Exhibit 99.6
IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
Franklin Balance Sheet Investment Fund :
and Franklin Microcap Value Fund, P.
Oppenheimer Investment Partnership LP :
and Oppenheimer Close International
Ltd., Wynnefield Partners Smallcap Value :
LP I, Wynnefield Partners Smallcap Value Civil Action
No. 888-N
LP, Wynnefield Smallcap Value Off-Shore :
Fund Ltd., Channell Partnership II, LP,
and John H. Norberg, Jr. :
Individually, derivatively and on behalf :
of a Class of similarly situated
stockholders, :
:
Plaintiffs, :
:
v. :
:
:
Thomas B. Crowley, Jr., Molly M.
Crowley, Phillip E. Bowles, Gary L. :
Depolo, Earl T. Kivett, William A.
Pennella, Leland S. Prussia, Cameron W. :
Wolfe, Jr.,
:
:
Defendants,
:
:
v.
:
:
Crowley Maritime Corporation,
:
:
Nominal Derivative Defendant.
:
:
:
:
AMENDED CLASS ACTION AND DERIVATIVE COMPLAINT
Plaintiffs, by and through their attorneys for their complaint
hereby
allege as follows:
<PAGE>
TABLE OF CONTENTS
Page
I. SUMMARY OF THE
ACTION...................................................3
II. THE
PARTIES.............................................................4
III. DEMAND EXCUSED
ALLEGATIONS..............................................5
IV. CLASS ACTION
ALLEGATIONS...............................................10
V. OPERATIVE
FACTS........................................................11
A. Overview Of The Challenged
Transactions...........................11
B. Background
Facts..................................................13
1. The
Company.....................................................13
2. The 1992
Restructuring..........................................14
3. The 1995
Self-Tender............................................15
4. The 2001
Self-Tender............................................16
5. Disclosure of the Insurance Agreements and Entrenchment
Policy..17
C. The Details of the Challenged
Transactions........................19
D.
Damages...........................................................35
I.
<PAGE>
SUMMARY OF THE ACTION
1. This is an action by owners of common stock of Crowley
Maritime
Corporation ("Crowley" or "the Company") challenging the conduct of the
Board of
Directors of Crowley in taking actions for the purpose of effecting a
policy of
perpetuating the control of the Crowley family over the Company in
violation of
their duties to the Company and all of its stockholders. Over the years
the
Company's Board of Directors, which is dominated and controlled by the
Crowley
family (who collectively own or control approximately 65% of the voting
stock of
the Company), have engaged in a series of transactions designed to
perpetuate
and/or to enhance the Crowley family's control, to limit the information
available to the Company's public stockholders and to operate the
Company in a
manner reflective of a closely-held family corporation and not a
corporation
with unaffiliated public stockholders.
2. The Board under the policy of perpetuating control of the
Crowley
family has abandoned all pretense of fairness to the public stockholders
and has
provided millions of dollars of gifts to the Crowley Family. The
ostensible
purpose of providing them funds is to buy insurance to pay anticipated
estate
taxes and purchase family stock from various trusts. These gifts are not
compensation for Defendant Crowley as Chairman of the Board and
Chief-Executive
Officer but are in addition to his annual compensation of about
$1,000,000.
3. This action seeks to have this Court declare that these acts
and
pursuing this corporate policy of perpetuating the controlling
stockholders'
control are violations of the fiduciary duties of the defendants and
contrary to
Delaware law. The action further seeks an accounting and compensation
for the
damages caused as a result of the actions taken in furtherance of that
corporate
policy.
<PAGE>
II. THE PARTIES
4. Plaintiffs Franklin Balance Sheet Investment Fund and
Franklin
Microcap Value Fund beneficially own 4,240 and 2,342 common shares of
Crowley,
respectively, constituting approximately 7.3% of the outstanding shares.
Franklin Balance Sheet Investment Fund and Franklin Microcap Value Fund
are part
of the Franklin Templeton group of mutual funds. They are collectively
referred
to herein as "Franklin". Franklin owns and has owned Crowley shares
continuously
since February 25, 1997.
5. Plaintiffs P. Oppenheimer Investment Partnership LP and
Oppenheimer
Close International Ltd. beneficially own 1,484 and 110 common shares of
Crowley, respectively. P. Oppenheimer Investment Partnership LP and
Oppenheimer
Close International Ltd. are collectively referred to herein as
"Oppenheimer".
Oppenheimer owns and has owned shares in Crowley continuously since
September
20, 2000.
6. Plaintiffs Wynnefield Partners Smallcap Value LP I,
Wynnefield
Partners Smallcap Value LP, Wynnefield Smallcap Value Off-Shore Fund
Ltd. and
Channell Partnership II, LP beneficially own 460, 370, 330 and 33 common
shares
of Crowley, respectively. Wynnefield Partners Smallcap Value LP I,
Wynnefield
Partners Smallcap Value LP, Wynnefield Smallcap Value Off-Shore Fund
Ltd. and
Channell Partnership II, LP are collectively referred to "Wynnefield".
Wynnefield beneficially owns and has owned shares of Crowley
continuously since
July 26, 2001.
7. John H. Norberg, Jr. ("Norberg") beneficially owns 9 shares
of
Crowley. Norberg owns and has owned shares of Crowley continuously since
1991.
8. Collectively plaintiffs own approximately 30% of the common
shares
not owned by the Crowley family.
9. Nominal derivative defendant Crowley Maritime is a Delaware
corporation with its principle executive office in Oakland, California.
10. Defendant Thomas B. Crowley, Jr. ("Defendant Crowley"), age
37, is
Chairman, President and Chief Executive Officer of the Company and has
been a
Director since 1994. He beneficially owns or controls approximately 65%
of the
voting stock of the Company.
11. Defendant Molly M. Crowley is the mother of Defendant
Crowley and
has served as a member of the Board of Directors since 1994.
12. Defendant Philip E. Bowles is first cousin of Defendant
Crowley.
Defendant Bowles has been a Director since 1986.
13. Defendant William A. Pennella is and has been Vice-Chairman
of the
Crowley Board since 2000 and has been an Executive Vice-President of
Crowley
since 1996.
14. Defendant Gary L. Depolo has been a member of the Board
since 1994.
15. Defendant Earl T. Kivett has been a member of the Board
since 2002.
16. Defendant Leland S. Prussia has been a Director since 1994.
17. Defendant Cameron W. Wolfe, Jr., has been a Director since
1989.
III. DEMAND EXCUSED ALLEGATIONS
18. As to the derivative count of this complaint, plaintiffs
have not
made a demand on defendants, the Board of Directors of Crowley.
Plaintiffs have
not made a demand because demand is excused under Delaware Law in that
at least
half of Crowley's Board is interested and conflicted with respect to the
wrongs
alleged herein and all directors are dominated and controlled by
Defendant
Crowley.
19. Defendants Thomas Crowley and Molly Crowley are conflicted
because
they are members of the Crowley family and are direct beneficiaries of
the plan
to entrench the Crowley family in control of the Company. Defendants
have
conceded in this action that defendants Thomas Crowley and Molly Crowley
are
interested and that demand is excused as to them.
20. Defendant Bowles is conflicted because he is also a member
of the
Crowley Family and a direct beneficiary of the plan to entrench the
Crowley
Family in control of the Company. Further, defendant Bowles is not
independent
because he is the first cousin of defendant Crowley and nephew of Molly
Crowley.
Also, he has agreed to perpetuate the control of defendant Crowley.
Defendant
Bowles was a party to and beneficiary of an agreement with other members
of the
Crowley Family whereby it was agreed to split control of Crowley among
four
branches of the Crowley Family; Thomas B. Crowley and his three sisters.
That
agreement was terminated in 1992 and all parties to that agreement
including
Bowles agreed to cede control to and support the control of Thomas B.
Crowley,
his wife and children.
21. Defendant Pennella is not independent because he is an
employee of
the Company. As a result, his position and compensation are under the
direct
control of Defendant Crowley. The Board of the Company has delegated to
Defendant Crowley the authority to determine the base salary and bonuses
of
employees whose direct annual compensation is less than or equal to
$1,000,000,
which includes Defendant Pennella and indeed, all employees except
Defendant
Crowley. Defendant Pennella's total compensation in 2004 was in excess
of
$664,000, in 2003 it was in excess of $712,000 and in 2002 it was in
excess of
$698,000. These amounts were and are material to defendant Pennella.
Defendant
Pennella is a full-time employee of the Company and has no other gainful
employment. The Company's bonus plan for executives whose direct annual
compensation is less than $1 million dollars, specifically states that
the plan
is to be administered by defendant Crowley and that he "has the sole
discretion
to determine the key employees who will be granted bonus awards and the
amounts,
terms and conditions of each bonus award. Defendant Pennella's bonuses
were
awarded pursuant to this plan.
22. In addition, defendant Pennella has long standing personal
ties
with the Crowley Family including serving as a trustee of the Thomas B.
Crowley
Separate Property Trust ("Crowley Separate Property Trust"), one of the
vehicles
through which the Crowley Family exercises control over the Company and
one of
the entities which has engaged in self-dealing transactions as more
fully
alleged herein. The Crowley Separate Property Trust is also an intended
beneficiary of the wrongs challenged herein in that it owns shares of
the
Company which are intended to be purchased by Thomas Crowley using the
proceeds
of the life insurance as more fully alleged herein. The value of this
stock is
in excess of tens of millions of dollars.
23. Because of Pennella's status as a senior employee and a
trustee, he
is neither independent nor disinterested in the challenged transactions.
He
works directly for defendant Crowley who determines his salary and bonus
and he
has a close personal relationship with the Crowley Family precluding him
from
properly considering a demand. He is interested because he is on the
governing
body of the trust which is an intended beneficiary of these policies.
24. Defendant Wolfe is neither independent nor disinterested.
He at all
relevant times was a partner in the law firm of Orrick, Herrington &
Sutcliffe,
LLP ("Orrick Herrington"). Although, subsequent to the commencement of
this
litigation, it was reported that Wolfe became "of counsel" to the Orrick
Herrington firm, as "of counsel" Wolfe maintains substantial economic
and social
ties with the firm. Orrick Herrington has been in the past and remains
legal
counsel to the Company. In addition to the fees Orrick Herrington
receives as
counsel to the Company, Orrick Herrington has been legal advisor for and
behind
the challenged transactions, including the split-dollar life insurance
agreements and the policies to perpetuate Crowley family control as
described
herein. At the time of the commencement of this action, defendant Wolfe
was a
senior partner in the Orrick Herrington firm. As counsel to the Company,
Orrick
Herrington was paid over $650,000 in 1991 and since that time has
continued to
receive substantial revenue every year as counsel to the Company.
Recently the
Company indicated that legal costs exceeded $1,000,000 per year. These
amounts
were and are material to Wolfe in his relationship at Orrick Harrington.
The
American Lawyer reported that Orrick Herrington had average revenues per
lawyer
of $725,000 for 2004.
25. Orrick Harrington during this period also acted both as
personal
counsel to the Crowley Family and corporate counsel to the Company. The
Orrick
Harrington firm was intimately involved in the creation and structuring
of the
challenged transactions. Thus, Wolfe cannot adequately consider a
demand,
because to consider a demand would require that he consider authorizing
legal
action against a long-standing client of his firm who is responsible for
millions of dollars in fees and to challenge the legality of
transactions and
agreements structured and approved by his firm as legal counsel. Such
conduct
would expose his firm and him to a legal malpractice claim for tens of
millions
of dollars.
26. Defendant Wolfe also has long standing close personal ties
to the
Crowley family including serving as a trustee of the Crowley Separate
Property
Trust, one of the vehicles through which the Crowley family exercises
control
over the company and one of the entities which has engaged in
self-dealing as
more fully alleged herein. The Crowley Separate Property Trust is also
an
intended beneficiary of the wrongs challenged herein in that it owns
shares of
the Company which are intended to be purchased by Thomas Crowley using
the
proceeds of the life insurance as more fully alleged herein. The value
of this
stock is in excess of tens of millions of dollars. Because of Wolfe's
role as
legal counsel in these transactions and trustee, he is neither
disinterested nor
independent. Further, he has a close personal relationship with the
Crowley
Family and he has been intimately involved in Crowley family personal
matters
including matters of inheritance. Indeed, he is a witness to the 1993
codicil of
the Will of Thomas B. Crowley. He cannot properly consider a demand.
27. All directors, including Depolo, Kivett and Prussia, are
dominated
by Defendant Crowley. They were selected by the Crowley family and serve
at the
pleasure of Defendant Crowley. From at least 1995 the Company has
repeatedly
stated that Defendant Crowley "controls all matters affecting . . . the
composition of our Board of Directors and, through it any determination
with
respect to our business direction and policies, including the
appointment and
removal of officers." The Company's public statements acknowledge the
actual
domination and control Defendant Crowley exercises over the Board. The
Company's
disclosures are not the standard disclosures used in situations
involving
controlling stockholders. Ordinarily such disclosures state that a
controlling
stockholder "could" exercise such control. Crowley's disclosures and
admissions
are materially different. Crowley's disclosures state that defendant
Crowley
"does" exercise such control. Further, as more fully alleged in Section
V(B)(2),
(3) and (4), the Crowley Family has repeatedly caused the Company to
engage in
transactions for the purpose of benefiting the Crowley Family. The
allegations
in those sections detail transactions which were initiated at the
request of and
for the private purposes of the Crowley Family and which were further
designed
to conceal the extent to which the Crowley Family has improperly used
corporate
funds for its private purposes. These facts demonstrate actual
domination and
control.
28. The challenged transactions are not the product of a valid
exercise
of business judgment. All of the challenged transactions received Board
approval. Prior to 1994, demand is also excused for this reason as to
each
defendant for each challenged transaction approved by such defendant
when he was
on the Board and since 1994, as to all defendants because the majority
of the
Board has consisted of board members and current defendants who approved
the
challenged transactions.
29. As a result of the foregoing plaintiffs are legally excused
from
making any demand on the Board of Directors with respect to the count
alleging
claims derivatively on behalf of the Company.
IV. CLASS ACTION ALLEGATIONS
30. Plaintiffs also bring this action as a class action,
pursuant to
Rule 23 of the Rules of this Court, on behalf of themselves and all
other
holders of Crowley common stock (except for the defendants herein and
any
persons, firms, trusts, corporations, family members or other entities
related
to or affiliated with any of them and their successors in interest) (the
"Class").
31. This action is properly maintainable as a class action
because:
a. the Class is so numerous that joinder of all members is
not
practical. While the exact number of beneficial owners is not known it
is
believed that Crowley Maritime has in excess of 500 stockholders owning
approximately 30,000 shares of Crowley common stock including 9,372
shares in
the Crowley Maritime Retirement Stock Plan and 4,873 shares in the Stock
Savings
Plan.
b. The members of the Class are situated throughout the
United
States and are so numerous as to make it impracticable to bring them all
before
this Court.
c. There are questions of law and fact which are common to
the Class
which predominate over matters affecting any individual members,
including but
not limited to whether the Board and the Crowley family has acted
improperly for
the stated purpose and effect of maintaining the Crowley family's status
as
controlling stockholders.
32. Plaintiffs' claims are typical of the claims of other
members of
the Class in that all members of the Class have been damaged by the
defendant's
actions.
33. Plaintiffs are committed to prosecuting this action and
have
retained competent counsel to bring litigation of this nature.
Plaintiffs are
adequate representatives of the Class.
34. A class action is superior to any other method available
for fair
and efficient adjudication of this controversy.
35. Crowley's common stock historically has paid no dividends
and the
Company's stated policy is not to pay dividends. The challenged
transactions
herein have had the effect of putting tens of millions of dollars and a
sizeable
percentage of the Company profits in the hands of the Crowley Family
because of
their ownership in stock. In essence, these payments constituted
constructive
dividends on those shares. One of the remedies this Court could direct
would be
requiring the payment of dividends on all common stock with the
imposition of an
offset on the dividends to be paid on the Crowley Family shares until
such time
as the Company has been repaid the damages suffered in directing tens of
millions of dollars improperly diverted by the Crowley Family. Such
benefit
would directly benefit each member of the Class.
V. OPERATIVE FACTS
A. Overview Of The Challenged Transactions
36. Plaintiffs herein challenge the actions of the Board of
Directors
in creating, approving, funding, amending and maintaining the three life
insurance agreements; Insurance Agreement 1, Insurance Agreement 2 and
Insurance
Agreement 3 as defined and as more fully alleged herein. These wrongs
were
perpetrated for the purpose of perpetuating Crowley Family control over
the
Company. The wrongs include not only approving and entering into the
agreements
initially, but, funding each agreement annually; amending the agreements
on
several occasions; "terminating" Insurance Agreement 1 under terms
designed to
provide defendant Crowley further financial benefits at no cost or
obligation to
him; allowing defendant Crowley to use the cash surrender value of
Insurance
Agreements 2 and 3 to continue paying the premiums on those agreements
at
Company expense; and bearing the costs of the advisors for the Company
and
defendant Crowley to establish, maintain and amend these agreements.
37. Plaintiffs may not be aware of all the wrongful actions of
the
Board as defendants have routinely failed to disclose material
information to
stockholders. Nonetheless, plaintiffs are aware of at least the
following
actions which were wrongful and which plaintiffs challenge by this
Complaint:
<TABLE>
----------------------------------------------------------
----------------- ---------------------------------
Action
Date Defendants
------
---- On the Board
------------
----------------------------------------------------------
----------------- ---------------------------------
<S>
<C> <C>
Approval of Insurance Agreement 1 as of
4/6/92 Bowles; Wolfe
(see Paragraph 73)
----------------------------------------------------------
----------------- ---------------------------------
Approval of Amendment 1 to Insurance Agreement 1 (see as of
5/1/95 All but Pennella and Kivett
Paragraph 75)
----------------------------------------------------------
----------------- ---------------------------------
Approval of Amendment 2 to Insurance Agreement 1 (see as of
7/20/98 All but Pennella and Kivett
Paragraph 76)
----------------------------------------------------------
----------------- ---------------------------------
Approval of Amendment 3 to Insurance Agreement 1 (see as of
7/20/98 All but Pennella and Kivett
Paragraph 77)
----------------------------------------------------------
----------------- ---------------------------------
Approval of Insurance Agreement 2 (see Paragraph 78) as of
7/20/98 All but Pennella and Kivett
----------------------------------------------------------
----------------- ---------------------------------
Approval of Insurance Agreement 3 (see Paragraph 79) as of
11/24/98 All but Pennella and Kivett
----------------------------------------------------------
----------------- ---------------------------------
Approval of each and every annual payment made
under each of those agreements which payments were
subject to unilateral suspension by admission of the Annually
since Various
Company in this action and its 2003 Proxy
1992
(see Paragraph 83)
----------------------------------------------------------
----------------- ---------------------------------
Entering into the December 23, 2003 Settlement
Agreement and the related implementing transactions
including the agreement to pay the premiums due on
12/23/05 All
a personal loan taken out by Thomas Crowley.
(see Paragraph 87)
----------------------------------------------------------
----------------- ---------------------------------
Failing to rescind and void the insurance agreements
and recover the funds paid hereunder (see Paragraph
97) All
----------------------------------------------------------
----------------- ---------------------------------
Annually paying the tax consultation costs to defendant Beginning
at All
Crowley arising from the Insurance Agreements (see least in
2002
Paragraph 96)
----------------------------------------------------------
----------------- ---------------------------------
</TABLE>
B. Background Facts
1. The Company
38. Crowley, through its subsidiaries, provides maritime
transportation
services in domestic and international markets by means of four
operating
business lines: liner services, ship assistant escort services, oil and
chemical
distribution and transportation services, and energy and marine
services. The
Company provides numerous services with respect to the maritime trade on
both
the east and west coasts of the United States, Alaska, the Gulf of
Mexico and
Puerto Rico. The Company is involved in the construction, ownership,
leasing and
insuring of marine vessels. The Company employs approximately 4,000
people and
has a fleet of more than 270 vessels. The Company's land-based
facilities
include terminals, warehouses, tank farms, office buildings, trucks,
trailers,
containers, chassis, cranes and other specialized vehicles. The Company
was
started in 1892 by the grandfather of Defendant Crowley, was
incorporated in
Delaware on December 1, 1972 and has operated in its current holding
company
structure since 1992.
39. For the fiscal year ending December 31, 2003, Crowley
reported
operating income of over $42 million dollars on operating revenues of
approximately $978 million dollars. The Company reported income from
continuing
operations (before discontinued operations and cumulative effect of a
change in
accounting) of $89.03 per share, down from $112.44 per share in 2002 and
$122.41
per share in 2001. The Company reported total assets in excess of $1
billion
dollars and total stockholder's equity of approximately $300 million
dollars.
40. As of December 31, 2003, the Company reported capital
structure
consisting of common voting stock with a par value of $.01, preferred
Class A
convertible stock $100 par value, and Class N common non-voting stock of
$.01
par value. The Company reported 4,485,000 shares of common stock were
authorized, with 89,404 shares issued; 315,000 shares issued and
outstanding of
preferred Class A convertible stock; and 46,138 issued shares of Class
N,
non-voting stock of the 54,500 authorized. As of April 25, 2003 the
Crowley
family owned or controlled 58,137 shares of common stock (64.6%), all of
the
outstanding Class N common stock and all of the Series A preferred
stock.
Crowley's common stock is not traded on a national or regional exchange
but
prices are quoted in the "Pink Sheets".
2. The 1992 Restructuring
41. Prior to restructuring pursuant to a Plan of Reorganization
and
Agreement of Merger dated March 20, 1992, the Company had common stock,
preferred Class A stock, preferred Class B stock, and preferred Class C
stock.
The restructuring resulted in the holding company structure which exists
today.
42. The reorganization was initiated at the request of and
solely for
the benefit of the Crowley Family including defendants Bowles and the
Bowles
branch of the family. It was structured so that the Crowley family
(including
the Bowles) which owned the preferred stock, not only would receive all
the new
preferred stock in the reorganized company but would also be able to
convert the
existing preferred stock dividend arrearages into additional voting
common stock
on a tax free basis and thereby increase the Crowley's voting control in
the
Company. The transaction allowed the Crowley family to convert
approximately
$42,000,000 in dividend arrearages, which were contractually payable in
cash,
into stock allowing them to realize the value of those dividends without
paying
any taxes.
43. At the time of the transaction, there were four branches of
the
Crowley Family, Thomas B. Crowley, Sr. and his three sisters including,
Constance C. Bowles, mother of defendant Bowles. In connection with the
reorganization, the three branches of the family agreed to accede
control to
Thomas B. Crowley, Sr., his wife and children and to support their
control of
the Company.
44. In 1995, as a settlement of litigation challenging the
transaction,
the Crowley Family agreed to eliminate their enhanced voting control and
to pay
certain sums to the public stock holders.
45. The materials related to the 1992 restructuring were not
publicly
filed and to the best of plaintiffs' knowledge are not publicly
available.
3. The 1995 Self-Tender
46. By tender offer dated September 11, 1995, the Company
engaged in
the self tender the sole purpose of which and justification for was to
comply
with the request of the trustees of Thomas B. Crowley Separate Property
Trust
("the Trust"), one of the vehicles through which the Crowley family
exercises
control over the Company, to purchase approximately $11.7 million
dollars of the
Trust's stock in order to provide liquidity to the Trust. At the time
the
trustees were Defendant Crowley and Defendants M. Crowley, Wolfe and
Pennella.
47. But for the request, the Company would not have engaged in
any form
of self tender. Indeed, as the purpose of the offer the Company stated:
The Company believes that the repurchase of shares
from the
Trust facilitates management stability, by providing a measure
of
assurance that the Company will not be sold to a third party or
broken
up as a consequence of the Trust's short term and long term
estate tax
and other obligations. The Company also believes that the
repurchase of
shares from the Trust will serve to prevent the Trust's shares
from
falling into the hands of speculative investors who may later
attempt
to disrupt company affairs in order to encourage the Company to
take
action favorable to such investors, yet not in the best
interests of
the Company and the remaining stockholders.
The repurchase of shares pursuant to the offer should
also
reduce the possibility that the Trust would seek to liquidate
its
holdings through a public offering (or in a transaction which
could
lead to a public offering) of its shares, the consequences of
which the
Company believes would be detrimental to the long-term
interests of the
Company and the remaining stockholders.
48. Notwithstanding that the transaction was initiated by and
solely
for the private purposes of the Crowley family, at least the Board of
Directors
had a sufficient adherence to its fiduciary duties to all stockholders
to extend
the tender offer on equal terms to all stockholders of the Company. The
Company
also obtained a fairness opinion with respect to the transaction.
49. The materials related to the offer to purchase were not
publicly
filed and to the best of plaintiffs' knowledge are not available in any
public
record.
4. The 2001 Self-Tender
50. In April 2001, Crowley commenced another self-tender, the
sole
purpose of which was to reduce the information available to public
stockholders
of Crowley.
51. Prior to the self tender, certain shareholders attempted to
convince Crowley that it had more than 500 shareholders and therefore
should
comply with its obligations as a reporting company under the Securities
and
Exchange Act of 1934 and make appropriate filings. Defendant Crowley and
the
Company's Board resisted that effort and insisted the Company would only
consider shareholders of record in determining whether it had any
obligations to
file as a reporting company. As a result of that position certain
shareholders
began to register their shares directly in their names rather than in
the names
of a nominee.
52. In order to defeat this shareholder effort and reduce the
Company's
accountability to its public stockholders, the Board of Crowley caused
Crowley
to engage in a self tender. The self tender was to all shareholders who
held
less than ten (10) shares, but only if those shareholders held those
shares of
record in their own names. The tender was not extended to anyone who
held shares
through a nominee name even if that shareholder had less than 10 shares.
53. While the Company stated that one of the Board's concerns
was the
estimated $500,000 per year cost of making these filings, the offer to
purchase
also stated:
the Board is of the view that the Company should
remain
privately held, with most of the stock held by company employee
benefit
plans and descendants of the Company's founder, Thomas Crowley.
Consequently, the Board has consistently been of the view that
the
Company should not `go public' or become a public company.
Notwithstanding that it was apparently lost on the Board that Crowley
was not a
"privately held" company but in fact was a company with public
stockholders, the
2001 self-tender presented the public stockholders with a "voluntary"
transaction. That is, a shareholder could refuse to tender shares at the
price
offered. Further, the Crowley family was not permitted to participate in
the
transaction and therefore it provided the Crowley family no direct
financial
benefit. Nonetheless, the self tender was designed solely to protect the
Crowley
family's ability to continue to run the Company as if it were a
privately held
company.
54. The 2001 Self-Tender attracted only 521 shares and failed
in its
purpose. Thus, beginning with its 2002 10-K, the Company began public
filings on
April 1, 2002.
55. The documents related to the 2001 Self-Tender were not
publicly
filed and are to the best of plaintiffs' knowledge not available in any
public
record.
5. Disclosure of the Insurance Agreements and Entrenchment Policy
56. As certain members of the Crowley family grew older,
concern grew
about how to maintain Crowley family control over the Company.
Eventually estate
taxes on the value of their Crowley shares would be due and the Crowley
family
did not otherwise have (or wish to spend) the resources to pay those
taxes from
sources outside of the Company. Similarly, the Crowley family did not
wish to
sell any sizeable portion of its shares in Crowley because to do so
would be to
lose the Crowley family control of the Company.
57. As a result the Crowley family decided to treat their
familial
problem as a corporate one, thereby "justifying" using corporate funds
to solve
the "problem".
58. For years Crowley's directors resisted public filings.
While their
stated purpose was to save the Company money, in fact, the actual effect
was to
minimize disclosures to the public stockholders of the Company so that
the
Crowley family could conceal certain actions. Only recently has the
extent of
the transactions involving the Crowley family begun to come to light and
only
then if a very determined reader pieces together the exhibits to the
Company 10K
filings of March 19, 2004, March 19, 2003 and April 1, 2002. Accurate
and
complete summaries of these exhibits and the transactions with the
Crowley
family do not appear either in the annual statements or the proxy
statements for
any of those years.
59. While the 1995 Self-Tender materials and the 2001
Self-Tender
materials suggest that the Board might consider putting the interests of
the
Crowley family ahead of other stockholders, those two documents are not
publicly
available and cannot be found on the Securities and Exchange
Commission's EDGAR
database. In any event in both of those transactions, at least
superficially,
were on terms ostensibly either non-coercive or fair to the public
stockholders.
60. The 1995 Self-Tender, while made for Crowley family
purposes, was
open to all stockholders. Stockholders, to the extent they chose to
tender their
shares, received the same price as the Crowley family. There were no
overtly
coercive elements to that transaction.
61. In the 2001 Self-Tender, the Crowley family was not
participating
in the tender offer and, again there were no overtly coercive elements.
Thus, a
shareholder could simply refuse to tender with no apparent negative
consequences.
62. On April 1, 2002, defendants could no longer avoid their
disclosure
obligations to their shareholders.
C. The Details of the Challenged Transactions
63. It was not until April 1, 2002 that Crowley disclosed the
split-dollar life insurance arrangements. Even then, had a shareholder
relied on
the text of the disclosures in the annual statement, he would have been
grossly
uninformed and mislead.
64. Crowley's Form 10-K for the year ending December 31, 2001
filed on
April 1, 2002 disclosed for the first time a remarkable series of
transactions
in pursuit of a remarkable corporate policy of entrenching its
controlling
stockholder. The form 10-K stated:
Mr. Crowley and his family are the beneficiaries of
certain
split-dollar life insurance agreements, described in "Item 6.
Executive
Compensation." The Board of Directors has approved these
agreements in
furtherance of its belief that preserving Crowley family
control and
the closely held nature of the Company is beneficial to the
Company's
stockholders and will maximize stockholder value over the
long-term.
The Board of Directors has long been concerned that short-term
and
long-term estate tax and other obligations of certain Crowley
family
stockholders could lead to an unrelated third party gaining a
highly
influential and potentially detrimental position with respect
to the
business and management of the Company. Such circumstances also
could
lead to stock falling into the hands of speculative investors
who may
later attempt to disrupt Company affairs in order to encourage
the
Company to take action favorable to such Investors, yet not in
the best
interests of the Company and remaining stockholders.
The Board of Directors also has been concerned that
should the
Company receive a request to purchase shares held by such
stockholders
or their estates in lieu of a possible sale to such investors,
the
Company would be unable to effect such a purchase without
negatively
impacting its results of operations or financial condition. In
this
regard, the split-dollar life insurance agreements enable Mr.
Crowley
and certain trusts for the benefit of his descendants to
purchase most,
if not all, of such shares without involving the Company.
The Company expects that following the death of Mrs.
Crowley
the net proceeds of the policies of insurance on the life of
Mrs.
Crowley will be used by Mr. Crowley and the trusts under his
control to
purchase shares of Common Stock held by the Thomas B. Crowley
Marital
Trust so that this trust can pay applicable estate taxes.
Essentially,
the split dollar life insurance agreements enable Mr. Crowley
and his
family to retain ownership of shares and control of the Company
under
circumstances when certain of such shares otherwise might have
to be
sold to a third party to pay applicable estate taxes.
Item 6 Executive Compensation repeated these statements.
65. From this disclosure it was revealed that the Company
determined to
give the Crowley family the amount necessary to pay the annual premiums
on
"certain life insurance policies" for reasons entirely unrelated to any
work of
Defendant Crowley as Chairman of the Board, President and Chief
Executive
Officer. Indeed, the Company has in place an extensive executive
compensation
plan which includes base compensation, annual bonus compensation, annual
deferred compensation, all as part of a management incentive plan which,
according to the Company's disclosures, are designed to ensure fair and
proper
compensation of Defendant Crowley and the other senior executives. Thus,
the
payments made by the Company on behalf of Defendant Crowley and the
Crowley
family with respect to the life insurance policies are nothing short of
gifts of
corporate assets to a controlling stockholder without any legitimate
justification.
66. Defendant Crowley's obligations to the Company in return
are
essentially nothing. Defendant Crowley is not obligated to repay the
costs of
these insurance policies (above cash surrender value) and is not even
obligated
to use the death benefits for the purported corporate purpose. Instead,
the
Board only "expects" Defendant Crowley to use them to retain control. It
appears
he has no obligation to use the proceeds in any particular fashion nor
has he
agreed not to sell the stock to a "speculative" investor nor in a public
offering.
67. Defendant Crowley's obligation, if the split-dollar life
insurance
agreements ever are terminated, repaying the cash surrender value of the
policies, is meaningless. Upon termination, Defendant Crowley who owns
the
policies would receive an amount equal to the cash surrender value and
therefore
the transaction would involve essentially no out-of-pocket expense to
Defendant
Crowley or his family. It is the Company that paid the premiums.
Therefore, it
is the Company that should own the policies and their cash surrender
values, not
Defendant Crowley.
68. In fact, each of these insurance agreements and the
amendments
thereto were created, designed, written and implemented solely to
benefit the
Crowley Family. The Company receives no benefit whatsoever from any of
these
agreements. The agreements constitute a gift to the controlling
stockholder and
a waste of corporate assets upon the shareholders. If defendant Crowley
collects
the death benefit on the policies, he will receive far more than the
cash
surrender value. Upon the termination of the policies, either through
voluntary
cancellation by defendant Crowley or a collection of the death benefits,
defendant Crowley will repay to the Company only a portion of the funds
expended
by the Company without interest. The Company is not even to receive a
complete
return of all its costs associated with the agreements. The reason the
Company
is to receive only a portion of its costs is because the cash surrender
values
will always be less than the costs to the Company.
69. In economic terms, the agreements between defendant Crowley
and the
Company are that the Company will give defendant Crowley millions of
dollars to
invest in life insurance policies and is to receive in return only the
cash
surrender value. There is no scenario under which defendant Crowley will
receive
less than the cash surrender value from these insurance policies. Thus,
he has
no economic costs or risk in the agreements and has committed to provide
the
Company nothing other than a partial return of its own money. The
insurance
agreements, as a result, are a sham and without legal consideration.
70. Distilled to their essence, defendant Crowley agreed that
at some
point in the future and only out of funds available to him (from the
insurance
purchased by the Company) he will repay a portion of the funds expended
by the
Company without interest. An agreement to loan or give a third party
funds in
exchange for a promise to receive back only a portion of those funds,
without
interest, is an agreement without legal consideration.
71. The agreements are shams designed to hide lack of any
benefit to
the Company. Even the goal the Board has stated it is pursuing,
maintaining the
Crowley Family as controlling stockholders, is not accomplished by any
of these
agreements. While this "benefit" in fact is not a benefit to the Company
or its
other stockholders at all and is not one cognizable by this Court, the
insurance
agreements have caused the Company to spend tens of millions of dollars
without
even obtaining this "benefit". In fact, the "benefit" of avoiding
speculative
investors or disruptions to the Company's finances or continuity was
readily
available through alternative uses of the very same funds. For example,
the
Company could have secured benefits of protecting itself from having the
Crowley
Family dump a block of stock into the hands of an inappropriate investor
simply
by owning the insurance policy itself.
72. The details of the insurance transactions are contained in
5
separate exhibits to the April 1, 2002 10K.
73. Exhibit 10.6 to the April 1, 2002 10-K is the split-dollar
life
insurance agreement ("Insurance Agreement 1") purports to be made "as of
April
6, 1992" although it was not disclosed to the shareholders until 2002.
When it
was actually made is nowhere revealed. However, it would appear that at
least
since 1992 the Company has been paying life insurance premiums for the
Crowley
family. Schedule A to that exhibit lists five separate life insurance
policies
with a total face amount of $50 million dollars. The agreement provides
that the
Company will pay the premiums on these policies, and Defendant Crowley
will
repay the Company "the economic benefit" he receives, as determined by
IRS
regulations, and the Company, upon termination of the policy or payment
of the
death benefit, will receive the lesser of the balance of the amount it
paid in
premiums (without interest) or the cash surrender value of the policies.
74. In 1992, defendants Bowles and Wolfe were on the Board of
Directors. In addition, Thomas B. Crowley, father to defendant Crowley,
was
Chairman of the Board and Chief Executive Officer. There were 5 other
board
members at that time, including the Company's President (and Chief
Operating
Officer) and Senior Vice President (and Chief Financial Officer). Two of
the
other directors, Casper H. Escher, Jr. and Gustav H. Koven, III, were
cousins of
defendants Crowley and Bowles. Thomas B. Crowley was their uncle.
75. Attached as Exhibit 10.7 to the April 1, 2002 10K filing
was an
amendment to the Insurance Agreement 1 ("Amendment 1") "made on May 1,
1995"
which stated the purpose of the amendment was to provide collateral to
the
Company for the obligations Defendant Crowley owed under the Insurance
Agreement
1 on three of the policies totaling $40 million dollars.
76. Exhibit 10.8 to the April 1, 2002 10K filing is a second
amendment
to Insurance Agreement 1 ("Amendment 2") "made on July 20, 1998".
Curiously
while Amendment 1 referred to the Insurance Agreement 1 as "dated April
6,
1992", Amendment 2 goes back to the original language describing
Insurance
Agreement 1 as "dated as of April 6, 1992". The purpose of Amendment 2
is to
permit Defendant Crowley to transfer certain of the policies which were
the
subject of Insurance Agreement 1 to a trust he created on July 1, 1998.
77. Attached as Exhibit 10.9 to the April 1, 2002 10-K filing
is an
agreement entitled "Split-Dollar Life Insurance Agreement (1035 Exchange
Policy)," ("Amendment 3") a third amendment to Insurance Agreement 1.
The
purpose of Amendment 3 was to allow Defendant Crowley to exchange the
two
policies which were the subject of Insurance Agreement 1 for a new
policy. The
effect of this exchange was to convert the two policies with a $10
million
dollar face amount into one policy with a face amount $11,296,319. Thus
as of
Amendment 3, the Company was paying for $51,296,319 dollars of life
insurance
for the Crowley family. Amendment 3 states that it "is made as of July
20,
1998".
78. Attached as Exhibit 10.10 to the April 1, 2002 10-K filing,
is an
agreement titled "Split-Dollar Life Insurance Agreement New Policies"
("Insurance Agreement 2"). Like Insurance Agreement 1, Insurance
Agreement 2
recites that it "is made as of" a date, in this case July 20, 1998.
Insurance
Agreement 2 relates to entirely different insurance policies. The
purpose of the
agreement is to create the same type of arrangement with respect to
these
policies as existed under Insurance Agreement 1. Insurance Agreement 2
lists six
policies with a total face amount of $50 million. Thus, as of Insurance
Agreement 2, the Company was paying for $101,296,319 dollars of life
insurance
for the Crowley family.
79. Attached as Exhibit 10.11 to the April 1, 2002 10-K filing
is an
agreement titled "Split-Dollar Life Agreement (Policies on Life of
Thomas B.
Crowley, Jr.)" ("Insurance Agreement 3"). Insurance Agreement 3 "is made
as of
November 24, 1998". Insurance Agreement 3 involves insurance policies
owned by
the 1998 Crowley family generation-skipping trust u/t/a dtd. November
12, 1998
by and between Thomas B. Crowley, Jr. as trustor and as trustee ("the
1998
Trust"). The agreement recites that the 1998 Trust owned certain
policies on the
life of Defendant Crowley and notes the existence the two life insurance
policies in the face amount of $20 million dollars each, for a total of
$40
million dollars. The agreement makes these insurance policies subject to
the
same type of arrangement as Insurance Agreement 1 and Insurance
Agreement 2. As
of the existence of Insurance Agreement 3, the Company was paying for
life
insurance in the face amount of $141,296,319 dollars on behalf of the
Crowley
family.
80. The text of the 2002 10-K does not disclose the total
amount of
life insurance subject to these agreements, the total benefit to the
Crowley
family from these agreements, the actual dates on which these agreements
were
made, nor the actual dates and amounts of payments made by the Company
with
respect to these agreements. In a footnote it does state that Defendant
Crowley's 2001 annual compensation included $2,978,426 representing the
non-term
portion of premiums paid by the Company for that year. This amount was
approximately 2.5% of the Company's operating revenue that year, and
approximately 15% of the Company's net income.
81. Crowley's Form 10-K for the fiscal year ending December 31,
2002,
under the heading "Other Business Risks" the Company disclosed as
follows:
Mr. Crowley and his family are the beneficiaries of
certain
split dollar life insurance agreements, as more fully described
in the
2003 proxy statement. The Board of Directors has approved these
agreements in furtherance of its belief that preserving Crowley
family
control and the closely held nature of the Company is
beneficial to the
Company's stockholders and will maximize shareholder value over
the
long-term. The Board of Directors has long been concerned that
short-term and long-term estate tax and other obligations of
certain
Crowley family stockholders could lead to an unrelated third
party
gaining a highly influential and potentially detrimental
position with
respect to the business and management of the Company. Such
circumstances could also lead to stock falling into the hands
of
speculative investors who may later attempt to disrupt company
affairs
in order to encourage the Company to take action favorable to
such
investors, yet not in the best interests of the Company and
remaining
stockholders.
The Board of Directors also has been concerned that
should the
Company receive a request to purchase shares held by such
stockholders
or their estates in lieu of a possible sale to such investors,
the
Company would be unable to effect such a purchase without
negatively
impacting its results of operations or financial condition. In
this
regard, the split-dollar life insurance agreements enable Mr.
Crowley
and certain trusts for the benefit of descendants to purchase
most, if
not all, of such shares without involving the Company.
The Company expects that following the death of Mrs.
Molly M.
Crowley, the net proceeds of the policies of insurance on the
life of
Mrs. Crowley will be used by Mr. Crowley and the trusts under
his
control to purchase shares of common stock held by the Thomas
B.
Crowley Marital Trust so that the trust can pay applicable
estate
taxes. Essentially, the split-dollar life insurance agreements
enable
Mr. Crowley and his family to retain ownership of shares and
control of
the Company under circumstances when certain of such shares
otherwise
might have to be sold to a third party to pay applicable estate
taxes.
82. The Form 10-K for the year 2002 was filed with the
Securities and
Exchange Commission on March 19, 2003. At the end of the disclosures
regarding
the corporate policy of entrenching the Crowley family as controlling
stockholders the Company referred stockholders to the proxy stating:
"See
Security Ownership of Certain Beneficial Owners and Management and
Related
Stockholder Matters, in the 2003 Proxy Statement." In the 2003 Proxy
which was
filed on April 25, 2003, one month later, there is no section entitled
"Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters." While there is such entitled "Security Ownership of Certain
Beneficial
Owners and Management," it contains no related information and there is
no
section entitled "Related Stockholder Matters."
83. In the 2003 proxy, there is a section titled "Certain
Relationships
and Related Transactions." The entirety of the disclosure in the 2003
Proxy from
the section "Certain Relationships and Related Transactions" on this
issue is as
follows:
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 party 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
costs 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 and as of April 25, 2003, the largest
aggregate
amount owed by Mr. Crowley and the trusts based upon the cash
surrender
value of these insurance policies was $16.9 million. 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 recently enacted
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 decided to suspend making any 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 decided to suspend 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
and the
balance of the annual premium will be paid out of the cash
surrender
value of the policies.
84. Nowhere in this disclosure or anywhere else is there
disclosure of
when the agreements were adopted, the total costs to the Company or the
total
benefit to the Crowley family. The amount of the insurance or the terms
of any
of these agreements is available only if one examines the exhibits to
the April
1, 2002 10-K. In a footnote it was disclosed that Defendant Crowley's
annual
compensation included $2,700,023 representing its non-term portion of
premiums
paid by the Company that year. As in the prior year, this represented
about 2.5%
of operating revenue and over 15% of the Company's net income.
85. Defendant Crowley was paying only for the annualized costs
of the
insurance afforded and the balance of the premium due under these
policies
continued to be a gift from the corporation to Defendant Crowley. Under
this
arrangement while Defendant Crowley personally owned the policies, the
Company
continued to pay a large portion of the premium. The Company has never
disclosed
what the total premiums it has paid for these policies were nor the
"term cost"
of these premiums that Defendant Crowley has paid. The net premiums
acknowledged
by the Company on these policies for the years 2000, 2001 and 2002 were
$2,999,000, $2,979,000 and $2,700,000, respectively.
86. In the Company's Form 10-K filing on March 19, 2004, under
the
heading Item 13, Certain Relationships and Related Transactions, the
Company
stated: "The information required by this item is hereby incorporated by
reference from the 2003 Proxy Statement under the heading Certain
Relationships
and Related Transactions."
87. In the 2004 Proxy Statement filed one month later on April
19,
2004, the Company made the following disclosures:
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 party 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
costs 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 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 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
policies 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 life insurance agreement.
88. In the 2004 Proxy Statement, the Company disclosed that
during the
fiscal year 2003, the cash surrender value of the policies exceeded $18
million
dollars. As of April 25, 2004, the cash surrender value was $10.5
million
dollars. The reason for this was characterized as Defendant Crowley's
decision
to pay the Company approximately $7.5 million dollars. In fact,
Insurance
Agreement I was terminated because there was no further need to pay any
premiums
on the policies. The Agreement had been in place long enough and the
Company had
paid sufficient funds so that the cash surrender value of the policy was
sufficient to continue the insurance in full force and effect until the
death
benefit was collected. The insurance policy had become self-sustaining.
89. Thus, the Settlement Agreement was nothing but a sham to
take
Insurance Agreement 1 "off the books". Accomplishing that triggered
defendant
Crowley's "obligation" to pay the Company approximately $7.5 million
dollars.
Because he did not surrender the insurance policies however, he did not
have the
cash surrender value with which to pay this money. Defendants however,
never
intended that defendant Crowley would have to pay anything out of
pocket. Thus,
defendant Crowley and the other defendants concocted a scheme whereby
defendant
Crowley would nominally borrow the money but the Company would pay all
of the
costs associated with the borrowing including paying the tax cost to
defendant
Crowley incurred in the transaction. In essence, the Company was
borrowing $7.5
million dollars for itself and making all the payments plus tax payments
to Mr.
Crowley. As with all these transactions, there was no independent
consideration
or review of this agreement, there is no fairness opinion relating to
this
agreement, and no disinterested shareholder approval.
90. The Settlement Agreement terminated Insurance Agreement 1
in name
only. As recited in the Settlement Agreement, the Settlement Agreement
was
structured so that the Company would "continue to provide [the] benefits
to"
defendant Crowley of Insurance Agreement 1, and to provide further
benefits to
defendant Crowley by making the interest payments on the $7.5 million
dollars
defendant Crowley borrowed to make the payment "required" under
Insurance
Agreement 1. The Settlement Agreement makes clear that the insurance
policies
which were subject to Insurance Agreement 1 remain in effect. Thus, the
"Settlement Agreement" in reality simply converts Insurance Agreement 1
into
another form which allows defendant Crowley to use the Company's
collateral cash
surrender value of the policy to make the required insurance premium
payments.
Premium payments are required in order to keep the policies in full
force and
effect through the death of the insured. In other words, the insurance
policies
which were subject to Insurance Agreement 1 no longer needed any
additional
premium payments in order to remain in full force. Because the insurance
was
self-sustaining, the Company's "obligations" under Insurance Agreement 1
in fact
had been completely fulfilled. Not satisfied with this however,
defendant
Crowley, with Board approval, extracted additional payments from the
Company and
thus constructed an unnecessary transaction for the purpose of allowing
him to
borrow $7.5 million dollars all at the expense of the Company and the
stockholders. In fact, defendant Crowley does not even incur any tax
expense
related to the transaction as the Company agreed to pay all associated
taxes of
defendant Crowley in connection with the transaction.
91. While the proxy refers to a December 23, 2003 settlement
agreement
between Defendant Crowley and the Company, there are no disclosures in
the text
of the filing beyond the brief paragraph contained in the proxy. Who
"negotiated" on behalf of the Company and why there needed to be a
"settlement
agreement" in the first place is not discussed.
92. Upon termination of the insurance policy, Defendant Crowley
would
have received a $7.5 million cash surrender value. What is not disclosed
is if
the agreement was terminated, why were the policies not surrendered?
93. As Exhibit 10.14 to the March 19, 2004 10-K filing, the
Company
attached the "Settlement Agreement" "made as of December 23, 2003". The
agreement relates only to Insurance Agreement 1, as amended. Insurance
Agreements 2 and 3 remain in effect. The agreement states that the
payment by
Defendant Crowley of $7,508,187 dollars equals "the total amount of
premiums
paid by the corporation . . . reduced by payments made by [Defendant
Crowley] .
. ." under the agreement. Thus, and according to the settlement
agreement from
September 1992 until December of 2003 the Company spent approximately
$7.5
million dollars under Insurance Agreement 1, as amended.
94. Had Defendant Crowley repaid those funds, the economic
injuries
suffered as a result of Insurance Agreement 1, as amended, arguably
could have
been limited to the difference between the payments made by the Company
and $7.5
million and the interest on the $7.5 million dollars for the 11 year
period over
which those funds were advanced. However, the agreement does not simply
provide
for repayment of the $7.5 million dollars. Instead, it provides that the
Company
will pay to Defendant Crowley, an amount equal to his interest expenses
on a
$7.5 million dollar loan until Defendant Crowley collects on the
policies. Thus,
the Company has agreed to loan, interest-free, to Defendant Crowley, the
cash
surrender value policies subject to Insurance Agreement 1.
95. The present status of these agreements is as follows:
a. Insurance Agreement 1 has been terminated in form only.
The
economic substance of the gift to the Crowley Family and the purpose of
perpetuating the Crowley Family control remain in place and intact. All
of the
insurance policies subject to the agreement remain in force. The
premiums due on
these insurance policies are paid out of the cash surrender value of the
policies. The Insurance Agreement I was not terminated to benefit the
Company
but was instead terminated to benefit defendant Crowley in order to take
Insurance Agreement 1 "off the books". The Company did not require
defendant
Crowley to abide by the economic substance of his "obligations", such as
they
were, under the agreement when it was terminated. Instead, the Company
agreed to
loan him the money interest free, subject only to repayment when
defendant
Crowley collects the death benefit from these policies. The December 23,
2003
Settlement Agreement openly acknowledges that the Company, under the
direction
of the defendants, intended to continue giving defendant Crowley the
benefits of
Insurance Agreement 1. The handling of this matter clearly demonstrates
that the
Board to this day continues in its desire to perpetuate the Crowley
Family
control at no cost to the Crowley Family and the Settlement Agreement is
but one
piece of the overall effort to accomplish that goal.
b. The Company has "suspended" payments under Insurance
Agreement 2,
although the economic benefits to the Crowley Family remain
undiminished. The
"suspension" of additional payments of premiums served only to injure
the
Company, not the Crowley Family because current premium is paid from the
cash
surrender value of the policies. The cash surrender value is a cap on
defendant
Crowley's obligation to repay the Company for its expenditures. (The
Company has
allowed this erosion and invasion of its collateral.) Further, the
Company has
reserved the right to reinstitute the payments of these premiums should
it ever
be able to figure out a way to do this without violating Sarbanes-Oxley.
c. The Company has "suspended" payments under Insurance
Agreement 3,
although the economic benefits to the Crowley Family remain
undiminished. The
"suspension" of additional payments of premiums served only to injure
the
Company, not the Crowley Family because current premium is paid from the
cash
surrender value of the policies. The cash surrender value is a cap on
Crowley's
obligation to repay the Company for its expenditures. (The Company has
allowed
this erosion and invasion of its collateral.) Further, the Company has
reserved
the right to reinstitute the payments of these premiums should it ever
be able
to figure out a way to do this without violating Sarbanes-Oxley.
96. Therefore, all of the insurance policies purchased by the
Company
at Company expense for the Crowley Family as gifts to the Crowley Family
remain
in full force and effect. When the Crowley Family has had an
"obligation" to the
Company under any of these agreements, the Company has eviscerated that
"obligation" from an economic perspective and seen to it that the
Crowley Family
pays nothing. In fact, the Company pays Thomas Crowley's expenses in
connection
with the tax advice and planning necessary under these agreements. Such
payments
included in excess of $100,000 in 2002, in excess of $50,000 in 2003 and
in
excess of $100,000 in 2004.
97. Not only have the defendants taken the active steps alleged
herein
in violation of their fiduciary duties, but they have also failed to
rescind
these policies. Because these are transactions between a corporation and
a
director and officer which were not approved by an independent committee
of the
Board nor ratified by appropriate shareholder action, they are voidable.
Each of
the defendants herein has breached his fiduciary duty by failing to seek
to have
these agreements voided and to demand compensation for the Company for
the
amounts spent in pursuit of these agreements.
98. The history of these transactions demonstrate that neither
Defendant Crowley nor the Directors viewed any of these insurance
agreements as
binding Company obligations, except to the extent they favor defendant
Crowley
and his family. The agreements serve no legitimate Company purpose. When
it is
in the interest of defendant Crowley to have the agreements amended or
cancelled, the agreements are amended or cancelled. When defendant
Crowley has a
financial obligation, he is excused from payment. Even when the
defendants were
concerned about the effects of Sarbanes-Oxley, the defendants concocted
a scheme
to evade the law's purposes and to provide, with no out of pocket cost
to
defendant Crowley, a means by which the insurance could remain in place
for the
benefit of the Crowley Family. The Company has not gained and can gain
no
benefit from any of these transactions. By the Company's own admissions,
it
could unilaterally have suspended payments on these agreements at any
time.
Quite simply, these agreements only exist as "contracts" in order to
provide a
facade of legitimacy to this otherwise illegitimate and inappropriate
authorization of the expenditure of corporate funds. Defendant Crowley
is
standing on both sides of the transaction, through his control and
domination of
the Board, has negotiated with himself in determining the terms,
amendments and
funding of these self-dealing transactions. All of these agreements and
the
amendments and all their payments have provided nothing of any
cognizable legal
benefit to the Company. The most the Company has ever had is the ability
to
receive the return of only a portion of the funds expended for the
private
purposes of Mr. Crowley and his family. None of the purported corporate
purposes
is in any way, shape or form subjected to the slightest contractually
enforceable protection.
D. Damages
99. The Company has disclosed that the non-term portion of
premiums
paid under Split Dollar Agreements with Defendant Crowley and certain
trusts for
the benefit of his family was $2,999,000 in 2000, $2,978,426 in 2001 and
$2,700,023 in 2002. It is not clear whether that includes the costs
under all
three insurance agreements or simply under Insurance Agreement 1. The
Company
has not disclosed the cost for Insurance Agreements 2 or 3 on a separate
basis,
nor has it disclosed any of its costs, outside of the time periods of
2001 and
2002, other than in the context of the Settlement Agreement. However,
assuming
an annual cost to the Company of $2.8 million dollars for all policies
and
assuming the premiums on each are proportional to the death benefits,
the annual
premium on the policies subject to Insurance Agreements 2 and 3 are
believed to
be about $1.8 million.
100. Thus it appears that even following the illusory
"repayment" of
the $7.5 million dollars, the damages arising from the three insurance
agreements to date include at least the following: (a) interest on $7.5
million
dollars apparently commencing in 1992 and continuing to date, (b) the
difference
between the amounts expended under Insurance Agreement 1 and $7.5
million
dollars; and (c) annual premium payments on the $90 million dollars of
insurance
subject to Insurance Agreement 2, and Insurance Agreement 3 from 1998 to
the
present at the rate of about $1.8 million annually, for a total of $10.8
million
exclusive of interest on the latter portion.
101. The bulk of the Company's long-term debt carries interest
from
4.96% to 8.125%, an average in excess of 6.5%. At 6.5% simple interest,
the cost
of the $7.5 million dollar loan to Crowley is $487,500 per year.
Assuming annual
payments under Insurance Agreements 2 and 3 total $1.8 million, the
interest
cost from these agreements is $117,000 annually. In total, the insurance
agreements have injured the Company and the Class in the amount of at
least $15
million dollars as of the commencement of this action and continue to
injure the
Company and the Class at the rate of approximately $2.4 million dollars
per
year.
102. In sum, the Company has spent tens of millions of dollars
as a
gift for life insurance for its controlling stockholder's family's
estate plan
so that stockholder can maintain his position in control. The Company
has made
an enormous gift to the Crowley family for Defendant Crowley's personal
benefit,
not for a corporate purpose and to the detriment of the Class. Forgotten
by the
Board is that these are personal obligations of Defendant Crowley and
his family
related to his interests as a controlling shareholder and thus are not
proper
expenditures.
103. The wrongs alleged herein were not only breaches of
fiduciary
duties at the time they occurred but each and every affirmative act of
the Board
in perpetuating these agreements and the failure to void and rescind
them
constitutes a continuing wrong. The history of these agreements makes
clear than
neither defendant Crowley nor the Company considers these agreements
enforceable
"contracts" and that any time, when it suits the purpose of defendant
Crowley,
these "contracts" are changed to suit his personal interests. Further,
as the
product of gross overreaching and self-dealing by the Crowley Family,
these
contracts were voidable at the option of the Company at any time.
Further,
defendants at any time could have sought restitution from the Crowley
Family but
chose not to do so.
104. The Crowley Family and the Board members (including the
defendants
herein when on the Board) fully expected that the agreements could and
would be
modified at any time to suit the Crowley Family's desires and needs. For
example, Amendment 2 was entered into because defendant Crowley found it
to his
personal advantage to place the insurance in a revocable trust. The
agreement
provided no benefit at all to the Company.
105. The Insurance Agreements have never provided any benefit
to the
Company. At all times under all of the agreements, defendant Crowley was
the
sole owner of the policies and retained the right to do anything he
wished with
the policies including terminate them, surrender them, and use the
proceeds in
any fashion. The only "right" granted to the Company was the "right" to,
under
certain specific circumstances, receive a return of some, but less than
all, of
the money it had provided to the Crowley Family. An agreement to give
money to a
third party in exchange for the third party's promise to return, in the
future,
some portion of the money given without interest, is not a contract
supported by
any valid consideration.
106. None of the challenged agreements was ever submitted to an
independent review by independent board members and the Crowley Family
never
recused themselves from consideration of these agreements nor the
changes
thereto. There were no fairness opinions on any of these agreements. The
agreements were not submitted to vote of disinterested shareholders. The
contracts have never been approved in good faith by disinterested
directors nor
approved by disinterested shareholders. Because the transactions are not
fair to
the Company or its shareholders, the insurance agreements, the
amendments
thereto and the settlement agreement are, and have been from their
inception,
voidable. Even were the contracts not sham agreements, they were not
binding
obligations on the Company and the Company could have legally and
rightfully
refused to perform its obligations under the contracts at any point and
declared
them void.
COUNT I
DERIVATIVELY ON BEHALF OF CROWLEY AGAINST ALL DEFENDANTS
107. Plaintiffs incorporate by reference P. P. 1-106 hereof as
if fully
set forth herein.
108. The actions taken by the defendants in connection with the
challenged transactions including authorizing the costs incurred, the
agreements
and payments made with respect to these Life Insurance Agreements and
the
Settlement Agreement were in breach of their fiduciary duties. Such
constituted
gifts to Defendant Crowley and the Crowley family with no valid
corporate
purpose and constituted a waste of corporate assets. Further they
constitute
interested self-dealing transactions not entirely fair to the Company or
all its
stockholders.
109. The policy of assisting Defendant Crowley and the Crowley
family
in maintaining his position of control and domination of the Company is
an
invalid corporate policy which the defendants adopted in breach of their
fiduciary duties to all shareholders.
110. The Challenged Transactions are voidable self-interested
transactions.
111. Plaintiffs also are entitled to an accounting of the use
of the
corporate funds in the purchase of life insurance policies and are
entitled to
an Order directing that the defendants cause the owners of the insurance
policies to assign those policies to the Company.
112. Alternatively, the Company is entitled to damages against
the
defendants in an amount to be proven at trial.
113. Plaintiffs are entitled to a determination by this Court
invalidating the corporate policy of entrenching Defendant Crowley and
the
Crowley family as controlling stockholder and recovering for the Company
all of
the costs and amounts of creating and promoting this policy, including
interest.
COUNT II
ON BEHALF OF THE CLASS AGAINST ALL DEFENDANTS
114. Plaintiffs incorporate by reference P. P. 1-113 hereof as
if fully
set forth herein.
115. The actions of the defendants as alleged herein breach
their
fiduciary duties and have caused injury to plaintiffs and the Class.
116. That injury is separate and distinct from any injury
suffered by
all shareholders in at least the following ways:
a. the policy has the benefit of favoring the majority
stockholder
over the minority stockholders;
b. the policy has resulted in payments to, gifts to and
economic
benefits to the Crowley family not received by all other stockholders;
and
c. the policy has as its stated purpose frustrating the
potential
for the Class to gain greater voting control through the diminution of
the
control of the Crowley family.
117. The challenged transactions are self-dealing transactions
on
behalf of the controlling stockholder, not entirely fair to the Class
and are
voidable.
118. To the extent the Court does not order a complete and full
remedy
to the Company as the result of this action, plaintiffs in the Class are
entitled to an Order the defendants to cause the Company to pay dividend
to
common stock holders of the Company in an amount sufficient to fully
compensate
them for the difference between other recoveries and the injuries
sustained.
Plaintiffs are also entitled to an Order directing that any dividends
payable in
stock owned by the Crowley Family be subject to an offset to pay the
damages
sustained by the Company.
119. Plaintiffs and the Class have been damaged and will
continue to be
damaged as a result of the pursuit of this policy.
120. Plaintiffs and the Class have no adequate remedy of law.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs respectfully pray for an order or orders
providing the following relief:
A. Declaring this action to be appropriately brought as a
derivative
action;
B. Declaring this action to be properly brought as a class
action
and certifying the Class and the Class representatives as alleged
herein;
C. Finding that defendants have breached their fiduciary
duties with
regard to the Challenged Transactions as more fully alleged herein;
D. Directing an accounting in favor of the Company by the
defendants
for the funds wrongfully expended in connection with the challenged
transactions
and directing that the defendants cause the owners of the insurance
policies to
have them assigned to the Company.
E. Declaring illegal and voiding the Crowley corporate
policy of
entrenching Defendant Crowley as controlling stockholder;
F. Awarding the Company and the Class such damages as they
have
suffered in an amount at a minimum equal to the premiums paid by the
Company on
the split dollar life insurance policies, the interest forgiven to the
Crowley
family on all amounts owed to the Company and the cost and expenses
incurred by
the Company in creating, implementing, pursuing and defending the
policy;
G. Ordering Defendants Crowley and M. Crowley and Bowles to
disgorge
all benefits they and their family have received from the Company as a
result of
this policy and all related transactions;
H. Awarding plaintiffs and their counsel such attorneys fees
and
expenses as are appropriate including expert witness fees; and
I. Awarding such further and other relief as is just and
equitable.
Dated: December ___, 2005 TAYLOR & McNEW LLP
By:
_________________________
R. Bruce McNew (#967)
3711 Kennett Pike,
Suite 210
Greenville, DE 19807
Tel: 302/655-9200
COUNSEL FOR PLAINTIFFS