Forum Report: Strategy Alternatives

Three alternatives are summarized below for Forum participants who want to consider actions that can be taken in the absence of management responsiveness to the interests of Crowley Maritime’s minority shareholders.  Of these alternatives, the first two may be sensibly initiated as soon as it is determined that management will not address shareholder concerns, and the third is suggested as a reserve plan for future use only if shareholder objectives are not achieved by other means.

1.         Transaction with a strategic relationship

If the holders of at least 9,000 shares of Crowley common stock (a little over 10% of the 89,404 shares reported outstanding and about a third of the publicly held shares) support the exploration, it may be possible to find a publicly traded company with a strategic interest in Crowley Maritime to enter into some kind of agreement involving a non-taxable exchange of its marketable securities for a “negotiating block” of the Crowley stock.  This could take a variety of forms, ranging from a conventional merger to a variation of the “exchange fund” vehicles which are commonly established for estate planning to swap holdings of a single company for a portfolio of marketable securities.  It could also include contingent conditions such as option rights or voting agreements.  The basic idea, though, is to find a company that can benefit from establishing a strategic alliance with Crowley, and which has publicly traded stock that can exchanged for Crowley shares at a favorable rate.

Initiating this effort would require sufficient indications of interest by shareholders to justify a prospective strategic relationship’s engagement in negotiations.  Financial commitments should be in the range of $10-15 per share (less than 1% of the stock’s book value) to cover Forum management of the explorations, including legal expense and regulatory filings, up to the point of an offer or preliminary agreement.  It is reasonable to assume that other costs would be incurred only if a transaction is concluded, and would be provided for as part of the transaction.

2.         Actions to enforce rights of minority shareholders

As noted during the initial review of the Crowley situation, reports of the actions taken by management – and some of their own statements in signed SEC filings – suggest possible breaches of fiduciary duty by the company’s directors as well as by its majority shareholder.  Any shareholder, or a Forum “delegate” authorized to act on behalf of a shareholder, can investigate possible claims against directors and the controlling shareholder with records demands under corporation laws of California (where the company is located) or Delaware (where Crowley is incorporated), and then, if appropriate, initiate a shareholder “derivative” lawsuit on behalf of the company against the directors or others.  If litigation is initiated, a proposal can be submitted for presentation in the company’s proxy statement for a vote at the next annual meeting to determine whether the defendant directors may be indemnified by the company for the derivative action claims.

These activities would require either the commitment of at least one shareholder to serve as a representative plaintiff, or a shareholder’s assignment of appropriately defined authority to a Forum delegate.  The informal participation of other shareholders to provide their views for to representative plaintiff, though not required, could significantly enhance the effectiveness of any action.  Costs of these activities would be primarily for legal fees, and it is expected that attorneys familiar with shareholder rights and derivative claims may be willing to consider arrangements for all or a major portion of those fees to be contingent on the success of the litigation.

3.         Reserve plan – securitized shareholder trust

If shareholder objectives are not achieved by other means, it would be possible to organize a “shareholder trust” to provide participants with exchange listed securities that can be split by 100 – or any to other marketable size – and an institutionalized monitoring function to oversee Crowley Maritime’s governance.  Conforming with SEC definitions of a “voting trust” will also allow counting each holder of the shareholder trust’s securities as a Crowley shareholder for purposes of requiring the company’s compliance with SEC filing requirements.

The establishment and continuing administration of a shareholder trust would involve significant costs, in the general range of $50 per share for its organization (including all SEC and exchange listing requirements) and about $10 per share annually for continuing legal, accounting and other expenses.  Because of its high costs, organizing a shareholder trust would be economically justifiable only if holders of at least 10,000 Crowley shares could expect the securitization and monitoring benefits to double the value of their investment, relative to other alternatives.

Your comments on these or other strategies will be appreciated.

Knowing that many of you would like to see some progress toward the achievement of your objectives, we should try to define a plan within the next week or two.  Before proceeding with the implementation of any plan, though, I would like to make one final effort to encourage management’s cooperative discussion of the simpler alternatives that would allow everyone – management, controlling shareholders, trust beneficiaries and the current minority shareholders – to benefit from either running Crowley Maritime like other public companies or taking it private.

GL – September 16, 2004