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----- Original Message -----
Sent: Friday, October 24, 2003 6:03 PM
Subject: Management response to shareholder interests
The statement includes a proposal to change
the state of incorporation, which, according to management's
explanation, would allow management to establish a fresh set of governance
provisions and, in the process, also invalidate two shareholder proposals
that are applicable to the current state's incorporation. Management has
stated their intent to vote the shares owned by them (approximately 12%)
and those they control in trusts for others (approximately 43%) in favor
of this proposal, assuring more than the 50% required for approval. [page
9]
In a section titled "Principal Reasons for the
Proposed Reincorporation," management states that the change will improve
their ability to "respond to questions and predict outcomes relating to
significant corporate matters or disputes, including ... duties of
directors and officers; liability of directors and officers and
indemnification; and contests for corporate control, including proxy
contests and tender offers." [page 9] Their "Principal Reasons" section
also summarizes some of the new provisions they propose [pages 10-11]:
- "elimination of shareholders' ability to
act by written consent"
- "establishment of a
classified board of directors"
- "elimination
of the ability of shareholders controlling at least ten percent (10%) of
the voting shares to call a special meeting of shareholders"
- "establishment
of advance notice procedures for shareholder nominations and other
proposals"
- "requiring a
vote of at least eighty percent (80%) of the
outstanding shares to amend the bylaws by shareholder action instead of a
majority of the outstanding shares"
- "the elimination of
cumulative voting"
- "the Board's ability to designate and
issue preferred stock [which], if issued and depending on its terms, may
make it more difficult for an unsolicited bidder to make a takeover
attempt"
- "Board may also consider in the future
certain defensive strategies allowed under the DGCL [new state's law]
which are designed to enhance the Board's ability to negotiate with an
unsolicited bidder [including] the adoption of a shareholder rights plan
and severance agreements for its management and key employees"
These are management's statements concerning
the two shareholder proposals:
- "Mitchell Partners, L.P. has proposed an
amendment to the Company's California Bylaws that would restore cumulative
voting. See Proposal Four. If the Reincorporation Proposal is approved
by the Company's shareholders, Proposal Four will have no effect even if
it is passed by the Company's shareholders because it proposes to amend
the California Bylaws, which, upon consummation of the Merger [associated
with the proposed new incorporation], will no longer be effective." [page
12]
- "Franklin
Mutual Advisors LLC has submitted a shareholder proposal to limit
indemnification of directors in certain circumstances. See Proposal
Five. If the Reincorporation Proposal is approved by the Company's
shareholders, Proposal Five will have no effect on the Company even if it
is approved by the Company's shareholders because it proposes to limit
indemnification with respect to Farmer Bros. California, which will no
longer exist following the Merger [associated with the proposed new
incorporation]." [page 22]
In summary, there is nothing subtle about the
purpose of this proposal, which was reportedly initiated at an August
board meeting a few weeks after submission of the
Mitchell Partners and
Franklin Mutual proposals. If passed, and if management's report of
its effects is accurate, it would allow management to avoid any
responsibility to shareholders for either their past or future actions.
- GL
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212/605-0335
Fax: 212/605-0325
Email: gl@shareholderforum.com
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