Survey Report: Shareholder Interests

Last week’s responses of Forum participants to an informal questionnaire expressed stronger and more consistent support for changes in the management policies of Farmer Bros. than the similar June 2002 survey, but showed differences, and in many cases uncertainty, regarding the means of implementing the desired changes.

The percentages of high, medium and low importance ratings for each issue – there were no “none” or “negative” responses – are reported in a chart below, followed by the November 21, 2003 survey questionnaire.  The ratings and comments may be summarized as follows:

• Virtually all participants expressed strong opposition to management’s proposed reincorporation, with 75% rating this issue at the highest level of importance.  Nearly all of the 25% who rated this issue as only medium importance were among the 73% who had rated proceeding with a buyout at the highest level, and apparently considered the choices as alternatives to be prioritized or sequenced.
• Comments as well as the patterns of ratings indicated that many participants saw all of the listed issues as related and therefore based their responses on considerations of relative importance, negotiating strategies, or practical probabilities.  Several expressed beliefs, for example, that proceeding with a buyout would eliminate the relevance of either reincorporation or board replacements, while others thought that directors should be replaced before proceeding with a buyout.  As one participant stated, “Everything here is related, if you proceed with a buyout the rest of the questions just don’t matter.”  Other participants stated similar views about replacing directors being “integral.”
• Support for proceeding with a buyout, at least in comparison with the issues of reincorporation and board replacements, was less vigorous.  Although 73% of participants rated this issue at the highest level of importance, comments suggested conditions relating to fair valuation, effective consideration of strategic alternatives, and the previously mentioned oversight by new directors.  Other comments reflected the repeatedly expressed views of many Forum participants that the strategic value of Farmer Bros. should be more effectively developed before a buyout or any other sale is considered.
• The 75% high importance rating for the issue of controlling votes of shares bought for the ESOP, based on patterns of responses and comments, reflects a practical concern with voting power as well as interests in the principles of property rights.  The issue of stopping additional ESOP purchases received top importance ratings by a relatively lower 67% of participants.  Comments suggest that some of the difference may be attributable to the previously noted considerations of prioritizing and sequencing, but questions about feasibility were also a factor.
• Comments indicated that the majority of participants, including many of the 54% who rated recovery of funds high importance, view claims against the company’s directors to be a lower priority than the “investor survival” issues of reincorporation and board replacement.  However, comments also suggested strong views about precedents to be observed, and the majority of “Other” issues raised by participants – including some who assigned relatively low ratings to recovery of funds – supported litigation or regulatory actions against directors.

Thanks are due to the many Forum participants who helped define the issues for this survey as well as to each of you who responded to the questionnaire.  I hope that all of the shareholders of Farmer Bros. will benefit from your contributions of this useful intelligence.

            GL - 12/1/03

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

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.

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