 NEW YORK (Dow Jones)--Farmer Bros. Co. (FARM) has brewed a slew of proxy proposals for its upcoming annual meeting that has long-disaffected minority shareholders even angrier than usual.

Dissident shareholders claim the Torrance, Calif., supplier of coffee, filters, creamers and related products is being run like a private entity for the benefit of insiders.

"This an especially egregious case of poor corporate governance," said shareholder Leonard Rosenthal, a finance professor and corporate governance specialist at Bentley College, in Waltham, Mass.

The company has been the target of shareholder lawsuits - including one filed by the chairman's sister - seeking to prevent the Farmer family members who run the company from controlling the voting power of the stock.

Meanwhile, the shares are trading near a 52-week low, and shareholders seeking to get out are constrained by poor liquidity: just 1,400 shares trade each day, on average.

Dissident shareholders see management's proxy proposals as a way to consolidate control of the company. Among the proposals management will float at the annual meeting Monday are a shareholder rights plan, creation of a staggered board and reincorporation in Delaware. The company also seeks to remove the right of 10% shareholders to call special meetings and to ban so-called cumulative voting rights, which provide minority shareholders more clout by permitting them to cast all their votes for a single board candidate.

Dissidents claim the outcome of the proxy voting is a foregone conclusion because an 18.7% stake in the company held by Farmer's Employee Stock Ownership Plan hands voting control to the company's chairman, 87-year-old Roy F. Farmer, in charge since 1951, and his son, Roy E. Farmer, who was named chief executive last year. The ESOP holdings were acquired using company loans.

Although the father and son directly hold a 40% stake in the company, "they effectively control the ESOP," said David Winters, chairman and chief executive of Franklin Mutual Advisors in Short Hills, N.J.

Winters believes the interests of employees and management coincide in making the company less vulnerable to a potential takeover.

Franklin, with an 11.49% stake, is Farmer's largest institutional shareholder. Last spring it proposed, unsuccessfully, that the company buy out its shareholders at roughly a 20% premium to the market price.

Winters said recently that management "needs to maximize the value for all shareholders, but I don't want to say specifically what they should do."

Although dissidents question the fairness of the ESOP votes, a Farmer Bros. spokesman said voting power of the 300,000 ESOP shares isn't controlled by management. Instead, the votes of the ESOP shares will be allocated in proportion to the voting outcome of the 25,000 shares the plan has distributed to employees.

"The employees who are ESOP holders receive their ballots in the mail just like everybody else," spokesman James B. Lucas said. "There's no indication of how the employees will vote. It's simply impossible to know."

Lucas said virtually all of the company's 1,100 workers have been allocated shares from the ESOP, adding that the company's employee turnover is low and "we have a lot of 20-year veterans."

But Rosenthal, the finance professor, last year unsuccessfully sought an injunction to block voting of the ESOP shares. His suit also alleged Farmer Bros. was operating as an unregistered investment company because about 70% of its assets, or nearly $300 million, are held in cash and securities.

The company disclosed last year that the Securities and Exchange Commission raised questions about whether Farmer Bros. should be complying with the more stringent disclosure rules that govern investment firms.

But in December, Judge Margaret M. Morrow of the U.S. District Court for the Central District of California declined to issue the injunction sought by Rosenthal, saying he had no standing and hadn't demonstrated a likelihood of success.

The issue of Farmer Bros.' cash assets was first raised by Franklin Mutual Advisors two years ago in a proxy proposal that sought to separate Farmer's coffee distribution operations from its securities investments. The proxy measure failed after the company told shareholders that it needed ample cash on hand for acquisitions and for rising self-insurance costs.

Lucas, the Farmer Bros. spokesman, told Dow Jones Newswires that the 1940 law governing the disclosure practices of investment companies can't be applied to Farmer Bros. because it is engaged in interstate commerce and thus doesn't fit the definition of an investment company.

In addition, the company might be planning to put its cash to use. In December Farmer Brothers hired Credit Suisse First Boston to explore strategic options, including potential acquisitions, share repurchases and extraordinary dividends. But the company has ruled out going private, at least for the present.

Since the dismissal of Rosenthal's suit in December, Farmer's employee stock plan doubled its holdings to 18.7% of the company through the buyout of the shares held by Catherine Crowe, a former board member and a sister of Roy F. Farmer. It also switched the method for voting ESOP shares from outright management control to a proportionate allocation reflecting employee voting.

The Crowe family received $110.96 million, or $250 a share, for their holdings, a 21% discount to the $316 market price on Dec. 24, the day the agreement was announced.

Following the buyout agreement, the Crowes withdrew a separate lawsuit that sought to bar management from voting control, leaving Franklin Mutual as the remaining major shareholder opposed to management.

Franklin, at odds with management since at least 2000 when it urged shareholders to reject Farmer's slate of directors, said recently that management's latest proxy proposals "may have dire results for shareholders if adopted," and called them "the latest evidence of a consistent attitude toward corporate governance that is inappropriate to a publicly held corporation."

But Lucas defends the company's governance structure, noting that since last year its board has been made up of a majority of independent directors. Management's current proxy proposals seek a classified board and poison pill provision to increase the negotiating leverage of its board in the event of a takeover, Lucas said.

"The point is to slow things down and allow for more deliberation," said Lucas, although he added that the company is unaware of any suitors.

Lucas said the company wants to reincorporate in Delaware, where corporate law provides a more reliable foundation for corporate governance than California.

Along with governance issues, dissidents complain that Farmer has performed poorly in recent years, providing lackluster returns to investors.

Revenue has declined 3.44% a year, on average; net income has fallen by an average of 6.69% annually; cash flow has fallen 5% annually in the same period. Return on average common equity in the past 12 months has been 5.55%, compared with the industry average of 22.52%.

Following the annual meeting, Farmer Bros. expects to split its stock 10-for-1 in a bid to boost the liquidity of the shares. There are currently just 1.9 million shares outstanding, and they traded recently at $309, compared with a 52-week low of $301 set Jan. 16 and a 52-week high of $365.99 reached last June.