Note:
The article copied below repeats the newspaper's previously
reported misperception that one of the shareholder proposals submitted
for this year's annual meeting would change the process or rules for
indemnification of directors. In fact, as noted in response to the
previous article, the
Franklin
Mutual shareholder proposal actually follows rather than changes
the existing rules established by
Section 317 of the California Corporations Code and the
company's Bylaws, which allow
shareholders to decide whether directors have met the standards of conduct
required for indemnification. The proposed resolution would make this
determination if adopted by a shareholder vote at the annual meeting, and
does not address any future process for determining indemnification.
The current article is correct, though, in reporting that management's
preliminary proxy filing states that their plans for a new incorporation
would invalidate the shareholder proposal for indemnification.
Farmer Bros. Co. will ask shareholders to reincorporate the
coffee roaster in Delaware and approve other changes that could strengthen
management's hand in its battle against a group of dissidents that includes
a major mutual fund.
Farmer Bros. said in a Securities and Exchange Commission filing Friday that
reincorporation would eliminate a variety of shareholder rights, including
the ability of individuals controlling as little as 10% of shares to call a
special meeting.
About two-thirds of California's public companies are incorporated in
Delaware, where the body of corporate law makes it harder for outsiders to
win takeover and change-of-control battles.
Farmer Bros.' plan also proposes that with reincorporation, a supermajority
vote of 80% of shares outstanding be required to make any
shareholder-proposed changes in the company's bylaws. Farmer Bros. Chairman
Roy F. Farmer, 87, and other executives control about 50% of Farmer's voting
stock.
The supermajority proposal drew sharp criticism from corporate governance
experts.
"It is very negative for investors," said Fred Nesbitt, executive director
of the National Conference on Public Employee Retirement Systems. "It runs
absolutely contrary to good corporate governance."
Torrance-based Farmer Bros. declined to comment on its proposals, which also
include a plan to stagger the terms of its seven-member board.
Brad Takahashi, a vice president of Franklin Mutual Advisors,
said the company's proposals were "typical of its efforts to build walls and
deepen the moat around management."
Franklin owns 9.6% of Farmer Bros. and has clashed with management over
disclosure issues and the use of the company's $300-million cash stockpile.
The mutual fund has offered its own shareholder proposal to limit the
ability of the company's directors to tap corporate funds for legal
services.
The Franklin proposal would allow them to receive legal defense funds only
with the approval of shareholders or upon a judge's order.
Farmer Bros. is seeking SEC permission to remove the Franklin proposal from
proxy materials for the company's annual meeting Jan. 5.
Shareholders also will be given a chance at that time to consider a proposal
by Costa Mesa hedge fund Mitchell Partners to reinstate
cumulative voting for the election of directors.
With such rights, investors receive one vote for each share they own,
multiplied by the number of positions on the board. They can spread their
votes among nominees or pool them behind one candidate.
Farmer Bros. said in its filing that if the reincorporation vote succeeds,
the dissident proposals would become invalid even if a majority of
shareholders approve them.
Farmer Bros. shares rose 1 cent to $326 on Nasdaq.
This month, Farmer Bros. reported its seventh straight period of earnings
decline and a decrease in profit and revenue during its fiscal year.
Earnings in its fourth quarter fell 13% to $5.78 million on revenue of $47.8
million.
Copyright 2003 Los Angeles Times
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.
For additional information or to be included in an email
distribution list, send an inquiry to
farm@shareholderforum.com.
