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Third Management Argument Against
Shareholder Right to Vote on Director Indemnification
(November 4 and November 10, 2003)
The attorney engaged by Farmer Bros. management sent a third
letter to the Securities and Exchange Commission ("SEC") on November 4, 2003
with additional arguments against allowing shareholders to vote on the
proposal of Franklin Mutual Advisers, LLC. (Note: The
proposal is for a shareholder vote to determine whether past conduct of
the company's directors met the standard required for indemnification, according
to the existing provisions of the
company's current Bylaws and
Section 317 of
the
California Corporations Code. The proposal does not, as the attorney's
letter suggests, involve any changes of the existing provisions for director
indemnification rights.) A copy of this letter is available from a
link, below.
Franklin Mutual responded in a November 10, 2003 letter to
the SEC, the text of which is copied below.
Management's attorney had initially submitted a
ten-page letter on September 12,
2003 arguing against the proposal, to which Franklin Mutual had responded in
an October 2, 2003 letter. A
second set of arguments was initiated by management's attorney in
a four-page letter on October 15, 2003, to which Franklin Mutual had responded
on October 28, 2003.
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[letterhead]
51 John F. Kennedy Parkway
Short Hills, NJ 07078
tel 800/760-1955
November 10, 2003
VIA email to:
cfletters@sec.gov
and FAX to 202.942.9525
(Original and 6 copies via overnight delivery)
Grace K. Lee, Esquire
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Farmer
Bros. Co. (the “Company”)
Shareholder
proposal (the “Proposal”) of Franklin Mutual Advisers, LLC
Response to
the Company’s November 4, 2003 letter
Dear Ms. Lee:
Quite frankly, I am
unable to follow the logic of the arguments posed by Counsel for the
Company. Counsel asserts that a determination by the Company’s shareholders
under California Corporations Code (“CCC”) §317(e) that directors’ past
conduct failed to meet the standards for Permissive Indemnification would
constitute a breach of the Company’s contract to indemnify its directors.
Presumably, Counsel’s rationale would be just as applicable to the Company’s
directors. In other words, Company’s counsel appears to argue that the
Company’s Articles and Bylaws grant the Company’s directors a blanket right
to Permissive Indemnification which cannot be “retroactively” denied by
shareholders, the directors, or anyone else, which is an absurd conclusion.
As stated previously, the
Company’s Articles and Bylaws do not imply such a conclusion. By their very
terms, they seek to provide directors all the rights to indemnification
allowed by statute. And as stated before, the statute allows shareholders to
make the determination whether or not directors’ conduct has met the
standards for Permissive Indemnification.
The very purpose of the
Proposal is to further the public policy underpinning CCC§317, which is to
ensure that directors of a company adhere to certain minimal standards
before availing themselves of the benefits of Permissive Indemnification.
The statute explicitly gives shareholders the right to make such
determination. Including the Proposal in the Company’s proxy materials does
not foreclose the Company’s ability to seek a determination that its
interpretation of the statute is correct. However, excluding the Proposal
would irrevocably deny the Company’s shareholders the opportunity to
exercise their statutory right.
If you have any questions
or require any other information, please do not hesitate to contact me via
telephone (973.912.2152), fax (973.912.0646) or email at (bradt@msfi.com).
Yours truly,
Bradley Takahashi
cc: jgiunta@skadden.com
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