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[FRANKLIN MUTUAL SERIES FUND INC.]
September 19, 2002
By fax to 310.320.2436
Mr. Roy F. Farmer
Chairman
Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, CA 90502
Dear Mr. Farmer:
We have not yet received a response from
Farmer Bros. Co. (“the “Company”) to our August 16, 2002 letter addressed to
your Treasurer, Mr. Simmons. In that letter, we asked when you would be
prepared to make records available for our inspection as required by our
July 26, 2002 demand pursuant to Section 1601 of the California Corporations
Code, or, alternatively, whether you would provide all investors with a
public report of the information we sought.
We have, however, received a copy of the
August 26, 2002 letter from Matthew Chambers of Wilmer Cutler & Pickering
written to the staff of the Securities and Exchange Commission ("SEC") on
behalf of Farmer Bros., stating that you intend to exclude our shareholder
proposal from the Company's proxy statement for shareholder voting at the
annual meeting. Although we intend to submit to the SEC a reply to your
objections, some of the arguments raised by Mr. Chambers disturbed us
sufficiently to warrant our contacting you prior to doing so.
Mr. Chambers stated in his letter to the SEC
that Farmer Bros. would be in violation of securities laws if it registered
under the Investment Company Act of 1940 (“ICA”), citing examples which
included specified Company transactions with the affiliated employee stock
option plan. Left unsaid by Mr. Chambers is the fact that, if Farmer Bros.
currently meets the ICA definition of an investment company and has no basis
for exemption from the applicable regulations, it would be in violation of
the ICA regardless of whether our shareholder proposal is included in Farmer
Bros.’ proxy or whether it is ever approved or not by shareholders.
As shareholders, we are extremely concerned
about whether or not Farmer Bros. is in compliance with the ICA. Two major
reasons underlie our concern: (1) the potential liabilities to the Company
arising from any violations of the ICA, and (2) the failure of shareholders
to receive the protections intended by the ICA. We assume that you, as a
fellow shareholder and also as a director with fiduciary responsibilities to
your other shareholders, would share our concern as to whether the Company
is in compliance with the ICA.
You have known at least since April that
Farmer Bros. appears to meet the ICA definition of an investment company and
was consequently at risk of being in violation of the ICA. The fact that the
Company has not stated publicly since that date that it is NOT an investment
company implies either of two things. Either you never checked to see
whether in fact Farmer Bros. met the statutory definition or you did and
have determined not to announce your findings.
As to the first possibility, it is
inconceivable to us that, in light of your fiduciary duties as a director,
you and the board wouldn’t have immediately made the necessary inquiry to
determine whether the Company was an investment company as defined in the
ICA. However, it is almost as inconceivable to us that you would have
investigated the matter and then deliberately chosen not to disclose your
findings to your shareholders. We fail to see any justification for the
Company’s silence given your fiduciary duties as a director, as well as your
disclosure obligations as an officer and director of a public company.
Against this background, we now are in
receipt of Mr. Chambers’ statement that the Company would be in violation of
the ICA if it registered as an investment company. Although his statement
alone is not explicit enough to warrant any conclusions as to whether the
Company is an investment company as defined in the ICA, we see a possible
opportunity to eliminate needless back and forth regarding our proposal. We
believe it would expedite the task of the SEC staff to resolve the
appropriateness of our shareholder proposal if Mr. Chambers would expand
upon his statement and simply tell the SEC whether the Company is an
investment company under the ICA.
We therefore urge you to resolve this matter
by informing the SEC (1) whether you believe the Company is, or is not, an
investment company as defined by the ICA, and (2) if it is an investment
company, of any basis you may have identified for exempting Farmer Bros.
from ICA registration requirements, with a request for Staff concurrence
with your position in the form of a “no-action” letter.
In order for us to timely submit a reply to
the SEC staff, please let us know by the close of business on September 24,
2002 whether you intend to comply with this request. Please also let us know
at that time when you intend to respond to our earlier July 26th
request for records. We will then provide the SEC with whatever reply is
appropriate by September 26, 2002, and will encourage the Staff to defer its
attention to your attorney’s arguments regarding our proposal until that
time.
Very truly yours,
MUTUAL BEACON FUND
MUTUAL DISCOVERY FUND
By: FRANKLIN MUTUAL ADVISERS, LLC
_______________________________________
Name: David Winters
Title: President, CEO & CIO
Ph: 973.912.2177 |