[letterhead]
LUTIN & COMPANY
575 Madison Avenue
New York, New York 10022
Telephone (212) 605-0335
Facsimile (212) 605-0325
January 30, 2004
By telecopier: 310/320-2436
Messrs. Guenter W. Berger,
Lewis A. Coffman,
Roy E. Farmer,
Roy F. Farmer,
Thomas Maloof,
John H. Merrell, and
John Samore, Jr.
c/o Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, California 90502
To the members of the board of directors of Farmer Bros. Co.:
Since the company has not yet filed a final proxy statement or
announced a new date for the annual meeting of shareholders, you are
encouraged to make use of this delay to consider actions which would
demonstrate the board’s commitment to the interests of non-management
shareholders.
Many investors hope that the resolution of disputes with dissident family
shareholders has eliminated the need, as perceived by the board, for the
proposed reincorporation plan’s defensive provisions, and that management
would view the remaining public shareholders as allies with a common
interest in developing the value of Farmer Bros. What you do now will
indicate whether these hopes are justified.
Following are some examples of actions that would be interpreted by many
shareholders as evidence that the board respects their interests:
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Retire chairman to “emeritus” status: According to his deposition
testimony in the Crowe litigation, Mr. Farmer, the current chairman of the
company, has been housebound for a year and is uninformed about matters –
including the ESOP transactions, for instance – on which the board has
acted. Under these circumstances, Mr. Farmer should not be serving as a
director or officer of the company. Making him an “emeritus” chairman
would secure his continuing advice as well as honor his past services to
the company.
-
Revise proposal for reincorporation: If you continue to believe
that a corporate reorganization would benefit all shareholders, the
reincorporation plan should be revised to eliminate the provisions that
deprive shareholders of their rights. Directors who serve the interests
of shareholders do not need staggered boards and other entrenchment
devices.
-
Support cumulative voting: Cumulative voting would assure
non-management shareholders that they could elect two nominees to a seven
member board, assuming that all directors are elected annually.
Supporting this right would not expose the board to dissident disruption.
-
Resolve ESOP funding: The ESOP funding transactions, whether or
not the SEC finds them to be violations of securities laws, could be
reversed to return the unpaid-for shares to the corporation. This would
benefit the corporation’s shareholders and also eliminate the $65 million
burden of debt imposed on the employees’ pension plan. The ESOP could
then follow the more conventional practice of simply purchasing up [to]
the allowed 300,000 shares directly from the corporation’s treasury, at
then-prevailing market prices, as and when actual pension contributions
provide the cash to do so over the next ten or twenty years.
-
Formalize commitment to split stock: The board’s reported intent
to consider a stock split was welcomed by shareholders who have long
sought improved marketability of their investments. The board should
demonstrate its genuine commitment to this enhancement of shareholder
value by actions to actually implement the split whether the company
reincorporates in Delaware or stays in California.
-
Director investments in stock: Many investors are concerned by the
observation that three directors own no Farmer Bros. stock – not a single
share – and a fourth, in spite of his long service as a company executive
and twenty years as a director, owns only 15 shares. Making substantial
investments now would demonstrate to investors as well as employees,
customers and other key audiences that the members of the board have
confidence in themselves and in Farmer Bros.
Actions such as these would show that Farmer Bros. has made a real start on
a new path, and that its board of directors can be relied upon to manage the
company in the best interests of all its shareholders.
Sincerely yours,
Gary Lutin
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