Farmer Bros. Forum
May 2004 Update
An independent “Forum” for shareholders
of Farmer Bros. Co. (Nasdaq: FARM) was
initiated in early 2002 to address concerns about management's 50
year history of overt indifference to the interests of minority
investors, reflected in market discounting of the stock at more than 25%
below professional estimates of realizable value.
During its first two years, the Forum
surveys of its participants to define and prioritize issues, and
actions to obtain the information needed for investment decisions
and assure management's understanding of shareholder interests.
Significant changes by the beginning of
Provision of information
requested by investors
Addition of independent
directors (before required by Sarbanes-Oxley)
Retirement of CEO
Engagement of investment
banker to consider strategic options
Company purchase of 23%
dissident family stake at $25 per share (adjusted for split)
10-for-1 stock split
(effective May 2004)
conditions in early 2004 remained unresolved. Management continued
to ignore both shareholder and SEC concerns – acknowledged in the
company’s annual report and proxy statement – that Farmer Bros. was an
unregistered investment company, violating the Investment Company Act of
1940 (“ICA”) and depriving investors of significant regulatory and tax
benefits. And in transactions which the company specifically
acknowledged would violate the ICA, management had set up a “leveraged”
Employee Stock Ownership Plan (“ESOP”) to buy a 19% block of company
stock, which combined with the Farmer family’s 39% holdings gave them
voting control to adopt a widely criticized set of management
entrenchment provisions that received only 4% support from public
concerns developed in
2004. Quarterly reports disclosed a continuing deterioration of the
company’s coffee business, which management was unable or unwilling to
explain. The resulting drop in stock price focused attention on the
risks associated with employee pensions being concentrated in the
company’s stock and burdened by a $63 million ESOP debt.
Responding to the current priorities of
Farmer Bros. investors – including employees whose careers as well as
pensions depend on competitive growth – Forum attention
in 2004 is expected to focus on timely changes required to assure effective management of the
company’s commercial opportunities and financial assets.
May 31, 2004
Initiation of Forum
Los Angeles Business Journal, April 22, 2002: "Plan Shaped to
Push Farmer Brothers Stock"
April 22, 2002: "Percolating Over Perks"
New York Times, July 21, 2002: "Another Dimension of
Los Angeles Times, November 4, 2002: "Coffee Chief Stirs
Progress of Change
Status Report &
(January 5, 2004)
Report on Shareholder
(February 23, 2004)
Report on Meeting Results
(February 24, 2004)
Raised in Annual Report
(September 13, 2004)
Report of Annual Meeting
(December 15, 2004)
Value Enhancement Objectives for 2005
(January 7, 2005)
The Deal, May 26, 2003: "Investors put heat on Farmer Bros."
The Daily Breeze, June 29, 2003 (Sunday four-part feature):
“Coffee and controversy…”
New York Times, December 21, 2003, Market Watch: "Yes, the
Shareholders Can Fight Back"
The Deal, February 6, 2004: "Bitter taste"
Los Angeles Times, February 24, 2004: "Farmer Files to
Los Angeles Business Journal, May 31, 2004: "Investors See
Cup Half Empty Despite Progress at Farmer Bros."
Priorities of Farmer Bros. Shareholders
(June 17, 2002)
Ranges of Valuation Estimates
(December 1, 2003)
Shareholder Proposals &
Legal & Regulatory Actions
Comprehensive listings (as presented in the initial
form of the Forum home page) of:
Current News Reports
Breeze, August 25, 2007: "South Bay-based Farmer Bros. names new
Business Journal, May 14, 2007: "Farmer Brothers Finally Perks
Oregonian, May 1, 2007: "Farmer Brothers buys Portland's Coffee
Alpha, January 22, 2007: "Farmer Brothers: A Double Net/Net
Times, June 6, 2006: "Farmer Bros. Hires Former Diedrich CEO"
Breeze, February 16, 2006: "Lutin seeks board probe of Farmer
See also referenced
February 14, 2006 letter
December 30, 2005: "A deal perking up at Farmer Bros.?"
Breeze, October 8, 2005: "Investors in Farmer Bros. to mull
October 7, 2005: "Investors grill coffee roaster"
Business Journal, March 16, 2005: "Farmer Brothers Adopts
'Poison Pill' Plan"
The Daily Breeze,
January 15, 2005: "Another Farmer will take charge of coffee company"
January 14, 2005 article: "Farmer's Market"
January 13, 2005: "Future of Farmer Bros. in doubt"
Dow Jones Newswires, January
11, 2005: "Mkt Sees Big Changes At Farmer Bros After CEO Death"
Business Journal, October 11, 2004: "Farmer Brothers Wins Round
in Ongoing Battle With Investors"
Quarterly Report of
(February 12. 2008)
Second Year of New
(November 12, 2007)
Continuing Annual and
Quarterly Operating Losses
(September 13, 2007)
Implementation of Planned
CEO Succession and Addition of Litigation Lawyer to Board
(August 24, 2007)
Report of Resumed Quarterly
(May 8, 2007)
Explanation of Declining Coffee Sales and Resumed Operating Losses
Acquisition of Specialty Coffee Roaster
(April 30, 2007)
Letter to Employees Explaining Acquisition
Management Reports Vision
(February 9, 2007)
Continuing Deterioration of Operating Performance, Plans to Expand
(November 9, 2006)
Company Files Proxy
Statement, Excluding Shareholder Proposal with SEC Approval
(October 26, 2006)
Annual Report of Resumed
(September 13, 2006)
Shareholder Proposal to Vote
on Director Indemnification for SEC Enforcement
(June 26, 2006)
Management Request for SEC
Approval to Prevent Vote on Shareholder Proposal
Company Hiring of Chief
(June 5, 2006)
Directors Approve New
Indemnification for Themselves
(May 22, 2006)
Annual Meeting of Shareholders
(November 28, 2005)
Relevant Court Decision on
Investment Company Status
(November 23, 2005)
Milwaukee Journal Sentinel:
loses fight with SEC over investment status"
Management Blames Continuing
Decline on Market Conditions and "Computer Project"
(November 8, 2005)
Company Announces Fourth
Quarter and Annual Losses
(September 13, 2005)
2005 Forum Report:
Farmer Bros. Filing of 10-K Annual Report
Renewed Request for Full
Information About Control of Stock
(October 11, 2005)
Forum Engagement of Investment Banker for Coffee Business
(October 7, 2005)
September 21, 2005
ESOP Issues and
Exploration of Strategic Alternatives
Forum Report: Management
Action to Adopt Poison Pill
(March 16, 2005)
Response to Requests for
Information about Control of Stock
(March 14, 2005)
Quarterly Loss from
(February 9, 2005)
Company Announces Losses Attributed
to Market Volatility
(February 10, 2005)
Company Announces Deceased
CEO's Sister Joining Board to "Continue the Legacy"
(January 14, 2005)
Company Press Release of Death of
Roy E. Farmer and Appointment of Interim CEO (January 9, 2005)
of Meeting and
(December 15&17, 2004)
Performance Issues Raised in
Company's Form 10-K Annual Report
(September 13, 2004)
Company's September 14, 2004 Press Release)
Request for Management Explanation
of Performance and Plans
(May 18, 2004)
(See also July
26, 2004 repeated request to CEO concerning employee pension
Forum Report on Meeting Results
(February 24, 2004)
Request for SEC Attention to
(January 8, 2004)
Proxy Voting: Glass Lewis
(November 7, 2005)
Recommends institutional investor clients withhold
votes for reelection of directors, stating "[w]e believe that
the actions of the board and management over the past two years have
been contrary to shareholder interests."
See also previous Glass Lewis reports:
2004 "Proxy Paper"
February 13, 2004 "Proxy Review"
11, 2004 "Proxy Paper"
Stock Valuation: Standard Investment
$43 per share (adjusted for 2004 stock split) target price based on separate
valuations of investment funds and coffee business, assuming either going
private or accommodation of public investor interests.
also May 24, 2004 Market