This excerpt taken from the CRWN DEF 14A filed Jun 12, 2009.
On May 28, 2009, the Company received a proposal (the "Proposal") from HC Crown Corp. ("HCC"), a wholly owned subsidiary of Hallmark Cards, Incorporated, regarding a recapitalization of the Company's existing indebtedness and accounts payable to HC Crown Corp. and its affiliates ("HCC Debt') in excess of $1.05 billion. Under the Proposal, $500 million principal amount of HCC Debt would be restructured into new secured loans (the "New Debt") with a maturity date of September 30, 2011 and the remaining balance of the HCC Debt would be converted into an equal amount of convertible preferred stock (the "Preferred Stock").
As stated in the Proposal, the New Debt would have two tranches: (1) Tranche 1 of $300 million would be cash-pay and would bear interest at the rate of 12% per annum and the Company would have the ability to pay-in-kind up to three quarterly payments and (2) Tranche 2 of $200 million would be pay-in-kind at the rate of 15% per annum. The New Debt would be secured by the Company's assets.
The terms of the Preferred Stock would include (1) a liquidation preference, which would be equal to the amount of converted HCC Debt; (2) no preferential dividend but participation in any dividends on the Common Stock on an "as if converted" basis; (3) the ability to convert into common stock at a rate equal to the liquidation preference divided initially by $1.00 per share, which permits the Company's existing shareholders (including Hallmark) to retain 15% ownership of the Company; (4) the Company's ability to redeem the Preferred Stock at a price equal to the liquidation preference; and (4) the ability to vote together with the Common Stock on an "as if converted" basis.
As part of the Proposal, the Company's certificate of incorporation would be amended to authorize additional shares of Preferred Stock and Common Stock in amounts sufficient for the proposed conversion of HCC Debt into Preferred Stock and the conversion of such Preferred Stock into Common Stock. The Proposal also contemplates a merger of Hallmark Entertainment Holdings and HEIC into the Company, with the shareholders in Hallmark Entertainment Holdings and HEIC receiving Common Stock of the Company in accordance with their indirect ownership of the Company immediately prior to such mergers. Additionally, the existing Federal Income Tax Sharing Agreement would be amended to, among other things, permit the Company to deduct both cash-pay and pay-in-kind interest due to Hallmark Cards in calculating tax-sharing payments on a prospective basis.
The HCC Debt is subject to the Waiver Agreement described below that provides, among other things, that during the Waiver Period (which is scheduled to expire on May 1, 2010), HCC will not accelerate the maturity of the HCC Debt, initiate proceedings for the collection of the HCC Debt, foreclose on the collateral security for the HCC Debt, or commence or participate in certain bankruptcy proceedings with respect to the Company. In connection with the Proposal, HCC stated that it will not further extend the expiration of the Waiver Period
The Company's Board of Directors has formed a Special Committee comprising of A. Drue Jennings (Chairman), Herb Granath and Peter Lund that is reviewing and considering the proposed recapitalization prior to the filing of the Company's 2009 second quarter Form 10-Q. There can be no assurance as to whether the Proposal will be agreed to by the Company or when, if ever, a recapitalization of the Company will be consummated, and if consummated whether the terms will be the same or different than those set forth in the Proposal. The Proposal has been filed with the
Securities and Exchange Commission by the Company in a May 28, 2009 Form 8-K Report and by Hallmark Cards in an amendment to a Schedule 13D concerning the Company.