANT.

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CROWN MEDIA HOLDINGS, INC.

      We anticipate that this proxy statement will first be mailed on or about May 7, 2001 to stockholders of the Company by the Board to solicit proxies for use at the Annual Meeting to be held on Thursday, June 7, 2001 at 10:00 a.m., Mountain Daylight Time (MDT) at The Denver Marriott Tech Center, 4900 South Syracuse Street, Denver, Colorado or at any postponements or adjournments of the Annual Meeting.

SOLICITATION OF PROXIES

      This proxy solicitation is being made on behalf of the Board.

Voting by Telephone or Internet

      Stockholders of record can simplify their voting and reduce the Company’s cost by voting their shares via telephone or the Internet. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, allow stockholders to vote their shares and to confirm that their instructions have been properly recorded. If a stockholder’s shares are held in the name of a bank or broker, the availability of telephone and Internet voting will depend on the processes of the bank or broker; therefore, stockholders should follow the voting instructions on the form they receive from their bank or broker.

      Stockholders who elect to vote over the Internet may incur costs such as telecommunication and Internet access charges for which the stockholder is solely responsible. The Internet voting facilities for stockholders of record will close at 4:00 p.m. MDT on June 6, 2001. The telephone voting facilities will be available until the Annual Meeting begins on June 7, 2001 at 10:00 a.m., MDT.

Voting by Mail

      Stockholders who elect to vote by mail are asked to date, sign and return the enclosed proxy card using the postage paid envelope provided. The shares represented will be voted in accordance with the directions in the proxy card.

Stockholders Entitled to Vote

      Stockholders as of the close of business on April 12, 2001 (the “Record Date”) are entitled to vote at the Annual Meeting. As of the Record Date, 34,751,878 shares of the Company’s Class A common stock, par value $0.01 (the “Class A Common Stock”) and 30,670,422 shares of the Company’s Class B common stock, par value $0.01 (the “Class B Common Stock”) were issued and outstanding. Each share of Class A Common Stock is entitled to one vote. Each share of Class B Common Stock is entitled to ten votes. You may not cumulate votes.

Revocation of Proxies

      Your proxy may be revoked at any time before it is exercised by (i) providing written notice of revocation to the Company Secretary, (ii) timely delivery of a later dated proxy (including an Internet or telephone vote), or (iii) attending the Annual Meeting and voting in person.

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Required Vote

      A majority of the voting power of the outstanding shares entitled to vote generally in the election of directors, when represented in person or by proxy, will constitute a quorum for purposes of Proposals 2, 3 and 4. The holders of a majority of the outstanding shares of Class A Common Stock, when represented in person or by proxy, will constitute a quorum for purposes of Proposal 1. Any stockholder that has properly submitted a proxy will be considered part of the quorum. Votes that are withheld and broker non-votes will be counted towards a quorum.

      The required vote for Proposal 1 is the affirmative vote of a majority of the outstanding shares of Class A Common Stock held by persons other than Hallmark Entertainment Distribution, LLC and its affiliates, (including Hallmark Entertainment, Inc. and Hallmark Cards, Incorporated). The required vote for Proposal 2 is a plurality of the votes cast, with the 10 nominees receiving the highest number of votes cast elected to the Board. The required vote for Proposal 3 is the affirmative vote of the holders of a majority of the voting power of the outstanding Class A Common Stock and Class B Common Stock, voting together as a single class. The required vote for Proposal 4 is the affirmative vote of the holders of a majority of the voting power, present in person or by proxy and entitled to vote, voting as a single class. A vote withheld from a nominee will be excluded from the vote and have no effect. Abstensions will be counted toward a quorum and have the same effect as a negative vote with respect to Proposals 1, 3 and 4. Broker non-votes will also be counted toward a quorum and will have the same effect as a negative vote with respect to Proposals 1 and 3, but will not be counted in determining whether Proposal 4 is approved.

      A “broker non-vote” occurs when a broker submits a proxy but does not vote for or against a matter. This will occur when the beneficial owner has not instructed the broker how to vote and the broker does not have the discretionary authority to vote in the absence of instructions.

Solicitation Costs

      Georgeson Shareholders Communication Inc. was hired to assist in the distribution of proxy materials and solicitation of votes at a cost of approximately $8,000, plus out-of-pocket expenses. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to the owners of common stock. In addition to using the mails, the Company’s officers, employees or agents may also solicit proxies in person or by telephone, facsimile or by other means of electronic communication, but they will not be specifically compensated for such services.

PLEASE VOTE. YOUR VOTE IS IMPORTANT.

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      In this proxy statement the terms “we,” “us,” and “our” refer to Crown Media Holdings, Inc. and, unless the context requires otherwise, our subsidiaries, Crown Media International, Inc. (which operates the Hallmark Channel in more than 100 international markets and Odyssey Holdings, L.L.C., (which operates the Odyssey Network/the Hallmark Channel in the United States).

NOTE WITH RESPECT TO FORWARD-LOOKING INFORMATION

      We have made some statements in this proxy statement which constitute forward-looking statements. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” variations of those words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected or implied in the forward-looking statements. Such risks and uncertainties include: competition for the distribution of channels, viewers, advertisers, and the acquisition of programming; fluctuations in the availability of programming; fluctuations in demand for the programming we air on our channels; risks described under “Proposal 1-Risk Factors;” and other risks stated in this proxy statement. Forward-looking statements speak only as of the date of this proxy statement. We undertake no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

PROPOSAL 1

APPROVAL OF THE ACQUISITION BY CROWN MEDIA HOLDINGS

Summary of the Films Transaction

      This summary highlights selected information about our purchase of certain films and related rights and property (the “films transaction”) from Hallmark Entertainment Distribution, LLC (“Hallmark Entertainment Distribution”), a wholly-owned subsidiary of Hallmark Entertainment, Inc. (“Hallmark Entertainment”). Hallmark Entertainment is the sole member of Hallmark Entertainment Distribution. It does not contain all of the information that is important to you. We urge you to read carefully the entire description of the transaction and the other documents we refer to for a more complete understanding of the films transaction. In particular, you should read the documents attached to this proxy statement, including the purchase and sale agreement and the opinion of our financial adviser, which are attached as Appendices A and B. In addition, we incorporate by reference important financial information about Crown Media Holdings into this proxy statement from the annual report which accompanies this proxy statement.

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General; Required Vote

      We have entered into a purchase and sale agreement with Hallmark Entertainment Distribution for the acquisition of made-for-television movies, specials, theatrical films, mini-series, series and made-for-video product of Hallmark Entertainment Distribution and related properties and rights (the “film assets”) for a purchase price consisting of a number of shares of our Class A Common Stock and the assumption or payment of $220 million of liabilities relating to the film assets. Based on an average stock price of $18.09 from November 6, 2000, to April 10, 2001, when we signed the purchase and sale agreement, we would issue 33,169,794 shares. Based on the average stock price of $18.35 from November 6, 2000, to April 30, 2001, we would issue 32,697,548 shares. Based on the average price, these shares would be valued at $600 million, implying a total purchase price for the film assets of $820 million. The closing price of shares of Class A Common Stock on the closing date may be higher or lower than the average stock price used in calculating the number of shares of Class A Common Stock we will issue in the transaction. We call this transaction the “films transaction.” The films transaction is subject to stockholder approval. The purchase and sale agreement is attached as Appendix A to this proxy statement.

      Hallmark Entertainment Distribution is a wholly-owned subsidiary of Hallmark Entertainment, which is a wholly-owned subsidiary of Hallmark Cards. Hallmark Entertainment is the beneficial owner of approximately 47% of our total outstanding stock and approximately 90% of the total voting power of our outstanding stock.

      At the Annual Meeting, the stockholders of Class A Common Stock will be asked to vote upon the following:

      We are submitting the films transaction, including the issuance of Class A Common Stock, to our stockholders for approval because the listing standards of the Nasdaq National Market System (on which our stock is publicly traded) require approval of the stockholders for this size of issuance of stock, which exceeds 20% of the outstanding shares of Class A Common Stock, and for the issuance of stock in connection with the acquisition of assets when a substantial stockholder has a 5% or greater interest in the assets and the issuance will result in a 5% or more increase of our outstanding Common Stock.

      The affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock excluding shares owned beneficially by Hallmark Entertainment Distribution and its affiliates (which include Hallmark Entertainment and Hallmark Cards), is required to approve the films transaction, including the

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      The Independent Committee that approved the films transaction included directors nominated by Liberty Media Corporation, VISN Management, Corp. (which is a subsidiary of the National Interfaith Cable Coalition, Inc.) and J.P. Morgan Partners (BHCA), L.P. Each of these stockholders owns beneficially more than 5% of our outstanding Class A Common Stock, and these stockholders own in the aggregate more than 50% of our outstanding Class A Common Stock. Their affirmative votes for the films transaction would result in approval of the films transaction.

      Each of the current beneficial owners of more than 5% of our outstanding Class A Common Stock, which are those listed above, The Jim Henson Company, Inc., and Hallmark Entertainment, is a party to a stockholders agreement with us. The stockholders agreement requires that transactions with our affiliates of a certain size, such as the films transaction, be approved by a majority of the members of the Board not nominated by the affiliated party. Because of this contractual requirement and the interest of Hallmark Entertainment in the films transaction, a committee of directors independent of Hallmark Entertainment (the “Independent Committee” or “Committee”) was appointed by the Board and was delegated full responsibility to consider, negotiate and, if deemed in the best interests of our stockholders, other than Hallmark Entertainment and its affiliates, to enter into agreements for the films transaction. The Independent Committee has unanimously approved the films transaction and believes that the films transaction is fair to and in the best interests of Crown Media Holdings and its stockholders, other than Hallmark Entertainment and its affiliates. The Independent Committee of the Board of Crown Media Holdings recommends that you vote FOR the films transaction, including the issuance of Class A Common Stock as part of the films transaction.

Background of the Transaction

      The chairman of our Board and our management continually consider our position in the media industry and ways to enhance shareholder value. In the summer of 2000, Robert A. Halmi, Jr., Chairman of Crown Media Holdings and the President and Chief Executive Officer of Hallmark Entertainment, discussed with Irvine O. Hockaday, Jr., the President and Chief Executive Officer of Hallmark Cards, and Robert J. Druten, Vice President and Chief Financial Officer of Hallmark Cards, the possibility of selling all or part of Hallmark Entertainment’s film library to us. The film library is currently used by our subsidiaries on a fee basis under program license agreements. Officers of Crown Media Holdings also participated in some discussions of this subject. They contemplated that payment of the purchase price could include our stock. They also considered reasons for the transaction, which included strengthening our position within the media industry and other reasons described under “Our Reasons for the Transaction” below.

      On September 26, 2000, Hallmark Cards held a regular meeting of its board of directors. At that meeting, officers of Hallmark Entertainment and Hallmark Cards presented the concept of a possible sale of all or part of the existing Hallmark Entertainment film library to Crown Media Holdings. Hallmark Cards’ Board concurred in the continued exploration of the possibility of such a transaction and authorized the engagement of an investment banker as a financial adviser to Hallmark Cards. The officers of Hallmark Cards then so advised our management.

      At a meeting on October 13, 2000, our Board was informed of the interest of our management and the management of Hallmark Entertainment in a possible acquisition by us of the film library. The Board appointed the Independent Committee consisting of five directors and authorized the Committee to consider, evaluate and, if the Committee deemed it in the best interests of our stockholders, other than Hallmark Entertainment and its affiliates, proceed to negotiate an agreement for the transfer to Crown Media Holdings of part or all of the film library owned by Hallmark Entertainment or its subsidiaries. Further, it was determined that the Committee should select an investment banker to advise it regarding the fairness and appropriateness of the transaction and that the Committee should have access to legal counsel as it deemed

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      The stockholders agreement referred to above provides for the nomination and election of 11 persons to our Board. Mr. Lund and Mr. Haber are independent directors under the stockholders agreement, which means that they are not officers, partners, employees or directors of any of the stockholders who are parties to the stockholders agreement or their affiliates, that they are considered independent directors as that term is used in the Nasdaq National Market System requirements and that they were nominated by our Board. The stockholders agreement entitles certain stockholders to nominate members of our Board. Mr. Bane is the nominee of VISN Management, a subsidiary of National Interfaith Cable Coalition. Mr. Chavkin is the nominee of JP Morgan Partners and Mr. Koff is the nominee of a subsidiary of Liberty Media Corporation. The Committee members believe that none of the Committee members has engaged in transactions with either Hallmark Cards or Hallmark Entertainment during at least the last five years and that none of them own any shares of Hallmark Cards or Hallmark Entertainment.

      In the two weeks following the meeting on October 13, 2000, Mr. Lund discussed with our management and Holland & Hart LLP, our securities counsel, steps to be taken in considering the possible films transaction. Mr. Lund authorized William J. Aliber, our Executive Vice President and Chief Financial Officer, to arrange interviews of three investment banking firm candidates to be the financial adviser to the Committee. He discussed the employment of counsel to assist the Committee. Mr. Lund asked that members of our management assist in arranging the logistics of Committee meetings and attend the meetings in order to provide comments and advice to the Committee.

      On October 30, 2000, the Independent Committee held its first meeting. The Committee agreed to interview on the next day three investment banking firms as possible advisers for the films transaction. The Committee discussed reasons why these firms were selected and the criteria which would be applied to determine a firm to ultimately advise the Committee. Holland & Hart reviewed the role of legal representatives for the Committee, fiduciary duties involved in the possible films transaction, procedures for the Committee’s involvement in the transaction, the use of an independent investment banking firm and the need for stockholder approval under requirements of the Nasdaq National Market System. The Committee approved the role of Mr. Charles L. Stanford, Senior Vice President and General Counsel of Crown Media Holdings, to assist the Committee with the due diligence and the necessary agreements. The Committee directed that Hallmark Entertainment be asked to submit a written proposal for the films transaction after which the Committee would receive any views of management and direct a negotiating team on what steps to take.

      The Committee approved the engagement of Holland & Hart as counsel to the Committee and the engagement of the law firm of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, (“Christensen Miller”), a law firm with experience in the entertainment industry and with film libraries, to assist our management and the Committee in performing due diligence on the film properties that might be part of the possible films transaction and in preparing any necessary agreements. After due inquiry, the Committee determined that Holland & Hart and Christensen Miller were independent of Hallmark Entertainment and its affiliates. The Committee members reviewed with the counsel of Holland & Hart whether any of the Committee members knew of any conflict of interest which would prevent such Committee member from acting independently and objectively in evaluating the possible films transaction. The Committee knew of no such conflicts.

      At the request of the Committee, Mr. Lund, with the assistance of counsel, reviewed the role of Mr. Chavkin. Mr. Chavkin is employed by JP Morgan Partners which is controlled by J.P. Morgan Chase & Co. (“JP Morgan Chase”) and is on the management committee of JP Morgan Chase. JP Morgan Chase, formerly Chase Manhattan Bank, has in its normal course of business established a line of credit with Hallmark Entertainment in the amount of $400 million, secured by the film library of Hallmark Entertainment. JP Morgan Partners or its affiliates manage partnerships which make private equity investments. Mr. Lund, with the assistance of counsel, concluded that Mr. Chavkin’s only material interest in the library transaction was because of the significant investment in Class A Common Stock of JP Morgan Partners and

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      After the October 30 meeting, our management requested from Hallmark Entertainment a proposal regarding the films transaction. Hallmark Entertainment indicated to our management that Hallmark Entertainment would prepare a proposal, with the assistance of Hallmark Entertainment’s financial adviser, Goldman, Sachs & Co.

      On October 31, 2000, the Committee members met again to receive presentations by representatives of three nationally recognized investment banking firms. After the presentations were completed, the Committee discussed them and unanimously voted to retain Salomon Smith Barney to assist the Committee in evaluating the fairness and feasibility of a possible films transaction and to provide a fairness opinion if such an opinion was thought to be appropriate. After due inquiry, the Committee determined that Salomon Smith Barney was independent of Hallmark Entertainment and its affiliates.

      In early November 2000, on behalf of Hallmark Entertainment, Goldman Sachs requested certain information regarding us.

      On November 6, 2000, we issued a press release stating that we had appointed a committee to investigate the possibility of acquiring the film library and, if a transaction seemed desirable, participate in the negotiations for a transaction. The release added that Hallmark Entertainment had expressed a willingness to explore a potential transaction involving the library as well as other strategic options. The release explained that the possibility of a transaction was at an early stage, that Crown Media Holdings must still conduct due diligence and that Hallmark Entertainment and Crown Media Holdings must consult with advisers and arrive at the terms for any such transactions. It further stated that Crown Media Holdings contemplated that any purchase price would be a combination of stock and cash from outside sources and that stockholder approval of the transaction would be required.

      On November 7, 2000, representatives of Salomon Smith Barney and Holland & Hart, Mr. Chavkin, Mr. Aliber and David J. Evans, our President and Chief Executive Officer, met to discuss organizational matters, emphasizing the steps to be taken in investigating the film library and coordinating the investigations of Salomon Smith Barney, Mr. Stanford and Christensen Miller. The persons at the meeting also reviewed the role of Salomon Smith Barney in advising the Committee on financial matters, Salomon Smith Barney’s participating in the negotiations and Salomon Smith Barney’s issuing a fairness opinion, if appropriate.

      From November 7, 2000, through February, 2001, Mr. Stanford and Christensen Miller conducted investigations regarding the titles to the films. During the same period, Salomon Smith Barney conducted its own due diligence and investigations regarding the value of the films involved in the films transaction and the value of shares of Crown Media Holdings. For additional information regarding the valuation work undertaken by Salomon Smith Barney, please see “Opinion of Financial Adviser” below.

      During November 2000, through January, 2001, representatives of Hallmark Entertainment and Hallmark Entertainment’s financial adviser, Goldman Sachs, also conducted due diligence and considered the possible films transaction. Representatives of Hallmark Entertainment, with the assistance of Goldman Sachs, developed a proposal. On February 1, 2001, a proposed term sheet regarding the films transaction was sent by Hallmark Entertainment to Mr. Evans. Mr. Evans distributed the term sheet to the members of the Committee and the Committee’s advisers. The term sheet proposed the sale to us of the film assets that consisted of 702 titles and are now covered by the purchase and sale agreement. The proposal stated that the purchase price would be (1) $570 million of our Class A Common Stock valued at $14.75 per share, the “average price” of the five-day trading period prior to the announcement of investigation of the transaction on November 6, 2000, plus (2) assumption of $150 million of Hallmark Entertainment’s debt under the line of credit with JP Morgan Chase as agent and an assumption of accounts payable equal to approximately $105 million. This purchase price totaled $825 million but would equal a substantially higher amount if a different and higher value were applied to the Class A shares. Under the Hallmark Entertainment term sheet, Crown Media Holdings would have issued approximately 38,664,000 shares of Class A Common Stock in the transaction. The term sheet also proposed that Hallmark Entertainment retain all amounts receivable under

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      The Committee met on February 14, 2001, to consider the term sheet presented by the management of Hallmark Entertainment. Most of the meeting was devoted to a presentation by Salomon Smith Barney, and discussions of the Committee, regarding the term sheet and preliminary valuations and conclusions of Salomon Smith Barney. The subjects discussed with Salomon Smith Barney included a summary of the transaction, an economic analysis of the transaction, the due diligence process conducted by Salomon Smith Barney, reasons for the films transaction on our part, the films which were the subject of the term sheet, a preliminary summary of the value of the film assets, a preliminary summary of the per share value of Crown Media Holdings stock, the impact of a films transaction, and other related subjects. The Committee discussed the service agreement and possible program agreements. The Committee received a report on due diligence work done to date by Mr. Stanford and Christensen Miller.

      The Committee members believed that the films transaction could be considered a means of obtaining favorable financing, based on the acquisition of important assets, and the Committee requested that Salomon Smith Barney consider what financing alternatives existed absent the films transaction. The Committee and Salomon Smith Barney agreed that Salomon Smith Barney would consider further its valuation.

      At the February 14 meeting, the Committee appointed a negotiating team for the purchase price to consist of Mr. Chavkin, Mr. Evans and Mr. Aliber. The Committee indicated that the negotiations should focus on the number of shares of Crown Class A Common Stock to be issued as part of the purchase price. The Committee also requested that, because of the Committee’s concern about the value used by Hallmark Entertainment for the Crown Media Holdings shares, David Evans first approach the management of Hallmark Entertainment regarding the number of shares and that he report back to the negotiating team. The Committee requested that the negotiating team report to the Committee members on their efforts and results. The Committee asked that the officers report on the results of a management meeting to be held in regard to the service and program agreements, the terms to be negotiated in those agreements and management’s view on whether we would have more leverage before or after any films transaction in making changes to the program agreements. The Committee unanimously authorized the officers to engage an independent consultant to consider the terms for a service agreement. The Committee authorized the use of Christensen Miller to provide advice on tax consequences to us of the possible films transaction.

      On February 15, 2001, Mr. Evans discussed with Hallmark Entertainment representatives the number of shares to be issued in the films transaction and the valuation of those shares. They indicated a willingness to discuss different values for our shares. Mr. Evans then reported the results of this discussion to the negotiating team and the members of the Committee.

      From February 15 through March 5, 2001, Mr. Evans and Mr. Aliber, with the assistance of Salomon Smith Barney, conducted negotiations with representatives of Hallmark Entertainment, with the assistance of Goldman Sachs, and Mr. Chavkin was informed of all developments and determined with the negotiating team the steps to be taken. Mr. Lund was also informed of developments.

      On February 24, 2001, Mr. Stanford sent to counsel for Hallmark Entertainment a draft purchase and sale agreement for a possible films transaction. The agreements were prepared by Mr. Stanford and Christensen Miller. The management also considered the terms of the service agreement and program agreements.

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      On March 5, 2001, the Committee met and received a report from the negotiating team regarding the status of negotiations with Hallmark Entertainment regarding the purchase price for the film assets. Salomon Smith Barney reported on financing alternatives to a films transaction. The Salomon Smith Barney representatives discussed with the Committee members valuation approaches regarding the film assets and the value of Crown Media Holdings shares potentially to be issued in the films transaction. During the meeting the Committee also reviewed management’s view that the program agreements should be amended rather than replaced with new agreements, by excluding the films acquired and adding other points to be covered in the program agreements; the engagement of the independent consultant regarding the service agreement; terms for the service agreement; and the results of further analysis by Salomon Smith Barney of the film assets. The Committee concluded the meeting by authorizing the negotiating team, together with the assistance of Salomon Smith Barney, to continue negotiations on the purchase price taking into account points made by the Committee during the meeting.

      On March 6, 2001, the negotiations on the purchase price continued. At the end of that day, the Committee held a meeting and received a report on the status of negotiations of the purchase price. The Committee also further reviewed the importance of the films transaction, the value of the films and the value of our stock, among other things. The Committee discussed the next step in the negotiations and authorized the negotiating team, with Salomon Smith Barney’s assistance, to continue negotiation of the purchase price.

      On March 6, 2001, our management received a report from its independent consultant about terms for the service agreement.

      On March 7, 2001, the Committee met to receive a report on the results of discussions with the Hallmark Entertainment representatives regarding the purchase price for the films transaction. The Committee reviewed the results and Salomon Smith Barney’s views on the proposed purchase price to Crown Media Holdings. At that meeting, the Committee unanimously adopted resolutions approving a purchase price consisting of: (1) 32.1 million shares of Class A Common Stock; (2) assumption of debt relating to the Hallmark Entertainment films of $120 million; and (3) assumption of accounts payable of Hallmark Entertainment in the amount of $100 million. This determination was subject to receipt of a full presentation regarding the price and a fairness opinion from Salomon Smith Barney and to the successful negotiation and execution of the agreements and documents contemplated for the films transaction in a final form approved by the Committee.

      Also on March 7, 2001, our Board met. The Board received the recommendation of the Committee regarding the purchase price for the films transaction and adopted that recommendation.

      On March 9, 2001, Hallmark Entertainment returned to our counsel a draft purchase and sale agreement which contained proposed changes. Later Hallmark Entertainment provided to our counsel an amended and restated program agreement and a registration rights agreement. On March 19, 2001, we sent to Hallmark Entertainment a draft of the service agreement.

      On March 16, 2001, representatives of Hallmark Entertainment notified representatives of Crown Media Holdings that Hallmark Entertainment was concerned about the effect on the value to be received by Hallmark Entertainment of potential volatility in the trading price of the Class A Common Stock between execution of definitive agreements and closing of a transaction. The representatives of Hallmark Entertainment therefore proposed that the number of shares of Class A Common Stock to be issued in the transaction be calculated in accordance with the following pricing collar: If the average stock price was less than $15.30, then 39,215,686 shares would be issued in the transaction; if the average stock price was greater than $18.70, then 32,085,562 shares would be issued; and if the average stock price was at least $15.30 but not greater than $18.70, then the number of shares would equal $600 million divided by the average stock price. The proposal did not set forth how the average stock price would be determined. The Committee was informed of this development. Between March 16 and March 21, 2001, Mr. Chavkin, Mr. Evans, Mr. Aliber, with the assistance of Salomon Smith Barney, negotiated each aspect of this collar with Hallmark Entertainment, with the assistance of Goldman Sachs.

      On March 22, 2001, a meeting of the Independent Committee was held. At that meeting, the negotiating team and Salomon Smith Barney provided results on the negotiations. Salomon Smith Barney reviewed the

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      At the March 22 meeting, Salomon Smith Barney also made a presentation regarding the value of the film assets and the shares of Crown Media Holdings, including a summary of the transaction, a valuation summary regarding the film assets, financing alternatives to the films transaction, the due diligence conducted by Salomon Smith Barney, reasons for the transaction, a summary of per share values of Crown Media Holdings stock and other matters. The Committee also discussed the current status of agreements for the films transaction. The Committee received the report of the independent consultant on the service agreement and a report by Mr. Stanford on the results of his and Christensen Miller’s due diligence review of the films which are the subject of the films transaction. At the conclusion of the meeting, the Committee unanimously approved the proposed purchase price for the films transaction. This approval was subject to receipt of the fairness opinion of Salomon Smith Barney and receipt and approval by the Committee of the final terms and conditions of the agreements for the films transaction.

      Later on March 22, 2001, the Board of Crown Media Holdings met. The Board delegated to the Independent Committee the authority to take any and all actions that may be taken by the Board with respect to the films transaction, including determining whether the films transaction is fair to and in the best interests of Crown Media Holdings and the stockholders of Crown Media Holdings other than Hallmark Entertainment and its affiliates, issuing any shares of Class A Common Stock in the films transaction and entering into agreements for the transaction. The Independent Committee reported on the determination made earlier in the day by the Committee.

      On March 27, 2001, the Board of Hallmark Entertainment met and approved the purchase price of the films transaction and the transaction generally on behalf of Hallmark Entertainment and as the sole member of Hallmark Entertainment Distribution, and authorized the President of Hallmark Entertainment to negotiate and execute the purchase and sale agreement for the films transaction as well as all related documents.

      From March 26 through April 10, 2001, counsel for Crown Media Holdings and the Committee completed negotiations with counsel for Hallmark Entertainment on the purchase and sale agreement, service agreement, program agreements and registration rights agreement for the films transaction. These agreements in substantially final form were distributed to the Committee.

      On April 2, 2001, Mr. Haber was named president and chief executive officer of TRIO, an entertainment cable television program service, emphasizing the popular arts, which is part of the USA Networks, Inc.

      The Committee met on April 10, 2001. The Committee considered the continuing independence of Mr. Haber after his acceptance of new employment. The Committee determined that Mr. Haber’s position with TRIO did not conflict with his continued service on the Committee. Salomon Smith Barney delivered its

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      On May 3, 2001, Mr. Haber resigned from our Board because of his new position. Mr. Haber, age 59, was a director of Crown Media Holdings from May, 2000 until his resignation. He has been the president of Ostar Enterprises, Inc., a theatrical holding company, since 1995. Mr. Haber co-founded the Creative Artist Agency in 1975. He is a member of the board of directors of Jim Henson Productions, Inc. The vacancy on the Board created by Mr. Haber’s resignation will be filled subsequent to the 2001 Annual Meeting by the Board of Directors in accordance with the stockholders agreement, described later in this proxy statement, and our bylaws.

Our Reasons for the Transaction

      The Committee believes that there are a number of reasons for entering into the films transaction. Overall, the Committee believes that the transaction will create shareholder value and that the transaction is vital for the success of Crown Media Holdings in the future. The benefits include:

      A unique opportunity to acquire a scarce asset. The films transaction provides us the opportunity to acquire a substantial library of high quality, family oriented television films. We are currently using these films.

      Increased scale and diversification. We will become a larger, more diversified entity after combining the films purchased in the transaction with our over 65 million cable subscribers. To be competitive in our industry, size and scale are important.

      Improved cash flow. Our goal is to obtain positive cash flow. Ownership of the films will eliminate the fees that we currently pay Hallmark Entertainment Distribution for the use of these films. The films transaction will also result in additional revenue from the exploitation of the films to the extent not used by us. If we are successful in our efforts to increase subscriber and advertising revenue, the acquisition of the films from Hallmark Entertainment should reduce the time needed to reach our goal of a breakeven point in our EBITDA (earnings before interest, income taxes, depreciation and amortization).

      Best Financing Alternative. Based on the advice of Salomon Smith Barney, our Committee believes that the films transaction, when considered as a financing vehicle, is the best alternative available to us at this time. Salomon Smith Barney advised that a high-yield bond or convertible security was not realistic for us under then current market conditions and the pricing for a large equity offering would likely be unattractive relative to the pricing at what shares are anticipated to be issued in the films transaction. If the films transaction is closed, we expect that these and other financing vehicles may become feasible and attractive.

      Financial Flexibility. The films transaction should facilitate the Company’s ability to execute both equity and debt offerings in the future. We intend to put in place a bank financing for working capital, which we believe would have a higher cost and inferior terms if the films transaction were not done. We may also seek in the near future and thereafter, by one or more offerings of equity and debt, additional funds to operate and expand our business. See “Financing Arrangements” below.

      Control valuable library content. Our ownership of the films acquired from Hallmark Entertainment will allow greater additional programming flexibility for our channels and the use of the films in our interactive services, which are currently being tested.

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Factors Considered by the Independent Committee of the Board

      The Independent Committee of our Board has approved the films transaction and determined that the transaction is fair and in the best interests of Crown Media Holdings and its stockholders other than Hallmark Entertainment and its affiliates. During the course of its deliberations, the Independent Committee considered, with the assistance of our management and its financial and other advisers, the following factors. This discussion of factors considered by the Independent Committee is not intended to be exhaustive.

      In evaluating the films transaction, the Committee did not review or consider historical financial statements of Hallmark Entertainment and its subsidiaries or their film library or any pro forma statements regarding Hallmark Entertainment and its subsidiaries or the film assets. With the assistance of Salomon Smith Barney, the Committee reviewed summary information provided by Hallmark Entertainment on its prior record of realizing projected revenues from the film library of Hallmark Entertainment and its affiliates. The Committee reviewed a valuation analysis presented by Salomon Smith Barney that used, with adjustments, an estimate by Hallmark Entertainment of the revenues generated by the film assets included in

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      The Committee did not quantify or otherwise assign relative weights to the individual items described above. The Committee relied on the experience and expertise of Salomon Smith Barney, its financial adviser, for quantitative analysis of the financial terms of the transaction. In considering the factors described above, individual members of the Committee may have given different weight to different factors. The Committee considered all these factors as a whole and believed that the factors favor the films transaction.

Impact of the Films Transaction on the Year 2001

      If the films transaction is completed by June 30, 2001, our management currently projects that the film assets will increase our revenues for 2001 by approximately $20 million to $25 million. This revenue amount is based on existing and anticipated contracts entered into after January 1, 2001. Under applicable accounting requirements, our revenues in 2001 will include revenue from the film assets from the date of the closing. (Revenues from the film assets from January 1, 2001 to the closing will reduce the amount of the purchase price for accounting purposes.) Further, our management currently projects that our programming expenses will decrease by approximately $5 million to $10 million in 2001 if the films transaction closes by June 30, 2001. Correspondingly, our management projects that EBITDA for 2001 and our net loss per share for the year 2001 will be improved as a result of the films transaction, although the actual EBITDA and net loss will also be affected by a number of other factors. These projections can be affected positively or negatively by various risks and uncertainties, including any changes in demand for the films which we acquire, selling efforts for those films, and unanticipated expenses incurred by us in integrating the films into our operations and distributing the films.

Financing Arrangements

      One of the conditions to our closing the films transaction is that we enter into an agreement to assume $120 million of debt relating to the film assets or that we pay off that debt. We currently intend to arrange for a line of credit, which will include the $120 million to be assumed or paid by us. The proposed line of credit will also be used to repay an existing line of credit with HC Crown Corp., a wholly-owned subsidiary of Hallmark Cards, to repay two demand notes (dated November 19, 1999, and February 22, 2000, respectively) for a total amount of $37.8 million (including accrued interest at December 31, 2000) payable to HC Crown and to provide working capital to operate and expand our business.

      The existing line of credit with HC Crown is for up to $150 million and is payable no later than April 1, 2002. Proceeds from borrowing under the HC Crown line of credit have also been used in our working capital. This line of credit and the two demand notes to be repaid are described under “Certain Relationships and Related Transactions.”

      We plan to arrange the line of credit with a group of banks, for which JP Morgan Chase will be the agent bank. We anticipate that the terms of this new line of credit will include an interest rate at a certain percentage over the London Interbank Offered Rate, and collateral consisting of the film assets and most or all of our other assets. We also anticipate that the line of credit will include financial and other covenants. However, these terms are subject to final negotiations with the group of banks.

      As indicated in “Our Reasons for the Transaction,” we believe that the films transaction, if completed, will provide more flexibility for our future financings. Accordingly, we plan to file with the Securities and Exchange Commission in early June 2001 a shelf registration statement which would allow us to make over time one or more offerings in an aggregate total amount of up to $500 million of our securities. We expect that

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Recommendation of the Independent Committee

      After careful consideration, the Independent Committee has determined that the terms of our purchase of the film assets from Hallmark Entertainment Distribution are fair to, and in the best interests of, Crown Media Holdings and its stockholders other than Hallmark Entertainment and its affiliates. Consequently, the Independent Committee has approved the transaction and recommends that the stockholders of Crown Media Holdings vote FOR the purchase of the film assets and the issuance of shares of Class A Common Stock in payment of a portion of the purchase price.

Opinion of Financial Adviser

      Salomon Smith Barney was retained to act as financial advisor to the Independent Committee of the board of directors of Crown Media Holdings. Pursuant to Salomon Smith Barney’s engagement letter with Crown Media Holdings dated November 7, 2000, at the meeting of the independent committee of the board of directors of Crown Media Holdings held on April 10, 2001, Salomon Smith Barney delivered its oral opinion, which opinion was subsequently confirmed in writing to the effect that, as of such date, the consideration to be paid by Crown Media Holdings for the film assets is fair, from a financial point of view, to Crown Media Holdings.

      The full text of the written opinion of Salomon Smith Barney is set forth as Appendix B to this proxy statement and sets forth the assumptions made, procedures followed and matters considered by Salomon Smith Barney. The summary of Salomon Smith Barney’s opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of Crown Media Holdings Common Stock are urged to read Salomon Smith Barney’s opinion in its entirety.

      In arriving at its opinion, Salomon Smith Barney held discussions with certain senior officers, directors and other representatives and advisors of Crown Media Holdings concerning the businesses, operations and prospects of Crown Media Holdings and with certain senior officers, directors and other representatives and advisors of Crown Media Holdings and Hallmark Entertainment Distribution concerning the film assets. Salomon Smith Barney examined certain publicly available business and financial information relating to Crown Media Holdings as well as certain financial forecasts, estimates and other information and data for Crown Media Holdings and for the film assets which were provided or otherwise discussed with Salomon Smith Barney by the management of Crown Media Holdings and Hallmark Entertainment Distribution. Salomon Smith Barney also conducted such other analyses and examinations and considered such other financial, economic and market criteria as it deemed appropriate.

      In evaluating the transaction, Salomon Smith Barney reviewed historical financial statements of Hallmark Entertainment and its subsidiaries, but Salomon Smith Barney concluded that these statements were not relevant to its analyses because these statements reflected the consolidated performance of all of Hallmark Entertainment’s subsidiaries (including a production company and a distribution company) and reflected assets not included in the proposed transaction as well as revenues under pre-January 1, 2001, agreements not included in the proposed transaction. None of Salomon Smith Barney’s analyses are based on such statements. Salomon Smith Barney did not receive any historical financial statements for the films to be included in the proposed transaction nor did Salomon Smith Barney base any of its analyses on any such financial statements, although Salomon Smith Barney did receive from Hallmark Entertainment and utilize in its analyses an estimate of the revenues generated from such films for the year ended December 31, 2000.

      In rendering its opinion, Salomon Smith Barney assumed and relied, without any responsibility for independent verification, upon the accuracy and completeness of all financial and other information and data

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      Although Salomon Smith Barney did conduct an analysis of the value of the Class A Common Stock of Crown Media Holdings, Salomon Smith Barney did not express any opinion as to what the value of the Class A Common Stock of Crown Media Holdings will be either before or after the consummation of the purchase of the film assets. Salomon Smith Barney did not make nor was provided with an independent appraisal of the assets or liabilities (contingent or otherwise) of Crown Media Holdings or the film assets nor did Salomon Smith Barney make any inspection of the properties or assets of Crown Media Holdings. Salomon Smith Barney’s opinion did not address Crown Media Holdings’ underlying business decision to effect the purchase of the film assets. Salomon Smith Barney’s opinion was necessarily based upon information available to Salomon Smith Barney and the financial, stock market and other conditions and circumstances existing and disclosed to Salomon Smith Barney as of the date of the opinion.

      Pursuant to the engagement letter, Crown Media Holdings will pay a fee of $1,250,000 to Salomon Smith Barney for services provided by Salomon Smith Barney in relation to delivering its opinion. Crown Media Holdings also agreed to indemnify Salomon Smith Barney and certain related persons against various liabilities relating to or arising out of its engagement.

      Salomon Smith Barney is an internationally recognized investment banking firm that provides financial services in connection with a wide range of business transactions. As part of its business, Salomon Smith Barney regularly engages in the valuation of companies and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other purposes. Salomon Smith Barney and its affiliates have previously rendered in the ordinary course certain investment banking and financial advisory services to Crown Media Holdings and Hallmark Cards for which they received customary compensation. Salomon Smith Barney and its affiliates, including Citigroup Inc., may have other business relationships with Crown Media Holdings and Hallmark Cards in the ordinary course of their businesses. The Independent Committee of the board of directors of Crown Media Holdings retained Salomon Smith Barney based on Salomon Smith Barney’s expertise in the valuation of companies as well as its substantial investment banking experience in the media sector.

      Salomon Smith Barney’s advisory services and opinion were provided to the Independent Committee of the board of directors of Crown Media Holdings for it to evaluate the films transaction. Salomon Smith Barney’s opinion was not intended to constitute a recommendation to any stockholder as to how such stockholder should vote on the proposed films transaction.

      A summary of the material elements of the presentations made on March 22, 2001 and April 10, 2001, by Salomon Smith Barney to the Independent Committee of the board of directors of Crown Media Holdings in connection with the films transaction is set forth below. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and the assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses conducted by Salomon Smith Barney.

     Overview and Valuation of the Film Assets

      Salomon Smith Barney included in its presentation to the Independent Committee of the board of directors on March 22, 2001, an overview of Hallmark Entertainment Distribution’s library assets including the number of films to be acquired, projected financial information and certain other information relating to such assets. The film assets consist of 286 titles produced, co-produced or financed by Hallmark Entertain-

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      Salomon Smith Barney considered discounted cash flow valuations of the produced films. Salomon Smith Barney conducted a discounted cash flow analysis to calculate the net present value of the estimated future after-tax unlevered cash flows attributable to the produced films based on (i) a discount rate of 8.5% to 10.0% for projected sales to third parties, (ii) a discount rate of 8.0% for projected sales to Crown Media Holdings, (iii) a twenty-year projection period and (iv) these films having no terminal value. Salomon Smith Barney conducted this analysis using two scenarios. In the first scenario, Salomon Smith Barney assumed that the produced films would generate the revenue stream projected by Hallmark Entertainment Distribution’s management. In the second scenario, Salomon Smith Barney assumed that the produced films would generate foreign first and second cycle revenues 10% to 20% below Hallmark Entertainment Distribution’s management’s projections. Salomon Smith Barney did not receive projections by Crown Media Holdings of revenue streams from the produced films. Based on this analysis, Salomon Smith Barney derived a valuation range of $680 million to $773 million for the produced films.

      Salomon Smith Barney also conducted a discounted cash flow analysis to calculate the net present value of the estimated future after-tax unlevered cash flows attributable to the produced films incorporating a 2% inflation adjustment based on (i) a discount rate of 6.5% to 8.0% for projected sales to third parties, (ii) a discount rate of 6.0% for projected sales to Crown Media Holdings, (iii) a twenty-year projection period and (iv) these films having no terminal value. Salomon Smith Barney conducted this analysis using two scenarios. In the first scenario, Salomon Smith Barney assumed that the produced films would generate the revenue stream projected by Hallmark Entertainment Distribution’s management. In the second scenario, Salomon Smith Barney assumed that the produced films would generate revenues 10% to 20% below Hallmark Entertainment Distribution’s management’s projections. Based on this analysis, Salomon Smith Barney derived a valuation range of $743 million to $850 million for the produced films. Salomon Smith Barney conducted the inflation-adjusted discounted cash flow analysis described above to take account of the fact that the projections by Hallmark Entertainment Distribution’s management of the revenue streams to be derived from the produced films were in constant dollars.

      Salomon Smith Barney valued the acquired films at $43.2 million based on their estimated book value as of December 31, 2000 because financial projections for such titles were not available.

      Salomon Smith Barney quantified the benefit attributable to Crown Media Holdings using films in the Hallmark Entertainment Distribution library to provide video-on-demand services for Crown Interactive using a discounted cash flow methodology. Salomon Smith Barney’s analysis was based on (i) a discount rate of 15% to 20% for future after-tax unlevered cash flows to be derived from video-on-demand services and (ii) terminal values calculated using perpetuity growth rates of 6% to 10%. Based on this analysis, Salomon Smith Barney derived a valuation range of $21.4 million to $57.1 million for the benefit attributable to Crown Media Holdings using films in the Hallmark Entertainment Distribution library to provide video-on-demand services for Crown Interactive.

      Based on the forgoing analyses, Salomon Smith Barney derived a valuation range for the film assets of $745 million to $951 million.

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      Salomon Smith Barney reviewed and analyzed publicly available information regarding selected transactions deemed by Salomon Smith Barney to be relatively similar to the films transaction. Specifically, the comparable transactions considered by Salomon Smith Barney were the following:

      The data reviewed by Salomon Smith Barney for the selected comparable transactions was library asset value as a multiple of revenue for the last twelve months. For the film assets, estimated revenue for the fiscal year ended December 31, 2000, which included sales to Crown Media Holdings and third parties, was $136.1 million. Salomon Smith Barney also calculated the film assets value based on an adjusted estimated revenue of the film assets for the year ended December 31, 2000, of $148 million, which includes adjustments to include certain cash received or to be received in the year ending December 31, 2001, but attributable to the distribution of library titles produced during the year ending December 31, 2000. Based on these analyses, Salomon Smith Barney derived an implied value for the produced films and the acquired films of $612 million to $814 million.

      Based on the foregoing analyses and including the benefit attributable to Crown Media Holdings using titles in the Hallmark Entertainment Distribution library to provide video-on-demand services for Crown Interactive, Salomon Smith Barney derived a valuation range for the film assets of $634 million to $871 million.

     Overview and Valuation of Crown Media Holdings

      Salomon Smith Barney included in its presentation to the Independent Committee of the board of directors on March 22, 2001 an overview of Crown Media Holdings including historical trading price and volume information and historical and projected financial information. The presentation included a valuation of Crown Media Holdings using a discounted cash flow analysis and a public market valuation analysis.

      Salomon Smith Barney considered discounted cash flow valuations of Crown Media Holdings. Salomon Smith Barney conducted a discounted cash flow analysis to calculate the net present value of the estimated future after-tax unlevered cash flows of Crown Media Holdings based on (i) a discount rate of 11.0% to 15.0%, (ii) a five year projection period, (iii) a terminal value of Crown Media Holdings based on a per subscriber value of $21.00 to $25.00 and (iv) 169 million subscribers at the end of the projection period. Based on this analysis, Salomon Smith Barney derived a firm value of Crown Media Holdings of $1,421 million to $2,158 million and an implied equity value of $19.26 to $30.13 per share.

      Using publicly available information, Salomon Smith Barney compared financial, operating and stock market information and forecasted financial information for Crown Media Holdings with the same information for public companies which hold library assets similar to those held by Hallmark Entertainment Distribution. The only comparable company identified by Salomon Smith Barney was Fox Kids Europe N.V. (“FKE”).

      For FKE, Salomon Smith Barney reviewed (i) firm value (excluding the value of FKE’s library assets) as a multiple of the number of subscribers for the year ended December 31, 2000 and (ii) firm value (excluding the value of FKE’s library assets) as a multiple of the estimated number of subscribers for the year ended December 31, 2001, using FKE’s stock price on March 20, 2001. Based on this analysis, Salomon

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      For FKE, Salomon Smith Barney also reviewed (i) firm value as a multiple of estimated earnings before interest, taxes, depreciation and amortization for the year ended December 31, 2002, and (ii) firm value as a multiple of estimated earnings before interest, taxes, depreciation and amortization for the year ended December 31, 2005, using FKE’s stock price on March 20, 2001. Based on this analysis, Salomon Smith Barney derived a firm value of Crown Media Holdings of $773 million to $1,363 million and an implied equity value of $9.69 to $18.40 per share.

      Salomon Smith Barney also reviewed the views of Crown Media Holdings held by Wall Street financial analysts. The most recent Wall Street analyst price targets, discounted back to date, showed an equity value of $17.39 to $25.00 per share of Crown Media Holdings.

      Salomon Smith Barney also reviewed the historic trading levels for Crown Media Holdings. Salomon Smith Barney noted that the 52 week low and high trading prices for the shares of Crown Media Holdings were $10.00 per share and $21.81 per share, respectively.

      In addition to the foregoing analyses, Salomon Smith Barney considered (i) Crown Media Holdings’ cash flow requirements over the medium term, (ii) the impact of the films transaction on Crown Media Holdings’ cash flow over the medium term and (iii) financing alternatives to cover Crown Media Holdings’ cash requirements if the films transaction were not undertaken by Crown Media Holdings. Such financing alternatives were limited and less attractive to Crown Media Holdings.

      The summary set forth above does not purport to be a complete description of the analyses performed by Salomon Smith Barney in arriving at its opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or summary description. Salomon Smith Barney believes that its analyses must be considered as a whole and that considering portions of the analyses and the factors considered by such analysis, without considering all such factors and analyses, could create a misleading view of the processes underlying its opinion. Salomon Smith Barney did not assign relative weights to any of its analyses in preparing its opinion. The matters considered by Salomon Smith Barney in its analyses are based on numerous macroeconomic, operating and financial assumptions which involve the application of complex methodologies and educated judgment. None of the comparable transactions used in the private market valuation analysis described above are identical to the films transaction. None of the companies used in the public market valuation analysis described above are identical to Crown Media Holdings. Accordingly, an analysis of publicly traded comparable companies and transactions is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the comparable companies and other factors that could affect the public trading value of the comparable companies or company to which they are being compared.

      In performing its analyses, Salomon Smith Barney made numerous assumptions with respect to industry performance, general business, financial, market and economic conditions and other factors, many of which are beyond the control of Crown Media Holdings. The analyses which Salomon Smith Barney performed are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by the analyses. These analyses were prepared solely as part of Salomon Smith Barney’s analysis of the fairness, from a financial point of view, of the consideration to be paid by Crown Media Holdings. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future.

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Ownership of Common Stock Before and After the Transaction

      The following chart shows the beneficial ownership of our Common Stock (Class A and Class B) of Crown Media Holdings and the percentage of voting power before and after consummation of the transaction. The beneficial ownership before the transaction is based on 34,751,878 shares of Class A Common Stock and 30,670,422 shares of Class B Common Stock outstanding on March 31, 2001. The shares of Class A Common Stock to be issued to Hallmark Entertainment Distribution in the transaction are included in the holdings of Hallmark Entertainment.

[Additional columns below]

[Continued from above table, first column(s) repeated]

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Accounting Treatment

      The transaction is being accounted for as a purchase of assets from an entity under common control. This results in the film assets being recorded at their historical amounts, the Common Stock issued and liabilities assumed in the transaction being recorded at their fair value and the difference being charged to equity.

      Film costs will be amortized in the proportion of each film’s current revenues to management’s estimate of total revenues. Estimates of total revenues will be periodically evaluated by management; these evaluations may result in revised amortization rates.

Federal Income Tax Consequences of the Transaction

      Under current federal tax law, Crown Media Holdings will not recognize any gain or loss for federal income tax purposes as a result of the films transaction. In addition, Crown Media Holdings’ stockholders will not recognize any gain or loss for federal income tax purposes as a result of the films transaction. This discussion excludes any state, local or foreign tax consequences resulting from the films transaction.

The Purchase and Sale Agreement

      We have entered into a purchase and sale agreement dated as of April 10, 2001 with Hallmark Entertainment Distribution, a Delaware limited liability company and a wholly-owned subsidiary of Hallmark Entertainment. Under the purchase and sale agreement, we have agreed to purchase from Hallmark Entertainment Distribution certain theatrical films, made-for-television movies, specials, mini-series, series and other television programming, consisting of 702 titles, and certain related properties and rights, all as more fully described below.

      We are purchasing 702 titles along with certain properties and rights related to the titles, to the extent that the film assets are owned by Hallmark Entertainment Distribution. The purchase of the film assets is subject to existing agreements between Hallmark Entertainment Distribution and third parties. The film assets include, without limitation, all of Hallmark Entertainment Distribution’s rights in the following:

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      Most of the film assets are subject to rights previously licensed or granted by Hallmark Entertainment Distribution to third parties. Hallmark Entertainment Distribution will retain all of its rights and obligations under license agreements it entered into prior to January 1, 2001, including the right to receive license payments before and after January 1, 2001, under these agreements. Under the terms of the purchase and sale agreement, Hallmark Entertainment Distribution is assigning to us all of its rights, including license payments, and obligations under license agreements it has entered into on or after January 1, 2001.

      The purchase price for the film assets consists of the following:

      The purchase and sale agreement contains customary representations and warranties of each of the parties, including the following:

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      Hallmark Entertainment Distribution makes the following additional representations and warranties:

      Crown Media Holdings makes the following additional representations and warranties:

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      Hallmark Entertainment Distribution and Crown Media Holdings have agreed to the following during the period between the signing of the purchase and sale agreement and the closing of the transaction:

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      Hallmark Entertainment Distribution will indemnify us for all claims damages, liabilities, costs and expenses, up to a maximum of $400 million, arising out of:

      Hallmark Entertainment Distribution’s indemnification obligations for the first two matters above are limited to amounts exceeding $8 million. Hallmark Entertainment Distribution has the right to satisfy 75% of any indemnity obligation by transferring to us shares of our Class A Common Stock valued for purposes of such indemnity at the average stock price used in determining the number of shares issued in the films transaction.

      We will indemnify Hallmark Entertainment Distribution for all claims damages, liabilities, costs and expenses arising out of:

      Most of the representations and warranties by us and Hallmark Entertainment Distribution continue in effect for 24 months, after which time claims may not be made on the basis of such representations and warranties. Each of Hallmark Entertainment Distribution and Crown Media Holdings is required to promptly notify the other if either plans to seek indemnification with regard to any claim.

      The purchase and sale agreement can be terminated at any time prior to closing, notwithstanding approval of our stockholders, as follows:

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Related Agreements

      General. We have entered into a service agreement with Hallmark Entertainment, pursuant to which Hallmark Entertainment will act as exclusive worldwide sales representative in all media for the film assets (except with respect to the digital rights described below). Hallmark Entertainment will perform the sales and distribution services it has provided in the past with respect to the film assets under the terms of this service agreement.

      Services provided by Hallmark Entertainment. Hallmark Entertainment will use commercially reasonable efforts to maximize the licensing revenues from the film assets made available to it by us, consistent with its efforts for comparable product among the film assets. “Comparable” means comparable production value, age, production budget and extent and commercial success of prior licensing. Hallmark Entertainment will promote and advertise the film assets consistent with its past efforts and will include the titles of the film assets on all product lists.

      Hallmark Entertainment will also provide administrative support for processing licenses for the film assets and maintaining the film assets, including but not limited to, distribution, finance and legal services. Distribution services will include maintaining a sales database to track availability of film assets, sales order origination, physical storage and maintenance, technical interface with customers, ordering of masters/elements, execution of deliveries, dubbing, duplication, enhancing quality and coordinating related product requirements such as scripts and promos. Finance services include billing, receivables and collections, financial reporting to third party participants, tracking ultimates, and providing invoices for residuals to us for payment. Legal services include issuing licensing contracts and handling ongoing business affairs, including customer interface and employing outside counsel as we and Hallmark Entertainment deem necessary, at our expense.

      Terms of Distribution. We have sole discretion to determine which properties from the film assets will be licensed by Hallmark Entertainment to third parties, as well as the distribution territories, media and windows. Crown Media Holdings will appoint an executive to act as distribution liaison between us and Hallmark Entertainment who will make these decisions, as well as review all licenses, sales and marketing materials. All license agreements relating to the film assets entered into after the closing of the transaction will be subject to our review and approval and will be entered into on our behalf as licensor.

      We have reserved the right to directly sell or license digital rights to the film assets, which are rights to telecast or distribute by means of interactive digital video services. Interactive digital video services are services and distribution systems incorporating fiber optic, cable, satellite or similar transmission equipment and storage and play-back devices providing users with on-demand access via television to both linear programming and interactive multimedia digital programming. We have also reserved the right to transmit, distribute and otherwise exploit the film assets over Odyssey, the Hallmark Entertainment Network, the Hallmark Channel or any of our future network operations, provided there is no conflict with the license agreements entered into by Hallmark Entertainment or its affiliates.

      Term. The service agreement is for a term of three years commencing on January 1, 2001. Either party has the right to terminate the agreement after the end of the first full year of the term upon 60 days written notice. Upon termination, we can take physical possession of all license and production agreements, assignments and other material documents, and copies of rights availabilities and copyright databases relating to the film assets that are in Hallmark Entertainment’s possession, other than agreements entered into prior to January 1, 2001, and related documents.

      Service Fee. We will pay Hallmark Entertainment a fee of $1.5 million per year under the services agreement, payable in quarterly installments.

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      Third Party Disputes and Indemnification. If claims, actions or proceedings are brought against Hallmark Entertainment or its affiliates alleging that any of the film assets infringes or misappropriates any copyright or other proprietary right or title, or which otherwise arises from the actions of Hallmark Entertainment or its affiliates in performing services under the services agreement, Hallmark Entertainment is required to provide us with prompt written notice and we will defend or settle the claim in our discretion and at our cost. We will release and have agreed to indemnify Hallmark Entertainment and its affiliates and their employees, agents and representatives for any and all damages, claims, costs and reasonable attorney’s fees resulting from or arising out of the performance by Hallmark Entertainment or its affiliates of Hallmark Entertainment’s obligations under the service agreement (other than deliberate wrongful acts, gross negligence or Hallmark Entertainment’s breach of the service agreement for which Hallmark Entertainment will indemnify us) and for any breach by us under the service agreement. In no event will any liability of Hallmark Entertainment to Crown Media Holdings exceed the amount of fees paid to Hallmark Entertainment under the service agreement nor will Hallmark Entertainment or its affiliates be liable for consequential or special damages, including cost profits.

      Crown Media International, our subsidiary that operates the Hallmark Entertainment Network (also known as the Hallmark Channel) internationally, and Odyssey Holdings, our subsidiary that operates the Odyssey Network domestically, each have an agreement with Hallmark Entertainment Distribution, pursuant to which they license programming from Hallmark Entertainment Distribution. A description of these agreements is contained elsewhere in this proxy statement under the heading “Certain Relationships and Related Transactions — Program Agreements.” Upon consummation of our purchase of the film assets, these original program agreements will be amended as follows:

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      We have agreed to grant Hallmark Entertainment Distribution registration rights with respect to the shares of Class A Common Stock to be issued in payment of a portion of the purchase price for the film assets. These registration rights are similar to the registration rights held by the parties to the stockholders agreement described elsewhere in this proxy statement under “Certain Relationships and Related Party Transactions — Stockholders Agreement and Registration Rights.” Hallmark Entertainment Distribution will have the right to require us, on four occasions, to register for sale their shares of Class A Common Stock, so long as such number of shares exceeds 7% of the aggregate number of our Common Stock then outstanding. Hallmark Entertainment Distribution will also have an unlimited number of “piggyback” registration rights. This means that any time we register our Common Stock for sale, on our behalf or on behalf of any stockholders other than Hallmark Entertainment Distribution, Hallmark Entertainment Distribution will have the right to include their Class A Common Stock in the offering.

      As under the stockholders agreement, we are obligated to pay all expenses that result from the registration of Hallmark Entertainment Distribution’s shares, other than registration and filing fees, attorneys fees, underwriter fees or expenses and underwriting discounts and commissions. We have also indemnified Hallmark Entertainment Distribution against any liabilities that may result from their sale of the Class A Common Stock, including Securities Act liabilities.

Risk Factors

      In addition to the other material contained in, or incorporated by reference into, this proxy statement, you should carefully consider the following risk factors in evaluating whether or not to approve the films transaction, including the issuance of shares of our Class A Common Stock in connection with the transaction.

      Upon completion of the transaction, we will be able to license the film assets to third parties and utilize the film assets in our Hallmark Channel and Odyssey Network programming and interactive services (currently being tested). Our success depends partly upon unpredictable and volatile factors beyond our control, such as viewer preferences, competing programming and the availability of other entertainment activities. In addition, our competitors may have greater volumes of production, distribution and capital resources, and may be able to react more quickly to shifts in tastes and interests. A shift in viewer preferences in programming or alternative entertainment activities could negatively impact the amount of revenues we receive from licensing the films. The decline in revenues could hinder or prevent us from achieving profitability and could adversely affect the market price of our Common Stock.

      A significant amount of the additional revenue we expect to obtain as a result of the films transaction will be generated from the distribution and licensing of the film assets to third parties. Initially, we will be dependent on Hallmark Entertainment to provide these services for us under the terms of a three-year service agreement. In addition, we and Hallmark Entertainment have the right to terminate the service agreement after the first year. If Hallmark Entertainment should terminate the agreement prior to the time we have established our own employee base to perform these services, we may not be able to obtain alternative distribution services of equivalent quality or on terms as favorable to us. Consequently, any significant interruption in these services could hinder our ability to achieve the amount of additional revenues anticipated from these activities and could adversely affect the market price of our Common Stock.

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      We expect to appoint an executive to act as distribution liaison between us and Hallmark Entertainment under the service agreement and also anticipate later hiring our own employee base to perform these services. Our ability to do so is unproven and will require substantial financial, operational and management resources. We may not be able to hire the number of employees, or employees who are sufficiently qualified, to perform these services, or do so in a cost efficient manner. If the cost to develop and maintain this employee base costs more, or takes longer than anticipated, it could have a negative impact on our business and financial results.

PROPOSAL 2

ELECTION OF DIRECTORS

      Our Board currently has 11 members. There is one vacancy as noted below. Proxy holders will vote for the 10 nominees listed below. All nominees are currently members of our Board and their terms, if elected, will continue until the next annual meeting of stockholders or until their successors are duly elected and qualified. Each of the nominees has consented to serve on our Board. If any nominee is unable to serve as a director, the current Board may designate a substitute nominee and the proxies will vote all valid proxy cards for the election of the substitute nominee.

      Pursuant to a stockholders agreement, our Board consists of 11 individuals nominated as follows: six nominated by Hallmark Entertainment, the sole holder of our Class B Common Stock; one nominated by each of Liberty Media Corporation, VISN Management, a subsidiary of National Interfaith Cable Coalition, and J.P. Morgan Partners; and two independent directors nominated by the Board who are not officers or employees of Hallmark Entertainment, Liberty Media Corporation, the National Interfaith Cable Coalition or J.P. Morgan Partners. See “Board Information — Structure” and “Certain Relationships and Related Transactions — Stockholders Agreement.”

      Of the nominees for the Board, Robert A. Halmi, Jr., David J. Evans, Robert J. Druten, Donald J. Hall, Jr., Irvine O. Hockaday, Jr. and John P. Mascotte have been nominated by Hallmark Entertainment; David B. Koff has been nominated by Liberty Media Corporation; Wilford V. Bane, Jr. has been nominated by VISN Management; and Arnold L. Chavkin has been nominated by J.P. Morgan Partners. Each of Liberty Media Corporation, National Interfaith Cable Coalition and J.P. Morgan Partners hold Class A Common Stock. In addition, the Board has nominated Peter A. Lund as an independent director. William M. Haber was an independent director nominated by the Board until his resignation on May 3, 2001, because of a new position which he took at an entertainment cable television program service. The vacancy on the Board created by Mr. Haber’s resignation will be filled subsequent to the 2001 Annual Meeting by the Board in accordance with the stockholders agreement and our bylaws.

      Because Hallmark Entertainment holds all of the Class B Common Stock, representing approximately 90% of the voting power of the Company, its vote in favor of the nominees will be sufficient to elect these nominees regardless of the vote of any other stockholders.

Board Nominees

      Robert A. Halmi, Jr., age 44, has been the Chairman of the Board of Crown Media Holdings since May 2000 and prior to that had been Chairman of the board of directors of Crown Media International since April 1996. He has also been the President and Chief Executive Officer of Hallmark Entertainment since April 1994. Mr. Halmi has been an executive producer of award-winning television programming, such as Lonesome Dove, which won several Emmy Awards, a Golden Globe Award and a Peabody Award. Prior to joining Hallmark Entertainment, he was with RHI Entertainment since its inception in 1989.

      David J. Evans, age 60, has been the President and Chief Executive Officer and a director of Crown Media Holdings since May 2000. He was the President and Chief Executive Officer of Crown Media International from March 1999 to May 2000, and a director of Crown Media International from July 1999 to

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      Wilford V. Bane, Jr., age 63, has been a director of Crown Media Holdings since May 2000. He was the Associate General Secretary of United Methodist Communications, the communications agency for the United Methodist Church, from October 1990 to February 2001. Mr. Bane also serves as chair of VISN Management, a subsidiary of National Interfaith Cable Coalition. He helped found and launch the Vision Interfaith Satellite Network, the predecessor of Odyssey Network, and served as the interim Chief Executive Officer for its first two years.

      Arnold L. Chavkin, age 49, has been a director of Crown Media Holdings since May 2000. From 1998 until May 2000, Mr. Chavkin was a director of Crown Media International. From April 1991 to January 2001, he was a general partner, and since January 2001 has been a limited partner, of JPMP Master Fund Manager, L.P. (formerly Chase Capital Partners), the general partner of JP Morgan Partners, a general partnership that invests in private equity opportunities with a significant concentration on the media and telecommunications industries. Prior to 1991, Mr. Chavkin was a member of Chemical Bank’s merchant banking group and a generalist in its corporate finance group. He is a member of the board of directors of American Tower Corporation, Encore Acquisition Partners, Inc., R&B Falcon Corporation, SMG, Inc., TeleCorp PCS, Inc., Triton PCS, Inc., U.S. Silica Company, Carrizo Oil & Gas, Inc. and Wireless One, Inc.

      Robert J. Druten, age 53, has been a director of Crown Media Holdings since May 2000 and was a director of Crown Media International from April 1996 to May 2000. He has also been the Vice President and Chief Financial Officer of Hallmark Cards since November 1994. Mr. Druten is the Trustee of Entertainment Properties Trust. He is also a member of the board of directors of Hallmark Entertainment and Hallmark Cards Holdings Limited.

      Donald J. Hall, Jr., age 45, has been a director of Crown Media Holdings since May 2000 and the Vice President, Strategy and Development, of Hallmark Cards since September 1999. He has also been the Vice Chairman of the board of directors of Hallmark Cards since 1996. Mr. Hall has served in a variety of positions for Hallmark Cards since 1971. Mr. Hall was the Vice President, Product Development, of Hallmark Cards from September 1997 until September 1999. Prior to that, he was the Vice President, Creative, from March 1995 until September 1997. Mr. Hall is a member of the board of directors of Hallmark Entertainment and Business Men’s Assurance Company of America.

      Irvine O. Hockaday, Jr., age 64, has been a director of Crown Media Holdings since May 2000 and was a director of Crown Media International from April 1996 until May 2000. He has also been the President and Chief Executive Officer of Hallmark Cards since January 1986. Prior to joining Hallmark Cards in 1983, Mr. Hockaday served as President and Chief Executive Officer of Kansas City Southern Industries, Inc. from 1971 until 1983. He is a member of the board of directors of Hallmark Cards, Ford Motor Company, Dow Jones & Company, Inc., Sprint Corporation and UtiliCorp United, Inc. Mr. Hockaday is a trustee of the Hall Family Foundations, the Aspen Institute and Princeton University.

      David B. Koff, age 42, has been a director of Crown Media Holdings since May 2000. He has also been a Senior Vice President of Liberty Media Corporation since February 1998. Prior to that, Mr. Koff was the Vice President, Corporate Development, of Liberty Media Corporation from August 1994 until February 1998. He also served as the interim President and Chief Executive Officer of Liberty Digital, Inc. from May 1997 until January 1998. Mr. Koff has served as a member of the board of directors of Liberty Digital since May 1997.

      Peter A. Lund, age 60, has been a director of Crown Media Holdings since May 2000 and has been a private investor and a media consultant since June 1997. He has been a director of Hughes Electronic Corporation since April 2000 and since October 1999, he has been serving as the Chief Executive Officer and as a director of Dreamlife, Inc. He was the President and Chief Executive Officer of CBS, Inc. from October

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      John P. Mascotte, age 61, has been a director of Crown Media Holdings since May 2000 and the President and Chief Executive Officer of Blue Cross and Blue Shield of Kansas City, Inc. since July 1997. Prior to that, he was the Chairman of Johnson & Higgins of Missouri, Inc., a privately held insurance services and employee benefits consulting firm, from January 1996 until June 1997. Mr. Mascotte also served as a consultant to CNA Insurance from May 1995 until December 1995. From 1983 until May 1995, he was the Chairman and Chief Executive Officer of Continental Corporation, an insurance holding company. Mr. Mascotte is a member of the board of directors of American Home Products Corporation, Hallmark Cards, Hallmark Entertainment, Blue Cross and Blue Shield of Kansas City, Inc., Blue Cross and Blue Shield Association and Business Men’s Assurance Company of America.

      THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THESE NOMINEES

APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CROWN MEDIA HOLDINGS TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF CLASS A COMMON STOCK TO 200,000,000

      The Amended and Restated Certificate of Incorporation of Crown Media Holdings currently authorizes the issuance of a total of 150,000,000 shares of Class A Common Stock, 120,000,000 shares of Class B Common Stock, and 10,000,000 shares of Preferred Stock. As of March 31, 2001, there were issued and outstanding 34,751,878 shares of Class A Common Stock, 30,670,422 shares of Class B Common Stock and no shares of Preferred Stock. As of that date, there were 10,000,000 shares of Class A Common Stock reserved for issuance upon the exercise of options under the Amended and Restated Crown Media Holdings, Inc. 2000 Long Term Incentive Plan and 30,670,422 shares of Class A Common Stock reserved for issuance upon conversion of Class B Common Stock. In addition, upon approval by stockholders of Crown Media Holdings’ purchase of certain film assets from Hallmark Entertainment Distribution, we will issue an additional 32,085,562 to 35,294,118 shares of Class A Common Stock. Further, we may make an offering of securities during 2001 if the films transaction is completed; and such an offering could involve shares of Common Stock. The currently authorized shares are sufficient for these contemplated purposes, but the shares that would remain authorized, not issued and not reserved after these transactions could limit our flexibility in the future.

      The Board has adopted and approved, and recommends that the Company’s stockholders adopt and approve, an amendment to Article IV of our Certificate of Incorporation that would increase the number of authorized shares of Class A Common Stock from 150,000,000 to 200,000,000. The amendment will not increase or otherwise affect the number of authorized shares of Class B Common Stock or Preferred Stock. The provisions of Article IV of the Certificate of Incorporation, as proposed to be amended, are set forth in Appendix C to this proxy statement.

      The Board believes it is in our and our stockholders’ best interests to increase the number of authorized shares of Class A Common Stock so that we may issue additional shares to meet the Company’s needs as they arise. The Board believes that if additional shares are available, we will have the flexibility to issue shares of Class A Common Stock, without the expense and delay of a special stockholders meeting, for possible future financings; stock splits, dividends, or distributions; acquisitions of businesses, properties or securities of other companies; stock option plans; or other corporate purposes that may be identified in the future by the Board.

      If approved by the stockholders, the additional authorized shares of Class A Common Stock will be available to be issued at such time and for such corporate purposes as the Board may deem advisable, without further action by the Company’s stockholders, except as may be required by applicable law or by the rules of the Nasdaq National Market or any stock exchange or national securities association trading system or authorized quotation system on which the Class A Common Stock may be listed, traded or quoted. Upon issuance, the additional shares will have the same rights as the outstanding shares of Class A Common Stock. Holders of shares of Class A Common Stock have no preemptive rights.

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      The Company has no current arrangements, agreements, understandings, or plans to issue or use the additional shares of Class A Common Stock proposed to be authorized. However, the Board believes that the current number of authorized unreserved shares of Class A Common Stock may be insufficient to meet the Company’s future needs. The Board intends to issue Class A Common Stock only on terms it deems to be in our and our stockholders’ best interests. Any future issuance of Class A Common Stock will be subject to the rights of holders of outstanding shares of Preferred Stock, if any.

      The Company’s Certificate of Incorporation and bylaws include certain provisions that may have the effect of discouraging, delaying or preventing a change in control of the Company (even though a change in control could be beneficial to the Company’s stockholders generally), including procedural requirements with respect to stockholder action. In addition, the Certificate of Incorporation prohibits action by written consent of the stockholders if Hallmark Cards or its affiliates cease to own beneficially 50% or more of the total voting power.

      Issuing additional shares of the Company’s capital stock, including shares authorized pursuant to this amendment to the Articles of Incorporation, could also have the effect of discouraging, delaying, or preventing a change in control of Crown Media Holdings. However, we are not aware of any efforts by another party to acquire a controlling interest or to seek representation on the Board and this proposal is not being submitted to frustrate any such efforts. The amendment is also not part of any plan by management to adopt a series of amendments to the Certificate of Incorporation or bylaws that would render a takeover more difficult. Except as indicated above, management is not aware of the existence of any other provisions in the Certificate of Incorporation or bylaws, or otherwise, having an anti-takeover effect.

      Issuing additional shares of Class A Common Stock may have a dilutive effect on earnings per share and on the equity and voting power of existing holders of Class A Common Stock. It may also adversely affect the market price of the Class A Common Stock. However, in the event additional shares are issued in transactions which result in favorable business opportunities or that provide working capital sufficient to allow the Company to pursue its business plans, the dilutive effect on earnings per share may be offset, causing the market price of the Class A Common Stock to increase.

      The affirmative vote of the holders of a majority of the voting power of the outstanding Class A and Class B Common Stock, voting as a single class, is necessary to approve the amendment to our Certificate of Incorporation. Unless otherwise instructed, properly executed proxies that are returned in a timely manner will be voted in favor of adoption of the amendment.

      THE BOARD RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF CROWN MEDIA HOLDINGS TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CLASS A COMMON STOCK TO 200,000,000

PROPOSAL 4

RATIFICATION OF AMENDMENT TO

Amendment to the Amended and Restated Crown Media Holdings 2000 Long Term Incentive Plan

      On August 1, 2000, the Board adopted and approved an amendment to the Amended and Restated Crown Media Holdings 2000 Long Term Incentive Plan. The amendment provided for the issuance of stock options to key employees of Odyssey Holdings in exchange for outstanding stock appreciation rights (SARs) previously awarded by Odyssey Holdings. It also established a maximum number of options which an eligible person could receive in any calendar year. The Plan already provided for the conversion of Crown Media International SARs to Crown Media Holdings stock options. A copy of the Plan, as amended to permit the conversion of Odyssey Holdings SARs, is attached as Appendix D to this proxy statement.

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      The amendment consists of:

The formula used to determine the option price in the conversion of Odyssey SARs to stock options is described below.

      Pursuant to the Odyssey Holdings SAR conversion, options to purchase 1.3 million shares of Class A Common Stock, with an exercise price of $8.94 per share, were issued to key employees upon the conversion of 5,000,000 Odyssey Holdings SARs held by such employees. The number of shares underlying the option grants were calculated as that number of shares of Class A Common Stock of Crown Media Holdings equal to the aggregate appreciation in value of the Odyssey Holdings SARs from the date of grant to the conversion date ($8.6 million) divided by the closing sale price of the shares of Class A Common Stock on the date of conversion ($15.88 per share). The options issued pursuant to the conversion vest in three equal installments; the first third vested on the date of grant and the remainder vest on each of January 1, 2001 and 2002. Other than exercise price and vesting provisions, these options have the same terms as other options granted under the Amended and Restated 2000 Long Term Incentive Plan.

Summary of the Plan

      The following summary describes the principal provisions of the Plan.

      The Plan is designed to promote our success and enhance our value by linking the interests of our officers, employees and directors to those of our stockholders and by providing participants with an incentive for outstanding performance. The Plan is further intended to provide flexibility in its ability to motivate, attract and retain employees upon whose judgment, interest and special efforts our business is largely dependent. Our officers, employees and directors, including non-employee directors, and the officers, employees and directors of our subsidiaries and affiliates, and certain consultants are eligible to participate in the Plan. The Plan is intended to remain in effect until 2010. As of March 31, 2001, the approximate number of employees who are entitled to participate is 430 and the number of non-employee directors entitled to participate is six.

      The Plan is administered by the Compensation Committee of our Board and, in the case of non-employee directors, by the Board, and provides for the grant to officers and employees of non-qualified and incentive options to purchase shares of our Class A Common Stock and other types of equity-based and cash-based awards. The only awards that may be granted to non-employee directors are stock options and deferred stock units for the number of shares of Class A Common Stock as may be determined by the Board. A maximum of 10 million shares of Class A Common Stock are available for issuance pursuant to the exercise of options granted under the Plan. No more than one million of these shares may be used for grants of restricted stock and no more than five million of these shares may be used for grants of incentive stock options. The value of the Class A Common Stock underlying the rights to be granted under the Plan was $20.80 per share, as of April 30, 2001.

      Options granted under the Plan have a term of not more than 10 years. The Plan currently provides that, unless otherwise determined by the Compensation Committee or, with respect to non-employee directors, the Board, any options granted vest ratably on each of the first five anniversaries after the grant date. In August 2000, the Board determined that the vesting schedule of options issued under the Plan, including the vesting schedule of then outstanding options, would be equal annual installments over four years.

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      The Compensation Committee, in accordance with the Plan, determines the option exercise price per share, but in no event is it to be less than the fair market value of the Class A Common Stock on the date of grant. A participant exercising an option may pay the exercise price in cash. If approved by our Compensation Committee, a participant may pay the exercise price with previously acquired shares of Class A Common Stock either purchased on the open market or held for six months or longer, or in a combination of cash and stock. Our Compensation Committee, in its discretion, may allow broker-assisted cashless exercises of options.

      Options are generally nontransferable other than by will or the laws of descent and distribution. At the discretion of our Compensation Committee, non-qualified options may be transferable by gift to members of the holder’s immediate family. The gift may be made directly or indirectly or by means of a trust or partnership or limited liability company and, during the participant’s lifetime, may be exercised only by the participant, a permitted transferee, a guardian or a legal representative.

      An SAR permits a participant to receive cash or shares of Class A Common Stock, or a combination thereof, as determined by our Board or our Compensation Committee. They may grant freestanding SARs or SARs in connection with options. The amount of cash or the value of the shares is equal to the excess of the fair market value of a share of Class A Common Stock on the date of exercise over the SAR exercise price, multiplied by the number of shares with respect to which the SAR is exercised. Restricted stock may be granted subject to performance or service-based goals upon which restrictions will lapse. Performance units may be granted subject to performance goals and/or service-based restrictions, and are payable in cash or shares of Class A Common Stock or a combination as determined by our Board or our Compensation Committee. We may also grant other awards of Class A Common Stock and other stock-based awards, including dividend equivalents. Non-employee directors may defer all or a portion of their fees into a deferred share account which will also accrue additional shares to reflect dividends that would have been paid on the shares credited to the share account. Additionally, non-employee directors receive a number of shares of Class A Common Stock equal to the number of shares in the non-employee director’s share account, plus cash for fractional shares.

      In the event of a change in control, any option or SAR that is not then exercisable or vested shall become exercisable and vested, restrictions on restricted stock will lapse, and performance units will be deemed earned at targeted performance levels and paid on a pro rata basis for the portion of the related performance period that has elapsed as of the date of the change in control. Change in control generally means:

      Our Board may at any time amend or terminate the Plan and may amend the terms of any outstanding option or other award, except that no termination or amendment may impair the rights of the participants as they relate to outstanding options or awards. However, no such amendment will be made without the approval of our stockholders to the extent such approval is required by law or the rules of the Nasdaq National Market or any stock exchange or national securities association trading system or authorized quotation system on which the Class A Common Stock may be listed, traded or quoted.

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      The grant of an option creates no tax consequences for the participant or us. Upon exercising an option, other than an incentive stock option, the participant will generally recognize ordinary income equal to the difference between the exercise price and the fair market value of the shares acquired on the date of exercise, and we generally will be entitled to a tax deduction for the same amount. A participant generally will not recognize taxable income upon exercising an incentive stock option, and we will not be entitled to any tax deduction with respect to an incentive stock option, if the participant holds the shares for the applicable periods specified in the Internal Revenue Code.

      As of March 31, 2001, options to purchase a total of 5,739,529 shares of Class A Common Stock have been issued under the Plan. No other grants have been awarded under the Plan. The following table sets forth certain information with respect to options granted under the Plan:

Ratification of Amendment to the Plan

      The affirmative vote of the holders of a majority of the voting power represented by the shares of Class A and Class B Common Stock, voting together as a single class, represented in person or by proxy and entitled to vote at the meeting, is necessary to ratify the amendment to the Plan. Unless otherwise instructed, properly executed proxies, which are returned in a timely manner, will be voted in favor of ratification of the amendment to the Plan.

      THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE AMENDMENT TO THE AMENDED AND RESTATED CROWN MEDIA HOLDINGS, INC. 2000 LONG TERM INCENTIVE PLAN

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BOARD INFORMATION

Structure

      Our Board consists of 11 directors, all of whom are nominees for re-election. Directors are elected annually. Our Board has an Audit Committee and a Compensation Committee. The membership, duties and responsibilities of each of these committees are described below and the respective reports of these committees to our stockholders are set forth below.

      Nominations to our Board are governed by our bylaws and a stockholders agreement by and among the Company, Hallmark Entertainment, Liberty Media Corporation, Liberty Crown, Inc. (a subsidiary of Liberty Media Corporation), VISN Management (a subsidiary of the National Interfaith Cable Coalition), J.P. Morgan Partners and The Jim Henson Company, Inc. The stockholders agreement provides that the Board will consist of not less than 11 directors, with six nominated by Hallmark Entertainment, one nominated by each of Liberty Media Corporation, VISN Management and J.P. Morgan Partners and two independent directors (who may not be officers, employees or directors of any of the parties to the stockholders agreement or their affiliates) nominated by the Board. The right of any party to nominate a director pursuant to the stockholders agreement will terminate on the later of (1) the party owning less than 5% of our common stock then outstanding, or (2) the party ceasing to own at least 75% of the amount of our common stock that the party owned immediately following completion of our initial public offering on May 9, 2000 (“IPO”). See “Certain Relationships and Related Transactions — Stockholders Agreement and Registration Rights.”

Meetings

      In 2000, the Board held a total of ten meetings, and took action twice by unanimous written consent. All of our directors attended at least 75% of the aggregate of the total number of Board meetings and the total number of meetings held by all committees on which such director served during 2000, except for Mr. Lund, who attended less than 75% of the aggregate of the total number of Board meetings and the total number of meetings of the Audit Committee.

Committees

      Our Board established the Audit Committee on June 8, 2000. The Audit Committee held three meetings in 2000. The members of the Audit Committee are Messrs. Mascotte, Chairman, Chavkin and Lund, each of whom are independent directors as defined in Rule 4200(a)(14) of the Nasdaq National Marketplace Rules. The Board has adopted a written charter for the Audit Committee, a copy of which appears as Appendix E to this proxy statement. The functions of the Audit Committee are to:

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REPORT OF THE AUDIT COMMITTEE

      Management is responsible for the Company’s internal controls and the Company’s independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with U.S. generally accepted accounting principles and issuing a report on the financial statements. The Audit Committee has general oversight responsibility with respect to these matters. The Audit Committee reviews the results and scope of the audit provided by the Company’s auditors.

      The Audit Committee has met and held discussions with our management and independent auditors. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee has:

      Based on the Audit Committee’s review and discussions detailed above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 for filing with the Securities and Exchange Commission.

THE AUDIT COMMITTEE

John P. Mascotte, Chairman

      The Board established the Compensation Committee on June 8, 2000, following our IPO. Prior to that date, the Board performed the functions of the Compensation Committee and made substantially all of the decisions in relation to the compensation paid to our chief executive officer, our other executive officers and key members of our management staff in 2000. The Compensation Committee held no formal meetings in 2000. The Compensation Committee has commenced its functions in 2001, which are to review and approve annual salaries, bonuses and grants of stock options, if any, for all executive officers and key members of our management staff, and to review and approve the terms and conditions of all employee benefit plans or changes to the plans. The members of the Compensation Committee are Messrs. Chavkin, Chairman, Bane and Druten, none of whom are employees of the Company. Mr. Haber was also a member of the Compensation Committee until his resignation from our Board on May 3, 2001. See “Compensation of Directors and Executive Officers — Board Report on Executive Compensation” and “— Compensation Committee Interlocks and Insider Participation.”

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information, as of March 31, 2001, with respect to beneficial ownership of our Class A Common Stock and Class B Common Stock, by each of the Named Executives (defined below), each director, each holder of more than 5% of either Class A or Class B Common 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 shares shown as owned by them, unless otherwise noted. The percentage of beneficial ownership is based on 34,751,878 shares of our Class A Common Stock and 30,670,422 shares of our Class B Common Stock outstanding as of March 31, 2001.

Amount and Nature of Beneficial Ownership(1)