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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Thomas B. Crowley, Jr., the
Chairman of the Board of Directors, President
and Chief Executive Officer of the
Company, and certain trusts for the benefit
of his descendants, are parties to
certain split-dollar life insurance
agreements. These agreements were
created for estate planning purposes intended
to promote the long term stability of
the Company and generally provide for: (a)
the Company to pay the annual premiums
for certain life insurance policies owned
by Mr. Crowley or the trusts; and (b)
Mr. Crowley, or the trusts, to reimburse
the Company in an amount equal to the
annual term cost of the insurance
coverage. The policies are pledged to
the Company as security for the obligation
of Mr. Crowley, or the trusts, as the
case may be, to pay to the Company, upon
termination of the split-dollar life
insurance agreements, an amount equal to
the aggregate amounts of premiums paid
by the Company as such amounts may have
been reduced by certain payments made by
or on behalf of Mr. Crowley or the
trusts prior to the date upon which the
split-dollar life insurance agreements
terminate, except that if the agreements
are terminated prior to the death of
the insured the amount owed by Mr.
Crowley and the trusts is limited to the cash
surrender value of the policies. At any
time during the last fiscal year the
largest aggregate amount owed by Mr.
Crowley and the trusts based upon the cash
surrender value of these policies was
$18,039,662. As of April 25, 2004, the
largest aggregate amount owed by Mr.
Crowley and the trusts based upon the cash
surrender value of these insurance
policies was $10,531,475. As stated below,
the reduction in the amount owed is the
result of a payment in the amount of
approximately $7.5 million that was made
in December of 2003. No interest is
charged by the Company for any and all
amounts which may be outstanding under
these arrangements.
It is currently uncertain whether
the Sarbanes-Oxley Act of 2002 (the
"ACT") prohibits the Company from
continuing to pay the annual premiums for
these life insurance policies owned by
Mr. Crowley and the trusts. While the Act
does not specifically address these
types of insurance arrangements, it
generally makes it unlawful for an
issuer to extend or maintain credit, to
arrange for the extension of credit, or
to renew an extension of credit, in the
form of a personal loan to or for any
director or executive officer (or
equivalent thereof) of that issuer.
Since it is possible that the Act might be
construed as treating annual premium
payments made after July 30, 2002 under the
split-dollar life insurance agreements
as new extensions of credit which would
be prohibited by the Act, the Company
has suspended making any annual premium
payments for the life insurance policies
owned by Mr. Crowley and the trusts.
The Company may decide in the future to
resume making such payments. In the
meantime, Mr. Crowley has advised the
Company that he will continue to pay the
term cost of the insurance coverage.
On December 23, 2003, the Company
and Mr. Crowley entered into a settlement
agreement terminating one of the split
dollar life insurance agreements.
Pursuant to this settlement agreement,
Mr. Crowley paid the Company
approximately $7.5 million, an amount
representing premiums paid by the Company
for the insurance policies subject to
the terminated split dollar life insurance
agreement. The settlement agreement also
provides that the Company pay Mr.
Crowley annually an amount, on an after
tax basis, equal to the interest payable
by Mr. Crowley on financing he arranged
to make this payment to the Company.
This obligation terminates: (i) upon
surrender or termination of the polices subject
to the settlement agreement, unless Mr.
Crowley rolls over or reinvests the
entire amount received upon surrender or
termination into one or more new
policies on the life of Mrs. Molly
Crowley; (ii) at the Company's option if Mr.
Crowley ceases to be employed by the
Company; (iii) upon the death of Mrs. Molly
Crowley; or (iv) upon the bankruptcy,
insolvency or dissolution of the Company.
In the settlement agreement, Mr. Crowley
released any claims that he might have
against the Company due to the Company
having ceased making premium payments as
required by the terminated split dollar
life insurance agreement.
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