d1077206_13d-a.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
13D/A
(Rule
13d−101)
INFORMATION
TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO §240.13-d-1(a)
AND
AMENDMENTS THERETO FILED PURSUANT TO §240.13-d-2(a)
Crown
Media Holdings, Inc.
Class A
Common Stock, $0.01 par value
(Title of
Class of Securities) |
Salvatore
Muoio
S. Muoio
& Co. LLC
c/o 509
Madison Avenue, Suite 406
New York,
New York 10022
(212)
297-2555
(Name,
Address and Telephone Number of Person Authorized
to
Receive Notices and Communications)
(Date of Event
which Requires Filing of this
Statement) |
If the
filing person has previously filed a statement on Schedule 13G to report the
acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of §§. 240.13d−1(e), 240.13d−1(f) or 240.13d−1(g), check the
following box. x
Note:
Schedules filed in paper format shall include a signed original and five copies
of the schedule, including all exhibits. See §240.13d-7 for other
parties to whom copies are to be sent.
(Continued
on following pages)
(Page 1
of [__])
__________________________________
* The remainder of
this cover page shall be filled out for a reporting person's initial filing on
this form with respect to the subject class of securities, and for any
subsequent amendment containing information which would alter disclosures
provided in a prior cover page.
The
information required on the remainder of this cover page shall not be deemed to
be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934
("Act") or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
CUSIP No.
228411104
Page 2 of 8 Pages
1. NAMES
OF REPORTING PERSONS
S. Muoio & Co. LLC
2. CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions)
(a) o
(b) o
3. SEC
USE ONLY
4. SOURCE
OF FUNDS (see instructions)
AF, WC
5.
|
CHECK
IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR
2(e)
|
6. CITIZENSHIP
OR PLACE OF ORGANIZATION
Delaware
NUMBER
OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7. SOLE
VOTING POWER
0
|
8. SHARED
VOTING POWER
4,231,376
|
9. SOLE
DISPOSITIVE POWER
0
|
10. SHARED
DISPOSITIVE POWER
4,231,376
|
11 AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,231,376
12
|
CHECK
IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (see
instructions)
|
13 PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.71%1
14 TYPE
OF REPORTING PERSON (see instructions)
OO, IA
1 Based on
74,117,654 shares of Class A Common Stock outstanding as of November 3, 2009, as
reported by Crown Media Holdings, Inc. in its Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on November 5,
2009.
CUSIP No.
228411104
Page 3 of 8
Pages
1. NAMES
OF REPORTING PERSONS
Salvatore Muoio
2. CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions)
(a) o
(b) o
3. SEC
USE ONLY
4 SOURCE
OF FUNDS (see instructions)
AF, WC
5.
|
CHECK
IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR
2(e)
|
6. CITIZENSHIP
OR PLACE OF ORGANIZATION
United States of America
NUMBER
OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7. SOLE
VOTING POWER
24,000
|
8. SHARED
VOTING POWER
4,231,376
|
9. SOLE
DISPOSITIVE POWER
24,000
|
10. SHARED
DISPOSITIVE POWER
4,231,376
|
11. AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,255,376
12.
|
CHECK
IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES (see
instructions)
|
13. PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.74%2
14 TYPE
OF REPORTING PERSON (see instructions)
IN, HC
2 Based on
74,117,654 shares of Class A Common Stock outstanding as of November 3, 2009, as
reported by Crown Media Holdings, Inc. in its Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on November 5,
2009.
CUSIP No.
228411104
Page 4 of 8
Pages
This
Amendment No. 1 (this "Amendment No. 1") amends the Schedule 13D (the "Schedule
13D") previously filed by S. Muoio & Co. LLC and Salvatore Muoio (together,
the "Reporting Persons") with the Securities and Exchange Commission on June 14,
2009 with respect to the Class A Common Stock, $0.01 par value (the "Class A
Shares"), of Crown Media Holdings, Inc. (the "Issuer"). Capitalized
terms used but not otherwise defined herein shall have the meaning ascribed to
such terms in the Schedule 13D.
Item
4.
|
Purpose
of Transaction.
|
Item 4 is
hereby amended and supplemented by adding the following at the end
thereof:
On
February 10, 2010, Hallmark Cards and the Issuer each publicly announced revised
terms applicable to the Proposed Recapitalization (the "Revised
Recapitalization"). With respect to the Revised Recapitalization, on
February 28, 2010 the Reporting Persons delivered a letter to the Issuer's
special committee of independent directors formed to consider the Proposed
Recapitalization. The letter reiterates the Reporting Persons'
continuing objections to the Revised Recapitalization and their intention to
continue to pursue legal remedies with respect thereto. A copy of the
letter is attached to this Amendment No. 1 as exhibit 99.3.
Item
5.
|
Interest
in Securities of the Issuer.
|
Item 5 is
hereby amended and restated to read in its entirety as follows:
S. Muoio
& Co. LLC ("SMC")
(a-e) As of the date hereof, SMC may be
deemed to be the beneficial owner of 4,231,376 Class A Shares or 5.71% of the
Class A Shares of the Issuer, based upon the number of Class A Shares
outstanding.3
SMC has the sole power to vote or
direct the vote of 0 Class A Shares and the shared power to vote or direct the
vote of 4,231,376 Class A Shares to which this filing relates.
SMC has the sole power to dispose or
direct the disposition of 0 Class A Shares and the shared power to dispose or
direct the disposition of 4,231,376 Class A Shares to which this filing
relates.
The trading dates, number of shares
purchased and sold and price per share for all transactions in the Class A
Shares during the past 60 days by SMC, and/or SMC on behalf of the private
investment vehicles and managed accounts over which SMC has investment
discretion, are set forth in Appendix A hereto, which is incorporated herein by
reference, and were all effected in broker transactions.
Salvatore
Muoio
(a-e) As of the date hereof, Salvatore
Muoio may be deemed to be the beneficial owner of 4,255,376 Class A Shares or
5.74% of the Class A Shares of the Issuer, based upon the number of Class A
Shares outstanding.4
_____________________________
3 Based on
74,117,654 shares of Class A Common Stock outstanding as of November 3, 2009, as
reported by Crown Media Holdings, Inc. in its Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on November 5,
2009.
4 Based on
74,117,654 shares of Class A Common Stock outstanding as of November 3, 2009, as
reported by Crown Media Holdings, Inc. in its Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on November 5,
2009.
CUSIP No.
228411104
Page 5 of 8
Pages
Salvatore Muoio has the sole power to
vote or direct the vote of 24,000 Class A Shares and the shared power to vote or
direct the vote of 4,231,376 Class A Shares to which this filing
relates.
Salvatore Muoio has the sole power to
dispose or direct the disposition of 24,000 Class A Shares and the shared power
to dispose or direct the disposition of 4,231,376 Class A Shares to which this
filing relates.
Salvatore Muoio has not effected any
transactions in the Class A Shares during the 60-day period preceding the date
this Schedule 13D was filed.
Item
7.
|
Material
to be Filed as Exhibits.
|
Exhibit
99.3: Letter from the Reporting Persons to the Special Committee of the Issuer,
dated February 28, 2010.
CUSIP No.
228411104
Page 6 of 8
Pages
Signature
After
reasonable inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and
correct.
Date: March
1, 2010
S. Muoio
& Co. LLC
By: /s/ Salvatore
Muoio
Name: Salvatore
Muoio
Title: Managing
Member
Salvatore
Muoio
/s/ Salvatore
Muoio
Name:
Salvatore Muoio
CUSIP No.
228411104
Page 7 of 8
Pages
APPENDIX
A
TRANSACTIONS
IN THE SHARES EFFECTED BY THE
REPORTING
PERSONS DURING THE PAST SIXTY DAYS
(UNLESS
OTHERWISE STATED, ALL TRANSACTIONS WERE EFFECTED IN
THE OPEN
MARKET)
S. MUOIO
& CO. LLC
Date
of Trade
|
Shares
Purchased (Sold)
|
Price
per Share
|
12/30/09
|
(57,900)
|
$1.33
|
CUSIP No.
228411104
Page 7 of 8
Pages
Exhibit
99.3
S. Muoio
& Co. LLC
509
Madison Avenue, Suite 406
New York,
New York 10022
February
28, 2009
Special
Committee of the Board of Directors
c/o
Corporate Secretary
Crown
Media Holdings, Inc.
12700
Ventura Boulevard
Studio
City, California 91604
Attention: Drue
Jennings, Chairman
Re: S. Muoio
& Co. LLC v. Abbott et al.
Dear
Drue:
We are
writing to reiterate our and our fellow minority stockholders' objections to a
proposed recapitalization of Crown Media Holdings, Inc. ("Crown" or the
"Company") on the terms set forth in a non-binding term sheet, dated February 9,
2010, between the Company and its controlling shareholder, H C Crown Corp. (a
wholly-owned subsidiary of Hallmark Cards, Inc.) ("Hallmark") (the "Term
Sheet"). Like Hallmark's original proposed recapitalization, the
transaction contemplated by the Term Sheet (the "Proposed Transaction") would
unfairly dilute the economic and voting interests of the Company's minority
stockholders.
As you
know, S. Muoio & Co. LLC is one of Crown's largest minority stockholders,
owning more than 4.2 million shares, or 5.79%, of Crown's Class A common
stock. Shortly after the Company announced on May 28, 2009, that
Hallmark had proposed a recapitalization of the Company's capital structure that
would convert $550 million in debt into convertible preferred stock convertible
into equity, we filed a lawsuit seeking, among other things, to enjoin the
consummation of the transaction on the grounds that the transaction would
unfairly and improperly dilute the minority stockholders' equity interest and
voting power. As alleged in the complaint, Hallmark's proposal would
have resulted in a dramatic reduction in the minority's ownership of the
outstanding shares of the Company, as well as a substantial reduction in the
minority's percentage of the Company's voting power, and meant that Hallmark
would own 90% of each class of Crown stock, such that it would be permitted to
consummate a short-form merger. In addition, the proposed conversion
price of $1.00 per share at a time when Crown's shares were trading at a still
depressed price of $3.03 (a price that reflected only a small percentage of the
Company's intrinsic value) was facially unfair. However, because, at
that time, no transaction had been definitively agreed to by the Company and the
Company represented that it had formed a Special Committee to consider the
proposal and represent the interests of the Company's minority stockholders, we
agreed, in good faith, to await the outcome of that process, and hold the
lawsuit in abeyance pending notice of a definitive transaction.
Mr.
Drue Jenning
February 28, 2010
Page 2
After
hearing nothing from the Company or the Special Committee for almost seven
months, the minority stockholders were dismayed to learn by public announcement
that the Special Committee had entered into the Term Sheet that barely improved
the unfair terms of the initial proposed recapitalization. The Term
Sheet provides for the dilutive issuance of $185 million preferred shares
convertible at $2.60 per share and the conversion of $600 million in debt into
common stock of the Company also at approximately $2.60 per share, which
together would result in a substantial reduction of the minority stockholders'
ownership interest from approximately 10.7% to approximately 3%. The
additional cumulative payment-in-kind and subsequent cash-pay dividends due on
the convertible preferred stock actually constitutes a worsening of the original
proposal. In addition, the proposed, slightly increased, conversion
price continues to dramatically undervalue the Company and, as before, the
transaction delivers into Hallmark's control more than 90% of each voting class
of the Company's stock. The Proposed Transaction remains coercive and
grossly inadequate and suffers from all of the same infirmities which I have
previously pointed out.
Equally
troubling is the fact that, despite the pendency of the lawsuit and the Special
Committee's knowledge that the overwhelming majority of the Company's minority
stockholders would be opposed to a recapitalization on these terms, we were
frozen out of the process and not consulted. Moreover, the Proposed
Transaction is not contingent on the approval of a majority of the minority
shareholders. The Special Committee's failure to secure a "majority
of the minority" provision for such an inferior deal only serves to demonstrate
that the Special Committee sacrificed customary procedural protections for the
minority stockholders and succumbed to the pressure of
Hallmark. Stockholders representing an overwhelming majority of the
minority agree with our position.
Your implied valuation of the Company's
stock at $2.60 is grossly unfair and does not take into account a number of key
valuation factors. Typically in the cable programming network
business, heavy fixed start-up costs for programming and distribution over a
significant number of years are required to attract the significant audience
share needed to subsequently build advertising and subscription revenue to reach
break-even. Once past break-even, profitability and free cash flow
increases steadily and dramatically as a high percentage of incremental revenue
flows directly to the bottom line. In addition, and despite changes
in the media landscape, since the number of channels that can be carried on the
analog, or lowest tier, of the cable programming line-up is bandwidth limited,
once that status is attained, in almost every instance, the then fully
distributed cable network takes on economic characteristics similar to that of a
protected franchise resulting in a predictable, cash generative, growth
business.
Mr.
Drue Jenning
February 28, 2010
Page 3
The Hallmark Channel, since it founding
in 2000, saw an eight year period of heavy investment, including start-up
operating losses (before financing costs) as high as $170 million per annum, to
finally reach positive operating cash flow in 2008 and 88 million subscribers in
2009. In addition, Crown's Hallmark Movie Channel, launched with zero
subscribers in 2006, has recently surged in growth to over 30 million
subscribers and, having contributed significantly to Crown Media's overall
growth in profitability in 2009, is poised to substantially increase its
operating profit contribution in the near term. There is no reason to
believe that Crown Media, having only recently passed the "elbow of the hockey
stick" of profitability and free cash flow, will not follow the traditional
financial trajectory of every successful and vastly profitable cable channel in
the U.S. An example of the power of Crown's overall business model is
demonstrated by its 2009 results. Despite the effects of the worst
economic downturn, and consequent advertising recession, in probably the last 60
years, coupled with a beneficial, but temporarily disruptive shift in
programming strategy at the Hallmark Channel, the Company's profitability still
increased dramatically when compared to its initial year of profitability in
2008.
Based on modest assumptions regarding
subscriber growth at the Hallmark Channel and the Hallmark Movie Channel,
recovery in rating at the Hallmark Channel, and in overall advertising rates,
and not even accounting for the expected very positive impact on the Hallmark
Channel's economics of the recently announced deal to add a significant block of
Martha Stewart programming to its lineup, we estimate that Crown's annual
operating income and its free cash flow, prior to financing costs, will increase
significantly over the next five years.
It is apparent that the Hallmark
proposal was deliberately timed, in the context of Crown Media's overall
predictable growth curve, to come, after ten years of start-up investment,
endured as well by the Company's public shareholders, at that point at which the
Company's operating profits and cash flow are set to surge, thereby robbing
minority shareholders of the opportunity to fully participate in, and benefit
from, the per share business value that already exists and the rapid build-up of
values that is expected to ensue. In addition, the timing of the Hallmark
proposal, when considered in the context of Hallmark's status as a creditor of
the Company, can only be seen as particularly opportunistic, coercive, and in
breach of the fiduciary duties owed to the Company's minority
shareholders.
While I
remain willing to meet with the Special Committee and/or its financial advisors,
it is our understanding that the Special Committee does not intend to await the
outcome of that meeting before executing definitive documentation of the
Proposed Transaction. Consequently, it seems obvious that the Special
Committee has no real intention of entertaining my concerns or those of the
other minority stockholders or entering into a meaningful valuation analysis and
discussion. As such, it appears that the Special Committee has
offered to meet with me merely as a formalistic gesture.
Mr.
Drue Jenning
February 28, 2010
Page 4
We
strongly urge the Special Committee to reconsider before proceeding to execute
definitive documentation. Be advised that, if the Company or Special
Committee proceeds to execute definitive documentation of the Proposed
Transaction, we intend to pursue the litigation.
Very truly yours,
Salvatore Muoio
Copy
to: Board of Directors