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Management Proposal for New Incorporation

(October 24, 2003)


NOTE:  Neither the Forum nor anyone associated with its conduct is soliciting proxies or willing to accept proxies if offered.  Based on information at the time of this report, only the company’s management intends to solicit proxies.  See Shareholder Voting for January 5, 2003 Meeting.


October 24, 2003 Distribution to Forum Participants:

----- Original Message -----
Sent: Friday, October 24, 2003 6:03 PM
Subject: Management response to shareholder interests

Farmer Bros. filed a preliminary proxy statement with the SEC today, for a shareholders meeting on January 5, 2004.
The statement includes a proposal to change the state of incorporation, which, according to management's explanation, would allow management to establish a fresh set of governance provisions and, in the process, also invalidate two shareholder proposals that are applicable to the current state's incorporation.  Management has stated their intent to vote the shares owned by them (approximately 12%) and those they control in trusts for others (approximately 43%) in favor of this proposal, assuring more than the 50% required for approval. [page 9]
In a section titled "Principal Reasons for the Proposed Reincorporation," management states that the change will improve their ability to "respond to questions and predict outcomes relating to significant corporate matters or disputes, including ... duties of directors and officers; liability of directors and officers and indemnification; and contests for corporate control, including proxy contests and tender offers." [page 9]  Their "Principal Reasons" section also summarizes some of the new provisions they propose [pages 10-11]:
  • "elimination of shareholders' ability to act by written consent"
  • "establishment of a classified board of directors"
  • "elimination of the ability of shareholders controlling at least ten percent (10%) of the voting shares to call a special meeting of shareholders"
  • "establishment of advance notice procedures for shareholder nominations and other proposals"
  • "requiring a vote of at least eighty percent (80%) of the outstanding shares to amend the bylaws by shareholder action instead of a majority of the outstanding shares"
  • "the elimination of cumulative voting"
  • "the Board's ability to designate and issue preferred stock [which], if issued and depending on its terms, may make it more difficult for an unsolicited bidder to make a takeover attempt"
  • "Board may also consider in the future certain defensive strategies allowed under the DGCL [new state's law] which are designed to enhance the Board's ability to negotiate with an unsolicited bidder [including] the adoption of a shareholder rights plan and severance agreements for its management and key employees"
These are management's statements concerning the two shareholder proposals:
  • "Mitchell Partners, L.P. has proposed an amendment to the Company's California Bylaws that would restore cumulative voting.  See Proposal Four.  If the Reincorporation Proposal is approved by the Company's shareholders, Proposal Four will have no effect even if it is passed by the Company's shareholders because it proposes to amend the California Bylaws, which, upon consummation of the Merger [associated with the proposed new incorporation], will no longer be effective." [page 12] 
  • "Franklin Mutual Advisors LLC has submitted a shareholder proposal to limit indemnification of directors in certain circumstances.  See Proposal Five.  If the Reincorporation Proposal is approved by the Company's shareholders, Proposal Five will have no effect on the Company even if it is approved by the Company's shareholders because it proposes to limit indemnification with respect to Farmer Bros. California, which will no longer exist following the Merger [associated with the proposed new incorporation]." [page 22] 
In summary, there is nothing subtle about the purpose of this proposal, which was reportedly initiated at an August board meeting a few weeks after submission of the Mitchell Partners and Franklin Mutual proposals.  If passed, and if management's report of its effects is accurate, it would allow management to avoid any responsibility to shareholders for either their past or future actions.
             - GL
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212/605-0335
Fax: 212/605-0325



The Forum is open to all Farmer Bros. shareholders, whether institutional or individual, and to professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives.  As stated in the Forum's Conditions of Participation, participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

There is no charge for participation.  Franklin Mutual Advisers, LLC, the manager of funds owning approximately 12.6% of Farmer Bros. shares, provided initial sponsorship for the Forum and arranged for it to be chaired by Gary Lutin.  Continuing support and guidance of the Forum is provided by an Advisory Panel of actively interested shareholders.

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