Crown Media Holdings Inc. said Thursday that Hallmark Cards Inc. has offered to recapitalize $500 million of the cable television network operator? debt in exchange for convertible preferred stock and new debt.

Kansas City-based Hallmark Cards is Studio City-based Crown? primary debt holder, and its Hallmark Entertainment Holdings is the company? largest shareholder with nearly 72 percent of outstanding shares. A recapitalization would prevent Crown, owner of the Hallmark Channel and Hallmark Movie Channel, from defaulting on more than $1 billion of debt that otherwise would be due May 1, 2010, according to regulatory filings.

Crown said in a press release that it will form a special board committee to consider the proposal. The company recently has experienced upheaval in its top executive ranks, with both its chief executive and the executive vice president in charge of programming leaving the company this month.

Before the announcement, Crown shares closed up 2 cents, or less than 1 percent, to $3.03 on the Nasdaq.