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Questions for Directors Raised by
Company's Arguments to Exclude Shareholder Proposals
(August 29, 2002)
Copied below is the text of a letter sent on August
29,
2002 to each of the directors of Farmer Bros., requesting their responses to
questions raised by the company's arguments in letters to the SEC concerning two shareholder proposals.
Two separate seven-page
letters,* each dated August 26, 2002, were submitted to the SEC by the law firm
engaged to represent Farmer Bros., Wilmer Cutler & Pickering, stating the
company's intention to exclude the shareholder proposals from
its proxy statement for voting at
the annual meeting. SEC rules generally
require a company to include qualifying proposals in its proxy statement, but
the company's attorney has argued that some of the
Rule 14a-8(i)
conditions for exclusion are applicable to the proposals. One letter requested SEC concurrence for the company to exclude the
Mitchell
Partners proposal to establish an independent board and cumulative voting, based on
arguments that (1) the provisions could not be legally implemented; (2) the
proposals are for the election of directors rather than for the establishment of
director qualifications; and (3) the supporting statement is misleading. The other
letter requested SEC concurrence to exclude the
Franklin Mutual shareholder proposal for investment company controls and
disclosure, based on arguments that (1) the proposal is too general and
would require the board's business judgment to implement in a manner consistent
with shareholder interests; (2) the proposal is too specific and interferes with
the board's responsibility for business judgment; and (3) registering with the
SEC as an investment company would establish that the company is violating
applicable regulations which prohibit some current practices, such as affiliated
party transactions with the employee stock option plan, apparently presuming
that the board would take no appropriate actions to comply.
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* A copy of the August 26, 2003 letter
addressing the Franklin Mutual proposal can be downloaded from the following
link. An electronic copy of the August 26, 2002
letter addressing the Mitchell Partners proposal is not available, but requests for fax copies may be sent to
farm@shareholderforum.com.
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[letterhead]
LUTIN & COMPANY
575 Madison Avenue
New York, New York 10022
Telephone (212) 605-0335
Facsimile (212) 605-0325
August 29, 2002
By telecopier: 310/320-2436
Messrs. John M. Anglin,
Guenter W. Berger,
Lewis A. Coffman,
Roy E. Farmer,
Roy F. Farmer, and
John H. Merrell
c/o Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, California 90502
To the members of the board of directors of Farmer Bros. Co.:
It is assumed that you are informed of the issues addressed in
the two accompanying letters to the Securities and Exchange Commission
("SEC"), each dated August 26, 2002, from a law firm representing Farmer
Bros. Co. In those letters, Farmer's lawyer states that it is your
intention to exclude two shareholder proposals from the company's proxy
statement for voting at the next annual meeting, and he asks the SEC to
allow it. (Copies of the referenced proposals are included with the
letters.)
Some of the lawyer's arguments raise questions that may concern
the company's shareholders as well as the directors who are responsible for
their interests. Your responses to these questions will be appreciated:
- Referring to the shareholder proposal for an
independent board and cumulative voting, Farmer's lawyer argues that the
provisions for independent directors cannot be legally implemented. If
this is so, how does the board plan to deal with substantially similar
provisions for independent directors in the recently passed Sarbanes-Oxley
Act or in the proposed Nasdaq listing requirements?
- Referring to the shareholder proposal for investment
company controls and disclosures, it was notable that Farmer's lawyer
offered no argument about the company's meeting the definition of an
investment company under the Investment Company Act of 1940 ("ICA"). If
the company's lawyer, a recognized authority on ICA compliance, found no
basis for claiming that the company is not an investment company according
to ICA definitions, has the board found any reason why shareholders would
not benefit from registration?
- Referring again to the proposal for investment
company controls and disclosures, Farmer's lawyer states that the company
-- as it currently operates -- would be in violation of several sections
of the ICA if it was registered as an investment company. To the extent
that the company may be subject to the ICA, whether registered or not,
what actions does the board plan to address those and any other potential
violations?
In responding to these questions, please feel free to include
any comments which may clarify the issues being considered by the SEC as
well as those to be considered by the company's shareholders.
Very truly yours,
Gary Lutin
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| [Copies of the referenced August 26, 2002 letters
are not available in electronic form. Requests for fax copies may be
sent to farm@shareholderforum.com.]
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